Context: Over the course of the last 70 months, there have been only two cases in Germany where a FRAND defense to a standard-essential patent (SEP) injunction succeeded. Over the course of the last 47 months, only one. And in the entire history of the Munich I Regional Court, it hasn’t ever happened. ip fray stands by its assessment that German SEP case law is broken (May 20, 2024 ip fray article), which does not mean that a certain proposal for EU-wide legislation is the answer.
What’s new: On Thursday (May 16, 2024), the Munich I Regional Court handed down the second SEP injunction this month in Atlas Global v. TP-Link (after InterDigital v. Lenovo two weeks earlier (May 2, 2024 ip fray article)). And once again it set a low security amount of €4 million for enforcement during the appellate proceedings, laying out a legal standard that disadvantages defendants badly. This article is the first to quote (further below) that new legal standard.
Direct impact: It is possible that both Lenovo and TP-Link will now feel forced to settle the related global disputes. There has not been one patent injunction that the Munich appeals court ever lifted quickly, not even in cases where there multiple independent grounds for overturning a ruling (such as in Qualcomm v. Apple five years ago). It would be out of character for that court, which prefers sitting things out over making decisions, to act swiftly now.
Wider ramifications: SEP holders must realize they can’t have their cake and eat it. The current situation is unsustainable and has very little to do with fairness and justice. Denial is only going to make things worse as there is no political will in Europe to tolerate a broken SEP enforcement regime that indiscriminately enjoins every single implementer left, right and center, making mockery of the rule of law along the way. The uniquely German problem must be addressed, and the more constructively SEP holders engage in that regard, the less collateral damage there will be. If they believe they can defend the outrageous status quo that no rational person can justify, the price is only going to be higher.
ip fray became aware of a new Munich SEP injunction late last week (April 18, 2024 LinkedIn post by ip fray), but an extended weekend in Germany (Monday was a public holiday) delayed access to further information.
The plaintiff is Atlas Global Technologies, a licensing firm that holds hundreds of patents, many of them related to WiFi 6 (company website). The defendant, TP-Link, is a China-based router maker.
In September, a Texas jury handed a $37M damages verdict in the U.S. part of the dispute (September 14, 2023 Bloomberg Law article). There is at least one other German case. It was practically stayed (through a scheduling order) pending an opposition hearing in the European Patent Office next month.
In case no. 7 O 4832/23 over EP3295571 (title: “pilot transmission and reception for orthogonal frequency division multiple access”), the Munich I Regional Court’s 7th Civil Chamber (Presiding Judge: Dr. Oliver Schoen (“Schön” in German)) conducted the trial on May 2 and handed down the judgment, with the concomitant injunction, two weeks later. The decision-making process in InterDigital v. Lenovo was similarly rapid. Apart from cases in which the court may be awaiting a preliminary opinion from the European Patent Office in a parallel nullity proceeding, the Munich court (or at least that particular division) now strives to enter judgment within a couple of weeks of trial, while there used to be 4-6 weeks in between.
There was a problem here concerning the parallel nullity proceeding that ip fray is still investigating. It appears that the 2021 patent “reform” in Germany, which has been a complete failure (no exception whatsoever) with a view to injunctive relief but resulted in more stays of patent infirngement proceedings, failed to achieve the desired effect here due to what engineers call a “race condition” (where one process relies on a parallel one being completed within a certain period of time).
The legal standard for the security amount that implementers of standards must be concerned about is the following (first the German original, followed by an unofficial translation):
“Sofern die Beklagten einen deutlich über den Streitwert hinausgehenden möglichen Gegenanspruch nach § 717 Abs. 2 ZPO behaupten, müssen sie hierzu substantiiert vortragen und diesen Vortrag durch belastbare Unterlagen belegen. In aller Regel wird es dabei nicht ausreichen, wenn pauschal behauptet wird, dass der mögliche Schaden einen bestimmten Prozentsatz vom Umsatz darstellt. Solche Behauptungen sind in aller Regel durch Steuerunterlagen (Steuererklärungen und Steuerbescheide) zu belegen. Da das Festsetzen einer hohen Sicherheitsleistung den Unterlassungsanspruch erheblich schwächt, ist die damit verbundene erhebliche Vortragslast hinzunehmen.”
“Defendants who allege that wrongful-enforcement damages under Art. 717(2) Code of Civil Procedure would substantially exceed the value of the dispute must plead specific facts and underpin their pleadings with reliable evidence. It will normally not be sufficient to generally assert that the potential enforcement damages amount to a certain percentage of [lost] sales. Such claims will generally have to be proven by means of tax documents (tax filings and notices). Given that the requirement of a high security amount substantially weakens injunctive relief, the related considerable burden on defendants must be accepted.”
That incredibly high standard does not appear to have a basis in the law:
- The court’s logic is that tax documents are the most reliable source of information on actual profitability as no company will artificially inflate its profits for tax purposes.But Art. 714(2) of Germany’s Code of Civil Procedure merely requires a showing of harm, and under German law, a sworn declaration is one form that such a showing can take. Therefore, a demand for tax filings goes beyond the statutory requirements.
- The reference to a substantial weakening of injunctive remedies (because a patentee may not have the liquidity or creditworthiness to afford enforcement) is also detached from statutory law. The reason for which German (and not only German) law requires collateral if someone wishes to enforce an injunction that could still be overturned on appeal is that there would otherwise be a risk of a harmed defendant not being made whole in the event of wrongful enforcement. The right holder always has the option to simply await the appeal and enforce without a need to provide security, but the defendant may suffer losses and not be able to recover them from a right holder. If the standard was a different one, there would be an incentive to create shell companies with insufficient capitalization, an issue that the Unified Patent Court’s Hamburg Local Division identified in a case where a preliminary injunction hearing will be held on June 3 (May 16, 2024 ip fray article).
The UPC has a different statutory basis where the interests of the party that has to give security are taken into consideration, though it mostly just means that, for example, a party will not be required to provide the full amount of security for legal expenses right at the start of the proceedings, given that the UPC can always require additional collateral later on. But under German statutory law, the focus (whatever a litigant is required to provide security for) is strictly on the potential harm to the other party that could become a creditor of a fee award or of wrongful-enforcement damages. The legislative intent was clearly to just make sure that everyone will be made whole. The Munich court is now deviating from that approach.
This new issue concerning patent enforcement is not specific to SEPs: the same would apply to non-SEP injunctions. And there is nothing in the proposed EU SEP Regulation that would address this one.