‘Brexit’: time is of the essence for life sciences innovators
On June 24 the UK confirmed its vote to leave the EU, the first step in a process that is likely to lead to the biggest de-merger in history: the world’s fifth largest economy (the UK) leaving the world’s largest economic grouping (the EU).
EU law continues to apply until the UK formally exits the union. The key unknown is which post-‘Brexit’ model will be negotiated. At this point, it is difficult to predict how, or when, the exit will happen. What is clear, however, is that Brexit, in whatever form it ultimately takes, will have an impact on the legal rights and obligations of parties in the life sciences sector. It is also clear that the uncertainty caused by the ‘Leave’ vote is problematic for many parties, both in the immediate aftermath of the vote and as the details of the UK’s exit are ironed out.
Brexit implications for EU patent strategy
From a patent perspective, the most pressing consequence of the outcome of the referendum is the huge uncertainty that now hangs over the Unified Patent Court (UPC) system and the unitary patent. This EU harmonisation project has been many years in development and businesses have been developing strategies to be well placed to take advantage of the opportunities offered when the new court opens its doors for business in 2017. The UPC system had offered the tantalising prospect of a ‘one-stop shop’ for patent enforcement across 25 participating member states.
The UK’s vote means an end to its involvement in the project, although it seems possible that the UPC will continue regardless, even if the timing is now extremely uncertain. The UK has been an enthusiastic and vocal supporter of this new system and London was set to house a prestigious central division of the new UPC, handling life sciences and pharmaceuticals disputes. Future unitary patents will now not cover the UK and UPC judgments will not extend to UK patents.
The ‘Leave’ vote will definitely delay the introduction of the UPC. However, the UPC Agreement makes no provision for what should happen to the London central division in this event. These responsibilities will need to be reassigned once the UK leaves the EU, but there will be no shortage of offers. Munich would like to add life sciences to its responsibilities, the Netherlands would like to have a court—as would Italy, which is starting to show more support for the UPC.
The default UK position
The UK will continue to participate in international arrangements such as the European Patent Convention and the TRIPS Agreement (which are not grounded in EU law) and to involve itself in the system for the application and grant of European patents at the European Patent Office. Existing European patents are therefore unaffected and life sciences firms can obtain new patents in line with the current system, ie, through the UK validation procedure. But these patents will only be litigated before the UK national court and not before the UPC.
A patent judgment from the English High Court generally commands respect in other countries, and litigants value the speed with which English courts operate (if not always the expense). Currently, a judgment from the UK courts can provide leverage for settlement of international patent disputes. It is very likely, however, that the standing of an English High Court judgment internationally will diminish compared to that of a UPC judgment, which would represent the position in most of Europe. The UK is likely to become a less popular patent forum. Over the longer term, therefore, the UK’s non-participation in the UPC (assuming it goes ahead) may well dilute the attraction of UK courts as venues for resolving big-ticket patent disputes.
“It is very likely that the standing of an English High Court judgment internationally will diminish compared to that of a UPC judgment, which would represent the position in most of Europe.”
Furthermore, patents within the UPC system will be subject to the UPC Court of Appeal’s judgments so that a consistent body of patent law will develop. This will apply not only to unitary patents but also, eventually, to all classic European patents in the member states participating in the UPC. Post-Brexit, the UK will stand outside this development and UK patent law may well diverge as a result.
UPC benchmarking survey results
Despite the apparent drawbacks of a UPC without UK involvement, the immediate impact of Brexit on the patent strategies in the life sciences sector may not be as profound as it might first appear, according to results from Allen & Overy’s recently published second UPC benchmarking study, conducted for the firm by market research provider YouGov. This latest report shows that attitudes towards the UPC have shifted in the two years since we first conducted the survey.
In particular, companies in sectors such as life sciences which depend on a few crown-jewel patents for the bulk of their business revenues look set largely to opt these few patents out of the UPC system, litigating them in their heritage systems. At the same time they will be making sure that they can play an active role in shaping the UPC system with other (less commercially significant) patents. The findings therefore highlight that life sciences firms with significant IP exposure are better prepared, with senior management assessing the opportunities and risks that the UPC presents and considering a more commercially pragmatic approach once the UPC becomes a reality.
Another key area that the UPC might have to address is costs. While the unitary patent would still be an advance on the current setup, losing such a key market as the UK would weaken its efficiency—many companies would still have to apply for a UK patent in parallel. There might be pressure to recognise that shift by reducing fees to take account of the fact that a major patent jurisdiction is no longer included.
Broader IP issues in life sciences
After Brexit, the UK will have to decide whether, and how, to provide for parallel trade. It will be a matter of legislative choice whether to provide for European Economic Area (EEA) or international exhaustion of rights. Also at risk are harmonisation measures achieved in other IP areas, for example the biotechnology directive, the IP enforcement directive and the EU regime of supplementary protection certificates (SPCs), although much will depend on the Brexit model adopted.
If the UK were to become part of the European Free Trade Association and the EEA (like Norway), many present and future harmonising directives and regulations (including the SPC regime) would continue to apply, although the UK would have fewer opportunities to shape them. However, membership of the EEA would involve agreeing to the four fundamental EU freedoms of free movement of goods, capital, services and people, the last of which may be unacceptable to a UK government. EEA members would also have to agree to these arrangements. Alternatives involve varying types of bespoke bilateral agreements, the content of which is less predictable.
Impact on innovation and investment
In terms of innovation and investment in the life sciences sector more generally, the UK BioIndustry Association quickly reiterated concerns following last week’s ‘Leave’ vote over the future of drug research in the UK, a strategic priority for the UK Office for Life Sciences, which is part of the Department for Business, Innovation & Skills. Fears over the potential loss of a predictable regulatory framework and research environment (together with related EU funding) have prompted speculation over the future of the UK biotech industry, with shares in publicly traded UK biotech companies falling compared to those of the much larger global pharmaceutical companies, whose shares rose following the announcement of the referendum result.
The Association of the British Pharmaceutical Industry (ABPI), meanwhile, has characterised Brexit as a major blow to the attractiveness of the UK pharmaceutical sector. However, the cloud of Brexit would appear to have a silver lining in that the ABPI views the referendum result as a good opportunity to boost investment through better accessibility and affordability of healthcare. This, says the ABPI, could be achieved through a stronger partnership between industry and the National Health Service premised on ‘big data’ to facilitate earlier access to innovative medicines and improved commercial arrangements with payers to improve market access for innovative new treatments.
It is too early to say exactly what the UK’s exit from the EU will mean for innovation and investment in the life sciences sector and how this development is expected to be reflected in patenting. However, it is fair to say that the UK’s vote to leave has triggered an immediate need for innovative life sciences firms to evaluate the impact of Brexit on their patent strategies alongside their broader research and development, regulatory, and commercial strategies, as this significant political development will undoubtedly continue to lead to increased uncertainty, both commercially and legally, for life sciences firms researching, financing, registering, or launching new technologies in the UK.
Laetitia Benard is partner at Allen & Overy in France. She can be contacted at: laetitia.benard@allenovery.com
