Germany: Ministry's draft bill for Patent Law Modernisation Act includes proportionality test

Is this the end of "automatic injunctions" for patent infringement in Germany?

On 1 September 2020, the Federal Ministry of Justice and Consumer Protection presented the ministry's draft bill (Referentenentwurf) of a second law to simplify and modernise German patent law (Zweites Patentrechtsmodernisierungsgesetz).

The bill's most important element is the implementation of a "proportionality test" in the context of the patentee's right to injunctive relief under Section 139 of the German Patent Act.

Current situation

The previous wording of Section 139 para. 1 of the German Patent Act states that the owner of a patent, which is used by a third party without consent (i.e. infringed), can obtain an injunction against the third-party infringer. Products infringing the patent must be removed from the market in the event of enforcement of such an injunction.

As a result of technological progress, however, products are becoming increasingly complex, while the subject matter of today's patents often covers only small technical aspects. The number of patents used in the manufacture and distribution of, for example, a mobile phone is estimated to be several thousand. In recent years, digitalisation has increasingly affected other sectors, such as car manufacturers.

Against this background, patent infringement proceedings have been brought before German courts, particularly in the automotive and mobile-phone sectors, in which sales' bans for entire product series are threatened on the basis of a single patent protecting only a small technical detail. Numerous cases are pending before the patent litigation chambers of the regional courts of Düsseldorf, Mannheim and Munich against international car manufacturers, which have come to be known under the buzzword "Connected Cars Disputes", and in which the actions brought could result in extensive bans on the manufacture and sale of the car models in dispute.

This situation, precarious for the defendant, is aggravated by the fact that "Non-Producing Entities "(NPEs) often invoke patents whose legal validity is doubtful. Admittedly, in such cases, the alleged infringer is free to attack the validity of the patents asserted against it. In contrast to other legal systems, however, German patent procedural law provides for the legal validity of a patent to be determined in separate legal proceedings (i.e. bifurcation), which generally have a significantly longer duration than the infringement proceedings at first instance. As a result, the situation in most cases is that at the time of the first-instance decision of the infringement court, a decision has not yet been rendered in respect to the disputed validity of the patent at issue.

Proportionality test under current law

In this context, the question has arisen in practice to what extent the legal principle of proportionality is compatible with the issuance of a comprehensive injunction based only on the unauthorised use of an individual patent, even if the patent's legal status is unclear or the significance of the patent in the product may be rather small.

The German Federal Court of Justice (Bundesgerichtshof) already stated in 2016 in its "Wärmetauscher" decision (judgment of 10 May 2016, docket no. X ZR 114/13) that in individual cases an injunction can exceptionally be limited if the immediate enforcement of the patent owner's right to injunctive relief results in disproportionate hardship, even when taking his interests into account vis-à-vis the infringer, and is therefore contrary to good faith. This decision, however, referred solely to the granting of a "grace period".

Under current law, it is possible in exceptional cases to limit the right to injunctive relief based on proportionality in the individual case. In practice – as with the decision of the German Federal Court of Justice – this exception practically speaking has so far never been used.

The proposal in the draft bill

The draft bill now proposes including a proportionality test in the law, which allows for the exclusion of the right to injunctive relief in certain special cases. Section 139 para. 1 of the German Patent Act is supplemented by the following addition:

The claim is excluded if the fulfilment would lead to disproportionate disadvantages for the infringer or third parties, which are not justified by the exclusive right due to the special circumstances of the individual case. In this case, the infringed party may demand compensation in money, as far as this appears reasonable. This shall not affect the claim for damages under paragraph 2.

As was already the case with the discussion draft in January 2020, this addition is intended to "clarify" the legal regulation in regard to the actual legal situation by merely codifying the decision of the German Federal Court of Justice.

Discussions so far

The explicit inclusion of a proportionality test for injunctive relief under patent law has been intensively discussed for years. The debate was further fuelled by the discussion draft of January 2020. For the supporters of the proposed regulation, the test did not go far enough. They argued the test would be largely meaningless due to its exceptional character. Critics of a proportionality test criticise the proposal in the discussion draft for going significantly beyond the "Wärmetauscher" decision of the German Federal Court of Justice. In this respect, the legislative amendment would constitute a clear weakening of patent protection in Germany, which is known to this day for the fact that patents can be effectively enforced due to the de facto automatism between patent infringement and injunctive relief. This is particularly true when comparing Germany to the UK and the US where courts carry out proportionality tests when granting injunctive relief.

It is not yet clear to what extent the proposed legislative amendment would in practice open the door to a mandatory regular proportionality test or whether it would remain largely meaningless. In any case, a codified proportionality test alone will not be able to remedy the precarious situation for the defendant described above. In particular, the fact that nullity proceedings are clearly too long in relation to infringement proceedings can only be eliminated by a considerable increase in the number of judges and staff at the German Federal Patent Court (Bundespatentgericht).

Further contents of the draft bill and next steps

In addition, the ministry's draft bill contains further provisions among others to ensure the protection of trade secrets in patent litigation, synchronise nullity and infringement proceedings, and adapt criminal law.

According to the Federal Ministry of Justice and Consumer Protection, departmental coordination and the position of the federal government on the proposed proportionality test in the context of the right to injunctive relief under patent law has not yet been completed. Stakeholders have until 23 September 2020 to comment on the ministry's draft bill.

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