There is No Such Thing as a Free Launch – CJEU Does Not Follow AG on Compensation for Wrongful PI
On 12 September 2019, the Court of Justice handed down its (at least among patent litigators) eagerly awaited ruling (case C-688/17, not yet available in English) on a core principle of damages under Art. 9(7) of the Enforcement Directive for a wrongly-issued preliminary injunction. The AG Opinion can be consulted here and the respective Katpost here.
The background of the decision is how to assess the “launch at risk” of a pharmaceutical product when a preliminary injunction is first granted and later lifted (typically because the patent in suit turns out to be invalid or is not infringed in main proceedings). Does the generic manufacturer’s failure to clear the way (by suing for invalidation of patents potentially infringed by the product prior to launch) preclude the grant of any compensation for the unjustified preliminary injunction? In short, while AG Pitruzzella had proposed that the question be answered by a “no, but…”, the Court takes the stance that the answer should be “yes, but…”.
The Case
Bayer requested and was granted preliminary injunctions (PI’s) against Richter Gedeon and Exeltis regarding the distribution of generic contraceptive drugs. Both PI’s were eventually lifted on appeal and Bayer’s patent was declared invalid in the main proceedings. Richter Gedeon and Exeltis both sued Bayer for damages under Art. 9(7) of the Enforcement Directive.
The background of the decision is how to assess the “launch at risk” of a pharmaceutical product when a preliminary injunction is first granted and later lifted (typically because the patent in suit turns out to be invalid or is not infringed in main proceedings). Does the generic manufacturer’s failure to clear the way (by suing for invalidation of patents potentially infringed by the product prior to launch) preclude the grant of any compensation for the unjustified preliminary injunction? In short, while AG Pitruzzella had proposed that the question be answered by a “no, but…”, the Court takes the stance that the answer should be “yes, but…”.
The Case
Bayer requested and was granted preliminary injunctions (PI’s) against Richter Gedeon and Exeltis regarding the distribution of generic contraceptive drugs. Both PI’s were eventually lifted on appeal and Bayer’s patent was declared invalid in the main proceedings. Richter Gedeon and Exeltis both sued Bayer for damages under Art. 9(7) of the Enforcement Directive.
The Metropolitan Court of Budapest referred two questions to the CJEU. The first question essentially asks whether Art. 9(7) of the Enforcement Directive merely sets out the principle of compensation for a wrongful PI (leaving the conditions and the amount of the compensation to the law of the member states) or whether the conditions and amount of the compensation are a matter
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| Looking for free lunch |
of Union law. The second question more specifically asks whether it is acceptable for a Member State to exclude any damages to a party aggrieved by a wrongfully-issued PI, if such party has not acted in conformity with “what can generally be expected of a reasonable person in the same circumstances”.
A Matter of Union Law
Contrary to the AG Opinion, the Court considers that Art. 9(7) of the Enforcement Directive also harmonizes the conditions and the amount of the compensation. The objective of the Enforcement Directive is “to ensure a high, equivalent and homogeneous level of protection in the internal market” (recital 10). This objective would be jeopardized if Member States could set forth different rules on the conditions and the amount of the compensation for a wrongful PI. Thus, “appropriate compensation” under this provision constitutes an autonomous term of Union law.
When is an Unjustified PI Justified?
Whether a compensation is “appropriate” in a given case must be determined based on all specific circumstances of that case. While the subsequent lifting of the PI (because of a finding of non-infringement or invalidity) is a necessary condition for “appropriate compensation”, it does not automatically lead to an award of compensation.
Quoting recital 22 of the Enforcement Directive, the Court provides that the “appropriate compensation” for wrongful PI serves as a “guarantee needed to cover the costs and the injury caused to the defendant by an unjustified request”. Pursuant to the same recital, a PI is “justified” when it appears that any further delay would cause irreparable harm to the right holder. The Court deduces from this recital that a PI is “unjustified” if it is granted in the absence of a risk of irreparable harm to the right holder.
While a necessary condition for an award of appropriate compensation, the subsequent lifting of the PI does not automatically mean that the measures were “unjustified”. If a party starts commercialization of a product despite the existence of a registered patent or patent application, such act causes a risk of irreparable harm to the right holder. In this case, granting a PI cannot be considered “unjustified”. Any other outcome would deter patent owners from enforcing them against presumptive infringers, which would be contrary to the objective of the Enforcement Directive, namely ensuring a high level of protection of PI rights.
Finally, the Court refers to Art. 3(2) of the Enforcement Directive, which instructs Member States to apply the measures foreseen by the Directive “in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse”. When applying Art. 9(7) of the Directive, the courts must therefore ensure that all circumstances of the case, including the behavior of both parties, are taken into account to ensure that the provision is not used in an abusive manner.
Comment
Among the many lessons that can be drawn from this decision, there is an obvious one: Advocates General are not always followed by the CJEU – and sometimes they are not followed on questions of principle.
The core of the Court's reasoning is based on the understanding of what counts as an "unjustified" measure. While AG Pitruzzella (and no doubt many IP litigators, including this Kat) thought that the "justified" character of the PI should be assessed ex post (i.e., once there is a final decision on the merits about infringement and validity of the underlying patent), the Court's test is ex ante (i.e., whether the PI was justified at the time that it was granted). In particular, the Court explicitly states that whenever the acts of the presumptive infringer led to a risk of irreparable harm to the right holder, the PI was "justified", even if the patent turns out either to be invalid or not infringed in the main proceedings.
This outcome is surprising (at least to this Kat) in many ways. First, if there is no risk of irreparable harm, or the PI does not appear "justified" for another reason at the time of the PI decision, the PI should not be granted in the first place. Given that courts tend to have broad discretion in deciding irreparable harm, the Court's rule would seem to lead to effectively exclude "appropriate compensation" in the vast majority of cases.
Second, Art. 9(7) of the Enforcement Directive does not use the word "unjustified". The Court's decision is almost exclusively based on recital 22 of the Enforcement Directive and its use of the term "(un)justified" in the first sentence ("unjustified request") and the second sentence ("measures are […] justified where"). However, recital 22 has different wordings in the various language versions and the court's reasoning seems to work well only in some (at least among those languages that this Kat purports to understand well enough):
A Matter of Union Law
Contrary to the AG Opinion, the Court considers that Art. 9(7) of the Enforcement Directive also harmonizes the conditions and the amount of the compensation. The objective of the Enforcement Directive is “to ensure a high, equivalent and homogeneous level of protection in the internal market” (recital 10). This objective would be jeopardized if Member States could set forth different rules on the conditions and the amount of the compensation for a wrongful PI. Thus, “appropriate compensation” under this provision constitutes an autonomous term of Union law.
When is an Unjustified PI Justified?
Whether a compensation is “appropriate” in a given case must be determined based on all specific circumstances of that case. While the subsequent lifting of the PI (because of a finding of non-infringement or invalidity) is a necessary condition for “appropriate compensation”, it does not automatically lead to an award of compensation.
Quoting recital 22 of the Enforcement Directive, the Court provides that the “appropriate compensation” for wrongful PI serves as a “guarantee needed to cover the costs and the injury caused to the defendant by an unjustified request”. Pursuant to the same recital, a PI is “justified” when it appears that any further delay would cause irreparable harm to the right holder. The Court deduces from this recital that a PI is “unjustified” if it is granted in the absence of a risk of irreparable harm to the right holder.
While a necessary condition for an award of appropriate compensation, the subsequent lifting of the PI does not automatically mean that the measures were “unjustified”. If a party starts commercialization of a product despite the existence of a registered patent or patent application, such act causes a risk of irreparable harm to the right holder. In this case, granting a PI cannot be considered “unjustified”. Any other outcome would deter patent owners from enforcing them against presumptive infringers, which would be contrary to the objective of the Enforcement Directive, namely ensuring a high level of protection of PI rights.
Finally, the Court refers to Art. 3(2) of the Enforcement Directive, which instructs Member States to apply the measures foreseen by the Directive “in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse”. When applying Art. 9(7) of the Directive, the courts must therefore ensure that all circumstances of the case, including the behavior of both parties, are taken into account to ensure that the provision is not used in an abusive manner.
Comment
Among the many lessons that can be drawn from this decision, there is an obvious one: Advocates General are not always followed by the CJEU – and sometimes they are not followed on questions of principle.
The core of the Court's reasoning is based on the understanding of what counts as an "unjustified" measure. While AG Pitruzzella (and no doubt many IP litigators, including this Kat) thought that the "justified" character of the PI should be assessed ex post (i.e., once there is a final decision on the merits about infringement and validity of the underlying patent), the Court's test is ex ante (i.e., whether the PI was justified at the time that it was granted). In particular, the Court explicitly states that whenever the acts of the presumptive infringer led to a risk of irreparable harm to the right holder, the PI was "justified", even if the patent turns out either to be invalid or not infringed in the main proceedings.
This outcome is surprising (at least to this Kat) in many ways. First, if there is no risk of irreparable harm, or the PI does not appear "justified" for another reason at the time of the PI decision, the PI should not be granted in the first place. Given that courts tend to have broad discretion in deciding irreparable harm, the Court's rule would seem to lead to effectively exclude "appropriate compensation" in the vast majority of cases.
Second, Art. 9(7) of the Enforcement Directive does not use the word "unjustified". The Court's decision is almost exclusively based on recital 22 of the Enforcement Directive and its use of the term "(un)justified" in the first sentence ("unjustified request") and the second sentence ("measures are […] justified where"). However, recital 22 has different wordings in the various language versions and the court's reasoning seems to work well only in some (at least among those languages that this Kat purports to understand well enough):
| Language | Original text | English translation |
| EN | […] providing the guarantees needed to cover the costs and the injury caused to the defendant by an unjustified request. Such measures are particularly justified where […]. | -- |
| FR | […] pour couvrir les frais et dommages occasionnés à la partie défenderesse par une demande injustifiée. Ces mesures sont notamment justifiées lorsque […]. | "unjustified request" / "justified, notably when" |
| DE | […] im Falle eines ungerechtfertigten Antrags den entstandenen Schaden und etwaige Unkosten zu ersetzen […]. Diese Maßnahmen sind vor allem dann gerechtfertigt, wenn […]. | "unjustified request" / "justified, particularly when" |
| IT | […] coprire le spese o i danni causati alla parte convenuta in caso di domande infondate. Queste misure appaiono particolarmente giustificate nei casi in cui […] | "unjustified request" / "particularly justified in those cases where" |
| HU | […] amelyek szükségesek a megalapozatlan kérelemből adódóan az alperes oldalán felmerült költségek és okozott kár fedezésére. Ezen intézkedések különösen akkor indokoltak, ha […] | "groundless request" / "particularly justified where" |
The Court's reasoning seems to work with the French and German versions, where the same word ("(un)justified") is used in both sentences and the second sentence merely provides an example of a "justified" request. It works less well in the English and Italian versions, where the word "(un)justified" is used twice, but the second sentence relates to a specific case of a "particularly justified" measure. This seems to suggest that there may be other "justified" (albeit not "particularly" justified) measures. It does not work at all in the Hungarian version (which was the language of the proceedings), where two different words are used in the two sentences ("groundless" and "particularly justified").
The Court is right to emphasize the policy implications of its decision. The Court underscores that right holders should not be deterred from using preliminary injunctions for fear of a claim for compensation every time a PI is overturned. However, the Court does not consider whether the outcome of the case will deter generics manufacturers from launching despite the presence of patent rights, even in cases where the likelihood of invalidity of the patents is high. The test advocated by AG Pitruzzella would have taken this into account when calculating the amount of "appropriate" compensation. Under the Court's rule, any compensation will be difficult to obtain in such cases.
Finally, the decision will not definitely close the case. In the case at hand, the PI was lifted on appeal on procedural grounds, well before the underlying rights were found invalid. Whether this counts as an "unjustified" PI under the Court's new rule will have to be answered by the Hungarian courts.
