An entire ecosystem of small businesses drive innovation today and power the growth of the digital economy. As they invent and integrate software and hardware solutions and develop new internet of things (IoT) innovations, they will rely on new 5G connectivity capabilities and consistent intellectual property frameworks. If economies around the world foster the right environment, IoT can increase efficiency and generate millions of jobs, while improving products, services, and processes across all sectors of the economy.

Numerous policies will enable (or disable) IoT growth. One essential area for successfully advancing the growth of IoT, including the app economy, is guaranteeing reliable and balanced patent frameworks. Connected devices are becoming more and more complex and often include multiple layers of patented components. As a result, innovators become more vulnerable to injunctions based on allegations of patent infringements. Injunctions may be appropriate in circumstances where a patent is valid, infringed, and in the public interest. However, such injunctions, even if they are caused by a single patent in one of thousands of components in a complex product, can often lead to a full shutdown of production of the product in question.

Patent injunctions are especially relevant for small and medium-sized enterprises (SMEs). They often only produce one product, as opposed to larger companies that produce many products at once. For an SME, any interruption in production or service due to an injunction leads to a significant loss of customers, revenues, and a damaged reputation. Each of these events alone can potentially be a devastating end-of-life event for a small company.

In some jurisdictions, most famously Germany, courts can issue automatic injunctions without considering the patent’s validity or the proportionality and impact of such a ruling. This leads to consistently lopsided decisions favouring patent owners. The lack of both validity and proportionality tests before the issuance of an injunction puts small businesses at a particular disadvantage compared to larger companies that try to enforce patents of questionable quality against them. Increasingly, patent owners focused on monetising dubious patents rather than producing any goods or services are flocking to Germany to sue.

This dynamic of injunctions in an imbalanced patent systems leads to SMEs being particularly exposed to patent licensing abuses and takes away from their already limited resources that they will then have to spend on litigation rather than being able to invest it in research and development. Small businesses need the assurance that patent laws are applied in a fair, reliable, and predictable manner.

The App Association strongly supports that patent rights should be protected by legal frameworks. Such protection includes remedies like injunctions and financial compensation for parties damaged by potential infringements, as long as they are awarded proportionally, in a fair process that guarantees the defendant’s opportunity to defend themself. In injunction cases, courts should always consider proportionality and the impact on the opposing parties as well as the public interest to advance IoT and the interests of the broader economy. This could entail only issuing an injunction when:

  • The plaintiff will experience irreparable harm if the injunction is not issued
  • The threatened harm to the plaintiff outweighs the threatened harm the injunction may inflict on the defendant
  • The injunction will benefit the public interest

Fortunately, several leading economies, including Japan and Germany, are currently in the process of reforming their patent laws. Japan in particular is considering the future of IoT to ensure that Japanese businesses can continue to be at the forefront of innovation. By carefully considering proportionality principles Japan wants to avoid situations in which its biggest industrial producers are faced with production shutdowns that would risk the livelihood of their employees and the success of the economy at large. Japan rightly seeks to avoid scenarios like those in Germany, where entire product lines have been threatened due to a single alleged patent infringement. In the Nokia vs. Daimler case, for example, an injunction was granted that is now threatening to shut down 50 percent of Daimler’s production and putting the employment of 300,000 people at risk.

As a result, Germany itself is also working to reform its patent laws to ensure the inclusion of proportionality with regards to injunctions and increase fairness in German patent law. On the European level, the Intellectual Property Rights Enforcement Directive (IPRED) requires a proportionality analysis in all injunction cases, and the patent systems of EU Member States would benefit from aligning with the European framework, as Germany is currently proposing. Countries that want to play a leading role and remain competitive in the future world of IoT to enjoy continued economic growth and generate jobs must have a balanced and proportionate patent system.

If you are interested in learning more about the landscape of European patent law and injunctions, you can register here for our 30 September webinar “The Role of Injunctions in the EU”.