The distinction between liability in tort and for contractual breach can have various implications, depending upon the jurisdiction. For example, the statute of limitations, the available remedies, the procedural rules or the calculation of the financial compensation, may all differ as between these two heads of liability. 

Navigating the Enforcement Directive

A week before Christmas, the Court of Justice of the EU handed down its judgment in IT Development SAS v. Free Mobile SAS (case C-666/18). The question, referred to the CJEU by the Paris Court of Appeal was, in short, whether the Enforcement Directive (2004/47) and the Software Directive (2009/24) are applicable to those cases in which the infringement of IP rights (the unauthorized alteration of a computer program) also constitutes a breach of contract (typically a licence agreement) between the parties. 

In the case, the plaintiff, IT Development, granted a licence to the respondent, Free Mobile, for use of a software package. The plaintiff alleged that the respondent had modified the software in breach of the licence agreement and, accordingly, it sued for "contrefaçon" (a non-contractual type of IP infringement action under French law). The Tribunal de Grande Instance dismissed the suit, arguing that there was no case of liability in tort, given that the respondent "was clearly alleged to have failed to perform its contractual obligations, providing a basis for an action for contractual liability, and not for the tortious act of infringement of software copyright". 

On appeal by the plaintiff, the Paris Court of Appeal asked the CJEU--

whether Directives 2004/48 [Enforcement Directive] and 2009/24 [Software Directive] must be interpreted as meaning that the breach of a clause in a licence agreement for a computer program relating to the intellectual property rights of the owner of the copyright of that program falls within the concept of ‘infringement of intellectual property rights’, within the meaning of Directive 2004/48, and that, therefore, that owner must be able to benefit from the guarantees provided for by that directive, regardless of the liability regime applicable under national law.

The Decision

Under French law (as explained by the Court of Justice), liability in tort and for contractual breach are mutually exclusive. In addition, contractual liability excludes tortious liability where the damage results from non-performance of a contractual obligation. 

Under Art. 4 of the Software Directive, the exclusive rights of the right holder include, inter alia, the right to authorize the translation, adaptation, arrangement and any other alteration of a computer program. Thus, the Software Directive does not make the protection of the rights of the copyright owner dependent on whether the alleged infringer is also in breach of a licence agreement. Therefore, it is applicable irrespective of a licence agreement between the parties. 

Art. 2(1) of the Enforcement Directive sets forth that the Directive applies to "any infringement of intellectual property rights". The Court of Justice stresses that the word "any" must be interpreted as also covering infringements that result from a breach of contract. It is the objective of the Enforcement Directive to ensure a "high, equivalent and homogeneous level of protection of IP in the internal market". As such, the scope of the directive is very broad. 

As a result, the Court ruled--

…the breach of a clause in a licence agreement for a computer program relating to the intellectual property rights of the owner of the copyright of that program falls within the concept of ‘infringement of intellectual property rights’, within the meaning of Directive 2004/48, and that, therefore, that owner must be able to benefit from the guarantees provided for by that directive, regardless of the liability regime applicable under national law.

Thus, the Court of Justice confirms that the infringement of a clause in a licence agreement for use of a computer program falls within the ambit of "infringement of intellectual property rights" within the meaning of the Enforcement Directive. 

Enforcement of software protection

Nevertheless, the CJEU underscores that neither the Enforcement Directive nor the Software Directive lays down the "exact means of implementation of those guarantees and does not lay down the application of a specific liability regime in the event of infringement of those rights". It is for the law of each member state to set out all "specific practical arrangement for protecting those rights", as long as the requirements of both Directives are complied with. 

Even though the determination of the liability regime applicable for copyright infringement is a competence of the member states, the application of any regime must not be an obstacle to the effective protection of IP as laid out in both Directives. 

National courts are required to interpret national law in conformity with the requirements of EU law and must apply national law "so as not to produce a result contrary to that sought by EU law". In the case at hand, the CJEU finds that an interpretation of national law in conformity with the requirements of the Enforcement Directive and the Software Directive is possible, "subject to verification by the referring court".

Comment

The outcome of the case is hardly surprising, given the facts of the case: the alteration of copyrighted works without authorization of the right holder amounts to copyright infringement, whether or not the act (also) amounts to a breach of an agreement between the parties. 

For the same reason, however, it is still worth underscoring that the rule set out by the Court of Justice seems to be worded too broadly. In the case at hand, the breach of the licence agreement also amounted to a violation of IP. But this may not always be so: for instance, the breach of certain ancillary obligations of the licensee (such as the duty to disclose certain commercial information or the duty of co-operation) does not amount to an IP violation. 

Thus, instead of the broad rule that "[…] the breach of a clause in a licence agreement […] falls within the concept of 'infringement of intellectual property rights' […]", perhaps the better way to view the decision is that it merely establishes that the infringement of intellectual property rights can also amount to the breach of a licence. It is then still an infringement of an intellectual property right within the meaning of the Enforcement Directive.

Picture on the right by Gerhild Klinkow in the public domain

As some readers may know by now, this Kat spends a large part of his time thinking about injunctions in patent law. It seems he is not alone: the issue is an increasingly hot topic in Europe. A particularly exciting development in this regard is the announcement by the German Ministry of Justice that a proposal for amendment of the German patent act is forthcoming. The injunction regime set forth in §139 of the German Patent Act, as interpreted by the Bundesgerichtshof in its landmark Heat Exchanger decision (2016), is likely to be affected by the changes. But nobody knows how far-reaching the changes will be and patent experts across Europe eagerly await the draft amendment bill, which is reportedly to be expected this Autumn.

The GRUR conference: roads well travelled

Injunctions, proportionality and the proposed reform were discussed during the annual GRUR conference, which took place last week in Frankfurt am Main. This Kat was unfortunately unable to attend himself, but one of the participants told him that the debate followed familiar lines. Judge Peter Meier-Beck, until recently the president of the Bundesgerichtshof’s patent senate, explained that in his view the Heat Exchanger decision provides a sufficiently adequate framework to prevent disproportionate patent injunctions. This position sounds familiar to the one taken by his colleague, Judge Klaus Grabinski, earlier this year at a conference on the subject in Munich [see Katpost here].

Also on the panel was Mr Popp of BASF, who suggested modifications to the procedural framework of the patent act that would more liberally allow stays of enforcement, for instance where validity or infringement of the patent is in doubt. Mr Popp argued that increased digital connectivity and the increase of patent density in different markets mean the world looks different now than it did a hundred years ago, and that an automatic injunction regime is consequently outdated. These, too, are familiar arguments.

The conference participant I spoke to put it well: all stakeholders in the debate have a known position and they stick to it. Thus, the German automotive industry favours insertion of an explicit proportionality test in §139 of the Patent Act [one wonders if this is strictly necessary, since national courts are under an obligation to interpret their laws in conformity with EU law, including art. 3(2) Enforcement Directive: see e.g. C-212/04 Adeneler, par. 111]. On the other side are innovator companies in the telecom industry, which argue that, if anything, they need injunctions faster and more reliably to combat hold-out behaviour in the SEP-licensing context [I linked to a joint letter by four of these companies to the U.S. Secretary of Commerce in a recent post here]. Judges tend towards the latter position, academics towards the former; and other industries find themselves somewhere in between.

All in all, no new avenues for reform or compromise were put forward, and it looks like we will have to wait until the draft amendment bill is published to see how the controversy develops.

Industry advocacy

Until then, industry associations are making sure their arguments are heard by the Ministry. Just this week, IP2Innovate – a self-described coalition of small and large companies that creative innovative products whose mission is to “bring balance to Europe’s patent legal system” – made public a letter it had sent to Commissioner-designate Goulard (Internal Market). Commission President-elect Van der Leyen asked her “to take a close look at our intellectual property regime to ensure that it is coherent, is fit for the digital age and supports our competitiveness”. According to IP2Innovate, this means tackling the automatic injunction regime:

In the digital age, products are increasingly complex, often covered by thousands of patents, which make them constantly subject to patent disputes. Because the practice of many European courts is to issue automatic injunctions upon a finding of infringement, without considering a remedy that could be more proportionate, an accidental infringement of just one patent among many others can result in removing from the market a product necessary to access digital goods or services.

This situation makes Europe more and more attractive to Patent Assertion Entities (PAEs), also known as “patent trolls”. These entities buy up patents only to assert them against innovative companies, including SMEs, and extract high settlement fees not based on the value of the underlying invention but rather based on the damage that would result from the removal of the entire product from the market. The ICT-industry, central to growth and innovation across many industries, is particularly targeted by PAEs which neither make nor sell any products, and do not innovate

The rise of patent thickets is indeed a well-documented phenomenon, and it is likely that they will raise barriers to entry [see e.g. a 2013 study by Hall et al]. But this Kat has yet to see evidence of specific products “covered by thousands of patents”, which IP2Innovate allude to (and which is often heard by other proponents of a more nuanced injunction regime). In my view, taking a specific ‘complex’ product and mapping all or even most patents that relate to it would make these concerns much more concrete, something that lawmakers and judges might be more susceptible to than general observations. Such a research project would seem feasible and very worthwhile.

Also this week, ACT – an association representing app makers – released a press statement along similar lines [not yet made publicly available, but quoted in full at FOSS patents]. ACT's Senior Global Policy Counsel says "[a]utomatic injunctions are ill-suited to SEP-licensing disputes in the age of IoT, and will hold up the innovation process and clog up the courts". The press release refers to a set of 'Core Principles and Approaches for Licensing of Standard Essential Patents', released by the European Committee for Standardization earlier this year.

More clarity when it comes to SEP licensing is certainly welcome, but the issue seems somewhat removed from the discussion on automatic injunctions, since SEP-holders are not in fact automatically entitled to an injunction under the current framework. The issue is much more pressing outside of the SEP-context, where there is still virtually no guidance on when an injunction might be stayed or refused as disproportionate.

Lobbying in patent law (Meme credit: imgflip.com)

Belling the cat: legislative reform or court guidance?

In sum, the debate seems to have reached something of an impasse where familiar arguments are repeated, no new evidence is adduced and everybody is waiting for something to happen. It could be that the German patent law reform will provide the breakthrough. Or change could come from Brussels instead: the repeated mandate of Commissioner-designate Goulard to review European IP policy suggests we can expect more guidance or even legislative proposals from the Commission in the coming years.

This Kat, however, doubts the legislator will be a catalyst for major change to the injunction regime. As the German reform process shows, industry has a strong stake in patent law and interest groups will try to influence the legislator to make changes beneficial to them—especially where there is uncertainty surrounding the optimal rule, as is the case with the injunction regime. And because industry interests are generally divided when it comes to patent law, with some sectors favouring more protection and others less, patent laws reflect a balance between these interests, as e.g. Dan Burk and Mark Lemley have argued [here]. Radical change is not to be expected from the legislator.

Burk and Lemley explain that bringing balance to the patent system is therefore rather a task for the courts. This Kat agrees, and Heat Exchanger seems a good example of a court-made [or 'found'?] solution—though whether that solution is adequate remains subject of debate. Ultimately, the wait seems to be for the Court of Justice to weigh in, which defined the rules of the game for SEP's in C-170/13 Huawei/ZTE and which must now instruct the players also in non-SEP disputes.

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

Looking for free lunch

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.

On Wednesday, the German Bundesgerichthof ruled that a bank is obliged to disclose the identity of an the holder of an account into which the proceeds of the sale of a counterfeit product were deposited to the owner of the counterfeit trade mark. The dispute had led to a referal to the CJEU, which was decided on 16 July 2015 (Case C-580/13 Coty Germany GmbH v Stadtsparkasse Magdeburg). From the IPKat post on the CJEU's decision:

Coty was the exclusive licensee for the Community trade mark DAVIDOFF HOT WATER for perfumery. In January 2011, Coty bought a bottle of perfume bearing the trade mark DAVIDOFF HOT WATER from an internet auction platform, paying the purchase price into the seller's bank with the Stadtsparkasse. Finding that it had bought a fake from a seller with a false name, Coty asked the auction platform to provide it with the seller's real name. The person in question admitted to being the account holder but said she didn't sell the fake product and, relying on her right not to give evidence, refused to provide any further information.


Coty contacted the Stadtsparkasse to ask it for the name and address of the account holder. No, said the Stadtsparkasse, invoking its duty under German law to maintain banking secrecy. Coty then sought and obtained an order that the Stadtsparkasse provide the information requested. On appeal, the Higher Regional Court, Naumburg, reversed the trial court’s decision, holding that the request to be provided with that information was not legally justified: even though the current account services provided by the Stadtsparkasse had been used to carry out the infringing activity, since it was a bank it was entitled to refuse to give evidence in civil proceedings, whatever Article 8 of the Intellectual Property Enforcement Directive 2004/48 had to say on the subject.

Coty then appealed to the Bundesgerichtshof which, entertaining doubts as the interpretation to be given to Directive 2004/48, decided to stay the proceedings and ask the Court of Justice: 

‘Must Article 8(3)(e) of Directive 2004/48 be interpreted as precluding a national provision which, in a case such as that in the main proceedings, allows a banking institution to refuse, by invoking banking secrecy, to provide information pursuant to Article 8(1)(c) of that directive concerning the name and address of an account holder?’

Taken by itself, if the German banking law allowed an unlimited refusal to supply the information requested, since its wording did not contain any condition or qualification, this would frustrate the right to information recognised in Directive 2004/48 and was therefore such as to infringe the fundamental right to an effective remedy for intellectual property infringement.  However, it was for the referring court to determine whether there were, under German law, any other means or remedies which would allow the competent judicial authorities to order that the necessary information be provided. Accordingly, the Court ruled:

Cat, not enjoying balancing

Article 8(3)(e) of Directive 2004/48 ... must be interpreted as precluding a national provision, such as that at issue in the main proceedings, which allows, in an unlimited and unconditional manner, a banking institution to invoke banking secrecy in order to refuse to provide ... information concerning the name and address of an account holder.

Unsurprisingly, the BGH now ruled that the bank was obliged to disclose the identity of the account holder, notwithstanding that the licensee could have filed a criminal complaint against the (unkown) account holder. The fundamental right to the protection of personal data according to Art. 8 Charter of Fundamental Rights of the European Union of the account holder and the bank's professional freedom according to Art. 15 Charter had to yield to the trade mark owner's right to protection of its intellectual property (Art. 17(2) Charter) and right to effective remedy (Art. 47 Charter). Muses Merpel, the joys of balancing fundamental rights always provides the result one just needed...