Brexit leaves the UPC in limbo – and that’s no bad thing

On June 23 the people of England and Wales, with some help from large minorities in Scotland and Northern Ireland, shocked the world – and probably themselves too – when, by a margin of 17,410,742 to 16,141,241, they voted in a long-awaited referendum for the United Kingdom to leave the European Union. In doing so, they forced the resignation of Prime Minister David Cameron, prompted a leadership crisis in the opposition Labour party and precipitated sharp falls in the value of sterling, not to mention a good deal of panic in various financial markets. All on the back of a referendum promise that Cameron made in January 2013 when he was having a spot of bother with the Eurosceptic right wing of his Conservative party. Presumably, it seemed like a good idea at the time.

Countless articles and learned papers will be written on the result and what caused it; but what it seems to have been more than anything else is a cry of pain from a large number of people who felt left behind first by globalisation and then by the consequences of the 2008 financial crash, the slow recovery that followed and the swingeing effects of austerity. A potent cocktail of low pay, job insecurity, housing scarcity, public service spending cuts and rising immigration fuelled a level of discontent in many parts of the United Kingdom that mainstream politicians have struggled to contain. Throw in a number of exaggerations at best, lies at worst, from those leading the Leave campaign and in retrospect perhaps the only surprise is that the Remain side came so close to prevailing.

Doing the deal

But whatever the reasons for the outcome, the United Kingdom under new Prime Minister Theresa May must now disentangle itself from EU membership. The country has been part of the club since 1973, so it will be a long and complicated process. A key issue is just when the government will invoke Article 50 of the Lisbon Treaty, which sets the timetable for withdrawal. Once it comes into play, there is a two-year timeframe to ink a deal, unless both sides agree to an extension. Some in the United Kingdom argue that Article 50 should be invoked immediately. Others state that there is no hurry and suggest that more clarity over negotiating positions is needed. It could be 2017 before anything happens – maybe even later.

Then there are the terms of departure. There is talk of the United Kingdom becoming a member of the European Economic Area (EEA), meaning that it would essentially remain a part of the single market, so accepting single market rules, but with a slightly higher degree of sovereignty and the ability to conclude its own trade deals. This is the so-called ‘Norway option’. However, another school of thought is that this arrangement would be a betrayal of Leave voters, as it would basically allow EU citizens to continue to live and work in the United Kingdom without restriction, and would mean that in many areas the European Union would dictate UK laws, with the country having no say over how those laws are framed. Quite what the other 27 member states think seems to have been given little consideration – perhaps not the best way to begin a negotiating process.

For IP owners, all this means dealing with a period of sustained uncertainty. Right now, they can have no confidence in predicting what the IP landscape in Europe will look like in two or three years’ time. And that is because absolutely nobody knows. An EEA deal, for example, would have very different IP consequences from one based on World Trade Organisation free trade standards. As things stand, both are possibilities.

UPC casualty

Probably the biggest IP casualty of the Brexit vote is the proposed Unified Patent Court (UPC) and EU unitary patent regime. Until the United Kingdom leaves the European Union, its ratification is needed for the system to come into being; so realistically that probably means a minimum of two and a half years’ delay from here.

We can now expect that Germany’s popularity as a patent litigation venue will continue to increase, and that other European jurisdictions – including the United Kingdom – will also see more activity, especially involving US plaintiffs. But national courts are not the UPC and any injunctions they grant will cover a much smaller territory; thus, it is to be expected that the value of European patents will not be as high as they might have been had the United Kingdom voted Remain.

What’s more, a lot of companies, law and attorney firms and others that have invested a great deal of time and money in preparing for regime change will essentially have to write this off as a loss. That will hurt.

Perhaps in part because of that investment, several prominent private practice commentators have suggested that there may be ways to bypass the Brexit vote in order to get the UPC up and running sooner rather than later. It is a theme that European Patent Office President Benoît Battistelli touched on in a blog post on July 11, in which he reported on a conference he had attended about the UPC: “It is clear that political decisions on the future of the Unitary Patent package will take some time but it was equally evident that one sentiment prevailed among the conference participants: ways have to be found for the Unitary Patent package to go ahead and to enter into operation as soon as possible. There is hope that political leaders will listen to the pleas of the user community to go ahead with the Unitary Patent package in one way or another. Indeed at a time of economic challenges and significant budgetary constraints for companies, businesses should not be denied the economic advantages and cost savings offered by the Unitary Patent package.”

But although it may be tempting to push for some kind of deal that would see the UPC commence operations sometime next year, politically that looks tough.

Delay is best

On June 23, the people of the United Kingdom voted to remove the country from the European Union and its institutions. There may be clever legal arguments for claiming that the UPC is not one of these, but to all intents and purposes it is. Only EU member states can be a part of it and for that to change, considerable renegotiation would be needed.

While the United Kingdom remains part of the European Union for now, the trajectory is undoubtedly towards the exit door and there is no desire for more Europe. Politically, it is hard to see any UK government making a decision that would go against that; while morally it would surely also be the wrong thing to do, even if ordinary voters know nothing about the court or patents in general. They have voted for a course of action and that must be respected. Were the United Kingdom to ratify the UPC, for the first time it would be giving courts sitting in other countries the ability to determine the fate of patents that are valid in the United Kingdom. In other words, it would entail a transfer of sovereignty at a time when voters have explicitly rejected such a course.

What is likely to happen instead is that the UK’s relationship with the UPC will become part of a wider Brexit deal. As things stand, ratification – or not – is a bargaining chip that the United Kingdom has to play. It needs as many of these as it can get.

The UPC already has its critics. They consider it to be the result of a deal done behind closed doors, designed to benefit nobody but big corporations and patent lawyers. That may be an entirely mistaken viewpoint; but one way to reinforce it and give it more traction is to ignore the implications of the Brexit vote and concoct a way for the United Kingdom to participate in the UPC.

What’s more, it’s not as if industry has been clamouring for this. In the last issue of IAM (issue 78, pages 54 to 69), for example, just 10% of corporate respondents to our annual benchmarking survey stated that they were preparing for the UPC “enthusiastically”, while just 12% of private practice participants reported enthusiasm from their clients as preparations were being made.

A delay in launching the UPC will frustrate many and will undoubtedly delay or even put on hold forever Europe’s emergence as the centre point of global patent litigation. It will clearly mean that European patents will not be worth as much as they would have been, and it will make it much harder for Europe to set de facto global patentability standards in areas such as software and biotechnology, or to lead the way in advancing the thinking around patent valuation and collateralisation. These are all wasted opportunities; but that’s democracy for you.

A few days after the Brexit vote, the Italian Parliament began discussing the legislation required to enable the country to ratify the UPC. That was a significant development, because once the United Kingdom has left the European Union, Italy’s signature will join those of France and Germany as one of the three needed to bring the UPC into being. As aggravating and frustrating as it may be, if the UPC is to be regarded as legitimate and worthwhile, this is where things have to move from here.