The Court of Rome affirms its jurisdiction in a torpedo case

In a post of some months ago, after noting that none of the torpedoes launched in Italy after the Asclepion ruling [Italian Court of Cassation, 10 June 2013, no. 14508, in Giur. ann. dir. ind., 2013 (for a full English translation, see IIC, 2014, pp. 822 ff.)] had been successful, we envisaged a possible end to the Italian torpedo story. A recent decision of the Court of Rome shows, however, that the end is yet to come. In a non-infringement action brought against an Austrian patentee (and two other defendants, also from Austria) with regard to the Italian part and several foreign parts of a European patent, the Court of Rome firmly stated that

the Italian courts have jurisdiction … for the French, German, Austrian and UK parts of the patent, on the basis of art. 5.3, EU Council Regulation 44/2001 of 22 December 2000, whereby the courts for the place where the harmful event occurred or may occur have jurisdiction, and on the basis of art. 27 of the Regulation, concerning jurisdiction for related actions”.

The brief reasoning of the decision (full text, in Italian) exclusively stems from a quotation of the Asclepion ruling of the Court of Cassation mentioned above. With regard to this ruling and its impact on torpedo actions (as well as for a review of the most recent decisions issued in Italy on the topic), we refer to the considerations already made here.

Riccardo Perotti

Court of Rome, 5 February 2018, Anki v. Stadlbauer 

A requiem for torpedo actions? A catalogue of the most recent decisions on the issue

 

Actions

(i) relating to a European Patent

(ii) aimed at obtaining a declaration of non-infringement of different national portions of said European Patent

(iii) brought before Italian Courts

(iv) against a patentee who is not domiciled in Italy

are commonly known as Italian torpedoes (the expression is a fortunate coinage of Mario Franzosi).

These actions are often started to take advantage of the rules concerning lis pendens. Where a non-infringement action is pending before a Court (say an Italian Court) with regard to the national portion of a European Patent (say the German portion), any infringement action subsequently brought before the Court of another country (say a German Court) with regard to the same portion of the same European Patent may be stayed. This stay – and the consequent delay in ascertainment of infringement – is the goal of torpedo-launchers.

Of course, the slower the jurisdiction, the longer the stay. Thus, launching a torpedo is particularly effective in slow jurisdictions, like – at least in the past – that of Italy.

Traditionally Italian Courts have not looked with favor on such actions, seeing them as tools for misusing the (flaws of the Italian) legal system.

This traditional view was authoritatively expressed by a 2003 decision of the Joint Divisions of the Court of Cassation (the Windmöller decision), which deracinated torpedo actions on the grounds that Article 5.3 of the Brussels Convention of 1968 does not apply to non-infringement claims (Italian Court of Cassation, decision no. 19550/2003, in Giur. Ann. Dir. Ind., 2004, pp. 61 ff.). If it is the plaintiff itself which denies the existence of a harmful event, said the Court, then by definition there cannot be jurisdiction under Article 5.3 of the Brussels Convention.

A few years later, in the GAT case (here), the EU Court of Justice struck another blow against torpedoes by stating that the rule of exclusive jurisdiction laid down by Article 16.4 of the Brussels Convention of 1968 [corresponding to Article 22.4 of Regulation 44/2001] concerns all proceedings relating to the registration or validity of a patent

“irrespective of whether the issue is raised by way of an action or a plea in objection” (the principle was later incorporated in Article 24.4 of Regulation 1215/12).

As a result – and even regardless of the restrictive interpretation of Article 5.3 of the Brussels Convention given by the Windmöller ruling -, in order not to fall into the exclusive jurisdiction under Article 16.4 of the Brussels Convention and 22.4 of Regulation 44/2001, torpedo actions had to be based on pure non-infringement arguments.

In this scenario, most certainly not favorable to torpedoes, a decision of the Joint Divisions of the Court of Cassation reopened the discussion on the admissibility of this kind of action (Court of Cassation, 10 June 2013, in Giur. ann. dir. ind., 2013, pp. 60 ff.: the Asclepion case; a full English translation of the decision has been published in IIC, 2014, pp. 822 ff.). In the context of a non-infringement case brought before the Court of Rome by a German company with regard to the Italian and German portions of a European Patent owned by a US company, the Joint Divisions – quoting, word for word, the EUCJ Folien Fischer decision (here) – stated that

(aArticle 5.3 of Regulation 44/2001 … must be interpreted “as meaning that an action for a negative declaration seeking to establish the absence of liability in tort, delict, or quasi-delict falls within the scope of that provision”

and also that

 (btherefore [pertanto, in the original Italian text] with regard to the declaration of non-infringement sought … before the Court of Rome, the Italian Courts must be considered to have jurisdiction, on the grounds that they are the Courts of the place where the harmful event may occur, also with regard to the “German portion” of the European Patent” [my translation].

The 2013 Asclepion ruling certainly lent itself to interpretation as a general permit to launch torpedoes, at least when they do not rely on any arguments of invalidity. This is, indeed, what the Court said. But, looking more closely, a missing step can be seen in the reasoning of the Asclepion ruling, between statements (a) and (b). This significantly limits its practical impact.

If closing the jurisdictional door of Article 5.3 of Regulation 44/2001 to non-infringement actions, as the Windmöller 2003 decision did, fatally blocks any attempt to launch torpedoes, interpreting Article 5.3 as covering both infringement and non-infringement actions does not necessarily mean – in spite of the adverb “therefore” used by the Court of Cassation – that the Italian Courts have jurisdiction under this provision over actions concerning the foreign portions of a European Patent. To this end, something more must exist, and namely a link with Italy.

It is precisely because of the (non-) existence of this link that the torpedo actions brought before Italian Courts after the Asclepion ruling have been stopped.

In Schindler v. Otis, in line with Asclepion, the Court of Milan (Judge Dr. Marina Tavassi; decision of 27 January 2014, published in Giur. ann. dir. Ind., 2014, pp. 741 ff.) admitted that, in itself, a non-infringement action may be brought against a foreign defendant under Article 5.3. Nevertheless, it declined its jurisdiction on the non-infringement claims submitted against a US patentee, insofar as the Spanish portions of the European patent in suit were concerned. According to the Court,

Italy can be the place where the harmful event occurs or may occur only with regard to the Italian portion of a European patent, because there cannot be harm – actual or potential – caused in Italy by the alleged infringement of the Spanish portions of the patents in suit. Indeed, any national portion of a European patent is effective only in the relevant country and may be infringed only in that country” [my translation].

Therefore, in the opinion of the Court of Milan, when it comes to the infringement/non infringement of foreign portions of European patents owned by foreign patentees, there can never be a link with the country of Italy.

In the more recent Basf v. Bayer case, the Court of Milan (Judge Dr. Alessandra Dal Moro; the decision, dated 14 December 2016, published in Riv. dir. ind., 2017, I, pp. 309 ff. and also available here) fully confirmed the above approach and declared its lack of jurisdiction over the non-infringement of the foreign portion of a European patent (in particular, the German portion). In doing so, the Court explicitly dealt with the reasoning of Asclepion, clarifying why, in its view, the Court of Cassation’s decision could not be read as allowing torpedoes:

the fact that article 5.3 of Regulation 44/2001 (now replaced by Regulation 1215/2012) may be applied to non-infringement actions in no way changes the stance of the Supreme Court with regard to the existence of jurisdiction in the case of infringement (or non-infringement) of non-Italian portions of European Patents. A claim seeking a declaration whereby certain conduct does not constitute infringement of a patent means that the patent is effective, and this effectiveness is geographically limited to the perimeter of the legal system to which it refers. Outside that perimeter of effectiveness, it is not possible to discuss infringing or non-infringing conduct and it is therefore not even possible to allege an, actual or potential, ‘harmful event’” [my translation].

A further decision was issued on torpedoes in 2014, but on different grounds. In Agilent v. Oerlikon, the Court of Genova (Judge Dr. Rossella Silvestri; the decision, dated 23 April 2014, is available here) declined its jurisdiction because the torpedo-launcher had raised invalidity arguments in support of non-infringement claims concerning the German portion of a European patent and a German utility model. The claims thus fell into the exclusive jurisdiction of the Courts of the place of registration.

Hence, all the torpedoes launched in Italy after the Asclepion ruling have been dismissed on the grounds of lack of jurisdiction. Does this mean that the torpedo saga has finally come to an end?

Riccardo Perotti

Punitive damages for IP infringement and the Enforcement Directive: some thoughts on the OTK decision

On 25 January last, just a few months after the Liffers (here, and on IPlens) and Hansson (here) judgments, the EU Court of Justice issued another decision under Article 267 TFEU on compensation for IP infringement (OTK, C-367/15, ECLI:EU:C:2017:36: here).

The case concerned the compatibility with Article 13 of Directive 2004/48 (the Enforcement Directive) of a provision of the Polish copyright law whereby, in the case of infringement, the copyright holder may be awarded a sum of money consisting of two or three times the amount of the hypothetical royalty.

Pending the referral proceedings, the above national provision was declared unconstitutional by the Trybunał Konstytucyjny (the Polish Constitutional Court) insofar as it provided for compensation amounting to “three times” the hypothetical royalty. As a consequence, the scope of the EUCJ’s analysis was narrowed to “duplication” of the hypothetical royalty.

However, while triplication of the hypothetical royalty (at least in many cases) quite blatantly amounts to a punishment, duplication thereof may also be viewed as a way of ensuring that IP holders are fully compensated for the damage they have suffered. Therefore, the decision of the Polish Constitutional Court gave the EUCJ the opportunity to answer the preliminary question posed by the referring Court without explicitly ruling on the compatibility of punitive damages with the Enforcement Directive. An opportunity which – at least at first sight – the EUCJ did not miss.

After stating that

Directive 2004/48 lays down a minimum standard concerning the enforcement of intellectual property rights and does not prevent the Member States from laying down measures that are more protective” (paragraph 23)

and that

the fact that Directive 2004/48 does not entail an obligation on the Member States to provide for ‘punitive’ damages cannot be interpreted as a prohibition on introducing such a measure” (paragraph 28)

the Court went on to state that

without there being any need to rule on whether or not the introduction of ‘punitive’ damages would be contrary to Article 13 of Directive 2004/48, it is not evident that the provision applicable in the main proceedings entails an obligation to pay such damages” (paragraph 29), in view of the circumstance that “mere payment of the hypothetical royalty is not capable of guaranteeing compensation in respect of all the loss actually suffered, given that payment of that royalty would not, in itself, ensure reimbursement of any costs — referred to in recital 26 of Directive 2004/48 — that are linked to researching and identifying possible acts of infringement, compensation for possible moral prejudice … or payment of interest on the sums due” (paragraph 30).

In the light of the above, it would be fair to think that the Court did not believe the issue of punitive damages to be at stake in the case at hand; that, in the Court’s view, the Polish provision in question did not provide for punitive damages; and that, therefore, the Court saw no reasons for (again, explicitly) ruling on the compatibility of such damages with Article 13 of the Enforcement Directive.

However, in paragraph 31, the Court concludes its reasoning by admitting that a doubled “hypothetical royalty” may exceed the loss actually suffered by the IP holder: and, “in exceptional cases, may exceed it “so clearly and substantially that a claim to that effect could constitute an abuse of rights, prohibited by Article 3(2) of Directive 2004/48”.

So, quite interestingly, when it deals with the case of the IP holder being awarded a sum exceeding the actual loss as a result of the application of the Polish provision at stake, the Court does not make any reference to Article 13 and to the expression “damages appropriate to the actual prejudice” contained therein. In line with its conception of the Directive as a “minimum standard” (paragraph 23), the Court only relies, with regard to damages exceeding the actual loss, on the concept of abuse of right provided by Article 3(2). And this seems to be an implicit acknowledgment of the admissibility of punitive damages under Article 13 of the Enforcement Directive. Indeed, on the one hand, damages which exceed (even if not “clearly” and “substantially”) the actual loss suffered by the IP holder are not compensatory, but punitive. On the other hand, an abuse of right entails the existence of a right. Thus, it might be inferred from paragraph 31 of the reasoning that, according to the Court, the Directive does not prevent national laws from providing IP holders with the right to be awarded damages which exceed the actual loss they suffered – that is, punitive damages. However, the right in question, just like any other, should not be abused. And, in this regard, the Court appears to find in the general Member States’ obligation to provide for safeguards against the abuse of rights under Article 3(2) of the Directive the sole limit to punitive damages laid down by the Directive itself. The Court does not precisely indicate when claiming damages which exceed the actual loss constitutes an abuse of right. It simply says that claiming damages which clearly and substantially exceed the actual loss may amount to an abuse, thus leaving unsolved the issue of what “clearly” and “substantially” mean.

The Court decision, in this perspective, appears to be in flagrant contrast with the opinion (here) of Advocate General Sharpston (who pointed out that, under the Enforcement Directive, compensation should be appropriate and proportionate to the actual prejudice suffered by the IP holder).

It may be noticed that a provision almost identical to the Polish one was contained in the Proposal for a Directive on measures and procedures to ensure the enforcement of intellectual property rights presented by the Commission on January 2003 (here). Under Article 17 of the Proposal [which, contrary to Article 13 and recital 26 of the Enforcement Directive, expressly referred to both compensatory and non-compensatory damages]:

“… the competent authorities shall award, at the request of the prejudiced party:

(a)  … damages set at double the royalties or fees which would have been due if the infringer had requested authorisation to use the intellectual property right in question.

And, in such respect, the Commission’s Executive Memorandum (here) read as follows:

This provision does not constitute punitive damages; rather, it allows for compensation based on an objective criterion while taking account of the expense incurred by the right holder such as administrative expenses incurred in identifying the infringement and researching its origin”.

*** . *** . ***

The issue of punitive damages is a very hot one. In Italy, such damages have traditionally been considered as contrary to the public order (see, for all, Court of Cassation, 19 January 2007, no. 1183). However, quite recently [1], the I Civil Division of the Italian Court of Cassation submitted the issue to the President of the Court of Cassation for the possible consideration of the Joint Divisions of the same Court of Cassation, also in view of the presence in the Italian legal system of provisions which may be read as providing for punitive damages. So far, no decision has been rendered by the Court of Cassation in this respect. However, it is not unlikely that the Court will change its traditional stance.

In this context, it is worth remembering that Article 68(2) of the Agreement on a Unified Patent Court clearly provides that “The infringer shall not benefit from the infringement. However, damages shall not be punitive”. Thus, at least in (unitary) patent matters, the issue might be considered to be resolved.

Riccardo Perotti

[1] Order no. 9978 of 16 May 2016, available here.

EU Court of Justice, 25 January 2017, Stowarzyszenie ‘Oławska Telewizja Kablowa’ v Stowarzyszenie Filmowców PolskichC-367/15, ECLI:EU:C:2017:36.

FRANDly negotiations: national Courts apply the Huawei v. ZTE framework

The Bucharest Court of Appeal and the Regional Court of Düsseldorf have recently issued two decisions concerning the enforcement of standard essential patents (SEPs) in the telecommunication industry. The decisions (which have been made available by Comparative Patent Remedies: see here and here, also for their English translation) are particularly interesting in that they apply the framework depicted by the CJEU in the Huawei v. ZTE case (C-170/13, full text here) with regard to the availability of injunctive relief for SEPs encumbered by FRAND (Fair, Reasonable and Non-Discriminatory) commitments. As is well known, according to the Huawei v. ZTE decision, a SEP holder, before asking an injunction against an alleged infringer, must present him a specific and detailed FRAND license offer (Huawei v. ZTE, par. 63). In the absence of such a FRAND license offer, seeking an injunction may amount to an abuse of dominant position under Art 102 TFEU (Huawei v. ZTE, par. 77). But what if the infringer does not respond to the SEP holder’s offer? Is the FRAND-compliance of the SEP holder’s offer still to be verified, in order for the injunction to be granted?

***.***.***

The Romanian case

In 2014, Vringo, Inc., an Israeli non-practicing entity (NPE), obtained from the Tribunal of Bucharest a preliminary injunction against ZTE Romania on the basis of a patent essential to the 4G/LTE standard. The decision was upheld by the Bucharest Court of Appeal. In particular, in the case at stake, Vringo had offered a license to ZTE Romania and ZTE Romania did not respond to the offer.

Later on, ZTE Romania filed a motion to have the above preliminary injunction lifted on the grounds of its alleged inconsistency with the Huawei v. ZTE framework. However, both the Tribunal and the Court of Appeal of Bucharest dismissed the petition. In particular, by decision of 28 October 2015, the Court of Appeal stated that, precisely in the light of Huawei v. ZTE, when the alleged infringer does not respond to the SEP holder’s offer (but the same applies to the case of a non-FRAND counter-offer), the SEP holder cannot be deemed to be abusing its dominant position. It seems from the line of reasoning of the decision that the Bucharest Court did not verify the FRAND-compliance of Vringo’s offer, and deemed it sufficient that ZTE Romania failed to present a FRAND counter-offer for an injunction to be granted.

The German case

The approach of German Courts is different. In an order of 13 January 2016, the Higher Regional Court of Düsseldorf held that the alleged infringer is not required to propose a FRAND counter-offer if the one it received is not FRAND-compliant. In other words, the Court has, first of all, to verify whether the patent owner’s offer is FRAND. Only if this condition is met, it will check if the counter-offer is FRAND-compliant too. Therefore, the alleged infringer who receives a non-FRAND offer and does not respond cannot be subject to an injunction under the Huawei framework and, if sued before a Court, he can simply object that its counterparty did not respect the FRAND “etiquette” provided by the CJEU. Obviously, the patent holder would still have the chance to prove before the Court that its offer was actually compliant to FRAND terms and conditions, and to obtain an injunction.

The same approach was recently adopted by the Regional Court of Düsseldorf too, in its decision of 31 March 2016 (English  translation  of  the  relevant  excerpts made available by Comparative Patent Remedies blog here). In this case, concerning a patent essential to the AMR-WB standard for 3G communications, the Court specifically assessed the FRAND nature of the patent holder’s offer, although it was undisputed that the alleged infringer had not proposed a counter-offer.

***.***.***

The German approach seems to be preferable. Since, under the Huawei v. ZTE framework, a FRAND-compliant offer by the patent holder is mandatory, Court should not issue injunctions without a prior assessment of the FRAND nature of the patent holders’ offers. Should this assessment be omitted, the burden of estimating a fair offer would shift from the patent holder – the only one who has the very instruments to calculate a fair royalty rate according to “comparable licensing agreements” – to the alleged infringer. So that, in order to avoid an injunction, the alleged infringer will most likely present a very high counter-offer. This seems to stifle the pro-competitive effects of the Huawei v. ZTE framework.

Stefano Vignati

(IPlens’ guest)

CJEU delivers its judgement in the Liffers case: there is no bar in the Enforcement Directive on claiming compensation for both moral and material damage

By its 17 March 2016 decision (here), the CJEU cleared the doubts raised by the Spanish Tribunal Supremo as to an IP holder’s right to be compensated, in accordance with Article 13(1) of the Enforcement Directive (Directive 2004/48), for both material damage on the basis of the hypothetical royalty criteria laid down by subparagraph 2, heading (a), of said article, and moral damage under heading (b) of the same subparagraph 2.

The Tribunal Supremo’s doubts arose from the wording of Article 13(1), whose subparagraphs 1 and 2 read as follows (emphasis and numbers added):

“[1] Member States shall ensure that the competent judicial authorities, on application of the injured party, order the infringer who knowingly, or with reasonable grounds to know, engaged in an infringing activity, to pay the rightholder damages appropriate to the actual prejudice suffered by him/her as a result of the infringement.

[2] When the judicial authorities set the damages:

(a) they shall take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rightholder by the infringement;

or

(b) as an alternative to (a), they may, in appropriate cases, set the damages as a lump sum on the basis of elements such as at least the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the intellectual property right in question”.

Indeed, the expressions “or and “as an alternative to (a)” contained in subparagraph 2 of Article 13(1) may well be read as dividing the criteria for setting damages provided by headings (a) and (b), in such a way that the two cannot be invoked together by IP holders (nor merged by the judicial authorities). The CJEU did not stop at a literal interpretation of Article 13(1), though, but looked at the article “in light of the objectives” pursued, in its view, by the Enforcement Directive.

From this perspective, the Court said that subparagraph 1 of Article 13(1) was aimed at ensuring full compensation for the “actual prejudice suffered” by right-holders, which means compensation for both material and moral prejudice (see paragraph 25 of the ECJ decision).

As the “hypothetical royalty” criterion provided by heading (b) of Article 13(1), subparagraph 2, does not take into account moral prejudice, each time an IP holder suffered moral prejudice in addition to material prejudice, application of this criterion alone would prevent full compensation being awarded. This outcome is inconsistent with the goal and the very rationale of said provision.

On these grounds the Court of Justice, upholding the opinion of Advocate General Whatelet (here), answered the preliminary questions raised by the Tribunal Supremo by stating that Article 13(1) must be interpreted as permitting a party injured by an IP infringement, who claims compensation for his material damage as calculated on the basis of the “hypothetical royalty”, to also claim compensation for the moral prejudice he/she has suffered.

It may be noted that, from a strictly Italian standpoint, the CJEU decision does not really add anything new, as the national provisions into which Article 13(1) of the Enforcement Directive has been transposed do not contain any reference to an alternative between compensation for moral prejudice and for material prejudice. Article 158(3) of Italian Copyright Law expressly states that moral damages can be recovered in addition to material damages calculated on the basis of the “hypothetical royalty” criterion. And, albeit less explicitly, but nevertheless clearly, Article 125 of the Italian IP Code, concerning IP rights other than copyright, does the same.

Riccardo Perotti

CJEU, 17 March 2016, C-99/15, Liffers