Wednesday, October 28, 2020

German government officially adopts patent reform proposal, says new injunction statute shouldn't have much impact

One step up and two steps back.

Early last month I cheered a "spectacular turnaround" in the German patent reform process as the Federal Ministry of Justice and Consumer Protection had made substantial changes to its proposal for a new patent injunction statute as compared to its first draft, which was published in January and amounted to a non-reform proposal. And a few weeks ago I reported on Germany's most prominent (though not most powerful) patent judge's interpretation of the reform statute. Today, Chancellor Merkel's cabinet adopted a slightly revised version of the statute (PDF, in German), which will now be reviewed and commented on by the Federal Council (the legislative body that consists of the governments of the country's federal states, though the Bundesrat's role will realistically just be consultative in nature in this case, while the actual decision will be in the hands of the Federal Parliament, the Bundestag). It remains to be seen what text the legislature will ultimately adopt--if any, given that the end of the term is approaching fast.

The injunction statute (§ 139 of the Patent Act) would be amended by adding the following sentences:

"Der Anspruch ist ausgeschlossen, soweit die Inanspruchnahme aufgrund der besonderen Umstände des Einzelfalls für den Verletzer oder Dritte zu einer unverhältnismäßigen, durch das Ausschließlichkeitsrecht nicht gerechtfertigten Härte 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."

I would translate it as follows:

"The claim [to injunctive relief] is excluded to the extent that, under the special circumstances of an individual case, 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."

The editorial changes over the early-September version come down to two terms: while the previous draft referred to compliance with an injunction, the new one mentions enforcement; and "Nachteil" (negative impact, harm) has been replaced with "Härte" (hardship). Actually, I already translated "Nachteil" as "hardship" last month because, in practice, that would simply be the meaning of the term in this context. So the term has formally been narrowed, but wouldn't have been applied broadly at any rate: a minor inconvenience wouldn't have had any bearing.

The difference between "enforcement" and "compliance" does, however, make a practical difference. It suggests more strongly that courts should primarily tailor the injunction (such as by granting a transitional period for workarounds), and that is precisely what the official reasons provided by the government for this legislative measure encourage (approximately in the middle of page 63):

"Eine dauerhafte Versagung des Unterlassungsanspruchs wegen unverhältnismäßiger Belastung des Schuldners wird hingegen nur in sehr wenigen besonders gelagerten extremen Fallkonstellationen in Betracht kommen. Sie setzt voraus, dass unbilligen Härten für den Unterlassungsschuldner nicht durch eine Umstellungs- und Aufbrauchfrist hinreichend Rechnung getragen werden kann." (emphasis added)

Here's my translation:

"A permanent denial of an injunction due to disproportionate hardship on the infringer will, however, be part of the consideration only in a very few, specially-structured, extreme case patterns. It would be a requirement that inequitable hardship on the infringer could not be sufficiently addressed through a workaround and use-up period." (emphasis added)

The document also indicates that most of the time, proportionality wouldn't even have to be analyzed. And the burden of proof is entirely on the defendant. With respect to the defendant's own hardship, that onus would be a surmountable hurdle, but there's no discovery--much less third-party discovery--in Germany.

Unless the pro-reform forces persuade the ruling coalition parties' groups in the Federal Parliament (which will be an uphill battle with respect to the center-right CDU/CSU), this reform threatens to be "too little, too late."

I didn't consider the goverment's draft commentary a major issue last month, simply because it seemed like they had revised the statute but not had the time yet to update the official rationale. But now they've had enough time, and what they're proposing is a really disappointing combination of an official commentary that basically says "we don't want to change much, this is just about outliers, like some one-in-a-million kinds of exceptions" with a statute that suggests (more strongly than the early-September draft) to tailor the injunction rather than to deny one.

Only telecommunications service providers like Deutsche Telekom and Vodafone might benefit from this reform to a significant extent. They have a strong argument about harm to third parties, though the courts will likely tell them that they should meet a patentee's license fee demands, period.

The problem is that German courts are adamant about near-automatic injunctions. It's not that the judges there would welcome a potential opening to deny injunctive relief because it would allow them to do a better job. Much to the contrary, they're obsessed with "forum selling" and view near-automatic injunctions as their jurisdiction's unique selling proposition--a competitive advantage over other jurisdictions (advantage for the courts, and for lawyers, but not for the economy or for society) they're not going to dilute if they can avoid it.

Since the reform process started, German patent case law has further deterioriated. It was very bad before, but they've managed to make it even worse.

The most recent trend is that patent trolls and other plaintiffs can enforce their injunctions during an appeal without even having to provide any non-negligible collateral (see the final part of this week's post on Conversant v. Daimler; the same would apply to other cases such as Sharp v. Daimler and Nokia v. Lenovo).

As a patent holder I'd simply sue in Mannheim and Munich rather than Dusseldorf (where Judge Kuehnen has appellate jurisdiction over many cases). Should the current bill be enacted without major improvements, you could set your watches by the Mannheim and Munich judges continuing to grant near-automatic injunctions by pointing to the legislative rationale saying clearly that injunctions should typically issue. And their answer to workaround and use-up periods will be that those periods must be very short given that patents have a limited term. In a recent Mannheim case, the patent-in-suit was going to be in force for seven more years, but the limited remaining term was considered a reason to turn a blind eye to an antitrust defense.

Given how the German patent judiciary works, it would take something more forceful to bring about major change. The current proposal would create an opportunity for law firms to charge their clients for a lot of additional time spent on proportionality arguments. But the leverage that patent holders will have in negotiations would be roughly the same as before--provided they bypass Dusseldorf to be on the safe side. The statute would be suboptimal, but a huge improvement over the January draft, if--and that "if" is the largest part of the problem--the legislative rationale didn't continue to endorse the Federal Court of Justice's case law. And the patent-specialized division of that court is to German patent law what the Central Committee of the Communist Party was to the Soviet Union in the decades prior to Gorbachev's reforms.

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