IP in practice: due for a shake-up?

In 2014, a decade after the IP Enforcement Directive, the European Commission introduced an IPR Enforcement Action Plan aiming to curtail the activities in the EU of commercial-scale infringers. The problem of counterfeiting and the appropriate mechanisms for licensing essential patents have not gone away, however, and so the Commission continues to seek ways to improve the effective protection and exploitation of IPRs.  On 29 November 2017, the European Commission announced a package of measures which, while individually limited in their impact, are intended overall to strengthen rightsholders’ hands and improve transparency.

Understanding the IP Enforcement Directive

The first initiative is an attempt to aid the consistent interpretation of the IP Enforcement Directive which, like many others, has suffered from differing interpretations between the different Member States’ courts.

The ability to predict, with some degree of certainty, what outcome is likely if an IPR owner brings an enforcement action, is a key factor in whether or not companies, in particular SMEs with little or no dedicated enforcement budget, will in fact take action. The Commission has produced 29 pages setting out its views on how the various provisions of the Directive – as to its scope, the rules on evidence, interim measures, damages and costs – should be interpreted.  The Guidance is primarily based on the text of the Directive itself, and such rulings as the Court of Justice of the European Union has given to date.  Although these have been fairly scant, it is still useful to have a document pulling together such clarifications as have been given.

There is also value in drawing attention to the objectives of the Directive, set out in the Recitals, which rarely find their way into national implementing measures and so risk being overlooked by national courts.

Finally, the Guidance highlights the need for IPR enforcement to be balanced against the protection of fundamental rights under EU law such as privacy and proportionality, which must be taken into account when seeking disclosure of information or deciding whether an injunction is justified. The Guidance is unlikely to change the application of the Directive in any substantive way but, in conjunction with the Commission’s ongoing work on judicial training for judges handling IPR cases, and call for IP judgments to be published systematically (which few Member States currently do), may help to avoid future divergence of application.

Industry co-operation

The Commission is also optimistic, following the Memorandum of Understanding concluded between the representatives of rightholders and the internet platforms in 2011, that industry co-operation can be an effective means to combat counterfeits reaching the EU market.

This initiative, which was directed to preventing counterfeits from being offered for sale online, will be supplemented by a further MoU aiming to withhold advertising on websites which infringe IP, with the aim of cutting off an important revenue stream. Additionally, the transport and shipping industries, and even payment services providers, are being encouraged to take action to prevent their services being used for dealings in counterfeits.  New technologies such as the blockchain are proposed to be used to assist in traceability and authentication of goods in the complex global supply chains, which have contributed to the difficulties European industry faces in ensuring that counterfeit components are not incorporated into otherwise-legitimate products.

More effective administrative action

In parallel, the ability of customs and other administrative agencies to tackle counterfeit goods is to be enhanced. Customs authorities already perform a major role in stopping counterfeit goods entering the EU, but there is room for expanding their activities by engaging with trade inspection and consumer protection authorities, applying best practice from some Member States across the whole single market.

For instance, food standards agencies already have a limited role in controlling the sale of products subject to geographical indications of origin. The addition of the data held by such agencies to the broad databases collected through customs activities will help to identify areas for increased scrutiny and data gathering.  Education of the public as to the risks of IP-infringing products is also important, since many consumers imagine that the only downside of counterfeit goods is the loss of profits to the rightholder, not realising that substandard industrial components or cosmetic and food products can also present a major hazard to safety.

FRAND licensing and SEPs

The Commission’s guidance on the licensing and enforcement of standards-essential patents has been the subject of lengthy discussions with industry and stakeholders. The issues are set to remain divisive as the use of connectivity technology expands to enable the Internet of Things, with up to 50 billion devices communicating independently online.  Manufacturers that have not been involved in mobile handsets will now start to need access to the 5G standard which will enable the consequent volume of traffic.

The Guidance takes an even-handed approach, accepting neither party’s characterisation of the issues. It acknowledges that licensing on a two-party basis can only be handled case-by-case, without recourse to flat-fee schemes. That means that the result of licensing negotiations will differ depending on the sector in which the technology is to be used, and from year to year as the technology matures.

The Commission has called for greater transparency and warned against hardline negotiating stances. To aid transparency as to whether or not a patent holder’s portfolio really does warrant the licence fees requested, the Commission calls on standard setting organisations such as the European Telecommunications Standards Institute to improve their databases of patents and to make greater efforts to scrutinize whether the patents which companies unilaterally declare to be essential, really are so.  It also suggests that the use of patent pools or licensing platforms could make it easier for newcomers to obtain licenses and says it will encourage disputes to be resolved out-of-court, using arbitration or mediation under the Unified Patent Court system for example (when it comes into operation – which is still highly unclear).

As with the Guidance on the IP Enforcement Directive, this Guidance does not take interpretation of the law far beyond summarising the CJEU’s ruling in Huawei v ZTE.  Nevertheless, it adds a helpful summary of the approaches taken by national courts in attempting to apply that judgment.

Raising awareness of the FRAND licensing process and its implications is one action the Commission itself can undertake in order to smooth the process of authorising the use of standardised technology. Information is the lifeblood of licensing negotiations.  Any additional insights which the Commission can make available are bound to facilitate agreements being reached.

Where does this leave us?

The Commission’s new package mainly comprises ‘soft’ measures to assist the operation of the existing IP framework. Nevertheless, in a complex area of law made more unwieldy by the variations in national enforcement approaches, this initiative to ensure a better common understanding can only assist businesses in getting full value from their IPRs, in whichever industry or areas of the EU they operate.  It is unlikely, however, to be the end of the story.