Exclusive and Non-Exclusive Licenses: Opportunities and Pitfalls Before the UPC
The Situation: While the national case laws of most Unified Patent Court ("UPC") Member States generally accept infringement actions by licensees, the scope and requirements of such actions differ greatly. The Agreement on a Unified Patent Court ("UPCA") has the potential to unify the law in this respect, although many aspects still need clarification. Importantly, existing patent license agreements typically contain provisions governing the prosecution of the licensed patent and its enforcement against third parties, but those provisions oftentimes do not address a potential opt-out strategy or standing to sue issues before the UPC.
Action Required: Any patent proprietor and licensee is well-advised to revise and potentially amend any existing or future license agreement to avoid surprises—specifically for planned opt-out strategies at the UPC.
Looking Ahead: The new provisions on standing to sue provide opportunities as well as pitfalls for exclusive and non-exclusive licensees and will impact the patent licensing landscape in the new UPC world.
An opt-out of a patent from the UPC system is possible unless "an action" has already been brought before the UPC, Art. 83(3) UPCA. Likewise, a withdrawal of the opt-out is permissible as long as no "action" has been brought before the national courts, Art. 83(4) UPCA. Thus, one needs to consider who is allowed to bring "an action" before the UPC—or national courts—that could prevent a proprietor or applicant from successfully opting out—or back in.
The standing to sue for bringing an action before the UPC, Art. 47 UPCA is decisive. While it is obvious that the proprietor is allowed to bring an action pursuant to para. 1, the situation becomes more complicated for the licensees.
Pursuant to para. 2, "the holder of an exclusive license" may bring an action as well, "unless the licensing agreement" provides otherwise and if the licensee gave prior notice to the proprietor before filing the action. It is unclear who is an exclusive licensee within the meaning of the UPCA, and it is similarly unclear which law will eventually govern the interpretation of the agreement and the requirements for the standing to sue. Various interpretations are possible in this respect which result in application of different laws and therefore different understandings of what is needed in order for a license to be "exclusive" under the UPCA.
For example, can a license that does not entitle the licensee to sublicense or claim damages still be exclusive? For the avoidance of this uncertainty, it is advisable to address the new UPCA in license agreements. An intended opt-out could otherwise be blocked by an earlier UPC action of the licensee. Similar challenges can occur in case of a planned "opt-back-in." To the extent that the exclusive licensee has standing to sue within the national UPC Member States, action filed nationally could prevent an opt-back-in. The proprietors are therefore well-advised to review their existing licenses for patents that are or may become subject to an "opt-out" or "opt-back-in" strategy and to amend the existing agreements where necessary. The same applies if proprietors and/or licensees plan to act against an infringer before the UPC.
Bringing an action based on an exclusive license will predictably raise new questions that should be addressed ahead of the dispute to accommodate different scenarios and outcomes. Considering the benefits, renegotiating exclusive licenses where necessary may be worth the effort in light of the higher stakes in a potential UPC litigation.
The situation for non-exclusive licensees is similar but may be less in line with the established understanding. Pursuant to para. 3, the holder of a non-exclusive license can bring an action before the UPC "in so far as expressly permitted by the license agreement" following a prior notice. This provides new options for non-exclusive licensees that, under the national laws, are often not able to sue on their own in case of an infringement. However, this may also change the perspective for the proprietor because existing licenses for UPC Member States that previously did not contemplate standing to sue for a non-exclusive licensee. Such standing may now be permitted by the non-exclusive license agreement, which could change the contractual decision who can bring suit.
Likewise, the situation for joint actions pursuant to para. 4 remains uncertain and should be stipulated in advance. Not all licensees are keen on having a joint action with the proprietor—specifically in light of a potential validity challenge (para. 5). In these cases, having an agreement that governs the joint efforts of the proprietor and the licensees as well as a potential allocation of damages prior to filing a suit would be advantageous.
Again, this will raise new questions concerning the applicable law and interpretation of existing agreements when it comes to the UPCA that should be resolved well ahead of the UPCA taking effect. Otherwise, the proprietor runs the risk of his UPC strategy to be impacted by an existing license agreement and the separate litigation strategy of the licensee.
When revisiting existing licenses or preparing new licenses, attention to detail is worthwhile to preserve the option for an opt-out or withdrawal of opt-out strategy, or conversely to secure the licensees' interest to bring an action before the UPC. It is, for example, not clear whether an opt-out strategy is governed by template license provisions relating to patent prosecution or rather to enforcement. Clarity is needed as decisions regarding opt-out and withdrawal of opt-out influence the ability to enforce the patent against third parties.
Three Key Takeaways
- License agreements concerning European patents intended for an opt-out (or subsequent withdrawal thereof) should be carefully reviewed with respect to the right to bring an action before the UPC.
- Proprietors and licensees should consider amendments to existing license agreements (and address the topic in new license agreements) to synchronize the patent defense and enforcement strategy, and to avoid dispute over ambiguous or incomplete provisions that may no longer reflect the will of the parties once the UPCA enters into force.
- The parties to a license agreement should consider including provisions that specifically address the right to an opt-out from the UPC, clearly stipulating whether the licensor or the licensee is entitled to decide on such strategy.
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