Applicable law in the UPC

A new chapter begins for intellectual property protection, especially patent law. The Unified Patent Court (UPC) opened its (digital) doors on 1 June 2023, and as the new court will hear the first cases an important question arises: Which substantive and procedural law does the UPC apply?

Sources of law of the European patent system under Art. 24 UPCA

There exists no self-contained, independent system of procedural and substantive patent law. The legal framework is built from provisions of European Union law, international treaty law and national law. Article 24 UPCA (Agreement on a Unified Patent Court) lists the various sources of law in succession and determines the order of priority of the applicable law.

Besides the existing law, the newly adopted provisions of the unitary patent system have to be observed as well. They include the UPCA, which governs the establishment of the UPC, its jurisdiction and competence, structure, administration and procedure, as well as the Statute set out in an Annex to the UPCA (UPC Statute), which lays down the details of the organisation and functioning of the court. The international agreement also includes many substantive provisions. The Regulation (EU) No. 1257/2012 (UPR) is the central guideline for the new European patent with unitary effect, governing its unitary effect and registration in the proper register at the European Patent Office. However, the Regulation itself does not define the exact scope but refers to other provisions, in particular Art. 25 ff. UPCA. The further Regulation (EU) No. 1260/2012 (UP Language Regulation "UPR") governs the languages within the unitary patent protection system. Ranking below the UPCA but nevertheless of great importance, the Rules of Procedure (RoP) are adopted by the Administrative Committee of the UPC as described in Art. 41(2) UPCA. The RoP lay down the details of the proceedings before the UPC, further specifying and completing the procedural rules contained in the UPCA.

Substantive law

The applicable substantive law is determined by Art. 24 UPCA. Provisions of substantive law are those on which the UPC bases its decisions on the merits. Union law has absolute priority and takes first place in the hierarchy established by Art. 24 UPCA. Union law is composed of primary and secondary legislation. With a view to secondary legislation, Article 24 expressly refers to the Union Regulations 1257/2012 and 1260/2012.

Next in order of precedence are the international contracts. The UPCA itself is an important source of law and expressly ranked second by Art. 24 UPCA. In Articles 25 ff. as well as 63, 64, 67 and 68, the UPCA contains substantive provisions. Art. 25 ff. UPCA govern the direct and indirect use of the invention and are largely consistent with Sec. 9 ff. PatG (German Patent Act). There is one difference of practical relevance in the concepts of indirect patent infringement: While national law restricts the offering to supply and supplying to one territory and requires a double domestic connection, the acts may occur in the territories of different Member States under the UPCA. This exposes suppliers to a greater risk of indirect patent infringement by comparison to the traditional European patent system.

Listed next in line after the UPCA is the other international treaty, the European Patent Convention (EPC). The EPC includes substantive provisions for example in its second part. Referring to the above described principles and order of precedence, the provisions of the EPC are applicable law in connection with substantive patentability. Union law does not provide for any overriding regulations in that respect. The revocation of patents by the UPC and the related requirements are governed by the EPC as well, as the reference in Art. 65 UPCA shows.

This is followed in rank by other international agreements that apply to patents and are binding on all Contracting Member States. They include the Paris Convention or the TRIPS Agreement.

In areas where the prior-ranking sources of law do not contain any pertinent substantive provisions, for example in enforcement and insolvency law, or if there are any gaps in the overriding substantive legislation, the court shall base its decisions on national law, including where relevant the law of non-contracting States. The applicable national law is determined by Art. 24(2) UPCA: The rules of private international law define which national law applies in a specific case. First and as a matter of priority, this is once again determined by provisions of Union law – directly applicable provisions of Union law containing private international law rules. Article 7 UPR is an important provision of Union law, governing the national property law to which the patent with unitary effect as an object of property is subject. This depends on the Member State where the patent applicant named first had his residence or place of business on the date of filing of the application. If no applicant had his residence or place of business in a participating Member State, German law is applicable. There is disagreement in the legal literature as to whether Article 7 UPR applies solely in terms of property law, as in the case of patent entitlement claims or licensing, or defines a general reference provision to national law. This will have to become clear in the first proceedings before the UPC. Furthermore, in particular the Rome II Regulation is another important conflict of law rule of Union law, which governs the applicable law for non-contractual obligations such as, most notably, patent infringements.

In the absence of directly applicable provisions of Union law or where these do not apply, the applicable law shall be determined by other international instruments containing private international law rules. In the absence of any such provisions of relevance, the applicable law shall be determined by national provisions on private international law as determined by the court, including laws of non-contracting States.

The follow-up question of practical significance is the extent to which the UPC will consider settled national case law and, vice versa, whether the national courts will have to apply the UPCA provisions to patents that have been opted out of the European patent system. It is the objective of the new European legal system to harmonise European patent law. To achieve this goal, the partly diverging national case law cannot form the main basis for future decisions. However, this does not preclude the UPC judges from reverting to principles of national case law in matters of interpretation of the new law until the Court of Appeal has established its own case law.

The question of the applicable law in opt-out scenarios is highly controversial. In a statement addressing this topic, the UPC Preparatory Committee was opposed to the application of UPCA law by national courts. The Committee argued that the objective of a uniform application of the UPCA provisions has to be pursued by the UPC, which would be compromised if they were applied by the national courts without any control by the UPC. It is not the objective to harmonise national law. The counterarguments are, firstly, that the opt-out provision in the UPCA clearly only relates to opt-outs from the exclusive competence of the UPC but not to any opt-out under substantive law. Secondly, it is not appropriate that the claimant, by choosing the forum, is able to modify the civil law situation in relation to the defendant. As many patent proprietors have made use of the opt-out, it will soon become evident which view the courts will adopt.

Procedural law

The proceedings before the UPC are governed by the provisions of the UPCA and the related Rules of Procedure (RoP). In questions of procedural law as well, the priority of Union law must be observed and protected at all times. Contrary to substantive law, there is no general reference to provisions of national law in the main proceedings as the reference in Art. 24 UPCA only relates to substantive law. This is clear first of all from the heading of chapter V - “Sources of law and substantive law”. Furthermore, Art. 24(2) UPCA refers to the private international law rules, which only govern the application of substantive provisions but not any provisions of procedural law in specific legal systems. Any gaps shall be closed autonomously by applying supranational procedural law. References to national law are the exception, if expressly provided by the legislation. One example is Art. 46 UPCA, which provides that legal persons entitled to initiate proceedings by their national law shall have the capacity to be a party before the UPC.

Due to the reference in Art. 82(3) UPCA, enforcement procedures on the other hand are governed by the UPCA and by the law of the Contracting Member State in which the enforcement takes place. Decisions of the UPC are enforced under the same conditions as decisions given in the Contracting Member State.

Outlook

While the development of a Unified Patent Court entails an abundance of new rules, questions still remain open with regard to the new provisions that have to be answered by autonomous stipulations as well as by national law. The full effects on the applicable law and the patent practice remain to be determined. It will take a while for the UPC to establish its settled case law, and it will be interesting to see how the open controversies will be decided. As the case law and clarity about the applicable law will grow, the UPC will secure its position as an important patent litigation forum.