Germany: Stay of first instance infringement decisions in standard essential patent actions

09 January 2013

Florian Schmidt-Bogatzky

German civil procedure law explains that a first instance judgment is enforceable if the winning plaintiff provides security (s. 709 Civil Procedure Code). As an exception, the court can allow the defendant to avoid enforcement by posting a bond itself if enforcement would cause the defendant irreparable harm (s. 712 and 707, 719 Civil Procedure Code).

In patent litigation, however, a stay of enforcement has almost never happened.  As the law has determined that an injunction is the consequence of a finding of infringement (s. 139 Patent Act), for the defendant to stop an infringing activity is generally not considered to cause it “irreparable harm”.

Lately, however, there have been developments in this area of law in cases related to standard essential patents, in particular in the field of telecommunications.

NPE vs. Manufacturer

In a case  brought by a non-practising entity (NPE) against a manufacturer of mobile phones (file 6 U 38/09), the Karlsruhe Court of Appeal used its discretion to stay the enforcement of the injunction that had been granted by the Mannheim court in the first instance and required the payment of a security by the Defendant.

The court stressed that this was an exceptional case given that injunctions for patent infringement have a limited lifetime and furthermore that the law generally upholds the the interests of the winning party.

According to the Court in that case, however, it would not be the primary interest of a NPE to obtain an injunction in order to force the (infringing) manufacturer to stop its infringing activities. Rather , it would be the primary interest of the NPE to receive royalties under a licencse, which is only possible if no injunction is in place. In addition, after a summary evaluation (of the first instance decision), the Court could not say that the pending appeal did not have a chance of success. Finally, the Court noted that the defendant (manufacturer) was indeed at risk of suffering irreparable harm as it was unclear at that stage whether the decision would cover all of its UMTS mobiles in Germany.

Further, the Court recognised that the enforcement of a first instance decision by the grant of an injunction could be made subject to certain limitations in cases such as this where the decision was based on an (allegedly) standard essential patent. In this respect, obligations deriving from a licence declaration made to ETSI as well as objections based on competition law were also at issue. The court recognised that the NPE (patentee) would be obliged to grant a licence under the patent in question if essentiality was confirmed.

The Court did not arrive at a more favourable evaluation of the NPE’s position regarding the NPE’s interest to sign a license agreement quickly and its interest to avoid the impression in the market that non-paying defendants would not face an injunction.

This case caught the attention of those in this particular market.

The Karlsruhe Court [of Appeal] has not only been presented with cases involving NPEs in connection with staying the enforcement of a first instance decision

Manufacturervs. Manufacturer

In another case between two competing manufacturers (file 6 U 136/11), issues relating to NPEs naturally did not play a role. At issue in this case was again a standard essential patent covering mobile telephone technology. The defendant applied for a stay of the enforcement of the first instance decision. It argued that its offer in relation to the terms of a licence agreement and also past damages was sufficient to justify a stay. The plaintiff did not consent to a stay of enforcement on the ground that the offer as regards the licence and past damages was not sufficient.

At first, the Karlsruhe court denied the request to stay enforcement of the first instance Judgment because it did not deem the licence offer to be sufficient to meet the criteria developed for a licence defence based on competition law (at issue, inter alia, was a no-attack clause regarding the patent). Subsequently, the defendant made several additional licence offers. The court found the last of these to be sufficient in that the plaintiff would not have been able to lawfully reject it and accordingly stayed the enforcement of the first instance decision.

According to this decision, the defendant in a standard essential patent case can improve its licence offer several times without waiving a claim for protection from enforcement of an unfavourable first instance decision. In practice, this has an impact because the defendant could decide to gradually improve the content of a license offer until it meets with a court’s approval.

Against the background of a number of pending cases relating to standard essential patents, it should be noted that the issues concerning a potential stay of the enforcement of unfavourable first instance decisions are still in the process of being developed. It appears, though, that the judiciary – while so far not willing to assist in determining a specific FRAND licence fee – is aware of the potential impact of the cases (usually the plaintiff attacks a complete series of mobile telephones). This may have led to a rather liberal application of legal provisions that constitute an exception to the rule.

At the same time, however, the courts have transformed the serious economic background of standard essential patent cases by increasing the respective value under dispute to the statutory maximum amount of € 30 million on the one hand and setting the bond, which the plaintiff has to provide in order to enforce a decision, to amounts like € 50 million (Düsseldorf court) and € 100 million (Mannheim court). As a result, plaintiffs now need to evaluate their position carefully before putting so much money on the table (assuming that their banks are in a position to provide bank guarantees for these amounts).

Other items in the Patents Update newsletter for January 2013:

> China: Two recent Supreme Court decisions open up greater possibilities for amendment of Chinese patents

> England: The PCC - A review of the first four patent cases to come to trial in the PCC

> Germany: "Customary usage in the trade" gains importance in determining infringement in repair/reconstruction cases

> Holland: Cross-border patent litigation revival 'Solvay vs Honeywell'

> Spain: Some interesting peculiarities of Spanish Utility Models

> England: The Patents Court exercises its jurisdiction to grant a pan-European declaration of non-infringement

> England: Patent litigation statistics for 2011 and 2012

> EU: Unitary Patent Regulation and Unified Patent Court Agreement

> England: The Patent Box