European Patent Court Agreed Upon in 2013 and the United States Technology Firms Sound the Troll Alarm

By Christian John Martinez, Assistant Contributor

On February 19, 2013, the European Union signed an agreement in Brussels (“Agreement”) creating a Unified Patent Court (“UPC”).  For decades, EU members agreed that a more unified patent system was necessary to enhance innovation and promote economic competitiveness. To that end, a European Patent Convention was signed in Munich in 1973 and the European Patent Organization was established in 1977.  A patent granted under the EPO is not “European”; once issued, it becomes a national patent subject to divergent national laws with the risk of parallel litigation on similar (or identical) issues.  One of the goals of the UPC is to change that.

According to the European Council of the European Union (Council), the UPC will ensure uniform patent law and protection, make patent enforcement affordable, and reduce the cost of patent litigation while avoiding multiple cases and potentially contradictory rulings. The UPC will launch once the UPC Agreement enters into force, which will be on the fourth month after:

  1. Ratification by thirteen states, including Germany, the United Kingdom and France (the three states with the highest number of European patents in 2012); and
  2. The date of amendment to Regulation (EU) No 1215/2012 (recast) on jurisdiction and enforcement of judgments in civil and commercial matters (Brussels I Regulation, eff. Jan. 10. 2015) concerning its relationship with the UPC Agreement. The aim of the amendment is to ensure compliance between the UPC Agreement and Brussels I Regulation while addressing jurisdictional rules regarding non-EU defendants.

The Preparatory Committee hopes to launch the court in early 2015.

The Council noted that the UPC is another milestone in the EU’s march toward a single market.  The EU market surpasses the United States’ market according to GDP, which is perhaps why during the Public Consultation period for the 15th Draft of Rules of Procedure for the UPC, many large U.S. Technology firms weighed in by letter on the issue of non-practicing entities (NPEs), referred to as patent trolls.  While there is no clear definition of a troll, it tends to include entities that purchase and license patents without actually practicing (i.e., making) the underlying technology.  Technology companies tend to be the target of NPEs and contend that the frequency of patent litigation brought by NPEs harms innovation. There are several different bills in Congress addressing NPEs, and President Obama created a task force this year to address concerns about NPEs.

Sixteen companies signed the letter including, Apple, BlackBerry, and Microsoft, a trio which, through its new privateer, Rockstar, sued Google, another signatory, on October 31, 2013 in the Eastern District of Texas for infringing a handful of the 6000 patents auctioned off for $4.5 billion during Nortel’s 2011 bankruptcy proceedings.  Google stopped bidding at $4.4 billion; potentially a tragic irony certain to be noted by Monday morning quarterbacks across the globe.  The Texas salvo is global, involving companies on three continents, with Erricsson, Sony, Blackberry, Apple and Microsoft on the offensive, and Samsung, Huawei, HTC, and Google itself defending.

The Rockstar Complaint is just the latest in the global patent war involving multinational firms appearing as plaintiffs and defendants in courtrooms around the world.  A February 2013 WIPO Magazine article authored by the President of the American Intellectual Property Law Association recounted the sewing machine patent wars of the 1850’s to reassure its readers that “the sky is not falling.” Meanwhile, the CEO of Rockstar says it might fall, because it is “hard to imagine any high-tech companies that don’t use” his patented technologies, perhaps making another intervention by the Obama administration in the smartphone war inevitable.

With this backdrop, the letter sent by those sixteen companies, while warning of a global horde of trolls, could also be seen as a consensus on the ideal rules of a new global, FIFA-like league with the new UPC as the head referee.  Indeed, the rivals pinpointed several areas of concern to be addressed before the whistle blows.

First, they expressed concern about bifurcation, wherein the litigation could be heard piecemeal in different courts. Article 7 of the UPC Agreement establishes that the court of first instance shall comprise of a central division (in Paris with sections in London and Munich) as well as local and regional divisions. Each member state may host a local divisional court and two or more states may jointly host a regional division.  Thus, there could be as many as 25 local divisions with divergent local practice and culture.  Under Article 33(3)(b), a divisional court hearing an infringement suit could refer a counterclaim for revocation (invalidity) to the central division and proceed with the infringement action.  This, they fear, could allow plaintiffs to obtain a quick infringement ruling, along with an injunction barring products from most of the European market before any ruling on the validity of the patent is issued.  The signatories argue for “procedural adjustments” to provide clear guidance on how proceedings should be handled where the validity of the patent is an issue (i.e., always). They would also like an easier way to stay the infringement action—something similar to a stay pending reexamination in the United States.

The second issue identified in the letter relates to the potential for misuse of the threat of a European-wide injunction by “unprincipled litigants” to “hold up” manufacturers by making unreasonable settlement or licensing demands.  The letter references a recent spike in U.S. patent litigation, although the increase is likely due to the America Invents Act’s 2011 anti-joinder rule, which prohibits joining together accused infringers in one suit.  The letter also alleged a $29 billion “cost” to U.S. businesses in 2011 alone, apparently referring to a 2011 Boston University study often relied on by many U.S. politicians supporting patent litigation reform. The study makes certain assumptions heavily disputed under peer review, most notably defining an NPE to include universities and categorizing the $29 billion as a deadweight loss.  But the fear is not entirely groundless.  For example, in 2012 Microsoft narrowly dodged a bullet when a U.S. Court of Appeals ruled that Motorola should be enjoined from enforcing an injunction it obtained against Microsoft in Germany until after Microsoft’s arguments regarding fair licensing of Motorola’s standard essential patents were heard.  A European-wide injunction issued by the UPC would only exacerbate such a threat posed by patent holders like that of Motorola, regardless of whether they are “trolls,” and the authors in the letter cryptically opine that patent holders should not be able to use disproportionate injunctions solely to extract excessive royalties.  Thus, the authors seek amendment of the rules to extenuate disruption caused by actual or threatened European wide injunctions.

An expert group and the UPC Preparatory Committee will evaluate the letter and other input.  Thereafter, the Administrative Committee of the UPC will adopt the Rules of Procedure.  Time will tell whether the European theater will see a dramatic increase in patent litigation – either by NPEs or manufacturers – particularly in venues with a strong loser-pays system (i.e., the English Rule).  Regardless, as technology and economics are increasingly global, the UPC should perhaps be seen as a prelude to a global system of patent litigation and its implementation will provide vital lessons to that end.