An economic digression - Are the provisions of the UPC compatible with the internal market

The UPC states at s. 24 that Union law shall be a source of law and yet, in its infringement provisions, there appears to be a fundamental inconsistency with the functioning of the internal market which is a core feature of the European Union.

The law of several (all?) Member States concerning indirect infringement provides that there is a double requirement for infringement. Firstly the supply of means relating to an essential element of a patented invention has to be within the national jurisdiction: and secondly the means are supplied to put the invention into effect in that national jurisdiction.

So, a manufacturer who makes and supplies in a country, a product constituting means relating to an essential element of an invention and destined for incorporation into a patented article in that country, will infringe a patent in that country. If the product is  destined for incorporation into a patented article in another country then there is no indirect infringement (not here considering aspects such as joint purpose, that might lead to a finding of direct infringement).

Section 26(1) UPC states (emphasis added):-

A patent shall confer on its proprietor the right to prevent any third party not having the proprietor's consent from supplying or offering to supply, within the territory of the Contracting Member States in which that patent has effect, any person other than a party entitled to exploit the patented invention, with means, relating to an essential element of that invention, for putting it into effect therein, when the third party knows, or should have known, that those means are suitable and intended for putting that invention into effect.

This in effect extends the territorial effect of each national part of a "bundle" patent and of the unitary patent to sale in one Contracting Member State of "means, relating to an essential element..." for putting the invention into effect in another Contracting Member State.

The effect of the generalisation of section 26(1) UPC is thus not simply to provide an enhanced court system, but to extend the acts of infringement that result from a European patent [bundle or unitary] to downstream activities outside the "home" territory of the the supplier of the "means, relating to an essential element..." . 

The effect of this extension on our manufacturer can be appreciated by looking at his potential liability for indirect infringement of a patent in a source country, by making and supplying in the source country, a product incorporated into a patented article in a different destination country. The following two tables show the situation now, and post UPC.

Now		Destination country
		Patented UPC country	Patented non-UPC country	Non-patent country
Source country	Patented UPC country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country
	Patented non-UPC country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country
	Non-patent country	No – no patent	No – no patent	No – no patent

Under UPC s. 26(1)		Destination country
		Patented UPC country	Patented non-UPC country	Non-patent country
Source country	Patented UPC country	Yes if the product is “means relating to an essential element of that invention”	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country
	Patented non-UPC country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country
	Non-patent country	No – no patent	No – no patent	No – no patent

A similar change in effect is seen when one considers the potential liability of a manufacturer for indirect infringement of a patent in a destination country, by making and supplying in a source country, a product incorporated into a patented article in the destination country.

Now		Destination country
		Patented UPC country	Patented non-UPC country	Non-patent country
Source country	Patented UPC country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent
	Patented non-UPC country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent
	Non-patent country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent

Under UPC s. 26(1)		Destination country
		Patented UPC country	Patented non-UPC country	Non-patent country
Source country	Patented UPC country	Yes if the product is “means relating to an essential element of that invention”	No – as supply did not take place in destination country	No – no patent
	Patented non-UPC country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent
	Non-patent country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent

So the effect of the UPC is that whereas at present the manufacturer who only sells product in his home market, only needs to consider patents in force in that country: post UPC he has to consider patents elsewhere in Europe, and his liability depends upon whether his products are subsequently used in a UPC country or a non-UPC country.

This differentiation in liability according to whether or not a downstream user is in a UPC or non-UPC country thus increases fragmentation of the internal market and may be contrary at least to:-

• Article 26 TFEU concerning free movement of goods;
• Article 36 TFEU concerning the extent to which industrial property may act as a disguised restriction on trade;
• Article 20 TEU that only permits enhanced co-operation that will reinforce the integration process.

It should be further noted that this effect bears particularly strongly on SMEs who are most likely to be trading solely in their own country and not considering exports. At present such an enterprise need only look to patents valid in their own country and has no concern as to whether corresponding patents are in existence elsewhere. Post UPC this will change dramatically.

I do not believe that these issues have been considered by the European Parliament, the Commission, the Council, or the Courts in discussing the challenges by Spain and Italy. Perhaps it is not too late to think again?.