Closing “injunction gap”
Corresponding application of Act on the Protection of Trade Secrets
Official hearings, oral proceedings and hearings of witnesses via videoconference
Extension of period for Patent Cooperation Treaty applications to enter national phase
On 17 August 2021, the Second Act of the Simplification and Modernisation of the Patent Act was published. This article highlights some of the important amendments that it delivered.
The Act entered into force on 18 August 2021 but some of its amendments that require adjustments to the IT systems of the German Patent and Trademark Office (GPTO) will enter into force on 1 May 2022. The Act’s general objective was to ensure effective and balanced levels of IP right protection, and – with a view to advanced digitalisation – to simplify procedures, clarify provisions of existing law and delete superfluous or obsolete regulations. Individual aspects of existing law were intended to be optimised and modernised in order to align national procedures with international standards.
One of the most extensively discussed amendments is the change to section 139 of the Patent Act, which now includes an examination of the proportionality of injunctive relief in infringement proceedings. The incentive for including this stipulation was to fend off unreasonable claims of non-practising entities (known as “patent trolls”). In particular, each individual case must be reviewed to conclude whether the right to injunctive relief would lead to an unreasonable hardship not justified by the exclusive right. The requirement of good faith and any interests of third parties must also be taken into account. On the other hand, to compensate for this limitation of the right to injunctive relief, the right to damages for the patent proprietor now includes a compensatory claim in the form of appropriate compensation.
Although it remains to be seen how the new regulation will develop in the future, it seems that no paradigm shift will occur. Injunctive relief will remain the rule; the provision of section 139 of the Patent Act is only an exception. Essentially, the corrective already existed in accordance with the case law of the Federal Supreme Court(1) and has now only been codified. However, some aspects of the new section 139 differ from the previous situation. Firstly, the interests of third parties will be taken into account with a lower threshold than that for a compulsory licence. Further, the framework for exceptional cases is newly defined and provides leeway for future developments to take place. The consideration of the circumstances of individual cases is left to the jurisdiction. The new law deliberately refrains from specifying concrete legal consequences for case constellations in detail.
The preparatory discussion to the law mentions the following exemplary aspects that may have to be assessed in the context of the individual assessment of proportionality.
Interest of patentee in injunction
If the patent infringer sets out special circumstances that may justify unjustified hardship, it may be exceptionally relevant for an overall assessment of the circumstances if the proprietor of the patent is primarily concerned with the monetisation of rights and not with the execution of inventions as an expression of the innovative function of the patent system. The latter is usually the case with pure patent exploiters. However, the mere fact that the patentee does not use the patent through its own or licensed production is not sufficient for granting a period for conversion and use; such a situation is therefore not necessarily to be taken into account to the detriment of the patentee. This is because injunctive relief can also be a necessary corrective measure in the patent legal system if, for example, individual inventors or universities exploit their rights with the help of third parties.
Economic effects of injunction
A limitation of the effect of the patent by granting a period of use can be justified if the economic consequences of the immediate compliance with the injunction affect and disadvantage the infringer in the individual case to a particularly high degree due to special circumstances beyond the impairments associated with its general pronouncement. In this respect, it may be of particular importance if the infringer would suffer exceptionally great damage from the enforcement of the claim for injunctive relief because, for example, at the time of the enforcement of the claim, substantial investments had already been made in the development and manufacture of a product and these consequences would be completely disproportionate to the value of the infringed patent. This may be particularly relevant where there are long research and development periods.
The increasing complexity of many products has resulted in end products often containing a large number of patented components, particularly in industries such as the electronics, telecoms, IT and automotive industries. Here, too, it is necessary to weigh up in the context of an overall assessment of the circumstances whether an unconditional prohibition would have serious and – with regard to the generally overriding interests of the proprietor of the patent – disproportionate economic effects on the entire business operations of the patent infringer.
Subjective elements may also have to be reviewed in the context of the overall assessment of the circumstances. In this context, the nature and extent of the infringer’s fault is of particular importance – that is, whether it has taken possible and reasonable precautions to avoid infringement (eg, by means of an appropriate freedom to operate analysis). In addition, the question of whether the infringer has made sufficient efforts to obtain a licence agreement may also become relevant. On the part of the patent holder, disloyalty could play a role. This would be conceivable, for example, if the proprietor of the patent deliberately waited until the infringer had made considerable investments before asserting the claim for injunctive relief even though there had been a possibility of asserting the claim earlier.
The interests of third parties may be taken into account in the assessment of whether the enforcement of the claim for injunctive relief constitutes unjustified hardship for the infringer. This applies, for example, to scenarios in which a cease-and-desist order results in the supply of patients with the infringer’s products no longer being guaranteed or important infrastructures being impaired. In such situations, the infringer would be in danger of permanently losing market share for its product.
By synchronising the nullity proceedings before the Federal Patent Court and the infringement proceedings before the Civil Courts, the so-called “injunction gap” is intended to be closed using procedural means.
The German patent system is characterised by the separation of nullity proceedings and patent infringement proceedings (the so-called “principle of bifurcation”). The question of infringement of a patent and invalidity of a patent are examined and decided in separate proceedings and by different courts. The infringement judge is bound by the facts of the granted patent and is not authorised to question the validity of the patent. The judicial review of (legally binding) granted patents is the responsibility of the Federal Patent Court in the first instance and the Federal Court of Justice on appeal. Nullity proceedings usually take a lot longer than infringement proceedings, and it is therefore not uncommon for an injunction to be imposed on the basis of a patent that later proves to be legally invalid. An alleged infringer may suffer significant economic drawbacks by a provisionally enforced injunction because claims for damages that can be asserted later if the patent in suit is declared invalid do not fully compensate for the results of being squeezed out of the market due to the injunction in most cases.
In order to achieve a better synchronisation of the timing of the two proceedings, the qualified notice under section 83 of the Patent Act, by which the Federal Patent Court communicates its preliminary assessment of the legal status of the patent, shall be issued within six months after the filing of a nullity action. If a patent case is pending, the qualified notice shall be transmitted ex officio to the infringement court, so that the infringement court then regularly has a corresponding notice of the Federal Patent Court before the oral proceedings. This can be taken into account when deciding on a stay of the infringement proceedings.
The new section 145a of the Patent Act draft stipulates the application of more detailed provisions of the Act on the Protection of Trade Secrets of 18 April 2019 in the patent process. In patent litigation, the confidentiality interests of the parties can be affected and can form a conflict of interests in court proceedings. While there is an interest in using confidential information to substantiate the party’s own legal positions in the legal dispute, such information should – as far as possible – not be disclosed in order to not impact the party’s own competitive position. In order to achieve a better balance of this conflict of objectives, the newly provided section 145a of the Patent Act stipulates a corresponding application of the procedural provisions of sections 16 to 20 of the Act on the Protection of Trade Secrets in patent litigation. For example, protected information must be treated confidentially by the parties to the proceedings and may not be used or disclosed by them outside of court proceedings. The court may also restrict access to documents or to the oral proceedings to a narrow circle of persons upon request.
Starting from 1 May 2022, for procedures under the Patent Act, the Utility Model Act, the Trademark Act, the Design Act and the Semiconductor Protection Act, the option of participating in hearings and proceedings and giving evidence by means of image and sound transmission shall be provided by analogously applying section 128a of the Code of Civil Procedure. Parties can participate in sessions by video conferencing in suitable cases to be decided by the GPTO. It will still be possible to physically be present in order to participate in the sessions on site.
The period for Patent Cooperation Treaty applications to enter the national phase will be extended from 30 to 31 months from the filing date or priority date, as the case may be. From 1 May 2022, applicants will have one more month to pay the fee for entry into the national phase at the GPTO and, if applicable, to submit the German translation of the application (article III(4) and III(6) of the Act on International Patent Conventions).
The Second Act of the Simplification and Modernisation of the German Patent Law is intended to strengthen the reputation of Germany as a location for the protection of intellectual property in the field of industrial property. In particular, dealing with the injunction gap will most likely be seen as a big step forward. Despite concerns in the preparatory phase, it is not expected that the amended section 139 of the Patent Act will have a negative impact on the enforceability of claims to injunctive relief under normal circumstances. Of course, in future cases, attorneys will have to raise the issue of proportionality and the costs might increase correspondingly. However, the courts will develop strategies for effectively dealing with respective pleas.