Will 2019 be the year of the UPC?

Will 2019 be the year of the UPC?

18 January 2019

The never-ending turmoil in the UK Parliament may affect things more important than the UPC, but for those in the world of IP, it is worth reflecting on how recent events affect the prospects of the new system coming into force any time soon.  As we shall see shortly, perhaps surprisingly, if anything they have actually increased the likelihood a little.

Of course, we would not be considering this question at all had the German Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) decided in some timely fashion the constitutional challenge by Dr Stjerna to the legislation necessary to allow German ratification of the UPC.  Had the decision been made in the first half of 2018 to reject the complaint instead of being put it in a long queue of cases, we could now be looking forward to the Court coming into existence on 1 March.

Therefore to begin: where are we with the two major topics relevant to the UPC’s future, the BVerfG decision and Brexit?

The German constitutional complaint

Following the submission to the BVerfG  in January 2018 of the last of the amicus briefs (all of which were rumoured to suggest rejection of Dr Stjerna’s complaint), this “UPC case” was included in the list of cases (published in February) that the BVerfG intended to decide in 2018.  However, following the pattern of previous years, many cases listed (including, of course, the UPC one) were not decided.  The case had been allocated to the Second Senate, with Prof Dr Peter M Huber as rapporteur.  Justice Huber was allocated cases numbered 5 to 13 on the list, with the UPC case numbered 11.  Cases have usually (but not always) been decided in their numerical order.  Cases 5 and 6 have been decided.  Cases 7 and 8 appear to be close to being decided, case 7 having been referred to the CJEU which gave its decision on 11 December 2018, and case 8 having had an oral hearing on 27 November 2018.  Case 9 is the “EPO case” (in fact four cases all concerning, in effect, Germany’s accession to the EPC).  There has been some speculation (based on a loose subject connection) that this may be heard together with the UPC case.  Whether or not this is the case, it appears highly likely that the UPC case will be decided this year.  This is confirmed by a recent report from Agence Europe that it had been informed by the BVerfG’s services that no date was set for the decision but that it should fall in the current year – although the use of the word “should” rather than “will” is not entirely reassuring.

One possibility is that the BVerfG upholds Dr Stjerna’s complaint in some fashion.  This might not be the end of the UPC, however, since the decision might “merely” require some action to be taken in order for Germany to participate in the UPC, and this could be capable of being remedied.  This could be, for example, the German parliament having to re-approve the legislation required for Germany to ratify the UPC Agreement (if the BVerfG accepts Dr Stjerna’s argument that the incorrect parliamentary procedure was used last time).  Or it could be something more serious such as amendment of the German constitution.  It is hard to predict how Germany would react and whether the UPC project could survive a further extended delay – although it has been said that parliamentary re-approval at least could be achieved relatively quickly.

Timings after the BVerfG decision

If the BVerfG rejects the complaint, Germany would then be able to ratify the UPC Agreement and consent to its provisional application.  Apart from Germany, only one more state must consent in order for the provisional application phase (PAP) to start, and several states appear to be in, or almost in, a position to do so.  The PAP, during which final preparations for the start of the UPC system, such as recruitment of judges, would be completed, is expected to last six to eight months.  As to this, the UPC Preparatory Committee recently reported: “the technical and operational preparations for the Court are continuing allowing for the project to move at pace in the event of a positive outcome from the German Constitutional Court” such that one may even hope that the immensely complex IT issues the UPC presents have been sorted. 

Three months before the end of the PAP, Germany would then deposit its instrument of ratification of the UPC Agreement to allow the Agreement to commence immediately after the PAP and the Court to open.  (For about three months before the Court opens there will a ‘sunrise period’ in which ‘opt-outs’ may be registered.)  But the question even then is whether Germany would do all this, since its decision as to whether to go ahead may depend also on whether the UK can be a part of the new system.  Indeed, it might be considered irresponsible for Germany to cause the system to go ahead with major uncertainty hanging over it.  This brings us back to Brexit.

The UK/EU relationship

It is clear that for so long as the UK is in the EU it can participate in the UPC.  No-one can disagree on that, but until this week no-one really thought there could be any chance of a delay of Brexit beyond the EU elections in May, which is simply too short an extension to make any difference to the UPC project.  However, there are differing views on the legality of the participation of the UK as a non-EU state.  Although the UK ratified the UPC Agreement in April 2018 and the UK government has consistently confirmed since then that it intends to seek to remain in the UPC system after Brexit, there are mixed views on whether this is possible.  But there are two situations to explore in this scenario.  One is where there is a transition / implementation period such as was proposed in the draft Withdrawal Agreement rejected on 15 January.  The other is without such a period.  Whilst some vehemently disagree even with this, there is a good deal of consensus that if there is a post-Brexit transition period during which EU law will continue to apply in the UK  the UK would be able to participate for that period at least.  One reason for that view is that the EU Unitary Patent Regulation (creating unitary patent protection) requires a court (the UPC) in which to litigate unitary patents, and hence consent to all EU Regulations continuing to apply to the UK impliedly requires UK participation in the UPC.  Also, the UPC Agreement (being an agreement entered into by EU member states) may fall within a definition of the EU law that would apply during a transition period.

The question of whether the UK, as a non-EU member state, could participate after, or in the case of a no-deal Brexit without, any such transition period, can only be answered by the CJEU, and there appears no mechanism to ask the CJEU unless and until the system starts and is challenged.  The fact that the UPC Agreement refers to a “Member State of the European Union” is not really the issue: that could be solved by a simple protocol providing that by that term the parties meant a “Member State of the European Union as of the date of signature of this agreement”. The main issue is whether a UPC with the UK as a member could still refer matters of Union law to the CJEU?  Further, absent certainty on the legality of the UK’s ongoing ability to participate, would Germany which holds the key to the project starting, be willing to proceed to start up the system with no certainty as to the legality of the UPC?  Would it be confident that solutions could be found to this and other potential legal issues, such as the UK dropping out of the Brussels Regulation and not being a member of the Lugano Convention – one of which is a seeming necessity under the UPC Agreement (Article 31).  This is where political will remains vital.  With the possible exception of Italy, motivated perhaps by the opportunistic desire to see Milan seize the London branch of the Central Division, all UPC participating countries appear still to wish the UK to remain a part of the system.  Critically, so too does European and British industry.  And in the much repeated words of Dr Margot Fröhlinger on this topic, “where there’s a will, there’s a way”. 

The significance of the events of 15 and  16 January

But the hiatus in the UK Parliament has opened up a new possibility: that Brexit may be delayed by a significant time.  Stating the obvious, it is now anyone’s guess as to what will happen about Brexit.  However, the sheer scale of the UK Government’s defeat in the UK House of Commons regarding the draft Withdrawal Agreement on 15 January – it was a truly decisive rejection – may perhaps have caused the politicians in the rest of the EU to realise that the deal will simply not be accepted merely by tinkering with some provisions and that more time – a lot more time – will be required to arrive at a new deal.  Moreover following her narrow survival of the motion of no confidence on 16 January when Mrs May at last offered to talk to opposition politicians, the leaders of the next two largest parties, Labour and the Scottish Nationalist Party, both called for a guarantee that there would not be a no-deal Brexit, in the case of the Labour leader as a pre-condition of talking.  Since the only realistic way a no-deal Brexit can be avoided is by a withdrawal of the Article 50 notice or by an extension of the deadline by agreement, it is therefore looking increasingly  likely that the UK will remain a member of the EU beyond 29 March 2019.  Withdrawal of the Article 50 notice may remain highly unlikely, but there are reports from Brussels that the Article 50 period might be postponed until 2020 to allow a new deal to be reached which will pass through the UK Parliament.  If so, then this also would give enough breathing space to obtain a BVerfG decision and have the PAP completed so as to have the UPC start pre-Brexit. 

In summary, therefore, the future of the UPC project remains very unclear, but a late 2019 start is still possible, and a first-half 2020 start more so, in both cases with a real prospect of the UK participating either during a transition period, or even as a full EU member state, the latter being something unthinkable before the events of this week.

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