The UK's EU referendum may delay the UPC, but will not derail it whatever the result

As this blog has previously discussed, the creation of the unitary EU patent and the Unified Patent Court (UPC) could see Europe assume a much more significant role as a global patent litigation hub, while also driving up the value of high-quality patents on this side of the Atlantic. However, last week the Conservative party unexpectedly won an overall majority in the British general election, meaning that there is now no doubt that there will be a referendum on continued UK membership of the EU before the end of 2017. As a result, a lot of observers will now be asking themselves whether the UK’s ratification of the UPC Agreement will occur before the vote takes place and even whether the UPC project is now in doubt.

Bristows partner Alan Johnson is this blog’s go-to expert on the UPC and below he outlines what may now happen. The good news for those hoping for a unitary patent and court is that even were the UK to leave the EU, there would be nothing stopping the UPC from operating, perhaps even with a London venue. The bad news is that the whole ratification process may now take a little longer – though, realistically, the current notion that it will enter into force some time during 2016 is probably a little fanciful anyway.

Whether the UPC would be as attractive an option without the UK is another issue; but it is worth noting that it would still cover up to 24 jurisdictions and hundreds of millions of people; and it would still offer plaintiffs significant benefits, such as relatively low costs, short timeframes and, perhaps most significantly, the ready availability of injunctions.

This is what Alan has to say:

Prime Minister David Cameron, as part of the Conservative manifesto, promised an in/out referendum on the UK’s continued membership of the European Union by 2017.  There are many issues connected to this commitment which might reasonably be regarded as more important than its impact on the future of the UPC; nonetheless, it is worth pausing for thought as to what those consequences are as, following the ruling of the Court of Justice of the European Union in March 2011, only EU member states can participate in the UPC. 

No UK, no UPC?

Ever since the UPC Agreement was concluded in February 2013, it has been assumed that Germany, France and the UK must ratify the UPC in order for it to come into force.  However, a closer inspection reveals that this is not correct.  The relevant article is Article 89 (entry into force) which states that:

“This Agreement shall enter into force ... on the first day of the fourth month after the deposit of the thirteenth instrument of ratification or accession in accordance with Article 84, including the three Member States in which the highest number of European patents had effect in the year preceding the year in which the signature of the Agreement takes place ...”.

In turn a “Member State” is defined in Article 2(b) as “a Member State of the European Union”.  Hence, if the UK leaves the European Union, that is not the end of the UPC.  Instead, the place of the UK will be taken by the Netherlands as the third mandatory ratification country.  Given that recently the Netherlands has begun steps toward ratification, it should bear in mind that if it deposits its instrument of ratification, and the UK were to leave the EU, this would leave Germany in the position of the last of the mandatory ratification countries, and the timing of the commencement of the UPC would depend upon the date of its deposit of its instrument of ratification assuming by then 10 other countries had ratified already. 

Of course, in practical terms, there would be significant consequences for the UK’s departure from the EU.  The UK has conduct of various responsibilities within the preparatory committee, including -notably - the IT system; although this could, of course, be taken over by another country.  A more difficult issue is the location of the London branch of the central division. 

It might appear to make no sense for the UK to host a section of the central division if it were not participating at all.  However, an amendment to the UPC Agreement would be required to move the London branch elsewhere, since Article 7(2) specifies that “The central division shall have its seat in Paris, with sections in London and Munich ...” with Annex II to the Agreement specifying the work share of the London branch.  A simple answer, therefore, of moving the location to Paris, Munich or, perhaps, to The Hague, is not so easy.  There would first be a political fight over the substitute location, while the whole process of ratification would presumably have to be repeated by those countries which have already gone through it. 

Were the remaining countries therefore willing to proceed with the UPC without the UK, it may be easier to leave the London section of the UPC central division where it is; especially as there appears, strictly speaking, to be no legal prohibition within the UPC Agreement that requires the court to be physically located within the EU.  Hence, although somewhat bizarre, it is possible that London could maintain its position as the location of a branch of the central division. 

In similar fashion, the provisions of the UPC Agreement requiring central division proceedings to be in the language of the patent would still remain, even after a UK exit. This would mean that about 70% of cases in the central division (whether in Paris, Munich or London) would be in English.

Thus, at a theoretical level at least, there is no reason why the UPC could not march on unaffected by the UK’s exit from the EU.  Indeed, the only truly significant change would be the scope of the protection of unitary patents, which would then exclude the UK and so become markedly less attractive to industry, as UK national protection would have to be obtained via UK national patents or by continued designation of “classical” EP(UK)s.

Will UPC implementation be put on hold?

Under the last UK government – a coalition between the Conservatives and the avowedly pro-EU Liberal Democrats - UPC ratification was not seen as a political issue.  The plan had originally been to ratify before the general election, but for practical reasons (finalisation of the secondary legislation) this was not possible.  However, it was still planned that the UK should ratify by the end of this calendar year, albeit holding back deposit of its instrument of ratification for practical reasons, to ensure that the courts, judges, IT system, etc were all in place.  Whether the new Conservative only government will proceed to the point of actually depositing the instrument of ratification with the risk that the UK might exit from the EU should a referendum result in an “out” vote is not yet clear.

In practice, a convenient solution would be to slow down progress toward the start of the UPC.  After all, the timetable which suggests entry into force of the UPC Agreement in 2016 remains ambitious.  Hence, at worst no more than a gentle slowing down of the process would be required – while it may well be the case that a further two years is a more realistic timeframe anyway.  It would be very easy to ensure that the entry into force is delayed until after the UK’s continued membership of the EU is assured.  As stated above, the Conservative Party’s promise is for an in-out referendum “by 2017”, and hence the overall slippage in the timetable need not be that great.

Three other things that are worth noting:

  • A number of reports in the UK are now suggesting that the UK referendum may end up taking place in 2016, rather than in 2017. Obviously, were that to happen the status of the UPC would probably become much clearer much sooner.

  • Opinion polls suggest that the British public’s appetite for EU withdrawal is waning, with support for continued membership growing. There is also a sense that were David Cameron to campaign to stay in – and most observers believe he will – then the vote in favour of doing so would be pretty large.

  • However, should the UK as a whole to vote to leave, but the Scottish portion of the electorate vote to stay, that could trigger another independence referendum, so opening another big can of worms.

My sense is that the UPC was always going to be slow to get going and that even without a UK referendum 2017 or 2018 were the most likely years for it to begin operations. Those with patent interests would be well advised to keep their preparations on track, especially because the likelihood is that the UK will vote to remain an EU member state when the referendum takes place.   

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