Friday, February 12, 2016

Breaking News: U.S. Federal Circuit Adheres to National Exhaustion of Patent Rights

This case, Lexmark Int'l, Inc. v. Impression Products, Inc., is not directly related to the subject of patent remedies, but it's hardly irrelevant to the topic either and is certainly a very important decision.  From Judge Taranto's majority opinion (joined by Chief Judge Prost and Judges Newman, Lourie, Moore, O'Malley, Reyna, Wallach, Chen, and Stoll):
We decided to hear this case en banc to consider whether two decisions of this court concerning the uncodified doctrine of patent exhaustion—one decision from 1992, the other from 2001—remain sound in light of later decisions of the Supreme Court. Today we reaffirm the principles of our earlier decisions. First, we adhere to the holding of Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), that a patentee, when selling a patented article subject to a single-use/no-resale restriction that is lawful and clearly communicated to the purchaser, does not by that sale give  the buyer, or downstream buyers, the resale/reuse authority that has been expressly denied. Such resale or reuse, when contrary to the known, lawful limits on the authority conferred at the time of the original sale, remains unauthorized and therefore remains infringing conduct under the terms of § 271. Under Supreme Court precedent, a patentee may preserve its § 271 rights through such restrictions when licensing others to make and sell patented articles; Mallinckrodt held that there is no sound legal basis for denying the same ability to the patentee that makes and sells the articles itself. We find Mallinckrodt’s principle to remain sound after the Supreme Court’s decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), in which the Court did not have before it or address a patentee sale at all, let alone one made subject to a restriction, but a sale made by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.
Second, we adhere to the holding of Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), that a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority. Jazz Photo’s no exhaustion ruling recognizes that foreign markets under foreign sovereign control are not equivalent to the U.S. markets under U.S. control in which a U.S. patentee’s sale presumptively exhausts its rights in the article sold. A buyer may still rely on a foreign sale as a defense to infringement, but only by establishing an express or implied license—a defense separate from exhaustion, as Quanta holds—based on patentee communications or other circumstances of the sale. We conclude that Jazz Photo’s no-exhaustion principle remains sound after the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), in which the Court did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise infringing domestic acts. Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee’s rights in the United States.
Judges Dyk and Hughes dissent.

It's going to take me a little while to get through all 129 pages of the opinions, but initially I'm of the view that the majority is correct at least a matter of policy, particularly on the national exhaustion rule; a regime of international exhaustion, as Lisa Larrimore Ouellette and Daniel Hemel argue here, would threaten to raise the price of drugs in developing countries.  Next stop, I feel reasonably certain, will be the Supreme Court, and I'm not at all sure what to expect when the case lands there.

Wednesday, February 10, 2016

Federal Circuit Affirms $23 Million Walker Process Damages Award

Although for the most part this blog discusses developments in the law of patent remedies--meaning relief available to patent plaintiffs--from time to time I also discuss claims and remedies that may be available to persons who believe they have been falsely or wrongly accused of patent infringement.  Both in the U.S. and abroad there are a wide variety of legal doctrines that play a role in resolving this latter class of disputes; and at some point in the future I hope to get back to work on a project addressing the comparative law and economics of wrongful patent enforcement.  Anyway, all of this is background to the following discussion of a case decided this morning, TransWeb, LLC v. 3M Innovative Properties Co., in which the Federal Circuit affirmed a judgment of antitrust liability for the assertion of an allegedly fraudulently procured patent (a so-called "Walker Process" claim).  The opinion is by Judge Hughes, joined by Judges Wallach and Bryson.

The facts in brief are as follows.  Plaintiff and defendant are competitors in the market for respirator filters, and at some point both independently developed methods for imparting something called an "electret" characteristic to their filters.  At an exhibition in 1997, TransWeb's founder Ogale handed out samples of a filter material his firm had developed.  3M filed a patent application more than a year after this exhibition, eventually obtained two patents, and filed an infringement action against TransWeb.  The jury found, however, and the Federal Circuit affirmed, that Ogale's conduct constituted a prior public use more than one year prior to the date on which 3M's application was filed, and that the patents in suit were obvious in view of this prior public use.  (I won't review these rulings here.)  In addition, the Federal Circuit found no abuse of discretion in the finding that the patents in suit were unenforceable due to inequitable conduct, based on evidence that the inventor and 3M were aware of the prior public use and failed to disclose it properly to the USPTO.  (I won't review this ruling either, except to the extent it is relevant to the antitrust claim discussed below.  I will note only that the inequitable conduct defense has become more difficult to sustain following the Federal Circuit's 2011 en banc ruling in Therasense.)  Finally, the jury concluded that 3M's conduct constituted an act of attempted monopolization in violation of the antitrust laws, based on the alleged fraudulent procurement of the patents. 

In Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965), the U.S. Supreme Court held that enforcing a patent that had been fraudulently obtained (e.g., by knowingly and willfully making material misrepresentations to the USPTO) can violate Sherman Act § 2, though only if all of the other elements of a Sherman Act § 2 claim also are proven.  The other elements needed to prove a § 2 monopolization claim are “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).  To prove a § 2 attempted monopolization claim, a plaintiff must prove (1) predatory or anticompetitive conduct, (2) specific intent to monopolize, and (3) a dangerous probability of success.  See Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993).  Both monopolization and attempted monopolization claims require proof of the relevant market.
Turning now to the case at issue, on the issue of fraud in the procurement the Federal Circuit states:
After Therasense,the showing required for proving inequitable conduct and the showing required for proving the fraud component of Walker Process liability may be nearly identical. See, e.g., Gideon Mark & T. Leigh Anenson, Inequitable Conduct and Walker Process Claims AfterTherasense and the America Invents Act, 16 U. Pa. J. Bus. L. 361, 402 n.258 (2014). Regardless, because 3M does not challenge the sufficiency of the evidence supporting the jury’s Walker Process fraud finding beyond challenging the inequitable conduct finding, we will accept as admitted that TransWeb sufficiently demonstrated the Walker Process fraud component.
Second, on the issue of whether the market had been properly defined, the court observed among other matters:
While 3M points to evidence supporting a conclusion that fluorinated material does not form a distinct market, this does not undermine the sufficiency of the evidence supporting the jury’s conclusion to the contrary. Evidence demonstrated that: fluorinated material has a lower pressure drop while maintaining high filtration, as compared to other filter media; fluorinated material has a longer service life than other filter media; and customers would pay more for respirators with the fluorinated media. Taken together, this evidence provides a sufficient basis on which a reasonable jury could conclude that the price, use, and qualities of fluorinated material render it a distinct market from other filter media. . . .
The court also finds no error in the jury's determination of the relevant geographic market.

Third, and of most interest for purposes of this blog, the court affirms the award of damages:
Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. § 15(a) (2012). The jury concluded that TransWeb was entitled to its lost profits and attorney fees in recompense for 3M’s antitrust violation. The jury found 3M liable for approximately $34,000 in lost profits, which the district court awarded to TransWeb as the trebled amount of approximately $103,000. After review by a special master, the district court concluded that TransWeb incurred approximately $3.2 million in attorney fees prosecuting the antitrust claim and approximately $7.7 million defending the infringement suit. The district court awarded the $3.2 million on a one-for-one basis as “cost of suit” fees. The district court awarded the $7.7 million trebled to approximately $23 million as damages. 3M does not appeal the lost profits or cost of suit fees. 3M argues that the district court erred in awarding the $23 million of attorney-fees damages, because TransWeb failed to show any link between those attorney fees and an impact on competition. 3M argues that those attorney fees had no effect on competition because they did not force TransWeb out of the market or otherwise affect prices in the market. On this basis, 3M argues that those attorney fees are not an antitrust injury and thus cannot be a proper basis for antitrust damages.
Section 4 of the Clayton Act does not provide recompense for any injury causally linked to a violation of the antitrust laws, but rather only for antitrust injury. See Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). TransWeb’s injury-in-fact of $7.7 million must be “attributable to an anti-competitive aspect of the practice under scrutiny” in order to qualify as an antitrust injury. Atl. Richfield, 495 U.S. at 334. Stated another way, TransWeb’s injury-in-fact must “stem[] from a competition-reducing aspect or effect of the defendant’s behavior,” not from competition-increasing or competition-neutral aspects. Id. at 344. 
3M’s argument focuses on the fact that the harmful effect on competition proven by TransWeb at trial never actually came about. TransWeb proved at trial that increased prices for fluorinated filter media and respirators would have resulted had 3M succeeded in its suit. However, because TransWeb prevailed, these effects never materialized.
We do not read the antitrust injury requirement from Atlantic Richfield, Brunswick, and similar cases to so narrowly define the scope of antitrust injury. Those cases dealt with situations where the antitrust-defendants’ actions, though unlawful, would not have actually reduced competition. See, e.g., Atl. Richfield, 495 U.S. at 337–38 (rejecting attempt to recover profits lost due to an increase in competition and reduction in prices caused by vertical, maximum-price-fixing arrangement); Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 114–17 (1986) (rejecting attempt to block merger on the theory that the merged companies would increase competition and lower prices); Brunswick, 429 U.S. at 487–88 (rejecting attempt to recover lost marginal profits that were not achieved because an acquiring company purchased a failing company, thus maintaining competition with the antitrust plaintiff).
In this case, however, 3M’s unlawful act was in fact aimed at reducing competition and would have done so had the suit been successful. 3M’s unlawful act was the bringing of suit based on a patent known to be fraudulently obtained. What made this act unlawful under the antitrust laws was its attempt to gain a monopoly based on this fraudulently-obtained patent. TransWeb’s attorney fees flow directly from this unlawful aspect of 3M’s act. That is, TransWeb’s attorney fees “flow[] from that which makes [3M’s] acts unlawful,” Brunswick, 429 U.S. at 489, and are “attributable to [this] anti-competitive aspect of the practice under scrutiny,” Atl. Richfield, 495 U.S. at 334. The “competition-reducing aspect,” id. at 344, of 3M’s behavior was its attempt at achieving a monopoly by bringing the subject lawsuit. 3M’s failure to prevail in that lawsuit does not make the resultant attorney fees any less attributable to that behavior, and the attorney fees are precisely “the type of loss that the claimed violations would be likely to cause,” Brunswick, 429 U.S. at 489 (quoting Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 125 (1969)) (internal ellipses omitted). Therefore, TransWeb’s attorney fees are both injury-in-fact and antitrust injury. . . .
The court finds further support for awarding attorneys' fees spent in defending the patent infringement claim in precedent from other circuits involving sham litigation antitrust claims, and from the policy of encouraging parties to file meritorious antitrust suits. 

To be honest, I've never given much thought to the question of what appropriate antitrust damages should be for attempted (but unsuccessful) monopolization.  As 3M points out, when (as here) the attempt is unsuccessful there may be no exclusion of competitors or higher prices.  Nevertheless, I'm inclined to think the court is right:  that as long as Congress has proscribed attempted monopolization, the harms a target suffers to fend off the attempt ought to  be compensated, and here that harm took the form of almost $8 million in fees.  (I imagine there must be some scholarship out there addressing the law and economics of remedies for attempts, with which I should at some point familiarize myself.)  Of course, in a system in which prevailing parties are awarded their attorneys' fees as a matter of course, the question of whether fees expended in defense of an unsuccessful infringement claim can be awarded as damages for attempted monopolization might be less relevant--though in reality even in countries that routinely award fees to the prevailing party those fees often are not fully compensatory.  Moreover, as the material quoted above indicates, in U.S. antitrust law damages are automatically trebled, so by prevailing on an antitrust claim the successful infringement defendant is awarded much more than just its compensable out-of-pocket fees.  

As a matter of policy, enhanced damages conceivably make sense for antitrust violations that are hard to detect or that cause harm to a wider population--the optimal deterrence point--but it's never been clear to me why U.S. law awards successful private antitrust claimants treble damages for all types of antitrust violations.  Interestingly, in a recent non-antitrust patent infringement action the Federal Circuit vacated an award of double attorneys' fees to a successful defendant, which prompted me to wonder whether there might be circumstances in which courts should award fee multipliers to achieve adequate deterrence (see here).  But because it involved a successful antitrust claim, TransWeb is a case in which the prevailing infringement defendant  automatically got a fee multiplier.  Not sure the distinction makes sense as a matter of policy, but it's probably correct on the law.   

Tuesday, February 9, 2016

Federal Circuit Affirms Judgment of No Damages for Alleged Pre-Issuance Use of Invention

In a case of first impression, the Federal Circuit today held in Rosebud LMS Inc. v. Adobe Systems, Inc. that section 154(b) of the U.S. Patent Act permits the owner of an issued patent to recover damages for the pre-issuance use of a claimed invention when the defendant has actual knowledge of the pending application.  (Opinion by Judge Moore joined by Judges Hughes and Stoll.)  The relevant statute (which I will, coincidentally, be teaching in my Advanced Patents class on Thursday--students, take note!) reads as follows (with my emphasis added):
(1) In general.--In addition to other rights provided by this section, a patent shall include the right to obtain a reasonable royalty from any person who, during the period beginning on the date of publication of the application for such patent under section 122(b) . . . and ending on the date the patent is issued–
(A)(i) makes, uses, offers for sale, or sells in the United States the invention as claimed in the published patent application or imports such an invention into the United States; or
(ii) if the invention as claimed in the published patent application is a process, uses, offers for sale, or sells in the United States or imports into the United States products made by that process as claimed in the published patent application; and
(B) had actual notice of the published patent application . . . .
(2) Right based on substantially identical inventions.--The right under paragraph (1) to obtain a reasonable royalty shall not be available under this subsection unless the invention as claimed in the patent is substantially identical to the invention as claimed in the published patent application. . . .
In Rosebud LMS
Adobe moved for summary judgment of no remedies, claiming that Rosebud was not entitled to post-issuance damages because Adobe had discontinued use of the accused technology in January 2013, ten months before the issuance of the ’280 patent. Adobe also asserted that Rosebud was not entitled to preissuance damages under § 154(d) because Adobe had no  actual notice of the published patent application that led to the ’280 patent. Rosebud did not oppose Adobe’s motion for summary judgment with respect to post-issuance damages. Instead, Rosebud argued that there remained a genuine dispute of material fact as to whether Adobe had actual knowledge of the published ’280 patent application. Specifically, Rosebud argued that Adobe had actual knowledge of the grandparent patent to the ’280 patent application; that Adobe followed Rosebud and its product and sought to emulate some of its product’s features; and that it would have been standard practice in the industry for Adobe’s outside counsel in Rosebud II to search for the ’280 patent application, which was published before Rosebud II was filed and related to the patent asserted in that suit (pp. 2-3).
The district court granted the motion, on the ground that "Rosebud had not met § 154(d)’s requirement of actual notice because Rosebud’s evidence did not identify the ’280 patent application by number, and was, at best, evidence of constructive notice" (p.3).

The Federal Circuit affirms, but in doing so it holds that "actual notice" doesn't necessarily require an affirmative act by the patent owner: 
We agree with Adobe and the district court that constructive knowledge would not satisfy the actual notice requirement. We do not, however, agree with Adobe that § 154(d)’s requirement of actual notice requires an affirmative act by the applicant giving notice of the published patent application to the infringer. Certainly, “actual notice” includes a party affirmatively acting to provide notice. See, e.g., 58 Am. Jur. 2d Notice § 4 (2015) (defining actual notice as “notice expressly and actually given”); Black’s Law Dictionary 1227 (10th ed. 2014) (defining actual notice as “[n]otice given directly to, or received personally by, a party”). But the ordinary meaning of actual notice” also includes knowledge obtained without an affirmative act of notification. “Indeed, ‘actual notice’ is synonymous with knowledge.” 58 Am. Jur. 2d Notice § 4 (2015) (also explaining that “[a]ctual notice rests upon personal information or knowledge while constructive notice is notice that the law imputes to a person not having personal information or knowledge”).
The court also rejects Adobe's argument that the legislative history of the provision suggests that it requires an affirmative act by the applicant, on the ground that the statutory text does not require this; and that the provision should be read consistently with section 287(a), the patent marking statute:
We have interpreted this latter provision to require “the affirmative communication of a specific charge of infringement.” Amsted Indus. Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 187 (Fed. Cir. 1994) (citing Dunlap v. Schofield, 152 U.S. 244 (1894)). But we will not read this requirement into § 154(d), where the statute itself does not recite the condition. If § 154(d) contained § 287(a)’s “proof that the infringer was notified” language, our interpretation of § 287(a) would be relevant, and likely dispositive. But that is not the case. Section 287(a) explicitly requires an act of notification, unlike § 154(d), which merely requires “actual notice.” If anything, these differences suggest that we should interpret the two statutes differently. Section 287(a) shows that Congress knows how to use language requiring an affirmative act of  notification when it wishes. It could have used that language in § 154(d) and did not.  
Perhaps there are, as Adobe argues, policy reasons for requiring an affirmative act of notification by the patentee. Requiring the applicant to affirmatively provide notice to potential infringers is in line with the extraordinary nature of statutory pre-issuance damages. Moreover, a strict rule requiring notification by the applicant is simpler to implement and does not leave the accused infringer in the difficult situation of having to rebut allegations that it knew of the published application. If Congress wishes, it can amend the statute to require an affirmative act by the patentee. We cannot. In the absence of such action, we interpret the actual notice requirement of § 154(d) as it is clearly written to have its ordinary meaning (pp. 6-7).
Nevertheless, on the facts, the court agrees that Adobe did not have sufficient notice because (1) the fact that Adobe had knowledge of the '280 Patent's grandfather application does not demonstrate that it had knowledge of the published application that matured into the '280 Patent; (2) the evidence did not show that Adobe was monitoring Rosebud's products, and (3) the evidence did not show that outside counsel necessarily would have come across the '280 application while preparing for litigation between the parties involving an earlier-issued related patent, which litigation never proceeded beyond the claim construction stage. 

My initial reaction to the court's rule is not positive.  I would think that actual notice should be construed to mean just that, notice, not actual knowledge; I think the policy considerations cited by Adobe deserve some consideration; and I'm not all that persuaded by the citations to Am. Jur., though I'll leave it to others for now to track down the source and context of the materials supporting the Am. Jur. quotes.  Perhaps the number of cases in which this sort of issue will come up will continue to be small, but I worry that the court has created a potential Pandora's box by permitting damages liability to arise absent an affirmative act by the owner of the pending application.    

R.I.P. Artur Fischer

According to this obituary in today's New York Times, the German inventor Artur Fischer, who died recently at the age of 96, was one of the most prolific inventors of all time.  The recipient of even more patents than Thomas Edison, Fischer made contributions to among other fields photography, home repair, and hobby kits/toys (Fischertechnik).  Here's an interview he gave to Der Spiegel in 2015 (in German).

Monday, February 8, 2016

Sidak on Royalties, SEPs, China

J. Gregory Sidak has some new papers on patent remedies and related issues, including the following:
1.  Ongoing Royalties for Patent Infringement, forthcoming in 24 Texas Intellectual Property Law Journal (2016).  Here is a link to the paper, and here is the abstract:
Section 283 of the Patent Act provides that, to prevent the ongoing infringement of a patent, courts “may grant injunctions in accordance with the principles of equity.” If the court decides that the issuance of an injunction is not appropriate, it may direct the parties to negotiate a royalty for the infringer’s future use of the patented technology. When such a negotiation fails, the court will impose an ongoing royalty that the infringer must pay. The U.S. Court of Appeals for the Federal Circuit has clarified that the calculus for an ongoing royalty differs from the calculus for a reasonable royalty typically awarded for past infringement, but it has not prescribed any particular methodology for a court to apply when determining an ongoing royalty. I conduct an empirical analysis of the courts’ decisions on ongoing royalties, which shows that a court-awarded ongoing royalty typically exceeds the jury-determined reasonable royalty imposed for past infringement. However, my analysis does not identify any single variable that affects the court’s determination of an ongoing royalty, which suggests that the courts have not yet developed a consistent methodology for determining an ongoing royalty. This article aims to fill that gap in the existing legal guidance by providing a simple yet rigorous economic methodology that courts can apply when determining an ongoing royalty. Because an ongoing royalty is an equitable remedy, awarded in lieu of a permanent injunction, no jury needs to be involved in determining the ongoing royalty. Consequently, Daubert and its progeny are not implicated (or, at the very least, the role of Daubert differs from its role in cases in which a jury acts as the finder of fact). In addition, the rationale for the entire market value rule (EMVR)—namely, avoiding jury confusion because of a large damage base—is inapplicable when calculating an ongoing royalty. When determining an ongoing royalty for the prospective use of a patented technology, courts can apply a methodology similar to that used to calculate a reasonable royalty. Courts need to consider the changes in economic circumstances from the time of first infringement to the time of the jury’s verdict and then determine how those changes affect the hypothetical negotiation for an ongoing royalty. In economic terms, courts should examine how the information that became available after the first infringement affects the bargaining range for the use of the patent or patent portfolio. That is, courts need to identify any changes in the patent holder’s minimum willingness to accept and the infringer’s maximum wiliness to pay. Next, courts need to examine whether the parties’ relative bargaining positions have changed (compared to their bargaining positions at the time of first infringement) to determine a point royalty within the bargaining range. I show that, although the court’s determination of an ongoing royalty will be fact-specific and will vary on the basis of the specific circumstances of each case, the changes in the economic conditions between the time of first infringement and the time of the hypothetical negotiation for an ongoing royalty will typically support the award of an ongoing royalty that exceeds the reasonable royalty for past infringement. An ongoing royalty that exceeds the reasonable royalty for past infringement should not be confused with an award of enhanced damages for willful infringement, which courts rarely award.
2. The Value of a Standard Versus the Value of Standardization, forthcoming in 68 Baylor Law Review (2016).  Here is a link, and here is the abstract:
The Federal Circuit said in Ericsson, Inc. v. D-Link Systems, Inc. that a jury instructed to determine a fair, reasonable, and nondiscriminatory (FRAND) royalty for standard-essential patents (SEPs) “must be told to consider the difference between the added value of the technological invention and the added value of that invention’s standardization.” The court emphasized that a FRAND royalty “must be premised on the value of the patented feature, not any value added by the standard’s adoption of the patented technology.” The Federal Circuit reasoned that “those steps are necessary to ensure that the royalty award is based on the incremental value that the patented invention adds to the product” and is not based on any value that the standardization of that technology adds to the product. 
The Federal Circuit’s phrase “the value of standardization” is abstract and ambiguous. Restated in more direct and more intuitive terms, the phrase appears to denote the value from making a collective decision to conform to a standard—that is, the value that arises when inventors and potential implementers agree that they will comply with a standard to solve a particular technological challenge. That agreement to create a standard does not imply that a feasible technology already exists to become the standard, nor does it indicate that the required technology (if it does not yet exist) will be straightforward to develop. The standard-setting organization (SSO) cannot simply hypothesize that an available and acceptable technology exists for the standard because the SSO would like to have a standard. 
Consequently, in patent litigation after Ericsson v. D-Link it is essential to disaggregate “the value of standardization” from the value of the technologies incorporated into the standard. “The value of standardization”—that is, the value of the agreement to implement a unified standard—can arise from (1) a reduction in transactions costs for implementers of the standard and for SEP holders and (2) the network effects generated by interoperability between standard-compliant products. The value of the technologies incorporated into the standard comprises the rest of the total value of the standard.
3. Evading Portfolio Royalties for Standard-Essential Patents Through Validity ChallengesHere is a link to the paper, and here is the abstract:
A no-challenge clause prevents a patent licensee from challenging the validity of a licensed patent. In the 2014 Guidelines on Technology Transfer Block Exemption Regulation, the European Commission discouraged parties from including a no-challenge clause in a settlement and license agreement concerning standard-essential patents (SEPs). The Commission said that eliminating invalid patents serves the public interest because it promotes competition. For similar reasons, in 2014, the Advocate General of the Court of Justice of the European Union opined in Huawei Technologies Co. v. ZTE Corp. that EU competition law should allow a licensee to retain the right to challenge a licensed SEP’s validity notwithstanding that the licensee has entered into a settlement and license agreement with the SEP holder. I analyze the Commission’s and the Advocate General’s assumption that a licensee’s challenging the validity of SEPs unambiguously benefits consumers. I assess the merits of that legal proposition within the well-established economic framework of cost-benefit analysis. I particularly focus on the marginal benefits and the marginal costs that eliminating no-challenge provisions would generate for consumers. I explain that the Commission and the Advocate General exaggerated the marginal benefits and understated the marginal costs of validity challenges to licensed SEPs, particularly when the typical SEP holder repeatedly licenses its SEPs in a large portfolio to a sophisticated licensee. The discovery that several SEPs in a licensed portfolio of hundreds are invalid would neither surprise the parties nor justify reducing the portfolio royalty. The Commission and the Advocate General ignored that encouraging a licensee to challenge the validity of individual licensed SEPs invites opportunistic litigation by the licensee so as to delay paying the SEP holder the agreed-upon royalty for the use of the many more valid patents in its licensed portfolio. Thwarting the SEP holder’s ability to receive prompt compensation for its innovative contribution lessens the SEP holder’s incentive to invest in innovation and thus decreases quality of collective standard setting. Those effects in turn impose significant marginal harm on consumers. Consequently, the Commission and Advocate General erred to assume that consumers derive a net marginal benefit from the announced policy encouraging a licensee to challenge to the validity of licensed SEPs.
4. Comments on the Revised Draft Amendments to the Patent Law, available here, and Comments on the Anti-Monopoly Guidelines on the Abuse of Intellectual Property Rights, available here.

Friday, February 5, 2016

Hovenkamp & Cotter on Anticompetitive Patent Injunctions

I am pleased to announce that the Minnesota Law Review has now published the article I coauthored with Erik Hovenkamp, titled Anticompetitive Patent Injunctions, 100 Minn. L. Rev. 871-919 (2016)Here is a link to the published version of the paper.  The abstract reads:
The current approach for determining when courts should award injunctions in patent disputes involves a myopic focus on the hardships an injunction might impose on the litigants and the public. This article demonstrates, however, that courts sometimes could rely instead on a consideration far more relevant to the patent system's goal of promoting innovation: the extent to which the right to exclude was actually a necessary quid pro quo for the plaintiff's decision to bring its products to market. We illustrate the value of this approach with a critique of a recent Federal Circuit decision, Trebro Mfg. Inc. v. FireFly Equipment, LLC, which held that injunctive relief may be appropriate when a defendant infringes a patent that the plaintiff-competitor does not practice, and against which it lacked any legal protection when it entered the relevant downstream market. These circumstances — which are increasingly common in industries with rich markets for secondhand patents, result in the formation of what we refer to as a “diagonally integrated” nonpracticing entity (NPE) — a producer who owns a patent it does not practice, and who competes with downstream rivals who use (or would like to use) the patented technology. We develop a simple model showing that if such a firm acquired the unpracticed patent after entering the relevant product market, an injunction poses a threat to competition and consumer welfare that is not offset by any plausible benefit to innovation. Further, diagonally integrated NPEs have a perverse incentive to exclude or substantially limit all use of the patented technology, making them more likely to seek excessive licensing fees and aggressively seek injunctive relief than are conventional, “unintegrated” NPEs. This effort to foreclose all use of a technology is novel in the patent literature, but the spirit of this tactic is well known in antitrust: a dominant firm acquires patents that it has no intent to use simply in order to deny the technology to rivals, thus perpetuating its dominant position. The model’s implications also extend to a range of topics at the core of contemporary patent policy debates, including patent privateering, FRAND-encumbered patents, and preemptive patenting. It also suggests that in considering appropriate remedies the court should weigh competition concerns more seriously, particularly when there is little or no tradeoff with innovation concerns. 

Thursday, February 4, 2016

Another Cert Petition on Disgorgement of Profits for Design Patent Infringement

Hat tip to Sarah Burstein and Patently-O for flagging this one.  The case is Systems, Inc. v. Nordock, Inc., which I blogged about when the Federal Circuit issued its opinion in September (see here).  Like Samsung v. Apple (see my most recent blog post here), the cert petition here asks the Court to consider whether Patent Act § 289 requires the disgorgement of a design patent infringer's entire profit from sales of articles embodying the protected design, or only the portion of those profits that are attributable to the design itself.  The questions presented are:
1.  Where a patented design is applied to only a component of a product, should an award of infringer's profits be limited to those profits attributable to the component?
2.  Is the Federal Circuit's interpretation and application of 35 U.S.C. § 289 inconsistent with this Court's prior precedent?
It will be interesting to see if the Court grants cert in one or both cases, and if so whether it will find a way to interpret the statute that is economically rational--or instead leave the matter for Congress to correct.

Update:  And while on the topic of the Samsung v. Apple case, over on FOSS Patents Florian Mueller reports that Apple has now filed its respondents' brief in opposition to cert (almost two weeks early!).  And though it's not relevant to design patents, Florian also reports this news article stating that a jury in the Eastern District of Texas has awarded VirnetX $625 million against Apple on remand from the 2014 VirnetX v. Apple appeal (see my blog post here).  It will be interesting to see if this one holds up.

Further Update to the VirnetX v. Apple Verdict:   Patently-O has posted the verdict form here.  As is standard practice in the U.S., there is nothing in the form to indicate how the jury arrived at its numbers ($334,908,773.73 for 2009-13, and $290,725,067.31 for "this infringement through the time of trial").  In the past I have wondered whether it would be desirable in patent (and perhaps other) cases if courts submitted to the jury a form for a general verdict with special interrogatories, pursuant to Federal Rule of Civil Procedure 49(b), so we would have a clearer understanding of what the basis is for a damages award (rate, base, etc.) . . . but to my knowledge this practice is rarely used in this context.  Maybe it wouldn't be worth the added effort.