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Tuesday, 22 November 2011

Unified Patent Court requires more scrutiny, says European Scrutiny Committee

The AmeriKat pestering you
 to pay attention to
the Unified Patent Court
Anyone who has encountered the AmeriKat in the past two weeks will have been subjected to a "what are you doing to help get the Unified Patent Court to London" style of questioning. During and outside of her workday she is still doing a fair amount of London cheerleading, so much so that she has failed to pick up the recent House of Commons Select Committee on European Scrutiny’s report on "Enforcement of Patent Rights".  In May of this year the IPKat reported on the Scrutiny Committee's scrutiny of the unified patent system and Baroness Wilcox.  More recently, on 9 November 2011, the European Scrutiny Committee considered a recent, but not the latest, Draft Agreement on a Unified Patent Court and draft Statute.  The European Scrutiny Committee does what it says on the tin/can - they scrutinize draft EU legislation on behalf of the House of Commons and determine which proposals are of political or legal importance. Good news - the UPC ticks both boxes! The Committee flags up these proposals to the House through their weekly Committee Reports and by recommending that some draft legislation be debated - either by the European Committees or by the House of Commons.  For a list of members of the Scrutiny Committee click here

Background

Notice the flag placement - surely
a sign that the Unified Patent Court should be in
London...
As readers know for several years there have been discussions to establish a single EU-wide patent along with a single European patent court. In 2009 the discussions led to proposals for a European and Community Patent Court (ECPC) which was considered by the Scrutiny Committee in December 2009 and February 2010, and the Committee held it under scrutiny. Following this draft, concerns were raised by some Member States (Ireland, Greece, Spain, Italy, etc) as to the whether the unified patent court was compliant under the EC Treaty. Following these concerns the European Council requested the opinion of the Court of Justice under Article 218(11). The Opinion of the European Court of Justice (1/09) was issued on 8 March 2011. The Scrutiny Committee reported on the Opinion in April 2011 and held the Opinion under scrutiny. The Court found that the draft agreement establishing the ECPC was incompatible with the EU Treaties. This was because of two reasons: (1) it would deprive national courts of the power or obligation to refer a question of EU law to the Court for a preliminary ruling under Article 267 TFEU; and (2) if a decision of the unified patent court were to be in breach of EU law, it could not be subject to infringement proceedings by the Commission nor could it give rise to financial liability on behalf of EU Member States. These two factors were, the Court held, essential to EU law.

Baroness Wilcox's July Letter (you know the one...::cough::)

This summer, on 22 June 2011, the Scrutiny Committee wrote to Baroness Wilcox, Parliamentary Under Secretary of State and Minister for Intellectual Propert (picture, left). The Scrutiny Committee noted that the European Commission’s non-paper on the unified patent court (PatLit post) suggested that in order to meet the requirements of the Opinion, the ECPC should have jurisdiction for the 27 EU Member States only – not the non-EU Member States party to the 1973 European Patent Convention. The Scrutiny Committee asked Baroness Wilcox for "a more in-depth analysis of how a unified patent court would affect the European patent, and how likely it was to meet the requirements of the Court of Justice's Opinion.”


On 7 July 2011, Baroness Wilcox replied as follows [prizes for finding a copy of this letter]:
"The Commission recommends that the unified patent court have exclusive jurisdiction over infringement and validity for both the unitary European Union patent and for (bundle) European patents granted under the EPC. Participation in the proposed agreement would only be open to Member States of the European Union.  EU Member States not taking part in the unitary patent would be free to participate in the court agreement but the court would only have jurisdiction over (bundle) European Patents in respect of those countries.The operation of European bundle patents in respect of non-EU EPC Contracting States would be unaffected. Disputes relating to (bundle) European patents in such States would still be heard by the relevant national court as is current practice.  This system will still provide significant savings to UK businesses because they would not need to litigate their patents in as many different national courts as they do now.
You also asked how likely it is that the Commission's recommended approach will meet the concerns of the Court of Justice of the European Union (ECJ). In its opinion of 8 March the ECJ (the 'Court') objected to conferring jurisdiction on a court created by international agreement which would deprive Member States' courts of their task of implementing Union law or referring questions to the Court of Justice for a preliminary ruling. The Court distinguished this from the Benelux Court of Justice as "a court common to a number of Member States, situated, consequently, within the judicial system of the European Union, its decisions are subject to mechanisms capable of ensuring the full effectiveness of the rules of the European Union.  The Commission recommends addressing this point by limiting participation in the new patent court agreement to EU Member States. 
As you note in your letter, the Commission goes on to state that as consequence it would seem possible for infringement proceedings then to be initiated against all Member States jointly were the unified patent court to violate Union law and for any financial liability arising to be applicable to all Member States jointly. By limiting participation in the proposed agreement to EU Member States we are satisfied that the Commission's recommended approach addresses the issues raised by ECJ Opinion 1/09. This approach received support from the vast majority of Member States when it was discussed at the Competitiveness Council on 30 May 2011, so I am confident it will be adopted. 
The Presidency has produced a revised draft agreement for the Court system based on the Commission's recommendations. This draft has now been published and I will deposit the new draft agreement and submit an Explanatory Memorandum accordingly. 
UK industry has not yet had an opportunity to comment on the detail of the new draft agreement. The Government regularly consults UK stakeholders on developments with both the unitary patent and unified patent court negotiations and we will continue to engage positively with industry. [Merpel understands it to be the other way around"…..]"
The Unified Patent Court Agreement


Unfortunately not the
"patent court"
the EU was thinking of...
A recent draft on the Unified Patent Court was before the Scrutiny Committee on 9 November 2011 (but not the most recent which can be found here). The Unified Patent Court would have, the Committee said, “exclusive jurisdiction concerning the infringement and validity of both European bundle patents (granted by the European Patent Office according to the European Patent Convention) and European patents with unitary effect, established under two Regulations implementing enhanced cooperation in the creation of unitary patent protection.” The revised draft text takes into account the Opinion, but still preserves much of the provisions that established the ECPC.  However, the agreement applies to EU Member States only – non-EU Contracting States of the European Patent Convention are no longer parties to the agreement. Further, the EU, as a legal entity, is no longer party to the agreement. The draft therefore introduces provisions on joint MS liability for any failure of the proposed patent court to apply EU law and the provisions in the Regulations.


The Government's view



The House of Commons logo
On 21 September, Baroness Wilcox "deposited" an Explanatory Memorandum on the draft agreement [more prizes for finding a copy of this Memo - So much for a transparent process, says Merpel]. In the introduction she stated that the UK considers an effective patent litigation system as a crucial part of the overall package to deliver a business-friendly unitary patent in Europe. However, she set out some of the Government's concerns which include the following:
Funding – Because the EU is no longer a party to the agreement Baroness Wilcox said that that  means that there will not be an EU contribution to the costs for establishing the UPC. Indeed the lucky Member State who gets the central division has to pay for it from their own pocket (Article 5(1a)). Baroness Wilcox stated that the UK favors a system whereby the UPC is self-funded primary through court fees. The Committee reports from the Memorandum that Contracting Member States will be expected to subsidise the operating costs initially but the level of contributions may be expected to fall as the UPC begins to recoup costs through court fees.”

Jurisdiction – The Committee reported from the Memo that in the UK and most EU Member States related patent validity and infringement actions are generally tried together, but that the current proposals allow for these actions to be dealt with separately. She explained that UK industry generally oppose hearing these issues separately as it can increase costs and render irreconcilable decisions. Further, there is a 5 year transition period during which time litigants have the option of trying matters before the national courts instead of the UPC. Baroness Wilcox explained that some industry stakeholders have commented that the transitional period is not long enough because it can take 5 or more years for a patent application to be granted by the EPO from filing.

Costs – Baroness Wilcox outlined concerns that the costs of the UPC may be high for a variety of reasons, including costs for accessing the UPC, costs related to representation (who is allowed to represent parties in court) and whether legal aid is available. In particular it was noted that the costs of the UPC may be especially high given that there will no longer be contributions from the EU budget it setting up costs of the court. Tied into costs, was the concern over language – the Committee reports from the Memo that some Member States have concerns that their nationals may not be able to use their own language in the UPC, judgments may not be available in their language and complex language requirements will create cost and uncertainty.

Location - The AmeriKat's favorite issue of location was referred to but only in very neutral language:  "Current proposals for the Court do not state the location of the central division of the Court of First Instance, the Court of Appeal and the Mediation Centre." ["It should read 'locations', says the AmeriKat gunning that perhaps at least the Central divison ends up in London.]  

The Scrutiny Commitee wants your views! 


Following the review of the Memorandum and the draft text, the Scrutiny Committee concluded as follows:
"We note that negotiations on the draft agreement are at an early stage. So rather than asking further questions now, we would be grateful for an update on the negotiations when the details of how the UPC will operate in practice for EU and European patents become clearer, such update to cover whether the concerns raised by the Minister above have been allayed. We would also be grateful for a summary of the views of UK industry on the UPC. In the meantime, the draft agreement on the UPC, document (c), remains under scrutiny."
The AmeriKat is wondering which beleaguered civil servant is responsible for obtaining the views of UK industry for the Scrutiny Committee.  Indeed, has UK industry even been asked formally for its views on the UPC?  As far as the AmeriKat is aware, much of the UK's momentum regarding the UPC has been at the initiation of UK industry to Her Majesty's Government, not the other way around.

7 comments:

Anonymous said...

Can anyone offer any thoughts on the likely future role of the EPO Boards of Appeal?

It seems quite curious that the boards, after having exercised an important unifying influence over the past thirty years or so, don't now seem to get any mention whatsoever (not even a negative one).

There might be no call for change as far as appeals against refusals of applications are concerned, but what about (post-grant!) oppositions?

Anonymous said...

Where is my prize?

Anonymous said...

Oh dear. Please ignore that comment.

Anonymous said...

Many thanks for posting this. I find it extraordinary that an explanatory memorandom which was issued on 21 September 2011, and which purportedly asked for the views of UK industry, could be kept pretty much secret.

I presume that this is part of a stitch-up, which will allow the UK Govt to respond to irate companies who have to deal with the injustices of the inevitable bifurcated system by saying "but we asked for your comments and you didn't respond".

Do you have any details of any consultatation periods, formal or otherwise?

EU-wide bifurcated cases would be a disaster for the IT and electronics industries in the EU. These fields are plagued by thousands upon thousands of invalid patents, and the bifurcated system allows owners of such patents to extract rents from industry without having the prospect of having their own patent revoked. Even at the moment, the prospect of an injunction in Germany based on an otherwise hopelessly invalid patent is enough to strike fear into the hearts of many productive companies - imposing the same system on the whole of Europe would be an unmitigated disaster.

Requiring the consent of both the claimant and the defendant in a patent action before an action can be bifurcated would be a welcome solution. This would require only a small amendment to Article 15a(2)(b) of the current draft, as follows:

"(b) with the agreement of the parties, refer the counterclaim for decision to the central division and suspend or proceed with the infringement proceedings;"

It really is that simple!

Meldrew said...

“Unified Patent Court requires more scrutiny, says European Scrutiny Committee” – my instant reaction is “No shit, Sherlock”.

As currently proposed, the unitary patent court arrangements cannot fail to do enormous damage to SMEs and industry at large.

Cost -
You indicate that Baroness Wilcox states “the UK favors a system whereby the UPC is self-funded primary through court fees”. Does she know what that means?

A Commission study “Economic Cost-Benefit Analysis of a Unified and Integrated European Patent Litigation System” http://ec.europa.eu/internal_market/indprop/docs/patent/studies/litigation_system_en.pdf gave some estimates of costs and stated “Thus the average operational costs per case are estimated to be at EUR 29,280”.

Of course, this report was done at a time when the EU was standing behind the court. No doubt as the unitary court will have to be self-sufficient it will also have to fund pensions as well. Given that no estimate of bureaucratic costs is ever an overestimate, I am pencilling in €50,000 as the court fees for a case before the unitary court.

The report took as a bench mark for costs alleged costs for German litigation and stated that “It would take roughly a 50% increase in average litigation costs to dissipate the private benefits computed above completely”. In other words, even on the somewhat dubious analysis in the report, it would take relatively little to make a unitary patent and unitary court a net loss to European industry.

The financial rigour of the proposal can be judged from Articles 31 and 32 of the Statute of the court which read:-

Article 31
Income
[To be developed]

Article 32
Operating costs
[To be developed]

The court cannot fail to be a high cost court [don't expect the Contracting States to be keen to make any contribution at a time like this].

Jurisdiction -
Giving the court exclusive jurisdiction over bundle patents means that after the transitional period all cases will have to go through a high cost court regardless of the scope of the dispute.

The report mentioned above made some heroic assumptions as to the frequency of duplicated litigation [litigation in more than one European jurisdiction] and came up with an estimate of somewhere between 15 and 30%. Even if true [and the estimates seem high to me] that means that 70-85% of disputes will have to go to a unitary court even if there is a perfectly good [and lower cost] national court.

In effect, those who have little disputes will be subsidise those who throw themselves around. [SME’s subsidising big industry].

Bifurcation -
If you were to ask a patent troll for a reaction to the prospect of being able to launch patent suits in a market of ~400m where validity of the patent would be dealt with separately from infringement, the result would be drooling or priapism or both [gender permitting]. You only have to look at the Apple v Samsung design action in Germany to see what damage can be wrought by excessively “pro-patentee” courts at relatively low risk to the IP owner [see Michael Thesen comments at http://ipkitten.blogspot.com/2011/09/making-exhibition-of-oneself-trade.html].

Potential outcomes -
• SMEs, and some others, may avoid the EPO and file national applications [this is already starting due to perceived performance problems at the EPO];
• An increase in national filings in parallel to European;
• Inundation of the Registry of the unitary court with requests for “opting out” leading to high launch costs [I wonder what the Registry will charge for filing an opt-out – perhaps that is a way they can top up their non-existent budget - call it an SME tax];
• More SMEs being steamrollered because they cannot afford to litigate their patents;
• More trolls marching into Europe [do they march or do they lurk – I get them mixed up with orcs];
• Chaos and bickering – somewhat like the euro really.

Anonymous said...

"Ireland, Greece, Spain, Italy, etc"

Good company. I wonder who the etc are and where they are headed.

Anonymous said...

The unitary patent and it's unitary court are nice ideas, but an I suggest we just leave things as they are?

I have nice ideas all the time that will make the world, or at least my tiny part of it, a better place to live, but it just isn't worth the trouble and strife.

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