Innovation, not litigation! Google, Samsung and Apple backed industry coalition call for UPC Preparatory Committee to act (again)

Last September, a coalition of patent power players, including Google, Apple and Samsung  published an open letter to the Preparatory Committee on the Unified Patent Court highlighting two main concerns of the the latest (15th) draft of the Rules of Procedure - bifurcation and the granting of injunctions - which they considered would undermine the purported benefits of the unified system (see previous AmeriKat report and analysis of this letter and rules here).  One week after the letter was published, members of the coalition submitted their comments on the Unified Patent Court's Rules of Procedure which detailed these concerns.

Now, as the Preparatory Committee reviews these comments in preparation for a public hearing and a final revised draft of the Rules of Procedure, the Goliaths of Silicon Valley, Europe and beyond have again called upon the Preparatory Committee to act.   The coalition is not demanding a change to the Rules, necessarily (in light of the fact that the Rules are parasitic on the Agreement on the Unified Patent Court which cannot be altered), but recommends the inclusion of guidance to judges on how to interpret the rules.

The newly expanded coalition (the signatories now include Vodafone, Huawei and AFDEL) writes:

Last year, we, the undersigned organizations, wrote in support of Europe’s effort to create a unitary patent and a Unified Patent Court (UPC) system. The decision to move in this direction was a direct result of the recognition “that the fragmented market for patents and the significant variations between national court systems are detrimental for innovation." 

As we previously noted, an effective and balanced unified patent system has the potential to decrease the costs of obtaining patent protection, increase European competitiveness, and support the long-term growth of innovative industries in Europe and abroad. Importantly, if done right, it also has the ability to reduce the negative impact of Patent Assertion Entities (PAEs), or “patent trolls”, thereby preempting the problems that continue to plague innovators. 

In early October, we submitted responses to the Preparatory Committee’s consultation on the rules of procedure for the UPC. Our responses recommended that the Preparatory Committee incorporate guidance to the judiciary from the outset on the issues of bifurcation and injunctions when validity is raised, including when to issue a stay of an infringement action and when to issue injunctions. We noted that, without this guidance, the potential exists for a court to order an injunction prohibiting the importation and sale of goods even though the patent may ultimately be found invalid. This result unduly reduces competition, can increase the cost of products in the market and reduce product choices, all negatively impacting consumers. Many other  stakeholders, ranging from telecommunications operators to pharmaceutical companies and patent practitioners, raised similar concerns and made similar recommendations. 

As the Preparatory Committee prepares its revised draft of the UPC rules of procedure, it is imperative that these changes are incorporated in a meaningful way. Adoption of these recommendations will allow operating companies to focus on innovation instead of litigation, thereby fostering economic prosperity in Europe for the benefit of innovators and consumers. This, in turn, will help Europe achieve the stated purpose of the UPC to defend “against unfounded claims and patents,” “enhance legal certainty,” strike “a fair balance between the interests of right holders and other parties,” and allow for “proportionality and flexibility.” 

So far so good, but it was the penultimate paragraph that contained the ultimate warning for those tasked with creating and implementing the new system.  Citing an article by John Allison, Mark Lemley and Joshua Walker entitled "Patent Quality and Settlement Among Repeat Patent Litigants" which found that, excluding default judgments,  PAE plaintiffs win only 8% of cases that reach a judgment on the merits, the coalition concluded:

Europe has a unique opportunity to avoid the abuses of PAEs that reportedly cost U.S. businesses $29 billion for cases filed in 2011 alone and caused economic damage of approximately half a trillion dollars from 1990 to 2010. The stakes of leaving these issues unaddressed are high and unfortunately well-known by the undersigned organizations. Recent press reports suggesting that some PAEs welcome bifurcation within the UPC further show that a system with perceived loopholes has the potential to open the floodgates to a detrimental form of patent litigation. 

We continue to look forward to working with the Preparatory Committee to help ensure a system that is fair and balanced and allows for European innovation and competitiveness to thrive.

The warning continues over on Google's Europe blog (here) where Google's Director of Patent Litigation, Catherine Lacavera reiterates that the proposed changes will "curb abuses by the kinds of patent trolls that have plagued the US economy".  She continues:

"Patent trolls - entities that don't make anything, instead using dubious patents to extort money from companies that due - are placing a huge drag on innovation.  In the United States, trolls use the threat of expensive and lengthy litigation to extract settlements, even if their patents wouldn't hold up in court.

A Unitary Patent System could promote efficiency and long-term competitiveness. But the current draft rules contain certain provisions that trolls could exploit, taking a potentially serious toll on economic growth and innovation in Europe. 

For instance, the rules as currently written could allow a troll to block a product from the European market using a patent that later turns out to be invalid. We think that the validity of a patent should be tested before it impacts 500 million European consumers."

Bleary-eyed commuters may not have cottoned on to a slight change of emphasis in the coalition's latest letter and commentary, so the AmeriKat will give you a hint:  "European consumers".  In the scrabble for the location of the Central Division, the alarm in interpreting the poorly drafted Agreement and the furore on the impact of bifurcation on a litigant's business, the poor (literally) European consumer has often been ignored.   The coalition has been smart to place the European consumer front-and-center in the debate on the impact on the Rules of Procedure as ultimately it is the European consumer who will subjected to, for example, not being able to purchase a newly injuncted smartphone and having to pay more for a more expensive alternative (admittedly an oversimplification of competition and market dynamics). More importantly, it is the European consumer who can ultimately vote those in power out of office.  But will the Preparatory Committee be focused on the impact of the consumer or will their focus be just on getting their job done?  The two are not mutually exclusive, but the AmeriKat fears that the latter will be the ultimate driving force for the Committee and those Member States charged with the six specific work streams (legal framework, financial aspects, IT, facilities and HR & training).

In any event, the AmeriKat was curious (as Kats tend to be) why the coalition issued a second call for action.  In an e-mailed statement from a member of the coalition to the AmeriKat, the view was that

" there is still more work to be done, however, in crafting rules that support innovation and don't provide an incentive for increased activity by patent trolls."

The AmeriKat, who has been active in this saga for years comes with the experience that even with the greatest of effort and the loudest of voices, little can be done to convince European governmental organizations that necessary changes must be made to the system to ensure that the pitfalls identified by the coalition are not made a daily reality for UPC litigants.  She recalls, for example, the excellent suggestions that European IP judges made to the then draft Unified Patent Court Agreement which were, in effect, wholly ignored (see AmeriKat post here).

So with her cynical hat on, she asked a member of the coalition how confident they are that the Preparatory Committee will listen to and implement their recommendations.  The coalition's response boiled down to the fact that unlike the brick wall mentality of some European institutions during the initial stages of this project (the AmeriKat's words, not theirs), the Preparatory Committee is different.  It is, as a member of the coalition, puts it

"tasked with creating rules for the UPC that will strengthen the patent system and support innovation, and we share that goal.  We are engaging policy leaders in each of the 25 member countries to make sure they understand the views of innovative companies in their countries, and encourage further revisions to ensure the letter of the law matches the spirit."

And the coalition has been busy "encouraging" across Europe.  A number of coalition members submitted recommendations to the Preparatory Committee during the public consultation and, in the run-up to the final draft of the Rules of Procedure, have met and are likely to continue to meet with policy leaders to discuss their concerns in the hope that they "get this important language right."

Commissioner Barnier and other European officials have repeatedly issued declarations about how the unified patent system was needed in order for Europe to be competitive with the US and Chinese systems.  But when you are given the unique opportunity to design a system from scratch, why would you desire only to be equivalent to your competitor   Don't you want to be better?  It seems, however, that those responsible for introducing and now implementing the UPC have not carefully examined what is and is not working in their competitors' systems, nor have they made the necessary and recommended changes to remedy these defects.  With the legislative and judicial troll battles raging in the US (and here), the AmeriKat urges, as she recently wrote here,  that the Preparatory Committee and the Member States learn from the US experience and, at the very minimum (which is frankly all they can do given that the Rules are hard-wired by virtue of the Agreement), provide the much-needed guidance to the judges (and litigants!) on interpreting the Rules.