Last week's most read: UPC without UK still attractive and could diminish country's importance as litigation forum

Brexit

While manufacturing businesses might lose interest in a Unified Patent Court that does not cover the UK after Brexit, most international companies say they would use the system and might even use the UK courts less

Despite some manufacturing businesses losing interest in the Unified Patent Court (UPC) and unitary patent, the harmonised European project would still be used by most patent-focused industry sectors if the UK did not participate and might diminish the UK's role a litigation forum, according to in-house lawyers.

Seven sources from medical device, chemical, financial, pharmaceutical, telecoms and appliance companies say that while the court would inevitably be less attractive to patent attorneys if the UK were not covered after Brexit, the benefits of having centralised patents covering 27 member countries would still be highly valuable.

The UK’s participation in the UPC is an increasingly uncertain matter because of Brexit and the Max Planck Institute's argument that continued participation in what is essentially, but not strictly, an EU institution would erode the bloc’s sovereignty.

For industries that register patents in all or most EU member states, the cost savings gained in central prosecution and litigation would still be considerable without the UK as a UPC system member.

“In the event the UPC does not include the UK, I don’t think that I would lose interest,” says the associate counsel at a medical device company. “Interest in the system might be diminished a tad – because the UK is certainly an important component of our overall patent strategy.

“But nevertheless, having a unified court for the other ratifying nations would continue to have a certain amount of attractiveness.”

"In healthcare industries, we would still get considerable bang for our buck. Companies will likely wait to see what attitude the new court adopts to reduce the level of risk going in. But assuming it all goes well and most if not all EU countries ratify the system, we would still use it even if it did not include the UK."

But for industries that typically register patents only in Europe’s industrial heartlands – mainly Germany, France and the UK – a centralised patent system without the UK as a member would lose most of its interest.

Automotive and other industrial manufacturers are typically interested in patenting only in those industrial jurisdictions where they, or their competitors, have factories. An IP consultant for a Japanese car manufacturer points out that car companies were already sceptical of the system because a unitary patent would likely cost more than a bundle of European patents for them.

Not having one of Europe’s key automotive manufacturing jurisdictions included in the UPC system would make automotive companies even less likely to use it.

Jean-Marc Brunel, vice president of IP at aerospace and aviation company Safran in Paris, points out that his company would lose most of its interest in a UPC without UK participation because most of its competitors are British or American.

He adds that the UK is also a preferred patent jurisdiction for US-based companies because the language is the same and UK procedures are more similar to theirs than those in France or Germany.

But the head of IP at an SME pharmaceutical company points out that non-UK participation might seriously undermine the role of the country in patent litigation strategies if the UPC can deliver quick and high-quality decisions for every other jurisdiction.

The medical device associate general counsel says there is truth to the head of IP's point, adding that the question at that point is how intrinsic the UK is to a particular business.

"If you have a defendant that is shipping out of or manufacturing in the UK, litigation will continue to be important there. But if you are worried exclusively about sales, UK sales will be dwarfed by those in the remaining UPC countries. If such a plaintiff had to make a choice between the two, it would choose the UPC over the UK."

But he adds that such an argument ignores the very relevant point that the UK in itself is an important market, particularly for his industry, and he would imagine that there would still be activity in UK courts even if the country were not a UPC member.

To date the UPC seems no closer than it was a year ago to establishment. In-house counsel reacted to the news that the German constitutional complaint holding up the system's creation had been scheduled to be heard this year with apathy. They pointed out the case was also scheduled to be heard in 2018, and that they would not start ramping up preparations until the German judgment was handed down. 

No UK is OK

Those manufacturers that do not produce anything in the UK and have few or no competitors there are not concerned by the potential for a UPC Brexit, of course.

Balu Gupta, patent counsel for materials manufacturer Promerus in the US, points out that his company does not tend to patent its inventions in Europe outside of Germany, and thus UK participation in the system in inconsequential.

He adds that he probably would not have taken that stance in his past role as associate vice president at Sanofi; pharmaceutical companies typically patent in every jurisdiction and the cost savings of central prosecution for them could therefore be enormous, even if the UK were not covered.

The head of IP at a pharmaceutical company agrees with Gupta, pointing out that a unitary patent would protect an invention for use by roughly 446 million people without the UK.

“We would prefer that the UK were in the system, but it would not be the end of the world if it were not,” he says. “The UPC would lose some value but it would still provide access to huge markets and make decisions for all those jurisdictions much quicker.”

Pharma sources say that they will be careful when deciding which patents to have as unitary patents in any case because they are like double-edged swords. A unitary patent could be prosecuted quickly and relatively cheaply but it could also be invalidated across 27 out of the current 28 member states in one fell swoop.

Such a risk might be unacceptable for high-value drugs that represent enormous revenue streams for firms.

Moshe Malina, associate general counsel at financial services company Citi in New York, says there is a wealth of activity in the UK and Europe generally, and that he does not foresee non-UK participation being a material issue one way or another.

Industries such as telecoms and appliance companies, which previously indicated that they would put most of their patents into the unitary system, would likely also not be dissuaded from UPC in the event of a UK departure. 

A fictitious unity?

In-house sources say that whether the UK can ultimately stay in the UPC after Brexit is anyone’s guess.

The UPC system cannot start until the UPC Agreement (UPCA) is ratified by 10 EU member states and the UK, France and Germany, whose votes are mandatory. Of the three, Germany is now the only holdout because of a constitutional complaint filed against the project’s ratification.

Should the UK leave the EU with no deal before the German court rules on the complaint, the project’s viability could be compromised. But assuming that the UK leaves with a deal that includes a two-year transition period, the UPCA should be ratified in that time and the system established.

There is an argument, however, that the UK cannot participate in the UPC after it has fully left the bloc. The Max Planck Institute in Munich published a paper last year that said extending unitary patent protection to the UK post-Brexit through an international convention would create a “fictitious unity” that is incompatible with EU law.

It is unknown whether the European Commission would concur with these arguments should the UPC and unitary patent system become a reality.

A pharmaceutical industry source says that arguments that the UK could stay in the UPC after Brexit probably represent a triumph of optimism over practicality.

“The only way you could see the UK remaining in the UPC is if it has the softest of Brexits, has an EEA arrangement and remains closely linked to the EU,” he says.

Olivier Corticchiato, lead for nutrition patents at Nestlé in Switzerland, says that the Max Planck paper makes a good point that the UK remaining in the UPC under the current agreement would lead to a loss of power and sovereignty for the EU and the UK. But he also points out that the UPCA could be modified to enable non-EU states to join and that it is legally possible for non-EU states to be part of the court if the agreement were amended.

He adds that his industry would favour any solution that would allow the UK to continue to be part of the UPC after Brexit because a more uniform judicial patent system would increase legal certainty across the continent and open the doors for non-EU member states such as Switzerland to become members of the system.

The IP counsel at a medical device manufacturer agrees with Corticchiato, adding that there is a systematic fault with the Max Planck paper.

is conceptually wrong because while unitary law will not be there after Brexit,  it could mirror the law into national law, for example. It does not have to be a literary extension, but the Max Planck paper is making a ‘big thing’ about the consequences of UPC extension to the UK that are not there.”

While the harmonised European patent project might suffer from a UK departure, it would certainly not prevent multi-jurisdictional filers from using it. While there are inevitably some companies that would find little benefit in a UPC without the UK, they seem to be few and far between.

Most companies would still prefer to see the UK stay as a member should the system become a reality.