Leistner on Discretionary Stays of Injunctive Relief in the Unified Patent Court

Under what circumstances, if any, do judges of the Unified Patent Court have discretion to stay or deny injunctive relief?  This is a topic that is sure to come up soon, with the court set to begin operations on June 1, 2023.  The most relevant portions of the Unified Patent Court Agreement (hereafter UPCA) are articles 25, 26, and 63, which read as follows:

 

            Article 25 Right to prevent the direct use of the invention

 

           A patent shall confer on its proprietor the right to prevent any third party not having the proprietor's consent from the following: (a) making, offering, placing on the market or using a product which is the subject-matter of the patent, or importing or storing the product for those purposes; (b) using a process which is the subject-matter of the patent or, where the third party knows, or should have known, that the use of the process is prohibited without the consent of the patent proprietor, offering the process for use within the territory of the Contracting Member States in which that patent has effect; (c) offering, placing on the market, using, or importing or storing for those purposes a product obtained directly by a process which is the subject-matter of the patent.

 

            Article 26 Right to prevent the indirect use of the invention

           

            1. 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.

           

            2. Paragraph 1 shall not apply when the means are staple commercial products, except where the third party induces the person supplied to perform any of the acts prohibited by Article 25.

           

            3. Persons performing the acts referred to in Article 27(a) to (e) shall not be considered to be parties entitled to exploit the invention within the meaning of paragraph 1.

 

            Article 63 Permanent injunctions

 

            1. Where a decision is taken finding an infringement of a patent, the Court may grant an injunction against the infringer aimed at prohibiting the continuation of the infringement. The Court may also grant such injunction against an intermediary whose services are being used by a third party to infringe a patent.

 

            2. Where appropriate, non-compliance with the injunction referred to in paragraph 1 shall be subject to a recurring penalty payment payable to the Court

In this regard, Professor Matthias Leistner has published an article titled Unterlassungsverfügung im Einheitspatentsystem:  Ermessensspielraum oder gebundene Entscheidung? (“Injunctions in the Unitary Patent System:  Room for Discretion, or Foregone Conclusion?”), 22/2022 GRUR 1633-44.  Here is the abstract, in my translation from the German:

            A central point of contention with respect to the forthcoming entry into force of the UPC concerns the question whether and in what form the Unified Patent Court has discretion regarding the granting of injunctions.  The practical significance of this question can hardly be overstated.  As a consequence, the question has been intensively discussed ever since the publication of the Unified Patent Court Agreement in 2013.  This essay argues for a discretionary authority, regarding both resolution and form of relief, that is strictly tied to articles 25 and 26 of the UPCA as well as the relevant EU standards, within the framework of article 63 of the UPCA.  That includes the possibility of awarding the patent owner additional monetary payments in cases involving the exceptional limitation on injunctive relief.

If I understand correctly, the author argues that article 63 confers upon the court a strictly-constrained discretion to limit injunctive relief—to delay the enforcement of an injunction or limit its applicability —where the infringer or third parties otherwise would suffer disproportionate harm; and only in the most extreme cases to deny injunctive relief altogether.  Moreover, in cases in which the court exercises this authority it should award the patent owner additional compensation, that is, at some amount above the damages the owner otherwise would be entitled to.  Overall, the author proposes a high threshold for overcoming injunctive relief, coupled with wide discretionary power (including the power to assess monetary payment) once that threshold is exceeded.

OxFirst Webinar on FRAND

OxFirst will be putting on a free webinar tomorrow (December 2) from 15:00 to 16:00 GMT titled "Perspectives on the Valuation of FRAND, Injunctions, and Licensing Commitments in the UK."  Here is OxFirst's description:

 

The panelists will present on their analysis of FRAND valuation methods and licensing commitments arising from Unwired Planet vs Huawei. Maurits Dolmans will present his recent paper ‘FRAND licensing commitments – Back to first principles’ where he argues for a re-evaluation of the Supreme Court’s decision in the case and suggests the court should have looked at competition law differently. Dr Roya Ghafele, OxFirst Director, will present her paper, ‘A valuation perspective on the FRAND injunction issued in Unwired Planet vs Huawei’, in which she presents an analysis of the valuation methods used in the case to allow a quantification of the value of a FRAND injection. Both papers feature in World Patent Information’s special collection on Standard Essential Patents and the discussion will be moderated by Jane List, Editor-in-Chief of World Patent Information. 

 Registration is available here.

From Around the Blogs

1.  On Sufficient Description, Norman Siebrasse published a post on Rovi Guides, Inc. v. BCE Inc., 2022 FC 1388.  This is well worth a read, for its discussion of, among other matters, patent holdup, the standards for awarding an accounting of profits under Canadian law, and the right to injunctive relief under Canadian law.  I previously published a short write-up on the case here. 

2. Also relating to Canada, on Law360 Jasmin Jackson published a short article on the recent Supreme Court decision in Nova v. Dow.  I published a short post on this one last week, in which I expressed agreement with the dissenting justice.  Professor Siebrasse will, I believe, provide a more detailed treatment sometime soon.

3. Over in India, the Delhi High Court recently denied Nokia an interim royalty in its SEP/FRAND dispute with Oppo.  The court holds that such relief is not available in this case, given the dispute whether any of the asserted patents are SEPs, whether they are valid and infringed, and if so what an appropriate FRAND  royalty would be.  I thank a reader for sending me a copy of the decision.  There are also write-ups on SpicyIP and on FOSS Patents, both with links to the decision.

4. Also relating to SEPs is a post by Eileen McDermott and Inna Dahlin on IP Watchdog, describing a recent panel discussion on the evolving European case law.

5. Also relating to Europe, IPKat published a post by Jan Jacobi discussing a recent Opinion of the Advocate General in a case, referred from Poland, in which the CJEU will consider under what circumstances a putative IP owner may obtain information from an alleged infringer under article 8 of the Enforcement Directive.  The case before the court involves defendants who dispute whether there is an enforceable copyright in the relevant subject matter  in dispute; the author of the post argues that the AG focuses too much on the quantum of evidence needed to establish the identity of the owner of a right, as opposed to whether the right itself exists.

6. Finally, Anders Valentin published a post on the Kluwer Patent Blog discussing a Danish High Court decision holding that a court cannot issue a preliminary injunction prior to the granting of a patent.  The case affirms the conclusion reached by the lower court, and by some other courts in Europe recently, in an ongoing multi-country dispute involving the drug Fingolimod (previously discussed on this blog here and here).    

Some New FRAND-Related Papers

1. Nicolas Petit and Amandine Léonard have posted a paper on ssrn titled FRAND Royalties:  Rules v. Standards?, forthcoming in the Chicago-Kent Journal of Intellectual Property.  Here is a link to the paper, and here is the abstract:

Royalties for intellectual property (IP) are like taxes. Everyone agrees that some limits are necessary. However, no one agrees on the levels at which the limits should be set. One way to overcome disagreement consists in asking if a legal rule or standard should govern the limits of IP royalties. This paper discusses this issue in the context of Standard Essential Patents ("SEPs") governed by a commitment to license on Fair Reasonable and Non Discriminatory ("FRAND") terms. The paper find that FRAND rules generally surpass standards, but only under specific conditions.

2. Peter Picht has posted a paper on ssrn titled Arbitration in SEP/FRAND Disputes, in Research Handbook on Intellectual Property Rights and Arbitration (Kolpschinski & McGuire eds.,  Edward Elgar forthcoming 2023).  Here is a link to the paper, and here is the abstract:

This chapter analyses recent developments and key issues in arbitrating FRAND disputes. It addresses, inter alia, the European Commission's position on the matter and proposals made by its SEP expert group; whether FRAND arbitration can be made mandatory; how successful FRAND arbitration may be conducted procedurally; and which are typical key matters surfacing in such proceedings.

3. Jorge Contreras and numerous coauthors have posted a paper titled Preserving the Royalty-Free Standards Ecosystem.  Here is a link, and here is the abstract:

 

It has long been recognized in Europe and elsewhere that standards-development organizations (SDOs) may adopt policies that require their participants to license patents essential to the SDO’s standards (standards-essential patents or SEPs) to manufacturers of standardized products (“implementers”) on a royalty-free (RF) basis. This requirement contrasts with SDO policies that permit SEP holders to charge implementers monetary patent royalties, sometimes on terms that are specified as “fair, reasonable and nondiscriminatory” (FRAND). As demonstrated by two decades of intensive litigation around the world, FRAND royalties have given rise to intractable disputes regarding the manner in which such royalties should be calculated and adjudicated. In contrast, standards distributed on an RF basis are comparatively free from litigation and the attendant transaction costs. Accordingly, numerous SDOs around the world have adopted RF licensing policies and many widely adopted standards, including Bluetooth, USB, IPv6, HTTP, HTML and XML, are distributed on an RF basis. This note briefly discusses the commercial considerations surrounding RF standards, the relationship between RF standards and open source software (OSS) and the SDO policy mechanisms – including “universal reciprocity” -- that enable RF licensing to succeed in the marketplace.

Nova v. Dow: The Supreme Court of Canada on Accountings of Profits

I expect Professor Siebrasse to publish a more detailed post on this decision over on Sufficient Description, so I will be brief here.  The case is Nova Chemicals Corp. v. Dow Chemical Co., 2022 SCC 43.  Long story short, in an 8-1 decision authored by Justice Rowe, the Supreme Court of Canada (SCC) affirms the decision of the Federal Court of Appeal (previously noted on this blog here, and with links to Professor Siebrasse's posts on the appellate decision here).  The principal legal issue is how, exactly, to apply the non-infringing alternatives concept to awards of the infringer’s profits.  The majority concludes that the appropriate baseline is the difference between the infringer’s actual profit and the profit it would have earned “on the sale of a similar product without the patented feature—i.e., the non-infringing option” (para. 51).  In a case, like the present one, in which the infringer’s most profitable alternative would have been to use the raw materials that were used to produce the infringing product to produce a different, non-substitute product, the court should not take this alternative into consideration:  “A non-infringing option is not . . . an infringer’s ‘most profitable’ alternative sale product that it ‘would have’ and ‘could have’ sold had it not infringed” (para. 59).  The majority concludes that the rejected definition of non-infringing alternative is flawed, both because of a perceived conflict with the SCC’s decision in Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, and because  

            [62] . . . this reading of non-infringing options would distort the purpose of an accounting of profits and, in turn, undermine the patent bargain underlying the Patent Act. If an infringer is allowed to use any prior profitable business venture as a non-infringing option, an infringer would always be incentivized to switch its business capacity to a more profitable infringing product. At worst, the infringer would keep all the profits they would have earned selling the non-infringing products that they sold before. At best, the infringer keeps some or all of the extra profits earned from infringement. Reading “non-infringing option” as Nova and my colleague suggest would have the effect of creating a form of business insurance for infringers: an infringer could always use their previous product lines as a non-infringing option and protect those profits in the event their new product infringes a patent.

 

            [63]   This distortion of the purpose of an accounting of profits gives rise to unacceptable consequences, one being that the quantum of profits to be disgorged would vary with the size of the infringing business and the breadth of its product lines. Nova’s suggested approach disproportionately benefits large corporations (like itself) that have diverse product lines. Such businesses have multiple products that they “could have” and “would have” produced had they not infringed. Nova, for example, produces numerous non-infringing plastics. In circumstances like these, my colleague’s reasons would provide no incentive not to infringe. At best, Nova would retain all profits from infringement. At worst, Nova could keep the profits it would have made on any of its other product lines. Nova’s approach would allow it and other large enterprises to infringe with relative impunity. This undermines the bargain provided for in the Patent Act.

In dissent, Justice Côté argues that

            [187] . . . under the differential profit approach, a non‑infringing option does not need to be a true consumer substitute for the patented product. There are two principled reasons for this conclusion: (1) a true consumer substitute requirement is legally irrelevant in an accounting of profits given the different purposes and focus of this remedy when compared to damages; and (2) limiting non‑infringing options to true consumer substitutes distorts the causation analysis.

In my view, Justice Côté has the better of the argument.  As she discusses, for purposes of awarding the patent owner its own lost profit on lost sales resulting from the infringement, the non-infringing alternative must be a substitute for at least some consumers, because otherwise there are no lost sales resulting from the infringement.  For purposes of an award of profits, however, this distinction is irrelevant, since the goal should be ensuring that the defendant does not profit from the infringement, and this goal is satisfied by returning the defendant to the position it would have occupied absent the infringement, whatever that might be (see, e.g., para. 185).  As Justice Côté writes, in effect the majority’s approach isolates “the value of the patent in the abstract,” which “needlessly disadvantages infringers that could have and would have produced a different product that would not have been a consumer substitute for the patented product” (para. 194).  I should note that Justice Côté cites some portions of my book Comparative Patent Remedies, as well as the “Lost Profits and Disgorgement” chapter I coauthored with lead author Christopher Seaman and Norman Siebrasse, Brian Love, and Masabumi Suzuki, from the edited volume Patent Remedies and Complex Products: Toward a Global Consensus (C. Bradford Biddle et al., Cambridge Univ. Press 2019).  Both majority and dissent cite work by Professor Siebrasse, though from his previous posts on the Federal Court of Appeal decision in this case (see especially here), his views appear to align more with Justice Côté’s.

Both majority and dissent agree that “springboard” profits are an available remedy, where the plaintiff proves that the defendant continues to enjoy some advantage, post-patent expiration, from having previously infringed.