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Decades old framework harms competitiveness. Modernising EU’s patent system will be key to EU’s ability to innovate, compete and grow. ​​​Two decades is a long time to lag behind. But that’s how long the European Commission’s Competitiveness Compass tells us the EU has been trailing ​other major economies​. Why? ​​​​Part of the problem is that the system holding Europe back sits on decades old framework. The application of the IPR Enforcement Directive (IPRED), created before today's tech revolution, results in the heavy-handed enforcement over patents which damages innovation. The Compass recognises that to compete, Europe must be able to lead in critical technologies like AI, robotics, biotechnology, and clean energy – all sectors characterized by complex products incorporating thousands of patented technologies. Yet the current application of the IPRED does not cater for complex products. Currently, European patent courts nearly always grant automatic injunctions in patent infringement cases, even if the manufacturer of a complex product has accidentally infringed a patent reading on a minor component of that product. This means companies have to take entire product ranges off the market or pay excessively high settlements, with costs rising into the hundreds of millions. This is impacting investment decisions and​​​ diverting resources from key technology areas​​​​​, and what’s more, it​’​s enriching an ecosystem of ​​​investors​ that buy up ​trivial​ patents specifically to benefit from the imbalanced system. After 20 years, this outdated framework needs updating to ensure remedies for infringement are proportionate, and abusive patent litigation doesn’t hinder innovation and competitiveness. The United States ​​​made this adjustment almost twenty years ago​. The 2006 eBay v. MercExchange US Supreme Court decision required courts to evaluate the facts of each case before issuing injunctions. This balanced approach has​​​ put a stop to automatic injunctions​ while protecting legitimate patent rights. As Europe aims to close its productivity gap and lead in critical technologies, modernising IPRED is key. A more balanced patent system would support Europe's innovative capacity in the exciting and complex technologies that will drive future growth, and help bridge the competitiveness gap. The Compass states the EU needs to close the innovation gap and simplify rules to leverage the benefits of the Single Market. Otherwise, it will “will lose relevance” in a world characterised by strength of the “big powers”.

IP2Innovate

On 28 January, IP2Innovate submitted its key recommendations for the upcoming EU Single Market Strategy 2025, highlighting the need to modernize patent enforcement in Europe. In the submission, IP2Innovate stresses that consistent application of proportionality requirement to patent enforcement is essential for the functioning of the Single Market. Modernization of the EU IPR Enforcement Directive through targeted amendments is needed to fully exploit the potential of the Single Market to boost Europe’s productivity. IP2Innovate believes that, after 20 years, now is the time to modernize the IPRED through targeted amendments to ensure that courts in the EU Member States and the newly established Unified Patent Court consistently and effectively consider the proportionality of remedies in their handling of patent litigation cases. Such targeted amendments would ensure the consistent and effective application of proportionality across all EU Member States, creating a more predictable legal environment that supports the free movement of goods and services within the Single Market. By fostering legal certainty and reducing market inefficiencies, these changes will unlock the full potential of the Single Market to drive Europe’s productivity and competitiveness.

IP2Innovate

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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Dear Executive Vice-President -designate, On behalf of IP2Innovate, I write to congratulate you on your nomination as the European Commission Executive Vice-President-designate for Prosperity and Industrial Strategy. You are taking on this role at a pivotal moment as Europe seeks to embrace a new era of competitiveness, productivity, and innovation.

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IP2Innovate welcomes the report on EU competitiveness by Mario Draghi published yesterday, and in particular its emphasis on improving innovation. The in-depth report cements competitiveness and boosting European productivity at the heart of the EU’s political agenda. It calls for Europe to improve the pipeline from innovation to commercialisation.

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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.

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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.