Thursday, February 16, 2017

Stays Pending Design-Around in Germany?

The question of whether, in a case in which the patent owner prevails on liability, the court should consider "staying" an injunction for a period of time, rather than denying the injunction altogether, to enable the infringer to design around the patented invention is one that has received some attention in the U.S. scholarship and case law.  In some respects it's an attractive option, since it reduces the risk that an infringer under threat of an injunction will agree to a royalty that reflects holdup value, while also reducing the potential harm to the patent incentive scheme that may result if the court were to enter a permanent ongoing royalty that inaccurately reflects the value of the invention.  (When U.S. courts choose this option, they typically award a temporary or "sunset" ongoing royalty that lasts only for the design-around period.  Unfortunately, the rate for these ongoing royalties is frequently higher than the prejudgment royalty rate--which makes little economic sense, see discussion here--but at least when the court is only staying the injunction the impact of such an error is temporary.)

For the most part, courts outside the United States still tend to view awards of injunctive relief to the prevailing patent owner as more-or-less automatic (as did U.S. law, prior to eBay) other than in SEP/FRAND cases.  Moreover, a May 2016 decision of the German Bundesgerichtshof (BGH, or Federal Supreme Court) suggests that German courts aren't very receptive to  the stay-pending-design-around idea either.  (Hat tip to Norman Siebrasse, who called to my attention Jochen Buehling's discussion of this case last month on the Kluwer IP Blog.)  The case is the Judgment of 10 May 2016, X ZR 114/13 (W├Ąrmetauscher, or "Heat Exchanger"), available in the original German here.  The patent in suit claims a heating system for vehicles, and the principal issue before the BGH was whether the defendants' products infringed.  The courts of first and second instance held that they did not, but the BGH reversed, and most of the decision discusses the appropriate principles of claim construction leading to this result.

Of interest to remedies mavens, however, is the court's discussion of the defendants' alternative request for an Aufbrauchfrist (a term that Dr. Buehling nicely translates as "transition period") to enable them to sell off their stock and fill orders that had been placed up until the reversal on appeal.  If I'm understanding this correctly, the BGH holds that the granting of such a transition period can only be granted when, in consideration of the interests of the patent owner and the infringer, the immediate enforcement of the injunction would result in a disproportionate and undue hardhip and thus would be in bad faith (para. 41a).  The court further states that the issue of whether such a transition period would ever be available in a patent case hadn't come before the high court before, but that the legal literature had proposed that a court could consider granting such a transition period on a case-by-case basis, taking into account all of the participants' interests; the infringer's good or bad faith; whether the patented invention formed just a small but functionally necessary component of a complex product; and whether an unpatented or licensed product could be substituted within a reasonable time. The court also doesn't see anything in TRIPs article 30 (which permits "limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties"), or in article 3 of the EC Enforcement Directive ("Member States shall provide for the measures, procedures and remedies necessary to ensure the enforcement of the intellectual property rights covered by this Directive. Those measures, procedures and remedies shall be fair and equitable and shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays. . . .  Those measures, procedures and remedies shall also be effective, proportionate and dissuasive and shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse."), that would require the more liberal granting of transition periods.

Applying these rules here, although the infringing subject matter comprised only a single element of a component (a vehicle seat) in a complex product (a vehicle), it wasn't an essential feature, and it wasn't shown that the defendants lacked alternatives or that an injunction would cause undue hardship.  Nor did it matter that the courts of first and second instance though the products were noninfringing.  

Based on the above discussion, as I understand it the court doesn't contemplate that a transition period could be accompanied by an interim royalty.  Rather, it would simply be an exception to the patent owner's exclusive rights, and barring some exceptional circumstances a German court won't grant it.  

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