Dark day for UPC: Europe reacts to surprise judgment

Today, the Constitutional Court published its long-awaited decision regarding German legislation and the UPC. It turned out to be anything but the fait accompli expected by its supporters. The German constitutional judges had serious doubts about how the UPC legislation was passed by the two chambers of parliament. It therefore halted the German ratification process. The judges ruled that the German constitution is incompatible with how the government and parliament had brought the UPC laws into being. Therefore, the laws are void.

Peter Huber

The UPC should have passed laws with a two-thirds majority of all members of the Bundestag. Instead, it waved through the laws late at night in a fast-track procedure. Only 35 MPs approved it. The majority opinion of the court argues that the Federal Republic is ceding sovereign rights, and as such a clear-cut case, to a supranational court. The verdict of the constitutional judges from Karlsruhe under judge raporteur Peter Huber is clear.

It is also a slap in the face for the speaker of the German parliament, as well as for UPC officials.

But perhaps the end is not so near. The constitutional judges in Karlsruhe have shown the Berlin politicians how to get it right next time.

Immediate future

The first consequence of today’s bombshell is that the German government can no longer complete the ratification process. It must bring the laws through the Bundestag again. For the UPC this means, in the best case, the start of the court will be further delayed.

Before the UPC can begin operating, 13 of the 25 participating EU member states must implement the UPC Agreement into national legislation. The 13 must include Germany, France and the UK.

But three weeks ago, the UK government confirmed that it will no longer participate in the UPC system. The announcement surprised the European patent community. Despite Brexit, many expected the UK to hold to its ratification.

However, Italy will replace the UK as one of the states to ratify the UPC Agreement. As such, 15 member states, including France and Italy, have already ratified the agreement. The only country missing is Germany.

Big win for Stjerna

Düsseldorf-based IP lawyer Ingve Stjerna filed the constitutional complaint at the end of March 2017. Stjerna made the complaint shortly after the Bundesrat and Bundestag, the upper and lower houses of German parliament, had voted to ratify. But the complaint brought German ratification, and the whole UPC project, to a screeching halt.

Stjerna’s primary criticism is that the Federal Republic of Germany would relinquish more sovereignty than is compatible with the claim to democracy (Article 38, Paragraph 1, Clause 1 of the German Constitution). Stjerna’s other criticisms included:

• Breach of requirement for a qualified majority under Article 23, Paragraph 1, Clause 3 in conjunction with Article 79, Paragraph 2 of the German Constitution.
• Democratic and legal deficiencies with regard to the legislative powers of the UPC bodies.
• Lack of independence and democratic legitimation of the UPC judges.
• Violation of the principle of pro-European law due to alleged incompatibility of the UPC Convention with Union law.

The constitutional judges may have only taken up one of his arguments. But today, many observers pay tribute to Stjerna. He saw a weakness in the legislation, says a proponent of the UPC. Now the community must live with it.

But Stjerna had been criticised time and again by UPC supporters. They say the complaint was so late, and he never clearly stated that he was the complainant. The knowledge emerged only after his submission was circulated in the patent community.

The Constitutional Court also had to take a lot of criticism from the IP scene. This is mostly concerned with why reaching a decision has taken three years. Evidently, the judges were divided on how the parliament has to control the executive when it enters into an international agreement and thus cedes constitutional law. Three of the eight constitutional judges disagreed with the majority on the court. This is highly unusual. Largely, the court is unanimous in its decisions.

“We can repair the damage”

UPC officials are used to some grief. The project has experienced many ups and downs since the 2016 Brexit referendum. After Brexit, the community said the project was dead. But then the British government ratified the agreement, even despite its decision to leave the EU. And then, three weeks ago, Downing Street declared its final farewell to the UPC.

Still, for UPC supporters, today was perhaps the blackest day yet. The reactions from the international patent scene were clear. Many think the decision is a death sentence. However, some UPC officials are convinced. The UPC can still be saved.

Winfried Tilmann

“The Federal Constitutional Court, by a narrow majority after changing its case law, has declared the ratification law on the EPC null and void because the two-thirds majority in the Bundestag was not achieved. The Bundesrat had decided unanimously,” says Winfried Tilmann, partner at Hogan Lovells and a major proponent of the UPC in Germany.

“This formal objection can be eliminated by a new vote with a two-thirds majority. Fortunately, the Federal Constitutional Court has rejected all factual objections to the constitutional complaint as inadmissible or unfounded.”

This means that the preparatory work on the EPC can begin shortly, Tilmann explains a possible way for the court in the future. “UK still has to notify its withdrawal. The central chamber division London must be replaced by a treaty amendment. This can be linked to the second round in the Bundestag.”

Therefore, in Tilmann’s opinion, today’s decision means only an unexpected delay.

Alexander Ramsay

Alexander Ramsay, chair of the UPC prepatory committee, also remains pragmatic. He says, “The next step is that we analyse the situation and make an amended time plan for our preparatory work. This means we can sequence out work in an appropriate order based on when we can expect the German ratification. We need to consolidate our resources, including staff and partner organisations to work towards this goal.”

Kevin Mooney, long-time proponent of the UPC and partner at the London office of Simmons and Simmons, says, “We must wait to see how great a priority this for the German Parliament. The UPC is not dead.”

Wrong timing again

Therefore, once again the UPC’s biggest problem is time. It is uncertain how quickly the UK government will file its departure from the UPC.

Then, the 24 UPC states would have to agree on where the central court divisions, which should have been in London, would move to. The agreement would require the 24 UPC states, as well as non-participating states Spain and Poland, to renegotiate the treaty. This could take years.

Presently, it is also unclear how quickly the federal government will be able to bring the UPC laws back into parliament. It is a particular challenge in light of the current oronavirus crisis.

A spokesperson of the Federal Ministry of Justice explained at the request of JUVE Patent, “The federal government will carefully evaluate the decision of the Federal Constitutional Court and examine possibilities to remedy the identified formal error before the end of this legislative period.”

However, the mood of the parliamentary groups represented in the furthering of the UPC is uncertain. So far, the project has relied on a sufficient majority in industry and the legal profession. The political will of the governments involved has also always been guaranteed.

Patent scene reacts

In recent months, many experts had expressed doubts that the complaint would be successful. But as time went on, with still no ruling from Karlsruhe, some began to lose confidence. Some feared the judges would order an oral hearing, or even uphold the complaint. Both of these scenarios could well have spelled the end for the UPC.

Other lawyers express concern that the UK’s withdrawal from the UPC Agreement in February will make a future UPC with Germany even less likely. Andreas Wietzke, partner in the Munich office of Mathys & Squire, says, “The decision is based on the lack of a two-thirds majority. Of course, that opens the possibility to simply re-do the decision with the requested majority. However, I believe that after the UK has pulled out of the UPC it might be difficult to achieve the necessary majority.”

It is not just the UK’s withdrawal which is making this tough. The current global coronavirus crisis has come at a critical time for the Federal Constitutional Court; the current coronavirus restrictions means passing through any legislation quickly is compromised. Furthermore, its handling could impact political decision-making.

Wietzke continues, “No-one can estimate the effect of COVID-19 on the political parties and the resulting number of seats during the elections in 2021. This may now mean the end of the UPC; I do not see an easy way to put the UPC in place.”

Politics, disrupted

Michael Schneider, partner at Pinsent Masons in Munich, says, “Provided there are no further complaints against the issues left undecided by today’s ruling, in particular regarding the UPC’s compatibility with EU law, Germany would then be in a position to ratify. But firstly, it requires political will across the political spectrum in the Bundestag. At this time of crisis with coronavirus, there is also a real question about whether a quorum will be able to be achieved in parliament for such a vote any time soon.”

Markus Herzog, patent attorney at Weickmann & Weickmann in Munich, says “For the agreement on a Unified Patent Court to come into force, the main issue now is likely to be whether or when the member states of the European Union will agree on a new location for the branch office of the central chamber of the Unified Patent Court, which was initially allocated to London. The coronavirus crisis will prove to be a more serious obstacle than today’s decision from Karlsruhe.”

Penny Gilbert, partner at the London boutique Powell Gilbert, says, “Quite where this leaves the UPC now is completely uncertain. At the very least it seems that there will have to be a new debate and vote by the German parliament, but whether there is still a political will to proceed, and how long that might all take, remains to be seen.”

But amid the political decision-making and global crisis, there are many lawyers who will be profoundly sad to hear today’s decision. Cyrille Amar, partner at Amar Goussu Staub, says “What a shame, really what a shame to have taken three years to make a decision on such a basic motivation, and obviously in the service of particular economic interests. The phenomenon of European disintegration is so deep-seated that it can, in my opinion, no longer be repaired.”

Stjerna fights on

For critics of the law, the decision is a remarkable success. Today, JUVE Patent spoke to Ingve Stjerna, plaintiff in the case. Stjerna says, “In its decision published today, the Federal Constitutional Court has declared the treaty law on the Convention on a Unified Patent Court to be unconstitutional and null and void – as many had hoped.”

He continues, “The court did not even rule on the substantive complaints and even hinted at further constitutional deficits of the agreement.” And Stjerna’s not going down without a fight. He says, “It remains to be seen what conclusions the federal government will draw from this decision. If, despite these problems, the German government continues to adhere to the Convention, a new constitutional review by the Constitutional Court will have to be considered, possibly of a complaint from a company.” (Co-authors: Christina Schulze, Konstanze Richter, Amy Sandys)