Bifurcation of Infringement and Validity, Injunctions, and the Unified Patent Court

By now many readers have probably seen the September 26, 2013 open letter from fourteen firms or organizations (adidas, Apple, BlackBerry, Bull SAS, Cisco Systems, Deutsche Post DHL, Deutsche Telekom AG, the European Semiconductor Industry Association, Google, Hewlett-Packard, Intel, Microsoft, Samsung, the Syndicat de l'Industrie des Technologies de l'Information, Telecom Italia S.p.A., and Yahoo) to the Member States of the E.U., Members of the European Parliament, the European Commission, and the Preparatory Committee, Unified Patent Court.  The letter is available here.   The signatories express appreciation "that Europe has long worked towards a unified patent system," and "hope the proposed new system will be a significant step forward with the potential to benefit both the creators and consumers of innovative products and technologies. An effective and balanced unitary patent system has the potential to decrease the costs of obtaining patent protection, increase European competitiveness, and support the long-term growth of innovative industries in Europe and abroad."  They express concern, however, about two issues in particular. 

The first is that 15th draft of the Rules of Procedure for the United Patent Court (UPC) will permit bifurcation of infringement and validity, which is currently the practice in Germany and a few other E.U. states but not in others such the U.K. and France.  The signatories express concern that bifurcation "could, in some cases, allow plaintiffs to obtain a quick infringement ruling, along with an injunction barring products from  most of the European market, before any determination of whether the patent in question is actually valid. Given the drastic impact of such an injunction on the defendant, unprincipled plaintiffs would be able to extract substantial royalties (through settlements or verdicts) from European and other companies based on low-quality, and potentially invalid patents."  They recommend that "procedural adjustments to the UPC rules of procedure are needed to provide clear guidance and predictability on how bifurcated proceedings where the validity of the patent is an issue should be handled and to permit defendants in bifurcated cases to more easily obtain a stay of infringement proceedings until a decision on patent validity has been reached."

(In case you're not up to speed on what this is all about, the relevant language of the Agreement on a Unified Patent Court is article 33(3):

A counterclaim for revocation as referred to in Article 32(1)(e) may be brought in the case of an action for infringement as referred to in Article 32(1)(a). The local or regional division concerned shall, after having heard the parties, have the discretion either to: 

(a) proceed with both the action for infringement and with the counterclaim for revocation and request the President of the Court of First Instance to allocate from the Pool of Judges in accordance with Article 18(3) a technically qualified judge with qualifications and experience in the field of technology concerned. 

(b) refer the counterclaim for revocation for decision to the central division and suspend or proceed with the action for infringement; or
(c) with the agreement of the parties, refer the case for decision to the central division.

The relevant draft rule is Rule 37, which states:  

Rule 37 – Application of Article 33(3) of the Agreement
1.
As soon as practicable after the closure of the written procedure the panel shall decide by way of order how to proceed with respect to the application of Article 33(3) of the Agreement. The parties shall be given an opportunity to be heard [Rule 264].
2.
The Panel may by order take an earlier decision if appropriate having considered the parties’ pleadings and having given the parties an opportunity to be heard [Rule 264].
3.
Where the panel decides to proceed in accordance with Article 33(3)(a) of the Agreement, the judge-rapporteur shall request the President of the Court of First Instance to allocate to the panel a technically qualified judge if not already allocated pursuant to Rules 33 and 34.
4.
Where the panel decides to proceed in accordance with Article 33(3)(b) of the Agreement, the panel may stay the infringement proceedings pending a final decision in the revocation procedure and shall stay the infringement proceedings where there is a high likelihood that the relevant claims of the patent (or patents) will be held to be invalid on any ground by the final decision in the revocation procedure.

The full text of the Unified Patent Agreement can be found here.  The full text of the draft rules is available here.  See also this write-up at IPKat, from last April.)

Second, the signatories express concern that "rigid application of an injunction rule could enable unprincipled litigants to 'hold up' manufacturers by making unreasonable royalty demands for even a single trivial patent on a complex product. A rule that does not offer sufficient guidelines on when to grant injunctions will create strong incentives for abusive behaviors and harm the innovation that the patent system is designed to promote.  This will be particularly true with injunctions under the UPC because the UPC injunction power will extend beyond a single country to most of Europe, and it could be used with the intended effect of impeding product sales across the region. This substantial bargaining power to force excessive settlements from companies would, in all likelihood, lead to a rise of abusive litigation before the UPC."  They recommend that, "[t]o mitigate the potential for such abuses of power, courts should be guided by principles set forth in the rules of procedure to assess proportionality prior to granting injunctions.  And PAEs should not be allowed to use injunctions for the sole purpose of extracting excessive royalties from operating companies that fear business disruption." 

In conclusion, the signatories state that " these concerns can and should be addressed through targeted changes to the proposed UPC rules of procedure. Several of the undersigned organizations will recommend specific changes to the proposed rules to the Preparatory Committee, which is responsible for establishing and implementing the UPC. These changes will include guidance to the judiciary on how to handle bifurcated

proceedings when validity is raised, when to issue a stay of an infringement action and when to issue injunctions."

Both of the issues raised in the open latter are important ones, and I'll be interested in seeing the signatories' specific recommendations when they are made public.  On the first issue, as noted above bifurcation is currently the norm in some countries and not in others.  Where it is in place, though, it at least needs to be coupled with a right on the part of the defendant to recover compensatory damages from the patent holder in the event the patent is subsequently invalidated, and the restitution of any damages the defendant has already paid to the patent holder as a result of having been found liable for infringement.  (I thank Professor Siebrasse for making this point in correspondence with me.)  I've previously blogged on the relationship between bifurcation and the right to recover for having been wrongly enjoined, here, here. and here.

On the second issue, I also agree that it would be useful to clear up the issue of whether the Unified Patent Court may deny injunctions, and if so under what circumstances.  I blogged about this issue in July, here, here, and here.  As I noted then, I think the issue is at present muddled.

For coverage elsewhere, see this story (reported by Bloomberg BNA's Joe Kirwin, behind a paywall) on Internal Market Commissioner Michel Barnier's somewhat dismissive-sounding initial reaction to the letter; and coverage from Foss Patents, the New York Times, Le Monde, and IPKat.