June 26 2015 Martin Aquilina, COO | Business Lawyer
A defensive action commonly known as “Italian torpedo” is no stranger to the field of commercial litigation in Europe. The parties have taken advantage of the slow speed of judicial proceedings in Italy (and other countries such as Belgium) to torpedo the action that might be brought against them. Essentially, the vessels from which the crews (potential defendants) fired their torpedoes were the Brussels Regulation and its predecessor, the Brussels Convention. The potential defendants abused the lis pendens rule found in Article 27(1) of the Brussels Regulation which stated:
Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established.
The lis pendens rule was supplemented by Article 28(1):
Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings.
To continue with the maritime analogy, the flagship that enabled the vessels and its crews to fire the torpedo was Article 5(1) and (3) of the Brussels Regulation, which stated:
A person domiciled in a Member State may, in another Member State, be sued:
1. (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:
- in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered,
- in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided,
(c) if subparagraph (b) does not apply then subparagraph (a) applies;
3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur.
Although torpedo actions are often initiated in the context of patent infringements, they can be launched in other contexts as well.
How a torpedo action essentially works
Let’s say there are two companies: ABC Corporation (“ABC”) based in Italy and DEF Corporation (“DEF”) based in Germany. ABC infringes a patent held by DEF. ABC, fearing that DEF will bring a claim against it for patent infringement, seeks a declaration of non-infringement from an Italian court. However, before even the merits of such action can be decided, Italian courts must first decide whether they have jurisdiction over the case. Under Article 27(1) of the Brussels Regulation, DEF was prevented from bringing an infringement claim against ABC in a German court (where procedures move much faster) until the Italian court determined whether it had jurisdiction, a process that could take years. ABC had effectively “torpedoed” DEF’s ability to bring forward a patent infringement claim against it.
Two leading cases from the EU
Even exclusive jurisdiction clauses could not fully protect parties from torpedo actions. In the 2003 case of Gasser v MISAT, the courts dealt with a contract containing an agreement that in case of disputes, Austrian courts would have jurisdiction. Despite such a choice-of-court agreement, MISAT filed an action in Italy seeking a declaration that its contract with Gasser had been terminated. Gasser then brought a claim against MISAT in Austria for the outstanding payments. The European Court of Justice held that since the Austrian court was the second seised, it had to wait until the Italian court decided whether it had jurisdiction, notwithstanding the parties’ agreement to the contrary.
The 2005 ruling in Turner v Grovit provides another example of the strength of the lis pendens rule. Mr. Turner was an employee of an English company and Mr. Grovit was its director. Mr. Turner brought a claim against the company in London, alleging that the company asked him to engage in illegal activities while he was working in Spain. A Spanish company part of the same corporate group commenced an action against Mr. Turner in Spain alleging misconduct. Mr. Turner then asked the English court to issue an anti-suit injunction, alleging that the Spanish company was interfering with his claim in London. The court granted the injunction. However, the European Court of Justice held that the English court’s injunction was an interference with the jurisdiction of a foreign court inconsistent with the Brussels Convention.
The Italian courts’ response
The Italian courts, recognizing the potential abuse of the lis pendens rule, have long tried to deal with the issue of torpedo actions. The Italian Supreme Court in BL Macchine Automatiche SpA v Windmoeller und Hoelscher KG, ruled that the country’s courts should not assume jurisdiction in a torpedo action based on a claim of non-infringement because such a claim necessarily meant that the harmful event required to trigger the lis pendens rule had not occurred. The decision could have been the first step in disarming the torpedo and it very well sums up the reluctance of Italian courts to recognize jurisdiction in such matters. However, ten years after its judgment in Windmoeller, the Italian Supreme Court rendered a somewhat contradictory judgment. In The General Hospital Corporation and Palomar Medical Technologies Inc v Asclepion Laser Technologies GmbH, the Court ruled that it had jurisdiction over an action seeking a declaration of non-infringement with respect to the non-Italian part as well as the Italian part of the patent.
Disarming torpedoes in the context of exclusive jurisdiction clauses
The Recast Brussels Regulation makes significant amendments to various provisions of the Brussels Regulation in order to rectify some of its shortcomings. Amongst these is the ineffectiveness of exclusive jurisdiction clauses in disarming torpedo actions, as illustrated by the Gasser v MISAT case.
The Recast Brussels Regulation bolsters the effectiveness of choice-of-court clauses in two ways. Firstly, the lis pendens rule is now explicitly “without prejudice” to agreements conferring exclusive jurisdiction to a court of a given Member State. Secondly, whereas the previous Regulation only recognized choice-of-court clauses in agreements where at least one party was domiciled in a Member State, they are now recognized even if none of the parties are from the EU.
There is no doubt that the Recast Brussels Regulation brings many improvements with regards to exclusive jurisdiction clauses and countering torpedo actions. Unlike the Windmoeller case where the Italian Supreme Court tried to counter torpedo actions at the national level, the Recast Brussels Regulation tries to disarm the torpedo at the supranational (EU) level. While the new Regulation strengthens the enforceability and effectiveness of choice-of-court clauses, time will tell whether the torpedo has been completely disarmed. The term “Italian torpedo” was coined by Mario Franzosi. For more detailed discussion, see Franzosi, “Worldwide Patent Litigation and the Italian Torpedo”,  19 European Intellectual Property Review 382.
This article is for informational purposes only and does not constitute legal advice. If you wish to seek legal advice, contact Martin today. 613-747-2459 ext.308, [email protected]