Some New Articles on Patent Damages, Part 2

1.  Bernard Chao has posted a paper on ssrn titled Lost Profits in a Multicomponent World.  Here 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 Experiment.  Here 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.