Dave Holt, senior associate and licensing specialist, comments on the recent Court of Appeal decision Neurim v Generics  EWCA Civ 359 and its implications on licensing Unitary Patents.
One area of commercial activity the implementation of the Unitary Patent system is certain to impact on is the licensor and licensee relationship and the terms of patent licences.
Both licensees and licensors will need advisers who understand in detail what impact the Unitary Patent system will have, and how to best protect their interests when negotiating all patent licensing arrangements.
CONTEXT AND UNITARY PATENTS
Once it is implemented, the Unified Patent Court is intended to act as a central court for (nearly) all post-grant actions relating to Unitary Patents.
In practice, this means that actions relating to the enforcement of a Unitary Patent against infringers within the Unitary Patent territories and any actions relating to validity of that Unitary patent will be dealt with in a single court. This is very different to the current system which requires enforcement and invalidity challenges in courts to take place on a national (territory by territory) basis.
As such, exclusive licensees of patents in Europe would generally expect to be provided with the rights to enforce the patent against third party infringers in their allocated territory and field of use. This is the “starting point” under the Patents Act 1977, where exclusive licensees have the right to take enforcement action unless it is excluded under the licence itself.
This was also potentially beneficial for licensors, subject to sensible controls being placed on the licensees (e.g. not making any admissions of invalidity of certain claims in the patent for example). For the licensor, the risks were also limited, because any counter-claim for invalidity of the relevant patent would generally only take place in the national court in which the infringement action was brought.
Of course, there are some exceptions to this, where a defendant would seek to revoke the patent in multiple territories, but this is rare.
Where the patent licensed to a licensee is a Unitary Patent, there is the potential for the risks relating to invalidation actions to be greatly increased, because a Unitary Patent can be invalidated centrally at the Unified Patent Court, which invalidates the patent in all signatory territories.
As it is entirely common for a defendant in any patent litigation to seek to invalidate the patent they are being sued under, an exclusive (or non-exclusive) licensee seeking to enforce a Unitary Patent is likely to find that they will need to defend an invalidity action which has substantial consequences for not just itself but also the patentee and any other licensees within the UPC territories.
This being the case, it is likely that licensors may want more control over any actions for infringement where a Unitary Patent will be the basis for such a claim, indeed they may even want to withhold any rights for a licensee to enforce unilaterally without the licensor’s consent or involvement. However, it is certainly the case that licensees see more value in an “exclusive” licence than a non-exclusive one, and therefore the recent Neurim decision had the potential to cause some substantial commercial (and legal) uncertainty for licensors and licensees.
NEURIM DECISION AND IMPLICATIONS
The Neurim decision is relevant as the main question for consideration was whether a licence could truly be considered an “exclusive” licence under English law if it did not provide the licensee with the ability to unilaterally take action against third parties who were allegedly infringing the licensed patent, in contrast with the rights usually granted to an exclusive licensee under s.67 of the Patents Act 1977.
If the Court of Appeal held that the removal of such rights meant that the licensee could not properly be considered an “exclusive” licensee under English law, then a licensor seeking to exclude the rights granting control of litigation for infringement of a licensed Unitary Patent could have other significant implications, both legal and commercial, as the licence would no longer be deemed “exclusive” by law.
The Court of Appeal held that the restriction on the licensee taking action unilaterally was not contradictory to statutory requirements under s.67 of the Patents Act 1977, and stated in particular that “nothing in section 67(1) requires the exclusive licensee to be able to take action independently of the patentee”.
In practice, licensors will be relieved they are able to include clauses within their licence agreements restricting exclusive licensees from taking action without first consulting with or ensuring that the licensor is party to (and in joint control of) infringement proceedings. From a commercial perspective, licensors will still be able to offer an exclusive license structure to a licensee, whilst building in safeguards in relation to the conduct of litigation in respect of Unitary Patents (and indeed all patents covered by the licence).
However, in the event that the licensor had sought to entirely exclude an exclusive licensee’s rights to take any action whatsoever (e.g. that the licensor was attempting to refuse the licensee’s rights under s.67(1) entirely, if it did not want to pursue the case), then this case may have been decided differently.
In my view, the provisions of s.67 of the Patents Act seek to preserve an exclusive licensee’s right to take action to prevent infringement as a fundamental right. As such, I would suggest the Courts are likely to permit some modification as to how such action must be conducted (as in this case), but not allow a licensor to remove the right of enforcement completely (e.g. forcing an exclusive licensee to take no action at all if the licensor does not wish to do so).
With the upcoming introduction of the Unitary Patent and the Unified Patent Court, both licensors and licensees will need to carefully consider rights of enforcement under licence agreements where Unitary Patents are (or are likely to be) part of the portfolio of rights licensed. It will be important to consult with specialist practitioners who have experience with complex IP licensing arrangements and pan-European litigation to ensure that your interests are well protected.
If this blog has raised any questions that you would like to discuss with our team, please don’t hesitate to contact our specialist litigation and licensing team today.