Saturday, January 18, 2020

Without eBay factor #2, German patent reform movement is left with nothing but Kremlinology, spin, and self-delusion: licensing vs. injunction

Thanks to both those favoring and those opposing patent injunction reform in Germany who gave me feedback. What I hear for the most part is that people appreciate my relentless pursuit of harsh analysis. The injunction-related part of the German patent reform bill is redundant boilerplate of the kind that's not really going to move the needle. Someone has to tell it like it is. The only good news so far is that Ingmar Jung, the rapporteur of the CDU/CSU (= the chancellor's party) group in the German Federal Parliament, told Handelsblatt that they're going to "scrutinize and discuss" the proposal.

I'm quoted in that same article, saying that the proposed reform, a draft version of which was revealed earlier this week, fails to deliver meaningful progress as a prevailing patentee simply needs to make a licensing offer that may be excessive, but just not excessive enough for the court to categorize as unreasonable based on a superficial analysis. In that case, the "infringer" will be considered an "unwilling licensee," and the injunction will come down regardless of the damage it may do.

While I agree with at least one of the thought leaders of the reform movement who says that he sorely misses (as do I) a reference to the commercial value of an invention underlying an injunction patent relative to the accused product, even that perspective isn't comprehensive enough. At the heart of the single biggest issue there's the total absence, from the statute as well as the government's rationale, of the second eBay v. MercExchange factor: the requirement for an injunction that monetary relief (= a damages award) be "inadequate" to make the patentee whole. That includes, but is not limited to, the intrinsic value of the invention at issue and its relevance to the accused product.

It's going to be very hard, if not next to impossible, to improve the situation in Germany without a mind change in this regard. For as long as policy makers and judges believe that an injunction is the King of Remedies (as they say in court, "Königsanspruch"), a prevailing patentee

  • just needs a scintilla of doubt about "good faith" and "unjustified hardship" in order to obtain an injunction (and the court won't even bother to appoint an economic expert witness),

  • will benefit from a fast-approaching expiration date of a patent,

  • a patentee with a licensing-centric business model will actually benefit from his willingness to extend a license (by making the defendant out to be an unwilling-licensee type of infringer--just lawless), and

  • nothing at all will improve with respect to standard-essential patents (SEPs) as the availability of a compulsory license will weigh against implementers, not patentees.

The last bullet point is not merely a prediction. A few months ago I seized the opportunity to ask Presiding Judge Dr. Matthias Zigann of the 7th Civil Chamber of the Munich I Regional Court at an official event whether his SEP guidelines (which will be finalized shortly) would change if proportionality was introduced into § 139 (the injunction paragraph) of the German Patent Act. His answer was no, and he argued that the availability of a license on FRAND terms takes care of proportionality. In other words, defendants should just take a license.

It will be incredibly hard to dissuade a court from injunctive relief, other than maybe some transitional period (with patentees always arguing that one could have started a workaround no later than when notice of infringement was provided or the complaint served), if the hardship one argues to face is weighed against the King of Remedies.

The law must make it clear, ideally through the statute but at least through the official rationale, that a patent is a valuable intellectual property right (IPR) even if patentees must, under certain circumstances, content themselves with damages awards. It needs to be taken into consideration that monetary compensation is the norm, not a rare exception, in the real world as far as the technology sector (from chipsets to cars) is concerned.

In the United States, the fact that someone licensed a patent doesn't necessarily preclude the patent holder from being granted injunctive relief. But it is taken into consideration, and a licensing-based business model certainly doesn't weigh in favor of an injunction, which is why "patent trolls" rarely obtain injunctions in U.S. district court at this stage.

While we're on the subject of comparative law, I appreciate Professor Thomas Cotter's latest Comparative Patent Remedies blog post, in which he "certainly agree[s] that 'the German statute falls far short of eBay v. MercExchange.'" I guess no one would doubt that this is not even a close question. But if we ask ourselves what eBay factor makes the greatest difference, I can tell you from my experience as a patent litigation analyst that the second factor is the crucial one. Its underlying idea is what the reform movement must explain to politicians: not in the sense of "everything's better in America" but, regardless of what other jurisdictions do, it's key for decision-makers to understand that a patent is valuable even if injunctions don't come down more or less automatically.

For now, it seems that only parts of the reform movement reject and resist any attempt to gaslight them. In too many places, they're trying to spin a smokescreen into a substantive victory, which won't work because of how German patent infringement judges think. For the third time in the (almost) ten-year history of this blog, I have to quote Julius Caesar: "fere libenter homines id quod volunt credunt" (people readily believe that what they want to be the case is the case)

Self-delusion is not the answer. The logic underlying the second eBay factor can make a difference. Maybe it works in some organizations that people sell as a groundbreaking success what is just symbolical and psychological. I'm not going to be impressed or persuaded by anything that doesn't establish criteria capable of truly redressing the balance.

What Presiding Judge Ulrike Voss ("Voß" in German, and not to be confused for Karlsruhe appellate judge Andreas Voß) said on Thursday about the bill claiming not to change anything, but there perhaps being a hidden message in the government's decision to amend the injunction paragraph at all, may raise hopes. But such hopes are tantamount to Kremlinology, or "Kremlin Astrology," just like an announcement of a five-year plan having been met by the Soviet Union was interpreted against the background of the Secretary General of the Central Committee of the Communist Party looking displeased and the Secretary of Commerce having been sixth, not fourth, to enter the room that day.

Even Judge Voss's observation that the new statute might mean a slightly (!) more open door to a permanent denial of injunctive relief than the Heat Exchanger ruling by the Federal Court of Justice doesn't convince me. The point of reference is Article 3 of the Intellectual Property Rights Enforcement Directive (IPRED) of the European Union. That one is in force and effect, not merely a suggestion...

The reform movement must never lose sight of eBay factor #2 and IPRED Art. 3. And I just realize we haven't even talked about the injunction gap problem, which the draft bill fails to solve as well...

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