Infringement action, seizure of counterfeit goods and abuse of rights

Published onMay 2013

The right to initiate judicial proceedings should be implemented with caution because, according to the doctrine of abuse of rights, it is likely to degenerate into an abuse, and then likely to be subject to sanctions by the courts, when it is performed in bad faith.

However, there are legal matters, such as the infringement of intellectual property rights, for which determining what may constitute misconduct or violation of rights is particularly sensitive, especially in the area of patent law either because of the complexity of the law itself or because of the technical issues involved. In such matters, plaintiffs may very easily be mistaken about the scope of their rights, without being malicious.

This is why the solution adopted by the Court of Appeal of Paris on January 30, 2013, acting as referring court after a decision from the Supreme civil Court dated February 8, 2011, must be welcomed.

A French individual, holder of a French patent over a rear suspension system for cycles, and the exclusive licensee had a seizure of alleged counterfeit goods performed by a bailiff before filing an infringement action against another French company which they accused of marketing a bicycle model reproducing several of the patent claims. As a precaution, the defendant stopped commercializing and distributing said bike.

First instance and appeal courts dismissed the infringement action but during the legal battle, the defendant company entered into bankruptcy, and the liquidator brought a counterclaim on the grounds that the infringement action was the cause of an important loss due to the cessation of the marketing of the litigious bikes. The defendant company was awarded a sum of € 80,000 as damages.

The Supreme civil Court cancelled the decision, considering that such facts did not characterize the existence of a wrongful act that the patentee or his licensee could be responsible for, and referred the case to another formation of the Court of Appeal of Paris.

The liquidator argued that the infringement proceedings had been filed in bad faith with the sole intention of preventing a competitor to market a new and recently developed model. It was also argued that the seizure of counterfeit goods on a professional trade show had been “carried out for the sole purpose of undermining their honor and reputation”.

This argument did not convince the judges, whose reasoning deserves approval: “liability can only be established provided a fault, an injury or damage and a causal link between the fault and the damage are demonstrated; the mere fact that the plaintiffs’ infringement action was dismissed does not characterize a fault their responsibility; the right to sue or to initiate judicial proceedings, which includes the right of appeal, is protected by principle and is likely to degenerate into abuse only if it is implemented in bad faith, maliciously or with a culpable lightness similar to willful misrepresentation, all circumstances which cannot be presumed and must be proven by the party invoking them”.

The judges insisted that there was no evidence in this case to establish that the patentee or the exclusive licensee had “knowingly initiated an infringement action they knew lost for the sole purpose of compelling their competitor to withdraw its product from the market” or that a fault could be characterized by the fact that “the holders of patent rights had had a seizure of counterfeit goods performed at a professional trade show, such a measure being a legitimate preparatory procedure and moreover being subject to prior judicial authorization”.

The right to bring an infringement action, and the right to execute probationary or protective measures to help characterize the alleged infringement and the extent of the alleged damage, must be preserved. It is our opinion that automatically or systematically condemning the plaintiffs to repair the damage caused by lawsuits, when their requests are rejected by the courts, would be counterproductive.

As stated by the court, the mere fact of losing a trial does not mean the action was brought only to harm the defendant. And, in case of doubt about the scope of one’s intellectual property rights, it is legitimate that they can ask the courts to determine if there is an infringement or not, without necessarily being condemned to pay for compensation because of the damage suffered by the defendant (there would always be one).

On the other hand, rights holders must be condemned when they initiate legal proceedings with too much lightness or casualness (willful misrepresentation) or when they conduct their action in bad faith, for example because the seek to dishonor the defendants or to tarnish their reputation or image, but only on condition that the facts are duly established (See for example CA Paris, 09 Dec. 2011 and CA Paris, 25 Jan. 2013).

Therefore, before conducting seizures of counterfeit goods and of course before filing an infringement action, it is highly recommended to consult a patent or trademark attorney in order to thoroughly study the matter and determine if the identified acts could actually constitute an infringement or not.

© INSCRIPTA