UPC Proceedings: Bifurcation and Stay of Proceedings
Can you obtain injunctions without the patent being judged on validity?
Will there be a difference in the application of bifurcation between German divisions and other divisions?
Dr. Jochen Pagenberg, Bardehle Pagenberg, Munich
I. Introduction
Bifurcation even made headlines in the New York Times[1] two years ago which was obviously inspired by experiences in the smart phone war before German courts, and I am sure that not all readers understood what they were reading. To clarify some misunderstandings about the German practice I should start answering the two questions above first:
The first answer is “Yes, but…”
The second is “No”
I believe that you wish to know why.
II. Comparison between German and UPC rules
A. The German practice of bifurcation
The impression that it is common practice in Germany to disregard the defence of invalidity in infringement proceedings is certainly unfounded. I cannot remember one single case in more than 30 years of litigation practice, in which validity had not been discussed by the infringement judge,
- if this argument had been raised
- in time by the infringement defendant.
1. Timely preparation of a revocation action
In time means that the defendant must have filed a revocation action ca. a month before the main hearing in the infringement proceeding. This requires also that a copy of the revocation complaint is submitted to the infringement court and the main arguments are summarized in a brief within the same time period, i.e. several weeks before the infringement hearing. A defendant who is convinced that he will prevail with his arguments will do this anyway; a defendant, who is not convinced that he can successfully challenge validity, may decide bringing the invalidity argument only a few days before the infringement hearing hoping that this could delay the injunction. He should not be surprised when the court will not even read or discuss his arguments - and rightly so I think.
2. Will the infringement case be stayed?
Patents granted by the German Patent Office as well as the EPO enjoy a presumption of validity; therefore the patentee under German law has a right to an immediate injunction against an infringer, and the alleged infringer has the burden of proof for the alleged invalidity of the patent.
What are the legal rules for a stay?
The requirement for a stay in any type of legal proceeding is laid down in the Code of Civil Procedure[2] which provides that a court may stay proceedings if the outcome of the case – perhaps only partly - depends on the outcome of another pending (!) law suit.
According to the case law of the German Supreme Court in patent cases infringement courts have a discretion to stay, if the chance of invalidation has been “plausibly proven” (glaubhaft gemacht)[3]. I am therefore surprised to hear that Germany is a dangerous country for alleged infringers, since the UPC Rule 118(3)a) contains a more severe requirement of evidence for a stay, namely a high likelihood of invalidation. A very similar time frame as explained before for Germany can be found now in the Rules for the UPC[4] where the defendant, if he wishes to challenge the validity, is expected to file a counterclaim for revocation already with his statement of defence, thus even before an eventual interim hearing.
It follows from the above that except for a case of procedural negligence on the side of the defendant (no revocation action filed in time) an infringement court in Germany has to deal with invalidity arguments, the discretion rule mentioned before only applies to the grant of the stay, i.e. the decision whether the Court after having studied the revocation brief is sufficiently convinced of the “plausibly proven” chance of invalidation. And for this question the hurdle for a stay according to the UPCA is more severe (high likelihood) than under German law. So much for the New York Times.
By the way, there may be a reason why a defendant would rather hesitate to request a stay, namely if he prefers to prevent a discussion on validity in writing by the infringement judge. When the defendant regards his invalidity arguments himself as not convincing, he may not like reading this in the infringement opinion which would weaken his case at the Federal Patent Court, so he might rather renounce to his request to stay.
A final remark on the “injunction gap”, which is a problem in Germany due to the rising numbers of revocation actions, in particular in the IT sector. Infringement courts can work faster under the German system just because the legal arguments of the case can be well prepared in writing whereas for a revocation case one needs a full hearing day on the technical facts, and one needs technical judges, who have a second job in the appeal chambers of the Federal Patent Court which hear appeals against Patent Office decisions.
But what is bad under the German system may be worse under the UPC. In Germany only in ca. 25% of infringement cases a revocation action is filed - due to bifurcation. For the UPC under the combined system one must expect that there will be counter suits in up to 90% or 95% of the infringement actions like in France, the UK and other countries with a combined system. This will perhaps not create an injunction gap at the UPC if the division does not bifurcate, but since there is little hope that the UPC divisions, especially at the beginning, will work faster than the German courts, one must be prepared for considerably longer litigation procedures if infringement and validity are decided in combined proceedings which will be a major disadvantage for the patentee compared to the German practice. But it may definitively dissuade trolls from using the UPC.
B. How will or shall the divisions under the UPC deal with bifurcation?
1. The legal framework of the UPC
It can be expected that local divisions with experienced patent judges will take advantage of the flexibility rule contained in Art. 33(3) UPCA[5], i.e.
§ decide infringement and revocation action with support of a technical judge from the pool, or
§ transfer the revocation case to the central division and proceed with the infringement action, or
§ transfer the revocation case to the Central Division and stay the infringement suit, or
§ transfer the entire case with consent of the parties to the central division.
2. Recommendations for the UPC divisions
What will be the criteria for these options? The Rules of Procedure[6] on this topic do not provide much guidance as to what parties can expect from the court. The judges, with the help of the Court of Appeal, will have to develop their own guidelines, and as with many other legal rules which need interpretation, these rules should be made known by publishing them on the Court’s website as early information for the users[7].
Experienced judges will apply logical criteria based on efficiency considerations. Experienced judges will also lay down rules on how to deal with arguments of lack of validity, also which of the options of Art. 33(3) UPCA they will apply and under which circumstances. Here are some examples.
- If the revocation arguments are “thin” (same prior art and same arguments as in the granting procedure before the patent office[8], late filed counter action), the division will not bifurcate, instead ask the President of the Court of First Instance to allocate a technically qualified judge, and presumably swiftly dismiss the revocation action before discussing the infringement;
- If the Central Division is overburdened and hundreds of cases are waiting for a hearing date, the local division will not bifurcate either, but again ask for a technical judge from the pool and keep the entire case for decision;
- If the revocation action contains new prior art, the technical arguments are time consuming to deal with (expert opinion) and the Central Division has not too many cases, the infringement division may bifurcate and stay the infringement action, if there is a “high likelihood” that the relevant claims of the patent will be held invalid[9];
- If a high likelihood is not proven to the satisfaction of the judges, the local division may decide in the interest of efficiency “on the merits of the infringement claim including its orders”[10] pending the revocation action. This would be a comparable situation to the German practice where the judge would grant an injunction after a thorough examination of a revocation action filed in time but not regarded persuasive. An injunction would then be granted where the judge is convinced that the revocation action constitutes a misuse and is only a manoeuvre to delay.
3. Summary
These are some first thoughts about one of the most debated uncertainties of the future court procedure. The basic difference to the German situation is that the UPC divisions have no obligation to bifurcate. Article 33(3) UPCA contains a rule of utmost flexibility which is the result of long and difficult discussions in particular between the English and German members on the Expert Committee[11]. I am happy that we reached this result, and I am glad that it remained in the UPCA, like I would have seriously wished to see more options and more flexibility in the UPCA instead of rigid rules which may become a deterrent for the users.
I am convinced that bifurcation will not be used much if the quality of the judges is satisfactory and they fulfil the promise of efficiency in deciding difficult cases. But for many years it could constitute a welcome help for getting cases moving and prevent jams and long delays. However, as mentioned before, speed of decision-making could be the problem for less experienced judges.
The above examples describe only some basic situations which often occur in practice and on which the future judges can build. It may give some relief to stakeholders that German judges, most of whom dislike bifurcation when it leads to a considerable time gap between the decision on infringement and the decision on validity, have announced that they would regard it as a sign of weakness if a division in Germany often bifurcates without convincing reasons.
This means that plaintiffs with weak patents will not have a chance to intimidate a defendant with a threat of an injunction, if the validity of his patent is doubtful and the prospective defendant swiftly countersues – or even sues for revocation before an infringement action has been filed. On the other hand, the guiding line of German judges has always been preventing misuse[12] of a defendant who tries to gain time for his continuing infringement, so the judges will examine the concrete facts carefully, and I hope that this will also happen with other divisions of the UPC.
One can therefore generally expect that as a rule only less experienced judges will bifurcate regularly. This is anyway better than invalidating an important patent by mistake. I was glad to read that after the New York Times letter last year more and more voices also from outside Germany expressed their opinion that the anxious discussion on bifurcation has been “overblown” and “overstated”[13]. I hope you can agree, and I hope the future will confirm this; I am confident that the bifurcation rule will not become a problem in practice.
1
[1] By a Letter of 26 September 2013 published in the New York Times signed by Apple, Google, Intel, Samsung and others
[2] § 148 ZPO
[3] Federal Supreme Court GRUR 1958, 75; Court of Appeal Düsseldorf 1979, 188, as opposed to readily apparent or just like that (ohne weiteres): Court of Appeals Karlsruhe Mitt.1968, 217
[4] Rule 25 (1)
[5] Art. 33 (3) UPCA reads:
A counterclaim for revocation as referred to in Article 32(1)(e) may be brought in the case of an action for infringement as referred to in Article 32(1)(a). The local or regional division concerned shall, after having heard the parties, have the discretion either to:
(a) proceed with both the action for infringement and with the counterclaim for revocation and request the President of the Court of First Instance to allocate from the Pool of Judges in accordance with Article 18(3) a technically qualified judge with qualifications and experience in the field of technology concerned.
(b) refer the counterclaim for revocation for decision to the central division and suspend or proceed with the action for infringement; or
(c) with the agreement of the parties, refer the case for decision to the central division.
[6] Rules 37(4) and 118(3)
[7] This would supplement Rule 37(1) which requires for the decision under Art. 33(3) UPCA that The panel shall set out in its order brief reasons for its decision
[8] German Supreme Court GRUR 1959, 320
[9] Rule 37 (4)
[10] Rule 118(3) a)
[11] In fact I would wish we had such a rule in German law. There was one single case where the Düsseldorf Court of Appeal disregarded the barrier between infringement and validity and granted (even) an ex parte injunction in spite of a first instance decision of invalidity by the Federal Patent Court which he considered wrong (Court of Appeal Düsseldorf 29.05.2008 - 2 W 47/07). This decision was confirmed by the German Supreme Court (Federal Supreme Court of December 16, 2008 – X ZR 89/07 (Olanzapin)
[12] German Supreme Court GRUR 1958,75
[13] McDonough, Study p. 26