Wednesday, September 2, 2020

Spectacular turnaround in German patent reform process: Federal Ministry of Justice proposes definitive end to automatic injunctions

With all that had gone awry, there came a point when I gave up hope that the German patent reform process ("PatMoG2") would have a useful outcome. But with a view to the greater good, I'd love to be proven to have been wrong on this one, and while it's too early to tell, that may actually happen.

In January, the Federal Ministry of Justice and Consumer Protection published a first draft of the reform bill that would have had a negligible impact at best--if any--on the automatic patent injunction system in Germany. "Reform" would have been a misnomer. In March I quoted some of Germany's most competent patent litigators, whose impact assessments were consistent with the views I expressed within hours of the publication of that first draft.

Yesterday the ministry sent a draft reform bill, called "Referentenentwurf" ("draft by the unit in charge"), to stakeholders, and the amendment to the paragraph on injunctions constitutes a yuuuuuge improvement over the January version:

"Der Anspruch ist ausgeschlossen, soweit die Erfüllung aufgrund der besonderen Umstände des Einzelfalles für den Verletzer oder Dritte zu unverhältnismäßigen, durch das Ausschließlichkeitsrecht nicht gerechtfertigten Nachteilen führen würde. In diesem Fall kann der Verletzte einen Ausgleich in Geld verlangen, soweit dies angemessen erscheint. Der Schadensersatzanspruch nach Absatz 2 bleibt hiervon unberührt."

German Legalese is inherently clumsy, but let me try to translate it:

"The claim [to injunctive relief] is excluded to the extent that, under the special circumstances of an individual case, compliance [with its enforcement] would result in disproportionate hardship on the infringer or third parties beyond what is justified by the exclusionary right. In this case, the patentee can seek monetary compensation to the extent this appears reasonable. The damages claim pursuant to para. 2 remains unaffected."

Furthermore, the new draft contains some clarification that was inexplicably missing from the January draft: if an injunction is denied, continued infringement will not give rise to criminal prosecution.

The above proposal is a breakthrough--or, more accurately, comes down to multiple breakthroughs:

  • While the term "soweit" ("to the extent that", "insofar as") is not as helpful here as "wenn" or "falls" (both of which mean "if" in a binary sense) would be, the grammatical structure of the first sentence suggests even more strongly that courts should in certain cases deny an injunction altogether as opposed to merely tailoring it (or delaying or limiting its enforcement).

  • What is helpful in the same regard is that the second sentence discusses the possibility of monetary compensation, which patentees will view as merely a consolation prize. The fact that the statute outlines the alternative to injunctive relief (also by way of the third sentence, which makes it clear that damages can still be awarded regardless) also runs counter to the notion of (near-)automatic injunctions.

  • The pointless reference to "good faith" has been replaced by proportionality, which provides counsel for defendants with a far greater opportunity to fend off a patentee's prayer for injunctive relief. The term "hardship" is still there, but the central term is proportionality.

  • What will furthermore hurt patent trolls (and companies who practically are patent trolls whenever they assert patents against companies in industries they have no more business in, such as Nokia and Ericsson asserting patents against device makers) and particularly help the likes of Deutsche Telekom is that hardship on third parties will be part of the consideration.

  • The criteria are now more balanced in the sense that patentees can argue on the basis of owning an exclusionary right while "infringers" can argue proportionality. Previously, the words were carefully chosen by the ministry to favor the interests of patent holders.

  • The term "special circumstances of an individual case" is vague as the law is always about adjudicating individual cases.

For Siemens, Nokia, Ericsson, Big Pharma, and patent trolls like Sisvel and Fraunhofer, that proposal is a major defeat. I have no idea what brought about this change of mind. There is a possibility that Judge Dr. Kircher's recent Mercedes sales ban contributed to this turnaround by shocking the Federal Ministry of Justice into action.

But the pendulum might still swing in the other direction--and there's a clear and present danger of the legislative process not yielding a result before the end of the current term (in about a year):

  • The ministry asked stakeholders for feedback until September 23. There still is a possibility of this ministry modifying its draft, and without a doubt, some will push very hard for that.

  • The ministry notes that particularly the part on proportionality has not yet been approved by the federal government as a whole (at the cabinet level). Other ministries also have a say, even though the Federal Ministry of Justice is primarily in charge of patent policy.

    The Federal Minister of Justice, Christine Lambrecht, is an SPD (Social Democratic Party of Germany) politician. But the SPD is only the junior partner in a coalition with Federal Chancellor Angela Merkel's CDU (Christian Democratic Union) and its sister party, the CSU (Christian Social Union), which runs for election only in Bavaria. Ultimately the Federal Chancellor could veto anything at the cabinet table.

  • Even if the cabinet agrees on a bill, it's the legislature that has the final say. In the German Bundestag (Federal Parliament), the CDU's rapporteur on this piece of legislation, Ingmar Jung, organized a conference call in April on which he made it abundantly clear that he opposes a general proportionality requirement: instead, he wants the denial of injunctive relief to be a very rare exception. He didn't say so, but made it sound like a one-in-a-million outlier.

    If the government coalition parties (CDU, CSU, SPD) can easily find common ground, they can accelerate the process and make a formal decision in a matter of months. But if they hit a snag, there's also the possibility of no reform happening (or maybe a purely technical one that would address non-controversial housekeeping issues while not touching on the delicate subject of injunctive relief).

    The coronavirus crisis and its economic fallout also pose a risk that other topics may be prioritized at the expense of patent injunction reform.

Whatever may or may not come out of the proposal during this term, and even if the ministry had to modify the text in response to the feedback due later this month, one thing can be said: the executive government's patent policy experts have lost their faith in the German patent judiciary. They have apparently understood that from the lower courts all the way up to the Federal Court of Justice, there's near-total insensitivity to the public interest and no commitment to balance. The system is out of control, irresponsibly and self-servingly pursuing its own interests at the expense of the economy at large and society.

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