On May 5th Europe jumped one of the last major hurdles on the way to implementing the EU Unitary Patent and Unified Patent Court (UPC). The Court of Justice of the EU (CJEU) handed down its verdict rejecting two legal challenges filed by Spain against the proposed EU system of unitary patent protection. Given that the CJEU is the highest legal authority with jurisdiction on the matter, Spain has no further recourse and the UPC should now move forward. Analysts expect the first EU unitary patents to be granted towards the end of 2016 or into 2017.

The EU Unitary Patent and UPC got their start in 2010 and have slowly but steadily made progress towards becoming a reality. 2012 saw a breakthrough agreement on the Unitary Patent with the European Parliament signing a patent package covering 25 EU Member States. In January 2013 EU regulations on a unitary patent for Europe entered into force, but on one condition: they will only be applicable from the date when the Agreement on a Unified Patent Court also enters into force, and it is the agreement regarding the UPC where Spain’s challenges came into play.

Spain lodged two key complaints questioning the legality of the UPC. The first of Spain’s challenges addressed the translation requirements for patent applications. Under the current agreement, now upheld by the CJEU, applications for Unitary Patents must be filed in English, French or German. Generally, to prevent discrimination, all EU documents are accepted and published in all 24 official and working EU languages. However, in the case of the Unitary Patent it was decided that to work in all 24 languages would be prohibitively expensive and slow. Thus the regulations required the use of English, French or German for applications and did not require subsequent translation into the 21 remaining EU languages. Spain objected, claiming that the language regulations were discriminatory and prejudicial against EU citizens without English, French or German as a first language. The CJEU examined Spain’s challenge and decided to uphold the existing language rules, concluding that “to differentiate between the official languages of the European Union, and to choose only English, French and German, is appropriate and proportionate to the legitimate objective pursued by that regulation.”

Spain’s second complaint addressed the legal basis for the unitary patent system with seven different claims including infringement of the values of the rule of law, misuse of powers, and infringement of the principles of autonomy and uniform application of EU law among others. The CJEU also rejected each of these claims. The court found that the new system “merely establishes the conditions under which a European patent previously granted by the European Patent Office” and thus is governed by the European Patent Convention and not a violation of EU law, as Spain claimed. The Court also rejected the Spanish assertion that the system was not a constitutionally valid justification for new laws abridging national powers, saying that unitary patent protection will not infringe on national sovereignty but rather “prevent divergences in terms of patent protection in the participating member states and, accordingly, provides uniform protection." The Court also dismissed the remainder of Spain’s complaints and fully supported the creation of the Unitary Patent and UPC.

There is no higher authority on the for Spain to appeal to, thus these decisions clear the way for the system to move towards implementation. That said, there is still work to be done before the first Unitary Patent can be granted in the EU. For the Agreement on the Unified Patent Court to take effect it must be ratified by at least 13 member states, including France, Germany, and the UK. So far, of the three required members, only France has ratified, and with the Conservative victory in the UK elections, EU issues will be hotly debated going forward. Six other member countries have ratified, including Austria, Belgium, Denmark, Malta, Sweden and Luxembourg, leaving six more countries including Germany and the UK needed before the system can take effect.

However, when the system does take effect it could have major implications for the global IP market. Currently the US is the key venue for IP litigation and transactions. But, with high litigation costs and the proliferation of non-practicing-entities (NPEs) among other factors, international markets have been looking increasingly appealing. The major obstacle has been that the US is the largest IP market, and the market where legal decisions have the greatest impact. However, a unified EU patent system would cover a market that surpasses the US both in terms of population and GDP. The litigation process before the UPC is also expected to be cheaper, faster, and with easier to acquire injunctions than its US counterpart. The final perk is that analysts expect a much smaller number of NPEs, even in the long term. Without the massive costs of US litigation, and taking into account fee shifting, many of the aspects of the NPE business model would no longer make sense as they currently focus on extracting settlements that would be cheaper for the target than litigation, even if successful.

Ongoing progress towards the EU Unitary Patent and Unified Patent Court are going to be key events to follow in the IP field. With the system in place, European patents will probably increase in value proportionately with the market they cover, and we may see major cases shift out of US venues in search of cheaper and more efficient options in the EU.