Wednesday, August 10, 2011

Why Samsung was not put on notice before the European Galaxy Tab 10.1 injunction was ordered

Here's a quick explanation of how such preliminary injunctions as the one reported yesterday concerning the Samsung Galaxy Tab 10.1 work in German courts. In its official reaction, Samsung said the following:

"The request for injunction was filed with no notice to Samsung, and the order was issued without any hearing or presentation of evidence from Samsung."

As a native and resident of Germany (though most of the litigation I analyze takes place in the United States), I once obtained a preliminary injunction against a competitor (in the computer games business) as well, and while my lawyers had sent that competitor a cease-and-desist letter, there was no obligation to send that letter, there was no notice of the court filing per se, and the court also handed a preliminary injunction without hearing the other party.

In my previous post on this matter I already explained that an infringement of a valid intellectual property right entitles a right holder to an injunction. Unlike in the U.S., proof of infringement is the only criterion for the entitlement to an injunction.

With a preliminary injunction, the additional hurdle is that besides an entitlement to an injunction, one has to convince the court of an entitlement to a preliminary one. That requires a theory of harm, but not the more complex kind of hardship and public interest analysis that is performed in the United States.

But asking for a preliminary injunction comes with liability. A preliminary injunction is ordered only if the court believes you're likely to prevail in the main proceeding, but that doesn't necessarily mean that you will. In the event you lose the main proceeding, you're liable for damages. In this case, if Apple lost the main proceeding against Samsung, it would have to make Samsung whole (indemnification for lost sales etc.). The main proceeding will, however, take about a year in this case (for the first instance, and there could still be an appeal).

In addition, the court will only process a request for a preliminary injunction if the movant's representations of fact are supported by a declaration in lieu of an oath. False representations would (in addition to the aforementioned liability for damages) have consequences under criminal law. I had to sign such a declaration, too, and no one takes this lightly.

Sometimes the court will look at a request for a preliminary injunction and decide that one party's representations are an insufficient basis for a decision. In that case, the court will notify the other party and give it a chance to make a pleading, and possibly also order a hearing. But in this case (like in many others), the court apparently looked at the registered [European] Community design right and pictures of Samsung's product, and felt that there was a basis for a preliminary injunction. Still, in a main proceeding Samsung might be able to prove that the Community design right shouldn't have been granted in the first place, or that there was no infringement. In that case, Apple will be liable and have to spend a (fairly limited) part of its cash reserves on damages.

If a company anticipates a request for a preliminary injunction to be filed against it with a particular court, it may file a "Schutzschrift" ("protective pleading"), in which it will tell the court beforehand what its defenses against a potential motion for a preliminary injunction would look like. With a "Schutzschrift", the likelihood of a court hearing is very high. Apparently, Samsung did not file such a document, or at least not with the Düsseldorf court. Since Samsung sells products throughout Germany, Apple could theoretically have filed a motion for a preliminary injunction anywhere else as well. However, Apple could not have filed parallel motions in two or more courts. So if Apple had filed a motion with a court that already had a "Schutzschrift" from Samsung, Apple would have been stuck in that place. When two companies are embroiled in a battle, it can be a decisive tactical advantage if one gets an injunction right away while the other is at least delayed due to a "Schutzschrift". If someone files a "Schutzschrift" against you, you aren't notified either. The court just keeps it in its records for the event that you move for a preliminary injunction.

While a motion for a preliminary injunction cannot be filed in more than one court in parallel, there's no limit on the number of courts to which a defendant sends a "Schutzschrift". Samsung could have done this with all courts in Germany.

Even though German civil procedure is fundamentally different from the one in the U.S., there are other countries in which such injunctions can be handed without notifying and hearing the other party. Earlier this year I reported on a seizure order that LG obtained against Sony's PlayStation in the Netherlands, resulting in the temporary seizure of 300,000 PlayStations, which was however lifted after a couple of weeks, but on a basis that would be much, much less likely to persuade a German court, where the right to an injunction is pretty absolute -- at least I've never seen a case in which ongoing negotiations (the reason for which a Dutch court deemed the PlayStation seizure order unreasonable) would preclude a right holder from seeking an injunction.

Since Apple is suing Samsung in the Netherlands as well, it will be interesting to see what happens to the Galaxy Tab 10.1 there. Maybe Apple is also shooting for a seizure order and an import ban, as LG did against Sony.

[Update] Here's Apple's complaint that led to the injunction (in German). [Update]

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