Brexit focus: Let the games begin

“Brexit means Brexit—and we’re going to make a success of it,” said UK Prime Minister Theresa May in October last year. Those words are now intrinsically linked with the political terms “hard” and “soft” Brexit, the outlook of which will become clearer in the next two years, following the triggering of article 50 of the Lisbon Treaty on March 29.

At the centre of related discussions for IP owners is the UK’s continued role, if any, in the Unified Patent Court (UPC). How will Brexit affect IP owners, the unitary patent and the UPC?

The unitary patent will enter into force only after 13 member states have ratified the UPC Agreement. The UK, France and Germany have to be among these 13, and France is one of 12 countries which have signed the deal so far.

“The current expectation is that the UK and Germany will ratify this spring,” says Graham Burnett-Hall, partner at law firm Marks & Clerk.

The central division of the court will be based in Paris but is also planned to be split between London and Munich. London is due to hear cases related to chemistry, pharmaceuticals and the life sciences, while Munich will be responsible for cases related to mechanical engineering.

Burnett-Hall explains that the UK is a very highly respected legal jurisdiction with an excellent judiciary, who are used to the active management of patent cases.

Because of this, the UK has “a lot to offer the UPC” and UK patent lawyers “will be able to apply their collective immense experience to ensure that the new court system hits the ground running”.

Luke Maunder, associate at law firm Bristows, adds that the UPC and unitary patent cover a “UPC zone” that has a significant gross domestic product.

The UK’s role in the UPC would make a unitary patent more desirable because “the UK remains the world’s fifth largest economy and thus is a substantial proportion of the UPC zone”.

Should the UK leave the UPC, this privileged position “must be at risk”, he adds.

“That said, there is no reason legally (as it was put by Margot Fröhlinger of the European Patent Office) that it should not be in Hawaii.

“Milan (Italy) is keen to take London’s place, and the Spanish opposition party has also proposed that Spain should join the UPC and make a bid for the UK’s central division,” Maunder says.

He adds that in reality it is much more likely that the London seat would either be allocated directly to Munich, or a new agreement would see it relocated to Paris, which would then pass responsibility for mechanical engineering to Munich

Brexit—how did we get here?

In December 2016, the word Brexit was added to the Oxford English Dictionary (OED). Brexit is a “term for the potential departure of the UK from the European Union”, according to the dictionary.

The move came amid a highly charged political environment last summer, when in June the UK electorate voted in favour of leaving the EU by 52% to 48%.

A day after the result, WIPR reported that IP lawyers from France, Germany, the Netherlands and Denmark agreed that the UPC system would be delayed, with the most likely result being that the UK would drop out of the agreement.

Stefan Abel, partner at law firm Klaka Rechtsanwälte in Münich, said at the time it was “common sense” that Brexit would lead to a significant delay in the implementation of the UPC.

However, five months later, the UK government released a statement that gave it the green light to sign the UPC Agreement.

The UK Minister of State for IP at the time, Baroness Neville-Rolfe, made the announcement in November that the UK would implement the unitary patent and UPC.

“As the Prime Minister has said, for as long as we are members of the EU, the UK will continue to play a full and active role,” she said.

Neville-Rolfe added that the new system would “provide an option for businesses that need to protect their inventions across Europe”.

However, the minister did warn that the move “should not be seen as pre-empting the UK’s objectives or position in the forthcoming negotiations with the EU”, and at the time of writing, the UK has not signed the deal.

The UPC preparatory committee announced in January this year that it was “working under the assumption” that the provisional application phase will start at the end of spring 2017, “presumably in May”. The court is expected to become operational in December this year.

What lies ahead

Imagine a scenario where the UK ratifies the UPC but has to subsequently leave because of Brexit—what impact could this have for IP owners?

Maunder says: “IP owners will expend resources incorporating the new system into their patenting and enforcement strategy, not least because it will have a significant impact on how their patent portfolios are managed (and how competitors’ patent portfolios are managed).

“The UK’s subsequent departure from the UPC would give IP owners a new headache to add to their existing problems of Brexit (such as dealing with EU trademarks, which will presumably be converted in some way to UK trademarks).”

In this scenario, he says, IP owners have many questions to consider. These include ‘will unitary patents continue to cover the UK post-Brexit or will they be converted to a European patent with a UK designation (or possibly a national UK patent)?’; ‘will there be significant administration involved in the process of any such conversion?’; ‘might there even be a conversion fee at that time?’; and ‘should one assume the UK will leave the system and prepare for that eventuality, if only on a contingency basis, or take a calculated risk and assume that it will not?’.

IP owners need to be thinking in this way—because “to do otherwise would be to take an ostrich approach”, Maunder says.

“The uncertainty is the main problem for all involved. We know there will be a Brexit, but not whether the UK will leave the UPC, and if it does, how it will take effect.

“It is also important to note that there is not just the possibility of the UK leaving the whole system (UPC and unitary patent) but a hybrid where the UK remains in the UPC but exits the unitary patent part,” Maunder explains.

He adds that users in the UK are most likely to be aware of the uncertainties of Brexit, but all users need to consider these issues if they have any business interests in the UK. In an ideal world, an early decision will be made on the UK’s future participation in the system and, if there is to be an exit from the UPC, the terms of this exit.

Counting the cost

Burnett-Hall adds that patent owners will need to decide whether the cost of the unitary patent will be justified without the UK being covered by it.

At the moment, the fees for the UPC are calculated using the ‘top four’ model, which is designed to account for the combined cost of maintaining European patents in the UK, Netherlands, France and Germany.

These four countries are the most popular for the validation of European patents, Burnett-Hall explains.

“It is unlikely that the triggering of article 50 itself will immediately change anything but if, hypothetically, the UK leaves the UPC system on its departure from the EU, the UPC will still continue in force.”

Simon de Banke, managing director of European patent validation service company IP Centrum, adds: “The cost-effectiveness of a unitary patent as a model compared to European patent validation is a function of many factors, some short-term, some long-term.

"CIPA’s long-held position has been that we would like the UK to remain part of the UPC after Brexit."

“If you want to cover all unitary territories, then European patent validation will be more expensive for the initial filing. If you want fewer territories, then European patent validation wins. But only a small percentage of validated patents last the full term, so over the full life of the family, the unitary renewal fees are a large concern for many of our clients, preferring the flexibility of abandoning unwanted territories rather than being locked into the full unitary renewal fees.”

De Banke says that “the full impact of Brexit is impossible to gauge at this early stage, and with so much flux it is hard—and sometimes, I think, naive— to isolate the impact on a specific factor. Whether a unitary patent becomes a more or less cost-effective solution if the UK is not part of the UPC will be determined by the fall-out and economic impact of the incredibly risky Brexit process”.

In August last year, the Chartered Institute of Patent Attorneys (CIPA) announced in a position paper that the organisation had a “strong preference” for the UK to participate in the unitary patent and UPC.

Tony Rollins, president of CIPA, tells WIPR about its current stance on Brexit and the UPC.

“The UK government has announced that it intends to participate in the UPC and CIPA understands that the government is working towards laying the necessary legislation. CIPA’s long-held position has been that we would like the UK to remain part of the UPC after Brexit,” he says.

“We will continue to work with the UK government and overseas partners to ensure that this happens. We understand that there is considerable support in Europe for the UK remaining in the UPC post-Brexit.”

As part of its preparation for the UPC, CIPA held a seminar in January this year to “begin a process of educating our members about the UPC and unitary patent”.

“We will provide training on both the unitary patent and UPC for all our members.

“A programme of webinars is being planned which will be held from spring through to the end of autumn this year,” he adds.

Burnett-Hall adds: “The unitary patent and the UPC were complex enough even before Brexit but the result of the UK’s referendum makes the picture more complicated still.

“However, IP lawyers who are on top of the situation will be able to guide their clients through the uncertainties that now exist and help ensure that IP owners secure the best possible protection for their IP assets.”