Last month, Germany’s Federal Ministry of Justice and Consumer Protection published a discussion paper (DOC) setting out proposed amendments to the country’s patent laws, which are known for their fast and – to some extent – ‘tough’ remedies.
The reforms aim to:
- rebalance the current system, which some argue disproportionately favours patent holders in an age when digital products are getting ever more complex; and
- enhance evidence confidentiality in patent litigation proceedings.
In this blog, we look at the proposed reforms in more detail.
For your convenience, you can also refer to our working translation of the discussion draft (PDF).
Speeding up the defence: streamlining nullity actions and infringement proceedings
Under the German patent litigation system, when a company faces charges of patent infringement, it can defend itself by bringing a nullity action that challenges the validity of the patent concerned.
However, a court can still order the company to suspend production until a decision on the nullity action has been reached. This is due to the so-called principle of bifurcation, under which nullity actions and infringement proceedings are conducted before different courts and therefore under different timelines.
The German patent law reforms aim to improve this situation by speeding up nullity actions and streamlining them with the infringement proceedings.
The discussion paper says courts should issue written preliminary nullity opinions within six months of the nullity claim being filed. This should ensure that the infringement court has the preliminary opinion before taking any further decisions on enforcement.
Whether the reform will make the nullity proceedings quick enough is not completely clear. The proposed legislation only covers the initial phase of the nullity proceedings leading up to the preliminary opinion – it does not address the issue of nullity proceedings taking too long to proceed to a first instance judgement.
It’s also questionable whether the new focus on getting a preliminary opinion more quickly results in nullity proceedings being quicker overall. Having to produce the preliminary opinions more speedily may create more work for judges, which may further delay hearings and judgments.
Preventing disproportionate patent injunctions
If a patent holder can prove a company has infringed its patent, the German courts will automatically issue an injunction requiring the company to stop its infringing activity, and give up or destroy the infringing articles.
With today’s digital products getting ever more complex, this may lead to disproportionate results. For example, what if a carmaker had to stop production because a third party alleges the company has infringed a patent relating to a chip included in its connected vehicles?
The proposed reforms aim to redress this imbalance by introducing a proportionality test. Instead of applying an automatic injunction in these situations, courts would issue other, more suitable remedies, such as giving the alleged infringer a grace period to develop a non-infringing alternative.
The discussion paper’s explanatory notes emphasise that the proportionality test must not jeopardise a strong injunction claim. The draft amending legislation primarily aims to ‘clarify’ the existing law, which, in the Ministry’s opinion, already allows for proportionality considerations when ruling on an injunction claim.
By this, the Ministry is referring to the ‘Heat Exchanger’ decision of the Federal Supreme Court (GRUR 2016, 1031), in which the court indicated that proportionality considerations could be relevant for the injunction claim under very exceptional circumstances and may make it necessary to grant a use-up period. It also refers to article 3 of the EU intellectual property rights enforcement directive (2004/48/EC).
By emphasising that the new rules merely clarify the existing ones, lower courts might be tempted to decide that things can essentially continue as they are and only apply the new proportionality test to the most extreme cases. Still, the new rules will at least force the courts to address proportionality whenever raised as a defence and take it into account when ruling on an injunction. This is a change of the law that will have an influence on the practice of the courts.
The new proportionality provision is drafted as a general clause. Some interested parties had suggested that a list of examples scenarios – such as non-practising entities as claimants and complex products – be added to help courts apply the provision. The idea of including examples is mentioned in the explanatory notes, but the Ministry chose not to add any to the proposed amending legislation. While this leaves room for the courts to develop the actual scope and application of the new test, there is a risk that individual courts will apply rather different standards when doing so.
The draft legislation leaves it to the full discretion of the court to determine the remedies in case of disproportionality. At the same time, it remains unclear how that will play out in practice. According to the literal wording of the draft legislation, the injunction is ‘excluded’ (only) in so far as its enforcement would be disproportionate.
Enhanced confidentiality protection in patent ligation proceedings
There is currently no mechanism under German patent litigation law that prevents a party’s confidential information being revealed to the other party during a trial.
The draft legislation will close this gap to a significant extent by incorporating Germany’s 2019 trade secrets law (based on the 2016 EU trade secrets directive) into the patent litigation rules.
Under the reform, courts could:
- issue protective orders prohibiting the opposing party from using confidential information obtained in the course of the proceedings for any other purpose; and
- order the creation of a ‘confidentiality club’ consisting only of individuals who are entitled to access such confidential information in the course of the proceedings.
The introduction of these rules have so far proved uncontroversial.
A broader perspective: the situation in the UK
In the UK, there is no bifurcation, meaning that validity and infringement are dealt with together in the same court.
The usual remedy for a patent found valid and infringed in the UK is a permanent injunction. The injunction is, however, an 'equitable' remedy, with its history deriving from the chancery (non-statutory) jurisdiction.
Unlike in Germany, the trial judge has discretion to refuse to grant an injunction or vary the scope of the injunction order in appropriate circumstances. Exercise of that discretion is nonetheless still the exception rather that the rule.
For instance, our London office recently carried out an in-depth analysis as to the likelihood of the UK Patents Court deviating from the standard practice of ordering an injunction. In less than 1 per cent of cases issued between 2014 and 2019 did the UK Patents Court ultimately decline to grant an injunction as the remedy for patents found to be valid and infringed. This shows that, despite the inherent flexibility of the 'UK-style' injunction, it remains the standard remedy for a valid, infringed patent.
It remains to be seen if the German courts will take a similar approach, if and when the proposed proportionality considerations are introduced.
The reforms aim to rebalance the current system, which some argue disproportionately favours patent holders in an age when digital products are getting ever more complex.