Germany: Why Patent Litigation in Germany is Attractive for International Corporations

Litigating intellectual property rights is common in Germany, in particular with patents. Companies can perceive patent litigation as a legitimate and efficient means in the fight for market shares. With the high tech industries' rush for innovation, especially in biotechnology, pharmaceuticals, software and producers of semiconductor, products are developed which are technically often situated critically close to competing products. If they are identical or very comparable with regard to protected details or functions, competing companies may have to go to court in order to litigate their IP disputes. Here, much can be at stake: past investments in R&D as well as expected profits and market shares.

IP creates worldwide networks: by technology transfer from academic and commercial research centers to industry, by co-operations and licensing programs between companies in different industries and countries. With the globalization of the economy, the growing importance and awareness for IP has spread to all industrialized nations. As a consequence there are now frequently whole series of cross-country law suits, in particular patent infringement suits, with Germany playing a pivotal role as the largest market and most frequented patent litigation venue in the EC. Even in times without economic growth, modern companies are concentrating on the financial realization of their protected or acquired innovations. Thus, corporations are founding limited companies exclusively for the purpose of "mining" for and realizing protected inventions, for purchasing patents and financing infringement lawsuits. Patent related risks (such as potential infringement and the ensuing costs of a lawsuit) can be insured nowadays by specialist insurers. Specialized law firms providing the full range of services related to intellectual property offer their expertise and international services and connections.

In particular during the past 10-15 years the awareness for the value of intellectual property within companies has risen enormously. If, before 1985, there might have been a certain general hesitance towards filing applications, today there is a veritable race for IP-protection which is reflected in the exponentially rising statistics of applications for patents and trademarks in Europe, in the U.S. and in the other major industrialized countries.

While formerly the first priority was to file a patent (or utility model) application for any invention that seemed to be "patentable", there has now been a certain shift towards a more strategic approach. Patents and intellectual property in general are undergoing a revolution with regard to their appreciation as intangible assets. Today, often up to 85% of the value of the market capitalization is attributed to the immaterial assets of a given company. Up-to-date studies by financial service providers show that the highest rate of return with regard to investment is achieved by immaterial values, these consisting mainly of patents, trademarks and the know-how of employees.

The "dotcom bubble" did not burst because of any lack of innovative values, says one provocative thesis exchanged in professional circles, but because of a lack of knowledge about the economic asset called IP. Any innovative company will only survive if it contributes appropriate attention and resources to its intellectual property, learning to conceive and to use IP as a profit center, subjugating patents to analysis of risk and cost/benefit as well as using them in a strategic long term way. This is termed "Intellectual Asset Management" or "Patent Strategy", veritable departments within companies employing interdisciplinary know-how of law, business administration and technical fields. The IP manager's task is to nurture a strong patent portfolio, maximize profit, for example, from license agreements and build up strategic advantages against competitors which, if necessary, have to be put to the test in litigation.

The reasons that internationally acting corporations are giving preference to the German courts when defending their intellectual property rights can be found in the general reliability of the German courts and professional circles as well as in the comparably favorable conditions of time and costs. But small and middle sized companies, too, run a fair chance in this country of defending their patented products successfully in the internal market against the competition of international "giants" by being able to conduct, to finance and - that's what counts - to win a patent infringement lawsuit. As a consequence of the advancing harmonization of patent law within the European Community, patent infringement suits conducted in Germany are often attaining also legally a pivotal status and are being appreciated as such by companies in their patent litigation strategy. In the following some cornerstones of the German system are explained, with a special view to the attractiveness it holds to the patent owner as plaintiff.

In first instance, patent infringement matters are heard by specialized chambers of 11 selected district courts (Landgerichte), the most highly frequented being the courts of Düsseldorf, Mannheim and Munich. Düsseldorf handles approx. 30% of all European and more than 50% of all German patent cases.

When choosing the appropriate district court, a number of strategic criteria should be considered: Apart from the regional competence (residence of infringer, area of distribution and marketing of infringing articles), also a certain differing in the "pro-patentee attitude" of the individual court may play a role as well as the individual judge's tendency to appoint a technical expert or to stay the infringement suit because of a parallel nullity action.

Most patent judges have a fair understanding of technical issues because of their continuos exposure to patent matters. In the US, by comparison, plaintiffs can only in the appeal instance count on judges specialized in patent law, while in first instance, at the US district courts, cases of many different areas of law are heard (and often decided with the participation of a lay jury). German patent judges can, if necessary, commission experts on demand or at their own initiative, whereas an expert opinion submitted by a party has no direct value of evidence. Since the tendency for the appointment of experts varies from judge to judge, this aspect should also be carefully considered by the patent law practitioner. A relatively liberal interpretation by German judges of the so-called doctrine of equivalents may be a further plus for a foreign plaintiff. (According to the case law of the German Federal Supreme Court (BGH), an equivalent embodiment is falling under the scope of protection if (1) this differing embodiment is solving the problem of the invention with means that lead to the same effect, (2) the average person skilled in the art assesses these differing means according to his specialist knowledge as achieving that same effect, and if (3) the necessary considerations correspond to the technical sense of the content of the patent claims describing the invention.)

In summary, a detailed knowledge of the particularities of the individual courts and judges can be decisive for the planning of a successful patent litigation.

For an infringement lawsuit, parties are obliged to be represented by an attorney-at-law. Today, this will be an IP specialist with a practice focus on patent law, who in the majority of cases will be accompanied by a patent attorney with respect to technical aspects of the case. In the German Patent Court in Munich, a patent attorney acting in a nullity suit may be supported by an attorney-at-law. The separate or parallel conduct of infringement suits and nullity actions demands special care and professional experience for an efficient guidance and coordination of these dual procedures. Defendants counter the majority of infringement suits with a nullity suit or with an opposition procedure in the Patent Office. Specialist IP Law firms, offering the integrated services of patent attorneys and attorneys-at law, can combine both professions in teams to apply their technical and legal know-how on the specific problem of the client as well as acting more effectively before both types of courts.

A fresh wind in German patent infringement suits is expected by many practitioners of the reform of the German Civil Procedural Code (ZPO) which has come into force in January of 2002. Since the burden of proof lies with the plaintiff, the suing party is often in the unfortunate position to have to produce evidence from the opponent's sphere about the imitation or illegal commercial use of its patented invention. Before the reform of the ZPO, the court did not support the plaintiff in this respect - contrary to US procedure, where usually the procurement and submission of evidence is compulsory by order of the court. In Germany, however, up to now this legal concept was generally interpreted quite to the contrary, namely that "nobody can be forced to put a weapon in the hands of his enemy." By the amendment of §§ 142, 144 ZPO, the door to a court-ordered clarification of the factual situation has been opened to some extent. Now the judge can order submission and inspection of evidence from either party as well as from thirds not involved in the suit. The coming months and related case law will show to what extent patent owners and courts will use this instrument, particularly as there is still major reservation with respect to the opponent's interest for secrecy, reasonableness and the right to refuse to give evidence.

In first instance, patent infringements are mostly decided within a maximum of one year or even less, varying with the workload of the respective court, while the appeal instance (Oberlandesgericht) takes between one and two years. In international comparison, this is a rather fast procedure, and the revision of the ZPO has introduced a number of measures for accelerating civil lawsuits which may also lead to a further streamlining and shortening of patent infringement suits.

In contrast to Anglo-Saxon procedure, there is, as a rule, no lengthy and cost intensive cross-questioning of experts and witnesses. Court hearings in patent cases rarely take longer than a couple of hours. The argumentation and giving of evidence is submitted in written briefs before the start of the main court session.

Generally, the owner of a patent is entitled to calculate and to assert damages in three different ways. The purpose of awarding damages is to put the plaintiff into the position he would have been in had the infringement not occurred. No punitive damages are known under German civil law and there is no concept of maximum or minimum damage. The patentee may assert damages on the basis of "lost profit", which includes the profit not obtained through the infringing actions. The amount of "lost profit" has to be estimated by the court under all special influences which are, in particular, the profit margins of the concrete product. This assessment of the evidence means a relief for the patentee who generally has the burden of proof. The claimant has to demonstrate and calculate his damage and to disclose his internal calculation. The assessment of damages on the basis of "lost profit" requires that the patentee actually distributes or at least commercially exploits the invention.

As a further option, the patentee is entitled to claim the profit achieved by the infringer. The infringer's profit is not considered to be identical with the profit generally achieved by selling the specific infringing product, but concerns only profit which could only have been achieved as a consequence of the patent infringement.

In the majority of cases, the patentee is alternatively entitled to assert payment of a reasonable license fee, which he would have obtained by a third party. The case law clearly states that the infringer is to be treated as if he had concluded a license agreement under reasonable conditions.

The above three different options to calculate damages cannot be asserted cumulatively. Rather, the patentee has to decide which of these three options he will use to concretely calculate the damages. This decision can be made until the claim is fulfilled or a final assessment by the court is reached.

The losing party has to pay the court fees and reimburse the winning party for its statutory attorneys’ fees and related expenses such as travel and translation costs. The cost reimbursement for attorney and patent attorney fees follows a statutory fee regulation (BRAGO) which determines attorney's fee according to the value in litigation fixed by the court. The value in litigation is a measure for the value of the case for the plaintiff, including potential damages and the value of a cease and desist order. For typical values of litigation between € 500.000,- and € 5.000.000,- , the total cost risk of a patent infringement lawsuit in first instance ranges between € 50.000,- and € 250.000,- for higher values in litigation, the cost risk increases roughly linearly.

For the second instance the cost risk is roughly thirty percent higher than for the fist instance; for the third instance the cost risk is roughly twice as high as for the first instance. Therefore, the total cost risk of a patent infringement lawsuit through all three instances varies in the above example on a range of about € 170.000,- to about € 830.000,-

Provided that plaintiff can prove a clear case of patent infringement and there is an urgent need for a quick decision, patent owners can in appropriate cases stop the import and distribution of their competitor's patent infringing product by way of a preliminary injunction with a court order to cease and desist further infringing acts.

In the majority of cases, the strategy of the suing party will therefore focus on obtaining a permanent or preliminary injunction.

The special competence in patent law of German judges and law firms is providing for the parties considerable reliability which, along with the streamlined procedure and comparatively low costs, are making a patent infringement suit in Germany a calculable and not unattractive venture. Even though the reform of the German civil procedural code may not lead to spectacular US-style discovery of files and other documents, patent infringement suits in this country are promising to become an even more thrilling confrontation of highly specialized experts at the crossroads of modern technology and contemporary jurisdiction.

© by Reinhardt Schuster, 2002. This article was first published with Globe White Page, in "Building and enforcing intellectual property value", London 2002.