The Court of Justice’s New Ruling – Finnish Strict Liability Regime regarding Unfounded Preliminary Injunctions Compatible with the EU Enforcement Directive

The Court of Justice of the European Union (the “Court of Justice”) handed down its judgment in case C‑473/22 (Mylan v. Gilead and Others) at the beginning of January 2024. The case concerned the Finnish compensation regime that can be invoked when a preliminary injunction is found to have been unfounded. This compensation regime is based on the concept of strict liability.

Although the judgment primarily concerns compensation claims subject to the Finnish law, the judgment has implications in all EU jurisdictions where a similar strict liability regime exists. The Court of Justice’s judgment provides clarity for cases where an intellectual property right is first used to justify a preliminary injunction and then subsequently found invalid.

In the case that led to the damages claim which ultimately resulted in the referral, Gilead sought and obtained a preliminary injunction against Mylan on the basis of a so-called supplementary protection certificate (“SPC”). The SPC was subsequently revoked, resulting in the preliminary injunction issued against Mylan being formally unfounded.

Mylan brought a claim for damages before the Finnish Market Court seeking compensation for the losses caused by the preliminary injunction as it had prevented Mylan from selling the relevant pharmaceutical products in Finland for an extended period.

The Finnish Code of Judicial procedure provides that a party who obtains any provisional measure is liable for resulting damages, costs and losses if the intellectual property right relied on is subsequently found to be invalid. As there are no qualifying factors, the liability is deemed “strict”, i.e. liability without fault.

In view of the case law by the Court of Justice, particularly in the judgment Bayer Pharma (case No C‑688/17), the alignment of the Finnish compensation regime with the Article 9(7) of Directive 2004/48 on the enforcement of intellectual property rights (“Enforcement Directive”) was raised in the proceedings. It was argued by Mylan, inter alia, that the Bayer Pharma judgment or Article 9(7) of the Enforcement Directive do not preclude the application of strict liability based compensation regime.

The Finnish Market Court decided to stay the proceedings after the main hearing and refer the question to the Court of Justice in July 2022 requesting a preliminary ruling on the interpretation of Article 9(7).

In light of the Court of Justice’s judgment in the Bayer Pharma case, the Market Court decided to refer altogether four questions to the Court of Justice. The first one was the question of whether a compensation regime based on strict liability, such as that in force in Finland is to be regarded as compatible with Article 9(7) of the Enforcement Directive.

Advocate General’s opinion

In September 2023 the Advocate General Szpunar issued his opinion in the case No C-473/22 focusing on the compatibility of the strict liability regime with Article 9(7) of the Enforcement Directive especially in light of the Bayer Pharma case.

According to the Advocate General’s opinion, the national courts should be able to examine all the circumstances of the case in order to assess whether it is necessary to order a compensation under Article 9(7) in cases where unnecessary preliminary injunctions have been issued. As the strict liability regime does not allow national courts to do so, the Advocate General deemed that the strict liability regime applied in Finland is not compliant with the Enforcement Directive. However, the Court of Justice did not accept the Advocate General’s opinion.

Interpretation of the concept of appropriate compensation in Article 9(7)

Article 9(7) of the directive provides, that, where the provisional measures are revoked or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, the judicial authorities are to have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by those measures.

Key question of the judgment is how to interpret the above concept of “appropriate compensation”.

The Court of Justice noted in its judgment that the provisions established in Article 9(7) do not mention the existence of fault as a condition for compensation. The Court of Justice also pointed out that the EU legislature has chosen to provide for minimum harmonisation concerning the enforcement of intellectual property rights in general.

Member States allowed discretion

Since the wording of Article 9(7) corresponds to the very broad wording of Article 50(7) of the TRIPS Agreement, the EU legislature’s intention was not to harmonise the rules on compensation beyond what is required by the TRIPS Agreement and to allow the Member States discretion with regard to the specific implementation of the rules regarding liability for compensation.

The Court of Justice thus found that it cannot be inferred from the judgment handed down in the Bayer Pharma casethat Article 9(7) of the Enforcement Directive provides for compensation to be paid to the defendant only in the event of fault on the part of party that applied for the preliminary injunction.

As courts are not automatically obliged to order the applicant to pay compensation for any injury suffered by the defendant as a result of a preliminary injunction, the Member States must allow the courts to be able to take into account all the circumstances of the case before it, including the conduct of the parties, when transposing Article 9(7) of the directive.

A system based on strict liability ensures a balance

In addition to the requirements established in Article 9 of the Enforcement Directive, the Member States’ leeway is also subject to the requirements laid down in Article 3 of the directive. By virtue of Article 3, the measures taken by the Member States must be equitable, proportionate, and dissuasive, and they must be applied in such a manner as to avoid the creation of barriers to legitimate trade, the protection of which is one of the objectives of the TRIPS Agreement, and to provide for safeguards against their abuse.

In its judgment, the Court of Justice found that the fact that the party that applies for a preliminary injunction must weigh the risk involved in the enforcement of the preliminary injunction against the risk taken by the defendant in the preliminary injunction proceedings in deciding to market the products that may infringe intellectual property rights.

The fact that the defendant does not have to prove fault on the part of the applicant of the preliminary injunction is, in fact, a counterweight to the fact that the applicant has been able to obtain a preliminary injunction without having to provide conclusive evidence of a potential infringement of their rights. With this being the case, the Court of Justice ruled that a system based on strict liability – such as the one at hand in Finland – fully ensures a balance between the rights of the applicant and the defendant.

Conclusion

In view of the answer given by the Court of Justice to the first question, and in so far as the second to fourth questions were asked only in the event of a negative response to that question, there was no need to answer other questions.

The Court of Justice concluded that Article 9(7) of the Enforcement Directive must be interpreted as not precluding national legislation that provides for a mechanism for compensation for any injury caused by a preliminary injunction, within the meaning of that provision, based on a system of strict liability of the applicant for those measures, in the context of which the court is entitled to adjust the amount of damages by taking into account the circumstances of the case, including whether the defendant played a part in the occurrence of the injury.

The main impact of the Court of Justice’s judgment is that it provides clarity with regard to the current compensation system that is based on strict liability. As the judgment confirms that the Finnish provisions regarding compensation are not precluded by Article 9(7) of the Enforcement Directive, no significant changes to the existing strict liability regime are expected.

Although strict liability is not excluded, the circumstances of each individual case must nevertheless be taken into consideration when assessing the amount of payable compensation.

As such, strict liability is not comparable to automatic liability, and it is up to national courts to determine what constitutes as appropriate compensation on a case-by-case basis.

The Borenius lawyers named below would be delighted to answer any legal questions you may have regarding this judgment and its implications for your business. Please do not hesitate to contact us for more information.