Thursday, December 7, 2017

AIPPI Resolution on Quantification of Monetary Relief

In early October I mentioned that the AIPPI World Congress would be meeting in Sydney to discuss, among other matters, the quantification of monetary relief for the infringement of IP rights.  My post also included  a link to the AIPPI webpage on this topic, which in turn included links to forty individual country reports.  Anyway, if you go to that link now you will also find a link to the resolution AIPPI adopted on October 17.  I won't quote it in full, but here are some of the more interesting parts of the AIPPI resolution.

First, point (1) of the resolution sets out the general principle that "Damages should compensate the right holder: a) for its lost profits in respect of sales of products or services that the right holder would have made but for the infringement; and/or b) for its lost profits in respect of price erosion; and/or c) by a reasonable royalty in respect of infringing sales that are not proved to have been lost sales of the right holder, save that the right holder cannot recover twice for the same loss."  Proceeding from these premises, point (2) notes that "the task is by its nature one of estimation," and point (3) then lists various factors that may be relevant to the calculation of lost profits, including "the availability of other substitutable products or services in the market."  This last point would, if adopted in the U.K., require the overruling of the old United Horse-Shoe case, which stands for the proposition that noninfringing alternatives are not relevant to the calculation of lost profits--and would therefore be a welcome change in the law.  (For my critique of United Horse-Shoe, see, e.g., here.)  Interestingly, I don't see any discussion of this specific issue in the U.K country report.  In addition, point (6) states that "Damages should also be recoverable where sales of goods or services of the right holder that compete with the infringement but do not embody the IP right have been lost because of the infringement, as long as the right holder proves a causal nexus between the infringement and the lost sales. The court may take the degree or strength of causation into consideration when considering the appropriate quantum of damages."  This is the rule followed in the U.S. under the Rite-Hite case, and although it remains controversial among some scholars it has always seemed correct to me if the overarching goal is to ensure that the patent owner is no worse off as a result of the infringement. 

Second, point (9) lists various factors that may be relevant to determining a reasonable royalty:
a) other licence agreements of the same IP right as the IP right in suit (but taking due account of the circumstances in which any such other licence agreement was negotiated and, in particular, but not limited to, whether infringement and/or validity of the IP right in suit had been determined);
b) other licence agreements of similar IP rights to the IP right in suit;
c) the cost of non-infringing alternatives;
d) advantages of the IP right in suit when compared with alternatives (including any applicable licence fees for alternatives);
e) profitability of the products or services encompassing the IP right in suit;
f) development costs of the IP right in suit; and
g) the absence and/or circumstances of prior licensing discussions between the
parties.
Up to a point, this is a reasonable distillation of two of what in my view should be the three most relevant factors:  comparables (a and b), and the advantage of the IP over alternatives (c and d).  The other major consideration, in my view, is apportionment (to what extent does the invention contribute to the profitability of the end product), and I don't see subpoint "e" fully addressing this issue.  (Neither does point (13), which states "Where the IP right in suit relates to a part of a multi-component product or service sold by the infringer, the value to be attributed to the IP right in suit (and the compensation available by way of lost profits or reasonable royalty) should be assessed having regard to the extent to which the infringing component provides the basis for customer demand for that multi-component product or service.")  I think it would have good to make that issue clearer.  I also don't agree with subpoint (f), since patents and other IP rights (again, in my view) are a reward for success, not effort, though I realize there is a robust debate (see, e.g, Ted Sichelman's work) on the question of whether damages should be based more on the cost of development. 

In addition, point (10) states that "In assessing a reasonable royalty, the parties should be considered as if they were willing licensor and licensee respectively, with the attributes of the actual right holder and infringer, but disregarding the fact that one or both parties would not in practice have agreed to license the IP right in suit," and point (11) correctly observes that "A reasonable royalty should be assessed on the basis that the IP right in suit is valid and infringed where validity and infringement have been determined in the same proceeding or, otherwise, if warranted in the circumstances." That corrective is necessary to avoid a double discounting problem, as I have observed many times elsewhere (and the observation is hardly original to me).  And point (16) notes the possibility of ongoing royalties when no injunction is granted (though it doesn't address whether injunctions should always or almost always be granted--that's not the topic of the resolution), stating that "In assessing a reasonable royalty where no injunction is granted, the royalty should include a royalty in respect of future infringements, if any."  It might have been good to add that, contrary to current U.S. practice, the rate should be the same rate used for pre-judgment royalties (a point I've made before, see, e.g., here), but so it goes.  Overall, though, I'd say this is a reasonably good resolution.

Monday, December 4, 2017

Assistant AG Delrahim's Speech on FRAND, Patents, and SSOs

A speech delivered on November 10 by the new head of the Department of Justice's Antitrust Division, Makan Delrahim, has gotten a fair amount of publicity from a number of sources, with for example the IAM Blog reporting that former USPTO Director David Kappos referred to the speech as "the most important DOJ antitrust speech on IP during my decades practising law, ” and similar praise coming from Judge Douglas Ginsburg and Koren Wong-Ervin in a paper titled The Department of Justice's Long-Awaited and Much Needed Course-Correction on FRAND-Assured Standard-Essential Patents.  Though I could be wrong, my own somewhat contrarian view is that the speech isn't nearly as significant as some of these observers seem to think.

First, while it's true that Mr. Delrahim's speech is very pro-patent-owner in its orientation--arguing, for example, that "holdout" on the part of prospective licensees is "a more serious impediment to innovation" than is "holdup" on the part of  patent owners, and suggesting that injunctive relief should be more widely available in SEP/FRAND cases--it's important to recognize that these views, while deserving of consideration and respect, are not binding on any court.  The Antitrust Division has no more of a say over the conduct of patent infringement litigation than does any other unrelated entity or person.

Second, while the speech clearly indicates that the DOJ won't view alleged violations of FRAND commitments as antitrust violations, or seek to penalize patent owners for seeking injunctions, this is hardly a change in course for the DOJ.  I don't believe there were any cases during the previous administration in which the DOJ challenged these practices as antitrust violations.  As I discussed in this paper in 2014, among the reasons why U.S. antitrust law wouldn't be conducive to such claims are that U.S. antitrust law generally doesn't condemn monopoly exploitation as opposed to expansion or maintenance, and (as Mr. Delrahim points out) doesn't regulate prices; there's also might be a Noerr-Pennington problem in basing liability based on a non-sham request for injunctive relief.  True, in 2013 the DOJ and USPTO jointly published a document titled Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments, which addressed "whether injunctive relief in judicial proceedings or exclusion orders in investigations under section 337 of the Tariff Act of 19301 are properly issued when a patent holder seeking such a remedy asserts standards-essential patents that are encumbered by a RAND or FRAND licensing commitment."  This document was cited by USTR Froman later that year in his veto of an exclusion order entered by the ITC.  And in two cases (Robert Bosch and Google/Motorola) the FTC (by a 3-2 vote) conditioned its acquiescence in a corporate acquisition on the acquiring party's commitment to not to seek injunctive relief for the infringement of FRAND-committed patents by willing licensees.  Still and all, there are lots of reasons why U.S. antitrust law hasn't gone any further than this, and probably wouldn't have done so under a President Hilary Clinton administration.  

Antitrust law in other countries, of course, may take a different approach, though one reason for this (as I have argued) is that in most other countries injunctions remain the default remedy for patent infringement, thus leaving antitrust (or the "abuse of right" doctrine, or something else) to pick up the slack.  But I don't view Mr. Delrahim's speech as presenting a big change in U.S. antitrust law on this issue (and even if it did, of course, his comments would bind at most the DOJ, not the FTC or the courts or the course of private antitrust litigation).

Mr. Delrahim's commentary could be significant in two other respects, however.  First, his comments may suggest that at the margin the DOJ will take a more hands-off approach to other types of cases at the intersection of IP and antitrust law.  Second, and more explicitly, Mr. Delrahim's comments suggest that the DOJ may take a harder look at the conduct of standard-setting organizations (SSOs) as potential violations of the Sherman Act.  The obvious implication here is the DOJ will be less likely going forward to take a favorable view of policies like those adopted by the IEEE in 2015, under which the SSO requires members not to seek injunctive relief against willing licensees and to calculate FRAND royalties using the SSPPU as the royalty based.  (See the  February 2, 2015 Business Review Letter from Renata Hesse, Acting Assistant U.S. Attorney General, to Michael Lindsay, available here.)  That shift in policy is potentially of some consequence, though to my knowledge no other SSO has followed the IEEE's lead in this regard (perhaps due to the controversy, whether deserved or not, that that policy engendered).

All told, then, while I could surely be proven wrong, I don't think the speech merits quite the reaction it has received among some of the commentators.