Federal Council approves German patent bill -- just one more formality (signing into law) needed, but new injunction statute dead on arrival

Today the upper house of the German legislature, named Bundesrat (Federal Council), waved the new patent legislation (which the Bundestag, or Federal Parliament, had voted on two weeks ago) through. This PDF document says that the Federal Council does not attempt to veto the bill. It would have been highly unusual to say the least if the Federal Council had exercised its veto powers in this case. Not only is the hurdle very high but this bill is simply too uncontroversial and, actually, unimportant.

Now the bill is awaiting the Federal President's signature. Unlike the President of the United States, the German head of state has a purely ministerial function unless a bill raises constitutional issues, which this one obviously doesn't. There's no question that this legislative measure will take effect during the summer, which formally requires its publication in the Bundesgesetzblatt (Federal Law Gazette).

As I had explained before, the injunction "reform" is dead on arrival. The legislature made it unmistakably clear that it's not meant to change a thing. The judiciary has already said so, not "in the name of the people" (which is how German judgments formally begin), but via anonymous quotes by the Juve Patent website, which I picked up and commented on.

It would be incorrect to say that the ink wasn't even dry on the new law when the judges already explained that the injunction regime was still the same. It happened before the bill was even sent to the Federal President, so there wasn't even any ink on it in the first place.

The new injunction statute merely codifies the case law of the Federal Court of Justice, as both the executive government and the largest parliamentary group clarified. At least after the Wärmetauscher (Heat Exchanger) decision by the Federal Court of Justice, no German court hearing a patent infringement case denied that injunctive relief might be an overreaching remedy under the most egregious of circumstances--but defendants failed to establish that their case was quite so exceptional.

Whenever a licensing offer is on the table that isn't completely absurd, the courts won't even have to take a closer look at proportionality. And if it's a SEP case, the defendant is entitled to a license on FRAND terms anyway, with no additional proportionality defense as some judges have clarified. Third-party interests won't tip the scales. They'll be irrelevant where there is a licensing option, and where there is not, the standard will be equivalent to that of a compulsory license, of which there have been only two in the entire history of post-war Germany, one of which was overturned.

About half of my readers are in the U.S., so I'd like to explain the situation with a fictitious analogy: a U.S. patent injunction reform bill. It's actually not 100% fictitious as some vested interests would like to overturn eBay v. MercExchange by means of new legislation, just that in Germany the pressure came from net licensees and in the U.S. it comes from net licensors.

So, let's imagine that Congress added the eBay language with the four factors to 35 U.S.C. § 283--the U.S. equivalent to Germany's § 139 PatG. And let's furthermore imagine that the majority in both Houses of Congress made it totally clear that this is a ringing endorsement of the Supreme Court's case law in this field.

What would the courts do? The same as before. They'd have no reason to decide differently. Same old same old.

Defendants will try to get mileage out of this, but even lawyers who more often represent defendants than plaintiffs don't really expect different results.

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Patent injunction reform in Germany: next lobbying defeat for pro-reform forces as Federal Council speaks out against proportionality

Yesterday there was good news for those advocating a balanced approach to patent injunctions, as the Munich Higher Regional Court increased the amount of the collateral to be provided by Nokia in a standard-essential patent (SEP) case against Daimler by a factor of almost 100 to over $2 billion. That was to be expected after a similar decision in a Conversant v. Daimler case.

But today there's been a political setback that I had predicted as well: one of Germany's two legislative institutions, the Bundesrat (Federal Council), today adopted its Legal Affairs Committee's recommendation for a statement on patent reform (PDF, in German).

The Federal Council is not realistically going to exercise its veto right (which a supermajority of the Federal Parliamnet could overrule anyway). But its position is going to bear significant political weight in the further process, particularly among the governing coalition parties' parliamentary delegations from various influential federal states.

In a nutshell, the Federal Council tells the Federal Parliament to preserve the status quo of near-automatic patent injunctions no matter how disproportionate, except under the most egregious of circumstances where even the Federal Court of Justice said in its Heat Exchanger decision that an injunction might have to be tailored, even if only slightly so and only in cases that are few and far between.

The Federal Council even issues a stern warning that any reform going further than existing case law--such as by taking third-party interests into account--would jeopardize Germany as a patent jurisdiction.

This reform process is on the wrong track. There was a glimmer of hope a few months ago, but at each of the key procedural milestones this year--the first draft by the Federal Ministry of Justice, the official proposal by the Federal Cabinet, and now the Federal Council's advisory opinion--went wrong, so unless there's a huge surprise, this legislative process simply isn't going to bring about any such thing as serious change. The courts will continue to hand down injunction after injunction, and while lawyers will be able to bill their clients for pages and pages of argument over proportionality, the courts won't really reach that point except once a year or so. Most of the time the courts will quickly determine that a case isn't quite so exceptional as to justify a deviation from the longstanding principle of automatic injunctions.

For parts of the German economy, the current situation is unsustainable, but change just isn't coming. Only political amateurs would believe that you can achieve reform the defensive way, by asking for almost nothing and contenting yourself with even less than that. It's like starting a revolution by kowtowing to the king. Just won't work.

If professionals had been at work, it actually wouldn't have been too hard to get the Federal Council to speak out in favor of injunction reform. It would have been feasible to get support from multiple influential states (especially some with many automotive jobs), and while the two most populous ones (North Rhine-Westphalia, which operates the Dusseldorf court system, and Bavaria, which is home to large parts of the European patent law industry) would have been hard to win over, one could at least have created a situation in which one or both of them would have declared themselves neutral.

But what you can you expect when the broadest-based pro-reform lobbying group, ip2innovate, is totally misguided? Google, SAP, and Daimler simply botched the organization's statutory proposal, and the likes of Microsoft, BMW, and Deutsche Telekom incompetently and foolishly followed their lead.

When this process is over, they're all going to get just the same bad decisions from the courts as before. They'll merely have to spend more money on attorneys' fees.

The end of the legislative term is approaching fast. The parliamentary decision won't take more than a very few months. It will be extremely hard, if not next to impossible, to put patent injunction reform on the agenda again in 2022 or 2023. A historical opportunity will have been wasted, despite my efforts to educate some people while there still would have been the chance to play it smart.

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Federal Council of Germany has patent reform bill on agenda for December 18 session

Just a quick procedural update on German patent reform: the Bundesrat (Federal Council) has patent reform on the agenda for its December 18 session--item no. 15 for the day. While I was pleased to see some improvement in early September, the legislative proposal that the German government (Chancellor Merkel's cabinet) ultimately decided to put on the table is worded in such a way that the courts would rarely even reach the question of proportionality, much less resolve it in a defendant's favor. I criticized various large companies for shooting themselves in the foot in this context.

So what's the significance of that December 18 decision by the Federal Council going to be?

The Federal Council is the co-legislative body in which the governments of the German federal states cast their votes. Just like in the U.S., patent law is federal law, not state law. Therefore, the Federal Council's influence is limited. Theoretically it could veto even a patent reform bill, but could then be overruled by a supermajority of the Bundestag (Federal Parliament). A veto won't happen here, realistically. Instead, the Federal Council will just express its views, which the Federal Parliament will then take into consideration.

While some members of the Federal Parliament have been informally looking at this dossier for a while, the formal process will only begin after the Federal Council has taken its non-binding position.

Obviously, a camp that believes it can get mileage out of the Federal Council's opinion will try to leverage it. Presumably, the state of Lower Saxony, a major Volkswagen shareholder, will be in favor of serious patent injunction reform. The most populous state, North Rhine-Westphalia, is home to Deutsche Telekom, but also to chemical giant Bayer, which opposes reform, and the Dusseldorf courts, which generate a lot of "business" for the state (which runs those courts) and the local economy. In the second-most populous and economically strongest state, Bavaria, they have BMW and Audi, but I doubt that those organizations know how to prevent their state government from siding with Siemens and the patent law community at large (Bavaria is home to the European Patent Office, the German Patent and Trademark Office, the Federal Patent Court of Germany, and as a result, to numerous patent law firms).

I'd like to be proven to have been wrong on this one, but I really fear that the Federal Council will be just about OK with the current bill (which won't solve the problem, not even in the long run) at best and speak out against even that kind of toothless reform at worst (in which case the Federal Council would likely propose particular wordings that would further dilute the injunction reform statute). When the Federal Council's position has been made public, I'll report and comment on it.

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