The statutory restriction of the “automatic” right to injunctive relief was described by the legislator as a concretization of current case law. However, the innovation opens up possibilities that could not have been justified by case law. A restriction of the right to injunctive relief will nevertheless remain the exception.
1. The new § 139 (1) of the German Patent Law
By the “Second Act for the Simplification and Modernization of Patent Law“, which was promulgated on August 17, 2021, the claim for injunctive relief under German patent law according to § 139 (1) was amended as follows:
“The claim is excluded insofar as, on grounds of special circumstances of the individual case and the principles of good faith, the claim would lead to disproportionate hardship for the infringer or third parties not justified by the exclusive right. In this case, the infringed party shall be granted appropriate compensation in money. The claim for damages pursuant to paragraph 2 shall remain unaffected.”
2. Scenarios and circumstances for limiting an injunction
The wording of the law does not give any examples. However, the explanatory memorandum to the Act mentions some scenarios and circumstances in which a limitation of injunctive relief may be considered or which at least support a limitation:
♦ The patent proprietor is primarily concerned with the monetization of his rights, and not “with the execution of the invention as an expression of the innovation function of the patent system.” For this purpose, the patent owner would have to enforce “clearly excessive license claims” – “in breach of good faith”. However, a lack of use of the patent by the patent owner (e.g. an NPE) is not sufficient for a limitation of an injunction.
♦ The infringer has already made extensive investments in the development and manufacture of a product. This can hold in particular in case of long research and development periods. However, these investments would have to be “completely disproportionate” to the value of the infringing patent.
♦ With the injunctive relief, the patent owner aims at a functionally essential component for a complex product. And a workaround would lead to high time and economic efforts. Especially if the effort is caused by legal and regulatory approval requirements.
♦ The patent owner purposefully waits with his infringement suit until the infringer has made considerable investments, although she/he could have sued earlier.
♦ Third parties suffer a deficient supply of vital products or services as a result of an injunction. However, the mere impairment of third parties or (indirect) disadvantages for them is not sufficient.
♦ If the infringer has carried out a freedom-to-operate analysis or previously sought a license, this can be interpreted positively for a request on the imitation of an injunction.
Scenarios and circumstances are exceptional
It is evident that the scenarios and circumstances in the explanatory memorandum were provided with additional preconditions in order to reinforce the exceptional nature of the restriction of the injunctive relief. In 14 places in the explanatory memorandum, explicit reference is made to the exceptional nature of the limitation.
How real cases may be subsumed under the new legal text is, however, not readily apparent.
3. The legal requirements of the new law
Apart an inclusion of third parties, the wording of the amendment can be found verbatim and distributed in the FJC decision “Heat Exchanger” (BGH GRUR 2016, 1031). There, it serves to explain why a restriction of the injunctive relief was unjust in the underlying case. However, the abstraction of these partially redundant justification arguments into statutory requirements, which has now taken place, entails difficulties.
3.1 The special circumstances of the individual case
Firstly, “special circumstances” must exist. This requirement results from the character of the restriction as an exception. The law does not specify the “special circumstances” in more detail. Applications of the exception are not intended to be restricted from the outset, but must be clarified by case law. The “special circumstances” must be also related to the “individual case”. This hurdle to cross-case jurisprudence seems rational in view of unclear application cases for the new law. However, the legislator must accept criticism for leaving legislative decisions to the judiciary. The term “special” has sparked criticism. Because in the case of interests worthy of equal protection on both sides, it was assumed that the interests of the patent proprietor outweighed the interests of the patent infringer (e.g. NVIDIA opinion).
3.2 The principles of good faith and fairness
According to the law, the requirement of “special circumstances of the individual case” alone appears not sufficient. In addition, “the principles of good faith” must also result in an “unjustified hardship”. The meaning of this requirement for the law is not clear. The wording was used in the FJC decision “Heat Exchanger” with explicit reference to § 242 BGB (German Civil Code). An injunction which would lead to disproportionate, unjustified hardship would be “in breach of good faith” (FJC, Heat Exchanger, para. 42).
‘Good faith’ is legal requirement
In the new law, however, the reference to the principles of good faith now constitutes a legal requirement (not just an argument). The infringed party must be placed in a situation in breach of trust by the injunctive relief. Viewed differently, the patent proprietor would have to violate the principles of good faith, i.e. act in abuse of rights, if he enforces his patent by an injunction against an infringer who is in a certain situation.
Which aspects of ‘good faith’ are meant?
According to § 226 BGB, an action is inadmissible which serves to harass the other party (prohibition of harassment). This requirement was considered sufficient by the British High Court to deny injunctive relief ([2005] EWHC 282 (Ch) – Navitaire Inc v EasyJet Airline Co Ltd). A gross disproportion is to be regarded as harassing.
It follows from § 826 BGB that deliberately acting in an immoral manner is unlawful. Immoral action is to be regarded in particular as offence against the common practice. This could be a starting point for a request to limit the injunctive relief if the product is complex and the patent protects only a small but necessary part of a technical system. Accordingly, the protective effect would effectively extend to the complete system. Such an extended protection, which is not justified by the invention, could be against common practice. It would then be questionable, however, what would additionally have to apply to the previously discussed characteristic – the “special circumstances of the individual case” – and how the two different legal requirement are to be differentiated.
Even the “royal norm” of the German contractual law, § 242 BGB, which is also cited in the “Heat Exchanger” decision, is of no direct aid. According to this provision, a debtor is obligated to effect performance in such a way as is required in good faith with due regard to custom and usage. This is not a simple scheme to transfer to the patent-related injunctive relief.
‘Exclusion of the obligation to perform’ as model
The explanatory memorandum to the new law may therefore not take up § 242 BGB. Instead, it refers, right at the beginning, to § 275 BGB (“Exclusion of the obligation to perform“). There, good faith is included in similar wording: “The debtor may refuse performance insofar as this requires an effort which, taking into account the content of the debt relationship and the requirements of good faith, is grossly disproportionate to the creditor’s interest in performance.“
This law refers to the impossibility of performance of an owed obligation and – in relation to an injunction – seems to come closest to the present amendment. There is widespread recognition, that an exemption from the obligation to perform pursuant to § 275 BGB can only be considered in extremely exceptional cases. Interestingly, the reference to good faith in § 275 BGB is largely regarded as meaningless by the commentary literature (e.g. MüKoBGB/Ernst, 8th ed. 2019, BGB § 275 nos. 92, 93).
‘Good faith’ as empowerment of the court
It is widely recognized, however, that the principles of good faith are a container for elements of trust, standards of decency and fairness, and ultimately general considerations of justice. Since long ago, the FJC sees the reference to good faith as a mandate for the courts: “No purpose or meaning stands higher than the wording of the law. It is the responsibility of the judge to utilize this in the individual case of the application of the law and then, taking into account good faith, to lead the dispute to a reasonable and equitable solution” (BGHZ 2, 176 [184] = NJW 1951, 602).
Accordingly, the additional inclusion of good faith gives the court the mandate to look for indications for an application of the exception in the specific individual case. This once again emphasizes the intention of the legislator to create a limiting rule for effects contrary to good faith of all kinds, without restricting it to already known cases.
3.3 The disproportionate hardship not justified by the exclusive right
What constitutes “disproportionate” and “hardship not justified by the exclusive right” must also be clarified. The requirement would have to arise as a consequence of an injunction fulfilling the above-mentioned requirements. The distinction between “disproportionate hardship” and “unjustified hardship” is not clear. Perhaps the latter refers to a hardship in breach of good faith that would have to arise in addition to a disproportionate hardship if the injunction were granted. In the explanatory memorandum, there is only the general statement that a disproportionate, unjustified hardship is in any case in breach of good faith (p. 33). Courts could interpret this as a cumulative requirement. Then this would further reduce the number of cases for which a limitation of an injunction could be determined.
The lower limit of “disproportionate“, ‘unjustified hardship’ is already drawn in the FJC decision “Heat Exchanger”. The hardships inevitably associated with an injunction in the event of patent infringement (e.g. cessation of the patent-infringing production, the patent-infringing operation or distribution) are proportionate hardships justified by the patent (FJC, Heat Exchanger, para. 41). This specific opinion is also adopted by the explanatory memorandum.
3.4 Summary of the legal requirements
In sum, the various legal requirements result in a system of requirements that is difficult to grasp. This is to be structured by the courts. In doing so, all legal requirements formulated in the new law would have to be assessed. A general weighing of interests is not permitted. Possible redundancies, interdependencies and legal indeterminacy of the legal requirements of the new law make an efficient, piecewise examination more difficult. In any case, the amendment obviously includes several connecting factors for the inclusion of proportionality considerations. However, the amendment is not intended to go beyond an exception for extreme cases.
4. Flexible limitation of the injunctive relief
The amendment to the law allows for a flexible legal consequence (“insofar“). A limitation of an injunction may be curbed in time or unlimited in time. The new law also allows other forms of restrictions to the limitation.
As examples of a time-limited restriction, the explanatory memorandum mentions a use-up period and an adaptation period. A limited restriction of an injunction will most likely be the common implementation, if all legal requirements are met. In contrast, the prevailing opinion is that an unlimited, complete denial of an injunction will be applied only extremely rarely. The explanatory memorandum is excessively clear on this: “in very few particularly extreme case constellations”.
A use-up period means non-application of injunctive relief for consumption of patent-infringing products. This also comprises selling of already manufactured products. A use-up period thus an injunction to products already produced. An injunction would apply without restriction to the manufacture of new products or provision of intangible services. Hence, a use-up period only serves to exploit the stock of a patent infringer.
An adaptation period goes further. It also allows the ongoing generation of patent infringing technologies. Therefore, it can apply to products and services. The production of new products or the offering of infringing processes is possible during an adaptation period. A re-training period could be considered if the infringer shall continue to supply a market for some time. The “re-training” period ordered in a UK case ([2018] EWHC 1256 (Ch) – Edwards Lifescience v Bosten Scientific.) is an example of this. During the “re-training” period, surgeons were able to switch to using off-patent heart valves.
5. What has changed?
Calls for changes in the legal situation away from an ‘automatic’ injunctive relief to a limitable injunctive relief came, on the one hand, from big industry. There is concern about the effects of an injunction which. In view of complex products and complex supply chains it could exceed an appropriate protection of the invention. Furthermore, it was claimed (e.g. by the English judiciary) that an ‘automatic’ injunction would not comply with the requirements of the EU Enforcement Directive, because Article 3 in particular calls for “proportionate” measures.
5.1 Restriction by law
The most obvious innovation is the legal standardization of the limitation. Previously, corresponding limitations existed only for claims for destruction and recall (§ 140a PatG (German Patent Act)). Systematic interpretation leads to the conclusion that such limitations should not apply to law of injunctive relief. Given this interpretation, there would not have been a gap in the law to be filled by case law. The new amendment does not legalize a patent infringement (as in the case of a compulsory license), but merely tolerates it.
5.2 Objection for third parties
Another innovation is the possibility for third parties to prevent or limit an injunction. Until the amendment of the law, third parties were neither considered by law nor by case law. FCJ rulings that took into account the interests of third parties or the public for limiting an injunctive relief did not exist. The legal limits for claims for destruction and recall are different. These explicitly include the interests of third parties (§ 140a (4) S. 2 PatG). In addition, public interests are protected by the compulsory license (§ 24 PatG).
A practical case in which third party interests could have played a role was decided by the Regional Court Düsseldorf in 2017 (4a O 137/15). The patent related to a heart valve prosthesis. The defendant had requested that the injunction be limited by an adaptation period. Otherwise, there was a risk of undersupply of the (German) market and endangerment of the life and health of patients. In the absence of a legal basis, the Regional Court had declined to limit the injunctive relief. Claims for recall and destruction, on the other hand, were not granted due to a lack of proportionality. For a patent from the same patent family, on the other hand, the British High Court (as already explained) had granted a 12-month adaptation period (“re-training period”).
5.3 Claim for compensation
Absolutely innovative is the compensation claim. A limitation of injunctive relief must be compensated to the patent owner in money. The compensation claim will also be due if a claim for damages would have to be denied. The compensation will have to include the elimination of the threat potential by injunction. Because the claim for injunctive relief is directed to the future, the claim for compensation must also be directed to the future. This must not – as the law now explicitly states – affect the compensation to be paid for past infringements.
The restriction of the injunction is thus to be compensated by a monetary payment. The payment must be “appropriate”. In the explanatory memorandum, it is proposed that the amount of the compensation be determined by the court in the same judgment (upon request) in which the limitation of the injunction was ordered. This quick determination may be attractive for patent owners, as this payment could then be enforced earlier than damages. How the amount of the compensation should be calculated is not explained. Various proposals range from a single royalty to a triple royalty. In the case of the patent-infringing heart valves, however, it would make little economic sense to order the infringer to pay compensation close to his profit on the heart valves. Because the infringer would then, on its own initiative, stop supplying the market, i.e. stop what the adaptation period was intended to achieve.
5.4 Softening of the property right
Strict allocation of power of disposal actually efficient
A fundamental shift in the nature of a patent as a property right can also be seen in the amendment. Until the amendment, the narrative goes, a patent was endowed as an absolute right of disposition. The ability to exclude others from using the patented invention, i.e., the strict allocation of the power of disposition, enables an optimal allocation of resources.
This configuration of patent law as an exclusive property right can be explained by Ronald Coase. For his “Coase Theorem” he received the Nobel Prize in 1991. According to this theorem, economically optimal damage or compensation is achievable through bilateral negotiations between two parties. To achieve this, an unambiguous (i.e. exclusive) allocation of the resource causing the damage (i.e. the infringement) is essential.
Exceptions to this unambiguous allocation have so far only existed in patent law if a patent provides such a large monopoly position that significant welfare losses are to be expected for a large number of cases (e.g. standard-essential patents). However, deviations from the Coase theorem can also make sense if the transaction costs of the negotiating parties are (too) high. Then also by bilateral negotiations no optimal solutions results.
High or too high transaction costs can arise if, for example, the infringer would have high costs in order to check for an infringement in advance by means of an FTO or if a circumvention solution for its product is difficult to implement. For example, because this is technically difficult within a complex product (i.e. a product consisting of many coordinated subsystems that cannot be changed independently), or because a time-consuming or expensive approval would be required for a workaround solution. In this case, a deviation from the negotiated solution could be justified.
Softening reduces motivation effect
The new possibility of limiting injunctive relief results – now also for an individual case – in a departure from the Coase Theorem. This reduces the patent from a property right to a right whose infringement must be tolerated – i.e. it is no longer exclusive. Such an configuration could do more justice to the nature of a patent. This is because, unlike material property, an information about an invention is a non-private good whose value increases the more people can use it. In doing so, however, the purpose of patent law is weakened. Namely, to motivate those who want to be inventive.
Compensation difficult to determine
A further departure from the previous legal situation and the out-of-court solution favored by Coase is that now, in the injunction-limiting individual case, the court must take over the monetary evaluation of a denied injunction. In the normal case, this evaluation is left to the parties. If the parties reach an out-of-court agreement, they will settle at an optimal value for the infringement damage or its compensation. This follows from the Coase Theorem.
Such an assessment is a difficult task for a court that does not fully know the states and intentions of either party and is thus exposed to considerable information asymmetries. The court could, however, be guided by the infringer’s argumentation substantiating his request for limitation of the injunctive relief, e.g. by the presentation of the costs of a technical solution to circumvent the infringement.
6. What remains the same?
The legislator considers its amendment solely as a clarification. This is made clear in the first sentence of the explanatory memorandum. The clarification is referred to 13 times in the remainder. Limitation of an injunction had already been determined in the FJC decision “Heat Exchanger” and represents in this respect no innovation.
An infringer must live with the normal consequences of the exclusive right. As also shown by the scenarios mentioned at the beginning, substantial submissions relating to an individual case are required in order to activate the limitation. In principle, this was no different before the amendment of the law, as the FJC ruling “Heat Exchanger” showed. The fact that a limitation has not been decided more often or at least applied for may have been due to the lack of signal effect of a statutory law. However, even now, a “normal” patent infringement will regularly not lead to a limited injunction.
The exception does not make the compulsory license (§ 24 PatG) obsolete. This is despite the fact that the threshold for activating the exception must be lower than that for a compulsory license. Because a compulsory license creates a legal use. By the new law, an infringement is only tolerated and transformed to an appropriate compensation. The right to injunctive relief remains in any case independent of fault. Compensation for damages continues to be owed. Even if a restriction of injunctive relief including compensation payment has been ordered.
Thus, the patent remains an exclusive property right for normal cases. Its infringement does not have to be tolerated. It can be effectively stopped by the possibility of an injunction. Therefore, a patent generally still provides the same strong negotiation position.
7. Conclusion
More than a clarification
Despite assertions to the contrary in the explanatory memorandum, the amendment is more than a clarification. Previously, it was not possible to include third parties in the weighing of interests with the patent proprietor. Also with regard to a balancing of interests between the infringer and the patent proprietor, concrete requirements are now determined which must be fulfilled for a limitation of injunctive relief. However, their subsumption in the case of application still requires judicial structuring. The amendment thus appears to be more of a concretization than a clarification.
Its application will be limited to exceptions in individual cases. On the other hand, it includes the reassuring signal to technology users that they can be spared from disproportionate effects of an injunctive relief.
Permanent limitation of injunction unlikely
If an exception justifying a restriction of injunctive relief is ordered, a partial, e.g., temporary, restriction is most likely. Full, permanent restrictions are likely to be the absolute exception. Restriction of injunctive relief could arise in particular in the case of complex products and services, highly regulated markets, and/or in connection with a necessary market supply.
Settlements less likely
German patent law favors out-of-court settlements (in accordance with the Coase Theorem) more strongly than U.S. or British patent practice. On the one hand, this is due to the bifurcation system, in which there are several points in time for the parties at which an out-of-court solution can be (re)sought. Further, the fact that the claim for damages is initially determined on the merits and has to be quantified in subsequent proceedings motivates the disputing parties to seek an out-of-court solution in the meantime. This fundamental orientation is softened somewhat by new law. In case of a limited injunctive relief, an out-of-court settlement becomes less likely. The court, on the other hand, has the difficult task of appropriately determining a proportionate limitation of an injunction and an appropriate monetary value of the limitation.
Critics who previously complained of inadequate implementation of the Enforcement Directive have probably been satisfied by the new legislation. The new law now ensures that injunctive relief under German patent law is fully proportionate and complies with EU law.
8. Advice
Patent owners are advised, if possible, to first seek an out-of-court settlement with a patent infringer, avoiding obviously exaggerated extreme claims or actions that could be construed as being in breach of trust. Injunctive relief can still be used as mighty leverage in this context.
Users of potentially patented technologies are advised to conduct an FTO before entering a market to reduce the actual risk of infringement and to document sensitivity to intellectual property of others. Entitlement requests should be answered carefully.
Patent infringers should gather and communicate circumstances indicating an exceptional situation to the patent owner as soon as possible. Indications may be found where injunctive relief affects far more than the patented invention or endangers the lives of third parties.
Author: Dr. Martin Kuschel
