Patent litigation settlement in Germany: why parties settle during trial

Abstract

This paper looks at the decision to settle patent litigation in Germany by focusing on detailed data on within-trial actions and motivations by plaintiff, defendant and the courts. Using a new dataset covering about 80 % of all patent litigation cases in Germany between 2000 and 2008 we estimate the likelihood of within-trial settlement. We find that the within-trial settlement decision is to some degree driven by the proceedings that change the pre-trial setting of the negotiations in terms of information and stakes and make previously refused settlement a new option. Additionally, firm-specific stakes as measured by the relation of the involved parties to the disputed patent as well as firm-specific strategies are found to affect the general willingness to settle after the filing of a court case. The results suggest that pre-trial failure of settlement negotiations can to some extent be offset by within-trial settlement through efforts made by the court, but that the disposition to settle is to a larger degree determined by firm-specific stakes and strategies in the case.

Appendix

1.1 The patent litigation system in Germany: legal rules and procedures

For a granted patent a first possibility to be involved in a dispute is an opposition procedure right after the grant of the patent. This procedure takes place if a third party, usually a competitor, argues that the patent should not have been granted (Article 99 EPC, Paragraph 59 PatG). Opposition procedures take place at the DPMA or EPO opposition divisions. A granted patent, coming from a German Patent application or from a Germany-designated EPO application, becomes national law. The German system separated validity and infringement proceedings. While invalidity decisions are rendered by the German Patent Court, infringement are cases are dealt with by the district courts. In Germany there are twelve District courts qualified for dealing with patent infringement cases. The legal procedures are set in the Code for Civil Procedures (ZPO). Other than in most types of actions in patent infringement cases the involved parties are relatively free to choose the venue. The plaintiff can choose between either the jurisdiction of the defendant or the court in the jurisdiction where the potential infringement has taken place. Once suspecting an infringement and having obtained some evidence the patentee can send an official warning to the infringer (caution), asking him to stop infringing the patented invention and to provide a legally binding “cease and desist” declaration. If the defendant does not react, the plaintiff may file a suit. The defendant may however file a counterclaim asking for the declaration of non-infringement in order to have his position confirmed. In order to avoid such an action for a negative declaratory judgment, the patentee can chose to send an inquiry asking the other party about the legitimacy of their actions. In some urgent cases, a preliminary injunction is applied for when the suspected infringing party is about to start selling a product involving the disputed technology and when substantial losses for the patent owner may result. There will be a defense plea and then a reply to the defense plea, which may again be followed by a rejoinder. These proceeding then lead to an oral hearing before court and may be continued as written procedures or followed by further oral hearings until the publication of the final judgment. It is the responsibility of the parties to provide evidence in favor or against the case, and the court does not conduct any investigations on its own. If the three judges decide that they are unable to assess technical questions, they will appoint a technical expert, who submits a report and is present at the oral hearings. Both parties may then comment on the expert’s opinion. The appointment of an expert opinion usually delays the procedure by about 9–12 months. A common defense procedure of the defendant is to file invalidity procedure at the German Patent court. While in other countries invalidity issues are dealt with by the same court as infringement issues, the German bifurcation system separates these issues. A invalidity suit as such therefore does not directly interfere with the infringement suit. If however the district court does suspect an infringement of the patent, but at the same time suspects the patent to be judged invalid by the German Patent court, it will defer the infringement action until the invalidity case has been resolved. In the majority of cases however the decision regarding invalidity is rendered after the termination of the infringement proceedings. Patent infringement procedures can terminate with a judgment, a judgment by default, a within—court or out-of-court settlement or with a withdrawal of the case. The losing party is obliged to pay the attorney fees of the winning party, the court costs and any further expenses. The attorney and court fees are being calculated according to a formula based on the estimated value of the dispute.¹⁴

1.2 21 industry codes derived from the 2-digit revision 2 NACE codes

A:

Agriculture, forestry and fishing

B:

Mining and quarrying

C:

Manufacturing

D:

Electricity, gas, steam and air conditioning supply

E:

Water supply, sewerage, waste management and remediation activities

F:

Construction

G:

Wholesale and retail trade, repair of motor vehicles and motorcycles

H:

Transporting and storage

I:

Accommodation and food service activities

J:

Information and communication

K:

Financial and insurance activities

L:

Real estate activities

M:

Professional, scientific and technical activities

N:

Administrative and support service activities

O:

Public administration and defense; compulsory social security

P:

Education

Q:

Human health and social work activities

R:

Arts, entertainment and recreation

S:

Other services activities

T:

Activities of households as employers; undifferentiated goods and services

U:

Activities of extraterritorial organization and bodies