The Bundestag has passed the German Patent Act reform. Patent judges, however, believe it will have little impact on the current legal situation. In talks with JUVE Patent, judges say the automatic injunction will continue to be the hard rule in German patent cases.
23 June 2021 by Mathieu Klos
According to Berlin’s political insiders, seldom has a new law in Germany seen so much lobbying and outside influence. Especially, they say, one which is so relevant to business. Finally, last week, the German Bundestag approved the new patent law. But in the end, many wonder if such focus was worth the effort.
Over the past three years, the §139 reform – which sets out the automatic injunction in German patent proceedings – has inspired particular passion in stakeholders. It is a central pillar of the German patent procedure, which patent owners globally consider very attractive.
Proponents of the reform left no stone unturned in their efforts to soften the automatic injunction. Opponents tried to prevent this by all-political means. Above all, supporters included automobile and telecommunications industries.
On the other hand, SEP holders such as Ericsson, Nokia and large parts of German industry – but also many patent judges – claimed that everything should remain the same.
But things have changed. In mid-June, the German parliament wrote the Federal Court of Justice’s so-called ‘heat exchanger ruling’ into law. Supporters of the reform, above all VW and Deutsche Telekom, managed to get the topic on the political agenda. Furthermore, they also managed to achieve a change in the law.
In 2018, when the reform began, many had dismissed such a thing as unthinkable. Most experts considered the automatic injunction as set in stone.
Now, it is no longer incontrovertible. In future, it will be an open point of discussion in court proceedings in Düsseldorf, Hamburg, Mannheim and Munich. That alone is a great success for the car industry and network operators.
Uwe Wiesner played a key role in overseeing the legal reform on behalf of VW. He says, “We would have liked to see a stronger demarcation from the Federal Court of Justice’s heat exchanger case law in individual legal terms, but it is a first important sign of hopefully more balanced case law.”
“In any case, the policy has clearly spoken out against the abuse that is sometimes practised. With the proportionality test for injunctive relief introduced by the Patent Modernisation Act, the legislature has sent a clear signal against patent trolls.”
Wiesner says, “The reform is an important step for a fair and less abuse-prone patent law in Germany. Practice must now show to what extent the German courts will seize this opportunity.”
However, German patent judges are more restrained at the prospect of having to deal more intensively with the proportionality of an injunction. Many had already spoken out against altering §139 during the legislative process.
But now the judges expect little impact. In background discussions with JUVE Patent, the judges explain that they assume implementers will apply for a stay of injunction by default. But according to one judge, “The automatic injunction remains the rule, and its stay due to particular hardship and disproportionality for the implementor remains the absolute exception.”
Another patent judge says, “The heat exchanger jurisprudence was applied prior to the law. Now it’s just explicitly in the statute.”
Since 2016, the parliament has put into effect the heat exchanger ruling case law. The case concerned a patent-infringing ‘airscarf’ heating element in the car seats of Daimler’s Mercedes Cabriolets. In its ruling, the Federal Court of Justice defined an exception to the rule that an injunction must be granted automatically in case of a conviction for patent infringement (case ID: X ZR 114/13). According to the exception, if an injunction represents disproportionate hardship for the infringer, the judges may refrain from granting one.
With the new law, the legislator is now asking the patent judges to more frequently examine whether an automatic injunction is particularly hard on the implementer and should therefore be suspended.
However, the reform goes well beyond the point of automatic injunction. It also focuses on containing the injunction gap in the German bifurcation system.
In Germany, different courts hear nullity and infringement cases separately. However, the Federal Patent Court often rules on the validity of a patent months after the first instance infringement judgment. Swathes of the legal profession are critical that courts grant injunctions despite the validity of the patent being unclear.
Now, the German government makes it mandatory for the Federal Patent Court to send a qualified opinion on patent validity to the infringement court after six months. The new six-month deadline shortens the time between the filing of a nullity suit and the qualified opinion.
All camps welcome this measure. Experts are now eagerly awaiting whether the court will be equipped with additional judges. The new federal government is likely to decide this, upon its election in autumn.
Furthermore, patent experts are demanding internal structural reforms at the Federal Patent Court. Since the beginning of May, the court has had a new president, Regina Hock. Stakeholders have high expectations that the new president will make the court faster.
While most experts welcomed the six-month rule, politicians hotly discussed amendment to the automatic injunction. The government and parliament worked on the new rule in several rounds. At times, the reform’s supporters were ahead. However, in the end, the pendulum swung back in favour of the status quo.
In the final bill, the members of parliament made minor changes to strengthen the injunction.
The new law enables courts to apply the principle of proportionality in cases where injunctive relief would represent a disproportionate hardship to an alleged infringer or third parties. It also makes provisions to substitute compensatory payments for injunctive relief. This is instead of courts automatically handing out injunctions.
Thus, an express reference to the requirements of good faith now supplements section 139, sentence 3 of the German Patent Law. Therefore, judges must account for the legitimate interests of the patent owner when assessing whether there is unjustified hardship precluding the right to injunctive relief.
In sentence four on the patent owner’s claim for compensation, in the event that the injunctive relief is limited by way of exception, the law retains the word “reasonable” in the wording of the standard.
In determining the amount of the compensation claim, the court must take account for the infringed party’s patent right being limited by the restriction of the injunctive relief. A patent infringer would then have to pay at least the amount that would be reasonable in the case of a contractual agreement.
In individual cases, the compensation may also be higher. For example, if an infringer fails to examine the patent situation with due care in advance.
Gabriele Mohsler, vice president of patent development at Ericsson, says, “We were able to avoid worse in the end. The inclusion of the principle of good faith in §139 is good for patent owners. The right to financial compensation is also appropriate and suits us.”
Third-party interests always come into play when public interest is affected, for example in healthcare or electricity supply. Stephan Altmeyer, head of Deutsche Telekom’s patent department, says, “We are pleased that third-party interests have been included in the law.”
“Patent attacks on the network infrastructure not only affect us as network operators, but even more those who urgently depend on the functioning of the Internet and telephony, such as hospitals, companies and public authorities.”
However, the new law is not yet final. The Bundesrat, the second chamber of the German parliament, will vote on it on 25 June. But observers widely expect the lower chamber to pass the law.
In which case, and because there is no transitional regulation, the new rule on the automatic injunction will also apply to proceedings already underway. Experts will eagerly look to the infringement courts in Düsseldorf, Mannheim and Munich to see how they will apply the new rule in the coming months.
A Düsseldorf judge says, “At the moment, I can only think of a few exceptions where the heat exchanger jurisprudence would really apply. Even in pharmaceutical disputes, where many patients may be affected, we would look very carefully at allowing the exception to the automatic injunction.”
The spirit of the heat exchanger decision has been around since 2016 now. The injunction should only be suspended in very blatantly exceptional cases, say most judges to JUVE Patent.
A Munich judge, for example, is confident that suspension should only be granted in extreme situations. “For example, when banknotes can no longer be printed or no-one can make phone calls.”
A colleague from Düsseldorf adds, “One should not forget that at the time, despite the far-reaching consequences, the Federal Court issued an injunction against Daimler for the short remaining term of the patent without security. For Daimler, that was a pretty drastic ruling.” He says that the court also set an extremely high hurdle for a use-up period.
The Federal Court of Justice would have had good reason to grant Daimler a use-up period, or even a stay. But it chose not to. “That’s the bar for the future,” says another judge.
But judges in all courts now expect the injunction stay request to come by default. “Lawyers will now want to test out how the patent courts feel about the issue.”
However, petitioners will each have to prove that injunction consequences are a true burden. A Mannheim judge says, “If only sweeping arguments are made, we will reject the application as not substantive.”
This means implementers may have to disclose commercially sensitive data to the patent owner. Many are likely to balk at this. If, for example, implementers must submit sales data or information on manufacturing processes, a request for suspension of the injunction quickly becomes a matter for the boss.
An IP head at a large company confirms that, at their company, the board of directors must always approve such procedures.
Unlike before, the new provisions of the Secrecy Act at least guarantee a higher degree of protection in terms of trade secrets. However, companies are unable to completely prevent the patent holder from learning sensitive data.
This gives the plaintiff an advantage, for example in licensing negotiations. Under certain circumstances, the patent holder can calculate an attractive licence amount, against which the implementer will find it difficult to argue.
The judges of all courts also point out that implementers must file the request for a stay quickly. If an implementer files the request during the course of the proceedings, for example when things go badly, it must accept that the court will reject the application as late.
However, many believe defendants will make a blanket application for a stay for tactical reasons in order to delay a judgment. A lengthy evidentiary hearing for the hardship of an injunction would buy time for implementers.
A Düsseldorf judge believes the bar will be even higher in SEP cases. “Whoever, as a defendant, does not comply with the requirements of the CJEU, will not be able to say later that an injunction has such dire consequences and ask the court to suspend the injunction. Ergo: Only those who, as implementors, willingly dance the FRAND dance will have a chance of successfully getting a suspension.”
A Mannheim judge says, “We are already familiar with the principle of proportionality in the areas of recall and destruction. In the past, the implementors have only made sweeping statements on this.”
He adds, “Anyone who argues in this way in the case of injunction will have no prospect of a stay. The judges of the other courts have also confirmed this.”
However, a Düsseldorf judge can imagine that, in borderline cases, a use-up period will now be granted more frequently. This is so that doctors, for example, have time to switch their patients to patent-protected medications.
In future, the patent holder will have a mandatory right to ‘reasonable financial compensation’ if the court stays the injunction. Members of parliament signed this rule into law at the last minute.
At first glance, the rule seems clear. “But it is not,” said a Düsseldorf judge. “The legislature has taken discretion away from the judges here, and that’s fine.”
“But what exactly does the legislature mean by ‘reasonable compensation’? There will be a lot of discussion about this in the proceedings. Basically, this is an anticipated licensing discussion.”
Another Düsseldorf judge even sees fundamental problems. “What exactly is the patent owner supposed to request here? On what basis should he calculate financial compensation for a future infringing act? The legislator had good intentions here, but the regulation will lead to many discussions in the proceedings.”
Collecting evidence here will take a long time and could also delay the proceedings. A Munich judge says, “Pharmaceutical companies, because their main concern is to quickly push generics manufacturers out of the market, will not waste much energy here and will focus on enforcing the injunction.”
Most stakeholders are sympathetic to the introduction of the third-party interest. But, as one judge says, even this rule is factually nothing new. “Reviewing this has always been standard practice in the courts.”
But again, judges see the potential for misuse here. The evidence-gathering process can be complicated and lengthy, which could delay rulings. As with the motion to stay the injunction, judges must also review all of the petitioner’s information for accuracy. But what if evidence and witnesses are difficult to handle because, for example, a key witness lives in China?
Even if judges think the stay applications have little chance of success, they still expect them to be filed by default. Thus, proceedings will become more complicated.
According to a Munich judge, there will be no real clarity until the Federal Court of Justice decides a case under the new law for the first time.
During the legislative process, individual judges of the Federal Court of Justice’s 10th Civil Senate, which is responsible for patent cases, have already made it clear that they see no reason to deviate from the high standards of the heat exchanger case law.
One can be sure that they have coordinated these statements with other senate members of Germany’s highest patent court.
Update 25.06.2021: Today, the new patent law has passed the second chamber of German parliament also passed. The Bundesrat had no objections to the law. Last week, German Bundestag had already approved the new law, which also includes amendments to the automatic injunction. For the law to enter into force, it must now be signed by federal president Frank-Walter Steinmeier. As a final step, the new law will be published in the Federal Gazette (in Geman: Bundesanzeiger).
Then, above all, the new provisions on automatic in junction (§139) will apply immediately, because there is no transitional period. They thus also have a direct effect on actions already filed with the patent courts.