An extract from The Technology Disputes Law Review, 1st Edition

Overview

Technology disputes in Italy involve a large and varied amount of litigation, ranging across sectors covered by traditional patents (mechanical, electronic and also pharmaceutical patents); telecommunications and other fields that are often hotbeds of new industry technology standards that can be protected by standard essential patents (SEPs), and which may in turn generate licensing disputes; and also sectors involving more innovative and trend-setting technologies, such as the use of algorithms and artificial intelligence (known as AI).

Trade secrets also represent a less traditional area that has seen a rise in disputes because of the combination of an improved protection system (following implementation of the EU Trade Secrets Directive in 2016) and an increased sensibility regarding the high costs, length and inefficiencies of the current patenting and patent dispute systems. Trade secrets are, in fact, largely used to protect new technologies that do not fit (or at least not completely) within the traditional scope of patent protection.

Copyright disputes arising from unauthorised use and sharing of proprietary content, usually by large social network platforms, represent a sector that generates a significant amount of complex litigation, involving a delicate balance between the opposing interests of right holders, internet service providers (ISPs) and users.

Finally, in recent years we have observed an increase in disputes in which the use of technology is a common feature, and which sit at the intersection of data privacy and consumer litigation.

i Intellectual property disputes and patent disputesCause of action

Despite the large variety of fields and rights involved in the technology sector, the largest number of technology actions in Italy still revolve around traditional patent infringement litigation, with a steady increase in the amount of litigation involving SEPs. Infringement disputes embrace both product patents and process patents (particularly frequent in the pharmaceutical sector). Copyright actions based on unauthorised use of proprietary content on social media and other content sharing platforms also accounts for a large part of recent technology litigation.

In Italy, the key remedy for patent infringement (and infringement of intellectual property (IP) rights in general), including in trade secrets litigation, is a civil action in which the patent holder can obtain a final injunction (including a penalty for any breach of the injunction), seizure or recall from the market, as well as assignment or destruction of infringing goods; and the award of legal costs and damages, including moral damages. Publication of the judgment completes the range of remedies available to a patent holder. In disputes involving SEPs, the right holder aims to obtain an injunction with the final purpose of forcing the competitor to accept fair, reasonable and non-discriminatory (FRAND) terms.

Although damages may include compensation for direct economic damage, loss of profits and non-economic effects, such as moral damage (i.e., damage to commercial reputation or defamation), punitive, treble or statutory damages are not recognised under Italian law. Damages can be awarded on the basis of the different criteria set out under Article 125 of the Code of Industrial Property (CPI).2 The fair royalty and the infringer's account of profits often replace the traditional loss-of-profits criteria, which present a very high burden of proof for the right holder. Where the above criteria do not help in the specific case, the amount of damages can still be equitably determined by the judge.

Licensing-related disputes may still involve infringement claims along with damage compensation claims. Typical remedies in this kind of action are termination of the agreement and damage compensation. Where industry standard technology patents are involved, assessment of the nature of the patent may be required.

Common issues

Patent and technology-related litigation in general in Italy is a serious undertaking requiring considerable expertise. For this reason, engaging suitable experts and specialist counsel is key (lawyers in Italy generally do not have a technical background). In cases where infringement is not straightforward (for example, infringement under the doctrine of equivalent, indirect or contributory infringement), an evaluation of very complicated aspects may be required, going beyond technical analysis. Close cooperation between lawyers and technical experts may therefore make a significant difference to the success of a case.

Any lack of certainty as to the robustness of a patent may become an issue when seeking to enforce the patent, since typically one of the main defences raised by an infringer is a challenge to the validity of the patent to be enforced.

If the patentee does not have comprehensive evidence of the infringement, a preliminary identification order may be required to access the infringer's premises and search and identify the technology allegedly in violation of the patent holder's rights. This is particularly important when acting to obtain a preliminary injunction, where a solid prima facie case is one of the requirements for success.

Another common issue in patent disputes concerns identification of the competent court and the prevention of forum shopping. In patent litigation involving the validity of a patent, competence lies exclusively with the court of the place where the patent has been registered; however, in infringement disputes, the right holder has discretion to choose between the place of business of the infringer (if based in Italy), the right holder's own place of business (if the infringer is located abroad) or the place where the infringement occurs (i.e., where the product is manufactured or sold). It is not uncommon to involve third-party distributors as the basis for establishing the competence of a specific court.

Determination of the competent court is also critical in SEP disputes. When it comes to definition of the terms of technology licensing, the choice of one court over another may make a huge difference.

In disputes involving trade secret misappropriation, the main difficulties encountered by right holders concern the burden of proof of the infringement. Apart from evidence of the type and content of secrets allegedly violated, and of the requirements for their protection,3 providing evidence of the misappropriation by the infringer often proves very difficult. Search and identification orders are a key measure to obtain this kind of evidence.

Finally, obtaining proof of damage, and quantification of damages, may be tricky and ultimately too difficult and time-consuming. In most cases, the plaintiff is not in a position to prove having suffered a loss of profits as a consequence of an infringement and must therefore rely on the profits obtained by the infringer through the sale of the protected technology. Full discovery is not provided by the Italian system and access to the infringer's accounting books requires the judge to issue a specific disclosure order and the appointment of an accountant to review the relevant documents. An infringer's refusal to disclose relevant documentation is not subject to any specific sanction and may result in a disappointing quantification of damages (damages equitably awarded by judges are rarely satisfactory for the right holder).

ii System development and service delivery disputes

System development disputes do not differ substantially from IP-related disputes in terms of remedies, evidence and witness structure, and enforcement. The following sections will therefore focus on the peculiarities of these kinds of disputes compared with general IP litigation.

Cause of action

A large number of technology actions in Italy arise from information technology (IT) contracts. Such actions usually concern contractual breaches, with one of the parties seeking compensation for damage arising from a breach of contractual obligations – often in relation to the level or quality of IT services provided. These disputes often start upon the conclusion of the business relationship and may also involve the migration of data to the platform managed by the newly appointed service provider, which is why clients may require interim measures to assure the continuity of services.

The key remedy for IT contract litigation in Italy is a civil action in which the client is usually seeking compensation for damage (or the migration of data to another provider), while the provider seeks payment for services already rendered and, sometimes, for the migration of data and transfer of source code or IP rights.

Common issues

As with patent litigation, IT contract litigation in Italy is a serious undertaking requiring considerable expertise. Engaging suitable experts and specialist counsel is therefore also essential in these disputes. Assessment of breaches of service level obligations or non-compliance of IT systems in terms of functionality, interaction or performance often requires evaluation of complex technical aspects.

In the absence of clear evidence of a breach, the court may require a preliminary technical description. The court will appoint an expert in charge of assessing the relevant technical issues, with the assistance of the experts appointed by the parties. This is particularly important when, for example, the status of a platform may change pending the court case. This preliminary remedy often provides leverage to push the party at fault to settle. In practice, in the subsequent civil case, courts frequently base their decision on the outcome of this preliminary analysis.

iii Data processing disputes and class actions

Apart from traditional IP- and IT-related litigation, we have recently seen a substantial increase in disputes in which the use of technology is a common feature, and which are situated at the intersection of data privacy and consumer litigation.

The cause of action is breach of data protection or consumer laws, usually in relation to violation of the principles of transparency, fairness and the informed consent of individuals.

The kind of legal action that can be brought depends upon the specific piece of legislation allegedly breached, as well as the remedy sought by the claimant; for example, it may take the form of an administrative proceeding before the competent consumer or data protection authority, or a legal proceeding in the civil courts, such as an action seeking compensation for damage – a class action in the case of consumer litigation.

The action may be brought about by a claimant or initiated ex officio by the competent authority (i.e., the data protection or consumer authority), following, for example, investigations or reports by third parties.

Procedural rules such as timelines, interim remedies and enforcement are determined according to the procedural rules governing the relevant legal action. Similarly, the appeal phase depends on the first instance proceedings; for example, a decision issued by the data protection authority may be challenged before the civil courts, following the rules of special labour proceedings, while a decision issued by the consumer authority may be challenged before the special administrative courts.

Whatever the specific procedural features, the significance of this type of dispute is that it highlights the growing interplay between data protection and consumer litigation within the realm of technology. The circumstance that the same general principles (for example, transparency in dealing with individuals) are in fact addressed by both consumer and data protection laws, providing options in the way of different redress procedures, can lead to a domino effect whereby it is not unusual for data protection proceedings to be reconfigured and then re-presented as a technology consumer dispute, and vice versa.

Furthermore, this kind of technology dispute also has an EU-wide dimension, in the sense that litigation started in one country is usually re-presented in another – again, by a claimant or ex officio by competent authorities.

This kind of technology dispute raises major concerns for companies in light of (1) thresholds for applicable fines under data protection laws (€20 million or 4 per cent of the global annual turnover of the preceding year, whichever is higher); (2) the impact of adverse and sometimes unpredictable decisions in the case of class actions; (3) the significant fallout in terms of reputational damage, in respect of not only customers, but also investors and business partners; and (4), probably most importantly, the fact that such disputes are fundamentally linked with technology and concern the latest developments at the very core of the digital transformation impacting all businesses makes them seem somehow inevitable.