Germany revises Patent Act and clears way for UPC
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Despite the pandemic bringing the world to a standstill in 2020-2021, Germany has worked hard at both the legislative and judicial level to continue protecting IP rights. The past 18 months has seen the first legislative reform to its patent law in more than a decade, and the plentiful rulings of the Federal Supreme Court have provided clarity, not only in areas of patent law, but also in supplementary protection certificates and FRAND licensing.
Revision to the Patent Act
In an effort to simplify and modernise the law and to expedite patent proceedings, on 10 June 2021 the German Parliament ratified a bill to revise the Patent Act, the first substantive change since 2009.
One of the major changes that comes with the revision is the introduction of a six-month period for the Federal Patent Court to provide a qualified (preliminary) opinion on the merits of the case in invalidity proceedings. Germany has a bifurcated system for national patent litigation, where infringement and invalidity cases arising from the same patent are handled by different courts – infringement by the civil courts and invalidity by the Federal Patent Court. Infringement proceedings can be stayed in cases of serious patent validity doubts. This occurs in about 20% of infringement cases. But under the bifurcated system, it can happen that a (generally faster) civil court judgment on infringement is only vacated much later by the (generally slower) Federal Patent Court ruling on invalidity. This scenario, which is sometimes referred to as an ‘injunction gap’, is being specifically counteracted by the new changes to the Patent Act. The changes aim to better align patent infringement and nullity proceedings by offering the infringement courts a qualified view on patent validity in a more reasonable timeframe to stay proceedings if necessary.
Only time will tell whether this will really affect the synchronicity of the bifurcated system or whether it will simply amount to more work at the Federal Patent Court. It is undeniable that the six-month time limit places a much higher burden on the Federal Patent Court. For the parties, this also means a significantly tighter schedule to file convincing arguments and evidence. As a rule, the patentee will now need to present its detailed defence within two months from receipt of the nullity complaint, which exceptionally can be extended by one further month. Therefore, under the new provisions, patentees are well advised to carefully review and prepare validity defences well in advance of starting an infringement action.
New criterion for injunctive relief claims against infringers
Another revision deals with one of the most prevalent tools of patent enforcement against infringers in Germany: injunctive relief (ie, a cease and desist order). Currently, the Patent Act states that the patentee can order infringers to cease and desist using, selling and importing, among other things, the patented technology. The Federal Supreme Court added an extra unwritten exclusion criterion in its 2016 Wärmetauscher ruling, whereby in exceptional cases injunctive relief can be denied if the court finds that it would pose a disproportionate burden or hardship on the infringer and therefore breach the fundamental principle of good faith. This principle of proportionality brought the German injunction statute in line with EU standards (specifically the Enforcement Directive), which require the same.
The proportionality test has now been codified, making the examination of injunctions more transparent, but there is likely to be little change on the practical implementation of the statute. Indeed, patent practitioners do not expect the revision to change Germany’s position as one of the most patentee-friendly litigation venues in Europe.
The legal consequences in cases of disproportionate burden remain at the courts’ discretion. This means, instead of excluding the injunctive relief, courts can decide to what extent the exclusion should apply. For example, the draft bill foresees that the court may set a grace period for the infringer to implement design-arounds or to sell its remaining stores of the infringing technology – at a price, of course.
To support a fair and flexible approach and to still protect patentees’ rights, the new revision also explicitly introduces a reparations clause, where the court can – in the same decision – order the infringer to pay a fair and commensurate reparation to the patent owner if a grace period is set. Importantly, this temporary exclusion of injunctive relief does not legalise the infringement for the grace period, and will therefore not affect the patent owner’s claim to damages.
For now, it seems fair to say that patent owners can be confident that the German courts will continue to be a particularly patent-friendly venue for infringement proceedings and injunctive relief will remain a powerful weapon in the IP arsenal.
Green light for UPC
Germany has kept the European Union on the edge of its seat when it comes to the Unified Patent Court (UPC) Agreement. Finally, after four years of limbo, in August 2021 Germany officially ratified the UPC Agreement, paving the way for it to enter force, possibly in mid-2022, according to the UPC Preparatory Committee.
The UPC was conceptualised as a means to offer a simplified, efficient and cost-effective route to patent protection and dispute resolution, obviating the need for multinational validation, invalidity or infringement proceedings, as they would all be handled centrally.
Germany was the last country needed to ratify the UPC Agreement and without Germany’s ratification, the UPC would have been blocked from coming into existence.
In 2017, when Germany was to pass a bill to ratify the UPC Agreement and after having successfully passed both chambers of German Parliament, a patent practitioner filed a constitutional complaint against the UPC Agreement, bringing the ratification process to a three-year standstill as Europe waited for the German Federal Constitutional Court’s decision.
Fast-forward to 2020 and the Federal Constitutional Court ruled that the number of representatives present in Parliament for the first vote was too low and, as a consequence, the vote was null and void. The Federal Constitutional Court did not go into specifics on whether the substantive content of the UPC Agreement was unconstitutional, but instead based its decision on the unconstitutionality of a less-than the required two-thirds majority vote from Parliament in order for Germany to give up a part of its sovereignty on ratification (as the agreement requires).
Sure enough, Parliament voted again on the UPC Agreement and its Protocol in late 2020 and obtained the required two-thirds majority in both chambers. Before the ratification bill could be signed into law by the German Federal President, two further constitutional complaints (one from the same individual as in 2017) were filed against the ratification of the UPC Agreement, continuing the three-year standstill.
In late June 2021, the Federal Constitutional Court decided that the complaints were inadmissible for failing to properly substantiate how, in fact, the UPC Agreement would violate the parties’ constitutional rights. Shortly thereafter, in August 2021, the German ratification bill was signed into law.
Barring any delays (eg, from the two other countries that need to ratify the Protocol on the Provisional Application, in finalising the budget and IT systems, or in assembling the court’s governing bodies during the sunrise period), the UPC is estimated to enter into force in 2022. Open questions include the fate of the Life Sciences and Pharma UPC Central Division that will no longer be located in London as a result of Brexit (a transfer to Milan, Munich or Paris is on the table) and how many patentees will make use of the ‘opt out’ provisions during the UPC sunrise period. But now at least it seems that the UPC Agreement can move forward.
Supplementary protection certificates
Supplementary protection certificates (SPCs) for medicinal products are a form of patent extension that can be granted to compensate patent owners for the shortened effective patent life on account of the extended period that it takes for regulatory certification of such products. One of the requirements for granting an SPC is that the product must be ‘protected by a basic patent in force’. It was unclear, however, to what extent this applies to a product composed of several active ingredients having a combined effect, particularly when that combination is not expressly mentioned in the claims of the patent.
In a 2018 ruling (C-121/17) concerning the medicinal product Truvada, the European Court of Justice (ECJ) laid out specific requirements for assessing whether a combination drug is “protected by a basic patent in force”, based on the skilled person’s view in light of the prior art at the priority date:
- the combination of active ingredients must necessarily fall under the invention covered by that patent; and
- each of the active ingredients must be specifically identifiable, in light of all the information disclosed by that patent.
This ECJ ruling was the result of a referral from the High Court of Justice in England, but is relevant for all EU national proceedings. The German Federal Supreme Court recently applied these principles in the German Truvada case (X ZR 172/18) from September 2020. In this decision, the Federal Supreme Court further explained that:
- the combination of two active ingredients is generally not protected by a patent where the claims consider one of those active ingredients to be optional; and
- in order to fulfil the ‘specifically identifiable’ requirement based on the prior art at the priority date, it is not enough if one of the active ingredients is neither functionally nor structurally defined.
As a take-home message for patent applicants in cases that could serve as a basic patent for an SPC application, it is important to define any envisaged combination treatments at least non-optionally in the claims, and to make sure to either functionally or, if possible, structurally define all the active ingredients in the description. Considering the complexity of such applications and the early stage of development when these applications are drafted, this poses a considerable challenge to the pharmaceutical industry.
Although it has become more difficult since the 2018 ECJ ruling to obtain SPC protection in the European Union and the United Kingdom for medicinal products based on a combination of active ingredients, at least the national courts, now including Germany, are explicitly setting out their requirements to provide greater legal certainty and guidance for applicants and patent owners in this field.
Patent owners seeking injunctive relief against alleged infringers based on a SEP and holding a dominant market position, must adhere to the framework laid out by the ECJ in its 2015 Huawei v ZTE decision (C-170/13). This includes, among other requirements, informing the alleged infringer of the patent and making a FRAND licensing offer if the alleged infringer shows willingness to negotiate, all of which must occur prior to initiating infringement proceedings.
While Huawei v ZTE clarified the general framework of FRAND requirements, there is a growing list of unanswered questions regarding the details of those requirements.
Underscoring the importance and relevance of answering those questions for the German market, 2020 saw two Federal Supreme Court decisions (FRAND Einwand and FRAND Einwand II) and one referral to the ECJ from a German regional court.
Federal Supreme Court decisions
In its recent FRAND Einwand I decision (KZR 36/17) from 5 May 2020, the Federal Supreme Court clarified that the patent owner of an SEP who holds a dominant market position must make a sufficient effort to allow the alleged infringer to enter a licence agreement as long as the infringer is fundamentally open to a FRAND licence offer. On the other hand, the alleged infringer must clearly and unambiguously declare themselves willing to enter a FRAND licence. It is not enough to show a willingness to certain licences. Instead, the Federal Supreme Court sided with the High Court of England and Wales (EWHC 711 (Pat) Rn 708 – Unwired Planet v Huawei) in defining a willing licensee to be one willing to take a FRAND licence on whatever terms are in fact FRAND.
This decision was subsequently confirmed by the Federal Supreme Court’s RAND Einwand II decision (KZR 35/17) from November 2020, where the court emphasised that it is the responsibility of both parties to actively seek out a FRAND licensing agreement. It clarified that this should be observed throughout negotiations.
It is clear from these two recent Federal Supreme Court decisions that a heavier burden is being placed on both sides to actively participate in seeking out FRAND licences, clarifying that the parties’ willingness to enter such licensing agreement is to be unconditional. At the same time, the Federal Supreme Court has also made clear that an SEP owner still must be able to react reasonably to an attack on its IP rights in Germany, provided that such conduct is not aimed at strengthening or abusing a dominant position.
In FRAND Einwand II the Federal Supreme Court further explained that fulfilling the criteria set out by the ECJ in Huawei v ZTE amounts only to a safe harbour; meaning that while the SEP owner can be assured that they are not illegally abusing their dominant position if they observe the requirements laid out in that decision, it is not automatically an abuse simply because the patent owner followed a different path from that defined in the ECJ’s ruling. This must be decided on a case-by-case basis.
Dusseldorf Regional Court’s referral to the ECJ
In a prominent infringement case from November 2020 between high-tech and telecoms company Nokia and the German automobile giant Daimler, one of the ‘big three’ infringement courts in Germany – the Dusseldorf Regional Court – had referred a series of questions to the ECJ (C-182/21) with respect to FRAND conditions and their applicability to multi-level supply chains and regarding the possibility of remedying unmet FRAND conditions during (instead of before) court proceedings. The referral questions also addressed a possible licensing priority and whether industry practice plays a role in FRAND considerations.
In early June 2021, however, Nokia and Daimler entered into a licensing agreement, effectively settling the dispute before the Dusseldorf Regional Court and resulting in the ECJ leaving the referral questions unanswered. While the settlement represents a missed opportunity to clarify FRAND requirements, the questions arising from the Nokia v Daimler dispute are in no way an isolated issue and the community readily expects similar questions to be presented to the ECJ or other European bodies via new routes in the near future.
Protecting innovation has never been more important. As businesses worldwide work to thrive in the face of a crippling pandemic, intellectual property – and in particular patents – continue to offer invaluable assets to support their company’s strategy and success. Patent owners can be confident that Germany will continue to be one of the top places in the world for protecting innovation.