Wednesday, November 25, 2015

Third Edition of "Patent Enforcement Worldwide" Is Now Out

Hart Publishing Company has now published Patent Enforcement Worldwide:  Writings in Honour of Dieter Stauder, Third Edition, edited by Christopher Heath.  Here is a link to the webpage for the book, and here is a link to the table of contents.
The book description is as follows:
This book features 15 country reports on the patent enforcement practice of the world’s most litigated countries in Europe, Asia and the Americas. Litigation strategies for both right owners and alleged infringers are explained against the background of case law on: types of action, standing to sue, jurisdiction, obtaining evidence, provisional and final measures, trial practice, types of infringement, remedies and counterclaims, costs and issues of retrial, threats and wrongful enforcement. Special chapters cover the Trade-Related Aspects of Intellectual Property Agreement provisions on enforcement, enforcement issues in the European Community, international cross-border litigation and border measures.
The reports are written by patent practitioners or academic experts in the field, and the homogenous structure of the country reports allows for an easy identification of best practices and strategic considerations on the choice of jurisdiction.
I had the pleasure of working with Dr. Heath on coauthoring chapter 1, Comparative Overview and the TRIPs Enforcement Provisions, and I hope that readers will find this third edition as useful as I found the previous edition back when I was preparing my book on comparative patent remedies in 2011-12.  My only regret is that I was unable to attend the book's debut at the celebration for Professor Dieter Stauder in Munich on October 23.  Congratulations and thanks to the many contributors who have made this new edition possible.

Monday, November 23, 2015

Should Innocent Infringers Pay Lower Damages?

This is an issue I haven't really thought much about before, but I recently came across it in an op-ed by James Bessen and Michael Meurer about NPEs that was recently published in the Washington Post.  Most of the article presents the authors' views on the negative impact of NPEs on the economy, the need to improve the notice function of patents, and so on.  These are topics of great interest and importance, but I will skip over them here both because many readers of this blog are probably already familiar with the arguments and counterarguments relating to NPEs, and in any event these specific issues are not central to the matters normally discussed on this blog.  The very last sentence of the article, however, states: 
Finally, Congress should give courts discretion to reduce patent damages assessed against innocent infringers.
Maybe there has been some discussion of this proposal in the literature somewhere, but if so it hasn't caught my attention.  I'd like to think about it some more, but here are some initial thoughts:

1.  Whether innocent infringers should be liable for infringement at all is a subject that has been debated a good deal in the scholarly literature.  So far, I have always found the arguments in favor of the conventional strict liability approach more persuasive, but of course that doesn't necessarily mean that the same remedies should be applied to both knowing and innocent infringers.  In fact, I have argued that innocent infringement should be a factor (though not necessarily a dispositive one) weighing against awarding injunctive relief and against damages enhancements.  (There also may be a state of mind requirement regarding the liability of entities further down the chain of distribution from the initial infringing manufacturer, as in France, or for contributory or induced infringement, as in the U.S.)

2.  As for compensatory damages, in theory if a social planner knew how much of a reward would be necessary to induce the creation of the invention, and how much social value the invention generates, we could junk the idea of compensatory damages altogether and award damages that would be just enough to generate those benefits.  In reality, I strongly doubt that such a system could ever be implemented, and accordingly I have argued that as a practical matter damages law should (at least as a first approximation, and subject to some adjustments including the use of ex post information relevant to the value of the technology) restore the patent owner to the position it would have occupied, but for the infringement.

3.  But should we make an adjustment downward for innocent infringers?  I think the case for doing so is weak.  Perhaps it wouldn't affect patent incentives, but how would we know?  How much discretion should courts have, and to what extent would they be authorized to reduce damages?  Would such a rule discourage firms from obtaining knowledge of existing patents?  How would courts determine what level of knowledge (e.g., an employee having read a particular patent in the distant past) counts for purposes of determining innocence?  Of course, some of these issues come up in situations in which I do think it is appropriate to consider the infringer's innocence (i.e., injunctive relief and enhanced damages), though I suspect they might come up more often if innocence also could affect compensatory damages.

4.  The EC's Enforcement Directive, as well as law in Japan, Korea, and some other countries, formally require that the defendant have a requisite state of mind (intent, knowledge, negligence), as a precondition to the recovery of certain types of damages (see my book pp. 256-57, 307-09, 368-69); but as I understand it the requisite state of mind is usually presumed based on the fact that patents are public documents, and the presumption is hard to overcome. 

5.  In addition, patent marking laws in the U.S., the U.K., and some other countries also potentially reduce damages in cases in which the infringement was innocent (for example, there may be no damages liability for acts committed prior to date on which the defendant is on notice); but as I have written before, the U.S. system in particular is highly formalistic and deeply flawed.  Some innocent infringers pay full damages, while others who have knowledge but have not been put on actual or constructive notice do not.  As a result, I'm inclined to think that in practice patent marking laws provide few if any benefits--though perhaps something like the U.K. approach would make sense. The U.K. statute, if I understand it correctly, doesn't let any damages accrue until the defendant is aware of the patent or is put on actual or constructive notice of it.  It thus avoids some of the loopholes in the U.S. statute.  Still, a patent owner could produce some token goods, mark them, and even if no one ever saw them the defendant would be on constructive notice, so in the end the whole thing seems like something of a formality.  For further discussion, see my book pp. 94-95, 185-86, and here.

6.  Bessen and Meurer only mention in passing the issue of fee-shifting, describing as reasonable various reform proposals now before the U.S. Congress, including one that would "make it easier to recover costs for frivolous lawsuits."  As discussed in the recent paper by Love et al. that I have now blogged about twice (see here and here), routine fee-shifting may be the best deterrent to PAE suits--though it is potentially an imperfect solution as well, since it might discourage some meritorious suits or have other undesirable effects.         

Friday, November 20, 2015

Some Highlights of the Love, Helmers, Gaessler & Ernicke Paper on PAEs in Europe

Now that I've had time to read through Brian J. Love, Christian Helmers, Fabian Gaessler & Maximilian Ernicke's article Patent Assertion Entities in Europe, which I mentioned here on Monday and which will be a chapter in a forthcoming edited volume titled Patent Assertion Entities and Competition Policy (D. Daniel Sokol ed., Cambridge University Press, 2016), I can say that it's one of the more interesting papers I've read in a while.  The authors have compiled a database of "all patent suits filed between 2000 and 2008" in Mannheim, D├╝sseldorf, and Munich, "as well as all invalidity challenges filed with the Bundespategericht" (collectively accounting for about 90% of all German patent litigation during this period).  For the U.K., their database consists of all cases filed before the Patents Court from 2000-13 and all cases before the Patents County Court (now the Intellectual Property and Enterprise Court) from 2007-13, collectively accounting for over 90% of all U.K. cases.  They hand-coded the data to determine if the patent owner was an NPE and if so what type (IP licensing company, university, start-up or failed start-up, etc).  Principal findings:

* "NPEs and PAEs account for about 19 percent and 9 percent, respectively, of the patent suits in our database" (p.5).

* "[M]ore than half of all PAE actions filed in Germany and the U.K. during the period of our study were initiated by an accused infringer, not the patentee," either by way of revocation action (Germany) or a counterclaim for invalidity (U.K.)  (p.9).  Nevertheless, "despite their relative eagerness to initiate litigation, we also find that those accused of infringing in Germany and the U.K. are less likely than their U.S. counterparts to challenge the validity of patents asserted against them."  This seems to me to be consistent with the authors' conclusions (see below) regarding the role of fee shifting.  In the U.S., almost every accused infringer raises invalidity as a defense when sued for infringement, even though they may succeed only 40% of the time or so, because on balance it's probably worth it.  In the U.K. and Germany, you raise invalidity when there is a sufficiently good chance of winning, because otherwise you risk being on the hook for the other side's fees.

* "[L]ess than 70% of NPE cases in [the] database ended in settlement" (p.11), a much lower rate than in the U.S.  But "when cases did reach a decision on the merits, German and U.K. PAEs were reasonably successful in proving infringement."  The PAE win rate in the U.S. is much lower (pp.11-12).

* "NPE suits—and really all patent suits—filed in Germany and the U.K. have relatively little at stake by U.S. standards," with "the overwhelming majority estimated their case value below the equivalent of $1 million" (pp. 12-13).

*  Finally, the authors comb through various possible explanations for the lower rate of PAE activity in Europe, including stricter standards for software patents (not very convincing, in their view); a lower bar for proving invalidity (also not very convincing); higher enforcement costs due to fragmented jurisdictions (somewhat relevant); limits on the use of contingency fee agreements (ditto); and lower damages (ditto, though offset by the greater likelihood that the prevailing patent owner will get an injunction).  They conclude that mandatory fee-shifting is probably the most important factor, stating that "the high rate of infringer-filed actions and low rate settlement tend to suggest that fee-shifting acts to deter patent monetization by changing the behavior of both plaintiffs and defendants" (p.18).

Read the paper and see what you think--the analysis seems fairly persuasive to me.

Thursday, November 19, 2015

Korea's Fair Trade Commission Alleges That Qualcomm's Licensing Practices Violate Korean Competition Law

Hat tip to Florian Mueller's FOSS Patents Blog, which links to this article from Bloomberg News on this recent development in South Korea (and also discusses the All Things FRAND and Fair Standards Alliance matters that I mentioned in yesterday's two posts).  For further discussion, here is a link to an article on the Qualcomm matter in the Wall Street Journal, and here is a link to Qualcomm's press release.

Wednesday, November 18, 2015

Fair Standards Alliance Launches in Brussels

In addition to the All Things FRAND website mentioned in the post below, another organization that appears to have similar views and that just came to my attention this morning is something called the Fair Standards Alliance, which is based on Brussels and launched last week.  Members include Intel, Dell, and Cisco, among others.  Here is a link to their website, and here is a link to their position paper on FRAND issues.  

ACT/The App Association Launches New Website "All Things FRAND"

Here's a link to their site, which describes itself as "a repository for judicial cases, administrative cases, and agency guidance on FRAND related issues, academic articles that are generally in line with the FRAND principles listed on the About web page, and other authoritative writings about standards and FRAND licensing." 

Tuesday, November 17, 2015

Federal Circuit Restores $45 Million Lost Profits Award to Akamai

Suppose that a patented method comprises four steps A, B, C, and D; and that Party X carries out steps A, B, and C, and instructs Party Y to carry out step D.  In such cases, is anyone liable for patent infringement?  In 2012 in Akamai Technologies, Inc. v. Limelight Networks, Inc., the Federal Circuit held that Party X could be liable for inducing infringement, even if no one was liable for direct infringement because no one person was carrying out all of the steps.  In 2014 the U.S. Supreme Court reversed, holding that a defendant cannot be liable for indirect infringement of a patent under 35 U.S.C. section 271(b) absent someone being liable for direct infringement under section 271(a) (see here).  This past August an en banc panel of the Federal Circuit held, however, that Limelight (corresponding to Party X in my illustration above) could be liable for direct infringement of the method patent in suit (involving a method for "delivering electronic data using a 'content delivery network'"), based on its carrying out of some of the steps and its "direction or control" over consumers (Party Y) to carry out the remaining step.  Yesterday a panel of the court disposed of the remaining issues on appeal, including an affirmance of the jury's $45 million lost profits damages award, and remanded back to the district court (opinion by Judge Linn here).

The basis for challenging the award was that Akamai's expert did show a causal connection between the infringement and Akamai's loss of profits, due to the price disparity between the parties' products.  Specifically:
Limelight originally sold a different, non-infringing service than the one at issue in this case.  Limelight’s infringing service was released in April of 2005. Dr. Ugone testified that in 2005 Akamai had a market share of 79.8% and Limelight had a market share of 5% and in 2006 Akamai had a market share of 74.7% and Limelight had a market share of 10.7%. Dr. Ugone then calculated an adjusted market share for the years when Limelight’s infringing service was on the market and concluded that, assuming Limelight only sold its earlier software, Akamai’s market share would have been 81% in 2005 and 79.9% in 2006. Because he did not have sufficient data to determine the market share for 2007, he assumed it would be the same as the market share for 2006. For the sake of “conservatism,” Dr. Ugone reduced Akamai’s share by 3% and excluded the lowest earning 25% of Limelight’s customers who he categorized as particularly price sensitive consumers, who may be unlikely to purchase a higher-priced alternative without Limelight’s infringing products in the market. Subject to these assumptions and modifications, Dr. Ugone opined that Limelight’s infringing sales totaled approximately $87.5 million.
The lost profit analysis was complicated by the fact that Limelight sold its product for half the price of Akamai’s. This affected Dr. Ugone’s calculations in two ways. First, he assumed that in the but-for world where Limelight did not sell an infringing product, Akamai would sell its product to some of those customers for twice as much as Limelight had. Second, because of the difference in price between Akamai’s product and Limelight’s product, Dr. Ugone assumed that the demand for Akamai’s product would be 25% less than the demand for Limelight’s infringing products. Dr. Ugone explained that, in economics, how a change in price affects a change in demand is described as “elasticity.” The more elastic the demand, the more sensitive it is to change. A demand is described as “inelastic” if, when the price changes by a certain percentage, the demand changes by a smaller percentage. As Dr. Ugone explained, “if you change prices by 10 percent and quantity demanded changes by only 5 percent . . . that’s an example of something we call inelastic.”
Dr. Ugone opined that the demand for Akamai’s products was relatively inelastic (i.e. relatively price insensitive) and provided two justifications for calculating that 75% of Limelight’s sales would potentially have been made by Akamai. First, because Akamai’s costs were “revenue-generating costs,” customers would be more willing to expend money to buy Akamai’s product. Second, though there would be some “price sensitivity” such that some of Limelight’s customers would not purchase the higher-priced Akamai product, the demand was relatively inelastic – meaning the quantity demanded would not change as much as the price changed. The relative inelasticity of demand was supported by Akamai’s evidence that Akamai and Limelight were direct competitors, including statements by Limelight that 1) Akamai was its largest competitor; 2) “Limelight and Akamai are, from a scale and quality standpoint, head and shoulders above the rest of . . . Limelight’s competition”; 3) demand was driven by end-users not customers; and 4) Akamai maintained a dominant market share despite Limelight’s infringing service and lower price. Dr. Ugone conceded that in picking 75% he “had to make a judgment call based on the attributes and come to a conclusion what the adjustments would be” (pp. 18-20).
The court concludes that the evidence "sufficiently support[ed] the district court's decision to allow Dr. Ugone's adjusted lost-profits analysis," and rejects Limelight's argument that the price disparity "necessarily created a market segmentation in which Akamai was separate from Limelight" (p.20):
In conclusion, Dr. Ugone’s 25% adjustment for market elasticity was sufficiently grounded in economic principles for the district court to allow it. Though Limelight is correct that its customers expressed a clear preference for lower-priced products — as evidenced by their buying Limelight’s significantly cheaper product — and therefore would have been less likely to buy Akamai’s products than the average consumer, Dr. Ugone’s testimony took this consideration into account both in excluding the lowest 25% of Limelight’s customers from his lost profits analysis, and for discounting the potential award for price elasticity. Whether this discount was sufficient is not a legal challenge to the availability of lost profits, but as to the amount of lost profits, which Limelight failed to address in its panel briefing (p.21).
My initial reaction is that the court is probably right to reject the argument that the price disparity necessarily meant that none of Limelight's customers would have purchased the higher-priced product from Akamai, absent the infringement.  It seems conceivable to me that some of them might have, depending on the circumstances.  On the other hand, the evidence in support of the expert's 75% figure, as recounted by the court, doesn't strike me as being overwhelming, though perhaps there is more detail in the record to support it.