Wednesday, October 5, 2022

In SEP and non-SEP cases alike, unwilling licensees have no proportionality defense to patent injunctions in Germany: Dusseldorf court ruling also clarifies need to seek compulsory license first

There's an expected but nevertheless interesting development here that is of interest to those litigating patent infringement cases in Germany's national courts and/or its local divisions of the Unified Patent Court (a new judiciary scheduled to go into operation next year). A couple of judgments by two different divisions of the the Dusseldorf Regional Court that have recently been published contain passages on the narrow (actually, next to non-existent) applicability of the proportionality defense to patent injunctions under last year's amendment to Germany's patent injunction statute (§ 139 PatG, Art. 139 Patent Act):

  • On June 30, 2022, the court's 4b Civil Chamber (Presiding Judge: Dr. Daniel Voss ("Voß" in German)) enjoined an automotive supplier

    from making sunroofs. The patent-in-suit was set to expire two months after the judgment, so any grace period would have been tantamount to ordering no injunction at all. The impact on downstream customers like BMW was deemed tolerable, especially given how short the relevant period was.
  • One week later, the court's 4c Civil Chamber (Presiding Judge: Sabine Klepsch) enjoined pharmaceutical company Gilead from making a hepatitis C medication that infringed a NuCana patent. Juve Patent reported on July 21, and now the Kluwer Patent Blog has published a redacted version of the judgment (PDF).

As Juve Patent noted on August 17 on the occasion of the first anniversary of the entry into force of Germany's amended patent law, and as I've been predicting for a long time, "nothing has changed." Not a single case is known in which the proportionality defense made even the slightest difference. That was, by the way, the legislative intent--and if there had ever been any doubt, Germany's chief patent judge eliminated it speaking at a Chinese conference in October 2021.

The same two Dusseldorf judges who handed down the two decisions I'm talking about now already outlined their thinking in January 2022. No surprise there either. The only way anyone can be surprised now is if one listened to the wrong "experts."

While the Unified Patent Court Agreement (UPCA)--not the German Patent Act--is the statute governing the UPC, defendants will try to raise proportionality defenses there a well. As per Art. 62 (2) UPCA, "[t]he Court shall have the discretion to weigh up the interests of the parties and in particular to take into account the potential harm for either of the parties resulting from the granting or the refusal of the injunction." The UPC will have to develop its case law from scratch (while complying with applicable EU law), and competitive dynamics between the UPC and national courts during a transitional period will force the UPC to be reasonably patentee-friendly: otherwise patent holders will avail themselves of national courts for as long as possible, and the UPC won't take off for some time.

These are my take-aways from the proportionality-related passages of the two Dusseldorf judgments:

  1. Either of those judgments places the emphasis and, especially, the burden on defendants. The net effect is that a "willing licensee" standard applies, whether the patent-in-suit is a FRAND-pledged standard-essential patent (SEP) or a non-SEP. I'm not saying it's going to be an absolutely identical willing-licensee standard, but should there be any differences, they'll be minor. Patentees enjoy broad discretion as they make their demands, while infringers will be enjoined if they make the smallest mistake. For instance, the sunroof ruling contains a sentence that I interpret as saying that the patent holder is in its right to demand that the infringer take a portfolio license as opposed to a license covering only the particular patent-in-suit. No one ever doubted that a non-SEP holder could take that position, but this is now another parallel to Germany's FRAND caselaw.

  2. In either case, the patent holder was willing to grant a license. I've been saying for a long time that patent holders will be on the safe side if they offer a license. And I explained even prior to the formal adoption of that patent bill that the amendment failed a 'Keep It Simple, Stupid' test. Almost three years ago, I said the situation in Germany wouldn't change without an equivalent of eBay factor #2. There you have it. Those advocating proportionality always said that the pattern they were concerned about was just the one of patentee overcompensation--and not the kind of case in which a company truly seeks to enforce exclusivity to combat counterfeiting or to maintain a competitive advantage. But a patentee that pursues royalties rather than exclusivity can easily make a licensing offer.

  3. In the pharmaceutical case, the Dusseldorf court bases its rejection of Gilead's proportionality defense on a doctrine according to which a defendant making a public-interest (here, harm to patients) argument has to seek a compulsory license in the Federal Patent Court (Art. 24 Patent Act) in the first place, and the proportionality defense under Art. 139 Patent Act is merely "subsidiary" to that one (meaning that if there are issues left to be addressed after the compulsory-license proceeding, some minor adjustments to an injunction, such as a use-up period, may be an option). However, the court also explains that even without that hard-and-fast doctrine, the proportionality defense would have failed anyway if the overall conduct of the parties--particularly also that of the infringer--is considered.

    So, you can be deemed an unwilling licensee for all sorts of reasons anyway, but if you don't seek a compulsory license, that fact in and of itself calls into question your willingness to take a license and fairly compensate the patentee. Whether proportionality is a "subsidiary" defense or whether your failure to bring a compulsory-licensing action goes into a Sisvel v. Haier-style behavioral analysis, the outcome is the same.

    The new injunction statute's reference to the interests of third parties (which I simply equate to the public interest for the purposes of this analysis) was misperceived as a major breakthrough for the pro-reform movement. In early 2021, Judge Dr. Klaus Grabinski of the Federal Court of Justice (and soon of the UPC) took an even patentee-friendlier position: he essentially wrote that a proportionality defense based on third-party interests would have to meet the exact same standard as a request for a compulsory license.

    We're now probably going to see more and more compulsory-licensing cases under Art. 24 Patent Act--as if the Federal Patent Court wasn't busy enough already. And those cases usually go nowhere. In the entire history of the Federal Republic of Germany, only two compulsory licenses were granted, and one of them was overturned on appeal.

    The UPCA refers defendants to national courts if they seek compulsory licenses (even with respect to the future Unitary Patent). This is a built-in asymmetry: patent holders can obtain a multi-country injunction from the UPC, but compulsory-licensing cases would have to be brought in multiple countries in parallel.

  4. Those two Dusseldorf non-SEP decisions that nevertheless apply a SEP-like standard show that some of those who were seeking to reform Germany's patent injunction framework are wrong when they say that SEP decisions (such as in the Ford and OPPO cases) were always outside the intended reform's scope. That makes no sense because any non-SEP holder, by doing what it takes to be considered a willing licensor (such as by making a formal licensing offer), can immediately be in at least as strong a position as any SEP holder vis-à-vis a proportionality defense. Arguably, a non-SEP holder can even argue that its position should be stronger as there is no FRAND licensing obligation under antitrust law (even non-SEPs can be subject to antitrust rules, but those cases are few and far between).

    Post-Sisvel v. Haier, no defendant has been deemed a willing licensee except for one case in which a particular patent pool's duplicative-royalties policy was at issue. Apart from that outlier, Philips was the last SEP holder to be denied an injunction in Germany despite prevailing on the merits, and about five years have passed since then.

    As I've been saying for a very long time, unless you have the equivalent of eBay factor #2 (meaning that an injunction will issue only if monetary relief is inadequate), you won't get different outcomes in cases where the patent holder has an obligation or expresses a will to grant a license. All you get then--and that's what we can see happening now in Germany--is a total waste of money (by raising the additional defense and pursuing compulsory-licensing actions in the Federal Patent Court).

  5. Both Dusseldorf judgments make it clear that a defendant firstly has to meet its own obligations to avoid harm to third parties (be it BMW or hepatitis C patients) before it can raise a defense centered around third-party interests.

  6. Companies who were advised by outside counsel in early 2020--when the German government's first official draft patent reform bill was made public--that the law would make a difference should ask themselves whether they asked the right professionals. That early draft was no defendant-friendlier than the version that was finally adopted (it didn't even recognize third-party interests as an element of a proportionality defense, for instance). And the results are clear now. So whether some lawyers intentionally overstated the future impact of the measure in order to dissuade their clients from seeking meaningful reform or whether they were unrealistic, their opinions were wrong, as the course of events has meanwhile shown.

Another element of last year's legislative amendment took effect earlier this year: the six-month target for preliminary opinions by the Federal Patent Court. And it's doomed to be no more than marginally more useful than the modified injunction statute.