Out-Law News | 20 Mar 2020 | 11:05 am | 5 min. read
German law makers voted to pass legislation in early 2017 to ratify the UPC Agreement, an international treaty that provides for the establishment of a new UPC system – that is a multi-jurisdictional judicial framework in Europe for resolving patent disputes.
However, the Federal Constitutional Court in Karlsruhe has ruled that legislation is void because it had not been approved by a sufficient proportion of parliamentarians.
The court said that such a vote was necessary because ratification of the UPCA would involve transferring sovereign powers away from Germany to the UPC and as such represents a major amendment to the country's Constitution. Changes of that nature require a "two-thirds majority" vote of the Bundestag, it said.
Dr. Michael Schneider
This judgment is a further setback, as without German and UK participation the new system is substantially less attractive for businesses... The ruling is not necessarily fatal to the UPC, however
The constitutional complaint which had been raised before the Karlsruhe court had multiple strands. The court did explicitly not rule on the other grounds of complaint, but they were not rejected as unfounded. The court considered the lawyer who brought the complaint, Dr Ingve Björn Stjerna, as not having sufficient standing to bring the other parts of the complaint in the form he did.
Dr Michael Schneider of Pinsent Masons, the law firm behind Out-Law, said: "The ruling is the latest significant blow to the prospects of a new UPC system becoming operational. There were already significant doubts about whether it would become operational in light of the UK's decision not to participate, but this judgment is a further setback, as without German and UK participation the new system is substantially less attractive for businesses."
"The ruling is not necessarily fatal to the UPC, however. Based on today's ruling, the process of ratification in Germany can be achieved by bringing fresh legislation before the parliament and achieving the necessary two-thirds majority vote. Absent then further complaints against the issues which have been left undecided by today’s ruling, in particular regarding the UPC’s compatibility with EU law, Germany would then be in a position to ratify," he said.
Schneider said, though, that there is a question mark over whether that can be achieved.
"Firstly, it requires political will across the political spectrum in the Bundestag, where there is already a notable proportion of anti-Europe sentiment on both the political left and right," he said. "At this time of crisis with the coronavirus, there is also a real question about whether a quorum will be able to be achieved in parliament for such a vote any time soon."
"While there were going to be pros and cons for businesses in seeking unitary patent protection or opting their European patents into the UPC's jurisdiction, ultimately the system was aimed at reducing the administrative and cost burdens involved in registering Europe-wide patent protection. It may now be several years before we see renewed efforts to address that issue," Schneider said.
Jules Fabre of Pinsent Masons said: "It seems unlikely that Germany will make another attempt to ratify until the consequences of the UK not participating are resolved, including negotiations about relocation of the London seat of the UPC central divisional court for life sciences patent disputes and potential further amendments to the UPCA. This will obviously take time."
The new UPC system, years in the planning but yet to become operational, foresees a Europe-wide court system to ensure that businesses have a streamlined process for litigating European patents through a single court – including new unitary patents.
The UPCA is an overarching international agreement that provides for the establishment of the UPC judicial framework. It dictates that, 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 ratifying the UPCA.
French ratification came early in the process and the UK also completed its ratification prior to exiting the EU. In total, 16 countries have ratified the UPCA to-date. However, German plans to ratify the UPCA in 2017 were put on hold after a legal challenge was lodged before the Federal Constitutional Court.
There were multiple strands to the complaint. Those included concerns that ratification involved the transfer of sovereign rights from Germany's judiciary to another organisation – in this case the transfer of patent litigation powers to the UPC – and that a certain quorum and majority of votes in Germany's parliament has not been achieved to approve that.
The complaint also called into question whether judges of the UPC will be independent in the sense prescribed by the German constitution. Further issue was taken with the way that the unitary patent reforms as a whole have been structured and whether this aligns with the constitutional mandate to promote Germany's integration within the EU.
Dr. Michael Schneider
Ultimately, the UPCA may need to be revisited ... with there being a consequential need for re-ratification and subsequent delay to the whole system becoming operational
Even if the Germany does ratify, there are potential other hurdles to the operation of the UPC and the new unitary patent system, said Schneider.
"The announcement that the UK will not participate in the UPC throws up further potential barriers to the UPC project," Schneider said. "There has already been debate about whether the non-participation of the UK, as a major centre for patent litigation, reduces some of the benefits for business of choosing to litigate their patents before the UPC. However, another potentially fatal issue for the project stems from the fact the UK, despite not intending to participate any longer and having now left the EU, has already completed ratification as it might be argued that the UPC is not properly constituted if UK judges do not take up their seats in the courts or are excluded from doing so."
"Ultimately, the UPCA may need to be revisited to overcome this issue with there being a consequential need for re-ratification and subsequent delay to the whole system becoming operational," Schneider said.
As currently worded, the UPCA envisages participation in the UPC system by EU member states only. Despite completing ratification of the UPCA, the UK's long-term participation in the new system had been in doubt as the UPCA provides for the supremacy of EU law and the jurisdiction of the Court of Justice of the EU (CJEU) as ultimate arbiter. The UK government confirmed earlier this year that it now no longer plans to participate at all.
London-based Christopher Sharp of Pinsent Masons said: "It is important for UK businesses to understand that the UK government's non-participation announcement does not mean that they cannot benefit from a new UPC system, if the various issues around it becoming operational can be resolved. Given the cross-border nature of the UK’s key industries – pharmaceuticals, engineering, high-tech – litigants would still be able to utilise the UPC system, and its benefits of multi-jurisdictional relief and cost efficiency."
Ireland, a growing centre for patent litigation, has still to complete its ratification process.
Dublin-based Ann Henry of Pinsent Masons said: "In Ireland the ratification of the UPCA will require a referendum to amend the Constitution. With the UK deciding not to participate in the UPC given Brexit, the Irish government will want to consider carefully the implications of that decision."
"In referendums in Ireland, by law, the public must have made available to them objective research-based analysis on the pros and cons of voting for or against any referendum. Most patent litigation cases in Ireland concern patents in the life sciences sector. Many of the leading global pharmaceuticals manufacture in Ireland and so the implications of the reliefs available under the UPC system are of interest. The government will listen to a range of stakeholders given how events are unfolding and will be keenly interested to hear the views of the life sciences sector in Ireland," she said.
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