New UPC Dusseldorf injunction clarifies irrelevance of licensing talks to proportionality, stresses need to argue obviousness early

Context: In general, Unified Patent Court (UPC) practitioners are well aware of the implications of the young judiciary’s frontloaded proceedings. Anything that can be pleaded early must be pleaded early. Just last week, Gucci (which defended itself against an infringement claim by Agfa anyway) might have been able to invalidate a patent in the Hamburg Local Division (LD) if only it had argued earlier that the prior art references it presented in its revocation counterclaim could also be a basis for a lack-of-inventive-step theory.

What’s new : That principle was also stated in today’s Grundfos v. Hefei Xinhu Canned Motor Pump Co. decision by the Dusseldorf LD (PDF (in German)). Grundfos was granted an injunction and the revocation counterclaim failed. The headnotes point out that the requirement to plead lack of inventive step early concerns not only any prior art references proffered for that purpose, but also the use at the reply stage of prior art references that are already in the case.

Direct impact : The injunction can now be enforced without a need to provide security as the Dusseldorf LD says there was no argument as to why security would be required. The injunction involves a recall and the destruction of infringing goods. But the defendant might seek an enforcement stay (called “suspension” in the UPC) from the Court of Appeal (CoA).

Wider ramifications : With a view to other UPC cases, the decision contains a couple of other aspects (than the frontloaded-proceedings part) that can make a difference elsewhere. It rejects the notion that a patentee engaging in licensing talks (which according to Grundfos was just an exception to its rule of seeking exclusivity) has any bearing on the proportionality analysis for remedies. And the ruling discusses what a recall from distribution channels, including commercial users, means in practice for a technical component already deeply integrated into buildings. Private customers are not impacted at all, and with respect to commercial users the sole obligation is to send them a letter requesting that they return the accused product.

Now the Hamburg and Dusseldorf LDs have both made it clear, within a few days of each other, that the requirement to raise any invalidity contention early (unless there is really an excuse for doing so only at a later stage, which was apparently not presented by the defendant in the case decided today) pertains to both prior art references and their use to build a lack-of-inventive-step theory.

As for proportionality, the defendant’s argument, which the plaintiff disputed by saying that normally they seek exclusivity and here they just thought a quick settlement might be preferable, would have resonated more strongly and effectively in U.S. federal court under the eBay v. MercExchange standard. Just like a German national court would not have been interested in it, the UPC’s Dusseldorf LD also brushed it aside and didn’t even dignify it with a third headnote.

At least in Germany with its 2021 statutory amendment concerning patent injunctions, the argument that the patentee offered a license would probably even be counterproductive. It would show that any severe hardship could be, or could have been, easily avoided. Litigants should think very hard about whether this argument is helpful in Germany or in German UPC divisions that come from the same tradition. Even in non-German UPC divisions (and without a single German judge on the panel) it could backfire.

During the early preparatory stages for the UPC, many companies (particularly also “Big Tech” lobbying groups) were trying to strengthen the principle of proportionality at the UPC, but they didn’t make much headway. It always comes down to a fundamental question: eBay factor 2. The only surefire basis on which a licensing offer can call into question the patentee’s entitlement to injunctive relief is a statutory framework or controlling case law that makes damages the standard remedy and grants injunctions only if monetary relief is inadequate. That is not the way it works in Germany after the inconsequential 2021 amendment, and so far there is no sign of the UPC being inclined to withhold injunctions because monetary damages would suffice.

Another proportionality question that the defendant tried to raise here was that those circulation pumps are incorporated into buildings and it could be very costly and inconvenient for customers to dismantle an installation only to get access to the circulation pump that should be returned. But a recall is not the same as a removal, and third parties are not bound by the court ruling the way a defendant is. Private buyers will not be affected at all, and while commercial customers will be considered part of the distribution channel, all they get is a letter asking them to return the product. Theoretically, the patentee could also start to sue individual customers (provided that they are commercial users), but that is unlikely to happen in a case involving circulation pumps. It would not make sense from the perspective of litigation economics, and ultimately Grundfos wants to sell more of its own pumps, an objective to which suing commercial users would be inconducive.