Thursday, November 7, 2013

Damages for Injunctions Granted in Relation to Subsequently Invalidated Patents Under German Law: A Correction

Suppose a patentee sues an infringer, wins, and the judgment is not appealed or is affirmed on appeal.  Suppose thereafter that the patent is invalidated.  This can happen both in countries in which invalidity can be raised as a defense or counterclaim to infringement, as in the United States and the U.K. (because the patent might be invalidated in a subsequent infringement proceeding against a different defendant, or in a subsequently-concluded administrative proceeding), and in countries in which invalidity determinations are only made in separate proceedings (such as Germany).  In some countries, including the U.S., the defendant who lost the infringement suit is out of luck once the judgment becomes final; res judicata kicks in and the defendant doesn't get back the damages he paid or any other relief (unless there was fraud in the procurement of the patent or some other reason to reopen the judgment, which is rare).  In many other countries, however, including Germany, the defendant is entitled to compensation in the event the patent is subsequently invalidated.  (Even in the United States, a patentee who obtains a preliminary injunction normally must post a bond to compensate the defendant in the event the preliminary injunction is subsequently lifted and the defendant suffers damages in the interim--though in the U.S., the defendant cannot recover any damages over and and above the amount of the bond.  In many other countries, the defendant's relief is not capped by the amount of the bond.)  I've discussed all of these topics on the blog in the past, here, here, here, and here.    

In countries such as Germany in which the defendant is entitled to compensation in the event the patent is subsequently invalidated, my understanding until recently was that the defendant could recover the amount of any damages it had paid to the patentee, but not damages to make up for having been wrongly excluded from using the patent.  Recently, however, in rereading a portion of Christopher Heath's foundational article Wrongful Patent Enforcement—Threats and Post-Infringement Invalidity in Comparative Perspective, 39 IIC 307 (2008), I came across the following sentence toward the very end of the paper:  "the defendant should be entitled to recover the damages paid under the first decision, an ordinary licensing fee for the products the plaintiff could sell instead of the defendant thanks to the first injunctive order, and interest thereon."  I contacted Dr. Heath to ask him about this point, and he confirms that under German law the defendant is entitled to recover not only the damages it paid to the patentee, but also monetary relief for having been wrongfully excluded from using the patent.  Dr. Heath states that he is not aware of any cases on point, however, since most of the time the parties would settle before a court would have to resolve the matter.

In my draft paper The Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties, available here, I refer to an article by Peter Camesasca et al. titled Injunctions for Standard-Essential Patents:  Justice Is Not Blind, 9(2) J. Comp. L. & Econ. 285 (2013), that argues that (particularly in Europe) patent holdup may be a smaller problem than "reverse" holdup, under which a potential licensee refuses a license in the hopes of getting a better deal in litigation or in settlement of litigation.  One of the reasons the authors assert (at pp. 296-97) is that implementing an injunction is “not without risk,” because the patentee may have to pay damages to the defendant if the patent is subsequently revoked or the infringement judgment reversed on appeal.  I responded (at p.36 n.163, para. 3):
My understanding, however, is that the patentee may be liable for damages, which could exceed the amount of the injunction bond, for what is subsequently determined to be a wrongly-issued preliminary injunction (which, again, the authors state is unlikely to occur in any event).  Following the entry of a final judgment, the patentee would be liable only for restitution of damages the defendant has paid the patentee, if the patent is later declared invalid; moreover, a licensee is not entitled to restitution of payments made under a license of a subsequently invalided patent.
I see now that I was wrong:  as per Dr. Heath's analysis, the patentee may be liable not only for the repayment of any damages the defendant paid the patentee, but also for other harms suffered as a result of being wrongly excluded from using the patent. (However, I believe it is still correct that a licensee wouldn't be entitled to restitution of payments made under a license of a subsequently invalidated patent, unless the license expressly conferred this right. See Heath, supra, p.319.)  I apologize to Camesasca et al. for the error, and will correct that portion of my paper later today. 

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