Hungarian ruling does not diminish importance of German UPC case

On 29 June, Hungary's Constitutional Court published a ruling in which it held that the terms of the UPC Agreement are incompatible with Hungary's constitutional framework.

The Hungarian court took into account the fact that the UPC Agreement is not formal EU legislation but an international treaty formed through the 'enhanced cooperation' mechanism provided for under the Lisbon Treaty. It permits nine or more EU countries to use the EU's processes and structures to make agreements that bind only those countries. It is through the enhanced cooperation mechanism that plans to develop a new unitary patent and UPC regime have been developed.

The Hungarian court said it would be unconstitutional to allow jurisdiction for resolving private legal disputes to transfer from Hungary's courts to an international institution – the UPC – that is not established within the boundaries of the EU's founding treaties, according to a summary provided by Hungary's Intellectual Property Office.

At least 13 EU countries, including the three with the most European patents in effect in 2012 – Germany, France and the UK, must pass national legislation to ratify the UPC Agreement that the countries behind the new system finalised in 2013.

While 16 EU countries, including the UK and France, have ratified the UPC Agreement to-date. Germany has yet to do so, despite finalising legislation for that purpose in 2017.

The German ratification process has been held up by a legal challenge before the country's Constitutional Court. Details of the basis of the complaint emerged last summer.

The Karlsruhe court has listed the case to be heard some time this year, although no firm date has been confirmed yet and it is unclear when a judgment can be expected. However, the fact the case was listed suggests that the complaint has not immediately been dismissed as obviously unfounded.

Munich-based Peter Koch of Pinsent Masons, the law firm behind Out-Law.com, said: "It appears that the Hungarian decision will require the Constitution in Hungary to be amended, which is apparently not as rare as in other jurisdictions, if Hungary is to participate in the new unitary patent and UPC regime. This is seen to delay Hungary’s participation without being or becoming a real deal breaker."

"On the contrary, the German constitutional complaint deals with various issues, some of which are easier to overcome than others, for example that a two-thirds majority in both houses of parliament is obtained for ratification of the UPC Agreement in Germany," he said.

"Attorney Ingve Stjerna, the man behind the constitutional complaint in Germany, claims that ratifying the UPC Agreement brings about an illegitimate transfer of sovereign rights from Germany to the EU and that UPC judges are not independent, among other things. This is a much bigger threat to the UPC system," Koch said.

In May, Koch and other patent law experts at Pinsent Masons took a detailed look at what the unitary patent and UPC reforms look like, what they might mean for businesses in sectors such as technology and life sciences, and what still needs to happen for the new framework to take effect, including actions that may need to be taken to account for Brexit.