Florian Mueller has announced on his Foss Patents Blog that he will be blogging less over the coming months as he focuses more of his time on his app development project. I'm glad he plans to continue blogging to some extent, even if not as frequently as in past months, and I wish him all the best in his coming endeavors. I've certainly learned a great deal from his detailed analyses of the smartphone wars and other related issues, and I appreciate his encouragement when I was starting this blog a year ago. Florian, die besten Wünsche für die Zukunft!
Tuesday, April 29, 2014
As stated earlier, today the European Commission published two press releases in the antitrust investigations relating to Samsung and Motorola Mobility. The two press releases (here and here) and accompanying "Frequently asked questions" (here) are brief and to the point, and Florian Mueller’s write-up is thorough as usual, so I don’t have much to add. I am pleased by the Commission's conclusion that a willing licensee retains the right to challenge validity, infringement, and essentiality of an asserted SEP. I also agree with Florian that it probably makes sense for the Commission not to go further than it has in this case, given the Huawei-ZTE matter pending before the CJEU.
Here are the highlights from the three documents:
1. From the press release relating to Samsung:
Samsung will not seek injunctions in Europe on the basis of its standard essential patents (SEPs) for smartphones and tablets against licensees who sign up to a specified licensing framework. Under this framework, any dispute over what are fair, reasonable and non-discriminatory (so-called "FRAND") terms for the SEPs in question will be determined by a court, or if both parties agree, by an arbitrator. The commitments therefore provide a "safe harbour" for all potential licensees of the relevant Samsung SEPs. . . .To address the Commission's concerns, Samsung has for a period of five years committed not to seek any injunctions in the European Economic Area (EEA) on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets against any company that agrees to a particular framework for licensing the relevant SEPs.The licensing framework provides for:a negotiation period of up to 12 months; andif no agreement is reached, a third party determination of FRAND terms by a court if either party chooses, or by an arbitrator if both parties agree on this.An independent monitoring trustee will advise the Commission in overseeing the proper implementation of the commitments.
2. From the press release relating to Motorola Mobility:
The European Commission today adopted a decision which finds that Motorola Mobility's (Motorola) seeking and enforcement of an injunction against Apple before a German court on the basis of a smartphone standard essential patent (SEP) constitutes an abuse of a dominant position prohibited by EU antitrust rules in view of the particular circumstances in which the injunction was used (see also MEMO/14/322). The Commission has ordered Motorola to eliminate the negative effects resulting from it. . . .Seeking injunctions before courts is generally a legitimate remedy for patent holders in case of patent infringements. However, the seeking of an injunction based on SEPs may constitute an abuse of a dominant position if a SEP holder has given a voluntary commitment to license its SEPs on FRAND terms and where the company against which an injunction is sought is willing to enter into a licence agreement on such FRAND terms. . . .In today's decision, the Commission found that it was abusive for Motorola to both seek and enforce an injunction against Apple in Germany on the basis of an SEP which it had committed to license on FRAND terms and where Apple had agreed to take a licence and be bound by a determination of the FRAND royalties by the relevant German court.The Commission also found it anticompetitive that Motorola insisted, under the threat of the enforcement of an injunction, that Apple give up its rights to challenge the validity or infringement by Apple's mobile devices of Motorola SEPs. Implementers of standards and ultimately consumers should not have to pay for invalid or non-infringed patents. Implementers should therefore be able to ascertain the validity of patents and contest alleged infringements.The Commission decided not to impose a fine on Motorola in view of the fact that there is no case-law by the European Union Courts dealing with the legality under Article 102 TFEU of SEP-based injunctions and that national courts have so far reached diverging conclusions on this question.
3. From the FAQ:
Today's action by the Commission clarifies that it is anti-competitive to use injunctions in relation to SEPs in the following circumstances: when in a standardisation context, a SEP holder has committed to license the SEP on FRAND terms and the licensee is willing to take a licence on such terms.What do these decisions mean in practical terms for patent holders and implementers of standards?The Motorola decision provides a "safe harbour" for standard implementers who are willing to take a licence on FRAND terms. If they want to be safe from injunctions based on SEPs by the patent holder, they can demonstrate that they are a willing licensee by agreeing that a court or a mutually agreed arbitrator adjudicates the FRAND terms.Samsung's commitments implement in this case the "safe harbour" concept established in the Motorola decision in practical terms. They provide for a "safe harbour" available to all potential licensees of the relevant Samsung SEPs. Potential licensees are protected against injunctions sought by Samsung on the basis of such SEPs if they submit to the licensing framework provided for by the commitments.Is the Commission generally questioning the use of injunctions by patent holders?No. Recourse to injunctive relief is generally a legitimate remedy for patent holders in case of patent infringements. Moreover, SEP-based injunctions should be available when there is an unwilling licensee. The cases are therefore not about eliminating the use of injunctions by patent holders. Rather, in the specific circumstances where the holder of a SEP has given a commitment to license on FRAND terms and where the company against which an injunction is sought is willing to enter into a FRAND licence agreement, the seeking of an injunction on the basis of SEPs can constitute an abuse of a dominant position.When is a company considered to be a willing licensee?Whether a company can be considered a "willing licensee" needs to be determined on a case by case basis taking into account the specific facts. Today's decisions provide a "safe harbour" for willing licensees who want to avoid the risk of being the subject of an injunction on the basis of SEPs, i.e. companies which, in case of dispute, are willing to have FRAND terms determined by a court or arbitrators (if agreed between the parties) and to be bound by such a determination. The decisions do not make findings on the willingness of licensees outside this "safe harbour".Is a potential licensee who challenges validity, essentiality or infringement of SEPs unwilling?No. Potential licensees of SEPs should remain free to challenge the validity, essentiality or infringement of SEPs. It is in the public interest that potentially invalid patents can be challenged in court and that companies, and ultimately consumers, are not obliged to pay for patents that are not infringed.Does the Commission outline what a reasonable royalty rate is?No. The Commission believes that courts and arbitrators are well-placed to set FRAND rates in cases of disputes. . . .Are the decisions in conflict with the German Federal Court of Justice's so-called German "Orange Book" case law on injunctions?No. The 2009 "Orange Book" ruling of the German Federal Court of Justice established that a potential licensee can raise a competition law defence against an application for injunctive relief by showing that (i) it has made an unconditional offer to license under terms that cannot be rejected by the patent holder without abusing its dominant position, and (ii) it actually acted as if it had entered into a valid patent licence. The German Federal Court of Justice's ruling did not specifically relate to SEPs and is therefore not directly applicable to the cases on which the Commission decided. The Motorola decision does, however, conclude that in the context of SEPs, if the ruling was to be interpreted as meaning that a willing licensee is essentially not entitled to challenge the validity, infringement and essentiality of the SEPs in question, this would be anti-competitive.What is the link between today's decisions and the request for a preliminary ruling by the Regional Court of Düsseldorf to the European Court of Justice in the SEP-based litigation between Huawei and ZTE?The Commission has adopted today's decisions in order to address the issues raised in the two cases in question in a way that can also provide guidance to the industry. The Commission has provided observations outlining its position to the European Court of Justice in the pending Huawei/ZTE case. The Commission will naturally fully take account of any further guidance by the Court of Justice.
More news: European Commission Accepts Samsung's Commitment Regarding SEPs, Finds Motorola Mobility in Violation
Today the European Commission published two press releases in the antitrust investigations relating to Samsung and Motorola Mobility. The first is titled "Antitrust: Commission accepts legally binding commitments by Samsung Electronics on standard essential patent injunctions" and is available here. The other is titled "Antitrust: Commission finds that Motorola Mobility infringed EU competition rules by misusing standard essential patents," and is available here. A third document that may be of interest is titled "Antitrust decisions on standard essential patents (SEPs) - Motorola Mobility and Samsung Electronics - Frequently asked questions" and is available here. I'm just about to read these and may be back later with some comments. Coverage on Foss Patents is here.
Initial Impressions on the U.S. Supreme Court's Fee-Shifting Decisions in Octane Fitness and Highmark
As I mentioned earlier this morning, the U.S. Supreme Court reversed the Federal Circuit in a pair of cases, Octane Fitness, LLC v. Icon Health & Fitness, Inc., and Highmark Inc. v. Allcare Health Management System, Inc., involving the interpretation of section 285 of the U.S. Patent Act, which states that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." Justice Sotomayor wrote the opinions in both cases, and both are unanimous--with the minor exception that Justice Scalia did not join in footnotes 1-3 of Octane Fitness, which discuss the legislative history of section 285 and its predecessor statute. (Justice Scalia is not a fan of resorting to the legislative history of statutes.) As Justice Sotomayor states in her opinion in Octane Fitness, the Federal Circuit in Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc. had
held that a case is “exceptional” under § 285 only “when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent,misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed. R. Civ. P. 11, or like infractions.” Id., at 1381. “Absent misconduct in conduct of the litigation or in securing the patent,” the Federal Circuit continued, fees “may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.”
In Octane Fitness, the Court reverses this standard for determining when a case is "exceptional," and in Highmark it holds that appellate review of an exceptional case determination should be reviewed for abuse of discretion.
More precisely, Octane Fitness holds the following:
1. Section 285 "imposes one and only one constraint on district courts’ discretion to award attorney’s fees in patent litigation: The power is reserved for 'exceptional' cases" (p.7). In accordance with the ordinary meaning of the word "exceptional,"
an "exceptional" case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances. As in the comparable context of the Copyright Act, “‘[t]here is no precise rule or formula for making these determinations,’ but instead equitable discretion should be exercised ‘in light of the considerations we have identified.’” Fogerty v. Fantasy, Inc., 510 U. S. 517, 534 (1994).
2. In this light, the Brooks Furniture approach was "overly rigid" and "inflexible." The first category of cases in which Brooks Furniture permitted fee awards "appears to extend largely to independently sanctionable misconduct," but under the correct standard "a district court may award fees in the rare case in which a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so 'exceptional' as to justify an award of fees" (p.9). The second category is also too rigid, because "a case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award," citing a Lanham (Trademark) Act case for the proposition that "[s]omething less than 'bad faith' . . . suffices to mark a case as 'exceptional'".
3. The Federal Circuit drew the objective/subjective baselessness standard from the Supreme Court's decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., which was a case in which a plaintiff alleged that the defendant had violated the antitrust laws by attempting to monopolize by engaging in "sham" copyright litigation. Under the Noerr-Pennington doctrine, a person generally is immune from antitrust liability for petitioning the government, but in the context of sham litigation the immunity is lost if the litigation is both objectively and subjectively baseless. In Octane Fitness, however, the Court sees no reason to "import" this standard into section 285. (An aside--it's interesting that the opinion characterizes Noerr-Pennington as rooted in the First Amendment, because there has been some debate among the courts and commentators as to whether it is rooted in the constitutional right to petition the government or in the antitrust statute itself.)
4. The Court also notes that the common-law exception to the American rule that each party bears its own attorneys' fees applies in cases of egregious misconduct, and that interpreting section 285 in similar fashion would render it "largely superfluous" (pp. 10-11).
5. Finally, the Court rejects the Federal Circuit's rule that entitlement to attorneys' fees must be established by clear and convincing evidence. Rather, the normal "preponderance of the evidence" standard applies.
In Highmark, the Court holds that "an appellate court should review all aspects of a district court's § 285 determination for abuse of discretion." It notes, however, in a footnote that "[t]he abuse-of-discretion standard does not preclude an appellate court’s correction of a district court’s legal or factual error . . . ."
Possible implications to ponder:
1. Will the theme of greater deference to district court decisions carry over into the realm of claim construction? The Court recently granted cert. in another patent case, Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. in which the question presented is "Whether a district court's factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case), or only for clear error, as Rule 52(a) requires." The case will be argued in the fall.
2. I wonder if the Federal Circuit's current standard for evaluating when infringement is "willful," and therefore potentially supportive of an award of enhanced damages, also may need to be revisited. See Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., 682 F.3d 1003, 1007 (Fed. Cir. 2012) (stating that “the ultimate legal question of whether a reasonable person would have considered there to be a high likelihood of infringement of a valid patent should always be decided as a matter of law by the judge”), cert. denied, 133 S. Ct. 932 (2013); In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc) (holding that for an infringement to be “willful” it must be both objectively and subjectively reckless, and that “to establish willful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. . . . If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”).
3. Presumably the impact of Octane Fitness will be an increase in attorney fee awards in patent cases, which many people believe would be desirable for reining in litigation by patent trolls. (For a recent empirical study of fee awards, see Saurabh Vishnubhakat's article, which I blogged about here.) It's also interesting to speculate whether these two cases will have an effect on the pending patent reform bills. The version passed by the U.S. House of Representatives last fall would require courts to award fees if the patentee’s position was not “reasonably justified.” See my post here.
4. As in other contexts, the Court has eschewed bright lines in favor of a more flexible approach. This has its advantages but also some disadvantages, particularly to the extent that it makes awards of fees less predictable. It isn't likely, though, that we will discard the American Rule in favor of a straight loser-pays rule as have many other countries, at least not anytime soon. On another tangent, I wonder if this flexibility theme will carry over into the question of software patents at issue in Alice v. CLS Bank?
5. Finally, it's interesting that the Court cites both copyright and trademark cases in support of its holding in Octane Fitness, suggesting that at some level the Court views all three bodies of law as roughly parallel.
Breaking News: U.S. Supreme Court Reverses Federal Circuit on Awards of Attorneys' Fees in Patent Cases
The opinions in Highmark and Octane Fitness are now out (both opinions by Justice Sotomayor). I'll be back later with some preliminary assessment of the two cases. For previous coverage on this blog, see here and here.
Monday, April 28, 2014
This is the first of two posts by Nadia Wood and me on statutory damages in patent law. Ms. Wood is an attorney in St. Paul and a legal writing instructor at the University of Minnesota (as well as one of my former students). She is also a native speaker of Russian. We’ll begin with a brief introduction to the topic by me, including some remarks on statutory damages in China, followed by Ms. Wood’s analysis of the recent Russian legislation. Her analysis will conclude in the second part of this series, followed by some closing remarks by me.
Cotter: As many readers are probably aware, a small number of countries award "statutory" damages for copyright infringement. See, e.g., Pamela Samuelson, Phil Hill, & Tara Wheatland, Statutory Damages: A Rarity in Copyright Laws Internationally, But for How Long?, 60 J. Copyright Off. Soc’y USA 529, 534 (2014) (reporting that, of 179 WIPO member states surveyed, only 24—Azerbaijan, Bahamas, Bahrain, Belarus, Bulgaria, Canada, China, Costa Rica, Dominican Republican, Israel, Kazakhstan, Kyrgyzstan, Liberia, Lithuania, Malaysia, Morocco, Republic of Korea, Republic of Moldova, Russian Federation, Singapore, Sri Lanka, Ukraine, the United States, and Vietnam—awarded statutory damages for copyright infringement), available at http://ssrn.com/abstract=2240569. In the United States, for example, a copyright owner who has timely registered her claim to copyright may opt for statutory damages, in lieu of actual damages or the infringer’s profits, in an amount ranging from $750 to $30,000 for each worked infringed. See 17 U.S.C. § 504(c).
I don’t know how many countries provide statutory damages for patent infringement, but of all the countries whose patent systems I have studied the only one of which I was aware (until recently) that did so was China. See China Patent Act art. 65 (“If the losses of the patentee, benefits of the infringer, or royalties of the patent are all hard to determine, the people's court may, on the basis of the factors such as the type of patent right, nature of the infringement, and seriousness of the case, determine the amount of compensation within the range from 10,000 yuan to 1,000,000 yuan.”) (SIPO translation, available here); Thomas F. Cotter, Comparative Patent Remedies: A Legal and Economic Analysis 353–60 (2013). As discussed in my book, statutory damages appear to the most popular damages remedy for patent infringement in China, even though the amounts that can be awarded are relatively low; 1,000,000 yuan equals only about $160,000 (U.S.). Among the relevant factors that Chinese courts take into account are “the infringer’s state of mind; the effect, manner, and duration of the use; the value, function, and materiality of the patent, including the availability of competing products; and the cost incurred in responding to the infringement.” Id. at 359 (citing Jingjing Cao, Die Durchsetzung von Patenten in China 178–80 (2010); Cheng Miao et al., Theory and Practice Related to Patent Infringement Damages, China Pats. & Trademarks, 2009, no. 4, at 17–18).
I was therefore quite interested when I read in Sergei Blagov’s recent article Russia Amends Civil Code to Introduce “Significant” Changes to IP Protection, 28 Bloomberg BNA World Intell. Prop. Rep. 20 (Mar. 17, 2014) (article behind a paywall), that Russia too has now authorized awards of statutory damages for patent infringement. The article quotes Baker & McKenzie partner Denis Khabarov as stating that the relevant amendments (part of an overall package of amendments to the Civil Code) as “entitl[ing] the patent owner to the full range of enforcement remedies provided by the Civil Code as well as statutory infringement compensation from 10,000 ($273) to 5 million rubles ($136,463), or double the royalty rate.” Ms. Wood’s analysis of the statutory text (available here, in Russian), follows.
Wood: The relevant portion of the new Russian law is found in article 1406 of the new law (page 128 of the text) and reads as follows:
Статья 1406. Ответственность за нарушение исключительного права на изобретение, полезную модель или промышленный образецВ случае нарушения исключительного права на изобретение, полезную модель или промышленный образец автор или иной правообладатель наряду с использованием других применимых способов защиты и мер ответственности, установленных настояним Кодексом (статьи 1250, 1252 и 1253), вправе требовать по своему выбору от нарушителя вместо возмещения убытков выплаты компенсации:1) в размере от десяти тысяч рублей до пяти миллионов рублей, определяемом по усмотрению суда исходя из характера нарушения;2) в двукратном размере стоимости права использования изобретения, полезной модели или промышленного образца, определяемой исходя из цены, которая при сравнимых обстоятельствах обычно взимается за правомерное использование соответствующих изобретения, полезной модели, промышленного образца тем способом, который использовал нарушитель.
My unofficial translation reads as follows. The bracketed portions have been added for clarity but are not in the statutory text:
Article 1406.1. Liability for violation of exclusive rights to an invention, utility model or commercial sample.In case of infringement of exclusive rights to an invention, utility model or commercial sample[,] author [inventor] or other rightsholder [owner of rights to the invention,] along with using other applicable methods of protection and liability measures established by the present Code (articles 1250, 1252 and 1253), has the right at their option to demand from the offender instead of [actual] damages [the following] compensation:1) in the amount of ten thousand to five million rubles determined at the discretion of the court based on the nature of the violation;2) twice the value of the right to use an invention [royalty rate], utility model or commercial sample determined based on the rate usually charged under comparable circumstances for the lawful use of corresponding invention, utility model, commercial sample in a manner utilized by the offender.
One thing that stands out is that, although it would seem to make sense to require the patent owner to choose one compensation option or the other, and not award both, there is no explicit word “or” in between subparagraphs (1) and (2). Perhaps this is implicit, however, or expressly stated in the legislative history; Mr. Khabarov appears to assume the owner may recover only one or the other, according to his quote in the BNA publication cited above.
To be continued.
Friday, April 25, 2014
Here are my initial impressions of the Federal Circuit's decision today in Apple v. Motorola.
1. The initial portion of Judge Reyna's majority opinion is devoted to the review of Judge Posner's claim construction rulings. The court affirms as to four of these rulings (on Apple's '647 and '263 Patents, and on Motorola's '559 and '712) and reverses as to one other (Apple's '949), with Judge Prost dissenting on '949 (in other words, she would affirm Judge Posner's claim construction rulings in their entirety). I will focus, however, exclusively on the remedies issues. The majority concludes that Judge Posner should not have excluded the testimony of Apple's damages expert Brian Napper (with Judge Prost dissenting with respect to Napper's testimony relating to the '949 Patent), and that he should not have excluded Motorola expert Carla Mulhern's testimony in its entirety. The court affirms Judge Posner's exclusion of Motorola's other expert. The majority also affirms his decision that Motorola would not be entitled to an injunction for the infringement of its FRAND-encumbered SEP (the '898 Patent), with Chief Judge Rader dissenting on this issue; and reverses and remands for further consideration his decision that Apple would not be entitled to an injunction for the infringement of its three patents in suit (with Judge Prost dissenting on this issue).
2. Overall—and again, for now, I'm focusing my attention only on the remedies issues—I think that Judge Reyna's majority opinion is pretty well-reasoned. In particular, I'm not surprised that the court reversed Judge Posner's exclusion of Napper's testimony as it related to the '263 Patent. Napper was prepared to testify “that it would cost Motorola $29 to $31 million to add a chip to [each of] its smartphones that would replace the function performed by the invention that is the subject of the ′263 patent.” Judge Posner viewed this testimony as unreliable because Napper “obtained the essential information, namely the identity of the chip that would avoid infringement, from an agent of the party rather than from a disinterested source. The agent in this case is Nathaniel Polish, Apple's principal technical expert.” I had heard many practitioners express concern that, under Judge Posner’s rule, the damages expert would have to undertake the Herculean task of determining independently what the next-best noninfringing alternative would have been, as well as how much value the patented invention promised in comparison with that alternative; and that this is simply not a realistic expectation (or standard practice). See opinion p.54 (“Overall, outside of litigation, it would be reasonable, and quite common, for Napper to rely on technical information provided by Apple or one of its experts in order to value the cost to design around Apple’s technology. Indeed, such an approach would carry the same intellectual rigor as the approach employed in the courtroom in this case.”). The Federal Circuit’s reversal on this particular issue therefore was to be expected.
3. The majority’s reversal of Judge Posner’s exclusion of Napper’s testimony as it related to ‘949 was based in part on its reversal of Judge Posner’s claim construction of that patent, and also on its view that the product Napper used as a comparable from which to derive a damages estimate (Apple’s Magic Trackpad) was, contrary to Judge Posner, an appropriate comparable. See opinion pp. 45-50 (stating, inter alia, that “Napper’s assertion that the Trackpad’s features are comparable to the asserted features is the result of reliable application”); contra Judge’s Prost dissent, pp. 11-12 (asserting that Apple concedes that the Trackpad “contains none of the function asserted from the ‘949 Patent”). I need to think about this one a little more myself.
4. Judge Posner had granted summary judgment to Motorola with regard to Apple’s ‘647 Patent, on the ground that Apple had not presented admissible evidence as to what a reasonable royalty would be for this patent. The potential weakness is that 35 U.S.C. § 284 states that “Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer”, which might suggest that some reasonable royalty is due even if a party presents weak or no evidence as to amount. Here, I think Judge Reyna finessed the issue pretty well (see pp. 63-69):
If a patentee’s evidence fails to support its specific royalty estimate, the fact finder is still required to determine what royalty is supported by the record. . . . Indeed, if the record evidence does not fully support either party’s royalty estimate, the fact finder must still determine what constitutes a reasonable royalty from the record evidence. . . . Certainly, if the patentee’s proof is weak, the court is free to award a low, perhaps nominal, royalty, as long as that royalty is supported by the record. . . .Thus, a fact finder may award no damages only when the record supports a zero royalty award. For example, in a case completely lacking any evidence on which to base a damages award, the record may well support a zero royalty award. Also, a record could demonstrate that, at the time of infringement, the defendant considered the patent valueless and the patentee would have accepted no payment for the defendant’s infringement. Of course, it seems unlikely that a willing licensor and willing licensee would agree to a zero royalty payment in a hypothetical negotiation, where both infringement and validity are assumed.At summary judgment, as is the case here, a judge may only award a zero royalty for infringement if there is no genuine issue of material fact that zero is the only reasonable royalty. Thus, if a patentee raises a factual issue regarding whether it is due any non-zero royalty, summary judgment must be denied. In any event, simply because a patentee fails to show that its royalty estimate is correct does not, by itself, justify awarding a royalty of zero at summary judgment, as the district court did here. . . .The record before us does not support granting summary judgment of no damages. Motorola has not met its burden of demonstrating, as the party who moved for summary judgment, that the record is uncontroverted that zero is the only reasonable royalty.
5. As for Motorola’s damages evidence, Carla Mulhern testified that SEPs are usually licensed in portfolios, not separately, and that if Motorola were forced to license a subset of its SEPs these would capture a nonlinear (disproportionate) share of the portfolio rate—specifically, about 40-50%. The court affirmed the exclusion of this testimony on the ground that it was not sufficiently tied to the facts of the case. It reversed the exclusion of Mulhern’s alternative estimate based on comparable licenses, however, which Judge Posner had excluded because in his view it didn’t sufficiently take into account the noninfringing alternative of Apple designing around the patent by contracting with Verizon, which did not use the GMS/UTMS networks (see pp. 57-61):
This approach is generally reliable because the royalty that a similarly-situated party pays inherently accounts for market conditions at the time of the hypothetical negotiation, including a number of factors that are difficult to value, such as the cost of available, non-infringing alternatives. . . . For example, in this case, Motorola’s other licensees would have had the option of only releasing a phone on the Verizon network. Thus, the royalty rate agreed to in these licenses, assuming the overall licensing situation is factually comparable, would necessarily account for the cost of this non-infringing alternative.Here, whether these licenses are sufficiently comparable such that Motorola’s calculation is a reasonable royalty goes to the weight of the evidence, not its admissibility.
6. As to injunctive relief, the majority reversed and remanded Judge Posner’s decision that Apple would not be entitled to an injunction, due to its reversal of his claim construction of ‘949. Importantly, though it affirmed his decision that Motorola is not entitled an injunction for the infringement of its SEP. This may be the most important part of the case in terms of precedent. From Judge Reyna’s opinion (pp. 71-73):
To the extent that the district court applied a per se rule that injunctions are unavailable for SEPs, it erred. While Motorola’s FRAND commitments are certainly criteria relevant to its entitlement to an injunction, we see no reason to create, as some amici urge, a separate rule or analytical framework for addressing injunctions for FRAND-committed patents. The framework laid outby the Supreme Court in eBay, as interpreted by subsequent decisions of this court, provides ample strength and flexibility for addressing the unique aspects of FRAND committed patents and industry standards in general. 547 U.S. at 391-94. A patentee subject to FRAND commitments may have difficulty establishing irreparable harm. On the other hand, an injunction may be justified where an infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect. See, e.g., U.S. Dep’t of Justice and U.S. Patent and Trademark Office, Policy Statement on Remedies for Standard-Essential Patents Subject to VoluntaryF/RAND Commitments, at 7-8 (Jan. 8, 2013). To be clear, this does not mean that an alleged infringer’s refusal to accept any license offer necessarily justifies issuing an injunction. For example, the license offered may not be on FRAND terms. In addition, the public has an interest in encouraging participation in standard-setting organizations but also in ensuring that SEPs are not overvalued. While these are important concerns, the district courts are more than capable of considering these factual issues when deciding whether to issue an injunction under the principles in eBay.Applying those principles here, we agree with the district court that Motorola is not entitled to an injunction for infringement of the ’898 patent. Motorola’s FRAND commitments, which have yielded many license agreements encompassing the ’898 patent, strongly suggest that money damages are adequate to fully compensate Motorola for any infringement. Similarly, Motorola has not demonstrated that Apple’s infringement has caused it irreparable harm. Considering the large number of industry participants that are already using the system claimed in the ’898 patent, including competitors, Motorola has not provided any evidence that adding one more user would create such harm. Again, Motorola has agreed to add as many market participants as are willing to pay a FRAND royalty. Motorola argues that Apple has refused to accept its initial licensing offer and stalled negotiations. However, the record reflects that negotiations have been ongoing, and there is no evidence that Apple has been, for example, unilaterally refusing toagree to a deal.
Chief Judge Rader dissented, stating (Rader dissent pp. 1-3):
To my eyes, the record contains sufficient evidence to create a genuine dispute of materialfact on Apple’s posture as an unwilling licensee whose continued infringement of the ’898 patent caused irreparable harm. Because of the unique and intensely factual circumstances surrounding patents adopted as industry standards, I believe the district court improperly granted summary judgment. . . .Market analysts will no doubt observe that a “hold out” (i.e., an unwilling licensee of an SEP seeking to avoid a license based on the value that the technological advance contributed to the prior art) is equally as likely and disruptive as a “hold up” (i.e., an SEP owner demanding unjustified royalties based solely on value contributed by the standardization). These same complex factual questions regarding “hold up” and “hold out” are highly relevant to an injunction request. In sum, differentiating “hold up” from “hold out” requires some factual analysis of the sources of value—the inventive advance or the standardization.The record in this case shows evidence that Apple may have been a hold out. . . . This evidence alone would create a dispute of material fact.More important, the district court made no effort to differentiate the value due to inventive contribution from the value due to standardization. . . .Instead of a proper injunction analysis, the district court effectively considered Motorola’s FRAND commitment as dispositive by itself . . . .Furthermore, the district court acknowledged the conflicting evidence about Apple’s willingness to license the ’898 patent . . .
I wonder where Chief Judge Rader gets his empirical assertion that “hold out” (otherwise known as “reverse holdup”) is “equally as likely . . . as ‘hold up’”?
Finally Judge Prost, while agreeing with Judge Reyna’s resolution of this issue and with the broader statement that “there is no need to create a categorical rule that a patentee can never obtain an injunction on a FRAND-committed patent,” would nevertheless go somewhat farther than Judge Reyna:
Finally Judge Prost, while agreeing with Judge Reyna’s resolution of this issue and with the broader statement that “there is no need to create a categorical rule that a patentee can never obtain an injunction on a FRAND-committed patent,” would nevertheless go somewhat farther than Judge Reyna:
I disagee that an alleged infringer’s refusal to enter into a licensing agreement justifies entering an injunction against its conduct, for several reasons. First, as Apple points out, an alleged infringer is fully entitled to challenge the validity of a FRAND-committed patent before agreeing to pay a license on that patent, and so should not necessarily be punished for less than eager negotiations. Second, there are many reasons an alleged infringer might prefer to pay a FRAND license rather than undergoing extensive litigation, including litigation expenses, the possibility of paying treble damages or attorney’s fees if they are found liable for willful infringement, and the risk that the fact-finder may award damages in an amount higher than the FRAND rates. Indeed, as Motorola itself pointed out, we have previously acknowledged that a trial court may award an amount of damages greater than a reasonable royalty if necessary “to compensate for the infringement.” Stickle v. Heublein, Inc., 716 F.2d 1550, 1563 (Fed. Cir. 1983). Thus, if a trial court believes that an infringer previously engaged in bad faith negotiations, it is entitled to increase the damages to account for any harm to the patentee as a result of that behavior.But regardless, none of these considerations alters the fact that monetary damages are likely adequate to compensate for a FRAND patentee’s injuries. I see no reason, therefore, why a party’s pre-litigation conduct in license negotiations should affect the availability of injunctiverelief.
7. To sum up, my impressions are still preliminary but overall I think the court did a reasonable job here, particularly as it relates to the question of injunctions and SEPs. I'm particularly happy that the court affirmed Judge Posner's decision on this issue made pretrial, rather than saying he should have waited until the end of trial to weigh the equities.
I would also note that the majority did not address this passage from Judge Posner's opinion: “The proper method of computing a FRAND royalty starts with what the cost to the licensee would have been of obtaining, just before the patented invention was declared essential to compliance with the industry standard, a license for the function performed by the patent. That cost would be a measure of the value of the patent qua patent." I've expressed the view before that this is the correct time frame in SEP cases, rather than the more conventional "as of the date of infringement" time frame, because in the SEP context the date of infringement may be post-lock-in. I'm glad the majority didn't disturb this, though of course they didn't embrace it either.