Conference Report: Should we say "no" to automatic injunctions and "yes" to proportionate remedies?

The AmeriKat mentioned a few days ago that she was unable to get to a conference in Germany that was devoted to debating the enforcement of patents.  That conference entitled "Enforcing Patents Smoothly: From Automatic Injunctions to Proportionate Remedies" was organized by Institute of Law and Technology/Chair of Private Law, Intellectual Property Law and Technology Law at the Friedrich-Alexander-University Erlangen-Nuremberg, Germany.  Germany was obviously the appropriate venue, given that the bifurcated system enables the grant of injunctions before validity is assessed.  A "problem" that many on the implementer side of the fence have been seeking to address, with a focus on, in the absence of US-style eBay v  MercExchange dicta, "proportionate" relief.  Although stuck at her desk, IPKat friend Ralf Uhrich (Google) was able to source some excellent guest Kats in the form of Franziska Kurz, Hanno Magnus and David Berger who summarize the conference for the IPKat's readers.

Over to Franziksa, Hanno and David for their fantastic summary of the day's proceedings:

"What remedies fit patent infringement? Patents are all around us, even if we cannot always see them. So, what if I hold a patent in a complex product – say a chip for mobile devices – and you build smartphones using my chip without a licence? What if I hold a patent in a screw and you use this screw in an industrial plant without my permission? Would an injunction always be the fair and adequate response? Generally, if I can prove infringement, the courts in Germany and other countries on the continent will require you to stop your infringing activity and deliver up or destroy the infringing articles. Shouldn’t courts grant more individually tailored remedies – for example, by awarding compensation in lieu or granting “grace periods” to use up the infringing articles or to switch production? And what about standard-essential patents (SEPs)? Can their owners be forced into FRAND-licences?

A conference organised by the Institute of Law and Technology/Chair of Private Law, Intellectual Property Law and Technology Law at the Friedrich-Alexander-University Erlangen-Nuremberg, Germany, addressed these questions through talks and discussions on how to enforce patents smoothly (programme here). When ruling on patent infringement, courts have so far been considering various competing interests. The question is, however, if they should further expand their discretion (in common law jurisdictions) or balancing leeway (in EU law or civil law jurisdictions) explicitly to the “remedy-level”. Should future case law lead the way from automatic injunctions to proportionate remedies?

To begin with, Prof Dr Franz Hofmann, LLM argued that remedies in general are an important tool to balance interests (on remedies in European private law, see here). Particularly in patent law, this tool might be utilised more, because patent law is confronted with various competing interests. Whereas balancing is a well-recognised task at the stage of exceptions and limitations, opportunities to strike a balance via remedies are considered more controversial. However, they should not be missed. Via proportionate remedies, patent law enforcement could reach a desired level of “fine-tuning” and “sophisticated enforcement” and strike an optimal balance between the competing interests of patent holders and infringers. Hence, the question “what is the appropriate remedy” should be answered with regards to the individual interests in each case. For example, an injunction might not be granted because switching costs could cause individual hardship. Yet, remedies must not be misunderstood as a general tool to get access to certain technologies.

Prof Dr Tochtermann

Prof Dr Lea Tochtermann, in turn, was more reluctant. Tasked with laying the groundwork for the upcoming discussion, she analysed the question of whether we should scrutinise the automatic grant of an injunction in cases of infringement from the statutory perspective. Spoiler alert: we don’t. At least, according to L. Tochtermann. Starting with TRIPS, she found no sign of proportionality when it comes to granting injunctions. Arguably, neither Art. 44 para. 1 nor Art. 41 para. 2 include a proportionality requirement. And since the wording of Art. 30 is clearly about limiting the scope of the patents as such and addresses members to TRIPS, not individual judges, a broad interpretation is inappropriate. After that, L. Tochtermann analysed the EU IP Enforcement Directive and came to the same conclusion: whereas certain provisions on remedies explicitly spelled out a proportionality requirement (i.e. Art. 8(1), 10(3)), Art. 11 on injunctions did not. Art. 3 might stipulate that every remedy should be “effective, proportionate and dissuasive”, however, L. Tochtermann deemed this to be a "quite general statement". Finally, L. Tochtermann argued with reference to German law: if preconditions of s. 139 German Patent Act were fulfilled, an injunction had to be granted. Though the infringer could raise the good faith defence according to s. 242 German Civil Code, the courts set a high threshold and had yet to refrain from granting an “automatic injunction” in patent cases. In her conclusion, she saw a danger of legal uncertainty and highlighted the function of the patent as a temporary monopoly compensating for the duty to disclose. Therefore, any codification should come with high standards.

After that, Prof Thomas F. Cotter gave an introduction to the economic side of injunctions in Patent Law. Conventional wisdom is that property rules are a good fit for IP rights. The parties might be the best judges of incremental value. Moreover, transaction costs will normally not impede bargaining because patents are public documents, and if necessary parties can form pools and collective rights organisations to mitigate transaction costs when they are high; also, some observers argue that judicial remedies are systematically under-compensatory (although Cotter expressed doubt about this). But there are reasons to question this conventional wisdom: especially when patent owners use injunctions to extract ex-post royalties that exceed the ex-ante value of the invention (‘holdup’, see Thomas F. Cotter, Erik N. Hovenkamp & Norman V. Siebrasse, Demystifying Patent Holdup). In cases in which the risk of holdup is high, courts could deny the injunction. Cotter then showed that this is not without risk, because it may encourage a “holdout” by the infringer if damages are not fully compensatory. Moreover, eliminating the risk of an injunction may discourage private efforts to reduce transaction costs. In theory, the path to the optimal solution is clear: courts should award injunctions only when the social benefits outweigh the social costs. Cotter, admitting this was not very helpful, provided some rules of thumb for the judge.

Prof Dr Nordemann

The next session was opened by Prof Dr Jan Bernd Nordemann who portrayed grace periods in so-called “soft IP”. After a short overview on the development of the principle of proportionality and grace periods, he focussed on the preconditions and characteristics of a period to use up infringing goods. In Unfair Competition Law, he argued that two questions were decisive: who is affected by the infringement in which way and who is protected by the corresponding legal provision. Hence, in unfair competition cases consumer protection and public interests were relevant factors to determine if a grace period could be granted. Trademark Law, by contrast, is focussed on the individual interests of right holders and infringers. Nordemann then outlined the relevant interests to be balanced when (not) granting a grace period in Copyright cases. An additional statutory basis for faultless infringements (s. 100 German Copyright Act) would exist but is barely used due to the broad interpretation of negligence. In the end, he underlined that a grace period is only relevant when an injunction was disproportionate and its exceptional character should by all means be considered by the court. In contrast, grace periods are usually contained in settlements.

After these elaborations on “soft IP”, the conference was guided back to “hard IP” by Prof Dr Christian Osterrieth who depicted grace periods in German Patent Law. According to Osterrieth, the dogma of automatic injunctions has changed due to two cases: “Toll Collect” and “Wärmetauscher” (leading case of the German Federal Court of Justice, BGH GRUR 2016, 1034). He argued that both cases emphasised the question of whether the “old” system of patent enforcement covers all types of cases or whether injunctions should be granted more flexibly and noted that problems arise when complex devices are concerned. Especially when infringers are facing disproportionate"replacement" costs, “tailored” injunctions should gain in importance, bearing in mind the definition of the protected subject matter, even if injunctions should remain the starting point of patent enforcement. Thus, “grace periods” would not lead to compulsory licences but provide a “soft” enforcement tool for “hard IP” rights.

After lunch, Prof Dr Peter Georg Picht addressed injunctions in the context of FRAND cases. As a result of the CJEU decision in Huawei v ZTE, obtaining an injunction has become harder for patent holders. In his opinion, unFRANDly behaviour is an additional layer on top of the requirements for an injunction to be granted. According to Picht such behaviour can be divided into two scenarios: (1) unFRANDly negotiation conduct and (2) unFRANDly content. Following some statistics on injunctions in Germany and the UK, selected issues were discussed. For example, German courts accept claims for injunctions even if the parties do not fulfil their negotiation duties prior to commencing litigation, as long as they “catch up” regarding their conduct during litigation, which might incentivise patentees to “sue first and negotiate later”. On the other hand, courts in the UK accept “conditional injunctions” in cases of untimely litigation (see Unwired Planet v. Huawei, [2017] EWHC 71 (Pat)). They tie the effect of the injunctions they grant to the existence of a FRAND licence (“FRAND injunctions”) [See recent decision of Henry Carr J in TQ Delta which demonstrates that injunctions are not always tied to the FRAND licence].  Whereas UK judges refer to their discretion when granting injunctions, German courts pursue a stricter approach. But even their general procedure of granting injunctions might be modified in a FRAND context, especially when antitrust aspects are involved. Finally, anti-suit injunctions might be used by UK litigants as a strategic tool to safeguard UK jurisdiction in patent claims. Anyhow, a “dialogue of the courts” in cross-jurisdictional disputes would be helpful to avoid contradictory judgments (see further P Picht et al, The Effect of FRAND Commitments on Patent Remedies).

Danny Alexander QC

Later on, the alternatives to injunctions were discussed in more detail. At first, Daniel Alexander QC considered the underlying question “why do the UK courts grant injunctions or alternatives in IP cases”. He emphasised the need to understand the origins of the UK approach to granting/refusing injunctions that are rooted in real property law (Shelfer v City of London [1895] 1 Ch 287). After summarising the current English law against the background of a rise of proportionality requirements via European law, he focussed on two cases: (1) life-saving pharmaceuticals and (2) FRAND determinations in SEPs. The overall themes were the tensions created by the long duration of patent litigation and a fast-developing modern patent system as well as the problem of assessing financial remedies in lieu of injunctions. The latter issue revealed interesting connections to the general debate on “negotiating damages” (Morris-Garner) and the scope of a reasonable licence fee (Reformation v CruiseCo [2018] EWHC 2761 (Ch)). In the subsequent discussion, he further highlighted the interesting tension between the principle of territoriality of IP rights and the assessment of damages via global licence fees.

Next up, Prof Dr John M. Golden considered injunctions in the US after eBay v MercExchange. He reminded us of the need to distinguish between preliminary and permanent injunctions before and subsequent to the eBay decision. Whereas the former injunctions are still difficult to get, Golden analysed that the real change happened with regards to the latter, especially concerning the burden of proof (see further Mark P. Gergen, John M. Golden & Henry E. Smith, The Supreme Court’s Accidental Revolution? The Test for Permanent Injunctions). Overall, he focused on three controversies: (1.) ongoing royalties as an alternative to injunctions, (2.) staying injunctions and (3.) judicial discretion to tailor an injunction with respect to (a.) its timing and (b.) its scope—for example, to be more fitting to the particular infringing aspect (on tailoring injunctions, see John M. Golden, Injunctions as More (or Less) than “Off Switches”: Patent-Infringement Injunctions’ Scope).

Dr Martin Stierle

Nearing the end of the conference, Dr Martin Stierle was tasked with identifying underlying legal principles. Highlighting the very different approaches of common and civil law, Stierle admitted that at first glance he took this task for a “mission: impossible”. However, he considered the fundamental conflict between administrability and flexibility to be the same. The injunction is the default remedy, but do we need exceptions? Stierle concludes that the majority in German academia nowadays says exceptions are needed. The question of whether a non-automatic injunction is a compulsory license in disguise is also common in both legal systems. From a purely theoretical point of view, Stierle’s answer to that question is "no"". If a compulsory licence is granted, there is no infringement of the patent, whereas compensation in lieu of an injunction would be granted in the event of an infringement (see Paice LLC v. Toyota Motor Corp., 504 F.3d 1293, 1313 (Fed. Cir. 2007)). Based on his concept of abuse of right, which Stierle defines as a “dysfunctional exercise of right”, one must consider the function of patent law as creating welfare by innovation. This is why seeking an injunction for an infringement of a non-practiced patent could be deemed an abuse of right.

Finally, Dr Peter Tochtermann presented his perspective as a German judge. He highlighted the issue of proportionality as an argument being put forward by many defendants in current patent litigation proceedings. He argued that a wide judicial discretion could, inter alia, lead to a decrease in predictability of litigation. Nonetheless, P. Tochtermann emphasised that – at least in German law – proportionality is rooted in the constitutional basic rights and the principle of good faith in private law (s. 242 German Civil Code). Thus, German judges already need to take proportionality considerations into account, i.e. by granting a grace period, irrespective of legislative changes. However, the crucial question should always be whether an injunction would indeed be disproportionate in the respective cases.

The final presentation led to a panel discussion chaired by Dr Ralf Uhrich, LLM (Google).  The speakers, P. Tochtermann, Patrick Schmitz (Deutsche Telekom) and Dr Clemens-August Heusch (Nokia), discussed the controversial role of the parties and the courts in patent litigation. Should judges grant injunctions more flexibly? And if so, are they well-prepared to do so? Against the background of a current suggestion to change the statutory provision on injunctions in German law (s. 139 German Patents Act), the discussion focused on the need for and consequences of a change in the patent enforcement system. At the end of the day, the remaining overall question was: Where do we see the law of enforcing patents in the future?"