As the European Union’s (EU) largest market, Germany is a frequent venue for patent litigation in the region. We now live in a world of increasingly complex devices, where a simple connected device can depend on hundreds, if not thousands, of patents. Under current German law, the burden of attaining a patent injunction is low because judges are not required to consider proportionality and the public interest. This is a particular concern for small and medium enterprises (SMEs), which could easily be put out of business by a single injunction.
In early 2020, Germany’s Ministry of Justice and Consumer Protection (BMJV) released the first draft of a reform of the German Patent Act. Many stakeholders hope that the reform will update the important § 139 of the Act, which addresses patent injunctions. The proposed reform meaningfully includes a proportionality principle that aligns Germany with the jurisdictions of its major trading partners. However, during a recent debate in the German Bundestag, some members expressed concern with the current draft. They fear that such a reform of § 139 would weaken the patent system and reduce Germany’s attractiveness as a market. Based on the same concerns, a portion of the chemical, pharmaceutical, and telecommunications industries are reportedly reticent to embrace this change. These objections are unfounded and stand in the way of making Germany a more attractive market for businesses.
In reality, the proposal to reform § 139 by requiring consideration of proportionality and the public interest in a court’s injunction analysis would preserve the protections of the German patent system. Additionally, EU law requires these considerations. Including the proportionality principle would have a net positive effect on innovation in Germany by freeing up businesses, particularly SMEs with limited resources, to invest in new business ventures without the fear of disproportionate injunctions resulting from an alleged infringement. The window of opportunity for patent reform is potentially closing in 2021 due to the upcoming federal elections. Therefore, German policymakers must push forward now with reform to § 139 to maintain its place as the manufacturing hub of the EU.
The principle of proportionality is a critical consideration in patent litigation disputes, and all major developed nations use it in their patent systems except for Germany. Patent rights grant the holder an exclusive right to prohibit others from using the technologies described in a patent, entitling the holder to seek an injunction to prohibit further infringement as well as monetary damages for past infringements. But what if the injunctive remedy significantly disrupts major supply chains, threatening the livelihoods of hundreds of thousands of employees and negatively impacting countless consumers? For example, should a single alleged patent infringement in a car result in all cars being pulled from the market? A court must be able to consider all factors to determine if the injunction is appropriate, and, for this exact reason, EU Member States, including Germany, must enshrine the principle of proportionality in law as stipulated in the IPRED (Directive 2004/48/EC). With this ability, a judge can weigh the interests of all parties concerned when ordering an injunction in every case.
Disproportionate application of injunctions is not hypothetical. Consider, for example, Microsoft ‘fleeing’ the German patent system and relocating its European distribution centre to the Netherlands following a dispute with Motorola due, in large part, to Germany’s flawed approach to patent injunctions. Another example is the recent case Nokia v. Daimler. In this case, the potential infringement of a single patent reading on an isolated component amongst thousands of parts inside an automobile threatens to halt the production of over half of all Daimler cars in Germany, jeopardizing the jobs of some 300,000 Daimler employees. German judges should consider questions of fairness and proportionality in patent litigation cases when a claimant seeks an injunction. Yet today they do not, because German law currently does not allow for it. Reform of § 139 in the most recent proposed update to the German Patent Act would change this situation. The draft meaningfully incorporates the principle of proportionality. It strikes the right balance between the interests of the patent holder and the user without weakening patent rights and would align Germany with its most important trading partners. Therefore, the German government should move ahead with the current proposal as it is.
The proposed reform of the German Patent Act takes up another eccentricity of Germany’s patent system: its bifurcation. In this system, infringement proceedings occur before proceedings assessing the validity of the patent. This can, and often does, create the paradoxical situation whereby injunctions are issued even before there is a first instance validity decision by the European Patent Office or the Federal German Patent Court – as seen, for example, in the Nokia v. Lenovo case. In these cases, the accused infringer has not infringed the patent since the responsible patent office should never have granted the patent in the first place. The lack of a proportionality test for injunctive relief, in particular in the absence of a first instance nullity decision, places small business developers at a great disadvantage to larger companies seeking to enforce patents of dubious quality against them. Therefore, policymakers must push the reform forward.
The German government now has the opportunity to reform its patent act to help drive future innovation and manufacturing in Germany. Incumbent and outdated industries do not wish this to change because they are content to rely upon automatic injunctions to squeeze excessive value out of their allegations of patent infringement. However, without this change, Germany—which has long been the manufacturing base of Europe—will lose its advantage. Millions of Germans rely on manufacturing jobs that will be jeopardized. For Germany to maintain its international competitiveness and attractiveness as a market for manufacturing and job creation, German lawmakers must move forward with the reform of the patent act and incorporate the principle of proportionality.