Patent enforcement in Italy beyond and after civil proceedings (Court of Cassation, Criminal Chambers, Ruling No. 15646/2015)

(Article co-authored by Luca Musso, Studio Legale Musso)

A legal dispute between two competing businesses in the construction sector involving some of the most compelling issues in patent enforcement came to a close with the Court of Cassation (Criminal Chambers) ruling no. 15646/2015. A closer look at how the proceedings unfolded highlights the opportunity granted in the Italian legal system to take a global approach to patent enforcement, combining civil and criminal remedies.

The first instance (civil and criminal) proceedings

The first stage of the litigation took place before the Milan (Civil) IP Court. The plaintiff, the owner of a patent relating to a process concerning the consolidation of foundation soils, sued one of its competitors for infringement of said patent, injunction and damages.

The IP Court, having found that the patent in suit had indeed been infringed by the defendant, issued an injunction prohibiting further use of the patented process, subject to a pecuniary penalty for each day of delay in complying; but it denied the plaintiff’s claim for damages on the grounds of lack of evidence.

The infringer, unabated, continued to use the patented process in the course of its business for over three years after the delivery of the ruling, in material breach of the Court’s injunction. As a consequence, it had to make substantial monetary disbursements to the patent holder, in accordance with the daily penalty set by the Court. As it emerges from the case records, this was a calculated move: the profits made from the infringement exceeded the cost of the penalty.

The patent holder took the case to the criminal authorities. The legal representative of the infringer was thus indicted before the Milan Criminal Court on two distinct charges: patent counterfeiting, under Article 473, paragraph 2 of the Italian Penal Code; and wilful failure to comply with a court order under Article 388, paragraph 2 of the same. The patent holder submitted a request for damages arising from the indicted offences (in the Italian legal system, damages claims can be filed by an offended party within the framework of criminal proceedings).

The Court found that the crime of patent counterfeiting was not prosecutable under the applicable statute of limitations. This was the result of the Court setting the date of consummation of the offence at a time prior to the delivery of the civil judgment, while considering the subsequent use of the patented process irrelevant for the purpose of the indicted offence. As a consequence, the correlated damages claim was rejected.

Conversely, the defendant was found guilty of the crime of wilful failure to comply with a court order, and sentenced to a pecuniary fine, on account of the continued breach of the Civil Court’s injunction. Accordingly, the Court also recognised the patent holder’s right to compensation of the damages arising from this offence, although their assessment was deferred to separate proceedings.

The criminal appeal

Both the defendant and the victim, but not the public prosecutor, challenged the first instance penal judgment before the Milan (Criminal) Court of Appeal.

The defendant contended that the civil claims filed by the patent holder should be disallowed, on the grounds that they had already been dealt with in the context of civil proceedings. In particular, patent infringement damages had already been sought, and denied, within the civil lawsuit, hence the claims filed before the Criminal Court represented an unacceptable duplication prohibited by the res iudicata principle. As for any damages ensuing the delivery of the civil judgment, they were covered by the penalty set for breach of the civil injunction, which had been duly paid.

Regarding the offence of wilful failure to comply with a court order, the defendant argued that the crime had not been committed, since the injunction breached was not a “precautionary” measure and it did not protect “property”, as required by the relevant provision of the Penal Code.

The patent holder, in turn, appealed the ruling on the grounds that that the statute of limitation for the offence of patent counterfeiting had been applied incorrectly by the first instance Court. Every time the defendant had unlawfully used the patented process, it argued, a new criminal conduct had been committed, which had to be considered a continuation of the same crime, thus resulting in a forward shift of the date of consummation. Damages should therefore also be awarded for said offence.

The Milan (Criminal) Court of Appeal essentially upheld the patent holder’s appeal.

On the matter of damages, the Court held that there had been no breach of the res iudicata rule, since the subject matter of the claims filed by the victim in the civil and criminal proceedings was different.

In particular, the damages claim submitted and rejected in the context of the civil proceedings concerned harm arising from conducts perpetrated prior to the civil ruling, while those filed in criminal proceedings concerned harm arising from subsequent conducts. The latter were not, as the defendant had argued, absorbed by the monetary penalties paid to the victim, which were meant to penalise the breach of the Civil Court injunction and had, therefore, a strictly punitive nature, not a compensatory one (in the Italian legal system, damages are meant to compensate for a loss – punitive damages as such do not exist).

The Court also upheld the victim’s argument that the offence of patent counterfeiting had taken place in a continued fashion. The Court stated that to deem only the first act of infringement punishable would have the unacceptable consequence of turning the serial repetition of the unlawful conduct into a mere, not indictable post factum. On these grounds, the Court of Appeal found that the statute of limitation had run only for a part of the relevant conducts, not all of them. Therefore the Court recognised the patent holder’s right to damages arising from the crime of patent counterfeiting, albeit limited to the remaining conducts and without any criminal consequences for the defendant, since the public prosecutor had not appealed the ruling.

With regard to the crime of wilful breach of a court order, the Court rejected the arguments of the defendant, noting that IP injunctions, even though granted in the context of ordinary proceedings on the merits, nonetheless have a “precautionary” nature.

The Court of Cassation judgment

The final act of this long controversy has taken place before the Court of Cassation in Rome, where the defendant challenged the appeal ruling on multiple grounds, including the violation of Articles 473, second paragraph, and 388, second paragraph, of the Penal Code.

With regard to the former, the defendant argued that the law provided for two distinct offences: on one hand, patent counterfeiting, an instantaneous crime comprising any following unlawful use of the patented product or process; on the other, unlawful use alone, by a person who has not contributed to the counterfeiting. The Appeal Court, in looking at the charged offence as a continued crime, had artificially postponed the date of consummation, while the crime had in fact been entirely consummated with the first act of counterfeiting.

With regard to the lesser offence, the applicant argued, once again, that the injunction was not a precautionary measure in defence of property as required by the law.

The Court of Cassation has rejected both grounds of appeal.

In reference to the crime of patent counterfeiting, the Court found that it is “wrong” to refer, as to the date of consummation of the crime, only to its initial moment, and considers all subsequent conducts irrelevant, stating that “the direct infringer who continues over time to commercially exploit a third party invention, committing from time to time direct acts of counterfeiting, must also answer for those conducts and not only the first of them. All acts of economic exploitation and use of the patented process must be considered as autonomous violations art. 473 of the Penal Code in continuation with each other.”

As to the other ground of appeal, the Court found that a measure such as the civil injunction that was breached in this case belongs to the category of remedies “in defence of property”, as patents are a form of intellectual property “and intellectual property being so indisputably a form of property, as, indeed, literally stated in Articles 1 and 2 of the Industrial Property Code”.

This decision conforms to past rulings of the Court of Cassation, all aimed at making civil injunctions the most effective possible, supporting them with criminal penalties and offering the injured party further compensation beside the penalty itself.