In the age of IoT, AI, digitalization and connectivity, products and processes are becoming increasingly complex. They often make use of an unmanageable number of inventions, for instance from the telecommunications sector. Therefore, such products and processes pose a growing risk of infringing third-party patents. German courts have always been very popular among patent owners for asserting their patents against infringers. Patent infringement proceedings in Germany are regarded as fast, predictable and inexpensive. Moreover, the ease of obtaining injunctions often without having to defend successfully any nullity proceedings makes the system very patent holder friendly. Despite this, the new Patent Modernisation Act introduces some changes aimed at improving the interplay between infringement and nullity proceedings and at mitigating unreasonable hardship for the defendant accused of patent infringement.
New procedural rules of the German Patent Modernisation Act
After a long period of deliberation, expert hearings and statements of interest groups, the German parliament passed the Second Act on the Simplification and Modernisation of Patent Law (Zweites Gesetz zur Vereinfachung und Modernisierung des Patentrechts; “Patent Modernisation Act) on June 10, 2021. The core aspects of the Patent Modernisation Act are:
- the introduction of a proportionality requirement regarding the injunction claim;
- provision of an early preliminary opinion on validity from the German Federal Patent Court; and
- the introduction of procedural rules regarding trade secrets in court proceedings
Requirement of proportionality
The most intensely discussed part of the Patent Modernisation Act was the limitation of the injunction claim of the patentee by way of introduction of a proportionality requirement. Up to now, the so-called “automatic injunction” has been the claim in the German patent law which has put the most pressure on the defendant, as every confirmed infringement of a patent was awarded with an injunction by the German courts. However, the automatic injunction became the subject of debate when the German Federal Supreme Court in its famous “Wärmetauscher” decision (docket number X ZR 114/13) reflected on the potential necessity of an exhaustion period due to considerations of proportionality. The growing threat of non-practising entities (“NPEs”) acting against the German automotive industry based on telecommunication patents accelerated the discussion of a modernisation of the German patent law. The situation envisaged by the former creators of the patent law, when products were covered just by one or a few patents which could be searched and avoided, has changed tremendously in comparison to modern complex products like connected cars or smartphones which use thousands of patents, each of which constituting a threat to stop supply chains and manufacturing lines.
The Patent Modernisation Act therefore modifies the German Patent Act (Patentgesetz) where granting an injunction can, under certain circumstances, constitute an unjustified hardship to the infringer or third parties. In these rare cases, no injunction shall be awarded to the patentee. As some of the cases of the government’s most significant concern are the insufficient availability of medications or medical equipment or the shutdown of critical infrastructure (e.g. mobile network), the interests of third parties were also added to the wording.
However, it has to be noted that the requirement of proportionality shall only suspend the injunction claim in exceptional cases, and only against payment of an additional compensation further to the damages for use of the invention.
Early preliminary opinion
The provision of an early preliminary opinion from the Federal German Patent Court shall close the so called “injunction gap” resulting from the German bifurcated system (infringement and validity proceedings are decided by different courts). Due to the fact that the infringement courts provide a decision in much shorter time than the German Federal Patent Court, which decides on validity, it is not unusual for the patentee to receive an enforceable injunction whilst the validity decision is pending. This regularly puts the defendant in a tough position, especially in cases where the only defense is challenging the validity.
However, the infringement courts can stay the proceedings pending the outcome of the validity proceedings in case the validity of the patent-in-suit is very doubtful. To put the infringement courts in a better position to decide whether a stay of the proceedings has to be ordered, the Patent Modernisation Act states that an early preliminary opinion on validity by the German Federal Patent Court shall be provided to the infringement court within six months after the filing of the nullity action. The infringement courts will likely stay the proceedings if a clear preliminary opinion of invalidity has been rendered.
Trade secrets are regularly affected by patent infringement and FRAND determination proceedings. The parties are often in a conflict whether to submit secret information as evidence in court proceedings, risking disclosure, or withholding disclosure, impairing their position.
To enable the affected party to provide all relevant facts without facing the issue of disclosing business secrets to the public, the Patent Modernization Act introduces new procedural rules for the protection of trade secrets. The parties can now request the court to declare specific information as confidential, which obliges the other party to use these information only for the purpose of the pending proceedings.
Practitioners will closely monitor how the courts will apply the new principle of proportionality, whether a limitation of the injunction will remain a very rare exception, be difficult to prove or whether it will be applied more broadly. The twelve regional infringement courts may apply the new law differently at the beginning, which might lead to additional forum shopping.
It also has to be noted that there has always been the possibility in German patent law to stop the injunction in exceptional cases where there is proven exceptional hardship for the defendant. However, this rule has hardly been applied by the courts because the parties have been reluctant to disclose evidence demonstrating extraordinary hardship, which would become available to the public. This concern will also be mitigated by the new possibilities to protect trade secrets in pending patent infringement proceedings.