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Update on the UPC and the Unitary Patent

UK in a position to ratify the UPC Agreement, Germany blocked by constitutional complaint

18 July 2019

After more than three decades of negotiations, the European Union has entered the final straight towards establishing a unified patent system. However, challenges in the UK and Germany will need to be overcome before the new system can finally be put into place.

As a single patent right, the new Unitary Patent ("UP") will provide protection for inventions in all EU Member States. Furthermore, the pursuit of infringements will be centralised at the Unified Patent Court ("UPC") with jurisdiction across all participating countries.

One of the main reasons for the delay in establishing the new system were differences regarding language. In particular, Italy and Spain were reluctant to abandon their desire for European patent specifications being completely translated into Italian and Spanish. It was not until December 2010 that 25 Member States participated in the enhanced cooperation in accordance with Article 20 Treaty on the Functioning of the European Union (TFEU), leading to both EU regulations (Regulation No 1257/2012 and Regulation 1260/2012) and the UPC Agreement, which was signed on 19 February 2013. 

The final hurdle to overcome before the UPC Agreement can enter into force, is the completion of the ratification process in the UK, Germany and France as they are the EU Member States with the highest number of patent filings. Furthermore, all three countries as well as the State of Luxembourg (which will host the appeal court) have to ratify the UPC's Protocol on Privileges and Immunities ("PPI"). 

France

France ratified the UPC Agreement on 14 March 2014. 

UK

It came as a surprise, when the UK announced in November 2017 that it would ratify the UPC Agreement despite Brexit. In December 2017, the Houses of Parliament approved the draft followed by the UK's Privy Council approval of the PPI in February 2018. Except for certain aspects devolved to Scotland, this completes the necessary legislative steps for the UK to be in a position to ratify the UPC Agreement. 

However, when announcing the plan to ratify, the UK Minister responsible signalled that the UK will need to "negotiate a new relationship with the UPC" post Brexit and that this should be done as "seamlessly as possible so that businesses can continue to take advantage of the provisions that the UPC makes possible."

Even though it remains unclear what this will mean in practice, the legislative steps seem to prove that the UK indeed has the political will to ratify the UPC Agreement before it leaves the EU in March 2019 and – according to the statement of the UK Minister – wants to stick with the UPC system even when Brexit is triggered. However, withdrawal negotiations will determine to what extent the UK will stay part of the UPC system after Brexit.

Germany

In Germany the Federal Council (Bundesrat) approved the UPC Agreement and the implementation law in March 2017. Following the approval of the German Parliament (Bundestag) only ratification by the Federal President (Bundespräsident), the publication and the entry into force of the law were still necessary. 

Ratification in Germany blocked by constitutional complaint

The ratification process came to an unexpected halt, when a constitutional complaint against the ratification of the UPC Agreement combined with an injunction to prohibit all involved parties to take further steps was filed on 31 March 2017. Remaining anonymous at first, the national journal GRUR explicitly confirmed that patent lawyer Dr. Stjerna filed the constitutional complaint.

The legal consequences were severe: the Federal President Frank-Walter Steinmeier followed the request of the Federal Constitutional Court (Bundesverfassungsgericht) on 3 April 2017 and ultimately did not sign the law in order to allow the court the necessary time to engage with the constitutional concerns. Therefore, the unified patent system will not come into force before the court reaches a decision which is expected to be rendered in 2018 as indicated by the Federal Constitutional Court in its "yearly preview list" on its website.

Constitutional concerns 

The constitutional complaint questions the compatibility of the UPC Agreement with European Union law. It is feared that the Federal Republic of Germany gives away its sovereign rights, which is incompatible with the principle of democracy pursuant to Article 38(1)1 GG (Grundgesetz, the Constitution).

If the Federal Constitutional Court confirms a breach of constitutional law with EU law, it might submit the question to the European Court of Justice. Again, this would mean another delay. 

Furthermore, the constitutional complaint rebuts that German Parliament acted by simple majority and not, as necessary, by qualified majority according to Article 23(1)(3) and Article 79(2) GG. The accusation was that instead of 630 parliamentarians being present, only 35 parliamentarians were. 

However, the unanimous opinion is that this is less critical in comparison to the other points. In case of doubt, the voting needs to be repeated, whereby the result is likely to be the same due to a uniform political will. 

Moreover, Mr. Stjerna criticises the lack of independence of the boards of appeal leading to a breach of the principle of separation of powers. 

The UPC Agreement implements a new court. However, the boards of appeal are still responsible for decisions in patent prosecution procedures and opposition procedures. 

Locally, the court and the boards of appeal are housed in the same building and are integrated into the same organisation and personnel management. However, this should not have a major impact on the court's decision anymore since the criticism was widely heard and a reaction followed immediately. The boards of appeal were therefore moved to another building, creating more organisational independence.

However, besides the close organisational structures, the UPC faces additional criticism due to fact that the UPC-president Benoît Battistelli is chairman of both boards of appeal and the court which might lead to a critical concentration of power. For example, as chairman or president he has a right to nominate the new president of the boards of appeal, who is therefore dependent on the goodwill of Benoît Battistelli. 

Furthermore, Mr. Stjerna complains about the level of costs in respect of the service provided by a lawyer, assessing them as arbitrary. The legal fees would exceed the fees under the German Law on the Remuneration of Lawyers (Rechtsanwaltsvergütungsgesetz, RVG) many times over.

Opinion of 27 German organisations 

In advance of the German Constitutional Court making a final decision, it has invited 27 organisations to comment on the matter by December 2017. Seven institutions and associations responded, including the German government, the EPO, the EPLAW (European Patent Lawyers Association), the DAV (DeutscherAnwaltVerein, German Bar Association), BRAK (Bundesrechtsanwaltskammer, Federal Bar Association), GRUR (Deutsche Vereinigung für gewerblichen Rechtsschutz und Urheberrecht, German Association for the Protection of Intellectual Property) and EPLIT (European Patent Litigators Association). Some of the opinions are publicly available and all of these conclude, in essence, that the complaint should be rejected as inadmissible and/or unfounded.

The BRAK and GRUR opinions go into considerably more detail than those of the DAV, with BRAK concluding the complaint is both inadmissible and unfounded while GRUR does not take a clear line on admissibility but does conclude that the complaint is unfounded (see the statement of Alexander Robinson, at Dehns). The other submissions came from the EPO, EPLAW (European Patent Lawyers Association) and the German Government. The EPO and German Government will not make their views public, while EPLAW has not yet. 

However, German associations give new hope that the Unitary Patent project will still succeed. In particular, for patent owners the unsecure legal situation both in the UK and in Germany leads to more and more frustration. 

For IP owners the current legal situation, according to which they need to take legal action in each individual Member State, is both a time and financial burden. In addition, the same case often leads to different court decisions in each Member State. The implementation of an UPC would lead to relief of court and legal fees and moreover would reduce the work load of the judiciary. With a view to successful systems like the Union Trademark Courts or the Design Rights Courts a similar system for patents would be welcomed. 

Conclusion

Although the German Constitutional Court plans to decide the constitutional complaint in 2018, it still remains unclear whether it will follow the recommendation of several German associations to put the UPC system finally into force or if constitutional concerns will prevail. Through the eyes of a constitutionalist, the lack of independence of the boards of appeals might be considered unconstitutional. Furthermore, another delay can occur if the Federal Constitutional Court calls the CJEU for a preliminary ruling. Whatever happens, we will keep you updated. 

Key Take-Away Points
  • The UK stands on the threshold of ratification. All relevant legislation is in place. However, after Brexit the situation may change again. 
  • In Germany the ratification was blocked by a constitutional complaint. Criticism surrounds the incompatibility of the UPC Agreement with European Union law, the missing qualified majority in the German Parliament, the lack of independence of the boards of appeal and the arbitrary determination of legal fees. 
  • However, German associations give new hope that the Unitary Patent project will still succeed. All organisations agree that the constitutional complaint is inadmissible and/or unfounded. There is hope that the Federal Constitutional Court will keep these opinions in mind when drafting its final decision.
  • A decision on the constitutional complaint is expected later in 2018.