The Court of Justice of the European Union (CJEU) recently handed down its judgment in a case concerning the circumstances under which an intellectual property (IP) right holder is liable for damages caused by a preliminary injunction granted to enforce the relevant IP right, if the grant of the preliminary injunction was unjustified. Bayer Pharma AG v. Richter Gedeon Vegyészeti Gyár Nyrt. and Exeltis Magyarország Gyógyszerkereskedelmi Kft, Case No. C-688/17 (CJEU Sept. 12. 2019). The CJEU rendered its decision construing Article 9 (7) of European Directive 2004/48/EC on the Enforcement of Intellectual Property Rights, a section of the European Directive that is identical to Article 50 (7) of the TRIPS agreement.

Richter and Exeltis, Hungarian manufacturers of generic drugs, claimed damages from Bayer, arguing that a preliminary injunction had been wrongly granted against them. A fierce battle ensued, with back and forth between instances of Hungarian courts and the Hungarian patent office, from which Bayer had requested a preliminary injunction against Richter and Exeltis. The patent office initially granted the preliminary injunction but lifted it after an appeal, because the preliminary injunction was found to be disproportionate to the alleged harm. After the preliminary injunction was lifted, the Bayer patent in suit was found to be invalid in the course of invalidity proceedings initiated by Richter and Exeltis. Richter and Exeltis had not sought invalidation of Bayer’s patent prior to the launch of their generic products, however. Instead, they launched their products “at risk,” even before the grant of the relevant patent (but after the patent application was filed).

In its defense against Richter and Exeltis’s claims for damages, Bayer argued that the generics companies had caused their own losses by intentionally and unlawfully launching their products. In that context, the referring Hungarian court asked whether Article 9 (7) of European Directive 2004/48 precluded Hungarian national law from providing that a party shall not be entitled to claim damages it suffers as a result of failing to reasonably act to avoid or mitigate damages.

In its judgment, the CJEU emphasized that patentees should not be discouraged from applying for a preliminary injunction for fear of later damages claims arising against them using the injunction as the sole basis for the alleged damages. European Directive 2004/48 is intended to ensure a high level of protection for IP rights. According to the CJEU, the mere fact that a preliminary injunction was applied for, or was wrongly granted, does not automatically give rise to damages claims against the preliminary injunction applicant. However, the CJEU somewhat vaguely noted that damages claims may be possible when the party applying for a preliminary injunction has been shown to have “abused” preliminary injunction as a remedy.

In order to determine whether an application for a preliminary injunction is abusive, the CJEU requires national courts to take into account all the objective circumstances of a case, including the parties’ conduct. In this context, the CJEU seems to imply that if a party launches an infringing product at the risk of infringing a granted patent, that conduct may be regarded as objectively indicating the risk of irreparable harm suffered by the patentee and hence as indication of a need for a preliminary injunction. In any event, the Court found that national law may exclude claims for damages that a party has suffered if the enjoined party has not acted reasonably in order to avoid or mitigate damages.

Practice Note: This judgment has the potential to shift the risks connected with a launch at risk in the European Union to the launching company and away from the IP right holder. If the IP right holder applies for a preliminary injunction, it may now face a lower risk of later being found liable for damages to an alleged infringer.

German national law has had a stricter approach to an award of damages for unjustified preliminary injunctions. Under § 945 of the German Code of Civil Procedure, a later cancellation of the IP right asserted in preliminary injunction proceedings will usually trigger a claim for damages suffered by a wrongly enjoined party. It remains to be seen whether this CJEU judgment will alter this practice and make preliminary injunction proceedings in Germany more attractive for IP right holders. In any event, it may still be possible to argue that the circumstances of a case that should be considered in relation to damages claims include the known risk of applying for a preliminary injunction where the alleged infringer has challenged, or has indicated it may challenge, the validity of the asserted IP right.