By Manuela Finger
Germany is traditionally one of the most important markets for Chinese companies when it comes to IP. The number of Chinese companies targeting Germany to procure technology or to undertake M&A transactions is constantly increasing.
At the same time, the German IP enforcement system is having a considerable impact on doing business in Germany. On the one hand, it provides an efficient tool for rights owners while, on the other, the expeditious German enforcement system can have a severe commercial impact on newcomers to the market who may suffer in exhibitions in Germany from actions of rights owners. There are even court cases between Chinese companies and between other multinational companies that take place in Germany, possibly due to Germany’s IP enforcement system being recognised as effective and efficient. This brings both advantages and risks.
This article explains the German IP enforcement system and the most important aspects that both rights owners and potential defendants in IP disputes should consider when conducting IP-related business in Germany.
The German IP Enforcement System
The German IP enforcement system is known for being effective and efficient. Germany’s court system has highly specialised judges, lawsuits are ruled on relatively quickly in respect to international standards, and it can in many cases be much quicker and easier to obtain a preliminary injunction. This leads to an increasing number of companies litigating IP matters in Germany.
Thus it comes as no surprise that many multinational companies are fighting over their IP rights in Germany, taking also into consideration that the impact of a favourable decision in Germany can be high due to the mere size of the market. Therefore, what starts out as IP litigation is often, in effect, business strategy. This is not only true for principal proceedings, but first and foremost for the preliminary injunction proceedings.
Preliminary Injunction Proceedings
Even if cases are ruled on comparatively quickly in Germany, final proceedings can still last for several years if the parties go through all instances. A much more powerful tool is the preliminary injunction proceedings that the plaintiff can bring in case of urgency. Preliminary injunctions are supposed to create an interim solution to secure the plaintiff’s rights for the duration of the final proceedings and are limited to claims for injunctive relief and similar claims. Damage claims cannot be enforced by way of preliminary injunction proceedings.
After having obtained a preliminary injunction, the plaintiff can decide whether or not to pursue its rights in final proceedings. In practice, however, many cases are settled following a preliminary injunction order as the parties already know the decision of the court of first instance (if the preliminary injunction proceedings are taken to the second instance, then the decision even of the Court of Appeals), which often facilitates an out-of-court settlement. Therefore, although the preliminary injunction proceedings are meant to provide only an interim solution, they lead in many cases to a final solution to the matter by way of a settlement.
Prerequisites of a Preliminary Injunction
The preliminary injunction requires (i) a plaintiff claim and (ii) case urgency.
(i) The responsible court only grants a preliminary injunction if it deems the motion for preliminary injunction to have merits, i.e. if the plaintiff’s claim is justified. A mere likelihood of success is not sufficient. The court conducts a full legal review, generally as thoroughly as in the case of final proceedings. However, the possible means of evidence are limited to documents, affidavits and, if there is an oral hearing, witnesses. It is not possible to request expert opinions, surveys and the like, as such types of evidence would be too time-consuming.
(ii) In addition to the merits of the claim, the preliminary injunction requires a justification for swift proceedings, i.e. urgency on the side of the plaintiff. German courts usually assume that the matter is urgent if the plaintiff files the motion within four to six weeks after having learned of the infringement. However, the circumstances of the case are crucial, and the court has some discretion in this assessment.
The motion for a preliminary injunction must be filed with the competent District Court. As an IP infringement usually covers all of Germany, the plaintiff is in many cases – in terms of the venue of tort – free to turn to any IP court in Germany. As a result, rights owners often have the possibility of turning to courts that are known for being rights owner-friendly.
The standard case progression is that, upon receipt of a motion for preliminary injunction, the court sets up an oral hearing (usually three to five weeks after the motion has been filed) and serves the motion on the defendant. However, in particularly urgent cases, the court can issue an ex-parte injunction order without an oral hearing. In IP infringement cases, many courts apply a relatively low threshold for such additional urgency. Notably in clear-cut cases, the judges often render a preliminary injunction without an oral hearing. In terms of timing, this means that the plaintiff can obtain a preliminary injunction without an oral hearing within 24 to 48 hours. A preliminary injunction rendered without an oral hearing is an extremely powerful tool as it takes the defendant by surprise and is enforceable with immediate effect, i.e. the infringing product is automatically banned from the market.
Even if the court schedules an oral hearing, preliminary injunction proceedings are still comparatively quick as the court usually renders its decision at the end of the day of the oral hearing, i.e. the parties receive swift notification of the outcome of the proceedings.
Enforcement of the Preliminary Injunction and Plaintiff’s Liability
In order to enforce the preliminary injunction, the plaintiff has to serve it on the defendant. Once the plaintiff has done so, the defendant must comply with the preliminary injunction immediately.
It is, however, possible to obtain a preliminary injunction and not serve it on the defendant, but only use it as a trump card in the settlement negotiation.
The advantage of not serving a preliminary injunction is that the plaintiff avoids liability in case the injunction is lifted at a later date. Generally, if the plaintiff enforces the preliminary injunction and it is lifted subsequently, be it in the next instance or in the course of the standard proceedings, the plaintiff has to compensate the defendant for all damages suffered by the defendant as a consequence of complying with the injunction, including the loss of profits. Plaintiffs often opt for this course after having obtained an ex-parte injunction if the facts are not entirely clear, as it may be that the defendant objects to the preliminary injunction and brings forward new facts that lead the court to a different evaluation.
Of course, where the facts are fairly clear-cut and the defendant is unlikely to bring forward new facts that would justify a different outcome, plaintiffs are much more willing to enforce the injunction, as there is a likelihood that the court will confirm the initial finding upon the defendant’s complaint.
Measures to Avoid Nasty Surprises – Protective Letters
For potential defendants in IP infringement cases, the greatest risk is to be taken by surprise in the event that a preliminary injunction is rendered without an oral hearing, i.e. where the defendant cannot bring forward its defence prior to the court’s decision. Even though the defendant can, in this case, still appeal against the decision, the appeal may take some time and does not have any suspensive effect, i.e. the alleged infringing products remain banned from the market until a final decision is rendered.
To reduce the risk of being taken by surprise, it is possible to file a protective letter with the potential responsible courts. Depending on the circumstances of the case and the rights involved, this may lead to the requirement to file protective letters with all courts with possible jurisdiction (currently 116 District Courts). In such a protective letter, the potential defendant can lay out its defence. The courts retain such a protective letter for a certain period of time (the retention period varies from court to court and is usually between three months and two years). If a motion for preliminary injunction is filed subsequently, the courts are obliged to consider the statement of defence, which in many cases results in the court scheduling an oral hearing.
The most important effect of a protective letter is, therefore, to increase the chances that a court will either not render a preliminary injunction at all or at least not render a preliminary injunction without an oral hearing. Filing a protective letter should thus be taken into account whenever there is a potential risk of infringing third parties’ IP rights or – even if the legal risk is limited – where the potential claimant is known for being extremely litigious.
Note: Manuela Finger is a partner in the IP/IT Commercial Group of King & Wood Mallesons SJ Berwin, Frankfurt Office.