The UK will vote on its European future just as the EU finalises a new patent system – a coincidence with implications for SMEs

The UK’s impending EU referendum is posing many economic questions for SMEs, one of which is about intellectual property. Many SMEs are wondering what impact Brexit could have on the process of seeking patent protection in Europe.



For the European Patent Office (EPO), the body that grants patents, the potential for a Brexit has come at a particularly inconvenient time after several years of efforts to ratify the new unitary patent scheme in Europe.

The unitary patent is set to be granted by the EPO and will be valid in 26 countries, with a centralised court of enforcement known as the Unified Patent Court (UPC). It was conceived as a way to cut down on the cost, administration and red-tape of filing and enforcing a patent across many European jurisdictions. Under the unitary system, those seeking patent protection in multiple markets can file a single application to the EPO, and if granted, see it have immediate effect across all relevant states and pay a single renewal fee.

The future of the initiative, however, hangs in the balance. In order to be passed, it is compulsory that the three member states with the highest number of European patent validations ratify the agreement. The UK is one of these states, and it has yet to do so. EPO president Benoît Battistelli remarked recently at the EPO’s annual results briefing in Brussels that it was “obvious” that a Brexit would result in “a reduction and a weakness” in the unitary patent scheme’s appeal.

If the UK votes to leave the EU in June, Britain would automatically exclude itself from the unitary patent scheme, as EU membership is a requirement. How would this affect SMEs?

What would Brexit mean for SME patent applicants?

If Brexit were to happen — and the UK’s exclusion from the unitary patent scheme followed by default — the current system that SMEs use to apply for patents in Europe wouldn’t change much. A business in the UK would file a classical patent application to the EPO for whatever European foreign market it is seeking patent protection in as well as its home market (it could also apply for a domestic patent from the UK’s IPO). Those classical patents granted by the EPO would then still have to be validated at the country level, a step that is not necessary under the proposed unitary system.



However, if the Brexit did not occur and the unitary patent did go forward with the UK as a participating state, the benefit to SMEs would depend on the nature of their business activities abroad. The EPO states that the cost reduction from a unitary patent would be as high as 70% when compared to the current system. While this would definitely benefit large multinationals who generally need patent protection in all markets, Andrew Bowler, a partner at London law firm Bristows and an expert on intellectual property matters, says the benefit for SMEs would be largely dependent on the number of foreign markets a company is seeking protection in.



“The renewal fee for a unitary patent has been based on the equivalent of having four patents in four European territories: UK, Germany, France and Italy,” Bowler says. “But obviously if it was an SME with just a home market of the UK and a single foreign market of France, it would only need two patents, so it becomes a question of whether it’s cost effective or not to apply for a unitary patent, when it could just apply for those two.”



David Knight, a partner in law firm Fieldfisher’s intellectual property and technology team, added that if the Brexit were to occur, British SMEs who needed patent protection across Europe could still file for the unitary patent — as can any foreign company — it just wouldn’t include patent protection at home as part of the package.



“If Britain left the EU, a UK SME could still apply for a unitary patent, but that coverage would exclude Britain, so they’d have to have a separate British patent to sit alongside it.”



What about enforcement?

While the application process wouldn’t change much, the enforcement side is where experts say things could get thorny.

Unitary patents will be litigated by the UPC, whose rulings are legally binding across all participating countries. Once the unitary patent scheme begins, classical patent holders will also have their patents litigated under the UPC (unless they opt out during the transitional period) whether Brexit occurs or not.

Ironically, Knight says, while the UPC presents one of the main benefits of the unitary patent system by reducing legal red tape, it’s also where it could present a potential danger for SMEs.



“On the face of it, enforcement proceedings from the UPC would be a lot more economical and make it easier for SMEs to assert their patent rights, which is a good thing,” Knight said. “But on the other side of the fence, if they’re being accused of infringement spread out over a number of jurisdictions, then the cost benefit of pursuing an action against that SME infringer may shift when the UPC comes along, thereby making SMEs more likely to be embroiled in engagement.”

Bowler adds that there is another danger of SMEs being sued by a foreign division of the UPC in a language they may not understand.

“If, for example, the SME advertised over the internet, it could be sued in a foreign local division of the UPC with the language of the proceedings being that local language.”

Will the unitary patent happen?

While the EPO insisted recently that the unitary patent is “ready to launch”, they’ve had to concede that the UK’s delayed ratification, which was hitherto uncontested, means they have to wait and see.



The EPO president, Benoît Battistelli, said in an interview: “The legal conditions are now met for a positive vote for ratification of this treaty. Now it’s a question of timing and awaiting the result of the referendum which has arrived in the process.”



Knight says that there are two likely scenarios in the event of a Brexit.



“There’s some school of thought that [the unitary patent] will go on regardless, just that the UK won’t be part of it,” Knight says. “Another school of thought is that without the UK being part of it – because it’s such a major economy in Europe – it will come to a stop. My gut feeling is that it’s probably more likely to carry on.”

Bowler added that while there are many factors that might influence how an SME votes in the upcoming referendum, it’s still essential for SMEs to be aware of the potential changes regarding patents.

“I suspect any SME would be motivated by broader commercial drivers about whether a Brexit is good or bad for their business, but in the narrow point of patents, it may well depend on how many markets you’re trying to protect and your risk of facing infringement proceedings in local divisions elsewhere in Europe.”

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