We Need Proportionality Review

for Patent Injunctions under German Law

Maurits Dolmans
Cleary Gottlieb Steen & Hamilton (London, Brussels)
12 November 2019

Conference on Component-Level SEP Licensing

clearygottlieb.com
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Remember this? Patent World War I (simplified)

It’s about to happen again with the IoT and 5G

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Why? Complex products are vulnerable to patent attack

Complex products: Patents on one part can block/delay entire product

Complex innovation: Cooperative R&D / multilateral standard setting

lead to fragmented
patent ownership

Complex production:
vulnerability upstream
has effects downstream
in the chain (and v.v.)

Complex networks:
interdependence
of products
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A 200+ portfolio is enough to create a strong thicket

—Volume of patents makes

up for the weakness of
any individual patent.

—It is too expensive and

too time consuming to
challenge the validity of
hundreds of patent
claims.

—Cheaper to settle (and

take a licence) than fight
validity.
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NPEs and privateers are used for patent attacks
—Impervious to deterrence: without downstream business vulnerable
to patent attack, they have freedom to put maximum pressure on
their target.
Effects: Fragmentation of patent ownership, which creates
—Coordination problem:
each patent owner tends to
(a) make demands regardless
of effects on others, and
(b) seek injunctions regardless
of effects on others
—This leads to risk of:
• Gridlock, and
• royalty stacking
(Cournot problem)
5 (Rhine gridlock example) 5
NPE litigation is growing, also in the EU

Source: DARTS-IP study on NPEs in EU

Disputed here in IAM
See also JCR Report on PAEs in Europe
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 Germany is an attractive jurisdiction

A bifurcated system
High patentee win rate in injunction actions
short durations of infringement procedures Source:
DARTS-IP study on NPEs in EU
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NPEs win more often in Germany (and the UK)

Source: DARTS-IP study on NPEs in EU

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Even though NPEs relatively often lose on validity

Source: DARTS-IP study on NPEs in EU

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Recent litigation suggests the sector remains active
Conversant
Unwired Planet
Polaris
Avanci
HEVC
Intellectual Ventures
IPCom
and others like Nokia, Ericsson, Broadcom etc…?

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Injunctions are routinely granted if infringement found
No proportionality or equity test;

Section 139 para. 1 of the German Patent Act:

(1) Any person who uses a patented invention

contrary to sections 9 to 13 [i.e., makes, uses, sells,
imports etc. a patented invention without the patent
holder’s consent] may, in the event of the risk of
recurrent infringement, be sued by the aggrieved
party for an order to cease and desist. This right
may also be asserted in the event of the risk of a
first-time infringement.

Injunctions are granted even if invalidity is still pending

(in Germany - bifurcation)
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German Courts pay lip service to proportionality
• “a grace period can be warranted …if immediate enforcement of the
injunction would be a disproportionate hardship on the infringer, weighing the
interests of the patent holder against those of the infringer, and such hardship
is not justified by the exclusive nature of the patent right and therefore in bad
faith” - Federal Court of Justice, “heat exchanger”, 10 May 2016
• “Section 139 Patent Act is subject to a proportionality assessment under the
strict requirements of Section 242 Civil Code. […] if granting an injunction
would constitute a disproportionate hardship that is in bad faith and not
justified by the exclusive nature of the patent right.”– Munich I, 13 June 2019
• “enforcing an injunction can be disproportionate, since even patent rights are
not granted without limitations.” - Mannheim, 27 February 2009
• “[…] it is correct that when applying Section 139 Patent Act [claim for
injunction] – within the reach of European law – the European principle of
proportionality is to be observed.” - Düsseldorf, 24 April 2012

But they don’t refuse injunctions even if disproportionate

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Indeed, injunctions are semi-automatic
„Insgesamt entsteht der Eindruck der BGH wollte den Forderungen
der Praxis und Literatur nach Verhältnismäßigkeitserwägungen mit
seinem obiter dictum bewusst entgegenkommen, aber in jedem
Fall eine Beschränkung des Unterlassungsanspruchs vermeiden,
um den faktischen status quo des Unterlassungsrechts nicht zu
verändern. Die überwiegende Literatur merkt kritisch an, dass der
Gerichtshof mit den Anforderungen an die Gewährung der
patentrechtlichen Aufbrauchfrist deren Anwendungsbereich
faktisch auf Null reduziere. Er würde nun verschiedentlich in
Entscheidungen als zu berücksichtigender Grundsatz zitiert, ohne
dass im Einzelfall hieraus konkrete Schlussfolgerungen gezogen
wurden. Tatsächlich ist keine Entscheidung bekannt, in der die
Rechtsprechung in der Folge eine Aufbrauchfrist gewährte.“

Stierle, Der quasi-automatische Unterlassungsanspruch im

deutschen Patentrecht, GRUR 2019, 873;
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Germany is required to implement the Enforcement
Directive
Article 3 – General obligation
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. Those
measures, procedures and remedies shall be fair and
equitable and shall not be unnecessarily complicated or costly,
or entail unreasonable time-limits or unwarranted delays.
2. Those measures, procedures and remedies shall also be
effective, proportionate and dissuasive and shall be applied in
such a manner as to avoid the creation of barriers to legitimate
trade and to provide for safeguards against their abuse.

Violation can give right to damage claims

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Article 3 is clear, precise, and unconditional
• “judicial authority should … [take] due account of the specific
characteristics of the case (see Recital 17 of IPRED) and any
injunction issued must be in accordance with the principle of
proportionality and the other general requirements laid down in
Article 3 as well as the applicable fundamental rights.”
• “It follows that the competent judicial authority should not issue
injunctions which require the taking of measures that go beyond
what is appropriate and necessary in light of the facts and
circumstances of the case at hand to prevent an imminent
infringement or to forbid the continuation of an infringement.”
• “In view of the CJEU case law, the addressee of the injunction
cannot be required to make “unbearable sacrifices”.”
IPRED Communication (2017) Section IV.3

Article 3 therefore arguably has “direct effect” –

and Art 139 should be interpreted in light of Article 3
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Article 3 requires a proportionality test also in SEP
cases

“When assessing the availability of injunctive relief, courts

are bound by Article 3(2) of the IPR Enforcement Directive,
and notably the requirement to ensure that injunctive relief is
effective, proportionate and dissuasive. Given the broad
impact an injunction may have on businesses, consumers
and on the public interest, particularly in the context of the
digitalized economy, the proportionality assessment needs
to be done carefully on a case-by-case basis. The
Commission feels that considerations need to be given to
the relative relevance of the disputed technology for the
application in question and the potential spill-over effects of
an injunction on third parties.”

EC SEP Communication (2017) Section 3.2

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UPC Agreement and Rules of Procedure will also
require proportionality, once they enter into force

“The Rules shall be applied and interpreted in accordance with

Articles 41(3), 42 and 52(1) of the Agreement on the basis of the
principles of proportionality, flexibility, fairness and equity.

Proportionality shall be ensured by giving due consideration to the

nature and complexity of each action and its importance.”
(Preamble)

“In taking its decision the Court shall in the exercise of its discretion
weigh up the interests of the parties and, in particular, take into
account the potential harm for either of the parties resulting from the
granting or the refusal of the injunction.” (Rule 211.3)

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Proportionality is consistent with German law !

„Eigentum verpflichtet. Sein Gebrauch soll zugleich dem Wohle

der Allgemeinheit dienen.“
Article 14 of the German Constitution

“An obligor has a duty to perform according to the requirements

of good faith, taking customary practice into consideration”
Section 242 German Civil Code
“The claims [for corrective measures] shall be ruled out if such a
claim is disproportionate in an individual case. When examining
proportionality, consideration shall also be given to the
legitimate interests of third parties.”
Section 140a German Patent Act

TRIPS 7, 8, 30 also allows proportionality

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Elements of proportionality are sufficiently defined
— Legitimate objective? Irreparable injury on patentee?
— Necessity? Are a damage award and royalty determination appropriate
— Balance of interest? Impact on other patentees, suppliers, consumers

Injunction questionable Injunction may be appropriate

NPE/privateer
Hold up/willing licensee
SEP (FRAND)
Delay (waiting for lock-in)
Generally licensed technology
Patent on small component
Patent on interoperability feature
Unreasonable burden on implementer
High impact on others / public interest
manufacturer
Holdout/unwilling licensee
non-essential (implementation) patent
prompt enforcement
exclusively used/exclusively licensed
Patent on essence of product
Patent on core functionality
Irreparable injury on patentee
Public interest not disserved

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Lessons to be learnt from US?

• eBay Inc. v. MercExchange, L.L.C: -- 4 factor test for

injunctive relief in patent infringement cases:

• claimant has suffered an irreparable injury;

• other remedies are inadequate
to compensate for that injury;
• injunction is warranted that on
the balance of hardships
between the parties; and
• public interest would not be
disserved by a permanent
injunction.

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Conclusion: “What is just is what is proportional" (Aristotle)
— Art. 3 IPRED arguably has direct effect. And German courts are required
to interpret Section 139 Patent Act to be consistent with the Directive
— Under Art 4 TEU and 288 TFEU, Germany has a duty to amend Article
139 Patent Act to provide for proportionality

• It’s good policy in IoT and 5G context to balance EU/German industry interests!

— Amendment is consistent with German Constitution and Civil Code

— If they do not, and this causes damage: risk of claims against Germany
— If they do not, proportionality can be imposed under competition law

• General principle of proportionality: United Brands

• Orange Book (non-SEPs)
• Microsoft (non-SEPs)
• Huawei v ZTE (SEPs and FRAND)
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Throughout this presentation, “Cleary Gottlieb” and the “firm” refer to Cleary Gottlieb Steen & Hamilton LLP
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Proportionality in TRIPS Agreement
• Art. 7 TRIPS Agreement – Objectives:
The protection and enforcement of intellectual property rights should contribute to the promotion of
technological innovation and to the transfer and dissemination of technology, to the mutual advantage of
producers and users of technological knowledge and in a manner conducive to social and economic
welfare, and to a balance of rights and obligations.

• Art. 8 TRIPS Agreement – Principles:

1. Members may, in formulating or amending their laws and regulations, adopt measures necessary to
protect public health and nutrition, and to promote the public interest in sectors of vital importance to
their socio-economic and technological development, provided that such measures are consistent with
the provisions of this Agreement.
2. Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be
needed to prevent the abuse of intellectual property rights by right holders or the resort to practices
which unreasonably restrain trade or adversely affect the international transfer of technology.

• Article 30 TRIPS Agreement – Exceptions to Rights Conferred

Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such
exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably
prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third
parties.

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Infringement proceedings initiated by the Commission

The Commission can initiate infringement proceedings if a Member

State has not transposed an EU directive correctly or on time.

― Provided the Commission finds that Germany has not

transposed the Directive (fully) into national law for lack of
clarification on the proportionality requirement, it could launch
such proceedings.

― Proceedings would be initiated by the Commission sending a

letter of formal notice and requesting further information,
followed by a formal request to comply with EU law.

― Ultimately, the Commission may decide to refer the matter to the

CJEU, which can impose penalties on the Member State.
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Options for an individual to rely on the directive

― An individual may not rely on the directive if it has not been transposed

• Direct effect is generally limited to the relationship between citizen and

state (vertical effect), not between citizens (horizontal effect).
• A directive can have direct effect, if it is clear and precise,
unconditional and not granting the Member States substantial
discretion
• The duty to implement Art 3 is clear, precise, and unconditional, and
the IPR ED does not allow Germany discretion to ignore it
• There is discretion in applying proportionality, but no discretion to ignore it

― In any event, courts (in civil proceedings) may have to interpret national
law in line with the directive which the Member State failed to
implement.
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State liability – damage proceedings by an individual

Despite the prohibition on horizontal direct effect, an individual can sue the
Member State for damages caused by the state’s failure to implement a
directive.
― A claim for state liability requires that:
1. the rule of law infringed must be intended to confer rights on
individuals;
2. the breach must be sufficiently serious;
3. there must be a direct causal link between the breach of the obligation
resting on the State and the damage sustained by the injured parties
(CJEU, Brasserie du Pêcheur).
―In cases where an injunction is disproportionate, it should be
possible to show that the court in injunction proceedings would have
decided otherwise had the proportionality requirement been
enshrined in national law

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