Proportionality Defenses in FRAND Cases - A Comparative Assessment of the Revised German Patent Injunction Rules and US Case Law

A new defense against injunctions in FRAND cases has arisen in Germany, and its relationship to the Huawei defense (whether viewed as a competition or contractual matter) is largely unexplored. In August 2021, the “Second Act for the Modernization of Patent Law” (Zweites Patentrechtsmodernisierungsgesetz) took effect and modified the German Patent Act (GPA) in several respects. Pertinent to our topic is an amendment to § 139(1) GPA which introduced an explicit proportionality defense against injunction claims. The new proportionality mechanism consists of three main elements: First, § 139(1)(3) GPA excludes the claim to an injunction in case of patent infringement to the extent such injunction would result, due to the particular circumstances of the individual case at issue and with a view to the principle of good faith, in a hardship for the infringer or third parties that would be disproportionate and not justified by patent exclusivity. Second, § 139(1)(3), (4) GPA entitle the patentee to appropriate financial compensation if the injunction is denied, without prejudice to its other claims for damages. Third, § 142(7) GPA exempts an infringer from penal law sanctions to the extent § 139(1)(3) GPA excludes an injunction. This article offers to market participants and the judiciary a proposed analytical framework for considering such a proportionality defense in German FRAND cases. While the introduction of this new defense presents various additional issues, we focus primarily on three aspects: (1) whether the proportionality defense and the FRAND license defense can be raised in parallel, (2) whether FRAND royalties are a suitable basis for calculating the appropriate financial compensation in the sense of § 139(1)(4), and (3) how a court should assess whether the impact of an injunction in a FRAND case is disproportionate and not justified by the exclusivity conferred on the patent holder. In formulating an analytical framework to address the latter question, we also consider whether the injunction law of the United States may offer useful guidance, or at least cautionary notes, for the German context