Monday, December 9, 2013

Deposits for provisional enforcement of Mannheim patent injunctions to become interest-free

In April 2012 I reported on the significant interest costs that deposits made for the provisional (i.e., before resolution of all appeals) enforcement of patent injunctions cause to the German federal state of Baden-Wurttemberg. Enforcers can post bonds or make deposits, and for large amounts, they often prefer deposits. These bonds or deposits are necessary to ensure that the victim of potentially wrongful enforcement will be made whole even if the premature enforcer goes out of business before a final ruling.

Several 100-million euro deposits were made at some point as a result of various Mannheim patent rulings in cases involving major players such as Apple and Google's Motorola Mobility; some of them have been dissolved while others may have been adjusted. So far the state of Baden-Wurttemberg has paid interest at a rate of 1% on all such deposits to enforcing plaintiffs (not just in patent cases but any other provisional enforcement of court rulings), while other German states, such as Bavaria (where various deposits were made to enforce rulings by the Munich I Regional Court), previously decided not to pay any interest on such deposits.

Not too long ago, 1% was insufficient to offset the actual liquidity cost of such a deposit. In the current environment, it's an unbelievably lucrative interest rate given that the state government of Baden-Wurttemberg's AAA credit rating. Due to legal restrictions, the government cannot even use those funds to temporarily reduce its debt. On the bottom line, the interest payments made to enforcers represent taxpayers' money.

Recently Germany's leading business weekly, Wirtschaftswoche, reported that the state parliament of Baden-Wurttemberg voted in early November to amend its Deposits Act to the effect of abolishing interest payments on deposits for provisional enforcement as of January 1, 2014.

Interest will still be paid on provisional enforcement of patent injunctions issued by the Dusseldorf Regional Court (in the state of North Rhine-Westphalia), but that court has been less popular among plaintiffs in the major smartphone disputes than the ones in Mannheim and Munich. I doubt that interest on deposits will affect any large company's choice of forum, which in my experience is driven by a set of other considerations (especially competence of judges, swift resolution, expected outcome). The state of Baden-Wurttemberg made a smart choice in abolishing interest on deposits for provisional enforcement.

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