Information for Clients

Patent Litigation in Germany

GLEISS LUTZ Dr. Thomas Bopp Tel. +49 711 8997-341 Dr. Michael Trimborn Tel. +49 711 8997-344

Contents:
Five Reasons for Conducting Patent Infringement Actions in Germany Basic Principles of Patent Litigation in Germany Separation principle Competent courts Counsel Pre-litigation strategy Sequence of Events in Patent Litigations Discovery Technical experts and witnesses Preliminary relief Patent Infringement Claims Cease and desist Information Damages 3 4 4 4 5 5 5 6 7 8 8 8 8 9

The information and opinions expressed in this paper are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations.

Five Reasons for Conducting Patent Infringement Actions in Germany

German courts have an excellent reputation internationally for patent litigation. Out of 800 patent cases per year in Europe, 600 are heard before German courts, with many plaintiffs coming from foreign countries such as the USA, the UK and Japan. There are 12 district courts (Landgerichte ) specialized in patent litigation. The plaintiff has a choice of forum if (as usual) infringements occur countrywide, for example as a result of the infringing embodiment being offered on a website. Most plaintiffs choose the court in Dsseldorf as its experience and expertise guarantees quality and predictability of the decisions. If patent infringements occur in more than one country, German courts may assume jurisdiction not only for German patents but also for other national parts of a European patent. This makes Germany particularly suitable for pan-European litigation. The EU Regulation on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters and international treaties provide the legal basis for the enforcement of German judgments abroad. The time it takes until a judgment is issued by the court of first instance, namely approximately 9 to 12 months (assuming that the scope and complexity of the case are average), is relatively short compared to other countries. There are two main reasons for this. Firstly, the German court seized of the infringement will accept the patent as granted and may only examine its validity in exceptional circumstances (separation principle). Secondly, in Germany there is no time-consuming pre-trial discovery and the trial itself only takes one day. The costs for patent infringement proceedings are calculable and relatively moderate compared to other countries. The losing party bears the court costs and has to reimburse the prevailing partys costs up to a certain level stipulated by law. Preliminary injunctions may be granted within few days or weeks if the applicant can furnish clear proof to show that the patent is being infringed and if it is certain, or there is no substantial doubt, that the patent is valid. Injunctions are dealt with in court proceedings that are separate from the action on the merits. Patent owners have a strong position in infringement proceedings before German courts, the reasons being the following: German courts are traditionally patent owner-friendly and concerned to ensure that IP rights are enforced. Damages claims have been substantially extended in recent case law. The infringer is no longer allowed to deduct from the profits it has to surrender so-called overheads that are not directly related to the object that infringes the patent. This may mean that the patent owner is able to recover many times the amount of damages it can claim on the basis of the licence analogy method.

 Thanks to the German Federal Court of Justices Faxkarte ruling, the possibilities available for preserving evidence have been improved. Since January 2002 judges have been able to order disclosure of specific documents, though this does not match the possibilities provided by pre-trial discovery or seizure.

Basic Principles of Patent Litigation in Germany

Separation principle While in the USA the issue of the validity of a patent and that of its infringement are generally dealt within one and the same proceedings, in Germany the two matters are dealt with separately by different courts. Unlike under 35 USC 282(2), the defence of lack of validity cannot be raised in infringement proceedings, but only in opposition and nullity proceedings (section 81 German Patents Act). As the judge handling the infringement action must, in principle, proceed on the basis of the patent as granted, counterclaims of invalidity are not admitted in infringement proceedings. Defences of lack of patentability and inadmissible extension, in particular, are dealt with in nullity proceedings before the Federal Patent Court in Munich. Actions for declaration of nullity of a patent cannot be filed as long as an opposition may still be filed or opposition proceedings are pending (section 81(2) German Patent Act). Unlike with declaratory actions under 28 USC, generally speaking to be able to file an independent nullity action the plaintiff does not need to have any special interest in seeking a declaratory judgment. It therefore does not have to prove any actual controversy between the parties. If a patent is declared null and void, then this applies erga omnes. Any parallel infringement action will be dismissed on the merits. Defendants may make objections concerning the validity of the patent in suit only in the context of a petition for suspension of the patent infringement action. The courts will usually only suspend the proceedings if the parallel opposition/nullity action is (highly) likely to succeed (e.g. anticipatory prior art that was not appraised in the course of the patent prosecution). Competent courts In all there are 12 courts in Germany - spread over the various states - which have special patent infringement divisions. The bench is composed solely of lawyer-judges, most of whom do have a certain amount of technical experience, however. The plaintiff has the choice of forum if infringing acts are being committed nationwide or in a number of states.

Counsel Both plaintiff and defendant in patent infringement cases have to be represented by German attorneys (Rechtsanwalt). In-house lawyers may not represent the company they work for in court. There is no locality requirement, i.e. any admitted patent litigator ( Rechtsanwalt) may represent his clients in any patent infringement court in Germany. Normally the German lawyers acting for the plaintiff and the defendant are assisted by patent attorneys, who possess the necessary technical expertise and specialised know-how. Pre-litigation strategy Before filing the action, the patent owner or the exclusive licensee has three courses of action: It can send a warning letter to the presumed infringer asking it to cease and desist from the alleged infringement, not to interfere with the patent in future, and also to recognize certain follow-up claims (for damages, rendering of accounts). The plaintiff does not have to send a warning letter prior to filing an action, but it purposes are twofold: namely to try and avoid having to litigate and all the time that involves, and secondly, to avoid the cost risk, should the defendant acknowledge the claim straight away in a subsequent litigation; in this case the plaintiff would have to pay the defendants costs if it had not sent a warning letter prior to filing the action. One must distinguish between a warning letter and a request for evidence of authority to use the patent (Berechtigungsanfrage). With the latter the patent owner does not seek to assert a cease and desist claim, but to trigger discussions over the factual and legal situation. The patent owner draws the addressees attention to what he regards as infringing acts and asks it to explain why it considers itself authorised to perform the acts in question. In order to avoid an Italian torpedo it may be expedient in certain cases not to send a warning letter if one is intending to sue for patent infringement. Italian torpedo is the term used to describe an action for a negative declaratory judgment lodged by a potential patent infringer against the owner of the patent in a country with slow jurisdiction (e.g. Italy). As long as the action for the negative declaratory judgment is still pending, the patent owner cannot file a patent infringement action against the infringer. On account of the long-drawn-out court proceedings in Italy, this may lead to substantial delays in enforcing patent rights in other European countries.

Sequence of Events in Patent Litigations

In Germany patent infringement actions are brought by filing an action with a court. The court serves the action on the defendant. Unlike before US district courts, in Germany the complaint has to include - in relation to the motions for judgment - a detailed description of the infringing object and a full and complete account of all the relevant facts and the legal considerations relating, inter alia, to the international and local jurisdiction of the court seized of the matter, the plaintiffs standing to sue and the defendants standing to be
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sued, the problem and solution of the patent in suit, a comparison with the infringing object based on an analysis of the features, and submissions as to a legal appraisal of the individual motions for judgment. To begin with evidence is simply offered to the court. Written testimonies are not customary. It is the practice of the patent litigation divisions in Dsseldorf to schedule an early first hearing approximately six weeks after the complaint is served on the defendant. The defendant does not have to submit a written response to the complaint by then, though it does have to have presented any objections it may have as to the admissibility of the action (international or local jurisdiction, arbitration, etc.). At the early first hearing the appropriate wording of the motions for judgment is discussed, the time-periods set for submission of the statement of defence (approx. three months) and the plaintiffs replication (again approx. three months), and a date scheduled for the main hearing. The statement of defence has to encompass all the defence pleadings. If the defendant wishes to file a petition for stay of trial (section 148 Code of Civil Procedure) on the grounds of an opposition or an action for nullity, this has to be done in writing within the deadline for filing the statement of defence. Some nine months after the complaint is served, a hearing will be held for the matter to be tried in detail. This is a public hearing. There is no jury and the judges play a more active role than in US patent litigations. The presiding judge summarizes the facts submitted to the court and frequently gives some indication as to how the court intends to rule. Counsel for the parties then have an opportunity to respond verbally to the provisional opinion expressed by the court. Oral hearings seldom go on for longer than half a day or so. If the court sees the need to call upon an expert to deal with technical issues, the parties are given the opportunity to submit their comments on his written report before a further oral hearing is held. The court will then pronounce its decision some two months after the hearing. The written grounds will be sent to counsel for the parties approximately two weeks later. The plaintiff can have the judgment handed down by the court of first instance enforced against the provision of security (usually in the form of a bank guarantee). The purpose of the guarantee is to provide collateral for damages the infringer may be able to claim in the event that the court of first instances judgment is reversed on appeal after it has ceased and desisted from the infringing act in compliance therewith. The losing party may lodge an appeal with the higher regional court within one month after service of the judgment handed down by the court of first instance. New facts may be submitted, but only under certain conditions. The appeal proceedings generally take one to two years in all. The appeal has no suspensive effect.

Discovery German law does not provide the parties with all the possibilities offered by pre-trial discovery proceedings as in the USA or the UK. Nonetheless, the patent owners position has been strengthened over recent years in Germany: It has always been possible to make test purchases of infringing products provided the person making the purchase conducts himself like a normal customer. Since 2002 the courts have been able to order a party or a third person to present deeds and other documents referred to by a party which they have in their possession. While the court does not have the means to force the parties to comply with the order, in the context of its free evaluation of the evidence furnished it may draw - possibly negative - conclusions from a failure on their part to do so. The FCJs Faxkarte ruling has reinforced the patent owners possibilities of securing evidence if it suspects that its patent is being infringed in Germany. If the patent owner can prove a certain degree of probability of an infringement of its patent, it may have a claim for inspection of the object (section 809 German Civil Code). This does not mean, however, that it has extensive rights of exploration and examination. In practice it is advisable to proceed in two stages: At the first stage the offending object can be examined on the purported infringers premises by a court appointed expert and the patent owners attorneys and patent attorneys, who are sworn to secrecy vis--vis the patent owner. The court discusses the findings of the examination in a non-public hearing with the parties counsel. If there is need for further clarification, then a second examination will be ordered. The above procedure is not the norm, however, but rather the exception, and will not be considered if the patent owner has other ways of finding out for sure whether the patent is being infringed. Technical experts and witnesses There are substantial differences between the functions and responsibilities of technical experts in the context of German and US patent litigations: While in the USA a technical expert is the rule and, appointed by one of the parties, plays the role of advisor to that party, in Germany technical experts are appointed by the court only in approximately 5-10% of all patent litigations. They have to be strictly neutral and impartial and their role is that of advisor to the court (which is comprised of solely lawyer-judges). In German patent litigations it is the judge who decides whether a technical expert needs to be called in to deliver a report. The court is supposed to call in a technical expert if it has any doubts as to its own technical knowledge. The parties may make suggestions as to the person of the expert to be appointed by the court, but he is appointed by the court alone. It is also the court that decides on the facts in issue on which the expert is to report. If the report the expert produces is incomplete, incomprehensible or inconsistent, the court will ask him to supplement or explain it. The trial judge must examine the opinions expressed by the expert and decide whether they help to elucidate the relevant issues. The parties in patent litigations are free to submit to the court reports drawn up by private technical experts. These do not constitute expert evidence, but are merely qualified submissions by the respective party. Private
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experts reports may contradict the report delivered by the court-appointed technical expert. If the court is unable to clarify contradictions of this kind, the court-appointed expert has to explain his report in a further hearing, and the parties have the right to put questions to him. In Germany it is the exception for the courts to examine witnesses at a hearing. One case where it may happen is if there is a dispute as to inventorship. Preliminary Relief In patent infringement matters, too, preliminary injunctions offer the quickest way of obtaining judicial relief. Although injunctions are the exception in patent matters, over 100 injunction petitions are filed each year in Germany in the context of patent infringement cases. The following aspects may militate in favour of an injunction: proven infringement, definite validity of patent in suit; special time considerations (trade exhibitions); serious disadvantages for the patent owners market position (undercutting prices, predatory competition). The petitioner must make a showing of urgency in terms of time. After finding out about the infringement the infringed party should not wait more than one to two months before filing the petition. In cases of particular urgency the court may issue an ex parte injunction wihin just a few days without holding a hearing. As a rule, however, the court will schedule a hearing at short notice, at which it will render a decision on the petition. The petitioner has to furnish prima facie evidence to back up the claims made in the petition, e.g. written affidavits or reports by the parties experts, or the infringing object itself. If the respondent contravenes an injunction served on it, it may be fined up to 250,000, to be paid to the treasury, or sentenced to up to six months custody for disobedience of a court order. Judgments in injunction proceedings are enforceable without security having to be furnished. The losing party can lodge an appeal with the Higher Regional Court, but the appeal has no suspensive effect. If a party is expecting to be injuncted, it may lodge a Schutzschrift (anticipatory defence) with the court to defend itself ahead of the fact, the main idea being to stop the injunction being issued, or at least to get a hearing scheduled at which it can present its side of the story.

Patent Infringement Claims

Cease and desist The main aim of the patent owner or the exclusive licensee is to have the infringer cease producing, offering for sale and putting on the market the infringing product or using the patented process, as the case may be. The infringer does not have to be acting culpably for the patent owner to be able to sue it for cease and desist. It is enough if it is interfering with the owners patent rights.
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Information The plaintiff has extensive claims against the infringer for information and rendering of accounts: Amongst other things, the infringer has to provide a detailed list of the turnover generated from sales of the infringing products and - broken down according to the individual cost factors - its actual costs and profits. It also has to provide the names and addresses of customers. The patent owner also has a claim for immediate information as to the origin and the distribution channels of the infringing products or their parts. Damages Where an infringer acts with deliberate intent or negligently, the infringed party has a claim for damages. Fault is generally assumed because companies have an obligation to inform themselves about the patent situation in the relevant sector. The plaintiff generally does not know the extent to which the patent has been wrongfully used at the time when it lodges the complaint, so that it is unable to put a precise figure on the losses. For this reason, it is possible to have the court issue a declaratory judgment to the effect that the Defendant must compensate the patent owner for the losses it has sustained, and will sustain in future, as a result of the infringing acts. The court will generally do this when it rules that the patent has been infringed. If need be, the amount of damage has to be determined in separate proceedings. The plaintiff has three options when it comes to the basis for computing its losses: lost profit lost reasonable royalties surrender of the profit generated by the infringer.

In its Gemeinkostenanteil (overheads share) ruling, the FCJ held that the overheads may be deducted from the infringers turnover only if and to the extent that they are directly and exclusively allocatable to the infringing objects. The burden of presentation and proof in this respect rests with the infringer. Basing calculations on the profit generated by the infringer may mean that the patent owner is able to recover many times the amount it would if the reasonable royalties method is used. This new precedent has strengthened the patent owners position. Even if claims for damages are statute-barred, the court may grant a claim for unfair enrichment as the infringer has made use of the technical teaching of the patent. Lastly, the patent owner can claim interest. The rates are between 3.5 and 4% above the standard interest rate, i.e. 7-8%.

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