Sunday, July 7, 2013

Effect of the Unified Patent Court on Remedies

I haven't seen any discussion of this issue so far in the literature, but if and when the Unified Patent Court comes into existence its effect on remedies could be significant.  (According to article 89, the Agreement on a Unified Patent Court will enter into force on January 1, 2014, or when thirteen states including Germany, the U.K., and France ratify it--probably the latter.  Eventually the UPC will be the exclusive forum for litigating European patents and European Patents with Unitary Effect.  Domestic patents will still be litigated in national courts, however, and there will be a seven year transition period when actions involving European Patents may still be brought before national courts.)  Although article 25 states that "a patent shall confer on its proprietor the right to prevent" unauthorized manufacture, use or sale, article 63(1) states only that a court "may grant an injunction," and article 68 on damages (in language very similar to that found in article 13 of the 2004 Enforcement Directive) allows for awards of lost profits, royalties, or defendant's profits.  More importantly, however, Rule 118(2) of the current version of the Draft Regulations states--in language very similar to that found in article 12 of the Directive--that:

In appropriate cases and at the request of the party liable to the orders and measures provided for in paragraph 1 the Court may order damages and/or compensation to be paid to the injured party instead of applying the orders and measures if that person acted unintentionally and without negligence, if execution of the orders and measures in question would cause such party disproportionate harm and if damages and/or compensation to the injured party appear to the Court to be reasonably satisfactory. 

If I understand matters correctly, the significance here is that the Regulations, if adopted, will have the force of law, whereas the similar language in article 12 of the Directive merely authorizes member states to implement such a rule (“Member States may provide that, in appropriate cases and at the request of the person liable to be subject to the measures provided for in this section, the competent judicial authorities may order pecuniary compensation to be paid to the injured party instead of applying the measures provided for in this section if that person acted unintentionally and without negligence, if execution of the measures in question would cause him/her disproportionate harm and if pecuniary compensation to the injured party appears reasonably satisfactory.”).  Conceivably, Rule 118 could provide an opening for the Unified Patent Court to decline to award permanent injunctions in cases in which patent holdup is a risk.  Indeed, the article 12/Rule 118 standard is probably an improvement over the U.S. eBay rule, in that the former could be interpreted to focus attention precisely on those factors (inadvertence, disproportionate ex ante/ex post value) that signify a risk of patent holdup.  Of course, all of this depends on the Unified Patent Court’s interpretation of the words “without negligence,” since under some regimes (e.g., Germany) negligence is normally presumed since all patents are public records.  See my book at p.245; see also article 24 of the Unified Patent Agreement, which recognizes the continued applicability of national law where appropriate. On the other hand, U.K. courts already have expressed a willingness to decline injunctions in some cases, without going as far as the adopting the U.S. eBay rule, as I noted in this post.

Meanwhile, we'll wait to see what the CJEU does in reviewing Germany's competition law-based Orange-Book-Standard for declining injunctive relief.  For discussion, see my previous posts here and here.  See also Axel Verhauwen's recent article Goldener Orange-Book-Standard am Ende?, GRUR 2013, 558, which discusses the developments leading up to the Duesseldorf court's March 2013 referral of questions to the CJEU.

Further to the above, I imagine there will also be cases in which the Unified Patent Court, in calculating damages, will have to decide questions (on which national courts may differ) such as whether the presence of noninfringing substitutes are relevant to determining lost profits, or which costs should be deducted in estimating the defendant's profit attributable to the infringement.  Will the court develop its own precedents on these issues (as well as on the question, above, of whether negligence is generally presumed), or will it defer under Unified Patent Agreement article 24(2) to national law under the application of private international law (conflict of laws) principles?  If so, how will it determine which state's law to apply when an infringer sells products in several countries?  These are potentially very important issues, and I probably need to develop a better understanding of what the applicable private international law principles would be.  I also would welcome any guidance from readers on how these issues might be resolved.

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