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World IP Day 2024: Creating balance in the European patent system will help tackle the climate crisis and promote Europe’s competitiveness

This year’s World IP Day focuses on the role innovation and intellectual property play in enabling us to achieve the Sustainable Development Goals (SDGs), and build a more sustainable future for all. Innovation offers the world a chance to address the climate crisis. It is crucial that the patent system functions properly so that green inventors get their ideas to market.

Europe faces a number of challenges right now, the green transition being high on the list. A balanced patent system is crucial for Europe’s success in this area as well as its global competitiveness. That is why IP2Innovate is calling for legislative action to further codify the proportionality requirement in EU law.

We believe that now is the time, 20 years after its adoption, to introduce targeted amendments to the Intellectual Property Rights Enforcement Directive (IPRED) to ensure that courts in the EU Member States and the newly established Unified Patent Court consider the proportionality of remedies in their handling of patent litigation cases. This has always been a requirement in theory under the IPRED but has almost never been applied in practice. Automatic injunctions are the norm in EU countries (over 99% of cases), which means that an accidental infringement by a manufacturer of a patent that relates to a minor feature of a complex product can result in the entire product range being immediately removed from the market. This creates a huge disincentive for investment in the R&D necessary to bring the next generation of green products to market.

Guidance issued by the European Commission in 2017, aimed at correcting the misapplication of the EU law, has not materially improved the situation. An analysis of patent court rulings provided by Darts-ip, the leading source of global patent case data, for the period 2018-2020, shows that 99% of cases saw no proportionality assessment – compared with 99.7% of cases observed between 2015 and 2017.

As this data clearly shows that the Commission’s 2017 Guidance has not brought a material change in the application of proportionality, we are pleased that the Commission is currently conducting a new study to examine how to solve the problem of the lack of application, of proportionality.

The further codification of proportionality in the IPRED will help create a more balanced patent system. This will spur innovation, including in relation to products and services designed to meet Europe’s ambitious climate goals, and, in turn, help to promote European competitiveness in this critical area.

 

German patent law reforms

 

Legal reforms adopted in June 2021 in Germany, where most EU patent litigation takes place, appear to have encouraged more defendants to view proportionality as a potentially viable defense to an injunction. Since the reform there have been at least 17 court cases where proportionality was pleaded by the defendant during a 15-month period, compared to only two cases over the preceding six-year period. It is still too early to assess the real impact of the German reforms but early indications show that at least proportionality is being raised more frequently than before the reform.

Further codification at the EU level is necessary to address an imbalance in Europe’s patent system that harms competitiveness and innovation in Europe. It is possible that other Member States will follow Germany’s lead and we definitely would encourage this, especially given the fact that many Member States never explicitly transposed the IPRED’s proportionality requirement into their patent legislation. However, having clear EU rules to ensure a harmonized approach across the EU Single Market is essential to effectively enforce the application of the proportionality principles in patent litigations.

 

UPC context

 

Ensuring the equitable resolution of patent litigation in the EU through targeted amendments of the IPRED is of even more importance with the establishment of the Unified Patent Court (UPC). If automatic injunctions become the norm in the newly established UPC, innovative companies would face Europe-wide automatic injunctions and not just ones at national level.

With the arrival of the UPC, the stakes have increased, making it even more important to ensure that courts will consider the proportionality of the remedies sought by plaintiffs seeking injunctions on the grounds of a patent infringement. Proportionality will ensure that the interests of plaintiffs and defendants, as well as the public, are flexibly assessed to ensure a balance of the reasonable interests of all sides, which is especially critical in the case of complex consumer products. The threat of having a product taken off the entire European market would worsen the imbalance between patent owners and implementers.

We believe that further codification of proportionality in EU law would ensure that proportionality is effectively applied at UPC level, as well as in national patent courts.

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Seeking a new balance point in Europe’s patent system that better suits innovation and society

How to ensure the patent system in Europe best serves the innovation process has been a hotly debated topic for decades. In recent years lawmakers in Germany and in Brussels have started to realise that the old status quo – where patent courts hand out injunctions almost always automatically – doesn’t work in a world where advances in technology constantly bring more and more complex products to market, and where thousands of patents could possibly be relevant. It has become too easy for patent assertion entities (PAEs) to leverage the threat of automatic injunctions and disrupt the market presence of established consumer products in Europe to extract excessive license fees. While the interest of PAEs is limited to monetary compensation and not to stop the sale of products, the mere threat of such automatic injunctions is enough to push most targets of such assertions to accept disproportionate settlement conditions. It’s a hugely profitable business model for PAEs but it does little for innovation or for society, and undermines Europe’s competitiveness. By allowing this abuse, the European patent system is tilted too far in favour of patent holders and needs to be re-balanced. That is why in spring this year IP2Innovate called for the Commission to adjust the EU’s Intellectual Property Rights Enforcement Directive (IPRED), adopted in 2004. The law does require courts to apply proportionality when considering patent infringement cases, but this is not being applied in practice as injunctions continue to be granted effectively automatically even in cases where an alternative remedy would be more proportionate. An analysis of patent court rulings provided by Darts-ip, the leading source of global patent case data, for the period 2015-2020, shows that more than 99% of cases saw no proportionality assessment. Ensuring the equitable resolution of patent litigation in the EU through a targeted amendment of the IPRED is of even more importance with the establishment of the Unified Patent Court (UPC). Indeed, a recent study by Professor Sterzi of the Bordeaux School of Economics shows that PAEs initiated close to 30% of all infringement actions in the ICT sector – a key area for European competitiveness – in the UPC. If automatic injunctions become the norm in the newly established UPC, innovative companies would face UPC-wide automatic injunctions and not just ones at national level. The European Commission is evaluating this dynamic, and in 2023 commissioned a study to look at whether proportionality is being applied in Europe as well as looking into the role of PAEs in Europe. IP2I welcomes the European Commission’s initiative as Europe needs a properly functioning patent system fit for the modern age if it is to succeed in enhancing Europe’s competitiveness. The proportionality of remedies must be applied in patent litigation. Courts and parties need a clearer steer from Brussels to ensure it happens. Targeted revisions of the IPRED in relation to proportionality look set to be the next key challenge in patent policy in Europe. IP2Innovate hopes that the new attention being paid to the IPRED’s proportionality requirement will help to find a balance point in the European patent system that better suits the broader interests of innovation and society.
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IP2I calls on European Commission to protect Europe’s patent system from abuse

A new academic study by economists at the universities of Bordeaux, Grenoble, and Universitat Pompeu Fabra (Barcelona) highlights how patent assertion entities (PAEs) are continuing to take advantage of weaknesses in Europe’s patent system. The study, entitled Patent Privateering, looks at one specific method of patent abuse. Patent privateering is a term to describe a situation where a patent owner hands patents to a patent assertion entity (PAE) to exploit for mutual benefit, allowing the patent owner to maintain a secret stake in the patents. The study concluded that patent privateering is widespread in Europe. The practise has been around for many years but as other jurisdictions including the US have made it harder, Europe’s patent system is a ripe target for abuse. This is largely because patent courts in Europe do not apply the principle of proportionality, and instead hand out injunctions to patent owners almost automatically.
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Prof. Sikorski’s latest paper: IPRED needs targeted reforms to strengthen the principle of proportionality in patent litigation

There is broad agreement on the need for taking proportionality considerations into account in patent litigation cases but it’s not being applied in the courts in Europe. As a result, injunctions are being handed out automatically in almost all cases, even though EU legislation – the IP Rights Enforcement Directive (IPRED) – specifically calls for judges to apply proportionality. IPRED needs targeted amendments in order to correct this. In his paper titled Permanent Injunctions and the Reception of the Principle of Proportionality in the European Union, Rafal Sikorski, assistant professor, Chair of European Law at the Adam Mickiewicz University of Poznan in Poland, calls for reform of the directive. “The EU should consider introducing a set of factors to IPRED that the courts should consider when applying proportionality. In fact, this approach has already been taken by the EU legislator in the Trade Secrets Directive,” Professor Sikorski said in an interview.
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