How Insurance Can Help Hedge Potential Exposures Under the New Unified Patent Court System

How Insurance Can Help Hedge Potential Exposures Under the New Unified Patent Court System
March 15, 2024 21 mins

How Insurance Can Help Hedge Potential Exposures Under the New Unified Patent Court System

gettyimages_1497558249

The launch of the Unified Patent Court allows for a new patent filing process across Europe using a centralized system. While this brings significant financial and operational benefits, navigating these changes will demand a robust litigation risk management strategy.

Key Takeaways
  1. The European patent landscape has changed to allow for European patents (unitary patents) in addition to national patents.
  2. The introduction of unitary patents — a legal title that provides uniform protection across all participating countries — could lead to larger damages in infringement lawsuits.
  3. IP litigation insurance can help protect valuable IP assets, while maintaining a competitive advantage in a rapidly changing landscape.

The Unified Patent Court, launched in June 2023, marked the most significant development since the signing of the European Patent Convention 50 years ago. Any company with a current or future European presence should be aware of the recent change in legislation.

A patent is a legal document that grants an inventor or organisation exclusive rights to an invention, preventing others from making, using or selling it. It provides the right to a monopoly for up to 20 years from the filing of an application. Patents are crucial to protect exclusive rights amid rapidly evolving and disruptive innovation. Alongside responding to pressures from industry challengers and competitors in the race to innovate, business leaders are striving to find sustainable solutions to address climate change and other global megatrends. This has led to an increase in patent filings, which reached 3.46 million worldwide in 2022.1 With advancements like artificial intelligence, green technologies and consistent R&D to improve upon already mature technology areas, competition within and across industry sectors will continue to intensify — and patent filings will continue to grow as long as global innovation remains a priority.

Legacy Litigation System Challenges for Patent Holders in Europe

For a company to file a patent, the invention must be novel, inventive and industrially applicable. The innovator will need to file a patent application, which the patent office will then examine to determine its patentability. Here the application may be granted, denied or amended depending on the review.

Before the launch of the Unified Patent Court, the process of getting a patent to protect an innovation in Europe required filing an application with the European Patent Office (EPO) to secure protection in an individual country. The European Patent Convention (EPC) was another option that enabled filing a patent application to secure protection in individual countries. In this process, the EPO grants the patent, but validation is still needed in the chosen European countries (39 in total), including translating the patent into the local language, if necessary. The validation fees for each country can exceed one thousand euros. While filing patents in Europe can be expensive for entities with hundreds or even thousands of patents, companies continue to continue to do so to protect their innovation and ringfence future business growth.

22079 IP Unified Patent Court Article - graph1-new
22079 IP Unified Patent Court Article - graph2-new

Patent owners can also enforce their rights by taking legal action against potential infringers. To enforce the European patent in the existing system, the patent owner must do so in the individual court system per country. Each court system will have its own nuances and may operate in different languages. Historically, companies have hesitated to litigate in Europe because of the required resources and cost associated with a system of country-level suits. These multiple processes and languages drive higher legal fees. If a suit is successful, the damages assessed are based on the revenue generated by a product from the specific country rather than the whole of Europe. Therefore, on a balance, the costly legal fees to pursue litigation often outweigh the country-bound revenue number. The potential upside may not be as attractive in addition to the complexity and can hold companies back from litigating.

Top 5

In 2022, China's IP office received around 1.62 million patent applications. It was followed by the offices of the U.S., Japan, the Republic of Korea and the European Patent Office.

Quote icon

The existing patent system is best suited for protecting innovation rather than enforcing it. The Unified Patent Court was designed to make it easier and more affordable to not only obtain patents, but also enforce them.

Henry Coates
Associate Director, Intellectual Property Solutions, UK/EMEA

How The Unified Patent Court is Changing the Patent Litigation System

  • There will be less duplication and more uniformity.

    The Unified Patent Court allows companies to file a patent or convert an existing national patent to cover the initial 17 European countries participating in the UPC.4 The core benefit of owning a patent that covers the majority of Europe is its larger geography and market share. Alongside this, the UPC also removes duplicative and parallel infringement suits in several countries. In the event a third party may infringe upon the patent, commencing patent litigation for one unitary patent rather than multiple national patents reduces costs to a single action versus parallel cases in courts across Europe.

  • The settlements awarded are higher.

    Financially, the main benefit can be seen when the defendant is found to be infringing. When calculating damages/settlements based on revenues of the 17 participating UPC countries, the amount will be far higher than a single national state. In a recent infringement suit, an automated storage and retrieval system was forced to pay a robotics company $200 million in a negotiated settlement following an adverse finding.5

  • Injunctions are now available to all UPC countries.

    Injunctions are now available across the member states. In the national courts, Germany was the most attractive court to litigate. This is because a successful infringement suit could result in an injunction, meaning the defendant would need to remove the infringing technology from the market. This benefit would now apply for all UPC countries and plaintiffs could potentially force the removal of competitors' products for the majority of Europe.

Patent Owners Have a Decision to Make

Companies still have the option to obtain European patents and litigate through the national courts. Patent owners can convert their patents into unitary patents or opt-out. This is a difficult decision, as there are clear benefits for opting into the UPC. However, it could also be a disadvantage due to the risk of patent invalidation impacting operations across participating UPC countries.

Challenging a patent on the grounds that the claimed invention lacks novelty is known as a patent invalidation proceeding. Previously, if the proceeding was successful, there were multiple lines of defences with patents filed in each country. For UPC patents, there is only one patent to defend the technology.

A large proportion of companies are considering a mixed intellectual property (IP) strategy, opting in only a proportion of their patents to the UPC. This approach can maintain the benefits of the UPC for some patents but can in turn keep the most valuable ones protected through multiple jurisdictions individually/separately.

An Outlook on Litigation Trends

With the launch of the UPC, there’s potential for an increase in the frequency and severity of patent infringement cases. Despite the UPC only launching in June 2023, a headline case has already settled leading to the defendant filing for chapter 11 and many other cases are pending.6

The swathes of activity in the immediate aftermath of the UPC launch indicate shifting trends. The majority of the plaintiffs thus far in 2024 are multinational corporates as opposed to non-practicing entities (NPEs). Smaller companies will need to apply a carefully-considered strategy to manage litigation risk, as the UPC enables NPEs to take advantage of condensed timelines.

The primary strategy for NPEs is to purchase patents for the sole purpose of profit through litigation. This often targets smaller companies, which typically have limited expertise in handling an infringement suit, resulting in settlement. The laws of the UPC state the defendant will have as little as two months to prepare a defence, whereas the national court normally allows up to six months. The shorter period could leave inexperienced companies at even more of a disadvantage defending against NPEs.

Invest in Risk Management Strategies to Navigate Changing Pressures

A new court system that makes patent litigation cheaper and quicker with the potential for higher damages will make Europe a more attractive place for future litigation. For companies with European revenues and a focus on innovation, this new exposure should be high on risk managers' radar. They should also consider intellectual property liability insurance to help ringfence this exposure.

The combination of lower pricing, greater capacity and evolving coverage deems IP litigation insurance one of the key tools for helping manage rapidly changing risks and protecting balance sheets. Businesses should work with a specialist team to:

  1. Assess risk exposures
  2. Adjust risk profiles
  3. Invest in risk management strategies

Focusing efforts around these three areas can help protect a company’s valuable assets, while maintaining a competitive edge in a rapidly changing landscape.

Aon’s Thought Leaders
  • Henry Coates
    Associate Director, Intellectual Property Solutions, UK/EMEA

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Terms of Use

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.

More Like This

View All
  • Capturing Carbon on the Critical Pathway to Net Zero Hero Banner

    Article 24 mins

    Capturing Carbon on the Critical Pathway to Net Zero

    As the world races to reduce climate risks and limit CO<sub>2</sub> emissions, the demand for scalable and cost-effective decarbonization technologies is increasing. Carbon capture projects form an important part of the low carbon energy transition, bringing both challenges and opportunities.

Subscribe CTA Banner