28/01/2025
On 4 November 2024, 15 months after the start of the proceedings, the Milan Local Division (LD) of the UPC issued its first main action decision (UPC_CFI_241/2023, published by the UPC in the language of the proceedings, Italian).
The Milan LD found that European patent EP 2145848 held by Oerlikon Textile GmbH & CO KG (the claimant) had been infringed by Bhagat Textile Engineers (the defendant).
Bhagat was therefore enjoined from any further marketing of infringing machinery, and a penalty of €12,000 for any further infringement was set. The Milan LD further ordered an interim award of damages for the amount of €15,000.
A summary of the facts
European patent EP 2145848, which relates to a machine for texturing multi-filament threads, was granted to Oerlikon in 2011. Oerlikon did not apply for opt-out, and so the UPC has exclusive jurisdiction on EP 2145848 for actual or threatened infringements and related defenses, actions for declaration of non-infringement, actions for provisional and protective measures and injunctions, actions for revocation and counterclaims for revocation.
Back in June 2023, Oerlikon became aware that Bhagat was exhibiting at an international trade fair just outside Milan a texturing machine that was understood to infringe EP 2145848. Accordingly, Oerlikon requested an order pursuant to art. 60 of the UPC Agreement (UPCA) and rule 192 Rules of Procedure of the UPC (RoP) to preserve evidence, which was granted and executed ex parte.
In July 2023, Oerlikon promptly initiated a main action for the declaration of the infringement, further seeking an injunction with penalty, publication of the judgment, and an order that Baghat’s machine be withdrawn from the market. Oerlikon also sought an order against Baghat pursuant to Rule 119 RoP of a fine of €100,000 for costs to be incurred in proceedings for damages, with an award of costs.
In January 2024 Bhagat filed a response in which they did not deny the infringement, but argued that:
a) they had not sold the machine, but merely exhibited it at a trade fair, and so they had not caused any damage to Oerlikon;
b) they had undertaken not to market the machine in the territories covered by the patent, namely Italy and Germany;
c) they had been extremely cooperative in the execution of the order to preserve evidenceand had entered negotiations with Oerlikon for the amicable resolution of the matter, which in their opinion should have led to compensation of the litigation costs.
At the hearing, which took place on 27th September 2024, both parties presented their cases, having confirmed that the dispute had not been amicably resolved. Baghat also requested a stay of the proceedings in view of the counterclaim for revocation of EP 2145848 introduced in a parallel infringement action involving the same patent that had been brought against a different defendant.
The content of the decision
The decision covers a number of aspects, that have been summarised below.
Jurisdiction
Whilst this was not disputed by either party, the Milan LD did emphasise that the UPC does have jurisdiction over EP 2145848, as it is a “classical” European patent for which no opt-out request was filed. In particular, Local Divisions of the UPC are competent for actions for the declaration of infringement pursuant to arts. 32(1a) and 33(1a) UPCA, and the Milan LD was competent in this case because the actual or threatened infringement took place in Italy.
Stay of the proceedings under Rule 295(m) RoP
The Milan LD noted that there is no actual deadline for filing a request that proceedings be stayed, and so even though Baghat only filed such a request at the hearing, their request was admissible.
However, the Milan LD concluded that Baghat’s request for a stay was to be rejected, because Baghat did not dispute the validity of EP 2145848 or that by exhibiting their machine at the trade fair they had in fact infringed its claims. On top of that, Baghat had not directly intervened in the parallel action supporting the counterclaim for revocation.
Infringement
As Bhagat never disputed that EP 2145848 was valid or that the machine they exhibited at the trade fair reproduced the invention of EP 2145848, the infringement had to be considered to have been proven.
In this connection, the Milan LD noted that, even without sales being completed, presenting an infringing machine to companies or entities actively involved in a specific market or industry, such as at an international trade fair, does interfere with the rights conferred by the related patent in those jurisdictions where the patent is valid and where the UPC has jurisdiction – in the case at issue, Italy and Germany.
Permanent Injunction
The Milan LD observed that, although Baghat had undertaken not to repeat the infringing act in the future, this undertaking was “not suitable to remove the risk of further damage and to remove Oerlikon’s interest in a definitive injunction.”
In this connection, they noted that Baghat had not denied having manufactured the machines at issue, and that, although they had been cooperative in the context of the proceedings, a statement made by one of their managing partners about Baghat’s intention to penetrate the European market had to be taken into account.
Accordingly, a permanent injunction against Baghat aimed at prohibiting continuation of the infringement was granted by the Milan LD.
Penalty
Pursuant to art. 63(2) UPCA, where appropriate, non-compliance with such an injunction may be subject to a recurring penalty payment payable to the Court. The Milan LD decided that in this case setting a penalty was indeed appropriate, as it would allow for a more effective monitoring of the permanent injunction, especially in view of recent statements made to the press by Baghat about their intention to enter the European market.
To quantify the penalty, the Milan LD took into account the nature of the infringing act at issue, the value of a single infringing machine (about €750,000), and the royalties typically applied in the relevant technical field (amounting to 6% according to the claimant and about 3% according to the defendant).
All these factors having been considered, the Milan LD set a penalty of €12,000 for each subsequent infringement of EP 2145848.
Interim award of damages
The Milan LD noted that pursuant to art. 68(1) UPCA the Court shall “order the infringer who knowingly, or with reasonable grounds to know, engaged in a patent infringing activity, to pay the injured party damages appropriate to the harm actually suffered by that party as a result of the infringement.”, and that moral damages – including a damage to the reputation of the injured party – are included in such harm.
Further, under Rule 119 RoP, the Court may order an interim award of damages interim award of damages to the successful party in the decision on the merits, subject to any conditions that the Court may order. Such award shall at least cover the expected costs of the procedure for the award of damages and compensation on the part of the successful party.
The Milan LD took the view that infringement, albeit in a form limited to the trade fair setting, had been ascertained and had caused some reputational damage to Oerlikon. They considered that the trade fair lasted 7 days, was attended by over 1,600 exhibitors from 44 countries and was visited by over 100,000 visitors. On this basis, they provisionally ordered Baghat to pay €15,000.
Publication of the decision
The Milan LD noted that this measure, which is provided for by art. 80 UPCA, has both a compensatory nature, in that it reiterates that the patent proprietor has been the victim of an illicit act, and a deterrent nature, as it may dissuade other companies from doing business with the infringer.
In the case at issue, the Milan LD concluded that, given the limited extent of the infringement, granting this measure would not have been proportionate, as the detriment to the defendant deriving from such a publication would have been greater than what required by the ascertained infringement.
Apportionment of legal costs
Under art. 69(1) UPCA, reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity requires otherwise, up to a ceiling set in accordance with the RoP.
However, under art. 69(2) UPCA, where a party succeeds only in part, or in exceptional circumstances, the Court may order that the costs be apportioned equitably or that the parties bears their own costs.
In these proceeding, the Milan LD took the view that under the circumstances equity required to not have Baghat cover the entirety of the costs. In particular, the Court took into account that:
- during preliminary negotiations, Baghat had offer to pay a significant, although not exhaustive, amount to cover legal costs;
- as negotiations progressed, Oerlikon had tried to press Baghat to undertake to not market their machine also in countries not adhering to the UPC, thus making an amicable settlement difficult;
- Baghat had behaved cooperatively both during the execution of the order to preserve evidence and before and during the trial on the merits.
Having considered all this, the Milan LD decided that Baghat would have to bear 80% of the legal costs incurred by Oerlikon.
Comments
First of all, it is good to see that a final decision was issued little more than a year after proceedings were initiated.
Further, the decision appears to be generally balanced, and all the circumstances of the case seem to have been carefully considered by the Milan LD.
In particular, the decision to reject the claimant’s request that the decision be published (on the basis that this would punish the defendant disproportionately in view of the limited scope of the infringement), as well as the way that the penalty was determined accounting for circumstances specific to the case at issue (e.g. the value of an infringing machine, average amount of royalties in the industry), are evidence that the Court was committed to the principle of proportionality.
What we have learned
One thing to bear in mind is that, in an action for the declaration of infringement, it clearly can be risky for a defendant to choose to not file a counterclaim for invalidity (perhaps on the assumption that the dispute can be settled amicably out of court) as the patent will be considered to be infringed essentially without this being discussed at all.
Further, there is no legal basis for the Court to stay the proceedings to wait for a decision to be issued in a parallel infringement action involving the same patent brought against a different defendant and in which a counterclaim for revocation was introduced.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.
