No hot air: industry considers German bifurcation update

Drivers of Mercedes love luxury and comfort. That’s why the Stuttgart car manufacturer installed a seat-integrated fan which blows a warm wind around the drivers’ necks when driving a convertible. The technology is called Airscarf. But, in 2016, proud owners of Mercedes convertibles were facing an icy blast instead.

At the highest instance, the Federal Court of Justice issued a sales ban on cars featuring the technology for violating the patent of an individual inventor (case ID: X ZR 114/13). Consequently, parent company Daimler ceased producing the Airscarf. The company could no longer sell some Mercedes models.

Although the infringement concerned only one piece of specialist equipment, the court showed no mercy to Daimler. It did not grant a transitional “use-up” period for selling models already produced. According to the judges, an immediate enforcement of the injunction under German law would not hit Daimler disproportionately hard.

One month after the verdict, the car giant and the individual inventor came to a settlement. The pressure on Daimler was too high.

Judges write new law

The Airscarf case, known as the Heat Exchanger decision, is considered an outstanding example for the German car industry and other companies offering complex products. German law compels the courts to paralyse entire production lines if a product feature, no matter how small, infringes a patent. According to the principal, an injunction must automatically follow a patent infringement. But the law might be set to change.

In the Heat Exchanger decision of 2016, the judges of the 10th patent senate clarified when the automatic injunction constitutes a disproportionate hardship in the event of patent infringement. It also considered when a use-up period is appropriate.

The judges also clarified when patent law should apply the principle of good faith. For example, only in exceptional cases when an injunction hits the infringer disproportionately hard. Following the decision, it was clear that German patent judges have the discretion to refuse an automatic injunction in cases of hardship.

Principle application

According to many experts, the first draft of the new patent law, published last week by the Federal Ministry of Justice, includes precisely the principles considered in the Heat Exchanger decision.

Christine Lambrecht ©BMJV/Thomas Koehler

The Minister of Justice, Christine Lambrecht, wants to change the law on three main points. She intends to close the injunction gap by imposing strict requirements on the Federal Patent Court. This change eliminates a fundamental problem in the bifurcation system.

In addition, the new patent law will incorporate the regulations for the protection of trade secrets in legal proceedings. But above all, the government’s proposal is to expand the oft-criticised paragraph 139 concerning the automatic injunction:

“The right to injunctive relief shall be excluded if its enforcement is disproportionate because, due to special circumstances, taking into account the interests of the patentee vis-à-vis the infringer and the requirements of good faith, it constitutes a hardship not justified by the exclusive right.”

Here, most experts see a similarity to the Heat Exchanger decision.

Bifurcation system boost 

Industry representatives and lawyers have displayed a mixed response to the draft. The majority of experts welcome the strict time limits of the Federal Patent Court. The application of the protection of trade secrets in litigation to patent law has also been met with approval.

The government publicly admits in its reasoning that there are problems with the bifurcation system. In Germany, nullity and infringement cases are heard separately by different courts. However, the Federal Patent Court often rules on the validity of a patent months after the first instance infringement judgment. This leads to the so-called and oft-criticised injunction gap.

Swathes of the legal profession are critical that courts grant injunctions despite the validity of the patent being unclear. Now the government wants to make it mandatory for the Federal Patent Court to send a qualified opinion on the validity of a patent to the infringement court after six months. The opinion indicates to the infringement court if a patent has been rightly granted. Therefore, judges can decide whether to suspend infringement proceedings until the Federal Patent Court has ruled on the patent’s validity.

The new six-month deadline shortens the time between the filing of a nullity suit and the qualified opinion. However, experts believe this deadline will increase the pressure on the Federal Patent Court.

Court under pressure

“The new six-month deadline imposes a normal timeline on the Federal Patent Court for nullity cases. This will do the German system good,” says Axel Verhauwen, partner at Krieger Mes Graf von der Groeben & Partner.

Christof Keussen

“The six-month period for a qualified opinion is welcome. The federal government is thus not only counteracting the injunction gap, but is also adapting the timeline of the Federal Patent Court to that of the Unified Patent Court,” says Christof Keussen, patent attorney and partner at Glawe Delfs Moll in Hamburg.

However, Keussen is also certain that shorter deadlines for filing a statement of opposition will increase the pressure on patent holders in nullity cases.

“If there is no increase in staff at the Federal Patent Court, the imposition of a six-month deadline could lead to quick-fire qualified opinions. The court would then have to revise this in its ruling,” said an in-house lawyer. “That wouldn’t help the system.”

However, this problem could soon be solved. There has long been talk that the Federal Ministry is prepared to provide money for more staff at the Federal Patent Court.

Bone of contention

The expansion of §139 clarifying the exception to the automatic injunction is not the government’s only amendment. In a four-page document, the government also explains which aspects the courts may take into account in their proportionality assessment.

Specifically, these are the interest of the patent holder in the injunction, the economic consequences of the injunction, the particularities of so-called complex products, the interests of third parties and the potential legal consequences. However, the government has refrained from setting out specific criteria for the courts in the legislation.

The automotive industry in particular has been putting pressure on the federal government to soften the automatic injunction. Above all, they fear that owners of standard essential patents will paralyse their production lines because the connectivity modules in their cars infringe a mobile phone patent.

More of a guideline

Daimler still feels the sting from the Federal Court of Justice’s Airscarf decision. A couple of years later, Broadcom filed its first billion-euro connected cars suit against Volkswagen.

“Volkswagen welcomes the initiative of the Federal Ministry of Justice to submit a proposal for a change in the law on the currently unacceptable conditions in German patent lawsuits,” says a statement by Germany’s largest car manufacturer. However, Volkswagen declined to provide further comments to JUVE Patent.

Stephan Altmeyer

Deutsche Telekom is also in favour of patent judges having more discretion in granting automatic injunctions. Therefore, the company welcomes the addition to §139. But Stephan Altmeyer, head of the patent department at Deutsche Telekom, says, “The draft from the Federal Ministry of Justice is not specific enough in some places.” He would like to see in the government’s reasoning more guidance for patent judges as to when a hardship provision should be applied.

“For example, critical infrastructures such as telecommunications networks, water or electricity supplies should be explicitly taken into account, because if they are paralysed by a patent lawsuit, whole sections of the population will be affected. Such third party interests must be directly taken into account in the proportionality assessment.”

No clear line

The owners of SEPs see things differently. “Although the additions to §139 are not the frequently-proposed abolition of the automatic injunction, they still go too far,” says Gabriele Mohsler, vice president patent development at Ericsson

Gabriele Mohsler

According to Mohsler, the system works even without the amendment. This is because the feared shutdown of entire production lines due to the patent infringement of a product part practically never occurs.

“The judges already look carefully at the consequences of the injunction. In the few cases in which German courts have paralysed a plant or a production, the infringer has never gone bankrupt.”

On the other hand, a third group from German industry sought only moderate changes. This group includes many chemical and pharmaceutical companies. At the end of last year, the group suggested better protection against enforcement as a way out of the muddled discussion between the car and mobile phone industry. However, this idea did not gain a majority.

Lawyers also divided

“With the new regulation, the legislators are explicitly writing the valid case law from the Heat Exchanger decision into the Patent Act. This is not a change in the law or even a softening of the automatic injunction,” Axel Verhauwen explains.

“Even before that, according to the good-faith principle, an automatic injunction could not be used to abuse the law. Legislators are now explicitly incorporating this principle into the Patent Act. They are insisting that hardship cases remain the absolute exception.”

Axel Verhauwen

The new regulation is a deep cut in the German patent system, according to patent attorney Christof Keussen. “It lives on the balance between a strong automatic injunction and moderate compensation. The draft does not respect the balance. A restriction of the right to injunctive relief while maintaining the same low level of damages is unreasonable.”

Keussen also criticises the fact that the ministry has not clarified whether the amendment to §139 is simply an explicit reference to the already-existing legal situation, or to what extent the substantive legal situation should be changed. “For this purpose, the ministry would have to give more detailed reasons for the law.”

The draft is obviously not a mere codification of the Heat Exchanger case law, says Keussen. In this decision, the Federal Court of Justice merely established criteria for granting a use-up period.

Possible consequences

The government argues the amendment to §139 is necessary because first instance courts apply the Heat Exchanger decision principles too rarely. Ulrike Voß, presiding judge at the Higher Regional Court Düsseldorf, does not share this assessment. “We all know the decision here. The patent infringers simply invoke a hardship clause very rarely,” she says.

As an example, Voß cites medium-sized companies with only a few products. An injuction hits these companies at least as hard economically as large corporations with many products. “We have many proceedings with medium-sized companies in Düsseldorf. They very rarely ask for an injunction to be postponed.”

Voß is certain that the clarification of §139 will increase the courts’ workload. This is because more patent infringers will invoke a hardship clause. Furthermore, that the objection could be used tactically to delay a decision is a danger.

Ulrike Voß

“The codification of the hardship clause will lead to the patent infringer invoking this as standard in future,” warns Mohsler. “The plaintiffs must respond to this. The consequence being that quick infringement proceedings will become unnecessarily inflated and protracted.”

If the draft remains unchanged, Keussen also fears a migration from patents to utility models. “The ministry has weakened the injunction for patent infringement, but not for the utility model. That could make it more attractive.”

Final word from Karlsruhe

Stakeholders have until 10 March to send the ministry opinions on the draft. The current draft is just the beginning of the legislative process.

“The Ministry of Justice has done a good job, it has taken a lot of time for the arguments of all stakeholders concerning the automatic injunction,” praises a lawyer. He no longer expects any significant changes. “It [the ministry] has already heard all the arguments. Why would it change its mind now?”

Major industry associations, such as the German Association of the Automotive Industry (VDA) and Germany’s digital association Bitcom, are already taking a stand. However, the associations are unlikely to change the ministry’s mind. Rather, the associations aim to influence legislation through the parliamentary groups in the German Bundestag.

Whatever the legislators change, it is already clear. The new law will probably keep the patent courts busy for a long time. Once again, the Federal Court of Justice will have to explain why it refused to grant Daimler a use-up period for convertibles with Airscarfs back in 2016.