The End of the “automatic” injunction in German patent Law ?

Abstract:

A proposed new draft legislation to amend the German Patent Act (PatG) clarifies the right of the patentee to injunctive relief against a patent infringer and takes measures to accelerate patent nullity (invalidity) lawsuits to mitigate the so-called “injunction gap”.

The right of the patentee to injunctive relief in the form of a permanent injunction against a patent infringer is maintained. Based on an equitable assessment of the interests of the patentee against those of the infringer, however, an injunction may be delayed to mitigate hardship on the side of the infringer. The relevant aspects considered for the assessment of proportionality are the interests of the patentee in an injunction including its type of business (operating company or licensing entity), the economic consequences of an injunction for the infringer, the complexity of the products involved, and the conduct of the parties. The right to damages for patent infringement and the possibility of compulsory licenses (e.g. in the case of SEPs) are not affected be the proposed draft legislation.

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The German Ministry of Justice has published on 14 January 2020 a draft legislation to amend patent law (PatG) and other IP laws.

Besides some formalities and adaptions to international treaties, the main two issues of the draft legislation are a clarification of the right to injunctive relief of a patentee against a patent infringer and measures to accelerate patent nullity lawsuits before the German Federal Patent Court.

Background:

Concerns have been raised in particular by the Information and Telecommunications Industry and the Automotive Industry that for complex industrial products like smartphones or cars the economic consequences of an injunction against a patent infringer with the result of having to stop selling the complex product or to cease operation of a communication network are disproportionate to the interests of a patentee covering an invention which relates only to a small part of the whole product.

This problem may be exacerbated by the so-called “injunction gap” caused by the German bifurcated patent litigation system: Patent infringement lawsuits are handled by the specialized patent chambers of the Regional Courts (Landgerichte), i.e. in Duesseldorf, Mannheim or Munich, whereas patent validity complaints (nullity lawsuits) are decided by the Federal Patent Court in Munich. The patent infringement lawsuits (where different regional courts compete for lucrative “business”) take roughly 12 months for a first instance decision, which in the case of finding infringement is provisionally enforceable against a bond given as security by the patentee. In contrast, the first instance nullity lawsuit (which is typically started about 3-6 months after beginning of the infringement action) before the Federal Patent Court presently takes about 24 to 30 months. There is therefore the risk that a company has to stop selling its products in Germany based on a patent which later is found to be invalid.

Both the “automatic” right to injunctive relief of the patentee against the patent infringer and the “injunction gap” are perceived by some industries as inequitably favoring patentees over potential patent infringers. This has been a concern in particular towards patent licensing entities, which are not manufacturing or selling products and therefore are not themselves exposed to patent infringement lawsuits, allegedly allowing them to extract higher license fees than would otherwise be possible.

A particular aspect are standard-essential patents (SEPs), which have to be utilized to implement a particular standard as e.g. the 4G or 5G mobile communication standards. SEPs are an internationally highly debated matter involving antitrust issues and compulsory licenses according to § 24 PatG. The newly published draft legislation, however, does not deal with SEPs.

  1.  Accelerating the patent nullity lawsuits

§ 83 (1) PatG now includes a new statutory deadline for the defendant of a nullity lawsuit (the patentee) to provide within 2 months (extendable to 3 months with proper reasoning) a comprehensive defense against the nullity lawsuit. The Patent Court in turn is urged to provide within 6 months from notification of the nullity lawsuit a comprehensive provisional opinion on the validity of the patent, which is then directly forwarded to the district court handling the infringement action for consideration in its judgement.

In principle, this compressed (front-loaded) patent nullity procedure appears to be functional to serve its purpose to give the infringement court a proper basis for the assessment of patent validity before imposing a (provisionally enforceable) injunction against the patent infringer. The amendments, however, would require huge efforts and substantial organizational changes on the side of the Federal Patent Court. I expect that this issue will therefore cause considerable discussion. Furthermore, in order to preserve the balance between patentee and accused infringer, the latter should be likewise given a deadline of two months from notification of the patent infringement lawsuit to bring the nullity action if the patent invalidity defense is raised in the infringement lawsuit (which is almost always the case). Otherwise only the patentee would be under time pressure to prepare the whole patent validity defense within two months, whereas the accused infringer has no time constraints to prepare and bring the patent nullity complaint.

  1. The principle of proportionality for granting Injunctive relief against the patent infringer

So far, German courts broadly grant injunctive relief against patent infringers under § 139 PatG. The proposed draft legislation now introduces in § 139 in a new clause a balancing of the interests of the patentee with those of the accused infringer:

The claim [to injunction] is excluded to the extent that the enforcement of the right to injunctive relief is disproportionate when, due to special circumstances taking into account the interests of the patentee vis-à-vis the infringer and the principle of good faith, it constitutes a hardship not justified by the exclusive right.

According to the published reasoning for the draft legislation, however, the amendments are to be understood as a “clarification”, not as a substantial change of current practice (page 32 of the German text):

Against this background, it seems appropriate to expressly clarify with the proposed addition to § 139 (1) – in line with Article 3(2) of Directive 2004/48/EC – that the enforcement of a patent injunction may exceptionally be disproportionate in individual cases.

The explicit consideration of the principle of proportionality in § 139 PatG must not, however, lead to a devaluation of patent law. A continuing strong injunctive relief is indispensable for the enforcement of patents for German industry. The draft therefore provides that the restriction of the right to injunctive relief remains – as laid down in the case law of the FCJ – limited to exceptional cases.

This general principle of a clarification and not a restriction of the injunctive relief is reflected by the statement on page 51 of the reasoning that the burden of proof is on the patent infringer to show disproportionality of the injunctive relief and not on the patentee to give evidence that the injunction in proportionate.

According to the published reasoning (pages 51-53 of the German text), the main aspects to be considered when balancing the interests of patentee and patent infringer are:

(a) Interest of the patentee in an injunction

Here, a difference is made between operating companies and licensing entities, although framed in careful language:

If the patent infringer sets out special circumstances which may in individual cases give rise to unjustified hardship, it may exceptionally be relevant in the context of an overall assessment of all circumstances whether the patent proprietor himself manufactures or has manufactured corresponding products or partial components which are in direct competition with the infringing product, or whether the patent proprietor is primarily concerned with the monetization of his rights and not with the execution of inventions as an expression of the innovative function of the patent system. The latter is usually the case with pure patent exploiters. In these cases, the patent holder’s interest may be primarily directed towards concluding a license agreement and not towards securing his own development and production activities. Clearly excessive license claims, which are to be enforced against good faith with the injunction, can also count against granting an injunction in such cases. However, the mere fact that the patentee does not use the patent himself through his own or licensed production is in itself not sufficient for the granting of a conversion- or use-up period; such a situation is therefore not necessarily to be taken into account to the detriment of the patentee. That is, claims for injunctive relief can also be a necessary corrective to the patent law, for example, when individual inventors or universities use the patent system to protect their rights using third parties.

It appears that the identity of the patent proprietor as an operative company or licensing entity may lead to a postponement of injunctive relief and the grant of use-up terms, but does not restrict the right to permanent injunction against the patent infringer.

(b) Economic consequences of the injunction

In the case of severe economic consequences of an injunction against the patent infringer, the injunction may be postponed, as stated in the reasoning:

A restriction of the effect of the patent by granting a use-up period can be justified if the economic consequences of the immediate observance of the injunction in the individual case affects and disadvantages the infringer to a particularly high degree due to special circumstances beyond the impairments associated with his claim as intended.

The right to permanent injunction, however, is not affected.

(c) Complex products

If the value of the patent in completely out of proportion to the costs of interruption of production of the infringing product, injunctive relief may be disproportionate:

The consequences – such as the prolonged interruption of production – can in individual cases be so completely disproportionate to the value of the infringed patent that the interests of the patentee in the unconditional enforcement of his injunctive relief must exceptionally take second place.”

(d) Conduct of the parties

On the infringers side it can be taken into account if he has taken adequate measures to avoid a patent infringement by e.g. conducting a “freedom to operate” analysis or trying to obtain a license. On the patentee´s side, undue delay of the patent lawsuit despite knowledge of the infringement may be an argument against injunctive relief.

In any case, the right to damages for patent infringement is in no way affected be the proposed draft legislation. The possibility of compulsory licenses under § 24 PatG is likewise not affected by the draft legislation.

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