Friday, March 8, 2019

Stays Pending Design-Around in Germany, Part 4

On a few occasions I've blogged about whether courts should more readily grant stays of injunctive relief, pending the defendant's implementation of a non-infringing alternative.  As I noted here last May, Colleen Chien and Eric Shulman have nicely summarized the rationale for granting such "tailored" injunctions: 
Making tailored injunctions in component patent cases, rather than full injunctions the default when injunctions are warranted, has several benefits. First, tailored injunctions are less disruptive than removing the product but more powerful than simply giving damages. In this way, it can address both hold-up: the wielding of power by the patentee in light of the high costs of switching, and hold-out: the refusal of accused infringers to consider legitimate patent demands because they can. Under the threat of a non-tailored injunction, an implementer may end up settling based on unnecessary switching or design around costs, even though the patent is invalid or not infringed, a concept often referred to as “hold-up.” But without the threat of injunction, the patentee cannot get the alleged infringer to the table, a concept often referred to as “hold-out.” 
While the prospect of a tailored, rather than all-or-nothing injunction, changes the dynamic for the parties, it benefits third parties as well. Tailored injunctions reduce the risk of error in calculating long-term damages. Rather than having to approximate the damages until the patent expires, the court orders the specific relief of injunction. That relief is simpler to determine (though it does create monitoring costs). Tailored injunctions reduce disruption to the public or third parties who have sunk costs into the existing solution.
Courts in the U.S. do occasionally stay injunctions pending design-around, rather than denying injunctive relief altogether; and so has the Patents Court for England and Wales in at least one case (see here).  

Courts in Germany, on the other hand, have been reluctant to grant such stays--known as Aufbrauchfristen in German--absent truly exceptional circumstances.  I have discussed this topic in a series of posts three times previously (see herehere, and here).  The first two posts discussed the Bundesgerichtsfhof's Judgment of 10 May 2016, X ZR 114/13 (Wärmetauscher, or "Heat Exchanger"), available in the original German here.  The third post mentioned a more recent decision of the Düsseldorf Landesgericht, the Judgment of March 9, 2017, 4a O 17/15, in which the court denied an Aufbrauchfrist that would have stayed an injunction to enable the defendant to design around a medical device (an "Apparatus for endovascularly replacing a patient's heart valve").

One thing that wasn't clear to me from these previous decisions was whether German courts would be authorized to grant interim damages pending the design-around period, had they been inclined to delay entry of the injunction.  Recently, however, a German Ph.D. student, Maximilian Schellhorn, alerted to me a 1960 decision in which the Bundesgerichtshof indicated that the claim for damages during this period would be untouched (unberührt).  It's an unfair competition case, the Judgment of May 31, 1960, I ZR 16/59--Sektwerbung (BGH), in which the court authorized a four-month Aufbrauchfrist, apparently to enable the defendant to sell off its inventory of Sekt (a sparkling wine) pending a change in its labeling.  The facts are a bit quirky.  The plaintiff claimed to be the first wine merchant to sell Sekt in Germany, dating back to 1826.  The defendant had been in the wine business starting in 1794, but began producing Sekt only in 1843.  For several years preceding the lawsuit, however, the defendant had sold only Sekt, and its bottles, ads, etc. bore the legend "gegründet 1794" or "seit 1794" ("founded 1794," "since 1794").  The court agreed that this amounted to misleading advertising, insofar as some consumers might think the firm had been selling Sekt (and not merely conducting business) that long.  Given that the violation was neither willful nor grossly negligent, however--and that the plaintiff had tolerated it for quite a long time--the court allowed the defendant to avoid the injunction for a period of four months, until September 30, 1960.  As noted, however, the court indicated that the plaintiff could recover a judgment for damages covering the entire period in which the defendant continued to sell infringing products (Judgment part V.4, para. 33).

Although German decisions do not identify the parties by name, based on what the court says about the companies that litigated the case it would appear that both the plaintiff and the defendant remain in business.  I will make a note to sample some of their products when I'm in Germany later this month--all in the interest of research, of course.

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