18 November 2021

Patent Law Reform in Germany: Injunction with a Proportionality Test – A Sharp Sword Becoming Blunt?

German courts are among the most popular forums worldwide for patent proprietors when it comes to enforcing their patents. Thanks to Germany’s bifurcated system and the speed of District Courts, a claimant may quickly obtain injunctive relief before a District Court based on a judicially determined infringement of a patent, without the validity of that patent having been confirmed by the German Federal Patent Court.

There is little or no dispute that injunctive relief is – or maybe was – a sharp sword; the bête noire of the automotive industry where injunctive relief may cause a stop of assembly lines and huge irrecoverable losses.

Recently, a patent war broke out between Nokia and Daimler in which Nokia was taking action against Daimler because of infringement of a series of Nokia’s IP crown jewels – its standard essential patents (SEPs) – relating to telecommunications standards, which Daimler allegedly employed in the communication of its vehicles. In November 2020, the German government opted for a legislative initiative to compensate for this situation in Germany as an industrial location, by providing for a separate judicial examination of the effects of the patent action in injunction proceedings in the future. It is worthwhile mentioning that the legal systems of the other countries important for manufacturing and sales (e.g. the United Kingdom, the United States, China, and Korea) do not permit unilateral enforcement of property rights comparable with the situation in Germany.

On 11 June 2021, the German Parliament passed the amendment of Section 139 Patent Act. The amendment is not so revolutionarily new since it effectively moulds the case law of the Federal Court of Justice into statutory law. In a decision of 2016 (known under its catchword “Wärmetauscher”), the Federal Court of Justice found that in exceptional cases in which the enforcement of injunctive relief, considering the principles of good faith, would cause unjustified hardship to the infringer, the claim for injunctive relief may be excluded or limited. The new version of Section 139 Patent Act which entered into force on 18 August 2021 states this more precisely, with the addition of the following sentence:

The claim [to injunctive relief] is excluded to the extent that, under the special circumstances of a singular case and considering the principle of good faith, its enforcement would result in disproportionate hardship on the infringer or third parties beyond what is justified by the exclusionary right.

The automotive industry relies on a strong patent law. At the same time, with the development of connected vehicles, the automotive industry is moving more and more into the field of information and communications technology (ICT), which is very heavily penetrated by SEPs. The use of ICT technologies – such as in 4G and 5G – therefore require licences from SEP holders. However, SEP licensing has proven very difficult vis-à-vis companies in the automotive industry. The consequence of these SEP conflicts is now numerous patent injunction proceedings against vehicle manufacturers, involving very high licence claims in the triple-digit millions.

Under previous patent law, even if the patent in the networking technology of a motor vehicle represents only a functional and subcomponent of a complex product in terms of value, an owner of an SEP could demand injunctive relief without its proportionality being examined, for example because of the threat of a production stoppage. This also applies if nullity proceedings are pending with regard to this patent. The automotive industry therefore advocated that specific constellations of industrial sectors, based on the division of labour, be taken into account in the future proportionality test.

While the automotive industry was the driving force behind the reform of Section 139 Patent Act, it should not be concealed that the chemical industry, another major industry in Germany, was very much against the reform heavily relies on a strong claim for injunctive relief particularly in view of the fact that the claim for damages is traditionally weak in Germany anyway.

Only time will tell how the German courts will deal with the new Section 139 Patent Act and which effects will ensue. It will be up to the SEP user itself to avoid injunctive relief by engaging in constructive licensing negotiations.

If it fails to use that opportunity, it cannot rely on a defence that enforcing injunctive relief will cause inequitable hardship. Hence, it is already clear that the newly introduced exception will not apply to SEP cases since the established FRAND rules include a proportionality check.

It may be that even the threat of the infringer becoming insolvent if injunctive relief is enforced is insufficient to deny the patent proprietor its injunctive relief. The same also applies to investments in product development, market development, or approval that may be jeopardised by the injunction – such restrictions are a typical consequence of the right to injunctive relief and for that reason cannot justify any exception.

Wrapping up the discussion, there is little likelihood at present that the patent proprietor’s right to injunctive relief will be undermined by the new patent law. Having said that, infringers will of course try to make use of this exception in the years to come which is likely to result in discontent among those who advocated substantial limitations to the availability of injunctive relief. It will be interesting to see in a couple of years whether the entire discussion around the much-anticipated reform of the Section 139 Patent Act was much ado about nothing. Whatever the development will be, Venner Shipley will keep you informed.