When then-U.S. Secretary of Defense Donald Rumsfeld made a distinction between the "Old Europe" and the "New Europe" (including countries like Poland), there was a lot of (understandable) outrage. Unfortunately, some of the people shaping Europe's patent policy are now pushing for a Stone Age approach that makes patent injunctions a given in any case in which an infringement is identified, more than eight years after the eBay v. MercExchange ruling by the U.S. Supreme Court and also running completely counter to the tradition of several European jurisdictions (such as the UK and the Netherlands) in which judges have enjoyed significant discretion concerning patent remedies.
At a time when U.S. case law has upped the ante for patent trolls in limited but useful respects and U.S. lawmakers (now that the Republican Party holds a majority in both houses of Congress) are preparing more anti-troll reform legislation for 2015 (which President Obama will almost certainly sign), Europe is going in the completely opposite direction. And while this was not enough, there had at least been some temporary improvement in the spring: the 16th draft rules (the draft before the latest one) at least contained some language reminiscent of the balance-of-harms eBay factor.
While I'm not involved with the related lobbying efforts (I haven't done any lobbying in more than seven years), I strongly suspect that companies with a failed or declining operating business in the ITC space like Nokia and Ericsson are responsible for this. I've also heard through the grapevine that a German official (from the Ministry of Justice, not a judge to be clear) has been a key proponent of troll-friendly rules.
I'm very surprised that the industry coalition that first raised concerns 14 months ago and reinforced its message earlier this year hasn't spoken out yet on the latest (17th) draft rules of procedure for the UPC, but it also appeare a bit slow in the past, though maybe it will still get something done in time for next Wednesday's official hearing in the German city of Trier.
Considering that the previous draft represented at least a step in the right direction, I was like shell-shocked when I read the following passage from the official explanatory notes for the latest draft:
"Where the Court finds an infringement of a patent it will under Article 63 of the Agreement give order of injunctive relief. Only under very exceptional circumstances it will use its discretion and not give such an order."
That's part of the explanation of the deletion of Rule 118.2, which referred to eBay-like considerations. So the intention is that all infringements will result in inunctions except "under very exceptional circumstances." Even "exceptional" would mean "very rarely," but "very exceptional" means "hardly ever."
There are cases in which injunctive relief is the most appropriate remedy for patent infringement. But many of today's technology products are so multifunctional that unlimited access to injunctive relief will give patent holders undue leverage. For example, if Mercedes, BWM or Audi had to stop manufacturing and distributing an entire car only because of a need to work around a patent covering a very minor feature of the navigation system, the cost of complying with a court order would far exceed the true value of the asserted patent. That discrepancy invites arbitrage by trolls.
Those who favor such rules don't work to protect innovation or to strengthen law enforcement. They may mean well (at least for their profession, though I'm not sure they even have the best in mind for the economy at large), but at the end of the day they pave the way for rampant abuse with disastrous economic consequences.
Europe has an innovation problem--Nokia is a good example. If Europe now tries to just strengthen patent enforcement for the losers in the marketplace (Nokia being the most extreme example), the net effect is not going to be more innovation. Instead, even more European innovators will emigrate to Silicon Valley.
While the deletion of Rule 118.2 (which should not only have been kept but even strengthened) is disconcerting, there is now some (but still very insufficient) progress in a related context--bifurcation. Rule 40 now says that if an infringement hearing is scheduled and an infringement case is not stayed despite an ongoing revocation action, "the judge-rapporteur of the panel of the central division shall endeavour to set a date for the oral hearing on the revocation action prior to the date of the oral hearing of the infringement action."
Obviously, "shall endeavour" is pretty weak, and the explanatory notes make this even clearer:
"New Rule 40(b) will not to acceleration in all cases where counterclaims for revocation are referred to the central division -- only cases where the parallel infringement action is not stayed will be accelerated; in practice, the synchronisation of the calendars remains within the discretion of the judge-rapporteur ('shall endeavour')."
(emphasis of "all" and "not" in original)
This is a step in the right direction but still unacceptable because it means parties to a dispute will have to negotiate a settlement without the defendant knowing for sure that the invalidity defense will be adjudicated before an injunction issues. The "injunction gap" is a real issue as I showed in my study of the final and preliminary outcomes of 222 smartphone patent assertions: there was not even one situation in all the German cases among the lawsuits I analyzed in which an infringement proceeding was stayed and a patent later upheld, but there were multiple cases in which a patent later invalidated by the Federal Patent Court of Germany was enforced for an extended period of time in each case (for example, Motorola got to enforce a synchronization patent against Apple for 19 months).
My analysis was smartphone-focused, but other studies with a broader focus have also shown that most European patents are actually invalidated or narrowed when they come to judgment in the Federal Patent Court of Germany. Last month I blogged about a study by a leading German IP law firm that raised the question of whether patents are merely "paper tigers." A few days ago an English translation of that study was published on the Bardehle firm's website.
In closing I'd just like to clarify that I'm not fundamentally opposed to the UPC or the Unitary Patent. In fact, my app development company filed three PCT applications this year and would love to choose "Unitary Patent" as a target jurisdiction for each of them at the end of the EPO process following the 31-month international phase. And apart from whether the Unitary Patent legislation will be ratified in time or not, I will want those patents to be enforceable Europe-wide. But true innovators need a fair chance to defend themselves against meritless assertions. I'd rather have to convince a court that an infringement causes irreparable harm to my business and that the covered feature is not just a minor feature of a multifunctional product, and wait for the outcome of a revocation proceeding before I obtain injunctive relief, than have to negotiate with countless patent trolls against the background of an unbalanced, backwards-oriented framework.
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