The UK Government announced at the end of November last year that it intended to continue preparations for the ratification of the Unified Patent Court (UPC) and even more recently the UPC preparatory committee has announced that the UPC should be operational in December 2017.
The decision to ratify was a somewhat unexpected development, as currently the UPC is only open to members of the European Union and therefore, following the UK’s referendum vote in favour of Brexit last June, many thought Britain would not continue with its membership of the UPC. Now that the UK Government has announced its intention to ratify the UPC Agreement, this article explains the importance of the UPC and sets out what this latest decision might mean for the UK both in the short and longer term.
Currently the European Patent Office (EPO) approves the grant of a patent that could cover up to 38 mainly European countries including the UK. Each such patent is in effect a group of national patents which can only exist if, after grant, they are validated in each selected country. In consequence, litigation relating to a European patent must be conducted on a country-by-country basis. As large patent disputes usually involve multi-jurisdictional litigation, there are often several lawsuits relating to the same patent in the courts of different European countries and those courts may (and have) come to different decisions. In order to standardise the process and reduce the costs (application fees, renewal fees and translation costs) a unitary patent system was proposed.
The UPC Agreement, signed in February 2013 by 25 member states (not including Croatia, Poland or Spain), is intended to create a ‘one stop shop’ for patent actions across Europe with each decision applicable in all European Union counties who have ratified the UPC Agreement (contracting member states). The UK has played a key role in shaping the proposed rules and procedures of the UPC. The UPC will have exclusive jurisdiction to hear disputes on the infringement and validity of all unitary patents, and classic European patents that have validated in the countries that have ratified the UPC agreement, unless the patent holder opts out of the UPC’s jurisdiction, which it can do during a seven year transitional period following the start of the system, if no litigation has taken place.
The UPC Agreement states that there will be three outposts of its central division, one of each in Paris, Munich and London, with appeals heard in Luxembourg. The London Court is scheduled to host the life sciences and medical devices cases. By February 2017, twelve countries, including France and Italy had already ratified the agreement, with Latvia and Greece making advanced preparations to ratify. However, the UPC Agreement can only commence if all of France, Germany, and the UK ratify the agreement. Once Germany and the UK have ratified the UPC Agreement, the Court will come into force only three months later.
Germany submitted new draft legislation to ratify the UPC Agreement to the Federal Council on 9 December 2016 and these passed by vote in early April 2017, with the Protocol on Privileges and Immunities (legislation needed to establish a court of an international organisation in a country and to give the court legal personality) passed in late April 2017. Germany is expected to be in a position to deposit its ratification of the UPC Agreement this spring or summer, but has indicated it will not do so until after the UK has ratified.
When will the UPC Agreement actually be ratified by the UK? While the November 2016 announcement by the UK Government does not give a timeline for ratification, it does set out its intention to bring the UPC into operation “as soon as possible”, and January’s announcements had suggested the court should be operational in December 2017. However, there are both legal and practical steps that may delay ratification. The UK must pass secondary legislation in order to implement the UPC Agreement in UK national law. This secondary legislation does not need a reading in Parliament as Parliament has already approved ratification.
Of key importance is that the UPC is bound by EU law and subject to the supremacy of the Court of Justice of the European Union (CJEU). This is in direct conflict with a post-referendum Britain which specifically rejected the supremacy of EU law in June last year. Prime Minister Theresa May, in her conference speech on 5 October 2016, insisted that Brexit would mean that: “Our laws made not in Brussels but in Westminster. Our judges sitting not in Luxembourg but in courts across the land. The authority of EU law in this country ended forever.”
Therefore there may well be some serious opposition to ratifying the UPC Agreement as it may be viewed by many as a fundamental U-turn away from the referendum result and the Prime Minister’s pledges at the Conservative Party Conference. However as Unitary Patents may not be a species of UK legal right (in that they will be granted by an international institution) the argument goes that there is in fact no conflict; UK patent rights would not be subject to EU law, whilst non-UK UPC patent rights would be subject to EU law. The distinction may be lost on the general populace. Indeed, it has been reported that a UK Independent Party MP tabled a motion in Parliament objecting to the UPC Agreement.
In addition, there are other practicalities, such as the completion of the IT case management system, and the appointment and training of judges (that had been halted after the Brexit referendum vote) which may delay ratification.
In order for these issues to be addressed, it has been agreed that the UPC Agreement should come into provisional effect in May thus allowing staff and judges to be recruited, their training to be begun, and the IT system finalised.
Despite the issues still left to be addressed, the mood in the patent community across Europe is positive. Once final ratification of the UPC Agreement is completed by Germany and the UK (expected by the end of August this year), there is to be only a three month window before the UPC must be open for business. If the timetable can be kept, the preparatory committee have planned an opt-out period to begin in early September 2017 for European patent holders who do not want to be part of the UPC system so ratification will need to have happened by the end of August, if there are not to be further delays. The President of the EPO has also stated that the EPO should be in a position to grant the first unitary patent by the end of 2017 (the timetable for the grant of unitary patents is dependent on the date the UPC agreement comes into force).
Unfortunately, the UK’s preparations for ratification have been affected by the recent decision to hold an election in June. As a result, there is not enough time to pass the remaining secondary legislation (the instrument needed for the UK to pass the Protocol on Privileges and Immunities) before Parliament is dissolved on 3 May. To avoid any delay to the beginning of the system, Parliament will need to pass the relevant legislation before it is dissolved again for the summer break. If not, it is unlikely that ratification could be completed before the autumn, resulting in a three – four month delay.
Looking further into the future, it is unclear whether the UK will be able to remain within the UPC system once it exits the European Union, as the UPC system was only open to EU countries when the UPC Agreement was signed. However, as the system was established by an intergovernmental treaty outside of the EU framework, it may be possible to change the UPC framework and allow the UK to remain a member post-Brexit although amendments to the treaties to permit this will need the agreement of all signatories and the CJEU.
However, the UPC is required to “apply Union law in its entirety and… respect its primacy” (Opinion 1/09, CJEU) which would include competition law, free movement of goods and EU patent legislation, and give the UPC the right to grant injunctions extending to the UK. This does not fit easily with the 'hard Brexit' model proposed by Theresa May and her Government and it is not clear whether patented products under a Unitary Patent could realistically be separated out from everything else.
What to do now?
What does this all mean for business’s patent strategies? In brief, it does seem likely that the UPC, which will include the UK and the London UP Court, will be up and running by the end of 2017 or early 2018. What is less certain is whether Britain will remain a part of the UPC after it leaves the European Union in 2019. Unfortunately, this means that businesses will need to remain open and plan for both options, as until the Brexit negotiations are finalised, uncertainty will remain.
Those businesses that had put Unitary Patent planning on hold will need to revisit their strategy early this year as, following ratification, it will only be three months before the UPC must be up and running. With a likely opt-out period planned for September 2017, businesses will want to consider now whether to use the Unitary Patent system, and whether to use the UPC for their classic European patents, or whether their patents are better situated outside of the UPC’s jurisdiction. To do this, businesses will at least want to consider the following questions:
- What are the strengths of the patents/patent families you hold?
- What is the commercial value of the patented technology in each current (and future) signatory member state? Bear in mind that when it starts operating only around 14 or 15 countries will be signatory member states; 12 or so EU countries are unlikely to be in the system from the outset though may join later (though it seems likely that Spain and Poland, and possibly Croatia, will never join the system) and that the 10 non-EU countries that are part of the EPC will currently never be part of the system.
- What is the likelihood of an attack on your patent’s validity? Are you more likely to want to use a single jurisdiction across multiples states or are you more focused on resisting a possible central attack on a critical patent?
- Where patents are owned jointly, the right to opt out may only be exercised by all co-owners. Do you have an all-party agreement on the position?
- If the UK opts out of the UPC on Brexit, how might this change your strategy?