Principles and Guidance for Licensing SEPs in 5G and IoT

Last week IP Europe Alliance--an association whose larger corporate members include, among others, Ericsson, Nokia, and Qualcomm--released a draft CEN-CENELEC Workshop Agreement (CWA) titled "Principles and Guidance for Licensing Standard Essential Patents in 5G and the Internet of Things (IoT)."  Here is a link to the press release, and here is a link to the CWA itself.  The document is open for public comment until December 13 (see the press release for more information).  Here are the six principles:

Principle 1: Owners of patent rights which are essential for using standardised technologies (SEPs) should allow access to that patented technology for implementing and using the standard.
Principle 2: Both the SEP owner and the potential licensee should act in good faith with respect to each other with the aim of concluding a FRAND licence agreement in a timely and efficient manner.
Principle 3: Each party should provide to the other party, consistent with the protection of confidentiality, information that is reasonably necessary to enable the timely conclusion of a FRAND licence.
Principle 4: "Fair and reasonable" compensation should be based upon the value of the patented standardised technology to its users.
Principle 5: A SEP owner should not discriminate between similarly situated competitors.
Principle 6: If the parties are unable to conclude a FRAND licence agreement within a reasonable 1 timeframe they should seek to agree to third party determination of a FRAND licence either by a 2 court or through binding arbitration.

Each principle is followed by Guidance.  For example, Principle 2's Guidance states:

• When a SEP owner believes that a party implementing a standard is infringing its SEPs and would  require that party to take a licence, the SEP owner should notify that party, describe the alleged  infringement and ask it to enter into negotiations over a FRAND licence.
• The SEP owner should provide the potential licensee with information about its SEP portfolio and  why a licence is needed.
• The SEP owner should make an initial licence offer, and explain why it believes that the offer is  FRAND. If the potential licensee does not agree, it should promptly provide a counter-offer, and  explain why it believes that the SEP owner's offer is not FRAND and that its counter-offer is  FRAND.
• The potential licensee is free to challenge the essentiality or validity of the SEP owner's patents, in parallel to the negotiation, but that should not be used to unnecessarily delay negotiations over a licence. 

Principle 4's Guidance discusses compensation:

• Fair and reasonable compensation balances the incentive to contribute technology to standards with the cost of access to the standardised technology.
• Fair and reasonable compensation should be evaluated considering the facts and circumstances  that reasonable commercial parties would take into account when negotiating a patent licence.
• Comparable licences which result from commercial negotiations are often reliable indicators for  determining the value of the patented standardised technology to users of the licensed product or service.
• Other indicators which may be considered include consumer demand, measurable benefits of the patented standardised technology, and the price difference between substantially identical products with and without the standardised technology.
• As a cross-check when evaluating whether compensation is fair and reasonable, the aggregate of  fair and reasonable royalties likely to be borne by users for the standard concerned may also be  considered.
• Such aggregate royalties may be too high if wide access to the standard is prevented or too low if  the royalties are not sufficient to incentivise the contribution of technology to standards.

The draft concludes with a series of questions and answers (e.g., "What is a patent?"  "What is an injunction and how might this affect my organisation?").

For further discussion, see Joff Wild's recent write-up on the IAM blog here.

Damages for Extraterritorial Losses: Does WesternGeco Overrule Power Integrations?

As readers will recall, a few months back the Supreme Court in WesternGeco v. ION held that

Under the Patent Act, a company can be liable for patent infringement if it ships components of a patented invention overseas to be assembled there. See 35 U.S.C. § 271(f)(2). A patent owner who proves infringement under this provision is entitled to recover damages. § 284.The question in this case is whether these statutes allow the patent owner to recover for lost foreign profits. We hold that they do.

In my blog post on the decision, I wrote:

So, suppose we have a replay of Power Integrations or Carnegie-Mellon.  The infringing conduct at issue is a manufacture, use, or sale that occurs in the United States, in violation of § 271(a), but which triggers a chain of events resulting in (1) the U.S. patent owner losing a sale to the defendant in another country, or (2) the defendant obtaining higher profits on the sales it makes in another country.  Is the U.S. patent owner entitled to its lost profit in case (1), or a higher reasonable royalty in case (2), as long as the causal chain is not too remote--that is, as long as the sales the defendant made abroad were proximately caused by the infringement?  As I've noted previously, I've come around to the view that the answer is yes, and I'm inclined to read Justice Thomas's statements as quoted above as supporting that result.  He says that the "focus" of § 284 is "the infringement," and that § 284 is intended to provide "full compensation" for such infringement; and  § 271(a) defines infringement as the unauthorized domestic manufacture, sale, or use of the patented invention.  In other words, "the conduct relevant to" § 284's "focus" is domestic conduct, and as long as that is so § 284 provides for full compensation for the harm flowing from that domestic conduct (subject, surely, to normal proximate cause limitations, even if the Court stubbornly refuses to address that topic).  So there's no need to fret about whether whether the presumption against extraterritoriality applies, I guess.

On October 4, Judge Leonard Stark (D. Del.) reached the same conclusion.  (Hat tip:  Michael Risch.)  In ruling on what he construes as a motion for relief from judgment pursuant to Fed. R. Civ. P. 60(b)(6), Judge Stark writes in Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc.:

In the Court's view, the Supreme Court's WesternGeco II decision implicitly overruled the Federal Circuit's Power Integrations opinion. . . . The Supreme Court's analysis of  the patent damages statute, § 284, has equal applicability to the direct infringement allegations pending here, as governed by§ 271(a), as it did to the supplying a component infringement claims at issue in WesternGeco II, which were governed by§ 271(f)(2). Fairchild has identified no persuasive reason to conclude that the interpretation of § 284 should differ here from what was available in WesternGeco II just because the type of infringing conduct alleged is different. Instead, as Power puts it, "Section 271(a) 'vindicates domestic interests' no less than Section 271(f)." (D.I. 977 at 2) (quoting WesternGeco II, 138 S. Ct. at 2138). Moreover, the Federal Circuit's WesternGeco I decision was based almost entirely on the Federal Circuit's Power Integrations decision. It logically follows that when the Supreme Court expressly overruled WesternGeco I it also implicitly overruled Power Integrations.

Judge Stark also certified the issue for interlocutory appeal.

Taking a decidedly different view is Professor Tim Holbrook, who in a paper he just posted to ssrn titled Extraterritoriality and Proximate Cause after WesternGeco, writes in the abstract:

The Supreme Court’s decision WesternGeco LLC v. ION Geophysical Corp. appeared to be a narrow case about a rather obscure patent law provision. In reality, however, it had the potential to reach into a number of trans-substantive areas, including the nature of compensatory damages, proximate cause, and extraterritoriality. Instead of painting with a broad brush, the Supreme Court opted to take a modest, narrow approach to the issue of whether lost profits for foreign activity were available to a patent holder for infringement under 35 U.S.C. § 271(f)(2). In addressing this issue, the Court utilized its two-step framework for assessing the extraterritorial reach of U.S. law adopted in RJR Nabisco Inc. v. European Community. The Court skipped step one, but its analysis of step two confirmed that the territorial limits of damages is tied to the corresponding liability provision. Ultimately the Court allowed the damages for the relevant foreign activity.

This decision clarified a few things about the extraterritorial application of US law. By skipping step one, the Court made it clear that the presumption against extraterritoriality is distinct from the focus analysis of step two. The Court passed on the opportunity to further elaborate on step one and to answer definitely whether the presumption applies to remedial provisions. The Court also elaborated on step two and embraced a methodology that tied extraterritorial reach of a general remedy provision to the corresponding liability provision.

The Court’s decision also leaves a number of questions open. Specifically, it remains unclear whether the Federal Circuit’s Power Integrations and Carnegie Mellon decisions survive WesternGeco. I contend that they do, in disagreement with other professors. The Court also failed to explore the important role that proximate cause may play in future patent cases, particularly those involving global theories of damages, and issue that I take up here. The Federal Circuit could – and should – embrace a narrower conception of proximate cause to limit these types of global theories of patent damages.

Law360 also has an article on the Power Integrations order, available (by subscription) here.

In other news, IPKat reports that the England and Wales Court of Appeal will publish its opinion in Unwired Planet v. Huawei on Tuesday, October 23.  I guess that will give me something to read on my flight home after the FTC hearing that morning . . . .

McGuire on FRAND

I mentioned a few weeks back that Professor Mary-Rose McGuire had published titled Wer bestimmt, was FRAND ist?  Über Rahmenbedingungen, Maßstab und Zuständigkeit für die Beurteilung der FRAND Konformität ("Who decides what FRAND is?  On conditions, standards, and jurisdiction for the determination of FRAND conformity"), in the July-August 2018 issue of Mitteilungen der deutschen Patentanwälten (pp. 297-308).  Here is my translation of the abstract:

With the Standard-Spundfass, Orange-Book-Standard, and Huawei/ZTE decisions, the case law has developed a roadmap for the assertion of the competition-law based compulsory license defense, which simulates the typical sequence of licensing negotiations.  So long as the rightsholder submits a FRAND-offer, the compulsory license defense should succeed only if--in order to avoid delay tactics--if the prospective licensee responds appropriately to it, that is, proves its willingness to license by rendering an accounting and posting security.  In place of accepting the offer, the prospective licensee can also present its own counteroffer.  This raises the question, what happens, if both rightsholder and prospective licensee submit FRAND offers, but cannot reach agreement.  This article addresses the open question, whether the court hearing the infringement action can determine FRAND-conformity, or even--as represented by the UK Patent Court in Unwired Planet--must set a concrete royalty rate.  To adopt the latter procedure, however, would unnecessarily jeopardize the efficiency of the infringement process.

I stated that I might have more to say about the article after I had reviewed it more carefully, so here is the gist.  Professor McGuire argues, among other things, that the terms "fair, reasonable, and nondiscriminatory" each have specific meanings in other bodies of law, which should inform the analysis of what they mean in this context.  Specifically, she argues that "fair" is distinct from "reasonable" and is a procedural concept, requiring the parties to have access to the same information (and thus ties into the CJEU's requirement that the patent holder make the implementer an offer prior to filing suit).  "Reasonable," by contrast, is more of a result-oriented, contract-law concept, and should be read in a manner that will provide the patent owner a lawful return on its investment.  She is not enthusiastic about having courts determine FRAND rates--indeed, doesn't think that this would be an appropriate job for a German court hearing an infringement case--but rather views the Huawei/ZTE framework as a tool for encouraging the parties to work things out on their own.  Under this view, the courts' authority is limited to determining whether each party has presented the other with FRAND-conforming terms.  She thus takes issue with other authors, including Kurtz & Straub (see here)--and, I would imagine, Schaefer & Czychowski, whose article came out at about the same time as Professor McGuire's--who would like German courts to determine FRAND royalties, based on a top-down method or something similar.  Professor McGuire argues that such methodologies would be antithetical to the contractual framework of the FRAND commitment, and would require statutory authorization (of the type Schaefer & McGuire contemplate, perhaps).  She concludes that, if both parties exchange FRAND offers but cannot reach agreement (including an agreement to have a third party determine the terms), the patent owner cannot obtain an injunction (as long as the defendant is complying with its obligations under Huawei) but (if I am understanding correctly) could recover normal patent damages for any resulting infringement.  Perhaps those damages could exceed the FRAND royalty, e.g., if they were in the nature of disgorgement of the defendant's profits?

FTC Hearings on Competition and Consumer Protection

I mentioned recently that the Federal Trade Commission is in the process of holding a series of Hearings on Competition and Consumer Protection in the 21st Century, and that I would be participating in the hearing on Innovation and Intellectual Property Policy on October 23.  The Commission has now posted its press release and agenda.  From the press release:

The Federal Trade Commission announced the agenda for the fourth session of its Hearings initiative, with two full days to be held at the FTC in Washington D.C. on October 23-24, 2018.

The two-day event will examine the role of intellectual property in promoting innovation from academic, economic, and industry perspectives The sessions also will examine emerging trends in patent quality and litigation, and will include the FTC’s first wide-scale exploration of copyright issues. Drew Hirshfeld, Commissioner for Patents for the U.S. Patent and Trademark Office, will present a keynote address on October 24. See detailed agenda.

The Commission invites public comment on these issues, including on the questions listed below. Comments can be submitted electronically no later than December 21, 2018.

1. Is there a role for the government in advancing or supporting innovation?
2. What is the importance of intellectual property – all forms – in advancing, protecting, and supporting innovation? Does it differ because of industry-specific or other market-based factors, or because of the form of intellectual property?
3. How does modern economic analysis and empirical literature view the relationship between intellectual property and innovation, and the role of government in advancing and supporting innovation? Are there differences that depend on the type of intellectual property, and the protections offered for that intellectual property?
4. How can the FTC use its enforcement and policy authority to advance innovation? What factors should the FTC consider in attempting to achieve this objective?
5. What are emerging trends in patent quality and litigation issues? Should these trends influence the FTC’s enforcement and policy agenda?
6. How should the current status of copyright law and current business practices influence the FTC’s enforcement and policy agenda?

Additional sessions of the FTC Hearings initiative will be held throughout the fall and early winter. An initial list of remaining sessions and topics follows, and additional sessions and topics will be announced later . . . .

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On a personal note, I would like to note that today marks the publication of the 1,000th post on this blog.  Milestones like this are arbitrary, but I still feel like celebrating a bit . . . .

Some Recent German Articles on FRAND-Related Topics

1. Martin Schaffer and Christian Czychowski have published a paper titled Wer bestimmt, was FRAND ist?, in the June 2018 issue of GRUR (pp. 582-85).  Here is the abstract (my translation from the German):

To determine the meaning of FRAND is surely one of the most difficult questions in patent law.  In this regard, copyright law has addressed similar questions regarding the licensing of mass uses.  Moreover, section 23 of the Patent Law already offers in its valuation model the possibility of drawing FRAND declarations into the patent licensing system.  This should be accomplished, however, in the context of an action for rate-setting and dispute resolution.  The following contribution offers some preliminary ideas.

In case you're not familiar with the aforementioned article 23, here is a translation of it from WIPO's website: 

(1) Where a patent applicant or the person entered in the Register as the proprietor of the patent (section 30 (1)) declares to the German Patent and Trade Mark Office in writing that he is willing to allow anyone to use the invention in return for equitable remuneration, the annual renewal fees due in respect of the patent following receipt of the declaration shall be reduced to one half. The declaration shall be recorded in the Register and published in the Patent Gazette (Patentblatt).

(2) The declaration shall be inadmissible as long as there is an entry in the Register regarding the grant of an exclusive licence (section 30 (4)) or an application is pending before the German Patent and Trade Mark Office for such entry to be made.

(3) Any person who, subsequent to the declaration being entered, wishes to use the invention shall inform the proprietor of the patent of his intention. The information shall be deemed to have been effected if it has been dispatched by registered letter to the person entered in the Register as the proprietor of the patent or to his registered representative or the person authorised to accept service (section 25). The information shall indicate how the invention is to be used. Subsequent to the information, the informing party shall be entitled to effect use in the manner he has indicated. He shall be obliged, after the expiry of each calendar quarter, to inform the proprietor of the patent of the use effected and to pay the remuneration for that use. If he does not fulfil this obligation in due time, the person registered as proprietor of the patent may set him a reasonable extension of time for payment and, following expiry without the obligation being fulfilled, may prohibit further use of the invention.

(4) The remuneration shall be fixed by the Patent Division upon the written request of a party. Sections 46, 47 and 62 shall apply mutatis mutandis to the procedure. The request may be directed against more than one party. When fixing the amount of the remuneration the German Patent and Trade Mark Office may make an order requiring the party opposing the request to bear the costs of the procedure in whole or in part.

(5) After the expiry of a period of one year following the last fixing of remuneration, any party affected thereby may apply for its adjustment if in the meantime circumstances have arisen or become known which make the remuneration fixed appear obviously inappropriate. In other respects, subsection (4) shall apply mutatis mutandis.

(6) Where the declaration is made in respect of an application, the provisions of subsections (1) to (5) shall apply mutatis mutandis.

(7) The declaration may be withdrawn in writing vis-à-vis the German Patent and Trade Mark Office at any time, as long as the proprietor of the patent has not been informed of any intention to use the invention. The withdrawal shall take effect when it is filed. The sum by which the annual renewal fees have been reduced shall be paid within one month of the withdrawal of the declaration. If the difference is not paid within the time limit specified in the third sentence, it may still be paid together with the surcharge for late payment before the expiry of a period of a further four months.

The U.K. has a similar "license of right" provision in section 46 of its patent law.  Anyway, Drs. Schaffer and Cychowski argue that something along these lines could be used to determine FRAND rates.  If I understand correctly, the proposal would be for SEP owners to establish voluntary agents (analogous to collective rights organizations in copyright) to grant nonexclusive licenses on a standard-wide basis.  The authors recognize that for such a proposal to work, there would have to be a critical mass of owners willing to participate.

2.  Maximilian Haedicke has published an article titled Vorlagepflichten und Schutz vetraulicher Informationen im Patentverletzungsprozess ("Submission requirements and protection of confidential information in patent infringement proceedings") in the June 2018 issue of Mitteilungen der deutschen Patentanwälten (pp. 249-55).  Here is the abstract (again, my translation):

Recently, interest has intensified surrounding the question of how to protect confidential information in patent infringement proceedings.  Comprehensive legal means for the protection of secret information are not in place.  Nevertheless, it is important to achieve a balance among the protection of litigants, especially their right to a legal hearing, the claim to access to justice, and also the public interest in transparent jurisprudence and legal development.  This essay is intended to discuss, under what conditions potentially confidential information is introduced in patent litigation, whether it is adequately protected, and what improvements should be considered.

For previous reference on this blog to this topic, which is becoming important in FRAND matters in Germany, see here and here.

3. Michael Nieder has published an article titled SEP-Lizenzen-ein Fall für die Gesamtgläubigerschaft? ("SEP Licenses:  A Case for Joint Creditorship?"), in the July 2018 issue of GRUR (pp. 666-70).   Here is the abstract in my translation:

In SEP proceedings the FRAND license plays a prominent role.  Different answers have been proposed to the question of how to avoid overburdening implementers with royalty payments when there are a large number of claimants.  The author proposes the use of rules for joint creditorship for resolving the accumulated license claims of SEP owners up to the aggregate royalty burden.

If I'm understanding correctly, the procedure the author envisions, based on sections 428 and 430 of the BGB (the German Civil Code), strikes me as functionally somewhat similar to the proposal made a couple of years ago by Bartlett and Contreras for resolving FRAND disputes through use of interpleader.

Romer and Nordhaus Are Awarded the 2018 Nobel in Economics

This morning the Royal Swedish Academy of Sciences announced that it has awarded the 2018 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to U.S. economists Paul Romer and William Nordhaus.  The Academy noted Professor Nordhaus's contributions to the economics of climate change in particular, stating in its press release:

Nordhaus’ findings deal with interactions between society and nature. Nordhaus decided to work on this topic in the 1970s, as scientists had become increasingly worried about the combustion of fossil fuel resulting in a warmer climate. In the mid-1990s, he became the first person to create an integrated assessment model, i.e. a quantitative model that describes the global interplay between the economy and the climate. His model integrates theories and empirical results from physics, chemistry and economics. Nordhaus’ model is now widely spread and is used to simulate how the economy and the climate co-evolve. It is used to examine the consequences of climate policy interventions, for example carbon taxes.

In my view it's hard to think of a more timely award, given that the United Nations Intergovenmental Panel on Climate Change now predicts that severe consequences of climate change will be felt as early as 2040.  (See discussion here.)  For a good popular discussion of the topic by Professor Nordhaus himself, see his 2012 article Why the Global Warming Skeptics Are Wrong in the New York Review of Books.

As for Professor Romer, his contributions to economics are more closely related to the subject of this blog, in that they model how technology drives economic growth. Again, from the press release:

Romer demonstrates how knowledge can function as a driver of long-term economic growth. When annual economic growth of a few per cent accumulates over decades, it transforms people’s lives. Previous macroeconomic research had emphasised technological innovation as the primary driver of economic growth, but had not modelled how economic decisions and market conditions determine the creation of new technologies. Paul Romer solved this problem by demonstrating how economic forces govern the willingness of firms to produce new ideas and innovations.

Romer’s solution, which was published in 1990, laid the foundation of what is now called endogenous growth theory. The theory is both conceptual and practical, as it explains how ideas are different to other goods and require specific conditions to thrive in a market. Romer’s theory has generated vast amounts of new research into the regulations and policies that encourage new ideas and long-term prosperity.

If any of my current or former students are reading this, if you take a look at the Swedish Academy's further discussion of Professor Romer's work in its Popular science background: Integrating nature and knowledge into economics, you'll find a discussion that (I hope) will sound familiar: how ideas, unlike real or personal property, are nonrivalrous and nonexcludable; how new ideas and technologies tend to require large upfront costs, after which they can be duplicated at marginal cost, thus giving rise to a potential market failure; how investments in basic research, and the creation of patent laws, can be viewed as efforts to overcome this problem; and how "patent laws should strike the right balance between the motivation to create new ideas, by giving some monopoly rights to developers, and the ability of others to use them, by limiting these rights in time and space."

For further reading, see also the Swedish Academy's more detailed Scientific Background: Economic growth, technological change, and climate change.  For a good popular account of the work of Romer and others in endogenous growth theory, see David Warsh's 2006 book Knowledge and the Wealth of Nations: A Story of Economic Discovery (W.W. Norton & Co. 2006).

Law360 Series on Global Patent Litigation

Law360  recently published an interesting series of short articles on patent litigation in some of the world's major countries for patent litigation.  If you're looking to get a flavor of some of the major features of patent litigation in these countries, including matters relating to injunctions and remedies, they're worth a look.  (If you want a somewhat more in-depth discussion, see, e.g., my book Comparative Patent Remedies or Christopher Heath's edited volume Patent Enforcement Worldwide.) Below are links to the articles, but you will need a subscription to Law360 to access them:

1.  What You Need to Know About Patent Litigation in Germany

2.  What You Need to Know About Patent Litigation in the U.K.

3.  What You Need to Know About Patent Litigation in China

4.  What You Need to Know About Patent Litigation in the Netherlands

5.  What You Need to Know About Patent Litigation in South Korea

6.  What You Need to Know About Patent Litigation in Canada

7.  What You Need to Know About Patent Litigation in Japan

Update:  Also of possible interest to readers of this blog is a Law360 article titled Dark IPR, Hot Tubbing and Other Terms IP Attorneys Should Know.  As the title indicates, it provides a brief discussion of (among other matters) hot tubbing, and also the so-called "Italian torpedo," both of which topics I have blogged about (see, e.g., here, here, here, here, here, here, here, here, here, and here).  In addition, on the China Patent Blog Erick Robinson recently posted some slides from his talk at an LES EEC Webinar, titled China:  From Worst to First in Patent Enforcement.