For the half-year to 31 December 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Rebecca Gulbul, Lucas Michels and Marie-Andrée Weiss.

Regular round-ups of the previous week's blogposts are kindly compiled by Alberto Bellan.

Tuesday, 6 December 2011

Will the German exchequer be laughing to the bank courtesy of Article 10 of the proposed Regulation on unitary patent protection? (UPDATED)

Vicki Salmon, CIPA and
IPAsset
Following on from the draft compromised Proposed Regulation (here), the AmeriKat has received several comments and e-mails from readers highlighting some of their concerns with the text (see previous reports on the unified patent developments here). Vicki Salmon (IP Asset -"In more ways then one!" says the Kat), Chairperson of CIPA's Litigation Committee and IPKat friend, alerted the AmeriKat to a provision of particular concern to the patent profession. Readers will of course know of the stated problems of Articles 6 to 8 of the Regulation (see here), but it’s less talked about neighbor is Article 10 – “Treating a European patent with unitary effect as a national patent”. Its predecessor, Article 38 of the 1989 draft for the Community Patent - “Dealing with the Community patent as a national patent” - dealt with the property law that would apply to the unitary right. Article 38 stated as follows:
1. Unless otherwise specified in this Convention, a Community patent as an object of property shall be dealt with in its entirety, and for the whole of the territories in which it is effective, as a national patent of the Contracting State in which, according to the Register of European Patents provided for in the European Patent Convention: 
(a) the applicant for the patent had his residence or principal place of business on the date of filing of the European patent application;
(b) where subparagraph (a) does not apply, the applicant had a place of business on that date; or
(c) where neither subparagraph (a) nor subparagraph (b) applies, the applicant's representative whose name is entered first in the Register of European Patents had his place of business on the date of that entry.  
2. Where subparagraphs (a), (b) and (c) of paragraph 1 do not apply, the Contracting State referred to in that paragraph shall be the Federal Republic of Germany.  
3. If two or more persons are mentioned in the Register of European Patents as joint applicants, paragraph 1 shall apply to the joint applicant first mentioned; if this is not possible, it shall apply to the joint applicant next mentioned in respect of whom it is applicable. Where paragraph 1 does not apply to any of the joint applicants, paragraph 2 shall apply.  
4. If in a Contracting State as determined by the preceding paragraphs a right in respect of a national patent is effective only after entry in the national patent register, such a right in respect of a Community patent shall be effective only after entry in the Register of Community Patents. 
Fast forward 20 years to Article 10 of the recent draft Proposed Regulation which provides as follows:
10(1) A European patent with unitary effect as an object of property shall be treated in its entirety and in all the participating Member States  a national patent of the participating Member State which that patent has unitary effect in which , according to the European Patent Register:  
(a) the patent proprietor had his/her residence or principal place of business on the date of filing of the application for the patent; or  
(b) where subparagraph (a) does not apply, the proprietor had a place of business on that date.  
10(2) Where two or more persons are mentioned in the European Patent Register as joint proprietors, paragraph 1(a) shall apply to the joint proprietor indicated first. Where this is not possible, paragraph 1(a) shall apply to the next joint proprietor indicated in the order of entry. Where paragraph 1(a) does not apply to any of the joint proprietors, paragraph 1(b) shall apply accordingly.
10(3) Where no proprietor has his/her residence, principal residence, principal place of business or place of business in a participating Member State in which that patent has unitary effect for the purposes of paragraphs 1 or 2, the European patent with unitary effect as an object of property shall be dealt with in its entirety and in all the participating Member States as a national patent of the State where the European Patent Organisation has its headquarters in accordance with Article 6(1) of the EPC.
So what is the problem? Vicki explains:
"In the 1989 draft for the Community Patent, Art 38 dealt with the property law which would apply to the unitary right. Although similar wording has come through in the current draft for the Patent Regulation, there are a couple of crucial differences, one of which is particularly significant – especially for all those who might convert their EP Patents to the Unitary Patent after grant but are not based in one of the Participating Member States – so by this I include patent owners based in Italy and Spain (unless they also join the Unitary Patent).  
For those based within the Participating Member States, the property law which will apply will be that of their own jurisdiction. However, for everyone else it will be German national law. This hijacking of patent property law is discriminatory against all other Participating Member States. And we are talking about a significant volume of European patent filing from all over the world.  
For those who don't know, this is Germany
  
Under the 1989 Community Patent proposals, a non-EU based applicant was able to select the property law by choosing the country in which the European Patent Attorney was based – that would include multinationals choosing to file through their EU patent department, wherever that was situated. This is hugely advantageous for business as it can select the legal system with which it is most familiar. It was only as a final default that German national law would apply. 
A couple of examples as to why this could increase cost for Unitary Patents of the non-Participating States are as follows: 
  • The validity of assignments, mortgages, trusts or other transfers of these Unitary Patents will need to comply with German law – which may require the attorney of record seeking a German law opinion  
  • Disputes over the ownership of these Unitary Patents will be tried in German national courts – these disputes tend to be far more complicated than disputes over ownership of Community trade marks or designs – again this may require more lawyers to be instructed. And proceedings will need to be translated into and out of German.  
Additionally, if any transfer tax is levied, all that income will go to the German exchequer.  
Voicing concern on Article 10  
Some businesses have voiced concerns, particularly as the draft Patent Regulation is silent on this topic, as to whether this property law selection also brings with it the German law of inventor compensation. If it does, then multi-nationals which have chosen not to set up R&D departments in Germany because they do not wish to be subject to that law will now either have to avoid the Unitary European Patent or create a co-applicant company in the European jurisdiction of choice. Either way, this is not a good start – but perhaps some of the German lawyer readers of this blog will provide some helpful comment.  
CIPA feel that wording equivalent to Art 38(1)(c) should be inserted into the draft patent regulation. But there are plenty of other wording changes which should also be made.  
For example, another crucial difference between the 1989 Community Patent wording and the current draft is that the former referred to the location of the “applicant” and the latter refers to the location of the “proprietor”. This leads to some interesting questions. Is Art 10 to be interpreted as referring to the current “proprietor”? If so, then the relevant property law could change with each assignment. Moreover, what if the current “proprietor” is a new company which did not exist on the date of filing? Which law applies then? Or is this to be interpreted as a reference to the person who filed the application, in which case it should refer to the “applicant” and not the “proprietor”. Although, even this leaves an interesting question as to whether a change in applicant during the application process could mean that a divisional Unitary European Patent is subject to a different legal regime than the parent."
The AmeriKat had not previously appreciated the depth of the potential problems with Article 10 and would like to thank Vicki for her analysis and comments.  What do readers, and particularly our German readers, think about the interpretation of Article 10?  Will being subject to these German national laws discourage patentees from using the Unitary Patent or is the deterrent effect more imaginary than real?

15 comments:

Tom M said...

Sorry, can you explain how the jurisdiction ends up being Germany by default for people outside the participating Member States?

Annsley Merelle Ward said...

@Tom M - It would help if I put in the entire provision of Article 10, wouldn't it? Blame Blogger, not me...

Please see Article 10(3) in the updated post. Let me know if that helps!

Anonymous said...

Late, as we have found it ourselves noe, but forgiven. Isn't it amazing how, after doing so much on this, all your good work can be forgotten by a simple oversight? That's pernickety patent peopl for you.

I don't see a great problem with this article leading to Germany as the default position, providing the central court is located in the UK.

I don't see the place of residence of the representative as relevant for property ownership. The clause was probably originally drafted in response to objections such as those of the CIPA committee members, but deliberately not included in the unitary patent regs for good reason.

Michael Thesen said...

interesting point indeed. At least I may reassure you that the German law of inventor compensation will not enter the game. The applicability thereof is determined by the law governing the employment contract.

Annsley Merelle Ward said...

Don't worry I am still dying of embarrassment due to the omission and my litigator side is still lecturing me. But hopefully readers will have taken the several opportunities presented in the post to click on the text of Article 10...

Anonymous said...

Isn't the post unnecessarily alarmist? Let's go back to Art. 10(3):

Where no proprietor has his/her residence, principal residence, principal place of business or place of business in a participating Member State in which that patent has unitary effect for the purposes of paragraphs 1 or 2

Please correct me if I'm wrong, but I'd understand this as meaning that the proprietor will not have to be based in another participating state to "escape" German jurisdiction. It should be enough for the proprietor to have a "place of business" in another participating state, something that I'd expect to be the case normally, and certainly for multinationals having a "EU patent department"...

Anonymous said...

But hopefully readers will have taken the several opportunities presented in the post to click on the text of Article 10...

Is that sneaky or not - how to get people to read something they'd rather not have read.
Only a true cat could have come up with that ...
:-)

Steve Peers said...

Obviously this provision means that German *law* will apply in certain cases, presumably prevailing over the Rome I and II Regulation to the extent that they might otherwise apply; but how does it necessarily follow that the German courts will have *jurisdiction* over such disputes? The choice of law does not necessarily determine the jurisdiction, and vice versa; and the EU jurisdiction Regulation is also in the midst of a revision process. So jurisdiction is whole different kettle of fish (as the Kats might say).

Anonymous said...

If it read 'a residence or place of business' that more limited interpretation might be a very natural one. As it is, one might think that 'principal' is put in to emphasise that where the applicant has more than one place of business (or residence) it is the principal one that counts.

Anonymous said...

Isn't Germany already the default jurisdiction for ownership disputes for EP applications if the parties are from non-contraciting state countries?

Tom M said...

Thanks for the explanation! I agree with the commenter at 3.28 - this looks like a fallback option when all else fails, which must be pretty rare.

Mark said...

Steve, let's take the example of a dispute over the what happens to a co-owner's interest on death, or whether a licensee is entitled to sublicense, and let's assume there is no contract between the parties on these points governed by a different law. Do we not then have to default to national property law? In these situations, if it defaults to German law, won't the German courts have to decide? Surely an English court is not competent to decide on the rights of co-owners of property on death under German law?

Just some initial thoughts - I am not an expert in international law! If I were I might start using terms like lex situs...

Anonymous said...

A UK judge interpreted US law a few years ago in a patent licence dispute - Celltech v Medimmune with Mr Justice Jacob.

Anonymous said...

"In these situations, if it defaults to German law, won't the German courts have to decide?"

As Steve said jurisdiction on the one hand and applicable law on the other hand are something completely different.

The internationally competent court is determined based on the EU jurisdiction Regulation. Using this regulation, British courts could have jurisdiction.

However, for determining the applicable law you have to apply the Rome I and II Regulation.

Thus, British courts could decide based on German law and vice versa.

As Steve already set forth the provision in question means that German law (NOT courts) will apply in certain cases.

Steve Peers said...

The Rome I and Rome II Regulations both give way to choice-of-law rules set out in other EU legislation (Art. 27 of Rome II; Art. 23 of Rome I). So a conflict-of-law rule in the unitary patent regulation - which presumably means Art. 10 of that Regulation - would trump them. However, there could be a complication because Spain and Italy are subject to the Rome I and II Regulations, but will not be subject to the unitary patent Regulation; while the reverse will be true of Denmark (except that Denmark, and the other Member States in their relations with Denmark, are still bound by the prior Rome Convention, which contains an equivalent rule in Art. 20).

As for jurisdiction, the normal rule is that the court of the defendant's domicile (if the defendant is domiciled in a Member State) has jurisdiction over proceedings, but there are lots of special rules, including exclusive jurisdiction rules relating to immovable property (which wouldn't apply) and to proceedings concerning the validity or registration of patents - where, inter alia, proceedings must be brought where an EU instrument deems the deposit or registration to have taken place. Art. 10 of the unitary patent Reg would presumably be relevant there - except, of course, again there could arguably be a complication, to the extent that Spain and Italy are not bound by it. Of course, not all patent disputes concern validity or registration, and in those cases the general jurisdiction rules apply. But all of these rules will be reviewed as part of the process of revising the jurisdiction regulation, which is already underway - see the link to the document in the Amerikat's later post.

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