The compensation of damages deriving from unfounded provisional measures

The EU Court of Justice (ECJ), with a decision dated 12 September 2019 in case C-688/17, ruled on the interpretation of Article 9(7) of Directive 2004/48/EC.

The judgement follows the request for a preliminary ruling filed by the Court of Budapest in the proceedings between Bayer Pharma AG (“Bayer”), on the one side, and Richter Gedeon Vegyészeti Gyár Nyrt. (“Richter”) and Exeltis Magyarország Gyógyszerkereskedelmi Kft. (“Exeltis”), on the other.

On 9 November 2010 Bayer, owner of a Hungarian patent relating to a pharmaceutical product containing a contraceptive ingredient (the application for the patent was filed in 2000), applied to the Court of Budapest for provisional measures – basically orders for a preliminary injunction – to prohibit Richter and Exeltis from placing on the market some pharmaceutical products allegedly infringing its own patent. However, those applications were rejected on the ground that the plausibility of the infringement had not been demonstrated.

On December 2010 Richter and Exeltis submitted an application to the Hungarian Intellectual Property Office for a declaration of the invalidity of Bayer’s patent.

Bayer submitted further applications for provisional injunctions against Richter and Exeltis before the Court of Budapest; this time, the Court of Budapest granted the measures and prohibited Richter and Exeltis from putting the products in question on the market. The applicant commenced infringement proceedings against Richter and Exeltis before the referring Court. These were suspended until a final decision in the proceedings for the declaration of the invalidity of Bayer’s patent.

In 2011 the Court of Appeal of Budapest, upon appeal by Richter and Exeltis, set aside the orders granting provisional measures on the grounds of procedural defects and referred the case back to the Court of Budapest. This time, the Court of First Instance, whilst taking into account that in the meantime Richter and Exeltis had entered the market in infringement of the patent, refused Bayer’s applications for provisional measures considering the advanced stage of the proceedings for a declaration of invalidity of Bayer’s patent and the revocation of the equivalent European patent.

Finally, Bayer’s patent was declared invalid in its entirety and the Court of Budapest terminated the infringement proceedings proposed by the applicant, in one case following Bayer’s withdrawal from those proceedings and in the other, on the grounds of Bayer’s patent having been definitively declared invalid.

Richter and Exeltis brought a counterclaim before the Court of Budapest, requesting that Bayer be ordered to provide compensation for the losses they claimed to have suffered as a result of the provisional measures, which had been requested and granted based on a patent that was subsequently declared invalid. Bayer submitted that those claims should be rejected, arguing that Richter and Exeltis themselves caused the losses they claimed to have suffered by having intentionally and unlawfully placed the products in question on the market when Bayer’s patent was in force.

In that context, Hungarian law would not have allowed a court to order the applicant to provide compensation for the losses, hence the Court of Budapest decided to stay the proceedings and to refer two questions to the ECJ for a preliminary ruling regarding the interpretation of Article 9(7) of Directive 2004/48/EC. As it is known, this states that judges shall have the authority to order the applicant, upon request of the defendant, to provide the defendant with appropriate compensation for any injury caused by provisional measures where those 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.

In particular, the Court of Budapest referred the following questions to the ECJ:

• if the expression “provide … appropriate compensation” referred to in Article 9(7) of Directive 2003/48/EC, should be interpreted to mean that Member States must establish the substantive rules of law on the liability of parties and the amount and method of compensation;

• if the answer to the first question is in the affirmative, whether the provision of the same Article precludes opposition to the legislation of a Member State according to which the court cannot oblige the applicant to provide compensation for losses caused by a provisional measure which was subsequently held to be unfounded due to the invalidity of the patent, and which were incurred as a result of the defendant’s failure to act as would generally be expected in order to avoid or reduce losses, provided that, when requesting the provisional measure, the applicant acted as would generally be expected in those circumstances.

In response, the European Court of Justice firstly stated that the Article at issue requires the Member States to authorise their national courts to provide the defendant, in accordance with the conditions laid down in that provision, with appropriate compensation. The concept of “appropriate compensation” is an independent notion of EU law which must be given a uniform interpretation throughout the European Union, without being able to come within the competence of different Member States; that conclusion is borne out by the objective pursued by Directive 2004/48/EC (from which the provision at issue derives), which is to approximate legislative systems so as to ensure a high, equivalent and homogeneous level of protection of intellectual property in the internal market.

Having said that, according to the ECJ it is for the national courts to assess the specific circumstances of the case before them in order to decide whether it is appropriate to order the applicant to pay to the defendant  “appropriate” compensation, that is to say, a compensation that is justified in the light of those circumstances. This power to assess implies that, even if the preconditions referred to in Article 9(7) of Directive 2004/48/EC (i.e. the provisional measures must have been repealed or ceased to be applicable because of any action or omission on the part of the applicant, or it must subsequently be found that there is no infringement or threat of infringement of an intellectual property right) are satisfied in a specific case, it does not mean that the competent national courts will automatically be obliged to order the applicant to provide compensation for any losses suffered by the defendant.

Therefore, the ECJ pointed out that “the appropriate compensation laid down in Article 9(7) of directive 2004/48 is a guarantee which the EU legislature considered necessary to cover the costs and injury to which the defendant is subject following an “unjustified application” for provisional measures”. In the ECJ’s opinion, the application for provisional measures is justified where any delay would cause irreparable harm to the holder of an intellectual property right and, on the contrary, “the finding that an application for provisional measures is unjustified presupposes, primarily, that there is no risk that irreparable harm may be caused to the holder of an intellectual property right in the event of delay in the adoption of the measures sought by him”. This is not the case where the defendant markets its products even though a patent application has been submitted or there is a patent hindering marketing, as occurred in this case: “such conduct may, prima facie, be regarded as objectively indicative of the existence of a risk, for the holder of that patent, of irreparable harm in the event of delay in the adoption of the measures sought by that patent holder”.

As regards the repeal of the provisional measures, although that may constitute one of the conditions necessary to order the applicant to pay the defendant  appropriate compensation, it cannot be “regarded in itself as a decisive factor in proving the unjustified nature of the application which gave rise to the provisional measures which have been set aside”.

Finally, the ECJ underlined that the overall assessment made by the national courts must determine, inter alia, whether the applicant has not abused the measures and procedures referred to in the Article at issue and must take due account of all the objective circumstances of the case, including the conduct of the parties.

In conclusion, the ECJ stated that the concept of “appropriate compensation” referred to in Article 9(7) of Directive 2004/48/EC must be interpreted as “not precluding national legislation which provides that a party shall not be compensated for losses which he has suffered due to his not having acted as may generally be expected in order to avoid or mitigate his loss and which, in circumstances such as those in the main proceedings, results in the court not making an order for provisional measures against the applicant obliging him to provide compensation for losses caused by those measures even though the patent on the basis of which those had been requested and granted has subsequently been found to be invalid, to the extent that that legislation permits the court to take due account of all the objective circumstances of the case, including the conduct of the parties, in order, inter alia, to determine that the applicant has not abused those measures”.