At first sight, one might think that court, lawyers' and other fees (expert witnesses, interpreters etc.) and incremental business travel make patent litigation a real money-making opportunity for Germany. But the popularity of certain German courts among patent holders seeking injunctions has an increasingly visible downside.
Microsoft's recent announcement of the ongoing relocation of its European distribution center from the German state of North Rhine-Westphalia to the Netherlands certainly served as a wake-up call, resulting in unprecedented nationwide press coverage of the problematic aspects of the country's lopsided patent litigation system. Consumers have already experienced restrictions of choice, and removals of functionality. For example, users who access Apple's iCloud and MobileMe services from German territory don't receive push notifications of new iCloud/MobileMe emails, "thanks to" a Motorola patent of uncertain validity. Also, Apple was temporarily forced to remove several of its products from its German online store, and a new sales ban against Apple's flagship products may come down within a matter of months. If the current trend continues, German courts will have ordered formal bans of pretty much every computing and communications device before the end of the year.
Now I've found out that taxpayers in the federal state of Baden-Württemberg, which runs the Mannheim courts, will have to pay millions of euros (corresponding to an even greater dollar amount) to Motorola due to its enforcement of a couple of patents (one of which is standard-essential) against Apple, unless that dispute is settled very soon. That's because Motorola has made a couple of deposits that are required under the law if a company enforces an injunction granted by a court of first instance (here, the Mannheim Regional Court) while the appeal is still ongoing (here, before the Karlsruhe Higher Regional Court). Germany owes Motorola interest that will be paid out whenever the deposit is withdrawn, such as after a settlement or a final ruling, but due to rules that the government has to abide by, it can't invest those funds in ways that would generate (or save) interest income.
The interest due on any single one of Motorola's several deposits exceeds by a factor of almost 3 the amount that has been allocated in the state budget for the aggregate cost of all such deposits (statewide).
These are the facts:
The Mannheim Regional Court ordered two injunctions (not prelimianary ones but sales bans that came down at the end of full-blown proceedings) against Apple, one based on a Motorola wireless-essential patent and another one based on a non-standard-essential push notification patent.
The court determined that in each case, a 100 million euro deposit was required for enforcement against Apple Sales International, an Ireland-based logistics operation. The purpose of such deposits is to protect a defendant against a scenario in which a plaintiff enforces an injunction that later turns out to have been improperly-granted but goes bankrupt during the appeal. The deposit is just a security: the actual damages of premature enforcement can also be much less (even zero) or even much more. For example, Apple argued in court that Motorola should deposit two billion euros in light of the actual cost of a sales ban on its products. For the case over the standard-essential patent, I believe Applle was right (since we're talking about damages corresponding to all of the profits Apple would lose in Germany if an improperly-ordered sales ban was in place for a couple of years), but the court disagreed. Typically the courts require deposits that correspond to the reasonably expected business impact of the enforcement of an injunction during an appeal, which is assumed to take approximately two years.
Motorola has already made at least two such deposits, though there are indications of even a third one, and there may be more. Also, Motorola still hopes to win and subsequently enforce an injunction against Windows 7 and the Xbox 360 in Germany, though its hands are currently tied because of a Seattle decision that is in effect at least until May 7.
The interest rate on these deposits is subject to state law. Article 12 of the Hinterlegungsgesetz (deposit law) of the state of Baden-Württemberg (home to Mercedes, Porsche, Hugo Boss and other major companies) sets that rate at one percent (per year). It may not seem to be a particularly high rate, but considering that Motorola lends money to one of a few remaining AAA debtors among governments (the rating of all German states corresponds to that of the federal government), it's actually a good deal. More importantly, the government is, as I said before, unable to gainfully invest those deposits in the meantime.
For just one of Motorola's deposits, the annual interest cost to the state of Baden-Württemberg therefore amounts to 1 million euros. We're now talking about a couple of deposits of that kind, and the appellate proceeding may easily take two years. In that case, we're talking about several million euros (and an even higher figure if converted to U.S. dollars).
For all deposits of this kind (there's no deposit on amounts that don't have five digits), the relevant item of the state budget (item 537 02 in this document) amounts to 366,300 euros. That corresponds to the actual cost incurred in 2011. In 2010 and 2011, the amount was closer to 250,000 euros.
These figures demonstrate how extremely unusual the premature enforcement of injunctions, as practiced by Motorola, is in Germany. Prevailing plaintiffs typically await the outcome of the appellate proceedings.
By the way, should Apple seek or have sought to enforce any of the injunctions it won against Motorola in Munich, there will be no interest on Apple's deposits because the state of Bavaria has its own law on this and doesn't pay interest on deposits.
Baden-Württemberg probably regrets that its law is too generous. Maybe it will change this. But patent litigation causes far more problems in Germany than this, and unfortunately there are misguided politicians who still try to attract even more patent lawsuits to this country.
It may appear ironic that I am writing this post on a train ride back from Mannheim, where I attended an announcement of decisions. On very short notice, a decision (which could be a ruling or an order, such as an order to stay) on an Apple lawsuit against Samsung, over a photo gallery page-flipping patent, was postponed by two weeks. As a blogger and consultant, those German smartphone patent lawsuits are of interest to me, but I would prefer for this system to be reformed.
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