New draft legislation in Germany to ratify the Unified Patent Court

In its decision (2 BvR 739/17) published on 20 March 2020, the Federal Constitutional Court of Germany (BVerfG) declared the Act on the Agreement on a Unified Patent Court (EPGÜ-ZustG) null and void for formal reasons (see C&F press release). The decision was based on the failure to obtain the required two-thirds majority in the German Bundestag. There was neither a determination of the quorum nor a statement by the President of the Bundestag that the Act had been adopted by a qualified majority. Due to this formal shortcoming, the prerequisite for ratification of the Agreement of 19 February 2013 on a Unified Patent Court (UPC) was absent.

The UPC Agreement provides for a Unified Patent Court (UPC) for several EU member states to deal independently with disputes concerning European patents and European patents with unitary effect. (The latter will be introduced with the creation of the UPC.) These include, in particular, actions for patent infringement, disputes concerning the validity of patents and actions against decisions of the European Patent Office. The UPC is intended to fully replace the previously competent patent chambers or patent senates at the regional courts, higher regional courts and the Federal Supreme Court as well as the Federal Patent Court with respect to European or Unitary Patents.

The UPC Agreement has now been ratified by 16 signatory states, including France and Great Britain. Only ratification by the Federal Republic of Germany is still required for it to enter into force.

Critical voices on the UPC

The UPC is now being widely questioned. According to a Juve survey of more than 600 patent experts in April 2020, 55.3% actually reject it. Only 33.6 % of those questioned still support it. The result is even clearer among the attorneys and judges surveyed: 56.5 % and 59.4 % of patent attorneys and attorneys-at-law respectively and more than 71.4 % of judges no longer support the UPC. Industry representatives are also rather skeptical: 43.5 % of company representatives stated that they no longer support the current UPC.

According to Juve, small and medium-sized enterprises (SMEs) in particular see a negative impact through the UPC. "The main reason is the increased costs", says Dr. Natalie Kirchhofer, patent attorney and partner at COHAUSZ & FLORACK. "For innovative SMEs in particular, these costs, which are many times higher than those incurred in the enforcement of own inventions before the UPC, play an important role in their competitiveness". Gottfried Schüll, patent attorney and partner at Cohausz & Florack, is also critical of the lack of jurisdiction of the national patent infringement courts for granted EP patents, which will come eventually with the UPC: "This means that patent owners who are looking for inexpensive legal protection need to resort to national German patents. European patent law is becoming a law for corporations. SMEs, the pillar of German competitiveness, will not benefit from the advantages of European unification of patent protection. In fact, the opposite is the case".

"Even for large corporations with huge patent portfolios, for example in IT, e-technology, communication technologies and the pharmaceutical industry, uncertainties are to be expected under the UPC – among other things, about which legal remedies are possible under the UPC and how these are influenced by national experience through the choice of local chambers", says Dr. Arwed Burrichter, patent attorney and partner at COHAUSZ & FLORACK.

As Great Britain was still involved in the drafting of the UPC Rules of Procedure, these are also significantly influenced by common law aspects. These are now no longer accessible to professional representatives at the UPC, since, due to Brexit, the British colleagues are no longer available. There is therefore no essential basis for a consistent application of the law.

Will Germany still ratify the UPC Agreement (UPCA) in 2020?

Following the negative decision of the German Federal Constitutional Court and the withdrawal of the United Kingdom at the end of January 2020, the prospect of ratification of the UPC Agreement (UPCA) was highly questionable and impossible to assess in terms of time. Nevertheless, patent attorneys and attorneys-at-law, especially from large corporations, were quite optimistic that the UPCA would eventually be signed by the German Government after all, since the Federal Constitutional Court did not reject the UPC in substantive law. However, the treaty in the opinion of most observers would need to first be adapted to the withdrawal of Great Britain and the seat of the central chambers originally planned for London must be renegotiated. The reorganization of the fees is also seen as an additional challenge.

The Federal Ministry of Justice has now presented a new draft law on ratifying the UPC legislation. It intends to stick to the enforcement of the law without amendments. The bill was sent to associations and institutions with the request for comments. The deadline is 3 July 2020, meaning that things could move quickly. For the ministry there are currently no legal issues apart from the lack of a two-thirds majority. Even though ratification by Great Britain, France and Germany is a mandatory requirement in the UPCA, the Ministry of Justice does not see this as an obstacle and is postponing the issue. In fact, the speaker's draft states: "Irrespective of the fact that the British consent is currently given, a withdrawal of Great Britain will have no influence on the applicability of the regulations on entry into force, at least not because they are to be interpreted in such a way that a withdrawal of one of these three states, which could not be foreseen by anyone, will not prevent the entire entry into force for the remaining parties".

Outlook

A parliamentary query is pending before the European Commission as to whether Germany can ratify the UPCA in its present form as a result of Brexit. This also specifically includes the question of whether the European Commission will initiate infringement proceedings against Germany if it ratifies the UPC Agreement in its current form.

Numerous critical voices also consider a further constitutional complaint possible. The decision of the Federal Constitutional Court already indicates substantive legal problems in the UPCA. For example, the BVerfG raises the question as to whether the establishment of the UPC on the basis of international law undermines the requirement of Article 262 AEUV. A transfer of jurisdiction for litigation concerning European property rights to the new Court of Justice requires a unanimous Council decision and ratification by the Member States. Neither of these conditions is met (paragraph 145 of the decision). The BVerfG also raises the question of whether the primacy of Union Law in Article 20 UPCA is at all compatible with the Basic Law. The BVerfG leaves the answer to this question open (marginal note 166 of the decision). In the latter case, Germany would not be allowed to ratify the UPCA at all, and the BVerfG might fail to ratify it once again. The Federal Constitutional Court is refraining from a final decision on these issues only because the invalidity of the UPCA is already apparent from the other reasons mentioned above.

Should these substantive legal issues be confirmed in whole or in part, or should the Commission express a critical opinion on the parliamentary query, a further delay in the implementation of the UPC agreement can be expected. "One may even doubt that, in view of the necessary renegotiation of the text of the agreement, the UPCA will enter into force in the foreseeable future", says Philipe Walter, patent attorney and partner at COHAUSZ & FLORACK.

Finally, the question arises as to whether the German legislator would be well advised to ignore the considerable discrepancies which have arisen between the legal text and the post-Brexit reality – in particular the seat of a division of the central chamber of the Court of First Instance in London – and to transfer this division to Paris and/or Munich, as suggested in the explanatory memorandum to the law. In the opinion of COHAUSZ & FLORACK, it would appear that this does not seem to be readily compatible with the European idea.

The present draft bill will be discussed in the coming weeks and months. It remains interesting to see how things will continue and to what result any renegotiations or attempts at ratification will lead. In the opinion of Cohausz & Florack, particularly in a second attempt, an approach should be pursued which at least largely rules out another failure at the Federal Constitutional Court.

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