Friday, April 20, 2018

Further Commentary on Conversant v. Huawei

Yesterday's post noted a post by Eibhlin Vardy on IPKat discussing Mr. Justice Carr's ruling earlier this week in Conversant Wireless Licensing S.A.R.L v Huawei Technologies Co. Ltd, ZTE Corporation and Ors [2018] EWHC 808 (Pat), concluding  that the court has jurisdiction to decide a global FRAND rate, even though the U.K. sales by Huawei and ZTE account for less than 1% of global sales.  Here are a couple of more commentaries, one by Nicholas Fox on EPLaw and another by Tristan Sherliker on Bird & Bird's blog, who notes that Mr. Justice Carr
assessed the conduct of negotiations and highlighted key issues that, he said, supported Conversant’s case for an injunction. In particular he referred to the following points, which will provide further guidance from the courts about how negotiations might be handled in a FRANDly manner:
  • the length of negotiations (several years) had not led to much progress;
  • the fact that no interim royalty payments had been made;
  • Huawei’s position that they would not take a global portfolio licence; and
  • that the Defendants did not acknowledge (when requested) that they were willing to take a licence, or that their willingness was unconditional.

Thursday, April 19, 2018

From Around the Blogs: Samsung's Antisuit Injunction, Global FRAND Rates in the U.K., and More

1.  Following up on my post this Monday on Judge Orrick's decision to grant an injunction forbidding Huawei from enforcing an injunction it obtained against Samsung in Shenzhen, China, David Long has posted an extensive discussion of the case on the Essential Patents Blog, and Mark Cohen provides some interesting context on injunctions, antisuit injunctions, and anti-anti-suit injunctions, on the China IPR Blog.  Mr. Cohen also reports that "China will soon introduce punitive damages for IP infringements," in its upcoming fourth revision to the Chinese patent law.  The introduction of such damages into Chinese law is something that has been under discussion for some time, and if it is now imminent this could be a very significant, indeed.

2.  Eibhlin Vardy has published a post on the IPKat about yet another FRAND case involving Huawei, Conversant Wireless Licensing S.A.R.L v Huawei Technologies Co. Ltd, ZTE Corporation and Ors [2018] EWHC 808 (Pat), in which  Mr. Justice Carr (Patents Court of England and Wales) ruled this past Monday that the court has jurisdiction to enter a global FRAND rate, even though sales of the allegedly infringing products within the U.K. account for less than 1% of global sales.  I haven't read the opinion yet myself, but I'm inclined to think that both this case and the Huawei/Samsung litigation suggest a need for some sort of global solution to questions of jurisdiction and forum shopping for FRAND litigation.

Ms. Vardy also reports that next month the Court of Appeal will hear the appeal of Mr. Justice Birss' decision in Unwired Planet, over the course of six days.  Well, it is a huge case.

3.  Norman Siebrasse published a post on Sufficient Description on a recent Canadian case, Adir v Apotex Inc 2018 FC 346, involving the question of whether the possibility of outsourcing the production of a product intended for export should reduce the amount the defendant must disgorge for the infringement of the plaintiff's patent, where the evidence suggests that the defendant could have, but for noneconomic reasons wouldn't have, undertaken such outsourcing.  Again, I haven't read the decision yet myself, but Professor Siebrasse makes what appears to me to be a valid critique of the court's decision not to reduce the award:
. . . the reward to the patentee should be commensurate with the value of the invention to the public; a valuable invention deserves a large reward, but an invention which is less valuable merits a correspondingly lesser reward. As the FCA explained in Lovastatin Damages [56], this is the rationale for considering the NIA [noninfringing alternative] in assessing damages: it is “only by comparing the patented invention to non-infringing alternatives can a court discern the market value of the patent owner’s exclusive right, and therefore his expected profit or reward.” On the facts in this case, the objective value of the Canadian patent was the value of the one-year head start that could be obtained by manufacturing in Canada as opposed to some other country. In holding that Apotex was not entitled to offset the profits it could have made by manufacturing abroad, Apotex has been required to disgorge more than the objective value of the invention, because of Dr Sherman’s idiosyncratic non-economic motivations. This is not consistent with the instrumental rationale for the patent system: the value of an invention to society does not turn on the identity or motivations of the infringer. 
I would add only that, as Professor Siebrasse himself has pointed out elsewhere, the question of whether the potential outsourcing of production should count as a noninfringing alternative for purposes of reducing damages is something that U.S. courts may need to grapple with if, as I now expect, the Supreme Court overrules the Federal Circuit in WesternGeco (see here).

4. Finally, on Patently-O Dennis Crouch has published a post on the Federal Circuit's attorneys' fees decision in Rainere v. Microsoft, which was also the subject of my post yesterday.

Wednesday, April 18, 2018

Federal Circuit Affirms Award of Attorneys' Fees Where Action Was Dismissed for Lack of Standing

This morning the Federal Circuit issued its decision in Rainiere v. Microsoft Corp. (opinion by Judge O'Malley, joined by Judges Lourie and Wallach) affirming an award of attorneys' fees in an action against Microsoft and AT&T.  The district court dismissed the action with prejudice on the ground that the plaintiff lacked standing to assert claims for the infringement of the five patents in suit, and the Federal Circuit affirmed this decision ijn 2017.  (According to today's opinion, the plaintiff and his coinventors at some point assigned their rights to a firm named Global Technologies, Inc.  The facts are complicated, but ultimately the district court wasn't convinced that the plaintiff had reacquired those rights, and thus it dismissed the action for lack of standing.)  From the opinion:
[Plaintiff] first disputes whether Appellees are prevailing parties under § 285. [Plaintiff] contends that dismissal with prejudice for lack of standing is not an adjudication on the merits, as he contends is required to find that a defendant is a “prevailing party” under our case law.  [Plaintiff] also asserts that dismissal with prejudice, without adjudication of a patent infringement claim, should preclude finding that a defendant has prevailed in a litigation.  We disagree with these statements, particularly in light of the Supreme Court’s recent decision in CRST Van Expedited, Inc. v. EEOC, which held that a favorable judgment on the merits is not necessary for a defendant to be deemed a prevailing party for purposes of statutory fee-shifting. 136 S. Ct. 1642, 1651 (2016). Even without CRST, we conclude that the district court’s dismissal with prejudice of [plaintiff’s] case for lack of standing is tantamount to a judgment on the merits. Under either of these rationales, Appellees have in fact prevailed in this case. . . (p.9).
The court also finds no abuse of discretion based on the district court's findings that the plaintiff
employed “a pattern of obfuscation and bad faith,” and that this behavior caused Appellees to incur significant fees and costs to oppose [plaintiff’s] positions. These positions, in the district court’s view, “were made in bad faith to vexatiously multiply these proceedings and avoid early dismissal”—in effect, to stall the termination of the proceedings.  Fees Decision, 2016 WL 4626584, at *5.  “Because the district court lives with the case over a prolonged period of time, it is in a better position to determine whether a case is exceptional and it has discretion to evaluate the facts on a case-bycase basis.”  SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344, 1351 (Fed. Cir. 2015) (internal quotations, alterations, and citations omitted).  The district court properly examined the totality of the circumstances in this case and found the case to be exceptional. We see no reason to disturb the district court’s well-reasoned determination (p.19).
Finally, the court finds no abuse as to the amount ("$300,295.71 to AT&T and $143,719.26 to  Microsoft in attorney fees and costs" (p.7)).

Monday, April 16, 2018

WesternGeco Oral Argument Transcript

is now available, here.  After I read it, I may return with some comments.

Update:  Having now read through the transcript, I predict a 9-0 reversal.  The rule will be that the patentee, whatever the theory of liability (271(a), 271(f)) and regardless of whether the requested award is lost profits or a reasonable royalty, is entitled to compensatory damages that are caused-in-fact and proximately caused by the domestic act of infringement--with (as suggested by Justice Breyer at p.44) comity concerns possibly factoring into the proximate cause analysis in an appropriate case.  

There were a couple of favor references to Professor Yelderman's amicus brief, which as I noted here helped me finally articulate my own view in this case.

Further Update:  For further discussion, see Ronald Mann's writeup on the Scotus Blog and Dennis Crouch's on Patently-O.  They both agree that the Court will reverse and embrace the proximate cause concept, though Professor Mann thinks there will be "a fair amount of back and forth among the justices before they come to rest on this one."

Judge Orrick Enjoins Huawei from Enforcing Its SEP Injunction Against Samsung

Both the IAM Blog and FOSS Patents are reporting this morning on an opinion entered by Judge William Orrick (N.D. Cal.) preliminarily enjoining Huawei from enforcing against Samsung the injunction entered by the Intermediate People's Court in Shenzhen, China, in January.  Here is a copy of Judge Orrick's opinion.

As readers of this blog are aware, in January the Chinese court issued an injunction against Samsung's infringement of two FRAND-committed SEPs owned by Huawei; the court found that Samsung had not negotiated in good faith, and that Huawei had.  (See previous posts here and here.)  Litigation between the parties was already pending in the U.S., however, involving multiple patents on both sides.  (Huawei filed the U.S. action on May 24, 2016, and the Chinese action the next day; Samsung counterclaimed in the U.S. action and has asserted its own patents against Huawei in China, where unlike in the U.S. each patent gets its own separate lawsuit.)  On February 1, 2018, Samsung moved to enjoin Huawei from enforcing the Chinese injunction, and last Friday Judge Orrick granted the motion.  Here are some highlights from the opinion:

1.  On the standard for granting an antisuit injunction:
“A federal district court with jurisdiction over the parties has the power to enjoin them from proceeding with an action in the courts of a foreign country, although the power should be ‘used sparingly.’” Seattle Totems Hockey Club, Inc. v. Nat'l Hockey League, 652 F.2d 852, 855 (9th Cir. 1981). “Such injunctions allow the court to restrain a party subject to its jurisdiction from proceeding in a foreign court in circumstances that are unjust.” E. & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984, 989 (9th Cir. 2006)(“Gallo”). The Ninth Circuit employs “a three-part inquiry for assessing the propriety of such an injunction.” Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 881 (9th Cir. 2012)(“Microsoft II”); see also Gallo, 446 F.3d at 990 (establishing framework for determining whether to issue anti-suit injunction).
First, we determine whether or not the parties and the issues are the same in both the domestic and foreign actions, and whether or not the first action is dispositive of the action to be enjoined. Second, we determine whether at least one of the so-called Unterweser factors applies. Finally, we assess whether the injunction’s impact on comity is tolerable (p.6).
Notably, the moving party doesn't have to prove the four Winter factors that are usually required for the entry of a preliminary injunction, including likelihood of success on the merits (pp. 7-8).

2.  The court concludes that the parties and issues are functionally the same, which on its face seems correct (pp. 10-15).

3.  The court also concludes that "domestic policy and other equitable considerations" favor Samsung, and I'm less sanguine about this:
Samsung argues that allowing Huawei to enforce the Shenzhen Court’s injunction would frustrate specific domestic policies against injunctive relief on SEPs and general public policies against anticompetitive conduct and breaches of contract. Mot. at 18. The bulk of precedent supports its position. See, e.g., Microsoft II, 696 F.3d at 884 (“Implicit in such a sweeping promise [made by Motorola to standards-setting organization] is, at least arguably, a guarantee that the patent-holder will not take steps to keep would-be users from using the patented material, such as seeking an injunction, but will instead proffer licenses consistent with the commitment made.”); id. at 885 (“[I]njunctive relief against infringement is arguably a remedy inconsistent with th[at] licensing commitment.”); Realtek Semiconductor Corp. v. LSI Corp., Case No. C–12–03451–RMW, 946 F. Supp. 2d 998, 1006–07 (N.D. Cal. 2013)(“In promising to license on RAND terms, defendants here admit that monetary damages, namely a RAND royalty, would be adequate compensation for any injury it has suffered as a result of Realtek’s allegedly infringing conduct.”); Apple, Inc. v. Motorola Mobility, Inc., No. 11-CV-178-BBC, 2012 WL 5416941, at *15 (W.D. Wis. Oct. 29, 2012)(“ I agree with Apple that from a policy and economic standpoint, it makes sense that in most situations owners of declared-essential patents that have made licensing commitments to standards-setting organizations should be precluded from obtaining an injunction or exclusionary order that would bar a company from practicing the patents.”)
But Huawei insists that there is no “per se rule that injunctions are unavailable for SEPs[.]” Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1331 (Fed. Cir. 2014), overruled on other grounds by Williamson v. Citrix Online, LLC, 792 F.3d 1339 (Fed. Cir. 2015). It highlights precedent and policy that suggest “an injunction may be justified where an infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect.” Id. at 1332 (citing U.S. Dep’t of Justice and U.S. Patent and Trademark Office, Policy Statement on Remedies for Standard–Essential Patents Subject to Voluntary F/RAND Commitments, at 7–8 (Jan. 8, 2013));see also Makan Delrahim, Asst. Attorney General, Antitrust Division, U.S. Dept. of Justice, Remarks as Prepared for Delivery at USC Gould School of Law – Application of Competition Policy to Technology and IP Licensing: Taking It to the Limit: Respecting Innovation Incentives in the Application of Antitrust Law (Nov. 10, 2017), available at (“A patent holder cannot violate the antitrust laws by properly exercising the rights patents confer, such as seeking an injunction or refusing to license such a patent.”)(Greenblatt Decl. ¶ 5, id., Ex. 4, Dkt. No. 240-8).
That may be true, but the policy that is undermined is this court’s ability to determine the propriety of injunctive relief in the first instance. See, e.g., Zynga, Inc. v. Vostu USA, Inc., No. 11-CV-02959-EJD, 2011 WL 3516164, at *3 (N.D. Cal. Aug. 11, 2011)(“But one clear policy that all federal courts recognize—even those which have been loath to interfere with foreign proceedings—is the need to protect the court’s own jurisdiction.”). There is a risk of inconsistent judgments if I were to find that Huawei is not entitled to seek injunctive relief for its SEPs. See Microsoft I, 871 F. Supp. 2d at 1100 (“Courts have found that court policies against avoiding inconsistent judgments, forum shopping and engaging in duplicative and vexatious litigation sufficient to satisfy this step.”). In addition, in the absence of an antisuit injunction, Samsung faces the risk of significant harm, not just in China, but with impacts percolating around the world. The Chinese injunctions would likely force it to accept Huawei’s licensing terms, before any court has an opportunity to adjudicate the parties’ breach of contract claims.18 Under these circumstances, the Shenzhen Order “interfere[s] with ‘equitable considerations’ by compromising the court’s ability to reach a just result in the case before it free of external pressure on [Samsung] to enter into a ‘holdup’ settlement before the litigation is complete.” Microsoft II, 696 F.3d at 886. As in Microsoft, the Chinese actions “have frustrated this court’s ability to adjudicate issues properly before it.” Microsoft I, 871 F. Supp. at 1100. The integrity of this action, therefore, will be lessened without an anti-suit injunction. See id. (pp. 16-17).
4.  Finally, the court concludes that the injunction would not have an intolerable impact on comity:
Samsung points out that the Shenzhen Order provides that “Huawei can agree after the appeal that the injunction will not be enforced, and further states that the Shenzhen Court would also permit non-enforcement if the parties agree to an SEP cross-license.” Shenzhen Order at 209; Xie Decl. ¶ 7. So the relief it seeks would have no impact on the Chinese courts; rather, it asks me to restrain Huawei from enforcing any injunction order until I have the opportunity to determine the propriety of injunctive relief for the parties’ SEPs. It specifically notes that Huawei would remain free to seek damages for infringement of its Chinese patents while this action is pending (p.20).
I'm not sure I'm surprised by the result, but I have to say that decisions like this do seem a bit hard to square with the territorial nature of patent rights.  I recently blogged about the U.S. Supreme Court's pending decision in WesternGeco (see here), and I opined that granting damages that are proximately caused by an act of domestic infringement do not intrude upon other countries' laws, even when those damages are suffered in another country.  Reasonable observers may disagree with me on that, but (to me) it would seem odd to not award damages in a case like WesternGeco but to permit antisuit injunctions in a case like Huawei, where the intrusion on the ability of the foreign court to adjudicate a dispute according to its own lights seems more severe.  I'll be giving more thought to this matter throughout the day, however, and may come back with some further observations.

*          *          * 

In other news, the U.S. Supreme Court is hearing oral argument in the aforementioned WesternGeco case this morning.  I'll post the transcript when it is available later today.

Saturday, April 14, 2018

Risch on Declaratory Judgments Post-MedImmune

Michael Risch has posted an interesting empirical paper on ssrn titled Sue First, Negotiate LaterHere is a link, and here is the abstract:
One of the more curious features of patent law is that patents can be challenged by anyone worried about being sued. This challenge right allows potential defendants to file a declaratory relief lawsuit in their local federal district court, seeking a judgment that a patent is invalid or noninfringed. To avoid this home-court advantage, patent owners may file a patent infringement lawsuit first and, by doing so, retain the case in the patent owner’s venue of choice. But there is an unfortunate side effect to such preemptive lawsuits: they escalate the dispute when the parties may want to instead settle for a license. Thus, policies that allow challenges are favored, but they are tempered by escalation caused by preemptive lawsuits. To the extent a particular challenge rule leads to more preemptive lawsuits, it might be disfavored.
This article tests one such important challenge rule. In MedImmune v. Genentech, the U.S. Supreme Court made it easier for a potential defendant to sue first. Whereas the prior rule required threat of immediate injury, the Supreme Court made clear that any case or controversy would allow a challenger to file a declaratory relief action. This ruling had a real practical effect, allowing recipients of letters that boiled down to, “Let’s discuss my patent,” to file a lawsuit when they could not before.
This was supposed to help the accused potential defendants, but not everyone was convinced. Many observers at the time predicted that the new rule would lead to more preemptive infringement lawsuits filed by patent holders. They would sue first and negotiate later rather than open themselves up to a challenge by sending a demand letter. Further, most who predicted this behavior—including parties to lawsuits themselves—thought that non-practicing entities would lead the charge. Indeed, as time passed, most reports were that this is what happened: that patent trolls uniquely were suing first and negotiating later. But to date, no study has empirically considered the effect of the MedImmune ruling to determine who filed preemptive lawsuits. This Article tests MedImmune’s unintended consequences. The answer matters: lawsuits are costly, and increased incentive to file challenges and preemptive infringement suits can lead to entrenchment instead of settlement.
Using a novel longitudinal dataset, this article considers whether MedImmune led to more preemptive infringement lawsuits by NPEs. It does so in three ways. First, it performs a differences-in-differences analysis to test whether case duration for the most active NPEs grew shorter after MedImmune. One would expect that preemptive suits would settle more quickly because they are proxies for quick settlement cases rather than signals of drawn out litigation. Second, it considers whether, other factors equal, the rate of short lived case filings increased after MedImmune. That is, even if cases grew longer on average, the share of shorter cases should grow if there are more placeholders. Third, it considers whether plaintiffs themselves disclosed sending a demand letter prior to suing.
It turns out that the conventional wisdom is wrong. Not only did cases not grow shorter – cases with similar characteristics grew longer after MedImmune. Furthermore, NPEs were not the only ones who sued first and negotiated later. Instead, every type of plaintiff sent fewer demand letters, NPEs and product companies alike. If anything, the MedImmune experience shows that everyone likes to sue in their preferred venue. 

Thursday, April 12, 2018

French Court of Appeals Awards Triple the Contractual Royalty Rate as Damages

The case is Vorwerk & Co. Interholding GmbH v. Electrodomesticos Taurus SL, Cour d'appel de Paris, June 27, 2017, PIBD 1080, 679 (so yes, I am a little late to be blogging about it, but so go it goes).  In 2015 I blogged about the decision of the court of first instance here, and as I explained at the time:
The patent in suit is EP 0757530, titled Robot ménager comportant un bac á agitation et un mécanisme d'entrainement de l'agitateur du bac (a food processor comprising an agitator vessel and a mechanism for operating the agitator).  If I am understanding this correctly, the inventive feature in suit appears to be something called a chapeau de cuisson á la vapeur, which I would translate as "steaming cap."  Plaintiff Vorwerk sued defendant Taurus for selling allegedly infringing food processors.  In earlier proceedings the court held that the patent was infringed, and this judgment was affirmed. . . .
Vorwerk itself did not practice the patent but rather licensed some affiliated firms to do so.  Vorwerk asserted as its damages its lost profit (manque á gagner), based on the royalties it would have earned from Taurus and Taurus's distributors if they had concluded a license.  Again if I am understanding correctly, Taurus argued that Vorwerk's failure to work the patent meant that Vorwerk was not entitled to recover any damages, but the court disagreed and concluded that the injury suffered by the patent owner would be, at a minimum, equal to the royalties it would have received but for the infringement.
As for the amount, the court appointed an expert who first determined the infringing turnover (la masse contrefaisante).  The expert determined that this should include (1) sales of a model called Mycook that included the steaming cap, and (2) sales of a model called Mycook Pro that did not include the cap, but for which the cap was separately purchased as an accessory.  Altogether this equaled €4,245,557.  The court accepted the expert's analysis.
Next, to calculate the royalty rate the expert first calculated the infringer’s profit margin as 9.6%. Vorwerk argued that the expert deducted some fixed costs that were not tied to the manufacture of the infringing goods, and that the profit margin was actually 22%, but again the court affirmed the expert’s calculation.  Next, the expert multiplied 9.6% by 25%, a step the court refers to in the opinion as “une clé de repartition couramment admise en matière de license de brevet” (a sharing method commonly used in patent licenses)--basically, what sounds like a "rule of thumb" to me.  Next, the expert cut this figure in half based on his conclusion that the patented invention did not play a key role in the sale of the defendant's products, and then rounded this up to 1.5%.  Finally, the expert suggested that the court could multiply the 1.5% rate by 1, 2, or 3.  Taurus for its part argued that the royalty base should be reduced to the average price of the steaming cap times the number of infringing devices, and that any enhancement would be punitive in nature.  The court disagreed, specifically stating as to the latter issue the following (in my translation):
It is appropriate to apply the principle of enhancing the contractual royalty rate, because doing so takes into account the damaging situation in which the rightholder finds itself, who suffers the exploitation of the invention without any decision on its part.  It would be, in such a case, unjust to apply purely and simply a royalty rate equal to that which the parties would have consented to had they negotiated a license.
(For further discussion of royalty multipliers in France, see my book p.270 & n.187). Multiplying the masse contrefaisante as calculated by the expert (€4,245,557) by 3%, the court therefore awarded €127,367 in lost royalties.
On appeal, the Cour d'appel multiplies the "contractual rate" (1.5%) by 3 rather than 2, resulting in a royalty rate of 4.5% and an award of €191,051, reasoning that the lower court did not adequately evaluate the prejudice suffered by the plaintiff:
Considering that the act of awarding a higher compensatory royalty rate does not constitute a punitive award, contrary to the principal according to which compensation should only restore the harm suffered by the injured party,
and that in effect the principle of increasing the contractual  rate  takes into account the disadvantageous circumstance in which the patent holder, who suffered the exploitation of its invention, the subject matter of its patent, without any decision on its part, indeed unwillingly, finds itself, which has allowed, among other consequences, the possibility of a competitor penetrating what was at the time a rather narrow market for multifunction food processors;
Considering however that the first judges made an insufficient evaluation of the harm suffered by VORWERK in choosing only to double the rate, among the three proposals put forward by the expert;
That in effect having regard for the economic importance of this market and, in view of the consequences, to the harm suffered by VORWERK as a result of the infringing acts, it is fitting to impose a multiple of 3, such as proposed by the expert . . . .
I wonder how common it is for French appellate courts simply to substitute their own view of the appropriate royalty rate for that of the court of first instance?

Tuesday, April 10, 2018

VirnetX Awarded Another Nine-Figure Judgment Against Apple

In yet another action brought by VirnetX against Apple, a jury in the Eastern District of Texas today awarded the plaintiff $502.6 million, according to stories in Law360 and Bloomberg.  According to today's Minute Entries, the jury will begin considering willfulness tomorrow.

Monday, April 9, 2018

Happy 90th Birthday to Tom Lehrer

. . . the great humorist and mathematician, by way of Nature--along with a terrific live rendition of his song "The Elements," from 1967.

The Other TCL v. Ericsson Case

Or I suppose I should say, Ericsson v. TCL.  Hat tip to Christine Yun Sauer for forwarding this opinion to me, from Magistrate Judge Roy Payne of the Eastern District of Texas, ordering a new trial on damages, in a case that (in contrast to the TCL v. Ericsson FRAND case) involved the alleged infringement of a single Ericsson non-SEP, and resulted in a jury award of $75 million.  The judge concludes, among other things, that a survey used by Ericsson's witness to show that 28% of TCL customers wouldn't have bought a phone without the infringing feature doesn't lead to the conclusion that 28% of TCL's profit is attributable to that feature.  The judge's reasoning seems correct to me:
It is not difficult to see how this lost profit number quickly becomes unrealistic. Subtracting just three features covered by a mere three implementation patents would have allegedly cut TCL’s profit by more than half. The evidence from both sides suggested that there were at least a thousand implementation patents that might cover a TCL phone. See Trial. Tr. 8:22-9:4, Dkt. No. 404; Trial Tr. 90:3-95:17. Regardless of the number, there is no dispute that a phone with an Android-operating system has many patented features, and that, according to Dr. Wecker’s survey results, consumers would likely find numerous features essential. See, e.g., Trial Tr. 90:3-95:17. According to Mr. Mills, any one of these allegedly essential features could independently be worth more than a quarter of TCL’s profit on the phone. See id. By removing even three additional features covered by an implementation patent, on top of the features allegedly covered by the ’510, ’931, and ’310 patents, TCL would have lost all its profit (conservatively), according to Mr. Mills’ theory.
Mr. Mills’ conclusion is unreliable for at least two reasons. First, Mr. Mills did not consider the numerous patented features on the accused phones, many of which a consumer would consider essential, assuming Dr. Wecker’s survey results were extrapolated. Second, Mr. Mills did not account for how his theory would result in the erosion of all of TCL’s profit. Realistically, there are many features on a phone that would likely yield survey results similar to those obtained for the ’510 patent, e.g., ability to make a call, text messaging, Wi-Fi connection. See Trial Tr. 90:3-9-98:17, Dkt. No. 398. To conclude that any one of these features—simply because it is considered essential to a consumer—could account for as much as a quarter of TCL’s total profit is unreliable and does not consider the facts of the case, particularly the nature of smartphones and the number of patents that cover smartphone features (pp. 10-11).
On a different issue--one that not enough people write about, given how much money can sometimes be at stake--the judge also announces that in the district, standard practice is to award prejudgment interest at the prime rate, compounded quarterly (p.16).

Finally, I'd like to pass along this article by Ms. Yun Sauer and two other Robins Kaplan attorneys, Aaron Fahrenkrog and Danielle Rosenthal, titled A Back-To-Basics Approach to Patent Damages Law, which I think makes some valid critiques about the Federal Circuit's insistence (in some cases, at any rate) on apportioning the royalty base.

Friday, April 6, 2018

Beijing Higher Court Affirms Grant of Injunction in IWNComm v. Sony

On the IAM Blog today, Bing Zhao reports on the recent decision of the Beijing Higher Court affirming last year's decision awarding IWNComm an injunction and damages for the infringement of a FRAND-committed SEP.  Ms. Zhao also provides an unofficial translation of the decision, which I haven't yet read, though I gather from her post that the appeals court accepted the lower court's determinations in their entirety.

For previous discussion of the case on this blog, see here, here, here, here, here, here, here, and here.

Wednesday, April 4, 2018

Patent Damages and Extraterritoriality

In January the U.S. Supreme Court granted cert in WesternGeco LLC v. ION Geophysical Corp., No. 16-1011.  As I've previously noted on this blog: 
The question presented is "Whether the U.S. Court of Appeals for the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f)."  Readers may be familiar with the underlying case, which I have blogged about before (see here, here, and here).  For background, section 271(f) of the Patent Act reads as follows: 
(1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer. 
(2) Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.
The defendant in this case was found liable under section 271(f), based on evidence that it supplied components of the invention from the U.S. to foreign customers, who then assembled them and performed marine seismic surveys for customers on the high seas.  The patent owner argues that, but for the infringement, it would have carried out those surveys and earned the resulting profit.  The Federal Circuit concluded, however, that the patent owner may not recover damages for lost profits arising from services it would have been performed outside the U.S., even if the evidence indicates that, but for the unlawful conduct that occurred within the U.S. (the supplying of the components), it would have performed those services.  Judge Wallach dissented.  (For more details, read my earlier posts.)
The petitioner's brief and several of the amicus briefs can now be accessed on Scotus Blog (here).  The respondent's brief was filed on March 26 and is available on Westlaw (and presumably will be up on Scotus Blog, along with some other briefs, before too long).  There's also a good summary of the briefs filed as of March 5 on Patenty-O, here, and another one today summarizing the respondent's brief and two amicus briefs filed on the respondent's behalf.

The specific issue presented in WesternGeco is somewhat narrow (section 271(f) doesn't come up all that often), but the case raises broader questions that are becoming more and more common, both in the U.S. (see, e.g., Power Integrations and Carnegie-Mellon v. Marvell) and elsewhere (e.g., Canada, see here).  For the most part, patents (and other IP rights) throughout the world are territorial in nature:  a U.S. patent, for example, can be asserted against conduct that occurs in the U.S.; but the manufacture, use, or sale of products falling within the scope of the patent’s claims would be actionable in, say, Canada, only if the inventor has a corresponding Canadian patent (and vice versa).  But what if the infringing conduct occurring within the U.S. caused the patent owner to suffer some harm (for example, additional lost sales or lost royalties) outside the U.S.?  Is it permissible to recover damages for extraterritorial losses that were caused-in-fact and proximately caused by the U.S. infringement? Or would such a recovery undermine the principle that U.S. patent law does not apply extraterritorially, or interfere with other countries’ regulation of or public policies regarding the conduct at issue, or potentially result in duplicative recoveries?  Does this sort of situation raise a conflict of laws issue, or a comity issue, or something else?

After giving the matter a great deal of thought over the past few years, I think I've finally come around to the view that courts should award any damages that are caused-in-fact and proximately caused by the infringement, regardless of whether the loss suffered occurred domestically or abroad; and that concerns over potential interferences with foreign law or policy are misplaced (though courts should be careful to avoid duplicative judgments).  My position on this question finally gelled after reading Professor Yelderman's amicus brief, which makes the straightforward point that if my wrongful act causes your factory in the U.S. to shut down, which in turn causes you to suffer a foreseeable loss of profits on sales you would have made in the U.S. and abroad, general principles of tort law (cause in fact, proximate cause) would allow you to recover full compensation for those lost profits, including the lost profits attributable to the lost foreign sales.  That seems uncontroversial to me.  That said, what's different about patents and other IP rights is that sometimes the losses resulting from an act of domestic infringement would also, potentially, be remediable in another country.  Suppose, for example, that my domestic act of patent infringement foreseeably causes you to lose x number of sales in Asia (as was alleged in Carnegie-Mellon).  It's conceivable that the sales my competitor made in Asia could themselves infringe my counterpart Asian patents.  So then we have a risk of duplicative recoveries, or recoveries that exceed the parameters of what would be available in, say, Japan (punitive damages), etc.  On the other hand, I may not have any corresponding Asian patents, either because I didn't seek any or because I didn't succeed in obtaining them.

Anyway, it seems to me that duplicative recoveries are a bad idea, but that that risk can be managed.  Suppose again that an act in country A causes a loss in country B. If the loss in country B has already been the subject of a lawsuit in country B, resulting in a judgment for the plaintiff, any damages recovered in country A should be reduced by the amount of damages recovered in country B.  I don't see why damages in country A should be zero, though, if for some reason country A awards more generous recoveries than country B (punitive damages, disgorgement).  Alternatively, if the lawsuit in country B resulted in a judgment for the defendant--or was never and will never be filed in country B, because the owner doesn't have or can't get a corresponding IP right there--that just means that the act didn't infringe in country B, but the sales themselves could still be foreseeable losses resulting from the infringement in country A.  This seems analogous to me to a "false conflict" in conflict of laws terminology.  On the other hand, what if the loss in country B is potentially remediable there but the first lawsuit is in country A?  Again, I'd say let country A award full damages, but I would hope that B wouldn't impose duplicative damages in some future lawsuit involving the same conduct in B. 

To put it another way, it seems to me that (within reason) country A should be able to decide for itself what sort of activity occurring within its own borders violates A's laws, and what the consequences should be.  If the conduct occurring in A causes the patentee to lose sales that would have been made in B, and A thinks those losses should be compensated in accordance with whatever rules A normally applies to remedy acts of infringement occurring within A, I don't see how that interferes with B's sovereignty.  What makes it seem like a potential interference is that the sales that occurred in B (displacing sales the patentee otherwise would have made) might infringe patent rights in B.  But that is fortuitous.  The only way A would be interfering with B would be if A penalized the infringement occurring in B as such, that is, if it were purporting to penalize conduct, in B, infringing a B-issued patent.  At least the traditional policies in favor of territoriality would counsel against A doing that.  But to the extent A is simply providing a remedy for misconduct occurring in A, I don't see a problem--unless B awards a remedy for the infringement of the patent in B that duplicates the remedy provided in A (e.g., they both award lost profits for the same lost sales in B; or A awards a lost royalty on the lost sales in B, while B awards disgorgement without reducing the award by the amount of the lost royalty). 

At bottom, awarding the full measure of damages implies no disrespect of other countries' laws.  Each country can decide as it sees fit how to remedy wrongful acts occurring within its borders. The only limitation would be to ensure that the same act doesn't get penalized twice.  So if country A awards the disgorgement of profits earned in country B, country B shouldn't award lost profits or disgorgement on top of that for the same acts.  But the interference with sovereignty issue as a red herring.  

I'd also note that proving the domestic act of infringement proximately caused the loss suffered in a foreign country is hardly a walk in the park--those consequences may well be too remote and unforeseeable in a given case.  Thus, I tend to view some of the concerns expressed  in, for example, the respondent's brief, as overblown.  (See, e.g., pp. 49-50, arguing that "Creating a prototype of any product in the United States would give rise to uncontrollable liability for downstream activities by unrelated foreign actors that occur entirely abroad."  I don't think that necessarily follows.)  Moreover, as the Yelderman brief suggests, in some cases moving production to a country where there are no corresponding IP rights could have been the domestic infringer's next-best available noninfringing alternative, thus potentially reducing the damages it owes to zero. 

Of course, I could still be wrong, and I'd welcome comments.

Tuesday, April 3, 2018

Shen on Chinese Huawei v. Samsung FRAND Decisions

Last week I published a post mentioning (1) a post authored by Yang Li, Christine Yiu, and Richard Vary titled "Shenzhen court issues written judgment in Huawei v Samsung case," and (2) a shorter version of the latter published by Mr. Vary on the IPKat.  This morning on the IAM Blog Jacob Schindler published an analysis by David Shen of Allen & Overy (available here) of these two (related) decisions.  Although I still haven't seen the Chinese text itself (or, more importantly, and English-language translation thereof), these two write-ups appear to agree in all essential particulars, and to provide a good summary of the court's rationale for, among other things, granting an injunction and awarding FRAND royalties based on a top-down approach (though Mr. Shen clarifies that the two decisions combined, not separately, weigh in at over 350 pages).

Monday, April 2, 2018

Palacci and Szafarczyk on Ten Years of Patent Damages Decisions in France

Jérémie Palacci and Joséphine Szafarczyk have published a paper titled La fixation des dommages et intérêts en matière de brevets depuis la loi de 2007 de lutte contre la contrefaçon:  10 ans d’application (“Determining Patent Damages After the 2007 Anti-Infringement Law:  10 Years of Application”), in the February 2018 issue of Propriété Industrielle (pp. 10-12).  Here is the abstract (my translation):
Supplementing the Laws on Intellectual Property of February 4, 1994, March 18, 2003, and March 9, 2004, Law No. 2007-1544 of October 29, 2007 implemented European Directive 2004/48/CE of April 29, 2004.  The result of ambitious work, this law aimed to strengthen the fight against infringement and to more justly compensate the victims.  The legislature addressed itself in particular to drafting a new article L. 615-7 of the I.P. Code concerning the assessment of damages.

(For previous discussion on this blog of L. 615-7 as enacted in 2007, and as further amended in 2014, see, e.g., here.)  The authors note, among other things, that L. 615-7 made an important break with previous law in expressly authorizing courts to take into account the benefits realized by the infringement.  In addition, they discuss their review of the 94 decisions (first instance, second instance, and Cour de cassation) on damages from January 1, 2008 to June 30, 2017, and provide a breakdown of those in which (for example) the court required expert assistance (nearly a quarter), or in which lost profits or reasonable royalties were awarded, or in which the grounds for the award were unclear.  One interesting note is that there was a “non-negligible number of decisions” in which the court awarded damages for moral prejudice (3) or for harm to monopoly position (7) to make up for a lesser recovery for economic harm.  The concept of moral prejudice can mean different things in different countries (see, e.g., here and here), and as others have noted before French courts sometimes appear to award such damages more as a means of “rounding up” than (e.g.) to compensate for loss of reputation.  (I’m hoping to devote some time this summer to starting work on an article on moral prejudice in IP law among the major jurisdictions.)  The authors conclude that since 2007, compensation awarded to patent plaintiffs in France has expanded, and that fewer and fewer decisions render awards without clear explanation.  Finally, they argue that France should make it easier for courts to review confidential documents which parties are often reluctant to share, so that damages awards can be more accurate.  

Friday, March 30, 2018

Some New Papers on Royalties, SEPs

1.  Michael Risch has published a paper titled (Un)Reasonable Royalties, 98 Boston University Law Review 187 (2018).  Here is a link to the paper, and here is the abstract:
Though reasonable royalty damages are ubiquitous in patent litigation, they are only a hundred years old. But in that time they have become deeply misunderstood. This Article returns to the development and origins of reasonable royalties, exploring both why and how courts originally assessed them.
It then turns a harsh eye toward all that we think we know about reasonable royalties. No current belief is safe from criticism, from easy targets such as the twenty-five percent “rule of thumb” to fundamental dogma such as the hypothetical negotiation. In short, this Article concludes that we are doing it wrong, and have been for some time.
This Article is agnostic as to outcome; departure from traditional methods can and has led to both overcompensation and undercompensation. But it challenges those who support departure from historic norms—all while citing cases from the same period—to justify new rules, many of which fail any economic justification.
2.  Tim Simcoe and Mark Lemley have posted a paper on ssrn titled How Essential Are Standard-Essential Patents?  Here is a link, and here is the abstract:
Courts, commentators, and companies have devoted enormous time and energy to the problem of standard-essential patents (SEPs) – patents that cover (or at least are claimed to cover) industry standards. With billions of dollars at stake, there has been a great deal of litigation and even more lobbying and writing about problems such as how if at all standard-setting organizations (SSOs) should limit enforcement of patent rights, whether a promise to license SEPs on fair, reasonable, and non-discriminatory (FRAND) terms is enforceable in court or in arbitration, what a FRAND royalty is, and whether a refusal to comply with a FRAND commitment violates the antitrust laws.
In this study, we explore what happens when SEPs go to court. What we found surprised us. We expected that proving infringement of a SEP would be easy – they are, after all, supposed to be essential – but that the breadth of the patents might make them invalid. In fact, the evidence shows the opposite. SEPs are more likely to be held valid than a matched set of litigated non-SEP patents, but they are significantly less likely to be infringed. Standard-essential patents, then, don’t seem to be all that essential, at least when they make it to court. 
At least part of the explanation for this surprising result comes from another one of our findings: many SEPs asserted in court are asserted by non-practicing entities (NPEs), also known as patent trolls. NPEs do much worse in court, even when they assert SEPs. And the fact that they have acquired a large number of the SEPs enforced in court may bring the overall win rate down significantly.
Our results have interesting implications for the policy debates over both SEPs and NPEs. Standard-essential patents may not be so essential after all, perhaps because companies tend to err on the size of over-disclosing patents that may or may not be essential. The failure of NPEs to win cases even with what seem like they should be a strong set of patents raises interesting questions about the role of NPEs in patent law and the policy efforts to curb patent litigation abuse. 
3.  Dan Spulber has posted a paper on ssrn titled Finding Reasonable Royalty Damages: A Contract Approach to Patent InfringementHere's a link, and here's the abstract:
The article introduces a contract approach to patent infringement and develops a methodology for finding reasonable royalty damages. The contract approach complements approaches based on property and tort, thus providing a more complete understanding of damages. The article argues that the patent infringement case should specify an informed contract. The informed contract improves estimation of damages by taking into account information revealed during the period of infringement. The article introduces a market value method for calculating reasonable royalty damages based on patent transfer prices. The contract approach helps calculate reasonable royalty damages based on royalties in comparable patent licenses. The contract approach addresses various controversies over reasonable royalty damages.

Wednesday, March 28, 2018

95 Theses on Stays in Patent Cases

This has to be one of the more creative ideas for an article on patents in recent memory:  Malte Köllner, Eric Sergehaert and Mihnea Hanganu’s 95 Thesen zur Aussetzung (“95 Theses on Stays”), in the January 2018 issue of Mitteilungen der deutschen Patentanwälten (pp. 8-15).  By way of background, in Germany infringement and validity proceedings are bifurcated (the so-called Trennungsprinzip), and thus a court may find a patent infringed while an invalidation proceeding takes its more leisurely course through the European or German Patent Office.  Courts sometimes stay the infringement proceeding or the enforceability of the judgment pending an invalidation proceeding, but to my knowledge they usually don't.  As I noted in my book (p.229 n.45):
Stays pending the resolution of an invalidity proceeding are possible, but are hardly automatic. For discussion, see Luginbuehl, supra note 34, at 40; Christian W. Appelt & Heinz Goddar, Enforcement of Patents in Europe—Germany as an Example, ip4inno Consortium, European Patent Academy (Nov. 27, 2006), at 6–8, available at (stating that the Düsseldorf court is reluctant to grant stays in patent proceedings, but that stays must be granted in utility model proceedings if the court believes the invalidation action will be successful); Bühling, supra note 24, at 28–29; Verhauwen & Bergermann, supra note 35, at 1 (reporting that “the court stays the infringement proceeding only if it is highly likely that the nullity action or opposition proceeding will be successful”; that this “is regularly assumed if state of the art can be presented that is novelty-destroying and in addition has preferably not yet been assessed in the examination proceeding”; and that “[i]f the validity argument is merely based on lack of inventive step it is most likely that the infringement court will not stay the proceeding”).
(This type of stay, by the way, should be distinguished from the Aufbrauchfrist, a stay pending transition, which to my knowledge is even more rare and doesn't result in an interim award of damages.  For previous discussion on this blog, see here and here.)  Anyway, I haven't read the article by Köllner et al. very carefully yet, but the authors seem to be of the view that German courts could be a bit more open to the practice.  Here is the abstract (my translation):
In a European comparison, the frequency of stays in patent infringement actions in Germany is compared with the frequency in England, France, and the Netherlands.  The comparison is based on stays in infringement disputes in which a parallel European opposition proceeding is pending.  Substantial differences emerge.  A following investigation of the legal arguments for handling stays in Germany raises serious concerns about the German practice with regard to stays. 
Footnote 1 reads (again in my translation): "According to tradition, these 95 Theses are said to have been nailed to the gates of the Düsseldorf and Munich District Courts on the Eve of All Saints' Day 2017.  The historicity of this proposition, however, is disputed."  Funny.  Perhaps an English-language subtitle could have been, "Here I stay, I can do no other."    

Image result for picture of luther nailing 95 theses

Monday, March 26, 2018

Li, Yiu & Vary on Chinese Huawei v. Samsung FRAND Decisions

In January I published this post on the decision by the Intermediate People's Court in Shenzhen, China, to issue an injunction against Samsung for the infringement of two FRAND-committed Huawei SEPs.  Yang Li, Christine Yiu, and Richard Vary have now published a post, titled "Shenzhen court issues written judgment in Huawei v Samsung case," reporting that last week the court published its written decisions--two of them, one for each patent I assume, and if I'm understanding the post correctly each is over 350-pages!  Mr. Vary also published a shorter post on the matter in the IPKat this morning. (Neither post links to the decisions themselves, and I doubt that there are publicly available English-language translations yet, though I hope that we'll be able to see some before too long.)   According to the posts, the court not only entered an injunction based on its conclusion (for reasons discussed in the posts) that Samsung was an unwilling licensee, but also adopted a top-down methodology for determining the amount of the FRAND royalty.  The authors also state that, in contrast to the recent decisions in Unwired Planet and TCL, the court did not apply the "patent counting" or numeric proportionality principle, but rather took into account the contribution of Huawei's specific technology, to determine the award.

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In other China-related news, The China IPR Blog published a post over the weekend titled US Files Consultation Request at WTO on Chinese Technology Licensing Practices, while the IAM Blog has published a post (which is behind a paywall, and which I haven't read myself) titled Iwncomm provides update on China SEP campaign – Sony injunction still under appeal, battle with Apple expands.