Posted 03 March 2011 - 01:42 PM
"The Guardian reported on Monday on LG's latest patent strike against Sony in a wider patent battle over Blu-ray Discs, smartphones and video game consoles:
"European customs officers have been ordered to seize shipments of Playstation 3s after LG won a preliminary injunction against Sony [...] The ruling by the civil court of justice in the Hague means that all new PS3s have to be confiscated as they are imported into the UK and the rest of Europe for at least 10 days."
How much trouble is Sony in now? Is Europe about to run out of PS3s?
LG made a bold move that definitely ups the pressure on Sony. But it's important to understand that patent enforcement in Europe is still a country-by-country affair – even though there is a European Patent Office – and Sony can work around the Dutch decision by going through entry points outside of the Netherlands. That's a logistical nightmare, but it is a possibility. Sony is most likely already exploring such alternative routes.
(And in case you'd forgotten what the dispute is actually about: LG claims that Sony's Blu-ray playback infringes LG patents. Sony, meanwhile, filed suit in December against LG over smartphone technologies, and trying to stop their import into the US. LG, in response, is trying to get PS3 imports into the US banned. Now read on.)
In order to cause greater disruption to European PlayStation sales, LG would have to obtain injunctions in more EU member states than just the Netherlands, a country that accounts for only 3% of Europe's total population size.
While LG hasn't confirmed anything, and Sony's official statement doesn't say much, there's every indication that LG requested customs action against goods suspected of patent infringement in accordance with EU Council Regulation No 1383/2003 and additionally obtained a prejudgment seizure decision from a court in The Hague, Netherlands. The combination of those two measures means Sony has a serious problem in the Dutch market, but it's not the end of the world for the PlayStation in the whole of Europe.
As The Guardian reports, "Rotterdam [a Dutch seaport] and Schiphol [Amsterdam airport] are the main import points for PS3s for both the UK and continental Europe". But Sony could change that.
Other high-tech companies will be watching this with interest, and with concern. For example, Apple and Nokia are also battling each other in Europe, and other litigants can never know when their adversaries are going to seek European customs action as a way to increase the pressure on them.
Customs action against goods suspected of infringing certain intellectual property rights (Council Regulation (EC) No. 1383/2003)
In 1994 the European Community (nowadays known as the European Union, or "EU") passed a law for the seizure of counterfeit and pirated goods, amended it in 1999, and replaced it in 2003 with Council Regulation (EC) No. 1383/2003 concerning customs action against goods suspected of infringing certain intellectual property rights and the measures to be taken against goods found to have infringed such rights.
Over time, the regulation had evolved from an anti-counterfeiting measure into a broader protection of right holders. In particular, patents were not within the scope of the regulation at the outset: while many counterfeit goods infringe patents, most patent infringers aren't pirates.
Customs authorities are usually not equipped to make the technically and legally complicated determination of infringement that usually requires multi-year lawsuits. The regulation provides the possibility that customs offices may act at their own initiative (ex officio) if they suspect infringement, but its Section 2 sets out the practically more relevant scenario of a right holder applying for customs action in writing. In that case, a right holder doesn't bear the burden of proof that there is an actual infringement. It is merely sufficient that "goods are suspected of infringing an intellectual property right", such as a patent under the law of the EU member state in which the application is filed.
Yes, being "suspected" of infringement is all it takes. Looks lopsided, doesn't it?
But rights holders seeking to harm competitors must be careful. A rights holder whose infringement allegations aren't confirmed by a court of law may be liable for the damage inflicted under the law of the EU member state in which the application was made. In other words, if Sony prevails, it could sue LG for damages.
Also, seized goods will be released after 10 days if the relevant customs office hasn't been notified of judicial proceedings under national law. Even if a lawsuit has been filed, there is still a potential way out: "the declarant, owner, importer, holder or consignee of the goods shall be able to obtain the release of the goods or an end to their detention on provision of a security", pursuant to Article 14.
What sort of 'security'? "The security [...] must be sufficient to protect the interests of the right-holder", which means that Sony would have to deposit the amount of damages LG might be awarded if it prevailed in court. But in the Netherlands this doesn't seem to be an option for Sony, because LG appears to have obtained a preliminary injunction by a court in The Hague, ordering prejudgment seizure. As a result, the PlayStations detained there won't be released without LG's consent until the end of the lawsuit.
Courts hand down such injunctions only based on a summary judgment standard: it's a quick procedure, but the party requesting the injunction must show that it has a reasonable chance to prevail. By contrast, the application for customs action under the said EU regulation merely has to meet formal requirements without proving the infringement allegations by any standard at all.
<a name="routes">European patent fragmentation? Handy for Sony
While the European Patent Office (EPO) performs the centralized examination of European patent applications, EPO patents are just bundles of national patents, each of which is assigned a national patent number and can be enforced only in the one country in which it is valid. This is going to change: the EU is in the process of creating a single EU patent and patent judiciary, but this will take years to come to fruition.
The aforementioned European regulation requires a patent holder to claim an infringement only of a national patent. LG holds some Dutch patents that it apparently claims are infringed by the PS3, and didn't have to allege the infringement of patents in any other EU member state.
But the prejudgment seizure order issued by the court in The Hague is valid only in the Netherlands. Therefore, if Sony ships PlayStations directly into other EU member states, the local customs authorities there will not take that seizure order into account. They may pay attention to LG's application for customs action, but in that case Sony could bail out the detained goods on security after a maximum of 10 days. Any further detention would require an injunction in the relevant country.
Prejudgment seizure appears to be a particularly Dutch phenomenon. It is also mentioned in a very interesting Managing Intellectual Property article on how customs can help patent owners.
While other European countries may not provide prejudgment seizure, it would be possible to seek preliminary injunctions against the sale of allegedly infringing goods. This is an option in many European countries. In Germany, the largest EU member state (and home to the major seaports of Hamburg and Bremen as well as Frankfurt Airport, one of the world's 10 largest cargo hubs), it is possible to obtain preliminary injunctions in a relatively rapid procedure, but alleged infringers are usually given an opportunity to defend themselves prior to a preliminary injunction. Also, if a preliminary injunction is granted but fails to be upheld in a subsequent main proceeding, there is a considerable liability risk involved.
In order not to give LG any clues, Sony will likely not announce which alternative routes into Europe it is exploring for the PS3. This is a major logistical challenge – Sony needs to import an estimated 100,000 per week to keep up with sales demand – but it will probably go to extreme lengths to avoid the loss of market share in Europe. In that case, LG will have to chase the PS3 down across the EU, or at least in the largest markets. It will take much more than the surprise effect of the Dutch decision – however impressive it may be per se – to bring Sony to its knees.
That said, it seems that the patent wars between major industry players are ever more bitterly contested, and Europe increasingly becomes a battlefield."