Enforcement security before German courts and the Unified Patent Court in comparison

As part of the provisional enforcement of a court decision at first instance, there are various reasons why this decision may be overturned or amended at second instance. As a result, the basis for enforcement may cease to apply retroactively and claims for compensation for the damage caused by enforcement may arise (Section 717 (2) German Code of Civil Procedure (“ZPO”) in German infringement proceedings, R. 354.2 RoP at the UPC).

In the case of a provisionally enforceable judgment, the interests of the plaintiff in the provisional enforcement of his claims and the interest of the defendant in being protected from the damage caused by unjustified enforcement are therefore in conflict. In order to do justice to both interests, provisional enforceability is made dependent on the provision of security by the successful, enforcing party. Although provisional enforcement is then possible in principle, the provision of security at least provides monetary protection for the interests of the defendant.

Enforcement and the associated interference with the legal positions of the defendant can result in considerable financial disadvantages. This applies in particular if the provisional enforcement of an injunction relates to products or services with high sales and considerable profit margins. In response, defendants often demand high amounts as security in order to fully secure the negative consequences of such enforcement. If the court orders such a high security deposit, smaller and therefore financially weaker plaintiffs in particular are faced with the problem of providing this security deposit. As a result, the provision of security may constitute a de facto obstacle to enforcement.

This short article sheds light on German court practice and examines whether the Unified Patent Court (UPC) enables more effective legal enforcement for plaintiffs.

The provision of security in German procedural law

Provisional enforceability serves the rapid realization of the plaintiff’s interest. In the event of a patent infringement, continued acts of infringement impair the interests of the plaintiff. Effective legal enforcement should therefore also be swift legal enforcement. However, the defendant may, in principle, prevail in the last instance despite a first-instance conviction and therefore have been unjustly kept off the market by a provisional enforcement of the injunction. As a result, the defendant regularly suffers considerable damage. For this reason, Section 717 (2) ZPO grants the defendant a claim for damages against the plaintiff.

In order to secure a possible claim for damages by the defendant, all judgments not covered by section 708 ZPO can only be provisionally enforced against the provision of a security in accordance with section 709 sentence 1 ZPO. If, after an appeal decision, the provisional enforcement proves to be unlawful in retrospect, the provision of a security serves to protect the interests of the defendant by making the security available as an asset for payment of damages claims caused by all losses incurred as a result of the enforcement.

Pursuant to Section 108 (1) ZPO, the amount of the security is at the discretion of the court. When determining the amount, the decisive discretionary aspect are the potential future enforcement damages according to Section 717 (2) ZPO, i.e. the amount of damages that would likely be suffered by the defendant if the injunction is provisionally being enforced based on a judgment that later gets overturned on appeal.

The obligation to pay damages focuses on the creation of the hypothetical damage-free present state according to Section 249 (1) German Civil Code (“BGB”). I.e. the test is for the difference between the defendant’s financial state in two different scenarios, both looking at the same point in time after the appeal decision: In one scenario, there is preliminary enforcement of the injunction, and in the other scenario, there is not. The damages correspond to the differences between said two states. This includes all financial losses and other disadvantages suffered by the defendant as a result of the enforcement. However, it only includes the effects of the actual enforcement intervention and no collateral damages, such as economic disadvantages that have arisen solely as a result of the mere knowledge of the enforcement.

Typical damages resulting from the enforcement of injunctions due to patent infringement are lost profits due to lack of sales during the enforcement period, costs for the reintroduction of a product on the market after the end of enforcement, as well as a loss of market share and the resulting loss of sales and profits after the end of enforcement. Profits are to be understood as the contribution margins that are (or would be) generated with the products or services concerned. It is therefore not a question of whether the defendant as a company makes a profit overall, but of the specific consequences of no longer being allowed to sell certain products or services as a result of the enforcement.

The amount of the security must be calculated in such a way that the damages that a defendant may suffer as a result of the enforcement of a subsequently amended or revoked judgment are covered in full. The amount is to be assessed on the basis of the enforcement losses to be expected according to objective standards. The assessment of expected damages is to be based on an enforcement period that corresponds to the expected period until an appeal decision.

The court’s discretion with regard to the amount of the security is thus limited in this respect since the security must fully cover the expected damages and shall not be lower. There is no room for valuation aspects or a weighing and balancing of interests. In particular, it is irrelevant whether the plaintiff has sufficient funds to provide a security that covers all expected enforcement damages.

A very high security deposit may constitute a de facto obstacle to enforcement. This applies in particular if the plaintiff and patent proprietor is a less financially strong small or medium-sized enterprise (SME) and wants to enforce against a very large company with high revenue and high-margin products or services. The larger and more successful the defendant is with the products or services found to infringe the patent at first instance, the more difficult enforcement can become.

German court practice

A precise quantification of the damage threatened by the enforcement of an injunction claim under patent law can cause considerable difficulties in practice, because the damage to be expected consists primarily of potential future lost profits, i.e. a forecast decision must be made in this respect.

This forecast must be made on the basis of various indicators. Turnover and profits from previous periods can serve as a starting point. These can document steady growth or stagnation in profits in recent years and thus provide information about the financial development of the defendant. Market analyses and industry reports can also be used to supplement the forecast. The current situation of the defendant on the one hand and the relevant market environment on the other hand are therefore decisive.

Such a forecast is always subject to uncertainties. These uncertainties are generally to the detriment of the plaintiff, since the security shall make sure that all expected damages of the defendant are fully covered. Therefore, if there is a sufficient probability that a high loss will be incurred, but a lower loss is also possible, in case of doubt the higher expected loss must be secured.

For the court to be able to quantify the expected enforcement loss, the defendant must plead and present corresponding facts that justify the expectation of high losses in case of enforcement. In other words, the defendant must explain what turnover and profits they would lose in the period in question and what further losses they could expect even after enforcement has ended. The relevant submission must be demonstrated to the satisfaction of the court (“Glaubhaftmachung”), for example by submitting financial documents or affidavits from company directors or external auditors.

If there is no such specific submission, the courts are guided in practice by the value in dispute. The value in dispute is based on the plaintiff’s interest in enforcing the claim and is therefore not congruent with the expected damages to be incurred by the defendant. However, it is generally based on the value and significance of the infringed legal position as well as the scope of past and potential future infringements. Therefore, the value in dispute is generally used as a realistic indication of the extent of any enforcement damages, unless more specific facts are presented. In court practice, it can be observed that the parties tend to state low values in dispute to keep statutory court fees low which are also determined by the value in dispute. In these cases, a security based on the value in dispute is often insufficient to fully secure the impending enforcement damages and a specific submission by the defendant on the expected damages is all the more important.

If the defendant succeeds in making a sufficiently substantiated submission regarding high expected enforcement damages, German courts sometimes grant extraordinarily high security deposits. One example is this year’s decision by the Düsseldorf Regional Court dated February 7, 2025 – 4c O 49/23 in the Nokia v. Amazon case, in which the court set a security deposit of almost EUR 573 million for the enforcement of the injunction alone.

Another example of a very high security deposit is the judgment of the Mannheim Regional Court of 18.08.2020 – 2 O 34/19, where the court ruled that the plaintiff (Nokia) can only provisionally enforce the judgment issued in its favor against the defendant (Daimler) after a security deposit of EUR 7 billion has been provided.

In such a situation, even very financially strong plaintiffs may not have the necessary financial means to provide the security ordered. As a consequence, the provision of security effectively constitutes an obstacle to enforcement until a second-instance decision is issued which can be enforced without a security.

Security deposits in proceedings before the Unified Patent Court (UPC)

The recitals of the UPCA contain the basic idea that the UPC is intended to facilitate the enforcement of patents, particularly for small and medium-sized enterprises (second recital UPCA).

With regard to enforcement and the associated provision of security, there are differences to the practice of the German courts both in the UPC regulations and in their application, which can make it easier for plaintiffs to enforce their rights.

Pursuant to Art. 82 para. 1 UPCA and Rule 354 para. 1 sentence 1 UPCA, every court decision is enforceable from the date of service. According to Art. 74 para. 1 UPCA, the appeal has no suspensive effect.

Art. 82 para. 2 UPCA leaves the ordering of an enforcement security to the discretion of the court. This discretion covers both, the question whether a security shall be ordered at all, and if so, in what amount. As part of the discretionary decision, the court must not only take the extent of the impending loss for the defendant into account like in German proceeding, but in addition also whether providing the respective security amount is a reasonable burden for the creditor. Further, also the prospects of success of a possible appeal can be taken into account.

When determining the amount of the security, the court must take into account several potential damages items. This also includes court fees and other expenses of the defendant as well as the hypothetical determination of the amount of a claim for compensation in accordance with Rule 354 (2) RoP.

The second recital of the UPCA, according to which the enforcement of patents shall become easier for SMEs, speaks in favor of a rather moderate assessment of the amount of the security deposit.

With regard to the form of security, Rule 352 RoP expressly mentions deposits and bank guarantees. However, the rule is not exhaustive, meaning that the court is free to determine other forms of security.

In case it is difficult to quantify any future enforcement damages at the time of the decision or where there is no sufficiently substantiated submission by the defendant, the local divisions of the UPC also base their determination of security amounts on the value in dispute (LD Munich, December 11, 2024 – UPC_CFI_791/2024; LD Düsseldorf, April 09, 2024 – UPC_CFI_452/2023; LD Düsseldorf, April 30, 2024, UPC_CFI_463/2023).

The decisions issued to date indicate that the UPC tends to exercise its discretion in favor of moderate security deposits and to keep in mind that enforcement is not thwarted by extremely high security deposits. For example, in a decision dated February 06, 2025 – UPC_CFI_210/2023, the Local Division (LD) Munich set a value in dispute of EUR 50 million, but held a security deposit of only EUR 10 million to be sufficient.

In a decision dated September 19, 2023, the LD Munich exercised its discretion in the UPC_CFI 2/2023 case to issue a preliminary injunction without ordering the provision of a security, despite a value in dispute of EUR 7 million. This was justified by the fact that both the financial situation of the applicant and the applicable US enforcement law did not indicate any difficulties in the enforcement of any potential future claim for damages.

In order to prevent any disputes about the specific form of a guarantee, the LD Munich held that the security must be provided by deposit, LD Munich, August 27, 2024, UPC_CFI_74/2024. In order to simplify this payment process, the UPC has set up a special bank account. In addition, in a procedural order of August 30, 2024 in case UPC_CFI_9/2024, the LD Munich ordered that the parties must agree on the details regarding a bank guarantee before a decision is made.

It can be stated that the UPC, at least in its previous decision-making practice, tends to order lower security deposits and works towards a pragmatic provision of security in order not to unduly complicate the enforcement of first-instance decisions.

Conclusion

German court practice shows that determining the amount of the security deposit is often difficult. The provision of sometimes rather high security deposits can pose major challenges, particularly for smaller companies. The provisions of the UPCA offer more leeway in this respect, which the UPC seems to have deliberately made use of. The decisions handed down since the introduction of the UPC indicate that the UPC tends to order lower security deposits than would be expected in corresponding national German infringement proceedings. It remains to be seen whether this trend will continue in future decisions.