From Artworks and Copy­rights, NFTs make their way into Inventions and Patents

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While the world’s creativity and digital artwork sector have been reaping the benefits of NFT based transactions, more recently inventions and patents have also joined the trend.

The last few months have seen a tremendous increase in activities surrounding Non-Fungible Tokens (NFT). It started when Mike Winkelmann a.k.a. Beeple sold his digital art named “EVERYDAYS: THE FIRST 5000 DAYS” for 69 million dollars. Following that there were other successful sales as well, including the Canadian musician Grimes, who sold her digital artworks in an auction for $6 million.

In fact, IBM Corp and a start up, IPWe, had recently announced their plans of representing their patents as NFTs on a blockchain based network. Telling more, in 2019, Nike had secured a patent for a blockchain based system known as “CrpytoKicks” wherein ownership and transfer of ownership of trainers will be recorded. On purchase of a physical pair, the purchaser will get a corresponding NFT which verifies the authenticity of the shoe, along with some other perks. This is one of the unique ways in which NFTs are helpful in fighting counterfeiting.

What are NFTs?

NFTs, based on blockchain technology, certify digital assets as unique and non-fungible. What this means is that unlike fungible crypto currencies, NFTs cannot be broken down or exchanged for another NFT of an equal amount. Each NFT is unique in itself and has a different characteristic of its own. Once minted and tokenized, they are stored on a blockchain as a representation of an asset, such as a digital art. Once entered on the blockchain, the data is immutable and this is one of the main reasons why NFTs and blockchain technology are popular.

Background of NFTs

The basic concept of NFTs is not new. The concept of NFTs came into existence in December 2012, with the “Coloured Coins”. These coins were initially issued on Bitcoin blockchain, as a representation of real-world assets and a proof of ownership. This is where the idea of collectability was associated with the NFTs. The idea behind coloured coins was to use the blockchain for assets such as digital collectibles, coupons, property, etc.

In 2017, Cryptopunks was launched as the world’s first marketplace for rare digital, based on an Ethereum blockchain. Over 10,000 different cartoon characters were available to be claimed for free, by anyone who had an Ethereum wallet. The concept behind cryptopunks was that no two characters were the same and were limited in number, adding to their uniqueness.

The biggest leap in the popularity of NFTs took place with the arrival of CryptoKitties in 2017. The virtual cat with the ability to breed, with each carrying its own genome with DNA and distinct traits was the marker of NFTs coming out into the mainstream. This process of buying, breeding and trading cryptokitties had exploded to a volume of 5,000 ETH. The popularity was so huge that it led to an increase in pending transactions on Ethereum, along with taking up over 10 per cent of the traffic on Ethereum and causing a threat to other applications via crowding.

Following this explosion, market places like OpenSea and RareBits cropped up to further this phenomenon. In order to highlight the use of NFTs as artistic collectibles on blockchain, Germany’s ZKM Center for Art and Media Karlsruhe Museum had also featured CryptoKitties.

From digital art, NFT has expanded to popular culture and the commercial world as well. Nike’s CryptoKicks and Taco Bell’s taco art are examples for that. In pop music, artists such as Grimes, King of Leon, Stever Aoki have hopped on the trend with creating their own NFTs.

In the academia as well, NFTs have made their way, providing yet another use of their collectability. An example was seen with UC Berkely’s auction of an NFT that represented patent disclosure and research documents related to research concerning the CRISPR-Cas9 gene editing. While there was no transfer of patent rights in the transaction, the idea behind it was to provide bragging rights something magnificent.

How are NFTs helpful in the Patent world?

From providing a platform for transactions related to digital collectibles, NFTs are now moving into the Patent transactions by providing a way to exchange authorship or licensing of patents and research. In a collaboration with University of Kentucky, IPwe has launched an Advisory Committee for University Technology transfer, in order to explore methods and avenues through which universities can monetize and manage their patent portfolios. The collaboration between IBM and IPwe to create an NFT based marketplace for patent transactions is another example.

NFTs rely on distributed ledgers, or blockchain and this provides the biggest advantage of authenticity and verifiability. Complexities and execution time of transactions are reduced as the transactions are stored on the ledger for everyone to see and verify for themselves. This transparency is what makes NFTs particularly attractive.

Patent attorneys may spend hours searching different IP databases and reviewing assignments and transaction contracts in order to ascertain the true owner of a patent. NFTs have the potential to ease the process by providing a clear and assorted database of each transaction, making further transactions simpler and more cost-effective. For a company such as IBM, with large patent portfolios, a blockchain based marketplace can be beneficial. The distributed network verification system provided by blockchain brings certainty to transaction, which is an invaluable feature. When it comes to patent licensing and sales, the system provides confidence with having a clear current title and history of transactions. This provides a remarkable tool for standardization of the fragmented patent marketplace.

It is also important to highlight the difference between NFTs that represent digital art and the ones based on the model of IPwe and IBM. The former deals with collectability and ownership over an original artwork. The related artwork being traded is unique and cannot be reproduced. The latter concerns itself with ensuring transparency and efficiency in transactions, whereas ownership of the patent may or not be included.

Potential Risks

Along with the various benefits pointed above, it is also important to be aware and mindful of the risks that accompany transactions taking place on a distributed blockchain ledger. At the outset, the potential of NFTs to avoid counterfeiting has been lauded time and again, however, there are challenges too. NFTs are not a grand saviour of the issue. There is scope of withholding any information, or putting in erroneous information as there are no checks to ensure that correct data by authorised individuals are being entered. Once the information is entered on a blockchain, it is immutable, and this is where the major problem arises in cases where the information put up is itself false or wrong. The blockchain will keep perpetrating the wrong information. While some platforms are working towards solving this issue, it is advisable to be careful until completely fool proof systems are installed.

As pointed out above, unlike copyrights where NFTs deal with collectability and ownership, in terms of patents, the only use of NFTs is to ensure transparency by creating a database. However, some have voiced their concerns that this development is nothing but duplication of something that already exists. For one, the patent office holds an extensive database of patents and assignmentsalong with other important information. There are also other services providingpatent databases, such as patentinspiration.com and patents.google.com. Further, it is also doubtful as to how many companies will be ready to put their patents record as NFTs onto a public ledger.

While NFTs present a new opportunity to explore a new territory and find a new marketplace, the risks cannot be ignored. For patent transactions, NFTs and blockchain can help with easing the cumbersome search process and sifting through numerous patent databases. However, the biggest hurdle in the process is convincing the playersto adopt the a system based on blockchain. There is a famous quote by Mark Cuban on Blockchain, that says, “It’s like the early days of the internet’- brand new, no one really knows what it’s going to be. when ‘a lot of people thought we were crazy’”. Whether Blockchain technology and NFT turns out to be as big as the internet is something only time can tell. However, NFT has provided a solution to various issues that form a part of digital transactions, such as transparency and improved security.  NFTs hold immense potential to revolutionize the way transactions take place in future.

Guest author: Sonal Sinha, Blogger “The IP Press”

Recent German Court Decisions and Legislation shape the future of Euro­pean Patent Litigation

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The German Federal Constitutional Court has recently rejected two urgent applications directed against the creation of the European Unified Patent Court. If political support for the project continues and no further unexpected hurdles arise, the unitary patent could thus be – finally! – on the home straight and, according to optimistic estimates, could enter into force within the next 9 to 12 months. At the same time, legislation is overhauling the rules of national German patent litigation. The revised German Patent Act provides for a new and controversially discussed proportionality exception for injunctive relief as well as measures to accelerate patent nullity proceedings and to better align them with patent infringement proceedings.

The unitary patent on the home straight?

The European patent system so far only provides for a centralized grant procedure, resulting in a bundle of national patents. This may be about to change, and in the future the European Patent Office might also grant a genuine European patent with unitary effect in all participating member states (currently all EU members with the exception of Spain, Poland and Croatia). These patents shall in future be enforceable against patent infringers before a Unified Patent Court (UPC) with effect for all participating member states.

The first ideas for such a unitary patent already existed when the European Patent Office was established in the 1970s. Efforts have intensified over the past fifteen years, and since 2013 the relevant agreements to implement this idea have been in place and have already been ratified by numerous EU member states. However, the German ratification of the agreement on the UPC, which is essential for its entry into force, was held up twice by constitutional complaints, first in 2017 and then again in 2020. These complaints allege violations of the rule of law, of the fundamental right to effective judicial protection, as well as violations of EU law. The plaintiffs complained, in particular, that the judges at the Unified Patent Court are only appointed for a limited time period, so that judicial independence is not sufficiently guaranteed.

The Constitutional Court dismissed these complaints in June 2021. In the opinion of the Court, the plaintiffs were not able to prove that the organizational structure of the Unified Patent Court violated the rule of law, and to what extent this impaired the principle of democracy. After a four-year interval, the unitary patent has thus cleared a decisive hurdle. In August 2021, the German President already signed the German ratification bill into law.

However, some further obstacles on the way to realization remain. As a consequence of Brexit, the United Kingdom already withdrew from the UPC project last year. This poses organizational and legal challenges, because London is explicitly designated in the agreements as one of the three seats of the Unified Patent Court (alongside Paris and Munich). Germany has proposed a division of jurisdiction between Paris and Munich. In the Explanatory Memorandum, the German Federal Government argued that the withdrawal of the United Kingdom would not prevent the implementation of the Unitary Patent. The provisions of the agreements were to be interpreted in such a way that the withdrawal of a member state, which could not be foreseen by anyone, did not prevent the entry into force for the remaining participants. In addition, the agreements were to be interpreted in such a way that, in the event of the London seat ceasing to exist, its responsibilities could be taken over by Paris and Munich, at least on a transitional basis. France, on the other hand, would prefer to consolidate in Paris. Several other countries have also signaled their interest in taking over the London seat. Italy, for example, has brought Milan into play and has pushed for a corresponding revision of the agreements. Even though the political will to move ahead apparently remains strong, we might still see some heated discussions on the details of the implementation.

Moreover, preparations for the establishment of the Unified Patent Court and the selection of judges have come to a standstill due to Brexit and the German constitutional complaints. This work now needs to resume as soon as possible, but might still take several months, according to estimates published by the Preparatory Committee.

Germany has deliberately postponed the deposition of the ratification bill with the Council of the European Union, to delay the start of the UPC system until the preparations are complete. Despite the remaining obstacles, optimistic voices believe that the unitary patent could become a reality within the next 9 to 12 months – a manageable timeframe given the 50 years of preparations.

If the unitary patent system finally comes into existence sometime in 2022 or 2023, patent owners will face tough decisions if and how to use it.

After the system will have started to operate, unitary protection can be requested within one month after grant of a European patent, without an extra fee. But you should be aware that the UPC system not only affects newly granted European patents, but all existing European (bundle) patents in countries that have ratified the UPC Agreement. By default, they will all be subject to the jurisdiction of the UPC. There will be a transitional period of at least seven years (possibly extended by another seven years) during which patent owners can opt out of the new system, but this requires an active filing of an opt-out request. Patent owners will be able to file their opt-out requests in a “sunrise period” even before the UPC Agreement comes into force, to avoid being trapped in the new system by commencing litigation.

Should you request unitary protection? Should you opt out your existing patents? It’s a tough decision that depends on many factors, including the costs of validating and maintaining the unitary patent (moderate) and the costs of litigating patents before the UPC (probably also moderate), but also your faith in a completely new court system without any case law to rely on. Many big filers have vowed to make use of the new system, but may decide to opt out their crown jewel patents, at least for the start.

Hardship exceptions for injunctive relief and faster nullity proceedings – the reform of the German Patent Act enters into force

While Europe is preparing for the unitary patent, Germany is currently overhauling its national patent litigation system, in an attempt to cure some perceived imbalances.

Injunctive relief is the sharpest sword in German patent infringement proceedings. If an infringement court has found a patent infringement, it not only orders the patent infringer to pay damages for past infringing acts, but also rules that the infringing product must be removed from the market and that the infringing process may no longer be carried out.

This mandatory or quasi-automatic injunctive relief has come under increased criticism by parts of the industry. In particular, the telecommunications industry and the automotive industry with their suppliers see a risk of abuse when the patent-infringing product is only a small and subordinate component of a complex overall product, for example a mobile phone chip installed in a car, but the injunctive relief ultimately affects the overall product. In these constellations, the threat of injunctive relief means that the patent infinger often has to grudgingly accept excessively high license fees in order to avoid a production stoppage and the associated enormous costs.

The revised Patent Act now explicitly provides for a proportionality test for injunctive relief in Sec. 139 (1):

“The claim for injunctive relief is excluded to the extent that the claim would lead to disproportionate hardship for the infringer or third parties not justified by the exclusive right, due to the special circumstances of the individual case and in accordance with the principle of good faith. In this case, the infringed party shall be granted appropriate compensation in money. The claim for damages pursuant to paragraph 2 shall remain unaffected. “

The Utility Model Act was amended correspondingly. For the first time, the amendment expressly provides for the possibility of an exclusion of the injunctive relief if this would lead to unjustified hardship for the infringer himself, or for third parties. In such a case, the infringer could, for example, be granted a conversion period or sell-off period by the court, which would allow him to continue to market the patent-infringing product, at least temporarily. In extreme cases, the injunctive relief could even be permanently excluded.

Most commentators, however, expect the infringement courts to use the new rule with extreme restraint and to limit it to special cases of hardship. Voices from the judiciary also point out that the new rule merely explicitly codifies in the Patent Act what they were already able to rule anyway by applying the case law of the Federal Court of Justice. In its “Wärmetauscher” (“heat exchanger”) decision (case ref BGH X ZR 114/13), the Federal Court of Justice already held in May 2016 that the patent infringer may be granted a grace period in exceptional cases. The Federal Government’s explanatory memorandum also emphasizes the exceptional nature of the hardship provision. In this respect, the decision-making practice of the infringement courts may not change much at all. However, the exception will presumably be invoked by the defendants more frequently in the future than in the past.

How the additional monetary compensation provided for in the amendment to Sec. 139 (1) will be structured remains to be seen in practice. In particular, it is still unclear, and a topic of heated debate, whether this compensation is higher than the claim for damages to which the patent proprietor is entitled anyway.

Another significant and much less controversial reform concerns the streamlining of the patent nullity proceedings in order to better align them with the patent infringement proceedings.

In German patent infringement proceedings, the alleged infringer can only defend himself by claiming that he does not infringe the patent, for example, because his product differs from the patented solution or because he is entitled to use the invention. However, if he wants to claim that the patent was wrongly granted, for example that it is not novel or obvious in view of the prior art, he must attack the patent in separate nullity proceedings before the Federal Patent Court. This is usually called bifurcation or separation.

Due to the role of the nullity proceedings, they usually already start with a considerable time delay compared to the infringement proceedings, and then even progress much more slowly. As a result, the alleged infringer often faces the unfortunate situation that the infringement court has already found a patent infringement before the Federal Patent Court decides on the validity of the patent many months later. Even the preliminary opinion of the Federal Patent Court, which the legislator had introduced with a previous reform in 2009, often comes too late to have an impact on the infringement proceedings. In the meantime, under the pressure of the threatened injunctive relief, the patent infringer may already have felt compelled to agree with the patent proprietor on a high royalty payment, even though the patent would ultimately have turned out to be invalid.

In order to remedy this deficiency (sometimes known as the “injunction gap”), in the future the patent proprietor must submit his defense arguments against the nullity action already within two, in exceptional cases at the latest three months after service of the nullity action, and the Federal Patent Court should prepare its preliminary opinion at the latest six months after service of the nullity action. In typical case constellations, these deadlines should result in the infringement court having the preliminary opinion of the Federal Patent Court at hand before its decision on the patent infringement. The infringement court could then suspend its proceedings on the basis of the preliminary opinion, until the final decision in the nullity proceedings.

This approach is promising and could synchronize the patent nullity proceedings with the patent infringement proceedings much better than before. However, its success essentially presupposes that the Federal Patent Court will be in a position to issue its preliminary opinions quickly and in a reliable quality, and that the speed-up at the initial phase of the nullity proceedings will also translate into a shorter time to final judgement. This might become the acid test for the new system.

G 4/19 – Confirmation of the prohibition of double patenting before the EPO

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In its most recent decision G 4/19, the Enlarged Board of Appeal of the European Patent Office deals with the so-called prohibition of double patenting. The Board confirms therein that a European patent application may be refused if it claims the same subject-matter as a European patent, granted to the same applicant, which is not part of the state of the art. This applies irrespective of whether the application to be refused was filed on the same day as the European patent already granted, is a parent or divisional application thereof or claims the same priority as the European patent already granted.

Previous practice

The prohibition of double patenting is based on the assumption that the applicant has no legitimate interest in granting of a second patent for the same subject-matter for which he already owns a patent.

The European Patent Convention (EPC) does not contain any explicit provisions on the prohibition of double patenting. However, such a prohibition was derived from general principles of law (“Ne bis in idem”), for example in an “obiter dictum” in decisions G 1/05 and G 1/06. Under Art. 125 EPC, principles of procedural law generally recognized in the contracting states may be used in EPO decision-making practice, provided that corresponding provisions are not provided by the EPC.

The problem of a possible double patenting may arise for the following three situations:

  • (1) Two applications containing at least one identical claim are filed on the same date.
  • (2) At least one claim of a parent application and a divisional application derived therefrom are identical.
  • (3) At least one claim of a first application and a subsequent application claiming the priority of the first application are identical.

A practical interest of the applicant in double patent protection exists in particular in the third of the mentioned situations. The term of a patent is 20 years. The relevant date for calculating the term is the filing date of the application, but not its priority date. This means that the maximum term of protection of a subsequent application filed one year after a first application and claiming its priority ends 21 years after the filing date of the first application. In other words, an effective extension of the term of protection by one year can be achieved for the subject-matter claimed in the subsequent application.

G 4/19

The question brought before the Enlarged Board of Appeal was whether a European patent application can actually be refused with reference to double patenting and, if so, whether a distinction must then be made between the above three possible situations. In particular, the question was raised whether in the practically very relevant third case (application and its priority application) a legitimate interest of the applicant in double patenting would result from the fact that the filing date and not the priority date is decisive for calculating the term of the patent.

The Enlarged Board of Appeal initially affirms that a European patent application can be refused with reference to double patenting. A prohibition of double patenting could indeed be derived from the legislative history of the EPC and can be applied under Art. 125 EPC.

Nor was it necessary to distinguish between the three situations outlined above. From the “travaux préparatoires”, i.e. the official records of the history of the proceedings of the EPC, it would be clear that the legislator did not want to distinguish between these cases. Therefore, the question of a legitimate interest of the applicant in double patenting could also remain unanswered in the case of an application and its priority application.

Conclusion

The decision follows the established practice of the EPO on the prohibition of double patenting, in particular the decisions G 1/05 and G 1/06. It makes explicitly clear that the prohibition of double patenting can indeed be applied under the EPC and also applies to an application and its priority application. The fact that the Enlarged Board of Appeal leaves the question of a legitimate interest of the applicant in a second patent in such a case unanswered is to a certain extent unsatisfactory. Such an interest would probably not have been easily to deny in the light of the effective extension of the term of the patent.

The decision also leaves open when two claims relate to “the same subject-matter” and therefore fall under the prohibition of double patenting. According to established practice, an application is refused with reference to the prohibition of double patenting only if the scope of protection of the claims is identical. Overlapping scopes of protection of non-identical claims, on the other hand, are generally regarded as uncritical.

Even if this question remains unanswered in the decision, it can probably be assumed, in accordance with established practice, that the prohibition of double patenting is still to be interpreted narrowly and thus remains limited to identical claims. This is also supported by the fact that the reasoning of the decision distinguishes between “double protection” (overlapping claims) and “double patenting”.

Computer-implemented simulations and designs – a comparison of case law at the EPO and in Germany

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Decision G1/19 of the EPO’s Enlarged Board of Appeal has recently caused some turmoil in the field of computer-implemented simulations and beyond. We provide a comparison of how computer-implemented inventions can be protected in Europe and in Germany.

Decision G1/19 of the Enlarged Board of Appeal of the EPO

In 2019, a Board of Appeal of the European Patent Office (EPO) disagreed with the findings of the earlier – and to that date generally accepted – decision T1227/05, which had ruled that a computer-implemented simulation of an electronic circuit subject to 1/f noise does have technical character. In referral decision T0489/14, the Board demanded stricter minimum requirements for affirming the technical character of a simulation (or a design process). In the Board’s view, a technical effect requires, at a minimum, a direct link with physical reality, such as a change in or a measurement of a physical entity, a view which goes significantly beyond the requirements of T1227/05.

In its decision on the referral, the Enlarged Board has now ruled that computer-implemented numerical simulations and designs of a system or process should not be treated any differently from any other computer-implemented invention, thereby rejecting the “extreme position” in referral decision T0489/14. While the Enlarged Board did not reject the earlier decision T1227/05 outright, the Enlarged Board indicated that the findings in T1227/05 would not be generally applicable, due to the specific facts of the case underlying T1227/05, and thereby deprived this earlier decision of its former landmark character.

The Enlarged Board considers the “de-facto standard” at the EPO for the assessment of inventions consisting of a mix of technical and non-technical features (the so-called COMVIK approach) to be also suitable for the assessment of computer-implemented simulations. According to the COMVIK approach, the decisive question for the assessment of which features of a simulation of a system or process are technical features, and thus relevant for the assessment of inventive step, is whether the simulation or design process contributes to the solution of a technical problem by producing a technical effect. Therefore, the technical considerations relevant for the assessment of inventive step are only those technical considerations that pertain to the invention, i.e., to the simulation of the device or process, rather than the simulated system or process.

Referring to its earlier decision G3/08, the Enlarged Board acknowledges that a simulation is necessarily based on the principles underlying the simulated system or process, and that technical considerations associated with the system or process to be simulated typically form the basis of the mental act of establishing the model of the technical device or process being used in the simulation. However, the Enlarged Board holds that such a mental act of establishing the model (and equations/algorithms) underlying the simulation is devoid of technical character, because the technical considerations being used in establishing the model do not normally translate into a technical effect in the execution of the simulation. If technical considerations associated with the system or process being simulated were sufficient for the simulation to have technical character, then computer-implemented simulations would be privileged within the wider group of computer-implemented inventions, without any legal basis for such a privilege.

Along the same lines, the Enlarged Board also holds that a direct link with (external) physical reality, as demanded by T0489/14, is not a requirement for the technical character of a simulation or design process, even though such a link would likely be sufficient in most cases. However, it was held that only those technical effects that are at least implied in the claims should be considered in the assessment of inventive step, because if the claimed process results in a set of numerical values, whether a resulting technical effect can lend technical character to the claimed invention will depend on the further use of such numerical values.

Lessons from G1/19

The Enlarged Board’s finding that computer-implemented simulations and design processes are not to be treated differently from any other computer-implemented processes, and the Board’s reliance on the COMVIK approach, are a renewed confirmation and manifestation of the EPO’s established case law on computer-implemented inventions. While the good news for applicants is that the Enlarged Board did not follow the stricter approach of the referral decision T0489/14, the Enlarged Board confirmed the overall high standards of the assessment of computer-implemented inventions, which from now on will also apply to computer-implemented simulations and design processes. As simulation and design processes are often developed to run on conventional computer hardware, it will become even more difficult for applicants to claim and protect the simulation or design process independently of a particular and specific technical input or output or implied use of the results of the simulation or design process, e.g. for controlling a machine or manufacturing a product.

“Logikverifikation” decision of the German Federal Court of Justice

On multiple occasions, decision G1/19 refers to the earlier (December 1999) “Logikverifikation” (“logic verification”) decision of the German Federal Court of Justice. The latter decision relates to the field of production of highly-integrated circuits.

In the invention underlying the “Logikverifikation” decision, a hierarchically structured logic diagram of a chip is designed as a first step. Then, depending on this hierarchically structured logic diagram, a physical layout of the chip is designed. The physical layout of the chip specifies an exposure mask used for the actual chip production. This design process, at the time, was only partially carried out by a machine, i.e. a computer. Therefore, a crucial step in the design process (which lend its name to the decision) is the verification of the correct conversion of the hierarchically structured logic diagram into the corresponding physical layout.

To solve the problem at hand, the invention taught and claimed a method for hierarchical logic verification of highly integrated circuits, in which a hierarchical layout circuit obtained from a physical layout of the respective highly integrated circuit is compared to a hierarchical logic layout circuit determined by a logic layout. When the claimed comparison method yields that the compared layouts are identical to one another, the circuits are considered verified. Based on this verification result, silicon chips can be manufactured which complied with the desired specification. Notably, however, the step of manufacturing a chip was not recited in the claim under review.

The Federal Court of Justice found that there is a connection (not direct but indirect) to the manufacture of highly integrated circuits, because in subsequent stages of the integrated design and manufacturing process the masks, and ultimately the semiconductor integrated circuits, are created from the verified layout data stored in the memory of the data processing apparatus.

On that basis, the Federal Court of Justice ruled that the claimed invention relates to an intermediate step in a process which ends with the manufacture of silicon chips. Thus, the claimed teaching can be used to ensure that the chip to be manufactured consists of verified circuits. Therefore, according to the intended purpose of the claimed teaching, the teaching is part of a recognized field of technology.

Case Law of the German Federal Patent Court

In line with decisions 19 W (pat) 63/03, 19 W (pat) 314/05, 19 W (pat) 5/06, 21 W (pat) 46/07, 19 W (pat) 7/08, and 17 W (pat) 20/14, it appears that simulations in the field of Computerized Numerical Control are generally recognized to have technical character. This can be seen from the fact that in these decisions, the issue of technical character has not been questioned at all.

However, quite remarkably, the German Federal Patent Court considered that a system for traffic simulation did not provide a technical contribution. The Court found that the claimed simulation program would allow insights into the effect of road design measures on traffic flow and allow users to study ways to ease traffic congestion. However, the Court reasoned that the claimed teaching would be merely a planning aid and would have neither an outwardly directed controlling effect nor a monitoring effect (23 W (pat) 8/10).

Further, in 17 W (pat) 26/06 a method for generating a hierarchical netlist for simulating a circuit with a plurality of electronic components was considered not to provide any technical contribution. This reasoning was based on the finding that the actual contribution of the claimed teaching would be to arrange and compare already available information on components and sub-circuits in such a way that, in the netlist of components, sub-circuits could be detected with the aid of rules, and then replaced by substitute components, wherein the process was largely automated by a computer. This was considered mere data processing without a technical contribution.

In summary, the case law of the German Federal Patent Court appears, for the most part, to be consistent with the Logikverifikation decision of the German Federal Court of Justice: if a recognized field of technology is simulated, the claimed simulation can contribute to the technical character of the invention. On the other hand, some diverging decisions have been issued by the German Federal Patent Court as well.

Key Differences between EP practice and German practice

The German Federal Court of Justice generally accepts a technical contribution even if a computer-implemented simulation method only specifies an intermediate step of a process in a recognized technical field. In contrast, the EPO demands that technical effects can only be considered when assessing inventive step if these technical effects are at least implicitly defined in the claimed subject-matter. This difference requires extra effort and careful consideration when drafting claims for computer-implemented inventions in general, and simulations in particular.

In the area of computer-implemented simulations, the jurisprudence of the Federal Court of Justice in Germany has essentially been in agreement in recent years with the previously established case law by the EPO Boards of Appeal, which has provided more room for the patenting of such inventions compared to the standards now defined by G 1/19. Applicants may thus want to consider the filing of applications pertaining to such inventions in Germany in addition to or instead of filing at the EPO.

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.