Draft Amendment to German Patent Act May Limit Availability of Injunctions
On 14 January 2020, the German Federal Ministry of Justice published a draft act to modernize German patent law. Among other things, the draft addresses the fact that patent infringement trials proceed much quicker than parallel invalidity proceeding (which, under German law, are conducted separately). Hence, an injunction may be issued in first instance infringement proceedings before a decision on the validity of the patent in suit can be obtained; the resulting time gap between infringement and invalidity decision is called the “injunction gap” in German patent litigation. The draft modernization act seeks to improve the coordination between infringement and invalidity proceedings by having the Federal Patent Court provide a preliminary assessment of patent validity quickly. In view of such preliminary assessment, an infringement court may then stay infringement proceedings until a decision in the parallel invalidity proceedings.
However, it may turn out to be even more important in practice that the draft modernization act provides for an explicit limitation of patent-based injunction claims if an injunction would be disproportionate, considering any special circumstances and the interests of the parties involved. This part of the draft reform takes up concerns about disproportional injunctions that were voiced mainly by the German automotive industry and parts of the telecommunication industry.
The explanatory memorandum to the draft modernization act describes a statutory limitation of injunction claims in cases of disproportionality as a mere clarification of the law, since proportionality of claims is a general legal requirement under German law and under the European Directive on the Enforcement of Intellectual Property Rights. However, while the German Federal Court of Justice acknowledged that patent-based injunction claims may be excluded due to disproportionality in exceptional cases, there was a perception that lower-instance courts were not open to considering arguments of disproportionality. This lower instance court practice is what the Federal Ministry of Justice seeks to address by clarifying in the Patents Act that injunction claims may be excluded due to disproportionality. At the same time, the Ministry also confirms that injunction claims shall be excluded due to disproportionality only under exceptional circumstances, and that in “commonplace” patent infringement cases, injunctions will still be granted without any changes to the present practice of German courts.
While the draft amendment to the Patents Act regarding disproportional injunction claims is generally phrased, the explanatory memorandum lists specific considerations that may, in exceptional cases, lead to a bar of injunction claims:
Firstly, a product contested as infringing may be complex and comprise a large number of components, and only a single component or functionality may actually cause infringement by the contested product. Then, an injunction covering the whole product may be disproportionate in view of investments made by the infringer and in view of the harm that the infringer would suffer from an injunction. In contrast, if infringement is caused by a component or functionality that is of minor importance only, then an injunction may still be proportional because then the infringer will suffer less severe harm.
Legitimate economic interests of the infringer can exclude injunction claims, or at least require a grace period for the infringer to switch to a new, non-infringing product and/or to sell off an existing stock of infringing products. This may apply in cases of long product development cycles or products that require market authorizations, for example.
Furthermore, the interests of the patentee in obtaining an injunction can be relevant. If the patentee is not a competitor of the relevant infringer but rather a non-practicing entity (NPE), the patentee’s interest may be limited to concluding a license agreement. Then, clearly excessive royalty claims by the patentee may speak against the proportionality of injunction claims. However, the mere fact that the patentee is an NPE is not intended to limit injunction claims.
Subjective elements could also be taken into account in the overall assessment of the circumstances. It may be considered whether the infringer duly conducted a freedom-to-operate analysis for the infringing product, and whether the infringer tried to obtain a license from the patentee. On the part of the patentee, bad faith—such as in ambush settings—may be relevant.
Interestingly, the draft reform does not relate to utility model-based injunction claims, even though German utility models can provide protection in parallel to patents. But still, courts may apply the same basic legal principles as to be clarified in patent law to utility model law, too.
It will be interesting to see how the legislative process will continue regarding the draft reform of patent law. However, since the reform aims to merely clarify a requirement of proportionality that is acknowledged as a legal principle existing already nowadays, parties to German patent and utility model litigation may find it useful to make arguments relating to disproportionality nowadays already.