Guest Post - Is Brexit breaking the Unitary Patent?

A couple of weeks ago the IPKat published a paper from Prof. Dr. Winfried Tilmann of Hogan Lovells outlining a mechanism by which a post-Brexit UK might still participate in the Unitary Patent and Unified Patent Court.  Other minds have also been addressing this issue, and so the IPKat is again delighted to publish this piece, describing a quite different approach, received from Univ.-Prof. Dr. Thomas Jaeger, LL.M. of Universität Wien (that is University of Vienna to our anglophone readers).

The Brexit vote of June 23rd sent shockwaves throughout both the EU and the UK. Some take the vote as proof of Charles de Gaulle’s age-old observation, that Britain simply does not fit into the EU: “[L’Angleterre] a dans tout son travail des habitudes et des traditions très marquées, très originales. Bref, la nature, la structure qui sont propres à l'Angleterre diffèrent profondément de celle des continentaux.” Others see it as the death knell to the EU and / or the UK as we know them.

Whatever the point of view, one thing is for sure: should Britain overcome its abrupt total loss of political leadership and should someone emerge eventually who is willing to formally notify the European Council of the intention to leave subsequent to Art. 50 (2) TEU, that would be the end of the Unitary Patent Package as originally intended.

The Art. 50 TEU Framework

The procedure under Art. 50 TEU is superficially simple. The intention to exit needs to be formally notified to the European Council, which triggers a two year (extendable) deadline for negotiations over the future relationship between the exiting state and the EU. If no agreement is reached, the exiting state is theoretically kicked out of the EU in an ejector seat, i.e. EU law ceases to apply overnight. But what does that mean?

Overnight ejection is not a very likely scenario. Neither side can afford the chaos of disorderly political and economic disintegration. Nonetheless, the two year deadline improves the EU’s bargaining position in the negotiations. The Brexit referendum reversed Britain’s bargaining advantage vested in the looming exit threat.

Art. 50 TEU does not contain the crucial details for exit negotiations – probably because no one thought it would ever be used anyway. Art. 50 TEU accords the EU institutions wide maneuvering space regarding the future terms of association of the exiting state. However, it contains one important implicit limitation: unlike in the accession process under Art. 49 TEU, no ratification of the agreement by the (remaining) member states is foreseen. Instead, the simple procedure for conclusion of international agreements by the EU (Art. 218 TFEU) is prescribed.

As a consequence, the agreement reached cannot entail any alteration to primary law. Any extras negotiated with the UK that would require amendments to the TEU, TFEU or Protocols, e.g. the right to remain within the enhanced patent cooperation, would go beyond the framework set by Art. 50 TEU and would thus be a Treaty revision (see Art. 48 TEU) rather than an exit negotiation.

Hello EEA?

With the bargaining advantage now with the EU, EU leaders have openly called for harsh negotiation terms. This may have a number of reasons, ranging from an impulse for revenge to hope that the various extras the UK had secured for itself over the last decades could be mopped away in one stroke and to concern that an overly favorable result may set a bad example for other states or political movements poised to exit.

Should this initial push to allow no UK extras in the negotiations persist, the EU’s negotiation target would exclude any type of privileged status between ‘in’ and ‘out’for the UK. Also, as was just highlighted, Art. 50 TEU does not allow for such an in-between status anyway insofar as this would require amendment to primary law.

With EU membership necessarily ending for the UK, the most likely way forward would be its (re-) accession to the EFTA and EEA agreements (cf. Art. 128 EEA Agreement). This would essentially allow for a continued application of internal market and competition law rules in the UK. In turn however, the UK would forfeit its right to co-decide in those matters and would trade that right for a mere consultation status in law-making (see Art. 128 EEA Agreement): EU internal market and competition legislation becomes part of the internal legal order of EEA states through adoption (cf. Arts. 97 et seq. EEA Agreement). In practice however, the possibility to object is markedly limited. Similar in terms of the factual coercion to adopt EU legislation, although somewhat more complicated in detail, is Switzerland’s status vis-à-vis the EU.

Both scenarios, the EEA or the Swiss model, are only attractive for the UK with regard to liberation from the EU’s non-market policies. In legal terms, forfeiture of co-decision powers and factual coercion to parallel EU legislation hardly seem satisfactory prospects for the UK. In addition, the EEA factually also limits jurisprudential independence, because the EFTA Court in practice follows the CJEU’s case law (see also Art. 106 EEA Agreement) and because the CJEU in the EEA Agreement is accorded an indirect decisional competence of last resort in the event of diverging case law (see Arts. 105 (3) and 111 (3) EEA Agreement). 

Bye-bye Patent Package UK

In short, the UK no longer being a member of the EU would very likely be sized-down to the status of any other non-EU state. In the patent context, this is the plain legal status of an EPC state outside the Package: the UK would be necessarily be removed from the substantive patent cooperation under Regs. 1257/2012 and 1260/2012, which is only open to EU members.

Likewise, although it is formally an instrument of public international law, the UK would have to withdraw from the UPC Agreement. Under the Commission’s misguided attempt after CJEU Opinion 1/09 to copy the setup of the BENELUX Court, the UPC is designed to be “a court common to [EU] Member States and thus subject to the same obligations under Union law as any national court” (Art. 1 UPC Agreement). The Commission understood Opinion 1/09 as meaning that the CJEU requires an international law-based patent court to remain restricted to EU members only.

That narrow reading of Opinion 1/09 was the main reason why the well-designed 2009 EEUPC model had been down-sized both territorially and substantively for the UPC proposal, which now affords comparatively less substantive patent law coherence and is intrinsically defunct (see, for example, this paper). If the Commission’s narrow reading of Opinion 1/09 is upheld and no alternative visions for a court model are developed, there is no way that the UK could remain in that litigation system.

Bye-Bye Patent Package Altogether?

Should the UK really choose to formally trigger the exit procedure and thus be forced to leave the EU and (thereby) the Package, we might not only need to wave bye-bye to the UK within the Patent Package, but to the Package as a whole.

It is true that the EU legislator has in the past shown determination to push the Package through at any cost – even that of leaving major jurisdictions like Spain and Italy behind. De iure, this might also be possible regarding the key patent jurisdictions UK, France and Germany. De facto however, none of them can evidently be done without (as already the ratification requirements in Art. 89 UPC Agreement demonstrate). Even if a single patent right between the remaining participating states was probably still better than nothing even with the UK outside, an attractive and effective patent litigation system under a single court is unimaginable in Europe without the UK. If such a system was implemented without the UK on board, it would trigger substantial evasion and strategic patenting effects between the UK (which would remain within its existing litigation tradition) and the emerging jurisprudence of the UPC. This would multiply the negative effects of fragmentation in European patent law instead of mitigating them.

Looking for A Way Out? Re-open the UPC Agreement

Against that general background, what legal options for a soft Brexit landing do we have? How could the Package be kept from breaking apart and what kinds of exit and post-exit scenarios are we looking at?

A potential way out might be a re-opening of the UPC Agreement. If the UK could at least be kept within the litigation leg of the Package, one of the Package’s major goals and achievements could be saved in spite of a possible Brexit. As we have known since the (marred) EPLA initiatives, this is also the considerably more important leg. Of course, if the Agreement was altered to allow for participation of the UK, all of the remaining non-EU EPC states could be brought back in also as a positive side-effect.

How could this be done? As was said, according to this author, the Commission’s reading of Opinion 1/09 seems misguided in two major respects. Firstly, the CJEU’s mention of the BENELUX Court is only one example of possible litigation models, not the only possible model. The Court has made this quite clear already in the Opinion (paras. 62, 74 and 75). Secondly, the crucial point regarding the legality or illegality of the court model is not whether it is called BENELUX or whether it is concluded between EU member states only, but rather, whether that court has the power to apply EU law directly and if so, under what conditions. Such conditions binding the court in the application of EU law must satisfy the CJEU’s exclusive role under Art. 19 TEU and, consequently, the autonomy of the EU legal order.

Cornerstones of such alternative models were elaborated elsewhere by this author and others (e.g., prominently, the Munich-based Max Planck Institute for Innovation and Competition). There is neither room nor need to go into details here. Suffice it to say here that if the Commission is keen to save the Unitary Patent Package from another – and this time likely terminal – failure, it should start re-thinking its litigation model. Re-thinking does not mean overthrowing it, but modifying some, albeit crucial, details safeguarding the autonomy of EU law. This can be done on the go through another revision of the agreement. Admittedly, this will slow down the ratification process once more. But that might still look like the better option compared to the looming alternative. 

Revision and adaptations might allow to remedy some crucial flaws of compromise present in the current UPC model. If the Commission managed to convert the threat posed by the Brexit vote into a momentum for change, that might not just save the Patent Package, but eventually lead to a better, balanced and coherent patent law for Europe.