IP Expert Talk: The UPC and license agreements

Show notes

To get informed about the UPC, visit our special UPC page.

In this episode, we will briefly discuss how existing and future license agreements are impacted by the upcoming Unified Patent Court and why you should take some time to examine your license agreements now. My name is Alexander Haertel, I am an attorney-at-law and partner with BARDEHLE PAGENBERG focusing on patent Infringement proceedings.

And I’m Jan Bösing, also an attorney-at law and partner at BARDEHLE PAGENBERG with a focus on patent infringement proceedings, but also on IP transactions such as License Agreements, which are our topic today.

Alex, 2023 will most likely be the year the Unified Patent Court (UPC) will finally open its doors. With the imminent start of the new European court system, the underlying legal framework will also become applicable.

The benefits of the UPC are very clear, e.g., the centralized enforcement of patents. However, this comes at the price of the new availability of centralized attacks against the validity of patents. Also, patentees must understand that if they do not act, the new system will automatically apply to classic European Patents as well. To prevent this automatic step, it is necessary to act and declare an opt-out.

So much for background, which I think our listeners most likely already know. Now on to today’s topic of license agreements.

The new system also entails certain rules on how to enforce a patent, which may influence the way a license agreement is drafted. Hence, it is necessary to check existing and future license agreements for their compatibility with the new UPC system.

The first question we would like to answer for our listeners now is: If they have a licensed patent, Who can decide about the opt-out?

One of the main factors, especially for existing license agreements, is the question if the patentee is free to decide whether or not to opt-out the licensed patent from the new system. If the patentee has the obligation and right to uphold the patent, e.g., by paying annual fees, – which will probably usually be the case – this can be an indication that the patentee can also decide whether or not to opt-out the patent. However, this may be reversed if the licensee is granted control over the maintenance of the patent. When reviewing existing contracts, the interests of the parties need to be evaluated in this context. Another additional aspect that can be an indication are the rules of the enforcement of a licensed patent. As the opt-out influences the way litigation is handled of that patent the party responsible for litigating a patent may be the one in charge for deciding on the opt-out. For future license agreements, it is recommended that an explicit rule on opting out a patent is provided. It is worthwhile to note that the opt-out can only be declared by (all) material owners of the patent. Therefore, it is possible that the licensee can decide about the opt-out, but it is the patentee who needs to declare it. Of course, there are several other decisions which will need to be taken now or soon. For instance, when we look at license agreements that also cover patents that will be granted in the future – which is particularly the case in portfolio license agreements – the question may arise which Party can decide whether or not to apply for a European Patent with Unitary Effect?

That can indeed become a very important issue Alex, and is basically the reverse of the opt-out you just explained. Opting out concerns leaving the new system, applying for a Unitary Patent means entering the new system. Such an application can also be filed for existing (and licensed) patent applications. Hence, current license agreements which cover patent applications also need to be reviewed in order to determine who can decide whether or not to apply for a Unitary Patent. This is particularly important because the patentee and the licensee may not have concurring interests in this regard, depending on the scope of the license. In some cases, e.g., the licensee may prefer the addition of European Patents with Unitary Effect to their existing license, whereas the patentee may prefer national patents that are not subject to centralized invalidity attacks. So, there is much room for disagreement, which can and should be avoided by including clear provisions in the license agreement.

A third factor to consider is which party is allowed to enforce a patent in the new system and/or in the old system. This circles back to the question of an opt-out, as the opt-out can only be declared if no action based on the respective patent has been pending before the UPC (ongoing and/or concluded). In other words: Once there was an action before the UPC based on a patent, it is no longer possible to opt out this patent from the new system. The classic European Patent may also be opted in (“withdrawal of opt-out”). Mirroring the rules for the opt-out, opting a patent back in is effectively prevented once a national action is pending based on the respective patent. This can become an issue particularly in exclusive license agreements. As the exclusive licensee has the right to file infringement actions under German case law as well as under the new UPC Agreement, they can effectively prevent any plans of the patentee to opt out or withdraw that opt-out later by filing infringement actions in one of the systems. Hence, it is important to review existing license agreements and to implement rules on this issue in future license agreements. If your existing license agreements lead to a conflict between the ability of the exclusive licensee to file infringement actions and the right of the patentee to decide about prosecution strategy (including an opt-out), a dialogue needs to be established between the parties to find a common understanding.

Now, if you think, this sounds quite complicated, please bear with us a little longer as we explain yet another layer of complexity.

It is added by the possibility of granting territorial exclusive licenses for a classical European Patent (e.g., with exclusive licensees for different UPC member states). An infringement action by any of those exclusive licensees at the UPC might trigger a central revocation attack which is then directed against the patentee and would have an effect on all other exclusive licensees for other territories as well. Furthermore, different licensees may pursue different strategies when it comes to the enforcement of a patent or to the prosecution part. It will be mandatory to align these licensees and provide a common strategy.

With the start of the UPC merely a few months away and industry players already developing their opt-out strategies, now is the time to review existing license agreements and start preparing for new license agreements with a special focus on these questions:

• Who decides if a patent shall be opted out? • Who decides about the application for a unitary effect? • Who decides about the strategy for the enforcement of a licensed patent?