From Around the Blogs

1.  IPKat has two very interesting posts this morning, one on pending reforms to the law of "groundless threats" in the U.K. (a topic I previously mentioned on this blog here), and another on the possibility that smartphone wars may be brewing in China.

2.  The China-IPR Blog has a post on a draft Judicial Interpretation addressing the topic of preliminary injunctions in China.  For previous discussion on this blog on the topic of preliminary injunctions in China, see here, here, here, here, here, here, and here, as well as my book (pp. 351-52).      

3.  I mentioned the other day (here) that a Texas jury had awarded Smartflash a $530 million verdict against Apple.  Patently-O notes that the jury also found the infringement to be willful, which potentially could lead to an award of up to treble damages--though this is hardly automatic, and (who knows?) the law of willful infringement itself may be in flux (see discussion here).  Meanwhile, Smartflash has filed another suit against Apple (see here).  Smartflash also has claims pending against Samsung.

Feldman & Lemley on Patent Licensing

Robin Feldman and Mark Lemley have posted a very interesting paper on ssrn titled Does Patent Licensing Mean Innovation?  Here is a link to the paper, and here is the abstract:

A commonly offered justification for patent trolls or non-practicing entities (NPEs) is that they serve as a middleman facilitating innovation, bringing new technology from inventors to those who can implement it. We survey those involved in patent licensing to see how often patent licenses actually led to innovation or technology transfer. We find that very few patent licenses from assertion actually lead to new innovation; most are simply about paying for the freedom to keep doing what the licensee was already doing. Surprisingly, this is true not only of NPE licenses but even of licenses from product-producing companies and universities. Our results cast significant doubt on one common justification for patent rights.

The authors are careful to note the limitations of their survey (sample size, response rate, etc.) and the need for more follow-up research.  They also note that their results do not demonstrate that universities are not engaged in technology transfer (e.g., through startups), and do not call into question the "classic justification for patents," i.e., "to allow practicing entities to exclude competitors from the marketplace"; and that their survey does not examine cross-licensing between competitors, or licensing initiated by a product company approaching a patent holder.  Nevertheless, as they state, the "preliminary picture" obtained from the survey does not support the hypothesis that patent owner-initiated licensing (whether by NPEs or not) spurs very much technology transfer.

If these results are generalizable and supported by further empirical evidence, the implications for patent law could be profound.  As for patent remedies in particular, one of the standard law-and-economics rationales for awarding injunctions is that injunctions (a "property rule," to use the Calabresi-Melamed terminology) encourage voluntary bargaining.  But if a wide swath of infringement arises from independent invention (which appears to be the case) and licensing does not lead to additional tech transfer, the virtues of voluntary bargaining in such cases seem elusive.  Perhaps one could argue as well (in the vein of Ted Sichelman) that in many cases damages in the form of reasonable royalties need not be fully compensatory--what a willing licensor and licensee would have agreed to ex ante--because such damages often constitute nothing more than a tax on innovation.  Nevertheless, the various possible critiques of such an argument (rule-of-law, courts cannot easily formulate a better alternative measure of damages, there are better ways to address the problem than through modifying damages law) may remain.  

Anyway, it's a very provocative paper, and one that will garner considerable attention in the weeks to come.

Texas Jury Awards $533 Million in Damages Against Apple

The plaintiff, a patent licensing company called Smartflash, alleged that Apple's iTunes software infringed three Smartflash patents.  Here are links to reports from The Verge, Reuters, Bloomberg Business, and Law360.  Presumably the next stage will be post-trial motions.

Hat tip to my student Susan Hahn for bringing this to my attention. 

Objective Reasonableness Remains Relevant Even After Octane Fitness

In Biax Corp. v. Nvidia Corp., a nonprecedential opinion published today (link here), the Federal Circuit reversed a judgment awarding attorneys' fees to the prevailing defendants.  In 2010, the district court entered claim construction orders concerning the patents in suit (which relate to parallel processing computer systems), and in 2012 it granted summary judgment of noninfringement to the defendants.  The Federal Circuit (in an earlier appeal) affirmed without opinion.  While that appeal was pending, the district court granted attorneys' fees to the defendants under 35 U.S.C. § 285 (exceptional case), under the then-prevailing Brooks Furniture standard (objective baselessness and subjective bad faith).  Specifically:

The district court found objective baselessness and bad faith (based on the continued assertion of an objectively baseless claim) and awarded fees for the period between Biax’s expert’s deposition and the district court’s summary judgment decision. The district court reasoned that its 2010 claim construction orders foreclosed Biax’s infringement contentions, but that Biax nonetheless continued to pursue litigation until the court issued its summary judgment order in 2012. Specifically, the district court found that Biax’s litigation position was objectively baseless because Biax “persistent[ly] disregard[ed] . . . the Court’s unambiguous statements in orders,” and that Biax “aggressively pursu[ed] this litigation [in the district court], even after the unequivocal statement of its own expert that defendants’ devices could not infringe the asserted patents . . . .” J.A. 13. On these findings, the district court awarded fees from the time Biax’s expert (supposedly) admitted that Biax had no infringement position under the district court’s claim construction orders to the time when the district court decided summary judgment.

The defendants also sought an award of fees against the plaintiff's trial counsel under 28 U.S.C. § 1927.  This latter statute reads "Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." The district court denied that request, however, on the ground that trial counsel "did not 'exceed[] the bounds of zealous advocacy.' J.A. 22."  

Biax appealed, and the defendants cross-appealed the denial of the § 1927 motion.  While the appeals were pending, the Supreme Court decided Octane Fitness and Highmark (for previous discussion on this blog, see here.)  Octane Fitness overruled the Brooks Furniture standard, which it viewed as "overly rigid," and held instead that "District courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances"; it also held that the standard of proof is preponderance of the evidence, not clear and convincing evidence.  Highmark further holds that the standard of appellate review is abuse of discretion. 

These changes notwithstanding, Judge Dyk (writing for the panel) observes that "objective reasonableness remains a relevant factor."  Reviewing the evidence, the court concludes that, even after the 2010 claim construction, the plaintiff had an objectively reasonable basis for pursuing its infringement theory, concluding among other things that "the district court misread the [plaintiff's] expert’s testimony" and that "the district court’s pre-summary judgment claim construction [did not] foreclose Biax’s infringement position."  As a result:

Because neither the expert testimony nor the claim construction orders foreclosed Biax’s position and there was nothing unreasonable about Biax’s infringement position, the basis for the district court’s award of fees no longer exists. Thus, even applying the deferential standard of review under Highmark, the district court’s fee award must be set aside. In some cases decided under the old Brooks Furniture standard, we have remanded for the district court to consider whether the case is “exceptional” in light of the new Octane Fitness standard. See, e.g., Checkpoint Sys., Inc. v. All-Tag Sec. S.A., 572 F. App’x 988 (Fed. Cir. 2014). A remand is not necessary here because neither the defendants nor the district court has suggested any basis for awarding fees other than the lack of objective reasonableness, and the resulting bad faith from continuing to litigate an objectively baseless position. Therefore, we reverse rather than vacate the fee award.

The court also affirmed the denial of fees under § 1927.

Larouche and Zingales on Injunctions and Standard Essential Patents

Pierre Larouche and Nicolo Zingales have published a paper titled Injunctive Relief in Disputes Related to Standard-Essential Patents: Time for the CJEU to Set Fair and Reasonable Presumptions in 10 European Competition Law Journal 551 (2014).  Here is a link to the paper (there is also a version on ssrn here), and here is the abstract:

Should injunctive relief be available to the holder of a Standard-Essential Patent (SEP) which committed to license on fair, reasonable and non-discriminatory (FRAND) terms, in order to prevent a third-party implementer from practicing a standard reading on that SEP, when that implementer is willing to take a license but the parties disagree on the terms of the license? This paper focuses on the peculiar European dimension of this debate. It examines how Directive 2004/48 on the enforcement of intellectual property rights, while topical, has been implemented and applied in diverging ways across leading Member States. EU competition law can be used fill in that harmonization gap. The paper reviews the recent Motorola and Samsung decisions of the Commission, and sets out the issues in Huawei v. ZTE, now pending before the Court of Justice of the European Union (CJEU). The CJEU should be aware of the broader role and impact of EU competition law in these matters, and should seek to use its impending judgment to set the right presumptions for the application of competition law in SEP disputes involving FRAND commitments. 

Although I ultimately disagree with some of the authors' conclusions (among them that holdup is "exceptional"), the paper is quite interesting, in particular for its discussion of the conditions for obtaining permanent and preliminary injunctions in England, Italy, France, Germany, and the Netherlands.  Given some differences among these jurisdictions regarding the conditions under which injunctive relief is appropriate, the authors argue that using European competition law to address the question of when SEP owners may seek injunctions may help to harmonize the approach to this question.  I'll have to give this some more thought; it is an issue that had not occurred to me in my previous musings on the advantages of applying competition law versus the law of patent remedies to this question.  

I also appreciate the authors' cite to this post from the blog (see p.573 n.108), although I think they may be confusing me with the eminent Professor Thomas Cottier, an international IP scholar at the University of Bern.  (It's happened before, and Professor Cottier is a highly esteemed scholar, so I don't mind.)  To date, I don't think I've been confused with this Thomas Cotter, who appears to be doing great work in biochemistry; or with this fellow, though I understand he's pretty funny.

     

Hoppe-Jänisch on Important German Patent Cases Since 2013 (Part 2)

I mentioned last month (here) that Daniel Hoppe-Jänisch had recently published an article titled Die Rechtsprechung der Instanzgerichte zum Patent- und Gebrauchsmusterrecht seit dem Jahr 2013 ("The Patent and Utility Model Case Law of the Lower Courts Since 2013") in the December 2014 issue of GRUR RR.  My previous post provided a brief overview of Mr. Hoppe-Jänisch's discussion of some recent German cases on injunctions and royalties, and stated that I might return to some of the other topics discussed in the paper in a future post.  (Since then, Mr. Hoppe-Jänisch has sent me an English-language version of the article, which I believe will be published sometime in the near future.  The quotes below are from this version of the paper.)

The portion of the paper on preliminary injunctions states, among other matters, that in pharmaceutical patent litigation German courts sometimes have "waived the requirement of a positive decision on the patent's validity as evidence for a sufficient legal validity," because of the "often . . . enormous damage the generics companies would cause if the patent would later be upheld."  (Recall that, in Germany,  infringement and validity are bifurcated, but that courts are hesitant to award preliminary injunctions absent some indication that the patent is valid.)  Nevertheless, according to Mr. Hoppe-Jänisch, the Düsseldorf District Court has indicated that such a waiver is not appropriate in other pharmaceutical patent cases--typically "the patent must have already survived opposition or nullity proceedings"--nor, according to a different case from that same court, is a waiver appropriate when the moving party asserts, as a basis for the preliminary injunction, only an unexamined utility model.

Another requirement for obtaining a preliminary injunction in Germany is urgency (Dringlichkeit).  One of the cases Mr. Hoppe-Jänisch discusses on urgency is a decision of the Hamburg District Court holding that the mere fact that a product has been advertised at a trade fair in another country is not sufficient to demonstrate an urgent need for a preliminary injunction in Germany.  (However, there is a split of opinion on this issue.) 

On the issue of stays, the Karlsruhe Oberlandesgericht held that a "qualified note" (qualifizierter Hinweis) or "interim assessment of the merits" from the Bundespatentgericht questioning the validity of the patent in suit usually leads to a stay of execution.  In addition, the Düsseldorf District Court in another case held that a "one product company" is not necessarily faced with irreversible harm (thus potentially justifying a stay under section 712 of the Civil Code), if there are alternative embodiments available to it. 

I'll provide more information on publication of the English-language version of the paper when it becomes available to me.  For previous discussion of preliminary injunctions in Germany on this blog, see here,  here, and here.

Nakamura on Patent Damages in Japan

Nodoka Nakamura has published a paper in the November 2014 issue of A.I.P.P.I.--Journal of the Japanese Group of AIPPI titled Recent Trends in Court Judgments Concerning Damages in Japanese Patent Infringement Litigations (pp.  389-410).  Ms. Nakamura ‘s study is based on her review of court judgments handed down from January 1, 2003 to January 30, 2014, and listed in the appendix to the article.  As such it provides a very useful  description of current Japanese case law relating to lost profits, infringers’ profits, and reasonable royalties.

As Ms. Nakamura explains, article 709 of the Japanese Civil Code article 709 provides a general right to recover compensatory damages for the violation of one’s rights, but in practice it is very difficult for patent owners successfully to invoke this provision.  (See also my book, pp.307-08, 310).  In response to this problem, the Patent Act itself includes article 102, paragraphs 1-3 of which in relevant part read as follows:

    (1) Where a patentee or an exclusive licensee claims against an infringer compensation for damage sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, and the infringer assigned articles that composed the act of infringement, the amount of damage sustained by the patentee or the exclusive licensee may be presumed to be the amount of profit per unit of articles which would have been sold by the patentee or the exclusive licensee if there had been no such act of infringement, multiplied by the quantity (hereinafter referred to in this paragraph as the “assigned quantity”) of articles assigned by the infringer, the maximum of which shall be the amount attainable by the patentee or the exclusive licensee in light of the capability of the patentee or the exclusive licensee to work such articles; provided, however, that if any circumstances exist under which the patentee or the exclusive licensee would have been unable to sell the assigned quantity in whole or in part, the amount calculated as the number of articles not able to be sold due to such circumstances shall be deducted.

    (2) Where a patentee or an exclusive licensee claims against an infringer compensation for damage sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, and the infringer earned profits from the act of infringement, the amount of profits earned by the infringer shall be presumed to be the amount of damage sustained by the patentee or exclusive licensee.

    (3) A patentee or an exclusive licensee may claim against an infringer compensation for damage sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, by regarding the amount the patentee or exclusive licensee would have been entitled to receive for the working of the patented invention as the amount of damage sustained.

Thus, the first paragraph provides for the recovery of lost profits; the second for an award of the infringer’s profits (seen, however, as an alternative way of calculating the plaintiff’s actual loss); and the third for a reasonable royalty.

I recommend that readers interested in Japanese law take a look at the entire paper, but here are few highlights drawn from Ms. Nakamura’s discussion of the recent cases:

1.  In calculating lost profits under article 102(1), it is no longer the case that the patent owner must be selling products incorporating the patented technology.  Rather, it is sufficient if the patentee sells products that compete with the infringing products (see p.393; see also my book pp. 318, 324).  The paper also provides an overview of the case law on what costs should be deducted to determine the patentee’s profit margin (pp. 394-95).  In addition, as Ms. Nakamura discusses courts make may further deductions by taking into account whether there are circumstances suggesting that the patentee would not have made as many sales as the defendant, and the extent to which the patent contributes to the patentee’s profit margin (including “the technical significance of the invention” and “alternative technology”) (p.396).  In the majority of cases, these deductions amount to almost all (95-100%) or very little (1-20%), with “almost no court judgments where an intermediate value was used” (p.397).

2.  Courts consider similar factors in determining the defendant’s profit margin and the contribution of the invention to the defendant’s profits (pp. 398-401).  In addition, the recent case law holds that, as under article 102(1), damages under article 102(2) are available even if the patentee does not sell products embodying the patented technology, as long as the patentee sells products that compete with the infringing products (p.398; see also my previous discussion of this issue on this blog, here).

3.  In cases in which the patentee would not have made as many sales as the defendant made, Japanese courts have not awarded a reasonable royalty on the infringing sales that did not deprive the patentee of sales (pp.397, 401).  My own view is that this is not a sound economic result (see my book pp. 317-18); I still intend to do further research on how other countries handle this issue.  (in the U.S., the patentee could get a royalty on the infringing sales that did not displace its own sales.)

4.  Ms. Nakamura gives a good overview of the factors Japanese courts take into account in determining reasonable royalties (p.403), including some which appear to be of the “ex post” variety.  Interestingly, he concludes (p.404) that “there has not been a trend for the court to decide a higher royalty rate than those decided prior to” a 1999 statutory amendment that removed the word tsujono (“normally”) from what is now article 102(3).  For discussion in my book, see pp. 311, 321-22.