Friday, August 26, 2016

Rödiger on the May 31 German FRAND Decision

As I noted last month (here), on May 31 the Oberlandesgericht Karlsruhe rendered its judgment (available here) in an appeal presenting the question, among others, whether, in a case in which the owner of a FRAND-committed SEP has sued an implementer for an injunction and the implementer raises the competition-law defense, the district court must ascertain whether the owner has made a FRAND offer to the defendant; or whether instead the defense is inapplicable if the defendant has not fulfilled its responsibilities under Huawei v. ZTE (of responding to the plaintiff's offer in a timely fashion, and so on).  The appellate court, agreeing with an earlier decision by the Oberlandesgericht Düsseldorf, held that the court must determine whether the plaintiff's offer was FRAND, and that it isn't enough simply to determine on summary examination that the offer is not evidently non-FRAND.   The July 2016 issue of Mitteilungen der deutschen Patentanwälte has now published the decision (again, in the original German; I'm not aware of an English-language translation) with a short commentary (also in German) by Felix Rödiger of Bird & Bird.  Mr. Rödiger concludes by noting that the court appears to require in every such case that the district court examine the SEP owner's offer in detail, to see if it conforms to FRAND; and that the owner therefore may have to come forward with comparable licenses.  Whether corresponding national or worldwide licenses should be viewed as indicative of FRAND terms remains to be seen. 

 For other discussion of the German FRAND decisions to date on this blog, see, e.g., here.

Wednesday, August 24, 2016

Two New Empirical Studies of Injunctions

1. Ryan T. Holte and Christopher B. Seaman have posted a paper on ssrn titled Patent Injunctions on Appeal:  An Empirical Study of the Federal Circuit's Application of eBay.  Here is a link to the paper, and here is the abstract:
Ten years after the U.S. Supreme Court’s 2006 seminal decision in eBay v. MercExchange, the availability of injunctive relief in patent cases remains hotly contested. For example, in a recent decision in the long-running litigation between Apple and Samsung, members of the U.S. Court of Appeals for the Federal Circuit sharply divided regarding whether an injunction was warranted to prevent Samsung from continuing to infringe several smartphone features patented by Apple. To date, however, nearly all empirical scholarship regarding eBay has focused on trial court decisions, rather than the Federal Circuit.
This article represents the first comprehensive empirical study of permanent injunction decisions by the Federal Circuit following eBay. Through an original dataset of appeals in nearly 200 patent cases — representing all cases involving contested permanent injunction decisions for a 7½ year period after eBay — we assess the impact of the Federal Circuit on the availability of permanent injunctions. The findings from this study indicate that the Federal Circuit is generally more favorable to prevailing patentees regarding permanent injunctive relief than the district courts following eBay. District courts that grant an injunction after a finding of liability are highly likely to be affirmed on appeal, whereas district courts that deny an injunction have a statistically significant lower affirmance rate. This suggests the Federal Circuit is generally inclined toward a property rule rather than a liability rule as a remedy against future patent infringement. It also appears to lend support to claims by scholars and others that the Federal Circuit, as a specialized court with a large number of patent cases, is more pro-patentee than the generalist district courts. Finally, some implications of this and other empirical findings from the study are considered.
2.  Kirti Gupta and Jay P. Kesan have posted a paper on ssrn titled Studying the Impact of eBay on Injunctive Relief in Patent Cases.  (This appears to be a substantial reworking of the paper by the same name that they posted a little over a year ago, which I mentioned on the blog here.)  Here is a link to the paper, and here is the abstract:
We find that the U.S. Supreme Court decision in eBay v. MercExchange has had a significant impact on injunctive relief in patent cases. Our extensive analysis with a significant dataset involving thousands of patent cases both pre- and post-eBay shows that the eBay decision has reduced, rather dramatically, both the level at which injunctive relief is sought in patent cases and the rate at which they are granted, particularly for preliminary injunctions. We find that all entities – practicing and non-practicing – are less likely to file for a motion of an injunction after eBay, and that this likelihood of filing for an injunction reduces at a higher rate for NPEs compared to PEs. Therefore, the fact that the rate at which injunctions are granted – calculated as a proportion of the total number of patent cases filed – is decreasing is clearly occurring due to the self-selection by patentees who are moving less often for an injunction.
We also study the impact of the eBay decision on the quality of patents for which injunctive relief is sought and the nature of the patent plaintiff (operating company vs. non-operating company) and their relative success rates with obtaining injunctive relief. We do find a statistically significant difference between some of the observable patent quality characteristics of the patents held by PEs vs. NPEs, for which a motion for an injunction is filed, but we find that NPEs tend to file a motion for an injunction for higher quality patents on average. We do not find that the overall quality characteristics of patents for which a motion for an injunction is filed has increased after eBay, which could have served as one potential mechanism of the self-selection by firms to seek injunctions only for slightly higher quality patents post-eBay.
By controlling for various patent and case level observable characteristics, we estimate whether or not the likelihood of obtaining an injunction varies across PEs and NPEs. We find that both for preliminary and permanent injunctions, NPEs are less likely to obtain an injunction, after controlling for patent characteristics and the length of the case (from filing to termination) throughout the 2000-2012 time period. We also find that the eBay ruling reduced the likelihood of all firms receiving either preliminary or permanent injunctions.
In order to understand whether or not the eBay ruling had a differential impact on PEs vs. NPEs, we utilize a diff-in-diff model. We find that the eBay ruling did not have a differential impact on the likelihood of NPEs to be granted a preliminary injunction as compared to PEs – in other words – the likelihood of being granted a preliminary injunction reduced equally both for NPEs and PEs post eBay. However, we do find a differential impact of the eBay ruling on PEs vs. NPEs for permanent injunctions. We find that NPEs are less likely to be granted a permanent injunction post-eBay compared to PEs, after eBay. In sum, this study raises important policy questions about the current diminished role for injunctive relief in patent cases.
This is an interesting paper, though I still wonder as I did last year why the authors' descriptive statistics for grants of permanent injunctions pre-eBay (which in the current draft never exceed 80.7% during any of the years studied) are so much lower than would ve suggested by the conventional wisdom that permanent injunctions were almost always granted to the prevailing patentee.  Is it because some motions for permanent injunctions were withdrawn prior to being adjudicated, as a result of settlement leading to the licensing of the patented technology?  

I also disagree with the authors' statement, toward the end of the paper, that "classic legal and economic theory suggests that patent courts should be agnostic regarding who owns the patents [that is, PE versus NPE] but rather rule upon the quality of the patents at issue and their infringement."  It seems to me, however, that NPEs on average would have a much harder time showing irreparable harm, inadequacy of a remedy at law, or that the balance of hardships favors them, than would a PE, since unlike many PE/competitors, NPEs are not, ultimately, interested in excluding the defendant from the market.  From an economic standpoint, I would also think that the risk of holdup on average tends to be greater with NPE litigation, much of which does not involve copying by the defendant but rather inadvertent infringement for which an injunction would enable the extraction of sunk costs (i.e., holdup).

Monday, August 22, 2016

CJEU Rules on Recovery of Attorney's Fees and Other Costs

I'm a little delinquent in reporting on this judgment, which came out on July 28 and was the subject of a post on IPKat on August 9, but so it goes.  The case is United Video Properties, Inc v Telenet NV, C-57/15, which as I reported back in April (here) involves the questions of whether Belgian law, which caps the recovery of attorneys' fees awarded to the successful party in litigation at a maximum of €30,000, and awards expenses for technical advisers only when the other party is at fault, is consistent with article 14 of the 2004 Enforcement Directive, which states that "Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this."  In the underlying litigation, the court awarded the prevailing defendant in a patent case just €11,000 in legal fees for the proceedings at each instance (so I guess €22,000 in total) and denied its request to be compensated for having retained a technical adviser, despite the fact that the defendant asserted actual legal fees of €185,462.55 and a technical adviser fee of €44,400.

More specifically, the questions referred were:

(1)      Do the terms “reasonable and proportionate legal costs and other expenses” in Article 14 of Directive 2004/48 preclude the Belgian legislation which offers courts the possibility of taking into account certain well-defined features specific to the case and which provides for a system of varying flat rates in respect of costs for the assistance of a lawyer?
(2)       Do the terms “reasonable and proportionate legal costs” and “other expenses” in Article 14 of Directive 2004/48 preclude the case-law which states that the costs of a technical adviser are recoverable only in the event of fault (contractual or extra-contractual)?
Regarding the first question, the CJEU concludes:
25.  . . . [L]egislation providing for a flat-rate of reimbursement of a lawyer’s fees could, in principle, be justified, provided that it is intended to ensure the reasonableness of the costs to be reimbursed, taking into account factors such as the subject matter of the proceedings, the sum involved, or the work to be carried out to represent the client concerned. This may be the case, in particular, if that legislation is intended to exclude the reimbursement of excessive costs due to unusually high fees agreed between the successful party and its lawyer or due to the provision, by the lawyer, of services that are not considered necessary in order to ensure the enforcement of the intellectual property rights concerned.
26      On the other hand, the requirement that the unsuccessful party must bear ‘reasonable’ legal costs cannot justify, for the purposes of the implementation of Article 14 of Directive 2004/48 in a Member State, legislation imposing a flat-rate significantly below the average rate actually charged for the services of a lawyer in that Member State. . . .
28      As regards . . . the requirement that account be taken the specific features of the present case, it is apparent from the very wording of the first question that the national legislation at issue in the main proceedings offers the courts, in principle, the possibility of taking account of those features.
29      However, . . . it must be stated that Article 14 of Directive 2004/48 provides that the legal costs to be supported by the unsuccessful party must be ‘proportionate’. The question of whether those costs are proportionate cannot be assessed independently of the costs that the successful party actually incurred in respect of the assistance of a lawyer, provided they are reasonable within the meaning of paragraph 25 above. If the requirement of proportionality does not imply that the unsuccessful party must necessarily reimburse the entirety of the costs incurred by the other party, it does however mean that the successful party should have the right to reimbursement of, at the very least, a significant and appropriate part of the reasonable costs actually incurred by that party.
30      Therefore, national legislation that lays down an absolute limit in respect of costs attached to the assistance of a lawyer, such as that at issue in the main proceedings, must ensure, on the one hand, that that limit reflects the reality of the rates charged for the services of a lawyer in the field of intellectual property, and, on the other, that, at the very least, a significant and appropriate part of the reasonable costs actually incurred by the successful party are borne by the unsuccessful party. It is not possible for such legislation, particularly in a situation in which that limit is too low, to prevent the amount of those costs vastly exceeding the limited provided for, so that the reimbursement which the successful party may claim becomes disproportionate or even, where applicable, insignificant, thus depriving Article 14 of Directive 2004/48 of its practical effect.
31      The conclusion in the preceding paragraph cannot be called into question by the fact that Article 14 of Directive 2004/48 excludes from its scope situations in which equity does not allow the legal costs to be borne by the unsuccessful party. That exclusion covers national rules allowing courts, in a specific case in which the application of the general scheme regarding legal costs would lead to a result considered unfair, to disregard that scheme by way of exception. On the other hand, equity, by its very nature, cannot justify a general unconditional exclusion of reimbursement of costs exceeding a specified ceiling. . . .
32      In the light of all the foregoing, the answer to the first question is that Article 14 of Directive 2004/48 must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which provides that the unsuccessful party is to be ordered to pay the legal costs incurred by the successful party, offers the courts responsible for making that order the possibility of taking into account features specific to the case before it, and provides for a flat-rate scheme for the reimbursement of costs for the assistance of a lawyer, subject to the condition that those rates ensure that the costs to be borne by the unsuccessful party are reasonable, which it is for the referring court to determine. However, Article 14 of that directive precludes national legislation providing flat-rates which, owing to the maximum amounts that it contains being too low, do not ensure that, at the very least, that a significant and appropriate part of the reasonable costs incurred by the successful party are borne by the unsuccessful party.
Regarding the second: 
39.  . . . [T]he costs of research and identification incurred in the context of actions covering, inter alia, a general observation of the market, carried out by a technical adviser, and the detection by the latter of possible infringements of intellectual property law, attributable to unknown infringers at that stage, do not appear to show such a close direct link. On the other hand, to the extent that the services, regardless of their nature, of a technical adviser are essential in order for a legal action to be usefully brought seeking, in a specific case, to have such a right upheld, the costs linked to the assistance of that adviser fall within ‘other expenses’ that must, pursuant to Article 14 of Directive 2004/48, be borne by the unsuccessful party.
40      In those circumstances, the answer to the second question is that Article 14 of Directive 2004/48 must be interpreted as precluding national rules providing that reimbursement of the costs of a technical adviser are provided for only in the event of fault on the part of the unsuccessful party, given that those costs are directly and closely linked to a judicial action seeking to have such an intellectual property right upheld.
So, in short, flat-rates are okay as long as they compensate "a significant and appropriate part of the reasonable costs" actually incurred, and technical adviser fees are compensable if they are "directly and closely linked to" the judicial proceeding at issue. 

The IPKat post raises an interesting question whether the  Draft Decision of the Administrative Committee of the Unified Patent Court on the Scale of Recoverable Cost Ceilings (June 16, 2016), which as I noted here  contemplates that the prevailing party generally will be able to recover its legal costs, up to certain specified levels, but also confers some discretion on the court to raise or lower these amounts under certain circumstances, would satisfy the CJEU's standard.

Thursday, August 18, 2016

Li on China's Qualcomm Decisions

Yan Bing Li has published an article titled Antitrust Concerns for Qualcomm's SEPs Package Licensing and Its Flexibility in China, 47 IIC 336-51 (2016).  Here is the abstract:
China's National Development and Reform Commission (NDRC) issued its first antitrust administrative sanction decision relating to SEP licensing in 2015, finding that Qualcomm had abused its dominant position int he CDMA, WCDMA and LTE wireless communication standard-essential patents (SEPs) licensing market and baseband chip sale market by: (a) charging unfairly excessive royalties, (b) unreasonably bundling SEPs licensing with non-SEPs, and (c) making the sale of baseband chips conditional upon the buyer signing a patent license agreement with a patent no-challenge clause and other unfair clauses.  As a result, Qualcomm was ordered to cease its abusive acts and was fined RMB 6.088 billion (approx. USD 975 million), the severest ever imposed by the NDRC or any other Chinese Anti-Monopoly Enforcement Authorities (AMEAs) under its Anti-Monopoly Law (AML).  This article provides a structured description of the NDRC's findings, explores the NDRC's two-step approach of "the rebuttable assumed dominance" for SEPs and its flexible antitrust approach to correct Qualcommon's SEPs package licensing practice, and lastly comments on the commercial and industrial significance of this decision in China and beyond.
Ms. Li discusses, among other matters, the royalty calculation to which Qualcomm agreed (5% for 3G devices and 3.5% for certain 4G devices, "using a royalty base of 65% of the net selling price of the device"), noting that "it remains to be seen whether China will achieve [the goal of reducing excessive SEP royalties] by adopting the narrowed calculation base of 'smallest saleable unit', or by settling for a lower royalty rate or reduced percentage of the net wholesale price of the entire device, or by determining on a case-by-case basis" (p.349).  She also states that the NDRC did not adopt a rule of per se illegality for post-expiration royalties (as in the U.S. under Brulotte and Kimble and as applied in Korea by the KFTC) (p.346).

Monday, August 15, 2016

Breaking News: Final Report of the BCLT Patent Damages Workshop Is Now Available

Stuart Graham, Peter Menell, Carl Shapiro, and Tim Simcoe have just posted the Final Report of the Berkeley Center for Law & Technology Patent Damages Workshop, available here.  I was pleased to participate in the workshop back in March, along with John Golden and many others whom I respect and admire.  Here is the authors' summary of the report:
On March 3, 2016, the Berkeley Center for Law & Technology hosted a day-long workshop on patent damages, one of the most important and contentious topics in patent law and policy. Organized by Professors Stuart Graham (Georgia Tech, Scheller College of Business), Peter Menell (BCLT Director and Berkeley Law), Carl Shapiro (Haas Business School at UC Berkeley), and Tim Simcoe (Boston University Questrom School of Business), the workshop brought together in-house counsel, litigators (from both the assertion and defense sides), patent licensing professionals, testifying expert witnesses, and academics (both law professors and economists). This report summarizes the discussion, key findings, and ramifications for patent case management. It includes a background memo summarizing patent damages law prepared by Professors Thomas Cotter (Univ. of Minnesota Law School) and John Golden (Texas Law). The organizers welcome feedback on this report and hope to continue a conversation with all interested parties regarding patent damages.
Anyone who's interested in the law and economics of patent damages ought to take a look at this report; and as the summary says, I'm sure the organizers would welcome feedback.  Comments welcome here too.