German patent wars

Competition is fierce when it comes to smart phones and tablets, which are among the fastest growing technology markets in the tech world.

From South Korea to Australia, the United States to the United Kingdom, over the past two years more than 20 major tech companies have been suing and counter-suing each other over the design and technology patents behind smart phones and tablets.

What's at stake is a market worth hundreds of billions of euros. And for a number of reasons, German courts have become the preferred battlefield - which could be bad for business in Germany, as recent developments have shown.

Tablet wars

At a Samsung trade fair near Dusseldorf Airport in western Germany, a line of shiny, brand-new tablets and smart phones represented the newest products the South Korean tech giant had to offer.

German representatives of Samsung described the new features of the devices, which were part of a show emphasizing technological convergence and a connection to cloud storage.

One of those devices is the Galaxy Tab 10.1N, Samsung's tablet computer. Since Apple released its iPad in 2010, other technology companies have raced to join the tablet market.

Because the market potential is so great, competition has been cutthroat. When Apple challenged Samsung over the design of the Galaxy Tab 10.1, a Dusseldorf court last August ordered Samsung to immediately stop selling it.

Samsung lost on appeal, and had to redesign the product - the "N" on the 10.1N thus stands for "new," explained Stefan Lieck, an attorney with the Dusseldorf firm representing Samsung.

Since last year's ruling was on a European Community design patent, Apple was able to stop Samsung from selling its Galaxy Tab 10.1 across nearly all of the European Union. The court revised its ruling about a week later, limiting the injunction to only Germany.

Lieck told DW that's they call the EU Galaxy Tab market a "donut - because it has a hole in the middle."

Potentially broad jurisdiction, as was the case in the initial ruling that banned Galaxy Tab 10.1 sales across the EU, is one draw of the German legal system. But there are several others.

German efficiency

District courts in the three German cities of Dusseldorf, Mannheim and Munich specialize in patent disputes, handling more than 1,400 every year.

"In Dusseldorf, at the moment, it takes approximately 15 to 18 months, and in Mannheim, eight to 10 months until judgment in the first instance," said Lieck, adding that judgments in the United States can take two or three years.

Expert judges preside over trials that dispense with juries and time-consuming pre-trial discovery. There are also separate legal tracks for patent infringement versus basic patent validity claims. The courts' speed is welcome for tech companies that need to introduce improved products every few months, and cannot afford to wait years for a ruling.

Aside from being efficient, costs are capped in German courts and the legal system provides a broad range of legal measures companies can inflict on their rivals.

"If the claimant wins the case, he can ask for an injunction, he can ask for damages, he can ask for disclosing information, he can ask for a recall of the products," Lieck explained.

Tort-happy techies

Florian Mueller, an industry analyst based in Munich, added that Germany is a popular legal venue for patent disputes because courts are plaintiff-friendly.

"They tend to favor the interest of patent-holders over those of defendants," Mueller told DW.

Take the Dusseldorf court, for example, which handles up to 600 first-instance patent cases each year. There, companies claiming patent infringement by their rivals win about two-thirds of the time.

Compare that, Mueller says, with a 5 percent success rate at the International Trade Commission, a quasi-judicial venue in the U.S. where many major companies seek patent victories.

And patent courts that favor claimants are hurting the German economy, Mueller asserts.

He pointed to Microsoft's decision to relocate one if its six regional distribution centers from the German state of North Rhine-Westphalia, of which Dusseldorf is the capital, to the Netherlands.

Microsoft made it clear that its ongoing legal battle with Motorola was behind the decision, citing the threat of German court rulings potentially locking up products in the German warehouse. Courts in Holland are less likely to issue injunctions.

"Germany really is now the best place for abusers of patents," Mueller said.

Lieck said that "the German system is very efficient on the one hand, but it can promote claimants."

Impact on consumers?

Another consequence of the German legal system is the prevalence of so-called patent trolls, which Dominik Boecker, an IT attorney in Cologne, explained as companies that don't actually make products, but just acquire patents with which to sue other firms.

Since the German patent courts require the losing party pays all costs and fees, it's an ideal venue for such challenges, as the troll companies have very little to lose.

"The winner takes it all," Boecker told DW, adding that it's the customers of the companies that make products who end up paying the legal bill in the form of higher prices.

In Mueller's opinion, "whether the companies are going to pass the cost on to consumers is going to depend on the competitive environment."

But Mueller added that he does think litigation will eventually affect consumer choice.

For example, to avoid litigation in Germany, companies are being driven to expensive licensing agreements, Mueller said. "That is certainly going to have an impact," he concluded.

Author: Sonya Angelica Diehn
Editor: Sean Sinico