Earlier this month, the Court of Appeal (CoA) of the Hague stayed the enforcement of a patent decision under appeal where an injunction was granted [decision here, in Dutch]. The decision is of interest because it is exceptionally rare for Dutch courts to stay enforcement of decisions and the CoA's reasoning may contain some clues as to when an injunction would be considered a disproportionate remedy in patent infringement cases.

The case
Hanson holds a national Dutch patent [yes, those are still granted and can be the basis for successful infringement claims] to a "substance introduction method" for plants. Hanson's sister company, HE Licences, holds an exclusive licence to the patent. VG Colours applies artificial colouring to white orchids and sells the resulting plants. HE Licences claims that the patent is infringed by VG Colours.

After an unsuccessful infringement suit in 2015, HE Licences tried again and, on 19 June 2019, the district court of the Hague found its patent infringed and issued an injunction against VG Colours [decision here, in Dutch]. VG Colours appealed the decision and also started preliminary relief proceedings to obtain a stay of the enforcement, but its prayers for relief were rejected by the preliminary relief judge of the Hague district court [decision here, in Dutch].

The CoA's reasoning

As part of the appeal, VG Colours requested the CoA to stay enforcement of the decision pending the appeal. The CoA granted VG Colours' request for three reasons [par. 4.10]: (i) the district court had failed to consider some of VG Colours' arguments; (ii) the enforcement caused very significant damage to VG Colours; and (iii) there was a considerable risk that HE Licences would not be able to provide recourse for this damage if the district court's decision was overturned on appeal.

The district court's failure to take into account some of VG Colours' arguments. In first instance, Hanson/HE Licences had partially abandoned the patent, limiting its claim scope. VG Colours was allowed to respond to the limitation and it did, but the district court refused to hear some of its arguments because they did not relate to the limited claims per se and so should have been advanced at the beginning of the proceedings.

According to the CoA, this was unjustified. VG Colours advanced the arguments it felt were strongest against the original claims; it could not be expected to advance every imaginable argument in anticipation of a potential change in claim scope. What is more, the district court had not taken into account VG Colours' non-infringement defence because it was supposedly advanced too late. But the CoA found that VG Colours' first written submission clearly stated the defence so that the district court should have dealt with it.

The CoA considered that this did not mean the first instance decision is automatically incorrect; but it did mean that the assessment of the dispute had been incomplete. Consequently, the CoA could not assume the correctness of the first instance decision in the context of the request to stay its enforcement.

Damage to VG Colours as a result of enforcement. The CoA also established that the continued enforcement of the decision would cause "very significant" damage to VG Colours (par. 4.5). It mentioned the following circumstances: 

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.