In the December 2019 edition of Synapse, we wrote about case C-688/17 (the Bayer decision) of the Court of Justice of the European Union (CJEU), which provides guidance on the compensation parties can receive when a patent holder has enforced a preliminary injunction (PI) against them that is later revoked.
Here, our European team looks at what this decision may mean for national practice.
For more than 120 years, the Austrian Enforcement Code has granted a strict liability for damages caused by a later dismissal of a preliminary injunction under Article 394 Exekutionsordnung (EO), subject to one of the following three conditions being met:
The "history" of this legal provision dates back long before the Enforcement Directive.
In Austrian practice, rightholders in this type of situation often apply for a preliminary injunction and once the preliminary injunction is issued declare (as claimant) a so called "Exekutionsverzicht" vis a vis the adverse party, which means that the PI will not be enforced for the moment.
Such an "Exekutionsverzicht" (ie waiver for PI enforcement) may sometimes be seen as a sign of weakness, however in practice, this is a common tool to mitigate the risk of the strict liability if the PI is deemed unfounded at a later stage. In cases of "obviously wilful" PI requests, the Austrian Enforcement Code also provides the possibility for the adverse party to claim for an additional penalty.
Article 9(7) of the Enforcement Directive has been almost literally implemented in article 1369ter of the Belgian Judicial Code, which specifically concerns proceedings relating to intellectual property rights. This article entered into force on 1 November 2007. Prior case law in Belgium made a distinction between two situations.
On the one hand, if the PI is revoked or annulled following an appeal or following a third party opposition, PI applicants face a strict liability of the PI applicant. This reasoning was based on article 1398 of the Judicial Code according to which judicial decisions are enforced upon the risk of the applicant.
In this scenario, no fault, intent or bad faith should be established: it is sufficient that the decision has been annulled as such. As a rule, the applicant is in this case liable for all damages resulting from the enforcement of the annulled PI, consisting of all losses suffered by the other party (damnum emergens) as well as the lost profits (lucrum cessans).
On the other hand, if it is subsequently found in the (separate) proceedings on the merits that there has been no infringement of a valid IP right, the decision granting a PI is not annulled as such, but simply ceases to have effect as from the date of the decision on the merits. Under Belgian procedural law, proceedings on the merits and PI proceedings are indeed separate proceedings.
In this scenario, case law considered that the PI applicants face a fault liability of the PI applicant (ie it must be shown that the PI applicant acted unlawfully when obtaining or enforcing the PI). In practice, it was almost impossible to obtain any damages as the threshold for establishing such “fault” was really high.
Following the implementation of the Enforcement Directive, the Ghent Court of Appeal considered that this distinction was no longer relevant, as Article 1369ter of the Judicial Code did not make any distinction either and opted for a strict liability in both scenarios.
The Brussels Court of Appeal, however, considered that opting for a strict liability in both scenarios would be contrary to the goals of the Enforcement Directive and continued to apply the fault scenario in the second scenario.
Most commentators hoped that the CJEU Bayer decision would solve the issue, but this does not seem to be case. It will most probably be up to the Belgian Supreme Court to clarify whether the above distinction still is relevant and, if not, what liability regime is applicable.
Compensation of damage caused by a later dismissal or termination of a preliminary or interim ruling is governed by general rules on preliminary measures in the Czech Procedural Code.
Anyone who seeks a preliminary or interim ruling must provide a monetary guarantee which shall cover potential damage caused by the interim ruling. The amount of the guarantee is CZK 50,000 (approx EUR 2,000) or an amount decided by the court if it is clear from the circumstances of the case that the basic amount could not cover potential damage caused. The amount can be increased based on motion of the defendant.
The guarantee is paid back to the claimant if the motion for interim measure is dismissed or revoked. However, if the interim measure is terminated from other reasons other than that the claimant was successful in the main proceedings, the claimant shall garnish any damage incurred by the defendant in consequence of the interim measure. The guarantee will be used to cover the damages.
The only basis for liberation of the claimant is that the damage would be caused to the defendant even without the interim measure. Therefore, partial fault of the defendant does not liberate the claimant. Czech national law will, in our opinion, not be affected by the CJEU ruling even though the court suggests more reasons for liberation of the claimant.
As the termination of the interim ruling does not automatically mean award of damages to the defendant (causal nexus has to be proved etc) Czech law is, in our view, in line with the directive and CJEU ruling.
Unlike the Hungarian law that gave rise to this decision, German civil procedure law in Sec. 945 German Code of Civil Procedure explicitly provides that PI applicants face a strict liability of the PI applicant in the event a PI is later on revoked.
This is a long established rule of the German procedural law and reflects the balancing of interests in the complex process of preliminary proceedings that lead to an unjustified PI, because the ex ante assessment at the moment of the grant of the PI turns out to have been wrong on the long run.
Strict liability means that it is not considered at all whether the PI applicant acted (un)diligently. Furthermore, an objective ex post view is to be applied. In this context, the statement of the CJEU that the revocation of the PI as such does not mean that the application for a PI was unjustified should have no relevance given the explicit and clear ruling of Sec. 945 German Code of Civil Procedure.
With regard to the amount of damages to be paid, the general rules of Sec. 249 et sqq. German Civil Code apply. 254 German Civil Code rules that negligent fault on the part of the injured person has to be considered in the context of a claim for damages for an unlawfully granted PI according to Sec. 945 German Civil Code.
It is to be noted that Sec. 945 German Code of Civil Procedure – as well as Sec. 249 et. sqq. German Civil Code – comply with Art. 9 (7) of the Enforcement Directive which explicitly provides that the judicial authorities shall have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by those measures.
Hence, there is no reason that the new CJEU decision should have any impact in practice.
In Hungary, courts can (and often do) request the applicant of a preliminary injunction to deposit a security with the court to cover potential losses incurred by the defendant in case the preliminary injunction later turns out to be unjustified.
Although currently there is no statutory provision which would specifically grant compensation for such damages, Hungarian courts have recognized such claims under the general rules on civil liability and compensation.
Hungarian courts considered that, as the losses incurred due to a preliminary injunction are caused by a principally lawful act, the legal basis underlying such claims should be indemnification rather than damages. In contrast to damages, indemnification is awarded under an objective standard, without regard to the level of diligence or reasonableness exercised by the parties.
Somewhat inconsistently, however, Hungarian courts nevertheless examined the parties’ conduct under general principles of law and took into account whether the damaged party was not acting as it would be generally expected of a person in the situation concerned.
In the years leading up to the CJEU decision, this problem arose in several cases in which the defendant had started the marketing of patented products knowing this infringed on a purported patent right, but without initiating proceedings for the declaration of invalidity of the patent. Hungarian courts held that, because of the principle of reasonable conduct, the party should have applied for the invalidation first.
Accordingly, courts concluded that the defendants bore the risk of infringing another’s patent right until it was declared invalid at least at first instance. This meant that the defendant could not seek compensation for losses suffered during the time prior to the patent being declared invalid, and it was entitled to it only from the time of the first instance invalidation decision until the repeal of the preliminary injunction.
The literature often criticised this court practice emphasizing that courts should grant compensation without the consideration of the diligence of the parties’ conduct. One of the main arguments was that both the Enforcement Directive and the TRIPS agreement spoke of “compensation” rather than damages, implying that it depended solely on whether the patent was invalid or not. Richter itself stressed this point in the Hungarian proceedings.
The fact that the Hungarian court referred the Bayer case to the CJEU was probably caused by uncertainty of whether prevailing Hungarian practice complied with the Enforcement Directive.
Accordingly, it came as a little bit of a surprise to some that the CJEU basically confirmed the Hungarian courts’ earlier practice and ruled that a “court must take due account of all the objective circumstances of the case, including the conduct of the parties”.
As the decision confirmed earlier Hungarian case law it is not expected to cause any significant change in Hungarian judicial practice. Nevertheless, we can assume that the ruling of CJEU will encourage the Hungarian legislator to create a specific provision – currently missing in Hungary – which would formally authorise courts to order the applicant, upon the request of the defendant, to provide compensation for losses caused by a preliminary injunction which later turns out to be unjustified.
Article 9(7) of the Enforcement Directive is implemented in Article 1019g of the Dutch Code of Civil Procedure. It has been in force since 2007, but it is not often invoked. A quick analysis of the case law shows it is mainly invoked when it concerns (evidence) attachment that is later lifted. Article 1019g DCCP has effectively been rendered superfluous since the 1980s, as it is established case law in the Netherlands that an alleged infringer can obtain compensation for a wrongfully issued PI.
In Supreme Court case Ciba Geigy/Voorbraak, it was found the patent holder knew or ought to have known that it concerned a provisional measure and it is therefore in principle liable for the damages resulting from enforcement. A party acts unlawfully when it orders a counterparty to comply with a PI while, as becomes clear from the proceedings on the merits, it did not have the right to order a counterparty to do so.
This is considered more acceptable than the contrary situation where a party that complied with a PI, is liable for the losses even though it turned out the claimant in the interim injunction proceedings did not have the alleged right.
The abovementioned case concerned a PI and proceedings on the merits, similar reasoning is found in cases where a party acts in accordance with a judgment in first instance and the judgment is overturned in appeal. The party that enforced a judgment in principle acted unlawfully and is therefore liable when that judgment is later overturned.
The CJEU states it is for the courts of the member states to assess whether the compensation is appropriate in the specific circumstances. The reasoning of the Supreme Court in Ciba Geigy/Voorbraak already provides for that situation by saying the party is in principle liable. This leaves room for the Dutch courts to take all circumstances into account, including whether the PI is later overturned.
Article 9 (7) of the directive 2004/48/EU is not directly transposed into Polish patent law and thereby the liability for damages resulted from the wrongful preliminary injunction is regulated by general Article 746 § 1 of the Polish Civil Procedure Code (PCPC). The IP right holder is in principal liable for damages resulting from enforcement.
Following Polish Supreme Court judgments in different cases, Article 746 § 1 of PCPC must be interpreted by the Polish courts in line with the purpose of the said Article 9 (7) and autonomous interpretation of the Court of Justice of the European Union, provided that there is no contradiction between the wording and the autonomous EU interpretation.
Article 746 § 1 of PCPC provides for the strict liability and thereby when assessing the liability for damages resulted from the wrongful preliminary injunction, the court does not take into account subjective elements, such as intent, fault or good or bad faith. The strict liability results from the fact that a party that enforces a preliminary injunction carries the risk of that enforcement.
The liability for damages caused by the execution of preliminary injunction requires the following to be demonstrated:
Poland has the bifurcation system for patent disputes. Consequently, the Bayer decision is highly relevant. Nevertheless, the CJEU has since essentially said that – although compensation for damages under Article 9 (7) of the directive 2004/48/EU has an autonomous meaning, which should be uniformly understood – the national laws determine the scope and terms of liability in this regard.
Since Polish law provides strict liability for damages which result from executing the wrongful preliminary injunction (which is confirmed by the judicial line of the Polish Supreme Court), the subjective elements as such, will not be taken into account by national courts as a consequence of the Bayer decision, unless the Polish Supreme Court changes its judicial line.
Notably, the national courts are not in a position to reduce the obligation to pay damages, assessing that the injured alleged infringer of IP rights contributed to the emergence or increase of the damage (ie for contributory negligence). Furthermore, Polish law does not impose any precautionary obligations (duties of care) on the parties to prevent damage to their own property and thereby to reduce damages.
To summarise, the Bayer decision does not automatically trigger changes to Polish law. Bearing in mind the rule of strict liability for enforcing wrongful PIs and that there are no relevant precautionary duties under the Polish law for alleged IP rights infringers, it is reasonable to say that the said ruling would most likely not change the established practice of the Polish courts regarding the liability for damages resulting from enforcement of wrongful PIs under Polish law.
Also, it’s highly probable that the Polish court would not suggest more reasons for liberation of the claimant from the liability.
England & Wales
In those cases where a preliminary injunction is awarded by the courts of England & Wales, the court requires from the right-holder (patentee or exclusive licensee) an undertaking to the court to pay the injuncted party compensation for damages, should the patent later be held invalid and/or not infringed, and the injunction therefore unjustified.
Damages are awarded according to the sales opportunity lost to the third party due to the injunction. When assessing the award, the court will take due account of all the circumstances, including attempts by the party claiming damages to mitigate their loss.
The English court may also, in certain circumstances, consider arguments that recovery should be precluded on the basis of inequitable conduct by the party seeking to recover. Hence, the English court already provides ‘appropriate compensation’ as required by Article 9(7) of Directive 2004/48.
Furthermore, the question of precluding national legislation that prevents a party being compensated for losses which they have suffered due to their not having acted as may generally be expected does not arise.
From 11pm on 31 December 2020, the Enforcement Directive will cease to have effect in the UK, but for those limited provisions enacted by the Intellectual Property (Enforcement, etc) Regulations 2006 (Article 13 on damages for infringement) and existing European case law.
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