9 July 2012 | By Lucy Burton
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Germany has become the favoured destination for lawsuit tourists seeking an injunction. But could Microsoft’s decision to move its distribution centre from Germany to the Netherlands signal a worrying trend?
“We’re a country of development,” responds Baker & McKenzie’s IP chief Michael Fammler, when asked why Germany is Europe’s go-to place for patent litigation. “There’s a lot of invention, and for that reason there are a lot of filings. It’s an IP-rich market.”
Fammler is not wrong. According to the Cologne Institute for Economic Research, Germans account for just 1.2 per cent of the world’s population, but the country owns seven times that amount (7.1 per cent) in patents.
“If you want to litigate you need an IP right, and if you have a patent, design or trademark registered here it gives you a venue,” Frankfurt-based Fammler explains. “It’s the market where all the patented products are.”
And these are not just any old products. The past two years have seen some of the world’s biggest companies, including Nokia, Microsoft, Apple, Motorola Mobility and Samsung, protect their patents in German courts including Düsseldorf, Mannheim, Munich and Frankfurt.
“Germany has always been Europe’s centre of patent litigation,” insists Clifford Chance’s IP partner Claudia Milbradt from the firm’s Düsseldorf office. “But in the past couple of years we’ve seen some high-profile cases involving big technology companies, and that’s drawn attention to the country being an arena for patent fights. It’s not that there are significantly more cases – it’s that the cases are more famous.”
Public interest is not wavering, either. In the past six months German courts have hit the headlines for ordering Microsoft, Samsung and Apple to remove products from the country, including Microsoft’s Xbox 360 games console and Samsung’s Galaxy 10.1 tablet.
“Under German law, once an infringement has been established, an injunction – which can stop the sale of a product – is normally granted,” explains Stephan Barthelmess, a competition partner from Cleary Gottlieb Steen & Hamilton. “An injunction is a powerful tool for the patent holder, but other countries are more hesitant to grant them. It’s a sharp sword.”
Sharp it is, but tech giants on the end of that sword are beginning to respond. Microsoft, for example, moved its software distribution centre from Duren, a small German town near the Dutch border, to the Netherlands after a judge in Mannheim ordered the company to remove its Xbox 360 and Windows 7 software from German retailers. The ruling in May was part of an ongoing patent spat with Motorola Mobility.
“What Microsoft did is something more companies could do in the longer term, because the threat of an injunction in Germany is high and dangerous,” warns Tilman Muller-Stoy, a patent litigator at local IP firm Bardehle Pagenberg. “Plaintiffs are attracted to German courts because they’re more open to granting preliminary injunctions and are very quick to decide patent infringement. However, the result could be companies moving their operations out of Germany, which could affect the country’s industrial and sales market. It’s a hot topic, particularly for standard-essential patents.”
Hot it may be, but the topic also divides opinion. Hogan Lovells IP partner Andreas Von Falck, for example, says it is an “over-reaction” to think Microsoft’s move to the Netherlands could spark major reform.
“Microsoft may have transferred itself out of the frying pan into the fire, and I doubt other companies will follow,” he says from Düsseldorf. “It’s possible that Microsoft had other, commercial reasons for moving its distribution into the Netherlands (where many US companies have their distribution centres due to the proximity of Rotterdam harbour and Schiphol Airport) and simply took the opportunity to voice criticism in the German patent courts.”
Fast and furious
If that is the case, it will take a lot of work to convince other corporates – German courts are renowned for being experienced, specialised, fast and cheap.
“Last year the Düsseldorf court had around 500 patent litigation cases alone – there are EU member states that do not have that amount in their whole country,” says Milbradt. “You can’t compare other markets with Germany. Of course, they are also very qualified, but these judges are the most experienced when it comes to patent litigation.”
Cheap and quick is, of course, an advantage. According to IP analyst Florian Mueller’s blog, courts in Mannheim and Munich are around twice as fast as the International Trade Commission (ITC).
“The fastest court is Munich, which makes a decision within six to 10 months from the date of filing the complaint,” confirms Mueller-Stoy, explaining that most cases are filed in Düsseldorf. “Mannheim is similarly fast (seven to 10 months), while Düsseldorf has become slower due to high work loads, so it now takes 12 to 18 months. However, Mannheim and Munich are faster.”
This is no surprise. Von Falck expects the cost of a “good, important case” in Germany to cost between €200,000 and €400,000 ( (£160,000-(£320,000) for a single patent, whereas in the UK it can start at £500,000, with the limit somewhere in the substantial single-digit millions. The US is famously even more expensive, with patent damages known to exceed $25m (£16m).
“It’s the difference between common law and civil law,” Von Falck explains. “In common law, the parties collect the evidence through discovery or disclosure before the trial, which then includes all the evidence and expert testimony, whereas in civil law the parties submit all their arguments, facts and conclusions upfront in writing and then the judge determines which – if any – evidence is required. The latter approach allows for a more streamlined procedure which is cheaper because you don’t require legions of document review slaves.”
It is no mystery, then, that Germany has become the favoured destination for lawsuit tourists seeking injunctions, but it is not the hotspot for everyone.
“The key advantage of UK/common law-type proceedings is that you can get much closer to the truth,” concludes Von Falck, ignoring a new mafia of plaintiffs that just want the money.
The business world has dubbed these claimants ‘patent trolls’ – referring to those who buy patents with the sole intention of filing lawsuits against companies that have supposedly infringed them.
“Litigation disputes in the US tend to take significantly longer, which can be a nuisance to businesses and push some defendants to prefer settlement,” says Shearman & Sterling litigation partner Richard Kreindler, explaining why some plaintiffs do not see Germany’s fast, cheap system as an advantage. “Patent trolls in the US have greater opportunities to sue and greater opportunities to succeed than they do in a jurisdiction like Germany.”
Fammler agrees, reiterating that local IP lawyers are not losing sleep over the threat of patent trolling.
“In Germany, patent litigation of trolls, or non-practising enterprises is less attractive for the plaintiffs,” Fammler says. “The courts do not award multiple or punitive damages, but calculate the compensation under a licence analogy approach. Also, court costs and attorneys’ fees are not a real threat to the defendant as they follow fee schedules and not the actual expenses of the plaintiff. Litigation in general is less costly as there is no pre-trial discovery.”
Nevertheless, the swarm of patent slaps have had a noticeable effect on Germany’s litigation culture.
“Before, you’d have companies in Germany that more or less knew each other and were reluctant to bring aggressive lawsuits against each other,” observes Markus Rieder, co-managing partner of Shearman & Sterling’s German offices. “There’s been a move away from that tightly knit network. When there are rights that have been violated, there’s an obligation to look after that. That has contributed to more lawsuits.”
Indeed, for many companies, patent litigation has been a way of attempting to secure more market share during the financial crisis – one that has dealt other practice areas in Germany a number of blows. Most recently, for example, German chemical company Evonik scrapped what would have been the biggest IPO in Europe for more than a year.
“It was a major step backward for banking/capital markets work,” says Daniel Marschollek, a partner at Salans’ Frankfurt office. “Deal activity in Germany is low, and prospects for recovery are entirely dependent on the economy.”
While the transaction and private equity cogs slow, confidence among Germany’s consumers remains strong. In 2011, the German Retail Federation expected retail sales (with games, consumer electronics, jewellery and books being the biggest sellers) to grow by 1.5 per cent to €78bn (£62bn).
“From the standpoint of an Apple or a Samsung, Germany remains the largest consumer electronics economy, and patent rights and claims hang on all of their attempts at competitive advantage,” concludes Kreindler.
“In crisis-buffeted times, as we know, there can be more of a taste to pursue litigation, and in this crisis the cultural threshold for ‘do I go to court or not?’ has begun to change the mindset of previously conservative and gun-shy merchants – the notion of IP rights and internet-based consumer electronics have simply become too important not to stand up for patent and trademark protection, and on multiple fronts.”
German patent laws: a history
The German Empire was founded and in the first six years each state adopted its own policies. Alsace-Lorraine favoured a French-style system, whereas others such as Hamburg and Bremen did not offer patent protection.
Germany passed a unified national Patent Act. Industrial entrepreneurs succeeded in their objective of creating a ‘first to file’ system, so patents were granted to the first applicant rather than to the “first and true inventor”.
A parallel and weaker version of patent protection could be obtained through a gebrauchsmuster or utility patent (sometimes called a petty patent), which was granted through a registration system. Patent protection was available for inventions that could be represented by drawings or models with only a slight degree of novelty, and for a limited term of three years (renewable once for a total life of six years).
The National Socialists introduced a ‘first to invent’ system. In the eight weeks before the grant, patent applications were open to the public and an opposition could be filed denying the validity of the patent. German patent fees were deliberately high to eliminate protection for trivial inventions.
About twice as many utility patents as examined patents were granted. Patent protection based on coexisting systems of registration and examination served distinct but complementary purposes. Remedies for utility infringement included fines and imprisonment.
Courtesy of EH.net
Germany for visiting lawyers
Being the third largest city in Germany, Munich’s outskirts are far-reaching while the city centre – surrounded by the old gates (Sendlinger Tor, Isartor, Karlstor) – is relatively small and can easily be explored on foot. It offers many unique corners and views.
On foot, an interesting itinerary is to start at the Siegestor. From there you have a view of one of the city’s most important boulevards, the Ludwigstraße. East of this, you pass the Ludwig-Maximilians-Universität, the second largest and one of the best universities in Germany, and enter the English Garden, the biggest park in Munich and one of the largest in the world. From here you can continue to two of Munich’s most famous beer gardens, the Chinese Tower or the Seehaus, or walk the park to the south.
At the south end you will find the Haus der Kunst museum, home to Munich’s most famous nightclub, the P1. This offers a good view of the ‘Munich surfers’ who surf on a standing wave in the Eisbach, a creek that runs through the park.
From the Haus der Kunst you can continue south-west past the state Chancellery through the Hofgarten, another little park, and end up at the Odeonsplatz. This, with the famous loggia Feldherrnhalle, is the beginning of the boulevard Ludwigstraße and the pedestrian zone of Munich’s most important shopping street.
Continuing from the Odeonsplatz to the Marienplatz you will find old buildings, churches and lots of places to get good Bavarian food.
If the weather is good, make sure you go up to the Alte Peter, the oldest parish church in Munich, which offers a great view over the city and to the Alps. Right next to it you will find the Viktualienmarkt, the city’s old marketplace, which also has a little beer garden.
Daniel Holzmann, Shearman & Sterling, Munich
Frankfurt offers less of the ‘old world’ architecture and flavour of tourist destinations such as Munich, Heidelberg and Berlin, but it is rich in cultural, culinary and other attractions, and in modern architecture too.
For the visitor with limited time, an excellent itinerary, starting at the European Central Bank, is to walk two streets past the New Opera House to the Main River, cross the footbridge called Eiserner Steg, take in the highly acclaimed urban renewal landscape on both sides and then explore the numerous museums lined up on the opposite ‘Museum Embankment’, all the while taking in the Frankfurt skyline and two of the tallest buildings in Europe.
Refreshments and local fare are then within reach either in the Schweizer Strasse or, recrossing the river, in the so-called Fressgass next to the Old Opera House, an acclaimed example of post-war restoration.
Richard Kreindler, Shearman & Sterling, Frankfurt
If you’re looking for somewhere to sleep in Dusseldorf, I suggest the romantic Ashley’s Garden in Karl-Kleppe-Straße or the individual Das MutterHaus in Aufricht-Straße. For business trips you cannot go wrong with the centrally-located Intercontinental.
To eat, I recommend the Lido in Medienhafen for its beautiful view. If you like Italian food, head to Schmitz-Lökes or Saittavini, and if you are in the mood for a fancy drink, drop in at Dr Thompson’s.
Claudia Milbradt, Clifford Chance, Düsseldorf