UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1799-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

European Scrutiny Committee

Draft Agreement on a Unified Patent Court and Draft Statute

Wednesday 25 January 2012

Timothy Roberts, Vicki Salmon, Henry Carr QC

Dr Christian Gassauer-Fleissner

Evidence heard in Public Questions 1 – 72

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Oral Evidence

Taken before the European Scrutiny Committee

on Wednesday 25 January 2012

Members present:

Mr William Cash (in the Chair)

Nia Griffith

Kelvin Hopkins

Penny Mordaunt

Stephen Phillips

Henry Smith

________________

Examination of Witnesses

Witnesses: Timothy Roberts, President, Chartered Institute of Patent Attorneys, Vicki Salmon, Chair, Litigation Committee, Chartered Institute of Patent Attorneys and Henry Carr QC, Chair, Intellectual Property Bar Association, gave evidence.

Q1 Chair: Welcome everybody. I will just make a few opening remarks because this is a very important and a very technical question that is before the Committee. I ought to add that we have received evidence from the following organisations, which I would just like to get on the record: the European Patent Lawyers Association, Henry Carr QC, Chairman of the Intellectual Property Bar Association, the Confederation of British Industry, the Chartered Institute of Patent Attorneys, the IP Federation, two letters with attachments from the Minister, Baroness Wilcox, and also, finally from the Intellectual Property Lawyers’ Association. We have also had it from the AIPPI, which is the Association Internationale pour la Protection de la Propriété Intellectuelle. I think I have got that right.

I would also mention that the evidence so far appears to be broadly consistent and very much in line with that which has been given by Henry Carr QC and the Chartered Institute of Patent Attorneys. This is a hugely important question, I repeat, and it is something that we want to get right. I have to add that the Committee has not received any expert evidence whatsoever that supports the agreement on the UPC as drafted. We have also asked the Minister to refer to any such evidence but the Minister has not responded. Therefore we start the proceedings on the basis that we are very much looking forward to hearing what you have to say. We have a number of questions; in fact, we have 18. We want to ask short questions, to which we hope you will be able to give us fairly short answers. To start off: to date what opportunities have you had to contribute to the formulation of policy on the EU unitary patent and the Unified Patent Court, the UPC? Could I ask each of you in turn?

Henry Carr: None really. There have been contributions from Sir Robin Jacob, who has offered a few opinions, but on the issues which he has offered opinions it is pretty clear that no one wants to listen very much.

Timothy Roberts: As you know, we have been debating this matter for 40 years and certainly I was taken by surprise when, around about this autumn, we suddenly discovered that it was all going to happen. Ms Salmon can talk perhaps rather more about what the Institute said than I can?

Vicki Salmon: There have been some meetings with the IPO where we have been talking about some of the issue that have come up. Sometimes they happen and sometimes there have been periods when nothing happened. Everything stopped around the time the reference went off to the European Court for an opinion on the legality of the agreement; then it came back and things moved quite quickly and while we were saying "Can we see the new drafts please, because everything has changed?" suddenly everything was frozen. We then produced some quite detailed comments. A group of experts got together and produced a set of detailed comments, some of which I think are beginning to come through in some of the amendments to the Court agreement, but we are not getting any amendments through onto the Regulation at all.

Q2 Chair: Would it be appropriate for me to perhaps to mention at this stage what Professor Sir Robin Jacobs said in his opinion dated 2 November? He is generally regarded as having unrivalled expertise in intellectual property. If I quote it, perhaps you could comment on what he said: "This is no time for anything other than plain speaking. I am fortunate enough to have had wide experience, as barrister, judge and now academic, with the patent system from all angles. I have many contacts amongst users and lawyers. I know of no one in favour of involvement of the CJEU in patent litigation. On the contrary all users, lawyers and judges are unanimously against it". Is that something that you would understand to have been correct?

Henry Carr: Yes, as presently drafted, I do. The problem that Sir Robin is referring to is the fact that, because substantive provisions on the law of infringement of patents have been included in the draft regulation, questions concerning their interpretation would have to be referred to the Court of Justice, which I think everybody is agreed will cause a great deal of delay-at least two years in the middle of proceedings-and the decision will then be by judges who do not have expertise in patent law. Therefore this is a very unfortunate aspect to the proposal.

Q3 Nia Griffith: You mentioned amendments a moment ago. Do you think perhaps the three of you could explain to us whether any of the contributions that you have made to date have actually influenced either the draft regulation on the unified European patent or the intergovernmental agreement on the Unified Patent Court? Has anything you have said or contributed been reflected in what has been produced?

Henry Carr: No, I do not think so. Looking at it from the perspective of the IP Bar, again, Sir Robin has rather been leading the way and I cannot find that the fundamental objections that we have made to the current proposal have made any difference.

Timothy Roberts: Yes. Normally the Chartered Institute of Patent Attorneys has almost as many opinions as it does members, and one of the reasons we got involved, because this did not appear to be an occasion where there was one. There is a remarkable unanimity of opinion in the profession about this. As to influencing the content of the system at all, the only movement that we have observed was we have seen a lot more enthusiasm for having the central Court in the UK. Initially, we had not heard anything about it and we made representations and we were very glad to see that that had been taken on board. Apart from what Ms Salmon may have to say, I am not sure that there was any other movement anywhere else.

Vicki Salmon: We have put comments in but sometimes it is hard to know quite how many of them get through and how strong a negotiating position there is, because we represent to the UK Government and then it all goes quiet and we find the whole European legislation process quite opaque. It is very difficult at times to find even what draft is under discussion and therefore it is quite difficult to see what is going into it.

Q4 Nia Griffith: Has the Government actually sought your views on the rules of procedure at the UPC?

Henry Carr: Just to amplify one thing that Vicki just mentioned, it is correct that initially the Government did not seem to be interested in bidding for the central division. I and others sent various emails and they did respond to that, in that the UK Government is now bidding for the central division, which, for many reasons you may ask me about, is really important. It is the one thing we might be able to do something about in practice. So they did respond.

There is a committee, as it were, on rules of procedure. Nobody did anything about them for years. There are now 405 paragraphs of immense complexity, which curiously do not deal with some of the fundamental questions that one would expect the rules to deal with. Interest is revived in them again. I do not think we have approached the UK Government with that level of detail yet.

Q5 Nia Griffith: But you will do so?

Henry Carr: Yes, in fact Daniel Alexander, who is the Vice-Chairman of the IP Bar Association, has some quite good amendments to suggest on that.

Q6 Nia Griffith: Does anyone else want to comment on that in particular?

Vicki Salmon: The most recent of the drafts have been circulating and comments are being put together, in order to be fed mainly into the expert group through people like Sir Robin Jacob.

Q7 Nia Griffith: Have you got any views on the impact assessments that have been done either by the Commission or by the UK Government?

Henry Carr: Regarding the impact assessments by the Commission, I think there is a general view particularly in relation to costs-how this Court is going to be funded and how much litigants will have to pay to bring cases. The impact assessments are extremely poor and extremely uncertain because they are based on all sorts of assumptions about how many cases are going to happen. They are very poor, and quite alarming from the perspective of SMEs, who may be claimants or defendants under this system.

Timothy Roberts: Yes, if we take, for example, the impact assessment done by the Hargreaves Committee in the first half of last year, before there was a clear idea of all the details of the current system and before-I think, although I am not sure-it was clear that Spain and Italy would not necessarily take part. As we understand it, the economic evidence that that Committee looked at supported the idea that if we had a good, properly working unitary patent system it was worth £2.1 billion to the UK economy every year from 2020 onwards. Now, personally I do not understand the analysis. It might be right but it entirely depends on the assumptions they made and it entirely depends on the assumption, principally, that it was small- and medium-sized companies who would benefit from this and who would produce the£2.1 billion of growth and I do not feel that that is supported. I might be wrong, but it is not supported as I understand it.

Vicki Salmon: The original evidence on the litigation was done by Professor Harhoff several years ago. A lot of people were quite surprised and thought there were many errors in it and did not think it was a very good basis upon which to be building a policy. In any event, up until the bringing in of the enhanced cooperation, the EU was going to be heavily involved in the Court and was therefore going to provide a lot of funding from central resources for the divisions of the Court and for the training of the judges. With the change of that, following the enhanced cooperation, the EU funding was then not going to be available anymore, so I think we need a new assessment as to what the costs would be, what the court fees are going to be and how that is going to be funded.

Q8 Nia Griffith: So effectively you are saying we really ought to be starting again on all of this?

Vicki Salmon: It is out of date.

Q9 Chair: In relation to enhanced cooperation, as you raise that question, of course there are limitations on the use of that procedure. I think I am right in saying it should be used mainly as a matter of last resort. Are there any political reasons that you can consider that would tend towards the promotion of this proposal which have not yet been disclosed? Who and which countries might benefit from it as compared, for example, to the assertions that Europe as a whole will benefit? Could you just elaborate a little bit on some of the underlying political questions? I know the Poles were particularly interested to get this through during their presidency and I just felt that it was being pushed rather and that there was an accelerated enthusiasm to get it through to benefit individual countries. Could you perhaps just give us a little elaboration on your views on that?

Henry Carr: Yes. I think the country that stands, potentially, to benefit most from this is Germany. And the reason for that is that Germany, as you know, already has the European Patent Office, which is a very big employer in Germany, a very successful organisation. It employs over 7,000 people. It is a big organisation; I think it is the second biggest European institution after the Commission. If Germany, as it wishes to, gets the central division, in effect-for reasons I can explain if you wish-most cases will go to the central division. Therefore, the other centres of expertise in patent litigation, which are primarily the UK and the Netherlands, will lose out very considerably. Germany will then gain another big institution, which will be very important and will very much expand the amount of patent litigation, its importance to patents, than it already has. They are the big gainers. Now, why that caused the Poles to accelerate, I am not sure. Many of these presidencies want to say they have done something. Certainly, the big gainer would be Germany if they get that central division.

Q10 Chair: In relation to the German question, would you say that it is going to enhance their economic prosperity for them to have the advantages of this Court in the way you have described?

Henry Carr: I would certainly say it will. If we look at the situation in the UK at the moment and then, perhaps, compare it with Germany, I have seen various figures-the reliability of which I would not vouch for-but in broad terms, currently it seems that patent litigation and patent advisory services in the UK generate hundreds of millions of pounds for the economy. That is as it stands at present. Germany is even more so; there are more patent cases in Germany than here, but we are still a big player. If we would get the central division, estimates I have seen are that we would get about five times as much patentrelated work than we do at the moment, so you would be into billions. Whoever gets the central division, it is going to be a major employer of skilled people because obviously there would so many cases so many staff. Therefore, I think whoever gets that will benefit their economy greatly, if it goes ahead.

Q11 Chair: Finally on that, before we move onto the substance, perhaps you could do a paper for us on that question, between all of you? There seems to be such unanimity in the profession that I suspect that there are things not known to Parliament, things which are not being disclosed to us at the moment, from which we would be able to benefit. If you could do that, that would be very helpful.

Henry Carr: I can certainly do that, absolutely.

Q12 Kelvin Hopkins: There is clearly a fairly uniform and profound concern over the involvement of the European Court of Justice in ruling upon the infringement and validity of patents. Its jurisdiction stems from Articles 6 to 8 of the Regulation and preliminary references made by the UPC. What is the basis for this concern? Could you elaborate your concerns about the involvement of the Court of Justice.

Henry Carr: I have appeared in several cases in the European Court of Justice, largely because of the trademark system, which is already subject to the European Court of Justice. We have a trademark regulation, a trademark directive, so questions of interpretation are referred to the European Court of Justice. Let us say you are involved in a trademark case and a question of interpretation arises; unless the UK Court is absolutely certain what the answer is-not just here, but in all member states-it has to refer it. So your case then stops and it takes about two years to get an answer from the ECJ and, of course, during that time there are additional costs because the parties have to prepare written observations, governments intervene, you go to a hearing in the ECJ and you eventually get an answer. It then comes back to the UK Court, who then tries to interpret the answer. There has not just been extra delay and extra cost but in trademarks it has been really difficult to interpret the answer. Then there is a great debate about who has won and then you have to continue with the case. It has not proved a system that intellectual property lawyers throughout the world wish to expand and the problem with the existing proposal is that it expands it into patents as well.

Q13 Kelvin Hopkins: I may be wrong, but I understand also that the caseload of the European Court of Justice in general is building all the time. There is backlog and it might even get worse.

Henry Carr: Yes, that is one of the reasons why it takes so long, but it may, as you say, take longer.

Q14 Penny Mordaunt: If the objective of the regulation is to create a unitary patent across the EU and its legal base is taken from the EU treaties, then what is the alternative to having the supervisory jurisdiction of the Court of Justice?

Henry Carr: The alternative, as I understand it, is simply to have a provision to conform with Article 118 of the relevant EU Treaty that member states should interpret uniformly the provisions and then leave it to the member states to ensure that they do. It is a curious aspect, as I think Sir Robin Jacob and others have pointed out in their opinions, that whilst the drafters of the regulation in order to achieve this uniformity have felt it necessary to include provisions on infringement of patent in the regulation, they have omitted completely validity. Now, there are two aspects to any patent case: first, whether the patent is infringed, and second, whether the patent is valid. If it is not valid it does not matter whether it is infringed, but the drafters apparently recognise that member states are required to interpret uniformly validity, so have not put it in, but they have put in infringement, which is where all the problems come from.

Vicki Salmon: At the moment the provisions about what makes a valid patent are in the European Patent Convention and when that was introduced back in 1978 all the member states brought their law into conformity with the European Patent Convention, so they all said the same thing. We have seen a body of judgments build up where our Courts actually look at the decisions coming out of the EPO and the boards of appeal to make sure that, even though the EPO is not a European organisation, there is a degree of harmonisation. The European Patent Convention is only about granting patents and not about enforcing them, so it does not have any provisions in it about what would constitute infringement. However, when it was being negotiated there was a text for a community patent drafted and therefore the states that joined in then would have put the same provisions in harmonised from that draft of the Community Patent text. Therefore what is being proposed at the moment is that the European Patent Office will continue to grant these bundles of patents, which will break down into national patents in different states and they will be regulated for infringement purposes by what our current law would say.

The unitary patent, we think, should be able to regulate infringement of that in the same way and the Court agreement has in it a set of provisions as to what the infringement provisions will be for all these European granted patents. They look pretty much the same as what we have in our national law. There are some little tweaks and differences, which hopefully means that we will get our law into conformity too, but it seems really bizarre to have a Court agreement which says, "If Italy comes into this Court agreement, if I infringe the Italian patent, here are the provisions for interpreting the infringement of the Italian patent. They are in the Court agreement, but I am litigating the Italian patent at the same time as the unitary patent because I can do it in the same Court and I have got to go to a different set of provisions, which are in Articles 6 to 8 of the regulation to decide what the infringement is of the rest of the patents and those will then go off to the ECJ for a decision if there is some kind of uncertainty as to the conformity". I think it is this division between the regulation and the Court Agreement. In fact, at the moment the wording of the two provisions is not even the same. With the difficulties of getting any amendments in it looks as though it is going to persist; that you are going to have these provisions that just do not quite match.

Q15 Penny Mordaunt: Mr Roberts, did you want to add anything to that?

Timothy Roberts: No, that covers it, thank you.

Q16 Henry Smith: Do you think that the requirement in the Court of Justice’s opinion that the UPC refers preliminary questions to it puts the viability of the UPC in doubt?

Henry Carr: Yes, I do. When you say viability, I think what people will find is that it does not work very well; it works worse than our current system. In other words, in our current system you get your European patent as a bundle of rights; it takes effect in the countries you elect, so France, Germany, the UK, whatever, and you sue in those countries. That carries with it the disadvantage of suing in all sorts of different places. On the other hand, it does not carry with it the disadvantage of everything being held up as I have described. I think all patent lawyers that I have spoken to think the new system is going to be worse with these articles in it.

Q17 Henry Smith: Can I clarify that? Do you mean the patent lawyers that you have spoken to in the UK or in other European countries?

Henry Carr: In other European countries. I referred, in my evidence, to the opinion of the Council of Bars and Law Societies of Europe, which apparently represents about one million lawyers. The fact that there are one million lawyers in Europe is worrying, but nonetheless their view was that, partly because of Articles 6 to 8, the proposed system will increase legal uncertainly, increase cost and be bad for users. I think it is a very widespread view.

Vicki Salmon: There are some other papers in from other organisations, which have been written at different times. Some of those are multinational industry bodies. There certainly was a paper from some Swedish industry body and Articles 6 to 8 were all condemned in all the different papers that came forward. It was not just UK industry that was saying no. I think the EP lawyers’ organisation also refers to that. It is not just the UK; it is coming from other countries, but there is a lot of apathy around as well.

Q18 Chair: So what is the reason for it all?

Vicki Salmon: We are struggling to find out, because apparently there is an opinion somewhere in the Commission but it seems to be hidden and difficult to get hold of. I know that Sir Robin Jacob wanted to see it.

Henry Carr: Sir Robin Jacob and Professor Rudolf Krasser of the Max Planck Institute both gave the view that this was not necessary to include. Then there was then a contrary view expressed by a Commission lawyer, whose name is not known, that they were wrong, and then there was a further opinion by Sir Robin saying, in somewhat outraged tones, "We are not wrong". There is a division of opinion, but if you look at the reasoning-I do not want to bore you with it all-there is very little to support the proposition that it is necessary to have these in.

Henry Smith: As suspected, Commission dogma, I am sure.

Q19 Chair: When you do this other paper, which I have asked you to do, could you also look at the question of why it is that Spain and Italy, for example, do not want it, and not merely that they do not want it but that actually the reasons for it? I am getting increasingly puzzled about the question of why it is that there is this headlong, rather obstinate, determination to go ahead with the proposal, which the entire industry, the lawyers, the judges, Sir Robin Jacob, everybody is against. There is some dynamic operating at the centre of gravity which is driving it forward, despite the expert evidence of pretty well everybody.

Henry Carr: Yes. Italy may be coming back into the fold because they feel there is no alternative. I will certainly include that in the paper. Spain’s position is relatively simple. You will correct me if I am wrong, Vicki, but they say, "Look, there is a language issue with these unitary patents. Either they should be in English, full stop, or you should be able to have it, for example, in Spanish." At the moment it is their position that if you cannot have it in either, it should not go ahead at all.

Q20 Chair: No doubt you will explain all that in your paper.

Henry Carr: Absolutely.

Q21 Chair: Ms Salmon, is there something else you wanted to add?

Vicki Salmon: I think it would only be on the translation issue. Spain and Italy were quite firm that a lot of their translators would be losing out on work.

Timothy Roberts: Can I add something? You are asking why we are going ahead with this.

Q22 Chair: Why is it being gone ahead with?

Timothy Roberts: Yes. The only theory I can suggest to you is that the EU needs a victory and this can be presented as a victory. This is something they have been trying to do for 40 years. They have almost got agreement on something. It is a very desirable objective and it is being presented, outside the UK, as a victory, as something that the EU can do. There is a need, as The Daily Beast requested, "Please cable victories". That is the motivation behind this.

Q23 Chair: Does the fact that the EU is no longer a party to the agreement put the UPC’s viability in doubt?

Henry Carr: As Vicki has indicated, it makes a difference to the costing: who is going to fund it all? Who is going to fund, for example, the training of these vast numbers of judges, all of whom are supposed to be patent experts, from member states that have no patent expertise and have hardly ever heard a patent case? There is the funding issue and there is the issue that I personally do not think that is going to be possible. I just do not think the proposal to have over 100 patent judges from 25 member states-it is possible, but in terms of competence there are only three or four member states where there are good patent judges. That is a real problem.

Q24 Nia Griffith: We turn now to the question of bifurcation. Are you clear about how the question of bifurcation-whether or not they consider the arguments at the same time about the infringement and about the validity of a patent-will be resolved in cases before the UPC? Are you clear that it is going to work, that it is going to be a proper working procedure?

Henry Carr: The problem with it at the moment is that the UK, for example, generally does not bifurcate cases. We hear infringement and validity together, on the theory, as I have said, that you cannot infringe an invalid patent. The right has never been there. Germany generally bifurcates and grants injunctions before hearing validity. Now, what the agreement so far has done is to fudge the thing and say that it is going to be up to the discretion of various local Courts whether to bifurcate or not. The problem with that is that if Germany generally bifurcates and the UK doesn’t then as a patentee-patent holder-you will start your case in Germany because, if you think it through, you want to win and you have got more chance of winning and getting your injunction if validity is not being considered, at which point our Courts either say "We do not care; start all your cases in Germany" or they say, "We will compromise on our principles and bifurcate as well". It is a real problem. Just to conclude on that, the practical problems of bifurcation for a company are-say that you are a small company; you trade on the internet. You can be sued anywhere and an injunction will apply across the whole of Europe. You are sued in wherever-Greece, an injunction is granted on the basis that you fall within the claims of the patent and three and a half years later the central divisions says, "Oh, by the way, that patent was invalid", at which point you are out of business. It is a real, practical problem.

Q25 Chair: What problems do you foresee for British companies if the UPC can consider infringement before validity?

Henry Carr: Precisely what I have just said. Let us take the example of an SME that sells its products throughout Europe, advertised on the internet. It has, let us say, sent a few parcels to Estonia. Previously, there would be no purpose in suing in Estonia. At the moment there is no purpose, because there is hardly any trade there. Now, the patentee thinks, "Hang on, I will sue this company in Estonia and ask for an injunction to apply throughout the whole of Europe, including the UK". The first problem that applies is that the proceedings will then be in Estonian, in this example. The SME is facing the proposition of fighting a case, which affects its whole livelihood, in a language which it has no knowledge of. The next problem is that the proceedings are bifurcated; nobody considers validity. If the SME then decides to fight validity, which it really ought to, those proceedings, which then go to the central division, will probably be in a different language completely. They will not be in Estonian. You have got the costs of all these translations, you have got delays and you have got the possibility, as I have said, of an injunction being granted for years before you prove that it should never have been granted. That is essentially a summary of the problems. They are very serious.

Vicki Salmon: There are a number of conflicting things, because there are certain national traditions that people like and want to preserve, and you are trying to mesh that into a complete system. There is also the trouble of the non-expert judges in different countries. Therefore, if you have an incredibly valuable pharmaceutical patent you are quite worried about a non-expert judge deciding to revoke that in a territory that is not very familiar with patents, and your protection across the whole of Europe has gone until you can get it put back through the appeal process. There are a number of conflicting issues in terms of getting some of the revocation issues into the central Court, where there will be more expert judges, but then also leaving jurisdiction with the national Courts so that it is not all centralised. It is a very difficult problem to resolve.

Q26 Chair: Touching back on the question of SMEs, what do you think the consequences of the UPC as proposed will be on UK small- and medium-sized businesses?

Timothy Roberts: This has been a point that has worried us considerably and this is the exclusivity of the system. We have just constructed in the UK a Court especially for SMEs. There has been a lot of perfectly justified complaint that it is too expensive to enforce your patent in the British High Court. We now have the Patents County Court, in which costs are capped and damages are limited to £500,000, and you have a special procedure. We have a new judge who simplifies the procedure and speeds it up. This offers the opportunity, if you can get access to the Patents County Court, to have your case heard and disposed of sensibly and economically. Now, under the proposed new system, the exclusive right of the new Court will apply not merely to unitary patents but also to the European patents, which everybody here takes more or less as a routine. It is still possible to get national patents but most people do not bother, so the exclusivity right of the new Court will remove from SMEs the opportunity to enforce their European patents quickly and economically.

Q27 Henry Smith: How do you rate the UK Patents County Court and what effect do you think the UPC will have on it?

Henry Carr: The Patents County Court is much improved. For a while I did not rate it. It much depends on the personality of the judge. They have now got a very good judge who is speeding things up, limiting the amount of cross-examination and time things take in Court and it is a very viable alternative for companies that could not afford to bring these big set piece patent cases. Pharmaceutical companies can afford to, but many companies cannot. The problem, as Tim has indicated, is that once the unitary Patent Court takes exclusive jurisdiction, which it will after a transitional period of seven years I think, there is no more room for the Patents County Court. It has gone. Then everything is under this immensely elaborate procedure: three judges of different nationalities, local divisions, regional and central divisions. I think the cost will escalate.

Q28 Henry Smith: And there will be a significant impact on small companies, as you say?

Henry Carr: Indeed.

Q29 Henry Smith: The example you are using about being sued in Estonia, for example.

Henry Carr: Quite. So rather than contributing to the UK economy, as the Hargreaves Review assumed, by promoting the interests of SMEs, as it is currently set up I think it will do the reverse.

Vicki Salmon: The Patents County Court does have jurisdiction over some other matters as well but it is particularly its ability to hear the patent cases cheaply that is of importance here, and it will be left with the residual jurisdiction over national patents, but they are much fewer and further between, because people more frequently go for the European route, because that way you get to make an application in 38 or 40 countries and do not have to decide, until you get to grant, how many of them you wish to enforce it in or to validate it in, whereas if you have to make that decision at the outset you have to do all your translation costs up front before you know how viable your product is. So the ability to put off costs until the SME has developed and built up its market is terribly important when you are planning your patent filing strategies.

Q30 Kelvin Hopkins: You have said that the UPC should be given non-exclusive jurisdiction so can you think of reasons why member states are opposed to this?

Vicki Salmon: Yes.

Q31 Kelvin Hopkins: Can you explain what they are?

Vicki Salmon: There seems to be a move, particularly from within the Commission, that the aim is to have a unitary Court and therefore everything should go to it and if it is in competition with other Courts it would not get any business. We think that, like the European Patent Office, which set up with a handful of states and others have come in because it is a success, I would rather see it come the other way: show that it is a success and then people will not want to use the national systems, because they will see that this is a better one.

Henry Carr: Some very large companies have indicated, because of the problem we have discussed, that they may not wish to use this system. They may file national patents in different countries and continue to enforce them nationally. The problem with that is they have no choice when they are defendants, so it is not an option.

Timothy Roberts: Yes, there are two things. One is this question of making thing compulsory. The European Patent Office, the new system introduced in 1978, has really been a remarkable success. It is not perfect but it is pretty good in many ways and we would be lost without it. Now, the advantage of that was it was always optional. If you did not trust it you could always file national patents instead. With the new Court it is not optional; if you want to make use of national patents you will no longer be able, under this proposed system, to go through the European Court. That is really a concern. It displays, really, a fundamental lack of confidence in the Court. They would not make it compulsory unless it was necessary to make it compulsory. That is one thing. The other thing is that it fits in with the philosophy of one Europe. We do not have a common language, but at least we have a common patent system and we have common Courts.

Q32 Chair: Could I ask Mr Carr and Ms Salmon to comment on that last remark you made? Do you agree with what Tim Roberts has said about the question of one European project which really is the driving force behind this?

Henry Carr: I do agree. I agree entirely with what Tim has said. The only comment that I would add, which I am not sure is entirely coming through at the moment, is that the idea of having a unitary or single European Patent Court is actually a very good one. It is the implementation of it that is the problem. For example, if you had, as was at one stage proposed. a travelling Court of genuinely expert, distinguished judges-not these divisions, a single Court-that would go and sit in various parts of Europe and in a language most convenient to the parties decide a case for the whole of Europe, that is a great idea. It is what it has become that is the problem. It is what it has become and the problems we are highlighting.

Vicki Salmon: Henry’s talked a little bit about forum shopping and I think some of the moves quite early on were to try and remove some of the ability of parties to forum shop, because, when some of the European Court stuff took off, you had parties with quite a lot of different actions competing in jurisdictions as to which country was going to have the right to hear the case. Some of this is to try and iron out that so that you do not get forum shopping. My personal view is that forum shopping is a good thing at some levels, as it produces competition between Courts. One of the things that we have had in this country has been competition between the High Court and the Patents County Court, which has led to each of them improving their procedures. I think that is a good thing and I think that some of these moves have been to stamp this out: that there should be only one place where you go and therefore we must have a European system which is uniform and uniformly applied in a European way. Therefore, I think that absolutely reflects what Tim was saying.

Henry Carr: It is true and, if I may just add, actually I think the current proposal makes forum shopping infinitely worse.

Vicki Salmon: Yes.

Henry Carr: Now, under this proposal you say, "Okay, I can choose where I am going to sue. I am not going to sue in the UK or perhaps Holland, where I am going to get a judge who really knows." I do not want to be too offensive about a country: "I am going to sue in Bulgaria this time". That is real forum shopping and I get my injunction for everywhere.

Q33 Penny Mordaunt: Why is it so important the central division is located in the UK? I know you have touched on this with regard to Germany.

Henry Carr: I think there are a few reasons. Let us assume that this is going ahead. We can talk about the problems, but let us assume it is going ahead. As I have said, I think it has the appearance of a train that is not stopping anywhere. I do not personally feel that it is an option for the UK to opt out, because if you opt out you will be marginalised and patent litigation will take place outside the UK. Assuming it continues, whoever gets the central division will be able to mitigate or to put its own national stamp-because it is the most important place-on how this Court works. For example, there will be decisions the central division makes that affect everywhere. You will be able to mitigate, definitely, the most serious effects.

The second point is that this is going to be a really important European institution. We do not have them. Germany already has the EPO. If Germany gets this Court as well, aside from the economic benefits that I have discussed, you also have the situation that militates against fairness, that the very place-and, indeed, I think Germany are planning to have it in Munich-that is granting the patents is deciding on their validity as well. That, to me, does not have a perception of justice at all.

The third reason I would point to is simply the economic benefits to the UK if we do get the central division in terms of skilled employment, a vast increase in patent litigation, and the opportunity to use and expand our expertise.

Vicki Salmon: There were a number of letters written last autumn by a number of different organisations expressing why they felt that the central division should come into the UK and I believe at least one of those letters put forward some figures as to what they thought the detriment might be to the UK economy if it did not. The IP lawyers had put the turnover at about £100 million per annum and on top of that you have then got some support services from patent attorneys. We did not manage to get our figures together. There are people coming into the UK, staying here, using the local transport, shopping in shops, turning up before the hearings, coming to the main trial. There are experts who also get drawn into cases to come and give expert testimony, and shorthand writers.

We have got a very good Court system here. We have got a brand new Court building used to attract international litigation, because I think we do international litigation really well. This is a great location because of good transport links into London. There are lots of good reasons why the Court would be here. Many companies in America or Japan would probably prefer to come here and litigate in English than to work with some of the other language issues in other states, on top of all the things that Henry said.

Timothy Roberts: The only other thing I would add to that is that three quarters of European patents are granted in the English language and it makes sense to litigate them in the language that they were granted in, in the country whose native language that is.

Q34 Chair: As I understand it, Germany France and the UK are all bidding for the central division to be located in their respective countries. Against that background, is there anything further that you would like to add? We have your evidence here in writing, but in the light of what we have discussed today, is there anything further you wanted to add to that in the light of other questioning that you have received and also, perhaps, looking at the reasons why the United Kingdom Government is so keen to press on with this and the effect that it is likely to have on UK interests?

Henry Carr: There are just a couple of things I would like to add. The first is I think that the UK Government is absolutely right to press for the central division to be here. It may not be the case, but let us assume we cannot do anything about Articles 6 to 8, for example. We need to press for the central division to the UK. Patents are really important to the UK. One of the most important things we have is innovation and we need to promote our expertise. France may be seen as the kind of compromise candidate. Without being disrespectful in any way to French judges, France does not have a great system of patent expertise, a great tradition of judgments. It just does not have it, and therefore it would be the default option, because the other two could not agree. When you think all of this through and combine the fact that we do not really have a significant European institution, this is the obvious one to bid for.

Q35 Chair: So if the central division is located in the UK, would that affect your thinking about whether the UPC itself is an acceptable compromise?

Henry Carr: Given the way it is set up, there are fundamental problems with the UPC, wherever it is located. Having said that, and looking at it pragmatically, what is one going to do about that? The answer is, assuming nobody is going to listen to these problems, that having the central division here is the way of mitigating the problems, with great benefits to our economy. I do feel that if we say, "Right, too many problems. We are not going to participate", that will be the worst of all possible worlds, because then we really will be marginalised.

Vicki Salmon: I do not really have anything to add to what Henry has said. I think if it is going to happen I would rather be in it than not in it, but I would much rather have the Court here.

Timothy Roberts: Certainly if it is going to happen I would rather that it were here than anywhere else. I am not 100% sure actually as to whether it is better to stand aside and run the risk of being marginalised or not. An absolutely fundamental problem with this is you have more or less unanimity from the professional input that it is a bad idea. We might be wrong. Maybe it will be a success, but if we are right we are going to be stuck with this system and you are not going to be able to set up the UK Courts again in five or seven years because the system is not working. It has been compared to the euro, because as with so much European legislation, you can get into it but you cannot get out again. It is like a lobster pot.

Q36 Chair: So on balance, you would like whatever it is to be here in the UK. That is understood. But none of that alters your basic concern about the substance of the question, which is that the way they are going about it is not the way to go. Is that about the measure of it?

Timothy Roberts: Absolutely.

Henry Carr: That is right.

Q37 Chair: Good. Thank you all very much for coming. It has been very helpful. If you have got any further comments, either individually or collectively, then by all means give us some written submissions to add to what we have already said.

Henry Carr: We shall send you a short paper on the issues that you have asked us to.

Chair: Thank you very much.

Examination of Witness

Witness: Dr Christian Gassauer-Fleissner, President of European Patent Lawyers Association, gave evidence.

Q38 Chair: Dr Gassauer-Fleissner, you heard some of the evidence that has already been given, but we will now go through the same evidence with you from a European perspective. If I could start with the first question: to date, what opportunities have you had to contribute to the formulation of the policy on the EU unitary patent and the Unified Patent Court, the UPC?

Dr Gassauer-Fleissner: First of all, EPLAW is obviously a non-governmental organisation. It is an association under Belgian law and membership is free to lawyers involved in patent law and, as such, EPLAW has been campaigning on this topic for a long period of time. In particular, my predecessor as President of EPLAW, Jochen Pagenberg, has spent a lot of his time campaigning against the drafts as they are currently on the table. He did as much as he could do from the position as a President of an organisation like EPLAW.

Q39 Chair: Have the contributions that you have made been reflected in either the draft regulation on the Unified European Patent or the intergovernmental agreement on the UPC?

Dr Gassauer-Fleissner: Only to a very limited degree.

Q40 Nia Griffith: You are saying really that what is in there now is not really reflecting what you have been contributing?

Dr Gassauer-Fleissner: That is correct.

Q41 Nia Griffith: Could you tell us a little bit about the rules of procedure for the UPC? Do you feel that what you have contributed has in any way affected the way that has been handled and drafted?

Dr Gassauer-Fleissner: As I think was said before, the current status of the rules of procedure dates back quite some time and I am not aware that any comments of EPLAW made any impact on this. Also my understanding is that there was not much discussion about the rules of procedure anyway.

Q42 Nia Griffith: What about your views on the impact assessments and the impact assessment that has been made by the European Commission?

Dr Gassauer-Fleissner: What do you mean by the impact assessment?

Q43 Nia Griffith: Normally, we call an impact assessment the document that explains how things will actually work out in practice and what the effects will be. Have you had an opportunity to see the impact assessments?

Dr Gassauer-Fleissner: I think almost everything that was said before is correct, that this proposal, as it is tabled now, will create more problems than it will solve. EPLAW certainly disagrees with what the Commission is saying about the possible merits of the draft as they are on the table now.

Q44 Stephen Phillips: What are the specific concerns that EPLAW has with regard to the implementation, therefore, of the Commission’s proposals?

Dr Gassauer-Fleissner: Most of them were addressed before. One is obviously the inclusion of Articles 6 to 8 and the consequence that the ECJ would be involved in matters of substantive law.

Q45 Nia Griffith: Pausing there, what does EPLAW see the difficulties being in giving the European Court jurisdiction in this area?

Dr Gassauer-Fleissner: I think there are various very important issues there. One issue is a timing issue. The involvement of the ECJ would delay infringement proceedings for years.

Secondly, the cost, which to a certain extent is interrelated with this, and third, which I think is maybe even the most important, is that the judges at the ECJ do not have patent law expertise. This is the point where I personally really do not understand the approach, because what we are talking about here, related to the UPC system if I may call it that, is to get as many experienced patent judges as possible and get cases away from local Courts that do not have patent experience in the first instance. What is proposed now is that there should be experienced local, regional divisions etc. at the lower level, at the first instance and at the Court of Appeal there should be experienced judges-left aside is the question where they will come from. Then, at the highest instance, at the level of the European Court of Justice, there will not be any experienced patent law judges anymore. What you can criticise in the system as it is now is that in some countries at the lower level of Courts you do not have patent law expertise in the judges. Now you are turning it upside down and creating a problem at the highest instance.

Q46 Stephen Phillips: In relation to this issue, EPLAW made those submissions to the Commission, did it?

Dr Gassauer-Fleissner: Yes.

Q47 Stephen Phillips: Were those simply ignored or was there some response to them?

Dr Gassauer-Fleissner: There was no official response. There was sometimes friendly acceptance in discussions but in fact EPLAW’s interventions did not cause any modifications.

Q48 Stephen Phillips: If you take delay as an example, the Commission did not say, "Yes, that is a very good point, we could deal with that by doing something."

Dr Gassauer-Fleissner: No.

Q49 Stephen Phillips: On that issue at least, everything that EPLAW has said has been ignored by the Commission; is that fair to say?

Dr Gassauer-Fleissner: Yes.

Q50 Stephen Phillips: You were moving on, I think, to some other concerns as well, apart from jurisdiction of the European Court?

Dr Gassauer-Fleissner: One other thing, of course, is the issue of the costs. Nobody knows what this is going to cost. On the one hand, currently, at least in my country, even the Government does not know what it would cost because there are still disputes about where the local divisions would be and whether each country will have a local division. Secondly, nobody knows what the court fee will be. Nobody knows what costs can be reimbursed or asked to be reimbursed by the successful party. The other thing that also was addressed before was the question of the exclusivity of the UPC, whether or not to have a parallel patent litigation before a national Court for the European patent, apart from the competence for the UPC for the unitary patent.

Q51 Stephen Phillips: Given the uncertainty in relation to costs and, indeed, the potential for increased costs for those seeking protection of their intellectual property rights, what impact does your organisation think that that would have on people coming forward with new patents over their technologies-not all technologies?

Dr Gassauer-Fleissner: Creating an invention has two sides. One is getting the patent and the other is enforcing the patent. You are applying for a patent to get the patent and to enforce it and if enforcement is getting too expensive, in particular for SMEs, your patent has less value because many of those will not be able to afford it.

Q52 Stephen Phillips: Is there, in your opinion, any real risk of damaging SMEs’ abilities to create new technologies and new patents as a result of increased cost?

Dr Gassauer-Fleissner: There is a risk that SMEs will not be able to enforce their patents, yes.

Q53 Stephen Phillips: If they cannot enforce them they will not derive the revenue streams to which they would otherwise have been entitled from those patents.

Dr Gassauer-Fleissner: Correct, yes,

Q54 Stephen Phillips: The point, therefore, that I am putting to you is that they will not have so much to plough back into both the development of other patentable technology and indeed their business.

Dr Gassauer-Fleissner: Correct. Also applying for a patent is not cheap at all but it is also a good investment and it is one of the rare opportunities for a small- or medium-sized company to really create a market share. If you have really got a new idea and get it patented you create your own market just by paying the registration costs etc. and the annual fees, but if you are deprived of that, of course, this would be harmful for SMEs-for everybody, but for the SMEs in particular.

Mr Cash: Penny, perhaps you would be good enough to ask the question which we asked before, relating to the issue of the unitary patent being across the EU?

Q55 Penny Mordaunt: Yes. Given that that is the objective and that the legal base is taken from EU treaties, the question is: what is the alternative to having the supervisory jurisdiction of the Court of Justice? How else could it work?

Dr Gassauer-Fleissner: I think the idea would be to have the centralised Court and the Court of Appeal would be the last instance to decide on the infringement question so you do not really need the ECJ for that.

Q56 Henry Smith: Do you think that the requirement in the Court of Justice’s opinion that the UPC refers preliminary questions to it puts the viability of the UPC in doubt?

Dr Gassauer-Fleissner: The opinion of the ECJ has led to the fact that the drafts were amended to satisfy those questions or doubts the ECJ had, but all of that had nothing to do with the problems we are discussing now. What I am trying to say is, yes, indeed, the ECJ had some doubts, but they are dealt with and they are totally different from what we are talking about now.

Q57 Henry Smith: Do you think that the Court of Justice requiring that those initial questions-do you think that makes the UPC almost superfluous?

Dr Gassauer-Fleissner: No, because I think there are now provisions in the draft that should satisfy the ECJ but that has nothing to do with this question about Articles 6 to 8.

Q58 Nia Griffith: Are you clear how the question of bifurcation with the Court deals with the infringement and the validity as one thing or as two separate things-

Dr Gassauer-Fleissner: I come from a bifurcation country.

Q59 Nia Griffith: Absolutely. You are an expert on it, I am sure, but are you clear how it is going to be resolved in this new system? Is it going to work?

Dr Gassauer-Fleissner: Bifurcation has been working in Germany and in my country and there are pros and cons. I have been in patent law for almost 30 years and I have lived with bifurcation for 30 years.

Q60 Nia Griffith: But in a system that they are trying to create, where they are trying to put together countries that have traditionally had the bifurcation and countries which have not, as the new system is proposed, is that going to cause any problems, do you think, or do you think that the system is going to work perfectly?

Dr Gassauer-Fleissner: I think it will be easier for Germans and Austrians to understand it than for people coming from other jurisdictions, but I do not see any reason why it should not work, because in particular Germany has a long tradition in excellent patent litigation. It is one of the leading countries in this respect.

Q61 Nia Griffith: How will who choose what will be done in which Court? In other words, will there be a unitary system that everybody will be going along with or will there be differences?

Dr Gassauer-Fleissner: I think the choice of the Court to go to will not, in my view, depend on the bifurcation issue. It may depend on the question of whether I want to go to an experienced division or not. I see this as different from the bifurcation issue.

Q62 Nia Griffith: Because our previous witnesses did raise the question of what might happen if-

Dr Gassauer-Fleissner: Yes, but that happens wherever you go. The problem that was addressed before always arises independently whether you go to Bulgaria, England or Estonia. The same problem arises from wherever you start the infringement action.

Q63 Henry Smith: Is it possible to make an assessment or prediction of the costs of litigation before the UPC?

Dr Gassauer-Fleissner: No, I am not in a position to know.

Q64 Henry Smith: Do you think the costs will be increased from the system as it exists now across Europe?

Dr Gassauer-Fleissner: I think this certainly will depend on where you are starting from because currently my observation is that the cost of patent litigation is very different in the various countries and the member states of the European Union. I would go as far as saying there is a ratio of one to 10 from the cheapest country to the most expensive country. From most of the civil law countries’ points of view the new system would mean a significant increase in costs.

Q65 Henry Smith: Do you think that is largely because the UPC would be slower and less efficient?

Dr Gassauer-Fleissner: No, I think this will start much earlier. Coming from a small country, the plaintiff can, if he chooses so, allocate a very low value to his claim for injunction, which has nothing to do with the money he may want to claim later on and this low value will be the important thing in how to calculate the court fee. It is in the hand of the plaintiff to make sure that the court fee is low and I am not aware that any of the like would be foreseen in the present system. From the point of view of court fee alone it must be more expense than, for example, it is currently in my country.

Q66 Kelvin Hopkins: Some-possibly all-member states are opposed to the UPC being given non-exclusive jurisdiction. Can you spell out what you think the reasons for that are?

Dr Gassauer-Fleissner: There are many objections to the proposed system and there are sincere doubts from all across the patent industry, if I may call it so. There is a high risk that this new system will not work and will not be accepted by the industry and therefore it would be good to maintain the possibility to go the way that is provided for now with the current system.

Q67 Kelvin Hopkins: How likely is it that suitably qualified and experienced judges will be found to fill the local and regional divisions of the UPC?

Dr Gassauer-Fleissner: This indeed will be a problem because it is true that the number of patent infringement cases is very different in the various countries. Again, coming from a small country, there are even big differences among the small countries. For, example, my own country has had patent law and patent litigation for more than 100 years. There is not such a big number of cases like in the UK or Germany, for example, but there is an extremely long tradition and we have Supreme Court cases on patent law dating back to the 1890s. So you really have to look at each country differently and you should not just talk about the number of cases currently decided.

Q68 Chair: Finally, if the evidence that we have received seems pretty conclusive that intellectual property judges, practitioners and the industry all over Europe, by the sound of it, are so against the proposed regulation agreement, why is it that these proposals are being pushed through and hurried through in Brussels?

Dr Gassauer-Fleissner: I do not know. The only reason I can see is the one that also was mentioned earlier, that the previous presidency wanted to present some kind of success after that many years of discussions. I may add one thing to what was said before. I am pretty sure that it was not the German industry that pushed this because, as I said before, my predecessor who was German really was campaigning almost half of his time against this. So I do not think there were particular German interests behind that.

Q69 Stephen Phillips: There are some European jurisdictions or member states where infringement and validity are dealt with together and there are some where they are not. There are some where the cost of infringement litigation, as I think you said, is one tenth of what it might be elsewhere; I imagine you mean in the UK.

Dr Gassauer-Fleissner: Correct.

Q70 Stephen Phillips: I think you also said that it would be easier to find suitably qualified patent judges in some jurisdictions than in others. Yet, as I understand the jurisdiction mechanisms for litigation in relation to infringement proceedings, it would be very easy to establish jurisdiction almost anywhere in the EU.

Dr Gassauer-Fleissner: Correct, yes.

Q71 Stephen Phillips: So to what extent do you think that those factors will influence those seeking to commence litigation and lead to overt forum shopping?

Dr Gassauer-Fleissner: I think this may definitely lead to forum shopping for obvious reasons because sometimes as a claimant you are sure you have a good patent and sometimes as a party you see your strength on the infringement side and sometimes you see your strengths or problems or vice versa on the validity side. There are many scenarios typical for each case and depending on the situation you find yourself in you may want to go to a Court that is perhaps more friendly to infringers or that is more friendly to invalidate patents. This is what is happening now even within countries like Germany.

Q72 Stephen Phillips: Let me put it this way: were the system to come in, would you agree that the first question that you would have to consider when advising your client, when the client walks through the door, is that, given the nature of the case, it is a case that you need to start in Estonia, or the UK, or Italy? It is going to be the first thing that you are going to need to consider. Is that correct?

Dr Gassauer-Fleissner: Yes, this certainly would be one of the topics to address.

Chair: Thank you all very much indeed for coming. Thank you, Doctor, for coming and giving evidence on your own.

Dr Gassauer-Fleissner: My pleasure.

Chair: That concludes the proceedings. Thank you very much.

Prepared 31st January 2012