Sunday, August 20, 2023

Not a single patent injunction has been denied or tailored by German courts based on two-year-old 'reform' statute, but plaintiffs need to adjust to new reality of preliminary invalidity opinions

A certain June 11, 2021 press release by industry body ip2innovate didn't age well:

"'German patent law has finally arrived in the 21st century. We welcome the fact that the Bundestag has passed a balanced reform' said Ludwig von Reiche, chair of the German group within European trade group, IP2Innovate.

"The reforms adopted during an overnight session of the Bundestag this morning will for the first time enable courts to apply the principle of proportionality in cases where injunctive relief would represent a disproportionate hardship to the alleged infringer or third parties as well as to substitute compensatory payments for injunctive relief, instead of courts automatically handing out injunctions.

"'After consulting widely with science, industry and the judiciary, a change in the law is now being implemented that for the first time takes into account the complexity of modern products in the digital age,' says Mr von Reiche."

Mr. von Reiche and his allies may have to await another century before actual change kicks in. The supposedly game-changing injunction statute has been in force and effect for more than two years without having made an impact in a single defendant's favor.

The press release I just quoted from was issued right after the German parliament's vote. Subsequently, the Federal Council (which has co-legislative powers but would have needed a supermajority to influence the outcome of this process) decided not to object; the Federal President signed the bill into law; and on August 17, 2021 the modified patent statute was published in the Federal Law Gazette (click on an image to enlarge):

I have consistently explained why the statutory language was not going to make a difference. It turns out that I was right and some others were wrong. They were too optimistic and they way overestimated their abilities.

Out of an abundance of caution, I asked many people about a week ago whether anyone was aware of a single German patent case in which the new Art. 139 language made a difference. Silence.

Incredibly, that June 2021 press release by ip2innovate even argued that other EU member states should follow suit:

"Unfortunately, like Germany so far, many other EU countries also fail to respect the proportionality principle.

"IP2Innovate and its members will keep a close eye on the implementation of the reforms and will continue to push for a modern and balanced patent system across Europe which respects the proportionality requirement."

If IP Europe has indeed "[kept] a close eye on the implementation" of that statute, then no one can come up with any excuses anymore. Not after two years. To people who know how things work, including Germany's best patent litigators, it was already clear two years ago. And not long after the new law entered into force, judges explained at different conferences that nothing was going to change in the end.

By now, all eyes are obviously on the Unified Patent Court. But patent holders still have access to German national courts as the UPC continues to be optional on a patent-by-patent basis.

While the lobbying failure of the anti-injunction movement is beyond reasonable doubt, a different aspect of the reform bill actually has moved the needle in defendants' favor, and it appears to me that patent holders seeking to enforce their rights in Germany have yet to adjust to that new reality. The Federal Patent Court is not absolutely required to hand down its non-binding preliminary opinions within six months of the filing of a nullity suit, and it could meet that target simply by outlining the issues in the case without giving a thumbs up or thumbs down. But what happens now in most cases is that a negative preliminary opinion is provided, which massively complicates enforcement.

German patent injunctions are every bit as near-automatic as they always used to be, and those who thought otherwise should be ashamed of their incompetence--but their second priority was to close the injunction gap (i.e., enforcement of an injunction prior to an actual validity determination), and the situation has indeed changed in that regard.

The validity-related statutory change took effect in May 2022, and after more than a year, it's clear that plaintiffs trying to get leverage in Germany must act more forcefully or they're not going to get their way.

Conventional wisdom would say that a license deal is preferable over litigation; that short-lived disputes are preferable over protracted ones; and that it's better to prevail on only a small selection of patents than to come across as very aggressive by asserting, say, 10 or more patents at the same time.

That conventional wisdom no longer applies in a situation in which the Federal Patent Court declares patent after patent invalid on a preliminary basis. In the past, suing over 3 or 4 patents was normally enough. For instance, when Microsoft and Motorola were suing each other in Germany over a decade ago, they started with just a few patents each. Same with Apple-Motorola. Samsung initially sued Apple over three standard-essential patents (and lost all three cases).

There are two things that plaintiffs must do differently or their German enforcement campaign are going to fail for lack of critical mass:

  1. Assert more patents. If you have a reasonably large portfolio, I don't think it makes sense to assert fewer than 7 or 8, and I would recommend 10-12 patents-in-suit at the start. You just have to factor in that the Federal Patent Court will render negative opinions on the vast majority of them. If you only sue over a few patents, there's a high risk of none of those cases giving you near-term leverage. Legal fees for a quick and successful campaign over 10 patents will be less than for a protracted one over a smaller number. And in the latter case you'll get license fees while in the former your effort may just be a waste.

  2. Harden your portfolio. Engage in patent Darwinism. Nokia has lost quite a number of patents in recent years, but they've also managed to identify a few killer patents that they can assert against defendant after defendant after defendant until they expire. It can be frustrating to have to litigate against a party over the course of more than two years (such as Nokia v. Daimler, and now also Nokia v. OPPO). But if you assert many patents, even some of those patents that the Federal Patent Court prematurely deems potentially invalid may survive, even if in a modified form. You then have some proven winners in your portfolio that you can leverage again and again--and that will, in fact, help you get more license deals because potential defendants will know what's going to happen if patent A is asserted in Munich or patent B in Mannheim.

Fortune favors the brave. And the bold.