Germany has recently received considerable attention as an arena for patent disputes. The main points of attraction are the relatively short and inexpensive procedures and, most notably, the fact that an injunction will be granted in case of infringement as a matter of right. Less known is the fact that German courts have developed a rich case law on infringement with foreign participation or otherwise extraterritorial aspects that have literally far-reaching consequences for foreign companies. Inter alia, they may be subjected to injunctions and liable for damages, even if they do not operate in Germany at all.
This case law relies on German provisions on contributory infringement and a broad concept of participation in an unlawful act. Looking at contributory infringement first, the German Patents Act provides that a patent shall prohibit any third party not having the consent of the patentee from offering or supplying in Germany means relating to an essential element of the invention for use of the invention in Germany to a person not authorized to use the invention, if said third party knows or it is obvious from the circumstances that such means are suitable and intended for use of the invention. This sounds fairly limited to Germany and thus mostly harmless for foreign companies, but it is not.
Let us have a closer look at some details. First, we need to have two parties not having the consent of the patentee, namely the “third party” offering or supplying in Germany and a party receiving the supply or offer. Neither of them needs to be a German company. They could be e.g. Indian companies. This is not too exciting in itself. However, according to German case law, every feature of a claim, even if it is of minor importance, constitutes an essential element of the invention. Further, an offer is considered to take place both where the offer is delivered and where it is received. Thus, a foreign company doing business with Germany may be involved in German litigation fairly quickly. For example, if an Indian company offers to a party resident in Germany to provide a control software for a device implementing a patented method, it will be liable for contributory infringement, if neither party has the consent of the patentee.
Second, the recipient of the offer or supply does not need to be the party who makes use of the invention in Germany1. It may be an intermediary, such as a supplier, distributor or retailer, operating outside Germany. Thus, resuming the above example, if the Indian company offers or contracts with a German party to provide the control software to an Indian manufacturer of an infringing product, which product is to be distributed in Germany by the German party later on, it will be liable for contributory infringement, although, but for the offer, all its activities took place outside Germany.
In a recent decision by the German Federal Court of Justice (FCJ)2, the scope of liability for contributory infringement was further extended by combining the concept of contributory infringement with concepts of participation in an unlawful act. In the case decided, a Chinese manufacturer had produced TV sets, which were partly directly delivered by the manufacturer into Germany free on board China and partly distributed in Europe, including Germany, by a different and independent Chinese company. The patent at issue protected a method of coding and decoding. The TV sets had the capacity to decode the signal and hence were found to be related to an essential element of the patented invention. The court not only found the Chinese manufacturer liable for contributory infringement because of direct delivery into Germany – delivery free on board China was not an excuse - but also where the distribution in Germany happened through the independent distributor. Considering that the Chinese manufacturer was aware of the possibility that the distributor might also distribute products in Germany, the court held that the Chinese manufacturer had participated in the (contributory) infringement through its own conduct.
German courts have developed a rich case law on infringement with foreign participation or otherwise extraterritorial aspects that have literally far-reaching consequences for foreign companies
The doctrines on participation do, of course, not only apply to contributory infringement, but also and especially to direct infringement in Germany. In this regard, the FCJ held in the above-mentioned decision, differently from the US courts3, that a method claim can be infringed by joint infringement and in particular by a party carrying out a part of the steps of the patented method and a second party carrying out a second part of the steps. In order to be found infringing, the parties do not necessarily have to cooperate or have knowledge of the activities of the respective other party. It is sufficient that the activities of each party were causal for the infringing act to come about. Intent is not required, but only negligence. Thus, a party may e.g. be found infringing, if it only carried out a part of the steps of a patented method, and, applying due care, should have been aware of the possibility of completion of the infringement by another party, but did not take reasonable efforts to prevent it. So far, the FCJ did not rule on the extent to which a foreign company is obliged to check to possibility of a patent infringement, if it is not operating in Germany itself. It is, however, to be expected that German courts will hold that a foreign company regularly doing business with Germany should at least not shut its eyes to the possibility of patent infringement and proactively take steps to rule out infringement, e.g. by requesting German business partners to check the possibility of patent infringement.
By way of illustration, the following scenarios may, for example, involve a risk of infringement in Germany for Indian companies:
- distribution of patented articles of an Indian company in Germany, be it directly or through independent distributors
- collaboration with a German firm in producing a patented article where the article is to be distributed in Germany, even if part or all of the manufacture takes place outside Germany,
- providing a software that is to be used in Germany in a patented article or a in a patented method.
This list is by no means exhaustive and could easily be extended. Especially, software companies providing software for and into Germany should be aware of the possibility of patent infringement.
Turning to the legal consequences, if a foreign company is found infringing, first of all, it will be ordered to stop its infringing activities, as far as Germany is concerned. If the foreign company is under a contractual obligation to deliver goods or services to another party, e.g. a manufacturer or a service provider, it may face damage claims by the other party or a contractual penalty. Collaboration or service agreements should therefore clearly rule the obligations and liabilities not only in case of domestic infringement, but also in case of foreign infringement. Additionally, in case competitors with a large patent portfolio are involved and Germany is a significant market, it could make sense to check out the patent landscape beforehand or ask the business partner operating in Germany to do so.
Second, a foreign company found to be infringing will face a claim of damages by the patentee. This claim is however limited to the time when the foreign company was aware or could have been reasonably aware of the possibility of patent infringement. Whereas, as mentioned before, the standards of due care for foreign companies are not yet clear, a liability for damages will definitely be given from the time when the company was notified of the infringement. Furthermore, according to German case law, the contributory infringer and the direct infringer share a joint liability for damages. Thus, the patentee may claim the full damages from the contributory infringer. Thus, when a company receives notice of a claim of patent infringement, prompt action should be taken in order to avoid damages to accrue.
For the sake of completeness, there are further claims of the patentee in case of infringement, such as accounting, recall of articles, destruction and others. It would lead too far to discuss these here. Suffice to say that patent infringement in Germany may have fairly harsh consequences and allegations of patent infringement should not be taken lightly.
It goes without saying that the benefits of the German court system are available to Indian patentees. An Indian company can therefore enforce its patents in Germany not only in cases where the opponent is operating in Germany, but also in other cases where the activities of the opponent have a bearing on Germany. Even in a litigation where Germany is only marginally affected, an Indian patentee may have a standing in Germany and be able to sue opponents from foreign countries, such as USA, Japan, China, or also from India. In international litigation, this has proven to be a powerful tool and more than once, injunctions granted in Germany have contributed to a worldwide settlement.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.