Patent infringement – German court practice on preliminary injunctions put to the test before the Court of Justice of the European Union

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In the event of infringement of a patent, German courts regularly refuse preliminary legal protection (“preliminary injunctions”) if the validity of the patent has not yet been confirmed in opposition or nullity proceedings. The Munich Regional Court would now like the Court of Justice of the European Union (CJEU) to check whether this practice is compatible with higher-ranking European law.

Preliminary injunctions are of enormous importance for the protection of intellectual property rights. In urgent cases, owners of intellectual property rights can apply for a preliminary injunction instead of or in parallel with proceedings on the merits. German courts act quickly: In trademark, design and competition matters, courts regularly issue preliminary injunctions within a few days, sometimes even within hours, and usually without hearing the opposing party beforehand. Germany is both envied and feared abroad for this legal practice.

“Scrutinized” patents as a prerequisite for preliminary injunctions

However, the situation is different in the case of patent infringement: the issuance of a preliminary injunction generally requires – in addition to the proven infringement of the patent and a particular urgency of the case – that the validity of the patent has been sufficiently established. According to the current case law of the higher regional courts (Germany’s appeal courts), it is not sufficient for the granting authority to have granted the asserted patent after a thorough examination. On the contrary, most courts, especially the highly-esteemed courts in Dusseldorf and Karlsruhe, require that the patent has survived first-instance opposition or revocation proceedings before a preliminary injunction can be issued.

As a result, patentees generally only receive interim legal protection if their patent has obtained the “seal of approval” of having survived adversaryvalidity proceedings. The courts apparently do not fully trust the patent offices to have reliably assessed patentability in the granting procedure alone.

Munich Regional Court: Court practice is contrary to EU law

A patent litigation chamber at Munich Regional Court considers this interpretation to be contrary to European Union law, and therefore has recently referred the matter to the Court of Justice of the European Union (LG München I, order of January 19, 2021 – 21 O 16782/20). According to Art. 9(1) of the European Enforcement Directive 2004/48/EC, EU Member States must ensure that a provisional injunction may be ordered against a patent infringer in order to prohibit the continuation of a patent infringement. However, according to the established case law of the higher regional courts outlined above, this is oftentimes not possible, because a patent which has only just been granted – as in the present case – may not yet have been subject to validity proceedings.

In-depth technical examination before issuance

The Munich judges point out that even patents granted a long time ago have often not yet been tested in such adversary validity proceedings at the time of the application for a preliminary injunction. The patent proprietor naturally has no influence on whether his patent is attacked in opposition or nullity proceedings after it has been granted. Therefore, even in acute infringement cases, provisional injunctions can only be issued once validity proceedings have been concluded at first instance. This could take many months or even years. The continuation of the patent infringement would have to be accepted during this time according to the case law put up for review, despite the fact that patents – unlike other intellectual property rights – are subject to a detailed technical examination before they can be granted.

Systemic Weaknesses of Interim Legal Protection in Patent Disputes

No matter how the European judges in Luxembourg may judge the current German legal practice, their decision will most likely not cure all the existing weaknesses of the system of preliminary injunction proceedings. The examination of a patent infringement, namely the exact determination of the patent-protected subject-matter and the infringement analysis, is difficult even for experienced judges, and often hardly suitable for preliminary injunction proceedings, in which only a summary examination can ever be carried out in the shortest possible time. However, judges do not have the option to refuse to issue a preliminary injunction merely because the subject-matter and factual issues to be addressed are too complex. As a result, wrong decisions are inevitable. The courts are also bound by the legal status of the patent and cannot refuse to issue a preliminary injunction even where reasonable doubts exist, unless opposition or nullity proceedings are already pending. It is true that the courts may require a security bond from the patent proprietor for the execution of a preliminary injunction. However, the damage caused by a wrongfully issued preliminary injunction is usually irreparable: if a manufacturer is prevented from presenting their product innovation at a leading trade show because of alleged patent infringement, it is of little use to him if the preliminary injunction is lifted months or years later. The product will no longer find a buyer.

The FRAND Saga Continues: A Further Referral to the European Court of Justice

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Following the decision by the German Federal Court of Justice KZR 36/17 – „FRAND-Einwand” (“FRAND Defense”), one did not have to wait long for new developments. The principles of this decision had been controversially discussed by lawyers and judges alike and it did not come as a surprise when the District Court of Düsseldorf handed down a further referral decision to the Court of Justice of the European Union (CJEU), seeking clarification regarding the criteria for the defendant’s willingness to license. The court also referred to the CJEU the much-debated question CJEUas to whether the producer of an end product can, as a defendant in patent litigation, raise an objection of abusive conduct by the owner of a standard-essential patent if a license on FRAND terms to its suppliers had been requested, but was refused. The decision of the CJEU will have a significant impact on licensing practices not only in the automotive industry, but also in fields like the Internet of Things or autonomous systems.

The decision KZR 36/17 – “FRAND Defense” of May 5, 2020 (see B&B Bulletin of November 30, 2020) was the second basic decision on standard-essential patents rendered by the German Federal Court of Justice (FCJ). Now the CJEU has got involved again. In the decision 4c O 17/19 of November 26, 2020, the District Court of Düsseldorf referred the question to the CJEU as to whether a company at a downstream production level can rely on a claim of one of its suppliers, under competition law, to a license on FRAND terms as a defense in infringement proceedings. At the same time, it referred further questions to the CJEU seeking a review of principles established by the Federal Court of Justice in its decision KR 36/17. Whereas a referral to the CJEU by a district court is unusual, this decision was not unexpected, considering that even parts of the judiciary had called for a timely resolution of the question of whether the decision of the Federal Court of Justice can be reconciled with the principles of the decision of the CJEU in C 170/13 – Huawei v ZTE of July 16, 2015.

The proceedings before the District Court of Dusseldorf concerned a patent that was essential for the LTE mobile communications standard, which is administered by the European Telecommunications Standards Institute (ETSI). The applicant of the patent had made a so-called FRAND declaration to ETSI, in which it undertook to grant licenses on FRAND (Fair, Reasonable And Non-Discriminatory) terms. A special feature of the case was that the defendant, a German car manufacturer, claimed that its suppliers were entitled to a license which had been denied to them, contrary to the provisions of European competition law. According to the defendant, the granting of such a license would have led to an exhaustion of the rights from the patent with regard to the products supplied to it. Accordingly, as argued by the defendant, seeking an injunction against it constituted an abuse of a dominant position.

The plaintiff had indeed not offered an individual, comprehensive license to the tier 1 suppliers, i.e. those suppliers that deliver directly to the car manufacturer (OEM), but had only offered a license model according to which the OEM is granted a license with the right to have the licensed products manufactured by third parties, to be paid for by the supplier, and according to which the supplier is only granted a limited license of its own, essentially restricted to research and development. The majority of the tier 2 suppliers did not receive a license offer at all. The plaintiff took the position that it was free to license at any level of the production and supply chain, and even considering its dominant position in the market, it was not under an obligation to grant a comprehensive license to suppliers, provided the various tiers in the supply chain were given access to the standardized technology. It furthermore argued that licensing at an upstream production level does not lead to exhaustion at a downstream production level.

The court referred the following questions to the CJEU on this issue:

  1. Can an enterprise that is at a downstream stage in the production process counter a complaint of patent infringement seeking an injunction with the accusation of an abuse of a dominant position within the meaning of Art. 102 TFEU, if the patent is essential for a standard issued by a standard setting organization (SEP), the patent owner has made an irrevocable commitment to this organization to grant a license on FRAND terms to any third party, the standard for which the patent is essential, or parts thereof, is already implemented in an intermediate product acquired by the defendant whose suppliers are willing to take a license, and the patent owner refused to grant an unrestricted license directly to those suppliers for all types of use relevant under patent law on FRAND terms for products implementing the standard?
  2. Does the prohibition of an abuse under competition law require that the supplier be granted an unrestricted license of its own for all types of use relevant under patent law at FRAND terms for products implementing the standard, in the sense that the final distributors (and the upstream purchasers, if applicable) do not require a further separate license of their own from the owner of the SEP in order to avoid patent infringement where the supplied product is used as intended?
  3. If the answer to question 1 is in the negative: Does Art. 102 TFEU impose specific qualitative, quantitative and/or other requirements on a standard-essential patent owner’s decision as to against which potential patent infringers, at different levels of the same production and commercialization chain, it will bring a claim for injunctive relief?

The court added supplementary questions to the first question regarding whether and to what extent it is relevant that, according to common practice in the industry sector concerned, the supplier undertakes to resolve IP issues by taking a license and whether there is an overriding obligation to license with regard to suppliers at each level of the supply chain or only with regard to the tier 1 suppliers.

The District Court of Düsseldorf took the view that the FRAND declaration implies an obligation to grant a license to the standardized technology to any interested party, and therefore also to any suppliers, to such an extent that it enables this party to unrestricted competition on all product markets on which it intends to be active, both at present and in the future. This goal could only be achieved by an independent unrestricted license, but not by means of a limited right derived from a car manufacturer. It acknowledged that an unrestricted license would not necessarily lead to exhaustion outside the European Union or in the case of method claims. Since, however, the purpose of a FRAND declaration is to enable everyone to participate in the commercialization of the standardized technology in the product market, at fair conditions and without any discrimination, in such cases the license on FRAND terms has to be without geographic limitations and, with regard to method claims, has to put the customers in a position to use the product for its intended purpose, thereby de facto providing for exhaustion.

According to the court, a right to a license at the component supplier level does not only correspond to the customary practices in the automotive sector, but is also adequate. It would need considerable efforts of a car manufacturer to determine infringement by e.g. a NAD (Network Access Device), even more  by a chip required for a NAD. On the other hand, in order to create innovations independently of the OEMs, the suppliers invest considerable sums in research and development of their own and therefore need economic and legal freedom with regard to such investments.

According to the court, licensing at lower levels of the production chain would also not lead to a disadvantage for the patent owner, since the license fee is not determined by the profit of the respective licensee, but by the profit that is made at the end of the exploitation chain through the sale of an end product according to the patent. Other disadvantages related to licensing at supplier level , as were asserted by the plaintiff, could be addressed by adequate contractual provisions.

In the second set of referred questions, the court sought further clarification of the requirements set out in the decision C 170/13 – Huawei v ZTE of the CJEU. In this regard, the District Court of Düsseldorf submitted the following questions, which it complemented by additional questions related to specific scenarios:

  1. Notwithstanding the fact that the owner of the SEP and the user of the SEP have certain mutual obligations to act prior to the start of court proceedings (notice of infringement, request for a license, offer of a FRAND license, license offer to the supplier to be licensed with priority), is it possible to make up for obligations to act that were not met in the pre-trial phase during the course of court proceedings, so as to preserve the rights of the respective party?
  2. Can a serious request for a license by the patent user only be assumed if, based on a comprehensive assessment of all circumstances of the case, it is clearly and unambiguously apparent that the user of the SEP is willing and ready to conclude a licensing agreement on FRAND terms with the owner of the SEP, independently of what these FRAND terms (which, due to the absence of a license offer at this point in time, are as yet impossible to foresee) may look like?

The first question essentially relates to the issue of whether the declaration of the willingness to take a license by the alleged infringer and a licensing offer compliant with FRAND by the patentee can still be made after the complaint has been brought. The majority opinion at the time of the decision was that this was indeed possible, but this had not yet been finally decided. In its recently published decision KZR 35/17 – FRAND-Einwand II (“FRAND defense II”) of November 24, 2020, the Federal Court of Justice showed a tendency to affirm this as a rule. This question is therefore not likely to be overly controversial.

The second question, however, relates to the requirements regarding the request for a license and the conduct of the party seeking a license following the notice of infringement by the patentee. This means no less than a reassessment of the case law of the Federal Court of Justice on this point under the law of the European Community. In its decision KZR 36/17, the Federal Court of Justice had set very strict requirements in this regard, which essentially imply that from the objective perspective of the plaintiff the unconditional willingness of the alleged infringer to take a license on FRAND terms must be clearly and unambiguously discernable at every stage of the licensing process (cf. B&B Bulletin of November 30, 2020). In particular, the Federal Court of Justice found in this decision that the defendant was not willing to take a license even in view of concrete licensing negotiations between the parties. In contrast, the Düsseldorf courts take the view that the request for a license is not subject to any specific requirements, as long as the will to take a license is clearly apparent. According to the present decision by the District Court of Düsseldorf, one can only conclude a lack of willingness to take a license on FRAND terms if one must reasonably assume that in spite of verbal professions of willingness there is in fact, finally and without any prospect of change, only a willingness to take a license at specific terms that are not negotiable and that are evidently not FRAND. In this regard, the District Court of Düsseldorf distinguishes between the general willingness of the alleged infringer to take a FRAND license and its willingness to accept specific licensing terms that have turned out to be FRAND. According to the District Court of Düsseldorf, this latter, specific willingness will only be at issue after it has been found that the licensing offer of the patentee is FRAND.

These questions have to be considered in light of the fact that the decision KZR 36/17 – FRAND-defense received criticism from the judges of the Düsseldorf courts, especially with regard to the issue of whether this decision can be reconciled with decision C 170/13 – Huawei v ZTE of the CJEU. Referring these questions to the CJEU, the court sought a final clarification of this issue.

Whether the CJEU will address these questions will depend, among other things, on whether it sees a need, in view of decisions KZR 36/17 and KZR 35/17, to further elaborate on the criteria it has established, or whether it considers the questions referred to it as questions of the specific case, which are to be answered by the national courts. In its decision KZR 35/17, which was pronounced prior to the referral decision by the District Court of Düsseldorf, but rendered in written form only later, the Federal Court of Justice explained and set out in detail why its criteria are indeed compliant with decision C 170/13 – Huawei v ZTE, however without changing these criteria from those set out in its prior decision KZR 36/17. It is therefore possible that the CJEU will not take up the issue of the criteria for a willing licensee again, which would mean that the restrictive regime established by the Federal Court of Justice will remain in place for the foreseeable future.

A timely decision by the CJEU on both sets of questions would be beneficial for the further development of the case law. Regarding the first set of questions, it had already been decided in decision 2 O 34/19 of August 18, 2020 by the District Court of Mannheim and in decision 7 O 8818/19 of September 10, 2020 by the District Court of Munich I that a car manufacturer cannot rely on a claim of one of its suppliers to a license on FRAND terms as the basis for asserting an abuse according to Art. 102 TFEU. A decision by the CJEU would bring clarity and legal certainty to these and similar cases. The first set of questions is, however, not independent from the second set of questions. If the suppliers are not found to be willing to take a license according to the strict criteria established by the Federal Court of Justice in its decision KZR 35/17 – FRAND II, the question of whether the car manufacturer can rely on a claim to a license of its suppliers is irrelevant. The willingness to take a license may therefore prove to be the decisive issue. In its decision KZR 35/17, the Federal Court of Justice had once more comprehensively addressed this issue and rejected a request for referral to the CJEU on the grounds that the questions that were raised related to a balance of interests in the individual case, which falls within the jurisdiction of the national courts. As long as there is no clear indication from the CJEU that it considers this question to be of fundamental importance and that it will address this issue in its decision, the German courts are likely to adopt the assessment of the Federal Court of Justice and decide accordingly, unless they concur with the Düsseldorf courts’ line of reasoning. In order to avoid a fait accompli a decision by the CJEU sooner rather than later would be welcome. Defendants can, however, avoid the issue of their willingness to take a license by offering the patent owner the option of determining a reasonable license fee at its discretion, which is subject to review by a court. In a recent decision by the Karlsruhe Court of Appeal (decision 2 U 130/20 of February 12, 2021) it was confirmed that such an offer by the defendant establishes the unconditional willingness of the defendant to take a license at FRAND conditions and thereby meets the criteria established by the CJEU. As this decision was rendered in summary proceedings and the Court of Appeal left the question open as to whether a belated offer of this kind still establishes the willingness of the defendant to take a license at FRAND conditions, defendants will be well advised to make such an offer early.

“Over and out” – Brexit update on trade marks and designs after the end of the transition period

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The transition period expired December 31, 2020 and UK now finally left the EU. Even though the negotiating parties came to a free trade and cooperation agreement on December 24, 2020, the rules from the Withdrawal Agreement remain in place and will regulate the covered IP rights going forward. We provide a refresher and update as to what this means for trade marks and designs.

Even though the EU Commission and the UK government agreed on the outlines of a free trade and cooperation agreement on December 24, 2020 which has been confirmed by EU and UK, respectively, in the meantime, this does not change the fact that, as of January 1, 2021, EU rights such as, in particular, EU trade marks and Community designs have lost their effect in the UK. The same applies to their counterparts under WIPO administration, i.e. International Registrations under the Madrid Protocol and the Hague Agreement. We have already provided detailed information about this on other occasion.

Here now, very briefly, are the main and updated implications since January 1, 2021, as they follow from the Withdrawal Agreement.

Cloning of registered EU rights

Registered EU trade marks and Community designs will be copied – cloned – completely, fully automatically and free of charge into the national register of the United Kingdom. In this respect, nothing further is required. The same applies to collective marks and certification marks. In view of the large number of IP rights, the process will take some time. We will keep the owners of IP rights represented by us apprised of any development and details.

Right of refiling for pending applications

Until September 30, 2021, it will be possible to file a fee-based national application for a pending IP right as a trade mark or design, and in particular to claim the priority of the EU application. The effect of this is that no third party could have acquired an IP right with better priority in the UK since the EU application was filed. We will work out a suitable IP strategy with the owners of IP rights represented by us.

International registrations of trade marks and designs

If international registrations designate the EU, the process described above will generally apply the same way. The IP rights are cloned into the United Kingdom or establish a refiling right in the national register. In any case, this means that these rights will initially leave the international regime under the administration of WIPO and become purely national rights. We will work with the owners of IP rights represented by us to find solutions to any related problems.

Unregistered IP rights

Unregistered Community designs will continue as “Continuing Unregistered Designs” for their remaining term of protection. In addition, a “Supplementary Unregistered Design” will be established for first publications in the United Kingdom, which will only be valid there. Unregistered trade mark rights are generally not recognized under EU law. However, the United Kingdom, like some other national legal systems of the EU member states, offers a fallback option, the so-called “passing off”, which, however, regularly depends on use in the United Kingdom (“goodwill”).

Continued identification of a clone

IP rights derived from EU rights will remain permanently identifiable by their registration numbers. They will continue in the UK with the original registration numbers and add national prefixes.

Ongoing proceedings and contracts

Pending proceedings in the UK based on an EU right will continue with the clone. The reverse does not apply: National UK rights lose their protection against EU rights. Proceedings are concluded automatically.

Existing treaties concerning the EU may have to be interpreted as to whether they continue to apply to the UK. We advise on how to avoid pitfalls and how to share any financial burdens between the parties appropriately.

Genuine use and reputation

Use of an EU trade mark in the UK will no longer maintain an EU right as of January 1, 2021. If there is no genuine use in the EU, the EU trademark will be subject to cancellation at the end of 2025. The reputation of an EU trade mark in the UK will already be definitively disregarded in the EU as of January 1, 2021.

Renewal and representation in the register

National clones are subject to the same expiration dates as EU rights. They can be renewed, and in some cases must be renewed in the short term. This also applies to those EU rights for which the fees have already been paid before the expiration of protection, but the expiration of protection is not until 2021. The fees must be paid again for the clones. The moderate costs for renewal have already been fixed by the UK Office. We will inform the owners of the IP rights we represent about deadlines and payment dates.

We will continue to represent the clones in the UK Register. This also applies to refilings.

Opt-out and strategic advice

IPR owners are not obliged to make use of the above options. Cloned IP rights can be abandoned by simple declaration (“opt-out”) free of official fees. The deadline for filing a subsequent application can remain unused. However, it is useful not only to consider each individual case but to develop an overall strategy for the UK. This may include adjusting the filing strategy overall. We advise with the aim of optimizing the administration and costs for the owners of IP rights.

Update on the planned reform of the German Patent Act

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The planned modernization of German patent law is progressing. Since the first draft for the reform of the German Patent Act was provided in January 2020, two further drafts have been presented. Significant changes have been made, particularly with regard to the reform of injunctive relief, which continues to cause controversy.

The first draft for the reform of the German Patent Act was provided already in January 2020 and has been the subject of an article from May 2020 which can be found here. In our first article, the streamlining of patent nullity proceedings and the inclusion of a proportionality requirement with respect to injunctive relief were already identified as key aspects of the reform proposal. Concerning these essential points, there have been some developments with regard to the latest drafts and their discussion among experts, which we summarize below.

Reform of the Right to Injunctive Relief

The most recent draft includes some changes regarding the proportionality requirement with respect to injunctive relief. The legal repercussions of these changes have already become the subject of debate.

In the discussion of the various drafts, it is recognized that injunctive relief is already limited in certain cases. For example, according to the “Wärmetauscher” (“Heat Exchanger”) decision of the Federal Court of Justice of May 2016 (case reference BGH X ZR 114/13), the patent infringer is to be granted a grace period in exceptional cases. However, opinions differ considerably as to what scope should be sought for such a restriction and what scope the intended wording of the law will actually lead to.

According to the present draft provided by the government, the right to injunctive relief is excluded to the extent that enforcement by the patent owner would lead to disproportionate hardship for the infringer or third parties not justified by the exclusive right in view of the particular circumstances of the individual case.

Thereby, it is now explicitly clarified that the circumstances will be assessed for each individual case.

Additionally, according to the latest draft, possible hardships for third parties can also lead to a restriction of the right to injunctive relief. This may, for example, apply to customers of the patent infringer who are dependent on the infringing products and for whom no alternative supplier is available, provided that this results in unjustified hardship in the individual case. According to the explanatory memorandum of the draft, in addition to the already existing possibility of a compulsory license, this creates the option of ordering a less intensive measure, for example by limiting the injunctive relief only for a limited period of time.

Compared to the first draft, however, there is no longer any explicit reference to considering the interest of the patent holder. Discussion is ongoing about whether such interest is already sufficiently taken into account by the fact that only hardships not justified by the exclusive right can lead to the exclusion of the right to injunctive relief, considering that such exclusive right justifies the patent proprietor imposing restrictions on other market participants under normal circumstances.

Furthermore, it is now provided that the infringed patent proprietor may demand monetary compensation in the event of a restriction of the right to injunctive relief, to the extent that such compensation appears appropriate. This claim for compensation is independent of any damage claim. In particular, it shall be possible to demand monetary compensation even if a claim for damages is ruled out in cases in which patent infringement is not negligent.

Reform of the Patent Nullity Proceedings

Concerning the streamlining of the patent nullity proceedings, there are no substantial changes compared to the first proposal. In particular, the time limit for the patent proprietor to submit his defence arguments against the nullity action is still set at two months and can be extended to three months only in exceptional cases. At the same time, the Federal Patent Court shall prepare its preliminary opinion, if possible, within six months after service of the nullity action.

Further proposed amendments

Among the further amendments, a new provision provided for in the present draft is notable in view of the current pandemic situation. According to such provision, it shall in the future be possible to conduct hearings and interrogations before the German Patent and Trademark Office by video conference.

Conclusion

The procedure for the planned patent law reform is already well advanced. However, in view of the ongoing discussion with regard to the restriction of the right to injunctive relief, possibly decisive details remain to be determined. We will keep you informed of further progress.

Act to strengthen fair competition – changes in the German Unfair Competition Act (UWG)

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After months of waiting, the “Act to Strengthen Fair Competition” was published in the Federal Law Gazette on December 1, 2020. The law contains far-reaching amendments to the German Unfair Competition Act (UWG), which are intended to provide better protection against abusive warning letters. Here is a brief overview of the most important new provisions:

1. Capacity to sue – Competitors

As of December 1, 2021, the capacity to sue of competitors will be restricted and specified. According to the new wording of the law, the right to bring an action is made dependent on the competitor selling or requesting goods or services to a not insignificant extent and not only occasionally. According to the previous legal situation, every trader could demand the cessation of an anti-competitive act who had a concrete competitive relationship with the person being warned as a supplier or buyer of goods or services. As a result, case law has so far been quite generous in assuming that a person has the capacity to sue. The amendment to the law is now intended to act as a restrictive corrective. According to the explanatory memorandum, it is no longer sufficient for a competitor to merely “offer” goods or services and not actually sell or demand them.

In the future, significantly higher requirements will be placed on the presentation of a competitor’s status. Mere references to alleged online offers of goods, for example, will no longer be sufficient to establish the status of a competitor. It remains to be seen how courts will apply this corrective in practice.

2. Capacity to sue – Trade associations

The capacity to sue of trade associations will also be newly regulated in the future. The new section 8 (3) no.2 UWG makes trade associations’ capacity to sue dependent on being registered on a list of so-called qualified trade associations. This new regulation in the law is a reaction to allegations of abuse. It will come into force on December 1, 2021.

Only those trade associations that fulfil the registration requirements of the new section 8b UWG will be admitted to the said list. These include, for example, that the trade associations have at least 75 entrepreneurs as members and that their activities are not primarily aimed at generating income from warning letters. Whether the registration requirements are met is to be determined by the Federal Office of Justice within the framework of an objective examination.

Whether this new mechanism will actually lead to curbing the abuse of warning letters by dishonest trade associations must be left with a question mark. It remains to be feared that “black sheeps” will ultimately find their way onto the list and that it will then be all the more difficult for companies to defend themselves against such warning letters of trade associations.

3. Mandatory information in warning letters

As in Copyright Law – section 97a (2) of the German Copyright Act (UrhG) – warning letters in unfair competition law matters must in future also comply with certain content-related requirements. The details are regulated by the new section 13 (2) UWG, which has already been in force since December 2, 2020. In addition to information that is actually self-evident, such as the name or company of the person issuing the warning letter or the reference to the claimed infringement, stating the actual circumstances (section 13 (2) nos. 1 and 3 UWG), the warning letter must also state whether and in what amount claims for reimbursement of costs are asserted or whether a claim for reimbursement of costs is excluded (section 13 (2) nos. 3 and 5 UWG). In addition, the person issuing the warning letter must also submit information on the capacity to sue and thus regularly provide information on the status as a competitor, which means, at least as of December 1, 2021, that competitors must already show in the warning letter that they sell or request goods or services “to a not insignificant extent and not only occasionally” (new version of section 8 (3) no. 1 UWG).

These requirements must be carefully observed in the future. In the event of non-compliance, the person issuing the warning letter not only loses the own claim for reimbursement of costs (section 13 (3) UWG). If the warning letter does not comply with the above requirements, the warned party even has a counterclaim against the warning party, namely a claim for reimbursement of the expenses necessary for its legal defence (section 13 (5) UWG).

4. Exclusion of claims for reimbursement of costs

According to the new section 13 (4) UWG, in certain cases competitors may no longer claim reimbursement of their expenses from the warned person. The provision has been in force since December 2, 2020. According to the wording of the law, a claim is excluded if it concerns violations of information and identification obligations committed on telemedia (e.g. violations of the imprint obligation, information obligations in distance contracts, the obligation to provide information on revocation, etc.) or other violations of the General Data Protection Regulation or the German Federal Data Protection Act by small businesses with usually less than 250 employees.

The abuse of warning letters by competitors may actually be curbed by the restrictive new regulation, since in cases of minor infringements mentioned here, no reimbursement of costs can be claimed, which, according to experience, should reduce the incentive for competitors to send out warning letters at all.

5. Cases of abuse of rights

The new section 8c (2) UWG contains a catalogue of standard examples which determine when claims for injunctive relief under section 8 (1) UWG are abusively asserted. The provision replaced the predecessor standard on December 2, 2020 and adopts the essential case groups of the current case law.

Cases in which an abusive assertion of rights is to be assumed in case of doubt exist if:

  • the assertion of the claims predominantly serves the purpose of incurring fees, costs and contractual penalties (no. 1),
  • competitors assert a considerable number of infringements of the same legal provision and the number of infringements asserted is disproportionate to the scope of the own business activity (no. 2),
  • the value in dispute of the warning letter is determined unreasonably high by the competitor (no. 3),
  • an obviously excessive contractual penalty is agreed or demanded (no. 4),
  • a proposed cease-and-desist obligation obviously goes beyond the infringement warned against (no. 5),
  • several infringements, which could have been claimed together, are claimed individually (no. 6),
  • or for an infringement for which several infringers are responsible, the claims against the infringers are not asserted together without objective reason (no. 7).

The wording “in case of doubt” could suggest that each of the listed standard examples in itself gives rise to the presumption of abuse of rights. However, one can hardly go that far and it remains to be seen how the courts will interpret the provision. In any case, it should be noted that section 8c (1) UWG continues to require a comprehensive overall assessment taking into account all circumstances to determine the abuse of rights. The standard examples will therefore in all likelihood only have an indicative effect, which can be refuted by the person being warned. It is not necessarily to be assumed that a fundamental change of the previous legal situation will accompany the amendment of the law.

6. Restriction of the “flying place of jurisdiction”

Since internet presences are usually accessible throughout Germany, acts of unfair competition on the internet are also committed nationwide. In cases of violations, it was previously possible for the claimant to bring an action before a Regional Court in Germany of his choice. This is referred to as “flying place of jurisdiction”.

The new section 14 (2) sentence 3 no. 1 UWG now considerably restricts this choice for the claimant. The “flying place of jurisdiction” for legal disputes arising from infringements in electronic commerce or telemedia has been abolished since December 2, 2020. According to the new law, the local jurisdiction of the court in the aforementioned cases is based on the general place of jurisdiction of the infringer.

The place of jurisdiction of the tort is thus no longer applicable for the large number of unfair competition cases. This will have a significant impact on enforcement of claims. This applies not only to the question of where main court proceedings can be brought, but of course also to strategies for interim relief. In many cases, it will no longer be possible to choose the known and experienced courts in unfair competition matters.

Things to come – what to expect from Germany’s current copyright reform?

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By 7 June 2021, the EU Directive 2019/790 on Copyright and Related Rights in the Digital Single Market must be transposed into German law. For the wider public, it is only associated with the keyword “upload filter”. In fact, the directive consists of a whole bundle of highly diverse regulatory issues, some of which will have a direct impact on the daily practice of companies dealing with copyright-protected works or services.

Introduction

It has not been long since the Copyright Act was last amended. The second reform of copyright contract law dates from 2016, the amendment on copyright and the knowledge society from 2017 and the implementation of the Marrakesh Directive for the benefit of persons who are blind or visually impaired from 2018. Nevertheless, this field of law does not come to rest. Another copyright reform is due in Germany in 2021. It will transpose the so-called DSM Copyright Directive (2019/790) from April 2019 on copyright and related rights in the Digital Single Market (hence the acronym) into German law. Time is of the essence: by 7 June 2021, the transposition must enter into force.

Overview of the regulations to be transposed into German law under the Directive

Although this Directive is basically a whole bundle of copyright directives with highly diverse areas of regulation, it was only a year before its adoption that it was noticed by a broader public because of the debate about the so-called ‘upload filter’ contained in Art. 17 of the Directive (at that time in Art. 13). In fact, only the word ‘upload filter’ was new. The regulation transposes into a formal law an existing legal situation which European and German case law had long since formulated in a binding manner: that of ‘notice and staydown’ (as the ECJ first stated back in 2011 in Case C-324/09 – L’Oréal / eBay, para. 131): It concerns operators of online platforms where users can upload content (the Directive speaks of ‘online content-sharing service provider’), i.e. the YouTubes and Facebooks of this world. If a rights holder notifies the operator of such a platform of an infringement committed by an uploading user, the operator must not only ensure that access to such infringing content is blocked, but is also obliged to prevent similar content from being uploaded again.

In addition to Art. 17, which has become highly controversial, the Directive also contains much less publicly discussed but nevertheless highly important regulations, namely

  • on ‘text and data mining’ (TDM) in Art. 3 and 4,
  • on use of works and other subject matter in digital and cross-border teaching activities in Art. 5,
  • on the preservation of cultural heritage in Art. 6,
  • on the use of out-of-commerce works and other subject matter by cultural heritage institutions in Art. 8 to 11,
  • on collective licensing with extended effect in Art. 12,
  • on access to and availability of audiovisual works on video-on-demand platforms in Art. 13
  • on images of works of visual art in the public domain in Art. 14,
  • on a neighbouring rights for press publications concerning online uses in Art. 15,
  • the participation of publishers in levies for reprography and private copying in Art. 16, and
  • on copyright contract law in Art. 18 to 23.

In addition, another directive is to be transposed at the same time, the so-called CabSat Directive (2019/789), which deals with the exercise of copyright and related rights applicable to certain online transmissions of broadcasting organisations and retransmissions of television and radio programmes.

On the transposition of the directive in Germany:
The “online content sharing platforms”

At the time this article appears, it is still uncertain whether the deadline will be met for all parts of the Directive. Just as in the European debate, the complex around the liability of online content-sharing service providers is the most controversial in the German transposition. It is not yet foreseeable where the journey will lead here, as the draft bill currently on the table tries to get by without an ‘upload filter’ as far as possible, although the directive actually prescribes it as a rule.

In particular, it will play a role here how the new copyright exceptions (required by the Directive) in favour of parodies, caricatures and pastiches (Section 51a draft German Copyright Act – hereinafter UrhG) will be linked to the liability rules in future.

These new regulations have great economic significance for rights holders and platforms alike – both with regard to the question of which uses can be licensed by them and which may be used freely for mere statutory remuneration, and of course with regard to liability for unauthorised offers.

In future, it will be a matter for every rights holder to optimally adapt to the new situation in order not to fall by the wayside economically by third party uses of protected content on online content-sharing platforms.

Transposition into German Law – the Other Subjects of Regulation

In contrast, most of the other regulations are much less controversial, especially since many of them are already laid down in current German copyright law, such as rules for use in the context of digital teaching and learning (Sections 60a and 60b UrhG), text and data mining (Section 60d UrhG), uses by cultural heritage institutions such as libraries, archives and museums (Sections 60e and 60f UrhG), publisher participation in statutory remuneration claims (Section 63a UrhG, which has been suspended since a decision by the BGH in I ZR 198/13 – Publisher Participation) or out-of-print works (Sections 51 and 52 Collecting Society Act – VGG), although in each of these fields the looming changes have caused much debate among the respective interested parties.

The curious case of the neighboring right for press publishers

This also applies to the neighboring right for press publishers (Sections 87f to 87h UrhG), which has been enshrined in German law since 2013, but was recently declared null and void by the European Court of Justice in its current form (in Case C 299/17) because Germany had failed at the time to officially inform the EU about the legislative project. So here we have the strange situation that a regulation that already existed in Germany, even though it has been largely been ineffective, is abolished by the ECJ because of a violation of EU law, only to have have it reintroduced it in a new form immediately afterwards due to a requirement of the EU legislator.

Collective licensing with extended effect

This is a legal figure (that has even in Germany come to be known under the acronym ECL for ‘Extended Collective Licensing’) that would not necessarily have had to be transposed into German law. The concept originates from Scandinavian law and has developed there in the same area in which statutory remuneration claims are applied in Germany, e.g. for the remuneration of private copying. One speaks of ECL when a collecting society is legally entitled to administer the rights even of those who have not signed an administration agreement with it. In fact, we know similar rules in Germany in the area of statutory remuneration claims. If a collecting society asserts such claims, it is also presumed under current German law (Section 49 VGG) that it administers the rights of all rightholders. According to the draft bill, ECL is now also to be introduced in Germany in connection with the licensing of online content-sharing service providers, because statutory remuneration is excluded there under the Directive. However, the European legislator has set very tight limits on the application of this model precisely because of the danger that ECL interferes with the free and individual exercise of rights. It remains to be seen whether the emerging legislative solution for Germany will stand up to these requirements. Rights holders will have to be particularly vigilant here.

Caution with contracts for copyright works and other protected matter

The large and important complex on copyright contract law is largely based on the model of German law (Sections 32 to 41 UrhG), but in parts even goes beyond it, so that here all companies that use copyright-protected works and performances on the basis of contracts should check what new legal obligations they will face in future, because some obligations also relate to existing contracts and, under certain conditions, even to those for which the parties have agreed on a non-European contract law to be applicable to their agreement.

Conclusion

Six months before expiry of the deadline, it is not yet clear how the German implementation will proceed. Major political decisions are only now being taken. Therefore, extreme vigilance is required for all companies whose business is in any way copyright related. For them, it will not least be a matter of adapting administratively to the changed requirements, especially of copyright contract law. In view of the immense economic importance that online content-sharing service platforms have acquired, companies that deal with copyright-protected content in particular will also have to assess the impact of the new regulations in this area on existing business models. This will require an analysis in each individual case.

The never-ending Unitary Patent saga continues …

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The efforts to create a unitary EU patent and a pan-European patent court have experienced both setbacks and new impetus in the eventful past year. 2021 is likely to bring further important decisions.

In the B&B Bulletin, we have already repeatedly reported on the unitary patent project. While the European patent system has so far only provided for a centralized granting procedure that results in a bundle of national patents, in future the European Patent Office shall also grant a pan-European patent with unitary effect in all participating member states (currently all EU members with the exception of Spain and Croatia). In addition, these patents are to be enforceable in the future before a Unified Patent Court (UPC) against patent infringers with effect for all participating member states.

The ideas for such a unitary patent already existed when the European Patent Office was founded in the 1970s. Efforts have intensified over the past ten years, and since 2013 the relevant agreements to implement these ideas have been in place and have already been ratified by numerous EU member states. However, German ratification, which is essential for entry into force, was held up in 2017 by a constitutional complaint. In March 2020, the Federal Constitutional Court ruled that the German bill for implementing the ratification would have required a two-thirds majority in parliament. In fact, the approval in the parliament had been unanimous, but too few parliamentarians had been present for the vote.

Another setback in 2020 was related to Brexit: While the UK under Theresa May’s government had always announced that it would stick to the unitary patent and the Unified Patent Court, Boris Johnson’s successor government announced in February 2020 that the idea of a unitary European patent system was incompatible with Brexit, and in July 2020 it withdrew UK ratification. It was thus clear that the unitary patent would start without the UK, if at all.

The fact that one of the economically strongest European countries will not participate in the unitary patent system is a burden on the acceptance and significance of the unitary patent, especially since the UK was originally one of its most ardent advocates and also contributed greatly to the realization of the project before Brexit. In addition, the UK’s withdrawal creates significant organizational and legal challenges, not the least because London (along with Paris and Munich) is explicitly designated in the agreements as one of the three seats of the Unified Patent Court.

Despite the withdrawal of Great Britain, the remaining member states have declared their intention to move ahead with the project. Several countries have already signaled their interest in taking over the London seat. Italy, for example, has put Milan into play. France has stated that the tasks of the London branch could also be taken over by Paris, and Germany has proposed a split between Paris and Munich. It is to be expected that, despite the apparent continuing political will to proceed, we will see controversial discussions over the course of the year about how to move ahead. The agreements may also need to be amended to reflect the UK’s withdrawal.

In Germany, the legislative process restarted relatively quickly after the negative decision by the Federal Constitutional Court. In November 2020, the German parliament passed the bill again, this time with the necessary two-thirds majority, and the Bundesrat chamber followed unanimously in December 2020.

However, before the bill could enter into force, two new constitutional complaints were received by the Federal Constitutional Court on December 18, 2020. It is not yet publicly known who the plaintiffs are this time and on what arguments they rely. Depending on whether the Federal Constitutional Court accepts the constitutional complaints for decision, German ratification could be delayed once again. In this respect, 2021 will most likely be a year of important decisions that set the further course for the unitary patent project. We will keep you informed of all developments.

Federal Court of Justice redefines requirements for injunction in SEP litigation

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In our May edition we reported a decision by the Federal Court of Justice (KZB 36/17 of May 5, 2020) on the application of the criteria established by the European Court of Justice in its decision C 170/13 – Huawei vs. ZTE, which is likely to set the standards for granting injunctions to owners of standard essential patents in Germany in the coming years. At the time of our report, the reasons of the decision were not yet available. Meanwhile, the court has handed down its decision in writing, which provides more insights into the thinking of the court and the rationale of its decision, as well as subsequent case law by the lower courts.

The question under which conditions the owner of a standard essential patent (SEP) is entitled to an injunction if this owner has made a declaration of its readiness to license the patent at fair, reasonable and non-discriminatory conditions (so-called FRAND declaration) is still an ongoing issue before the courts and far from being settled. In its decision C 170/13 – Huawei vs. ZTE of July 16, 2015, the European Court of Justice (ECJ) held that the owner of a standard essential patent does not abuse its dominant position in the sense of Art. 102 TFEU if there was a clear notification of the infringement issue by the patent owner and, after the alleged infringer had expressed its willingness to conclude a license agreement at FRAND conditions, the patentee made a licensing offer which meets the FRAND criteria, to which the alleged infringer did not respond in a diligent manner. The subsequent case law of the lower courts in Germany dealt with the question how the criteria established by the European Court of Justice are to be applied and in which order and whether certain criteria are to be given priority over others. In its decision 15 U 66/15 (Sisvel vs. Haier) of March 30, 2017, the Court of Appeal Düsseldorf established a fairly low standard both for the notice of infringement by the plaintiff and the declaration of willingness by the alleged infringer. It rather put the focus of its decision on the licensing offer by the SEP owner and established as a precondition for an injunction that there be a positive finding that the licensing offer of the patentee indeed meets the FRAND criteria. Reasoning that the potential licensee usually does not have detailed knowledge about the licensing practice of the patentee, it considered the patentee obliged to provide information about which companies with which share of the relevant market had taken a license at which conditions. Based on the information provided by the patentee on existing license agreements the court found that in the decided case the licensing offer did not meet the FRAND criteria and therefore rejected the request for an injunction as well the request for recall and destruction.

The Federal Court of Justice, which so far had not rendered a decision on the issue of standard essential patents following the decision C 170/13 – Huawei ./. ZTE of the ECJ, set the decision by the Court of Appeal aside by its decision KZR 36/17 of May 5, 2020. It found that the defendant did not have a claim to a license, because, according to the opinion of the court, it did not declare its serious and unconditional willingness to take a license under FRAND conditions. This being the case, it did not matter for the court whether the license offered by the plaintiff indeed met the FRAND criteria.

The Federal Court of Justice initially confirmed the finding of the Court of Appeal that the plaintiff had sufficiently clearly notified the defendant of the alleged infringement. It held it sufficient that the notice of infringement enables the alleged infringer to assess the merits of the allegation of infringement under technical and legal aspects. To this end, the defendant has to be notified of the patent that is allegedly infringed, of the allegedly infringing product or process and of the way in which the patent is allegedly infringed. Claim charts will usually be sufficient, but are not mandatory. The court also held that it was sufficient that the notice of infringement was sent to the parent company of the defendant. The alleged infringer, once having been made aware of a possible infringement, is obliged, according to the court, to clarify the matter and to obtain further information from the patentee in case the notice of infringement is not sufficiently detailed.

The Federal Court of Justice furthermore confirmed that it is not objectionable if the patentee only offers a worldwide license, provided that the defendant will not come under an obligation to pay a royalty for the use of patents which are not essential to the standard or in countries where there is no patent protection.

As to the main findings of the decision, the Federal Court of Justice considered the defendant not to be willing to take a license already because, in the view of the court, one has to assume a lack of willingness to take a license under FRAND conditions, if an alleged infringer does not respond to the notice of infringement for several months. In the decided case, the defendant had only declared its readiness for licensing negotiations more than a year after the notice of infringement.

The Court of Appeal, having seen this point, had held that the defendant could still make up for this deficiency by a later declaration of willingness prior to the complaint to the court. The Federal Court of Justice left this issue undecided, reasoning that none of the consequent declarations rendered by the defendant showed a serious and unconditional willingness to take a FRAND license. In particular, the court did not consider it sufficient that in a first declaration the defendant had uttered the hope of formal licensing negotiations and enquired the specific licensing conditions and possible rebates on the royalties, even in view of the fact that the plaintiff had forwarded further details regarding a possible license on the same day and a personal meeting took place two months later in which the plaintiff provided a specific licensing offer and the defendant promised to provide details on its sales and to make a proposal of its own. The court reasoned that from the objectified view of the plaintiff as the recipient of the declaration by the defendant it was not unambiguously clear that the defendant was prepared to conclude a licensing agreement under FRAND conditions. Further declarations by the defendant were discarded on the grounds that they contained a condition (conclusion of the licensing agreement only after a finding of infringement by the courts) that was deemed to be inadmissible and that a later declaration in which the defendant maintained that it was willing to take a license under FRAND conditions and that its own offer was FRAND compliant could only be considered as maintaining the aforementioned inadmissible condition of a court decision prior to the conclusion of a licensing agreement.

For the decided case, the Federal Court of Justice did not see any obligation of the patentee to indicate how the requested royalties are to be calculated. According to the court, such an obligation only arises when the alleged infringer has declared its unconditional willingness to take a FRAND license. Providing details on how the royalties are to be calculated was one of the criteria of the ECJ for a proper licensing offer by the patentee. It can therefore be assumed that the Federal Court of Justice generally does not recognize any obligation of the patentee to make a specific licensing offer of any kind as long as the unconditional willingness to take a FRAND license has not been declared by the defendant.

Accordingly, it did not matter for the Federal Court of Justice whether the conditions offered by the plaintiff were discriminating. The court nevertheless answered this question in the negative in an obiter dictum. The court in particular reasoned that the fact that a competitor of the defendant had received considerably more favorable licensing conditions could have a justification in that a government agency had exerted pressure on the patentee to privilege this competitor.

In its decision, the Federal Court of Justice also decided that the claim for damages of the owner of an SEP patent is not limited to a reasonable royalty, even if it has abused its dominant position by requesting an injunction. The ECJ had already held that a claim for damages is generally not an abuse of a dominant position in the market. The Federal Court of Justice concluded that this implies that a patentee is generally not limited to a specific way of calculating damages.

Generally, an infringer can counter a claim for damages of the patentee by a claim for damages of its own, which is directed to the unfulfilled claim to a licensing contract at reasonable and non-discriminatory conditions. According to the court, this counterclaim however only arises if in spite of the unconditional willingness of the defendant to take a license under FRAND conditions, the patentee refuses to grant a license or makes an offer that does not meet the FRAND criteria.

According to the decision now rendered by the Federal Court of Justice, it is the alleged infringer that is obliged in the first place to take care that a license comes about. The patentee (only) abuses its dominant position if it obstructs the efforts of the alleged infringer to obtain a license or if it does not undertake sufficient efforts to provide a willing licensee with a license. This consideration is at the bottom of the interpretation of the decision C 170/13 – Huawei vs. ZTE by the Federal Court of Justice. According to the Federal Court of Justice the notice of infringement required by the ECJ is to provide the user of the patented subject matter with an opportunity to seek a license and thus to avert an injunction. Similarly, the licensing offer to which the patentee is obliged, albeit only in the second place, is to enable a willing licensee to assess whether the licensing conditions offered by the patentee constitute an abuse of a dominant position. Otherwise, the court did not recognize any obligation of the patentee to undertake efforts towards a license under FRAND conditions. As the Federal Court of Justice put it, even a patentee with a dominant market position does not have to force a license on people.

The present decision complements the earlier decision by the Federal Court of Justice KZR 39/06 – Orange Book Standard of 2009 and simultaneously brings this decision in line with the decision C 170/13 – Huawei vs. ZTE by the ECJ. In its earlier decision, the Federal Court of Justice had held that the patentee only abuses its dominant position if the defendant made an unconditional and binding offer which the patentee cannot refuse without violating the prohibition of discriminating or obstructing practices. In the present decision, the Federal Court of Justice once more confirmed this requirement as to its principles, but added the finding that a patentee not only abuses its dominant position if it refuses to conclude a licensing agreement under FRAND conditions offered by the alleged infringer, but also where the alleged infringer has declared its willingness to take a FRAND license without having made a specific offer and the patentee does not undertake sufficient efforts to enable the alleged infringer to conclude a licensing agreement.

In contrast, the ECJ based its decision C 170/13 – Huawei vs. ZTE on the notion of an obligation of the patentee to grant licenses under FRAND conditions if it has rendered a FRAND declaration. The ECJ reasoned that a FRAND declaration establishes legitimate expectations of third parties that the patentee will indeed grant licenses under FRAND conditions. Following this line of thought, a refusal of a patentee to grant a license under FRAND conditions can, in principle, constitute an abuse in the sense of Art. 120 TFEU. In order for a request for an injunction, recall or destruction not to be found an abuse, the patentee has to meet certain conditions as established by the ECJ so as to ensure a reasonable balance between the interests of the parties.

This difference in the basic approach leads to different results if both parties did not meet their obligations according to the decision by the ECJ, e.g. if all licensing offers of the patentee did not meet the FRAND criteria and the alleged infringer is playing for time. If one sees the primary obligation to enable a license with the patentee, one will find an abuse of a dominant position, because there was not just a single and isolated offer that did not meet the FRAND criteria, but the entire conduct of the patentee has shown that it does not seriously intend to grant a license under FRAND conditions. If, on the other hand, one sees the primary obligation with the alleged infringer, one will come to the conclusion that the conduct of the patentee does not matter, as did the Federal Court of Justice. Considering this latent inconsistency, it would be desirable if by way of a further referral the ECJ were provided an opportunity to further explain and detail the concepts of the decision C 170/13 – Huawei vs. ZTE.

In its decision the Federal Court of Justice expressly did not decide whether a declaration of willingness to take a license could still avert an injunction after the expiry of the time period during which, according to the court, a willing licensee has to react to a notice of infringement. Reportedly, it became apparent in oral proceedings before the Federal Court of Justice that the court is inclined to consider such a declaration as sufficient to assume a basic willingness to take a license if it is rendered before the complaint is raised with the court. This is, however, only likely to apply to the extent to which the defendant consequently confirms its unconditional intention to take a license under FRAND conditions in word and deed and this unconditional intention cannot be reasonably doubted from the objectified point of view of the patentee.

It is apparent that in the present case the Federal Court of Justice assumed a so-called patent holdout where the defendant had delayed the negotiations to the utmost extent, and indeed the patent had already expired at the time of the decision of the Court of Appeal. To a certain extent, this explains the high requirements on the willingness to license. The Federal Court of Justice requires that from the objectified point of view of the plaintiff the unconditional willingness of the alleged infringer to take a license under FRAND conditions has to be clearly and unambiguously apparent. It is to be expected that this criterion will be used in the case law of the lower courts also in cases where the intention of the defendant to delay the process is less clear or not clear at all. Whereas in the case law of the lower courts the standards applied to a declaration of willingness to take a license were so far equally low as those for the notice of infringement – the Court of Appeal considered a plain and simple declaration to this effect or even only activities consistent with such willingness sufficient – the present decision opens up new ways for the plaintiff to avoid the claim to a license of the defendant by questioning the general willingness of the defendant to take a license. As the point of view of the patentee is decisive, a willingness to take a license will probably only be assumed if the patentee is unable to raise any doubts in this regard.

Subsequent case law

In fact, as of now this is already more than just an anticipation. On August 18, 2020, the District Court Mannheim handed down a subsequent decision (2 O 34/19 – Nokia vs. Daimler) which explicitly referred to the decision KZB 36/17 by the Federal Court of Justice. The court held, based on the principles outlined in the decision by the Federal Court of Justice, that although the parties had been in FRAND license negotiations, the defendant was nevertheless not a willing licensee and for this reason the plaintiff was entitled to an injunction.

A special feature of this case was that the defendant had requested that the license be granted to its suppliers in the first place, in line with common practice in the automotive industry. The parties further disagreed about the basis for the calculation of the license fee. The plaintiff essentially argued that the basis of the calculation should be the end product, i.e. a car, and the licensing fee should be determined on the basis of the additional price customers are willing to pay for connectivity of their car. The defendant essentially argued that the basis for the calculation of the license fee should be the purchase price of the components implementing the technology of the patent. The court held that the request of the defendant to license the suppliers already showed a lack of willingness to take a license under FRAND conditions itself. Agreeing with the plaintiff that the end product should be the basis for the calculation of the licensing fee, the court furthermore held the approach of the defendant to be a priori non-compliant with FRAND. This perceived lack of compliance of the defendant’s approach with FRAND was decisive for the court to find the defendant an unwilling licensee. The court held in this regard that it would have been up to the defendant to demonstrate that the result of its approach could result in a licensing fee that was compliant with what the court perceived as FRAND. The court discarded the consideration that suppliers of the defendant are entitled to a FRAND license, which would result in the components purchased by the defendant to be non-infringing, already on the grounds that the suppliers also based their licensing offers on the price of the components sold to their customers and hence are not willing licensees either. It explicitly left the question undecided whether a claim to a license by suppliers could be invoked by their customers with regard to products supplied to them. The court also rejected the consideration that the alleged additional price customers are willing to pay for connectivity resulted from innovations of the defendant at least to a certain extent. In an obiter dictum, it furthermore held that an initial response to a notice of infringement to the effect that prior to a license it needs to be established whether the asserted patents are actually used by the objected products can be considered as a sign of not being willing to take a license.

In its decision, the District Court Mannheim went beyond the considerations of the Federal Court of Justice. The Federal Court of Justice assumed a lack of willingness of the defendant primarily because of the delay in responding to the notice of infringement and considered later declarations as not sufficient because they were perceived to be tied to the inadmissible condition of a court decision on infringement prior to the conclusion of a licensing agreement. The district court already considered the different approach to the calculation of the licensing fee applied by the defendant as an indication of not being willing to agree to FRAND conditions.

One may conclude from this decision that in the future case law of the lower courts, a defendant may be found not to be a willing licensee not only if its declaration of willingness to take a license under FRAND conditions leaves room for doubt, but also if its licensing offer, made in response to a licensing offer of the patentee, does not a priori appear to be FRAND compliant. In other terms, the offer by the patentee may not be assessed for compliance with the FRAND criteria if a subsequent counter-offer by the defendant is held not to be FRAND compliant. Furthermore, in case of a dispute, the defendant may have to establish to the satisfaction of the court that its offer is FRAND compliant, regardless of whether the offer by the plaintiff meets the FRAND criteria. One may also expect that doubts regarding validity or infringement will be interpreted as an indication of not being willing to take a license. In many regards, this means a return to the principles of the earlier decision KZR 39/06 – Orange Book Standard by the Federal Court of Justice, according to which the defendant had to make a FRAND offer and establish that its offer was indeed FRAND compliant.

Take-aways

Users of a standard essential patent will therefore be well advised to declare their willingness to take a license at FRAND conditions immediately, explicitly and expressly and, if the situation requires, even prior to an internal assessment whether the patent is indeed infringed and valid. According to the decision C 170/13 – Huawei vs. ZTE, which was confirmed by the Federal Court of Justice in this point, an alleged infringer is not prohibited to have a court decide on the question of infringement and/or validity of the patent later on, as long as it has unconditionally declared its willingness to take a license under FRAND conditions and this is not a precondition for a license. If, however, the assessment of the alleged infringement or of the validity of the asserted patent takes too much time, the alleged infringer will run the risk that a later declaration of willingness will be precluded. Worse, if it makes a court decision on infringement and/or on validity a condition for concluding a licensing agreement, and be it only because it is convinced that the allegation of infringement is not justified or the patent is invalid, this will almost certainly be construed as unwillingness to take a license and void its claim to a license.

The Federal Court of Justice did not decide the question whether the counter offer of the defendant in the decided case indeed matched the FRAND criteria and thus also left the question undecided what will happen if both the plaintiff and the defendant make a FRAND offer. There are good reasons to assume that in this case the offer of the plaintiff is decisive. But even if the defendant does not consider the offer of the plaintiff to be compliant with FRAND, it will be well advised not to insist on its own offer. Leaving aside the fact that ultimately the compliance of the patentee’s offer with FRAND will be decided by the infringement court, which may have different views about FRAND conditions, the alleged infringer will run the risk that its willingness to take a license will be doubted, and accordingly the offer of the plaintiff will not be assessed as to whether it actually meets the FRAND criteria. Rather, an injunction will be granted.

The present decision puts the patentee in a clearly better position both in licensing negotiations and in court proceedings, because the defendant runs a higher risk that its declarations and its conduct in licensing negotiations will be construed as a lack of willingness to take a license, which in turn will preclude a claim to a license. A tough stance in negotiations may already be sufficient to trigger this effect. Both declarations and the conduct in negotiations should therefore be assessed by an attorney as to potential consequences in litigation so as not to open up additional lines of attack for the patentee. One may doubt whether this is a wholesome development. It is certainly not needed to prevent a patent holdout, which a patentee can always stop by starting litigation before the courts.

Software related inven­tions are not always “computer programs per se”: Lessons from the Allani case by the Indian Intellectual Property Appellate Board

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The Allani case sheds lights on an appropriate approach for examining Computer Related Inventions (CRIs) in India. Particularly, the courts addressed questions on the significant hurdles faced by CRIs in view of what would constitute “technical effect” and “technical advancement” referring to examination guidelines.

Patentability of Computer Related Inventions (CRIs) have always been a subject of international attention. The provision that deals with patentability of CRIs in India is Section 3(k) of the Patents Act, 1970 (“the act”). Section 3(k) was introduced in the act in 2002 to principally bar the patentability of “a mathematical or business method or a computer programme per se or algorithms”. The act however does not define the terms ‘software’ or ‘computer programmes per se’. In the same year, a French inventor, Ferrid Allani filed a national phase application in India titled “Method and device for accessing information sources and services of the web” which was accorded patent application number IN/PCT/2002/00705/DEL.  The application consisted of both method and device claims and was based on the PCT application PCT/FR2000/003759, which in turn claimed priority from the French patent application numbered 99/16704.

During prosecution before the Indian Patent Office (IPO), the device claims were objected to as lacking novelty and inventive step, while the method claims were objected for being directed to a computer programme per se under Section 3(k). However, as was the case then, there was no clear understanding on what would constitute a “computer program per se” or an “algorithm” for software related inventions – as there were no guidelines issued for examination of CRIs by the IPO at that time. This is perhaps what led to the fall and rise of Allani’s invention before the Indian legal system.

The application was rejected by the IPO and the subsequent appeal was also dismissed by the IPAB, stating that the patent application failed to disclose any technical effect or technical advancement. The applicant then filed a writ petition before the Delhi High court challenging this decision of the IPAB. By the time the matter was brought up for hearing before the court,  the IPO had already issued a set of draft guidelines for Examination of Computer Related Inventions. While advancing his arguments before the court, the applicant made reference to the guidelines and pointed out all the paragraphs of the patent specification which disclosed technical effect and technical advancement, in accordance with the CRI guidelines. It was held that CRIs should be examined in accordance with judicial pronouncements on Section 3(k) and the Guidelines issued with respect to the same. Some important observations made by the court on patenting of CRIs are as follows:

  • “the bar on patenting is in respect of ‘computer programmes per se….’ and not all inventions based on computer programs. In today’s digital world, when most inventions are based on computer programs, it would be retrograde to argue that all such inventions would not be patentable. Innovation in the field of artificial intelligence, blockchain technologies and other digital products would be based on computer programs, however the same would not become non-patentable inventions-simply for that reason it is rare to see a product which is not based on a computer program. Whether they are cars and other automobiles, microwave ovens, washing machines, refrigerators, they all have some sort of computer programs in-built in them. Thus, the effect that such programs produce including in digital and electronic products is crucial in determining the test of patentability.”
  • The addition of the terms ‘per se’ in Section 3(k) was a conscious step … because sometime the computer programme may include certain other things, ancillary thereto or developed thereon. The intention here is not to reject them for grant of patent if they are inventions. However, the computer programmes `as such’ are not intended to be granted patent…

The court directed the IPO to re-examine the patent application based on the fact that computer programs embedded in digital or electronic devices must be tested for technical effect, and that inventions relating to computer programs must be examined in the context of modern technology. The IPO however once again refused the patent application under Section 3(k) on February 7, 2020 and Allani yet again filed an appeal against the order before the IPAB.

The applicant stressed before the IPAB that the claims of the impugned patent application clearly exhibited technical effect by delaying emitting of a “final” request to (web) internet by locally implementing preliminary selection steps and using said locally implemented selection to form a well-construed query which is finally emitted to the Internet. The applicant listed the following technical advantages as a consequence of the aforestated features:

1. bandwidth (for emitting a request on web/ internet) is utilized only once (per request) [saving of network resources];

2. the mean time duration observed for accessing searched information is drastically reduced; and
3. likelihood of a successful access of information resource increases manifold.

In the arguments presented before the IPAB, the applicant referred to the ‘examples of technical effect’ as provided in the CRI guidelines of 2013, the excerpt of which is provided as under:

“It is defined for the purpose of these guidelines as solution to a technical problem, which the invention taken as a whole, tends to overcome. A few general examples of technical effect are as follows:

  • Higher speed;
  • Reduced hard-disk access time;
  • More economical use of memory;
  • More efficient data base search strategy;
  • More effective data compression techniques;
  • Improved user interface;
  • Better control of robotic arm;
  • Improved reception/transmission of a radio signal.

Allani argued that his invention clearly demonstrated at least the underlined technical effect. While the hurdle of technical effect was crossed, Allani faced yet another hurdle. The same CRI guidelines which necessitated ‘technical effect’ also stated that technical effect alone was insufficient for granting a software patent in India and instead, like any other conventional invention, the technical effect should also result in technical advancement to the state of the art. The latest guidelines on examination of CRIs issued in 2017 reiterated this as follows:

“Since patents are granted to inventions, whether products or processes, in all fields of technology, it is important to ascertain from the nature of the claimed Computer-related invention whether it is of a technical nature involving technical advancement as compared to the existing knowledge or having economic significance or both, and is not subject to exclusion under Section 3 of the Patents Act.”

Allani was able to prove technical advancement of the present invention over the art, and the IPAB, while ruling in favor of the applicant, stated as follows:

In fact, as compared to D1, the present invention solves the aforesaid problem, thereby optimizing the mean time duration and bandwidth usage required in successfully accessing a remote resource. D1 does not achieve the ‘technical effect’ of present invention, i.e. saving of the internet bandwidth as well as the reduced time duration in receiving the desired search results. Rather in contrast, D1 remains only a method of selection, fetching data from either a local station or updated data from a central station. In D1, the internet bandwidth is used again and again since the user continuously hops from Location Station to a Central Server, irrespective of the fact that whether ultimately the data item is retrieved or not.

Although the High Court and IPAB only reiterated what was already available in the CRI guidelines, the decision gives unprecedented clarity on patentability of computer related inventions in the context of the CRI guidelines. The ruling clearly redefines the scope of granting patents to software related inventions in India, which was at times curtailed by the IPO. This signals a pro-patenting approach of the courts for CRIs in India. That said, it is important to note that the IPO did not file their representation before the IPAB in this matter defending their rejections, the IPAB infact passed an ex-parte decision dated July 20, 2020.

One of the most important highlights of this entire case, which will be referred for all patent applications filed in the field of CRI and AI in India is as follows:

If the invention demonstrates a “technical effect” or a “technical contribution”, it is patentable even though it may be based on a computer program. Therefore, without appreciating the technical effect produced by the present invention, as elucidated above, the mere fact that a computer program is used for effectuating a part of the present invention, does not provide a bar to patentability. Thus, the invention MUST be examined as whole and the following factors are to be considered while deciding upon the patentability of such inventions – i.e (i) technical effect achieved by it, and its (ii) technical contribution.

This article is a guest contribution by ‘The IP Press’, www.theippress.com.

Author: Krishnam Goyal, LL.M. Indian Patent Attorney, Co-founder, The IP Press, Munich, Germany, krishnamgoyal10@gmail.com

Higher Regional Court of Dusseldorf decides on further use of advertising after product modification

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If advertising material that was originally used for a patent-infringing product continues to be used without modification, this may constitute an independent act of patent infringement, even if the advertised products were technically modified in a way that excludes patent infringement. A judgment as well as a follow-up decision in penalty payment proceedings of the Higher Regional Court of Dusseldorf provides useful information for the handling of this problem in practice.

Legal starting position

The German Federal Supreme Court already held in the decisions “Kupplung für optische Geräte” (GRUR 2003, 1031) as well as “Radschützer” (GRUR 2005, 667) that the unaltered further use of advertising material originally used for a patent-infringing product can constitute an independent act of patent infringement, even if the advertised products have in the meantime been modified in a way that excludes a patent infringement. A judgement of the Higher Regional Court of Dusseldorf dated November 14, 2019 (case no. 15 U 71/18, available under BeckRS 2019, 31329) and a subsequent decision in the penalty payment proceedings of September 14, 2020 (unpublished) develop this case law further.

Constellation in the decision of the Higher Regional Court of Dusseldorf

Typically, the problem of the patent-infringing further use of advertising arises in the context of whether the cease-and-desist order of an already issued judgement, or a contractual obligation to cease and desist, has been violated. For the question whether a first-time patent infringement can trigger an injunction claim, the further use of advertisement is usually irrelevant, since the original infringing act (i.e., the offer of the patent-infringing product itself) is already sufficient to justify the required so called “risk of repetition”. The decision of the Higher Regional Court of Dusseldorf concerns a specific constellation in which the plaintiff had acquired the patent only after the modification of the patent-infringing products. Hence, the question arose whether the “risk of repetition” established with regard to the previous owner was void. The Court left this question open, since it found that in the present case the further use of the advertisement after the change of patent ownership still justified an independent “risk of repetition” (OLG Düsseldorf, ibid., marginal no. 84).

Important Aspects of the Decision

In its decision, the Court first clarified that the fact that the earlier case law was based on an already existing obligation to cease and desist should be found irrelevant for the legal assessment of whether a patent-infringing further use exists (OLG Düsseldorf, ibid., marginal no. 67). Thus, not only is the earlier case law applicable also in these circumstances; this decision should conversely be found applicable also to the typical constellations of the further use of advertisement after an obligation to cease and desist.

The Court then rejected the view that the further use of advertising in a way that infringes the patent would be out of question in the case of products for which the properties that led to the patent infringement could not be deduced from their external appearance and consequently also not from the advertising material (OLG Düsseldorf, ibid., marginal no. 72f.). It therefore ruled in favour of continued infringement.

Continuation in the penalty payment proceedings

Subsequently, the defendant changed the product name and added a disclaimer to the website, which pointed to the modification of the product (but without indicating that the product was patent infringing before the modification). The product name was modified by adding the letter “N” at the end of the product name.

The plaintiff considered these modifications to be insufficient and filed a penalty payment proceeding. The Dusseldorf Regional Court, however, decided in the first instance that there now was no patent-infringing further use of advertising due to the modifications (decision of April 30, 2020, case No. 4a O 22/17 OV, unpublished).

In particular, it considered the addition of the suffix “N” to be sufficient, provided, however, that the product name consisted of only a few numbers and that the products in dispute were intended for industrial applications and therefore for particularly attentive customers. The Court found that the disclaimer further reinforced the impression conveyed by the change in the product designation. The Higher Regional Court of Dusseldorf concurred with this legal opinion in the appeal proceedings (decision of 14 September 2020).

Consequences for the practice of advertisement

If a product is modified because it is suspected of infringing a patent, or if there is even already an obligation to cease and desist with regard to this product, the product labeling should, in most instances, be modified and a disclaimer attached to the advertising in order to avoid a possible further use that infringes the patent. The ruling provides useful information for the practical implementation. Exactly which changes are to be made is a question of the respective individual case and can be determined with professional legal advice.

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