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AIPPI Study Question Q296 – Preliminary Injunctions: Requirements for compensating damage suffered by Defendant

Report of the Swiss Group

Members of the working group: Lara Dorigo (chair), Sven Bucher, Andrea Carreira, Theodore Choi, Philipp Groz, Adrienne Hennemann, Joseph Schmitz, Christine Schweikard, Zoltan Gyenge.

II. Policy considerations and proposals for improvements of your Group’s current law

18. Could your Group’s current law or practice relating to the requirements for compensating damage suffered by the defendant and related topics be improved? If yes, please explain.

a)

YES

b)

NO

COMMENT BOX:

a) YES.

While the current law aims at balancing the applicant’s interest in obtaining swift relief with the defendant’s interest to |be compensated in case of unjust provisional measures, the overall framework tends to favour the applicant by allowing the applicant to exonerate itself from liability by demonstrating that it had objective grounds to consider the PI justified.

In addition, Swiss court practice on the substantiation of damages makes it difficult for defendants to prove their lost profits. As a result, claims for compensation arising from unjustified PI measures have been rare in Switzerland. Given the uncertainty of the outcome and the burden of detailed substantiation, the defendant is often reluctant to initiate additional proceedings. In this case, the defendant is then left to bear the damages caused by the PI, along with part of its legal costs incurred for its defence as Swiss law provides for compensation of legal fees based on a tariff, which typically covers only a fraction of actual legal costs. By contrast, the applicant’s risk is primarily limited

Against this background, part of the Swiss group is of the view that introducing strict liability for the applicant in cases of unjustified PI measures would lead to greater fairness than the current solution. The applicant would still have the option to request a PI but would need to weigh this against the risk of compensating the defendant if the alleged infringement is not confirmed in subsequent main proceedings. The defendant, on the other hand, although still bearing a heavy burden to substantiate lost profits and legal costs, would at least not have the added uncertainty of a discretionary reduction or denial of compensation.

With regard to the counterargument that a strict liability would have a prohibitive effect for applicants, this part of the Swiss group refers to the practice in Germany, where interim injunctions are frequently sought despite the applicability of strict liability rules.

In summary, part of the Swiss group would welcome the introduction of a strict liability for damages resulting from unjust PIs, as it may better balance the interests and their respective advantages and risks borne by both parties.

19. Could any of the following aspects of your Group’s current law relating to the requirements for compensating damage suffered by the defendant be improved? Please explain:

a)

The existence or not of liability;

b)

The nature of such liability and limits thereof;

c)

The possibility of determining bonds and guarantees for securing a PI, and/or counter-bonds;

COMMENT BOX:

a)/b) YES.

Introducing a strict liability in case of unjust PIs could represent an improvement, as advocated by a part of the Swiss group – please refer to the answer to Q18.

c) NO.

In this respect, the Swiss group feels that the current law and practice is sufficient.

20. According to the opinion of your Group, what is the policy rationale for compensating damages suffered by the defendant in case of a PI?

COMMENT BOX:

The rationale is the compensation of damages that the defendant incurs due to the issuance of a PI based on a prima facie case of infringement, before all facts, arguments and evidence have been presented in full proceedings on the merits. The aim of the current law was to introduce liability for such damages, while also providing an exculpation mechanism to avoid a prohibitive effect on PI proceedings.

As outlined above (Q18), part of the Swiss group believes that concerns regarding the prohibitive effect are not appropriate and therefore favour the introduction of a strict liability to better balance the interests, advantages and risks of both parties.

21. Are there any other policy considerations and/or proposals for improvement to your Group’s current law falling within the scope of this Study Question?

NO. Although the Swiss Group considers the substantiation requirement for proving lost profits in such situations to be burdensome, the law does not need adaptation, because it already provides instruments that would grant the possibility of facilitating the computation of damages, if courts were more willing to make use of these possibilities – it being understood that a certain computation basis needs to be provided by a party claiming damages.

III. Proposals for harmonisation

22. Do you believe that there should be harmonisation in relation to the requirements for compensating damage suffered by Defendant and related issues, as well as in connection with the setting of bonds or guarantees?

a)

YES

b)

NO

If YES, please respond to the following questions without regard to your Group’s current law or practice.

Even if NO, please address the following questions to the extent your Group considers your Group’s current law or practice could be improved.

COMMENT BOX:

NO. While harmonisation is generally desirable in IP laws, the Swiss Group is of the view that there is already a sufficient basis for harmonisation in the TRIPS Agreement. More detailed rules are not desirable, as the structure of PI proceedings, costs and damages rules vary from country to country, and it does not seem justified to treat IP matters differently from other areas where unjustified PI measures may be granted.

Given that the relevant issues are so deeply intertwined with the litigation culture and the damages system of a country, ranging from business etiquette to substantiation requirements and allocation of court costs, a more detailed harmonisation appears unrealistic.

|23. Should the applicant of a PI be held liable for defendant’s damages in case a PI is lifted or reversed? Please comment

a)

YES

b)

NO

COMMENT BOX:

a) YES. The applicant intrudes into the legal sphere of the defendant without valid legal grounds. It may be debated whether liability should arise only in cases where the applicant acted negligently, recklessly, or with intent to harm when using a state procedure. One may also provide for the possibility of exonerative evidence, based on which the court may reduce the damages or entirely release the applicant from liability.

24. Should a defendant need to request the court or relevant authority to decide on the liability of the applicant (that is, a court will not automatically issue such a finding upon revocation of the PI)? Please comment.

a)

YES

b)

NO

COMMENT BOX:

a) YES. If damages were awarded ex officio, this would contradict the procedural principles applicable in civil procedure. Furthermore, this would raise questions regarding who bears the burden of proving the damage, or whether such matters would also have to be examined by the court ex officio.

To simply award a security to the defendant if a PI is found unjustified would contradict the principle that damages cannot be awarded without first comparing the actual status of assets and liabilities of the injured party to the status of assets and liabilities as it would have existed without the harmful event.

25. Should there be any particular time or moment for the defendant to request compensation?

a)

YES, as soon as the PI is lifted or revoked;

b)

YES, only after a final judgment is delivered;

c)

NO, at any time.

d)

Other. Please comment.

COMMENT BOX:

c) NO, at any time.

Since a procedure for prosecuting the claim is not always conducted and there could certainly be good reasons to request damages in the main proceedings by way of a counterclaim, the possibility to request damages should generally be available at any time (subject to the applicable statute of limitations).

26. Should an applicant benefit from an exemption or safe harbour from any liability based on the fact that it holds a valid IP right and is reasonably exercising such lawful right? Please comment.

a)

YES

b)

NO

COMMENT BOX:

b) NO. The mere fact that the IP right was found to be valid should not provide an exemption or safe harbour form liability if the PI turns out to be unjustified for other reasons (e.g. lack of infringement).

27. Should there be any differences in assessing the applicant’s liability if the dismissal of the PI is based on a finding of invalidity or of non-infringement? Please comment.

a)

YES

b)

NO

COMMENT BOX:

b) NO. In principle one could argue that in case of lack of validity, a stricter liability should apply than in case of lack of infringement. However, since such assessment may be very fact-specific, the Swiss group believes that a distinction is not generally justified.

1. Nature of Liability and limits thereof:

28. Which should be the nature of the applicant’s liability if the PI is lifted, and/or the applicant’s claims are ultimately dismissed?

a)

Strict liability (that is, the applicant is liable for damages irrespective of proof of negligence, recklessness or intent to harm).

b)

Liability will depend on proof of negligence, recklessness or intent to harm.

c)

Liability will depend on proof of intent to harm or recklessness only.

d)

Liability will depend on proof of intent to harm only.

e)

Other (Please comment).

COMMENT BOX

Part of the Swiss group supports option «a)» (see answer to Q18), while the other part supports option «e)» with a possibility of the applicant to exonerate itself from liability, which reflects the solution according to the current Swiss law.

29. Should a court or relevant authority take into account the conducts of the defendant (e.g. if the defendant enabled the injury to occur or failed to take reasonable measures to avoid or mitigate the injury and thereby contributed to its occurrence) or any other particular factors? Please comment.

a)

YES

b)

NO

COMMENT BOX

a) YES, at least as far as the general duty to mitigate damages is concerned, the conduct of the defendant should be considered.

30. Should the causal link between the damages being claimed, and the issuance of the PI be assessed? Please comment.

a)

YES

b)

NO

COMMENT BOX

a) YES. The Swiss group is of the opinion that it would not be possible to determine the damage attributable to the PI without assessing the existence of a causal link.

|31. Should there be any limits to the damages to be compensated?

a)

YES

b)

NO

COMMENT BOX

a) YES.

32. If YES, please indicate the ones that apply:

a)

Damages should be limited to the actual losses of the defendant or lost profit;

b)

Damages should be limited to by the amount of guarantee or security provided by the applicant;

c)

Damages should also include legal costs incurred during litigation.

d)

Other. Please Comment

COMMENT BOX

c) The damages should compensate (but should be limited to) the actual losses (including legal costs and other expenses) and lost profits incurred, and must be substantiated, at least to some extent.

33. Should there be any other factors, circumstances or defences the court or relevant authority should take into account when establishing liability and the amount of damages? Please comment.

a)

YES

b)

NO

COMMENT BOX

b) NO.

34. Should there be any special circumstances in particular cases, such as SEP/FRAND litigation or pharmaceutical/biotech disputes? Please comment.

a)

YES

b)

NO

COMMENT BOX

b) NO.

2. Possible Bonds and Guarantees for securing a PI:

35. Should there be any specific standards or requirements for a court or relevant authority to request a bond, a security or undertaking to compensate a defendant? Please comment.

a)

YES

b)

NO

COMMENT BOX

b) NO. The grant of such bonds/guarantees should be left to the discretion of the court; whereby, if requested by the defendant, it should not be denied without good reasons.

36. In your group’s opinion, the setting of a bond should be:

a)

Mandatory;

b)

Discretionary;

c)

Other. Please comment

COMMENT BOX

b) Discretionary (see Q35)

37. Should it matter whether a PI is granted in an ex parte or an inter partes proceeding? Please comment.

a)

YES

b)

NO

COMMENT BOX

a) YES. In the event of ex parte proceedings, a security should rather be ordered than not, in order to safeguard the defendant’s position (with a short payment deadline after grant of the ex parte injunction, if urgency requests an immediate injunction).

38. Should there be any specific standards for the amount of the bond to be determined, or otherwise should a pre-set amount be established? Please comment.

a)

YES

b)

NO

COMMENT BOX

b) NO, it being understood, however, that the amount should be commensurate to the potential damage.

39. Should courts be allowed to accept a “counter-guarantee” from the defendant to suspend a PI? In which circumstances? Please comment.

a)

YES

b)

NO

COMMENT BOX

a) YES, in rare circumstances, for example if the injunctive relief is only aimed at a single act of infringement, the resulting financial damages can be easily calculated and/or this appears justified in view of a balance of interests.

40. Should it depend on the consent of the applicant? Please comment.

a)

YES

b)

NO

COMMENT BOX

b) NO, the applicant should be asked to comment, but consent should not be required.

41. Please comment on any additional issues concerning any aspect that you consider relevant to this Study Question.

42. Please indicate which industry sector views provided by in-house counsels are included in your Group’s answers to Part III.

|Zusammenfassung

Der Bericht der Schweizer Gruppe fasst den rechtlichen Rahmen zusammen, den das schweizerische Recht für die Entschädigung von Schäden vorsieht, die durch ungerechtfertigte vorsorgliche Massnahmen entstehen.

Eine Besonderheit des Haftungsregimes nach schweizerischem Recht besteht darin, dass dem Gesuchsteller die Möglichkeit offensteht, sich von der Haftung zu befreien, indem er nachweist, dass objektiv vertretbare Gründe die vorsorglichen Massnahmen zum Zeitpunkt der Einreichung als gerechtfertigt erscheinen liessen.

Ein Teil der Schweizer Gruppe würde die Einführung einer strengeren Haftung für Schäden, die durch ungerechtfertigte vorsorgliche Massnahmen verursacht werden, begrüssen, da dadurch die Interessen der Parteien und deren jeweilige Vorteile und Risiken im Zusammenhang mit vorsorglichen Massnahmeverfahren ausgewogener berücksichtigt werden könnten.

Der Gesuchsteller müsste dann die Vorteile eines rasch erlassenen Rechtsschutzes gegen das erhöhte Risiko einer späteren Schadenersatzpflicht abwägen, sollte sich die behauptete Rechtsverletzung im Hauptverfahren nicht bestätigen. Der Beklagte wäre besser gegen das Risiko finanzieller Verluste geschützt, wenn sich die behauptete Rechtsverletzung nicht bestätigt, da er nicht zusätzlich zur notorischen Schwierigkeit, seinen entgangenen Gewinn nach den strengen Anforderungen der schweizerischen Rechtsprechung darzulegen, auch noch das Risiko der Exkulpation des Gesuchstellers hinzunehmen hätte.

Nach Ansicht der Schweizer Gruppe erscheint eine internationale Harmonisierung dieser Fragen unrealistisch, da die relevanten Aspekte eng mit der jeweiligen prozessrechtlichen Kultur sowie dem System vorsorglicher Massnahmen und Schadenersatzregelungen in den einzelnen Ländern verknüpft sind.

Résumé

Le rapport du groupe suisse résume le cadre juridique prévu par le droit suisse pour l’indemnisation des dommages subis par un défendeur en cas d’injonction préliminaire injustifiée. Une particularité du régime d’indemnisation en droit suisse est que le demandeur a la possibilité de s’exonérer de sa responsabilité en démontrant que des motifs objectifs et raisonnables rendaient l’injonction préliminaire justifiée au moment du dépôt de la demande. Une partie du groupe suisse accueillerait favorablement l’introduction d’une responsabilité plus stricte pour les dommages résultant d’injonction préliminaires injustifiées, car cela permettrait de mieux équilibrer les intérêts des parties et leurs avantages et risques respectifs dans le cadre des procédures d’injonction préliminaire.

Le demandeur devrait alors mettre en balance les avantages d’une injonction rapide et le risque plus important de devoir indemniser le défendeur si l’infraction présumée n’est pas confirmée lors de la procédure principale ultérieure. Le défendeur serait davantage protégé contre le risque de pertes financières si l’infraction n’est pas confirmée, car il ne serait plus confronté à la double charge de la possibilité d’exonération du requérant d’un côté, en plus des difficultés notoires de prouver les pertes de profits selon les normes strictes imposées par la jurisprudence suisse de l’autre.

Le groupe suisse est d’avis qu’une harmonisation internationale de ces questions semble irréaliste étant donné que les questions pertinentes sont étroitement liées à la culture du litige, ainsi qu’au système d’injonction préliminaire et de dommages-intérêts de chaque pays.

Summary

The report of the Swiss group summarises the legal framework provided by Swiss law for compensating damages suffered by a defendant in case of an unjustified preliminary injunction. Under Swiss law, a particularity of the compensation regime is that the possibility exists for the applicant to exonerate itself from liability by demonstrating that objective and reasonable grounds rendered the PI justified at the time of filing. Part of the Swiss group would welcome the introduction of a stricter liability for damages resulting from unjust PIs, as this may better balance the interests of the parties and their respective advantages and risks in connection with PI proceedings.

The applicant would then need to balance the advantages of obtaining a quick injunction against a more serious risk of compensating the defendant if the alleged infringement should not be confirmed in subsequent main proceedings. The defendant would have greater protection against the risk of financial losses if the infringement is not confirmed, as it would no longer face the twofold burden of the applicant's exoneration possibility in addition to the notorious difficulties of substantiating lost profits under the strict standards imposed by Swiss case law.

It is the view of the Swiss group that an international harmonisation of these questions seems unrealistic given the fact that the relevant issues are closely intertwined with the litigation culture and the PI and damages system of each country.

MEHR / PLUS ...