Ghafele on FRAND

As previously noted, on Friday of this week I will be participating in an event titled "OxFirst's Fourth IP and Competition Forum: Globalisation And FRAND: Coming to Grips With The Interplay of IP & Competition Law," to be held at St. Cross College, Oxford.  (Further details here.)  In this regard, forum organizer Professor Roya Ghafele has posted the following two recent papers on FRAND.  The first is titled Economic Perspectives on FRAND.  Here is the abstract:

The economic valuation of intellectual property is an area with which IP professionals still need to fully come to grips with. In the context of Standard Essential Patents (SEPs), the valuation of fair, reasonable and non-discriminatory (FRAND) royalty rates adds an additional level of complexity. Against this background, this paper aims at economically clarifying basic elements of FRAND valuation and royalty rate determination. The concept of FRAND will be briefly touched upon, so as to establish the framework for the discussion. Specifically, it discusses FRAND royalty calculations in light of the conception of the ‘present value-added’. The method hinges the concept of value on the ability to generate earnings. The concept can be used in the absence of comparable licenses and/or newly developing business sectors and remains neutral with respect to the royalty base or the question whether a SEP should be valued on an ex-ante basis, that is before the standard was developed or on an ex-post level, that is after the standard was adopted.

The second is Global FRAND Licensing in light of Unwired Planet vs Huawei.  Here is the abstract:

The 2017 decision by Justice Birss, which was upheld on appeal by Lord Kitchin, and Lord Justices Floyd and Asplin in the matter of Unwired Planet versus Huawei, significantly changes the Standard Essential Patents (SEPs) licensing ecosystem at the global level. In light of the fact that the case will be heard by the UK Supreme Court in October 2019, this paper intends to address its potential effects on future SEPs licensing negotiations that are to be concluded on fair, reasonable and non-discriminatory (FRAND) terms.

The (FRAND) licensing rate set by the judgment, which was set on a global basis, makes the validity, essentiality and infringement of global SEPs contingent on the opinion of the judiciary of England and Wales. At the same time as this allows the patentee to reduce transaction costs associated with global FRAND licensing, it increases information asymmetry with respect to extraterritorial SEPs as a national Court is inherently limited in an international undertaking. This can affect FRAND licensing negotiation that precede formal Court intervention.

To overcome the inherent tension between a territorially limited patent system and an increasingly international economic order, a global FRAND licensing rate should be set (if at all) by an international Court, which is equipped with transnational authority. At the European level, the establishment of such a Court is already under way in the form of the Unified Patent Court which is expected to come into place at some point. 

I should note, by the way, that the U.K. Supreme Court will be hearing the appeals in Unwired Planet and in Conversant next week.   Case details can be found at here, and the order granting review here.  For my recent discussion on Law360, see here.

Bayer v. Richter: Worst CJEU Decision Ever?

OK, so maybe that's a bit harsh.  But the September 12, 2019 judgment in Case C-688/17, Bayer Pharma AG v. Richter Gedeon Vegyészeti Gyár Nyrt. and Exeltis Magyarország Gyógyszerkereskedelmi Kft. seems very problematic to me.  This case first came to my attention via blog posts on IPKat and Kluwer, after which I mentioned it on this blog but said I would return to it after I had read the decision myself.  Now I have, and if I'm reading it correctly, the court is reading article 9(7) of the Intellectual Property Rights Enforcement Directive and the corresponding recitals (as well as article 50(7) of TRIPS) as standing for the proposition that, when a patent owner demonstrates irreparable harm and the court issues a preliminary injunction (based on irreparable harm and other factors), but the patent is later invalidated (and the preliminary injunction therefore dissolved), the court may not award the defendant compensation unless the patent owner's act of requesting the injunction constituted an abuse.  (Further, the court states that this interpretation must be a matter of uniform EU law.)  The court's reasoning is that the application for a preliminary injunction is "unjustified" only if there was no risk of irreparable harm (see paras. 62-63).  Therefore, the fact that the defendants's launch of their generic contraceptive product put Bayer at risk of suffering irreparable harm may mean that Bayer isn't required to pay adequate compensation to the defendants, even though the patent in suit was later invalidated, for having been wrongly excluded from the market.  (I say "may" only because, as the commentator on IPKat notes, the injunction was lifted on other grounds before the patent was invalidated, and thus the defendants may still have a basis for seeking compensation in the Hungarian court.  But the broader principle against compensation otherwise would appear to apply.) 

Here is the relevant text of article 9(7):

Where the provisional measures are revoked or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, the judicial authorities shall have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by those measures.

This interpretation strikes me as bizarre, particularly in light of what I understood to be common practice outside the U.S. of requiring plaintiffs who obtain a preliminary injunction but then lose on the merits to compensate the defendant for its losses, even beyond the amount of the judgment bond.   (For previous discussion on this blog, see here; see also Miquel Montañá's post last Friday on the Kluwer IP Blog, titled Will Spanish Courts have to revisit their case law on follow-on damage claims after the CJEU judgment of 12 September 2019?)  Perhaps that practice was not as widespread as I had thought?

Now, maybe the case will be limited to its facts--the defendants here launched before they filed an invalidation action, and Hungary has a bifurcated system such that a patent could be infringed but later found invalid.  But this still seems like a bad policy.  The court's statement that a contrary holding would "run counter to the directive's objective of ensuring a high level of protection of intellectual property" ignores the harm that follows if the owner of a nonexistent IP right can exclude a competitor from the market.

News on Injunctions, Part 1

1.  Several commentators recently have published posts on recent events at which a topic of discussion was whether the German government will amend section 139 of its Patent Law to require courts to consider proportionality before issuing injunctions--or whether, instead, it will undertake some more limited procedural reforms (e.g., relating to stays pending invalidity proceedings), or not address the injunction issue at all.  JUVE Patent reports that whatever is forthcoming "will likely disappoint many experts and not include the major changes to the automatic injunction that have been called for by the German automotive and telecommunications industries."  Léon Dijkman published a post on IPKat titled Industry takes stance on automatic patent injunctions as German Ministry of Justice considers reform of the patent law, while on FOSS Patents Florian Mueller published a post titled "Press release: IoT Innovators send strong message in support for reform of Germany's outdated 'automatic injunctions' law (ACT | The App Association)."

2.  Simon Holzer published a post on Kluwer titled Irreparable Harm Discussion Awakens from Its Slumber in Switzerland, discussing two recent Swiss decisions discussing how irreparable harm in connection with requests for preliminary injunctions.  Mr. Holzer provides links to the relevant decisions.  I have not read them yet myself, but according to his analysis in the first of the two cases the Swiss Federal Supreme Court concluded (1) that irreparable harm could be based on the risk that, absent a preliminary injunction, other firms will be tempted to enter the market, and (2) that it was not arbitrary to assume that the Swiss patent owner would be harmed, where the authorized Swiss distributor is a related company (both firms being subsidiaries of the same larger entity).  The other decision, by the Swiss Federal Patent Court, arguably takes a narrower view on the second issue.

Update (10-14-2019):   Kilian  Schärli also has a write-up  of these two cases on EPLaw.

3.  In the U.S., Judge Mazzant (E.D. Tex.) denied a permanent injunction to Texas Advanced Optoelectronic Solutions, Inc. in its long-fought litigation against Renesas Electronics America. (Discussion on Bloomberg here; link to the opinion here.) Although the jury found the latter to have willfully infringed, the court was convinced that the defendant no longer sells any infringing products in the U.S., and thus that there was no prospect of irreparable harm.  In addition, the court concluded that there was no causal nexus between the infringement and the plaintiff's potential loss of a sale to Apple in 2008; that there was an adequate remedy at law; and that balance of hardships and public interest were neutral.  For previous discussion on this blog of this complex case, which resulted in substantial monetary awards for trade secret misappropriation and other claims, see here, here, and here.

Some Upcoming Conferences

1.  On October 11-12, the University of Pennsylvania Law Review will host a symposium titled "The Post-Chicago Antitrust Revolution."  Details here.  I understand there will be at least one panel on patent holdup.

2.  On October 18, Oxfirst will host an event titled “Globalizing FRAND” at St. Peter’s College, Oxford.  Details are available here.  I’ll be one of the speakers.

3.  John Marshall Law School will be presenting the 63rd Annual Intellectual Property Law Conference in Chicago on November 1.  I will be on the competition law panel.  Here is a link to the conference webpage, from which you can access the program and other information.

4.  FOSS Patents will be putting on an event titled “Component Level SEP Licensing” in Brussels on November 12.  Details here.    

5.  Finally, a belated welcome to the blogosphere to Professor David Taylor's new FedCircuitBlog, which promises "Comprehensive coverage of activities and news regarding the U.S. Court of Appeals for the Federal Circuit." 

Peters v. NantKwest

This morning, the U.S. Supreme Court will hear oral argument in Peters v. NantKwest Inc.  The question presented is "Whether the phrase '[a]ll the expenses of the proceedings' in 35 U.S.C. 145 encompasses the personnel expenses the USPTO incurs when its employees, including attorneys, defend the agency in Section 145 litigation."  As I wrote in June 2017 (and quoted again in March 2019):

The examiner and the PTAB rejected the inventor's patent application on nonobviousness grounds, and rather than immediately appealing to the Federal Circuit (which is one option under these circumstances) the applicant initiated a lawsuit against the director in the U.S. District Court for the Eastern District of Virginia (which is another, less commonly invoked, option).  The district court ruled in favor of the director, and in May the Federal Circuit affirmed (here).  The district court also awarded the director expert witness fees but denied a request for attorney's fees. On appeal of this matter, the Federal Circuit (in an opinion by Chief Judge Prost) concludes that the relevant statute--which in the present context is not 35 U.S.C. § 285, but rather 35 U.S.C. § 145--requires the court to award both expert and attorneys' fees--and, although it isn't at issue in this case, since the director won--the rule applies regardless of outcome.  Here is the relevant statute (35 U.S.C. § 145): 

An applicant dissatisfied with the decision of the Patent Trial and Appeal Board in an appeal under section 134(a) may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the Eastern District of Virginia if commenced within such time after such decision, not less than sixty days, as the Director appoints. The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Patent Trial and Appeal Board, as the facts in the case may appear and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law. All the expenses of the proceedings shall be paid by the applicant.

The Federal Circuit later decided sua sponte to rehear the case en banc, and concluded that the statute does not authorize awards of attorneys' fees to the USPTO.  Then in March 2019 the Supreme Court granted cert.  I was a little surprised, because to my knowledge § 145 actions are rare.  (R Street Institute's Supreme Court amicus brief states at p.17 that "There appear to be only eight such actions of colorable merit filed since 2011.")  On the other hand, the Federal Circuit's en banc opinion created a conflict with the Fourth Circuit's interpretation of the analogous statute applicable in trademark matters, so that may explain the Supreme Court's interest.  If it were up to me, I would have let it go, but for what it's worth the argument is today.  Scotus Blog has a good write-up by Professor Ronald Mann, and links to the briefs here.  Discussion also on IPWatchdog here.

Update:  Here's the oral argument transcript.

Carrier Responds to Iancu

Last December, U.S. Antitrust Division chief Makan Delrahim announced that the DOJ was withdrawing its assent to the USDOJ/USPTO 2013 Policy Statement on Remedies for the Standards-Essential Patents Subject to Voluntary F/RAND Commitments.  (For previous coverage on this blog, see here and here.)  The USPTO is still studying the matter, according to a recent speech USPTO Director Andre Iancu gave at the Solvay Institute in Brussels.  (For previous mention on this blog, see here.) Yesterday Professor Michael Carrier published an expert analysis in Law360 titled Answer To Iancu's SEP Policy Call Is In Plain Sight (available here, behind a paywall).  Professor Carrier rightly notes that the "balance" Director Iancu says is necessary, between encouraging innovation and discouraging abuses on the part of patent owners, is already built into the Policy Statement--an observation with which I agree, as stated for example in this piece published shortly after Mr. Delrahim's announcement last December.  Or, as Professor Carrier puts it, "Iancu is reasonably looking for a balanced and structured approach to standard essential patents that relies on good faith on both sides and disincentivizes holdup and holdout.  That answer is lying right in front of him: the 2013 PTO/DOJ Statement." 

My Law360 Article on the Upcoming Unwired Planet Hearing

Later this month the U.K. Supreme Court will hold hearings in Unwired Planet v. Huawei.  I discuss some of the pending issues in an October 2, 2019 Law360 article titled Huawei Case Might Mean UK Forum Sets Global FRAND Rates, now available here and on Law360's website.