Sunday, March 15, 2020

Distorted picture of stakeholder positions on German patent injunction reform: submissions to Federal Ministry of Justice

Leading litigators agree that the first draft of a German patent reform bill put forward by the Federal Ministry of Justice and Consumer Protection (BMJV) would change either nothing at all or, at best, extremely little about access to patent injunctions. This blog already said within a couple of hours of the dissemination of the document.

Stakeholders had until March 10 (last Tuesday) to provide feedback to the ministry. Throughout the course of the week, the ministry uploaded those documents whose submitters had not requested confidential treatment.

To my dismay, the proponents of meaningful injunction reform have lost the second round in a row. They had originally achieved a breakthrough in the sense that the ministry, which at the outside envisioned a low-key reform package along the lines of a "service update" for computer programs, has dared to touch the holy cow of German patent law--§ 139 PatG (Art. 139 German Patent Act, the injunction paragraph)--at all. But what has otherwise happened is a disaster for the pro-reform movement:

  1. The actual proposal is lopsided in patentees' favor and designed to eliminate or at least minimize any potential impact.

  2. And now, due to utter political incompetence in some places, outdated internal rules in others, and obsolete conventions on the part of key local pro-reform forces, the ministry has received more than enough backing to either turn its first draft into the federal government's formal proposal or make merely cosmetic changes to it.

    There's obviously nothing that pro-reform forces could have done about their rivals' actions. Their failure lies in the fact that they didn't (even though I told many of them a long time ago) restructure and broaden their alliance in an effort to overcome resistance to reform. Those who want a more balanced statutory framework are now on the losing track unless the dynamics of the parliamentary process result in a turnaround. An economic majority actually wants reform, and only a minority opposes it--but the majority doesn't know how to win, or the few individuals who do know just aren't allowed to do what needs to be done, while the patent-extremist minority plays it smart (those organizations have highly experienced, global IP policy teams, unlike the German automotive industry, for instance) and has the relevant ministry officials on its side.

While the actual legislature--the Bundestag (Federal Parliament)--has every right and every opportunity (and would have every reason) to fundamentally improve the bill, parliamentary experts will start their analysis of where the relevant stakeholders stand with the submissions to the ministry. And those submissions present a distorted picture, for the reasons stated above.

In this post I'll focus only on the proportionality of injunctions, not on other aspects of the reform bill that the submissions touch on, except where there is an inevitable overlap.

Submissions in favor of major improvement over the status quo (i.e., fewer injunctions)

Max Planck Institute for Innovation and Competition: That one is fantastic. They explain the issues with the present proposal and propose a straightforward proportionality requirement (which would bring German patent law into compliance with EU law). Among other things, they also argue for taking third-party interests into account, and they explain why proportionality considerations are also critical with respect to standard-essential patents (SEPs). Unfortunately, they don't represent an industry, but I will propose a solution: why don't a number of major companies (either German corporations or international ones with substantial operations in Germany)--regardless of whether they've already supported the submissions of one or more industry associations--throw their full weight behind the Max Planck Institute document and say that they support it 100% even though they might have settled for less before in order to build consensus within industry groups? The Max Planck Institute is a world-class academic institution, not a campaign HQ. They wouldn't seek endorsements, but I am going to contact some key pro-reform players the next few days and urge them to publicly (such as through this blog, where I could publish the names of organizations who confirm their agreement with the Max Planck paper to me just like their PR departments would confirm the existence of a pending litigation) declare themselves 100% (no ifs, no buts, no nothing) in agreement with the Max Planck submission. Let's make the Max Planck Institute's submission the economic majority's lodestar and tell it to the Bundestag.

Germany's leading SME organization (Bundesverband mittelständische Wirtschaft, BVMW): This submission makes strong policy arguments from the perspective of small and medium-sized companies and blend them with reasonably profound legal criticism of the proposal, expressing serious doubts about whether we would see much (if any) improvement. What the BVMW does not provide is a statutory counterproposal, but what the Max Planck Institute suggests would undoubtedly meet the BVMW's criteria.

Patentverein (medium-sized companies advocating balanced patent policy) and BITMi (IT-specialized SME organization): One could interpret these two submissions as an endorsement of the ministry's statutory proposal. However, those are very small organizations and simply don't have the resources to assess the actual legal impact of a statutory proposal. Their papers make it very clear they want proportionality (and above all else, they'd like to close the injunction gap). Both are, however, members of the Mittelstandsallianz (SME Alliance) led by BVMW, and BVMW gets it right that the present proposal falls short of what's needed. For that reason, I count those two organizations, despite the shortcomings of their submissions, in the pro-reform column: their policy positions are clearly pro reform, and if they didn't back the BVMW's criticism, the BVMW surely would have mentioned it, as the BVMW's submission explicitly mentions the Mittelstandsallianz and an aggregate membership of 900,000 organizations.

Verband der Automobilindustrie (VDA, Automotive Industry Association): This submission explains the issues in great detail and proposes various improvements to the statute. It's good--but not very forceful in the end. I therefore call on those automotive industy players who are in favor of meaningful reform (which applies to the vast majority of them) to back the structurally superior Max Planck Institute's submission, especially since there is no philosophical conflict here. The best is the enemy of the good.

ip2innovate: That group has mostly non-German members such as Google, Microsoft, and Intel. Its German members are SAP, Daimler, and Adidas (a company that is also affected by the threat of patent injunctions). Daimler is also a member of the VDA, but it's a reasonable assumption that Daimler actually supports the further-reaching proposal--the ip2innovate submission. ip2innovate's paper is OK for the most part, though there is a huge issue with its statutory proposal: it does spell out some criteria to consider, but in doing so risks discounting the importance of criteria not mentioned, such as the relative importance of a patented invention to an accused product. The Max Planck Institute, with its far greater sophistication, avoided falling into that trap. As for the backing of German companies, Daimler and Adidas are undoubtedly suffering under the current situation. SAP, while it's the most valuable German company, actually never gets sued over patents in Germany. At least one can't find any recent cases on Darts IP. Even if they were enjoined, software patents can usually be worked around very easily and seamlessly. So they're lobbying for reform without actually being affected (so far). That is a limiting factor in the further debate. It doesn't make their position meaningless, but does diminish its weight--though the weight that remains is still significant.

Vodafone: Not a German company, but operator of the second-largest cellular network in the country and a provider of critical infrastructure to many German companies, including many SMEs (as the submission mentions). Their one-pager simply points out that the initial proposal doesn't go far enough. It would have been great if they could have made a joint submission with Deutsche Telekom (and possibly others). But Deutsche Telekom's position was voiced very clearly in 2018 on the corporate website, where they complained about the extent to which Germany's patent law impedes innovation.

ACT | The App Association: A low-quality submission by an organization that claims to represent 5000 SMEs "in Germany, the EU, and worldwide" (my translation), but then mentions only one German member company in its submission. Not worth discussing, and certainly won't impress anyone in German politics.

Nvidia: The strength of this particular submission is its analysis--clearly provided by a law firm--of proportionality as prescribed by the Intellectual Property Rights Enforcement Directive (IPRED) of the European Union. That part of the filing is world-class. When it comes to political clout, however, Nvidia is negligible. It basically just has a small sales operation in Germany. One of its managing directors (apparently the only Germany-based one among the five), Ludwig von Reiche (FWIW, a descendant of a German military family), overrates the significance of that company to German policy-makers by a factor of 10,000, and his understanding of how political decisions are influenced by a factor of at least 5. That said, whatever law firm authored the analysis of EU proportionality law for them did a great job. I'm not aware, though, of Nvidia having ever put its money where its mouth is in this context other than paying for this one document.

Neutral on proportionality

BITKOM (German information and communications technology industry association): Due to dissent within their membership, they couldn't take a position. Most ICT companies clearly want reform, but the likes of Siemens, Nokia and Ericsson also have significant weight within that organization. In connection with the EU software patent directive, BITKOM was one of my numerous opponents and we defeated them (both with respect to a non-legislative resolution by the Bundestag and a legislative decision by the European Parliament). It looks like I may never agree with them on patent policy, but at least they're neutral this time.

progenerika (generic drug industry association): Their submission focused only on the injunction gap. In the field of pharmaceutics, proportionality--provided that a patent is reasonably certain to be valid--is typically a non-issue given that there is almost a 1:1 relationship between a patent and a product, so one can hardly argue that only a minor feature of a complex multifunctional product was affected.

Submissions in favor of the status quo (and the ministry's first draft)

BDI (German industry association): The BDI is an umbrella association of associations. Two of its members, VDA (which wants reform) and BITKOM (which is internally divided), officially distanced themselves from the BDI's submission. The biggest issue with the BDI's submission is that they seek to limit the impact of any statutory change to enforcement stays (as opposed to a denial of injunctive relief in a given case). As for third-party interests, they may see a point with respect to telecommunications networks, but are afraid of further-reaching effects. They do speak out clearly against non-practicing entities (NPEs), and they mention the problem of complex products. So the BDI submission isn't all bad, but on the bottom line it's more of an anti-proportionality than pro-reform position. And the BDI's submission hurts the cause by appearing to isolate the automotive industry, though in reality there's a strong interest in reform in multiple industries (such as telecommunications, semiconductors, and further above I even mentioned Adidas as a member of ip2innovate). [Update on 03/17] The BDI paper had to be withdrawn, validating what I wrote about a strong interest in patent injunction reform across multiple industries. [/Update]

ZVEI (electronics industry association): They make it clear they seek to preserve the status quo and they'd like the ministry to make it even clearer that nothing should change. This one may have been influenced very strongly by Siemens.

Siemens: Whether this submission by Siemens's patent department serves the company's long-term interests is another question. In the IoT era they will increasingly find themselves on the receiving end of patent assertions. But for now, they are radical proponents of strong patent enforcement. While I disagree with them, they did the right thing by making a submission in their own name as opposed to just relying on associations.

vfa (pharmaceutical industry association) and VCI (chemical industry association): Those two organizations' joint submission promotes superstrong patent enforcement. They'd like to further weaken the ministry's first draft.

Ericsson: A foreign company, though still far more relevant to German policy makers than, say, Nvidia's local sales office. Unsurprisingly, they take a radical position in favor of strong patent enforcement. Just like Nokia, Ericsson is a company that failed in the mobile handset business and has fallen behind technologically in the field of network infrastructure, so they're ever more interested in patent monetization.

VPP (organization of 2,500 German IP professionals): This submission, unsurprisingly, favors strong enforcement. VPP's president is simply Siemens's chief patent counsel. So this doesn't really add anything.

German patent attorneys' association: Obviously in favor of the status quo. The more patent litigation in Germany, the merrier--from their vantage point.

German Bar Association: What I just said obviously applies to German attorneys at law involved with patent litigation: they wouldn't want anything to happen that would have more than a non-negligible impact on the attractiveness of their jurisdiction to plaintiffs. Policy makers are well-advised to just ignore that submission.

Berlin-based patent attorney: A patent attorney filed a submission on her own, claiming to mostly represent SMEs, which is ridiculous when you have the country's largest SME organization (BVMW) actually advocating reform. There obviously are SMEs who want strong patent enforcement--some but not all of whom are simply patent trolls. But patent attorneys aren't legitimate SME representatives, simple as that.

German inventors' association: Their membership base is just a few hundred individuals.

DABEI (another inventors' association): This submission is slightly more moderate than the one by the German inventors' association. It proposes an enforcement stay for up to six months in cases of extreme hardships, contingent upon various requirements.

Sanofi-Aventis: They caution against any further-reaching restrictions of access to injunctive relief, but would like the ministry to provide greater clarity. And in case they get sued, they'd like the interests of patients who need access to their medications to be taken into account.

Japan Business Machine and Information Systems Industries Association (JBMIA): They hate patent trolls, but they want their members (such as Sharp, Sony, Panasonic, Fuji, and Toshiba) to have just the same access to injunctive relief as now. They're apprehensive of anything that would look even remotely like eBay v. MercExchange (though the ministry's first draft is lightyears away from it).

Conclusion

One can see that those seeking to preserve the status quo are better-organized and more outspoken, as opposed to just focusing on association-level consensus building.

Some of those advocating reform mean well, but on average aren't as sophisticated as their rivals.

The pro-reform camp needs a much better statute than the one the ministry proposed, but the ministry officials can (legitimately!) portray the balance of the submissions as validating their approach. That is due to a distortion: in reality, the economic majority wants reform, but it failed to make this clear.

It's too late to orchestrate more (and better) pro-reform submissions, but it would make a huge difference now if some major players could officially subscribe to the Max Planck Institute's stellar submission. Rallying behind that paper is the best shot the pro-reform camp has at this stage. But there is a risk of most if not all of the key players being unable to do so just due to internal rules that are unfit for a patent policy debate in the 21st century.

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