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The real reason why the "451-page dossier" should concern you: US seeks to put UK "deviation from the EPC" on the table in future US/UK trade negotiations

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This Kat was probably not alone in being slightly bemused by the recent media reporting on the leaked “451-page dossier” describing US/UK talks on future trade arrangements. The BBC reportsthe dossier as showing that the US is interested in "extending patents” in the UK. How strange. Is the US government proposing some novel form of patent term extension currently unavailable to patentees in the UK? Fear not, IPKat is here to provide some clarity!

It turns out that, contrary to media reporting, the dossier does not mention anything radical with respect to patent term extension. However, there are some interesting insights to be gained from the dossier on the potential battleground for IP rights in future US/UK trade negotiations. Most notable is the US government's position on grace periods for disclosure before patent application filings, which are not permitted under the European Patent Convention (EPC).

What does the dossier actually say about IP?

The dossier is a readout of the UK-US Trade & Investment Working Group, that took place in 2017-2018. The dossier describes a series of meetings between the US and UK on “Innovative Pharmaceutical Protections”. In these meetings, representatives from the UKIPO and USPTO discussed the potential battleground for US/UK trade negotiations. As noted by the report’s authors, in trade negotiations the US typically seeks provisions for grace periods, data exclusivity and patent term extension.

Grace period and UK exit from the EPC

What is really "on the table"?

One topic that is likely to play a significant part in any US/UK trade negotiations, is the US preference for a 12-month grace period for patent application filings after the first disclosure of an invention. If the US insists on the UK adopting such a grace period, there are concerns that the UK would be forced to leave the EPC, which does not permit grace periods. [Merpel: surely the UK would never do something so self-destructive? Then again…]

The report itself notes that the USPTO “pushed hard” on grace periods in the meetings. The US asked if it would be "possible that the UK could diverge from the convention to, for example, adopt a grace period" (Doc 4, page 123). The UK responded that the EPC is clear that patents need substantial alignment and that they took their "standing in the EPO seriously". At stake is not only legal compatibility with EPC “but also of political signalling as the UK are a leading delegation at the EPC” (Doc 4, page 120). To put it another way, UK exit from the EPC would be a disaster. However, the US proposed a meeting with UK stakeholders that had positive views of grace periods.

The dossier therefore confirms the rumours that the US would like a 12-month grace period for patent application filings to be "on the table" in future US/UK trade negotiations.

Clarification on the UK's position on the UPC?

The US delegation was also interested to hear the UK government plans with respect to the UPC. [Merpel: wouldn’t we all?] The US expressed surprise that the UK government had ratified the UPC agreement before the UK’s exit. The US mentioned that US stakeholders were strongly in favour of the UK participating in the UPC. The UK replied that “we intend to stay part of the agreement through the implementation period…Beyond this is subject to negotiation”. This position was also described in the subsequently published FEB white paper. The dossier thus does not make us any the wiser with regards to the UK's intended negotiating position in post-Brexit negotiations with the US. Whether the UK will be able to be a member of the UPC after Brexit was discussed in a recent report from the European Parliament think-tank (IPKat: Can the UK become and stay a member of the UPC?)

Patent term extensions

The US, UK and EU currently all have provisions for extending the term of a patent relating to a medicinal product for a maximum of 5 years (the UK SPC term can also be extended a further 6 months based on a paediatric use). In the meetings, the UK commented that it would be useful for the US and UK “to look at each other’s systems and learn from them”. They also noted that the EU is currently looking at the existing SPC regime. There were also some discussions on patent term adjustment (PTA), which is available in the US but not the UK. PTA is the process by which the USPTO adjusts the term of a patent by a number of days to take account of delays in prosecution (35 U.S.C. 154(b)). The UK argued that PTA is not as relevant in the UK because accelerated examination is available for applicants.

Despite the media uproar on the US seeking to extend patent terms in the UK, there was not in fact anything dramatic in these pleasantries. The overall conclusion from the discussion was that the US and UK systems were very similar, "e.g. one per product and maximum extension of 5 years" (Doc 4, page 125). This Kat muses that perhaps the biggest different between the US PTE and EU/UK SPC systems are that the US PTE system is less complex to navigate than the SPC regulation.

It also seems that the main area of discussion with regards to generics access in the talks was not patent term extension but the term of data exclusivity awarded to biologics in the US and UK following marketing authorisation (MA).

Data exclusivity

The US and UK both provide innovators with a period of data exclusivity following market approval for a drug. Data exclusivity is unrelated to patent protection but is based on FDA or EMA marketing authorisation for a drug. One difference between the UK/EU and US systems of data exclusivity is that the US provides a longer period of exclusivity to biologics than small molecules. In the US, biologics benefit from 12 years protection (8 years data protection plus four years market protection), whilst chemicals are awarded 5 years protection. The longer data exclusivity protection for biologics means that it is often data exclusivity, and not patent term, that determines when a biosimilar may enter the market. The EU and the UK, in contrast to the US, provide 8+2 years protection for all pharmaceuticals.

The dossier reports a question from the UK to the US, asking why the US had different data exclusivity periods for chemicals and biologics. The US replied that “there are patent vulnerabilities as Biosimilars are not replicas of small molecules, therefore there is more need to have a longer-term protection for Biologic products”. Furthermore, the manufacture of biologics is more complex, "biologics are therefore defined by how they are made, rather than their chemical structure". Consequently, the US argued, enforcing a patent for a biologic against biosimilars is more difficult. Do readers have a view of this?

The UK also asked a question about pricing. Did the longer protection not mean that prices were higher for longer? The USPTO responded that “pricing plays out domestically”. Furthermore “there is a lot of conversation on drug prices…and this is causing angst”.

The outcome of the final meeting on data exclusivity appeared to be that the US would seek reassurance from the UK that the data exclusivity provisions would remain unchanged following Brexit (Doc 4, summary point 5, page 120).

Conclusion

The dossier therefore does provide some tip-bits of interesting information regarding US/UK thinking on IP protection and its relation to drug pricing. Reassuringly, despite the media reporting, there does not appear to be anything radical "on the table" with respect to patent term or data exclusivity. The US position on grace periods is the most concerning of all the issues under discussion. It would be an extraordinary act of self-harm for the UK to withdraw from the EPC, and this would have significant disadvantages not only for the UK but also for the US and third parties such as China and Japan. However, the dossier highlights throughout many areas that still need clarification. Final negotiating positions between the US and UK will also be highly dependent on the UK's negotiating position with the EU following Brexit.

BREAKING: German constitutional court Brexit-delay rumors are "bulls***" in on-going UPC saga

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German ratification of the UPC is currently pending the outcome of a complaint in the German constitutional court. The court appears to have been taking its time in reaching a decision, prompting rumours that the court is stalling until the outcome of Brexit is clear. The issue of whether the UK can remain a member of the UPC after Brexit is currently shrouded in legal (and political) uncertainty, and may be highly dependent on whether the UPC comes into force before or after Brexit (IPKat: Can the UK become and stay a member of the UPC?).

However, in a new development, the judge overseeing the German constitutional complaint to the UPC, Justice Peter Huber, has now deigned the rumours that the court has been delaying its decision, describing the allegation as "bullshit".

Such language from a Judge!

In the interview to Managing-IP, Justice Huber also confirms that he intends to decide the case in the first quarter of next year. Brexit is currently scheduled for the end of January 2020. It may therefore be touch-and-go whether the UPC comes into force (following German ratification) before Brexit. On the other hand, it has also been reported that, even if the constitutional complaint is overcome, the German Parliament may still delay ratification whilst the outcome of Brexit is unclear. Another false rumour?

In the interview, Justice Huber also appears a little peeved with the furore surrounding the case:

I've dealt with big issues before such as the European stability mechanism and never had a community like the IP community that has sent me a bunch of letters asking me to hurry up and trying to put pressure on the courts

But we are the top court of Germany and not here to be put under pressure.

The issue of the UPC is certainty one to incite strong opinions, as IPKat is also all-too-aware (see comments, this Kat stands by her use of the term "esoteric" by the way..., more on this to follow). However, if Justice Huber makes anything clear, it is that German constitutional judges, at least, intend to ignore the vitriol.

Can the UK become and stay a member of the UPC?

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The European Parliament Think Tank has issued a paper on the question of whether the UK can remain a member of the Unitary Patent Court (UPC) in a post-Brexit world. The cautious conclusion of the paper is that “it seems not per se legally impossible that the UK can stay within the UPCA [UPC agreement], even when not an EU Member State”. The problem of the UK’s continued membership of the UPCA arises from the fact that, when the UPC was conceived, nobody envisaged the UK unilaterally deciding to leave the EU.

The EU paper outlines the issues contributing to the uncertain future of the UPC and the potential involvement (or not) of the UK in the UPC project going forward. These include the reluctance of Germany to ratify the agreement before Brexit and the unclear position of the UK Government on whether the UK still wishes to be a member of the UPC (and thereby subject to the jurisdiction of the CJEU).

Germany is dragging its feet

The UPC agreement (UPCA) will come into force as soon as 13 EU member states have ratified the agreement. Germany, France and the UK must be among the 13. Theresa May’s UK government ratified the UPCA back in April 2018 (IPKat post here) ["Remember, Boris?"questions Merpel]. France has also ratified the agreement, but Germany has not. German ratification has been held up by an esoteric legal challenge to the UPCA in the German constitutional court (Bundesverfassungsgericht) (IPKat post here). The outcome of the constitutional court decision is expected by the end of 2019 or early 2020. However, the German parliament has indicated that, even once they have the go-ahead for ratification from the Constitutional Court, they will not ratify the agreement until the outcome of Brexit is clarified. With Brexit now scheduled for January 2020, it therefore seems unlikely that the UPC will be in force as and when Brexit occurs.

The Brexit/UPC paradox

The UK Government’s position is that the UK wants to “take back control” of its laws by leaving the jurisdiction of the CJEU. However, the UK Government has also ratified the UPC agreement (UPCA). According to the UPCA, the UPC will apply EU law and decisions of the CJEU will be binding on the UPC. Therefore, as things stand, if the UK continues to be a member of the UPC post-Brexit the UK will continue to be under the jurisdiction of the CJEU.

In the opinion of the EU paper it is “highly questionable that the UK itself would accept the arrangements of Article 20 and Article 21 for the UPCA which foresee the primacy of EU law and its application…as the end of the jurisdiction of the CJEU in the UK was one of the main intentions of the whole Brexit process” [Merpel: According to who? Merpel does not remember “the end of the jurisdiction of the CJEU” being on her Brexit referendum ballot paper].

The current position of the UK Government is also that they wish to leave the EU Single Market and Customs union. This appears to be legally incompatible with the UPCA, given that UPCA makes it clear that the UPCA is an instrument for the benefit of the single market. However, the report does not consider the possibility that the present Governing party in the UK, the Conservatives, may not achieve a majority in the upcoming general election. The “Brexit plan” of the main opposition party, Labour, is to retain a “close single market relationship”.

The issue of the London section

At the moment, the UPCA states that one of the unitary patent courts (the life sciences and pharmaceutical section) will be located in London (Article 7(2) and Annex II). The EU paper finds notable the unanimous decision of the EU Council to move the headquarters of the European Medicines Agency (EMA) from London to Amsterdam in the context of an imminent Brexit. However, relocation of the London section of the UPC would not be easy. As an international agreement, the UPCA could only be amended by unanimous decision of all the contracting states, including the UK (so long as the UK had not withdrawn from the agreement).

The position of the UK Government – as clear as mud

The Government’s “IP and Brexit Guidance” is uninformative on the issue of the UPC. The UK Governments guidance “Patents if there’s no Brexit deal” does mention the UPC. However, the Government hedges its bets and indicates that, in the event of no-deal: “The UK will explore whether it would be possible to remain within the Unified Patent Court and unitary patent systems”. In any case, this guidance has now been withdrawn after Prime Minister Johnson failed to meet his “die in a ditch” Brexit deadline of 31 October 2019.

Brexit metaphor

The 2018 draft withdrawal agreement with the EU (i.e. Theresa May’s “deal”) did not mention patents. Boris Johnson subsequently renegotiated 2019 withdrawal agreement also does not mention patents. The non-binding political declaration accompanying the 2019 withdrawal agreement merely mentions that “[t]he Parties should establish a mechanism for cooperation and exchange of information on intellectual property issues of mutual interest, such as respective approaches and processes regarding trademarks, designs and patents”. Regardless, the Government’s withdrawal agreement bill was not approved by parliament before the general election was called. Also, as noted above, the Labour party has promised to renegotiate the withdrawal agreement should they win the general election.

The opinion of the CJEU

The EU paper summarises the (similarly unclear) position of the CJEU on the UPC/Brexit conundrum. CJEU Opinion 1/09, on the question of whether a 2009 draft version of the UPCA was compatible with the provision of the EU Treaty, has been read as indicating that membership of the UPC is only open to EU member states. The CJEU was of the opinion that Article 14a of the draft UPCA allowed non-EU member states to be a party to the Agreement. The relevant provision was removed from the final UPCA agreement. However, the recent EU report obliquely notes that “there is an increase in the number of votes that want to show a right-dogmatic way of facilitating the participation of the United Kingdom (and possibly other non-EU countries in the future as well)".

The paper concludes...

According to the EU paper, it may be possible for the UK to remain a member of the UPC post-Brexit. However, UK UPC membership would need “innovative legal solutions, as the UPC is an international court applying EU law – and the reason for Brexit was all about not applying EU law any more” [Merpel is again not sure why the author of the report is so sure about this].

Another option, of course, would be for a majority of the UK electorate in enough constituencies to vote Liberal Democrat, who have promised to revoke Article 50, and then the whole mess will go away...[Another famous cat, the Number 10 cat, may be wishful for that prospect if only to eject the recent dog from his territory].

Book Review: European Patent Litigation in the Shadow of the Unified Patent Court

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There is a perverse incentive in research that it is not in a scholar's interests for a problem to be solved. If your pet problem is solved, what do you do next? Therefore, publishing a UK book on European patent litigation in the year of the Brexit vote can be surprisingly fortuitous and lead to interesting reading. Brexit adds an (un)expected plot twist to the development of European patent litigation, and Luke McDonagh's new book is possibly the prequel to whatever-comes-next.

The book has three main chapters; one chapter looks at European patent litigation under the European Patent Convention, and includes a comparative analysis of key jurisdictions. Another chapter examines the UPC and Unitary Patent reform packages. The book provides a lot of practical information in its examination of litigation in the UK, Germany, France and the Netherlands.

In Chapter 4, the author reports on a survey of the UP/UPC-interested legal and business communities. Interviewees were predominately UK-focused. Here a discussion on renewal fees, perhaps one of the more interesting economic levers of the UP, suggests that the community prefers renewal fees to be set at the equivalent of three member states existing fees (namely the UK, Germany and France.) However, this view was not unanimous, as one interview noted that, "her company 'would like to see a higher renewal fee because higher fees discourage spurious patenting.'" [Merpel thinks this interviewee is very economics-friendly.] Other sections address trolls and forum shopping, the opt-out and SMEs.

At the time of writing, the UK IPO has not changed its stance on the UPC. Time will tell.

European Patent Litigation in the Shadow of the Unified Patent Court, by McDonagh, Luke. Cheltenham: Edward Elgar Publishing, 2016. ISBN: 978 1 78471 473 4. Available here for £70. Rupture factor: Low, a back-friendly 200 pages.

Disclosure: In my previous role at the UK IPO, I was involved in the underlying research project discussed in the final chapter.