NOTE: The above is a simplified comparison as the six-month target relates to the Bundespatentgericht's (Federal Patent Court) preliminary opinions and the 33-month reality to final judgments, as I'll clarify further below.
Throughout the German patent "reform" process, I focused myopically on access to injunctive relief. A few days ago, on the occasion of the start of operation of the Munich I Regional Court's 44th Civil Chamber, I reiterated my belief that those who hoped to benefit from the new injunction statute (automotive, electronics, and telecommunications companies) are not going to pay less for patent royalties--they're just going to spend more money on litigation. Pharmaceutical companies going after plagiarists will likely be fine, but they do have a risk because of the psychological pressure it may put on a court if an injunction allegedly deprives patients of access to life-saving medications (one could see those dynamics in this year's political debate over access to COVID vaccines).
What I treated with benign neglect was the second-most important part of the "reform" bill: the one that relates to stays of infringement proceedings pending parallel invalidation actions before the Federal Patent Court of Germany, the European Patent Office, or the German Patent & Trademark Office. But now that the measure has formally entered into force, it's overdue to conduct an impact assessment.
I'll be blunt: The text that has been inserted into § 83 of the German Patent Act (the section on nullity proceedings) is just as fundamentally flawed as the modifications they made to § 139 (the section on injunctions). The sum of those two amendments--which are still like 100 times more important than all other modifications combined--is nothing short of a dumpster fire.
In current polls, there's not a single political party in Germany that has the confidence of more than about a quarter of the population in its ability to address the most serious challenges. If more than a small minority of professionals understood that the same government (meaning the executive branch, which drafted the piece of legislation, as well as the government parties' lawmakers in a strict sense) understood what crap they put out in the patent policy context, confidence levels would drop even further.
They even know that they botched the part on stays over validity doubts. Pathetic craftsmanship is to blame, and the incoming government will be told that an amendment (comparable to a bugfix update of a computer program) is needed. Here's why:
They call on (but don't--as they can't--obligate) the Federal Patent Court to hand down a preliminary opinion ("qualifizierter Hinweis") within six months of service of the relevant nullity complaint on the patent holder.
However, according to § 81(2) of the same law, a nullity action cannot be brought while
one has the opportunity to file an opposition with the issuing patent office (EPO or German PTO) or
- such opposition proceeding is pending.
Especially in a context like 5G, there'll be many young patents: notice of opposition can be given for nine months after publication of the granted patent.
The German government could probably ask the German PTO (DPMA) to hand down preliminary opinions during the same six-month timeframe, which it would do if it had the prerequisite resources. But at least in the cases I'm interested in, DPMA-examined patents-in-suit are few and far between. The EPO, however, is run by the EPOrg, an international organization (Germany is just one member states among several dozen).
So there'll be a number of disputes in which the version of § 83 that was promulgated this month is going to be ineffectual due to § 81(2). A serious blunder.
Then there's a sentence in the new version of the statute that isn't wrong, but shows that the whole "reform" has more to do with appeasement and window dressing than with actually making an impact:
"Ist eine Patentstreitsache anhängig, soll der Hinweis auch dem anderen Gericht von Amts wegen übermittelt werden."
My translation:
"Is an infringement action [i.e., one in which the challenged patent is asserted] pending, the preliminary opinion should also be transmitted ex officio to the infringement court."
Just like the new injunction paragraph that contains useless passages such as a reference to the principle of good faith, the above sentence is a waste. Lawmakers should keep statutes focused on what really makes a difference. Let's face it: if a defendant wants to get a mileage in the infringement proceeding (i.e., increase the likelihood of a stay) out of a preliminary opinion by the Federal Patent Court that casts serious doubt on the validity of the patent-in-suit, that defendant's counsel will be sure to file the German equivalent of a U.S. request for judicial notice anyway. Conversely, if the preliminary opinion is favorable to the patent holder, the plaintiff in the infringement case will request judicial notice. There's no reason whatsoever to believe that an infringement court ever ignored a preliminary opinion by the Federal Patent Court on the (in)validity of a patent-in-suit.
I decided not to translate the German word "soll" with "shall" because that literal translation would be too close to a hard and fast obligation. Some translate "soll" in a legal context with "should" in order to make it clear that it's merely a target, not a limit. And that leads us, finally, to the most fundamental deficiency of that botched statute:
"Dieser Hinweis soll innerhalb von sechs Monaten nach Zustellung der Klage erfolgen."
My translation:
"The preliminary opinion should be rendered within six months of service of the nullity complaint."
Does that one really close the so-called injunction gap? The injunction gap is the window for the enforcement of an injunction that results from the fact that the infringement rulings typically come down well ahead of the nullity decisions, meaning that actually-invalid patents are often enforced, which often gives the patentee so much leverage that the defendant will be forced to settle and, under the standard terms of a settlement agreement, drop the nullity action.
A lower standard for stays would have moved the goalposts in defendants' favor. Whether or not one believes that the standard is too exacting right now, there is no question that if you lower the standard for stays, you get more stays. The same is not necessarily true of a six-month target for preliminary opinions.
Here's an "all other things being equal" perspective:
In order for more infringement proceedings to be stayed under the new statute, and with the standard for stays remaining unchanged,
the quality of the nullity complaints must not be lower;
the quality of the reasons provided by the Federal Patent Court must not be lower (lest the preliminary opinions bear less weight with the infringement courts);
there must not be a reason for which the Federal Patent Court would be less inclined to cast doubt, in a preliminary opinion, on the validity of a challenged patent; and
the Federal Patent Court would actually have to meet the six-month-target or at least not miss it by so much that an injunction would be entered and enforced before the infringement proceedings get impacted by the preliminary opinion.
Most German patent litigators aren't concerned about the first one of those four items if viewed in isolation: the infringement courts expect defendants to make their nullity case when they file the answer to the complaint, and if the Federal Patent Court actually hands down a preliminary opinion about six months later, that's normally timely.
Let's now skip straight to the end of the list: is the six-month target realistic?
On page 135 of the Federal Patent Court's 2020 Annual Report (page 69 of the PDF), one can read that the average number of months from docketing to resolution of nullity complaints was 24.6 in 2016 and has steadily increased to 32.8 (which I rounded up to 33 in the headline) by 2020.
The previous page indicates that there were 380 nullity cases pending on January 1, 2020. During that calendar year, 230 new nullity cases were filed, out of which 200 were adjudicated or withdrawn. The net gain of 30 increased the docket size to 410 pending nullity cases by yearend 2020.
In November 2019, I contacted the Federal Patent Court's press office with the question of how many nullity actions really get decided as opposed to dismissed by parties (which typically happens further to settlements, or because a nullity complainant is on the losing track). I was pointed to other statistics, according to which about 50-60% of all nullity cases were withdrawn, and 60-80% of those withdrawals occurred before the Federal Patent Court held its internal vote (the remaining withdrawals must have happened while the Federal Patent Court's decision was being appealed to the Federal Court of Justice).
For a simple breakdown, let's multiply 60% (number of withdrawals) by 80% (for the number of withdrawals prior to the court-internal vote), and we can see that roughly half of all nullity cases go away before they actually come to judgment. In the types of disputes I watch (which are typically settled relatively quickly), it's actually rare for the Federal Patent Court to decide. That's why I haven't even attended a Federal Patent Court hearing in more than seven years.
Now we can see why the backlog grew by "only" 8% (from 380 to 410 cases) during 2020: the current time to resolution is already so long that many cases never have to be adjudicated. The longer the nullity cases take, the more likely it is that a dispute is settled because of developments in the infringement cases (also including cases in other jurisdictions).
That fact complicates any effort to accelerate the Federal Patent Court's handling of nullity complaints:
The sooner the Federal Patent Court decides, the less likely it is that the case has been withdrawn (because of a settlement or for whatever other reason).
Most of the Federal Patent Court's work used to be done late in the process. In the past, the preliminary opinions typically came down when the nullity hearing was already in sight. From a case management perspective, the early stages of those cases used to be largely administrative: early on, it's largely just about the briefing schedule. Then, if a given nullity action was still alive after a while, came the point when the court had to address substantive questions and write its preliminary opinion.
Whoever in Berlin may have suggested that the Federal Patent Court could simply move up the issuance of a preliminary opinion like you reschedule a car tire change is either a fool or just wanted to fool others.
In many cases, the court never had to write a preliminary opinion because of earlier withdrawals. With the same resources that are required to hand down a preliminary opinion in just one nullity case, the court could probably handle dozens of nullity cases at the pre-opinion stage where its responsibilities are largely just administrative.
From the outside it's hard to tell what percentage of the actual work performed by the Federal Patent Court in a nullity case relates to the initial assessment of the merits and the authoring of a preliminary opinion. I've inspected a number of Federal Patent Court case files over the years. My guess is that it's at least 30% of the effort. The parties may make further filings after the preliminary opinion; a hearing typically takes a full day; and the actual decision must be written carefully. But after the preliminary opinion, the five-judge panel is already well aware of the challenged patent, knows the prior art references, and has identified the issues on which the case hinges. This may even be well over 50% of the overall effort, but I wanted to offer a conservative estimate, to err on the side of auction.
If the Federal Patent Court actually wanted to change its modus operandi now, it would have to basically devote all of its available resources to the production of preliminary opinions, and even then it might not be able to make the six-month target in many cases under "all other things being eqal" conditions. And this reallocation of resources would further slow down the actual resolution of cases, as the total workload would increase substantially considering that many cases are dropped before a preliminary opinion used to be formed and rendered.
It's highly unlikely that the Federal Patent Court will overnight get the incremental resources that the ill-conceived (and in my view, simply idiotic) patent reform bill would require.
The Federal Patent Court is already the second-largest court in Germany. Only the Federal Court of Justice employs more judges, and that court has jurisdiction over all civil (including, but not limited to, patent) and criminal law. Any appeal of a Federal Patent court nullity decision can be appealed to the Federal Court of Justice, and those are appeals of right, while appeals of infringement decisions are discretionary (comparable to the U.S. certiorari process).
The preface of the Federal Patent Court's 2020 report was written by now-retired President (i.e., Chief Judge) Beate Schmidt. She wishes her successor, Dr. Regina Hock, all the best--and notes that the Federal Patent Court "is facing new challenges" related to the Unified Patent Court (UPC) and the patent reform bill. Between the lines she requests additional resources: "With the unique composition of its bench, some of whose members have a technical background while others have legal training, the Court is well-equipped for the correct adjudication of increasingly complex cases, provided that it can count on support from politics, industry, and stakeholders." (my translation; emphases added)
Realistically, additional funding is not going to be available to an extent that would truly address the problem and enable the Federal Patent Court to deal with this new challenge.
So there won't be preliminary opinions under "all other things being equal" circumstances. No way.
Instead, the Federal Patent Court will quite often need more time.
But it will strive to meet the six-month target as often as possible, or to at least not exceed it by too much. There'll be a price to pay for that shortcut to a preliminary opinion. The court will hardly be able to maintain the same level of quality. And the judges will have a strong incentive to make their preliminary opinions, which in the past were very often consistent with the final judgments, more of an "agenda-setting" procedural step: instead of taking a position on whether the patent is valid or not, those opinions may become more like a list of items that counsel should address.
That, in turn, will not help the infringement courts with their summary determination as to whether or not a case should be stayed.
Defendants will benefit if patents are clearly anticipated by the prior art. Some patents are really ridiculous. However, if there are novelty issues, then the infringement courts are reasonably willing to stay a case, with or without a preliminary opinion by the Federal Patent Court.
Whenever a patent has a certain degree of complexity, and one has to combine prior art references in order to disprove the presence of a sufficient inventive step, there is now even a risk of the Federal Patent Court's preliminary opinions being more skeptical of the prospects of a nullity action.
Under severe time constraints, the Federal Patent Court may often be reluctant to indicate, even on a preliminary basis, a "thumbs down" on a patent that a patent office granted after examination. In case of doubt, it might just indicate in a preliminary opinion that certain questions need to be addressed in the further process--it is legitimate to want to err on the side of caution.
So are we going to see more stays on the bottom line?
Most of the people I talk to believe that there will be more. I'm not sure. My range of expectations goes from "no significant change" to "a slightly higher likelihood of stays." And while it's the least likely outcome, I seriously wouldn't rule out that this statutory change could even hurt defendants on the bottom line, with preliminary opinions that help defendants coming down on a timely basis mostly in cases in which the infringement courts would likely have stayed the proceedings anyway, and with a significant number of complex cases now leading to preliminary opinions that favor patentees just because the court will want to err on the side of caution and would need a lot more time (and further briefing) before it would really have the confidence to express the opinion that a patent is likely invalid. Those "agenda-setting" preliminary opinions may very well dissuade the infringement courts from stays they'd have granted if there simply had been no preliminary opinion available at decision time.
The one who will not be to blame are the judges serving on the Federal Patent Court's nullity panels. Those judges know what kinds of companies lobbied for this bill. Their professional ethics will not allow them to intentionally disadvantage the automotive sector or Deutsche Telekom, nor do they have any reason to devalue any patents asserted against such companies by prematurely declaring them to be likely invalid. The six-month target is an utter stupidity.
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