FCJ rules that foreign distributors may be liable for their distributor’s patent violations

On 16 May 2017, the Bundesgerichtshof (the German Federal Court of Justice, “FCJ”), Germany’s highest civil court, held that a foreign product distributor may be liable for its distributor’s export of patent infringing products.

The facts

The plaintiff owns a European patent validated in Germany for a tyre sealing system. The Italian defendant manufactured and supplied car tyre repair kits that include plaintiff’s patented tyre sealing system. Defendant supplied the repair kits to distributors in Germany as well as to Fiat Italy, which included such kits in the cars it exported to Germany.

Plaintiff sought an injunction ordering disclosure of information and accounting, destruction, recall and definitive removal of the infringing products from the channels of commerce.

Foreign manufacturers/distributors may be liable for their distributors

The principle of territoriality limits claims against foreign conduct with respect to goods infringing national IP-rights such as patents, copyrights or (national) trademarks or designs. On this basis, the Higher Regional Court of Stuttgart, the court of second instance, decided that a foreign manufacturer is only legally bound to recall infringing products it knew its foreign distributors exported to Germany.

The FCJ took a broader approach and stated that manufactures/distributors may be liable for acts of their distributors/sub-distributors even if they lacked direct knowledge of infringing exports. The FCJ stated that the manufacturer/distributor must also monitor whether its distributors indicate any specific signs of intent to export infringing goods. Such signs may occur when: the supplied amount of goods is so copious that a sale only on patent free markets is unlikely; or sales correlate with a distributor’s potentially infringing conduct in Germany. In case of such indications, the manufacturer/distributor is obliged to further investigate and indicate potential patent violations to its foreign distributors. If it does not receive plausible answers from its distributors, it will be jointly liable for the patent infringements. However, a mere theoretical possibility that a distributor may export patent infringing goods is not sufficient to trigger the manufacturer/distributor’s liability.

Combined claims for recall and definitive removal from the channels of commerce

The FCJ also resolved a question that was disputed between German courts – whether a plaintiff can request both recall and definitive removal. Defendant argued that the FCJ could not order both the claim for recall and the claim for definitive removal from the channels of commerce because these claims do not cover the same goal. The FCJ disagreed, and held that both claims may overlap, but the claim for definitive removal from the channels of commerce goes further, forcing the distributor to take all reasonable measures to avoid the new circulation of infringing products.

Conclusions and implications

The FCJ’s decision strengthens the enforcement of German patents against foreign manufacturers and distributors. Manufacturers can no longer hide behind the excuse that they did not know what their distributors did. However, it will be necessary for future case law to clarify the meaning of the “reasonable effort” manufacturers/distributors must use to determine if infringing export was intended by their distributors.