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?