Thursday, September 18, 2014

A Recent English Decision on Accountings of Profits

Jeremy Phillips posted a very short blog on this case the other day on PatLit, but I thought I would elaborate on it because it touches on several important issues concerning the remedy of an accounting (disgorgement) of an infringer's profits.  The case, OOO Abbott v. Design & Display Ltd, [2014] EWHC 2924 (IPEC) (Eng.), involves the U.K. portion of European Patent No. 1,816,931, for "a snap-in insert made from a resilient metal like aluminium" (para. 2).  In an earlier proceeding, Justice Birss held that the patent was valid and infringed.  The plaintiff opted for an accounting of the defendant's profits, and Judge Hacon published the above opinion on September 4.  From an economic perspective, three matters in particular stand out.

First, the court reaffirms Justice Laddie's holding in Celanese Int'l Corp. v. BP Chemicals Ltd. [1999] R.P.C. 203, that " it should be no answer to an account that the defendant could have made the same profits by following an alternative, non-infringing course. The question to be answered is 'what profits were in fact made by the defendant by the wrongful activity?' It should not matter that similar profits could have been made in another, non-infringing way" (para. 16).  This principle was first articulated in a lost profits case, United Horse Shoe and Nail v. Stewart (1888) 3 R.P.C. 260, and as I have noted in my book (pp. 187-89) and on this blog, the English courts have continued to adhere to it ever since.  The rule has no basis in economics.  If in reality the defendant would have resorted to a noninfringing alternative, but for the infringement, an award of either plaintiff's lost profits or defendant's profits that fails to take the existence of such an alternative into account overvalues the patented invention and leaves the patent owner better off than it would have been absent the infringement.   Adhering to United Horse Shoe also requires the courts to engage in some convoluted analysis when dealing with situations in which the inventive concept is only a small portion of the claimed invention.  See, for example, paras. 19-20 of OOO Abbott, discussing Justice Laddie's hypothetical example of a claim to a battleship fitted out with an inventive whistle.  To avoid an obvious overvaluation problem that would result if damages in such a case were based on sales of the entire battleship, the courts concede that "the inventive concept is relevant tot he scope of an inquiry or account" but that "the scope will commonly not be limited to products precisely embodying it" (para. 20).  Overvaluation problems could be avoided more easily, however, simply by recognizing that the next-best available noninfringing alternative to the hypothetical claimed invention would be a battleship with a less inventive whistle, or with no whistle at all.

The overcompensatory and overdeterrent potential of United Horse Shoe is further heightened when the court awards profits based on sales of convoyed goods (para. 31).  Making matters worse, the court actually credits the defendant's argument that it "could have traded just as profitably without infringing," stating "No doubt that is true, but for the reasons discussed above it is irrelevant" (para. 33).  The court also recognizes that not taking the noninfringing alternative into account means that it is ignoring the defendant's opportunity cost of not infringing (para. 39); and, of course, opportunity costs are real costs, even if they are not usually quantified as accounting costs.  But precedent is precedent, and United Horse Shoe is a House of Lords decision.  Perhaps some day it will meet its long overdue demise.

Second, the court followed the Court of Appeals decision in Hollister Inc. v. Medik Ostomy Supplies Ltd in not deducting a portion of the defendant's allocable overhead from its gross profits.  Specifically, the court states (para. 38):
(1) Costs associated solely with the defendant's acts of infringement are to be distinguished from general overheads which supported both the infringing business and the defendant's other businesses.
(2) The defendant is entitled to deduct the former costs from gross profits.
(3) A proportion of the general overheads may only be deducted from gross profits in two circumstances:
(a) if an overhead was increased by the acts of infringement (i.e. the increase would not have occurred but for the acts of infringement), that increase may be deducted;
(b) if the defendant was running to maximum capacity such that the infringing business displaced an alternative business which otherwise would have been conducted, the apportioned overheads incurred by the infringing business (and which would have been incurred by the displaced business) may be deducted.
(4) The evidential burden is on the defendant to establish any of the above.
As I mentioned in  my May 2013 blog post on Hollister (here), "Although the court does not cite the German Federal Supreme Court's 2000 decision in Gemeinkostenanteil, see my book pp. 271-72, the court appears to be adopting an approach similar to the one applied there to the deduction of overhead.  The combination of these two holdings in Hollister could lead to substantially higher awards of profits in the U.K., as others have noted."  Further, although from an economic perspective it is a debatable issue whether allocable overhead should be deducted, there are some reasons to believe that such a deduction better reflects economic reality.  See my book pp. 206-08, citing and discussing Stephen E. Margolis, The Profits of Infringement: Richard Posner v. Learned Hand, 22 Berkeley Tech. L.J. 1521 (2007).       

Third, on the issue of intent, the court noted (para. 50) that under section 62(1) of the Patents Act 1977:
"In proceedings for infringement of a patent damages shall not be awarded, and no order shall be made for an account of profits, against a defendant or defender who proves that at the date of the infringement he was not aware, and had no reasonable grounds for supposing, that the patent existed; and a person shall not be taken to have been so aware or to have had reasonable grounds for so supposing by reason only of the application to a product of the word "patent" or "patented", or any word or words expressing or implying that a patent has been obtained for the product, unless the number of the patent accompanied the word or words in question."
The court concluded that the defendant had not raised this issue in a timely fashion, but beyond that stated the following (paras. 54-56): 
Even it had been, I am not satisfied that Design & Display has established the necessary lack of knowledge or reasonable grounds for supposing that the Patent existed. In cross-examination Mr Lloyd said that he had only heard of patents because he was a local historian and he did not know whether his colleagues knew what a patent was. While it is easy for those whose working lives are concerned with patents to over-assume how much the general public know about patents, I think most individuals, such as Mr Lloyd and presumably his colleagues, will have heard of the concept of patents and will have on board the basic notion that you can get one to protect your idea. It seems to me unlikely that an interest in local history is needed to know that much. 
Mr Lloyd made two further points. The first was that Design & Display's production director had drawn a snap-in insert of the type protected by the Patent so there was no reason for Design & Display to believe that patent protection was available in relation to that product. This may have happened but it was surprising since, as Mr Aikens pointed out to Mr Lloyd, such a drawing and the alleged home-grown conception of the idea had not been raised at the trial before Birss J despite Design & Display's arguments that the idea was obvious (and also despite its conceivably raising a defence pursuant to s.64 of the 1977 Act). Mr Lloyd's second point was that at the time the Claimants' patented insert had been introduced in 2007 Design & Display was, as he put it, not remotely interested in what its competitors were doing – although Mr Lloyd conceded that this might not have been true of the sales department.  
I think that to satisfy the burden under s.62(1) it would have been necessary for Design & Display to have produced satisfactory evidence from the sales department to show that the complete indifference to competition and therefore to any patent protection which the competition held, or alternatively total ignorance of the concept of patent protection, both of which Mr Lloyd relied on, ran throughout the company. Absent that, I would by default have inferred that Mr Lloyd or his sales colleagues had reasonable grounds to have become aware of the PCT parent application for the Patent, which was published in June 2006.
In my view, to the extent it makes sense at all to award the infringer's profits as a remedy for patent infringement, such awards should be limited only to cases of deliberate copying, in order to avoid pressuring innocent defendants to settle and thus potentially deterring lawful conduct.  Parliament should consider amending the statute to avoid such adverse consequences.       

Wednesday, September 17, 2014

More on Last Week's CJEU Hearing in Huawei v. ZTE

I blogged last week about the hearing before the Court of Justice for the European Union in Huawei v. ZTE, on the issue of injunctive relief for the infringement of FRAND-encumbered standard essential patents.  At the time the only write-up I had found on the hearing was this one, from the German-language online publication JUVE, which I summarized in my post.  A couple of additional articles are now freely available online, which readers may find of interest.

First, Dr. Axel Walz of the Munich office of King & Wood Mallesons SJ Berwin has now published a short paper, in English, on the issues in the case and the oral hearing, available here.  According to Dr. Walz, "most of the Court’s questions were addressed at Huawei and concerned, amongst others, the issue why, from a standard essential patent (SEP) owner perspective, it should not be sufficient to rely upon good faith negotiations. Huawei’s response was that a legally binding and irrevocable FRAND licence offer must be submitted by the standard user. There were also contentious arguments as to whether a licence offer can be made subject to the condition precedent that the patent in suit is valid and infringed. The question of third party determination of FRAND terms and conditions was an additional focus of the hearing."  Readers interested in this topic should check out Dr. Walz's informative article.  

Second, there is a brief write-up of the hearing in World Intellectual Property Review, titled CJEU Mulls Over Standard-Essential Patents Enforcement, available here.  The article quotes Dr. Walz, who attended the hearing.

The Advocate General's opinion is due on November 20.

Monday, September 15, 2014

Blind, Bekkers et al. on Patents and Standards

I mentioned a couple of weeks ago the publication of an by Knut Blind and Tim Pohlmann titled Patente und Standards:  Offenlegung, Lizenzen, Patentstreitigkeiten und rechtspolitische Diskussionen ("Patents and Standards:  Disclosure, Licenses, Patent Disputes, and Legal Policy Discussions") in the August 2014 issue of GRUR (pp. 713-19).  The paper summarizes, among other things, some of the results of a 2011 report coauthored by Professor Blind, Rudi Bekkers, Yann Dietrich, Eric Iversen, Florian Köhler, Benoît Müller, Professor Pohlmann, Stein Smeets, and Jurgen Verweijen, titled Study on the Interplay between Standards and Intellectual Property Rights (IPRs):  Tender No ENTR/09/015 (OJEU S136 of 18/07/2009):  Final Report.  Some of the readers of this blog may already be familiar with this body of research, but for those who are not and who want to read the full report (or who don't have easy access to GRUR, or don't read German) can download the report here.  According to the executive summary:
. . . the European Commission announced in the Communication COM(2008) 133 "Towards an increased contribution from standardisation to innovation” supported by Council Conclusions to “launch a fact-finding study to analyse the interplay of IPR and standards.” Consequently, the study has to produce an up to date and quantitative picture of the interplay between IPRs and standards. Starting from a literature survey, this study implemented a multidimensional approach based on an analysis of IPR databases of important international and European SSOs and consortia, interviews with various stakeholders located all over the world, and an international survey among standards producing and standards implementing companies. In addition, we investigated the IPR policies of more than 20 SSOs and reviewed case law, industry views and trends.
The report sets out a wealth of empirical information. Chapter 3 ("Quantitative Study of Essentially-claimed Patents"), for example, reports the number of total patents claimed (declared essential) as of February 1, 2010, for eleven leading SSOs (Table 3-2, p.34); total patents claimed per standard for all standard with ten or more claimed US or EPO patents (Table 3-3, pp. 36-37); total patents claimed by firms (Table 3-6, pp. 42-43); and R&D intensity and expenditure levels per company (Figures 3-9, and 3-10, pp. 48-49, which show that "companies that own essential IPR pursue a tremendous amount of R&D not only in shares of their turnover but also in total volumes").  

Chapter 4 (titled "Identification and Analysis of Stakeholder Views"), "presents the findings of a series of interviews with the industry conducted on the basis of a detailed format with topics and questions . . . . In total 15 firms were interviewed," namely Alcatel-Lucent, Cisco, Ericsson, Harting, Hitachi, IBM, Infineon, Microsoft, Mitsubishi, Nanotron, Nokia, Philips, Qualcomm, Siemens, Toshiba," and one industry expert, Eric Stasik (pp. 60-61).  Interviewees believe "there is a large amount of over-claiming" (p.63), for various reasons, and report typical aggregate licensing fees for mobile devices ranging from 4% (for GSM with corss-licensing) to 12% (for GSM & UMTS with no cross-licensing), "expressed as a percentage of the wholesale value of the terminal" (p.70; see also GRUR article p.714).  (Note:  this is considerably lower than the 30% estimated in the Armstrong, Mueller & Syrett paper I blogged about here.)  Chapter 4 also reports findings from a survey of "practicioners who are experts on the subject of standards and their interplay with IPR," consisting of 
more than 140 answers collected by directly addressing companies declaring essential patents identified via the database analysis (see Chapter 3) and standards implementors using membership information of international, European and various national standardisation bodies in Europe. . . .  The response covers almost 30% of the top 100 essential patent owning companies ranked to the number of owned patents included in standards. Having a high share of responses from companies owning a great number of essential patents generates results that cover almost 70% of all essential patents that could be identified. Consequently, we have a representative sample of companies owning essential IPRs. The sample of the companies implementing standards, but not owning essential IPRs is a random sample of companies, but likely to be biased towards companies experiencing the relevance of IPRs in standards. Due to the rather low response to the open survey of standards implementors, the majority of companies‟ experiences obviously little relevance of IPRs in standards for their companies (p.87).  
Chapter 4 includes figures (some of which are reproduced and translated into German in the GRUR article) illustrating the respondents' views as to such matters as the relative importance of various reasons for owning SEPs, mechanisms for gaining access to them, the impact of SEPs on the standardization process and on R&D, and so on.  Figure 4-6, which shows the respondents' "assessment of licensing rates by percentiles for patents and essential IPRs for the product market in question by percentage of respondents" (p.91), indicates that the majority believe that aggregate royalties are in the 20% or lower range--although there are some outliers, and "IPR owners are very uncertain in their estimations of license fees" (pp. 91-92 & Figure 4-7).  Figure 4-13 reports that survey respondents view "the presence of third-party non-producing entities" as relatively undesirable but fairly likely to happen (pp. 97-98).

Chapter 5 notes a point that I think is self-evident but nevertheless to document, namely that "Whereas especially standards implementers favour further clarifying SSO IPR policies concepts and terms such as “(F)RAND” or “essential”, others observe that in practice it is more often than not impossible to determine IPR licensing terms and conditions before a standard is sufficiently developed and implementation conditions are known" (p.115).  Annex III provides summaries of statistics reported elsewhere on numbers of patent cases in the EU and the US, win rates, and so on, as of 2010, as well as an original analysis of cases to which Nokia was a party. 

Altogether, this is a useful body of empirical information on SEPs.          

Thursday, September 11, 2014

Today's Hearing Before the CJEU in Huawei v. ZTE

As I reported yesterday, today is the day the Court of Justice for the European Union (CJEU) had scheduled for its long-awaited hearing in Huawei Technologies Co. Ltd v ZTE Corp., Case C-170/13, on the issue of whether or under what conditions a court may order injunctive relief for the infringement of a FRAND-encumbered standard essential patent (SEP).  So far the only write-up on today's hearing that I've been able to find online is this one in the German-language online publication JUVE.  According to the article, the Court didn't give a clear inclination of its views during today's hearing, though following the hearing several observers suggested that the Court could concretely define the conditions for an abuse of market position and that the conditions for obtaining an injunction in SEP cases could be made more onerous than under the 2008 German Orange-Book-Standard framework. (For more on the Orange-Book-Standard, see my book pp. 245-48 and my blog post from August 5, 2013.)  Both the Orange-Book-Standard framework and the European Commission's more recent pronouncements in the Samsung and Motorola cases are under scrutiny in the present case.  However, today's proceedings did not touch very deeply on the subject of when an implementer should be considered a willing licensee. The Advocate General's opinion is scheduled to be presented on November 20.  

Wednesday, September 10, 2014

Hearing Before the CJEU on FRAND/SEPs Scheduled for Tomorrow

Tomorrow the Court of Justice for the European Union will hold a long-awaited hearing in Huawei Technologies Co. Ltd v ZTE Corp., Case C-170/13, on the issue of whether or under what conditions a court may order injunctive relief for the infringement of a FRAND-encumbered standard essential patent.  Here is a link to the CJEU's schedule for tomorrow, and here is the court's home page for this case (no documents up yet, though).  As set forth in the Official Journal of the European Union of July 27, 2013, under the title "Request for a preliminary ruling from the Landgericht Düsseldorf (Germany) lodged on 5 April 2013 — Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH," here is the English translation of the questions referred to the court:
1. Does the proprietor of a standard-essential patent who informs a standardisation body that he is willing to grant any third party a licence on fair, reasonable and non-discriminatory terms abuse his dominant market position if he brings an action for an injunction against a patent infringer although the infringer has declared that he is willing to negotiate concerning such a licence?
or
is an abuse of the dominant market position to be presumed only where the infringer has submitted to the proprietor of a standard-essential patent an acceptable, unconditional offer to conclude a licensing agreement which the patentee cannot refuse without unfairly impeding the infringer or breaching the prohibition of discrimination, and the infringer fulfils his contractual obligations for acts of use already performed in anticipation of the licence to be granted?
2. If abuse of a dominant market position is already to be presumed as a consequence of the infringer’s willingness to negotiate:
Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to the willingness to negotiate? In particular, can willingness to negotiate be presumed where the patent infringer has merely stated (orally) in a general way that that he is prepared to enter into negotiations, or must the infringer already have entered into negotiations by, for example, submitting specific conditions upon which he is prepared to conclude a licensing agreement?
3. If the submission of an acceptable, unconditional offer to conclude a licensing agreement is a prerequisite for abuse of a dominant market position:
Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to that offer? Must the offer contain all the provisions which are normally included in licensing agreements in the field of technology in question? In particular, may the offer be made subject to the condition that the standard-essential patent is actually used and/or is shown to be valid?
4. If the fulfilment of the infringer’s obligations arising from the licence that is to be granted is a prerequisite for the abuse of a dominant market position:
Does Article 102 TFEU lay down particular requirements with regard to those acts of fulfilment? Is the infringer particularly required to render an account for past acts of use and/or to pay royalties? May an obligation to pay royalties be discharged, if necessary, by depositing a security?
5. Do the conditions under which the abuse of a dominant position by the proprietor of a standard-essential patent is to be presumed apply also to an action on the ground of other claims (for rendering of accounts, recall of products, damages) arising from a patent infringement?
As soon as I have any further information, I will pass it along.  For readers not familiar with the court's procedures, here is a link to a handy publication published by the court itself, titled The Court of Justice:  Composition, Jurisdiction and Procedures. 

By way of comparison, here is a link to the European Commission's Prohibition Decision of April 29, 2014 (published on July 9) in Case AT.39985 - Motorola - Enforcement of GPRS Standard Essential Patents; and here is a link to the Commission's Commitments Decision of April 29, 2014 (published on May 13) in Case AT.39939 - Samsung - Enforcement of UMTS Standard Essential Patents.

Tuesday, September 9, 2014

Some Initial Thoughts on the Japanese IP High Court's Apple/Samsung Judgments

As I mentioned yesterday, Japan's IP High Court has now published English-language translations of its May 2014 judgments in the Japanese Apple/Samsung FRAND dispute.  By way of background, in 2007 Samsung declared Japanese Patent No. 4642898 (a "method and apparatus for transmitting/receiving packet data using a predefined length indicator in a mobile communication system") as likely to be essential to the practice of the UMTS standard, and indicated its willingness to license the patent on FRAND terms.  In 2012, Samsung alleged that certain Apple devices infringed the patent and moved for a preliminary injunction in two separate proceedings.  Apple filed its own action for a declaratory judgment.  In 2013, the Tokyo District Court held that Samsung had abused its right by seeking a preliminary injunction and was barred not only from injunctive relief but also from receiving damages, even in the amount of a FRAND royalty.  In May 2014, a Grand Panel of the IP High Court affirmed the finding that Samsung had abused its right but held that Apple was liable for the amount of a FRAND royalty, which the court fixed at ¥ 9,950,000, or a little under U.S. $100,000.  (For my previous posts on the case, see here and here.) 

What follows are some key points from the Grand Panel's judgments, and my (very preliminary, somewhat hastily put-together, and therefore to be taken with a grain of salt) thoughts regarding them:

1.  First, in the appeals from the district court rulings denying Samsung's requests for a preliminary injunction (Case Nos. 2013 (Ra) 10007 and 10008), the IP High Court states (in identical language found at pp. 24-25 of these judgments):
It is considered extremely difficult for a standard user to obtain the licenses in advance, after confirming whether each of such large number of patents is essential or not. Therefore, if the patentee is unconditionally allowed to seek an injunction based on the Standard Essential Patent, the use of the UMTS standard would become  practically impossible. Such situation would have a negative impact on the dissemination of the UMTS standard and run counter to the purpose of the ETSI IPR Policy aimed at the harmonization and dissemination of the communication standards. Further, if such situation arises, the general public would be unable to enjoy a variety of benefits which would be available if the harmonization and dissemination of communication standards was achieved.
In relation to a Standard Essential Patent, it is not appropriate to allow a party who made a FRAND declaration to exercise the right to seek an injunction based on the patent right against a party willing to obtain a license under the FRAND Terms.
. . . Meanwhile, the injunction should be allowed against a party engaged in manufacturing, sales, etc. of an UMTS standard-compliant product without any intention of receiving a FRAND license, as such party with no intention of obtaining a FRAND license is not considered to comply with the standards relying upon the FRAND declaration, and the patentee would not be adequately protected if the exercise of right to seek an injunction even against such parties is restricted. Nevertheless, as allowing the patentee to exercise the right to seek an injunction involves potential adverse effects as mentioned above, scrutiny shall be made before determining that the prospective licensee has no intention of receiving a FRAND license.
. . . Considering the totality of the above circumstances, the exercise of the right to seek an injunction based on the Patent Right by the appellant who made the FRAND Declaration would constitute the abuse of right (Article 1, paragraph (3) of the Civil Code) and therefore is not allowed, if the appellee successfully alleges and proves the fact of the appellant having made the FRAND Declaration and the appellee's intention of receiving a FRAND license.  
Reviewing the evidence before it, the court then concludes that Apple was a willing licensee and that Samsung, as a result, was not entitled to an injunction.  I haven't yet focused very carefully on the court's discussion of the evidence concerning the parties' negotiations, but in general (as I have written about ad nauseam by now) I think the court's approach is correct, as a matter of policy:  that is, that a FRAND commitment deprives the patent owner of the right to obtain an injunction, unless the licensee is the one that is abusing the process (though I still haven't quite thought through my own views as to what that latter condition means or should mean).  I think the Japanese court's approach, though, is closer in spirit to the U.S. approach under eBay (though I recognize that abuse of right is a distinct doctrine in its own right) than to the European Commission and German approaches of addressing the issue through the lens of competition law.  (Of course, abuse of right is also a potentially applicable doctrine in other civil law countries, and has been applied in the FRAND context in an Apple/Samsung dispute in the Netherlands (see my post here).

2.  In the appeal from Apple's action for a declaratory judgment (Case No.  2013 (Ne) 10043), the court concludes that, under French law (which governs as a result of the ESTI IPR Policy) the FRAND declaration did not form a license agreement (pp. 111-15).  I'm hardly an expert on French contract law, but my initial reaction is that this result is not surprising; I believe it would come out the same way under German law, and that (so far) the U.S. has been an outlier in concluding, in some instances, that FRAND declarations do give rise to enforceable contract rights.

3.  The court also concludes, contrary to the district court, that Samsung is entitled to a FRAND royalty--or, more precisely, that, "the appellant's exercise of the right to seek damages for Products 2 and 4 based on the Patent Right constitutes the abuse of right to the extent exceeding the amount of the FRAND royalty, but not to the extent of the amount of the FRAND royalty."  As I stated in one of my earlier posts, this clearly seems right as a matter of policy:  depriving Samsung (or any SEP owner) of even a FRAND royalty would seem grossly unfair and would risk deterring firms from participating in SSOs and from engaging in the optimal level of R&D.  (The court agrees; see p.122.)  Nevertheless, the court hedges a bit by suggesting that there could be exceptions in either direction--that is, that an SEP owner could be denied a FRAND royalty under "special circumstances" in which it would be "extremely unfair" to award such a royalty, or that an SEP owner could demand royalties in excess of FRAND under "special circumstances, such as that the prospective licensee has no intention of receiving a FRAND license" (pp. 123-24).  In any event, no such special circumstances existed in the present case.   

4.  On the amount of the FRAND royalty, here is the court's general methodology (pp. 132-33):
First, among the total sales turnover of Products 2 and 4 [the iPhone 4 and the iPad Wi-Fi+3G model, respectively], the percentage of the contribution of the compliance with the UMTS standard should be calculated ((3)A. below). Next, among the contribution ratio of the compliance with the UMTS standard, the contribution ratio of the Patent should be calculated ((3)B. below). For the purpose of the calculation of the contribution of the Patent among the contribution of the compliance with the UMTS standard, in order to prevent an excessively high royalty in aggregate, the calculation method should be such that the amount of royalty for the entire essential patent pool does not exceed a certain ratio ((3)B.(A) below). In this court case, as the specific details of other essential patents are unknown, the amount of FRAND royalty should be based on the division by the number of UMTS standard essential patents ((3)B.(B) below).
Unfortunately, the court redacts the percentage it concludes is reasonable for the contribution ratio of the compliance with the UMTS standard, although it does tell us that many other factors contribute to the turnover for these products.  It also tells us that the maximum "aggregate royalty rates for the entire UMTS standard" should not exceed "5% of the contribution ratio of the compliance with the UMTS standard to the sales turnover of Products 2 and 4" (p.136).  The court then observes that
The UMTS standard includes a large number of essential patents in addition to the Patent, and the UMTS standard cannot be implemented by the Patent alone. Therefore, it would be necessary to consider the degree of contribution of the Patent to the UMTS standard, in relation to other essential patents patented in Japan. . . .  [T]he technical contribution of the Patent to the UMTS standard is not significantly high.  Also, no evidence has been submitted which proves that the contribution of the Patent to the UMTS standard is higher than other essential patents. . . .  Based on the above, it is reasonable to determine, based on the evidence submitted in this court action, that the contribution of the Patent to the UMTS standard is equivalent to other essential patents.
Accordingly, given that the contribution by the Patent and other essential patents to the UMTS standard are equivalent, the amount of the FRAND royalty for the Patent shall be calculated by dividing the amount of royalty by the number of all UMTS standard essential patents.
The distribution of royalty to licensors in the patent pool is generally calculated by dividing the amount of royalty by the number of patents, without regard to the technical value of individual patents. The "W-CDMA patent platform" for the UMTS standard has also adopted such method of dividing the royalty amount by the number of patents. Calculation of the amount of the FRAND royalty by dividing the amount of royalty by the number of the UMTS essential patents is consistent with such practice in patent pools. (pp.136-37).
Based on this methodology, the court comes up with a royalty of ¥ 9,239,308 for the iPhone 4 and of ¥ 716,546 for the iPad, for a total of ¥ 9,955,854.  This strikes me as likely to be undercompensatory, though perhaps it's just a lack of proof that leads to the result the court reaches.  Nevertheless, I would expect a patent pool rate to be lower than a FRAND rate (as Judge Robart found in Microsoft v. Motorola, see my post here), and I generally would not approve of calculating FRAND royalties using the typical patent pool methodology of dividing up some aggregate value by the number of patents; different patents likely have different values, even if in the pool context transactions costs may dictate not bothering to take those differences into account.   I also question the assumption that aggregate royalties for the UMTS standard necessarily should be capped at 5% of the value of the contribution of that standard, which (whatever that contribution value is) must be less than 5% of the value of the end products--though the court does tell us that "both appellant and the appellee have submitted their respective allegations on the premise of the aggregate royalty cap of 5%" and "many owners of the UMTS standard essential patents support the 5% aggregate royalty cap with a view to prevent the aggregate royalty from being excessively high" (pp. 136-37).  (Of course, the topic of whether or how potential royalty stacking should affect the calculation of a FRAND royalty is itself quite an interesting, and complex, issue.  For some thoughts of mine, see here.)

5.  Finally, the court expressed thanks for the third-party submissions it solicited earlier this year on the question of "whether an owner of a patent essential for a standard developed by a standardization body, for which a (F)RAND declaration (a declaration to grant a license under (fair), reasonable and non-discriminatory conditions) is made, should be restricted from exercising the right to seek an injunction or the right to seek damages" (p.139; see my post here).  Specifically:
These opinions are valuable and useful references that helped the court make an appropriate judgment from a broad perspective, and we hereby express our profound gratitude to all the parties who kindly made great efforts to submit their opinions.   
I thought this was a very gracious ending to a judgment that, whether one agrees with it in all of its respects or not, appears to me to be quite thoughtful and must have been quite a laborious undertaking to draft in such a short time.
 

Monday, September 8, 2014

Breaking News: Japan's IP High Court Publishes English-Language Translations of Its Samsung v. Apple FRAND Judgments

On May 16, 2014, a Grand Panel of Japan's IP High Court affirmed a lower court ruling that Samsung engaged in an abuse of right in its negotiations with Apple over the licensing of a FRAND-encumbered standard-essential patent and therefore was not entitled to a preliminary injunction.  The High Court reversed the lower court's decision, however, that Samsung's abuse of right also deprived it of the ability to recover damages, and awarded  Samsung ¥ 9,950,000.  (For previous coverage on this blog, see here and here.  Technically, there were three related lower court rulings and three IP High Court judgments.)  The text of the IP High Court's judgments has been available, in Japanese, on the High Court's website for some time.  As promised, the court has now published the long-awaited English-language translations of its summaries of its judgments (here, here, and here); the full text of its judgments (here, here, and here); and the lower ruling rulings (here, here and here).  I haven't made my way through all of this material yet--there's quite a lot of it--but I probably will have something to say about it in due time.  In the meantime, readers who want to read the materials for themselves can download them from the links above. 

Also of interest is this recently-published article on the case by Takanori Abe, in Managing IP.