Willem Hoyng: today's decision sets back UPC at least five years

As reported earlier, the German constitutional court has upheld the constitutional complaint against Germany's accession to the Agreement on a Unified Patent Court [UPC Agreement, Katpost here, German decision here, English press release here]. The main reason for the decision was that the act by which Germany was to ratify the UPC Agreement was not passed with the required parliamentary majority.

Willem Hoyng, member of the Drafting Committee of the UPC's Rules of Procedure, provided the following comment:

Today's decision will set back the UPC project at least five years. Also in light of Brexit, it will require participating states to renegotiate the UPC Agreement. That's unfortunate, but it also provides us with opportunities. For instance, it would allow filling in gaps or deciding on problems encountered by the Drafting Committee. We can also try to draft a text that would make it possible for European Economic Area countries and perhaps even other countries to join. The European Court of Justice would probably have to weigh in on that, but its advice on the first version of the UPC Agreement and its decision in the Spanish case make me optimistic that this should be possible. All in all, the project is not dead yet, and we must keep in mind that we have tried to come to a harmonized European patent law for 70 years now: waiting a few years more is not the end of the world.

Indeed, the complaint was upheld only insofar as it concerned a formal voting requirement in the German Basic Law [English version here]. Thus, there is hope still for the UPC—even if it is difficult to imagine, in the present times of crisis, that it will be high on politician's agendas in the near future. In the meantime, this post provides a more detailed analysis of the decision by the German constitutional court.

That feeling you get when you hear the UPC won't be operational any time soon

The legislative process and the complaint

The draft ratification bill was first presented to the German federal parliament of Bundestag on 20 June 2016 [par. 25]. On 9 December 2016, an amended bill was presented. The accompanying note stated explicitly that the bill concerned the transfer of sovereign rights within the meaning of Article 23 Basic Law.

The amended bill was unanimously adopted by the federal parliament on 10 March 2017. However, only 38 delegates were present for the vote. Thus, were was no qualified majority present to vote on the bill. On 31 March 2017, the Federal Council of Germany – which is comprised of representatives of the different federal states [Länder] – also unanimously adopted the bill.

The complaint was filed on the same day and comprised essentially four elements:

1. Breach of article 23 in connection with article 38 of the German Basic Law;
2. Democratic deficit inherent in the regulatory structure of the UPC;
3. Lack of independence of the UPC judges;
4. Irreconcilability of the UPC Agreement with EU law.

Only the first element of the complaint was deemed admissible and valid; the other elements were rejected as inadmissible by the constitutional court.

In deciding on these issues, the German constitutional heard from several "amici curiae": the federal government and council, the German bar association, the President of the European Patent Office, the German association for industrial property (GRUR), the European Patent Lawyer's and Litigator's Associations, and a representative body for German industry all expressed their view on the matter [par. 51].

Admissibility

The court considered the complaint admissible only insofar as it concerned the first element of the complaint [par. 91]. It held that Article 38 of the Basic Law protects the voting populace from a "transfer of sovereignty" not in accordance with Article 23 Basic Law [par. 96]. In particular, Art. 23 prevents structural changes to the organization of the state from coming into being without following the correct procedure, such as may occur when sovereign rights are transferred to the EU or other supranational institutions [par. 97]. The court pointed out that such transfers of sovereignty are often difficult to reverse, so that the requirements for the legitimacy of this transfer must be strict.

Because of the fundamental nature of these democratic rights, individual citizens should be afforded standing to complain against their violation. Thus, by stating that the procedure of Article 23 Basic Law had not been properly followed, the complainant had sufficiently demonstrated that his rights under Article 38 Basic Law were potentially affected so that his complaint was admissible [par. 100]. It is on this point that the dissenting judges disagreed, as will be further discussed below.

The other elements fared differently. As regards the issue of judicial independence, the court held that the UPC Agreement requires unanimity in the appointing committee before a judge can be appointed; thus, the German representative could block any appointments and so sufficiently represent German democratic interests [par. 106].

As regards the issue of the democratic deficit inherent in the UPC's regulatory structure, the court held that the complaint failed to sufficiently establish a direct link to a violation of the complainant's rights under Article 38 Basic Law. This complaint was therefore also inadmissible [par. 107]. Importantly, the constitutional court seemed to reject the proposition that the structure of the UPC as such violated the rule of law; in that respect, it was not comparable to comprehensive trade treaties which may allow for little, if any influence to be exercised by states after signing [par. 111].

Finally, as for the allegation that the UPC Agreement is in violation of EU law, the court held that this cannot constitute grounds for invalidation of a national act of ratification of an international agreement [par. 114].

The breach of articles 38 and 23 Basic Law
The constitutional court's analysis of the violation starts in paragraph 118 on page 58. It held, first, that the requirements of Article 23 Basic Law apply not just in case of transfers of sovereignty to the EU, but also to transfers of sovereignty to intergovernmental institutions beyond the scope of the EU, if they have a close relationship to the European integration project [par. 123-124].

Article 23 Basic Law is something of a compromise that makes it possible, from the perspective of the German constitution, to cede sometimes far-reaching rulemaking and judicial authority to the European Union [par. 128]. Each transfer of sovereignty to the EU must comply with this provision; if accepted, the German constitutional court will not scrutinize the way the EU or the CJEU exercise this sovereignty, provided they comply with the most fundamental values of the German constitution [as was at issue, for example, in C-36/02 Omega]. It follows that each new transfer of sovereignty must be approved through the mechanism of Art 23 Basic Law [par. 130].

The UPC Agreement would transfer the authority to adjudicate disputes to a supranational body and, therefore, acceding to it constitutes a transfer of sovereignty [par. 143]. According to the court, this transfer is done in the context of further European integration in the field of intellectual property law, for instance because of its close connection to the Unitary Patent Regulation and its acceptance of the supremacy of decisions of the CJEU [par. 144-147].

The transfer of judicial authority to the UPC would be the functional equivalent of transferring jurisdiction over intellectual property matters to the CJEU as provided for in Article 262 Treaty on the Functioning of the EU [par. 155]. That provision would have the effect of altering the constitutional basis of the EU; therefore, accession to the UPC must have the same constitutional basis [par. 156].

Thus, as per Art. 23 Basic Law, the legislative procedure outlined in paragraphs (2) and (3) Art. 79 Basic Law should have been followed to ratify the UPC Agreement [par. 162]. These provisions require a two-thirds majority in both the federal parliament and council. Since it was undisputed that the ratification act had not been approved by a qualified majority in the federal parliament, it was considered unconstitutional [par. 164].

The dissenting opinion of judges König, Langenfeld and Maidowski

Interestingly, three of the constitutional court's judges submitted a dissenting opinion, starting from page 73. According to the dissenting judges, it is doubtful whether an individual complaint on the basis of Article 38 Basic Law in a case like this should be allowed. They pointed out that applying standing requirements too liberally would unduly harm the possibilities of further European integration and would therefore have dismissed all the complaints as inadmissible [par. 4].

The dissenting judges referred to an earlier case in which the constitutional court interpreted Article 38, which concerned the European banking union [here]. According to the judges, that case shows that situations where individuals can invoke Article 38 Basic Law are limited to cases where the supranational organ usurps sovereignty in an unauthorized manner, i.e. by acting ultra vires or beyond the scope of its authority [par. 10-11].

By contrast, the present case concerns non-compliance with formal rules of voting on an accession act. The dissenting judges considered that where it is undisputed that the federal parliament has the authority to accede to an international organisation, Article 38 Basic Law does not allow individuals to call the accession into question on the basis of formal rules [par. 13].

The present case illustrates this: the federal parliament acted within its authority and did not cede any sovereignty it did not want to cede to the UPC [par. 17]. The dissenting judges did not exclude the possibility that the UPC Agreement could give rise to scrutiny by the constitutional court under the Basic Law—just not on the basis of Article 38, which was limited to substantive ultra vires cases, and always on the basis of the concrete violation of an individual's fundamental rights.