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Article: EU Litigation Update

September 01, 2017
Business Litigation Reports

Germany: Expanding Liability for Patent Infringement to Extra-Territorial Acts. In a recent decision, the German Supreme Court (“Bundesgerichtshof”) expanded the liability for patent infringement of a foreign company selling infringing goods to its customers outside of Germany (judgment of May 16, 2017, case no. X ZR 120/15 – Abdichtsystem).

Prior German Case Law. It had been established in the case law of the Supreme Court that deliveries from a foreign company to a customer in Germany may constitute patent infringement in Germany (Decision of 26th February 2002, X ZR 36/01 – Funkuhr I). In this context, it does not matter where the German customer takes possession of the products (i.e. in Germany or abroad) or whether another foreign company acts in between the first and the German customer, as long as the first foreign company knows that the products end up in Germany at the end (judgment of February 3, 2015, case no. X ZR 69/13 – Audiosignalcodierung). As a result, a foreign company will be liable for patent infringement in Germany if it has positive knowledge that its deliveries of patent infringing products end up in Germany.

The Present Case. The defendant in the case decided this May did not sell the majority of its products in Germany itself, but mainly delivered them to customers who were based outside of Germany. However, some of these customers then sold these products in Germany.

The plaintiff had won before the Court of First Instance (Landgericht Mannheim) based on the defendant’s own deliveries to Germany, with the relief including an order to recall the products from the German market. The defendant appealed and the plaintiff cross-appealed to extend the case to the defendant’s deliveries to third-parties outside of Germany who then sell the infringing products in Germany. The Court of Appeals (Oberlandesgericht Karlsruhe) dismissed the defendant’s appeal and the cross-appeal, holding—in line with the earlier Supreme Court decisions—that the defendant could only be liable for its customer’s acts in Germany if the defendant had positive knowledge of these customers selling the products in Germany. However, it found that at most, the defendant could have considered such further deliveries to Germany possible, which was not sufficient for positive knowledge.

The Supreme Court’s Decision. Reversing the Court of Appeals and remanding the case, the Supreme Court went further and held that not only positive knowledge of further deliveries to Germany gives rise to liability. In addition, the supplier may also be liable for patent infringement if there are sufficiently specific facts that make it seem likely that its customers will further deliver the infringing products to Germany. The supplier is not generally obliged to investigate or control the further use of the products by its customers. It is obliged, however, to investigate the circumstances of the case if there are specific reasons to believe that its customer’s further use may result in patent infringement by delivering the products to Germany. The mere abstract possibility of the customer delivering the goods to Germany, however, is not sufficient; concrete facts indicating that this is actually the case are required. This is the case, for instance, if the amount of products delivered is so huge that it can hardly be distributed only within markets where there is no patent protection. Under such circumstances, the supplier can no longer have confidence in its customer not infringing patent rights in Germany. In fact, the supplier is obliged to ask the customer about deliveries and offers in Germany and, as a precautionary measure, to point out potential patent infringement. If the customer does not provide a satisfactory response, the supplier—by continuing to deliver the products to its customer—will be deemed an infringer in addition to the customer’s subsequent patent infringement in Germany even though the delivery of products takes place outside of Germany.

In the matter to be decided there was a significant discrepancy between the total number of products delivered to Germany and the number of products delivered directly to Germany by the defendant itself. In the first instance, the defendant had also stated that an injunction would have a devastating impact on its business within Germany. As it turned out, its actual business with German costumers directly was negligible. The German Supreme Court deduced from this statement that the products must have been put on the German market on a large scale by the defendant’s customers and that the defendant must have been aware of these facts. As a result, the Court held that “it could hardly be denied that there were specific facts for deliveries to Germany.”

With that ruling the case was remanded to the Court of Appeal in order to investigate the relevant facts, including whether there were specific enough reasons for the defendant to believe that its customers would further deliver the goods to Germany. The Court of Appeal will also have to investigate whether the defendant’s customers actually infringed the patent by delivering the goods to Germany or—at least—whether there was a risk of a first-time infringement. The Supreme Court also held that if that was the case, the defendant would need to render account about all sales to these customers, including those that did not end up in Germany, so that plaintiff is put into a position to evaluate and verify the defendant’s numbers. Finally, the Supreme Court tasked the Court of Appeals with taking into account this special situation when tailoring its injunction, though without providing much guidance on what that might entail.

Conclusion. The decision shows that the liability of a foreign company for patent infringement in Germany does not require that the foreign company acts in Germany itself and directly. It does not even have to have positive knowledge of the behavior of customers based outside of Germany. Circumstances indicating that the company’s customers may infringe the patent by delivering the products to Germany can be sufficient to give rise to liability of the company. Thus, it is essential for the company to actively investigate the circumstances and inform its customers about possible patent infringements as soon as the company becomes aware of facts indicating infringing activities of its customers in Germany.