Sztoldman on Compensation for Wrongful Enforcement

In October 2019, I published a post titled Bayer v.Richter: Worst CJEU Decision Ever?, discussing the CJEU's decision in case C-688/17.  According to my description of the decision, "the fact that the defendants's launch of their generic contraceptive product put Bayer at risk of suffering irreparable harm may mean that Bayer isn't required to pay adequate compensation to the defendants, even though the patent in suit was later invalidated, for having been wrongly excluded from the market."  Exactly what the implications of the decision are still remains to be seen, as evidenced for example from the comment to my post and from a subsequent article by Léon Dijkman (noted here).  Anyway, Dr. Agnieszka Sztoldman has published a paper titled Compensation for a Wrongful Enforcement of a Preliminary Injunction under the Enforcement Directive (2004/48/EC), 42 E.I.P.R. 721-27 (2020), and it's fair to say that she's not a big fan of the decision either.  Here is the abstract:

This article explores legal mechanisms for compensating a wrongful enforcement of a preliminary injunction under the Enforcement Directive 2004/48/EC. Special focus is given to the recent judgment of the Court of Justice of the European Union in the case of Bayer Pharma of 12 September 2019. This article argues that the test proposed by the Court of Justice in national cases for compensating for a wrongful enforcement is incorrect in the view of art.9(7) of Directive 2004/48/EC. Despite art.9(7) of Directive 2004/48/EC, which strikes a balance of competing interests of a potential infringer and the intellectual property right holder, the Court of Justice held that, when the patent was ultimately invalidated, it does not automatically follow that the preliminary injunction was unfounded. As for specific issues, this article, notably, discusses whether the test for compensating a wrongful enforcement takes into account an abuse of a preliminary injunction and the behaviour of the defendant who launched a product without first challenging the patent. This article argues that it would be contrary to the aim of Directive 2004/48/EC if the compensation of defendants could be routinely refused when they do not wait for the invalidation of the injuncted patent. Otherwise this would encourage the misuse of preliminary injunctions. Finally, this article questions the applicability of national correction instruments to assessing of damage resulting from a wrongful enforcement of a preliminary injunction, implied in the case law of the Court of Justice.

I think this may be the summer when I finally turn my attention to a project I've been mulling over for a while, on the comparative law and economics of wrongful patent enforcement.  If so, the issues raised in Bayer v. Richter will be among the leading topics to consider.  

Dijkman on Bayer v. Richter

Léon Dijkman has posted an informative paper on Bayer v. Richter, which I blogged about recently in a post I titled Bayer v. Richter: Worst CJEU Decision Ever?  Here is a link to the paper, titled CJEU rules that repeal of provisional measure does not automatically create liability for wrongful enforcement, which is forthcoming in the Journal of Intellectual Property Law & Practice, and here is the abstract:

In its ruling in Bayer, the Court of Justice of the European Union (CJEU) found that denial of compensation to a provisionally enjoined party in case of later revocation of a patent may be allowable under Article 9(7) of Directive 2004/48/EC (the Enforcement Directive). The ruling has potentially far-reaching implications for European IP practice, which are discussed in this note. 

The author holds out some hope that the decision will be limited to at-risk launch by generic drug companies, despite some broader statements in portions of the opinion.  I hope he's right.

Bayer v. Richter: Worst CJEU Decision Ever?

OK, so maybe that's a bit harsh.  But the September 12, 2019 judgment in Case C-688/17, Bayer Pharma AG v. Richter Gedeon Vegyészeti Gyár Nyrt. and Exeltis Magyarország Gyógyszerkereskedelmi Kft. seems very problematic to me.  This case first came to my attention via blog posts on IPKat and Kluwer, after which I mentioned it on this blog but said I would return to it after I had read the decision myself.  Now I have, and if I'm reading it correctly, the court is reading article 9(7) of the Intellectual Property Rights Enforcement Directive and the corresponding recitals (as well as article 50(7) of TRIPS) as standing for the proposition that, when a patent owner demonstrates irreparable harm and the court issues a preliminary injunction (based on irreparable harm and other factors), but the patent is later invalidated (and the preliminary injunction therefore dissolved), the court may not award the defendant compensation unless the patent owner's act of requesting the injunction constituted an abuse.  (Further, the court states that this interpretation must be a matter of uniform EU law.)  The court's reasoning is that the application for a preliminary injunction is "unjustified" only if there was no risk of irreparable harm (see paras. 62-63).  Therefore, the fact that the defendants's launch of their generic contraceptive product put Bayer at risk of suffering irreparable harm may mean that Bayer isn't required to pay adequate compensation to the defendants, even though the patent in suit was later invalidated, for having been wrongly excluded from the market.  (I say "may" only because, as the commentator on IPKat notes, the injunction was lifted on other grounds before the patent was invalidated, and thus the defendants may still have a basis for seeking compensation in the Hungarian court.  But the broader principle against compensation otherwise would appear to apply.) 

Here is the relevant text of article 9(7):

Where the 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.

This interpretation strikes me as bizarre, particularly in light of what I understood to be common practice outside the U.S. of requiring plaintiffs who obtain a preliminary injunction but then lose on the merits to compensate the defendant for its losses, even beyond the amount of the judgment bond.   (For previous discussion on this blog, see here; see also Miquel Montañá's post last Friday on the Kluwer IP Blog, titled Will Spanish Courts have to revisit their case law on follow-on damage claims after the CJEU judgment of 12 September 2019?)  Perhaps that practice was not as widespread as I had thought?

Now, maybe the case will be limited to its facts--the defendants here launched before they filed an invalidation action, and Hungary has a bifurcated system such that a patent could be infringed but later found invalid.  But this still seems like a bad policy.  The court's statement that a contrary holding would "run counter to the directive's objective of ensuring a high level of protection of intellectual property" ignores the harm that follows if the owner of a nonexistent IP right can exclude a competitor from the market.

From Around the Blogs: Dutch FRAND Case, Fees 5 Years After Octane Fitness, and More

1.  On the IPKat Blog last week, Annsley Merelle Ward published a post by Léon Dijkman titled Dutch Court of Appeal injuncts unwilling licensee in first post-Huawei v ZTE FRAND decision.  The decision, Koninlijke Philips N.V. v. Asustech Computers Inc., was handed down on May 7, and Mr. Dijkman provides links to both the Dutch original and an English translation.  Mr. Dijkman notes, inter alia, that the defendant's "alleged willingness to enter into negotiations after the institution of the proceedings and a possible counteroffer in that regard cannot render the litigation abusive or trigger an obligation to stay the proceedings," and that the court "does not interpret Huawei/ZTE as obliging SEP holders to substantiate why their license offers are FRAND."    EPLaw also has a write-up, earlier noted on IPKat, here.

2.  Also on EPLaw (and earlier noted on IPKat) is a write-up, and link to an English language summary, in Graf v. Kaban & Daser, a decision of the Barcelona Commercial Court from last November, denying a request for an ex parte injunction against the exhibition of a device at a trade fair in Madrid.  The summary discusses the circumstances under which a patent owner should use a procedure known as a "preliminary verification of facts" to determine if a device infringes.

3.  Also on IPKat is a post by Peter Ling titled Does a “Launch At Risk” Automatically Exclude the Right to Appropriate Compensation for a Wrongfully-Issued Preliminary Injunction?  The post discusses a referral from the Metropolitan Court of Budapest to the CJEU, and AG Pitruzzella's opinion that the Enforcement Directive does not authorize member states to automatically deny compensation for a wrongly issued injunction if the defendant launched at risk (without having first sought to invalidate the patent in suit).

 

4.  As for the U.S., Ryan Davis published an article on Law360 last week titled 5 Things We've Learned in 5 Years Since Octane Fitness.  Citing data compiled by Nirav Desai, Mr. Davis presents descriptive statistics on the number of attorneys' fee motions filed and the grant rate post-Octane Fitness, and concludes that while fee awards have become more common, they are still unusual (as one would expect, given the statutory requirement that fees be awarded only if the case is exceptional).  Mr. Davis also discusses various factors that courts have considered in determining that a case is exceptional.