Sunday, March 1, 2020

German patent litigators comment on minimal (if any) impact of proposed reform bill on patent injunctions

Within a couple of hours of the German government's release of a draft patent "reform" bill (bearing the acronym "PatMoG"), this blog criticized the proposal as being "designed only to cement the status quo on injunctions." I followed up with a comparison to eBay and European Union law on proportionality of remedies (the EU law aspects of this were also the topic of a "bonus panel" at my November 2019 Brussels conference), and furthermore cautioned against Kremlinology, spin, and self-delusion.

By now, some leading German patent litigators have spoken out on the subject, and I requested permission to quote a couple more. Before I provide my translation of those quotes, a couple of things:

  • I hope no one is disappointed that I didn't contact them--if I didn't ask you, it was most likely because you're involved with cases I follow and mentioned here all the time anyway.

  • The lawyers quoted below all told me explicitly that they provide their impact assessment without any intention to criticize the government's proposal, much less the current practice of German patent infringement courts.

Having said that, let me start with a quote from Taylor Wessing's Dr. Dietrich Kamlah:

"With respect to § 139 para. 1 PatG, I am of the opinion that the proposed insertion would change little about judicial practice with respect to injunctive relief."

Krieger Mes & Graf von der Groeben's Axel Verhauwen authored a detailed client advisory, which I have obtained, and has authorized a quote I will translate as follows:

"The amendment to § 139 PatG proposed in the draft reform bill 'changes' nothing, which already follows from the fact that the proposed language is identical to the 2016 Heat Exchanger guideline ruling on injunctions by the Federal Court of Justice. If Airscarf [a case involving a feature of Mercedes convertibles] did not constitute a hardship, what else would?"

IPCGS's Dr. Roman Sedlmaier, who in addition to litigating patent cases provides expert opinions such as to the City of Munich in connection with the European software patent legislation process in 2005 and its potential impact on Linux, says the following:

"It is most likely that the proposed reform will result in cases in which injunctive relief will be denied, even though such cases should be very rare and limited to the most extreme constellations. Lacking any concrete definition in the proposed reform, it will be up to the case law to define what constitutes such a constellation. This will lead to years of legal uncertainty. However, as for FRAND cases, the proposed reform should never play a role as long as a FRAND-compliant licensing offer as already defined by case law is on the table. In such cases, it would be up to the infringer to avoid an injunction by taking a license on FRAND terms."

A Germany-based partner of a major U.S. firm known not only but also for a strong patent litigation practice provided the following prediction on condition of anonymity:

"I personally believe that the proposed amendment would lead counsel to plead disproportionality at length as a precautionary matter. They owe that to their clients as long as the interpretation of the new statute has not been clarified by the highest court in the land. I, for my part, do not believe that courts would deny injunctive relief on proportionality grounds any more frequently [than so far]."

Also, the Bardehle Pagenberg firm published a detailed English-language analysis. Under the "Conclusion and prospect" subheading, Bardehle Pagenberg makes a remark that I had also made in various reform-related meetings: apparently the Federal Ministry of Justice and Consumer Protection sought to take a position that would allow it to claim that German patent law had always complied with the EU's IPR Enforcement Directive. That's why the draft describes the amendment of § 139 PatG (Patent Act) as a mere clarification of existing case law.

Bardehle Pagenberg goes on to point out that the ministry's first draft, on which stakeholders can still submit comments until March 10, "rejects any further development of the legal situation beyond the 'Wärmetauscher' [Heat Exchanger] case law of the German Federal Court of Justice." In the Heat Exchanger decision, the Federal Court of Justice had found (though without practical impact on the case at hand) that a grace period for using up already-manufactured infringing goods might be possible in cases of extreme hardship. Against this background, Bardehle Pagenberg says:

"Hence, it remains to be seen whether the envisioned amendment to the law will result in an increased degree of consideration of proportionality by the courts of lower instances, given that the legislator itself states that the existing legal situation should not change to an essential extent. However, according to the grounds for the bill, even denying a permanent claim for injunctive relief is to be possible in absolutely exceptional cases; at least in this regard, the bill goes beyond the current legal situation shaped by the [Heat Exchanger] decision of the German Federal Court of Justice."

The last sentence quoted right above is consistent with a remark made by Presiding Judge Ulrike Voss ("Voß" in German) of the Dusseldorf Higher Regional Court at a CIPLITEC event in January. Whether one agrees with the wording that "the bill goes beyond" Heat Exchanger depends on the following considerations:

  • The ministry's first draft puts the Heat Exchanger criteria for a use-up period in the context of an enforcement that would be disproportionate. And then, in the event of enforcement being disproportionate, the claim to injunctive relief is precluded, but only to the extent that enforcement would be disproportionate. It's a mix-up of a claim and its enforcement that simply constitutes poorly-crafted legislation--probably not because the ministry officials wouldn't know better, but because they didn't want to actually change the situation, so they considered a violation of generally accepted principles of properly-structured legislation the lesser evil than potentially reducing the attractiveness of Germany as a patent litigation venue and giving rise to claims that Germany previously failed to properly implement the EU's enforcement directive.

  • As a result of the claim-enforcement mix-up, the claim to injunctive relief is not precluded if a court can solve any proportionality problems at the enforcement level, such as through what German law calls "enforcement protection" (a stay of an injunction pending an appeal, requiring a deposit by the defendant).

  • So what about cases in which the proportionality problem can't be solved by giving someone a few months or a year to implement a workaround? As the draft statute primarily suggests time-limited solutions such as use-up periods, but does not explicitly limit its application to transitional periods, courts could indeed deny injunctive relief on a permanent basis.

  • It is then a threshold question whether one agrees with Bardehle Pagenberg and Judge Ulrike Voss that the draft statute goes beyond the current legal framework--in terms of proposing to poke an additional hole into the injunction statute. Here's my analysis:

    1. The draft bill does not go beyond the Heat Exchanger guideline ruling (which is published before the actual decision, like a Supreme Court syllabus, except that those German guideline rulings are binding (to the extent that case law is binding in Germany at all; compared to common law jurisdictions, it's always weak). The guideline ruling just states criteria that must be met in order for a use-up period to be an option at all. In other words, it tells the lower courts when to reject the grant of a use-up period. Therefore, the guideline ruling does not, in and of itself, discuss a scenario in which injunctive relief might be denied permanently.

    2. In the body of the Heat Exchanger opinion, the Federal Court of Justice stated that it's an inevitable consequence of the entitlement to a patent injunction that the infringer must stop production and distribution until it has either worked around the patent or otained a license, and that "the hardships inevitably involved must be accepted in principle" (emphasis added), whereafter the opinion talks only about the possibility of delaying enforcement by granting a use-up period.

      It's a perfectly reasonable interpretation of the Heat Exchanger opinion (though not of the guideline ruling) that it describes a use-up period as the maximum concession a patentee might have to make to an infringer. However, it's not wholly unreasonable to take the position that even Heat Exchanger implicitly left the door open to a permanent denial of injunctive relief, which is why I highlighted the words "in principle." Heat Exchanger does not explicitly say that a transitional period is in 100% of all cases the limit (courts avoid taking positions on unforeseeable future cases).

    3. Even if one interpreted Heat Exchanger as making it clear that the claim to injunctive relief is absolute as far as the claim is concerned, and only delayed enforcement might be considered in rare cases, one could still argue--as I continue to do--that the government's proposal fails to improve the legal framework. That's because IPRED directly applies in Germany, regardless of any shortcomings of its transposition into German law, and because, as I mentioned before, case law per se is structurally much weaker in Germany than in common-law jurisdictions.

    4. In addition, one's impact assessment may take into consideration the philosophy of German patent infringement courts. An expansive interpretation of the exception to injunctive relief is not to be expected.

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