Amendment of German patent law: small step or giant leap for proportionality?

When this Kat started his tenure as a GuestKat two years ago, his first post was on the first anti-anti-suit injunction issued in Europe, by the Munich Regional Court. For his parting post, he returns to Germany and patent injunctions.

As readers may know, the German parliament recently adopted amendments of the German Patent Act (GPA) as the final step of a reform process that spanned nearly two years [final version (German) here, earlier Katpost here, news coverage here]. Though the amendment contains various reforms – including an effort obtain quicker validity decisions to close the "injunction gap", see here – probably the most salient change is to §139, on the patentee's entitlement to an injunction.

According to §139 GPA, a person infringing a patent may "be sued by the aggrieved party for cessation and desistance", and the reform adds to this the following proviso:

Der Anspruch ist ausgeschlossen, soweit die Inanspruchnahme aufgrund der besonderen Umstände des Einzelfalls und der Gebote von Treu und Glauben für den Verletzer oder Dritte zu einer unverhältnismäßigen, durch das Ausschließlichkeitsrecht nicht gerechtfertigten Härte führen würde. In diesem Fall ist dem Verletzten ein angemessener Ausgleich in Geld zu gewähren. Der Schadensersatzanspruch nach Absatz 2 bleibt hiervon unberührt.

This claim is excluded insofar as, in light of the special circumstances of the specific case and the principles of good faith, it would cause the infringer or third parties disproportionate hardship, not warranted by the right to exclude. In this case, the aggrieved party shall be granted a reasonable monetary compensation. This does not affect the damages claim laid down in paragraph 2.

Thus, the GPA will henceforth include an explicit proportionality defense to permanent injunctions in patent law. Some commentators were quick to dismiss this change as merely cosmetic, claiming that it will make little or no difference in practice [e.g. here and here]. Reportedly, several German patent judges immediately commented along similar lines [here].

This Kat, however, remains unabatedly excited and believes the change is a harbinger of sensible changes to the automatic injunction regime, in Germany and beyond.

While Lucrezia ponders the future of proportionality, Cosimo licks his lips at the prospect of more cases. Also from these two: a warm furwell to readers!

We've come a long way

First, it is important to keep in mind that much has changed in comparatively little time. Ten years ago, a proportionality test was a radical idea embraced only by a handful of academics [see here for one of the earliest EU-focused publications on the topic]. It was more or less universally accepted that courts enjoyed no discretion to refuse successful patentees an injunction [cf. the German report to AIPPI's Q219 (2011): "injunctive relief must be granted if the IPR is found infringed"].

Then, in 2016, the Federal Supreme Court opened the door to a limited proportionality test in its landmark Heat Exchanger decision. But many still insisted that the GPA does not allow ad-hoc balancing and implements proportionality through specifically enumerated exceptions, such as the compulsory license provision [a view expressed e.g. by Judge Klaus Grabinski of the Federal Supreme Court at a 2019 conference, here]. With the amendment, the German legislator removed all doubt about the infringement court's capacity to tailor or deny injunctions in appropriate cases.

This Kat was grateful to benefit from the insights of his old friend Martin Stierle, who followed the reform process closely. Stierle agrees the amendment is quite significant: "The legislator sent a clear signal to the courts that they need to start taking proportionality defenses more seriously. In addition, the amendment goes beyond the scope of the Heat Exchanger decision, most notably by taking stock of third party interests and by opening the possibility for a damages award in lieu of an injunction, rather than a mere grace period. To be sure, the amendment won't change the majority of patent cases, but it will have a tangible impact on outlier cases."

This Kat quite agrees that the significance of this reform, in Europe's biggest [here], most patentee-friendly [e.g. here] and perhaps most conservative jurisdiction, is clearly noteworthy. The amendment acknowledges that patent rights are not absolute and empowers German courts to mitigate hardship when the specifics of the case call for it. Their case law, in turn, may inspire other European patent courts to follow suit.

The primacy of courts

Second, the reform shows that it is up to courts, not the legislator, to tailor the patent system to technological and societal developments relevant to patent law and the balance between interests it strikes [cf. here].

This may be self-evident to Anglo-Saxon courts and judges, but it is not at all obvious in the context of a strict civil law system, such as Germany. Indeed, an argument often heard in German literature is that the legislator, under the old version of §139 GPA, left no room for any kind of proportionality assessment and that performing it would thus be contra legem [see e.g. this article by Uwe Scharen, formerly a judge in the Federal Supreme Court, at 113].

Sitting judges seemed to also espouse this view. For instance, in 2017 the LG Düsseldorf refused to stay an injunction against replacement heart valves, stating that it could not take into account third-party interests in its decision [here, at 211 et seq]. In parallel litigation in the UK, Justice Arnold (as he then was) ordered a one-year grace period, with the possibility of extension, because an injunction could adversely impact patients' health [here, at 67]. It may well be that if the heart valve case came up now, the outcome would be more in line with Justice Arnold's decision.

Thus, under the amended version of §139 GPA, courts can no longer pass the buck to the legislator to ensure that patent injunctions are proportionate. Indeed, that task seems to be best entrusted to courts which, after all, are closest to the facts of specific cases. It has been argued – convincingly, in this Kat's view – that a common law approach to legal development best fits intellectual property law in general and thorny issues such as proportionality in particular [cf. here]. Admittedly, the amendment raises new questions, such as the way in which the proportionality test should be applied, or how to calculate a reasonable compensation for the patentee. But there is no doubt in this Kat's mind that the German courts will find the answers.

Much to look forward to

Third, we should realize that the proportionality doctrine in intellectual property cases, and certainly in patent law, is still in its infancy. Even in the US, where courts have exercised discretion over patent injunctions since the Supreme Court's 2006 decision in eBay v. MercExchange, the search for the right balance is still ongoing. To date, we have a handful of decisions on the subject in the EU, and we can be certain that there are many more to come.

It would be impossible to list all developments that potentially raise questions on the propriety and proper form of injunctions in patent law. To list a few: the increased interconnectivity of the "Internet of Things" [e.g. here, at 5]; novel generations of pharmaceuticals that make prior patent clearance difficult [e.g. here]; a stronger emphasis on third party interests in social debates and, correspondingly, increased awareness of courts of consequences of industry actions for third parties [e.g., and by analogy, here]; the looming threat of an unprecedented economic recession in the wake of measures taken by governments to fight the spread of COVID-19 [e.g. here]… and much more.

All of this is to say: the world is an interesting place right now. The patent "bargain", according to which an inventor receives a temporary monopoly to reward their disclosure of a useful invention [here, at 2], always had limits: an excessive reward was never foreseen. The amendment to §139 GPA in fact makes this clear by suggesting there are cases of hardship "not warranted by the right to exclude". Apparently, and rightly, the German legislator believes there are limits to this right, which limits may be tested or redrawn in the years to come. That, in itself, may be news to "patent maximalists" and others that functionally equate patents and absolute property rights.

The real journey is thus very much ahead of us, and it seems to this Kat that it will pose plenty of obstacles that will require clarifying, or expanding, the reach of the proportionality doctrine. No, the amendment of §139 GPA won't change German legal practice overnight—nor should it. It tasks courts with setting proportionate limits on the exclusive rights of patentees, and gives them the tools to find out where they should lie, one case at a time. If the cases where a proportionality defence succeeds are few, so much the better: proportionality is a safety valve, not a panacea.

And as those cases arise, they need to be reported. This Kat hopes to still occasionally do so in the future, even if no longer as a GuestKat; and thanks the readers of this blog for their thoughtful and instructive engagement with his posts so far. To all of you: auf Wiedersehen!