1 How Italy Succesfully Improved its Approach to Intellectual Property Rights Protection By Professor Cesare Galli, Istituto Bruno Leoni and Professor Pietro Paganini, Competere Introduction The Italian economy is experiencing a deep crisis, due to a series of factors that require radical reform such as excessive tax burden on labor and production, the malfunction of the bureaucratic machine, the failure of the justice system, and arbitrary legal regulation. Political instability and the weakness of the ruling leadership are partially to blame for a substantial lack of any reform; however the systemic pitfalls of an insufficient production model are also a factor. These problems cannot be resolved merely by implementing an array of skin-deep reforms, instead a complete overhaul is needed that includes the strategies of industrial policy, based on a new forward-thinking vision and a long-term realistic and systematic strategy. Despite current difficulties, Italy remains the 8th largest economy in the world with an economic value of $ 2.2 trillion USD (IMF, WEF). This global standing is based on the creative ability and production of small and mediumsized enterprises (SMEs). SMEs account for 65% of GDP and 99.9% of all enterprises, of which 94.4% are micro organizations with an average number of employees of 3.9 (ISTAT). What do these micro- or small businesses manufacture? Their success is based on the Made-in- Italy brand, products that relate to the Italian way of life which are associated with the benchmark for top-tier creativity, quality, originality, and singularity. In a nutshell, it defines everything that has to do with the good life and style, such as gastronomy, product design, cars, bicycles, motorcycles, and fashion. It also refers to all the products of fine artisanship and craftsmanship, including precision engineering, chemical, and pharmaceutical production. In essence, products that are appreciated and recognized throughout the world for their quality and uniqueness. Due to this uniqueness, one would expect the Belpaese to dominate the rankings of the IPRI as a country that patents many of its products and protects its intellectual property and manufacturing processes. Unfortunately this is not the case. As the evidence from the European Patent Office (EPO) shows, Italy is behind Germany and France in the number of patents registered in overall quantity and per capita. There are several reasons for this, which can be tied to fragile and whimsical social and economic structures such as industry, schools, and governmental institutions. In industry, the difficulties can be ascribed to a lax managerial mentality and to internal organizational dynamics; businesses create, but do not patent and therefore they do not prevent breaches in intellectual property. According to the Patent Office, the number of patents requested in 2013 at the Ministry of Economic Development was approximately 68,000. The reason for this low count, according to focus groups and surveys include the following reasons: Ignorance - The concept of preservation and protection of products is virtually absent for many businesses, especially within micro-enterprises. Furthermore, the risk of licensing out their technology to a possible competitor appears not to be a significant issue. Costs and procedures - most of the entrepreneurs interviewed deemed the costs of registration exorbitant and not worth the long term return. Management frailty - Italian SMEs often cannot rely on structured management for a series of reasons, based around the fact they are often family-run businesses. At the educational level, progress is slow but improving nevertheless, thanks to a steady increase in intellectual activities, in particular with regard to the digital industry (as shown below). However, fewer than 10% of academic courses offered include modules or credits on property law.
2 At the governmental level the efforts to protect property are intensifying, in particular in terms of legislation. Despite improvement, more than 80% of SMEs could not recall any government attempts to raise awareness or any policy implementation by institutions, be they public entities or chambers of commerce. The protection of intellectual property within Italy remains a practice adopted sparsely. In contrast, more than 50% of respondents in the survey admitted to having toyed with the idea of registering their patents abroad because of the perception that better protection and stronger incentives exist. The activity of the Italian Antitrust Authority in the fight against infringement In , as new effective measures have become available for IPRs holders in Italy, the designers and producers that are hurt by pirate websites offering either copycats of original products or fake copyright works, often at rock bottom prices. This time, the Antitrust Authority (AGCM) (which is also responsible for the repression of unfair commercial practices) and the Telecommunications Authority (AGCOM) took the lead. Recently, AGCM has become more and more active in the fight against websites which systematically sell copycats. To fight the online spread of unfair trade practices, and protect the market and consumers from deception, AGCM has the authority to shut down clone-websites within Italian territory. After several reports issued by INDICAM (the Institute of the Trade Mark Owner Association for the Fight against Infringement), AGCM closed down hundreds of clone- websites, with other measures being implemented at a fast pace (for further reference, see the authority s decisions no /13, 24167/13, 24329/13, 24353/13, 24354/13, 24381/13, 24582/13, 24583/13, 24647/13, all available at The new Regulation on Copyright web piracy issued by the Telecommunications Authority While AGCM focuses on websites selling copycats of products that are mainly protected as registered trademarks or designs, AGCOM dealt with copyright infringement. AGCOM recently adopted the resolution No. 680/13/CONS, Regulation on the protection of copyright on the internet (available at entered into force on March 31, 2014), which provides a fast, economical and simplified procedure for the removal of copyright infringement online, especially in urgent cases. According to the procedures, the IP rights-holder can submit a complaint to AGCOM through an online form. In the case of infringement for financial gain, the Authority shall act with a simplified procedure (to be concluded within 12 days from the complaint), by means of a communication to be sent to the uploader of the infringing material and to the web page/website manager, requesting the removal of such infringing material within 3 days from the communication. Should the uploader or the manager fail to comply with the request, AGCOM has the authority to ask the ISP to remove the infringing material if the website is located in Italy or to disable Italian access to the website if located abroad. The Regulation has been challenged before the Administrative Court for Lazio, on the grounds that it exceeded the scope of AGCOM s mission. This issue is now waiting to be assessed by the Constitutional Court, which will also review whether the AGCOM Regulation complies with freedom of expression, economic freedom and proportionality. It should also be considered that, even though these new procedures may appeal to rights- holders because of the low costs involved, there are significant limitations to the process. Once removed, the illicit content often reappears on different websites. Even more frequently, the counterfeiters temporarily remove copycat content listed by the judicial injunction but leave other illicit content for sale online. This represents a copycats rotation which allows the counterfeiters to earn enough money to make piracy viable. This has led to a thriving "industry of fake" based in the Far East and operating on demand. This industry manufactures and imports goods into Europe for consumers that are aware of the counterfeiting, but are nevertheless attracted to the lower prices even at the expense of creators.
3 Pilot Class Actions against infringement under consideration In Italy, a possible solution for dealing with counterfeiting has been recently identified in the form of a class action suit brought by all victims of the same counterfeiters, to obtain broad judicial remedies. This involves businesses teaming up to target a single counterfeiter, so as to inflict a singular blow of significant damage and prevent further violations. Such initiatives might represent progress in the fight against online counterfeiting. Italian judges appear to be showing increased sensitivity towards the issue, as proven by the extremely detailed report on online counterfeiting and liability of the subjects involved recently made by Judge Marina Tavassi, President of the IP and Company Division of the Court of Milan. In particular where Community trademarks and designs are concerned, a viable legal basis for these proceedings comes from the rules on pan-european effects of the injunctions against the violation of these rights (see CJEU of April 12th 2011 in the case C-235/09, The scope of the prohibition against further infringement or threatened infringement of a Community trade mark, issued by a Community trade mark court whose jurisdiction is based on Articles 93(1) to (4) and 94(1) of that regulation, extends, as a rule, to the entire area of the European Union ). These operations are conceivable in almost all trade areas, as long as they are carried out extremely seriously and preceded by a professional juridical work. It also requires intelligence activities aimed at rebuilding the counterfeiting chain, identifying the individuals involved, the counterfeiters headquarters in Europe and if possible, their current accounts. The evolution of the measures for fighting infringements in Italy Contrary to common belief, Italy has remarkably efficient civil judicial protection of IP rights especially in preventive proceedings. It is now possible to rapidly obtain injunctions on infringement and seizure orders for the infringing goods. The 2005 Code of Industrial Property united the primary laws relating to IP matters (with two exceptions: copyright, which is covered by the separate Copyright Law and the relevant criminal provisions, which are contained in the Criminal Code). The Code expressly includes unregistered trademarks, trade secrets and appellations of origin as IP rights. Although these were already protected under Italian law they now benefit from the special procedural rules provided for IP rights. In 2006 the implementation of the EC Directive No. 48/2004 on the enforcement of IP rights offered the opportunity to revise the special procedural rules in this field, aimed at consolidating the good results achieved prior. The setting up of specialized IP Divisions in 2003 has meant that there is now a competent authority on trademarks, patents, copyrights, and unfair competition linked to these rights and contracts. In 2003 specialized IP divisions were set up at each of the twelve existing Courts and Courts of Appeal. In September 2012 these were increased to twenty one units, now renamed Company Divisions after they were given authority over company litigation. Since 2014 jurisdiction over foreign companies has been exclusively granted to 9 of these courts to better increase specialization. Further improvements took place in 2010 when the IP Code was amended by Legislative Decree 131/2010 which extensively revised both the special procedural rules in this field and the substantial rules. In particular, a series of amendments rendered the protection of IP rights more complete and consistent at civil, criminal, and administrative levels by protecting them against any conduct aimed at unlawfully exploiting the values of commercial goodwill inherent in these rights. In particular the legislative decree introduced new procedural rules aimed at stronger IP rights. This decree made it easier to obtain injunctive relief against infringers, it simplified procedures, and it improved the effectiveness and speed of protection in patent matters.
4 The reform of Italian legislation was aimed at enhancing the results experienced during the last few years at an International and European level. This effort represents progress towards a more concrete and realistic approach of intellectual property rights protection. This is measured based on how these rights interact with both the market and economic dynamics such as enterprise, communication, and research. The approach has a clear basis within existing international conventions and in EC laws in the IP field that outline a balance between exclusivities, competition, and contracts. Under this law, protection can be granted only when it is necessary based on the understanding that rules are made to regulate concrete realities and that their cause is strictly related to the human experience of such realities based on a connection to real life interpersonal relationships. Border measures are also an extremely efficient way to protect IP rights. They are regulated by EU regulations and therefore implementation is entrusted to the Customs Agency which has become a highly efficient body. The government has made agreements to coordinate operations with a number of countries from which counterfeit goods originate, such as China. The activities of the Customs Agency are supported by a multimedia database (FALSTAFF: the Fully Automated Logical System Against Forgery and Fraud) which gathers information on how to distinguish fake goods. The database is updated directly by rights-holders requesting protection for their goods. Urgency proceedings as effective tools for enforcing IP rights in Italy IP Civil Courts in Italy are now a highly effective tool for enforcing IP rights. The Italian judiciary is characterized by affordable costs, a high level of efficiency and a general inclination towards IP rights-holders. The efficiency of Italian IP Specialized Divisions is mainly due to their willingness to grant urgent requests such as injunctions, seizures, and orders for the withdrawal of goods from the market. If granted at the preliminary stage these requests may compel the infringer to buy back illicit products directly from the stores where they were sold at market price. Furthermore, under Article 131 of the Code of Industrial Property, urgent measures can be granted in cases of an imminent IP rights violation or a risk of repeated violation, even if the violation has been occurring for a significant period of time (see for instance Court of Naples, September 19, 2009). Urgent measures are typically examined and granted quickly. Trademarks and designs are often granted in a few days (such measures are often granted ex parte), while patents are frequently granted within a few months. An injunction is usually accompanied by a fine for each violation which is paid to the rights holder. Violation of an injunction is also subject to criminal penalties (a prison term of up to three years or a fine) under Article 388 of the Criminal Code. Urgent protective measures are granted by a single judge appointed by the President of the competent specialized division. They may be subject to appeal proceedings before a panel of three judges belonging to the same division. The panel, which does not include the first judge, normally issues a decision within one to two months. Furthermore, Article 132 of the Code of Industrial Property, as amended in 2010, expressly states that injunctive relief (including a fine or an order for withdrawal from the market) granted in urgency proceedings may become final unless any of the parties start proceedings on the merits of the case. Therefore, proceedings on merit are necessary only in order to ask the court to order the infringer to pay compensation and surrender profits made from the infringement, pay the costs of publication of the ruling in newspapers and reviews, hand over the infringing goods to the rights holder, or arrange for the destruction of said goods at the expense of the infringer. Increasing efficiency on proceedings on the merits is still important. In other countries such as Germany, the average duration of infringement litigation is 2-3 years less than Italy. However the German judiciary system also splits the judgment in two parts giving the Bundespatentgericht the responsibility for issuing a decision on patent validity. This causes delay and some uncertainty and is not considered in statistical data about duration of infringement litigations in Germany. In Italy litigation before a Specialized Division includes a decision on the patent validity in case of a counterclaim, as normally happens.
5 The accounts of the alleged infringer are often seized which assists with the calculation of any compensation to be paid. Under Art. 121 of the IP Code and Art. 156-bis of the Copyright Law the court may also order the infringer trading in pirated goods to submit copies of banking, financial or, commercial documentation in his/her possession relating to violation in the commercial field. Following the implementation of the EU IP Rights Enforcement Directive, the rights-holder may receive a sum which corresponds to either the infringer s profits or the rights-holder s lost profits, whichever is greater. Compensation for any further damage, such as expenses incurred for responding to the infringement or damage to image may also be added to the amount. Compensation for damage caused to the rights-holder s image is often calculated as a fraction of the advertising expenses incurred by the rights-holder or the cost of an advertising campaign to mitigate the negative impact of the infringement on the public. Among European countries, Italy recognizes one of the highest damages/account of infringer s profits in cases of proved infringement. For instance a decision rendered by the Court of Brescia in 2013 awarded 2 million Euro in damages for trade secret violation (see Court of Brescia, January ). The account of infringer s profits, which is a sort of remedy for unjust enrichment sui generis, merits particular attention: returning profits, provided as an alternative to compensation for the lost profits of the owner of the violated right will help the latter to acquit his burden of proof. This consolidates current developments in the latest Italian case law by awarding more substantial compensation than in the past in cases of IP rights infringement. This remedy, in combination with the possibility of obtaining a description of the accounts of the alleged infringer (and now, as we have seen, also a description of banking documentation), proved to be a useful deterrent and has allowed IP cases to be resolved through quick settlements. Based on the success of the policy, it is extremely surprising that the rule was not expressly provided in Copyright Law. However, it must be noted that in this field the remedy of returning profits had already been admitted by the Courts as a form of minimal liquidated damages. This occurred on the basis of arguments inferred in the preparatory work of the 1941 Law, when an article similar to that inserted in the IP Code was proposed but not included as it was considered superfluous (see Court of Cassation, 24 October 1983, no. 6251). Protection against exploitation of trademarks and distinctive signs IP protection tends to be rigorous in nature. Well-known marks are normally protected against any use in trade of an identical or similar sign, even where there is no likelihood of confusion. The mainstream of Italian case law on trademarks and other distinctive signs is characterized by a strong consideration of what these signs represent in the market, as central pillars of the enterprise communication and generally, in the real world. On the whole, trademarks, other distinctive signs, and the designations of origin are protected against all activities that attempt to unlawfully exploit the commercial goodwill associated with these signs. The 2010 reform has become the firmest pillar of the IP Code in order to give enterprises the possibility to enhance all the positive externalities coming from the use of their intellectual property rights, forbidding every form of free-riding, and of parasitic exploitation of their investments. In most of the recent cases, public perception was key to the ruling, in line with the decisions of the EU courts. Key decisions in this area have come from the Court of Naples (on August 11, 2011), which protected the CHAMPION trademark against parasitical linkage, including the adoption of a similar trademark as a business name; and from the Court of Milan (on October 20, 2009), which protected the color red as the non-registered trademark of Ferrari against its use for products connected to Formula 1, including clothing. In a more well-known case, the Court of Milan accorded protection to one of the most famous luxury goods trademarks in Italy (Bulgari) against its unauthorized use as a pseudonym by a pornographic actress for
6 calendars and for hardcore movies and shows. This was based on the assumption that such a use unlawfully exploited (causing prejudice by soiling its reputation) the message of sophistication and elegance strictly linked to this trade-mark. This rule applies to web infringement as well, preventing cases of parasitic exploitation of one s famous trademarks even through the use of similar or identical signs as unauthorized domain names, as metatags, or keywords that take unlawful advantage from the notoriety of the original trademarks. Protection of patents consistent with European standards With regard to the patent field and specifically protection of technological innovations, the 2010 reform of the Code was aimed at giving Italy the foundation for real growth in innovation in order to increase international competitiveness. The reform was largely inspired by the most recent version of the European Patent Convention, EPC 2000, in order to minimize any discrimination between the treatment of national and European patents. Notable is the inclusion of the new provision of the EPC interpretation protocol in Italian law. This protocol defines the limits of the application of the equivalence notion, about which Italian case law has shown some uncertainties in the past. It also provides a specification of the limits of the provision concerning the possibility for the Judge to redefine the claims, by request of the owner and provided that the redefined claims are in a more restricted form which remains within the limits of the filed prior patent application. In other words, whether it is within the limits where EPC allows the recourse to the limitation procedure. As a matter of fact, the centrality of the claims in the interpretation of the patent matches the guidelines of the EPO which are based on the so called problem-solution approach, i.e. to objectify and to anchor to the reality the evaluation of the requirements to get protection, but at the same time to commensurate such a protection to what the applicant claimed when he/she applied. Even in the area of biotechnological inventions, the inclusion in the Code of the rules that was hurriedly approved in 2006 by a government decree under the pressure of a European infringement procedure represented an opportunity to remove duplication of rules that could have caused interpretative uncertainties. It also made clear that the filing at the Office of Statements on the origin of biological material used for the invention was just an option for the applicant and not a prerequisite to obtain the patent, which would have been contrary to what all other European countries required. It has also been clarified that the penalties that the enabling act compelled to foresee for the violations in this field had no consequences on the validity of the patent, but gave rise to an administrative infringement. In patent matters, preventive measures can be obtained from either a national or European patent application. In the case of a European application, a translation of the claims must be filed with the Italian Patent and Trademark Office. A further remedy was introduced by Legislative Decree 131/2010, which now sets forth that the owner of a patent who is unsure about its infringement may ask the court to appoint an expert to obtain a quick technical assessment on validity and infringement, which can then be used in further legal action or to reach a settlement more quickly (Article 128 of the IP Code). In almost all patent matters, the judge usually appoints an expert to ascertain validity and infringement even in urgency proceedings (as expressly laid down by Article 132 of the Code of Industrial Property, as amended in 2010) and at the appeal stage, if any. The expert s conclusions often form the basis of the ruling. However, it is not uncommon for judges to deviate from the expert s opinion (see Court of Rome, September ) or to appoint a new expert or panel of experts, especially at the appeal stage. In regards to patent matters, Legislative Decree 131/2010 also clarified that in case of patent invalidity actions, it is enough to summon the party indicated in the public register as the rights-holder, not the inventors who assigned the rights (this rule also applies to the pending proceedings see Article 120 of the IP Code). As a result, according to the WIPO (World International Patent Organization) the filings of patent applications in 2012 in Italy were 28,271 of which 16,079 were filed from abroad, which meant Italy ranked 11th in the world. In 2013, Italy was ranked fifth for the number of filings of European Patent applications at EPO.
7 Light and shadow in the Design protection In the design field, the central importance of stakeholder perception of the validity and the scope of protection which can be granted to shapes, has made inroads in case law which has helped it become aligned to the European standards. Likewise design protection through copyright law has been available since the implementation of the EU Community Design Directive (98/71/EC). On January 27, 2011 the European Court of Justice (C-168/09) stressed that this protection also applies to works created before the date of implementation of the EU Design Directive (71/98/EC). This was expressly stated in Article 239 of the Code of Industrial Property (as amended in 2010), which stated that all copied products manufactured in Italy after April 19, 2006 (and those imported after April 19, 2001) are pursuable as counterfeit. In 2012 the deadline of April 19, 2014 was fixed to sell off stocks of infringing products, but this was neglected by the Court of Milan (with the decision on April 28, 2011), as it was contrary to the Directive. Hence an infraction procedure was brought against Italy by the European Commission. Suggestions Further improvements remain necessary. In addition to design issues described previously,an inconsistent position has been taken by Italy on the Unitary Patent System that was implemented by the EU in order to reduce the costs of patenting and protecting innovation in Europe. Italy joined the Agreement on the Unified Patent Court (which has not yet been ratified). While Italy is not currently participating in the Unitary Patent system, on July , the Italian Senate approved a Resolution stating that Italy is now committed, in order to increase its competitiveness, to implementing all measures which are necessary to go ahead towards the whole system of the Unitary Patent. The Senate vote followed the May filing of an appeal to the government to adopt the unitary patent system. The appeal was supported by business groups such as Confindustria (the largest federation of Italian industry), Confapi (the Italian federation of associations for small and medium-sized companies), Assobiotech (the Italian association for the development of biotechnology) and Netval (the consortium for the dissemination of university research). In addition, it was also supported by Italian associations dealing with IP rights protection and anti- counterfeiting issues including AICIPI (the Italian association of industrial property consultants and experts), INDICAM (the Italian anti-counterfeiting organisation), Sindacato Consulenti (one of the national unions of IP attorneys), and the Centre for Anti-counterfeiting Studies. Many prominent lawyers, university professors, and judges in the IP field also supported the appeal. While trade associations have overwhelmingly expressed their support for the the unitary patent system, patent attorneys are divided on the issue, with several 'senior statesmen' of Italian IP law as well as some midgeneration professionals opposed to the unitary patent system. Regardless of opposition, it is hopeful that Renzi s new government will fully support the unitary patent system. In fact the unitary patent system, based on EU-wide patent granting procedures, will provide many innovative Italian companies operating in the European market with a convenient alternative to the present system, since applying a single patent to the entire European Union would reduce costs and bureaucratic burdens and serve as a barrier against the import of counterfeit products from outside the European Union. Another challenge for the new Italian Government regards criminal prosecution against infringement. Even though criminal provisions were amended and improved in 2009 (such as the introduction of a specific aggravating circumstance for the infringement involving large quantities or committed in a continuous and organized fashion: Article 474ter Criminal Code), there are still many problems in their enforcement. Specialized IP public
8 prosecutors should be introduced, as proposed by the National Council for the Fight against Infringement. This seems to be especially urgent because of the Expo to be held in Milan next year that will cause the issue of fakes to again be raised (a special law against ambush marketing is currently under discussion). Italy is currently at a critical moment. Creating a better awareness of IP rights and of the existing measures to defend them would aid industries facing the challenges of protecting innovation and the fight against infringement of IPRs. Furthermore, protecting IPRs could serve as a benchmark for enhancing the protection of physical property rights and the efficiency of the Italian legal environment as a whole.
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