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.