Why the Unitary Patent is not uniform and how this will affect patent transactions

When the Unitary Patent (UP) regime comes into force in early 2023, it will provide 'uniform' patent protection in up to 25 EU member states by way of a single UP. However, potentially significant geographical differences will remain.

Specifically, the laws that govern each UP as an object of property will not be uniform. This means that each UP will be subject to the national property laws of a single participating member state, resulting in different laws governing their assignment, licensing and securitisation, among other matters.

Since the location of the applicant's business determines the applicable law, companies need to understand which national law will apply to their granted UPs and whether restructuring their European operations will result in a more favourable regime.

Which national law will apply?

As an object of property, each UP will be treated as if it were a national patent of the participating member state in which the applicant has its residence (where the applicant is a natural person), or its principal or alternatively anyplace of business (where the applicant is a company) on the filing date of the patent. For sole applicants with a place of business in just one participating member state, the answer is simple: it will be the national law of the state in which they operate.

But what about applicants who are not resident and do not have a place of business in a participating member state? This will include:

applicants based solely in non-EU countries such as the United Kingdom, United States of America and China;
applicants based solely in Spain or Poland (which are not participating in the UP system);
applicants based solely in countries that have signed the Agreement on a Unified Patent Court (UPCA), but have not ratified it by the date the EPO registers the patent as having unitary effect (which currently includes Ireland, Slovakia and Hungary); and
applicants who only have a place of business in any combination of the above countries.

For these applicants, German property law will apply to any UPs they are granted.

To give an example, this means that an applicant based in the United States with a European office in Dublin would currently obtain a UP that is subject to German property law. Were Ireland to ratify the UPCA in the future, then any subsequent UPs would be subject to Irish property laws, meaning that different laws would then apply to different parts of the portfolio.

What about joint applicants?

For joint applicants, the applicable law will be determined by reference to the residence or principal place of business (or alternatively a place of business) of the first named applicant at the date of filing. If the first named applicant is not a resident of or does not have a place of business in a participating member state, then the governing law will be determined by applying the criteria to the remaining applicants in the order listed on the application. This could have significant implications for companies involved in joint ventures or collaboration agreements who wish to have the patents governed by a particular law.

How many patents does this affect?

According to data published by the EPO, just 14% of applications for a European patent (EP) in 2021 came from applicants resident in Germany. However, German law would apply to 67% of all applications (if it is assumed that each applicant only has a place of business in its country of residence), including those from the United States (25%), Japan (11%) and China (9%). The participating UPC states with the next largest share of applications in 2021 after Germany (13.6%) were France (5.5%), the Netherlands (3.5%), Italy (2.6%) and Sweden (2.6%).

How do national laws differ?

A detailed analysis of all the differences between the national property laws of the 17 participating member states is beyond the scope of this article. We also expect that owners of EPs, where the relevant local law governs each part of the EP bundle, will be familiar with some of the key differences.

Nevertheless, a handful of examples are set out below.

	Germany	France	Italy
Formalities	The assignment or licensing of a patent application or a patent does not have to be in writing.	The assignment or licensing of a patent application or a patent must be in writing, otherwise it is void.	The assignment or licensing of a patent application or a patent does not have to be in writing.
Recordal	Assignments and licences are not required to be recorded, although an assignee can only bring a claim for infringement once the assignment is recorded (and additional evidence may be needed to recover past damages). The grant of security rights (pledge) is not required to be recorded.	Assignments and licences are not required to be recorded, although they cannot be enforced against third parties if they are not, so registration is advisable (see successors in title below). The grant of security rights (pledge) must be recorded.	Assignments and licences are not required to be recorded, although they cannot be enforced against third parties if they are not, so registration is advisable (see successors in title below). The grant of security rights (pledge) must be recorded.
Rights of successors in title	A successor in title will be subject to any licence previously granted to another party under the patent, even if the prior licence is not recorded.	Registration of the assignment or licence is required for it to be enforceable against third parties.	Registration of the assignment or licence is required for it to be enforceable against third parties.
Joint ownership	Each co-owner may assign its share in the patent without the consent of the other co-owners.	Subject to contrary agreement, each co-owner may assign its share in the patent separately, although the other co-owners have a right of pre-emption for a period of three months from notification of the transfer.	The consent of each co-owner is required for the assignment to be effective.
Termination of head licence	If the head licence is terminated, then any sub-licences granted by the head licensor are preserved and do not terminate automatically, unless the parties have agreed otherwise.	If the head licence is terminated, then any sub-licences granted by the head licensor are also terminated.	If the head licence is terminated, then any sub-licences granted by the head licensor are also terminated.

What about entitlement and employee compensation?

There are no provisions in the UP package relating to entitlement or employee compensation. Therefore, it is expected that national law will apply to questions of entitlement and of employee compensation for UPs. Article 60 of the European Patent Convention states that where an inventor is an employee, the right to an EP shall be determined in accordance with the law of the state in which the employee is mainly employed.

Preparatory steps

Since the governing law is determined according to the applicant's place of residence or principal place of business at the date of an application for a patent, there is some urgency in understanding which laws will apply to any UPs that may be granted under pending applications. Pending applications could result in UPs from as early as next year. Applicants should review what is recorded in the European Patent Register as their country of residence or principal place of business to understand which law will apply.

In the short term, applicants should also review their current filing practices to understand which law will govern any UPs resulting from applications that are yet to be filed, in case they would prefer to achieve a different result. This requires applicants to consider the following matters:

For companies that do not have a principal place of business in a participating member state, whether they have any operations that could be said to be a place of business in such a state, and what the effect will be of making the application from that place of business.
For companies with European operations in one or more participating member states, understanding where they are resident and have their principal place of business, and considering whether to use that place of business when making an application, or any other place of business they may have in a participating member state.
For companies involved in collaborative work that may result in a patentable invention (including collaborations between companies in the same group), checking whether the terms of any joint venture agreements govern the order of applicants to be named on an application, and either adjusting or putting into place the necessary provisions to result in their preferred law of property.

In the medium term, once a company has identified which national property laws may be available to it and which it prefers, it may be prudent to review, with the assistance of counsel, any standard form licensing, assignment or securitisation documents that they may use to ensure that these are aligned with their preferred national law for future UPs.

With sincere thanks to Jonathan Konietz (Ampersand), Céline Bey (Gowling WLG) and Raimondo Galli (Galli Law Firm) for their input on German, French and Italian law respectively. Any errors regarding the same are entirely my own.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight