vendredi, juin 25, 2010

Germany: Suspension of compulsory execution as relief from patent injunctions

Suspension of compulsory execution as relief from patent injunctions

Contributed by Klinkert Zindel Partner

Introduction

For defendants in most patent infringement proceedings, the threat of an injunction halting production is of greater concern than the patentee's – as yet unasserted – damages claims. Under German law, trial court judgments are enforceable on a preliminarily basis shortly after the judgment has been served. Failure to act in accordance with such judgments can lead to severe fines or the imprisonment of the managing directors. Despite the fact that plaintiffs can be held liable for damages incurred by the defendant and must post security bonds, the loss of income resulting from a halt in production often easily exceeds the security bond and the solvency of the plaintiff. Furthermore, being ordered to halt production can seriously damage the defendant's reputation. In theory, defendants can apply for protection against compulsory execution before the trial court renders a judgment, provided that the defendant can show that an injunction would lead to severe and irreparable damage (eg, bankruptcy). However, in order to seek such protection, the defendant is required to disclose business secrets regarding solvency, sales figures and profit margins to the opposing party (which might well be a competitor).

Therefore, once the trial court has ordered an injunction, defendants often feel obliged to enter into highly unfavourable licence agreements in order to err on the side of caution, rather than appeal.

Erroneous trial court decisions may be reversed by the appeal court. In Germany, two-track jurisdiction applies to patent disputes. The dedicated patent court judges are not competent to determine infringement, whereas the patent trial courts are not competent to revoke patents. Trial courts may perform only a cursory review of the documents produced in a co-pending action for patent revocation and may stay infringement proceedings only if invalidity of the patent is highly probable. Patent revocation proceedings usually last significantly longer than infringement proceedings. Although the trial court judges are highly skilled and experienced, the Federal Patent Court or the Federal Supreme Court may eventually revoke the patents. In such cases, the corresponding trial court injunctions must be reversed.

However, many defendants in patent infringement proceedings reluctantly choose to settle after the trial court injunction has been rendered to avoid the trial court injunction being enforced – even in cases where the first instance injunction is clearly erroneous or it is highly probable that the patent will be revoked.

Relief

Section 719(1) of the Civil Procedure Code enables the appeal court to suspend the compulsory execution of a trial court injunction until the appeal court has decided on the merits. However, the courts have been reluctant to apply this provision. Particularly in proceedings regarding patent infringement, due to the limited duration of a patent and the patentee's desire to enforce the patent and secure its position on the market, the courts tend to prioritize the patentee's interest in the expeditious enforcement of a patent. Therefore, the courts have suspended compulsory execution only in cases in which it was highly probable that the appeal court would later reverse the decision completely. Other courts have ruled that Section 719 does not apply unless the defendant has moved for protection against compulsory execution with the trial court. However, several new decisions – published and unpublished – show that some of Germany's most prestigious appeal courts have repeatedly granted motions for suspension, even in cases where the defendant has failed to bring such a motion to the trial court beforehand.

In a case regarding audiovisual compression standards, which involved an IP collecting society and a major mobile telephone distributor, the Karlsruhe Higher Regional Court ruled that since the collecting society was not a competitor on the mobile phone market, it lacked a pressing need to enforce injunctive relief, it would be able to collect damages as appropriate after the appeal court had decided on the merits.(1)

In a second decision, the Düsseldorf Higher Regional Court ruled that the principle whereby a motion must be granted only if it is highly probable that the appeal court will overrule the judgment does not apply where the trial court has neglected important and relevant aspects of the case and has failed to incorporate the respective issues into its decision. In such cases it is irrelevant whether the decision is eventually confirmed.(2)

In a subsequent ruling, the same court granted a motion for the suspension of compulsory execution based on the fact that the trial court had failed to recognize that the plaintiff (i) bore the burden of proof for the alleged infringement, and (ii) had failed to substantiate the claim that the contentious product made use of all features of the patent. Although the point was not mentioned expressly, the appeal court once again omitted to impose the requirement that the judgment rendered on appeal will eventually overrule the trial court judgment, but deemed it sufficient that a major aspect of the procedural rules had been handled incorrectly by the trial court.

These recent rulings demonstrate that the courts appear to be developing a more liberal approach to the suspension of compulsory execution. It is significant that the Karlsruhe Higher Regional Court took into account the fact that the plaintiff was a collecting society and not a competitor of the defendant.

Defendants in patent infringement proceedings should be aware of the possibility of applying for such protective motions even after the trial court has issued an injunction. If such a motion is successful, the defendant can await the outcome of the proceedings on the revocation of the patent or, in the meantime, can start to negotiate a more favourable licence agreement.

Prerequisites

The appellant usually has two months from service of the trial court judgment to file grounds of appeal. It is advisable, although not compulsory, to file the grounds of appeal together with the motion for suspension of compulsory execution.

In addition to the requirements above, the appellant must substantiate its claim that compulsory execution would cause irreparable damage. In order to do this, the appellant must disclose certain figures. However, the disclosure obligation already contained in the trial court injunction is far more burdensome.

Furthermore, due to the broad discretion assumed by the courts when deciding on motions for the suspension of compulsory execution, the sooner the grounds of appeal and the corresponding motion are filed, the greater the likelihood that the appeal court will grant the motion. Where the appellant files the appeal and the corresponding motion late, this could give the impression that the threat of irreparable damage is not as imminent the appellant claims. In such circumstances the plaintiff will not await the outcome of the appeal proceedings or such protective motion, but will enforce the judgment as soon as possible. Hence, although cheap shots should be avoided, time is of the essence.

If the motion is granted, courts usually set a security bond to be posted by the appellant to cover the plaintiff's potential damages claims.

Comment

In many cases a successful motion for the suspension of compulsory execution can provide timely relief from erroneous trial court judgments. By the time the appeal court decides on the merits, the Federal Patent Court has usually already rendered a decision on the validity of the patent. At worst, the parties have more time to negotiate a reasonable licence agreement without the threat of an enforced halt in production. However, due to the timing implications and the complex legal status of patent proceedings, it is essential to obtain advice from experienced counsel who are familiar with the specifics of patent proceedings and German procedural rules. Such counsel will be capable of examining the prospects of success of such a motion and filing a reasonably grounded appeal within a short time. Given recent developments in this area of law, it is advisable for defendants in patent infringement proceedings to pay careful attention to the possibility of obtaining relief from a first instance injunction.

For further information on this topic please contact
Philipp Ess at Klinkert Zindel Partner by telephone (+49 69 972 65 600), fax (+49 69 972 65 6099) or email (p.ess@klinkert.pro).

Endnotes

(1) See Karlsruhe Higher Regional Court , GRUR-RR 2010, p 120.

(2) See Düsseldorf Higher Regional Court , GRUR-RR 2010, p 122.