IP Expert Talk: Third-party notices - part II

Show notes

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Welcome back to our IP Expert Talk on third-party notices. In the second part we will talk about strategic considerations for bringing a third-party notice. Stefan, you mentioned in the first part mentioned the increase in the cost risk for a Plaintiff – can you explain that in more detail?

Yes, sure, Johannes. In IP litigation in Germany, the main principle is that the losing party must reimburse the statutory fees to the winner, namely court fees - if not advanced by them - and attorneys’ fees plus reasonable expenses. Thus, if the Plaintiff wins, the Defendant has to pay the Plaintiff’s statutory costs. However, the Plaintiff cannot claim any cost reimbursement from the side interveners on the Defendant’s side additionally. This situation is different if the Defendant wins as the Plaintiff then has to reimburse not only the Defendant’s statutory costs but also those of each intervener on the Defendant’s side additionally.

This cost risk is further increased if there are several interveners in support of the Defendant. For example, if 3 suppliers and 3 sub-suppliers of the Defendant intervene in the lawsuit between the Plaintiff and the Defendant, the cost risk for the Plaintiff increases by the factor 6. Thus, even if the Plaintiff has filed an infringement complaint only against one Defendant, they may face – in particular triggered by third-party notice of the Defendant – numerous interveners subsequently and is obliged to additionally pay their statutory costs if the complaint is dismissed.

So, that is an asymmetric cost risk, so to speak, for the Plaintiff. Yes, absolutely, and finally, there is another important principle in this context which is called the “principle of cost parallelism”. This principle means that each intervener is to be treated in the same way as the Defendant in terms of cost reimbursement which is, in particular, important if it comes to a settlement between the Plaintiff and the Defendant, in which the parties usually agree that each party bears its own costs in the infringement proceedings. If so, this does automatically also apply to each intervener so that each intervener has to bear their own costs. Hence, from a Plaintiff’s point of view, such a cost scheme in a settlement reduces the risk of a cost increase as outlined above.

Johannes, what about other reasons for a third-party notice? There is, in particular, one important reason to file a third-party notice, namely, to motivate the third party to join the case and support the Defendant. In our law, the effect of a valid third-party notice, namely, the biding effect between supplier and supplied party, applies regardless of whether the notified third party joins the proceedings and supports the Defendant or not. This support is, technically, oftentimes necessary as not car manufacturer would know all details of all components he has in all his cars. And, likewise, no mobile phone manufacturer would know the last design detail of a baseband chip he is using. This is particularly important since our courts require Defendants to counter technical statements made by a Plaintiff in sufficient detail. It is accepted case law, and expressed in a very prominent case in 2018 by a Munich Regional Court, that it is not sufficient for a Defendant to defend by pleading ignorance as we call it, by saying “I do not know certain facts which were alleged by the Plaintiff.” if the Defendant could have asked his supplier, the recipient of the third-party notice, and this supplier could have delivered the missing information. Therefore, it is of importance for a Defendant to motivate this third-party/supplier to provide information which he needs to make his defense in substance. So, gaining technical information from your supplier is, in many cases, a real need and third-party notices are a powerful procedural tool to motivate the supplier to come to the table and help defending. Stefan, you have already pointed, in the last session, to the fact that this aspect may also influence the communication of a third-party notice to the notified third party, namely, not being an adverse act but the expression of a need for help. To summarize, third-party notices can be a very powerful tool for a Defendant in IP litigation in Germany to safeguard its potential recourse claims against its suppliers, as already mentioned in the first part, and to motivate its suppliers to provide the relevant technical information quickly. Moreover, the cost risk for the plaintiff is increased in case of an effective intervention usually triggered by a third-party notice of the Defendant.

Interestingly, Rules 316 and 316A of the Rules of Procedure of the UPC will include similar rules, under the headlines “Invitation to Intervene” and “Forced Intervention”.