In Part Two of this series of Katposts, we looked at the diffusion of patent assertion entities in England and Wales, where data show that only 6% of patent cases involve a PAE (in the US, instead, PAEs filed 56% of patent lawsuits in 2012 - see Part One). In the absence of detailed data on the rise of patent assertion entities in other EU countries, this Kat decided to take an indirect approach to the issue, looking at similarities or differences in (1) the usage of patents and (2) the legal framework in the UK and the rest of the EU.
|Percentage of unused blocking patents|
Source: PatVal-EU study
This finding is corroborated by a research conducted by S. Fusco, who found that the number of known PAE cases in Italy and Germany is particularly low. According to her paper, in the period 2000-2012, only five lawsuits involved a patent assertion entity in Italy (out of about 1,000 patent cases); in Germany, again, Fusco was only able to gather evidence of five PAE cases (out of about 8,000 patent cases) in the same span of time (although these data were collected through indirect evidence). A study that examined the activity of patent assertion entities in the German patent market also confirmed these data: T. Fischer and J. Henkel found that PAEs are not particularly active in the market for technology, a conclusion which falls in line with the UK data (particularly, with the low activity in patent filing and litigation). The researchers were able to identify only 107 patent transfers to known PAEs in Germany, while similar entities acquired 458 patents in the US [the data, however, also suggest that the entities operating in the EU differ from those active in the US and vice versa: of all the PAEs listed in the study, only Intergraph and Rambus had engaged in patent transfers in both markets]. Although there may not be an exact correspondence between patent transfers and litigation, this study certainly suggests that PAEs' activity in Germany remains low, as highlighted in Fusco's work.
(a) strict rules on the patentability of software and business method;
(b) fragmented enforceability, which increases the costs and complexity of litigation (and the likelihood of inconsistent decisions);
(c) unavailability of contingency fees;
(d) low litigation costs and damage awards in comparison to the US [similarly, low damage awards appear to be a factor in limiting PAE litigation in India - thanks Rahul!];
(e) implementation of the 'loser pays' rule.
[I]t comes out of a little discussion I had with a prominent German lawyer. He said to me: "for us, there is no problem." "Why?" I said. "Because if a valid patent is infringed, there will be an injunction." "Suppose", I asked, "the patent was for a life saving drug and the patentee had not enough product to supply the market. Would a German court really stop the supply of an infringer’s product?" "Well", he said, conceding the point: "Maybe not. But it would have to be a very extreme case."
The Chamber does assume in principle that the enforcement of a cease-and-desist claim can be disproportionate since rights arising from a patent are not granted without limits (Art. 14 (2) of the Basic Law, § 242 of the German Civil Code). However, since the legislator does not make the cease-and-desist claim subject to any general prohibition on commensurability (not so: § 140a (4), § 140b (4), § 140c (2), § 140d (2) of the Patent Act) and the cease-and-desist claim secures the exclusivity right protected under constitutional law, the scope of the disproportionality defense remains restricted to atypical exceptional cases which could not be foreseen by the legislator. The fact that the patent licensing entity is attempting to enforce a cease-and-desist claim in order to urge infringing parties to pay for a license does not, in the view of the Chamber, constitute such an exception but rather is an inherent part of the patent system as part of the applicable legal and economic system, especially since a patent licensing entity will usually be urged to take such action with respect to existing license agreements.
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According to the referring court, the court before which the interim proceedings have been brought does not make a final decision on the validity of the patent invoked but makes an assessment as to how the court having jurisdiction under Article 22(4) of the regulation would rule in that regard, and will refuse to adopt the provisional measure sought if it considers that there is a reasonable, non-negligible possibility that the patent invoked would be declared invalid by the competent court. In those circumstances, it is apparent that there is no risk of conflicting decisions ..., since the provisional decision taken by the court before which the interim proceedings have been brought will not in any way prejudice the decision to be taken on the substance by the court having jurisdiction under Article 22(4) of Regulation No 44/2001.Further, the Court ruled that Article 6(1) of Regulation 44/2001 may be applied in cases where two or more companies from different Member States, in proceedings pending before a court of one of those Member States, 'are each separately accused of committing an infringement of the same national part of a European patent which is in force in yet another Member State by virtue of their performance of reserved actions with regard to the same product'. In Actavis Group HF v Eli Lilly & Company, the High Court for England and Wales accepted to hear foreign patent claims (if no question of validity is involved), declining arguments pointing to the forum non conveniens (and the AdvoKat commented it here).
Of relevance to assess potential effects on PAE lawsuits are, inter alia, the following provisions:
* Article 19: the establishment of a training framework for the judges should ensure, or at least contribute to, the uniformity of judicial decisions among the different divisions (as expressly stated by the provision itself: 'Regular meetings shall be organised between all judges of the Court in order to discuss developments in patent law and to ensure the consistency of the Court's case law');
* Article 33(1)(b): allowing the plaintiff to bring an action under Article 32(1)(a), (c), (f) and (g) against multiple defendants 'only where the defendants have a commercial relationship and where the action relates to the same alleged infringement' should prevent the EU from suffering from one of the issues that plagued US litigation before the America Invents Act, which introduced stricter joinder rules;
* Article 33(3): bifurcation may be feared by many, but the real effects of the provision remain to be discovered, as two out of three options allow the case to proceed safely united. The risk, here, is that judges across the different divisions may adopt different practices with regard to bifurcation, effectively creating a pro-patentee enclave [shall we call it Eastern District for Europe, perhaps?];
* Article 33(10): as evidenced by the study cited in Part One of this post, information asymmetry may play a key role in favouring PAE litigation [Merpel cannot make up her mind on whether the adoption of a fair play rule in patent litigation - or in any fields of litigation - would be beneficial or deadly];
* Article 42: principles of proportionality and fairness, albeit theoretical premises which might be disregarded, certainly point the system in the right direction, as far as PAE (or any type of) litigation is concerned (e.g. they may influence the judges' decisions on bifurcation, when a patent assertion entity is concerned, concentrating litigation to avoid unfair use of the temporal discrepancy between the judgments of infringement and validity);
* Article 62: discretionary grant of provisional injunctions challenges the courts with the task of defining clear and consistent standards, giving actual shape to the elements indicated in Article 62(2) (interests of the parties and potential harm from granting or refusal). Once again, as with bifurcation, uniformity appears to be the key to a PAE-proof system;
* Article 63: similarly, allowing discretionary grant of permanent injunctions could lead courts to take a UK-inspired approach, limiting the award of permanent injunctions in PAE cases (again, uniformity is the issue here);
* Article 69: the adoption of the 'loser pays' rule is likely to be a disincentive for exploratory lawsuits and is commonly thought to be a powerful antidote to PAE litigation.
On a train to Milan, the
Kat saw something familiar...
The analysis conducted so far, in Parts Two and Three, showed that (1) England and Wales enjoy a relatively PAE-adverse environment, (2) PAE litigation in other EU member states is equally constricted, although there is some inconsistency with respect to the use of injunctions, (3) the trend towards pan-European litigation should not significantly alter the current situation, and (4) the UPC Agreement contains potentially dangerous provisions, whose effects can [should, says Merpel] be contrasted by an effort to achieve consistency and to establish clear and shared standards for issuing injunctive remedies and dealing with bifurcation.
There is still one issue which is worth mentioning, as it gives a preview of possible developments of PAE litigation in Europe. As highlighted at the beginning of Part Two, the expression 'patent assertion entity' commonly refers to a company who manages a portfolio of patents for the primary aim of assertion and litigation, without practising the invention. Recently, however, primary companies in the ICT sector started using PAEs (already existent or created ad hoc) to assert patents against each other, in an effort to gain a competitive advantage and to hold up competitors, relying on the ever growing phenomenon of patent thickets ('a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology' according to Shapiro, more here). In June 2012, for example, Google filed a complaint with the EU Commission, alleging that Microsoft and Nokia 'are colluding to raise the costs of mobile devices for consumers, creating patent trolls that sidestep promises both companies have made' (Guardian article here). The giant search-engine company demanded that the competitors be held accountable and invited the Commission to look into these practices. Further, intense litigation in the EU (and US) is currently surrounding standard essential patents and FRAND licensing (examples: Germany here and UK here).
It seems that, if the EU has been relatively immune from traditional patent trolling, a new wave of better looking, well dressed, yet secretly malicious PAEs is appearing on the horizon. A similar development would not only shake the safeguards that protected the EU from traditional PAE litigation, but would ultimately challenge the patent system itself, shifting the focus from protection of research and innovation, to strategic use of patents to alter competition on the merits. Thus closely observing and studying old and new PAEs, even if the phenomenon appears to be minor in the EU, might be a very wise thing to do.