Monday, January 16, 2017

CRA Report to the European Commission on SEP Licensing

Last month the European Commission published a study, prepared by Pierre Régibeau, Raphaël De Coninck, and Hanz Zengler of Charlees River Associates (CRA) titled Transparency, Predictability, and Efficiency of SSO-based Standardization and SEP Licensing:  A Report for the European Commission, available here.  (Hat tip to Jorge Contreras for calling this to my attention.)  From the Commission's news release on the report:
In December 2016, the European Commission published a study assessing issues and solutions related to standard essential patents (SEPs) and the standardisation process.
The analysis builds on a previous report on patents and standards (PDF, 580kB) prepared for the Commission and on the responses to a public consultation on patents and standards in 2015. The analysis also covers standardisation challenges in the Internet of Things industries.
The report presents the costs and benefits of practical solutions to facilitate an efficient standardisation process and SEP licensing. Concrete recommendations are offered on different issues such as FRAND terms, over-declaration, essentiality checks, conflict resolution process and increasing transparency.
This study is part of the Commission's work to build an intellectual property rights framework enabling easy and fair access to SEPs, as described in the 2016 Communication, ICT Standardisation Priorities for the Digital Single Market.
Its results will be used to assess the interplay between standardisation and patents in the EU Single Market.
The report makes for important reading for anyone interested in SEPs, SSOs, and FRAND issues.  It provides an extensive discussion of, among other things, the economics of holdup, holdout, and royalty caps.  It also makes a number of recommendations (mostly directed at SSOs themselves) that need to be taken seriously, including requiring SSO members to make ex ante (that is, pre-standard adoption) "negative disclosures" of patents they do not intend to license on FRAND terms; introducing the random testing of declared-essential patents, to get a sense of what percentage actually are essential; and the imposition of aggregate royalty caps.  I'm inclined to think the last two proposals in particular have merit, not least because they would help in generating information that could be used in cases in which courts or arbitration panels are called upon to award FRAND royalties (see my paper on Patent Damages Heuristics, pages 44-46, as well as the CRA report p.87.) I'm also inclined to agree with the authors' recommendation against mandating the use of the "smallest tradable component" (a/k/a "smallest salable patent practicing unit," or "SSPPU") as the royalty base for SEP licensing.  Perhaps most interesting is the recommendation that "One should also consider stipulating that – in the spirit of Huawei a licensee could not be found to be 'unwilling' if the licensor insists on including a confidentiality requirement in the proposed 'full' contract that is supposed to discharge him of its FRAND obligations. Such a policy would appear useful in order to enforce the 'ND' part of FRAND" (p.88).  I kind of like the idea, but I imagine it would meet with stiff resistance from some quarters.

Thursday, January 12, 2017

Papers from the June 2016 Patent Damages Conference at the University of Texas

Drafts of the papers from the June 2016 Patent Damages Conference at the University of Texas are now available online, on the Review of Litigation's website (here).  Some of the papers will be published in that journal, others in the Texas Intellectual Property Law Journal.  Part 2 of the Conference on Patent Damages will take place at UT on February 17-18, 2017; you can access a draft schedule here.
 
Here is a complete list of the papers from the first conference, available on the Review of Litigation's website:

Foreword:  Patent Damages: Working With Limits (John M. Golden)

Reliable Problems from Unreliable Patent Damages (Erik Hovenkamp and Jonathan Masur)
A Restitution Perspective on Reasonable Royalties (John M. Golden and Karen Sandrik)

Rationalizing FRAND Royalties: Can Interpleader Save the Internet of Things? (Jason Bartlett and Jorge Contreras)

U.S. Patent Extraterritoriality within the International Context (Amy L. Landers)

Patent Assertion Entities, Reasonable Royalties, and a Restitution Perspective (W. Keith Robinson)

Enhanced Damages for Patent Infringement: A Normative Approach (Keith Hylton)

The Federal Circuit Disavows Mandatory Smallest Salable Patent-Practicing Unit "Rule" (Douglas A. Cawley and Lindsay Leavitt)

Patent Damages Heuristics (Thomas Cotter)

Reconceptualizing Patent "Comparables" (Colleen Chien)

Final Report of the Berkeley Center for Law & Technology Patent Damages Workshop (Stuart Graham, Peter Menell, Carl Shapiro, and Tim Simcoe)

Shared Patent Damages (Coming soon) (Michael Meurer)

Patent Damages Without Borders (Sapna Kumar)

Innovation Factors for Reasonable Royalties (Ted Sichelman)

Buying Monopoly: Antitrust Limits on Damages for Externally Acquired Patents (Erik Hovenkamp and Herbert Hovenkamp)

Gatekeeping Trends in Reasonable Royalty Cases (Andrew Amerson)

Tuesday, January 10, 2017

Reminder: IP Chat Channel Webinar on Design Patent Damages

As I mentioned just before the holidays, on Thursday January 12, 2017, at 2 p.m. Eastern Time I'll be one of three panelists for an IP Chat Channel webinar titled Future of Design Patent Damages After Apple v. Samsung.  Here is a link to the website, if you'd like to register, and here is a description of the event: 
In its recent opinion, the U.S. Supreme Court answered this question posed by Samsung: "Where a design patent 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?" The reply of the unanimous court, in an opinion written by Judge Sotomayor: "The term 'article of manufacture' is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not." That answer rejects the Federal Circuit's longstanding interpretation of Section 289.
However, experts say the Supreme Court's opinion raises many more questions. The Federal Circuit must now create a test that will allow a jury to determine whether the "article of manufacture" covered by a design patent is the entire product or a component, and what that component is. For now, it is not clear whether the patent owner or the defendant bears the burden of proof. Then it will be up to a judge to apportion to the component some part of the infringer's entire profits on the product. Our panel -- a design patent litigator, a damages expert, and a law professor specializing in patent damages -- will discuss how the law of design patent damages might evolve, and see what the options might mean applied to cases currently being litigated such as Apple v. Samsung and Nordock v. Systems.
The other two panelists will be Dawn Hall, Senior Managing Director at FTI Consulting, and Richard Stockton of Banner & Witcoff, Ltd.  

Monday, January 9, 2017

Some New Papers on Remedies

1.  Jorge Contreras and Michael Eixenberger have posted a paper on ssrn titled Model Jury Instructions for Reasonable Royalty Patent Damages, 57 Jurimetrics J. __ (forthcoming 2017).  Here is a link to the paper, and here is the abstract:
Consistent, accurate and understandable jury instructions are critical to the determination of damages in patent cases. In January 2016 the Federal Circuit Bar Association (“FCBA”) amended its popular model jury instructions. Among other things, the 2016 amendments substantially reframed the instructions regarding the calculation of reasonable royalty damages in patent cases, replacing the fifteen “Georgia-Pacific” factors with a streamlined set of three factors emphasizing the value contribution of the patented technology to the overall product and comparable license agreements. This Essay discusses the history and implications of the FCBA instruction change for reasonable royalty damages. It assesses the adherence of the reformulated damages analysis to the Federal Circuit’s rulings regarding damages calculations in Ericsson v. D-Link and other recent case law, and compares the FCBA instruction with corresponding instructions developed by the American Intellectual Property Law Association (“AIPLA”) and the Northern District of California. We also present new empirical data regarding the use and adoption of model jury instructions in cases in which reasonable royalty damages are adjudicated. We find that a wide variety of instructions are used, partially defeating the goals of consistency and efficiency that model instructions seek to achieve. We conclude by recommending that the Federal Circuit endorse a single set of model jury instructions for patent cases, and that it consider the new FCBA instructions for this purpose. We also urge the FCBA and other organizations developing model jury instructions to continue to emphasize the traditional incremental value approach to patent valuation, and to develop additional jury instructions addressing issues raised by standards-essential patents.
This is a very interesting paper, and it makes what appear to me to be some sensible recommendations. 

2.  Timothy Holbrook has posted a paper on ssrn titled Boundaries, Extraterritoriality, and Patent Infringement Damages, 92 Notre Dame Law Review __ (forthcoming 2017).  Here is a link to the paper, and here is the abstract: 
Patents are generally considered to be the most territorial of all the various forms of intellectual property. Even patent law, however, has confronted issues of applying a U.S. patent to extraterritorial activity. The approach by the US Court of Appeals for the Federal Circuit has been, at best, inconsistent. At times the court has afforded extraterritorial protection, even in the face of strong territorial language in the patent statute itself. At other times, however, it has approached the issue of extraterritoriality more restrictively, even when the statute itself expressly contemplates the regulation of activities outside of the United States. This dynamic has been addressed by myself and other scholars.
More recently, however, the Federal Circuit has addressed the issue of patent damages for extraterritorial activities. These scenarios have arisen because there necessarily has been an act of domestic patent infringement. The damages theory advocated by the patent holder, however, has attempted to ensnare overseas sales, either under a lost profits or reasonable royalty theory. Additionally, the Federal Circuit has begun to address the appropriate scope of damages for infringement under § 271(f) of the Patent Act, a provision that defines infringement as the exportation of all of the components of an invention, or a single component with no substantial non-infringing use, where it is to be assembled abroad. Necessarily, this provision contemplates the regulation of foreign markets through the domestic hook of acts of exportation. The Federal Circuit, nevertheless, rejected the patentee’s requested remedy in this case.
This Article turns to the issue of the extraterritorial reach of patent damages. It suggests that the Federal Circuit’s approach is lacks nuance to account for the particular economic and legal circumstances that differentiates the different infringement provisions at stake. It draws on earlier work where I advocated for a conflicts-based approach to extraterritorial application of U.S. patents and extends that work to these scenarios, offering a more balanced approach to assessing whether damages are appropriate in these circumstances.
Finally, the article explores whether the various damages theories involved in these cases, regardless of the territorial limits, suggests it is time to revisit the foreseeability/proximate cause aspect of Rite-Hite. The theories of damages seem quite far removed from the actual acts of infringement, even if they occurred within the United States. Some scholars have begun work on this enterprise, and these cases suggest such consideration is ripe. 
3.  Bert Huang has published a paper titled The Equipoise Effect, 116 Columbia Law Review 1595 (2016).  Here is a link to the paper, and here is the abstract:
This Essay explores an overlooked way to use the remedy of disgorgement in torts, contracts, and regulation. It begins with a reminder that disgorging net gains does not force the liable actor to take a loss; by definition, it allows him to break even. As a matter of incentives, it places him in a sort of equipoise. This equipoise effect has a logical upshot that might seem counterintuitive: Substituting disgorgement for any other remedy, part of the time, can emulate the incentive effect of using that other remedy all of the time.
In theory, then, courts or regulators can sometimes substitute disgorgement for compensatory or expectation damages without undoing the benefits of harm internalization. This flexibility may prove especially useful in contexts where harm can be hard to measure. The accuracy of such emulation will depend on certain ideal conditions, however, and circumstances such as information costs will affect whether the approach is feasible and attractive.
The paper makes some interesting theoretical points, and some of the author's examples are based on patent and copyright cases.  On the deterrence point, though, if (as is widely believed) most patent infringement these days is inadvertent, I'd be concerned that the disgorgement remedy risks significant overdeterrence.  On the other hand, if we limit the disgorgement option to cases of intentional or advertent infringement (assuming we can define what that means, and in a way that can be readily administered) it might make sense to consider disgorgement in some cases--though if it were to be as an alternative to compensatory damages (reasonable royalties) in cases where the latter are hard to estimate, I wonder if patentees would have an incentive to overestimate the difficulty of calculating royalties . . . 

Friday, January 6, 2017

Mexico's 40% Rule of Thumb?

I was reading portions of the Global Patent Litigation treatise that I mentioned on this blog recently (here) when I came across this statement about patent damages in the chapter on Mexico authored by Saúl Santoyo Orozco and Jose Luis Ramos-Zurita:  ". . . it is important to point out that by statute, no damage award can be less than 40 percent of the public selling price of each infringing product since the first date of nonauthorized use of the patent" (p.26-22, citing article 221 bis of the Industrial Property Law).  See also p.98 table 9-1 n.10 ("Damages are fixed by statute at 40% of the retail price of the infringing product").  Here is the text of article 221bis, in the original Spanish and with my translation:
ARTICULO 221 BIS.- La reparación del daño material o la indemnización de daños y perjuicios por la violación de los derechos que confiere esta Ley, en ningún caso será inferior al cuarenta por ciento del precio de venta al público de cada producto o la prestación de servicios que impliquen una violación de alguno o algunos de los derechos de propiedad industrial regulados en esta Ley.
ARTICLE 221 BIS.  The repair of material damage or the compensation for damages and losses for the violation of the rights that this law confers, in no case shall be less than 40% of the retail price at which such product is sold or service provided in violation of one or more of the rights regulated by this law.
I confess that up until now I haven't given much attention to the law of patent damages in Mexico.  (In my defense, at p.26-4 the treatise states that there are fewer than thirty patent infringement actions filed annually in Mexico.)  But this strikes me as a really odd rule, especially in the modern world in which products often embody multiple patents.  (Imagine the havoc it would cause in the smartphone world.  I thought the Federal Circuit's interpretation of 35 U.S.C. § 289 in Apple v. Samsung--which required the disgorgement of the entire profit earned from sales of infringing phones notwithstanding the multiplicity of patents embodied therein--was bad policy, but it least it was limited to design patent cases, which are relatively scarce.)  If readers have any more information about this law and how it's applied, I'd appreciate hearing from you.

Tuesday, January 3, 2017

SEPs and FRAND in China

Three new articles on SEPs and FRAND issues in China have recently come to my attention.

1.  Jyh-An Lee (Assistant Professor, Chinese University of Hong Kong) has published an article titled Implementing the FRAND Standard in China, in 19 Vanderbilt Journal of Entertainment and Technology Law 37 (2016).  Here is a link to the article on the journal's website, here is a link to the paper on ssrn, and here is the abstract:
The modern world relies on technical standards, most of which involve standard-essential patents (SEPs). To balance SEP holders’ fair compensation with standard implementers’ access to standardized technologies, standard-setting organizations (SSOs) generally require that their members commit to license their SEPs on a fair, reasonable, and non-discriminatory (FRAND) basis. In recent years, the communications industry has seen a growing amount of litigation concerning SEPs and FRAND in many jurisdictions. As China has grown into a major player and market in the worldwide communications business, its public policy, court decisions, and private business strategies concerning SEPs and FRAND are likely to have a huge global impact in the high-technology sector. The high-profile Huawei v. IDC is the first Chinese court decision ruling on FRAND-encumbered SEPs issues. This is also the first Asian case in which the court determined a FRAND royalty rate to calculate the fee paid by the standard implementer to the SEP holder. Based on the Chinese government’s policy toward technical standards and the case of Huawei, this Article identifies two distinguishing features in China’s encounter with standard-related issues. The first is the active role played by the government in domestic standard-setting activities, while the second is Chinese courts’ civil law approach, associated with good faith, to the enforcement of FRAND commitments. Based on a comparative and critical viewpoint, this Article uses Huawei as an example to illustrate the challenges and perplexities for the judicial determination of a FRAND rate. The reasoning in Huawei is far from sufficient and satisfactory, and it is unclear whether the Chinese courts are tasked to implement the government’s industrial policy. Nonetheless, Huawei did identify some crucial factors concerning FRAND and SEPs, and it has had a significant impact on Chinese related standard-setting activities.
The article contains a thorough discussion of the relevant legal principles under Chinese law, and how they compare with those in other jurisdictions, as well as a detailed discussion of the methodology used to determine the amount of the FRAND royalty in Huawei v. IDC.  Highly recommended.

2.  Zhu Li (Judge of the IP Division of the Supreme People's Court of China) has published an articled titled Anti-monopoly Analysis of SEP-Based Injunctions in the July-August 2016 issue of China IP Magazine, pp. 56-59 (translated by Ren Qingtao).  The article provides an interesting discussion of the circumstances under which ownership of an SEP does or does not confer monopoly power.  It also describes the Court of Justice of the European Union's (CJEU's) "proportionality principle" as requiring the SEP owner to "take business measures no more than those necessary to achieve its legal purposes, and . . . not .. . beyond the extent necessary to influence the competition.  As for what constitutes the necessary extent, it must be assessed in connection with the competitive environment and the competitive result.  However, reasonable self-defense," such as seeking an injunction against an unwilling licensee, "is often considered legitimate."   The article goes on to suggest some factors for determining whether the amount the SEP owner is requesting is excessive, though it concludes by noting that each matter must be determined on a case-by-case basis, and generally seems supportive of the CJEU's Huawei framework.

3.   Li Yang (Professor, Sun Yat-Sen University) has published an article titled FRAND Holdup and Its Solution in China Patents & Trademarks No. 4, 2016 (pp. 97-101).  Although the author seems generally a bit more skeptical than I am that patent holdup is an actual problem (and somewhat more receptive than I am to the notion that reverse holdup, which he refers to as "FRAND holdup," is), he makes an interesting proposal for a "notice and counternotice" procedure (similar in some ways to, but more detailed than, the one adopted by the CJEU in Huawei v. ZTE) that in his view would induce the parties to negotiate rather than litigate.

In other news from China, I should note that SIPO has published a short press release on the record Chinese patent damages award I mentioned recently (here).  (Hat tip to Norman Siebrasse for bringing this to my attention.)  And in other FRAND news, on FOSS Patents Florian Mueller has an interesting discussion of the Korean Fair Trade Commission's recent $853 million fine against Qualcomm, as well as a link to a translation of the KFTC's press release.  Finally, Mr. Mueller notes in another post that there will be a media briefing conference call tomorrow, January 4, at 11 a.m. Eastern Time on the Samsung v. Apple design patent damages case.  I believe that anyone who's interested may dial in and participate free of charge.  My own panel discussion of Samsung v. Apple will be on January 12 (see details here).

Thursday, December 22, 2016

IP Chat Channel: Future of Design Patent Damages After Apple v. Samsung


On Thursday, January 12, 2017, at 2 p.m. Eastern Time I will be one of three panelists for an IP Chat Channel webinar titled Future of Design Patent Damages After Apple v. Samsung.  Here is a link to the website, if you're interested in registering, and here is a description: 
In its recent opinion, the U.S. Supreme Court answered this question posed by Samsung: "Where a design patent 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?" The reply of the unanimous court, in an opinion written by Judge Sotomayor: "The term 'article of manufacture' is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not." That answer rejects the Federal Circuit's longstanding interpretation of Section 289.
However, experts say the Supreme Court's opinion raises many more questions. The Federal Circuit must now create a test that will allow a jury to determine whether the "article of manufacture" covered by a design patent is the entire product or a component, and what that component is. For now, it is not clear whether the patent owner or the defendant bears the burden of proof. Then it will be up to a judge to apportion to the component some part of the infringer's entire profits on the product. Our panel -- a design patent litigator, a damages expert, and a law professor specializing in patent damages -- will discuss how the law of design patent damages might evolve, and see what the options might mean applied to cases currently being litigated such as Apple v. Samsung and Nordock v. Systems.
The other two panelists will be Dawn Hall, Senior Managing Director at FTI Consulting, and Richard Stockton of Banner & Witcoff, Ltd.  Should be a good discussion.

*                   *                    *

I'll be taking a break from blogging from now through the end of this year, with a plan to resume on January 2 or 3.  I wish my readers a happy holiday season, and all the best for 2017.