The Unified Patent Court (UPC) and Unitary Patent (UP) were finally introduced on 1 June 2023. During the run up to its launch, the majority of patent holders’ attention was focused on whether or not to opt out of the new system, a decision that was based on what the owner thought would best deliver their commercial objectives for each patent.
Now the UPC and UP are live, attention must be switched to the potentially major implications the new regime could have on patent licensing. This will dramatically affect not only patent holders who license-out their patent rights but also businesses that are dependent on in-licensed patents and those who co-own patents with other parties.
The new Unitary system is likely to cause a range of new issues for licensors, licensees and co-owners to tackle. As such, this is the time for patent owners to review all the licence agreements and other commercial agreements relating to their European patents.
WHY SHOULD YOU REVIEW YOUR LICENCE AGREEMENTS NOW THE UPC IS IN FORCE?
Whether patents are licensed in or out of your business, you may not have envisioned the introduction of the UPC at the time they were signed. Accordingly, there is a risk of uncertainty and disagreement between the contracting parties as to how the Unitary Patent system should be handled, particularly as licensors and licensees are likely to have differing motivations.
As either Licensor or Licensee you must be totally confident that your existing contracts and licence agreements will provide the protection and certainty you need with regards to the ongoing management of your European portfolio post-UPC. You must also ensure future litigation is handled as you’d prefer under that regime.
The following highlights some key points to consider for each side:
If you are the Licensor
If you are the Licensor, you need to consider the control which your agreements afford your Licensees in prosecution and maintenance decisions. Could they allow your Licensees to force you to do something you may not want to?
Some exclusive licences grant Licensees contractual control over patent prosecution decisions (this is more common where Licensees are granted exclusive rights over large territories, for example within the EU or even worldwide).
In these scenarios, the Licensee’s written authorisation for the opt-out decision must be sought. You need to be absolutely sure you are comfortable with the level of ongoing control your Licensees will have or take the required action to reduce their level of control now that the UPC has come into force.
Ultimately, the risk for the Licensor is a dispute arises that leads to a loss of royalty income. If you feel this poses any level of risk, we strongly advise you to review your agreements.
If you are the Licensee
If you are a Licensee, you need to assess whether you will have the level of control you want moving forward. If you are only one of several licensees in Europe, you may be at risk of a larger or more influential licensee persuading the Licensor to force decisions around the UP that are in their best interests rather than yours.
If this is a potential risk, you may want to push for more control via negotiation, correspondence and, ultimately, a side letter of variation.
Ultimately, the risk for the Licensee is they lose the right to use a patented invention that is central to their business which would dramatically impact their performance. If you feel this poses any level of risk, we strongly advise you to review your agreements. If we can help, please let us know.