Aleksandar Mijatovic /
3 December 2015EuropeVictoria Bentley and Helen Cline

The IP fallout if the UK leaves the EU

Since January 2013, UK Prime Minister David Cameron has committed to negotiating a ‘better deal’ with the EU ahead of an in/out referendum by the end of 2017 at the latest. A letter to the president of the European Council, published on November 10, will pave the way for detailed talks among EU leaders on reforming the UK’s membership of the EU in advance of the referendum.

Here we consider the potential impact on patent law and the filing and commercialisation strategies implemented by life sciences companies of a UK exit from the EU. Although one consequence would be that the UK would not be part of the new EU patent package—the unitary patent and Unified Patent Court (UPC)—the package is likely to go ahead, because neither initiative requires UK participation in order to function.

Mark Carney, governor of the Bank of England, and other business leaders have called on the UK government to bring forward the referendum and it now looks increasingly likely that it will be in summer or autumn of 2016.

Even if the UK were to vote to leave the EU, withdrawal would not be immediate. There would be a period of renegotiation to determine the UK’s future relationship with the EU, with many alternative models open to the UK. These include: negotiate to exit completely; retain membership of the European Economic Area (EEA) as a member of the European Free Trade Association (EFTA); return to EFTA and negotiate an arrangement similar to Switzerland’s; or negotiate a bespoke arrangement using these agreements as a blueprint.

Whatever the outcome of these negotiations, it is clear that a UK that was no longer a member state of the EU would no longer be able to participate in the unitary patent and UPC. However, organisations operating in the UK could still obtain unitary patents and may have to deal with the new UPC.

With a few exceptions, patent law across the EU is largely not harmonised. It is defined by national law and international treaties such as the European Patent Convention (EPC). There is no facility at the moment for EU-wide patent protection through a single registration; the current traditional European patent is a ‘bundle’ of national patents and is effective only in those EU member states in which it is validated.

Disputes over European patents are currently adjudicated in the same manner as disputes over national patents by the national court of each member state, with the effect pertaining only to the state in question.

The new EU patent package

Europe has undergone an overhaul of its patent system. The new EU patent package will include a new intellectual property right in the form of the unitary patent together with a new intergovernmental court—the UPC—to deal the majority of European patent disputes.

Unitary patents will be granted by the European Patent Office (EPO), an intergovernmental organisation separate from the EU, set up under the EPC. It currently grants patents for 38 countries. The unitary patent will make it possible for businesses to obtain patent protection for their inventions in EU member states through a single patent registration at the EPO without the need for validation.

The unitary patent will co-exist with, and be an alternative to, national patents and European patents. The UPC will deal with enforcement and revocation of both unitary patents and certain European patents. The current centralised administrative opposition procedure for European patents and, in the future, unitary patents will remain the same. The reform offers benefits compared to the current system but also has risks.

Before the EU patent package can be finalised and unitary patent protection can become a reality, at least 13 member states—which must include the UK (for the moment), France and Germany—must ratify the UPC Agreement. The agreement will enter into force on the first day of the fourth month after the deposit of the 13th instrument of ratification or accession. From that date, European patents (which have not been opted out) and unitary patents will be subject to the jurisdiction of the UPC.

Participation in the new EU patent package is open to all member states. Of the 28 potential participants, the unitary patent will apply only in those member states that participate in the Regulation (EU) No. 1257/2012 (Unitary patent regulation) and sign and ratify the UPC Agreement (there are currently 25).

At the time of writing, eight member states, including France but not the UK or Germany, have ratified the UPC Agreement.

It was expected that the UK’s ratification would take place well ahead of the referendum, possibly in early 2016. However, as it is increasingly likely that the referendum will now take place in the summer or more likely the autumn of 2016, postponement of the UK’s ratification is possible, although the UK Intellectual Property Office (IPO) confirmed in June that it was pushing ahead with ratification and that the necessary preparations should be completed by spring 2016. As long as the UK is a member of the EU, its ratification is likely to remain mandatory in order for the UPC to proceed.

Lack of clarity

The introduction of the EU patent package is likely to be unaffected by the outcome of the referendum other than perhaps the potential delay to ratification if the UK drags its heels in the run up to a referendum and possibly a perceived lack of appetite from patentees due to the loss of the UK from its coverage.

However, participation in the new package is open only to EU member states. Indeed, at an early stage of the negotiations, and following a decision by the Court of Justice of the European Union (CJEU), the UPC Agreement was amended to exclude the participation of non-EU member states.

The UPC Agreement is drafted to allow for changes to membership of the EU and requires ratification by the three member states of the EU in which the highest number of European patents had effect in 2012. So if the UK leaves the EU before ratification takes place, it looks as though the Netherlands would become the third country, together with Germany and France, whose ratification of the UPC Agreement is mandatory (although data on EPO designations taken from the EPO’s “Annual Report 2012” suggest that it could possibly be Italy rather than the Netherlands).

It is not clear what will happen to any unitary patents that have already been granted. One solution would be to allow for the conversion of the UK designation to a European patent with the patentee being required to validate it in the UK within a certain period. We expect that a solution will be found as part of the broader withdrawal arrangements so that existing unitary patents remain in force in all the remaining participating states.

“Irrespective of the referendum or its outcome, a review of current patent filing and commercialisation strategies would be prudent so that companies can begin contingency planning, regardless of whether they believe the UK will vote to leave the EU.”

It is unclear what law of property would apply to a unitary patent granted to an applicant with its principal place of business in the UK after the UK ceased to be a member state of the EU. The governing law of a unitary patent as an object of property is not affected by later transfers of ownership but is fixed at the date of the application.

Companies should factor in issues of applicable law when making applications to the EPO now, even before the system is up and running, so that any application they may wish to register as a unitary patent post grant will have the most advantageous applicant combinations.

The future of a London-based central division handling life sciences would be uncertain. While only member states can participate in the UPC, the UPC Agreement appears to fix the life sciences seat of the central division in London; it does not seem to be dependant on the UK being part of the EU patent package. However, although the UK is currently the leading venue for life sciences litigation in the EU with a wealth of relevant expertise, it is likely the court would be moved to another member state.

It is also uncertain whether the UK will ratify the UPC Agreement before the UK referendum and of course what the outcome of the referendum will be. The prediction is that the UK will remain in a ‘reformed’ EU, but predictions can be wrong.

Patenting options

The UK is unlikely to change its involvement in the EPC and would remain a contracting party. Therefore, in terms of patent registration and enforcement in the UK as currently practised, an exit from the EU would have very little impact, even if membership of the EEA was not retained (with the exception of control of parallel imports discussed below).

If the UK were no longer an EU member state, unitary patents would not have effect in the UK and the UK could not be party to the UPC Agreement. As is the case now, patent protection for inventions in the UK will be obtained either by validating European patents on grant to have effect in the UK, or by filing nationally through the IPO or under the auspices of the Patent Cooperation Treaty.

Whatever the outcome of the UK referendum, when the EU patent package comes into force, life sciences organisations operating in Europe will be able to choose to obtain a unitary patent covering at least 13 member states but not the UK. However unitary patents are not mandatory and are not expected to replace European patents. Where an organisation requires broader protection than a unitary patent in Europe it will have a number of options to apply to the EPO and post-grant register as a unitary patent and validate the European patent in the other relevant EPC jurisdictions.

Alternatively, organisations may question the value of a unitary patent when it is possible that one of the key territories, the UK, could be excluded, and elect instead to validate the European patent in all relevant member states of the EPC. Patentees wishing to ensure that their key patents do not fall under the jurisdiction of the UPC, at least until they have confidence in the system, may choose to file nationally, possibly using the existing Global Patent Prosecution Highway to speed up the process and reduce the cost.

Wider impact

Patent owners may have a real opportunity to stem the flow of patented products into and out of the UK. Parallel trade is a constant threat for life sciences companies, particularly biopharmaceutical companies, in the EU. The principle of exhaustion is not enshrined in UK patent legislation and is instead solely founded on CJEU case law. English courts, devoid of a legislative basis for applying the doctrine, would likely apply the law as it is currently applied to goods from outside the EU.

Given that the provisions of the Directive 98/44/EC (biotech directive) have been implemented into UK law, these provisions would remain in force unless specifically revoked. The principal amendments to UK law could simply be the removal of the references to the biotech directive.

The EU Bolar exemption is incorporated into UK law and would remain in force unless revoked. However, any subsequent amendments to the EU legislation following the recently proposed review of the scope of the exemption in Europe and the introduction of a manufacturing supplementary protection certificate (SPC) Bolar for exports would not apply to the UK. However, the UK government would probably monitor changes to EU legislation and legislate to ensure that the UK life sciences sector is not disadvantaged relative to its EU competition.

Regulation (EC) No. 469/2009 (SPC regulation) should cease to apply. A UK SPC system, possibly based on the EU SPC legislation, would most likely be put in place. For existing SPCs granted under EU law to continue to have effect, they would need to be recognised in the UK—possibly by being re-registered as UK SPCs.

In addition, although the UK courts would no longer be bound by CJEU decisions, rulings on the interpretation of the SPC regulation may remain persuasive (to the extent applicable) so as to provide some degree of certainty. The European Commission announced on October 28, 2015 that it is planning to explore a new unitary SPC right. It is possible that, as with the unitary patent, this will be restricted to member states and would not extend to the UK. Again, the UK government would likely amend UK legislation to ensure the UK remained attractive to life sciences businesses.

What to do now

Companies should aim to take advantage of the best aspects of the current and future alternative routes to EU patent protection and commercialisation, and in this period of uncertainty around the UK’s participation in the EU patent package a mixed portfolio may be the less risky option. However, the best choices will depend very much on business strategy and how an organisation plans to use its patent portfolio.

Irrespective of the referendum or its outcome, a review of current patent filing and commercialisation strategies would be prudent so that companies can begin contingency planning, regardless of whether they believe the UK will vote to leave the EU. There is a commercial risk that pending patents will fall under the new regime if they are granted after the UPC Agreement comes into force.

Although the cost-benefit analysis of whether to opt out may change in light of a UK exit from the EU, life sciences organisations may elect to opt out their key patents during the sunrise period. The start date of the sunrise period has yet to be announced but expectations are that it will be early in 2016.

A UK exit from the EU may also affect licensing and other commercialisation strategies. For example if a patent licence is tied to the moving definition of the EU territory, a UK exit could lead to the licence no longer covering the UK. We would suggest incorporating an obligation in those circumstances to execute the necessary additional licences to avoid infringement.

Also, certain provisions that are currently prohibited under the various EU block exemptions while the UK is within the EU may be allowed in certain circumstances if the UK were to leave the EU completely. Companies should consider how agreements may be revised to accommodate this or whether there is value in retaining the existing effect of these contractual provisions. Inserting a generally worded hardship clause allowing either party to renegotiate terms if the agreement becomes unprofitable may also be useful if an exit from the EU could have a substantial impact on the commercial deal.

It may also be prudent to review any securitisation arrangements to determine what actions may be necessary to ensure that the consequences of the UK leaving the EU do nothing to devalue the patent portfolio.

Engage in the debate

It is worth bearing in mind that, even if the UK pulled out of the EU completely, decisions made in the EU would continue to have a profound effect on the UK and life sciences businesses operating out of the UK; the UK, however, would have lost its voice in the debate. Therefore, engagement with and participation in the continuing national and wider European debate about modernising, reforming and improving the EU is essential. If the UK votes to leave the EU, it will be important to have a say in how it should leave.

Victoria Bentley is a senior associate at  Pinsent Masons. She can be contacted at:

Helen Cline is a legal director at Pinsent Masons. She can be contacted at:

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