Munich or London? The new EU Patent System will now have to be saved by Angela Merkel and David Cameron personally (3rd UPDATE)

Absent of any reliable source the tea leaves give some cryptic clues: Munich on schedule, London delayed, Paris vanished?

The story so far. As we all know, the talks on the new EU-wide patent infrastructure (consisting basically of the Unitary Patent Regulation and the Unified Patent Court Agreement) run aground in late December despite quite some rounds of negotiations producing encouraging press releases according to which the so called ‘EU Patent Package’  was considered “broadly accepted in substance”. However, at the end of the Polish EU Presidency‘s half-year term, the adoption of the “Warsaw Patent Convention” – a term coined by Polish Deputy Prime Minister Pawlak – could not be celebrated as expected due to ongoing dissension.

Even though it was spread after the failed Competitiveness Council of December 5/6 through semi-official channels (e.g. tweets and press report) that the whole deal was almost done and only the seat of the central division of the Unified Patent Court remained to be decided, real doubts and harsh criticism almost immediately occurred and stakeholders saw an opportunity to again open the discussion on various substantive legal issues (see e.g. EPLAW resolution, FICPI position paper), such as on Articles 6 to 9 of the Regulation (effects of patents) that require substantive patent law to be subject to review by the CJEU.

Despite ongoing controversies and criticism (“desaster“, “bound to fail“) as to substantive issues, the politicians declared the dice cast for the Unitary Patent so that the Regulation was not unwrapped again for negotiations as to the legal merits. In fact, the Regulation for the Unitary Patent meanwhile got a green light from the powerful legal committee (JURI) of the EU Parliament in late December and the EU Council began to linguistically finalise the Regulation text in early January.

The EPO’s attitude. Somewhat surprising were the comments of EPO President Benoît Battistelli, who observed even after the Unitary Patent was accepted on his blog that

some improvements are still needed, such as cheaper and simpler patent protection [...].

Isn’t it his Office that will grant Unitary Patents under the procedure and fees of the EPC just as existing EP patents? Wasn’t it Mr Battistelli himself who openly confessed that he (or rather the Adminstrative Council as the real executive power in the European Patent Organisation) does “not believe there should be any changes in the overall level of EPO fees“? In any case, the promise to reduce average patenting costs for SME’s by – ridiculous – 80% (e.g. here, here) is nothing more than political marketing and window dressing based on unrealistic assumptions.

The Seat Issue. It always appeared that the political sphere considered the only remaining question at that stage of the process was the seat of the Central Division, for which initially Germany (rather early) and Great Britain (later, after intervention of UK IP lawyers) throwed down the gauntlet in the competition to host the Court in Munich or London, respectively. In preparation of the December 5/6 Competitiveness Council, a packed agenda correctly expected that the seat question was a real obstacles to an overall agreement. During the deliberations, the French delegation presented Paris as a compromise candidate which, however, was rejected by Germany and Great Britain. Since then the race for the highly lucrative seat of the most important Patent Count in Europe is between London, Munich, and Paris, whereas reports according to which Italy might bring the seat to Milan in return to joining the Unitary Patent only expressed wishful thinking of Italian anti-European Lega Nord party.

David Cameron and Angela Merkel debate at the 2011 Davos WEF Summit

Present Political Situation. Now as Denmark took over the EU Council Presidency from Poland, its the job of the Danish Presidency to finalise the Agreement on the Unitary Patent Court and thus find a solution for the Central Division’s seat. The Danish administration under social-democrat Prime Minister Helle Thorning-Schmidt can indeed play an important supportive and mediative role, those really responsible became clear as Michel Barnier, EU Commissioner for Internal Market and Services articulated in an article pubished around Christmas in french daily Le Figaro:

I appeal to Angela Merkel, Nicolas Sarkozy and David Cameron to reach an agreement as to the seat of the [Central Division of the] European Patent Court.

A couple of days later, EU Commission President José Manuel Barroso sang the same tune (see press release) on the occasion of a meeting with Helle Thorning-Schmidt:

Frankly we are almost there; there are now some divisions between France, Germany and Britain on things that are not so difficult.

The “not so difficult things” Barroso was referring to, however, are at least difficult enough to prevent an agreement in coreper or on another subordinate political level, since the seat of the Central Division meanwhile became a tactical asset and negotiable quantity as precisely now the European Union is distressed by a historic financial and debt crisis, in which German Chancellor Angela Merkel and British Prime Minister David Cameron veritably clashed over the question of whether the EUROzone or even the complete EU should deepen fiscal integration and introduce a financial-transaction tax (aka “Tobin tax“). Cameron rejected such plans on the Brussels EU Summit on 9 December 2011 against the strong support of Angela Merkel and her allie, French President Nicolas Sarcozy – and that for no other reason as to protect the London City‘s banking industry from financial burden. Even though at home Cameron’s “UK first” strategy was criticised for isolating Britain in Europe (especially by Nick Clegg, his liberal coalition partner) and welcomed basically only by eurosceptics and city bankers, he maintained his vehement critics up to now and, moreover, does not appear too worried about Britain’s new position in Europe.

As the relationship between Angela Merkel and David Cameron could (and should!) improve and before the background that Nicolas Sarkozy may face a defeat in the French presidential election in April/May 2012 against his socialist opponent François Hollande, one may expect that this stuck issue will have to be cleared in personal talks between Prime Minister David Cameron and Federal Chancellor Angela Merkel on the margins of some EU meeting, e.g. at today’s informal financial Council meeting in Brussels (see tweet), which is officially dedicated to growth and jobs and unofficially to Greece.

As Angela Merkel has recently made clear that she is “unwilling to drop her demands” and given the fact that Germany is the strongest EU economy and the largest patent filing EU state and further given Great Britain’s current comparably weak position in Europe, some EU diplomats think that David Cameron is simply pushing the price up. Before that background, the Financial Times‘ finding that

senior European officials are now resigned to the dispute dragging on for at least a few more months, as negotiators await more permissive political conditions for the losing sides to save face

certainly makes much sense, while being backed by Public Service Europe fearing that “the Anglo-German-Franco stand-off could drag on for some months yet – officials have admitted – with Munich, Paris and London all determined to get their slice of the cake”.

The somewhat defensive comment of London-based IP Asset’s partner and CIPA council member Vicki Salmon, as mentioned on FT.com, according to which “the one place the court cannot go is Germany because it already has the EPO”, may both illustrate a realistic British negotiation position and point in the direction of compromise candidates such as Paris.

It’s Munich or London. National interest always played a prominent role in the turbulent history of the European Union and the present issue is another proof for the deficiencies of the EU decision making process, since complicated substantive arguments have been dismissed at a certain point and a political question became decisive for the whole project. And even further, there apparently is a destructive majority against each of the three most realistic options on the table, since, according to the FT.com “few other EU countries are happy with a Munich seat because the city is already the home to EPO“, “Britain lacks goodwill or allies“, and “French inflexibility has been damaging“.

Where will all that end? In Luxembourg (which already got the UPC Court of Appeal), Milan, Warsaw or in the historic Copenhagen Court House with affiliated jailhouse? Some even more creative suggestions come from the President of the EU parliamentary liberal ALDE group, Guy Verhofstadt, who identified a scandal and suggested a similar compromise as found in 2001 for the seat of the EU Food Safety Authority, which first resided in a temporary headquarters in Brussels, and later was relocated to Parma with permanent compensation payments for rival Finland.

The real arguments. But what are the positive issues? For a convincing summary of pro-Munich arguments it is sufficient to refer to (British!) IAM Magazine Managing Editor Joff Wild, who expressed in a recent article that his “sympathies are with the Germany here”:

They file more patents than any other EU nationals, [see EPO statistics] they also undertake more litigation, while their country is the biggest and richest in the EU; all of which means that it is very likely that more German entities will use the court than those from elsewhere. Therefore, if the plan is to keep costs down, it makes sense to house the court in the country which is most convenient for the maximum number of users. Having the EPO next door will also help to make things less expensive no doubt, as will the fact that, unlike London, you can [still ]use euros in Munich, while most Europeans will not be forced to catch a plane to get there.

Some argue that having the court in Munich means that it will inevitably adopt the German way of litigating. But that looks pretty bogus to me. This is in the power of all EU member states to decide. If they don’t want bifurcation, for example, they don’t have to have it; while there is nothing that says just because a court is in Munich the majority of the judges and officials have to be German.

He also had some encouraging – although less convincing – comments on the French position, which he finds

easier to understand [than the British position] because at least they have played a forceful role in all of this for a number of years, while the French are the second biggest filers of EPO applications after the Germans.

Either astonishing enough or for good reason, Joff Wild frankly criticised his fellow Brits:

The UK has done very little of the heavy lifting during the EU patent talks, preferring to leave it to France, Germany and a succession of EU presidencies. Politically, the UK is also more detached from the EU mainstream than ever. I just cannot see how we can expect the rest of Europe to take our claims for the court seriously – especially as we are not a part of the Eurozone [...].

For reasons of balance and fairness, we don’t want to forget to also point at pro-London arguments, e.g. those regularly expressed on the IPKat blog and the arguments put forward by the UK IP Federation (see detailed paper), which represents British IP intensive companies:

• UK offers world-class specialised courts [...] in the IP field. If the [new Court was] located anywhere but the UK [...] demand for legal services would migrate away from the UK,
• locating the new Court in the UK would act as a natural deterrent to [German] bifurcation in practice,
• the new Court needs to be remote form the European Patent Office.
• costs [...] in the start-up phase [...] would be more than compensated by tax revenues from legal services providers in the UK,
• many millions of pounds per year in existing legal service fees are potentially at risk if the Court does not come to the UK,
• the increased reputation to London as a centre of excellence in patents would attract patent-intensive business,
• it would result in further development of a mindset associating the UK with technology-based businesses,
• it would be an opportunity to demonstrate UK support of an EU institution that we backed from the outset, believe in, and want to help develop to success.

Please judge for yourself whether or not you find such arguments convincing, which basically relate to  profits for the UK economy – given the fact that “the UK has done very little of the heavy lifting during the EU patent talks, preferring to leave it to France, Germany and a succession of EU presidencies”, as Joff Wild put it.

UPDATE 1 (30.01.2012, 11:20): The EU Council press office just confirmed by this tweet that patent issues may be discussed under heading “completing the single market” (see background note).

UPDATE 2 (30.01.2012, 13:20): Just today the IPKat blog reports in two consecutive articles (part I, part II) on the UK House of Commons European Scrutiny Committee’s oral evidence hearing on the unitary patent and unified patent court proposals (see our earlier report here), where further arguments in favour of London (and against Munich) were presented – again basically addressing the  UK economy rather than the interests of patent proprietors and the efficiency and usability of the system -  e.g. by Henry Carr QC of the IP Bar Association:

Germany already has the EPO. If Germany gets this court as well, [...] you also have the situation which militates against fairness. That the very place [...] that is granting the patents is deciding on their validity as well [...] does not have a perception of justice at all. And the third reason I point to, is simply the economic benefits for the UK [...] in terms of skilled employment, of vast increase in patent litigation [...].

If Germany [...] gets the Central Division [...] most cases will go to the Central Division. [...] Germany will then gain another big, big institution which will be very, very important and will very much expand the amount of patent litigation [...]. Certainly the big gainers will be Germany if they get that Central Division.

If we were to get the Central Division, [...] we would get as much as five times as much patent related work than we do at the moment – so we would be into billions. Whoever gets the Central Division, that’s going to be a major employer – a major employer of skilled people, so many cases, so much staff [...].

Again, please judge for yourself if these arguments should be decisive factors for the location of the central division.

UPDATE 3 (30.01.2012, 21:10): Even though there were some speculations that an agreement on the last open qustion could be reaches at today’s informal financial Council meeting in Brussels (see tweets here and here), it wasn’t a big surprise that the Heads of Government had enought to do with stimulating growth in Europe and finalizing/promoting the ESM and  fiscal compact today. As to the patent issues, an official statement now clarified that

The participating Member States commit to reaching at the latest in June 2012 a final agreement on the last outstanding issue in the patent package.

(Photos 2009 by Liquene via Flickr under a CC license and 2011 by World Economic Forum via Flickr under a CC license)