More Commentary on the German Ministry's Proposed Amendment

1.  Léon Dijkman has published a post on IPKat titled Patent Injunctions Update: German Ministry of Justice publishes draft amendment to Patent Act and Hague Court of Appeal decides in further Philips FRAND cases.  The post discusses the German Ministry's proposed amendments, including a translation of the new sentence to be added to section 139 that reads better than my translation of it.  The author's take is generally positive, stating that "It will now be up to lawyers and scholars to argue which cases warrant application, and for courts to further crystallize this young but crucially important doctrinal exception to patent exclusivity – but first let's see how the proposal will fare" (emphasis in original).  

The post also discusses two recent decisions out of the Netherlands on the Philips v. ASUS and Wiko FRAND litigation. 

2. Expressing a very different perspective is Florian Mueller, who blogged about the proposed amendment earlier this week and remains highly critical of the draft in his new post titled Proportionality clause in draft German patent reform bill falls short of not only eBay v. MercExchange but also the EU's definition.  (Mr. Mueller also provides a more fluent translation of the sentence in question that the one I produced the other day.)  I certainly agree that "the German statute falls far short of eBay v. MercExchange."  Mr. Mueller also presents an interesting argument, as the title of the post suggests, that the amendment might not conform to E.U. law either (a matter on which, however, I do not at present feel confident enough to express an opinion).  

 

3.  Meanwhile, IP2Innovate has sent this letter to the European Commission, with the heading "Industry Calls on New Commission to Issue Guidelines to Support Homogeneous and Effective Application of Proportionality in Patent Enforcement."  The letter does not address the proposed German amendment specifically, but (as the heading indicates) "call[s] on the Commission to work with Member States, judges and stakeholders to publish targeted guidelines to support the homogenous and effective application of proportionality in patent enforcement."  These would include "a list of factors that courts should consider in deciding whether to issue a permanent injunction or grant an alternative remedy and guidance on how those factors might apply in different scenarios."

 

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For my two posts earlier this week on the proposed amendment, see here and here.

More on the German Ministry's Proposal Regarding Injunctions

As I mentioned earlier, on Tuesday the Germany Ministry of Justice and Consumer Protection released its draft of a proposed set of amendments to the German Patent Act.  The draft would, among other things, add the following sentence to § 139 para. 1 of the German Patent Act: 

Der Anspruch ist ausgeschlossen, soweit die Durchsetzung des Unterlassungsanspruchs unverhältnismäßig ist, weil sie aufgrund besonderer Umstände unter Beachtung des Interesses des Patentinhabers gegenüber dem Verletzer und der Gebote von Treu und Glauben eine durch das Ausschließlichkeitsrecht nicht gerechtfertigte Härte darstellt.

I would translate this to mean:

The claim [to injunctive relief] is precluded, insofar as the enforcement of a claim to injunctive relief is disproportionate because, due to special circumstances and taking into account the interest of the patent holder against the the infringer and the obligation to act in good faith, enforcement of the right of exclusion would present an unjustified hardship.

I've now read the portions of the discussion draft (principally pages 50-54) that elaborate on this change.  Here's what I get out of it.

First, I can better understand Florian Mueller's concern that the proposal doesn't go far enough, by a wide margin, because the commentary does indeed provide a great many caveats.  At page 50, for example, the commentary describes the proposal as a "legislative clarification" (gesetzgeberische Klarstellung), and states that the proportionality criterion is now made "explicit" (ausdrücklich), which suggests that it was really there all along.  (See also the top of page 51, stating that the interested stakeholders essentially agree that proportionality already can be considered under applicable law.)  The commentary also  refers, as the proposed statutory text itself does, to "special circumstances" (besonderer Umstände), but then also mentions the possibility that injunctions can be "exceptionally disproportionate" (ausnahmsweise unverhältnismäßig). It also cites literature suggesting that the "proportionality objection" must be limited to exceptional cases.  Note, however, that the proposed statutory text above itself doesn't use the term "exceptional" (ausnahmsweise).  In addition, the commentary states that limiting the patent owner's right to an injunction encroaches on the core of IP rights (. . .  "greift jedoch in den Kern des Rechts des geistigen Eigentums ein"). 

Second, however, at page 51 the commentary acknowledges that some sectors of German commerce, including the automotive industry and portions of the telecommunications industry, are concerned that this "corrective" can scarcely come into effect at the district court level (that is, if I understand correctly, without this legislative clarification); it also mentions that up to now the courts have considered proportionality only very cautiously (nur sehr zurückhaltend) .  Page 50 reaffirms the BGH's decision in Wärmetauscher, which authorizes the use of an Umstellungfrist or Aufbrauchfrist (a stay or "grace period," during which the infringer may design a noninfringing alternative or at least sell off the infringing merchandise)--albeit conditioned on evidence that the immediate enforcement of an injunction would result in unreasonable prejudice, beyond that which normally accompanies an injunction.  (For previous discussion on this blog, see, e.g., here.)  Further, however, and without using the term "holdup," the commentary at page 51 notes that there can be cases in which the effect of an injunction would go beyond what is necessary for adequate deterrence, by for example threatening the loss of sales of already manufactured products.

Third, and also at page 51, the commentary is clear that the burden of showing why an injunction would be disproportionate rests with the infringer (as it does in many other countries), and states that judges will not be overly burdened by the new law's requirements.

Fourth, the commentary stresses that courts will have to carefully weigh of all the circumstances in a given case.  The statutory text itself therefore will not lay out criteria or examples, but the commentary sets out some specific considerations by way of example.  These include:

1.  The interest of the patent owner.  Is the patent owner a practicing entity or a patent monetization entity?  Has it made clearly excessive (eindeutig überzogene) license demands?  On the other hand, the fact that the patent owner is not a practicing entity is not sufficient to justify a stay, since the court should also consider the prejudice facing the patent owner.  The commentary specifically notes that injunctions may be appropriate (for example) for individual inventors or universities that derive value from their patents with the assistance of third parties.  

2.  The commercial consequences of injunctive decrees.  Here, the commentary again mentions the possibility of a stay under appropriate circumstances, to avoid holdup-type problems.

3.  Complex products.  The commentary notes that the increasing complexity of many products, in industries such as electronics, telecommunications, IT, and automotives, means that end products often incorporate a large number of patented components (again, citing Wärmetauscher).  Sometimes it won't be hard to design around, but other times this will take a considerable investment in time and money (especially when the defendant must consider other legal or regulatory requirements).  Suspending production for a long period of time might be so out of proportion to the value of the infringed patent that (exceptionally) the unrestrained enforcement of an injunction must be constrained.

4.  Subjective elements.  It may be appropriate to consider the type and extent of fault on the part of the infringer, including whether the infringer has attempted to bargain in good faith.  It also may be appropriate to consider if the patent owner has acted in good faith, e.g., by not practicing what I and others have referred to as "patent ambush."

5.  Third party interests.  The commentary states that the interests of third parties has not yet been clarified by the highest court, but notes that the Düsseldorf court has taken the position that this is an appropriate consideration only when the defendant is requesting a compulsory license under Patent Act § 24.  The commentary suggests, however, that third party interests may be indirectly relevant--for example, when an injunction would cause the infringer to suffer an unjustified hardship because the care of patients with the infringer's products could no longer be secured or important infrastructure would be harmed, which would lead to the infringer to face the possible forfeiture of its market share.

Finally, this portion of the commentary notes that the patent owner could still claim damages (e.g., for the period of the stay pending injunction).  It also states that a permanent refusal to grant an injunction should come into play only in very few cases, and only when a grace period wouldn't suffice (p.53).

I should also note that the draft would add a new sentence to Patent Act § 83, to require that,  in a patent invalidation action, the Bundespatentgericht must provide a preliminary appraisal of patentability within six months.  The intent is to better synchronise infringement and invalidation actions, which are bifurcated in Germany, so as to reduce the effect of the so-called injunction gap (the fact that infringement actions are speedier than invalidation actions, which gives patent owners additional leverage in infringement actions). There is also a new provision, § 145a, which I haven't really focused on yet, that would regulate the use of confidential information in litigation (e.g., in FRAND cases).  Other than that, the draft doesn't discuss FRAND matters, which I take it means that the question of whether to grant an injunction in these cases will continue to be a matter of competition, not patent, law.  

Update (Jan. 16):  I've tweaked my translation of the new sentence slightly.  For further coverage, see also this article on JUVE Patent.    

German Ministry Proposes Amendment to Automatic Injunction Rule

Yesterday Germany's Ministry of Justice and Consumer Protection released its draft of a proposed set of amendments to the German Patent Act.  (Hat tip to Professor Martin Stierle for calling this to my attention this morning.)  Of most interest to readers of this blog is a proposed amendment to § 139 para. 1, which would add the sentence in boldface:

Wer entgegen den §§ 9 bis 13 eine patentierte Erfindung benutzt, kann von dem Verletzten bei Wiederholungsgefahr auf Unterlassung in Anspruch genommen werden. Der Anspruch besteht auch dann, wenn eine Zuwiderhandlung erstmalig droht.  Der Anspruch ist ausgeschlossen, soweit die Durchsetzung des Unterlassungsanspruchs unverhältnismäßig ist, weil sie aufgrund besonderer Umstände unter Beachtung des Interesses des Patentinhabers gegenüber dem Verletzer und der Gebote von Treu und Glauben eine durch das Ausschließlichkeitsrecht nicht gerechtfertigte Härte darstellt.

In translation:

Any person who uses a patented invention contrary to sections 9 to 13 may, in the event of the risk of recurrent infringement, be sued by the aggrieved party for cessation and desistance. This right may also be asserted in the event of the risk of a first-time infringement.  The claim is precluded, insofar as the enforcement of a claim to injunctive relief is disproportionate because, due to special circumstances and taking into account the interest of the patent holder against the the infringer and the obligation to act in good faith, enforcement of the right of exclusion would present an unjustified hardship.

Note that the translation of the proposed new sentence is my own, very unofficial one. 

I may have more to say about this later today or later this week, after I've read some of the accompanying commentary to the draft bill.  Florian Mueller has already published a (strongly negative, because he thinks the proposal doesn't go far enough) post on FOSS Patents.  My own initial reaction is mildly positive; I was beginning to lose hope that the ministry would make any change in the direction of recognizing proportionality as a governing principle, and I am pleased to see that this draft explicitly mentions the concept.

Update:  The substantive discussion of the proposed amendment is mostly found at pages 50-54 of the discussion draft.  I will start plowing through that soon, and get back to you.

From Around the Blogs, Part 1

1.  Michael Carrier has published a piece on Bloomberg News titled New Statement on Standard-Essential Patents Relies on Omissions, Strawmen, Generalities.  The article presents a (deservedly) critical take on the recently published USPTO/DOJ/NIST Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.  For my comments on the policy, see here.

Meanwhile, the DOJ is asking the Ninth Circuit for permission to participate in oral argument, on behalf of Qualcomm, next month when the court hears FTC v. Qualcomm.  (See article on Law360 here.)  Yes, that would mean two agencies of the U.S. government arguing against each other before a federal court of appeals.  I couldn't make this stuff up if I tried.

2.  Léon Dijkman published a post on IPKat titled Hague Court of Appeal Stays Enforcement of Patent Injunction.  The post discusses what the author describes as an "exceptionally rare" decision in which the Hague Court of appeal stayed enforcement of an injunction pending appeal, on the grounds that (1) the district court failed to consider some of the defendant's arguments, (2) the enforcement would cause significant damage to the defendant, and (3) the patent owner might not be able to provide recourse to the defendant if the decision on the merits is overturned on appeal.  Very good post.  The decision (VG Colours B.V. v.  HE Licenties B.V.) is available here (in Dutch).

Also of possible interest to readers of this blog is a recent guest post on IPKat by Bohdan Widła titled Polish Constitutional Tribunal Rules That Rightholders Can Claim Damages Amounting to Twice a Hypothetical Licence Fee in Copyright Infringement Cases.

3.  On Patently-O, Jorge Contreras and Yang Yu published a guest post titled The Uncertain Criminal Status of PAE Litigation in China.  The post discussed a decision of the Shanghai Pudong New Area People's Court finding that two individuals guilty of extortion, where they allegedly falsified and backdated a license agreement to compel a company to settle infringement litigation on the eve of an IPO, but otherwise finding no wrongdoing simply for the assertion of patents against other companies that similarly were preparing for IPOs.  The prosecutor has appealed the latter ruling.

ZGE Issue on Erlangen Injunctions Conference

Volume 11, Issue 3 of Zeitschrift für geistiges Eigentum (ZGE)/Intellectual Property Journal (IPJ) is now out.  This is the issue that includes articles from the "Conference on Enforcing Patents Smoothly: From Automatic Injunctions to Proportionate Remedies," held at Friedrich-Alexander-Universität Erlangen-Nürnberg in March 2019.  I was one of the speakers at that conference, so my article, titled On the Economics of Injunctions in Patent Cases, is one of those published in this issue.  Here is the abstract:

Courts in many countries continue to award the prevailing patent owner a permanent injunction, absent exceptional circumstances. First- generation law- and- economics scholarship largely supported this practice, based upon the perceived advantages of injunctions in inducing bargaining and reducing valuation errors. More recent scholarship, however, has questioned the wisdom of automatic injunctions, particularly in cases in which the conditions conducive to patent holdup are present. Building upon this more recent work, I argue that the social benefits and costs of injunctions vary depending on the circumstances. To assist policymakers in rendering decisions in the real world, I propose two simplifying assumptions that would enable courts to compare the expected cost of holdup with the expected cost of valuation error. A simple set of recommendations follows, namely that courts generally should (1) grant injunctions when the probability of holdup is low, and (2) deny them when the probability of holdup is great and the expected harm from valuation error low to moderate. For indeterminate cases – for example, when the probability of holdup and the expected harm from valuation error are both high – courts can mitigate both risks to some degree by granting injunctions subject to stays pending design- around.

The full set of contributions includes:

Franz Hofmann, Enforcing Patents Smoothly: From Automatic Injunctions to Proportionate Remedies. Balancing interests via remedies in Intellectual Property Law

Lea Tochtermann, Injunctions in European Patent Law

Daniel Alexander, Injunctions and alternative remedies in English Intellectual Property Law

Thomas F. Cotter, On the Economics of Injunctions in Patent Cases

Jan Bernd Nordemann, Die Aufbrauchfrist im deutschen Wettbewerbs-, Marken und Urheberrecht

Peter Georg Picht, FRAND Injunctions: an overview on recent EU case law

Martin Stierle, Patent Injunctions – Identifying Common Elements

Peter Tochtermann, A judge’s practical perspective on the proportionality of injunctions in patent infringement disputes

Even if your organization does not subscribe to this journal, you might want to get a copy of this very timely issue.  (The German government is still mulling over possible changes to the German Patent Act, as this article from JUVE Patent notes.)  The papers also should be accessible, for a fee, from the ZGE website shortly.  

For previous coverage of the conference on this blog, see here and here.  For an earlier version of my paper on ssrn, see here.

Let's see, we're now nine days into the new year, and I've published two law review articles (for the other one, see here) and a Law360 expert analysis; and an edited volume for which I coauthored several chapters has won an award.  It's nice to be productive, but I probably won't keep this pace up for the rest of the year.  Or maybe I should just take the rest of the year off?  Just kidding . . .   

My Law360 Article on the USPTO/DOJ/NIST Policy Statement on Injunctions and SEPs

As I noted shortly before the holidays, on December 19 the USPTO, the Antitrust Division of the Department of Justice, and the National Institute of Standards and Technology issued a new Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.  The new statement replaces the USDOJ/USPTO 2013 Policy Statement on Remedies for the Standards-Essential Patents Subject to Voluntary F/RAND Commitments, which I previously blogged about several times (see, e.g., here and here).  Anyway, I just published a short analysis in Law360, titled Gov't Policy Statement on SEP Remedies Should be Cabined.  Here is a link.

See also the two posts below, for further news on some recent publications.

Update:  For further coverage of the Policy Statement on Law360, see here.

"Demystifying Patent Holdup" Is Now Out

My paper with Erik Hovenkamp and Norman Siebrasse, titled Demystifying Patent Holdup, 76 Wash. & Lee L. Rev. 1501- 65 (2019), is now out and available here (and here).  Here's the abstract:

Patent holdup can arise when circumstances enable a patent owner to extract a larger royalty ex post than it could have obtained in an arms length transaction ex ante. While the concept of patent holdup is familiar to scholars and practitioners—particularly in the context of standard-essential patent (SEP) disputes—the economic details are frequently misunderstood. For example, the popular assumption that switching costs (those required to switch from the infringing technology to an alternative) necessarily contribute to holdup is false in general, and will tend to overstate the potential for extracting excessive royalties. On the other hand, some commentaries mistakenly presume that large fixed costs are an essential ingredient of patent holdup, which understates the scope of the problem. In this Article, we clarify and distinguish the most basic economic factors that contribute to patent holdup. This casts light on various points of confusion arising in many commentaries on the subject. Path dependence—which can act to inflate the value of a technology simply because it was adopted first—is a useful concept for understanding the problem. In particular, patent holdup can be viewed as opportunistic exploitation of path dependence effects serving to inflate the value of a patented technology (relative to the alternatives) after it is adopted. This clarifies that factors contributing to holdup are not static, but rather consist in changes in economic circumstances over time. By breaking down the problem into its most basic parts, our analysis provides a useful blueprint for applying patent holdup theory in complex cases.