Dr. Karsten Brandt

Cost issues in patent infringement and patent nullity proceedings

Unlike many other foreign legal systems, Germany has a costs regime that is guided by the principle that the losing party in a legal dispute should bear the costs of the legal dispute. As a consequence, the losing party must pay both court costs and opposing attorneys’ fees. There is a legal framework for this with tables that show how much these costs to be paid by the losing party are in detail. If the party has not reached a different agreement with its own attorney and/or patent attorney, these statutory rules may also determine which fee is to be paid to these own attorneys / patent attorneys - irrespective of the outcome of the proceedings.  

This legal framework does not only affect attorneys’ fees to be paid or costs to be reimbursed but determines several other factors. For example, the claimant must advance court fees before the commencement of proceedings and ensure that the action is served on the defendant in the first place.

There is an important parameter for the amount of all these fees addressed, namely the "litigation value", which is also called the "object value". The litigation value, which the claimant states as a unilateral estimate in the statement of claim and which is determined by the court during the proceedings, indicates the economic significance of the claimant's claims.

To avoid misunderstandings and to answer a frequently asked question: the litigation value to be stated by the claimant and determined by the court is a very rough estimate that only has an impact on the cost issues. For example, the litigation value says nothing about the amount of damages the claimant can claim from the defendant after a successful patent infringement case or the actual value of a patent that is the subject of patent nullity proceedings.

Another important preliminary remark: In Germany, patent infringement proceedings and patent nullity proceedings are separate. The court entrusted with the patent infringement cannot decide on the invalidity of the patent but can - at most - stay the infringement proceedings if parallel patent nullity proceedings are pending. This often leads to parallel proceedings concerning patent infringement on the one hand and patent nullity on the other.

The two tables below provide an initial overview of the costs to be expected in first instance and second instance patent infringement proceedings. For the third instance, i.e. the non-admission appeal and/or the appeal proceedings before the Federal Court of Justice, a table has been omitted because there is too wide a range of cost-relevant possibilities for this.

Explanation of the tables:

The most important remark first: The tables do not represent the cost risk conclusively. They only give a rough overview of which costs the losing party has to reimburse to the winning party, which fees have to be advanced by the claimant at the beginning of the case or which security bond has to be provided by the claimant. The costs actually to be borne by a party may be higher for several reasons, for example because it has reached a fee agreement with its attorneys. In addition, the tables do not take into account various items regularly to be reimbursed by the losing party, such as: travel costs, costs for prior art searches, translation costs and, in rare cases, expert costs.

How are the tables to be understood?

1. The first column shows typical litigation values as they are often set by the courts in patent infringement and patent nullity proceedings. The highest value is EUR 30 million, because this is the legal upper limit in this system. This value is only set in rare, economically very significant cases. Of course, in such cases the economic interest may have an even higher value, but this does not change the fact that the statutory fees based on this value reach their upper limit.

In the not uncommon cases where the patent owner has filed a patent infringement action and the alleged infringer has filed a patent nullity action in his defence, the Federal Patent Court hearing the patent nullity action in the first instance will initially base its decision on the litigation value set by the court hearing the patent infringement proceedings. If the Federal Patent Court has no other indications justifying a higher litigation value, it increases the litigation value set by the infringement court by 25 %.

2. The second column lists the fees payable to one's own attorney and patent attorney for the respective instance. If there is a fee agreement, they may also be higher. In patent infringement proceedings, the case is usually handled by an attorney and a collaborating patent attorney. In patent nullity proceedings it is different: the process is usually handled by a patent attorney who is usually only assisted by an attorney if patent infringement proceedings are also pending.

3. The third column lists the court fees to be advanced by the claimant at the beginning of the proceedings. The full payment of the court fees is important because otherwise the action will not even be served on the defendant. The question of whether the claimant or the defendant must advance the respective court fees in the further instances depends on the judgement of the previous instance.

For example, if a defendant in a patent infringement case is convicted in the first instance, he must advance the court fees in the appeal proceedings, i.e. the second instance.

4. The fourth column lists the fees that a losing party must reimburse to the opposing party for its attorney and patent attorney for the respective instance. In patent infringement proceedings, these are regularly the fees for an attorney and a cooperating patent attorney.

A differentiation must be made for patent nullity proceedings:

If parallel patent infringement proceedings are pending, the fees for a patent attorney and a collaborating attorney are regularly recoverable. If the patent nullity action is brought without there being parallel patent infringement proceedings, only the fees for either the patent attorney or an attorney-at-law, but not for both, are recoverable as a rule.

5. The fifth column shows the cost risk for the respective instance. The amount is made up of the individual amounts in columns 2, 3 and 4. These are the minimum costs to be borne by the unsuccessful party.

6. The sixth column lists the amounts that in certain cases must be paid by the claimant as security at the beginning of the proceedings.

This so-called "security bond" is intended to cover the risk of the sued party actually being reimbursed its costs in the event of a successful outcome. It does not have to be provided if the claimant has his or her ordinary residence in a member state of the European Union or a state party on the Agreement on the European Economic Area.

For all other claimants, it must be examined whether, exceptionally, security bond does not have to be provided on the basis of international treaties. To give a prominent example: An American claimant must provide security bond.

The important first instance courts for patent infringement proceedings in Germany, namely Düsseldorf and Mannheim, calculate the amount of the security bond differently. The amounts concerned are shown in the sixth column with (1) for the Düsseldorf Regional Court and with (2) for the Mannheim Regional Court.

The Federal Patent Court applies a different calculation in patent nullity proceedings. The corresponding amounts for this court are also listed in the sixth column. If it turns out during the proceedings that the defendant would have a higher claim to reimbursement of costs if it were to prevail, the court may also increase the security bond to be provided.

The security bond is regularly provided in the form of a bank guarantee to be handed over to the defendant. If the claimant wins the case, the defendant must return the bank guarantee.

In summary, the cost risk for patent infringement and patent nullity proceedings in Germany is relatively low compared to other jurisdictions. In the USA in particular, considerably higher costs must be expected.

However, unlike in many other jurisdictions, there is a procedural principle that the losing party must bear the costs of the proceedings, i.e. opposing attorneys’ and patent attorney's fees as well as court costs.

The issue in dispute was whether a system for conditioning semiconductor wafers sold and delivered by the patent owner to a customer approximately two years before the priority date of the patent in suit was detrimental to the novelty of the patent as "public prior use".

The Federal Patent Court has assumed this. The Federal Court of Justice (BGH) assessed this differently and formulated it as a guiding principle:

"Delivery, installation and use of a system at a purchaser's site do not readily establish a sufficient likelihood that arbitrary third parties will examine the system and thereby obtain knowledge of the invention."

The BGH first cites its own case law (judgment of December 9, 2014, ref.: X ZR 6/13 - "pressing gripper", and judgment of November 8, 2016, ref. X ZR 116/14), according to which prior use is obvious if there is not only the theoretical and remote possibility that any third party, and thus also persons skilled in the art, may obtain reliable and sufficient knowledge of the invention. This is to be assumed under normal circumstances if a device according to the invention has been offered or supplied to a third party. In the case decided, however, the BGH considered only a theoretical or remote possibility of knowledge to be given.

Several factors were decisive for this assessment: The customer's employees were unable to gain knowledge of the internal structure of the patented cooling and temperature control system during normal operation of the plant before the priority date. They were not allowed to make any changes to the device except for changes to the measuring software. Also, a closer examination of the device by third parties was not possible without the buyer's consent. The BGH was also convinced that there was no sufficient probability that employees of the customer would have attempted to gain knowledge of the functioning of the patent-compliant cooling system up to the priority date of the patent in suit or that they would have allowed third parties access to the system for this purpose. Installation, maintenance and repair of the system were the sole responsibility of the patent owner. In order to verify the patent-compliant functioning, the system would have had to be damaged and then repaired.

The decision is remarkable for various reasons and seems to contradict the case law of the European Patent Office. There are two issues to be differentiated: Firstly, what does "the public" mean, and in particular, do the customer's employees belong to this "public"? Secondly, what has been made "accessible to the public" by the supply of the plant against the background that the essential components of the invention were only recognisable after damage?

On the first issue, the case law of the BGH (most recent ruling of November 8, 2016, Ref.: X ZR 116/14, para. 25) states very clearly:

"The sale of an object which anticipates the teaching of the patent in suit, without establishing a duty of secrecy, does not in itself lead to obviousness. Rather, the not merely theoretical possibility must be opened up that any third party, and thus also persons skilled in the art, may obtain reliable and sufficient knowledge of the invention".

The case law of the Boards of Appeal of the European Patent Office deviates considerably from this: if there is neither an explicit nor an implicit non-disclosure agreement, the customer is part of the public. This is stated in the Board of Appeal decision T 2210/12 of October 7, 2016 under point 1. 2.2 concerning a system supplied to VW:

"Since the company VW itself already constitutes part of the public, it is irrelevant whether further third parties had access to the factory sites or not."

The Board of Appeal decision T 2272/11 of April 5, 2016 comes to the same conclusion. Already on this first issue, there is a clear difference between the case law of the BGH and the Boards of Appeal.

On the second subject, the starting point and the continuously cited basis for decisions of the Boards of Appeal of the European Patent Office is the opinion of the Enlarged Board of Appeal G1/92 of 18.12.1992, which states on page 3:

„Where it is possible for the skilled person to discover the composition of the internal structure of the product and to reproduce it without undue burden, then both the product and its composition or internal structure become state of the art.

There is no support in the EPC for the additional requirement referred to by Board (…) that the public should have particular reasons for analysing a product put on the market, in order to identify its composition or internal structure.”

On page 4 it continues:

„The introduction of such an additional requirement would remove a commercially available and reproducible product from the public domain. It would mean an unfounded deviation from the principles applied in respect of the other sources of the state of the art as defined in Article 54 (2) EPC and it would obviously represent an element of subjectivity leading to uncertainty in applying the concept of novelty as defined in this Article.”

These statements by the Enlarged Board of Appeal seem to diametrically contradict the BGH point of view - also - as justification, that the purchaser of the plant for conditioning semiconductor wafers had not had sufficient reason to analyse the mode of operation. On closer analysis, however, this conclusion is not compelling: The BGH decision mentions another aspect, namely that the employees of the buyer were not allowed to make any changes to the system except for changes to the measuring software. Installation, maintenance and repair of the system were the sole responsibility of the patent owner. Even if the BGH decision on this aspect is not completely clear, the assumption is justified that the patent owner only maintained the warranty for the plant on the condition that it was also maintained by the patent owner and that the employees of the buyer were accordingly prohibited from dismantling and damaging it.

However, this does not seem to completely eliminate the conflict with the case law of the Enlarged Board of Appeal, because the patent owner delivered an installation to a customer without a non-disclosure agreement and it was objectively possible to examine the installation and to recognise the function according to the invention. Dismantling the system at the customer may have led to the loss of warranty claims; however, the BGH decision does not clearly state that the dismantling was prohibited for legal reasons.

This constellation is quite different from that of an explicit or implicit non-disclosure agreement. If a delivery is made under such an agreement, the supplier (in this case the patent owner) has not willingly transferred the delivered object into the "public domain", and a violation constitutes a breach of contract.

In summary, the BGH applied a very favourable and generous standard for the patent owner in the decision. A discussion of the case law of the Boards of Appeal of the European Patent Office would have been desirable.

Public trials with contact restrictions?

One of the many challenges posed by the Corona pandemic is the organisation of oral proceedings in court. In Germany, the general principle applies that hearings must be “public” as set out in section 169 of the German Judicature Act (GVG). This leads to challenges especially in patent cases, for which the Tenth Senate of the German Federal Court of Justice has jurisdiction as the second instance in patent invalidity cases and as the third instance in patent infringement cases. Often several attorneys at law, patent attorneys, the parties and other persons interested in the case are involved. How can contact restrictions be reconciled with the general principle that a trial must be "public"?

Digital transmission of the hearing

One possible way is shown by section 128a of the German Code of Civil Procedure (ZPO), which gives the court the possibility to “permit” the parties, their attorneys and advisors to stay at another location during oral proceedings and to perform procedural acts from there. In this case, the image and sound of the hearing are transmitted in real time to this location and to the court room.

The presiding judge of the Tenth Senate of the German Federal Court of Justice, Dr Klaus Bacher, has published his view on this option in a blog. It can be summarised as follows: The Tenth Senate implements this option by using “Microsoft Teams” for an online video conference. The claimant and the defendant may be represented in the court room by an attorney at law and a patent attorney. Further attorneys, patent attorneys, legal advisors, translators, etc. can participate online.

Limitation to a maximum of two attorneys per party

The most recent experience with oral proceedings before the Tenth Senate is that attendance in the court room is indeed strictly limited to two attorneys per  party. Thus, the just mentioned possibility to “permit” the parties and their attorneys to be in another location during the hearing is interpreted in such a way that – with the exception of two attorneys per party – anybody else must mandatorily stay away from the court room during the hearing.

Whether the restriction of physical access to the court room is in line with the legal requirement that the hearing must be “public” is likely to generate interesting discussions in the future.