[Guest post]: The proportionality test in European patent law

Injunctions are all the rage in contemporary patent law. This week marks the publication of a book by the IPKat’s Dutch friend and former GuestKat Léon Dijkman on the hotly contested notion of the proportionality test in European patent law, accessible for free here. Léon provides a brief summary of the book’s main argument below and announces a launch event on 12 January 2024 that promises to be interesting. Over to Léon:

The proportionality test in European patent law

by Léon Dijkman

“When I started work as an IP lawyer in 1973”, writes Willem Hoyng in the foreword to my new book, “proportionality did not come to mind when discussing injunctions”. Oh, how times have changed.

The US Supreme Court’s decision in eBay v MercExchange (2006) meant patents were no longer exclusive rights by definition and the implications and wisdom of that shift have been vigorously debated. The Court of Justice of the EU (CJEU) has held that all IP enforcement measures must satisfy the general obligations laid down in Article 3 of Directive 2004/48/EC (the Enforcement Directive), including proportionality (see, e.g., Tommy Hilfiger (2016), at 36). In the summer of 2021, Germany amended its patent act to make permanent injunctions in patent disputes subject to a proportionality test [Katpost here], and in its wake other European jurisdictions are wondering whether they should do the same. Needless to say, proportionality was front and centre during debates on the powers of the Unified Patent Court (UPC), and in its first ever inter partes injunction the requirements it sets (and those it doesn’t) were thoroughly addressed [Katpost here].

Big Kat, big event

In The Proportionality Test in European Patent Law, published open access with Hart this week, I take stock of these developments and provide an outlook for the future.

The book’s central aim is to argue for what could be considered a “third way forward” for proportionality in European patent law. A first, conservative view holds that proportionality and the other obligations in Article 3 Enforcement Directive add nothing to existing safeguards for infringers, such as compulsory licensing- and abuse of rights provisions. A second, liberal view holds that patent courts should make injunctions subject to a balance of interests, to be conducted in light of all circumstances of the case. In my opinion, neither view is correct: the conservative view is not in line with EU law and oblivious to technological developments, while the liberal view puts forward an unworkable test that overestimates courts’ abilities.

Increasing technological complexity necessitates a more flexible approach

If patent law has functioned well for decades without a proportionality test, why do we need one now? The empirical case for a proportionality test is notoriously difficult to make, but the question is critical for the debate on the test’s contours.

We know that there are many, many more patents in force today than there were at any other time in history. That makes it reasonable to infer that these patents, on average, cover smaller parts of composite technologies than in previous times. The difficulty with component patents is that injunctions to such patents can extend the scope of a patentee’s exclusivity (far) beyond the invention they disclose if the infringer cannot easily design around the patented component.

This is also known as the “hold up” problem in the literature [e.g. here] and it is compounded if infringement is accidental, as some argue is inherently more likely today [Katpost here], or if the patentee is able to use the Byzantine complexities of patent prosecution to get competitors locked in to their patented technology.

In my view, the fundamental problem posed by component patents is that they risk misaligning a patentee’s inventive contribution to the art with their scope of exclusivity [see here for a classic study on why this is bad]. US courts have developed the so-called ‘causal nexus’ test to prevent this from happening [e.g. here, at 792]. Component patents have long been ignored in European practice, but as they become a more salient phenomenon a balanced solution must be found, and proportionality offers a way out.

As a matter of fact, EU law requires as much. When interpreting the requirement that sanctions be proportionate, the CJEU has repeatedly held that “the severity of penalties must be commensurate with the seriousness of the infringement” [here, at 45]. An injunction issued, say, on the basis of a patent to a hot air blower that blocks all sales of convertible cars [here] seems at odds with this principle, at least at first glance. What is more, Article 3 Enforcement Directive prohibits “barriers to legitimate trade”, i.e. the ability to monetize non-infringing technology [cf. here, at 140], which is protected by Article 16 Charter of Fundamental Rights [here, at 49].

A plea against balancing

It is therefore clear that an automatic injunction regime is no longer sustainable. As a solution, it is sometimes argued that an injunction be denied if “the expected negative effects of an injunction substantially outweigh … the expected noncompensable harm to the patentee is an injunction is denied” [here, at 152].

In my view, an open-ended balancing test is unlikely to make things better. In contrast to US courts, which have the benefit of discovery and dedicated remedies trials, the ability of continental EU courts to evaluate an injunction’s “expected negative effects” is far more limited and their appetite for such inquiries even more so. There are all kinds of operational dilemmas with a balancing test of this kind – which harms should count? how to quantify the patentee’s interest in exclusivity? – that remain unresolved in US case law almost twenty years after eBay.

Most importantly, any balancing test suffers from a fundamental indeterminacy problem as it is impossible to determine the point where one set of harms “substantially outweighs” another. What is more, there is nothing in EU law to suggest that a balancing of interests at the remedies stage is mandatory. The principle of effectiveness, also enshrined in Article 3 Enforcement Directive, rather suggests the opposite [cf. here, at 24].

The proportionality test in European patent law

The book’s final chapter offers a way out of the conundrum. It presents a proportionality test that would apply in three sets of cases: overreach, abuse, and infringement of third-party rights.

Overreach, by far the most important element of the test, squarely addresses the component patent problem. This part of the test revolves around three questions: is the patented technology indispensable for the functioning of the entire device? Does it offer significant advantages over alternative technical solutions? How much time does the infringer need to phase out infringement? If the answer to the first two questions is no, and the estimate provided under the third question is reasonable and reflect best efforts, the injunction should be stayed for the requested period, unless the infringer’s bad faith precludes this. The goal is to ensure that patent injunctions observe the principle of commensurate scope, so fundamental to patent law, that a patentee’s monopoly is commensurate with their inventive contribution to the art.

Abuse covers rare cases where a patentee’s behaviour is so egregious that it suffices by itself to deny them injunctive relief. The last category of cases concerns the elusive, but much-discussed scenario where an immediate injunction would impermissibly interfere with the rights of third parties [for a famous example see Katpost here].

There is, of course, much more to be said about the specifics of these categories than could be fitted into a blog post. Interested readers are therefore warmly invited to check out the book themselves, or better yet…

Join the discussion: 12 January 2024, 4PM CET in Rotterdam

To celebrate the publication of the book, but primarily to discuss this topic of great practical importance to European patent law, the Erasmus University Rotterdam will host a book launch event on Friday, 12 January 2024 at 4PM CET. Participation is free of charge.

The event is worthwhile for anyone following the debate on proportionality in patent law, because it will feature a panel discussion, moderated by Willem Hoyng, that promises nothing short of fireworks with the following stellar speakers, in alphabetical order: Richard Arnold, Rian Kalden, Constant van Nispen, and Matthias Zigann.

As if that wasn’t enough, the event offers participants a good occasion to visit the Erasmus University campus, a pearl of Dutch brutalist architecture. But readers unable to travel to Rotterdam can also follow the event remotely. 

To sign up or if you have questions, feel free to reach out to me via the address listed here.

If one thing is clear, it is that we have much to look forward to when it comes to proportionality in European patent law—starting with an event that promises to be of great interest to anyone working in the field. This former Kat looks forward to following those developments and even more so to discussing them with readers on the 12th!