How to Sue and Prove that You Have no Basis for Your Claim, or: The Curious Effects of Patent Exhaustion

My colleague Till Jaeger drew my attention to a recent decision of the German Federal Court of Justice (X ZR 33/10) that demonstrates in a rather curious way the effects of patent exhaustion.

In the case at issue the plaintiff was the holder of a process patent for the coding, transfer and decoding of video signals used when producing and playing of DVDs under the MPEG 2 standard. The defendant, a Greek DVD producer had no business relationship with the plaintiff, in particular no license agreement with the plaintiff was in effect. However, the plaintiff suspected that the defendant made use of its patent and decided to test the defendant’s abidance by the law. So a test purchaser was asked to send to the defendant a DVD master with the request to produce 500 DVDs and send them back to Germany. Which was exactly what happened: The test purchaser made his order, sent the master, and the Greek producer delivered, apparently using the patented process.

The plaintiff sued, asking not only for an injunction but also for damages and information about the defendant’s distribution channels – and lost.

The court held that due to exhaustion there was no infringement, and consequently, the plaintiff couldn’t prevail on the damages and information claims. The court argued that the direct product of the patented product was the sequence of compressed video data resulting from the coding process. Thus, the DVD master and the DVDs produced on this master’s basis embodied one and the same direct product of the patented process. Therefore, as the plaintiff’s consent to the delivery of the DVD master to Greece caused the respective patent rights to be exhausted, the same had to apply to the DVDs produced and sent back to Germany.

In addition, the court found that there was no basis for injunctive relief. This outcome itself might not sound all too surprising (especially for non-German lawyers) – but it should be noted that the court didn’t base its decision on this matter on the aspect of exhaustion but on the simple fact that the patent at issue had lapsed roughly a year before the decision was handed down. Fair enough. But here’s the last twist in this case: The court nevertheless ordered the defendant to pay parts of the legal fees incurred in the proceedings, arguing as follows: The defendant’s acts might not have been infringing in the specific test purchase situation (because of the exhaustion); however, the defendant’s willingness to produce the DVDs without asking any questions demonstrated that it would have made such DVDs for any other customers, too. Therefore, a request for an injunction would, in the court’s opinion, initially have been successful, based on the concept of the risk of first infringement. This had to be taken into account in the decision on the cost of the litigation.

 

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