Wednesday, November 26, 2014

Near-automatic injunctions raise concerns at hearing on rules for European patent court

A hearing was held today at the Academy of European Law in Trier, Germany, on the rules of procedure for Europe's future Unified Patent Court (UPC), as I mentioned last week when I commented (not too positively, to be honest) on the latest draft rules. I followed it over the Web. To put it this way, the hearing went very well for those advocating a more eBay v. MercExchange-like standard, and there is a reasonable chance of improvement when more EU member states take and state their official positions in the months ahead.

The last part of the hearing before the lunch break was all about access to injunctive relief and the related judicial discretion. Dr. Johannes Karcher, a former judge at the Federal Patent Court of Germany and now an official at the Federal Ministry of Justice as well as the chairman of the legal group of the UPC Preparatory Committee, explained that judges would, in principle, enjoy discretion with respect to injunctions, but the question was the extent of such discretion. And he was clear that discretion should "only be exercised under exceptional circumstances."

As at least one other speaker did after him, Mr. Karcher argued that last week's opinion by Advocate General Wathelet in a Huawei v. ZTE standard-essential patent case affirmed that access to injunctions is a cornerstone of the patent system. It's true that AG Wathelet stated that seeking an injunction cannot, in and of itself, constitute abusive conduct. That was apparently also the European Commission's conclusion when it settled the Samsung FRAND investigation. By AG Wathelet's standard, there is no way the Commission could have fined Samsung for what it had done because Apple had taken none of the steps the AG considers necessary for a defendant to take in order to be considered a seriously willing licensee. Neither had Apple made a formal counterproposal on FRAND terms nor had Apple requested a FRAND determination (rate-setting decision) by a court of law or an arbitration panel. While the AG didn't state an opinion on ZTE's 50-euro-per-patent licensing offer, it was clear between the lines that Huawei's pursuit of injunctive relief was also above board, though ZTE could, if the court adopted the AG's recommendation (as it does most of the time), simply trigger a rate-setting proceeding in order to avoid a sales ban. The AG's opinion is a win for SEP holders in the sense that not only their own conduct but also the way the defendant behaves is part of the equation. I had advocated for a long time the proposal that only the SEP owner's FRAND compliance should matter, but I recognize that the Federal Trade Commission, the Department of Justice, the European Commission and now AG Wathelet all determined that an implementer of an industry standard must also demonstrate good faith conduct and I accept that this is now a requirement around the globe.

But the question in connection with the rules of procedure for the UPC is not whether an injunction request per se constitutes anticompetitive conduct no matter what the alleged infringer does or does not do. The outcome of Huawei v. ZTE, barring a surprise, is not going to be an injunction (because ZTE is too smart to let that happen). By contrast, the latest draft rules of procedure for the UPC were accompanied by an explanatory document, which drew criticism from multiple intervenors at today's hearing, that said injunctive relief would be denied only under "very exceptional circumstances." The way I see it, those draft rules of procedure are reconcilable with the AG's Huawei opinion only if one takes a particular passage out of context and twists and turns it, but not if one asks the question of whether the AG endorsed the notion of injunctive relief being available almost 100% of the time.

The first intervenor was a spokeswoman for the UPC Industry Coalition on whose open letters I've previously reported. She noted in the introductory part of her intervention that some of the key members of this broadbased coalition are actually embroiled in (particularly smartphone-related) litigation against each other, which means the group is interested in a balanced regime as opposed to being exclusively on the side of right holders or alleged infringers.

Unfortunately there was a technical problem with the official webstream during that intervention (and not only then). Therefore I missed parts of the intervention, but I still heard when she said that the group is in favor of a more flexible and balanced standard. It appeared to me that the UPC Industry Coalition's concerns relating to the 17th draft rules of procedure are pretty much the same as mine.

Some of the intervenors also pointed out the problem with bifurcation (cases in which a validity determination could come down after an injunction is granted and enforced). A Dutch association said that there was a diversity of positions among its members and there may be a need to make adjustments after a few years with respect to such issues as bifurcation.

Those concerns and some closely-related ones were also voiced by various other intervenors, including, among others, a representative of the GSMA wireless industry association and a representative of a French software industry association with 350 member companies, most of them small and medium-sized companies.

A French judge (who was sitting in the audience and not on the panel along with those judges serving on or advising the Preparatory Committee) complained that there was a risk of a famework that would exceedingly restrict judicial discretion. Not long after her intervention, Paul van Beukering, a Dutch ministry official who is the chairman of the Preparatory Committee, stressed that this process was stil at the drafting stage and that a very important part of the process would begin only after more EU member states have been able to comment, which would happen only after the hearing. It appeared to me that Mr. van Beukering wanted to pacify the numerous and vocal critics of the latest draft by suggesting that there was still room for improvement.

Several members of the Prepatory Committee's legal and expert groups defended the current draft and called on critics to "have confidence in the court." The judges on the panel were clearly interested in preserving a maximum of discretion, but I think a balance must be struck (and is not struck by the 17th draft rules) between judicial discretion on the one hand and reasonable assurances to industry (including companies of all sizes) on the other hand. I frankly can't see how a statement in the explanatory document that says injunctions would be denied only "under very exceptional circumstances" serves either purpose. It's bad news for discretion as much as it is for businesses.

Also, I can't see why an eBay-like standard would place a painful restriction on judicial discretion. Judges at U.S. district courts and the Federal Circuit actually enjoy tremendous discretion thanks to eBay.

I would like to highlight a very good idea that Judge Dr. Klaus Grabinski from the Federal Court of Justice of Germany (who also serves on the UPC Preparatory Committee) mentioned in his response to criticism of the latest draft. While I don't think this idea is sufficient to address the concern over disproportionate injunctions, it is a useful one and would be worth being mentioned in a future draft of the rules of procedure. Judge Dr. Grabinski noted that if there is concern over the commercial impact of injunctive relief affecting a highly multifunctional mobile device only because of an infringement of a minor feature, it would be possible to order an injunction but to simultaneously stay it for a significant period of time in order to allow the defendant to implement a workaround. Such transitional periods have been discussed in the U.S. on many occasions and even the U.S. International Trade Commission, whose remedy is purely injunctive (import bans), has in some cases (such as an Apple v. HTC dispute) granted grace periods to make modifications. The mere fact that Judge Dr. Grabinski discussed this possibility in public and believes it is reconcilable even with the current draft rules of procedure (in conjunction with the related international agreements and treaties) is good news, especially since it comes from a high-ranking judge from a country in which injunctive relief is a near-automatic remedy for patent infringement. But unless the rules of procedure are improved, there's a risk that this will just remain a nice idea but that the court's practice, at least in cases brought before a local German division, will give patentees (even those who can only claim rights to minor features) excessive leverage.

Those who promote balance and reasonableness will have to work hard and smart on the lobbying front to achieve their stated goals, but they should take encouragement from today's hearing (though the challenges were also noticeable).

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