Liability of foreign suppliers for their customer’s patent infringement in Germany

Compared to other jurisdictions, German case law has a fairly broad concept of liability for patent infringement, which has significant implications for the global reach of German patent law.

In Germany, not only is the person or company who commits the actual patent infringement liable for patent infringement, but also any third party contributing to, or enabling such infringing acts. This doctrine can even apply to sales of goods between foreign companies outside of Germany, if the patent infringing goods are ultimately shipped to Germany.

Two recent judgements of the German Federal Court of Justice (FCJ) set the standard for liability of third parties in foreign countries in such cases, namely the decisions Audiosignalcodierung (decision of 03.02.2015 – X ZR 69/13) and Abdichtsystem (decision of 16.05.2017 – X ZR 120/15).

Audiosignalcodierung

In the case Audiosignalcodierung, a method of encoding and decoding audio signals was patented in Germany. The defendant, a Chinese company, sold decoders implementing the patented method in China to another Chinese company. The Chinese buyer then sold the decoders to a German customer. The defendant admitted that at the time of the initial sale it had knowledge that a subsequent sale of the decoders in Germany was at least a possibility. Also, on the defendant’s website the German recipient was listed as a distributor for the European market. From these facts the Court of Appeal concluded that the defendant had knowingly supported the distribution of the decoders in Germany and held the defendant liable for indirect patent infringement in Germany.

The FCJ confirmed this finding and held that selling the devices to German customers constitutes indirect patent infringement. The FCJ also confirmed the defendant’s liability, because in the present circumstances the defendant had culpably contributed to the distribution to Germany. Given the factual background (the defendant’s admitted knowledge of potential delivery to Germany and mentioning the German customer as a distributor for Europe), it was understood that the FCJ had based its decision on actual knowledge of delivery to the German market.

Abdichtsystem

In the case Abdichtsystem, the FCJ further reduced the requirements for the liability of foreign parties and provided more detailed guidance on the corresponding standard of care to avoid such liability.

The defendant, an Italian company, sold repair kits for car tires, comprising a patent protected sealing system. One of its customers was another Italian company (Fiat), which equipped its cars with the defendant’s repair kits and sold them, inter alia, to German customers. The defendant claimed to have had no knowledge whether these products were distributed to Germany, since it was up to the customer (Fiat) to decide which cars would be equipped with the repair kits. The defendant was held liable with regard to direct sales to German customers. With regard to sales between the defendant and Fiat in Italy, the trial court as well as the Court of Appeal dismissed the action and held that, in line with the FCJ’s judgement Audiosignalcodierung, only actual knowledge of the distribution to Germany would trigger liability for the infringement.

The FCJ referred the case back to the Court of Appeal and clarified that actual knowledge of the reselling in Germany is one cause but not a prerequisite for liability. According to the FCJ, it is not sufficient that a supplier has knowledge merely of the abstract possibility of the products being delivered to Germany. Instead, in conformity with the principle that liability follows from own culpable contribution to the infringement, it must be assessed in each case whether the circumstances at the time of the foreign sale gave rise to an obligation to take care of the German patentee’s interest and whether the defendant was in breach of such an obligation when making the sale in a foreign country.

A supplier does not generally have to monitor and review what the customer does with the sold products. However, if concrete indications point towards a distribution of the sold products in Germany, the supplier has to ask its customer, warn against potential patent infringement and stop the supply if its concerns are not overcome by the customer’s response.

Such concrete indications can often only be assumed, if a supplier is aware of actual sales to Germany. General business relations with German customers are not sufficient, because they are no specific indication of a supply of patent infringing goods to the German market.

However, other circumstances may indeed be considered concrete indications for infringement. As examples, the FCJ provided a case in which the amount of product delivered to a foreign company seems too large to be intended only for markets other than Germany and a case in which a correlation between orders and infringing activities of the customer on the German market was obvious. In the case at hand, according to the plaintiff‘s submission, the defendant had argued in the enforcement proceedings that he himself had only delivered a small amount of repair kits to Germany.

According to the defendant’s own submission, however, the enforcement of an injunction in Germany would have great financial impact, because many car manufacturers rely on his supply. The FCJ held that if both statements are correct, i.e. if the defendant only sells a small amount to Germany himself but also faces a great financial challenge in case of an injunction in Germany, there must be concrete indications that its customers deliver the patent protected products to Germany. The FCJ, however, could not decide the case on this basis, because the Court of Appeal had not established the relevant facts. Therefore, the case was referred back to the Court of Appeal for further submissions and fact-finding.

In summary, if indications that the supply chain will eventually lead to Germany are specific enough, a foreign supplier has to review the customer’s business transactions and stop supplies if concerns regarding sales to Germany are not overcome. A foreign supplier who fails to comply with this obligation will be held liable for any resulting infringement in Germany.

Therefore, even business transactions between two non-German companies outside Germany may well trigger liability for patent infringement in Germany, if the ultimate destination of the sold goods is the German market. So far, the FCJ has only decided on cases in which the supplier’s immediate customer delivered the products to Germany. Nevertheless, based on the general guidelines provided in the judgement Abdichtsystem, liability may also follow from actions at an even earlier stage of the supply chain.