Neo Wireless Failed to Opt Cellular Patent Out of UPC’s Jurisdiction, Rules Court of Appeal

June 15, 2024

The Unified Patent Court (UPC) has played an increasingly prominent role in European patent enforcement since its launch one year ago. Its broad jurisdiction offers key advantages to patent owners, allowing them to target infringement across 17 participating European Union (EU) member states in a single complaint—including claims over both traditional European patents (EPs) as well as the newly created European patents with unitary effect, or unitary patents. However, the court also allows companies to file similarly sweeping revocation actions, leading some patent owners to opt some of their EPs out of the court’s jurisdiction (as permitted during an initial seven-year transitional period) to protect those assets from invalidation before the UPC. Such opt-outs can fail, though, if all rights-holders are not accounted for, according to a recent decision by the UPC Court of Appeals—creating a potential pitfall for patent owners that have spread the ownership rights to their assets among multiple holding companies.

The litigation campaign here at issue began not in Europe but in the US: In early 2021, Fortress Investment Group LLC plaintiff Neo Wireless LLC (“Neo USA”) began targeting makers of mobile devices that support the 4G/LTE, 5G, and/or 5G New Radio (NR) cellular networking standards with suits filed against Apple, Dell, and LG Electronics in the Western District of Texas. However, in two additional waves of suits filed across a broader range of US districts, Neo USA shifted the focus of this campaign to automobile telematics systems supporting those same cellular standards, suing Ford, GM, Honda, Nissan, Tesla, Toyota, and Volkswagen in March 2022 and Mercedes Benz and Stellantis (FCA US) that July. The patents-in-campaign were acquired by Neo USA (under its prior name CFIP NCF LLC) in November 2019 from Neocific IP as part of a larger portfolio that also included Asian and European assets. Available litigation records indicate that apart from its US litigation, Neo USA—through Neo Wireless GmbH & Co KG (“Neo DE”), a German entity that lists Neo USA as its limited partner in German business filings—has filed suit in Germany, including a Mannheim suit against Volkswagen, but apparently none in other venues outside the US (including the UPC).

In March 2023, Neo USA transferred the German part of a patent application that would subsequently issue as EP 3 876 490 (a divisional of a divisional of one of the EP patents acquired from Neocific) to Neo DE. Later that month, Neo USA filed a UPC opt-out for “all EPC states”. (EP patents are really just bundles of national rights effective in countries selected by the applicant; here, this means that Neo USA purported to opt out all national rights granted under the European Patent Convention (EPC).) Yet as later noted by the UPC, “[t]his [opt-out] application was not filed on behalf of [Neo DE] and neither was a consent thereto annexed to or uploaded as exhibit to the opt-out application. [Neo DE] has not itself filed an opt-out application with respect to the German part of the patent (application)”.

The fact that Neo DE did not file or consent to the opt-out, and that Neo USA was not explicitly filing on its behalf, would prove to be pivotal in a revocation action (validity challenge) brought by Toyota. In February 2024, the UPC’s Paris Central Division ruled that Neo USA’s opt-out had been “invalid” (as summarized by the Court of Appeal) “because not all proprietors of all national parts of EP 3876490 had lodged the Application to opt out as required by Rule [of Procedure] 5.1(a)”, which “requires that all proprietors or applicants lodge the application to opt out”. While Article 83(3) of the Agreement on a Unified Patent Court (or UPCA, the treaty that formed the UPC) states that “‘a proprietor’ of or ‘an applicant’ for a European patent shall have the possibility to file an opt out” (emphasis in opinion), the lower court held that this article “must be interpreted to mean that all proprietors of or all applicants for a European patent must declare an opt-out”, and that Rule 5.1(a) does not surpass its scope.

The core issue on appeal, as disputed by the parties, was whether Article 83(3) allows a “proprietor of one or more, but not all, national parts of a patent” to file an opt-out application “with effect for all national parts of such patent . . . , thus including the national parts he is not entitled to”. Neo USA argued that the provision does allow this, asserting that a holding to the contrary (i.e., requiring the consent of the holders of the other national parts to opt out) would “unduly and disproportionally impair[]” its ability to enforce its patent rights, observing that national rights were previously enforced solely in national courts and contending that “no patent holder should be forced into the UPC” (as summarized by the Court of Appeal). Toyota countered that an opt-out must be determined for the EP as a whole, with an opt-out submitted by all proprietors—arguing that to hold otherwise would mean that “a holder of only one or some national parts would be able to declare an opt out which has effect for national parts to which it is not entitled”.

The Court of Appeal ruled on June 4 that the lower court correctly determined that the opt-out had been invalid. It began by finding Article 83(3) is ambiguous as to who may declare an opt-out where the national component of an EP is transferred to another owner. This ambiguity, the court held, could not be resolved solely by considering the wording of the language at issue, including the aforementioned distinction between the singular vs. plural references to proprietors or applicants.

Rather, the Court of Appeal this ambiguity can be resolved by looking at the “object and purpose” of Article 83(3), which “make clear that the opt out Application must be lodged by or on behalf of all proprietors of all national parts if there are more validations”. This was apparent, per the court, based on how legislators designed the transitional period mentioned above, during which the UPC and national courts share jurisdiction over EPs: They decided that UPC would be the default venue with an opt-out, rather than leaving jurisdiction over those patents with national courts and creating an opt-in (i.e., the status quo).

With this “object and purpose” in mind, the Court of Appeal determined that allowing the proprietor of one national part to opt out all national parts, even those “he does not own”, means that those other owners are deprived of the chance to use the UPC—finding that this contradicted the legislative intent to have the UPC serve as the default venue. In contrast, the court found that the alternative, wherein all proprietors must file opt-outs, is consistent with these goals, since if one does not opt out, “the ‘default position’ stays in place”.

The court then addressed Neo DE’s various counterarguments, in part rejecting its concern about being forced to use the UPC against its will—observing that legislators have imposed the UPC’s default jurisdiction on all patent owners, regardless of their preference. Moreover, the court rejected Neo DE’s assertion that the alternative would be less burdensome, finding that the patent owner was wrong to assume that others would prefer the national court status quo, finding to the contrary that some may now prefer the UPC.

Nor was the Court of Appeal convinced that the UPC’s jurisdiction leads to a “disadvantageous co-ownership” as further insisted by Neo DE, observing that there is no “substantial[] differen[ce]” between the situations of multiple owners of national parts facing litigation before the UPC and those facing litigation before national courts. Indeed, the court remarked that the proprietor of a national part should “anticipate certain dependence on the proprietors of other national parts in practice” regardless, with respect to “alignment of argument in legal proceedings”—including those before the EPO and “civil courts”. The UPC also does not run counter to a patent owner’s “fundamental rights”, the court held; rather, it merely provides a new forum to assert patents “and does not interfere with these property rights themselves”.

Having thus concluded that opt-outs must be filed by all owners of the national parts of an EP, the Court of Appeal ruled that Neo USA’s opt-out had been invalid because it “did not lodge the opt out application also on behalf of [Neo DE]. It now appears that Toyota’s revocation action will move forward as a result.

This decision is not the only recent setback related to a validity challenge for Neo USA, the other playing out back before the Patent Trial and Appeal Board (PTAB). Last December, Ford and Honda sought director review of decisions in which the PTAB discretionarily denied institution of inter partes reviews (IPRs) they filed against Neo USA, holding that those petitioners had a “significant relationship” under General Plastic and Valve I/II with Volkswagen, which had previously filed an IPR against the same patent, because they were all codefendants in the same court-imposed multidistrict litigation. In February, Ford and Honda both argued that the rulings would allow patent owners to sue an “entire industry” and unfairly hold all defendants to the results of a “single IPR”. Earlier that month, former Senator Patrick Leahy (D-VT), cosponsor of the America Invents Act, published an editorial in support of their position, arguing that the panel’s finding of a “significant relationship” here showed “flawed logic that cuts against widely understood concepts of justice”. On March 22, USPTO Director Kathi Vidal agreed, reversing the denials of institution and ruling that “the Board does not recognize a ‘significant relationship’ between parties having different accused products that merely engage in court-ordered pretrial coordination”.

Meanwhile, the UPC has also begun issuing its first rulings on issues specific to standard essential patent (SEP) litigation—in the process, revealing an apparent split between two of the court’s most popular local divisions in Germany, those in Mannheim and Munich, over the proper approach to licensing transparency. For more on those decisions, see “Dueling UPC SEP Rulings Reveal a Mannheim-Munich Split over Transparency Issues” (May 2024).