In a recently published decision (ref. no. X ZR 70/12 – Wundverband), the German Federal Supreme Court ruled that an exclusive licensee cannot bring patent infringement proceedings, if the patentee himself has already brought patent infringement proceedings against the same defendant and the license was granted only after proceedings by the patentee had been initiated. This decision might limit the options of a patentee to sue an infringer who has already filed a “torpedo” action under the same patent.
The new decision is the latest development in a patent dispute between Swedish Mölnlycke Health Care AB and BSN medical GmbH that has kept courts in Europe busy since 2008. It provides insight into a common strategy of patent proprietors in dealing with the effects of a “torpedo” action. Torpedo actions are declaratory actions for non-infringement of a patent, commonly brought in a slow moving jurisdiction by a potential infringer and often covering patents in several jurisdictions. Torpedo actions – which may take several years in some jurisdictions – bar the patent proprietor from asserting its patent against the potential infringer, for conflicting pendency in accordance with Art. 27 of Regulation 44/2001 (“Brussels Regulation”). One way to avoid the blocking effect of a torpedo action is to license another party, which is not a party of the torpedo action, and have this party bring suit against the potential infringer. As the present case shows, this is not without risks:
International Background to the Mölnlycke Health Care and BSN medical proceedings
The core of the dispute between Mölnlycke Health Care and BSN medical is the alleged infringement of Mölnlycke’s European patent EP 855 921. Court proceedings, however, were started by BSN medical, which brought a declaratory action for non-infringement against Mölnlycke Health Care AB in Stockholm (Mölnlycke`s place of business) asking for declaration of non-infringement of EP 855 921 in several EPC member states, including the UK and Germany (the torpedo). Plaintiffs of this action included BSN Medical GmbH and BSN Medical Ltd., the German and UK affiliates. In reply, Mölnlycke brought infringement proceedings against BSN medical in the UK High Court and the Mannheim Regional Court and subsequently - via an exclusive licensee - before the Düsseldorf Regional Court.
The UK proceedings
Proceedings in the UK High Court resulted in a finding of non-infringement in favour of BSN medical in 2012 (High Court, judgment of 9 November 2012,  EWHC 3157). Prior to this decision, the UK High Court had to decide on a request of BSN Medical to stay proceedings against the plaintiffs Mölnlycke Health Care AB (patent proprietor) and Mölnlyke Health Care Limited (an exclusive licensee) according to Art. 27 Regulation (EC) No. 44/2001 (“Brussels Regulation”) with a view to the Swedish proceedings. The High Court in its judgment of 17 December 2009,  EWHC 3370 rejected such a stay and held that the parties were not identical to those of the Swedish proceedings.
The German proceedings
In the case brought by Mölnlycke against BSN medical in Mannheim the problems presented by the earlier declaratory action in Stockholm could not be overcome by Mölnlycke. The Mannheim Regional Court dismissed the action against BSN medical GmbH under Art. 27 Regulation (EC) No. 44/2001 because it found that the same case was already pending in Stockholm. The dismissal was confirmed on appeal by the Karlsruhe Court of Appeal. The action against the two directors of BSN medical GmbH, who were not parties to the Stockholm case, was stayed under Art. 28 Regulation (EC) No. 44/2001 pending a decision in the Stockholm proceedings, in order to avoid conflicting decisions. Accordingly, BSN medical had managed to torpedo Mölnlycke’s German infringement action in Mannheim by the earlier torpedo action in Stockholm.
In order to get around the torpedo action,, Mölnlycke AB granted an exclusive license to the German part of the patent and the German licensee started new infringement proceedings against the two directors BSN medical GmbH in the Düsseldorf Regional Court. At the same time, Mölnlycke AB declared the stayed case against the directors of BSN medical GmbH in Mannheim moot. While the Düsseldorf Regional Court found the action admissible on damages and claims for rendering account on past infringement, the Düsseldorf Court of Appeal found the action admissible in all aspects.
Upon an appeal on law by the defendants, the Federal Supreme Court now reversed the decision of the Düsseldorf Court of Appeal and entirely dismissed the action of Mölnlycke’s licensee.
Reasoning of the Federal Supreme Court
In its reasoning, the Federal Supreme Court confirms the principle that in general patent proprietor and exclusive licensee are separate parties, entitled to – independently of each other – assert rights afforded by the patent.
The court held, however, that the (exclusive) licensee derives its rights to assert the patent from the patent proprietor and applied the rules for the assignment of assets in litigation to the granting of a license to a litigated patent. Under these rules, pending legal proceedings are not affected, if the assets in litigation are assigned while the case is pending. The proceedings have to be continued by the original parties and any successor in title to the assets in litigation will be bound by the decision under Sec. 325 Civil Procedural Code (res judicata). With the new decision of the Federal Supreme Court, it is now clear that this also applies to licensees who want to enforce the licensed patent against the same parties for the same infringing acts. The licensee can only be put in the position the patent proprietor is in at the time of granting the license – the patent proprietor can accordingly not provide a basis better than the one he is in. At the time the license was granted, Mölnlycke’s action against BSN medical´s directors in Mannheim was still pending, since they did not agree to a declaring moot of the case or to a withdrawal of the complaint in Mannheim. Accordingly, any licensee to Mölnlycke’s patent will be bound by the outcome of these proceedings and later identical actions before a different court are inadmissible.
Comment of TW
A patent proprietor has three main options in dealing with a torpedo action:
- The patent proprietor can request a preliminary injunction against the potential infringer, as interim relief is not blocked by a torpedo action (Art. 27 Regulation 44/2001does not apply). Nevertheless, the particular requirements for a preliminary injunction must be considered which, in Germany for instance, inter alia require clear-cut infringement, confirmed validity of the patent, as well as a time-wise urgency. Accordingly, obtaining a preliminary injunction may not always be a practical option.
- The patent proprietor can grant an exclusive license and have the licensee bring suit against the potential infringer. The above decision outlines that this approach must be carefully considered – in particular, the “correct” timing of granting a license must be observed. To mitigate risks, an exclusive license should be provided at best before any torpedo action may be expected. In further, it may be advantageous to license a company the potential infringer does not know and can accordingly not include as a party in a torpedo action.
- At last, a patentee can bring proceedings against potential infringers who are not parties to the torpedo action. Potential defendants may include other companies who are involved in the production or distribution of infringing products or their managers or directors personally. In the case decided by the Federal Supreme Court, this option would likely have worked, had Mölnlycke brought the action against BSN medical’s directors directly in Düsseldorf instead of starting in Mannheim, in which case the Swedish torpedo action would likely not have been a problem.