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DE – Full Liability of Directors for Patent Infringements

12 Apr 2016

Judgment of the Federal German Supreme Court, dated 15 December 2015, docket no. X ZR 30/14

In recent years, it was an established principle in the patent field that the legal representatives of a company (e.g. directors of a GmbH) are themselves fully liable with their private assets for any patent infringement committed by the company. This principle was undisputed for all further intellectual property rights (e.g. trademarks, designs and copy rights) provided (i) that the legal representatives knew about the company’s infringing activity and (ii) that they did not interfere and stop this activity. In practice, this knowledge is established from the moment a warning letter is received or at the latest when a statement of complaint is served.

However, with its decision “Geschäftsführerhaftung” (judgement of 18 June 2015, docket number I ZR 242/12), the 1st senate of the Federal German Supreme Court – which is inter alia competent for unfair competition, trademarks, designs and copy right matters – deviated from these established principles and held that such liability of a legal representative of a company is only given if the legal representative commits the infringing activities himself or if he has like a “guarantor” the obligation vis-á-vis the infringed party to prevent the infringing activities.

With its decision of 15 December 2015, the 10th senate of the Federal German Supreme Court – which is inter alia competent for patent matters – made clear that such “guarantor” position is as a matter of principle generally given for legal representatives of a company with a view to patent infringements. The Supreme Court held that numerous patents with diverging subject matters are in force for almost every technical field. This situation results in the obligation of every company to check potentially conflicting third party patents prior to engaging into a commercial activity. This obligation mirrors the increased danger that patent rights are violated.

According to the Supreme Court, it is therefore the legal representatives’ obligation to organize their company in a way (i) that conflicting third party patents are respected and that infringements are avoided as well as (ii) that the most important decisions within the company are not taken without their approval. The fact that a patent infringement is established is therefore a strong indication that the legal representatives violated their respective obligations as “guarantors”. Overturning such indication with the argument that the company did everything to avoid infringements of third party patents will be very difficult per se and very likely impossible for infringements which continue after the infringement action started.

From a practitioner’s point of view, this case law of the Federal German Supreme Court is clearly patentee-friendly. The option to include the legal representatives of a company in the lawsuit entails definitely more advantages than disadvantages for the patentee. First and foremost, the additional personal liability of the company’s legal representatives is an additional leverage and many times the decisive trigger for a settlement. The major disadvantage is the increased cost risk if the case gets lost (court fees and attorney fees are higher if the legal representatives are included as parties to the lawsuit). In addition, it should be considered that such patentee-friendly case law could also be used against the patentee’s own legal representatives if a counter-attack is launched.

A copy of the decision can be found here.

Headnote: Tobias Wuttke, Meissner Bolte & Partner