Friday, July 22, 2016

Blogging Break

I will be taking a break from blogging over the next two weeks.  Between now and then, if you get that midnight craving for insightful commentary on the comparative law and economics of patent remedies (as I'm sure many of you will), feel free to sample from the over 600 posts I've published since launching the blog in May 2013.  We'll meet again in a fortnight.

Update:  Terrorism and other forms of mass killing are evil, wherever and whenever they occur.  This afternoon, however, my heart goes out in particular to the people of Munich, a place that I have come to know and love during my two visits there to research the topic that is the subject of this blog.  Meine Gedanken sind bei Ihnen.

Thursday, July 21, 2016

Cotter on Patent Damages Heuristics

I have now posted on ssrn a draft of the paper I prepared for the Texas Patent Damages Conference in June, titled Patent Damages Heuristics.  The paper will be published in the Texas Intellectual Property Law Journal.  Here is a link to the paper, and here is the abstract:
In many domains, including law, decisionmakers often resort to heuristics, which others have aptly described as “shortcuts that simplify and speed up decision making” by, for example, “ignor[ing] some of the available information” to arrive at “adequate, though often imperfect, answers to difficult questions.” In this paper, I argue that a patent system that more readily accepts the use of damages heuristics may better serve public policy than one that requires patent owners to substantiate every aspect of their claimed damages with rigorous proof. More specifically, policymakers confronted with the choice between a proposed heuristic and an open-ended, nonheuristic standard (or an alternative heuristic) ideally should choose the proposed heuristic when the sum of the administrative and error costs associated with its use is lower than the sum of the administrative and error costs resulting from the use of the nonheuristic (or alternative heuristic). To be sure, there often may be no easy way to evaluate whether this condition is satisfied — due both to the paucity of the evidence and to the fact that the cost one attributes to error depends in part on the value one places on the importance of accurate damages calculations to patent policy. Nevertheless, I will argue that, at least in some recurring situations, policymakers can reach a reasoned conclusion whether or not use of a particular heuristic is likely to improve social welfare; and that, more generally, the patent system would benefit if courts were more mindful of both the necessary tradeoffs to be made in calculating damages and where the gaps in our knowledge lie.
Comments welcome.

Tuesday, July 19, 2016

WBIP v. Kohler: First Post-Halo Federal Circuit Opinion on Willfulness

This morning the Federal Circuit issued an opinion in WBIP, LLC v. Kohler Co. (link here), its first one to consider the impact of the Supreme Court's decision last month in Halo v. Pulse on enhanced damages (see blog post here).  The opinion is by Judge Moore, joined by Judges O'Malley and Chen.  

According to the opinion, the plaintiff and defendant are competitors in the market for marine generators used on houseboats, and the patents in suit  "are directed to marine engine exhaust systems that reduce the amount of carbon monoxide released in the exhaust" (p.3).  Plaintiff sued defendant for infringement and prevailed on liability and damages.  On the latter issue, the jury awarded a reasonable royalty of $9,461,206, which the district court (for reasons not explained in the Federal Circuit opinion, since neither party appealed the amount of actual damages, see p.21 n.5) reduced to $3,775,418.  The district court nevertheless found that the infringement was willful, under the now-defunct Seagate standard, and awarded a 50% enhancement of the actual damages plus attorneys' fees.  The court denied a permanent injunction, however, on public interest grounds, and awarded an ongoing royalty instead.  On appeal, the Federal Circuit affirms on liability, devoting most of its opinion to the questions of nonobviousness and written description (which for purposes of this discussion I will pass by).  It also affirms the finding of willfulness and the amount of the enhancement, but remands for reconsideration of whether a permanent injunction is warranted.

On the issue of willfulness, the district court as noted above found the infringement to be willful under the Seagate standard, because in its view the plaintiff proved by clear and convincing evidence that the proffered defenses were objectively unreasonable.  Perhaps it's not too surprising, then, that under the more plaintiff-friendly Halo standard, the Federal Circuit affirms:
Under Halo, we review the district court’s determination to award enhanced damages under 35 U.S.C. § 284 for abuse of discretion. . . .  As with awards of attorney’s fees under 35 U.S.C. § 285, a party seeking enhanced damages under § 284 bears the burden of proof by a preponderance of the evidence . . . .
As to Kohler’s first argument—that its defenses were objectively reasonable—the Supreme Court’s decision in Halo expressly rejected the notion that objective recklessness must be found in every case involving enhanced damages for willful infringement. . . .  Applying reasoning similar to Octane Fitness, the Court explained that an infringer’s subjective bad faith alone may support an award of enhanced damages. . . .   And it explained that the appropriate time frame for considering culpability is by assessing the infringer’s knowledge at the time of the challenged conduct. . . . 
. . . Kohler does not dispute that its obviousness defense was created during litigation, years after it began engaging in culpable conduct. . . .  But as the Supreme Court explained in Halo, timing does matter.  Kohler cannot insulate itself from liability for enhanced damages by creating an (ultimately unsuccessful) invalidity defense for trial after engaging in the culpable conduct of copying, or “plundering,” WBIP’s patented technology prior to litigation.  See Halo, 136 S. Ct. at 1933.  Proof of an objectively reasonable litigation-inspired defense to infringement is no longer a defense to willful infringement (pp. 33-35).
The court also finds that there was sufficient evidence for the jury to find that the defendant knew of the patents in suit:
. . . Knowledge of the patent alleged to be willfully infringed continues to be a prerequisite to enhanced damages. . . .  We do not interpret Halo as changing the established law that the factual components of the willfulness question should be resolved by the jury . . . .
We conclude that there was substantial evidence for the jury’s finding that Kohler had knowledge of the patents in suit at the time of infringement.  At trial, WBIP presented testimony from John (“Jack”) Westerbeke, the inventor and majority-owner of Westerbeke Corporation, that Westerbeke’s low–carbon monoxide gen-sets have been marked with the patents in suit since their issuance.  Supporting this testimony, WBIP submitted an email Mr. Westerbeke sent the day after the ’044 patent issued in 2008, which states “I have to get a patent label on all gas EFI products immediately” and that the label would say “U.S. Pat. No. 7,314,044; Other patents pending.”  J.A. 17,192.  WBIP submitted representative photographs of Westerbeke’s low–carbon monoxide gen-sets that are clearly marked with both patents in suit.  J.A. 17,261.  It also presented testimony that Westerbeke and Kohler were the only two companies in the market that provide low–carbon monoxide gen-sets, and documentary evidence, such as Kohler’s November 2004 internal request for funding to develop low–carbon monoxide gen-sets, demonstrating that Kohler was aware of Westerbeke patents covering Westerbeke’s Safe-CO gen-sets.  The district court also had before it Kohler’s admission in its Statement of Undisputed Facts in support of its Motion for Summary Judgment of Non-Infringement that Kohler “first became aware of the ’044 Patent at the latest by August 20, 2010” when it received an inquiry “regarding its knowledge of any WBIP patents on low carbon emission marine generator products.”  J.A. 2880.  The jury had record evidence upon which it could have inferred that Kohler had knowledge of the patents at issue, and thus its finding is supported by substantial evidence (pp. 36-38).
The court also discusses evidence presented on the question of the defendant's copying, which was relevant to the nonobviousness inquiry, at pp. 26-27.

As for the amount of the enhancement, the court doesn't go into detail but notes that whether to enhance and by how much is a matter entrusted to the trial judge's discretion, and finds no abuse of that discretion here (pp. 38-39).  As for the plaintiff's cross-appeal of the denial of a permanent injunction:
. . . The district court originally denied WBIP’s motion for a permanent injunction, reasoning the public interest factor weighed against an injunction because, as WBIP was a much smaller producer of low–carbon monoxide gen-sets than Kohler, it “would deprive the consuming public of access to a potentially life saving product.”  J.A. 10,381–82.  It determined that, based on its public interest finding, it need not address the remaining factors identified in eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006).  WBIP moved for reconsideration, arguing that the district court misunderstood WBIP’s manufacturing capacity, which was sufficient to manufacture generators for Kohler’s customers.  The district court declined to reconsider its denial of a permanent injunction, stating that “[e]ven if [WBIP] has a larger manufacturing capability than previously estimated, the Court is persuaded that it is in the public interest to have more than one company manufacture low–carbon monoxide generators” such that an ongoing royalty was a “more appropriate solution.”  J.A. 10,671.   
On appeal, WBIP argues that the district court erred in its consideration of the eBay factors.  We agree that the district court’s analysis is sufficiently flawed to constitute an abuse of discretion warranting vacating the judgment.  Before the district court WBIP argued, inter alia, that there is a “public interest to uphold patent rights.”  J.A. 8127.  But the district court did not explain how this public interest was outweighed by the public interest of having more than one manufacturer of gen-sets that produce low–carbon monoxide in their exhaust, especially   if WBIP does have the manufacturing capacity to meet the industry’s needs.  The district court’s decision is based on its reasoning that having more manufacturers of a lifesaving good in the market is better for the public interest.  But this reasoning is true in nearly every situation involving such goods, such that, if it alone is sufficient, it would create a categorical rule denying permanent injunctions for life-saving goods, such as many patented pharmaceutical products.  As the Supreme Court has warned, categorical rules regarding permanent injunctions are disfavored.  See eBay, 547 U.S. at 394 (“Just as the District Court erred in its categorical denial of injunctive relief, the Court of Appeals erred in its categorical grant of such relief.”).  And Congress has expressly indicated that injunctions may be granted in cases involving lifesaving goods, such as pharmaceutical drugs.  See 35 U.S.C. § 271(e)(4)(B) (“[I]njunctive relief may be granted against an infringer to prevent the commercial manufacture, use, offer to sell, or sale within the United States or importation into the United States of an approved drug, veterinary biological product, or biological product.”).  In denying WBIP a permanent injunction on these grounds, the district court abused its discretion.  We note that the district court limited its analysis to the public interest factor alone and that its decision to deny an injunction cannot be affirmed on this basis in light of this record.  We vacate its judgment and remand for the district court to conduct a more thorough analysis of the eBay factors in the first instance (pp. 39-40).   
As I said at the outset, it's not too surprising that (as long as the court affirmed on liability) it would affirm a finding of willfulness that was entered under what was a more stringent test than the one that prevails today.  And if the opinion's recitation of the evidence is accurate, there would appear to be evidence that the defendant knew of the patents in suit before infringing them.  On the injunction, no big surprise either that the court would want the district court to consider all of the eBay factors, not just (one aspect of) public interest; and given that the parties are competitors, one would expect some or all of the other factors to weigh in the plaintiff's favor.  It's interesting that for actual damages the plaintiff was awarded a reasonable royalty, not lost profits, but (without reviewing the record) I imagine this could have been either because the plaintiff lacked the capacity to make some or all of the sales the defendant made, or because the plaintiff thought it would be easier (as it often is) to quantify the amount of a reasonable royalty.

Monday, July 18, 2016

From Around the Blogs: FRAND in Ireland, FRAND Arbitration, and Preliminary Injunctions and Punitive Damages in India

1. Earlier this week the Bristows CLIP Board Blog published a post on and link to Vodafone GmbH v. IV, a recent case in which the Irish High Court held that Vodafone (which IV is suing for the infringement of certain alleged SEPs in Germany) could serve process on IV for the purpose of instituting a competition-law action in Ireland based on IV's alleged abuse of dominant position.  The case doesn't reach the merits of the dispute but may signal the opening of a new front in the FRAND wars.  (I like the author's reference to Vodafone's "Irish torpedo" strategy.)  Hat tip to Norman Siebrasse for calling this to my attention.

2.  The IPKat Blog this morning published an interesting post summarizing a recent conference on FRAND arbitration held at Queen Mary University in London.  Discussion centers on, among other things, methods for calculating FRAND rates (nothing particularly new here, though) and compliance with the Huawei v ZTE framework.

3. On the Spicy IP Blog, Balaji Subramanian has published an interesting two-part post (here and here) on interim injunctions in India, focusing on drug patent disputes.  The author provides an extensive discussion of a case involving Merck and Teva in which he argues that the trial court glossed over certain issues (e.g., balance of conveniences and irreparable harm) and the appellate court erred in some of its legal analysis.  Rahul Bajaj also has a post on punitive damages for trademark infringement in India.  The author critiques some recent Indian cases for granting punitive damages without providing an explanation for the amount of the award or an adequate discussion of the quantum of the plaintiff's injury.  For previous discussion, see here.        

Thursday, July 14, 2016

Yuan on IP Damages in China

Yuan Zhenfu, Deputy Dean of the Shanghai University Law School, has published a short article in the Jan-Feb issue of China IP Magazine (pp. 50-53) titled How to Increase Infringement Compensation? (translation by Yu Shiwen).  Like the article by Jingjing Hu that I recently blogged about (here), this paper argues that damages for IP infringement in China are in general far too low.  The paper cites, among other things, a study conducted by the Research Center of Intellectual Property Right at Zhonhnan University of Economics and Law finding that "from 2008-2012, the average legal compensation for patent infringement cases was only 80,000 Yuan" (p.5).  (It's not clear to me from the context whether this is the average for all patents, including utility models and design patents, or only for invention patents.)  Dean Yuan goes on to note, however, that efforts are underway from the Supreme People's Court and the Legislative Affairs Office of the State Council to reform certain aspects of damages law, including increasing statutory damages to 5 million yuan (equal to about $U.S. 760,000) from the current 1 million (see also this short report published by the Covington firm last December). The article also includes a brief discussion of some recent cases in which Chinese courts have awarded relatively substantial damages, including one in which the court awarded damages of 5.4 million yuan for fifteen consolidated utility model infringement actions (that is, statutory damages of 360,000 yuan for each).  The article concludes with some tips for litigants, including "setting high compensation indications in previous settlements" which may serve as a guide to future awards.

Tuesday, July 12, 2016

FRAND in India: Delhi High Court Grants Ericsson Another Preliminary Injunction

On the Spicy IP Blog, Inika Charles has published a post on Ericsson v. Lava, another FRAND case in which Judge Singh has granted Ericsson an interim injunction based on the defendant's alleged unwillingness to negotiate.  Opinion here. One interesting point is the judge's conclusion that the defendant did not negotiate in good faith, given that (among other things) Ericsson had provided information about other license agreements "at a high level" though without revealing specific terms which were the subject of confidentiality agreements, and that Ericsson's offer to Lava was consistent with the terms granted in interim orders entered against defendants sued by Ericsson (see para. 53 p. 35 of the opinion).  I wonder if this sort of issue will be litigated in other cases around the world; as noted in yesterday's post on the recent German FRAND case, the courts in Germany appear to be of the view that SEP owners must make an initial offer in the FRAND range in order to qualify for an injunction, but will they have sufficient information to know what a FRAND offer is without access to other agreements?   

For previous coverage on this blog of the developing FRAND case law in India, see, e.g., here, here, and here.

Monday, July 11, 2016

The New German FRAND Case

As I mentioned last week, on the Kluwer Patent Blog Hetti Hilge recently published  a post titled German FRAND Update (available here) discussing the district court decisions to date; the January 13, 2016 decision of the Oberlandesgericht Düsseldorf (which I blogged about here); and a more recent decision that I hadn't previously come across, the May 31, 2016 judgment of the Oberlandesgericht Karlsruhe, 6 U 55/16, which agreed with the Oberlandesgericht Düsseldorf.  Now that I've had a chance to read this latest decision, I can state that I agree with Ms. Hilge that the new decision follows the Oberlandesgericht Düsseldorf.  The basic facts are as follows.  The plaintiff, owner of a FRAND-committed SEP, sued the defendant for infringement in the Mannheim District Court.  The defendant argued that the plaintiff's request for injunctive relief amounted to an abuse of dominant position under the CJEU's Huawei v. ZTE  decision.  As I have noted previously, in July 2015 the CJEU held as follows:
[60]  . . . the proprietor of an SEP which considers that that SEP is the subject of an infringement cannot, without infringing Article 102 TFEU, bring an action for a prohibitory injunction or for the recall of products against the alleged infringer without notice or prior consultation with the alleged infringer, even if the SEP has already been used by the alleged infringer.

[61]  Prior to such proceedings, it is thus for the proprietor of the SEP in question, first, to alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed. . . .

[63]  Secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer for a licence on FRAND terms, in accordance with the undertaking given to the standardisation body, specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated. . . . 

[64]  As the Advocate General has observed in point 86 of his Opinion, where the proprietor of an SEP has given an undertaking to the standardisation body to grant licences on FRAND terms, it can be expected that it will make such an offer. Furthermore, in the absence of a public standard licensing agreement, and where licensing agreements already concluded with other competitors are not made public, the proprietor of the SEP is better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer.

[65]  . . . [I]t is for the alleged infringer diligently to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

[66]  Should the alleged infringer not accept the offer made to it, it may rely on the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP in question, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.

[67]  Furthermore, where the alleged infringer is using the teachings of the SEP before a licensing agreement has been concluded, it is for that alleged infringer, from the point at which its counter-offer is rejected, to provide appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit. The calculation of that security must include, inter alia, the number of the past acts of use of the SEP, and the alleged infringer must be able to render an account in respect of those acts of use.

[68]  In addition, where no agreement is reached on the details of the FRAND terms following the counter-offer by the alleged infringer, the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party, by decision without delay.
As in the case before the Oberlandesgericht Düsseldorf earlier this year, the question presented in the new case was whether the district court must ascertain whether, under Huawei v. ZTE, the plaintiff's offer was FRAND or whether instead the competition-law defense is inapplicable when the defendant does not fulfill its responsibility of responding to the plaintiff's offer in a timely fashion, etc.  As in the Düsseldorf matter, the appellate court here (reversing the district court) holds that the district court must first determine whether the plaintiff's offer was FRAND.  Here, the district court didn't do so, stating only that the competition law defense is not available unless it appears on summary examination that the offer was evidently non-FRAND (and that the offer doesn't have to be exactly FRAND, but perhaps can be a bit above).  That isn't good enough, according to the appellate court, even though determining a FRAND rate can be tough; and so the matter now returns to Mannheim for further proceedings. The one bright spot for SEP owners is that the German courts are not strictly requiring that the FRAND offer be made prior to initiating litigation, at least for cases that were filed prior to Huawei v. ZTE.

For further discussion of the German FRAND decisions to date on this blog, see, e.g., here.