Monday, June 30, 2014

Lex Machina's Patent Litigation Damages Report

Here is a link to the report, which was released last week and just came to my attention.  I'm sure I'll have more to say about it in the days to come, but I also imagine that many of my readers will want to take a look at it as soon as possible.  According to the introduction:
This report surveys the landscape of patent litigation damages awarded in U.S. District Court cases filed from January 1, 2000 through December 31, 2013. It analyzes these damages awards across districts, judges, parties and law firms. To gain greater insight, this report focuses primarily on compensatory damages (both reasonable royalties and lost profits), enhanced damages, and awards of attorneys’ fees.
The last few years have seen some of the largest awards in patent litigation history - awards that have captured headlines and brought patent damages into mainstream public debate. This report seeks to inform that debate and provide patent litigators with information they can use to set litigation strategies, develop case tactics, and produce results.

Sunday, June 29, 2014

More on the Japanese Samsung/Apple FRAND Dispute

As I reported a few weeks ago, in May a Grand Panel of Japan's IP High Court affirmed the trial court's decision that Samsung engaged in an abuse of right in its negotiations with Apple over the licensing of a FRAND-encumbered standard-essential patent and therefore was not entitled to a preliminary injunction.  The IP High Court reversed the lower court's decision that Samsung's abuse of right also deprived it of the ability to recover damages, however, and awarded Samsung ¥ 9,950,000 (about US $ 98,000). The IP High Court's webpage has links to the summary and decision in Japanese and promises an English translation soon.  While I await the translation, here's a little more about the case as gleaned from some recent reports.

First, though, a little background.  As I discussed on this blog last August:
Samsung had sought a preliminary injunction against the importation and sale of certain models of Apple devices that allegedly infringed a standard-essential patent, Japan Patent No. 4642898, that was subject to a FRAND obligation.  In response, Apple filed an action seeking a declaration that its devices did not infringe, and that Samsung did not have a right to claim damages.  With respect to Apple's claims, the court held, first, that two of the four devices infringed.  On the issue of remedies, however, the court invoked article 1 of the Civil Code of Japan, which states that:
(1) Private rights must conform to the public welfare.
(2) The exercise of rights and performance of duties must be done in good faith.
(3) No abuse of rights is permitted.
Thus (quoting here from Apple's translation), while "there are no express provisions regarding the duties of parties at the stage of preparation for contract execution . . . it is reasonable to understand that, in certain cases, parties that have entered into contract negotiations owe a duty to each other under the principle of good faith to provide the other party with important information and to negotiate in good faith.”  The court rejected Samsung’s argument that the duty to negotiate in good faith had not arisen because Apple’s offer reserved the right to contest validity, and concluded that Samsung had not acted in good faith because, inter alia, it had refused to disclose information Apple had requested to substantiate Samsung’s offer a 2.4% royalty for all patents essential to the UMTS standards, and had continued to seek a preliminary injunction in the Japanese proceedings.  The court therefore concluded that Samsung’s conduct constituted an abuse of rights precluding Samsung from the right to seek damages from Apple.
Second, as I noted here this past February, the IP High Court decided to convene a Grand Panel of five judges to hear the appeal, and solicited public comments on the question whether there should “be any restriction on the right to seek an injunction and damages based on a standard essential patent (SEP) in respect of which a FRAND declaration is made”. 

Third, we now have a few additional reports on the IP High Court’s decision besides those that appeared in the immediate aftermath:

1.  According to an article by Yuriko Nagano titled Experts Discuss Japan IP Court Ruling in FRAND Case Between Samsung and Apple and published in the May 29 issue of Bloomberg BNA’s Patent, Trademark & Copyright Law Daily (available here, behind a paywall), “the court received 58 letters of public comment from eight countries, namely the United States, United Kingdom, Belgium, Denmark, Spain, Netherlands, Finland, and Japan,” and the judgment described the commentary as “valuable and beneficial.”  The article also quotes one source as approving the decision to require Apple to pay damages, even if Samsung is not entitled to an injunction, and states that Samsung “has about a month and a half from the May 17 decision to appeal the case.”  (So far I’ve seen nothing published on whether Samsung has filed an appeal or whether its time to do so has expired.)  I agree that, even if Samsung and other owners of FRAND-encumbered SEPs are not entitled to an injunction, it would be a gross error to deprive them of the right to obtain an appropriate damages judgment.  To construe the abuse of right doctrine in this fashion, as the trial court did, makes that doctrine resemble the U.S. doctrine of patent misuse, under which a patent is rendered unenforceable in its entirety as a result of the patent owner's misuse of its rights (although the U.S. doctrine goes even further, because the patent is rendered unenforceable against the world, at least until the misuse is "purged").  I've been critical of the U.S. misuse doctrine (which, fortunately in my view, doesn't meet with success much these days other than in a subset of cases in which the patentee's conduct amounts to an antitrust violation), and I am happy to see the Japanese abuse of right doctrine reined in to some degree so as to make it less of a potential overdeterrent. 

2. On June 25, Miyamura Daisuke of the Ohtsuki Patent Law Firm published an article (available on both the EPLaw and Patentology blogs) that goes into greater detail about the IP High Court’s decision.  According to Mr. Daisuke, the court determined, first, that French law applied to the question of whether Samsung’s FRAND commitment itself constituted a license agreement; and that, under French law, the answer to this question was no because, among other things, the commitment did not specify the royalty rate, geographic scope, or duration of any such license.  Second, however, the court concluded that the owner of a FRAND-encumbered SEP does not have an unlimited right to seek injunctive relief or to demand a supra-FRAND royalty, because implementers have a reasonable belief they will be granted a license on FRAND terms; generally speaking, the owner does not expect to obtain an injunction; implementers have no option to work around the patent; due to the number of SEPs incorporated into the relevant standard, one cannot expect ex ante licensing; and, at the margin, a right to injunctive relief threatens the standard-setting process.  At the same time, the court suggested that where the implementer is not a willing licensee, an injunction or higher damages may be appropriate, although “it should be strictly determined that the adverse party doesn’t hope to be licensed according to the FRAND condition.”  Third, even where the patentee has engaged in an abuse of right, it still retains the right to adequate compensation.  Fourth, Apple failed to prove a violation of Japanese competition law based merely on Samsung’s abuse of right.  Fifth, upon reviewing the evidence, the court concluded that, contrary to Samsung’s assertions, Apple was willing to take a FRAND license.

As I've written before, while I generally support the principle that owners of FRAND-encumbered SEPs shouldn't be able to obtain injunctions, I'm a little concerned about doctrines like "abuse of right" potentially being overly subjective and standardless (though I admit that I need to get a firmer understanding of how the doctrine works in countries in which it is available).  Overall, though, it seems that (for now) a general presumption against injunctions in SEP cases may be emerging among courts in the U.S. and Japan and in the European Commission, although the applicable body of law that achieves this result may be the law of patent remedies (as in the U.S.), abuse of right (Japan), or competition law (Europe).  Of course, all of this could change too, particularly in Europe where (as I learned last week in Brussels) the CJEU is now set to hear the Huawei-ZTE case involving Germany's Orange-Book-Standard defense on September 11, 2014, and where there is quite a vociferous debate going on concerning the propriety of the Commission's article 9 commitment decision in Samsung and its article 7 prohibition decision in Motorola.  (The full text of the Commission's article 7 decision in Motorola is due to be publicly released soon.) 

Friday, June 27, 2014

Wrongful Patent Enforcement

Florian Mueller recently published an interesting post on Samsung's effort to enforce a preliminary injunction bond against Apple.  The matter relates to a preliminary injunction that was entered against Samsung in 2012 and subsequently vacated, after the jury in the 2012 Apple v. Samsung trial before Judge Koh concluded that the specific patent in suit was not infringed.  His post raises the broader topic of "wrongful patent enforcement," which he states "will increasingly be on the agenda in some major smartphone patent disputes."  

This is a topic that I have become increasingly interested in as well.   In addition to questions of wrongful enforcement that may arise in the smartphone wars, the topic is also relevant to, among other things, the various efforts underway in the U.S. to try to curb lawsuits filed by patent trolls.  A few years ago, Christopher Heath published an insightful paper titled Wrongful Patent Enforcement--Threats and Post-Infringement Invalidity in Comparative Perspective, 39 IIC 307 (2008), which I've previously mentioned on this blog here and here.   I'm hoping to add something to the mix in the coming months, though at this point the project is still at a very early stage.  (I'm still not quite sure whether it will result in an article or a short book, though I'm leaning towards the latter).  Here are some slides I've prepared for an upcoming presentation to my own law faculty on the comparative law and economics of wrongful enforcement.  As always, comments and constructive criticism are welcome.   

Wednesday, June 25, 2014

Wednesday Miscellany: Injunctions in Canada and Germany; Inventor Remuneration in Japan

1.  A couple of weeks ago Norman Siebrasse published a post on Sufficient Description on a recent Canadian Federal Court decision, Abbvie Corp. v. Janssen.   I recommend that interested readers read the decision itself and Professor Siebrasse's write-up, but briefly the case involves Canadian Patent No. 2,365,281, titled  “Human Antibodies that Bind Human IL-12 and Methods for Producing."  AbbVie markets a drug, HUMIRA, for treatment of (among others things) psoriasis, but none of AbbVie's products, including HUMIRA, are covered by the '281 Patent.  Janssen markets STELARA, an anti-psoriasis drug, that is covered by '281.  AbbVie sued Janssen for infringement, and in previous proceedings the court found the patent valid and infringed.  On the question of remedies, the court granted an injunction only against the defendant's marketing of STELARA, but otherwise will permit Janseen to continue selling the drug to existing and new patients (presumably subject to a reasonable royalty yet to be determined).  The court states that, although "[a]n injunction normally will follow once the Court has found that a patent is valid and has been infringed," para. 35, but that the remedy nevertheless is discretionary.  Moreover, "In considering a final injunction, a party is required to establish its legal rights; the Court must then determine whether an injunction is an appropriate remedy. Irreparable harm and balance of convenience, per se, are not relevant, but may inform the determination as to whether an injunction is an appropriate remedy" (para. 38).  For discussion of the law of injunctions in Canada, the U.K., and Australia in my book, see pp. 176-84.

2. The June 2014 issue of GRUR-RR summarizes a recent decision of the Düsseldorf Oberlandesgericht (Judgment of Nov. 11, 2013, I-2 U 94/12--Desogestrel), on the question of whether to grant a preliminary injunction against a generic drug company's marketing of an allegedly infringing drug.  According to the summary (in German), the court states that in principle it may grant a preliminary injunction only when the question of infringement and validity is so clear that a mistaken decision is not to be anticipated.  Moreover, while it normally would be necessary first to have a positive adversarial decision on validity, this requirement can be put aside, especially in a case involving  infringing sales by a generic drug firm, as long as the court is persuaded that the patent is valid.  For previous discussions of preliminary injunctions in Germany, see here, here, and here; see also my book pp. 243-44.       

3. Many countries, including Germany, Japan, and the U.K., have laws that require that employee inventors receive some sort of remuneration for certain inventions.  Dennis Crouch recently published a post on a U.K. decision addressing this topic (denying the inventor any reward, because the U.K. law requires that the invention be of "outstanding benefit" to the employer, despite revenues from the invention of £24.5 million!); and as I noted in my book (pp. 268-69), courts in Germany sometimes look to the royalty rates awarded in employee remuneration arbitration cases for guidance in determining royalty rates in patent infringement litigation.  (Both types of cases involve attempts to value technology, albeit for different purposes; whether those purposes are close enough to make the rates determined in remuneration cases a good fit for patent infringement cases is, of course, debatable.)  Overall, though, the law of employee remuneration is not one that I have studied or written about in depth, but for readers who are interested in learning more about it the March 2014 issue of AIPPI-Journal of Japanese Group of AIPPI has an article (pp. 39-46) by former USPTO Director David Kappos and AIPPI Japan Vice President Kenichi Nagasawa titled Japan's Article 35:  Are Employee-Inventor Monetary Award Laws Impeding Japanese Innovation?  The article discusses the Japanese law on employee remuneration (which, according to the authors, is currently under consideration for reform) and compares the situation with the U.S. (where the matter is left up to the market), Germany, South Korea, and China.   

4.  Last but not least, thanks to GCR Global Competition Review and Shearman & Sterling for putting on a great conference on Antitrust & IP this past Monday in Brussels.  (I previously mentioned the conference on this blog here and here.)  Coverage of some of the sessions is available on GCR's website (in particular, articles here, here, and here, though you need a subscription to access).  I participated on a lively panel with Anne Layne-Farrar, David Teece, and Jorge Contreras.

Saturday, June 14, 2014

Short blogging break

I'll be taking a short break from blogging over the next week and a half.  My plan is to resume on or about June 25.  In the meantime, if you're new to the blog, there are over 200 posts available on this site, some of which (I'd like to think) are sure to be of interest.

Friday, June 13, 2014

Reflections on Holdup and Royalty Stacking, Part 2

On Wednesday I published Part 1 of my current thinking on the topic of patent holdup and royalty stacking. Today, Part 2 focuses on royalty stacking in particular, and on the question of whether holdup and royalty stacking should be addressed, if at all, under the law of patent remedies or antitrust.

*          *         *

My analysis of royalty stacking is similar in some ways to my analysis of holdup.  Whenever a device incorporates multiple patents owned by multiple owners, economic analysis suggests there may be a Cournot complements problem.  As I’ve written before:
. . . when separate owners of complementary inputs each demand what is (for them) the individually profit-maximizing price, in exchange for permission to include those inputs in an end product, the cost of producing the end product will result in a price for the end product that is higher than the social optimum. As a result, the producers of the inputs are collectively worse off, due to the effect on the quantity demanded of the final product, than if they were able to coordinate the prices they charge.  Thus in the patent context in particular, as Farrell et al. note, “when multiple firms engage in complementary innovation, it is not possible . . . for each innovator's reward to equal its invention's incremental contribution.”  In the worst-case scenario, the aggregation of multiple royalties (sometimes referred to as “royalty stacking”) may result in an aggregate licensing fee that exceeds the value of the end product.
Thomas F. Cotter, Patent Holdup, Patent Remedies, and Antitrust Responses, 34 J. Corp. L. 1151, 1169 (2009).  As with holdup, however, there may be many situations in which a mere risk of a Cournot complements problem shouldn’t lead to any special response; and empirically, it may be very difficult to prove that royalty stacking is actually present.  (See, e.g., Judge Davis’s analysis in Ericsson Inc. v. D-Link Sys., Case No. 6:10-CV-473, 2013 WL 4046225,at *18 (E.D. Tex. Aug. 6, 2013).)  The fact that one patent owner charges, for example, 5% of the value of an end product doesn’t necessarily mean that all of the other patent owners would be entitled, much less able, to extract as much; some patents surely are worth more than others.  Moreover, patentees and implementers often agree to cross-licenses, sometimes on a one-for-one basis, simply to avoid the difficulties of calculating more accurate fees.  Thus, just because patent owners’ aggregate royalty demands amount to (say) $120 of the average $400 price of a smartphone (as argued in Ann Armstrong et al., Surveying Royalty Demands for the Components within the Modern Smartphone, available at, doesn’t necessarily mean that royalty stacking of a type we ought to be concerned about is present.  At the same time, however, just because aggregate royalty demands are not decimating an industry doesn’t prove that the Cournot complements phenomenon is not present at all, or that we shouldn’t take the risk of royalty stacking into account in setting FRAND royalties.  To be sure, reasonable minds may differ concerning what it should mean for a court to "take the risk of royalty stacking into account."  Maybe all it can amount to, as a practical matter, is a check on sanity--as in Microsoft v. Motorola, where Judge Robart concluded that the rate Motorola was seeking for certain patents was excessive, in part because (1) if every patent owner sought royalties similar to those Motorola was seeking, the price of the end product would be untenable, and (2) those particular patents constituted only minor contributions to the standard (paras. 456-57).  See also Judge Holderman's opinion in Innovatio IP Ventures LLC, p.18.  As with holdup, royalty stacking is a matter of degree, and judgment is required to determine at which point the potential harm is serious enough to do anything about it.

In summary, even if holdup is not causing “manufacturers [to] reduce the introduction of new products,” Alexander Galetovic et al., Patent Holdup:  Do Patent Holders Hold Up Innovation?, Hoover IP2 Working Paper Series No. 14011, at 10 (May 2014), and firms are not charging royalties that in the aggregate threaten to exceed the value of end products, this does not imply that policymakers should be unconcerned about the risks of opportunism that are inherent to the ownership of standard-essential technologies.  In my view, those risks counsel against awarding injunctions in some cases; and, regardless of whether one perceives those risks are substantial or not, I should think that we all can agree that it is worthwhile to work on improving the methodology for awarding damages so that those damages more accurately reflect the value of patented technology.

*                     *                    *

Notice, however, that nothing I‘ve argued so far suggests that antitrust law is the optimal way to combat whatever level of holdup and royalty stacking one might think is worth combating.  In other work, I’ve argued that it is preferable simply to deny injunctions in patent infringement cases in which the risk of holdup is substantial, and to calculate damages based on the familiar ex ante bargaining framework.  These results are feasible under U.S. law after eBay, and could be adopted in Europe under the Enforcement Directive.  Nevertheless, many European states still view injunctions as more or less the successful patentee’s entitlement, unless some other body of law (antitrust, contract, abuse of right) mandates a different result.  So what about competition law as a source for denying injunctions in SEP cases?

As I’ve stated before, I’m skeptical of this approach both as a matter of law and as a matter of policy. Under U.S. law, while it is possible, given the right set of facts, for the act of seeking an injunction for the infringement of a FRAND-encumbered SEP to be a violation of Sherman Act § 2 (monopolization or attempted monopolization), as a general matter there are many problems, among them (1) even if it is possible to characterize the patentee’s behavior as a unilateral refusal to deal, such behavior is rarely if ever actionable under U.S. law unless the patent itself was acquired fraudulently or the litigation is a sham; and (2) even if, notwithstanding the D.C. Circuit’s decision in Rambus v. FTC, 522 F.3d 456 (D.C. Cir. 2008), it can be a violation to obtain market power by deceiving an SSO into adopting your patented technology, it is not at all clear that reneging on a post- standard adoption commitment to license an SEP on FRAND terms amounts to the willful acquisition or maintenance of monopoly power in violation of § 2.  (There also may be problems under the Noerr-Pennington doctrine, or in proving monopoly power in a well-defined market, though personally I am inclined to think that these two potential weaknesses in the antitrust theory are exaggerated.)  Moreover, as a matter of policy, extending U.S. antitrust law to this domain could be problematic given the risk of private civil suits for treble damages (potentially resulting in overdeterrence).  On the other hand, under European competition law the same set of facts could, in the opinion of some but certainly not all commentators, amount to an abuse of dominant position.  I hesitate to offer my own opinion on the likely course of European competition law on this issue, but I have suggested that, given the absence of treble damages and the relative paucity of private antitrust actions in Europe, the competition law approach might be an acceptable second-best solution to the patent holdup problem there, even if it is not a desirable approach to use in the U.S.  For further discussion, see Thomas F. Cotter, The Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties, 22 Tex. Intell. Prop. L.J. __ (forthcoming 2014), available here.

Wednesday, June 11, 2014

Reflections on Holdup and Royalty Stacking, Part 1

In connection with some of my pending scholarship, and in preparation for the upcoming Antitrust & IP conference at which I will be speaking in Brussels, I've been giving some more thought to the question of what the terms "patent holdup" and "royalty stacking" should be understood to mean, and how (if at all) they should be addressed.  Here is Part 1 of my current thinking on the matter.  I'll publish another installment later this week, and would welcome feedback.

I begin with the premise that the "ex ante" bargaining framework--that is, attempting to reconstruct the hypothetical bargain the willing licensor and licensee would have made ex ante, before the infringer incurred costs in reliance on the infringing technology--is in principle the correct one for estimating reasonable royalties in general and FRAND royalties in particular, because it awards the patentee for the contribution of its technology to the state of the art, i.e., the value of the technology over the next-best available noninfringing alternative.  By contrast, an "ex post" bargain, conducted after the date on which the infringer has begun infringing, would in addition reward the patentee in part based upon what the infringer would be willing to pay, ex post, to avoid (potentially substantial) switching costs.   The higher royalties or damages that are the consequence of an ex post approach are social costs to the extent they lead to higher prices and lower output, unless on balance they stimulate more benefits (more invention or disclosure) than they do costs; but it’s hard to see why we should assume that the patentee’s ability to extract a portion of the ex post switching costs would generate more social benefits than costs.  (Indeed, in previous work I have expressed the view that, for purposes of calculating damages, we should assume that the substantive patent law strikes the correct balance between incentives and access.  The law of patent damages should support, and not alter, that balance.)  In addition, those higher costs could inhibit some inventive applications of patented technology.

A brief aside:  note that the "ex ante" approach could take one of two forms, both subject to administrability constraints:  a "pure" ex ante approach, in which we try to reconstruct the ex ante bargain the parties would have made, based only on information that would have been available to them ex ante; and an alternative approach in which we try to reconstruct the ex ante bargain the parties would have made based on all relevant information that is known at trial (ex post), such as the amount and duration of the infringing use.  The German courts phrase the hypothetical bargain in the latter manner, that is, what the parties would have agreed to before the infringement began, if they had foreseen the future development and the duration and amount of use of the patent.  (See my book, p.266.)  I used to think the German approach was doubtful as an economic matter, but Norman Siebrasse and I are now working on a paper in which we argue that it is, basically, correct.  Readers will hear more about that in due course.

In any event, in my view the term "patent holdup" can refer to any situation in which the patentee is able, in effect, to extract a license based on an ex post, as opposed to ex ante, bargain.  This may occur if courts automatically award injunctions for patent infringement, because ex post the infringer will pay more than it would have paid ex ante simply to avoid switching costs.  (It also would arise whenever courts award royalties on the basis of an ex post, as opposed to an ex ante, bargain, as they do in the U.S. when awarding postjudgment royalties in lieu of an injunction.  I've explained before why I think this is wrong.)  So defined, patent holdup to some degree could arise virtually anytime a court awards an injunction in a patent case, though I think it would be a mistake to draw any policy implications on this basis alone.  Injunctions have the virtue of encouraging the parties to negotiate over the value of patent (preferably, though inevitably not always, ex ante), and this is a good thing if we believe that the parties generally have an advantage (in comparison with a court) in determining what that value is.  Nevertheless, there may be cases in which those advantages are outweighed by the social costs of holdup.  In particular, where the potential negative consequences of holdup are both large and systematic—as I think they are in the case of SEPs, because of the large number of interdependent patents that are needed to market a standard-compliant device and, relatedly, the difficulty of designing around the standard ex post—a deviation from the general preference for injunctions is, in my view, justified.  In such cases, the potential harm if injunctions are granted may be unusually large and may outweigh the costs emanating from courts’ informational disadvantage in comparison with the parties with respect to valuing patented technology. Moreover, the owner of a FRAND-encumbered SEP is, by definition, willing to license rather than exclude, and benefits from the widespread adoption of its technology resulting from standardization.  (Some though not all of these factors also may weigh in favor of generally denying injunctions to PAEs, as under current U.S. practice.)  For further discussion, see, e.g., Thomas F. Cotter, Comparative Patent Remedies: A Legal and Economic Analysis 59-60 (2013); Thomas F. Cotter, Make No Little Plans:  Response to Ted Sichelman, Purging Patent Law of “Private Law” Remedies, 92 Tex. L. Rev. See Also 25, 27 (2014) (describing the conditions giving rise to patent holdup as “e.g., when the patent reads on a component of a multicomponent device, the ex ante value of the patent is substantially less than the ex post cost of designing around it, and the infringement is inadvertent”); Thomas F. Cotter, Patent Holdup, Patent Remedies, and Antitrust Responses, 34 J. Corp. L. 1151 (2009) (tracing the evolution of the application of the holdup concept to patent law).

An alternative approach would be to define holdup as occurring only in the (perhaps rare) cases in which the patentee‘s demands measurably retard follow-up innovation.  If so, whether or not hold-up is present arguably becomes an empirical, not merely a theoretical or definitional matter; and as an empirical matter, it doesn’t appear that the contemporary smartphone industry is marked by increasing prices or diminishing innovation.  See Alexander Galetovic et al., Patent Holdup:  Do Patent Holders Hold Up Innovation?, Hoover IP2 Working Paper Series No. 14011 (May 2014), available here.  The problem with this narrower definition of holdup, however, is that it seems to assume that just because prices are falling and innovation is increasing there is no reason to be concerned about patentees extracting royalties that reflect, in part, implementers' ex post switching costs.  It seems to me that this is still a social cost, potentially a substantial one in the case of SEPs, even if at the same time technological progress is, fortunately, mitigating some portion of that cost. Put another way, to assume that price reductions and innovation increases necessarily mean that holdup is exacting no social costs is a little like arguing that, because the price and cost of kerosene was falling throughout the late nineteenth century (as it was according to Dominick Armentano, Antitrust and Monopoly:  Anatomy of a Policy Failure 60 (1982)), there was no need for Congress to enact antitrust laws to remedy monopolistic conduct--or, to use a very different analogy, because we are now living in what may be the most peaceful period in human history, see Steven Pinker, The Better Angels of Our Nature:  Why Violence Has Declined (2011), we can eliminate our armed forces and police.  In my view, whether a response to patentee opportunism is desirable or not depends upon how much better, if at all, conditions would have been in the presence of greater competition.  We can’t just assume that conditions are optimal because prices are falling.  But see Galetovic et al., supra, at 20 (“. . . the performance of SEP industries is remarkable by any realistic standard.  So the ‘without holdup it could be even better’ is apparently saying that it could be even better than anything that is normally observed.”).       

To be sure, there are countervailing concerns that one should take into account as well.  First is the possibility of “reverse holdup,” where implementers abuse their lack of susceptibility to injunctions to negotiate a license that is too low to sustain a healthy rate of innovation (though it seems to me that courts can address such gamesmanship by holding out the possibility of awarding injunctions at least in these types of cases, or by awarding enhanced damages and fees).  Second, perhaps the courts’ posited informational disadvantage is more acute than I am assuming it to be; maybe courts systematically err by awarding damages that are less than those that would have resulted from the ex ante bargain.  If so, however, the better response might be to educate them on how to do better, rather than to counsel them to award injunctions in SEP cases.  Note also that if, as I happen to believe is correct, reasonable royalties and FRAND royalties are (or at least should be) calculated in largely the same manner--and injunctions awarded except in cases in which the risk of holdup threatens substantial social costs--there shouldn’t be much of an incentive on the part of SEP owners or potential owners to stop participating in SSOs or to under-declare.  All that a FRAND commitment adds to the mix is that it’s a commitment, which may give rise to additional legal responses such as breach of contract or promissory estoppel for its breach, but I am inclined to think that the amount of infringement damages (and the availability, or not, of injunctive relief) should be the same regardless of whether there is a FRAND commitment in place or not.  As far as injunctions and damages are concerned, consequences should turn on likely economic realities and not on the existence or not of a FRAND commitment.

Monday, June 9, 2014

Buffet Delmas d'Autane and Fabre on Amendments to French IP Damages Law

I’ve reported twice before on the new French legislation on IP damages, here and here.  Recently Xavier Buffet Delmas d’Autane and Jules Fabre sent me a copy of their article Nouveautés, clarifications, carences et incertitudes du dispositif de lutte contre la contrefaçon tel que renforcé par la loi no 2014-315 du 11 mars 2014 (“Novelties, clarifications, gaps, and uncertainties of the plan for fighting infringement as reinforced by Law No. 2014-315 of March 11, 2014”), pages 10-18 of the May 2014 issue of the French IP journal Propriété Industrielle.  The abstract reads as follows (my translation from the French):
Although Law No. 2014-315 of March 11, 2014 does not effect an actual reform, it marks a new effort of the legislature for reinforcing the arsenal of the fight against infringement in French law, which should be welcomed.  Its impact, however, must be tempered, insofar as the law contains less in the way of novelty than clarifications that confirm established standards or practices.  Moreover, one might regret certain gaps, even uncertainties, of a sort that leads us to conclude that the announced objective of the law is not fully attained.
For present purposes, I‘ll just focus on some of the authors' observations concerning the damages provisions of the new law (which also makes some amendments to matters relating to border measures, the saisie-contrefaçon, and the statute of limitations).  As I reported previously, as proposed last year the IP Code’s damages provisions would have been amended to read:
For assessing damages and interest, the court takes into account distinctly:
the negative economic consequences, including loss of profit and the loss sustained by the injured party;
the moral prejudice incurred by the latter;
the profits realized by the infringer and, where appropriate, the savings of intellectual, material, and promotional investments which the latter has derived from the the infringement.
If the court determines that the resulting amounts do not make good the entirety of the prejudice suffered by the injured party, it orders to the profit of the latter the confiscation of all or part of the revenue procured by the infringement. 
However, the court may, alternatively, upon request by the injured party, award damages as a lump sum.  This amount is higher than the royalties or fees that would have been due if the infringer had requested authorization for the use of the right infringed. 
The version actually enacted into law, however, reads as follows:
For assessing damages and interest, the court takes into account distinctly:
the negative economic consequences, including loss of profit and the loss sustained by the injured party;
the moral prejudice incurred by the latter;
and the profits realized by the infringer, including the savings of intellectual, material, and promotional investments which the latter has derived from the the infringement.
If the court determines that the resulting amounts do not make good the entirety of the prejudice suffered by the injured party, it orders to the profit of the latter the confiscation of all or part of the revenue procured by the infringement. 
However, the court may, alternatively, upon request by the injured party, award damages as a lump sum.  This amount is higher than the royalties or fees that would have been due if the infringer had requested authorization for the use of the right infringed.  This amount is not exclusive of the compensation for the moral prejudice suffered by the injured party.
Messrs. Buffet Delmas d’Autane and Fabre express disappointment that the new law affords no significant increase in the damages granted to IP owners.  They argue that both courts and parties have been overcautious in taking into account the infringer’s profits, and that it is not clear that the new law will put an end to this hesitancy.  In this regard, the authors critique a recent judgment I hadn’t come across before, TGI Paris, 3o ch., 3o sect., 11 oct. 2013, no 11/14587.  (Recently I was provided with complimentary access to a service called Darts-IP, from which I was easily able to access the case.)  As the authors note, in this case the court stated that the 2004 Enforcement Directive and its implementation in French law do not envisage the disgorgement of the infringer’s profits, but rather only that those profits may be taken into account in estimating the IP owner’s damages.  The authors also note, among other matters, that the law as enacted discarded the proposed language stating that “if the court determines that the resulting amounts do not make good the entirety of the prejudice suffered by the injured party, it orders to the profit of the latter the confiscation of all or part of the revenue proceed by the infringement,” on the ground that this risked introducing the concept of punitive damages into French law.  They argue that the proposed text was unclear, but that it would have been desirable to have included language, proposed in 2011, clearly permitting disgorgement in cases involving bad faith infringement.