25 June 2021
Germany’s Second Bill to Simplify and Modernise Patent Law
The Federal Government’s draft bill to simplify and modernise patent law (as amended by the Legal Affairs Committee) was adopted by the Bundestag on 10 June 2021 and passed the second Bundesrat examination on 25 June 2021. The Bundesrat decided not to request that the Mediation Committee convene to address the bill. The bill now remains to be signed, approved and promulgated. With a few exceptions, the new legal provisions will enter into force on the day after the law was promulgated.
The legislative reform focuses on three areas: First, the new law codifies that in exceptional cases, the right to obtain injunctive relief for patent infringement may be limited for reasons of proportionality. Second, invalidity proceedings before the Federal Patent Court are streamlined to become more synchronised with the infringement proceedings heard by the civil courts. Third, the Trade Secrets Act (Gesetz zum Schutz von Geschäftsgeheimnissen, GeschGehG) is applied in patent litigation.
Injunctive relief in patent law and the proportionality principle
Sec. 139(1) PatG (Patent Act) now defines that the infringement of a patent does not inevitably entitle the infringed party to injunctive relief but that this claim may, in exceptional cases, be restricted by proportionality considerations. The Federal Court of Justice acknowledged this principle in the 2016 Wärmetauscher ruling while refusing to grant a grace period in that case. The new Sec. 139(1), 3rd sentence PatG:
“This right shall be precluded to the extent that, considering the special circumstances of the particular case and the principles of good faith, it would cause the infringer or third parties disproportionate hardship not justifiable by the right of exclusivity.”
The express reference to the principles of good faith, introduced only by the Legal Affairs Committee, makes it clear that the test for unjustifiable hardship precluding injunctive relief requires an assessment of all facts and circumstances of the case, specifically including the patent proprietor’s legitimate interests. The legislator’s explanatory report considers, however, that the infringed party’s legitimate interest in an injunction may be less pronounced where that party itself does not manufacture or have manufactured products in direct competition with the patent-infringing product but primarily seeks to monetise its rights. In scenarios such as these, the injunctive relief claim may in particular be restricted where it is used as leverage to enforce obviously excessive royalties. Injunctive relief may also be limited where the infringer, if he complied with the claim immediately, would suffer exceptionally great damage completely disproportionate to the value of the infringed patent. Furthermore, the unconditional enforcement of injunctive relief shall be precluded where a patent is infringed by a secondary element of a component for a complex product such as a car, and redesigning that element would require considerable time and economic resources, resulting in a lengthy stop of production of the complex product, which would be completely disproportionate to the value of the infringed patent. Subjective elements may become relevant as well, such as the question whether the patent infringer took possible and reasonable precautions to avoid patent infringement, for example a freedom to operate analysis. Finally, third party interests with implications for constitutional rights may have to be considered and support restricting the right to injunctive relief, for example if a prohibitory injunction for infringing a patent granted on a relatively insignificant function would cripple an entire infrastructure, such as a mobile communication system.
Successfully applying the proportionality principle mainly has the legal effect – see the wording of the new law, “to the extent that” – of partially precluding the injunctive relief claim by granting a reasonable conversion or grace period, while fully and permanently denying it in exceptional cases. If injunctive relief has been partly or fully refused, the infringed party is entitled to compensation from the infringer, which has been defined as a mandatory consequence by another amendment of the government bill, again introduced by the Legal Affairs Committee. The new Sec. 139(1) 3rd sentence PatG:
“In such a case, the infringed party shall be awarded a reasonable compensation in money.”
The new Sec. 139(1) 4th sentence PatG still allows the infringed party to claim further damages from the infringer under Sec. 139(2) PatG:
“Nothing in this shall prejudice the claim for damages laid down in paragraph (2).”
It is unlikely that the express inclusion of the proportionality principle in Sec. 139(1) PatG, which also had to be observed in the past under the terms of case law, will actually cause the courts, if patent infringement has in fact been confirmed, to restrict or even refuse awarding injunctive relief in any significant number of cases. The reasons why this appears unlikely are the frequent emphasis placed on the highly exceptional character of the possible restrictions, the clarifying nature of the provisions laid down in the legislative material, and statements to that effect from the judiciary. Delivering his opinion at the public hearing of the Legal Affairs Committee in February, judge at the Federal Court of Justice Fabian Hoffmann doubted that the proportionality test provided by the bill will significantly change the principles of the case law established in Wärmetauscher.
More synchronised invalidity and infringement proceedings
Another noteworthy aspect is the intended improvement of synchronised invalidity and infringement proceedings. In patent litigation, infringement and invalidity cases are heard by different courts (bifurcation). It is generally seen as dissatisfactory that invalidity proceedings often take considerably more time than parallel infringement cases. At best, the only option available to the court hearing the infringement case is to stay the infringement proceeding pending the decision in the invalidity case, which has a precedential effect. However, there remains a risk that a court will confirm infringement of a patent before its validity status has been finally determined (this is known as the “injunction gap”).
The draft bill proposes an amendment of Sec. 82 and 83 PatG, seeking to synchronise infringement and invalidity proceedings by setting deadlines for pleadings in the invalidity proceeding and promptly forwarding the Federal Patent Court’s preliminary opinion on the patent’s validity status.
Where a parallel infringement case based on the patent in suit is pending, the preliminary opinion shall be communicated ex officio to the court hearing the infringement, within six months after the revocation action has been served. The intention is to facilitate the court’s summary examination of the prospects of the revocation action. However, the time limit proposed by the draft bill is only a target deadline. The new provision will not take effect until nine months after promulgation.
The actual practical effects remain to be seen, especially as it seems that the Federal Patent Court will have to increase its capacities to efficiently implement the new rules. In any case, it will be – now even more – important to have the revocation action served promptly to set off the six-month target period for the Federal Patent Court’s preliminary opinion.
Protection of trade secrets in patent litigation
Another very important aspect with practical implications is the new reference to the rules on the protection of trade secrets in legal proceedings. In view of the other, rather charged subjects in terms of legal policy, this topic – unjustly – seems to have been confined to the shadows.
Patent disputes and actions seeking a compulsory license also and in particular may involve confidentiality interests of the parties, for example in the defence that one’s products have a different technical design, or to demonstrate details in connection with a FRAND license argument. Sensitive information also may become relevant when claiming that the injunctive relief is disproportionate, for example to provide substantiation for the loss caused to one’s business operations. In the past, confidentiality interests were considered only sporadically (for example in inspection proceedings, referred to as the “Düsseldorf model”).
The means chosen to achieve a better protection of trade secrets is a reference to the procedural handling of trade secrets in the Trade Secrets Act (GeschGehG). Originally, the purpose of the Trade Secrets Act is to protect commercial secrets against unauthorised acquisition, use and disclosure (Sec. 1(1) GeschGehG). The reference to its application “by analogy” in patent litigation is, therefore, not without problems. This inevitably and quickly leads to questions such as the definition of information of relevance in a patent case rather than a trade secrets case, or whether “parties” eligible to apply include, for example, interveners seeking to introduce their own trade secrets to the case on a confidential basis, for example as manufacturers of the products in dispute. A wide range of questions will have to be answered in practice, especially since the Trade Secrets Act itself is still relatively young, raising questions of its own.
Beyond these transitional issues, the amended law offers a number of now generally available safeguards for protecting trade secrets in patent disputes. Not only can the parties to the litigation be ordered to maintain secrecy and access to the files be restricted, it is also possible to limit the group of knowledge holders and exclude the public from the hearing. However, the right to be heard in court precludes any complete exclusion of the adverse party. The law does not provide for “in camera” proceedings or for the option “counsel’s eyes only”. At least one natural person of every party and their counsels of record must be granted access to the confidential information. However, these persons are required to treat confidential any information that has been classified as sensitive, both during and after the end of the legal proceedings. In this way, the newly available measures substantially improve the possibilities of keeping information confidential in patent litigation.
