UPC - Hungarian constitutional complaint

The words "constitutional challenge" and "Unified Patent Court" are usually accompanied by the word "Germany".  But not always.  At the end of last week, this Kat got wind from Budapest of a decision from the Hungarian Constitutional Court affecting the ratification of the UPC in that jurisdiction.  No English translation is yet available, and so the reasons for the decision remained shrouded in mystery (at least for this linguistically challenged Kat) until multitalented IPKat reader Peter Ling from Lenz & Staehelin provided the following insight:

The Hungarian Constitutional Court in Budapest

"The constitutional challenge against the UPC system before the Hungarian Constitutional Court has received comparatively little attention relative to the German challenge. This is understandable since the outcome of the Hungarian case never had the potential to formally jeopardize the UPC system as a whole, in contrast to Germany - one of the three signatories who must ratify before the UPC goes live.  Nevertheless, the Hungarian Constitutional Court decision published on 29 June that the Unified Patent Court Agreement (UPCA) is incompatible with the Fundamental Law (Constitution) of Hungary (English translation of Fundamental Law available here), is a smaller, but still an important, setback for the UPC system.

The Hungarian case was initiated in 2017, when the Hungarian Government filed a request for interpretation of several provisions of the Fundamental Law with the Hungarian Constitutional Court. In short, the Government asked the Constitutional Court to opine on whether the ratification and entry into force of the UPCA would be compatible with the Fundamental Law.

Summary 

In a 12 to 2 majority decision published on 29 June 2018, the Constitutional Court answered this question in the negative. In short, the Court considered that the transfer, in the framework of an enhanced cooperation among EU Member States, of exclusive jurisdiction on certain civil lawsuits to an international institution not explicitly foreseen by the EU treaties, deprives such lawsuits from any constitutional review under the Fundamental Law and therefore is incompatible with the Fundamental Law. Although this may sound like a purely national constitutional issue without much specific relevance to the UPCA itself, some aspects of the Court’s reasoning point to issues that are potentially relevant beyond Hungary.

Reasoning

It was ominous (at least for proponents of the UPC) to see the Constitutional Court begin its legal analysis by referring to CJEU Opinion C-1/09 regarding the draft agreement on the European and Community Patents Court (ECPC; the UPCA's predecessor draft treaty that was eventually abandoned). The Constitutional Court emphasized that the CJEU considered the ECPC to be incompatible with EU law in particular because the ECPC would have established an international court outside of the EU's institutional and judicial framework, which would have deprived the national courts and the CJEU from their competence to interpret and apply EU law. This introductory remark sets the scene for the following constitutional discussion about depriving the Hungarian Constitutional Court of its own competence to review judicial decisions for violation of the Fundamental Law of Hungary.

As a preliminary question, the Constitutional Court examined whether the UPCA constitutes EU law or whether it is an international treaty outside of the EU framework.  The Fundamental Law explicitly allows aspects of State sovereignty to be "exercised in common" with other Member States through the EU institutions (Section E of the Fundamental Law). Such "exercise in common" of sovereignty is, however, not foreseen with respect to other international institutions. As the Constitutional Court acknowledges, the UPCA constitutes a form of "enhanced cooperation" among Member States within the meaning of Art. 326-334 TFEU and Art. 20 TEU. Enhanced cooperation has a mixed legal nature: it is based on Union law as far as EU law allows Member States to establish it and provides legal rules on the performance of enhanced cooperation (in the case at hand Regulation 1257/2012/EU and the Council Decision 2011/167/EU).

On the other hand, it is not clear whether separate international treaties concluded among Member States within enhanced cooperation (such as the UPCA) can be considered to be EU law. The Constitutional Court considered that this question cannot be answered in a general and abstract manner. However, the Court distinguished forms of enhanced cooperation that merely execute provisions already foreseen by the EU Treaties from those that create an international institution that is not part of the EU institutions, but which nevertheless exercises state powers and is empowered to issue decisions that have binding force on the Member States. The latter group of treaties forms part of EU law only if the jurisdiction of the international institution has been defined in the treaties establishing the EU. If not, the treaty must be considered as a "non-EU" international treaty. Interestingly, with regard to this last issue, the Constitutional Court refers to the CJEU decision C-146/13 Spain v. Parliament and Council in which Spain attempted (unsuccessfully) to have the UPC system declared contrary to EU law (and in which, incidentally, Hungary was supporting the Parliament and the Council). In paragraph 101 of that decision, the CJEU indicated that it "does not have jurisdiction to rule on the lawfulness of an international agreement concluded by Member States", in the particular case on the lawfulness of the UPCA. The Hungarian Constitutional Court deduced from this paragraph that the CJEU does not consider the UPCA to be EU law. Hence, the UPCA must be analyzed under the Fundamental Law of Hungary, too, as a "general" (i.e. non-EU) international treaty.

Meanwhile, the Constitutional Court recalled that the UPC is intended to form "part of the"...  "judicial system [of the Contracting Member States]" (Art. 21 UPCA) and that the UPC, having exclusive competence for a series of lawsuits (Art. 32 UPCA), shall also apply Hungarian law. UPC decisions based on Hungarian law could, however, not be appealed to the Constitutional Court, which would thus be deprived of the possibility to review such cases for compliance with the Fundamental Law.

The Hungary Kat

Under Art. 25 of the Fundamental Law, the "courts shall administer justice" and shall decide on "civil disputes" (Art. 25(2)(a) of the Fundamental Law), including lawsuits related to patents. Even though the Constitutional Court does not say so explicitly, it considers that the term "courts" in this provision exclusively designates Hungarian domestic courts of law. Although there are international jurisdictions that can sometimes adjudicate Hungarian domestic disputes (such as the ECHR, the CJEU or the ICJ), these courts typically examine questions of international or EU law and the state can be a party to the proceedings that impose obligations upon it. The UPC, however, would also adjudicate domestic disputes under Hungarian law between private persons and without the parties having agreed upon such forum. The UPC system therefore withdraws a whole group of domestic disputes from the jurisdiction of Hungarian courts. Art. 25(1) of the Fundamental Law does not foresee any exceptions to the principle that Hungarian courts are to administer all domestic civil lawsuits. In particular, Art. 25(7) of the Fundamental Law ("An Act may provide that in certain legal disputes other organs may also act") does not contain an exception for international tribunals, but merely sets out a constitutional basis for alternative dispute resolution, in particular arbitration. Based on the above, the UPCA is incompatible with the Fundamental Law.

Aftermath 

The Hungarian decision (unlike Brexit or the on-going German complaint) will not formally delay the entry into force of the UPCA, but it will most likely delay (or terminate) Hungary's participation in the UPC system. What the Hungarian government and legislature intend to do about the above decision is not yet known. The Constitutional Court's reasoning seems to suggest that the problem could be solved by amending the Fundamental Law (which would require a vote by a two-thirds majority of the MPs) and introducing a specific exception allowing the UPC to adjudicate domestic patent disputes. Whether this is realistic (or desirable from the Hungarian Government's viewpoint) remains to be seen. Finally, the argument with regard to the adjudication of domestic civil disputes by an international forum without the possibility of domestic constitutional review is unlikely to be a purely Hungarian issue. Other Member States will hopefully read this decision carefully and solve any similar issues before the UPCA enters into force. Once (or, if you prefer, "if") the UPCA enters into force and the UPC renders its first decisions, it would be highly undesirable (however you feel about the UPC) that UPC decisions be declared unenforceable in individual Member States because of domestic constitutional concerns."