Clifford Chance

The first decisions by Düsseldorf and Munich’s district courts since amendments to the German Patent Act reveal that the jurisprudence is so far unaltered and continues to uphold a strong level of patent protection.

Background

The codification of the new disproportionality exception into Section 139 of the German Patent Act marks the preliminary end to years of discussion, led by all kinds of industry members, on the risks and benefits of a strict injunction regime.

It became the predominant opinion that while cease-and-desist injunctions are the most effective and crucial remedy for patent protection, exceptions for certain cases are needed. While a disproportionality exception has been part of the Federal Court of Justice's jurisprudence since its Wärmetauscher decision in 2016, regional courts have, so far, been reluctant to apply it to the otherwise strict de facto injunction regime.

The new Section 139: introducing the disproportionality exception

The new exception is now implicated as a defence plea by the infringing party. Section 139(1) of the revised act outlines an exclusion of an injunction in cases where:
the claim would lead to disproportionate hardship for the infringer or third parties; and
there is a weighing of interests under the individual case’s special circumstances and the requirements of good faith do not justify the exclusive right.

If a disproportionality exception is indeed found, an adequate sum must then be paid to the patent owner to make up for the refused enforcement of the exclusive right.

The lawmakers’ vision

The drafting documents to the act’s revision outlines some criteria that the courts should weigh when considering an application of the disproportionality exception.

Expectation of exceptional damage – claims can be excluded if the economic effect of a cease-and-desist injunction on the infringer would be disproportional to the patent’s worth and the infringement’s damage to its holder.

Complex products – if the patent-in-suit pertains to a relatively insignificant part of a larger, more complex product (eg, a car), an injunction, which would halt the production of the complex product, might lead to disproportionality.

Non-practicing entities – as part of their overall consideration, courts may consider whether a plaintiff is using its patent for actual production, or exclusively for monetisation without production.

Intent to infringe – in cases where the infringer displays considerable willingness to obtain a licence for the patent-in-suit and/or has conducted a thorough freedom-to-operate analysis beforehand, such conduct can be weighed towards a disproportionality exception to an injunction.

Third-party interest – if the injunction and subsequent halt to produce an infringing good was to harm third parties in a significant way, third-party interests might weigh towards disproportionality.

However, these criteria are not absolute. The new act still requires a thorough weighing of interests by the respective courts before a disproportionality exception can be granted.

Reactions to the new law

Some commentators – and the drafting documents – anticipated that the proportionality exemption will be applied by lower courts more often than before. However, the first published decisions by the regional courts of Dusseldorf and Munich indicate that there will be little if any change in their respective jurisprudence. The courts instead interpret the new act as a confirmation of the previous Federal Court of Justice’s jurisprudence and made clear that an injunction is still the default in cases of infringement; disproportionality exceptions are limited to special, exceptional cases.

The Regional Court of Munich held that the new rule will not be applied in a way as to render all non-practicing entities’ applications for injunctions as disproportionate. Instead, such a fact can, in exceptional cases, be relevant in a weighing of interests and will even then typically lead to a duty to consent to a licence instead of procuring an injunction (LG München I – 21 O 8879/21 keepawake-message; 21 O 12142/21 Funkkommunikationseinrichtung).

It was also made clear that the disproportionality limitation cannot be applied if the patent owner has complied with its FRAND duties, while the infringer has proved unwilling to accept a FRAND licence (LG München I – 21 O 11522/21 Pitch-Lag- Schätzung).

The Regional Court of Dusseldorf specifically dealt with third-party interests, which may be of high relevance in pharma cases. The court ruled that even if patients must switch their medication from the infringing generic product back to the original, there cannot be claimed hardship unless there is evidence of severe medical side effects. Further, any party claiming the impediment of third parties must demonstrate that it itself acts in good faith. Hiding behind third-party interests can therefore not sustain a disproportionality limitation if third-party demand was created by the defendant. Only in the most extreme cases ("nur im äußersten Einzelfall") and only following an unsuccessful compulsory licensing procedure, can the interests of third parties justify a disproportionality exception (LG Düsseldorf – 4 c O 18/21).

Since no decisions on complex products have been published yet, it remains to be seen how that argument will be applied by courts, but it can be expected that in these scenarios the disproportionality will remain the exception. It also remains to be seen whether grace periods will be ordered more frequently following the amended act.

The road ahead: a question for the Unified Patent Court

The new disproportionality exception does not seem to have resulted in real change to case law, at least none is expected for the foreseeable future. Instead, patent owners can heave a sigh of relief: despite all discussion during the drafting phase of the new law, German regional courts are staying faithful to their general rule of automatic injunctions and continue to provide strong patent protection in Germany.

That being said, it will be interesting to see how the different local divisions of the Unified Patent Court will interpret Article 63(1) of the Agreement of the Unified Patent Court, which provides not for automatic injunctions in case of infringement, but for the court's discretion, as it "may” grant injunctions against infringers.

The article has first been published on iam-media.com.