In a recent series of judgments, the German Federal Patent Court (BPatG) discussed the effects of an arbitration clause contained in a patent and knowhow Licence Agreement and two arbitral awards rendered on the basis of such a clause on the admissibility of several patent revocation actions by the licensee against the patent owner for German patents in the field of brake system technologies.
In all judgments, the BPatG assessed in a remarkably detailed and structured manner whether the arbitration clause in the Licence Agreement or the arbitral awards rendered in the preceding arbitration under the rules of the German Institution of Arbitration (DIS) would render the revocation actions inadmissible. In doing so, the BPatG addressed several fundamental questions typically arising in patent disputes, including the arbitrability claims concerning the validity of patents, the scope of arbitration clauses and the res judicata effect of arbitral awards addressing the requirements for grant or maintenance of patents.
In the following article, the reasoning underlying the BPatG’s decisions will be analyzed in more detail.
1. Applicability of § 1032(1) ZPO
As a first step, the BPatG raised the question whether it had to take into consideration the arbitration clause in the Licence Agreement at all. In the BPatG’s view, the answer to this question depends on whether the general reference in § 99(1) of the German Patent Act (PatG) to the provisions of the German Code of Civil Procedure (ZPO) regarding the procedure before the BPatG is to be understood as including the provisions on arbitration in §§ 1025 ZPO et seq., notably § 1032(1) ZPO. Under § 1032(1) ZPO, a court before which an action is brought in a matter that is the subject of an arbitration agreement must, if the defendant raises an objection prior to the beginning of the oral hearing on the substance of the dispute, reject the action as inadmissible unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
The BPatG noted that, according to certain commentators, § 99(1) PatG does not refer to §§ 1025 et seq. ZPO, which could imply that arbitration clauses are a priori irrelevant to disputes before the BPatG.
In a recent decision regarding claims under the Information Freedom Act (IFG), the Administrative Court of Berlin held (judgment of 8 December 2021 – VG 2 K 48/20) that § 1032(1) ZPO is applicable in administrative proceedings by way of a reference in § 173, sentence 1 of the Administrative Court Code (VwGO), which contains an almost identical reference to the Code of Civil Procedure. This is convincing since the different nature of the proceedings should not exclude per se that a court takes into account an arbitration agreement between the parties to the proceedings. Instead, it should be assessed whether the dispute is arbitrable and, if so, whether it is covered by the arbitration agreement in question.
As far as § 99(1) PatG is concerned, if one takes the view that disputes regarding the validity of patents are arbitrable, the interrelation between the courts and the arbitral tribunal needs to be regulated. Hence, the question of the applicability of § 1032(1) ZPO in proceedings before the BPatG is closely intertwined with the question of the arbitrability of disputes concerning the validity of patents. However, the BPatG avoided to decide on this question and instead turned to an analysis of the arbitration clause in the Licence Agreement.
2. Arbitrability of disputes concerning the validity of patents
As a second step, the BPatG addressed the question whether legal disputes regarding the validity of patents are arbitrable.
For a long time, the prevailing view in legal literature had been that disputes concerning the validity of patents are not arbitrable due to the exclusive jurisdiction of the BPatG for such claims under § 65(1) PatG. This view is increasingly criticised as being too formalistic. Disputes concerning the validity of patents are of an economic nature and can also be subject to a settlement between the parties. Accordingly, they are arbitrable under § 1030(1) ZPO, unless the legislator has excluded the arbitrability. Whether the legislator has done so by providing for an exclusive jurisdiction of the BPatG is arguable. Generally, provisions on exclusive jurisdiction of courts are not to be understood as an implied exclusion of arbitrability. In line herewith, the Regional Court Munich I in a recent decision (judgment of 5 May 2021 – 21 O 8717/20) expressed its sympathy with the view that disputes concerning the validity of patents can be decided by arbitral tribunals with inter partes effect in a well-reasoned obiter dictum.
The BPatG, however, did not take a position on the arbitrability either and instead turned to the question whether the actions for revocation were inadmissible due to the arbitration clause in the Licence Agreement.
3. Relevance of the arbitration clause
Regarding the arbitration clause in the Licence Agreement, the BPatG examined first whether the patent revocation claims fell within the scope of the arbitration clause, and second whether an objection based on the arbitration clause could still be entertained after an arbitral award had been rendered.
a) Scope of the arbitration clause
As a starting point, the BPatG noted that arbitration clauses providing for arbitral jurisdiction concerning all disputes arising out of or in connection with the contract are typically interpreted broadly, covering not only contractual claims but also statutory claims related to the contract. In the BPatG’s view, claims regarding the validity of patents, however, are of such a distinct nature that it cannot be expected that the parties wanted to submit them to arbitration unless the arbitration clause expressly states so. Since the arbitration clause in the Licence Agreement did not mention patent disputes, the BPatG held that the licensee’s patent revocation claims did not fall within the scope of application of the clause.
While the BPatG’s interpretation finds support in some commentaries, it will have to be seen whether this restrictive approach will prevail. The general assumption is that, by including an arbitration clause into their contract, the parties intend to provide for a uniform forum to solve their disputes and, to the extent possible, avoid a split of jurisdiction. Parties to a Licence Agreement that wish to exclude patent disputes from an arbitration clause are therefore well advised to include an express carve out in the clause.
b) “Replacement” of the objection based on § 1032(1) ZPO by the objection of the res judicata effect of the issued arbitral awards
Despite having found that the dispute was not covered by the arbitration clause, the BPatG continued its analysis and raised the question whether the patent owner could rely on the arbitration clause even though an arbitral award had been rendered. Referring to case-law and legal literature, the BPatG noted that an arbitration clause becomes obsolete if the arbitral tribunal has finally decided on the subject matter. In this case the objection based on the arbitration agreement under § 1030(1) ZPO is replaced by the res judicata effect of the arbitral award.
In this regard, it should be noted that the res judicata effect of the arbitral awards can only affect the admissibility of the court proceedings to the extent that the subject matter is identical.
Noting that the arbitral awards rendered in the preceding DIS arbitration proceedings had become final and binding, the BPatG turned to an analysis of the content of the arbitral awards.
4. Res judicata effect of the arbitral awards
To determine the scope of the res judicata effect of the arbitral awards, the BPatG analysed the dispositive part and the reasoning of the arbitral awards.
Regarding the first arbitral award, the BPatG opined that the arbitral tribunal had decided in the affirmative on the arbitrability of the licensee’s claim against the patent owner to revoke the patent. The BPatG held that the arbitral tribunal’s decision on arbitrability was different from the revocation claim and its res judicata effect thus did not affect the Court’s jurisdiction.
Regarding the second arbitral award the BPatG found that the arbitral tribunal, considering the question whether it had the power to oblige the patent owner to revoke the patents, came to the conclusion that such power neither followed from the Licence Agreement nor from any other grounds and therefore refused to oblige the patent owner to revoke the disputed patents. The BPatG opined that the arbitral tribunal, hence, had not decided on whether the patents met the requirement of grant and maintenance.
On this basis, the BPatG held that the subject matter of the second arbitral award was not identical to that of the patent revocation actions either and its res judicata effect did not affect the revocation claims.
Based on its assessment, the BPatG assumed jurisdiction and rendered decision on the merits in all cases. The BPatG could leave open the question whether the patent owner’s reliance on the arbitration clause and the res judicata effect of the arbitral awards in the court proceedings amounted to inconsistent behaviour and as such was to be disregarded, considering that, in the arbitration, the patent owner had objected to the jurisdiction of the arbitral tribunal.
Conclusion
Where possible, the BPatG avoided taking a firm position. Nevertheless, the BPatG’s decisions illustrate that arbitration clauses in patent Licence Agreements can lead to complex legal questions.
The view that patent disputes are arbitrable and arbitral tribunals can thus render awards with inter partes effect is on the rise. This is in line with the approach taken in many jurisdictions. It can be expected that this development will gain further momentum once the Arbitration and Mediation Centre of the Unified Patent Court begins work.
Against this background, parties are well advised to expressly regulate this question when including arbitration clauses into patent-related contracts.
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The full text of the decisions of the BPatG in the German original can be accessed under the following links:
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