Following a highly controversial debate, the German government proposed a reform of the German Patent Act. The draft now explicitly provides that the claim for an injunction is subject to a proportionality test. According to the reasons provided, this should merely clarify the already applicable legal regime to which proportionality is inherent.
A significant change is that third party interests were added and are therefore also a relevant criterion. This follows the approach already implemented by the courts in the UK. So far, German infringement courts do not take third party interests into account and justify this with the rationale that the requirements for a compulsory license should not be undermined.
According to the current timeline, it is expected that the law will pass on May 7, 2021. Following this, German patent law will be more closely aligned to the transformed technical and economic environment that triggers patent enforcement.
Germany’s current patent litigation regime
In Germany, if a patent is infringed and the infringement court expects that the patent will survive a separate validity proceeding, a German court will automatically issue an injunction pursuant to section 139(1) of the German Patent Act. The infringement and the validity of patents are tried in separate proceedings (the so-called bifurcated system).
In the infringement proceedings, the courts consider patent validity only at a high level to decide whether to stay the proceedings pending the outcome of a separate opposition proceeding or nullity action. A stay of the infringement proceeding requires a high likelihood that the patent will be invalidated.
While only a small percentage of infringement proceedings are stayed pending the outcome of a validity proceeding, the percentage of patents that are invalidated or reduced in scope in the nullity proceedings is high.
The German Federal Court of Justice (Bundesgerichtshof [BGH]) had recognised the relevance of the principle of proportionality in patent infringement proceedings, even though it is currently not yet written in the statute. In 2016, the court confirmed in its Wärmetauscher decision that patent injunctions are subject to proportionality considerations.
The BGH mentioned use-by periods as an example of a suitable means to avoid disproportionate consequences, but eventually granted the injunction. Since this decision, many lower courts decided cases in which proportionality considerations played a role. So far, however, no German court has refused to grant an injunction because of disproportionate effects.
”A reform seems necessary to reflect a changing technological and economic reality since the introduction of the first German Patent Act in 1877.”
Julia Schönbohm, Linklaters
Reasons for reform
Impact on defendants and third parties
With its bifurcated system and automatic injunctions that can be enforced provisionally, Germany is an attractive forum to enforce patent rights. This can, however, have a significant impact on defendants. They may well be permanently put out of business with respect to the accused product on the basis of an automatic injunction and may not be able to re-enter the market once the injunction is lifted, eg, if the patent falls.
Third party interests may also be seriously affected by an injunction, eg, if allegedly infringing products are of fundamental importance or vital for patients undergoing medical treatment. A recent example is the PCSK9 inhibitor Praluent (alirocumab) that had to be taken off the market in Germany following a first instance decision that the plaintiff provisionally enforced.
The underlying patent was later invalidated, and the injunction lifted. The Federal Patent Court had refused to grant a compulsory licence and patients were forced to stop their treatment with Praluent.
Technological and economic background
A reform seems necessary to reflect a changing technological and economic reality since the introduction of the first German Patent Act in 1877. Nowadays, products have reached a high level of complexity. The number of patents implemented in complex products and thus the length of manufacturing chains increased significantly.
In this situation, manufacturers of small components enforce patents outside their own level of the manufacturing chain against the manufacturer of the final product. Moreover, the eBay v MercExchange decision led to the rise of so-called non-practising entities that hold patents for products or processes without any intentions of developing them but enforce their patent rights around the globe.
These changes require that courts take a closer look at the specific circumstances of each case or at least entertain the question of whether an automatic injunction is always the appropriate remedy.
Different approaches in other jurisdictions
Other jurisdictions show more flexibility in their approach to granting injunctions. For instance, in 2006, the US Supreme Court’s eBay v MercExchange decision changed the rules that apply to patent litigation in the US. According to this decision, an injunction can be granted only if (i) the plaintiff has suffered an irreparable injury; (ii) remedies available at law are inadequate to compensate for that injury; (iii) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (iv) a permanent injunction would not disserve the public interest. Otherwise, the injunction is deemed disproportionate.
In the UK, the enforcement of an injunction may be disproportionate, but only in very exceptional cases, and third party interests are considered. It is the rule that injunctions are granted in the first place. The courts distinguish between “provisional injunctions” before the clarification of the legal position and “final injunctions” afterwards. An injunction is less frequently granted before the status of the patent is clarified.
”The most important change for patent litigation relates to section 139(1) of the Patent Act.”
Proposed amendment
Against this background, the German government proposed a modernisation of the German Patent Act.
Proportionality
The most important change for patent litigation relates to section 139(1) of the Patent Act. The government proposed to clarify that the claim for an injunction can be excluded in exceptional cases. Pursuant to the draft, the courts should be able to weigh the interests of the patentee and the infringer in the individual case, which is, as the government points out correctly, essentially an implementation of the Wärmetauscher decision.
In addition, third party interests shall also become relevant, what they are currently not in infringement proceedings.
Balancing criteria
The government deliberately refrained from listing specific case groups. However, as per the draft, balancing the interests of the patentee, the infringer and third parties could include the following considerations (cf. pages 60 et seq of the draft):
- It could be relevant whether the patentee implements the invention to contribute to innovations or whether it is primarily interested in monetising the invention.
- On the side of the patent infringer, the economic consequences could be put in relation to the value of the infringed patent, eg, long research and development periods or a difficult “design around” for complex products.
- Subjective elements could also be relevant, eg, whether the patentee deliberately waited a long time before asserting the claim or whether the infringer had undergone an appropriate freedom-to-operate analysis.
- In addition, courts could consider third party interests. This may apply, eg, if an injunction affects the supply of life-saving drugs to patients or has an impact on important infrastructure.
- However, the restriction shall remain the exception, with the interests of the patentee generally taking precedence and the infringer being able to demonstrate and prove disproportionality.
Consequences of disproportionality
In view of the manifold conceivable constellations, the legislator refrained from specifying specific legal consequences for individual case groups. The draft does, however, propose that in individual cases, use-by periods or conversion should be granted.
In extreme cases, if even a use-by period does not exclude an unreasonable hardship for the infringer, the claim for injunction shall be excluded temporarily or permanently. A partial exclusion of the claim shall also be possible. However, the claim for damages section 139(2) of the Patent Act shall remain unaffected.
”The proposed amendment is mainly a clarification of the status quo that allows the courts to become more flexible.”
No amendment to section 81(2) of the Patent Act
As per earlier drafts, section 81(2) of the Patent Act was supposed to be amended so as to allow filing a nullity suit with the Federal Patent Court (Bundespatentgericht) while opposition proceedings are pending or possible, thereby giving the defendant the opportunity to a judicial clarification regarding the validity of the patent.
From a procedural and strategic point of view, this amendment was supposed to establish equality between the plaintiff and the defendant, thus further reducing the imbalance of the bifurcated system.
The German government decided to postpone amending this section even though it was heavily supported. The reason is that they did not want to rush but take the time to fully understand the interplay with a pending opposition.
Impact on patent litigation in Germany
The proposed amendment of section 139(1) of the Patent Act is highly controversial. Some practitioners are afraid that it may lead to a change comparable to that in the US after eBay v MercExchange and that Germany may therefore become less attractive as a jurisdiction in which to litigate.
Yet, such serious consequences are not to be expected. The proposed amendment is mainly a clarification of the status quo that allows the courts to become more flexible in their decision whether to grant an injunction and to determine its appropriate scope.
It is, despite its relevance for exceptional cases only, required to allow courts to properly handle the challenges that result from technological and economic changes. It is also welcome that the draft amendment allows the consideration of third-party interests. If the amendment is enacted as proposed, Germany would get closer to other jurisdictions in which injunctions are usually but not automatically granted if a patent that is considered valid is infringed.
Outlook
The government hopes for an adoption of its draft within the current legislative period, ie, before autumn 2021. The legislative bodies will now discuss the draft.
Considering the controversy surrounding the amendment, it remains to be seen whether there will be any changes during the legislative process. For instance, earlier plans for amending section 81(2) of the Patent Act might be taken up again, which would further reduce the disadvantages of Germany’s bifurcated system.
But even the amendment of section 139(1), as currently proposed, would be a step in the right direction to give Germany's patent law, like that of other jurisdictions, a modern structure.
Julia Schönbohm is an IP partner at Linklaters in Frankfurt. She can be contacted at: julia.schoenbohm@linklaters.com
Image: Shutterstock.com / megaflopp
