B&B Bulletin Archive - Page 5 of 11

The never-ending Unitary Patent saga continues …

11. January 2021/in New Year's edition 2021 Patents and Utility Models

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

23. November 2020/in Issue November 2020

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

23. November 2020/in Issue November 2020

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

23. November 2020/in Issue November 2020

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.

CJEU declares Privacy Shield invalid

21. July 2020/in Special Edition July 2020 Data Protection

By decision of 16 July 2020 (C-311/18), the European Court of Justice (CJEU) declared the EU-US Privacy Shield, which was the basis for a GDPR compliant transfer of personal data of EU citizens for numerous US service providers, to be invalid. The decision makes it necessary for all internationally acting companies, but also for companies simply working with service providers outside the EU, to closely review all data transfer to third countries, in particular to the USA, for GDPR compliance.

By decision of 16 July 2020 (C-311/18), the CJEU declared the EU-US Privacy Shield, which was the basis for a GDPR compliant transfer of personal data of EU citizens for numerous US service providers, to be invalid. The decision also raises questions regarding the use of the standard data protection clauses adopted by the Commission (“Standard Data Protection Clauses”) for safeguarding an adequate level of data protection when transferring data to third countries, such as the USA, and clarifies that the mere execution of the Standard Data Protection Clauses can no longer be considered a guarantee for GDPR compliance. The decision thus makes it necessary for all internationally acting companies, but also for companies simply working with service providers outside the EU, to closely review all data transfer to third countries, in particular to the USA, for GDPR compliance.

Background of the decision

The GDPR protects the personal data of EU citizens not only within the European Union. The GDPR also requires that personal data may only be transferred to countries outside the scope of the GDPR (so-called third countries) if an adequate level of data protection comparable to the GDPR is safeguarded in these third countries. For a number of countries this adequate level of data protection has been positively established by a Commission adequacy decision. Until now, this also applied to the USA, with the particularity that the adequacy decision did not apply per se to the entire USA, but only to companies that had certified themselves according to the rules of the EU-US Privacy Shield negotiated between the USA and the EU and had thus been subject to the provisions of this agreement. The EU-US Privacy Shield followed up to the so-called “Safe Harbor Agreement” in 2016, which the CJEU declared invalid in its ruling of 6 October 2015 (C-362/14) due to incompatibility with European data protection standards.

As an alternative to such an adequacy decision, the GDPR provides for further mechanisms safeguarding an adequate level of data protection. A particularly important alternative in practice are the Standard Data Protection Clausesof the European Commission which are concluded directly between the data-exporting company and the data importing company.

The decision

In its decision of 16 July 2020, the CJEU now also declared the adequacy decision on the EU-US Privacy Shield to be invalid, thus depriving a high number of current data transfers to the USA of their legal basis. As regards the Standard Data Protection Clauses, the decision also contains statements which call into question the suitability of this instrument for ensuring an adequate level of data protection with regard to data transfers to the USA.

Towards the EU-US Privacy Shield, the CJEU concludes that the adequacy decision regarding the Privacy Shield cannot be reconciled with the standards established by the GDPR, in particular because it does not proportionately limit the rights of access to personal data granted by US law to the US security authorities, nor does it provide the data subjects with an effective legal remedy for taking action against unlawful interference by US authorities.

As a result, the adequacy decision on the EU-US Privacy Shield was declared invalid, so that on this basis a lawful data transfer to the US is no longer possible.

In contrast, the CJEU explicitly confirmed, in relation to the Commission’s decision on the Standard Data Protection Clauses, that the legal assessment had not revealed any evidence which might affect the validity of the decision. The Standard Data Protection Clausesthus remain as a potential basis for data transfers to third countries. However, also with regard to the Standard Data Protection Clauses, the judgment states that the assessment of whether an adequate level of data protection exists on the basis of the Standard Data Protection Clauses depends both on the contractual obligations and on whether the legal system of the third country safeguards an adequate level of data protection, in particular with regard to access to data by public authorities. At the same time, the court clarifies that it is the responsibility of the data processing companies to verify whether the data importing company is legally in a position to comply with the contractual obligations at all and, in case of doubt, to suspend the data transfer.

Furthermore, the CJEU imposes an obligation on national data protection supervisory authorities to verify actual compliance with the contractual obligations stipulated by the Standard Data Protection Clausesand to intervene if these obligations cannot be met.

Consequences of the decision

The decision concerns not only data transfers to the US, but all data transfers to third countries for which no adequacy decision by the Commission exists.

Individual agreements between the companies involved, Binding Corporate Rules and Standard Data Protection Clausescan still be used as a basis for GDPR compliant data transfers to third countries. However, in the future, more attention should be paid to whether the legal requirements at the data importer’s place of business permit compliance with the agreed data protection rules. As in compliance with the CJEU decision, the competent data protection supervisory authorities will also put a closer focus on this, itis to be expected that European authorities develop a common position with regard to specific third countries in order to ensure uniform application of the law and greater legal certainty.

What to do now

While it is to be expected that the European data protection authorities will soon take a position on the CJEU decision, immediate action is required, as there is no transition period.
Any data transfer based solely on the EU-US Privacy Shield has been illegal since the decision and should be suspended immediately until an alternative basis for data transfers to the US is found.
In case of a data transfer based on contractual arrangements, such as the Commission’s Standard Data Protection Clausesit should be examined whether the contractual obligations stipulated in such arrangement can be met subject to the legal requirement in the respective third country. In any event, it may be an option to meet the concerns of the CJEU by means of additional contractual provisions for a transitional period until a coordinated position of the data protection authorities emerges.
If necessary, a data transfer can also be carried out on the basis of one of the exemptions under Article 49 GDPR, in particular on the basis of express consent, whereby the legal requirements for effective consent must be complied with, unless another exception applies.

Not least because of the clear call for action which the CJEU directed to the competent data protection supervisory authorities in its decision, the practical relevance of the ruling should not be underestimated.

It’s only human …

7. May 2020/in Issue May 2020 Patents and Utility Models

The European Patent Office has ruled at first instance that inventors are necessarily human beings. Two applications in which the patent applicant had designated an artificial intelligence as inventor were rejected.

The two applications EP 3 563 896 A1 and EP 3 564 144 A1 were filed by the same applicant in autumn 2018. The first application concerns techniques for attracting increased human attention by means of special signal sequences, the second application concerns food and beverage packaging with fractal side wall profiles. The applicant, a natural person from St. Charles, MO, USA, initially omitted an indication of the inventor. However, naming the inventor is mandatory under Art. 81 of the European Patent Convention (EPC). Under Rule 19(1) EPC, the designation must contain the surname, first name and full address of the inventor. If these details are not provided despite a request from the European Patent Office, the application will be rejected under Rule 60(1) EPC.

For both applications, the applicant stated upon request by the European Patent Office that the inventor was an AI machine called DABUS. He had acquired the right to the respective invention as legal successor, since he was the owner of DABUS. He applied to register DABUS as inventor.

Following oral proceedings on 25 November 2019, the European Patent Office has now decided to reject both applications for failure to comply with the formal requirements. In the two Decisions dated 27 January 2020 (which are identical in substance), the European Patent Office argues that the designation of an inventor is a mandatory requirement, and failure to comply must inevitably lead to the rejection of the application. Moreover, only natural persons, i.e. human beings, could be inventors. This is clear from the European Patent Convention, which only knows natural and legal persons, whereas an AI machine as a thing cannot be a bearer of rights and obligations. The legislative documents for the EPC also assumed that only humans can be considered as inventors. (In the 1960s and 1970s, however, this assumption was possibly more justifiable than it is today.) In addition, the Decisions point out that the other major patent offices in the USA, China, Japan and Korea, as well as national courts in a variety of jurisdictions, also assume that inventors can only be human beings.

In its Decisions – possibly disappointing for the applicant – the European Patent Office did not deal at all with the alleged contributions made by the AI machine DABUS to the two inventions applied for, and whether human beings who could and should have been named as inventors also contributed to these inventions. Furthermore, the Decisions do not give any clues as to who should have been named as the human inventor, provided that the AI machine had actually made a contribution to the invention. In any case, many experts doubt whether the currently available AI systems can be more than tools in the hands of human inventors, and that they are even capable of making creative contributions to a problem solution that would justify speaking of an inventorship.

In response to the applicant’s argument that the naming of the inventor must be factually correct and that the naming of a human being in the present case would only have concealed the true identity of the inventor DABUS, the European Patent Office states in the two Decisions that the naming of the inventor is merely a formal requirement and that the Patent Office cannot and may not check the correctness of the content of the naming according to Rule 19(2) EPC. In the European patent system, the national courts are responsible for this.

Although the Decisions are well-reasoned, they remain unsatisfactory on this point. It is one thing not to check the content of the contributions of the named inventors for accuracy, but it is quite another to reject an inventor’s naming which is assumed to be factually correct on purely formal grounds.

An Appeal against the rejection of the applications is possible. However, it is likely that in the European Patent System the national courts are ultimately the more appropriate forum to hear and decide whether an artificial intelligence has made substantive contributions to an invention and, if so, who is to be designated as the inventor. According to the current legal situation, only natural persons can be named as inventors, as emphasized by the EPO Decisions. In the AI context, the programmer of the AI, the person who provided the training data or the person who then interprets the results of the AI are natural candidates.

Discussions are in flux, and no generally accepted solutions have yet been established. In practice, it is therefore important to contractually determine at an early stage of the AI project, and with the involvement of all parties concerned who is to be entitled to the rights to the invention.

We will continue to keep you regularly informed about IP law developments in the exciting field of artificial intelligence.

Federal Court of Justice Redefines the Requirements for an Injunction in SEP Litigation in its Decision Sisvel ./. Haier (KZR 36/17)

1. May 2020/in Issue May 2020 Patent Litigation

Injunctions in relation to standard essential patents continue to be a hot topic and prove to be challenging for courts and parties alike. After a series of lower court decisions, the Federal Court of Justice has now rendered its first decision on this issue after the European Court of Justice having rendered its decision Huawei ./. ZTE, which sets new standards for the assessment of whether a patent owner is entitled to an injunction.

The question under which conditions the owner of a standard essential patent (SEP) that has made a FRAND declaration is entitled to an injunction is an ongoing issue that is still occupying the courts. In the decision C 170/13 (Huawei vs. ZTE) of July 16, 2015 the European Court of Justice defined conditions under which an owner of a standard essential patent does not abuse its dominant position in the meaning of Art. 102 TFEU, requesting a clear notification of the infringement issue by the patent owner, the declaration of willingness to conclude a licensing agreement by the alleged infringer and, consequently, a FRAND offer by the patent owner to which the infringer has to make a diligent response. In the decision 15 U 66/15 (Sisvel vs. Haier) of March 30, 2017, the Court of Appeal Düsseldorf had raised the requirement that in order to be entitled to an injunction the owner has to establish that its offer was indeed FRAND. In consequence, the patentee needed to disclose its licensing policy at least to an extent that enabled the court to assess this issue. In appeal, the Federal Court of Justice (Bundesgerichtshof) has now reversed this decision and held, judging from remarks of the presiding judge in oral proceedings, that the owner of an SEP is entitled to an injunction if the alleged infringer does not seriously and unconditionally show its willingness to take a FRAND license. The reasons of this decision are not yet available, but already at this point in time it can be foretold that it will make a significant change in Germany’s court practice regarding FRAND cases.

It needs to be recollected that the Federal Court of Justice traditionally took fairly restrictive stance on issues related to standard essential patents, in particular in the so-called Orange Book decision KZR 39/06 of 2009, basically putting the burden of proof on the defendant that it is a willing licensee and seriously sought to obtain a FRAND license and that it is therefore entitled to a license for reasons of competition law, as an exception to the general provision of German law that the patentee is entitled to an injunction as of right. In the practice of the lower courts this basically meant that an injunction was granted, unless it could be established that the offer of the patentee was obviously not FRAND. Remaining doubts in this regard were to the detriment of the defendant. This strict position was mitigated by the decision C 170/15 (Huawei vs. ZTE) by the European Court of Justice in 2015, which called for a balanced approach and established obligations both for the patent owner and the alleged infringer. As the decision by the Court of Appeal Düsseldorf focused on the obligation of the patentee to establish that its offer is indeed FRAND, the decision by the Federal Court of Justice is not exactly surprising. The interesting issue is which points of the reasoning of the Court of Appeal were overturned and which requirements regarding the behavior of the defendant were established. Depending, the new decision by the Federal Court of Justice could mean a return to the earlier practice of the German courts in the wake of the Orange Book decision, which, according to personal statements of judges of the Federal Court of Justice, is in line with the ECJ decision Huawei vs. ZTE, or just a correction where the Court of Appeal may have gone too far. This will become more clear when the reasoning of the new decision by the Federal Court of Justice has been handed down, which will be duly reported in this Bulletin.

Additional defence options for patent infringers and faster nullity proceedings

1. May 2020/in Issue May 2020 Patents and Utility Models

The German Federal Ministry of Justice presented its long-awaited draft for the reform of the German Patent Act in mid-January. In particular, the draft provides for a new and controversially discussed hardship clause for injunctive relief, as well as measures to accelerate the patent nullity proceedings and to interlock them better with the patent infringement proceedings.

Reform of the right to injunctive relief

The injunctive relief is considered the sharpest sword in German patent infringement proceedings. If an infringement court, at the request of the patentee, has found a patent infringement, it not only orders the infringer to pay damages for past infringing acts, but also rules that the infringing product must be taken off the market and the infringing process may no longer be carried out.

This mandatory injunction is increasingly criticised by parts of the industry. The automotive industry and their suppliers in particular see a risk of abuse in cases in which the patent-infringing product is only a small and relatively cheap component of a complex product (for example a mobile phone chip installed in a car), but in which the injunctive relief ultimately affects the entire product. In such scenarios, the threat of injunctive relief means that the patent holder often has to grudgingly accept exorbitant license fees in order to avoid a production standstill and the enormous costs involved.

However, even today in Germany the right to injunctive relief is not completely automatic and without limits. Many such case constellations, especially in the practically important field of telecommunications and networks, concern standard-essential patents (SEPs), for which the patentee has usually committed himself to the standard-setting organisation to offer licences on fair, reasonable and non-discriminatory terms (so-called FRAND conditions) to any interested party, and for which, according to the case law of the European Court of Justice, the patentee can only enforce a claim for injunctive relief if he proves to the infringement court that he has made a FRAND licence offer to the infringer in advance, but that this offer was refused.

Furthermore, in its “Wärmetauscher” (“Heat Exchanger”) decision of May 2016 which also concerned a case from the automotive industry, the Federal Court of Justice (case reference BGH X ZR 114/13) stated that the infringer of a patent can be granted a grace period in exceptional cases, if immediate enforcement of the injunctive relief constitutes an unjustified hardship due to special circumstances of the case.

So far, however, there has not been a single case where the courts have seen room for such a hardship provision. Even though the BGH had provided for the possibility of such an exception in the “Wärmetauscher” case, it then, too, denied it for the specific case.

With the reform of the Patent Act now proposed, the principles formulated by the BGH would be enshrined in law. Accordingly, the injunctive relief would be excluded to the extent that its enforcement “is disproportionate because, due to special circumstances taking into account the interest of the patent proprietor and the infringer and the precepts of good faith, it constitutes a hardship not justified by the exclusive right”. However, the proposed rule is more far-reaching than the “Wärmetauscher” decision in that it is not limited to the granting of a grace period, but may also allow for a longer-term or even permanent exclusion of an injunction.

The proponents of the reform point out that also other countries have restrictions on the right to injunctive relief and, for example, in the USA the right to injunctive relief is granted only exceptionally. The sceptics reply that this is comparing apples and oranges. In the USA, it is not the injunctive relief that can have a serious effect on the infringer, but the legal costs and damages that are many times higher than in Germany. In contrast, the damages imposed in Germany are hardly more than what the infringer would normally have had to pay the patent owner if he had taken a license from the outset. In this constellation, the damages alone do not deter the patent infringer, and hence the injunctive relief is of utmost importance. The explanatory memorandum to the draft also emphasises the exceptional character of the hardship provision.

Reform of the patent nullity proceedings

Another important and far less controversial innovation in the draft concerns the streamlining of the patent nullity proceedings in order to better synchronise them with the patent infringement proceedings.

In German patent infringement proceedings, the alleged patent infringer can only defend himself by stating that he does not infringe the patent, for example because his product differs from the patented solution or he is entitled to use the invention. If, however, he wants to claim that the patent was wrongly granted, for example that it is not novel or not inventive over the prior art, he has to challenge the patent in separate nullity proceedings before the German Federal Patent Court, a completely different forum. These patent nullity proceedings are, by nature, already started with a delay compared to the infringement proceedings, and then usually progress even more slowly. As a result, the alleged infringer often finds himself in the unfortunate situation that the infringement court has already recognized the patent infringement before the Federal Patent Court decides on the validity of the patent many months later. Even the preliminary judicial opinion of the Federal Patent Court, which the legislator had introduced with a previous reform in 2009, often comes too late in practice. In the meantime, under the pressure of the threatening injunctive relief, the patent infringer might have been forced to agree with the patent owner on a high license payment, even though the patent would ultimately have turned out to be not legally valid.

In order to remedy this unfortunate “injunction gap”, the draft stipulates that in future the patent proprietor must present his defence arguments against the nullity action within two, in exceptional cases at the latest three months after service of the nullity action, and that the Federal Patent Court will issue its preliminary opinion at the latest six months after service of the nullity action. In typical case constellations, these time limits should result in the infringement court receiving the preliminary opinion of the Federal Patent Court prior to its decision on the patent infringement, so that the infringement court can stay its proceedings on the basis of the preliminary opinion until the final decision in the patent nullity proceedings in case of doubts about the validity of the patent.

This reform approach is promising and could interlock the patent nullity proceedings with the patent infringement proceedings much better than before. Its success, however, will depend to a large extent on the Federal Patent Court being able to prepare its preliminary opinions quickly and in reliable quality. It may become necessary to increase the staff of the Federal Patent Court for this purpose.

Other changes proposed

The draft contains some other important innovations. For example, the entry of an application under the Patent Cooperation Treaty (PCT) into the German national phase will in future have a time limit of 31 months from the priority date instead of 30 months, in line with the regulation at the European Patent Office. In addition, it shall become easier for the purchaser of a patent to take over an ongoing opposition procedure. In order to do so, according to the draft, he will in future only have to register in the patent register as the new owner.

The draft is now open to public discussion before it will be converted into a draft bill and the legislative procedure will begin. A number of important players from industry, research institutions and private practice have already submitted their observations on the draft (available from the Ministry’s website), which attests to the great interest the public takes in these reforms.

We will keep you informed about the further progress.

The Decision of the German Constitutional Court on the Unitary Patent Court (UPC)

1. May 2020/in Issue May 2020 Patent Litigation

After what felt like a long wait, the 2nd Senate of the German Constitutional Court (BVerfG) has now dealt with the constitutional appeal against the act for the implementation of the UPC in Germany (EPGÜ-ZustG). In a nutshell, the BVerfG sees it as one function of the EPGÜ-ZustG to transfer national sovereign rights to the UPC. This, the Court ruled, requires a two-thirds majority in parliament, in accordance with Article 23.1 of the German Constitution. Since only 35 members of parliament participated in the vote, the Court declared the EPGÜ-ZustG null and void.

Before a more detailed analysis of the reasons for the decision, it should be noted that the BVerfG has not examined the EPGÜ-ZustG in full, since the nullity thereof already resulted from only one reason (the one discussed here). There is also a dissenting opinion of three justices: the decision was made with 5: 3 votes. It should further be noted that the constitutional appeals about inadequate legal protection at the European Patent Office against decisions of the Boards of Appeal were not dealt with in the decision. These complaints are still pending before the BVerfG.

The other acts of the European regulatory package on patent law, the core of which is the introduction of a European patent with uniform effect as a new property right at the level of the European Union, had not been attacked either.

Regarding the underlying history of the EPGÜ-ZustG, the Bundestag unanimously adopted the draft approval act (BTDrucks 18/11137) on March 10, 2017 in its third reading. Around 35 MPs were present. The quorum was not determined, nor did the President of the Bundestag determine that the Act had been passed by a qualified majority. The Federal Chancellor’s accompanying letter to the proposed text contained the note: “Sovereign rights are transferred in accordance with Article 23 paragraph 1 sentence 2 of the German Constitution”. The Bundesrat then unanimously approved the law at its meeting on March 31, 2017. The draft law was initially classified as particularly urgent in accordance with Article 76 paragraph 2 sentence 4 of the German Constitution in order to complete the ratification process as quickly as possible “so that the European Patent Court can start its work in early 2017.”

Contrary to several opinions as filed by invited parties, including one of the Federal Chamber of Attorneys at Law, the BVerfG ultimately decided that the constitutional complaint of March 31, 2017 was admissible insofar because it was about a violation of fundamental rights. This was the result of a violation of the requirement of a qualified voting majority on the EPGÜ-ZustG. For the rest of the arguments, the complaint was viewed as inadmissible.

The Decision held that the Act interferes directly with the legal sphere of the individual (appellant), and that the appellant had sufficiently substantiated a possible violation of Article 38.1 sentence 1 of the German Constitution. In particular, he conclusively asserted that the required 2/3 majority of Article 79.2 in conjunction with Article 23.1 sentence 3 of the German Constitution had not been met in the present case.

The appeal was regarded inadmissible to the extent as argued that the EPGÜ-ZustG would violate constitutional identity because the legal status of judges would be insufficiently regulated under the rule of law (regarded as “not sufficiently substantiated”), that fundamental rights interventions by the Unitary Patent Court would not be sufficiently legitimated by law (reimbursable costs were regarded as “reasonable and appropriate”), and that the UPC agreement itself would violate EU law (reference to “Principle of European law friendliness of the Constitution” – Article 23 German Constitution).

The appeal was then justified to the extent that it was admissible. The Court argued that since the EPGÜ-ZustG relates to the transfer of new responsibilities to the European Union and/or the establishment of new intergovernmental institutions, this would go beyond existing authorizations and should therefore be made dependent on a correct and full (parliamentary) two-thirds majority.

This would not be different in view of an effective “unanimous” adoption of the draft law as mentioned in the minutes of the Bundestag, and the transmission to the Bundesrat. The German Bundestag had therefore not effectively passed the EPGÜ-ZustG.

The dissenting opinion argued that the new and expanded “formal transfer control” as established by the present decision could ultimately lead to the political process in the context of European integration not being made possible and secured, but being narrowed and hindered. The scope of protection of Article 38.1 sentence 1 of the German Constitution in the context of European integration would completely lose its contours. The appeal at issue was therefore to be dismissed as inadmissible in full.

As a remedy, there would be opportunities for a constitutional appeal after the entry of the law in force, for example within the framework of national enforcement. In these proceedings, the formal unconstitutionality of the Consent Act could also be criticized. A relevant specific fundamental rights concern would then be the right “filter”.

Now, the easy access to the Federal Constitutional Court using the formal transfer control argument would prompt the German Bundestag and the Bundesrat to strive for a two-thirds majority for almost every transfer of powers within the scope of Article 23.1 of the German Constitution, just to be on the “safe side” and thus not to be exposed to the risks of the formal transfer control.

Commentary

It remains to be seen whether the new and expanded “formal transfer control” as supposedly established by the decision will ultimately result in a series of narrowing and hindrance of political processes (among other things) in the context of European integration, as feared by the dissenting opinion. Nevertheless, the flawed transfer argument was sufficient for the nullity of the present EPGÜ-ZustG.

In the end, the BVerfG gave the legislator a formal slap in the face for taking short cuts in enacting constitutionally relevant laws. In this regard, it may well be that the urgent lobbying of the “interested parties” ultimately backfired. When a bill is passed in the Bundestag at around 1 a.m. (as this was), it is likely that only a few parliamentarians are present.

Even if some want to see the decision as merely a “technical difficulty”, which could be simply “repaired” by a new vote, the law has been declared null and void (and not only the appeal was upheld). Thus, right now there is nothing left that could form the basis for a vote.

It can also be assumed that the implementation of the UPC – even in an amended “continental form” – is ruled out due to BREXIT and the announcements of the British government. This will lead to the fact that the EPGÜ-ZustG, together with the other components of the patent package, will probably continue to only live in the commentary literature for the time being, similar to the Community Patent Convention (GPatG).

Finally, the BVerfG has not fully reviewed the EPGÜ-ZustG under constitutional law, i.e. outside of the formal transfer control. The BVerfG has, for example, viewed the argument regarding the legal status of the judges at the UPC as merely insufficiently substantiated, which could also be seen as strategic behavior regarding complaints about inadequate legal protection at the European Patent Office against decisions of the Boards of Appeal (see above).

Use of trademarks for reseller websites

1. May 2020/in Issue May 2020 Domains, Trade Marks

It is settled case law that the use of a trademark in a domain name can constitute a “use as a trademark”. The Federal Court of Justice has now further defined the legal constraints for a use of such domain names by (re)sellers and thereby strengthened the rights of owners of well-known trademarks.

It is well established that the use of a trademark in a domain name that refers to a website offering goods or services covered by the trademark generally constitutes a trademark infringement.

It has, however, been a matter of dispute whether and to what extent sellers or resellers of branded goods are entitled to use domain names containing the trademark for their websites and online shops. The German Federal Supreme Court has now defined the criteria for the admissibility of such use in relation to well-known trademarks in more detail, thereby strengthening the rights of the owners of well-known trademarks (BGH, judgement of June 28, 2018 – I ZR 236/16 – keine-vorwerk-vertretung).

In the case in question, the proprietor of an online shop for used Vorwerk vacuum cleaners as well as spare parts and accessories for Vorwerk products from various manufacturers had operated an online shop under the domain name keine-vorwerk-vertretung.de. The owner of the well-known trademark Vorwerk took action against this practice based on an alleged trademark infringement. The operator of the online shop referred in the first place to the fact that he was entitled to use the trademark pursuant to the exemption in Section 23 Para. 1 No. 3 German Trade Mark Act, since he used the trademark for the purpose of identifying the goods offered on the website as those of the owner of the trademark or as an indication of the intended purpose of the goods as accessories or spare parts for Vorwerk products. Furthermore, he argued that his right to use the trademark in the domain name followed from Section 24 German Trade Mark Act as the trademark rights of the trademark owner had been exhausted with regard to the used goods offered on the website.

The Federal Court of Justice followed the online shop operator’s line of argument to the extent that it confirmed that the use of a well-known trademark in the domain name of a reseller who – in addition to the trademarked goods – also sells compatible products of other manufacturers, represents an indication of the intended purpose of the goods within the meaning of Section 23 No. 3 German Trade Mark Act. At the same time, however, the court found that there were more adequate alternatives available for the reseller to indicate the compatibility of his products. The use of the trademark in the domain name was furthermore found to be contrary to moral standards because it also serves to draw the attention of potential customers to the range of goods offered under the domain. The trademark was thus used in the domain name for advertising purposes exceeding the incidental advertising effect associated with the necessary indication of the intended use of the products. Accordingly, the use in question was not found to be privileged pursuant to Section 23 para. 2 German Trade Mark Act and constitutes a trademark infringement.

Since the court of appeal had not provided sufficient reasoning in relation to the possible exhaustion of the plaintiff’s rights in the trademark, the case was referred back to the lower instance court. The Federal Court of Justice, however, inidcated that by using a well-known trademark in a domain name, the reseller illegitimately exploits the advertising effect resulting from the trademark’s reputation for promoting his online shop. The owner of the well-known trademark is thus entitled to prohibit the use of the trademark notwithstanding the principle of exhaustion.

Even though the judgment concerns a well-known trademark, it contains general considerations defining legal limitations to the use of trademarks in domain names. According to the considerations of the Federal Court of Justice, the use of a trademark as part of a domain name is more than a mere indication of the compatibility of one’s own products with the trademarked goods. Rather, it has a considerable advertising effect which surpasses the usual advertising effect associated with the necessary indication of the intended use. Though it remains to be seen how this decision will be received by the lower instance courts, resellers will probably find it more difficult in the future to justify the use of a trademark as part of the domain name without a prior permission by the trademark owner.