12. September 2023
The UPC opened for its first case on 1 June 2023 and there are already many cases pending, with claimants using the new court system in interim proceedings and main infringement and revocation cases. It is now time to have a closer look at the rules governing enforcement of decisions and orders of divisions of the UPC. Enforcement is unified to a large extent. Once a decision or order is made in the UPC, it applies in the contracting members states.
It is not necessary to register UPC decisions or orders in national courts for them to have effect. If a party fails to comply with a UPC decision or order, then further UPC penalties may apply, and national enforcement proceedings in contracting members states may be invoked. This article gives a general overview of the enforcement system.
The UPC primarily enforces decisions or orders directly as a national court through its main instrument - the recurring penalty payments payable to the Court.
The two main provisions governing enforcement of decisions and orders of the Court are Art. 82 and 63(2) UPCA, which are specified and supplemented by Rules of Procedure (RoP).
Art. 63(2) UPCA provides for recurring penalty payments payable to the Court in the event of non-compliance with a permanent injunction under Art. 63(1) UPCA.
According to Art. 83(1) UPCA, decisions and orders of the UPC are enforceable in all Contracting Member States.
According to Article 82(3) UPCA the enforcement procedure is governed by the law of the Contracting Member State in which it takes place "without prejudice to the UPCA and the Statute", meaning that the UPCA takes precedence over national regulations.
National law applies only in the absence of UPC provisions, in particular regarding enforcement for monetary claims (including the recurring penalty payments), e.g. by seizing assets under the national law of the member state Also, in case of non-payment of the recurring penalty payments ordered by UPC, the payment is collected nationally. In Germany, the responsibility lies with the Federal Office of Justice, which collects periodic penalty payments ex officio (Art. II, § 20 IntPatÜG, Justizbeitreibungsverordnung).
Art. 82(4) UPCA provides for recurring penalty payments payable to the Court in the event of non-compliance with an order of the Court.
The application of Art. 82 UPCA is not limited to infringement decisions. According to Art. 56 (1) UPCA, the UPC may order the measures, procedures and remedies set out in the UPCA. In doing so, provisional measures may be imposed on a party during the course of the proceedings and enforced by recurring penalty payments. Such measures include: Order to produce evidence (Art. 59 UPCA), order to preserve evidence and to inspect premises (Art. 60 UPCA), freezing orders (Art. 61 UPCA), provisional and protective measures (Art. 62 UPCA), corrective measures in infringement proceedings (Art. 64 UPCA), the provision of information (Art. 67 UPCA). [Also see our overview on means of evidence and obtaining evidence.]
These are regulated in Art. 82 (1) sentence 2 UPCA, Rule 118 (8) RoP and Rule 352 RoP:
If a party has failed to comply with the terms of an order of the Court, the Court may decide on penalty payments provided for in the order upon the request of the other party or of its own motion (in the unlikely event that the Court becomes aware of a breach of the order), Rule 354(4) RoP.
The parties must be given the opportunity to be heard before periodic penalty payments are ordered (Rule 264 RoP). In most cases, this will result in the defendant being heard, as the plaintiff can make a statement in his application for a recurring penalty payment and does not need to be heard beyond that.The parties must be given the opportunity to be heard before periodic penalty payments are ordered (Rule 264 RoP). In most cases, this will result in the defendant being heard, as the plaintiff can make a statement in his application for a recurring penalty payment and does not need to be heard beyond that.
The order of the Court is appealable within 15 days of service of the decision. The appeal does not have suspensive effect, unless the Court decides otherwise at the request of the parties (Article 74(1) UPCA). It is therefore essential to observe this tight deadline.
As to the penalty payment amount, Article 82(4) UPCA states that "the individual penalty must be proportionate to the importance of the order to be enforced", and Rule 354 (3) RoP says: “The value of such payments shall be set by the Court having regard to the importance of the order in question”.
How the Court will set the amount of the recurring penalty payments will become clear through the decision practice. According to the non-binding Guidance for the use of the General Template for “Decision in an action for infringement with counterclaim for revocation”, published on the official UPC website, the Court may provide for recurring penalty payments in the event of non-compliance with the orders as follows:
Any failure to comply with the order ... [e.g. to cease and desist] will render the Defendant liable to pay to the Court a penalty of …
[as found appropriate by the Court; different penalties may apply with regard to different orders].
From this proposal, it can be understood that the Court can set the appropriate penalties per day of the infringement or per sold item. A one-off amount can also be set for payment. One possibility, which is also common in French courts that already have a system of recurring penalties, is to distinguish between injunctions and other orders. While a breach of an injunction is usually sanctioned with a penalty payment per infringing product or patent infringing act, other claims, such as for information, are sanctioned with recurring penalty payments calculated according to days of delay.
The value in dispute can indicate the importance of the respective case for the parties and can be referred to as a basis for calculation. One factor for determining the value in dispute is the annual turnover of the patented products. Assuming that the infringer cannot make higher profits on the infringing products than the patentee, this, calculated down to a daily amount, is a possible indication of how the infringer can be deterred from using the patent.
In determining the penalty payments, the Court could also take the intensity of the infringement as a reference. For this purpose, the turnover of the infringer is certainly decisive. The greater the turnover, the greater the penalty payment must be to stop him.
Furthermore, a penalty payment should also take the economic possibilities of the infringer into account and be adjusted to them. If the infringer is a large company, it can be induced to comply with the order by a higher penalty payment. However, the purpose of the penalty is not to ensure that the infringer can afford it, but to deter the infringer from committing the infringement. Therefore, the penalty payment must be adapted to the economic possibilities of the infringer.
The Court has discretion whether to make enforcement conditional on the provision of security by the plaintiff (Art. 82 (2) UPCA, Rule 118 (8) RoP). It should therefore be noted that security is not automatically ordered in UPC proceedings.
For example, an interim injunction may be enforceable without security due to special urgency, whereas security is ordered in the first instance in the case of an injunction in the main proceedings. However, taking into account the effects of an interim injunction in patent infringement cases, it may well be appropriate and fair to regularly make such an injunction conditional on adequate security for potential damages. This is what the local division in Duesseldorf (Germany), for example, has announced for its decisions.
The Court's discretion can only ever be exercised within legal boundaries and discretionary decisions are appealable according to Rule 220 RoP.
Since security is intended to compensate for damages in the event of the revocation of decisions on appeal, decisions of the appellate instance against which appeals can no longer be lodged (Art. 73 UPCA) are regularly enforceable without security.
Regarding the amount of security, several factors must be considered. In terms of time, the security is supposed to cover the period until the end of the appeal procedure; in the UPC system, the appeal procedure is expected to take one year.
According to Rule 352 RoP, the security should cover legal costs, other costs due to enforcement and compensation for damages incurred or likely to be incurred.
Legal costs shall include costs of the appeal proceedings and legal costs for the defence in the enforcement proceedings. The security for expenses and damages shall include in particular:
The security amount can be quite substantial. However, the plaintiff can reduce his cost risks by informing the Court that the orders of the decision shall only be partially enforced (Rule118 (8) RoP), as this lessen the risk of damages. Consequently, the Court will also order a reduced security.
The next question that arises is when the enforcement debtor is to be compensated for the consequences of enforcement and when any security, if ordered, becomes due. The merits of the case may of course change after the Court's decision and the commencement of enforcement, the enforcement order may be revoked or even the patent in suit may become null and void. In this case, the judgment debtor is entitled to specific rights in the UPC enforcement system.
In the case of revocation of the order, certain claims for compensation are directly regulated in UPCA.
There are special rules for compensation in case of revocation of evidence preservation orders and inspections (Article 60(9) UPCA), this applies accordingly to revocation of arrests (Article 61(2) UPCA) and injunctions (Article 62(5) UPCA).
For all other cases, Rule 354 (2) RoP regulates the compensation on enforcement:
„Where during an action an enforceable decision or order of the Court is subsequently varied or revoked, the Court may order the party which has enforced such decision or order, upon the request of the party against whom the decision or order has been enforced, to provide appropriate compensation for any injury caused by the enforcement.”
The decision must be revoked during the proceedings. The first option is the setting aside of the decision on appeal. Another option is the entry of the condition from the Court's decision according to Rule 118 (2) lit.a RoP. This rule is applicable if infringement proceedings are pending before a local or regional division and a revocation action is pending between the same parties before the central division or an opposition is pending before the European Patent Office.
Under this rule, the Court may render its decision on the merits of the infringement claim, including its orders, under the condition that the patent is not held to be wholly or partially invalid by the final decision in the revocation proceedings or a final decision of the European Patent Office or under any other term or condition. If the condition occurs and the patent in dispute is revoked, a party may apply to the Court of first instance within two months following a final decision of the central division or the Court of Appeal or the European Patent Office for orders consequential on such final decision, i.e. compensation according to Rule 354 (2) RoP.
Compensation is then awarded in a two-step procedure in accordance with Rules 125 and 126 RoP. First, the enforcement creditor is ordered by the Court to pay an appropriate but not yet quantified compensation. In the second step, the sum of the compensation is determined by the Court of first instance. This must be requested by the successful party within one year of the decision on the merits.
If the patent is amended or revoked after the end of the infringement proceedings and the Court has not imposed a condition according to Rule 118(2) lit.a RoP, the enforceability of the title can be revoked according to Rule 354 (2) sentence 3 RoP on request of the party. However, this has no retroactive effect and merely stops enforcement; compensation claims for the enforcement acts already performed are not possible.
A request for rehearing under Article 81 UPCA is also not an option in this case, as the exhaustively listed grounds do not contain any reference to revocation of the patent.
To prevent this undesirable outcome, the defendant in the infringement case should aim for a conditional ruling pursuant to Rule 118(2)(a) RoP. It should be considered to file a revocation action with the central division or an opposition with the EPO, with the anticipation that the court will exercise its discretion and impose the condition as per Rule 118(2)(a) RoP. Another viable option is to assert a counterclaim for revocation before the infringement court, as this would compel the court to render a joint decision encompassing both the infringement action and the revocation issue.
The new system of enforcement is very exciting in all its aspects, especially in its enforcement, where the actual realisation of the results is at stake. It will be interesting to see how the UPC will shape the presented system of enforcement through its case law, especially by exercising the discretion widely granted by the regulations. The decisions on the provision of security and the amount of compensation are to be expected with great excitement. In addition, as in all UPC proceedings, the observance of the tight deadlines in the enforcement process requires the utmost attention.
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