Thursday, October 23, 2014

The Cour d'Appel's Referral to the CJEU on Royalties

Pierre Véron and Amandine Métier recently published posts on both EPLaw and the Kluwer Patent Blog on Genentech v. Hoechst and Sanofi-Avenis Deutschland, in which the Cour d'appel de Paris on September 23, 2014 referred a question to the Court of Justice for the European Union (CJEU).  His posts also link to the Cour d'appel's judgment (in French) and to Véron & Associés' translation of it into English.  Here is the question referred to the CJEU in the original French, followed by the English translation:
Les dispositions de l'article 81 du Traité devenu l'article 101 du Traité sur le fonctionnement de l'Union européenne doivent-elles interprétées comme faisant obstacle à ce qu'il soit donné effet, en cas d'annulation des brevets, à un contrat de licence qui met à la charge du licencié des redevances pour la seule utilisation des droits attachés aux brevets sous licence?
Should the provisions of Article 81 of the Treaty, now Article 101 of the Treaty on the Functioning of the European Union, be interpreted as an obstacle to giving effect, in case of invalidation of the patents, to a licence agreement which imposes on the licensee royalties for the sole use of the rights attached to the patents under licence?
As Véron and Métier explain, Genentech and Hoechst/Sanofi's predecessor in interest were parties to an agreement under which Genentech could use for research purposes certain patents, including two U.S. patents and one European patent on enhancers for eukaryotic expression systems.  The EPO revoked the European patent in 1999 but the two U.S. patents noted above were never invalidated.  As discussed in a subsequent U.S. Federal Circuit opinion, Sanofi/Aventis Deutschland GmbH v. Genentech, Inc., 716 F.3d 586 (Fed. Cir. 2013), more about which in a moment,
The Agreement specified that in exchange for fixed annual payments, Genentech could practice the patents-in-suit for research purposes. Genentech made these payments from 1992 to 2008. In addition, the Agreement required Genentech to pay a running royalty of 0.5% on the sale of commercially marketable goods incorporating a “Licensed Product.” The Agreement defined licensed products as “materials (including organisms), the manufacture, use or sale of which would, in the absence of this Agreement, infringe one or more unexpired issued claims of the Licensed Patent Rights.” The Agreement was governed by German law and required disputes to be settled by arbitration in accordance with the rules of the International Chamber of Commerce (“ICC”).
Genentech never paid any royalties on Licensed Products, but in June 2008 Sanofi/Hoechst notified Genentech that it believed two Genentech products, Rituxan and Avastin, infringed the licensed patents.  Genentech terminated the license, and with the agreement no longer in force the parties thereafter litigated a patent infringement suit in the U.S.  Ultimately the U.S. District Court for the Northern District of California and the U.S. Court of Appeals for the Federal Circuit concluded that Genentech was not infringing Hoechst/Sanofi's patents.  See Sanofi-Aventis Deutschland GmbH v. Genentech, Inc., Nos. C 08–4909 SI, C 09–4919 SI, 2011 WL 839411 (N.D. Cal. 2011), aff'd, 473 Fed. Appx. 885 (Fed. Cir. 2012).  

Meanwhile, Sanofi/Hoechst commenced an arbitration proceeding against Genentech in Europe, and eventually the arbitrator concluded that Genentech had breached the agreement and ordered it to pay damages in the amount of €108,322,850, plus interest and costs.  In the 2013 opinion quoted earlier in this post, the Federal Circuit affirmed the denial of Genentech's request for an injunction against the arbitration, on the ground that "the U.S. judgment of non-infringement is not dispositive as to breach of the Agreement," noting among other things that "the arbitrator determined that a drug could be a licensed article even though it did not contain the patented enhancers, so long as those enhancers were used in its manufacture. . . .  Because it concluded that the enhancers were used in making Rituxan, the arbitrator determined that Genentech was liable for damages under the Agreement."  Genentech, however, sought to have the French court overturn the arbitration award on the ground, among others, that "the decision of the sole Arbitrator who condemns it in this respect without finding any patent infringement contravenes European competition law and especially Article 101 of the Treaty on the Functioning of the European Union [TFEU]" (quoting here from the Véron firm's translation).  According to the Cour d'appel, the parties have stipulated that German law applies to the agreement and that under that law "it is not contested that it authorises the licensor to claim royalties from the licensee until the termination of the contract, notwithstanding the subsequent invalidation for the patents to which the granted rights were attached."  The referral to the CJEU asks whether this is correct under the TFEU.

I provide a very brief discussion of TFEU article 81 (the predecessor to article 101) and its relationship to patent validity challenges in my book at pp. 281-84.  In relevant part, this article generally prohibits, and renders automatically void, agreements “which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which . . . limit or control production, markets, technical development, or investment,” though regulations such as the TTBER and RDBER can render the general prohibition inapplicable to an agreement that contributes “to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not . . . impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives [or] afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.” (For links to the TTBER as updated earlier this year, see here, and for commentary, see here.)  As discussed in my book, scholarly opinion suggests that article 101 renders unenforceable any contractual provision forbidding a licensee from challenging patent validity. On the specific question referred to the CJEU in the above case, I'm not entirely sure how the CJEU will rule--I don't claim to be an expert on the TFEU and the applicable regulations insofar as they may impact this case--but I am inclined to agree with Véron and Métier that the Cour d'appel's understanding of German law is problematic.  As I understand German law, a licensee who has paid royalties doesn't get them back if the patent is later invalidated, but it also doesn't have to keep paying them after invalidation.  Moreover, even an adjudicated infringer is entitled to get back all of the damages it paid if the patent is later invalidated (see my post here).   I therefore would tend to think that it would be incorrect to order Genentech to pay royalties on an invalidated or noninfringed patent, even if those royalties cover only the period in time while the license agreement was in force, though perhaps there is more to the matter than I comprehend at this point.

I also am somewhat confused by the Cour d'appel's phrasing of the question in two respects.  First, it specifically uses the phrase "en cas d'annulation des brevets" ("in case of invalidation of the patents"), but as noted above the two U.S. patents at issue (though not infringed) were not invalidated.  The European patent was revoked, but are the royalties based only on activities that took place in Europe?  (I think not, but maybe I'm wrong.)  Second, the question also uses the phrase "redevances pour la seule utilisation des droits attachés aux brevets sous licence" ("royalties for the sole use of the rights attached to the patents under licence"), but the agreement at issue was a nonexclusive license (as the court itself recognized earlier in the judgment).  Maybe the court meant something like "royalties solely for the use of the rights attached to the patent under license," and maybe that meaning is clear to a native French speaker; but to me the phrasing comes across as a bit curious.

Wednesday, October 22, 2014

Another Upcoming Event, on FRAND

Following up on yesterday's post, I just came across a notice of this upcoming Law Seminars International event next week (October 30) in Seattle (and via webcast) on FRAND obligations.  Looks like there are some interesting speakers, including David Killough and Anne Layne-Farrar.

Tuesday, October 21, 2014

A Couple of Upcoming Events on Patent Remedies

First, as reported the other day on the Essential Patents Blog, the AIPLA Annual Meeting in Washington, D.C. will feature a session this coming Thursday, October 23, at 3:30 p.m. titled "Practical Considerations in Litigating Standard Essential Patents."  According to the post, David Long of Kelley Drye will moderate a one-hour panel discussion with United States District Judge James Holderman (the author of the FRAND opinion in In re Innovatio IP Ventures LLC, which I blogged about here) and Administrative Law Judge Theodore Essex (whose very different views on FRAND, as expressed in his Initial Determination in In the Matter of Certain Wireless Devices with 3G and/or 4G Capabilities and Components Thereof, were the subject of my blog post here).  Sounds like it should be a great session.
Second, American University's Washington College of Law and the University of Utah S.J. Quinney College of Law will be presenting a conference at American University in Washington, D.C., on November 11, 2014, titled "Patent + Policy -- The Future of Patent Remedies."  I will be presenting a paper I am currently working on with Norman Siebrasse, titled "A New Framework for Determining Reasonable Royalties in Patent Litigation."  (The paper is still a work in progress, but I will notify readers when it is up on ssrn.)  Here is a link to the conference website, and here is the conference description and schedule:
Over the past few years, the once-placid world of patent remedies has been thrown into upheaval.  Judicial decisions and pronouncements by enforcement agencies have both put pressure on traditional doctrines relating to damages, fee recovery and injunctive relief.  This symposium will explore recent developments and the future trajectory of patent remedies law from a judicial, regulatory and legislative standpoint.  Please join us for this important event.
8:30-9:00 – Registration and Coffee
9-9:50 – Panel 1: Remedies and Standards-Essential Patents 
Moderator: Jorge Contreras, University of Utah
Tom Cotter, University of Minnesota
Dina Kallay, Ericsson
Jeff Totten, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
10:00-10:35 – Panel 2:  Injunctive Relief Developments
Moderator: Michael Carroll, American University Washington College of Law
Suzanne Munck – Federal Trade Commission 
Jim Sherwood – Google, Inc.
Paul Schoenhard – Ropes & Gray
10:45-12:00 – Panel 3:  Monetary Damages: Royalties, Lost Profits and Costs
Moderator: Jonas Anderson, American University Washington College of Law
Roy Lytle – Microsoft, Inc
David Cavanaugh – WilmerHale
Matt Levy – Computer and Communications Industry Ass’n

Monday, October 20, 2014

Some comments on the Contreras and Gilbert paper

A couple of weeks ago I mentioned a paper that Jorge Contreras and Richard Gilbert had recently posted on ssrn, titled A Unified Framework for RAND and Other Reasonable Royalties I stated that I agreed with the authors' thesis that "the reasonable royalty analysis should be conducted in essentially the same manner for all patents, whether or not they are encumbered by RAND commitments," but that I might have more to say about the paper after I had had a chance to read through all of it.  Having now read the paper and given it some thought, I can say that I recommend the paper quite highly, and I look forward to talking it over with the authors at an upcoming conference in D.C.  For what it's worth, here are a few more brief comments.

First, for reasons I have stated at length elsewhere (see, for example, here), I agree with the authors' statement that courts generally should deny injunctive relief for the infringement of SEPs, whether or not those SEPs are encumbered by a RAND commitment.  If anything, the authors make more of the RAND commitment than they really need to, for example when they state at p.7 that "courts informed by the patent owner's RAND commitment, can . . . apply the eBay factors to determine when an injunction is warranted" (emphasis in original; see also p.31).  But they rectify matters in part when they state at p.8 that, even in the absence of RAND commitment, "if the failure to license a patent that is essential to a standard would allow its owner to hold up firms and consumers that are locked in to the standard with serious negative consequences for economic welfare, it would not require a delicate balancing of equities for a court to conclude that injunctive relief should not be available, regardless of whether the patent is subject to a RAND licensing commitment."  Perhaps also, in countries that generally view injunctive relief not as a discretionary matter, but rather as a right accruing to the victorious patent owner, perhaps a RAND commitment would be necessary for a court to find a reason (grounded in competition law or the abuse of right doctrine) to deny an injunction--though maybe not, since even the German Orange-Book-Standard framework does not require that the SEP be subject to such a commitment.  And in any event, the authors are clear that as far as injunctive relief is concerned their analysis focuses only on U.S. courts (p.9).  

Second, the authors are right in stating that courts setting RAND royalties should apply an ex ante bargaining framework, where "ex ante" means "before the standard has issued and firms and consumers make irreversible commitments" (p.11; see also the discussion at pp. 26-27, 30-31).  As I mentioned last week, Norman Siebrasse and I are working on a paper that recommends the same result, though with the caveat that courts should assume the parties to the ex ante negotiation have access to all relevant ex post information as well.  But I'll hold off on elaborating on that point for the time being, since we're still working on the paper.

Third, I also agree with the authors' statement that "[t]he fact that there is no single best way to apportion the value of a technology to individual patents does not undermine the utility of the incremental value method to assess the total royalty for the technology at issue" (p.13).  It's important to know what the ideal is before you can determine what evidence can serve as an acceptable proxy for that ideal.  That said, and as the authors recognize, it can be fiendishly difficult to figure out how best to apportion value among patents (whether SEPs or not); this may be the single most important topic for which, if some aspiring economists is looking to make his or her mark on the profession, we really could use a breakthrough.

Fourth, on the issue of whether RAND is still relevant if courts are going to calculate reasonable royalties in the same manner regardless of the existence of a RAND commitment, the authors are probably right in noting that a RAND commitment may have other consequences, including other possible claims for relief (e.g., breach of contract); and that "even if the royalty that a patent holder may charge to a licensee under a RAND commitment is the same as the royalty it would have received as damages in an infringement suit absent the RAND commitment, it is more efficient to operate under a system in which there is a presumption that licenses will be granted on reasonable terms compared to a less certain environment in which disputes are more likely to be pursued in litigation" (pp. 31-32).

Fifth, one matter that I think needs to be corrected is the authors' characterization at p. 34 of the holding in the Grain Processing case (185 F.3d 1341 (Fed. Cir. 1999)).  As I recall it, the Federal Circuit on the second appeal affirmed Judge Easterbrook's determination that the plaintiff had not suffered any lost profits.  Maybe I'm misreading what the authors mean to say about this case, however.

Overall, this is a very good paper that deserves to be widely read.

Thursday, October 16, 2014

Sedona Conference Commentary on Patent Damages and Remedies

The Sedona Conference describes itself as "a nonprofit, 501(c)(3) research and educational institute dedicated to the advanced study of law and policy in the areas of antitrust law, complex litigation, and intellectual property rights."  The Sedona Conference Working Group Series describes its mission as the pursuit of "in-depth study of tipping point issues in the areas of antitrust law, complex litigation, and intellectual property rights, with the goal of producing high-quality, non-partisan commentary and guidance of immediate, practical benefit to the bench and bar."  Just recently I learned that the Sedona Conference Working Group on Patent Damages and Remedies (WG9) has published a public comment version of a document titled Commentary on Patent Damages and Remedies, available here, and is soliciting public comments on the Commentary through January 30, 2015.  Here is a link to information on submitting comments, and here is a link (behind a paywall, however) to a recent write-up on Bloomberg BNA's Patent, Copyright & Trademark Law Daily about an October 9 webinar on the Commentary.

The Commentary is quite interesting and covers a range of issues, including principles for calculating reasonable royalties, best practices for pretrial and trial procedure relating to damages issues, and the availability of injunctive relief.  There is much here that I think is very sensible, including the Working Group's suggestions relating to the availability of injunctive relief (pp. 53-54).  On this issue, the Working Group argues, among other things, that injunctive relief generally should not be available for the infringement of a FRAND-encumbered SEP (though, like Contreras and Gilbert, I would go further and say that injunctions generally should not be available for the infringement of SEPs even in the absence of a FRAND commitment; and perhaps the Working Group would agree too, because it also states that "[a] patent owner's practice of licensing the patent widely to whomever has requested a license presents a strong case for denial of the injunction").

Perhaps the most interesting part of the Commentary is the Working Group's recommended Principle II-1, which states that
The reasonable royalty in patent infringement matters should fairly compensate the patent holder for the actual use made by the infringer of the patented invention and should be determined by considering what fully informed and reasonable persons in the position of the patent owner (or owners throughout the period of infringement) and the infringer would agree to at the time of trial as a fair price for the use of the patented invention, from the time of first infringement through the time of trial, taking into account all relevant facts and circumstances occurring before or during that period" (emphasis added).  
The Working Group refers to this as the "retrospective model" (I would use the term "ex post" approach).  It also acknowledges that what it refers to as the "status quo" approach (and what I would refer to as the "ex ante" approach) is for the court to determine the royalty the parties would have agreed to as of a date just before the infringement began (ex ante)--though it also allows courts to consider ex post evidence (the so-called "book of wisdom") as an aid in determining the terms the parties would have agreed to ex ante.  The Working Group nevertheless argues that the book of wisdom principle is "amorphous" and unpredictable, and that 
the Retrospective Model is the most economically sound approach that both accomplishes the goals of the patent damages statute and also is consistent with the economic principles governing patent valuation. Taking all facts known through the time of trial into account eliminates the potential for unfairness in the prospective model without introducing the cherry-picking and uncertainty that the book of wisdom imported into that model (p.16).
It also recognizes, however, that "[m]oving the hypothetical negotiation . . . to a time at or near the time of trial has potential infirmities as well. Specifically, it could lead to a higher (and potentially unfair) royalty due to what are commonly known as 'lock in' effects" (id.)  To rectify this consequence, the Working Group recommends as Principle II-7 that
Where the technology claimed in the asserted patent is necessary to practice because (1) it is essential to a de facto standard or a standard adopted by a recognized standard setting organization (i.e., standard-essential); (2) a technically feasible non-infringing design around alternative is restricted or prohibited by government regulations or requirements; and/or (3) the technically feasible design around is cost-prohibitive, then the reasonable royalty should exclude any premium the patent may command solely resulting from the adoption of the standard or the governmental/commercial prohibitions on design modification. All standards adopted prior to trial may be considered.
In particular, 
where lock-in effects exist at the time of trial, the valuation of the patented technology must be performed at an earlier time, before the infringer was locked-in, so as to avoid the attachment of a premium to the value of the patent technology that results from the user’s lock-in. Accordingly, the Working Group determined that, for purposes of addressing lock-in and avoiding holdup effects, the patented technology to which the infringer is locked in generally should be valued in a manner that would exclude any premium the patent would command as a result of the adoption of the standard, i.e., any premium divorced from the technical merits of the technology. . . .
The parties should encourage their damages experts to take care to exclude from their reasonable royalty determination any hold-up effects that may result from a valuation performed after the relevant lock-in date. The reasonable royalty analysis should assign the reasonable royalty value prior to the relevant lock-in date. Upon the filing of a Daubert motion challenging the reasonable royalty methodology, the court should explicitly consider whether lock-in/hold-up effects were properly accounted for in the challenged methodology (pp. 26, 40).
My own view, as expressed in a forthcoming draft of a paper I am coauthoring with Norman Siebrasse that is tentatively titled A New Framework for Determining Reasonable Royalties in Patent Litigation, is that the Working Group is right to focus on ex post information as an indicium of patent value, but that the Working Group's proposed implementation of that insight needs some reworking.  As I see it, both the "status quo" and "retrospective" approaches as described by the Working Group suffer from a common defect:  the assumption that a hypothetical bargain taking place ex ante can be based only on information that is available ex ante.  Inspired in part by a paper published by Mario Mariniello titled Fair, Reasonable and Non-Discriminatory (FRAND) Terms: A Challenge for Competition Authorities, 7 J. Comp. L. & Econ. 523 (2011), however, Professor Siebrasse and I will argue that there is no good reason why this must be so, and that in general courts should calculate royalties based on a hypothetical negotiation taking place ex ante but with knowledge of all relevant facts that are known ex post.  Although this may sound less “real” than the ex ante or ex post approaches described above, it is important to recognize that all of these approaches are fictions—that’s what “hypothetical negotiation” means—and that courts should employ the fiction that best serves the goals of the patent system.  In our view, the goal in setting damages should be to award compensation that is commensurate with (though less than) the social value of the invention, and ex post information is better suited than is ex ante information to determine that value--you know more later than you did before about the invention's value.  That value may be higher or lower than what reasonable parties would have expected ex ante, a point the Working Group to its credit makes at p.16.  Moreover, as both we and the Working Group point out, even aside from the "book of wisdom" issue courts already use some ex post information when setting royalties, for example in determining the value of the royalty base for a running royalty, or when assuming that the hypothetical negotiation took place on the assumption that the patent was valid and infringed (a fact that is not established until the conclusion of trial).  Nevertheless, we think that posing the question of what bargain the parties would have struck ex post risks overcompensating patentees precisely because of hold-up or lock-in costs, which we understand to encompass any value the patentee is able to extract that is based on the cost of switching from an infringing to a noninfringing technology.  Those costs are not dependent on the patent in suit being standard-essential (though in the context of SEPs they are likely to be particularly high), and they bear no relation to the value of the invention as such. 

We therefore conclude that royalties should be calculated based on a hypothetical negotiation occurring ex ante--preferably before the infringer has incurred costs in reliance on its ability to use the patented technology--but with full knowledge of how valuable (or not) the patented technology would be, in comparison with alternatives, ex post.  (Interestingly, courts in Germany have sometimes expressed the reasonable royalty framework in similar terms, as involving the question of "what reasonable contracting parties would have agreed to, at the conclusion of a licensing agreement, if they had foreseen the future development and specifically the duration and amount of the use of the patent.")  In our forthcoming paper, we will expound upon this theme over a variety of contexts, including but not limited to SEPs, where our thesis indicates that a FRAND royalty should be equivalent to what the parties would have agreed to ex ante (before the standard is adopted) but with full knowledge of the value of the patent (ex post) as part of that standard.  This allows the court to avoid awarding damages based on the hold-up value, but at the same time recognizes that a portion of the patent's value may be complementary to the value of other patents within the standard (in other words, part of the value the patent owner should recover is due to the fact that the patent winds up being incorporated into a standard).

As stated, Professor Siebrasse and I are still working on our paper, but we hope to have a draft ready to post on ssrn before too long.  When it is ready, we probably will file a comment on the Working Group's Commentary that explains our views at greater length.         

Monday, October 13, 2014

Nobel Laureate Jean Tirole's Contributions to the Economics of Intellectual Property

I was delighted to hear this morning that French economist Jean Tirole had been awarded the 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.  Professor Tirole's contributions to the economics of industrial organization are many and varied.  They include several works on the economics of patents, including a recent paper that he coauthored with Josh Lerner titled Standard-Essential Patents, NBER Working Paper 19664, that I mentioned on this blog earlier this year (here).  Norman Siebrasse and I had thought about blogging about the paper at some point--we thought, in Professor Siebrasse's words, that Lerner and Tirole may have been too pessimistic about the ability of the FRAND requirement to constrain ex post market power, and too optimistic about the feasibility of ex ante commitments in the form of price caps--but be that as it may, Professor Tirole's work is innovative and rigorous, and the paper deserves wide attention.  As noted by the Economic Sciences Prize Committee of the Royal Swedish Academy of Sciences in their 52-page summary of Professor Tirole's work (available here), Professor Tirole has also written on, among other topics, the subject of patent races in an influential article with Drew Fudenberg, Richard Gilbert, and Joseph Stiglitz (which I've cited in my work), and on patent pools.  The Nobel Committee also cites his work on the economics of open-source software, network competition and two-sided markets, and many other subjects.

Anyway, congratulations to a very deserving winner.   

Preliminary Injunctions and Irreparable Harm in China

As I discuss in my book, article 66 of China's Patent Law authorizes the court to award preliminary injunctions “[i]f the patentee or interested party has evidence to prove that another person is committing or is about to commit a patent infringement, which, unless being checked in time, may cause irreparable harm to his lawful rights and interests . . . ."  Moreover:
Commentators agree that preliminary injunctions are less frequently granted in patent than in trademark litigation; and that annually the number of patent cases in which preliminary injunctions are granted is fairly small, due in large part to Chinese courts’ strict understanding of the petitioner’s burden of proof and the difficulty of obtaining sufficient evidence of irreparable harm. Such caution may be warranted, however, given the statutory framework under which such proceedings are initiated prior to the initiation of the infringement action and are supposed to be decided within forty-eight hours (p.351).
In addition, article 14 of the Supreme People's Court's April 21, 2009 Opinion on Certain Issues with Respect to Intellectual Property Judicial Adjudication Under the Current Economic Situation (an English translation of which can be found in Douglas Clark's book Patent Litigation in China (Oxford Univ. Press 2011)), advises the lower courts to "cautiously use preliminary injunction measures." It also suggests that such measures "are suitable mainly in cases where the facts are relatively clear and infringement easy to judge," and that courts should try to avoid "unfairly caus[ing] trouble to the production and operations of the enterprise sued," though at the same time courts should limit the "public interest" defense to cases involving "public health, environmental protection, and other circumstances of major social interests."   
Anyway, the May/June 2014 issue of China Intellectual Property features an article by Kevin Nie and Jessie Chen titled Landmark IP Cases of China in 2013.  Case number 1 is the Abbott Milk Container Case, (2013) SanZhongMinBaoZi No. 01933 Civil Judgment, Beijing Third Intermediate People's Court, which the authors describe as involving "an issue of first impression in a Beijing court  . . . of great significance both in theory and practice."  (The case is also discussed in this post by Benjamin Bai on the Kluwer Patent Blog, which I mentioned here this past May.)  According to Nie and Chen, Abbott, the licensee of a design patent for a milk container, commenced a proceeding for a preliminary injunction against Yilong Company, which allegedly made and sold infringing containers.  The court concluded that the plaintiff was faced with irreparable harm based on the following factors:  (1) the defendants sold the containers at wholesale to milk powder producers, who in turn would resell them, so that infringement was likely to occur "at each point of sale," thus causing Abbott "increasing costs and difficulty in protection of its rights"; (2) design patent rights last for only ten years; and (3) "designs for containers don't last long and may be easily replaced" (p.28).  On this basis, the court issued the injunction, after which the parties settled.  (Mr. Bai, in his account noted above, also mentions that the court found found "a high likelihood that Abbott could prevail on its infringement claim," that "Abbott’s harm, if a PI was not issued, would be greater than the infringers’ harm if a PI was issued," that "Abbott posted an adequate bond," and that "no public interest would be adversely impacted.")

In my view, it's not so clear why the fact that the patent may be separately infringed by the retailer should matter all that much in determining irreparable harm, since one would normally expect the infringing manufacturer to pay a royalty for the use of the patent (which apparently is what wound up happening anyway); any separate harm accruing from the separate infringement by the retailer seems rather abstract, in my view.   Put another way, I don't see how the sales to the retailers make the harm any more or less reparable.  I'm also not sure why the fact that the containers are easily replaced makes the infringement any less reparable, if the defendant could be ordered to pay damages--though one theory might be that retailers would get used to doing business with the defendant and continue doing business with that entity, even after it switches to another product.  In any event, given the small number of cases in which Chinese courts have granted preliminary injunctions in patent disputes, it's helpful to have another data point in the mix.

The Nie & Chen article also discusses a case in which the Beijing Second Intermediate People's Court issued a preliminary injunction against an alleged copyright infringement in a well-known writer's letters, and another in which the First Intermediate Court of Shanghai issued a preliminary injunction in a trade secret case brought by Eli Lilly.  For further discussion on this blog of this last case, and of preliminary injunctions in China generally, see here and here.