Additional defence options for patent infringers and faster nullity proceedings
The German Federal Ministry of Justice presented its long-awaited draft for the reform of the German Patent Act in mid-January. In particular, the draft provides for a new and controversially discussed hardship clause for injunctive relief, as well as measures to accelerate the patent nullity proceedings and to interlock them better with the patent infringement proceedings.
Reform of the right to injunctive relief
The injunctive relief is considered the sharpest sword in German patent infringement proceedings. If an infringement court, at the request of the patentee, has found a patent infringement, it not only orders the infringer to pay damages for past infringing acts, but also rules that the infringing product must be taken off the market and the infringing process may no longer be carried out.
This mandatory injunction is increasingly criticised by parts of the industry. The automotive industry and their suppliers in particular see a risk of abuse in cases in which the patent-infringing product is only a small and relatively cheap component of a complex product (for example a mobile phone chip installed in a car), but in which the injunctive relief ultimately affects the entire product. In such scenarios, the threat of injunctive relief means that the patent holder often has to grudgingly accept exorbitant license fees in order to avoid a production standstill and the enormous costs involved.
However, even today in Germany the right to injunctive relief is not completely automatic and without limits. Many such case constellations, especially in the practically important field of telecommunications and networks, concern standard-essential patents (SEPs), for which the patentee has usually committed himself to the standard-setting organisation to offer licences on fair, reasonable and non-discriminatory terms (so-called FRAND conditions) to any interested party, and for which, according to the case law of the European Court of Justice, the patentee can only enforce a claim for injunctive relief if he proves to the infringement court that he has made a FRAND licence offer to the infringer in advance, but that this offer was refused.
Furthermore, in its “Wärmetauscher” (“Heat Exchanger”) decision of May 2016 which also concerned a case from the automotive industry, the Federal Court of Justice (case reference BGH X ZR 114/13) stated that the infringer of a patent can be granted a grace period in exceptional cases, if immediate enforcement of the injunctive relief constitutes an unjustified hardship due to special circumstances of the case.
So far, however, there has not been a single case where the courts have seen room for such a hardship provision. Even though the BGH had provided for the possibility of such an exception in the “Wärmetauscher” case, it then, too, denied it for the specific case.
With the reform of the Patent Act now proposed, the principles formulated by the BGH would be enshrined in law. Accordingly, the injunctive relief would be excluded to the extent that its enforcement “is disproportionate because, due to special circumstances taking into account the interest of the patent proprietor and the infringer and the precepts of good faith, it constitutes a hardship not justified by the exclusive right”. However, the proposed rule is more far-reaching than the “Wärmetauscher” decision in that it is not limited to the granting of a grace period, but may also allow for a longer-term or even permanent exclusion of an injunction.
The proponents of the reform point out that also other countries have restrictions on the right to injunctive relief and, for example, in the USA the right to injunctive relief is granted only exceptionally. The sceptics reply that this is comparing apples and oranges. In the USA, it is not the injunctive relief that can have a serious effect on the infringer, but the legal costs and damages that are many times higher than in Germany. In contrast, the damages imposed in Germany are hardly more than what the infringer would normally have had to pay the patent owner if he had taken a license from the outset. In this constellation, the damages alone do not deter the patent infringer, and hence the injunctive relief is of utmost importance. The explanatory memorandum to the draft also emphasises the exceptional character of the hardship provision.
Reform of the patent nullity proceedings
Another important and far less controversial innovation in the draft concerns the streamlining of the patent nullity proceedings in order to better synchronise them with the patent infringement proceedings.
In German patent infringement proceedings, the alleged patent infringer can only defend himself by stating that he does not infringe the patent, for example because his product differs from the patented solution or he is entitled to use the invention. If, however, he wants to claim that the patent was wrongly granted, for example that it is not novel or not inventive over the prior art, he has to challenge the patent in separate nullity proceedings before the German Federal Patent Court, a completely different forum. These patent nullity proceedings are, by nature, already started with a delay compared to the infringement proceedings, and then usually progress even more slowly. As a result, the alleged infringer often finds himself in the unfortunate situation that the infringement court has already recognized the patent infringement before the Federal Patent Court decides on the validity of the patent many months later. Even the preliminary judicial opinion of the Federal Patent Court, which the legislator had introduced with a previous reform in 2009, often comes too late in practice. In the meantime, under the pressure of the threatening injunctive relief, the patent infringer might have been forced to agree with the patent owner on a high license payment, even though the patent would ultimately have turned out to be not legally valid.
In order to remedy this unfortunate “injunction gap”, the draft stipulates that in future the patent proprietor must present his defence arguments against the nullity action within two, in exceptional cases at the latest three months after service of the nullity action, and that the Federal Patent Court will issue its preliminary opinion at the latest six months after service of the nullity action. In typical case constellations, these time limits should result in the infringement court receiving the preliminary opinion of the Federal Patent Court prior to its decision on the patent infringement, so that the infringement court can stay its proceedings on the basis of the preliminary opinion until the final decision in the patent nullity proceedings in case of doubts about the validity of the patent.
This reform approach is promising and could interlock the patent nullity proceedings with the patent infringement proceedings much better than before. Its success, however, will depend to a large extent on the Federal Patent Court being able to prepare its preliminary opinions quickly and in reliable quality. It may become necessary to increase the staff of the Federal Patent Court for this purpose.
Other changes proposed
The draft contains some other important innovations. For example, the entry of an application under the Patent Cooperation Treaty (PCT) into the German national phase will in future have a time limit of 31 months from the priority date instead of 30 months, in line with the regulation at the European Patent Office. In addition, it shall become easier for the purchaser of a patent to take over an ongoing opposition procedure. In order to do so, according to the draft, he will in future only have to register in the patent register as the new owner.
The draft is now open to public discussion before it will be converted into a draft bill and the legislative procedure will begin. A number of important players from industry, research institutions and private practice have already submitted their observations on the draft (available from the Ministry’s website), which attests to the great interest the public takes in these reforms.
We will keep you informed about the further progress.