CJEU: Damage claim for unlawful provisional measures may be based on strict liability

When a provisional measure against an alleged IP infringement is lifted, the defendant must, in principle, be able to claim compensation for losses suffered as a consequence of the provisional measure. The foundation for such a claim in the EU is Art. 9(7) of Directive 2004/48/EC (‘Enforcement Directive’), which provides:

Where the provisional measures are revoked or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, the judicial authorities shall have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by those measures.

It has been unclear whether this provision allows Member States to implement a strict liability regime for compensation claims. The CJEU had the chance to answer this question in its recent Mylan judgement (case C-473/22).

Background

Gilead obtained a supplementary protection certificate (‘SPC’) for an antiretroviral medicine and accused Mylan of infringing this SPC by selling generic medicine. Gilead brought an infringement action and applied for provisional measures against Mylan before the Finnish Market Court in 2017. Mylan countered by seeking a declaration of invalidity of Gilead’s SPC.

The Market Court granted provisional measures against the marketing and sale of Mylan’s generic medicine in 2017. They were subsequently lifted by the Finnish Supreme Court in 2019. Also in 2019, the Market Court declared Gilead’s SPC invalid. Gilead’s appeal against this decision was dismissed. It is not mentioned in the CJEU’s decision but it can be assumed that Gilead’s infringement action was rejected.

Mylan filed an action against Gilead to recover the damages caused by the provisional measures, amounting to roughly EUR 2.4 million. Mylan relied on Paragraph 11 of Chapter 7 of the Finnish Code of Judicial Procedure (transposing Art. 9(7) Enforcement Directive into Finnish law). It provides that, where a provisional measure has been obtained unnecessarily at the request of a party, that party must compensate the other party for the injury caused by that measure and its implementation, including the costs incurred. According to Finnish case law, Paragraph 11 of Chapter 7 of the Finnish Code of Judicial Procedure provides for strict liability, i.e. there is no need for Mylan to show fault on the side of Gilead.

In light of the CJEU’s judgment in Bayer Pharma (case C- 688/17, IPKat here on the AG’s opinion) the Finnish court wondered whether the strict liability rule provided by the national law was compliant with Art. 9(7) Enforcement Directive and referred this question to the CJEU.

The CJEU’s decision

The CJEU answered the question in the affirmative, provided that the national court can adjust the amount of damages depending on the circumstances of the individual case. The official answer reads:

Article 9(7) of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights must be interpreted as not precluding national legislation which provides for a mechanism for compensation for any injury caused by a provisional measure, within the meaning of that provision, based on a system of strict liability of the applicant for those measures, in the context of which the court is entitled to adjust the amount of damages by taking into account the circumstances of the case, including whether the defendant played a part in the occurrence of the injury.

The Judges held that the wording of Art. 9(7) Enforcement Directive has only three conditions that must be fulfilled:

• The provisional measures must have been revoked, lapsed due to any act or omission by the applicant, or it is found that there is no (threat of) infringement;
• There must be injury;
• There must be a causal link between the injury and the provisional measures.

The Court considered that the wording of Art. 9(7) Enforcement Directive corresponds to Art. 50(7) TRIPS and that both the Enforcement Directive and TRIPS only provide a minimum level of harmonisation, whose implementation in national law is up to the Member States. The latter have leeway to opt for strict liability or fault-based liability regimes.

The Bayer Pharma judgment cannot be interpreted as requiring fault-based liability. It only considered the question whether national law can preclude a claim for compensation for unjustified provisional measures if the defendant did not act as may generally be expected in order to avoid or mitigate the loss claimed in the compensation lawsuit.

The CJEU found a strict liability rule to be compliant with Art. 3 Enforcement Directive. It provides that the measures, procedures and remedies adopted under the Enforcement Directive shall be fair, equitable, not be unnecessarily complicated or costly, effective, proportionate, dissuasive and shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.

Strict liability was found to be proportionate and equitable. The Enforcement Directive provides legal instruments to mitigate the risk that the defendant suffers losses because of provisional measures. The compensation for wrongful provisional measures is a counterweight to the prompt and effective provisional measures provided in the Enforcement Directive. Strict liability is also justified because the applicant can obtain provisional measures without having to adduce definitive evidence of infringement (Art. 9(3) Enforcement Directive). The risk of enforcement and paying damages in case the infringement claims are dismissed corresponds to the risk taken by the defendant in deciding to market products that may constitute an infringement. In addition, the national court may (according to Finnish case law) consider all circumstances of the individual case to adjust the amount of damages and, thereby, mitigate any deterrent effect for IP right owners.

Strict liability does also not constitute a barrier to legitimate trade. If the provisional measure is lifted because the IP right relied on was declared invalid retroactively, the acts of the defendant were part of legitimate trade and should not have been hindered.

Finally, strict liability does not call into question the dissuasive nature of provisional measures. The compensation claim only covers the injury caused by the unjustified provisional measures.

Comment

All jurisdictions with strict liability regimes for unjustified provisional measures can sigh with relief. The Bayer Pharma judgment was not clear whether strict liability is compliant with the Enforcement Directive. The CJEU dispelled this doubt. The decision also serves as a reminder for applicants of preliminary measures to not only scrutinise the validity of their IP right and its infringement but also the potential impact of a preliminary injunction on the defendant’s business. In particular EU-wide injunctions for (alleged) infringement of EU trade marks or designs can be quite costly if they are lifted subsequently. If the potential damage is disproportionate to the benefits of a preliminary injunction, a better solution may be to file a main action only.

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