Wednesday, October 18, 2017

Seaman on the VirnetX v. Apple Enhanced Damages Opinion

This past Tuesday I wrote that "reports are coming in that Judge Schroeder (Eastern District of Texas) on September 29 entered a memorandum opinion and order awarding VirnetX $41.3 million in enhanced damages and another $96 million in costs, attorneys' fees, and interest, on top of a damages award $302 million, in a suit against Apple.  For coverage, see, e.g., this story on Ars Technica.  Apparently the opinion and order have now been unsealed, but as of this morning it isn't showing up on Lex Machina."  Professor Christopher Seaman (Washington & Lee University) has now posted the opinion on Scribd and has authorized me to publish the following guest post summarizing it: 

The district court found that Apple willfully infringed VirnetX’s patents by selling products that contained the accused features for a number of months (10 months for VPN on Demand, 5 months for FaceTime) after the initial jury verdict in 2012 found that Apple infringed and that the patents in suit were not invalid.  The court’s reasoning (see pp. 29-38) is focused on Apple’s post-verdict conduct, finding that “Apple’s continued sales after the verdict of products with the [infringing] features [was] unreasonably risky or reckless.”  (p. 35)  It rejected Apple’s claim that the PTO’s grant of a inter partes reexamination into the patents after the verdict made its conduct not willful/egregious (appeals of the reexam proceedings are still pending, but at least some claims of two of the patents-in-suit were cancelled by the PTAB in July).  Applying the Read factors (pp. 38-50), it awarded a 50% enhancement of the royalty rate during the relevant time frame, resulting an enhancement of approx. $41 million, even though the court concludes that “VirnetX has not presented any evidence of copying,” nor did it find any attempt to conceal the alleged misconduct.  The court also awarded attorney’s fees under 285 in part for VirnetX for the September 2016 trial.

Tuesday, October 17, 2017

News on Enhanced Damages

1. The Stanford Program in Law, Science & Technology and Samsung Electronics are sponsoring an event this coming Friday, October 20 titled "Patent Law in Global Perspective," which will include a session titled "The law of enhanced damages and how companies should respond to willfulness risk."  Speakers for this session will include Professors Colleen Chien, David McGowan, and Peter Menell, as well as Chris Lubeck (Tesla) and Isaac Peterson (Netflix). Information is available here.

2.  The aforementioned speakers should have a lot to talk about.  Just a couple of days ago Dr. Sanjeev Mahanta published a post on IP Watchdog titled "Idenix v. Gilead: District Court Exercises Discretion to Deny Enhanced Damages," discussing the September 22 decision of Judge  Stark (D. Delaware) denying Idenix a damages enhancement (and an award of attorneys' fees) on top of the $2.54 billion reasonable royalty award for the infringement of Idenix's patent on a method of treating hepatitis C (which I earlier reported on here.)  A redacted version of Judge Stark's opinion is available here.  Dr. Mahanta's post seems pretty thorough, though I may wish to write up some of my own thoughts on the opinion later this week or next week.  (My initial reaction, for what it's worth, is favorable.)  The court also awards prejudgment interest at the prime rate.

3.  Meanwhile, reports are coming in that Judge Schroeder (Eastern District of Texas) on September 29 entered a memorandum opinion and order awarding VirnetX $41.3 million in enhanced damages and another $96 million in costs, attorneys' fees, and interest, on top of a damages award $302 million, in a suit against Apple.  For coverage, see, e.g., this story on Ars Technica.  Apparently the opinion and order have now been unsealed, but as of this morning it isn't showing up on Lex Machina. 

Monday, October 16, 2017

Bray on Remedies and Economics

According to the old saying (attributed to the Greek poet Artilochus and later popularized by Sir Isaiah Berlin) the fox knows many things, but the hedgehog one big thing.  That could, perhaps, be the message of Professor Samuel Bray's recent paper Remedies, Meet Economics; Economics, Meet Remedies, which is forthcoming in the Oxford Journal of Legal Studies.  Bray argues that, while one might "expect to find a high degree of affinity between law and economics and the field of remedies," in fact this often isn't the case--one possible reason being "disciplinary fragmentation . . . .  As specializations narrow and literatures grow, keeping up becomes difficult."  Too many of us are hedgehogs, in other words, and not enough of us as foxes.  (This may even include me, as much as I try to be a fox.  I admit that I wasn't aware of Landes & Posner's 1994 paper in the Journal of Legal Studies on the economics of anticipatory adjudication, which Professor Bray cites (and critiques) in this article.)  I suspect there's a good deal of truth in Professor Bray's observation, and overall this is a very interesting, though-provoking paper (though I'm not sure I would agree that Calabresi and Melamed intended some of their statements about property and liability rules, as presented in their famous 1972 paper, as anything more than a stylized model, as Professor Bray himself at times seems to acknowledge).  I hope the paper spurs greater interest among both remedies scholars and law-and-economics scholars to work together and learn from one another.  Anyway, here's a link to the paper, and here's the abstract:
One would expect the fields of ‘law and economics’ and ‘remedies’ to have substantial interaction. But scholars in each field largely ignore those in the other. Thus law and economics scholars blunder in their description of the law of remedies, and remedies scholars are cut off from economic insights. For scholars who are in these fields, this article offers a critique, as well as suggestions for cooperation. For all legal scholars interested in melding conceptual and economic analysis, it offers a cautionary tale of disciplinary fragmentation.

Friday, October 13, 2017

Patent Remedies Sessions at Some Upcoming Conferences

1.  AIPLA is holding its annual meeting next week (October 19-21) in Washington, D.C. (webpage here).  On Friday, October 20, there will be a panel titled "Best Practices for Managing Parallel Patent Trial and Appeal Board (PTAB) and District Court Proceedings, which will include R. Eric Hutz speaking on stays pending PTAB proceedings.  Later that same morning a session titled "Around the World in 75 Minutes:  Key IP Updates," which will include Alice Young-Ran Choi speaking on "South Korea:  How IP Law Changes Are Affecting Damages, Evidence, and Invalidation."  

2.  On October 30, there will be a conference in Turin, Italy titled "Tutela giudiziale di Standard Essential Patents," which will feature a mock trial and much discussion of Huawei v. ZTE.  Webpage here.  For further information, see posts on IPKat and EPLaw.

3.  Georgetown Law and the Berkeley Center for Law & Technology are putting on their Ninth Annual Patent Law and Policy Conference in Washington, D.C. on November 5 (webpage here).  There will be a session patent remedies in the afternoon, featuring Morgan Chu, Professor Bernard Chao, Ken Korea, and Matt Powers.

Wednesday, October 11, 2017

Some New Papers, Posts on SEPs, FRAND in Asia

1.  Jorge Contreras has posted a paper on ssrn titled National Disparities and Standards-Essential Patents:  Considerations for India, which is a draft of a chapter in a forthcoming edited volume titled Complications and Quandaries in the ICT Sector:  Standard Essential Patents and Competition Issues (Ashish Bharadwaj, Vishwas Deviah & Indraneth Gupta eds., Spinger, forthcoming 2017).  Here is a link to the paper, and here is the abstract:
Patents on standardized technologies are being issued with increasing frequency, and the majority of these patents are held by large multinational firms based in developed economies. As a result, firms from less-developed economies with sparse patent holdings are disadvantaged in both domestic and foreign markets. While protectionist governmental policies can address these disparities, such measures are potentially contrary to international treaty obligations and generally unsuccessful in the long term. An alternative approach involves greater participation in international SSOs by firms from less-developed economies. This increased participation is likely to benefit such firms both in terms of technology development, strengthening of patent positions, and influence over SSO policies. To facilitate increased participation, both financial and institutional support will be required from local governments, NGOs, multinational organizations and SSOs themselves. To the extent that participation in international SSOs by firms in developing economies such as India can be increased, it could have a meaningful impact on domestic innovation, job creation, technical capability and manufacturing output.
2.  Ankita Tyago and Sheetal Chopra have posted a paper on ssrn titled Standard Essential Patents (SEP's)--Issues & Challenges in Developing Economies, 22 J. Intell. Prop. Rts. 121 (2017).  Here is a link, and here is the abstract:
Intellectual property rights (IPRs) in standards have proven to be an intensively debated issue nowadays. Although standards are meant to offer ‘access’ to technology and patents grant the possibility to ‘exclude’ others (exclusivity rights), both aim to promote innovation. The “return on investment” (ROI) from the patented technology selected to become part of a standard is the motor that fuels the development and implementation of standards. When aiming to solve highly complex technology problems the effort of many companies in sharing the technology resulting from large R&D investments is necessary. It is not surprising that, before sharing with others, such technical solutions are protected by patents. Thus, in the information communication technology (ICT) area the phenomenon of patents in standards is the general rule. Indeed, connecting millions of devices with each other (interoperability) and making them work properly (high performance) can only be achieved when the best technologies out of thousands of contributed technical solutions are selected. Considering some of the most celebrated Government of India’s initiatives such as Internet of Things, Start Up India, Make in India, Digital India etc. calls for an effective IPR regime that incentivizes development of standardized technologies and encourages indigenous local manufacturing of innovative standardized devices. This will go a long way in reducing India’s net import reliance, enhancing value addition, creating IP, generating employment, increasing domestic patent footprint, reducing cash outflow due to Bill of Materials (BOM), etc.
With this view, the present paper analyses the concept of Standard Essential Patents (SEPs) and related issues to mobile technology that are deliberated at various forums. It summarizes some important aspects that arise when dealing with SEPs. The linkage of standards and patents has also been studied. The paper examines the patent landscape and offers analysis of existing and anticipated patent holdings. It also outlines the evolution of key technologies and provides comparative analysis of key patents. The paper brings light to some notable circumstances likely to influence the mobile patent landscape for the next several years and gives some recommendations for facilitating India’s growth story in creation, protection, and wider adoption of technology.
3.  Hao Yuan has posted a paper titled SEP Holder's Right to Injunction Shall Not Be Lightly DeprivedHere is a link to the paper, and here is the abstract:
The 2017 Beijing High Court Patent Infringement Guidelines’ rule of “no injunction as a principle for SEP holders” has been premised on two “it” theories, i.e. the patent hold-up and royalty stacking conjectures, which still need to be judged by their predictive power in the real world. For the past two decades these conjectures did an unsatisfying job in this respect – despite grand appearance at first sight, empirical support of a stagnant market for SEP-intensive industries is still in serious lacking. As direct variants of classical transaction cost economics hold-up theory and the Cournot Complement problem, the conjectures also seem to be inconsistent with the established theories. From a historical and comparative law’s perspective, occasional patent hold-up is by no means a new phenomenon limited to the standard setting. It is entirely possible that the patent system is imperfect, with frictions or loopholes happening from time to time. But there is a significant distinction between acknowledging occasional overcharging behavior (frictions or loopholes), and concluding that a systematic market failure has been resulted, or will be resulted absent taking aggressive “reforms” departed from the classical rule. For the former, comparative law teaches us that patent law has been functioning pretty well in the past hundreds of years, and absent the latter, aggressive departures from a fundamental notion of a well - working patent system, for example in the form of “no injunction by principle” rule, is simply wrong. Market mechanism with carefully and finely tuned rules has largely proved itself to be capable in dealing with occasional hold-ups, and without substantial empirical evidence to the contrary, policy makers in China should not be frightened into making overzealous changes. 

4.  On September 29, the Japan Patent Office published its "Invitation to Contribute to Guidelines for Licensing Negotiations Involving Standard-Essential Patents," available here.  Some recent blog posts discuss a proposal, floated this summer but not mentioned in the above document, that would have submitted disputes over FRAND-committed SEPs to mandatory ADR.  See Hirotaka Nonaka, Japan Considers Introducing a New ADR System with Compulsory License for SEPs, Trust in IP Blog, Aug. 12, 2017; Jacob Schindler, Patent Owners Sound Alarm over Proposed "Compulsory Licensing for SEPs" in Japan, IAM Blog, July 27, 2017; and (most recently) Jacob Schindler, Japanese Government Will Issue SEP Negotiation Guidelines, but Controversial ADR Proposal on Hold for Now, IAM Blog, Oct. 3, 2017.     

Monday, October 9, 2017

AIPPI: Quantification of Monetary Relief

The AIPPI World Congress will be meeting October 13-17 in Sydney.  (Webpage here.)  One session on Monday, October 16 will be on injunctions in pharmaceutical patent cases, and another on Tuesday, October 17 is titled "How Much for Your FRAND?"  Perhaps of most interest to readers of this blog, however, there will be a Study Committee Meeting on Saturday, October 14 titled "Quantification of Monetary Relief" and on Sunday, October 15 a "Plenary Session for proposed Resolution (4) - Quantification of monetary relief."  The description of the October 14 session is as follows:
In litigation concerning infringement of IP rights, monetary relief in the form of damages is commonly requested by the IP rights holder. It is generally accepted that this relief should at a minimum be adequate to compensate for the loss suffered by the rights holder and deter further infringement. In practice, few cases proceed beyond a determination of liability and courts are asked to determine the quantum of damages relatively infrequently.  However, if a case does proceed to that stage, it may in practice be difficult to obtain economic evidence regarding infringement, and to estimate the appropriate quantum of damages to be awarded within the factual matrix of the dispute before the court.  For example, where permanent price erosion has occurred, or other irreparable harm has occurred, the relevant quantum of damages can be very difficult to determine.  Predictable and logical rules for quantification are desirable as this allows the parties to have a reasonably clear idea of the likely quantum of damage, which may in turn encourage early settlement.  Otherwise, the amount of any damages award may vary significantly from one country to another, irrespective of the size of the market. Reports have been received from a number of National and Regional Groups on the issue of quantification, and the objective is to synthesise a number of common rules on the quantification of monetary relief that could be applied in a uniform way, promoting legal certainty. 
It will be interesting to see what resolution comes out of the meeting.  The individual country reports prepared in advance of the meeting--forty of them, ranging alphabetically from Argentina to Vietnam--are available here.  (I haven't read many of them yet myself.)  The Japan report is also available in the July 2017 issue of AIPPI-Journal of the Japanese Group of AIPPI (pp. 217-28), and the Germany report in the August-September 2017 issue of GRUR-Int. (pp. 736-43).

Thursday, October 5, 2017

Federal Circuit Reiterates that a Claimant Must Prove All Four eBay Factors to Get an Injunction

The case, decided this morning, is Amgen Inc. v. Sanofi, opinion by Chief Judge Prost, joined by Judges Taranto and Hughes.  The patents in suit relate to monoclonal antibodies used to reduce LDL cholesterol, and most of the opinion is devoted to a discussion of the written description and enablement doctrines, on which grounds the court reverses and remands for a new trial.  (I'll be teaching enablement and written description in my patent law class next week, so maybe I'll use this case as an example for class discussion.)  Of more interest to readers of this blog, however, is the court's discussion of injunctive relief.  The district court had entered judgment for the plaintiffs, Amgen, and entered a permanent injunction against Sanofi's "Praluent" product, even though (according to the district court) one of the four eBay factors--the public interest--weighed against entry of the injunction.  The Federal Circuit, echoing its May 1 decision in Nichia v. Everlight (see discussion here), concludes that this was error--though at the same time, it cautions that the public interest doesn't require that courts never enter injunctions in cases involving pharmaceuticals (pp. 21-23):
Finally, we address the district court’s permanent injunction removing Appellants’ Praluent from the market. As noted earlier, we stayed this injunction pending resolution of this appeal. Because we vacate the district court’s judgment as to written description and enablement and remand for a new trial, we also vacate the permanent injunction.
We write to note, however, that the district court’s permanent injunction analysis in this case was improper for two distinct reasons. First, the district court misapplied eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). In that case, the Supreme Court explained that: 
[A] plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. 
Id. at 391 (emphases added). Here, the district court concluded that issuing a permanent injunction would disserve the public interest. Despite that finding, the court issued a permanent injunction. J.A. 33–34. That was in clear violation of eBay. If a plaintiff fails to show “that the public interest would not be disserved by a permanent injunction,” then the district court may not issue an injunction. eBay, 547 U.S. at 391.
Second, the district court also erred in its analysis of the “public interest” factor. In reaching its conclusion that the injunction would disserve the public, the district court weighed “being a patent holder and a verdict winner” on the one hand and “taking an independently developed, helpful drug off the market” on the other. J.A. 33. It then “conclude[d] that the public interest of having a choice of drugs should prevail.” J.A. 33–34.
But eliminating a choice of drugs is not, by itself, sufficient to disserve the public interest. Under such an approach, courts could never enjoin a drug because doing so would always reduce a choice of drugs. That, of course, is not the law. See 35 U.S.C. § 271(e)(4)(B) (“[I]njunctive relief may be granted against an infringer to prevent the commercial manufacture, use, offer to sell, or sale within the United States or importation into the United States of an approved drug, veterinary biological product, or biological product.”). We previously rejected such reasoning in WBIP, LLC v. Kohler Co. and explained that: 
The district court’s decision is based on its reasoning that having more manufacturers of a lifesaving good in the market is better for the public interest. But this reasoning is true in nearly every situation involving such goods, such that, if it alone is sufficient, it would create a categorical rule denying permanent injunctions for life-saving goods, such as many patented pharmaceutical products. As the Supreme Court has warned, categorical rules regarding permanent injunctions are disfavored.
829 F.3d 1317, 1343 (Fed. Cir. 2016). Just as a patent owner does not automatically receive an injunction merely by proving infringement, see eBay, 547 U.S. at 394, an accused infringer cannot escape an injunction merely by producing infringing drugs. Accordingly, a reduction in choice of drugs cannot be the sole reason for a district court to deny an injunction.
I've argued before that, although I don't think it is appropriate to award injunctions to the prevailing plaintiff in virtually every patent case, as was the understanding of U.S. law prior to eBay (and is still the practice in many countries, at least outside of the FRAND context), I also wouldn't read eBay quite so literally as to require the plaintiff to prevail on all four eBay factors--a result that seems to me rather contrary to traditional notions of equitable balancing, among other problems.  For discussion, see here.  But it appears that the two panels of the Federal Circuit have now taken the literal approach--though arguably the statements above in Amgen are dicta, since the court reversed and remanded the judgment in favor of the plaintiffs anyway. 

Wednesday, October 4, 2017

Patently-O Reporting First Post-Samsung Design Patent Damages Verdict

Dennis Crouch's comprehensive write-up on the case, Columbia Sportsware v. Seirus Innovative Accessories, is available here.  According to the post, the jury awarded the plaintiff $3,018,174, and while the jury instructions asked the jury to "identify the 'article of manufacture’ to which the infringed design has been applied," based on consideration of several factors, "the jury was not asked to actually define the article of manufacture," and "the $3 million figure appears to be Seirus’s profits on all of its infringing sales" (emphasis mine).  

As readers of this blog are probably aware, I'm not a big fan of disgorgement generally, especially when (as apparently was the case here) it results in an award of all of the profit earned on a multi-feature product.  Beyond that, in my view it would make sense if judges more frequently used special verdicts or general verdicts with special interrogatories, as permitted under Federal Rule of Civil Procedure 49, to better test whether a jury's determination is supported by the evidence.  Here, the judge might have required the jury to define the relevant article of manufacture.  

Or maybe we could figure out a way to avoid having juries determine these questions altogether . . . could the recovery of the infringer's profits be viewed as an equitable remedy for which there is no constitutional right to a jury trial?

Monday, October 2, 2017

Taiwan Appeals Court Awards Philips NT$1.1 Billion

Professor Chung-lun Shen of Taiwan's National Chengchi University has published a short article titled Taiwan Supreme Court to Clarify Distinction between Patent Damages and Unjust Enrichment:  Koninklijke Philips N.V. v. Gigastorage Corporation, in NAIP IP Observer #108, Sept. 28, 2017.  The article discusses a recent patent infringement case brought by Philips against Taiwanese manufacturer Gigastorage.  (Disclosure:  In 2007, I served as a proposed expert witness for the defense in a U.S. case brought by Philips against Gigastorage.)  According to the article, the trial court concluded that (1) there was no proof of infringement from January 1, 2000 to April 1, 2003; (2) there was proof of infringement from January 1, 2014 to February 14, 2015, but under the patent statute Philips could not recover (as it requested) an award of the defendant's profit for that period, because Gigastorage earned no profit from the sale of infringing products during that time; and (3) for the in-between period, Philips was barred from recovering patent damages due to the two-year statute of limitations, but under an unjust enrichment theory (for which the applicable statute of limitations is 15 years) it could recover the benefit Gigastorage incurred during that time.  The court calculated this benefit by (1) estimating Gigastorage's revenue from the sale of infringing products (NT$644 million), and then (2) based on the relative contributions of the patent in suit and other technology awarding NT$10.5 million (about US$347,000) altogether.  On appeal, the Court of Appeals awarded $NT1.1 billion (about US$33 million) for unjust enrichment, based on its view that the defendant derived a benefit equal to the royalty it would have paid had it not infringed.  The court calculated the royalty based on a price of $NT0.06 per infringing disk, concluding that apportionment is not relevant to the unjust enrichment remedy here, and that Philips offered Gigastorage an efficient package licensing deal.  The court also held that Philips's delay in filing suit did not bar the award, and the matter is now headed to Taiwan's Supreme Court.

The case is interesting for a number of reasons.  First, in some other countries including the U.K. and I believe Germany, a court will deny an award of infringer's profits under the patent statute if the infringer earned no profits, even though it may have incurred some benefit (for example, in the form of lower costs).  See my book p.203 for discussion of a relevant English case.  Apparently Taiwan follows the same rule.  Second, the Taiwanese court's practice of awarding monetary relief for an unjust enrichment claim, for which the applicable statute of limitations is longer than for a patent infringement claim, is consistent with practice in some other countries, including as I recall Germany and Japan.  Third, however, I'm not at all sure that it is sensible to award the entire benefit the infringer earned, where some of that benefit surely must depend on the use of other technologies; the trial court's "contribution" approach sounds more defensible than the Court of Appeals' rule.  (In the U.S., of course, the infringer of a design patent can be forced to disgorge the entire benefit derived from the relevant "article of manufacture," but as I've argued many times before that result makes little economic sense.  See, e.g., here.)  Fourth, the question of whether laches or equitable estoppel should be a defense to a claim that is brought within the relevant statute of limitations (here, for unjust enrichment) is reminiscent of the two recent cases in which U.S. Supreme Court has held that under U.S. law laches is not a defense to a claim for damages for patent or copyright infringement (see, e.g., here).

It will be interesting to see what happens before the Taiwan Supreme Court.   

Friday, September 29, 2017

From Around the Blogs: Willful Infringement, Design Patent Damages, FRAND in India

1.  JD Wooten has an interesting post this morning on the IP Watchdog Blog titled Willful Infringment, Opinion Letters, and Post-Halo Trends.  The post includes not only discussion of some recent district court opinions addressing the relevance of opinion letters, but also some statistics on the number and success of motions for enhanced damages from 2009 to the present.  According to the post, as expected there has been an uptick in such motions since Halo, but the numbers over time actually seem fairly modest to me.

2.  On FOSS Patents, Florian Mueller has a post on the latest developments in the Apple v. Samsung briefing on design patent damages, with links to (1) a September 28 post on IP Watchdog by Matt Levy on the same topic, (2) a post by  Professor Rebecca Tushnet on her 43(B)log recapping a recent event in D.C. titled "Next Up In Apple/Samsung Smartphone Wars: Design Patent Remedies Following The SCOTUS Decision,” which I mentioned on this blog earlier this month; and (3) a recording of the latter event. 

3.  On the SpicyIP Blog, Rajiv Kr.  Choudhry published a post earlier this week titled TRAI Invites Comments on Patents Act, FRAND | Views on Inter Agency Co-Operation.  TRAI is the Telecom Regulatory Authority of India.

Update (Oct. 9, 2017) For a follow-up on this last matter, see Jacob Schindler, India Telecoms Regulator Will Enter the FRAND Fray amid Concerns over "Grim State" of Domestic Innovation, IAM Blog, Oct. 9, 2017.

Wednesday, September 27, 2017

Some New Articles, Posts on Exemplary Damages

1.  Joshua Marshall has published a paper titled Aggravated or Exemplary Damages for Copyright Infringement?, 39 EIPR 565 (2017).  Here is the abstract:
This article will critically evaluate the damages provisions relating to copyright infringement, specifically the award of additional damages under s.97(2) of the Copyright, Designs and Patents Act 1988. The UK courts have held that such awards are a measure of aggravated damages. This article will examine to what extent these additional awards are aggravated damages and, therefore, compensatory. It will be argued that such awards have a closer affinity to orthodox exemplary damages. The practical application by the UK courts reinforces this view.
Mr. Marshall argues that "aggravated damages" are intended to compensate for, e.g., harm to pride and dignity, but that awards under the above-cited provision of the copyright statute are more in the nature of exemplary damages intended to punish. For previous discussion on this blog of the availability of punitive damages for patent infringement in the U.K., see here.  For previous discussion of damages for what is often referred to in Europe as "moral prejudice," see, e.g., here.

2.   In August, Luca Giove and Andrea Comelli published a post on the EPLaw Blog titled Italy:  Supreme Court Ruling on Punitive Damages.  The post discusses a decision of the Grand Chamber of the Italian Court of Cassation (Cass. Civ. SS. UU. 05.07.2017, no. 16601) in which, according to the authors, the court "ruled that it could be possible to obtain recognition--where necessary--and enforce in Italy foreign judgements which may have awarded to the winning party a restoration in the form of punitive damages."  Although the case did not involve IP rights (it appears that the underlying action was a personal injury case litigated in the U.S.), the authors argue that "the ruling has many implications also for patent and more in general IP disputes, as it can be easily guessed: openings to 'punitive damages' emerged already in this year’s CJEU decision OTK v SFP (C-367/15), and are extensively detailed by the reasoning of the decision of the Court of Cassation, where specific references are made to Italian statutory provisions on the infringement of patent and other IP rights."  They also note that awards in excess of purely compensatory awards--such as royalties that exceed those that a willing licensee would have paid, or awards of the infringer's profits--aren't necessarily foreign to Italian IP law.  An interesting read.

For previous discussion on this blog of the CJEU decision referenced above, see, e.g., here.

3.  Also in August, Prashant Reddy published a post on the Spicy IP Blog titled Delhi High Court Has Liberally Applied Time Incorporated to Award Punitive Damages Even After Justice Bhat Over-ruled ItHere is a link.  To my knowledge, Indian courts have yet to award punitive damages in a patent case, but they have done so in some trademark and copyright matters.  For previous discussion on this blog, see, e.g., here.

Monday, September 25, 2017

Perotti on Torpedo Actions in Italy

As I have written before, a "torpedo action" is an action for a declaratory judgment filed by a potential patent infringement defendant in a European state that is believed to have a slow-moving docket, with the goal of preemptively staying proceedings in a faster forum in which the patent owner is likely to file an infringement action.  (For previous discussion, see my book pages 253-55 and, on this blog, posts here, here, here, here, and here.)  In my September 18, 2017 post, however, titled Some Recent Commentary on Unjustified Threats, Cross-Border Injunctions, Arrow Declarations, I forgot to include a recent blog post by Riccardo Perotti titled A requiem for torpedo actions? A catalogue of the most recent decisions on the issue, published on the IP Lens Blog (which until recently I was not aware of, but have now added to the list of "Other Blogs of Interest" in the left-hand column of this page).  Dr. Perrotti discusses, inter alia, recent Italian cases dismissing torpedo actions in Italy where the plaintiff seeks a declaration of noninfringement of the non-Italian portion of a European patent.  He concludes by stating that "all the torpedoes launched in Italy after the [2013] Asclepion ruling have been dismissed on the grounds of lack of jurisdiction. Does this mean that the torpedo saga has finally come to an end?"

Friday, September 22, 2017

Some New Articles on Patent Damages, Part 2

1.  Bernard Chao has posted a paper on ssrn titled Lost Profits in a Multicomponent WorldHere is a link to the article, and here is the abstract:
Given our adversarial system, it is not surprising that plaintiffs advance creative damages theories that would help them maximize their recoveries. In patent law, one recurring tactic is for patentees to seek remedies based on the entire infringing product instead of just the specific feature covered by the patent. This distinction can significantly inflate remedies because modern multicomponent products contain thousands, sometimes hundreds of thousands of different features. Thus, entire products are orders of magnitude larger, more complex and more valuable than individual features.
In recent years, the Supreme Court has sensibly rejected attempts to base patent remedies on entire products in the context of permanent injunctions and design patents. Nonetheless, the Federal Circuit continues to allow patentees to recover all the lost profits associated with an entire infringing product even when the patent at issue only covers one aspect of a multicomponent product. Just this past spring, in Mentor Graphics v. Eve-USA, the Federal Circuit affirmed a $36,417,661 award giving the patentee all the lost profits caused by the sales of the defendant’s infringing semiconductor emulator systems even though the patent covered only one feature of the defendant’s whole product. The decision explicitly rejected attempts to apportion profits between those attributable to the patented feature and other significant factors.
This Essay argues that the failure to consider apportionment is wrong on both the law and policy. From a doctrinal perspective, the Federal Circuit has misinterpreted deeply rooted Supreme Court precedent to arrive at an overly simplistic “but for” test to assess damages. From a policy perspective awarding lost profits based on the entire infringing product – rather than just the feature – compensates the patentee for value she did not create and deters innovation in technologies that operate with or build upon other technology (“complementary technology”). Accordingly, this Essay argues that it is time to realign lost profits doctrine to make it consistent with other types of patent remedies. Patentees should only be compensated based on the value of the patent they hold. That means focusing the remedy on the infringing feature and not the infringing product.
I mentioned this paper here a couple of weeks in connection with the Federal Circuit's denial of a rehearing en banc in Mentor Graphics Corp. v. EVE-USA, Inc., but I didn't quote Professor Chao's abstract.

2.  Erik Hovenkamp and Herbert Hovenkamp have posted a paper on ssrn titled Buying Monopoly:  Antitrust Limits on Damages for Externally Acquired Patents, 25 Tex. Intell. Prop. L.J. __ (forthcoming).  Here is  alink to the paper, and here is the abstract:
The “monopoly” authorized by the Patent Act refers to the exclusionary power of individual patents. That is not the same thing as the acquisition of individual patent rights into portfolios that dominate a market, something that the Patent Act never justifies and that the antitrust laws rightfully prohibit.
Most patent assignments are procompetitive and serve to promote the efficient commercialization of patented inventions. However, patent acquisitions may also be used to combine substitute patents from external patentees, giving the acquirer an unearned monopoly position in the relevant technology market. A producer requires only one of the substitutes, but by acquiring the combination it can impede product market rivals by limiting their access to important technological inputs. Similarly, a patent assertion entity may acquire substitute patents to eliminate inter-licensor competition, enabling it to charge supra-competitive license fees, much like a merger or cartel. For example, by acquiring two or more substitute patents that collectively dominate a market a PAE can effectively monopolize the technology for that market. Such anticompetitive practices are regularly condemned in conventional product contexts, but the courts have not yet applied the same antitrust logic to patent markets. And they passively encourage anticompetitive patent acquisitions by awarding large damages when such patents are infringed.
We propose that infringement damages for an externally acquired patent be denied if the acquisition served materially to expand or perpetuate the plaintiff’s dominant position in the relevant technology market. By weakening enforcement, this limits the patent holder’s ability to use such acquisitions to anticompetitive ends. We do not suggest that a dominant patent holder should be prohibited from securing external patent rights in the relevant technology market, but simply that it should obtain them through nonexclusive licensing, not transactions that restrict third party access. This is as valuable to patent policy as it is to antitrust, for it will tend to increase innovation by discouraging systematic monopoly in technology markets.  
I previously mentioned an earlier draft of the paper here.

3.  Peter Lee has posted a paper on ssrn titled Distinguishing Damages Paid from Compensation Received:  A Thought ExperimentHere is a link the article, and here is the abstract:
This symposium contribution argues that the shortcomings of patent damages doctrine arise in part from the conflicting normative aims of this body of law. On the one hand, patent damages should provide just enough compensation to induce invention and commercialization of a technology but nothing more, thus mitigating deadweight loss. On the other hand, damages should deter infringement and shunt would-be infringers into licensing negotiations with patentees. The current regime of “make-whole” damages largely effectuates the second aim by providing patentees with the full market value of their infringed technologies, even when such damages exceed inducement costs. To help resolve this divergence, this Article proposes distinguishing the amount of compensation that patentees receive from the amount of damages that infringers pay. Within this framework, infringers would pay damages based on the current regime of make-whole damages, thus deterring infringement and encouraging licensing. However, courts would compensate a patentee up to this amount based on the patentee’s inducement costs of invention and commercialization, including a reasonable profit. If make-whole damages paid by an infringer exceed inducement costs, courts would allocate any surplus to government agencies to fund research and development, thus advancing the goals of the patent system. This Article assesses the pros and cons of this proposal, observing that such a “decoupling” regime encourages patentees and infringers to settle, thus eliminating any patent surplus. This is a feature rather than a bug, however, as such settlement would promote more competitive market entry relative to the current status quo while guarding against overly diminishing incentives to invent. 

Wednesday, September 20, 2017

Some New Articles on Patent Damages, Part 1

1.  Colleen Chien and Eric Schulman have posted a paper titled The Responsible Use of Comparative Licenses, forthcoming in the Texas Intellectual Property Law Journal.  Here is a link to the paper, and here is the abstract:
Over the last decade, courts have applied increasingly stringent standards to the evidence used to determine patent damages. While this has reduced the risk of awards untethered to the facts, the current focus on strictly comparable licenses that conform most closely to the naked patent, one-way, royalty-bearing "hypothetical license" specified by law has created its own problems, particularly in the valuation of individual patents incorporated into products with numerous inventions. The rejection of "semi-comparables"—transactions that deviate in some significant way from the terms of the hypothetical license—has led to distorted incentives, unpredictability, and the exclusion of the very transactions that best reflect the incremental value of the invention; those that are formed ex ante, but do not make the cut. We suggest that many of these problems could be avoided by a more inclusive but disciplined approach to reasonable royalty determinations that prioritizes objective evidence of a patent‘s incremental value even when reflected in traditionally excluded "semi-comparable" transactions like technology licenses and sales. Though courts have been reluctant to use semi-comparables because of a lack of objective information about their formation, we begin to address this void, drawing upon the collective wisdom of licensing lawyers we interviewed, the nearly two-decade-long career of one of us as a licensing lawyer, and studies of thousands of actual licenses. When a reasonable, evidence-based estimate or upper bound cannot be derived, we consider the limited use of tailored injunctions, assuming the other eBay elements are met.
2.  R. Scott Hiller, Scott J. Savage, and Donald M. Waldman have posted a paper on ssrn titled Using Aggregate Market Data to Estimate Patent ValueHere is a link to the paper, and here is the abstract:
Intellectual property and its protection is one of the most valuable assets for entrepreneurs and firms in the information economy. This article describes a relatively straightforward method for measuring patent value with aggregate market data and the BLP model. We apply the method to United States smartphones. The demand estimates and recovered marginal costs produce sensible simulations of equilibria prices and shares from several hypothetical patent infringements. In one simulation, the presence of near field communication on the dominant firm’s flagship smartphone results in a 26 percent increase in profits per phone. This estimate provides a starting point for establishing a reasonable royalty between the patent holder and the dominant firm in a hypothetical negotiation. 
3.  Lisa Larrimore Ouellette has posted a paper on ssrn titled Adjusting Patent Damages for Nonpatent Incentives, also forthcoming int he Texas Intellectual Property Law Journal.  Here is a link to the paper, and here is the abstract:
Nonpatent innovation policies—including direct spending on grants and procurement, innovation prizes, and R&D tax incentives—are a significant part of innovation policy in practice and are attracting growing attention from legal scholars. In some cases, innovation is most efficiently incentivized by using these policies as complements, but in others, allowing researchers to claim nonpatent incentives in addition to patent rewards results in overcompensation. There are a few potential solutions to this reward-stacking problem, including limiting the patentability of inventions that have received significant alternative rewards, or conditioning nonpatent transfers on some relinquishment of patent rights. This symposium contribution presents and evaluates an additional solution: reducing patent damages to account for the nonpatent rewards (including ex ante risk reduction) an invention has already received. Such an approach could improve not only the incentive side of innovation policy, but also the allocation side, by reducing deadweight loss while maintaining incentives to innovate. The ability of patent damages doctrine to help mediate between different bodies of innovation law is a benefit of recent proposals for patent damages reform that has thus far been overlooked.

Monday, September 18, 2017

Some Recent Commentary on Unjustified Threats, Cross-Border Injunctions, Arrow Declarations

1.  Perhaps next year will be the year in which I begin work on a projected book on the comparative law and economics of wrongful patent enforcement--a topic that raises all manner of interesting policy and legal questions (potentially involving IP, antitrust, unfair competition, and even freedom of speech and related constitutional rights).  Meanwhile I continue to fortify my research file on the subject, which now includes the newly amended U.K. statute on the subject (available here), which is usefully summarized in a recent IPKat post here.  (See also this IPKat post from last December, on a 2016 case involving the U.K.'s then-existing "groundless threats" law, Nvidia v. Hardware Labs.)  In addition, Norman Siebrasse published a couple of interesting posts on the Canadian law of unjustified threats last November (here and here), raising the questions of whether (as under common law, but not current Canadian statutory law) there should be a "malice" requirement (as there usually is, in a sense, in U.S. law) and whether it makes any sense to distinguish threatening letter from informative letters.  Finally, a more recent IPKat post and an EPLaw Patent Blog post both discuss a recent English case on the question of whether making allegedly deceitful representations to the EPO could give rise to a claim for "unlawful means" under English law (and holding that it could not).  The (unsuccessful) claim calls to mind various possible parallels under U.S. law, including the defense of inequitable conduct, Walker Process antitrust claims, and the common law tort of interference with prospective business advantage.  I really think this would be a fascinating area for comparative law and economics research, so I'm hoping that once a few other pending projects are finally put to bed I might be able to resume work on this topic.

2.  Occasionally I've also touched on cross-border injunctions and torpedo actions under E.U. law (see, e.g., here).  According to the EPLaw Blog, a Dutch court recently granted a provisional cross- border injunction in Carl Zeiss Meditec AG v. VSY Biotechnology B.V.  (I haven't read the decision itself, which is in Dutch.)  However, I did recently come across a very thorough article on the topic of cross-border injunctions by Paul England, titled Cross-border actions in the CJEU and English Patents Court--ten years on from GAT v. LuK, GRUR Int., March 2017 (pp. 293-300).  The article concludes with a handy table titled "The application of the Brussels Regulation and key cases to cross-border scenarios in the CJEU and English courts," and briefly discusses, among other matters, whether a court in the U.K. would grant an "Arrow" declaration in the U.K. under foreign national laws (see pp. 299, 300).  (For other recent discussions of Arrow declarations in the U.K., see, e.g., this post and this post from IPKat; Ralph Cox & Kate Donald's article in the June 2017 issue of Mitteilungen der deutschen Patentanwälten (pp. 260-61), titled Dealing with Divisionals:  "Arrow" type declarations and the "Humira" decisions; and Dr. Manuel Kunst and Dr. Janet Streth's article in the August issue of EIPR, titled Humira Patent Rights Shot by "Fujifilm" Declaration.)  

Friday, September 15, 2017

Some New Papers on Competition Law, FRAND, SEPs

In addition to the paper by FTC Commissioner Maureen Ohlhausen that I mentioned on Monday, the following articles also might be of interest to readers of this blog:
1.  Yee Wah Chin has posted a paper on ssrn titled Basic Antitrust Principles for Standard Essential Patents and Patent Assertion EntitiesHere is a link to the paper, and here is the abstract:
There have been significant calls recently for findings that infringement suits and licensing conduct by patent assertion entities (PAEs) labeled “patent trolls” and by holders of standard essential patents (SEPs) generally are monopolization or attempts to monopolize that violate Sherman Act §2, 15 U.S.C. §2. This paper argues that the basic principles of keeping in mind history and context, and general antitrust principles, apply equally to SEPs and PAEs as to other economic phenomena.  
2.  Erik Hovenkamp has posted a very interesting paper on ssrn titled Tying, Exclusivity, and Standard-Essential PatentsHere is a link to the paper, and here is the abstract:
When a technological standard is adopted, implementers must pay to license all “standard-essential” patents (SEPs)—those covering core features of the standard—although the particular price terms usually cannot negotiated beforehand. To allay implementers’ fear of being “held up,” SEP owners usually make commitments to offer licenses on “fair, reasonable, and nondiscriminatory” (FRAND) terms. Among other things, this acts as a contractual price control for SEP licenses—albeit an imprecise one that is subject to judicial interpretation.
Aside from licenses, an SEP holder may further supply an important “collateral input”—one that is not subject to the FRAND pledge, but which implementers nevertheless require in order to market a viable product. For example, this might be a physical component of the final product. The SEP holder might tie its SEP rights to the collateral input. It might also engage exclusive dealing or related practices, such as a “loyalty discounting” arrangement that imposes larger royalties on implementers who buy the input from competing providers. Importantly, FRAND’s operation as a price control significantly alters the economic analysis: here the primary impetus for tying may be to circumvent the price control by shifting the desired overcharge to the tied good—a concern that does not arise when a seller has complete autonomy over its pricing (as is usually the case). The natural result may be to foreclose competitors’ input sales.
Such restraints have received little attention in the FRAND literature, but they are an emerging concern for innovation and competition policy. They have recently been attacked in two high-profile complaints filed against Qualcomm—one by the Federal Trade Commission, and the other by Apple. Against this backdrop, this article provides a legal and economic evaluation of tying and exclusive dealing arrangements in FRAND licensing. Such practices may act to undermine the FRAND price control, potentially violating the SEP holder’s commitment. The case for antitrust intervention is harder to make, but in principle the arrangement could act to exclude actual or potential competition in the collateral input market, bringing it within antitrust’s reach. I conclude by offering several policy recommendations for how courts and standard setting organizations might address these tying and exclusivity arrangements. 
3.  Hannibal Travis has published a paper titled Counter-IP Conspiracies:  Patent Alienability and the Sherman Antitrust Act, 71 Univ. Miami L. Rev. 758 (2017).  This is a long paper and I haven't read very much of it yet myself, so I might have more to say about it at another time.  For now, here is a link, and here is the abstract: 
Anticompetitive collusion by intellectual property owners frequently triggered antitrust enforcement during the twentieth century. An emerging area of litigation and scholarship, however, involves conspiracies by potential licensees of intellectual property to reduce or eliminate opportunities by a property’s holders to profit from it, or even to recoup their investments in creating and protecting it. The danger is that potential licensees will collude with one another to suppress royalties or sale prices. This Article traces the history of such litigation, provides an overview of the scholarly and theoretical arguments against monopsonistic or oligopsonistic collusion against licensors of intellectual property, and summarizes empirical evidence that the prime economic and business-related justification for such collusion, namely the need to reduce patent holdup, is relatively weak. It argues that some decisions not to license intellectual-property rights, or to license them at suppressed rates, may be anticompetitive, particularly if they are the result of a collusive process or serve to maintain or expand market power. Finally, it urges greater attention from a macroeconomic perspective to the plight of inventors and workers in the high-technology and patent-intensive industries. As a preliminary attempt to heighten awareness of the issue, it describes recent allegations that market power on the part of consumers of high-technology patent licenses, and reduced bargaining clout on the part of individual employees and inventors, may be contributing to unemployment and inequality.

Wednesday, September 13, 2017

Federal Circuit Affirms Dismissal of Complaint Seeking Declaratory Judgment

The opinion, authored by Judge Moore and joined by Judges Reyna and Stoll, is Allied Mineral Products, Inc. v. Osmi, Inc., Stellar Materials, Inc. and Stellar Materials, LLC  Allied, headquartered in Ohio, sells products to two Mexican companies that distribute those products in Mexico.  Stellar sent letters to the Mexican firms accusing them of infringing Stellar's Mexican patent; it later initiated patent litigation against those firms in Mexico.  Allied then filed an action in U.S. district court for a declaratory judgment that the corresponding U.S. patent is invalid, not infringed, and unenforceable.  The district court dismissed the complaint for lack of jurisdiction, and the Federal Circuit affirms:
The Declaratory Judgment Act requires “a case of actual controversy.” 28 U.S.C. § 2201(a). There is no bright-line rule for whether a dispute satisfies this requirement, Prasco LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1336 (Fed. Cir. 2008), although the Supreme Court has articulated a number of relevant factors: 
Our decisions have required that the dispute be definite and concrete, touching the legal relations of parties having adverse legal interests; and that it be real and substantial and admit of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts . . . . Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (quotations and alterations omitted). . . .
The totality of the circumstances in this case does not rise to the level of a case of actual controversy. Declaratory judgment jurisdiction requires some affirmative act by the patentee. SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1381 (Fed. Cir. 2007). Stellar has not directed any actions towards Allied, nor has it litigated or threatened litigation in the United States or on its ’974 patent. All of Stellar’s conduct has been directed towards Allied’s customers Ferro and Pyrotek, unrelated Mexican entities, and that contact was limited to Stellar’s Mexican Patent and potentially infringing acts in Mexico. Stellar sent notice letters to the customers alone, and although Allied responded on behalf of its customers, Stellar never responded to Allied’s letter. Stellar then sued only the customers, not the manufacturer. Stellar also limited its actions to Mexico. Stellar filed suit in Mexico, suing for infringement of a Mexican patent under Mexican laws. It has not threatened or alleged infringement of the ’974 patent in the United States, much less filed suit. Stellar took no actions directed at Allied, no actions with regard to its ’974 patent, and no actions under U.S. patent laws.
The court goes on to distinguish three other cases:  Innovative Therapies, Inc. v. Kinetic Concepts, Inc., 599 F.3d 1377 (Fed. Cir. 2013), in which the court had found no case or controversy despite some "veiled threats" of litigation and the patent owner's prior history of litigating its patents; Arkema Inc. v. Honeywell International, Inc., 706 F.3d 1351 (Fed. Cir. 2013), in which a combination of German litigation and U.S. litigation, directed against the same defendant and over a related patent, "'create[d] a sufficient affirmative act on the part of the patentee for declaratory judgment purposes'”; and Arris Group v. British Telecommunications PLC, 639 F.3d 1368 (Fed. Cir. 2011), in which the court held that "a manufacturer has standing to bring a declaratory action if: (1) the manufacturer is obligated to indemnify its customers in the event of an infringement suit; or (2) there is a controversy between the patentee and the manufacturer as to the manufacturer’s liability for induced or contributory infringement based on acts of direct infringement by the customers."  Neither condition, the court says, is present here.

Monday, September 11, 2017

Criterion Journal on Innovation Papers on Patent Remedies

Volume 2 of the Criterion Journal on Innovation, for which Greg Sidak serves as editor, includes several papers on damages and injunctions, including the following.  (Note that I haven't read all of them yet myself.  Of these, I'm guessing, based on the abstracts, that I will agree at least in part with some of them and disagree quite vigorously with others, but in the meanwhile I will withhold judgment.)

1.  J. Gregory Sidak, Irreparable Harm from InfringementHere is a link to the article, and here is the abstract:
The Patent Act empowers a court to issue an injunction “to prevent the violation of any right secured by patent.” Whether a court will permanently enjoin an infringer depends on whether (1) the patent holder would suffer irreparable harm otherwise, (2) its legal remedies are inadequate, (3) the balance of hardships favors the patent holder, and (4) the injunction would not disserve the public interest. Similar factors inform the grant of a preliminary injunction. The Federal Circuit often says that the harm from patent infringement is irreparable if it cannot be measured. I say that such harm is irreparable because it irreversibly destroys wealth.
Patent infringement irreversibly obliterates wealth when it impedes society’s technical progress. Patent infringement does more than transfer wealth involuntarily from the patent holder to the infringer; it also harms third parties by devastating the surplus that consumers would derive from using the product practicing the new technology. Damages are impotent to cure that harm to the public interest. A court’s order of damages can no more recreate the wealth that has been or will be destroyed by an act of patent infringement than it can restore an ancient redwood after the axeman has felled it.
2.  J. Gregory Sidak, Is Harm Ever Irreparable?  Here is a link to the article, and here is the abstract:
Economic analysis yields three insights on the meanings of irreparable harm. First, the interpretation of “irreparable” harm as immeasurable harm has diminishing plausibility. Quantitative and empirical methods are generally sufficient to estimate injury in business disputes with reasonable confidence. Second, harm can be irreparable because the infringer cannot afford to pay damages, but other vehicles exist to address that problem of undercapitalization—namely, bankruptcy law and the market for corporate control. Third, legitimate grounds remain for finding irreparable harm and issuing an injunction when the court’s failure to do so would reduce consumer or producer surplus by reducing static or dynamic efficiency. In this third category, the reliable quantification of the destruction of value may be challenging when assessing dynamic inefficiency.
In contrast to the existing jurisprudence on injunctions, my three interpretations of irreparable harm would focus the objective of injunctive relief on averting the destruction of value caused by patent infringement, not the transfer of wealth from the patent holder to the infringer. The same logic would apply more generally to any form of involuntary exchange, including compulsory licensing or the forced sharing of valuable assets with competitors under competition law.
Consider the following question: when would a court ever need to grant injunctive relief to remedy the invasion of the plaintiff’s property rights? I do not find any of my three economic interpretations of “irreparable harm” to have great explanatory power in answering this question. So I offer a new conjecture.
Although courts are comfortable with the counterfactual framework of the hypothetical, voluntary exchange, I hypothesize that they are uncomfortable with including large estimates of opportunity cost in the bargaining range of that model. Perhaps courts (and competition authorities, for that matter) do not fully understand the implications of Armen Alchian’s definition that cost in economics means opportunity cost. This unease increases if the would-be licensor’s opportunity costs exceed the would-be infringer’s maximum willingness to pay. (This condition is a standard fact pattern in any of the high-profile margin squeeze cases in Europe and the United States, in which the wholesale price of access to the essential input exceeds the retail price that the vertically integrated firm charges in the downstream market.)
Perhaps, too, courts care about appearances concerning their institutional competence. If no transaction occurs when the would-be licensor’s opportunity costs exceed the would-be infringer’s maximum willingness to pay, it may appear to outsiders to be the court’s fault in setting too high an access price. Consequently, when a court recognizes that the bargaining range is negative, it may prefer to grant a permanent injunction instead of awarding the patent holder damages that exceed what the infringer would have been willing to pay in a hypothetical, voluntary negotiation.
If my conjecture is correct, it may signal an innate appreciation by courts of the Coase Theorem. If the would-be licensee does not value the would-be licensor’s asset at the level of the would-be licensor’s opportunity cost, the court will have no comparative advantage over a bilateral negotiation in making a transaction occur that increases social welfare. Rather than state publicly that the correct price emerging from a hypothetical, voluntary transaction would exceed the would-be licensor’s willingness to pay, the court may prefer to say that it cannot measure the harm from the unauthorized use of the asset. In that case, the court would issue a permanent injunction, which would permit the parties’ own post-injunction negotiations to confirm, in private, the conclusion that no gains from trade exist.
3.  Paul R. Michel & Matthew Dowd, Understanding the Errors of eBay.  Here is a link to the article, and here is the abstract:
eBay has had a profoundly negative effect on the enforceability of U.S. patents, including patents whose validity is beyond doubt. With the likelihood of an injunction severely diminished, patent infringers appear less willing to cease infringing activity. In contrast to U.S. practice, injunctions are routine in Germany and other European countries and becoming so in Asian nations, particularly China, for all technologies and all types of owners. Investment money is mobile and flows toward the high-value assets. eBay has crimped patent rights and thereby diminished investment incentives in the United States. The result: reduced research and development, less job creation, lower economic growth, and diminished American global competitiveness. This cannot be what the Supreme Court intended, but it is how the Kennedy concurrence is being implemented by most district courts that ignore the less forceful Roberts concurrence. The time has come for the Court, or at least the Federal Circuit, to rescue America from this folly.
4.  Maureen K. Ohlhausen, The Federal Trade Commission's Path Ahead.  Here is a link to the article, and here is the abstract:
Given my extensive experience as a leader at the Federal Trade Commission (FTC), I have developed views about how the Commission should carry out its work. In the months ahead, I hope to realize my vision by continuing the agency’s good work to protect competition while advancing principles that the FTC overlooked or undervalued under the Obama Administration.
First, a word on my antitrust philosophy: I believe in the power of markets—when free of restraints and unnecessary regulations—to provide the best outcomes for consumers. Antitrust enforcers guard the competitive process. We intervene when firms injure competition, and we advocate for consumers when governments consider anticompetitive legislation. But equally important is knowing when not to intervene.
As you know, competitive markets tend toward static efficiency, as firms experience market pressures to price near a measure of their costs. But even periods of monopolistic pricing can be consistent with—if not indispensable to—dynamically efficient markets. That is especially so when dominance reflects a firm’s superior innovation. The continuing rise of technology-driven industries makes that consideration more fundamental than ever. The Arrow-Schumpeter debate remains live and nuanced.
Importantly, competition enforcers should not intervene simply because they dislike certain market outcomes. Antitrust is about protecting the process, not guaranteeing a particular result at a particular time. We trust that markets in which firms must endure competitive pressures will produce favorable outcomes in terms of price, output, quality, and innovation in the long run. But if prices seem excessive or output stagnant at a point in time, we do not use antitrust enforcement to require firms to charge less or to produce more. In short, antitrust is not regulation. As the Supreme Court observed in National Society of Professional Engineers, “competition is the best method of allocating resources in a free market,” and even “occasional exceptions to the presumed consequences of competition” are not grounds for antitrust enforcement.
My record shows that I favor meritorious intervention. But, I believe, it is critical to wield our competition laws with regard for the limits of our knowledge, the risk of getting it wrong, and the relative costs to society of over-enforcement and under-enforcement. Those considerations inform my lodestar of “regulatory humility,” which I will follow in the months ahead. Impressionistic assessments of harm should not drive major interventions in the market. Rather, empiricism should control. Moreover, a rigorous application of economic theory is crucial for understanding the likely effects of business conduct and for informing enforcement decisions.
In this essay, I discuss the basic principles that inform my perspective on antitrust law and outlined certain policy priorities for me going forward. My philosophy of regulatory humility, my belief in the power of competitive markets, and a devotion to empiricism inform my view of antitrust. An important question, however, is how my views translate into specific policy goals for the FTC. I would like to see the Commission pursue some new directions. I specifically mention grounding action in a strong empirical basis, challenging abuses of the government process, and better use of Part 3. But, as I articulated at the Heritage Foundation recently, I have other goals, too. Those include the promotion of economic liberty, trimming the costs that the FTC imposes on business without hindering the Commission’s enforcement abilities, and protecting U.S. firms’ intellectual-property rights. I will continue to pursue those aims energetically.
5.  J. Gregory Sidak, Fair and Unfair Discrimination in Royalties for Standard-Essential Patents Encumbered by a FRAND or RAND CommitmentHere is a link to the article, and here is the abstract:
Legal disputes between SEP holders and implementers regarding FRAND or RAND royalties for SEPs have increasingly focused on the meaning of the nondiscrimination requirement contained in a FRAND or RAND commitment. However, as of August 2017, there is no agreement on the precise duties arising from such a requirement. The legal and economic literature has proposed divergent, and mainly normative, interpretations of the nondiscrimination requirement. Some commentators say that the nondiscrimination requirement prohibits the SEP holder from excluding individual implementers from using its SEPs, but that the requirement does not limit the terms and conditions that the SEP holder may offer to different licensees. Others say that the requirement imposes on the SEP holder a duty to offer similar terms to similarly situated implementers—although, even then, there is no agreement on how to implement the “similarly situated” construct in practice. The most misguided and unhelpful interpretation in that literature comes from economic scholars who contend that the nondiscrimination requirement imposes on the SEP holder the duty to create and maintain a “level playing field” among the SEP holder’s licensees. The majority of these proposed interpretations rest on normative expressions of what the nondiscrimination requirement should be, as opposed to positive principles of what that requirement is. Thus, they are limited in their ability to guide a court’s interpretation of the nondiscrimination requirement in the FRAND or RAND commitment at issue in a given dispute.
If American law controls the interpretation of the obligations arising from an SEP holder’s FRAND or RAND commitment, there exists a rich positive jurisprudence on nondiscrimination that provides common principles that can aid a court’s interpretation of an SSO’s nondiscrimination requirement. Those principles, which are consistently applied across various fields of law, suggest that evidence that the SEP holder has treated similarly situated implementers differently is necessary but insufficient to prove that the SEP holder has violated the nondiscrimination requirement of a FRAND or RAND commitment. The court must also examine whether the SEP holder had a valid justification for the differential treatment of similarly situated implementers. Economic analysis can help a court to determine whether (1) the claimant is situated similarly to other implementers, (2) the SEP holder has treated the claimant differently, and (3) a valid justification exists for any differential treatment. A finding of impermissible discrimination is supportable only when the SEP holder lacks a legitimate justification for the disparate treatment of similarly situated implementers.
6.  J. Gregory Sidak, Is a FRAND Royalty a Point or a Range?  Here is a link to the article, and here is the abstract:
Justice Birss said in Unwired Planet that there can be only a single FRAND royalty rate for a given set of circumstances between parties negotiating a license for an SEP. However, it would be untenable on both economic and legal grounds to infer from that opinion that FRAND or RAND can be only a single point in a voluntary negotiation between two parties, or that an SEP must command the same price across all licensees for a given SEP.
As an economic matter, an SEP holder’s commitment to license its SEPs on FRAND or RAND terms generates a range of reasonable royalties upon which the negotiating parties could voluntarily agree. The SEP holder’s minimum willingness to accept to license its SEPs and the licensee’s maximum willingness to pay to use those SEPs identify the bounds on the bargaining range. Any agreed-upon royalty within that prescribed range will make both the SEP holder and the licensee better off than they would be if they were not to execute the license. In a given negotiation, the royalty will converge on a point within that range according to the relative bargaining power of the specific negotiating parties. However, the ultimate point value of that royalty is not preordained by the supposed uniqueness of a FRAND or RAND rate; rather, the ultimate point value of the FRAND or RAND royalty in a given license depends on the circumstances surrounding the negotiation. Differences in the size of the bargaining range and differences in the relative bargaining power of the SEP holder and the implementer will surely exist across licenses for a given SEP, and those differences explain why the observed royalty rate for a given SEP routinely varies across licenses.
Legal interpretation of the FRAND or RAND commitment (under American law) independently confirms that a FRAND or RAND royalty may be situated anywhere along a range of possible outcomes. In both their interpretation of section 284 of the Patent Act and their application of the hypothetical-negotiation framework to determine damages for patent infringement under section 284, the federal courts recognize that a range of reasonable royalties exists for a given patent. Any contractual bargaining away by the patent holder of its rights arising from that statutory framework would need to be indisputably clear. However, such clarity is nonexistent. The patent policies of the major SSOs allow the SEP holder and the implementer to set licensing terms for an SEP, including the ultimate royalty rate, through voluntary, bilateral negotiation. Far from dictating a unique point value, that mechanism permits a range of FRAND or RAND royalties for a given SEP.
7.  J. Gregory Sidak, Using Regression Analysis of Observed Licenses to Calculate a Reasonable Royalty for Patent InfringementHere is a link to the paper, and here is the abstract:
Patent licenses reveal information about how the market values a patented technology and how the market values new information concerning the probability of a patent’s validity and infringement. One can use that information to determine the value of the patent in suit under the assumed conditions in the Georgia-Pacific hypothetical negotiation that the patent is absolutely valid and infringed. Using regression analysis, an expert economic witness can use the change in royalty rates that occurs after pretrial rulings (by district courts, by the PTAB, or by the ITC or its individual administrative law judges) to calculate the market value of the increasing probability that the patent in suit is valid and infringed, and to predict the outcome of the hypothetical negotiation on the eve of the defendant’s first infringement of the patent in suit. The line of best fit might predict a gradually increasing royalty over time, as uncertainty about the patent’s validity and scope decreases. If so, extending the line of best fit to the trial date would provide a conservative (lower-bound) calculation of a reasonable royalty under the assumptions of absolute validity and infringement that apply in Georgia-Pacific’s hypothetical negotiation. This methodology enables the calculation of a reasonable royalty for the patent in suit that incorporates both the underlying legal assumptions of the hypothetical-negotiation framework and the market-disciplined prices that one subsequently observes in actual patent licenses voluntarily negotiated at arm’s length between the licensor and willing third parties.
8.  J. Gregory Sidak and Jeremy O. Skog, Hedonic Prices and Patent RoyaltiesHere is a link to the article, and here is the abstract:
 A hedonic model explains a good’s price in terms of its characteristics. In this article, we use hedonic prices to estimate the permissible range for a reasonable royalty for a standard-essential patent (SEP) subject to its owner’s commitment to offer to license the patent on reasonable and nondiscriminatory (RAND) terms. Our methodology is equally applicable to the calculation of fair, reasonable, and nondiscriminatory (FRAND) royalties for SEPs.
Hedonic price analysis provides a scientifically rigorous means to satisfy the Federal Circuit’s directive in Ericsson v. D-Link to disaggregate the value of having a standard of any sort from the incremental value of the chosen standard, and then to disaggregate further the incremental contribution that a given SEP or portfolio of SEPs makes to the overall value of the technologies that allow the chosen standard to operate. The common additive form of the hedonic regression model is the most appropriate econometric model to meet that directive.
When implemented in an appropriate and thoughtful way, hedonic price analysis provides an expert economic witness—and, ultimately, the finder of fact—with a reliable methodology to determine whether a given license offer satisfies the reasonableness requirement of a RAND or FRAND commitment. If asked or required to set a specific RAND or FRAND rate for a specific portfolio of SEPs, a court or arbitral panel could take our analysis one step further, by determining where within the RAND or FRAND bargaining range a bilaterally negotiated royalty between the parties would most likely fall. Hedonic price estimation can also inform the calculation of a reasonable royalty in conventional patent litigation that does not involve standard-essential patents. Consequently, the use of hedonic price estimation is a conceptual breakthrough in the calculation of reasonable royalties for patent infringement, both for SEPs subject to a RAND or FRAND commitment and for patents that are not declared essential to any standard.
This one I have read, so I can offer a few comments.  I thought this was an interesting paper, and while I can't claim a deep understanding of the statistical techniques the authors use their proposal appears to me to be an improved version of the "top-down" approach used in Innovatio and Unwired Planet.  The authors try to isolate the ex post value of a new standard over an old one using the concept of hedonic prices, and then apportion that value to account for differing values among patents.  They accomplish the latter by analysis of forward citations, which as they point are a standard metric for patent valuation among economists.  But see Allison, Lemley & Schwartz, Understanding the Realities of Modern Patent Litigation, 92 Tex. L. Rev. 1769, 1798-99 (2014) (calling into question economists' reliance on citation counts as evidence of patent quality). 

Friday, September 8, 2017

PTAB/TTAB Event at the University of Minnesota Law School, and Some Other Upcoming Events

This isn't directly related to patent remedies as such, but I suspect that many readers of this blog in the Twin Cities area may be interested.  The University of Minnesota's Corporate Institute is presenting a USPTO PTAB/TTAB event at the University of Minnesota Law School on Wednesday, September 27, from 12:30-5:00.  The event will feature live PTAB trial proceedings and live TTAB appeal and opposition proceedings, as well as educational sessions featuring judges who will share tips for successful advocacy and practitioners who will discuss litigation strategies.  Here is a link to the website, and here is a link to the Corporate Institute's flyer advertising the event.

Also of possible interest to local readers is the Midwest IP Institute, which takes place in Minneapolis September 28-29.  From the institute's webpage:
Headlining the 2017 Institute are CAFC Judge Jimmie Reyna, TTAB Chief Judge Gerard Rogers, USPTO Solicitor Nate Kelley, and Midwest Regional USPTO Director Dr. Christal Sheppard. With these headliners, IP experts from Asia, Europe, Canada, Australia, California, Texas, New Jersey, Massachusetts and across the Midwest will join a talented local faculty of experts to share real-world advice and practice tips for tackling complex legal and business issues.
There will be sessions on, among other things, managing patent infringement risk post-Halo and best practices relating to design patents after Apple v. Samsung.  Here is a link to the website.  

*                   *                   *

I should also mention, for readers in the D.C. area, that the National Press Club will be hosting a panel titled "Next Up In Apple/Samsung Smartphone Wars: Design Patent Remedies Following The SCOTUS Decision,” on Wednesday, Sept. 13, from 9-10:30 a.m.  Details can be found on Professor Rebecca Tushnet's 43(B)log.