International Patent Strategy: A Focus on Germany and China

By Brian P. Biddinger, partner; Paul M. Schoenhard, partner; and Karen I. Leyva-Drivin, associate, Ropes & Gray LLP, New York and Washington; email: Brian.Biddinger@ropesgray.com, Paul.Schoenhard@ropesgray.com, Karen.Leyva@ropesgray.com

As the marketplace becomes increasingly global, companies investing in intellectual property rights are considering more than ever how to develop and enforce an international patent strategy. The decision to file for and enforce patent rights in multiple countries, however, depends on various factors such as overall business strategy, the importance of particular technologies to specific markets, the chances of a successful enforcement action, and the costs of multi-national protection.

This article looks at two of the most important non-U.S. jurisdictions for patent enforcement, Germany and China.

With an estimated 10.2 million patents in force worldwide and an estimated 2.7 million patent applications filed in, for example, 2014, companies that aim to have global patent strategies must choose where to continue filing patents and where to pursue enforcement actions. Historically the United States Patent and Trademark Office and the Japan Patent Office were the leading offices for world filings. But today the State Intellectual Property Office of the People’s Republic of China (“SIPO”) is the world’s busiest patent office based on volume of applications. The number of patent applications filed every year in China has been increasing since the mid-1990s, and in 2014 SIPO had more patent applications than the USPTO and the JPO combined.

While the United States continues to be one of the leading venues for enforcement actions, businesses consistently turn to the German courts for their high-stakes patent disputes, and China has recently garnered increasing interest.

Germany.

As the largest marketplace in Europe and one of the three largest exporters in the world, Germany is currently considered one of the most attractive venues when it comes to enforcing patent rights. Handling more than two-thirds of all patent litigation in Europe, German courts have ample experience and a reputation for dealing with patent matters in a quick and cost-effective manner.

German courts will generally find jurisdiction if the defendant’s domicile is in Germany, if the infringing activity is alleged to be taking place in Germany, or if the activity is likely to have an effect within Germany. These requirements have been broadly interpreted, with courts finding, for example, jurisdiction where products are ordered online from a foreign website accessible to German consumers.

One of the major benefits for plaintiffs litigating in Germany is that infringement and invalidity proceedings are bifurcated. In Germany, a defendant can only challenge the validity of a patent by filing an opposition in the European Patent Office within the first nine months after a patent issues or, if this term has passed, by filing a nullity action in the Federal Patent Court.

Thus, in contrast to litigation in the U.S., patent holders in Germany can more easily pursue infringement claims with less need to coordinate those claims with validity positions.

Although it is possible to stay infringement actions in Germany pending resolution of a nullity action or opposition proceeding, the chances of staying an infringement action are less than 20%.

Another benefit of litigating in Germany is that decisions are handed down relatively quickly. Infringement matters are handled by twelve infringement courts, the most active and popular being the courts in Dusseldorf, Manheim, Munich and Hamburg. These active courts have each established two or three panels dedicated to patent infringement cases, and usually take six to 12 months to resolve a patent infringement dispute, with the Dusseldorf court tending to take the longest. The Federal Patent Court, on the other hand, typically takes 18 to 24 months to resolve issues of validity. As a result, it is possible for a patentee to obtain and enforce an infringement judgment in Germany before any decision has been rendered on the validity of the patents.

Quick dispositions are possible in part because, infringement proceedings in Germany are relatively efficient and streamlined. The parties are forced to set forth their positions early on and there is no pre-trial discovery or jury trial. A plaintiff starts an infringement proceeding by filing and serving a pleading, detailing all factual and legal issues. Defendants must then present an equally detailed defense in response to plaintiff’s pleading.

Following this, each of the parties will typically have one further brief. Once the parties have exchanged written arguments, the court holds a public oral hearing. The presiding judge then discusses the relevant issues and gives a preliminary opinion. If the judge deems that technical questions have been left unanswered, he or she may appoint an independent expert. The majority of cases, however, particularly in the Dusseldorf court, do not involve an expert.

The judge will then usually issue a decision within a month or two of the oral hearing. Appeals can be filed within one month of the decision, but an appeal does not stay the enforcement of the judgment.

Although damages are not readily available and need to be handled in a separate proceeding (unless the parties agree on an amount), plaintiffs can seek injunctive relief, which, if requested, is automatically granted if a patent is found infringed. A defendant who continues to sell infringing products after injunctive relief has been granted can be fined up to 250,000 Euros. The ability to quickly obtain an injunction results in a powerful enforcement tool for patentees.

The overall low litigation costs for plaintiffs, especially when compared to patent litigation costs in the U.S., makes Germany an attractive venue. Not only is the cost for litigating lower given the absence of discovery and length of cases, but the losing party is also forced to reimburse the winning party all the costs, limited by statutory provisions, incurred by them. A consideration for foreign plaintiffs to take into account, however, is that because of Germany’s “winner takes all” system, if a plaintiff is a foreign company, a defendant may ask for a bond or security to ensure their litigation costs will later be covered.

With the introduction of a European Unitary Patent system and the Unified Patent Court on the way, some questions have arisen about the future of the German patent enforcement system. The first draft legislation to implement the Unitary Patent system in Germany was published in February of 2016, and a final vote is currently expected in early 2017 after the German parliament completes its legislative process.

China.

While somewhat new to patent enforcement from the international perspective, China is rapidly becoming a center of attention. Patent applications in China have increased exponentially, as have patent infringement actions. In 2014, for example, approximately 9,600 new patent cases were filed in China, which substantially exceeds filings in the United States during the same year.

The Chinese system, like the German system, offers quick proceedings in which infringement and invalidity issues are handled separately. There are at least two routes to enforce a patent in China: administrative and judicial.

In the administrative route, a patentee may petition local authorities for a remedy for alleged infringement. Evidence such as photographs, samples, tests, and documents, needs to be submitted to the local authorities, who subsequently file the matter and inform the alleged infringer of the patentee’s request. Supporting materials are sent to the alleged infringer so that he may respond to the infringement allegations. This process usually lasts three to four months. There are no monetary damages, but injunctions can be issued. And the speed of these proceedings has led to their increasing popularity.

Nonetheless, the judicial route is more commonly used by non-Chinese patentees. This process starts with the plaintiff submitting a petition and supporting evidence to the local Intermediate People’s Court. The court then conducts a formal examination and decides whether to take the case based on the evidence presented in the petition. If the case is accepted, the court notifies the plaintiff of acceptance and sends the relevant documents to the defendant. The defendant then has to provide a response. There is no discovery process and an oral hearing takes place in front of judges, resulting in a decision in as little as four months or, more commonly, six to 18 months.

As in Germany, invalidity actions in China generally take longer than infringement actions.

Although the costs of infringement litigation in China are generally low, damages are frequently limited, and injunctions can be difficult to enforce. One investigation suggested that the average amount of damages awarded is less than RMB 80,000 ($12,200). This low number reflects the hurdles that patentees experience when looking to collect evidence to prove their actual damages in a system that lacks a discovery procedure. Indeed, based on another study, the median damages award ranged between RMB 80,000 and 150,000.

Despite improvements in China’s IP environment, there is still debate as to the true value of pursuing a patent in China and later trying to enforce it. A 2012 USPTO report highlighted the lack of transparency in the Chinese patent enforcement mechanism.

Also, while discriminatory treatment of foreign parties tends also to be a concern of commentators, this may be overstated. Recent studies from 2011 and 2016 indicate that despite some lingering protectionism, litigation initiated in China by a foreign company has a high likelihood of success. In July 2015, SIPO published its 2014 Intellectual Property Rights Protection in China White Paper that stated that the judicial departments “continued to perform duties of judicial IPR protection and improve the credibility and international influence of justice in IPR field by pushing forward judicial reform, deepening judicial transparency and strengthening judicial publicity.”

Accordingly, while the Chinese system may still have some way to go before it becomes a well-established forum for patent litigation, the exponential growth in patent applications filed in China and overall economic developments make this a forum to follow for potential plaintiffs and companies seeking to establish a global patent strategy.

Keep Your Eyes Open.

As shown above, the landscape for global intellectual property protection and enforcement is evolving. Thus, it is important for companies to keep updated as to developments in the industry and to understand key venues and how to navigate through them.

The authors are part of Ropes & Gray LLP’s IP litigation practice.