Making sure infringers can pay damages

The plaintiff, the owner of an already expired Hungarian patent, filed a court claim against the defendant, a Hungarian wholesaler of veterinary products, seeking a ruling of patent infringement and the return of the defendant’s unlawful enrichment.

The Metropolitan Court (of first instance) declared that the defendant had infringed the plaintiff’s patent and obliged the defendant to pay the plaintiff approximately HUF175 million (€617,000) and interest dating from the beginning of 2000, as well as approximately HUF6 million (€21,200) in legal costs. However, the decision is on appeal at the Metropolitan Appeal Court and therefore is not yet binding.

While the appeal proceeding on the merits is pending at the court of second instance, the plaintiff has submitted a motion to the Metropolitan Court asking for security measures against the defendant. The plaintiff argued that the 2009 balance sheet of the defendant—information that is publicly available in Hungary—suggests that it is unlikely to be able to pay the awarded compensation, interest and legal costs.

The plaintiff compared the defendant’s 2008 and 2009 balance sheets and financial reports to show that the value of the defendant’s investments had dropped by 98.4 percent (from HUF9.3 million (€34,000) to HUF153,000 (€560)); that it had lost 91.5 percent of its assets (with HUF7.2 million (€26,000) remaining out of HUF84.8 million (€311,000)); and that its equity had decreased from HUF21.8 million (€80,000) in 2008 to HUF402.3 million (€1.5 million) in 2009.

Furthermore, the company suspended both its domestic and international commercial activities in 2009. Based on these data, the plaintiff concluded that it is reasonably probable that the defendant is trying to withdraw its financial assets from the company and to sell its real estate.

“This is the first time that the Metropolitan Court has ever issued such an order in a patent infringement proceeding—a promising milestone for parties who reasonably fear that after years of costly and time-consuming litigation, they will not be able to receive any compensation from the defendant.”

Based on the requests, the court examined the rules of the Act of Judicial Foreclosure and established that although the situation cannot be concluded since the subject judgment is under appeal, the preconditions for the security measure—according to which the plaintiff shall demonstrate that the future settlement of its claims are imperilled—are met. The court fully accepted the arguments of the plaintiff relating to the dramatic decrease of the assets of the defendant based on its balance sheets and financial reports. The court also found that the plaintiff’s claim is well defined and proven.

Having approved the request, the court ordered its decision to be served on the defendant by a bailiff, to whom the defendant will pay the total sum (capital, interests and legal costs) awarded in the first instance judgment. Furthermore, the court obliged the defendant to present to the bailiff its bank, financial and commercial documents as well as documents concerning its real estate and each transferable asset with an individual value of more than HUF500,000 (€1,800).

In the event that the defendant fails to comply with the decision, the court also ordered the bailiff to seize the defendant’s assets and to freeze its bank account as well as register the right of foreclosure on all of the defendant’s real estate.

The order may be appealed, but it is nevertheless enforceable irrespective of a potential appeal.

This is the first time that the Metropolitan Court has ever issued such an order in a patent infringement proceeding—a promising milestone for parties who reasonably fear that after years of costly and time-consuming litigation, they will not be able to receive any compensation from the defendant. Orders such as this may effectively prevent defendants from taking assets out of an infringing enterprise in Hungary.