Patent trolls will gain from a single European system, vendors warn

The new E.U, patent rules would allow easy European wide sales bans on products, the tech companies wrote

The creation of a pan-European patent system will help spread abusive patent litigation to Europe and could lead to E.U.-wide sales bans on products, leading tech vendors have claimed.

Tech giants including Apple, Google, Samsung, Microsoft, Cisco, HP, Yahoo, Intel and BlackBerry sent an open letter to European officials on Thursday outlining their concerns about the formation of a new unified patent court system in the E.U.

While the unified system has been heralded as simplifying the patchwork of rules that currently exist across the single European market, vendors say it also brings the threat of a one-stop-shop for quick region-wide sales bans. And allowing cases to be split up, with the validity of a patent decided in one court while infringement issues are decided in another, can expose product vendors to penalties even before the patent in question is declared sound, they claim.

The proposed rules of the new system could favor the practices of Patent Assertion Entities (PAEs), popularly known as patent trolls, the companies wrote. PAEs are individuals and firms that own patents but do not directly produce goods or services using the patented innovations and instead assert their intellectual property rights against companies that do.

The current draft rules create "strong incentives for abusive behaviors and harm the innovation that the patent system is designed to promote," the companies wrote in the letter. The letter was signed by 14 companies and two industry associations, among them Adidas, Bull SAS, Deutsche Post, Deutsche Telekom, Telecom Italia, the European Semiconductor Industry Association (ESIA) an the French Syndicat de lIndustrie des Technologies de lInformation (SFIB), a French IT industry association.

To mitigate potential abuse, PAEs should not be allowed to use sales injunctions for the sole purpose of extracting excessive royalties from operating companies that fear business disruption, they wrote. Also, when granting injunctions courts should be required to assess proportionality -- in practical terms, that a proposed measure is no more onerous than is necessary to achieve the immediate objective.

PAEs could also abuse a system that allows courts to separately deal with the questions of whether a particular patent is valid and whether it has been infringed, the companies wrote.

The unified patent agreement allows the validity and the infringement questions to be decided in different courts in the same case.

Splitting those decisions into separate cases is known as bifurcation. A similar system is currently used in Germany, which makes Germany an attractive country for European patent litigation because in some cases it can allow plaintiffs to obtain a quick infringement ruling while the validity case drags on for years.

If this system was to be introduced for most of the European market, it could lead to quick E.U.-wide injunctions, barring products from the European market, before any determination of whether the patent in question is actually valid, the companies said.

"Given the drastic impact of such an injunction on the defendant, unprincipled plaintiffs would be able to extract substantial royalties (through settlements or verdicts) from European and other companies based on low-quality, and potentially invalid patents," they added.

In the case of bifurcation, the companies' argument is not good, said Willem Hoyng [cq], a member of the Preparatory Committee, in an email.

"The companies do not understand that the future bifurcation possibility is different from the present German system," Hoyng wrote. While Germany requires splitting cases, in the new system the court does not have to split up the validity and infringement cases, said Hoyng.

Bifurcation can only do harm if, as in Germany, the invalidity court is slower than the infringement court, Hoyng said.  "It is clear from the Rules of proceedings that should not happen in the new system," he added.

Hoyng also indicated that he thinks the companies' fear of patent trolls is overstated. "I do not understand this fear because the new system is not different from what is [currently] the situation in almost all European countries," he said.

In extreme cases the court can apply general concepts of law such as misuse of right, he said. "However it is totally unacceptable when a University would be unable to enforce a valuable patent because it does not exploit such patent. Valid patents should be respected," he said.

And even if there are weak patents, they do not survive in a court of law manned by good judges, Hoyng wrote.

There is an Oct. 1 deadline for offering written comments on the draft rules. After the consultation period is closed, the Preparatory Committee will ask the Drafting Committee to evaluate the contributions received and to make proposals and comments ensuing from the public consultation.

A public hearing on the draft rules is scheduled to take place in early 2014.

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