The Proportionality Defense in German FRAND Cases

Here are two recent papers you should read if you're interested in Germany's new proportionality defense against injunctive relief in patent cases:

 

1. Peter Georg Picht and Jorge L. Contreras have posted a paper on ssrn titled Proportionality Defenses in FRAND Cases - A Comparative Assessment of the Revised German Patent Injunction Rules and US Case Law.  Here is a link to the paper, and here is the abstract:

 

A new defense against injunctions in FRAND cases has arisen in Germany, and its relationship to the Huawei defense (whether viewed as a competition or contractual matter) is largely unexplored. In August 2021, the “Second Act for the Modernization of Patent Law” (Zweites Patentrechtsmodernisierungsgesetz) took effect and modified the German Patent Act (GPA) in several respects. Pertinent to our topic is an amendment to § 139(1) GPA which introduced an explicit proportionality defense against injunction claims. The new proportionality mechanism consists of three main elements: First, § 139(1)(3) GPA excludes the claim to an injunction in case of patent infringement to the extent such injunction would result, due to the particular circumstances of the individual case at issue and with a view to the principle of good faith, in a hardship for the infringer or third parties that would be disproportionate and not justified by patent exclusivity. Second, § 139(1)(3), (4) GPA entitle the patentee to appropriate financial compensation if the injunction is denied, without prejudice to its other claims for damages. Third, § 142(7) GPA exempts an infringer from penal law sanctions to the extent § 139(1)(3) GPA excludes an injunction. This article offers to market participants and the judiciary a proposed analytical framework for considering such a proportionality defense in German FRAND cases. While the introduction of this new defense presents various additional issues, we focus primarily on three aspects: (1) whether the proportionality defense and the FRAND license defense can be raised in parallel, (2) whether FRAND royalties are a suitable basis for calculating the appropriate financial compensation in the sense of § 139(1)(4), and (3) how a court should assess whether the impact of an injunction in a FRAND case is disproportionate and not justified by the exclusivity conferred on the patent holder. In formulating an analytical framework to address the latter question, we also consider whether the injunction law of the United States may offer useful guidance, or at least cautionary notes, for the German context.

 

The authors argue, inter alia, that implementers should be able to invoke the proportionality defense in FRAND cases, along with the competition-law defense where applicable, and they conclude with a discussion of various “parameters” for assessing proportionality in FRAND cases, including the consideration of third-party interests.  

 

2. Martin Stierle and Franz Hofmann have a paper forthcoming in GRUR Int., titled The Latest Amendment to the German Law on Patent Injunctions: The New Statutory Disproportionality Exception and Third-Party Interests.  Here is a link, and here is the abstract:

Germany is a prominent jurisdiction for patent litigation. After a long and controversial discussion between stakeholders, the legislator amended the law on injunctive relief in summer 2021 and introduced a statutory disproportionality exception. This article gives an overview of the background to the reform and describes and analyses its implementation, the methodology to assess disproportionality, and the relation to the law on compulsory licensing as well as the special regime for standard-essential patents. The paper focuses particularly on the most controversial ground for denying an injunction: third-party interests in the infringing implementation of the invention.

The authors discuss various open questions under the new law.  A principal topic of discussion is how courts should evaluate third-party interests, in deciding whether to stay injunctive relief, and also how the exception compares to Germany's seldom-used compulsory-licensing regime and to its courts' application of the competition law defense.

 

3. Meanwhile, as others have noted in recent weeks, the German courts thus far have not seen fit to apply the proportionality defense in any cases.  For recent discussion, see, e.g., Thosten Bausch, First Decision on the German Proportionality Defense in a Pharma Case, Kluwer Patent Blog, Oct. 2, 2022; Florian Mueller, In SEP and non-SEP cases alike, unwilling licensees have no proportionality defense to patent injunctions in Germany: Dusseldorf court ruling also clarifies need to seek compulsory license first, FOSS Patents, Oct. 5, 2022.  For other recent discussion on FRAND matters in Europe and elswhere, see NL-Orope v. Nokia, EPLaw Blog, Sept. 27, 2022 (discussing a recent Dutch decision in which the court issued an injunction, but stayed it for two months); Matthieu Dhenne, OPPO's New FRAND Order:  "You got your injunction?  Well, I quit" (French perspective), Kluwer Patent Blog, Sept. 16, 2022; Naho Ebata & Mami Hino, Japan:  Guidelines for a Transparent and Predictable SEP Licensing Negotiation, Kluwer Patent Blog, Sept. 30, 2022.