Germany is perceived by IP practitioners as a jurisdiction sought after for adjudicating pathbreaking patent lawsuits. This, in particular, is true for those involving Standard Essential Patents (SEPs) where the global jurisprudence is still evolving. Courts worldwide closely observe the contentious issues that German Courts address and the reasons are primarily two fold. One, German Courts possess the dual expertise of its judges in legal and technical fields. This translates to a thorough comprehension of complex legal and technical issues prevalent in SEP lawsuits. (Please see here for a discussion on SEPs & FRAND commitment). Two, the Courts are adept at swiftly disposing such complex issues in preliminary proceedings.
German Courts religiously espouse the relief of “automatic” injunctions in preliminary proceedings. In Nokia vs. Daimler, the Mannheim Regional Court recently enjoined Daimler from selling its vehicles that implemented the SEP-in-suit within Germany. Daimler was found to be infringing Nokia’s SEP as implemented in the vehicle’s infotainment system viz., the TCU (Telematics Control Unit). The Court disregarded Daimler’s argument that Nokia failed as an SEP-holder to license its SEP to Daimler’s automobile suppliers on FRAND (Fair, Reasonable and Non-Discriminatory) terms. Similar lawsuits are pending before the Munich and Düsseldorf Regional Courts wherein an injunction was also granted by the former Court. While the foregoing rulings provide for an attractive litigation strategy for SEP-holders, the same is not true for implementers of SEPs/potential licensees arrayed as Defendants. In recent times, the German automobile industry has raised concerns about the pertinent economic damage caused by these preliminary injunctions. For example, they have the potential to stall the manufacturing process of an entire vehicle for infringement of a few SEPs in its infotainment system alone. The industry sought to subvert such damage by representing before the German government to amend the current patent law. The amendment has been initiated with the Second Draft of the German Patent Bill (2020) currently being tabled before the German Parliament. The amendment, among other issues, restricts the automatic grant of injunctions on the ground of disproportionality to the Defendant’s interests.
CURRENT LEGISLATIVE FRAMEWORK & ITS LACUNAE
Section 139 (1) of the German Patent Act governs the remedy of injunctions in patent and SEP lawsuits alike. The relevant portion states, “Any person who uses a patented invention contrary to sections 9 to 13 may………….., be sued by the aggrieved party for cessation and desistance. This right may also be asserted in the event of the risk of a first-time infringement.” Essentially, this provision recognises the Patentee’s/SEP-holder’s discretion to seek an injunction in a proven instance of infringement. However, neither clause (1) nor Section 139 as a whole, explicitly or implicitly establishes a mechanism to grant injunctions at the first instance, much less directing Courts to “automatically” grant them. The absence of a mechanism is the first lacuna in the law that has prompted Courts to interpret the provision not envisaged by the Legislature. An apposite example is the injunction granted in Daimler despite the law, as discussed above, casting no “duty” on Courts to grant one.
The second lacuna in the law lies within the realm of the principle of proportionality. Section 140 (a) (1) & (3) recognises the Patentee’s/SEP-holder’s exclusive right to seek the expungement and/or recall of the infringing products, subject to the principle of proportionality in Section 140 (a) (4). This principle mandates Courts to deny the aforementioned reliefs if they are disproportionate to the interests of the Defendant or third parties. On reading Section 139 in conjunction with Section 140 (a), the Act undertakes a piecemeal approach by directing Courts to selectively apply the principle for the reliefs of expungement and recall while isolating injunctions. The legislative intent behind such selective application remains unclear. Many a time, SEP lawsuits involve a web of multiple standardised technologies bundled together in what is termed as a “Complex” product such as smartphones. For instance, SEPs implemented in smartphones include the 3G/LTE telecommunication standard, AAC audio standard and the MPEG-4 video standard. Considering the above, if the German Court automatically enjoins the Defendant, two major implications accrue. One, identifying a “work-around solution” or “non-infringing alternative” to circumvent the injunction is almost impossible. This is because SEPs, unlike ordinary patents, do not generally have competing alternatives in the relevant market. The Defendants must either implement a previous generation standard (2G telecommunication standard) that possesses significantly lower market demand or procure the relevant SEP license at a rate demanded by the SEP-holders. This rate need not necessarily be compliant with the SEP-holder’s FRAND (Fair, Reasonable and Non-Discriminatory) obligation. Two, an automatic injunction enjoins the Defendant from practicing exclusive patent licenses procured for other technologies within the complex product. In the case of In Re Waterson, an exclusive licensee is obligated to practice the IPR and assist the licensor to recoup its R&D investment. This assistance is crucial because the licensee is the exclusive source of recoupment for the licensor. Therefore, the injunction also bars the Defendant from practicing the license and holds it in breach of the exclusive patent license. Ultimately, these implications jeopardise the Defendant’s entire product line and pose to be disproportionate to its interests. For this precise reason, the significance attached to the proportionality principle cannot be emphasised enough. This is more so when the SEP-holder always has the liberty to seek alternative reliefs.
INCONSISTENT JUDICIAL INTERPRETATION
The legislative lacunae has resulted in inconsistent judicial interpretation on the grant of injunctions vis-à-vis the proportionality principle. On one hand, the Mannheim Regional Court granted an automatic injunction in Daimler and on the other hand, the German Federal Court of Justice addressed the need to apply the proportionality principle. In the Warmetauscher case, the latter Court recognised the denial of a request for an injunction if the same lacks good faith and is disproportionate to the Defendant’s interests. Despite such a clear ruling pronounced way back in 2016, there is a compelling reason for lower Courts to depart from this decision. The German legal system construes the doctrine of stare decisis in a narrow manner which stands applicable solely for decisions laid down by the Federal Constitutional Court. In all other instances, the lower Courts are not bound by judicial precedent at all. At this juncture, it is worthy to note that SEP lawsuits globally have paved way for divergent decisions, especially in light of the evolving jurisprudence. With the foregoing legislative lacunae and judicial inconsistency, SEP litigation remains more uncertain within German Courts.
To remedy the legislative lacunae and judicial inconsistency, German Courts must give effect to another legislative enactment described below.As a member state of the European Union, Germany is bound to legislate its laws in consonance with those of the Union viz., Regulations and Directives. The EU Enforcement Directive (2004/48/EC) recognises the principle of proportionality as a condition precedent before granting any relief for the enforcement of an intellectual property right. Article 3 (1) & (2) states as follows:
“1. Member States shall provide for the measures, procedures and remedies necessary to ensure the enforcement of the intellectual property rights covered by this Directive.……
2. Those measures, procedures and remedies shall also be effective, proportionate and dissuasive….”
Under EU law, Regulations apply to all the member states as and when legislated but Directives require a formal adoption into a member state’s national law. To this end, the German Patent Bill (2020) may be amended by adopting the said provision of the Enforcement Directive. Meaning thereby, German Courts would be more circumspect prior to granting automatic injunctions.
LESSONS FROM INDIA
German Courts may consider the guidance followed in the Indian jurisdiction. The Code of Civil Procedure, 1908 governs preliminary/temporary injunctions in Order 39 Rules 1 and 2. The said provisions also confer discretionary powers on the Court while adjudicating a request for an injunction. This discretion ought to be exercised in tandem with the triple test laid down in Dalpat Kumar & Anr. vs. Prahlad Singh & Ors. decided by the Supreme Court. The test mandates the applicant requesting an injunction to demonstrate a prima facie case, irreparable lossand the balance of convenience in its favour. Therefore, the applicant must discharge its burden of proof by showing prima facie infringement and satisfying the triple test. Pursuant to demonstration of both requirements will the Court grant a preliminary injunction. By comparison, the German Patent law does not mandate the demonstration of factors similar to the triple test, thus prompting an automatic grant of injunctions. The author believes that the foregoing guidance illustrates much needed clarity for German Courts in adjudicating SEP lawsuits. It now remains to be seen how the German Parliament proceeds to amend the current law. Until then,the Indian automobile industry must brace itself for potential SEP lawsuits considering Nokia has successfully litigated against Daimler in Germany. Citing Nokia’s success, similar SEP-holders may aggressively litigate against automobile companies in jurisdictions including the US, UK, China, Japan and India.
I convey my gratitude to Mr. Abhirup Paul Bangara for his inputs and Ms. Manya Jain for the poster design.