ESG & Patents – Destruction of infringing goods under the UPC & sustainable alternatives

Taking into account the environmental impact of day-to-day business operations and the aim of businesses to contribute to a world that remains livable, modern businesses are setting sustainability goals and face challenges. Aiming for the best and most valuable innovation while holding on to Environmental, Social and Governance (‘ESG’) values, can be challenging but can also benefit patent proprietors and provide competitive advantages. 
As discussed in our previous contribution, creating and implementing environmental-friendly innovations can be facilitated by the patent system, for example by applying for ESG-friendly patents, such as patents for meat substitutes. 

Next to using the patent system for green innovations, ESG-goals can be achieved by limiting or preventing the waste of all kinds of recourses, such as raw materials, excess production and packaging in case of patent infringement. In the event an innovator (patent proprietor) is confronted with an infringing product or product that is the result of an infringing production method and litigation is initiated, it is common practice for the right holder to request the court to grant several corrective measures, amongst others the destruction of the infringing goods. This standard practice however results in the destruction of – sometimes – fully functional, high quality, but infringing goods. 

With the launch of the Unified Patent Court (‘UPC’) and the introduction of the Unitary Patent on 1 June 2023, one decision of the UPC can lead to corrective measures in 17 EU member states, since 17 member states have ratified the UPC Agreement. The legal basis for corrective measures (including the destruction of infringing goods) can be found in article 64 (1) UPC Agreement. It includes that the UPC may order appropriate measures to be taken with regard to products found to be infringing. Article 64(2)(e) UPC Agreement states that these measures ‘shall’ include the destruction of the products and/or of the materials and implements concerned. The UPC Agreement does not exclude sustainable alternatives. 

The call for alternative, sustainable solutions that equally meet the right holders interests, has been on the rise over the last years in practice. We see that parties are looking for sustainable solutions and out of court settlements. 

Sustainable alternatives

In practice, we see several alternative measures are often considered, whilst carefully looking at the specifics of the case and moreover not giving in on the right holders interests, such as the following: 

• Sale of infringing products based on a license fee
  Allowing an infringing party to continue selling the infringing products while surrendering profit and/or under payment of a license fee, is a sustainable alternative that is sometimes included in settlements, however not in court decisions. Naturally there are downsides for the right holder (such as the reduction of the monopolistic position). In addition, in case the infringing products are inferior, continuation of sales is not an option (for example in case the products do not meet quality and/or safety requirements). However, this alternative is not be overlooked, especially in case a mutual solution including continued sales can benefit the patent proprietor.  

• Handing over the infringing products to right holders or charity organisations
  The upside of this method is that the right holder has control over the distribution and/or sale of the infringing products. The large downsides are the logistic and administrative hurdles and costs for sustainable processing or transportation to charities. In addition, right holders still face the problem that the infringing products may end up in the same market and territory as the territory of the state where the patent has been granted. The right holder may also choose to distribute the infringing products outside the territory of protection (also when choosing for method (1)) in order to prevent reducing its monopoly and the availability of the infringing products on the same market.
• Partial deconstruction
  In some events, the patent infringement does not concern the entire product but only a specific part or component of the product. In such events, removal and destruction of only the infringing part or individual component could be a sustainable alternative compared to full destruction of the infringing goods. Further problems can arise, for example in case the product in particular is also trademark- and design right protected and the shape of the product is (also) infringing and/or additional action such as rebranding is required, which may also not be sufficient to fully serve the interests of the right holder. 
• recycling and upcycling
  Lastly, it is good to take into account that full destruction of the goods using conventional methods of destruction, can prevent achieving ESG-goals and may be a less preferred from an environmental perspective. If the goods or materials may be processed in such way the goods or materials can be used again (recycled), useful resources may be saved. This same goes for upcycling, i.e. using the infringing goods or materials in such way it results in a product of higher quality or value than the original. This may also benefit the right holder. 

Conclusion

It is uncertain and questionable how and to what extent the UPC will consider alternative measures. We establish that practice has shown that parties more often are working towards more sustainable solutions and settlements and believe that stakeholders such as innovators may - under specific circumstances - benefit from considering alternative solutions in their legal strategy when it comes to patent infringement and litigation at the UPC. Moreover, ESG-friendly solutions in specific cases may also benefit right holders.