The problem with importing eBay to Europe 

The US and European patent systems are very different, so adopting the tests underlying the grant of injunctions on the other side of the Atlantic is much easier said than done 

By Joff Wild  

Recently, Valerio Sterzi, a professor at the University of Bordeaux, produced a very interesting set of data points on NPE activity at the Unified Patent Court during its first year of operation. Professor Sterzi, who has written extensively on the economics of patent litigation and has received funding from lobbying group IP2Innovate and Google in the past (though not for this paper), looked at the filings made by NPEs at the court between 1^st June 2023 and 31^st May 2024. His main findings are as follows: 

• Overall, NPE filings accounted for 15.5% of those received by the court in year one. 

• In the second six months, however, the figure was close to 25%. 

• Patents reading on information and communication technology (ICT) were most often asserted by NPEs. 

• SMEs and micro-enterprises were sued far less frequently by NPEs than average. 

• Defendants based in the EU were sued far less frequently by NPEs than average.  

In other words, NPEs are active at the UPC but their targets tend to be large businesses based primarily outside of the EU. Although defendant origins are not identified, it would be a surprise if they were not largely from the US, China, Japan and South Korea. This is likely given the size profile and the preponderance of ICT cases.  

Prior to the UPC’s launch, and even after it opened for business, there were many warnings from lobbying organisations largely funded by deep pocket implementers of patent rights that the system could encourage “US-style patent trolls” to flood Europe and attack its SMEs. To the surprise of no-one who actually understood the dynamics of patent trolling (including, no doubt, many of those issuing the warnings), Professor Sterzi’s findings show this does not seem to have happened.  

Regime change 

However, the professor believes that despite this, the UPC should be looking to make changes to its current rules. He concludes: 

To mitigate potential issues of excessive bargaining power for patent holders, the UPC should consider the nature of the entities involved when granting preliminary injunctions. Emulating the approach of the U.S. Supreme Court in eBay Inc. v. MercExchange, LLC, which employs a traditional four-factor test for preliminary injunctions, may be advisable. This approach includes evaluating the likelihood of irreparable harm, the balance of hardships, the public interest, and the likelihood of success on the merits. By adopting such a balanced framework, the UPC can ensure fair and equitable treatment of all parties involved, discouraging opportunistic litigation while still protecting legitimate patent rights. 

The reference to eBay raises questions about just how far reform advocates might go in their push to limit injunctions in Europe. The four factors described by Professor Sterzi comprise the traditional test for the issuance of preliminary injunctions. The eBay decision went further than that. It effectively extended a version of this test to permanent injunctions. That is, those which may be issued after a court finding that a patent is valid and has been infringed. This is an important distinction.  

Previously, in the absence of exceptional circumstances, it was a general rule that US courts issued permanent injunctions after a finding of patent infringement. Under eBay, however, to secure such relief a plaintiff must demonstrate: it has suffered irreparable injury; that other remedies, such as monetary damages, are insufficient compensation; that, considering the balance of hardships between plaintiff and defendant a remedy in equity is warranted; and that the public interest would not be harmed by an injunction grant. 

Look before you leap 

Creating an eBay-style injunction test at the UPC would, therefore, represent a fundamental change to how patent litigation is conducted in Europe.  Before making such a move, a number of important issues and questions would need to be addressed. These include: 

• In the US, the eBay tests apply to all parties, not just NPEs. They have created a situation where in many industries, such as those in which ICT plays a significant role, injunctions are now de facto almost impossible to secure. This favours deep pocket defendants and makes life much harder for plaintiffs without access to large amounts of finance.  

• The eBay tests sit within a system that provides for far higher damages awards than are currently available in Europe - hundreds of millions, sometimes even billions, of dollars.  

• High damages must be a disincentive to infringe, not merely sums that are larger than are currently awarded. The US experience shows that deep pocket companies are happy to risk paying quite large amounts of money for the ability to appropriate other people's patents.  

• Can you have an eBay system without the possibility of very high damages? No injunctions plus relatively low damages are surely just an invitation to infringe. 

• If Europe does move to a no injunctions, high damages regime it would need to deliver final outcomes quickly. In the US, cases can drag out for many years. Again, this is something that is immensely harmful to plaintiffs without significant financial resources.  

• How do you reconcile eBay with the right to exclude that a patent is supposed to confer? 

There may well be satisfactory answers to all these questions and points – as well as others which are also raised – but it’s vital that they are considered in depth before any change takes place.  

Professor Sterzi’s paper provides an important set of data points that shed more light on who is using the UPC and why. Anything that adds to transparency in the new system is to be welcomed. However, importing US arguments and solutions and applying them to a European patent system that is very different to the one on the other side of the Atlantic needs to be done with extreme care. It also requires a very clear understanding of who benefits from a different set of rules and what the consequences will be of delivering for them. Too much is at stake for it to be otherwise.  

Joff Wild is Head of Content and Strategic Communications at Sisvel. 

This article was prepared by him in a personal capacity. The opinions expressed within it are the author’s own and do not necessarily reflect the views of Sisvel. The content is for informational purposes and should not be taken as legal advice.