Thursday, June 6, 2024

Are Cross-Undertakings of Damages for the Benefit of Third Parties Consistent with IPRED Article 9(7)?

The short answer to the question posed above is, “I don’t know.”  But the question was briefed, though ultimately not answered, in a recent Irish decision.

To put the matter in context, many common-law counties (but not the U.S.) follow long-standing British practice of requiring an applicant for a preliminary injunction to make an undertaking (sometimes called a cross-undertaking), which I describe in a project I am currently working on as “a legally enforceable promise that it will compensate the defendant for losses suffered as a result of a preliminary injunction that subsequently is  discharged.”  In the U.K., courts sometimes require applicants to make cross-undertakings not only for the benefit of the defendant, but also for third parties (for example, the National Health Service) who may be negatively affected by a preliminary injunction (for example, prohibiting the marketing of a generic drug).  The question of whether this practice is consistent with the EU’s Intellectual Property Enforcement Directive (IPRED), of course, no longer affects the U.K., but it could affect EU countries that follow the British practice. 

Readers also may recall that the CJEU’s case law interpreting the relevant provision of IPRED (article 9(7)) is not altogether clear.  Article 9(7) states that “where “provisional measures are revoked or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, 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.”  Within the past five years, the CJEU has decided two somewhat difficult-to-reconcile cases interpreting this language.  First, in Bayer Pharma AG v. Richter Gedeon Vegyészeti Gyár Nyrt., Case C-688/17 (2019), the CJEU held that IPRED did not forbid a member state from denying compensation where the defendants launched at risk, even though the patent in suit was subsequently invalidated, where the application for a preliminary injunction appears to have been ex ante (though not ex post) justified.  But earlier this year, in Mylan AB v. Gilead Sciences Finland Oy, Case C-473/22 (2024), the Court upheld Finland’s practice of rendering the movant strictly liable to the defendant for losses caused by the interim enforcement of a patent that is later found to be invalid or not infringed, at least as long as “the court is entitled to adjust the amount of damages by taking into account the circumstances of the case, including whether the defendant played a part in the occurrence of the injury.”  (For previous discussion on this blog, see here and here.)  For now, at least, I interpret Mylan as standing “for the proposition that either a fault-based or strict liability standard is acceptable under EU law, as long as the standard permits the court to consider the totality of the circumstances, including the fault if any of either party, before either on the one hand denying relief, or on the other setting the ‘appropriate compensation.’”  Of course, this leaves open the question of how much leeway EU member states have in determining what the appropriate compensation, if any, should be where the application was made in good faith but the defendant launched at risk.

It also leaves open the question of whether requiring the movant to compensate nonparties is consistent with article 9(7), which is where the post started.  The issue was recently briefed in Bristol Myers Squibb Holdings Ireland Unltd. v. Norton (Waterford) Ltd. t/a Teva Pharms. Ireland, [2024] IECA 49, a case in which the trial court had allowed the undertaking to be expanded to include companies related to the defendant, but only after the injunction had been granted. On appeal, Ms. Justice Costello, writing for the court, engages in a thorough discussion of the Irish and English case law on undertakings, as well as the difficulties that may arise when courts consider extending undertakings to nonparties.  Ultimately, she concludes that the requested extension here was untimely, because the injunction had already been granted.  The court therefore leaves for another day a discussion of the circumstances, if any, under which Irish law would permit the undertaking to include losses suffered by third parties—while also concluding that Teva's evidence in support of the expansion was, in any event, lacking; that Irish law may be less amenable than is English law to including third parties within the scope of an undertaking; and, as above, without resolving whether such extensions would be consistent with the CJEU’s case law interpreting article 9(7).  (The decision references only the Bayer decision, however, presumably because Mylan was decided after briefing and argument—in fact, just a few weeks before the Irish decision came down on March 1.)

If readers are aware of any articles discussing IPRED’s compatibility with cross-undertakings for the benefit of third parties, please let me know.  I am aware of one recent article by Marco Stief and Anja Geller discussing a recent German case that allowed a related company to be compensated, and arguing that unrelated third parties as well should be accorded a right to remuneration.  See Marco Stief & Anja Geller, Ersatzansprüche bei ungerechtfertigten einstweiligen Verfügungen im Pharmabereich:  Ansprüche des Antragsgegners und geschädigter Dritter, 2023 GRUR 931, previously noted on this blog here.

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I will be taking a blogging break for the next two weeks.  I plan to resume the week of June 24.