As we predicted in November last year, the Court of Justice of the European Union (CJEU) has dismissed Spain's challenge to the legality of the regulations establishing the Unitary Patent. The full implications for the functioning of the Unitary Patent package remain to be seen, but what is apparent is that one of the final obstacles to the Unitary Patent has been removed.

Our intellectual property experts have been following developments with the Unitary Patent. They have summarised the decision and the remaining obstacles to the implementation of the Unitary Patent package here.

Introduction

Over the past two years, the building blocks for the Unitary Patent (UP) have begun to fall into place. The Rules of Procedure are close to being finalised, training for judges has begun, and ratification of the Agreement on a Unified Patent Court ("the Agreement") is well and truly under way.

However, there remained a real risk that all of this progress would be in vain if Spain (which chose not to be involved in the scheme) was successful before the CJEU in challenging the legality of the two EU regulations. The regulations are: Council Regulation (EU) No 1257/2012, which provides for European patents to have unitary effect among the member states of the EU participating in the Unitary Patent; and Council Regulation (EU) No 1260/2012, which provides for the establishment of a translation regime. The regulations provide that they will only take affect after the Agreement has been ratified, but if Spain's challenge succeeded, there would be no unitary patents for the Unified Patent Court to rule on.

The CJEU has today removed the risk presented by Spain's challenge by ruling that the regulations are lawful. This paves the way for the first Unitary Patents to be granted as soon as a further seven signatory states to the Agreement (including Germany and the UK), of the 19 states yet to do so, ratify the Agreement. 

Background

Spain's arguments against the legality of the regulations establishing unitary effect and establishing the translation requirements were considered and dismissed by the Advocate General in his opinion handed down in November 2014. A detailed summary of the background to the CJEU's decision, and our analysis of the Advocate General's opinion can be found here.

To properly understand the CJEU's decision, it is also important to understand the relationship between the European Patent Office (EPO), its signatory states, the EU and the member states of the EU.

The EPO was established pursuant to the European Patent Convention (EPC), the signatory states of which include, but are broader than, the member states of the European Union (EU). Importantly, the EPO is not a body created or governed by the European Union, and the EU is not a signatory to the European Patent Convention, so each cannot impose obligations directly upon the other.

The member states of the EU, on the other hand, are members of the EU and signatories to the EPC. Furthermore, the EPC permits a group of member states to enter into a special agreement which provides that a European patent granted in respect of such states will have unitary character. The member states of the EU are therefore capable of 'bridging the gap' between the two organisations.

As we will see, it is this interplay between the various organisations which forms the basis for much of the CJEU's reasoning.

The judgment

Although the arguments raised against both regulations were broadly similar, the two regulations were considered by the CJEU in separate judgments. The main arguments related to the regulation establishing unitary effect, which are summarised below. The court's ruling in respect of the second regulation (establishing a translation regime) is considered briefly at the end of this section.  

Rule of law and the role of the EPO

The first complaint related to the lack of independence of the EPO Boards of Appeal, and the limited judicial review of their decisions. The court dismissed the complaint on the basis that the unitary protection would be of an 'accessory nature' to the patent granted by the EPO, and would be achieved by attributing unitary effect in the post grant phase.

The regulation establishing the unitary patent merely establishes the conditions for, and definition of, unitary effect. Because the regulation is only concerned with imbuing a granted patent with unitary character, it was also not for the CJEU to rule on whether the administrative procedure for granting the underlying patent was in accordance with European law.

The regulation also delegates certain tasks necessary for the establishment of the Unitary Patent, including the power to set the level of renewal fees and to determine the share of those fees. Spain therefore alleged that the delegation of these powers to the EPO infringed principles of European law.

In respect of the fees, European law states that where legally binding acts of the Union need to be implemented uniformly across the member states, only the Commission (and in certain circumstances the Council) has the power to do so. The CJEU agreed with Spain that the setting of the renewal fee and deciding on the distribution in accordance with the regulation were matters which involved the implementation of a legally binding Union decision.

However, it did not agree that such acts had to be implemented uniformly. It was therefore for the member states to take the necessary implementing steps, which they were doing in their capacity as signatories to the EPC and members of the select committee established under the 'special agreement' between them.

Further, the CJEU held that the question of whether the delegation of powers to the EPO was appropriate did not arise because the power to set the fees and carry out other administrative tasks had not been delegated to the EPO, but to the member states in their capacity as members of the select committee of the EPO established pursuant to the 'special agreement' between them.

Legal basis

The stated legal basis for the regulation establishing the unitary patent is Article 118 of the Treaty on the Functioning of the European Union (TFEU). Article 118 empowers the European Parliament and the Council to "establish measures for the creation of European intellectual property rights to provide uniform protection of intellectual property rights throughout the Union".

Spain's second complaint was that this was not a good legal basis for the regulation. This was because it contained no substantive provisions about the acts against which the Unitary Patent provided protection (such acts being defined by the national law which applied to the Unitary Patent in question). Nor did the regulation harmonise the laws of the Union, the harmonising provisions regarding the effect of the Unitary Patent instead being contained in the Agreement on a Unified Patent Court.

This complaint was dismissed. The court held that because the regulation set out the characteristics of the Unitary Patent (such as uniform protection), and the national law which applied to the patent did so uniformly across all member states, Article 118 was an adequate legal basis for the regulation.

Autonomy of EU law

The final complaint related to the legality of the Agreement on a Unified Patent Court itself, and its impact on the regulation.

As to the legality of the Agreement, this was dismissed outright on the basis that the CJEU "does not have the jurisdiction to rule on the lawfulness of an international agreement concluded by member states".

As to the requirement for the Agreement to be ratified before the regulation establishing unitary effect becomes effective, the court held that the Member States had been left to adopt several measures within the framework of the EPC to establish the Unified Patent Court, which was necessary to ensure the application of the provisions of the regulation.

Similarly, the fact that the regulation permits countries effectively to choose whether the regulation applies to them depending on whether or not they ratify the Agreement was justified on the basis that if the member state chose not to ratify, only certain provisions of the regulation would not apply. The fact that the provisions in question were those providing for unitary effect was not important.

Translation requirements

Spain's challenge to the legality of the regulation establishing the translation regime for the Unitary Patent failed for largely the same reasons as are set out above. In addition it found that the decision to use only English, French and German was justified and did not infringe European law.

Comment

Today's outcome at the CJEU was largely expected. Not only was the Advocate General's opinion a good indication that Spain's legal challenge was likely to fail, the fact that no less than ten member states and the European Commission intervened in support of the EU shows the weight of political support behind the Unitary Patent proposals.

What is slightly more surprising is that the CJEU's reasoning for upholding the legality of the regulations is similar to the reasoning given by the Advocate General for his opinion.  This is despite the criticism of the Advocate General's opinion from some quarters regarding the role of the member states and the EPO in particular.

There is considerable force in this second point regarding the role of the EPO and its lack of independence and judicial oversight.

It is clear from the decision of the Court of Appeal in Virgin v Zodiac that administrative decisions (or in that case, mistakes) of the EPO involving the grant of a patent covering the UK will, in certain circumstances, be beyond the jurisdiction of the courts in the UK. Similarly, the recent concerns expressed by commentators regarding the independence of the Boards of Appeal and the rights of its employees to seek redress in the national courts has thrown these issues into stark relief.

While the CJEU finds that the regulation simply provides for unitary effect to be parasitic on the grant of a patent by the EPO, and that it does not seek to interfere with the administrative process for granting such patents, the lack of direct accountability remains a concern. The member states are required to ensure effective redress against the decisions of the EPO.

However, in light of the reluctance of national courts to provide such redress and the EPO's immunity from complying with any decisions which are made against it, the effectiveness of this requirement of the regulation is unclear.

Of potentially wider significance is the CJEU's confirmation that it "does not have the jurisdiction to rule on the lawfulness of an international agreement concluded by member states". As a result, the Unified Patent Court will only be able to refer to the CJEU on matters of European Union law.

While this will include the conditions and definition of unitary effect, which are contained in the regulation, such references may be limited. A significant number of legal issues arising out of the Agreement may not be referrable to the CJEU, including the effect of the 'opt-out' provision contained in Article 83 of the Agreement. In that event, the role of the Court of Appeal of the Unified Patent Court will be central.

What's left to do?

The principal obstacle to the implementation of the Unitary Patent package remains the ratification of the Agreement on a Unified Patents Court. There are also the practicalities of the costs involved and confirmation of precisely where the courts will be located, when the agreement will come into force and who will be involved.

Many of these questions are likely to be resolved over the next six to 12 months. A decision on renewal costs is due in June this year. The precise location of many of the courts and confirmation of which countries will host local, or indeed regional divisions (other than the Nordic division in Stockholm), is also likely to become clearer in this time. The judicial candidates will continue to be trained at the Judicial Training Centre in Budapest, and the court systems will undergo development.

In the meantime, the member states will continue to make progress towards ratifying the Agreement on a Unified Patent Court. Following ratification by Luxembourg, seven member states have now committed, including France. Once six more states deposit their instrument of ratification (which must include both Germany and the UK) the four month countdown for the regulation and agreement coming into force will begin.

Rest assured, our IP team will continue to keep you up to date with all of the substantive developments.