17.2.1 An Overview

As mentioned above, only 18 EU Member States are currently taking part in the UPC arrangement.Footnote ²⁸ Only 11 UPC participating EU Member States provide for UM protection: Austria, Bulgaria, Denmark, Estonia, Finland, France, Germany, Italy, Portugal, Romania and Slovenia; whereas Greece, Hungary, Ireland and Slovakia are Member States that have signed but not yet ratified the UPCA, and UM protection can be obtained in these Member States. Also, Croatia, Poland and Spain are EU Member States with UM protection, but these Member States are not participating in the UPCA. Due to the gap and diversity in the EU Member States towards the UP and the UPC as such, and since all EU Member States (including those with UM protection) are also Members of the EPO, the future UM landscape is rather blurred.

These numbers are summarised in Table 17.1.

For inventors residing and/or operating in those EU Member States not yet part of the unitary patent area who can only obtain a EP, they may only opt for protection in the form of a bundle of national patents within and/or outside of the unitary patent area.

Despite the lack of coherence in the EU as to UM harmonisation and patent law harmonisation, some EU Member States, namely Germany, Spain, Italy, France and Poland are in the top 20 offices regarding the number of received UM applications, indicating a salience in the field of UM protection.Footnote ²⁹ Thus, one cannot neglect the relevance of UM protection in the EU Member States.

17.2.2 The EPC, the UPReg, the UPCA and How They Relate to UMs

The EPOrg and the EU are two separate organisations, and so far EU legislation on substantive patent law has been minimal. However, the adoption of the first – and so far, the only – act on patentable subject matter in the EU, Directive 98/44/EC on biotechnological inventions (Biotech Directive),Footnote ³⁰ has had an impact on the EPC. Its provisions on patentable subject matter were inserted into the Implementing Regulation of the EPC.Footnote ³¹ However, in the aftermath it was made clear that although the wording of the provisions is formulated similarly at different regulatory levels, their interpretations at the different levels are legally independent of each other.Footnote ³²

The vulnerable point in European patent law is the increasingly mixed competences of the EPO and EU – now further confused by UPReg and the UPC. The UPReg is virtually deprived of substantive patent law,Footnote ³³ whereas the UPCA’s Chapter V forms the basis for future UPC jurisprudence.Footnote ³⁴ Furthermore, the UPC must apply Union law and respect its primacy, as well as cooperate with the CJEU in accordance with Article 267 of the TFEU. Since EU law is almost silent on substantive patent law, it is hard to picture future CJEU involvement on a frequent scale concerning substantive patent law. Altogether, the CJEU’s involvement seems rather limited, and the current frame is aimed at preventing the CJEU from becoming an appeal court for revocation and infringement while, at the same time, preserving its grip on Union law primacy. In other words, the UPC is a pretty isolated specialised court in European patent law. In this context, the UPC is likely to become a central policymaker in the future EU patent system despite its transnational character, as will be considered further in Section 17.5.Footnote ³⁵

Presently, the centre stage of the European patent system is taken by the EPO and its Boards of Appeal as developers of substantive patent law. The EPO has considerable autonomy towards granting, but subsequently limited judicial control. It is therefore possible to narrow down this section to focus on the EPO/EPC and UPC/UPCA. The EP (39 contracting states) and the UP (18 EU Member States) are both granted by the EPO under the rules of the EPC.

The EPC is the legal source for the pre-grant and granting procedure, only as such on patents and not on UMs. In other words, the unitary patent system and UMs are not clearly related, especially since the latter is not an EU or EPC harmonised right and falls outside the scope and competence of the UPC as such. However, as the EPC preamble clearly refers to the Paris Convention and PCT, it cannot contravene the provisions thereof. Article 1, subsection 2 of the Paris Convention states that the protection of industrial property has as its object patents, UMs and more. Therefore, in countries where UM protection is available, the general principles of the Paris Convention, such as national treatment and the right of priority, are also applicable to UMs. If an international patent application under the PCT is filed, UMs are available at the national level in designated countries that have a UM system. Article 43 of the PCT provides the legal basis for an international applicant to obtain a UM instead of or in addition to a patent (in accordance with national law), cf. Article 4(3) and R 4.1 (b)(iii) of the PCT.

Further, despite the EPC being patent-centred, UMs are no stranger to the convention. Article 140 of the EPC (Part VIII Impact on national law), stipulates that Articles 66, 124, 135, 137 and 139 of the EPC shall apply to UMs and utility certificates (the latter is a French instrument (see Chapter 5), and to applications for UMs and utility certificates registered or deposited in the Contracting States whose laws make provision for such models or certificates.Footnote ³⁶ This interface of patent applications and UM applications motivates us to consider whether decisions by the UPC may impact UM protection and prosecution in the Member States.

17.2.3 The EPO, UMs and National Granting Authorities

Article 140 of the EPC provides the basis for a European patent application to be converted into a national UM application while maintaining its priority claim, cf. Articles 66 and 135. It further follows from Article 87, subparagraph 1, of the EPC, that the right of priority according to the Paris Convention applies to UMs and utility certificates.Footnote ³⁷ Pursuant to Article 124 of the EPC, the applicant on request of the EPO must inform the office of all states in which it has filed UMs and the reference number of these applications.Footnote ³⁸ Articles 135 and 137 of the EPC allow the application to be converted into a national UM or certificate without any additional national formal requirements.

Article 140 of the EPC is only directed towards patent applications to be converted into national UM applications by a request from the applicant. By the time the patent is granted and published – with or without a further request for unitary effect according to Article 9 (1)(g) of the UPReg – it is no longer relevant.

The UPC has not been given jurisdiction over UM protection, and once a patent application has been converted into a national UM application, all future aspects concerning the UM application are left to the autonomy of the national patent authority. Nevertheless, we cannot disregard that the UPC can have a potential impact on, for example, EPO patent families which have a UM registered as well. Thus, UPC case law might (indirectly) affect UM claim interpretation or undermine their validity given their potential overlap or connection to an EP or a UP.

17.3.1 Jurisdiction on Non-national Patents

What the creation of this new system means for the division of judicial competence on patents in Europe is as follows. According to the UPCA, the UPC will have exclusive competence on actions for revocation and enforcement of both classical EPs and UPs, as well as SPCs.Footnote ⁴⁰ That is, after the expiration of the transitional period. The UPCA provides for a transitional regime for certain categories of patents during the first seven years (subject to a potential extension) of entry into force of the UPCA.Footnote ⁴¹ Until this regime lapses, disputes involving EPs and SPCs may also still be brought before national courts, resulting in shared competence between the UPC and national courts for such rights.

However, the UPCA also provides the option to formally opt out of the UPC’s jurisdiction.Footnote ⁴² EPs and SPCs for which their proprietors have made use of the possibility to opt-out of the UPC’s jurisdiction, remain the sole prerogative of the competent national courts within the territories in which they are valid even after the expiration of the transitional period. This point will not be pursued further, but it bears mentioning that the new UPC will thus essentially be competing with domestic courts for the favour of patentees. The system will only succeed, if patentees are willing to use the system, either by obtaining a UP or by choosing not to opt out for their EP. Another important caveat here is that the UPC’s decisions will not have the same territorial effect for UPs and EPs and SPCs without unitary effect. As already mentioned in Section 17.1, in the UPReg and UPCA, it is stated that the UPC’s decisions on unitary patents shall have effect for the whole of the “unitary territory,”Footnote ⁴³ whereas for EPs, the UPC’s decisions will cover only “the territory of those Contracting Member States for which the European patent has effect.”Footnote ⁴⁴ It is certainly a positive development that the need to conduct parallel litigation in Europe for the same dispute is mitigated. This also seems to limit the pre-UPC possibilities for parties to commence in forum shopping, without completely foreclosing such opportunities.Footnote ⁴⁵ Nevertheless, it should be noted that this also has its (potential) repercussions for, amongst other things, litigation costs, invalidation for the entire unitary patent area, being able to only focus on markets of consequence, the ability to recover from being enjoined and the attractiveness of designating European countries for a EP outside of the unitary patent area.

17.3.2 Jurisdiction on National Patents and UMs

What has been discussed in the previous subsection does not apply to the last category of patents in Europe, namely national patents, nor does it apply to UMs. Both remain national rights within the exclusive competence of the relevant domestic courts. It is worth reiterating that, in contrast with national patents, the relationship of the UPC with UMs has not been formally addressed. The UPC has not been given jurisdiction on either national right but, again, UMs are not even mentioned in the instruments of the Unitary Patent Package (including the Rules of Procedure of the Unified Patent Court “RoP”). In fact, this omission is notable, as the failed instrument for a Community Patent did contain a provision declaring certain provisions applicable to UMs, as well.Footnote ⁴⁶ However, the absence of references to such rights in the Unitary Patent Package does not mean that UMs will not be affected by the UPC’s decisions due to their potential connections with patents (e.g., double patenting, branched-off UMs).

As pointed out above, another complicating factor in this respect is the patchwork of different types of legal instruments that may (indirectly) apply in a given case, particularly when combined with the varying national scope limitations on UMs. The influence of a particular instrument depends on, amongst other things: (a) whether a country is a member to a particular organisation and (b) the nationally determined scope of a UM. This has its implications for which granting and judicial bodies have some authority in the matter, and to what extent. The most dominant form of a UM appears to be a cheaper and more attainable patent, but there are variations between states such as in the patentability requirements and exclusions of subject matter.

A good example to explore this with is the EU’s Biotech Directive.Footnote ⁴⁷ Since an EU directive is not directly applicable, EU Member States had to transpose its mandatory provisions, and their courts (and the UPCFootnote ⁴⁸) must ensure that national law is interpreted and applied in compliance with this instrument. If we take a look at what this would mean for Germany and Italy, the Biotech Directive is relevant for their national patenting of biotechnological inventions, but both preclude UMs on that category of subject matter.Footnote ⁴⁹ Consequently, there should logically not be any influence from the Biotech Directive upon their national UMs as far as their exclusion goes. This might be different for EU Member States which have chosen not to exclude biotechnological inventions from the subject matter of UMs, such as France and Denmark. In France, the patentability requirements and eligible subject matter are the same for UMs as for patents (see Chapter 5). What applies to patents in terms of biotechnological inventions, would thus generally be understood similarly for UMs. There are repercussions to the relevance of the Biotech Directive, such as some role for the CJEU as to what this instrument requires and inhibits within the Member States.

Another exclusion of note from the coverage of UMs is processes and methods (in general). This exclusion is adopted in, for example, Germany, Italy, Czechia and Denmark, whereas countries such as France and Austria allow it. This has ramifications for any potential overlap allowed between patents and UMs.Footnote ⁵⁰ Under the EPO, the protection afforded by a process patent also covers the direct resulting product, as long as the product itself is also patentable and meets the requirements. Particularly, there is a whole range of inventions for which the line between process and product has arguably blurred, for example, product-by-process claims. Additionally, as explained on the EPO’s website, “[f]or many inventions, claims in more than one category are needed for full protection.”Footnote ⁵¹ Decisions by the EPO’s bodies, including the Boards of Appeal, on the interpretation of concepts (also) relevant to process and use claims, as well as their validity, also have their bearing on UMs when subject to the same requirements and exclusions as patents in a given territory. As noted in Section 2.3, the EPC even contains some mandatory law applicable to UMs.Footnote ⁵²

Importantly, these examples predate the UPC becoming operational and the creation of the UP. It underscores that UMs and patents were already subject to a fragmented field of legal instruments and authorities even before the addition of the unitary patent and UPC. The chosen construct, of the EPO as the granting authority and the UPC as the main judicial authority, with the latter bound by EU law and thus the CJEU’s decisions, alongside (and interacting with) pre-existing systems of granting and adjudicating pre-UPC categories of patent rights (including national rights), adds to that. Again, it is difficult to predict how this will affect the proprietors of patents and UMs. It is arguable that it will not necessarily make navigating this field post-UPC that much harder for aspiring proprietors of UMs within their home jurisdictions. It may get more complicated when there is a cross-border element or there is a connection between UMs and certain categories of patents. The introduction of the UPC and UP have certainly made the legal fragmentation more complex.

To explore this, the following section will look at how the UPC will operate vis-á-vis other authorities, and the implications thereof for, amongst other things, (new) occupants of this already fragmented field. This section will first lay some of the groundwork to reflect upon connections between patents and UMs post-UPC, starting with a procedural perspective on the relationship between domestic courts and the UPC.

17.4.1 The Working Relationship

First, there is the possibility for both types of courts to stay their proceedings to await and consider the other’s decision. The RoP offers a number of grounds upon which a UPC division may decide to stay its proceedings, some of which are mandatory or subject to additional requirements.Footnote ⁵³ When it comes to proceedings on actions involving the same patent, SPC, or a related UM playing out before national authorities (including national courts), the RoP specify that the UPC may stay the proceedings.Footnote ⁵⁴ The UPC has been awarded discretion in this respect and is not required to await the decisions of national courts to avoid any potential conflict in its decisions. However, in reference to opposition or limitation proceedings on a patent before a national court, the rule in question adds “where a decision in such proceedings may be expected to be given rapidly.”Footnote ⁵⁵ This signals that if there is doubt about the speediness of such a decision, the UPC should actually refrain from staying the proceedings. The importance placed on expedient proceedings is also stressed in the Preamble of the RoP: “[…] proceedings shall be conducted in a way which will normally allow the final oral hearing on the issues of infringement and validity at first instance to take place within one year whilst recognising that complex actions may require more time[…].”Footnote ⁵⁶ Evidently, this limits the UPC’s discretion in favour of preserving the speed of their own procedure.

Another aspect relevant here is that no official forum for dialogue appears to have been provided between national courts and UPC divisions that would allow for potential mitigation or avoidance of potential conflicts in judgments or misapplication of national law. The UPC is set to apply national law of the participating EU Member States, as the UP will be governed by the law of the Member State where the applicant had its residence or principal place of business or, if inapplicable, had a place of business, on the date of filing.Footnote ⁵⁷ Therefore, at the time of writing, each unitary patent is governed by the national law of one out of 18 EU Member States currently part of the unitary patent area. However, which UPC division has competence to hear a case depends on the type of claims brought by parties,Footnote ⁵⁸ as well as on where the infringement occurred within the unitary territory or where defendants have their residence or (principal) place of business.Footnote ⁵⁹ This means that a UPC division in Italy – where the infringement took place or the defendant resides – may have to decide a dispute on a unitary patent governed by Belgian law – the place of residence or business of the proprietor. What is more, there may be connected proceedings in a normal domestic court at the same time.

While there are certainly some mitigating factors (which will be considered below), there is some concern about the consistency and accuracy of the interpretation and application of all the different sets of national laws by judges not always familiar with them, particularly in the early days of the UPC. Moreover, the UPC judges will have to navigate the development of doctrine and (potentially connected) judgments in normal domestic courts and the EPOrg’s Board of Appeals, as well as to observe EU law.Footnote ⁶⁰ A forum for dialogue on national law – especially in the early years of the UPC’s operation – may have been useful to ensure uniformity and legal certainty and avoid potential conflicts between the UPC’s and domestic judgments. This is especially true considering that UPC divisions may have to apply national law foreign to them. Still, there are annual conferences which provide for a more informal forum at which judges can exchange insights.Footnote ⁶¹ Such forums were already popular pre-UPC, so these may continue to aid judges with the laws of different jurisdictions in this respect. Furthermore, many UPC judges are likely to maintain a domestic judicial position part time until the case load picks up enough to require their UPC appointment to be fulfilled full time, which may not ever occur for some divisions. Such judges will thus continue to be involved in the development of domestic case law and generally be more aware of local pending cases. Another apt mitigating factor is that all of the UPC divisions have a multinational composition, meaning that each division will represent a perspective broader than a single national judicial experience. Other than such informal avenues, the UPC and “normal” domestic courts may be expected to talk to each other largely through their judgments.

17.4.2 Driving the Doctrine

Presumably, it will take some time for the new UPC and domestic courts to sort out their working relationship. It will also be interesting to see how the feedback loop develops and evolves between the national courts and the UPC, given the division of jurisdiction over different categories of patents, SPCs and UMs. However, this is further complicated as key matters for patent enforcement are spread out over several instruments of varied origin and impact. As noted in Section 17.3.2, some EU or international instruments may also be applicable to some extent to national UMs. National law, the UPReg (an EU regulation) and the UPCA (an intergovernmental treaty) all – in varying degrees – contain some substantive patent law, in addition to the EPC’s provisions on matters such as inventiveness, sufficiency of disclosure and equivalence.

The rights conferred by the unitary patent and exceptions were dealt with in earlier drafts of the UPReg (Articles 6–8) but were ultimately moved to the UPCA.Footnote ⁶² According to the UPReg, national law determines the scope of protection in terms of the acts against which the UP protects, the limitations of the right and the exceptions available.Footnote ⁶³ However, the UPCA also contains provisions which set forth acts of direct and indirect infringement, thereby creating two competing sources of law on the same matter. This is yet another example of the created confusion emanating from the chosen manner for introducing this new layer for a new patent and court system. As the UP is supposed to be governed by the law of a single Member State throughout the unitary patent area by virtue of an EU regulation, combined with the consideration that the UPC is bound by EU law, national law should presumably have priority here.Footnote ⁶⁴ This invites the interpretation that, at least on this specific matter, the UPCA should be understood as the boundary within which to interpret and apply national law. This also seems likely considering the objective behind this project is to further European harmonisation towards an EU patent system. If this interpretation is correct, this emphasis on national law bestows a bigger role on domestic courts in driving the doctrine, both nationally and for the UPC to apply. Naturally, national courts are the judicial authorities on the interpretation and application of their respective national legal systems. However, the exact reliance on, and weight given to, these transnational instruments, particularly in relation to national law, is another aspect that will become clearer over time through the UPC’s case law.

Regardless of the ultimate interaction and priority between these sources of patent law, some thought needs to be given to the impact that the decisions of UPC divisions will have in general. If the system proves successful, the UPC divisions will undoubtedly help develop the national system further and help evolve judicial doctrine, particularly states’ local or regional divisions. What is more, this will inevitably lead to national patent systems moving closer to each other. Furthermore, the UPC will be capable of gaining a lot of experience within its field of specialisation in a short period of time thanks to the combined effect of its mandate and territorial reach, and the potential counterbalancing influence it may have as a result on the EPOrg’s strong executive and administrative arms.Footnote ⁶⁵ There is some reasonable expectation that the UPC, created by an intergovernmental treaty between some EU Member States and an even smaller portion of EPOrg members, will have greater ramifications for the EPC system. Due to the UPC’s competence to review the validity of rights granted by the EPO for a larger geographical area, this court may interfere with the EPO on granting matters. This means that the UPC’s decisions may quickly gain a lot of weight in the European patent arena, irrespective of which law it applies. The broader reach of the UPC’s decisions makes for a stronger impact on the stability of both national and European patent law, as well as related areas of law. That also has its downside, as the broader reach of the UPC’s decisions may increase the impact of conflicting decisions on the same or overlapping subject matter by the UPC and national courts, and misinterpretation and/or misapplication of national law by UPC divisions. Naturally, conflicting decisions issued by judges from different states occurred frequently pre-UPC, but these judges only decide for their respective territory;Footnote ⁶⁶ the UPC’s decision will have effect for the combined territory of states designated for a EP within the unitary patent area, be it a portion or the entirety of this area. This means the consequences thereof are more serious across the board, not just for the parties to the dispute, but also for specific third-party interests or the public interest at large or, on a more abstract level, the stability and consistency of national or regional legal systems.

With regard to the latter, patent disputes are generally not isolated from other areas of law. Obvious examples of such areas are civil procedure, domestic contract law, and competition law, but also the different UM systems provided for by some of the participating countries. Naturally, the UPC cannot directly rule on UMs since such rights have not been placed within its jurisdiction. However, as discussed in this and the previous subsection, the potential of the UPC’s (indirect) influence in Europe should not be underestimated. As will be discussed in the coming sections, there are strategies which were used by companies prior to the UPC that involved both patents and UMs, for example, branched-off UMs. Moreover, the UPReg has allowed for the possibility of double patenting in states where the law permits this. If disputes involving patents using such strategies make it before the UPC, the UPC’s decisions could directly affect national rights and indirectly impact national legal doctrines in this particular field. This will be explored further in the next section.

17.5.1 Reasons for Converting Patents into UMs or for Branching Them Off (Pre-UPC)

In addition to offering the possibility of seeking UM protection from the start, many countries allow the conversion of a patent application into a UM application. If a patent application has a very low chance of being granted, for example, due to prior art that is close to the claimed invention, converting the patent application into a UM might offer an attractive option. However, in some countries there is a time limit for doing so.Footnote ⁶⁷ If a patent application is refused, some countries allow the patent application to be converted into a UM within a certain period after the refusal.Footnote ⁶⁸

Moreover, in some countries, such as Germany and Denmark,Footnote ⁶⁹ UMs can be branched off (also called “split off”) from a pending international, European or national patent application by claiming the filing date or priority date of the first filing. A branch-off is possible in Germany, for example, until up to two months after granting a patent or withdrawing or rejecting the patent application.Footnote ⁷⁰

In light of these procedural options, several – often interrelated – factors may make UMs an attractive strategic option for small and medium-sized entities (SMEs), as well as larger institutions or companies.Footnote ⁷¹ For example, UMs usually have a faster registration process compared to the lengthy patent prosecution procedures. This can be a huge advantage in fast-paced industries, such as software or telecommunications, where swift market approval and product adoption is critical. By converting a patent into a UM or branching it off as a separate UM, inventors can expedite the registration process and secure faster protection for their inventions.Footnote ⁷² In terms of strategic timing, a German branched-off UM is also well suited to stop infringement activities during grant proceedings in Germany.Footnote ⁷³

Moreover, cost-effectiveness is an important consideration for many stakeholders, and in particular for SMEs. UMs are generally less expensive to register and to maintain compared to national and European patents.Footnote ⁷⁴ Obtaining UM protection instead of a patent may be the preferred option when a patent is not generating – or expected to generate – any more substantial revenue. This is particularly relevant when the cost of maintaining a patent outweighs its economic benefits. The same reasoning applies to branch-offs: a German branched-off UM, for example, is an alternative to a costly divisional application.Footnote ⁷⁵

The limited lifespan of UMs, which typically ranges from 6 to 10 years, can also entail strategic benefits, for example, in fast-paced technologies with shorter commercial lifespans. In some fast-moving and highly dynamic industries, such as in software, energy storage or telecommunications, converting a patent into a UM or branching it off as a UM allows the inventor to align the duration of protection with the expected commercial viability of the invention. In such cases the cost-benefit ratio of UM protection is more beneficial and attractive in comparison to patents, which typically have a longer lifespan, usually 20 years from the filing date.

Furthermore, regional considerations and IP strategies will also be considered by inventors. Seeking UM protection can be particularly beneficial when aiming to expand the protection of an invention in a specific market, while seeking to reduce the costs and time that would need to be spent when filing separate patent applications in multiple jurisdictions.Footnote ⁷⁶ Even under the new UP system, patent laws and regulations will continue to differ across various jurisdictions. For example, an inventor might prefer UM protection for the aforementioned reasons, but also hold patents in countries without any available UM protection, such as the United Kingdom or Sweden. If that patentee prefers to protect the invention as a UM in another country where UMs are recognised, such as Germany, converting the patent into a UM or branching it off as a UM can provide a cost-effective local protection in that jurisdiction.

Last, but not least, the scope of protection is another important consideration that might motivate stakeholders to pursue UM protection instead of – or in addition to – patents. In many innovative technologies, UMs typically provide narrower protection compared to patents. By converting the patent into a UM or branching it off as a UM, inventors can obtain additional protection for those specific features or improvements of an invention that are not covered by the existing patent claims.Footnote ⁷⁷ Provided that such features are not automatically excluded from UM protection, which can be the case in some areas of health and life science inventions, such strategies can be particularly useful when there are incremental improvements or variations with a considerable commercial value that may not meet the more restrictive novelty or inventive step thresholds for a patent.

Before the UPC system became operational, the possibility to simultaneously apply for and convert a UM, a national patent, and/or a EP – now with or without unitary effect – was thus already widely available. There is nothing to suggest that such opportunities would cease post-UPC. Indeed, the expected dominance of German law for governing UPs would make this very likely to subsist as a common business strategy, as their system for branched-off UMs appears to be thriving.Footnote ⁷⁸ This will be further explored in the next section, focusing predominantly on the possibility for double patenting post-UPC.

17.5.2 National Examples of Double Patenting within the Unitary Patent Area

The UPReg specifically addresses the possibility of double patenting. Article 4, second paragraph, requires that

This is similarly stressed in Recital 8, last sentence, of the UPReg for national patents when an EP is granted. Put simply, it inhibits double patenting. Since the possibility of the simultaneous protection by a UM is not mentioned, this possibility may arguably depend on the existence of a national law preclusion.

However, this prohibition on double patenting is undercut by Recital 26 of the same instrument, which provides that this does not affect “the right of the participating Member States to grant national patents and should not replace the participating Member States’ laws on patents.” This suggests that, if a state allows for double patenting (e.g., the same matter protected by both a national patent and a EP), this should remain possible. This interpretation, that Recital 26 allows for double patenting, is one settled upon by important patent jurisdictions in Europe such as Germany, France and Italy, which have all amended their laws to this effect after the adoption of the UPReg. Their systems are discussed elsewhere in this volume in more detail, but it is useful to mention these specific changes briefly to consider their implications for the UPC-context.

Specifically, Germany technically allowed for some form of double patenting previously, as it was possible to maintain a national patent and EP on the same invention in Germany.Footnote ⁷⁹ However, Article II, section 8, of the German Act on International Patent Conventions (“Gesetz über internationale Patentübereinkommen”Footnote ⁸⁰) undercut the usefulness of maintaining the national patent. It provided that a defendant against which the patent was asserted in court proceedings could object to its effect because it was already covered in Germany by a EP. As for France, before 2018, a French patent would lose its effect upon conclusion of opposition proceedings or after the expiration of the period to initiate such proceedings.Footnote ⁸¹ The same was true in Italy. All three countries have amended their respective patent laws to allow for some form of double patenting, but there is a striking difference in the Italian approach.

First, the undercutting German provision has been amended in 2017 – so after the UPReg was adopted – for the “no-effect” limitation to only apply to a EP valid in Germany for which its proprietor has successfully opted out of the UPC’s jurisdiction.Footnote ⁸² Put differently, it means that defendants would no longer be able to challenge the national patent’s effect when it is covered by a corresponding UP or EP valid in Germany falling within the UPC’s jurisdiction. France has essentially done the same in response to the UPReg with their 2018 amendment.Footnote ⁸³ A French national patent will only lose its effect if it concerns a corresponding EP valid in France for which the proprietor has chosen to opt-out of the jurisdiction of the UPC. The result is that there is a possibility for double patenting in cases where there is a clear separation of jurisdiction between the “normal” German/French domestic courts and UPC divisions.

Interestingly, the same applies to the Italian national patent, but without a very important caveat: it has been reported by several sources that the Italian version does not limit this possibility for double patenting in case of EPs in Italy to those instances of a successful opt-out.Footnote ⁸⁴ This means that non-opted-out European patents could co-exist with Italian national patents, resulting in a shared competence between UPC divisions and “normal” Italian domestic courts on – albeit it being different types of – patents with the same subject matter. It would seem that, so far, the Italian legislator has not yet provided any mechanisms or limitations for the domestic courts in case of parallel proceedings on the same subject matter before the UPC.

Whether businesses will make use of these new avenues for double patenting that some states have created in response to the UPCA remains to be seen. Businesses will presumably continue to base their patenting and UM strategies in Europe on, inter alia, which markets are most important to them, the costs of applying for and maintaining such rights in a given jurisdiction, and where enforcement mechanisms are most attainable and effective. Over the years, this has led to a shift in focus from applications for national patents at national patent offices to designating the states of choice through an application at the EPO. Now, businesses can opt to apply at the EPO for a UP instead, meaning that, if granted, the UP is valid in all states part of the unitary patent area. For businesses, the potential of combining an EP or UP with a national patent (or UM) within the same territory will hinge on whether the national right would likely form a substantial asset on top.

17.5.3 The Cost of the Unitary Patent Area: A Boost for Other Rights?

It is prudent to explore next when a UP might be an attractive alternative to pre-existing options, and under what circumstances it may make national patents or UMs more advantageous for (aspiring) right holders, be it as a supplement or an alternative. Cost is one of the key factors for deciding whether or not to apply for a UP instead of opting for pre-existing patenting or UM strategies. Cost-saving and procedural streamlining were important factors for the uptick in applications for the EP at the expense of national patents. Lower cost and ease are also cited by proponents of UMs, irrespective of whether this is demonstrated to be the case in practice.Footnote ⁸⁵ One of the key objectives stressed in favour of the UP is also cost-saving. A closer look at the cost of opting for a UP is thus warranted. This section will briefly explore this issue based on the application and renewal costs of a UP, and relevant territorial limitations.

Generally, applying for a UP and maintaining it is less costly than applying for a EP designating all states that are part of the unitary patent area. According to the EPO’s website, the annual fees for the entire area “[correspond] to the combined renewal fees due in the four countries where European patents were most often validated in 2015, when the fee level was agreed by the Select Committee.”Footnote ⁸⁶ Consequently, the UP could make for a cost-effective option should a business be interested in obtaining a patent in those particular four states or, alternatively, if interested in a selection of countries within the unitary patent area that would amount to the same total of renewal fees or surpass it. However, if this is not the case, the UP may cost more than the traditional routes. Notably, even if a business were interested in obtaining protection in those four states that are part of the unitary patent area or, alternatively, if interested in a selection of countries within the unitary patent area that would amount to the same total of renewal fees or surpass it, the cost of obtaining a UP may be infeasible for many businesses.

For some businesses, it may be more cost-effective to opt for a more selective approach in designating states for a EP or national rights, or a combination thereof. This is especially true when additional rights would have to be obtained by a business for jurisdictions of note outside of the unitary patent area. As discussed in Section 17.2.1, there are currently six EU Member States which are not yet part of the unitary patent area. That means that businesses from those states would automatically lose out on the possibility to have a UP covering their home state. The same is true for businesses originating from the other 12 states which are part of the EPO, but not members of the EU. Obtaining additional protection outside of the unitary patent area would amount to an additional set of costs, on top of those for the UP.

This may be a more potent issue than just the omission of the home state, as one key patent jurisdiction in Europe is not part of the unitary patent area as a result of BREXIT, namely the United Kingdom. If there is need and/or value in obtaining a patent in the United Kingdom, this must be done separately from the application for a UP, or via its designation in an application for a EP. As a result, obtaining a UP may prove to be too costly for a lot of businesses, even without factoring in other aspects such as the risk of invalidation for a larger territory or, conversely, the rewards of enforcement in this larger territory.

This may affect business strategies towards patents and UMs, both within and outside this area, but this is not a given. For many businesses, the UP may simply be too costly or not attractive for other reasons. They will presumably continue to rely on pre-UPC strategies encompassing EPs, national patents or UMs, or a combination thereof (e.g., BOUM). The only additional considerations for such companies are whether or not to make use of the more recent room for double patenting created in some jurisdictions, and whether opting out of the UPC’s jurisdiction is a relevant and desirable option (and if/when to opt back in).

Businesses for which a UP is worthwhile and feasible would need to determine whether additional protection outside of the unitary patent area is necessary and cost-effective. Because obtaining a UP is already quite pricy, for those jurisdictions important to a company’s business falling outside of this territory, a UM may be an interesting alternative if it provides for equivalent protection to patents. However, if a business can afford a UP and a jurisdiction outside of the unitary patent area really is an important market, this may still move a business to apply for a patent instead. Yet, there may still be companies which may abandon any efforts towards additional protection in Europe outside of the unitary patent area. It remains, for example, to be seen whether the United Kingdom is able to retain its notable importance in the European patent area, that is, what number of applicants for UPs will make a separate application for this jurisdiction, or whether this will affect whether aspiring patentees will choose a UP over an EP.

Be that as it may, many more questions on the potential relationship of the UPC with UMs remain open. The next section will discuss some of the implications of the more important factors that we have considered so far, along with the limits of what can be concluded and some more food for thought. More specifically, it considers all the previously discussed factors and other grounds bearing on the decision on whether or not to opt out of the UPC system, before circling back to when UMs are a good alternative or addition to the IP strategy.

18.1.1 FRAND Licensing Commitments

Some technical standards, particularly in the telecommunications and computing sectors, can be covered by hundreds or thousands of patents.Footnote ¹ Accordingly, SDOs often require their participants to disclose patents believed to be “essential” to the implementation of a standard (standards-essential patents, or SEPs) to other participants in the SDO prior to approval of the standard. This obligation is intended to allow SDO members to work around or avoid any patent that could unduly impair the broad adoption of the standard.Footnote ² SDO participants that fail to disclose SEPs when so required by an SDO’s policies can be found to have breached the SDO’s policy or to have engaged in deceptive or anticompetitive conduct.Footnote ³

Furthermore, in order to promote broad adoption and use of their standards, most SDOs also require that participants license their SEPs to the manufacturers of standardized products (“implementers”) on terms that are either royalty free or bear royalties that are “fair, reasonable and non-discriminatory” (FRAND).Footnote ⁴ This obligation is intended to assure implementers that they will be able to incorporate widely adopted standards into their products without the threat of being sued by the holders of SEPs.

18.1.2 Essentiality

A SEP holder’s obligations to disclose and grant licenses generally applies only to patents that are “essential” to the implementation of the standard. That is, a product implementing the standard will necessarily infringe the claims of the patent.Footnote ⁵ Despite the importance of the concept of essentiality to the value of patents covering standardized products, the essentiality of a particular patent to a particular standard is usually determined unilaterally by the patent holder without external verification.Footnote ⁶ Yet this decision is often made with incomplete information at a time when the patent in question may still be in prosecution and the standard is not yet finalized.Footnote ⁷ As such, the declaration of a patent as a SEP often constitutes a best guess by the SEP holder as to the likely essentiality of an issued patent, or a patent application, to a draft or published standard.

Not surprisingly, given the potential royalty revenue that may be earned from SEPs, and the potential liability that can arise under the antitrust and competition laws from the failure to disclose SEPs in compliance with an SDO’s policies, SDO participants have often erred on the side of over-declaration of SEPs in relation to many standards.Footnote ⁸ For this reason, the essentiality of declared SEPs to particular standards is frequently challenged in litigation, with the result that some patents asserted against products implementing standards as to which they were declared essential are found to be neither essential to the standard nor infringed by the product implementing the standard.Footnote ⁹

18.1.3 Injunctive Relief and SEPs

One of the typical remedies available to a patent holder upon proving infringement is a court-ordered injunction preventing the infringer from continuing to make or sell infringing products. The availability of injunctions when SEPs are infringed has been the subject of considerable debate, as the general availability of the injunction remedy can be seen to conflict with the SEP holder’s commitment to grant licenses to all implementers of the standards covered by the SEPs.Footnote ¹⁰ As a result, the availability of injunctive relief when SEPs are infringed by an unlicensed implementer varies by country, and may depend on applicable competition law as well as a determination whether the infringing implementer is “willing” to accept a license on FRAND terms.Footnote ¹¹

18.1.4 Utility Models as Standards-Essential

In addition to patents, some SDO policies require SDO participants to disclose UMs as potentially essential to implement their standards. This requirement is made explicit, for example, in the Guidelines for Implementation of the Common Patent Policy of the International Telecommunications Union (ITU), International Organization for Standardization (ISO) and International Electrotechnical Committee (IEC), which defines a “patent” as including “those claims contained in and identified by patents, utility models and other similar statutory rights based on inventions (including applications for any of these)”.Footnote ¹² Other prominent SDOs, including the European Telecommunications Standards Institute (ETSI), the Internet Engineering Task Force (IETF) and the HDMI Forum, also expressly require the disclosure or licensing of UMs that are believed to be essential to a standard.Footnote ¹³

While the policies of some SDOs expressly mention UMs, the policies of other SDOs, including ATSCFootnote ¹⁴ and JEDEC,Footnote ¹⁵ do not, and instead apply their disclosure and licensing requirements only to “patents”. At these SDOs, it is not clear what effect the disclosure of a UM under the SDO’s disclosure or licensing policies would have, and whether the FRAND or other licensing commitments of the SDO apply to UMs. Conversely, it is not clear whether an SDO participant’s failure to disclose a UM would constitute a violation of such an SDO’s disclosure policy or deceptive conduct that is otherwise actionable. The implications of this definitional gap are considered more fully in Section 18.3.1.

And while commentators have casually observed that UMs have infrequently been disclosed as essential to technical standards,Footnote ¹⁶ there has not, until this study, been an empirical assessment of the rate at which UMs are declared to be essential. With the caveat that, just as with patents, a declaration to an SDO that a UM is believed to be essential to the implementation of particular standard is not an assurance that the UM will ultimately be found to be essential, this chapter refers to such declared UMs as “standards-essential utility models” (SEUMs).

18.2.1 Methodology

This study utilized data on UM filings around the world provided by the World Intellectual Property Organization (WIPO)Footnote ¹⁷ as well as the IPLytics platform (now a part of Lexis-Nexis).Footnote ¹⁸ As an official United Nations organization, WIPO makes available filing data from the patent offices of its 193 member states.Footnote ¹⁹ The IPLytics database includes patent and UM filing data from 98 national and regional patent offices.Footnote ²⁰ IPLytics also contains SEP declarations made at 35 different SDOs and 11 patent pools, including disambiguated information regarding SEP declarants, as well as information (sourced from Darts IP) concerning SEPs that have been litigated.Footnote ²¹ These databases were queried between March and May 2023. Separately, detailed information regarding litigated SEUMs was sourced from Darts IP.

18.2.2 Findings: Standards Essential Utility Models (SEUMs)

18.2.2.2 SEUM Declarations

In considering SEUMs, it is important to recall that a single UM (like a single patent) may be declared as potentially essential to different standards and different versions of the same standard.Footnote ²² Thus, when considering standards-essential patents (SEPs), from 1990 to 2022, approximately 5.9 million individual SEP declarations have been made across all SDOs tracked by IPLytics, covering approximately 500,000 unique patents (counted by declaration year). The number of SEUMs is far lower. During the same period, approximately 7,700 SEUM declarations corresponding to 947 unique UMs were identified, representing approximately 0.2 percent of all SEP declarations.

Figure 18.1 shows total SEUMs by year of UM issuance and year of first declaration. Declarations can be made years after a patent is issued (e.g., in response to a “call for patents” made when a draft standard is submitted to the SDO for approvalFootnote ²³), explaining why declarations appear to be weighted toward later years. Yet as shown in Figure 18.1, there does not appear to be a discernable trend in SEUM declarations over time, either increasing or decreasing.

Figure 18.1 SEUM filings by year

18.2.2.3 Geographic Distribution of SEUMs

A total of 946 SEUMs were declared across a total of fourteen jurisdictions between 1990 and 2022.Footnote ²⁴ Data regarding each jurisdiction in which SEUMs were declared during this period, compared to overall UM filings and SEP declarations in these jurisdictions, is contained in Supplemental Data Table 2.

Figure 18.2 illustrates the distribution of SEUMs among jurisdictions, which varies significantly both from that of all UMs generally and that of all SEP declarations. First, the number of SEUMs is considerably lower than the total number of declared SEPs in those jurisdictions.Footnote ²⁵ SEUMs make up the highest portion of SEPs in Germany (4.26 percent) and Taiwan (2.05 percent). This percentage approaches zero in most other jurisdictions, with six or fewer SEUMs declared in all but the top five jurisdictions.Footnote ²⁶

Figure 18.2 Share of SEUM declarations by jurisdiction, 1990–2022

Perhaps the most notable divergence among filing rates of SEUMs, SEPs and UMs within a jurisdiction can be seen in China, which has by far the greatest number of UMs worldwide (97.6 percent). While patents issued by China have been declared as SEPs more than patents issued by any other country in this study,Footnote ²⁷ the total number of Chinese SEPs exceeds that of Japan and Korea by only a factor of two. Of Chinese SEPs, only 237 are SEUMs (0.32 percent), placing China behind both Germany and Taiwan in terms of SEUM declarations and behind Germany, Taiwan, Ukraine and France in terms of the percentage of UMs that are declared as SEUMs. Moreover, given China’s huge number of UMs (nearly 20 million), the percentage declared as SEUMs is vanishingly small. These results reinforce the notion that the Chinese UM system is largely oriented toward local manufacturing of simple products and not toward the type of sophisticated international technology development that occurs within SDOs. Nevertheless, Chinese UMs are still declared as SEUMs more than UMs from any countries other than Germany and Taiwan. Thus, even though representing a small percentage of China’s overall UM volume, the number of Chinese SEUMs is significant.

18.2.2.4 SEUM Declarants

Unlike ordinary UMs, which have applicants from a broad cross-section of industries and geographies, the majority of SEUM declarations have been made by a single firm: US-based Interdigital, which held 613 of a total 985 declared SEUMs (61 percent) from 1990 to 2022. Figure 18.3 shows the number of declared SEUMs held by declarants of ten or more SEUM during this period (with full data in Supplemental Data Table 3).

Figure 18.3 Top SEUM declarants, 1990–2022

As shown in Figure 18.3, InterDigital, based in the US, has been the most prolific declarant of SEUMs by a wide margin. Yet InterDigital’s SEUM filing and declaration program is of largely historical interest. Representatives of InterDigital note that the company filed numerous UMs between March 2001 and January 2012, with the volume decreasing substantially beginning in 2009.Footnote ²⁸ As of July 2023, InterDigital claims that it holds no active UMs.Footnote ²⁹

In addition to InterDigital, the top eleven SEUM filers include two other US firms, Intel and Dolby Laboratories, despite the fact that the US does not itself have a UM system. This observation suggests that firms such as these operate strategically across borders, irrespective of the rights offered by their home jurisdictions.Footnote ³⁰ The other top SEUM holders originate from Korea (Samsung and LG), China (ZTE, Huawei), Taiwan (HTC), Japan (Panasonic), Sweden (Ericsson) and Finland (Nokia). Each of these jurisdictions has a UM system.

Below the top eleven firms, 123 additional firms from a range of countries held between 1 and 7 SEUMs each, with a total of 173 SEUMs among them. This “long tail” suggests that, other than InterDigital during the early 2000s and, possibly, some of the other top SEUM filers, firms involved in standardization have not developed a concerted strategy of filing UMs or declaring SEUMs at SDOs, resulting in SEUM declarations that are for the most part sporadic and nonpurposive.

While the absolute number of SEUM declarations made by individual firms may allow conclusions to be drawn about firm strategy, additional insight can be gained by comparing SEUM declarations with SEP declarations made by these firms. Accordingly, Figure 18.4 compares the SEUM declarations made by the top SEUM declarants (excluding, for purposes of presentation, InterDigitalFootnote ³¹) with SEP declarations by those firms and other “top” SEP declarants, in each case based on the percentage that such firms’ declarations represent of all SEUM and SEP declarations.

Figure 18.4 Comparison of SEP and SEUM declaration shares by Top SEUM declarants (excluding InterDigital), 1990–2022

Interestingly, there appears to be little correspondence between the percentage of SEP and SEUM declarations made by any given firm. Most striking is InterDigital (omitted from Figure 18.1 to delineate the shares of other firms more clearly), which declared 613 of 985 SEUMs (62 percent) but only 21,404 of 502,717 SEPs (4.3 percent). As shown in Figure 18.1, Samsung, Intel, Panasonic, Dolby and HTC follow a similar pattern, accounting for a much larger share of SEUM than SEP declarations. In contrast, firms such as Qualcomm, Huawei, LG, Nokia, Ericsson, Oppo, NTT Docomo, Sharp and Apple were responsible for a much larger share of SEP than SEUM declarations.

18.2.3 SEUMs in the Judicial System

SEPs can give their owners significant leverage in the negotiation of licensing agreements, in part, because SEPs can be enforced in court against unlicensed implementers. Depending on the jurisdiction, a court may award a SEP holder that successfully enforces its SEP against an unlicensed implementer monetary damages and fee awards and may also enjoin the implementer from further manufacturing or selling standards-compliant products.Footnote ³⁴ In recent years, there has been a significant amount of SEP- and FRAND-related litigation. One 2023 study commissioned by the European Commission identified more than 1,000 reported judicial decisions involving FRAND issues around the world between 2009 and 2021.Footnote ³⁵ Another recent study found that in the US, disclosed SEPs are more than five times more likely than non-SEPs to be litigated.Footnote ³⁶ Litigation of SEPs is thus a significant feature of the standards-setting environment.

In addition to enforcement litigation, the validity of SEPs can be challenged in judicial and administrative proceedings around the world (e.g., oppositions at the European Patent Office and inter partes review proceedings at the US Patent Trials and Appeal Board). We are unaware of statistics regarding the total number of such challenges, though Lemley and Simcoe recently studied validity rates of SEPs challenged in US litigation.Footnote ³⁷

The frequency with which SEUMs are enforced or challenged in administrative proceedings (which, for the sake of convenience, we refer to as “litigated”), however, has not been studied. This section provides initial descriptive statistics concerning litigation and challenge of UMs and SEUMs.

18.2.4 Summary of Findings

The principal findings of this study can be summarized as follows:

1. 1. Some, but not all, SDOs expressly permit or require the disclosure and licensing of UMs that are potentially essential to their standards. The requirements of SDO policies that do not expressly mention UMs are ambiguous.

2. 2. Nearly 1,000 UMs (SEUMs) have been declared as essential to broadly adopted industry standards at ETSI and other prominent SDOs in the ICT sector.

3. 3. Firm strategies appear to differ dramatically in terms of SEUM declaration, ranging from intensive to virtually no SEUM activity, even among firms of similar size and market focus.

4. 4. Though far less than other SEPs, SEUMs have been subject to litigation multiple times in China and Germany, and there appears to be no structural barrier to their litigation in other jurisdictions.

18.3.1 SDO Policies and UMs: Is a UM a “Patent”?

One of the key questions raised about UMs is whether they should be considered to be “patents” for purposes of SDO policy requirements. While UMs are clearly distinct from patents under international IP treaties and the laws of countries with UM systems, the distinction may be less clear when viewed from outside those countries.Footnote ⁴¹ And, as noted in the Introduction, some jurisdictions refer to UMs as petty patents, innovation patents or registration patents,Footnote ⁴² implying that, at least in a broad definitional sense, they constitute a form of patent.

As discussed in Section 18.1.4, while some SDOs, such as ETSI and IETF, expressly require the disclosure and licensing of SEUMs in their IPR policies, other SDOs do not expressly include UMs within the scope of their patent disclosure and licensing commitments. Yet, as shown in Table 18.2, firms have nonetheless disclosed SEUMs to SDOs, such as JEDEC and ATSC, that fail to include UMs within their definitions of “patents”.

At these SDOs, the legal effect of such disclosures is not entirely clear. Would a UM declared as essential to a standard be treated in the same manner as a patent declared under that policy and thus be subject to the SDO’s FRAND licensing requirements? Or would the UM disclosure be disregarded as noncompliant with a policy that only permitted the disclosure of patents, and thus lack any legal effect?

The converse question also arises: if an SDO policy does not explicitly require the disclosure of UMs, then what obligation, if any, does the holder of an SEUM have to disclose and/or license that UM to implementers of the standard? Technically speaking, if UMs are not subject to an SDO’s FRAND licensing requirements, then an SEUM holder would be free to charge supra-FRAND royalties for its SEUMs, or to refuse to license them at all. Though one could argue that the nondisclosure or concealment of a UM would implicitly violate the spirit of the SDO’s disclosure and licensing policies, or even applicable competition law.Footnote ⁴³

It is likely that the answers to these questions would depend on the specific understandings and intentions of the SDO members who drafted and approved the relevant policy,Footnote ⁴⁴ and would thus be highly fact-specific (and vulnerable to differing recollections). In order to avoid these interpretive uncertainties, SDOs that have not expressly addressed the treatment of UMs under their disclosure and licensing policies (as well as any governmental policies relating to SEPs) would do well to do so.

18.3.2 Including SEUMs in SEP Databases

While some UMs are currently included in SDO-maintained databases of SEPs, it is sometimes difficult to distinguish SEUMs from ordinary SEPs in the relevant database entries.Footnote ⁴⁵ Understanding this distinction could be useful for SDO participants and standards implementers, however, given the shorter duration of UMs and their different use in litigation. SDOs could do more to clarify the type of rights that are listed in their databases by clearly identifying which disclosed rights are SEUMs versus SEPs.

In addition to SDOs, the European Commission recently proposed legislation that, among other things, would create a new official registry and database for SEPs issued in the European Union.Footnote ⁴⁶ Though early drafts of the proposal included utility models within the scope of the proposed regulation,Footnote ⁴⁷ the current proposal does not contemplate UMs,Footnote ⁴⁸ thereby omitting these potentially important rights. The reasons for this change have not been disclosed publicly by the Commission.Footnote ⁴⁹ As one of us has previously noted in written comments submitted to the Commission, it should revise its proposed regulation to include European UMs along with patents or, at a minimum, reduce ambiguity by indicating why UMs were excluded from the proposal.

18.3.3 Enforcement of SEUMs

The potential overlapping coverage of patent and UM protection and the malleable nature of UM claims (including the ability, in countries such as Germany and Italy, to alter them during the course of litigation),Footnote ⁵⁰ have led to their tactical use in infringement litigation. This degree of uncertainty is not likely to improve the clarity or predictability of the standardization ecosystem, particularly if individual firms begin to increase their declaration of UMs as SEUMs. While it appears that little short of national UM reform and/or harmonization can fully address these concerns (see Section 18.3.5), SDOs could eliminate at least some potential ambiguity by affirmatively including UMs within the scope of their disclosure and licensing requirements. Doing so would, at a minimum, reduce the likelihood that SEUMs could be used to obtain injunctions against the use of standards by implementers “willing” to obtain licenses of SEUMs on FRAND terms.

18.3.4 Essentiality of SEUMs

As discussed in Section 18.1.2, patents are defined as SEPs only if they are “essential” to the implementation of a standard, where essentiality exists if a product implementing the standard necessarily infringes the claims of the patent. The obligation to disclose SEPs (and, presumably, SEUMs) typically arises during development of a standard, prior to its approval and publication by the SDO. Yet UM claims may be more malleable after issuance than those of patents. This malleability raises questions concerning the potential essentiality of SEUMs, and the degree to which changes to claim scope can or should be taken into account when assessing the effect of FRAND commitments on UMs.

18.3.5 SEUMs and FRAND Royalties

If SEUMs are deemed to constitute SEPs under an SDO’s disclosure and licensing policies, SEUMs raise distinct but related questions regarding the calculation of FRAND royalties. First, given that UMs are generally not given substantive examination by relevant patent offices, their terms are shorter than those of patents and in some jurisdictions they lack direct enforceability, an argument could be made that UMs are, on average, less “valuable” than patents. As such, an argument could be made that the “fair and reasonable” royalty payable with respect to a SEUM should be less than the “fair and reasonable” royalty payable with respect to a SEP. By extension, the value of (and the FRAND royalty payable with respect to) a portfolio that includes SEUMs should be less than the value of a similarly sized portfolio that includes only SEPs. If SEUMs are not distinguished from SEPs when portfolios are valued, then incentives will exist for opportunistic firms to “stuff” their portfolios with cheap and easy-to-obtain SEUMs of questionable validity and essentiality in order to increase the size (and putative value) of those portfolios.

The issue of SEUM valuation has implications not only for transactions between individual holders of SEUMs and potential infringers, but for all holders of SEPs (and SEUMs) that are declared to be essential with respect to a particular standard. For example, when SEPs and SEUMs are placed into a pool for collective licensing to implementers of a standard, the royalty received from implementers is often distributed among pool members in proportion to the number of patents that they have licensed to the pool. The share of such royalties allocable to SEUMs, however, should arguably be lower than the share allocable to SEPs.

The same issue arises in connection with the “top-down” calculation of FRAND royalties payable with respect to a standard. Top-down royalty calculation methodologies seek to determine the overall value of a standard to a product, to use that value to assess an aggregate royalty for SEPs covering the standard, and then allocate a portion of the aggregate royalty to each holder of SEPs based on the number (and possibly the value) of its SEPs.Footnote ⁵¹ Top-down FRAND royalty calculations, which have already been utilized in judicial decisions in the US, UK and Japan may take on even greater prominence under a recent European Union proposal to implement a top-down calculation methodology in official calculations of aggregate SEP royalties.Footnote ⁵²

If SEUMs are valued lower than other SEPs, then in such top-down royalty determinations, the presence of SEUMs should be a factor used in determining both the overall level of royalties payable with respect to a standard, as well as the share of such aggregate royalty that is allocated to different holders of SEPs and SEUMs.

18.3.6 Harmonization

Traditionally, UMs have existed largely as devices of national law with little harmonization among jurisdictions, even within closely knit regions such as the European Union. Yet the entry of UMs into the field of technical standardization, an inherently multinational arena, begs the question whether UM systems should be harmonized to a greater degree. That is, if UMs can effectively be utilized to expand individual firm portfolios of patents subject to FRAND licensing, then jurisdictions that make it easier to obtain UMs are likely to attract more UM filers, and perhaps to draw applicants away from their own, or other, patent systems (e.g., if a UM can be obtained for one fourth the cost of a patent, in one fourth the time, but yields a similar value, then UMs could quickly become preferred instruments in some markets). What’s more, fast and cheap UMs could result in a “race to the bottom” among jurisdictions seeking to capitalize on the “numbers game” among SEP holders. These considerations should encourage policy makers to consider more closely aligning UM systems across borders.

18.3.7 The Costs of Uncertainty Surrounding SEUMs

As noted above, UMs involve substantial uncertainty, both as to their coverage and enforceability, as well as their status (or not) as SEPs. This uncertainty can be utilized opportunistically by actors within the standardization ecosystem. For example, depending on the relevant SDO policy in effect, the holders of UMs may argue that UMs are excluded from the SDO’s FRAND disclosure or licensing commitments, thus giving them free rein to conceal these UMs from SDOs and implementers and to charge supra-FRAND royalties for the use of these rights. Likewise, UMs may be used tactically to seek injunctive relief against implementers before SEPs are issued. On the other hand, implementers that wish to delay negotiation over FRAND licenses (i.e., “holding out”) may raise the inherent uncertainty of UMs when negotiating such licenses. This uncertainty could thus destabilize the standardization system, imposing greater transactional costs on both UM holders and implementers, delaying the development of important new standards, imposing costs on consumers and depriving the market of new standardized products.

18.3.8 SEUMs and Innovation

UM systems were introduced in many jurisdictions to stimulate local innovation and industry via a low-cost pathway to intellectual property protection for modest or incremental designs not rising to the level of patentable invention. Yet our findings show that SEUMs are largely being filed and declared by major international firms with active patenting programs, and that these UMs often cover technologies that are, or could also be, covered by patents. To the extent that UMs are being used primarily to obtain duplicative coverage for the same technological innovations, or for tactical litigation advantage, they may not be achieving the goals for which they were originally designed. As a result, policy makers may wish to consider the findings of this study when evaluating the ongoing value of UM systems in their countries.

18.3.9 Areas for Further Research

There remains more to be studied with respect to UMs and the standardization ecosystem. One area for further research is an assessment of the “quality” of UMs that are declared as SEUMs, both in comparison to other UMs and to SEPs. The question of patent quality has attracted significant attention from scholars as well as governmental authorities in recent years, and numerous metrics for the measurement of patent quality have been developed (e.g., citation analysis). However, we are unaware of any significant study of UM quality or analysis on whether the same metrics applied to patents can be applied to UMs. Further research of these questions would help to establish the value of SEUMs that form a part of SEP portfolios and to establish FRAND royalty rates both for individual SEUMs, portfolios including both SEUMs and SEPs, and for top-down FRAND royalty determinations for entire standards.

It would also be useful to gain a better understanding of the business strategies that have led some firms to declare SEUMs in large quantities, while others have largely ignored them. Thus, just as Ford Motor Co. in the automotive sector has been observed by Cahoy and Oswald to have adopted a business strategy involving the acquisition (and possibly assertion) of UMs,Footnote ⁵³ InterDigital, during the 2000s, appears to have adopted such an approach in the ICT sector, particularly around standards developed under the aegis of ETSI. Samsung, the second highest holder of SEUMs, appears to have adopted a similar strategy. A greater appreciation for firm strategy in relation to UMs could help policy makers to tailor their UM systems to the needs of the private sector.

Further research into SEUM assertion and litigation is also warranted. The litigation data that we reviewed could be supplemented with more detailed information regarding case outcomes, timing and tactics. Greater visibility into these issues could help policy makers to assess whether UMs are being (or could be) abused as litigation devices, and whether procedural safeguards should be put in place to avoid such abuse in the future.

19.2.1 Overall Business Use of Utility Models

It is difficult to identify which industries make use of utility model protection globally, because the covered subject matter can differ from country to country, skewing the results.Footnote ²¹ For example, a software invention protectable as a utility model in one country may be excluded in another. In addition, surprisingly few studies detail use of utility models by industry, as opposed to the countries targeted or the size of applicants. However, a recent review of several EU countries noted that the “mechanical engineering” sector was dominant across the board, followed closely by “electrical engineering.”Footnote ²² Even more specifically, the study found the top industries linked to utility models in each country were all manufacturing related, but the order of each specific type can differ.Footnote ²³

19.2.2 Existing Assessments of Utility Model Disharmony Impact on Firm Strategy

Existing assessments on the impact of utility models disharmony on firm intellectual property strategy are limited.Footnote ²⁴ A 2015 study conducted by the Technopolis Group, tendered by the European Commission (the “Technopolis Report”), involved a review of the literature and available evidence on the impact of utility models on European states as well as selected non-EU countries that offer the rights.Footnote ²⁵ It found that legal uncertainty across systems was a key barrier to more widespread use of utility models by firms.Footnote ²⁶ But more importantly for our purposes, the study noted that utility models were used as an auxiliary tool by practitioners to avoid perceived problems in the standard patent system rather than as a primary protection mechanism for “minor inventions by small inventors.”Footnote ²⁷ It concluded that the evidence on the impact of utility models to support innovation was ambiguousFootnote ²⁸ and recommended against a move to harmonize utility models similar to standard patents.Footnote ²⁹

In a similar study funded by the European Commission and the Office for Harmonization of the Internal Market (OHIM), Prud’homme (Reference Prud’homme2014) undertook a more granular analysis by considering the legal details of different utility model systems to determine if a particular iteration has a more positive economic impact. He compared the systems of Austria, China, the Czech Republic, Finland, France, Germany and Italy in terms of qualities such as subject matter, duration, filing costs, examination form and nature, and the potential for double or parallel filing.Footnote ³⁰ Prud’homme found that utility models are of some, but limited, use to developing countries.Footnote ³¹ Moreover, there are specific attributes of systems (e.g., electronic filing, subsidies or restricted subject matter) that are clearly more preferable from the perspective of the offering country.Footnote ³²

19.3.1 “Carve-outs” versus “Add-ons” and the “Zone of Appropriability Preferences”

A common context for assessing whether utility model systems are advantageous is the understanding that they are “add-ons” to the standard patent system; that is, that utility models protect inventions that would not normally be covered by patents because they are not sufficient advances over existing technology.Footnote ³³ The evaluation of the contribution of utility models to a country’s innovative output necessarily considers whether this separate system actually encourages more inventive activity or simply pulls information out of the public domain to the detriment of the overall environment. The add-on opportunity is how the literature to date has viewed utility models.

However, we posit a novel possible explanation of how utility model systems are used: they provide an important choice to firms by serving as an alternative to standard patents. In some systems, such as China’s, firms may have the option to file a utility model and standard patent application on the same invention; in those instances, the utility model rights could act less like an add-on regime, and more like a partial “carve-out.” In other words, utility models in these systems pull some inventions away from standard patents. The carve-out is not simply a matter of failed attempts at full patenting, but rather a deliberate strategic choice by the applicant to opt for the second-tier right. Importantly, the extent to which a system facilitates a carve-out strategy is highly dependent on the various elements that define its utility model rights. This difference is essentially the result of disharmony.

Why would a firm ever choose a utility model when its invention is eligible for a stronger standard patent? In fact, there are advantages to the generic utility model that may be more important for certain inventions in particular locations. One such advantage is speed. Because utility models generally require no initial examination, they issue quickly, providing a firm with rights that it can assert and license. Additionally, given the possibility of protecting additional pieces or branches of a core invention, it may be possible to blanket a product with rights that essentially create a single-firm thicket that competitors find difficult to avoid. Finally, a firm’s operations in a particular location with a particular legal system might be optimally protected by many utility models over a few standard patents.

We define the decision-making process of choosing utility models over standard patents (or vice versa) in those systems that treat utility models as carve-outs as operating in the “zone of appropriability preference” (see Figure 19.1). In this zone, inventors and firms have a choice between protection regimes – standard patents or utility models – and their choice represents a preference among qualities that differ between the two. For example, the choice for speed in securing a utility model over the longer protection period for a slower-to-issue standard patent represents such a preference. The existence of the zone allows a firm to extract optimal appropriability from invention rights and not waste resources on securing protection that is too powerful or too long.

Figure 19.1 Role of utility models in a country’s IP system

19.3.2 Data Supporting Optimal Appropriability Strategies

There is support for the proposition that sufficient knowledge and legal flexibility exist to enable businesses to engage in invention appropriation preference strategies. The 2015 Technopolis Report concluded that in developed economies, utility models can be used “as an auxiliary tool to patenting for a range of specific purposes” and they can help “deal with certain country-specific issues ….”Footnote ³⁴ Moreover, according to the report’s assessment of firm use, it appears that utility models “are utilised to a considerable extent to overcome specific challenges in the national patent systems ….”Footnote ³⁵

Two studies explicitly connecting patents and utility models – one centered in Europe and one in China – also provide some empirical evidence of the zone of appropriability preference theory. Heikkilä and Verba (Reference Heikkilä and Verba2018) considered connections between standard patent and utility model filings in the European Union. Using PATSTAT data, they collected one dataset comprising (1) patent and utility models families filed at any EU patent office offering utility model protection, and another (2) restricting such families to those claiming priority from an EU patent or utility model filed at any EU patent office offering utility model protection.Footnote ³⁶

Heikkilä and Verba found that utility model filings may be used as part of an international filing strategy, belying the idea that utility models only cover minor inventions worthy of protection in the domestic market.Footnote ³⁷ However, they also found that inventions with patent priorities are of higher quality than those with utility model priorities.Footnote ³⁸ Those quality differences between patent and utility model priorities are less important than other indicators of patent quality, such as citation count, patent family size and whether there is an associated Patent Cooperation Treaty (PCT) filing.Footnote ³⁹ Heikkilä and Verba failed to find any clear indication of strategies to obtain quick rights related to utility model priorities.Footnote ⁴⁰

Cao et al. (Reference Cao, Lei and Wright2014) considered Chinese patent and utility model applications that served as priority for a U.S. patent application that was subsequently granted. Similar to our construct below, they assumed that any utility model application that was sufficiently inventive to serve as a basis for a U.S. patent must be inventive enough to also qualify for a Chinese patent.Footnote ⁴¹ Therefore, their study set considered patents of similar quality that are by choice filed as either patents or utility models in China. One important finding from Cao et al.’s work is that inventions filed as Chinese utility models have much shorter time lags between applications, indicating that the applicant desired speed in particular.Footnote ⁴² These patents are also less likely to have continuations filed at the U.S. Patent and Trademark Office or to be maintained during the patent term.Footnote ⁴³ Again, this indicates that utility models are connected to inventions that do not require the full length of U.S patent rights. Applicants are exposing their appropriability interests and making more efficient use of them through the broader options in protection offered by China’s system.

19.3.3 Additional Litigation Evidence of Utility Model Use

If firms indeed perceive utility models as a useful tool for optimally appropriating innovation, one would expect to see more substantive activity than simple rights accumulation. Effectively capturing innovation should include enforcement activities. Conversely, if utility models serve primarily as a weak credential for individuals and firms wishing to memorialize innovative activity, one might expect very little litigation and low rates of success when it does occur. Unfortunately, the lack of comprehensive global litigation data in the utility model arena makes it difficult to decide between real value or mere credential.

Fortunately, China, the most prominent utility model filing target, has now made available a significant amount of information.Footnote ⁴⁴ Those data suggest that, despite the lower standards and lack of examination, utility model rights fare quite well in terms of enforcement success: they are enforced at a level at least as high as standard patents with better win rates for rights holders. Unofficial sources have reported this robust litigation activity for some time.Footnote ⁴⁵ Bian (Reference Bian2018) conducted an empirical analysis of Chinese patent litigation using an official source, China Judgements Online. According to Bian’s analysis of final judgments from 2014, owners of Chinese utility models constitute a greater share of the litigation landscape than standard patents (25% versus 13%), and are slightly more likely to be successful, with a win rate of 77% versus 72%.Footnote ⁴⁶

For purposes of our analysis, perhaps the most interesting statistic in Bian’s article is the fact that foreign litigants make up 3.33% of the plaintiffs in the cases studied.Footnote ⁴⁷ Although this is relatively low – and certainly much lower than the 28.44% foreign litigant share in standard patent cases – it is higher than the percentage of foreign utility model ownership (1.12%).Footnote ⁴⁸ This indicates that foreign utility model owners litigate at a higher rate than domestic owners. In other words, foreign owners of Chinese utility models seem to value their rights as real appropriation tools at least as much as, if not more than, domestic owners.

Of course, it is possible that the litigation numbers might reflect a selection bias rather than suggest that utility models are generally valuable (e.g., perhaps only the strongest or more straightforward utility models are asserted). However, this is no different than with standard patents; most are not enforced and those that are can be viewed as part of a specialized subset.Footnote ⁴⁹ Based on this slice of the global litigation environment, utility models seem to have an enforceability potential that allows them to serve as a reasonable innovation investment incentive.