Implications deriving from the now codified exclusion to injunctive relief based on the principle of proportionality under the revised German Patent Act
This year's reform of the German Patent Act ("PatG") has brought about several important changes. This article addresses the practical implications deriving from the now codified exclusion to injunctive relief.
New confidentiality obligations adopted from the German Act on Protection of Trade Secrets improve the protection of trade secrets presented in patent litigation proceedings. Furthermore, the reform aims to synchronise parallel infringement and cancellation proceedings in order to mitigate challenges and uncertainties for the parties involved arising from differences in terms of duration and jurisdiction.
Apart from these changes, the codification of a proportionality defence in Section 139 PatG marks the preliminary end to years of discussion on the risks and benefits of a de facto automatic injunction regime. As this amendment is not only highly controversial, but also has new practical and strategic implications in cases of alleged infringement, we want to shed light on the exclusion's scope and its application and enforcement in practice.
Injunctive relief restrained by the principle of proportionality
Injunctive relief is one of the most effective remedies for patent protection. In exceptional cases, however, it can lead to undue hardship. With products becoming increasingly complex, manufacturers across many industries, including the automobile and mobile sector, are significantly affected when comprehensive injunctive relief is granted due to patent infringements concerning only minor components of their products. In some cases, abusive conduct of patent owners has prompted calls for a legislative corrective. Against this background, the German Federal Court of Justice has in the past recognised an exclusion based on the principle of proportionality that could lead to a rejection of injunctions in exceptional cases.1 Lower courts, though, have been reluctant to apply this principle which fostered the notion that an explicit statutory provision might be necessary.2
Unsettled scope of the exclusion
The amended Section 139 PatG stipulates that injunctive relief is excluded insofar as, in light of the special circumstances of the specific case and the principles of good faith, it would cause the infringer or third parties disproportionate hardship not warranted by the exclusive right. In this case, the aggrieved party shall be granted reasonable monetary compensation.
The new provision goes beyond the approach taken by the German Federal Court of Justice.3 In particular, the stipulation to consider third-party interests is remarkable and may raise concerns in certain quarters.4 When interpreted extensively, patent owners could suffer when their interests are additionally weighted against those of the general public or those of suppliers and retailers in supply chains. An excessive assertion of the exclusion in practice could also slow down infringement proceedings. However, the legislator seems to recognise such risks as it emphasises the importance of effective injunctive relief for patent protection. The exclusion is intended to be limited to exceptional cases.5 The constraint is additionally moderated by the fact that – in deviation from the initial draft – Section 139 PatG provides for mandatory monetary compensation in cases in which the exclusion is applied. Moreover, further compensation for damages remains unaffected.
In view of the necessary case-by-case assessment, the legislator appears to have been deliberately reticent in specifying criteria for the proportionality test. Therefore, it remains to be seen, how and to what extent courts will apply the exclusion and whether the codification will facilitate the desired effect on the application by lower courts.
While the alleged infringer does not have to explicitly invoke Section 139 PatG, it must be apparent from the defendant's submission that the granting of injunctive relief is considered disproportionate.6 In line with general procedural rules, the defendant as the benefitting party bears the burden of proof for disproportionate hardship. A corresponding submission by the plaintiff is therefore only required if substantial reasons for an exceptional limitation of the claim for an injunction have been put forward.7 Since a comprehensive weighing of interests is required while at the time the scope of criteria to consider is still undefined, the defendant should present from the outset any and all circumstances from which the undue hardship can be derived. Any failure to submit adequate facts by the conclusion of the oral proceedings will be to the detriment of the defendant.
Under German patent law, protective writs can be filed as a protective measure if a motion for a preliminary injunction is suspected. It is advisable to present arguments against the proportionality of a preliminary injunction in the protective writ to support the claim that at least an oral hearing should be scheduled, and, if this does not succeed, to ensure that the arguments are taken into account in the event of an ex parte decision by the court.
Arguments for disproportionality
Although they are not conclusive and merely uphold previous case law, the relevant criteria suggested in the explanatory memorandum8 can serve as a basis for proving an injunction to be disproportionate.9
Firstly, the individual interests of the parties involved serve as the starting point for the balancing of interests. On the defendant's side, the potential financial impacts of an injunction need to be emphasised. Where complex products are concerned or substantial and long-term investments have been made, the imminent likelihood of exceptionally high damages can constitute an argument for disproportionality. In addition, a lack of feasible modifications to the infringing product ("design around") can be put forward. On the claimant's side, the interest in injunctive relief will vary depending on the right holder's business practice. An engagement in direct competition with the alleged infringer can increase that interest, while a focus on the mere commercialisation of a patent through licensing agreements may indicate less of an importance.
Further grounds for profound arguments can be found in the conduct of both parties. Disproportionate hardship may exist if the infringer has taken reasonable actions to avoid patent infringements, for example, by carrying out a freedom-to-operate analysis or pursuing a licensing agreement. Furthermore, potential abusive conduct by the patent owner in wilfully delaying an action despite having observed an infringement can be a crucial factor in favour of the infringer. In general, preventative arguments against intent and negligence should be put forward as intentional or grossly negligent infringements could preclude an assertion of the proportionality defence from the outset.
Ultimately, the consideration of third-party interests offers room for new and far-reaching arguments. Especially in cases concerning products that satisfy basic needs, a recourse to interests of the general public or consumers seems possible. Since the scope of relevant third-party interests is yet to be specified, it may prove worthwhile to oppose the interests of the right holder with as many valid arguments as possible to increase the chances of successfully asserting the disproportionality defence.
Additional strategic aspects
When determining a strategy, the defendant should also take into account the level of discretion afforded to the court. Section 139 PatG does not foresee "all or nothing" as the legal consequence of disproportionality, but rather allows for a tailored solution in an infringement case. Courts can adjust the exclusion in terms of scope and duration. When considering proportionality, courts may, for example, reprieve the exclusion to allow for infringing products to be phased out or adapted to mitigate hardship.10 In practice, lawyers on both sides should consider, taking into account the client's interests and the merits of the case, whether it is more promising to seek full or partial exclusion of injunctive relief. In any case, the objection can be useful for the alleged infringer as an instrument to delay injunctions. Moreover, well-founded arguments against proportionality can serve as an introduction to settlement negotiations.
Additionally, the mandatory monetary compensation for the patent owner always has to be considered when arguing for disproportionality. A diligent contemplation of the consequences of injunctive relief or the respective financial burden of compensation is required. Unfortunately, as the legal term "appropriate compensation" for the patent owner is subject to the court's discretion, the defendant should be prepared to argue on this aspect in order to avoid being faced with a disproportionate financial burden.11
In conclusion, the explicit proportionality defence under the revised German Patent Act with its indistinct contours provides useful scope for fighting injunctions but at the same time demands an elaborate strategy. Taking into account the potential restrictive application of the exclusion, enforcing it successfully requires a balanced and well-founded approach that takes all relevant facts, interests and legal consequences into consideration.
1 German Federal Court of Justice, May 10th 2016, X ZR 114/13, para. 40.
2 BT-Drucks. 19/25821, p. 53.
3 Ohly/Stierle, GRUR 2021, 1229, 1232; McGuire GRUR 2021, 775, 783.
4 Compare McGuire GRUR 2021, 775, 781; Meckel GRUR-Prax 2021, 585, 587.
5 BT-Drucks. 19/25821, p. 53.
6 Ohly in Ohly/Sosnitza, 7th ed. 2016, UWG § 8 para. 45; Schacht, GRUR 2021, 440, 442.
7 BT-Drucks. 19/25821, p. 53.
8 BT-Drucks. 19/25821, pp. 53.
9 Schacht, GRUR 2021, 440, 441.
10 BT-Drucks. 19/25821, p. 53.
11 Ohly/Stierle, GRUR 2021, 1229, 1235