Wednesday, December 2, 2015

Some Recent Papers on Injunctions, Royalties

1. Bernard Chao has posted a paper on ssrn titled Causation and Harm in a Multicomponent World, forthcoming in the University of Pennsylvania Law Review Online.  Here is a link to the paper, and here is the abstract:
On September 17, 2015, the Federal Circuit issued another decision in the epic Apple v. Samsung smartphone war. This was the fourth court decision in the ongoing saga to deal with injunctions. Apple IV explained the level of proof necessary to satisfy the "causal nexus" requirement. This requirement had emerged as a response to patent litigations involving products with thousands of features, the vast majority of which are unrelated to the asserted patent. To prove a causal nexus, patentees seeking an injunction have to do more than just show that the infringing product caused the patentee irreparable harm. The harm must be specifically attributable to the infringing feature. In Apple IV, the Federal Circuit noted that proving causation was "nearly impossible" in these multicomponent cases. So it decided to water down the causal nexus requirement saying that it was enough for Apple to show that the infringing features were "important" and customer sought these particular features.
This lower standard is an ill-advised mistake that leaves multicomponent product manufacturers more susceptible to patent holdup. My critique takes two parts. First, I argue that a single infringing feature rarely, if ever, "causes" consumers to buy the infringer’s multicomponent products. The minor features at issue in Apple IV illustrate this point vividly. Thus, the new causal nexus standard does not accurately reflect how causation and harm operate in a multicomponent world. Second, I explain why the court was so willing to accept such little evidence of real injury. It improperly applied notions of traditional property law to patents. Specifically, the court viewed patent infringement as harmful regardless of any concrete consequences. This view may resonate for other forms of property where an owner's rights are paramount and a trespass is considered offensive in and of itself. But the same concepts do not apply to patent law where the Supreme Court has consistently said that private interests must take a back seat to the public good. Based on these principles, the courts should restore the "causal nexus" requirement and not presume causation.
2.  Jay Pil Choi and Heiko A. Gerlach have posted a paper on ssrn titled A Model of Patent Trolls, CESifo working Paper No. 5536.  Here is a link to the paper, and here is the abstract:
This paper develops a model of patent trolls to understand various litigation strategies employed by nonpracticing entities (NPE). We show that when a NPE faces multiple potential infringers who use related technologies, it can gain a credible threat to litigate even when it has no such credibility vis-├á-vis any single potential infringer in isolation. This is due to an information externality generated by an early litigation outcome for subsequent litigation. Successful litigation creates an option value against future potential infringers through Bayesian updating. This renders a credible litigation threat against the initial defendant and allows the NPE to extract more rents. We discuss policy implications including the adoption of the British system of “loser-pays” fee shifting and the use of injunctive relief.
3.  Layne Keele has posted a paper on ssrn titled Enhanced Ongoing Royalties: The (Sometimes) Inequitable Equitable Remedy.  Here is a link to the article, and here is the abstract:
Since the Supreme Court’s 2006 decision in eBay v. MercExchange, courts in patent infringement cases have haphazardly assessed ongoing royalties after denying injunctive relief. Some courts have concluded that ongoing royalties should be set at compensatory levels, and others have set ongoing royalties at supracompensatory levels. In large part, this inconsistency stems from courts’ failures to evaluate traditional remedial principles, resulting in a disagreement about whether ongoing royalties should account for the defendant’s switching costs or the willfulness of the defendant’s future infringement.
This article attempts to answer these questions. In doing so, it first examines the reasons that courts typically deny injunctive relief, looking to cases both in patent law and in other property contexts. It suggests that, in many cases, concerns for patentee opportunism underlie the denial of injunctive relief. The article then evaluates courts’ reasons for preferring ongoing royalties over other solutions, such as lump-sum damages or leaving the patentee to file another lawsuit after the defendant’s future infringement. Using insights gleaned from these rationales, this article argues that switching cost considerations and willfulness enhancements are usually improper components of an ongoing royalty, especially where opportunism concerns prompt the denial of the injunction.
4.  P. Andrew Riley and Scott A. Allen have published a paper titled The Public Interest Inquiry for Permanent Injunctions or Exclusion Orders: Shedding the Myopic Lens, 17 Vanderbilt Journal of Entertainment & Technology Law 751 (2015).  Here is a link to the paper, and here is the abstract: 
President Obama’s 2013 veto of a US International Trade Commission (ITC) exclusion order, issued to address Apple Inc.’s infringement of a patent owned by Samsung, thrust the ITC’s public interest inquiry into the spotlight. Historically, however, these factors rarely weighed against a remedy at the ITC. Likewise, US district courts have rarely declined to issue a permanent injunction after finding a patent valid and infringed due solely to the public interest factor—the last of the four factors that the Supreme Court put in place in eBay Inc. v. MercExchange, L.L.C. More recent decisions addressing the public interest in both forums, however, show a willingness by the adjudicators to weigh both traditional public interest issues, such as health and well-being, and non-traditional arguments, such as public reliance and environmental concerns, against a patent owner’s right to exclude. In this Article, we examine some of the successful traditional and non-traditional public interest arguments, both at the ITC and in US district courts. From this analysis, the Article outlines how parties involved in high stakes patent litigation in either forum can craft public interest arguments to combat the threat of a permanent injunction or an ITC exclusion order.
The Vanderbilt Journal of Entertainment & Technology Law also hosts a blog, which recently published a short post by Danielle Dudding titled Patent Litigation:  Damages, Patent Trolls, and Jury Confusion, available here.

5.  James Young Hurt has posted a paper on ssrn titled Reasonable Royalty for Patent Infringement of Non-Direct Revenue Producing Products, forthcoming in IDEA.  Here is a link to the paper, and here is the abstract:
In today’s information age, data is immensely valuable. Data is so valuable that many companies are willing to give away products and services in order to generate that data. Once these companies have this data, they are able to monetize it typically via advertising or licensing access to their vast database. But, what if the products or services these companies give away infringe upon a valid patent? What is the correct remedy to an injured patentee against a defendant whose accused product or service generates no direct revenue? A royalty that reaches through to the final product enabled by the patented technology, analogous to the reach-through royalty used in the biotechnology and pharmaceutical industries seems applicable in these cases and can be supported by a correct application of the Georgia-Pacific reasonable royalty factors. Valuing this enabling technology as a building block and analogous to the basic research tools of the biotechnology industry in constructing damage remedies will achieve an equitable result while still maintaining the incentives of the patent system.

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