Green Light for UPC

UPC – And it got up again

Having been sent down for the count by constitutional complaints in Germany, the road finally seems paved for the Unified Patent Court.  On July 9, 2021, the German Federal Constitutional Court (GFCC) announced that it had dismissed two applications for a preliminary injunction seeking to void the German Act of Approval of the Agreement on a Unified Patent Court (the “Bill”).  Based on these applications, the GFCC had (once again) asked Germany’s president to suspend the Bill’s ratification, the final major step before the UPC can come into existence.

Germany – The ultimate battle ground

The so-called “European Patent Package” is comprised of by two EU regulations and an international treaty, the Agreement on a Unified Patent Court (UPCA).  The two regulations pertain to the creation of the Unitary Patent (UP), a single patent having effect in all participating EU Member States.  Both regulations, which are based on the concept of “enhanced cooperation” (i.e., a framework allowing EU Member States to work closely together), passed in 2012 and were not challenged.  Even though these regulations have technically been in effect since 2013, they have remained pending until the UPCA’s ratification.

The UPCA is the foundation of the corresponding Unified Patent Court (UPC), a court system for litigation over UPs with effect in all participating Member States.  25 of the EU Member States (all except for Spain, Croatia, and Poland) signed the UPCA in 2015.  To enter into force, however, it must be ratified by at least 13 Member States, including the three with the highest number of European patents (originally, Germany, France and UK).

Everything seemed close to set when all 35 of the 631 members of the Second Chamber of the German Parliament (Bundestag) who were present on that day unanimously decided to pass the UPCA in 2017, making Germany the 13th state expected to ratify the UPCA.  That left only the UK’s ratification remaining for the UPC to take off.  (With BREXIT, the UK’s ratification is no longer necessary, as the UK has withdrawn from the UPCA.)

The plot started to twist in 2017 when a first constitutional complaint put ratification on hold in Germany.  The GFCC held in November 2020 that, due to the UPCA’s transfer of sovereignty, a different majority for ratification was required by the German Basic Law (Grundgesetz).  The GFCC further held that that majority was not satisfied with only 35 parliamentarians present.  To warrant democratic legitimization, the UPCA therefore had to take at least another turn before the Bundestag.  Due to this formal deficit, the GFCC had no reason in the meantime to assess the UPCA’s conformity with substantial aspects with the Basic Law.  It did, however, suggest that there might be violations. 

The formal deficits were overcome in December 2020 when both the Bundestag and the German Federal Council (Bundesrat) approved the legislation with the necessary majority.  Complainants subsequently lodged two new preliminary complaints in order to again delay the UPCA’s ratification.  The complainants asserted that the UPCA violated a number of rights and principles:

-        The individual’s right to democratic self-determination (as the power of the German Parliament would be undermined)

-        The fundamental right to effective legal protection (due to a lack of independence of the UPC judges, whose six-year terms with the possibility of re-election permit potential indirect bias)

-        The individual’s right to a lawful judge (as one of the central divisions was to be in London)

-        An "eternity guarantee" regarding fundamental principles of the Basic Law (arising from UPCA’s unrestricted prioritization of Union Law, which might cause the GFCC to lose its position to warrant these principles)

-        Irreconcilability of the UPCA with Union Law (since cooperation between the European Court of Justice and Member State Courts is impaired by a court that is separate from the courts of the Member States) and other democratic deficits as well as deficits in the rule of law (e.g., because the UPCA was enacted despite changes due to BREXIT)

-        The principle of autonomy of Union Law which was violated because the UK is still a contracting party

The GFCC held that the complainants failed to sufficiently substantiate their assertions.  It explained that individuals can allege a violation of their right to democratic self-determination, which requires a very stringent showing.  But they do not have the right to challenge a democratic parliamentary decision. 

As the complainants are unlikely to overcome this fundamental deficit and succeed with a further complaint on the merits, the field is open for the UPC.  Before starting to hear cases, the UPC will enter into an 8-12 month pilot phase.  During this phase, judges will be appointed and trained, the IT systems will be set up, and other pre-operational measures taken.  To start the pilot phase, two more Member States who have already ratified the UPCA will need to sign the Protocol on Provisional Application.  These procedural formalities are not likely to lead to further delays, as some Member States do not require a lengthy parliamentary ratification process but only a signature or a unilateral declaration to do so.

The new arena – UPC

The dawn of the UPC should signal the end of the need for fragmented patent enforcement, due to its exclusive competence over traditional European Patents (EP) as well as UPs.  Its decisions and orders will be enforceable in any contracting EU Member State.  The court will be structured as a Court of First Instance (i.e., comprising local, regional, and central divisions, the latter seated in Paris and Munich), a Court of Appeal (in Luxemburg), and a Registry. 

Now that the UK has withdrawn from the UPCA in the context of BREXIT, it remains to be seen where the third seat of the central division (formerly London) will be located.  Italy is promoting Milan as a third venue, and other possible candidates are Amsterdam and Paris.  Pending this decision, responsibilities will likely be shared between Munich and Paris.

Together with the UPCA, a transitional regime will come into effect, allowing for any EP granted to be transformed into a UP for uniform protection with equal effect.  Plaintiffs will be free to choose whether to commence proceedings based on UPs before the national court (i.e., in the traditional fragmented system) or the UPC.

The fragmented patent landscape will persist for at least a while, however.  This is because a UP covers only the territories of those Member States that ratified the UPCA at the moment of registration of unitary effect, i.e., the registration of a UP or the transformation of an EP into a UP.  Up to now, 15 Member States have ratified the UCPA, and after the GFFC’s ruling, Germany has been given the green light do so as well.  Spain and Croatia are the only two Member States that are not yet participating in either the Unitary Patent System or the UPC, but they may do so at any time.  Thus, even with the UPC up and running, the patent landscape will remain segmented into different “layers” of Unitary Patents, each different in territorial scope.

In the long run, the Unitary Patent System definitely has the potential to significantly reduce costs and increase efficiency and legal certainty of patent enforcement in Europe.