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Unified Patent Court project at risk amidst uncertainties in the UK and Germany, says expert

ANALYSIS: It is increasingly uncertain whether the proposed new Unified Patent Court (UPC) in Europe will come into operation in its current form.27 Oct 2017

There is a two-fold risk to the future of the project: political considerations around Brexit in the UK, and an ongoing legal challenge to the proposed reforms in Germany.

The combination of those factors, and the potential timescales for their resolution, has put the future of the UPC in jeopardy, despite public statements to the contrary.

The UPC and its current status

The UPC would serve as a new judicial enforcement framework to underpin a new unitary patent system. Businesses would be able to apply to the European Patent Office for unitary patents which, if granted, would automatically confer on them patent protection for their inventions which will apply across every country that gives recognition to the unitary patent regime, which at the moment looks set to be 25 of the 28 existing EU countries.

For the new UPC system to take effect, at least 13 EU countries, including the three with the most European patents in effect in 2012 – Germany, France and the UK, must pass national legislation to ratify the UPC Agreement that the countries behind the new system finalised in 2013. France is one of the 14 countries to have completed ratification to-date.

The process of UK ratification

Officially, the UK government "remains committed to completing all domestic steps needed to ratify" the UPC Agreement. However, progress towards ratification, which the UK government committed to in November last year, has been slow since the UK voted to leave the EU in June 2016.

Earlier this summer, the government brought an Order on Privileges and Immunities for the UPC before the Westminster parliament. The legislation needs to be passed for the UK to complete its ratification of the UPC Agreement.

To-date, however, the Order has not yet been debated before either the House of Commons or House of Lords. Both MPs and peers must vote on whether to approve it the Order before it can come into effect. In addition, the Order also requires Privy Council approval.

The UK's Intellectual Property Office (IPO) told Out-Law.com that the Commons and Lords debates on the Order are "subject to parliament timetable".

However, there has been progress on similar legislation regarding privileges and immunities around the UPC in Scotland. The equivalent Order to the one introduced before the Westminster parliament was approved by the Scottish Parliament earlier this week. The Privy Council must also approve the Scottish Order before it takes effect.

The situation in Germany

Earlier this year, Germany's parliament voted to ratify the UPC Agreement.  However, news that Germany's Constitutional Court was considering whether the legislation was constitutional subsequently emerged, and details of the grounds for complaint followed in August.

The case is a complex one and the Constitutional Court in Karlsruhe could reportedly take until around April 2018 to determine the complaint is "obviously unfounded". The court has invited comments and statements on the case from interested parties and recently extended the deadline for submissions to the end of this year.

If the Karlsruhe court dismisses the complaints in or around April then it would clear the way for Germany to ratify the UPC Agreement soon after and for the entire unitary patent and UPC system to become operational, possibly as early as the summer next year, although completion of a number of administrative issues to enable the court to become operational, including the interview and appointment of judges, would make an autumn start date more likely.

However, it appears more likely that the legal challenge will pass the 'obviously unfounded' threshold and spur a deeper consideration of the case. This process could take a number of months before the court reaches a conclusion. The delay could be exacerbated if the Karlsruhe court refers questions of EU law to the Court of Justice of the EU (CJEU) for a preliminary ruling.

A negative determination by the Karlsruhe court would effectively kill the UPC project in its current guise. However, even a positive ruling dismissing the complaint would not guarantee the future of the UPC due to further complicating factors concerning the UK's exit from the EU.

The Brexit factor

The UPC Agreement currently requires countries participating in the new unitary patent and UPC system to be EU members. This calls into question whether the UK would be able to participate in the new system if it did not ratify prior to Brexit, and indeed whether it would be able to continue to participate in the regime post-Brexit even if ratification takes place prior to the date the UK formally exits the EU.

These factors have spurred suspicion across the business and legal community that the UK may use its prospective ratification of the UPC Agreement as a negotiating tool in its talks with the EU27 over future EU-UK trade arrangements.

However, the Brexit negotiations have not yet proceeded to the point where future trade arrangements are being discussed. This is because the EU27 has deemed that there has not been sufficient progress on the resolution of three issues they say must first be resolved in respect of Brexit: the rights of citizens; the UK's payment of its bill to the EU, and the Irish border.

Others within industry believe that the UK government could delay its ratification of the UPC Agreement to see what the outcome of the constitutional challenge is in Germany. The IPO told Out-Law.com that it had noted the case but did not consider it appropriate to comment on the matter.

So, while the UK is, on the face of it, well on track to complete ratification before 29 March 2019 – the date on which the UK is currently scheduled to formally exit the EU – it has still to actually complete that process.

Vague commitments to ratify when parliamentary timetables permit offer the UK government sufficient wriggle room to delay ratification and, potentially, leverage the UK's position as part of the broader Brexit negotiations.

Potential future scenarios

If the UK does not ratify prior to leaving the EU then it would not be able to participate in the unitary patent and UPC system unless the current terms of membership, specified in the UPC Agreement, were amended.

This would lead to the untying of the various legal steps taken by EU members to-date to ratify the Agreement. In short, the Agreement would need to make clear that participation is allowed by non-EU members and new steps taken to re-ratify by each of the signatories to that Agreement.

It seems unlikely, after painstakingly slow progress over decades to reach the point where a new unitary patent system might be applied in Europe, that there would be the political will to scrap existing plans and start again.

It is possible that the unitary patent and UPC project could continue without UK participation, in which case the Netherlands or Italy would likely host one of the central divisions of the UPC instead of London, where it is envisaged disputes concerning unitary patents and non-opted out European patents in the life sciences sector would be resolved. However, without the UK's participation, unitary patent protection would be less attractive for many businesses.

A potential but unlikely solution could buy both the UK and Germany time to ratify the existing UPC Agreement.

A Brexit transition period could be agreed between the UK and EU27 to help smooth the way for businesses to adjust to the UK becoming a non-EU member. UK prime minister Theresa May and chancellor Philip Hammond have both referred to the potential of a transition period to be agreed.

It is possible that the UK and EU27 could agree that the UK remain an EU member state during the transitional period.

According to colleague and Brexit expert Guy Lougher, article 50 of the Treaty on European Union, which May triggered on 29 March, is clear that an EU member state that notifies that it will leave the EU will formally exit the EU precisely two years later, unless there is unanimous agreement among the remaining EU member states to amend the exit date.

As it stands, therefore, the UK will exit the EU on 29 March 2019, notwithstanding the potential for that date to be changed as part of the Brexit talks and/or under the terms of any transition agreement, Lougher said.

If that unlikely scenario arose, the 29 March 2019 deadline for the German constitutional complaint to be resolved and German ratification completed, and for the UK to complete its own ratification, would become less pressing.

Businesses attracted to the prospect of a new unitary patent and UPC system in Europe should make their views clear to spur faster progress on this issue. There is a risk, with much bigger issues to resolve around Brexit, that ratification of the UPC Agreement will get lost low down on the list of priorities.

The most likely scenario for the unitary patent and UPC system to survive the current challenges is for UK ratification to take place prior to 29 March 2019 and for the German constitutional complaint to be rejected by the Karlsruhe court in time for Germany to ratify prior to that date too.

At the moment, there is a lot of uncertainty over whether those two eventualities will materialise.

Dr Michael Schneider is a patent law and litigation expert at Pinsent Masons, the law firm behind Out-Law.com.