Three key takeaways from how the new disproportionality defence is affecting SEP infringement cases
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|Case names and references|
Pitch-Lag-Schätzung, judgment of 5 August 2022, 21 O 11522/21 – not final
Keepaway-message, judgment of 5 August 2022, 21 O 8879/21 – not finalFunkkommunikationseinrichtung, judgment of 25 November 2022, 21 O 12142/21 – not final
|Court||Munich Regional Court I|
|Causes of action||Infringement of an SEP, claiming injunctive relief|
According to the Munich Regional Court, in SEP cases (and in the absence of extraordinary circumstances) as a rule, the new disproportionality defence does not provide implementers with an additional defence (ie, in addition to the FRAND defence), provided that the SEP holder has complied with its FRAND obligations.
According to Section 139(1,3) of the German Patent Act, a claim for injunctive relief “is excluded insofar as due to the special circumstances of the individual case and the requirements of good faith the claim would lead to disproportionate hardship for the infringer or third parties not justified by the exclusive right”.
The provision was introduced in 2021 at the instigation of the German industry with the aim of moderating automatic injunctions. The legislator’s explanatory memorandum on the new provision, however, explicitly states that it shall serve as a clarification, not calling into question the generally automatic injunction. As a general principle under German constitutional law, the imperative of proportionality applies to any act of state authorities, including court decisions and, in fact, proportionality considerations had been applied – although reluctantly – by German patent courts before (Court of Justice, 10 May 2016, X ZR 114/13 – Wärmetauscher ).
As became clear during the legislative procedure and as confirmed by the explanatory memorandum, the legislator’s aim was to limit the disproportionality defence to exceptional cases. This is implicit to the provision’s wording referring to “disproportionate hardship […] not justified by the exclusive right”. Conversely, any hardship that is inherent to and the logical consequence of any exclusive right and its enforcement (eg, the exclusion of any third party from using this right) cannot justify a proportionality defence.
When judging on (dis)proportionality, all “circumstances of the individual case” and “requirements of good faith” must be considered in an overall weighing of interest. The explanatory memorandum for the new provision exemplarily lists certain aspects to be taken into account, such as whether:
- the infringer tried to obtain a licence;
- the patent proprietor’s interests are of merely monetary nature;
- the patent only concerns an economically insignificant component of a complex product; or
- significant third-party interests would be affected (eg, critical infrastructures).
The Munich judgments
The Munich Regional Court has ruled on the disproportionality defence in three parallel SEP cases.
According to the court, the mere fact that a patent holder exploits its patent by way of licensing cannot classify the claim for injunctive relief as disproportionate, particularly not in SEP cases. The fact that an SEP holder’s interest is of a monetary nature cannot be considered to the detriment of the SEP holder if it complies with its FRAND obligations. The preliminary monetary nature of its interest is due to the SEP holder’s obligation to offer and negotiate a FRAND licence – as imposed onto it by its FRAND declaration and by virtue of antitrust law. Compliance with these obligations must not be held against the SEP holder in the context of the disproportionality defence.
Therefore, if the SEP holder complies with its FRAND obligations, in the absence of extraordinary circumstances, the disproportionality defence does not provide the implementer with an additional defence. In particular, the SEP holder does not have to refrain from initiating court proceedings until licence negotiations have concluded to avoid the disproportionality defence. Otherwise, the rule-exception relationship established by Section 139 of the German Patent Act would be turned upside down and its legislative objectives would be misunderstood.
Further, the court argued that disproportionality cannot be considered in the assertion of an SEP against a complex product, either, at least in FRAND cases. This is because the implementer is generally entitled to conclude a licence agreement on FRAND terms. The fact that the licence agreement has not yet been concluded is the implementer’s fault (if the SEP holder has complied with its FRAND obligations). In the weighing of interests, the implementer’s unwillingness to take a licence must be taken into account too.
The Munich Regional Court’s decisions are unsurprising and generally in line with the German courts’ strict view on the disproportionality defence (eg, Munich Regional Court I, judgment of 25 May 2022, 7 O 14091/19 – Sprachsignalcodierer II; Düsseldorf Regional Court, judgment of 7 July 2022, 4c O 18/21 – Sofosbuvir; judgment of 30 June 2022, 4b O 7/22 – Schiebedach). However, analysing the decisions still reveals three useful insights.
First, German legislators intended to introduce the defence as a clarification; its aim was to codify the already applicable law applying the imperative nature of proportionality as a corrective to automatic injunctions in extraordinarily exceptional cases. In practice, the disproportionality defence will have little to no impact on the outcome of the vast majority of patent infringement cases.
Second, this deduction is even more applicable to SEP cases. In such cases, the Munich Regional Court appears to take as a basis – although not explicitly – that the so-called ‘FRAND dance’ obligations imposed on the parties are already the result of a balancing of interests, which generally must not be thrown out of balance by disproportionality considerations. Consequently, in SEP cases, in which the SEP proprietor complied with its FRAND obligations and in the absence of extraordinary circumstances, an implementer will generally have a hard time arguing disproportionality.
Finally, as acknowledged by the Munich Regional Court, this could be different where there are exceptional circumstances. Whether substantial third-party interests (eg, public interest in the maintenance of critical telecommunication infrastructure) could qualify as such exceptional circumstances is yet to be seen.