Wednesday, February 28, 2018

Contreras on Holdup, Global SEP Disputes

As I noted on Monday, Professor Jorge Contreras and I, along with Christopher Thomas, will be speaking today on FRAND Litigation After TCL v. Ericsson as part of the IP Chat Channel webinar series.  I hope some of you will be able to tune in.  In addition, here are a couple of Professor Contreras's recent papers that might be of interest to readers of this blog:

1.  The first is titled Much Ado About Hold-UpHere is a link to the paper, and here is the abstract:
The policy debate surrounding patent hold-up in markets for standardized products is now well into its second decade with no end in sight. Fundamental questions including the definition of hold-up, whether it exists in the marketplace, and what impact it has on innovation, continue to bedevil scholars, policy makers and industry. Yet it is not clear that this debate needs to continue. Patent hold-up is a pattern of market behavior, not a legally-cognizable wrong. Whether it is commonplace or rare is largely irrelevant to liability in any given case. To the extent that hold-up behavior constitutes an abuse of market power, with resulting harms to competition, longstanding doctrines of antitrust and competition law exist to sanction it. To the extent that hold-up impedes the efficient operation of standard-setting processes, SDOs can, and have, adopted internal procedures, including disclosure and licensing requirements, to curtail that behavior. Thus, the ongoing hunt for empirical evidence of systemic patent hold-up in standardized product markets, or a lack thereof, seems a fruitless academic exercise. The absence of systemic hold-up actually tells us little about individual firm behavior that can and should be sanctioned by the law, and it may thus be time to close the debate over the
systemic prevalence of this form of behavior.
2.  Professor Contreras also has posted a paper titled The Global Standards Wars: Patent and Competition Disputes in North America, Europe and Asia, which is forthcoming in the Keio Journal of Law, Politics and Sociology.  Here is a link, and here is the abstract:
Over the past decade there has been an increasing number of disputes concerning the enforcement and licensing of patents covering technical standards. These disputes have taken on a global character and often involve litigation in North America, Europe and Asia. And while many of the parties are the same in actions around the world, courts and governmental agencies in different jurisdictions have begun to develop distinctive approaches to some of these issues. Thus, while areas of convergence exist, national laws differ on important issues including the availability of injunctive relief for FRAND-encumbered SEPs, the appropriate method for calculating FRAND royalties, the competition implications of violating a FRAND commitment, and the contours of the FRAND non-discrimination obligation. Thus, at least until greater international harmonization is achieved, firms doing business globally must remain particularly attuned to the evolving legal landscape in this area. This paper presents a brief overview of recent disputes that have arisen around the world with respect to the acquisition, enforcement and licensing of patents that are essential to technical interoperability standards.

Monday, February 26, 2018

PatCon, IP Chat Channel Sessions on Remedies

1.  PatCon 8:  The Annual Patent Conference takes place next Thursday through Saturday, March 1-3, at the University of San Diego.  On Friday there will be keynotes by Carter Phillips and Joseph Matal, as well as a judges panel, an industry panel, a USPTO economists' panel, and a panel on medical diagnostics.  The academics' sessions follow, with several papers on remedies--including one by Mark A. Lemley, Kent Richardson, & Erik Oliver titled "The Patent Enforcement Iceberg"; Bernard Chao's paper "Lost Profits in a Multicomponent World"(previously mentioned on this blog here); one by Erik Hovenkamp, Norman Siebrasse, and me titled  "Switching Costs, Path Dependence, and Patent Holdup"; an entire panel titled "Patents, ICT, and FRAND Commitments," featuring papers by Guido Noto La Diega, Manveen Singh, Indranath Gupta, and Jorge Contreras; and two sessions on the International Patent Remedies for Complex Products project, at which I will be speaking along with Professors Contreras, Siebrasse, John Golden, Oskar Liivak, and David Taylor.  As the agenda states, "INPRECOMP is an international comparative law project that aspires to establish a descriptive account of patent damages across multiple jurisdictions in North America, Europe and Asia as well as recommendations regarding potential harmonization and future directions in this area of law."  Here is  a link to the conference webpage.  

Alternatively, if you can't make it to PatCon but will find yourself in the vicinity of the Twin Cities on Friday, I recommend checking out the Minnesota Journal of Law, Science & Technology's 2018 symposium, "The Legal Landscape of the Internet of Things."   Information is available here.

2.  The IP Chat Channel will be presenting a webinar titled FRAND Litigation After TCL v. Ericsson next Wednesday, February 28, from 2-3 p.m. Eastern Time.  Here is a link, and here is a description:

"At the end of last year, Judge Selna of the U.S. District Court for the Central District California issued a very significant decision in TCL v. Ericsson, a case centering on a license royalty dispute between a major Chinese cell phone maker and Ericsson, the owner of a large number of standard-essential patents (SEPs) for 3G and 4G mobile service.
  
"This decision now joins a handful of other recent influential court decisions in the U.S. and the U.K. that have each devised their own methodology to calculate fair, reasonable, and nondiscriminatory (FRAND) terms for SEPs.  

"Our panel includes two academic experts on SEPs, both of whom have also practiced law, and a Brussels-based competition lawyer.  They will discuss: 
  • What are the strengths and weaknesses of the “top down” approach implemented in the TCL and Unwired Planet decisions vs. the “bottom up” approach of Microsoft v. Motorola?  Is there a consensus emerging? 
  • What are the implications of the non-discrimination prong of the TCL decision that says that small players in a market should not have to pay higher royalty rates than big players? 
  • How does recent SEP competition policy in Europe differ from that in the U.S. — and what has changed with the recent release of the European Commission’s Communication on Standard Essential Patents? 
"This webinar will help listeners understand where FRAND jurisprudence is heading, a critically important issue for those who care about standards and FRAND.  Judge Selna’s decision is of great interest for the details of how it set the royalty rates for the technology at issue.  It is being compared with an important recent British decision, Unwired Planet v. Huawei, and the earlier U.S. decision, Microsoft v. Motorola. 

Speakers:

  • Prof. Jorge Contreras, University of Utah School of Law
  • Prof. Thomas Cotter, University of Minnesota School of Law
  • Christopher Thomas, Hogan Lovells"

Thursday, February 22, 2018

Cotter, Hovenkamp, and Siebrasse on Holdup

Erik Hovenkamp, Norman Siebrasse, and I have posted a paper on ssrn titled Switching Costs, Path Dependence, and Patent HoldupHere is a link to the paper, and here is the abstract:
Patent holdup occurs when a patent holder extracts higher royalties ex post (after the payor has committed to use of the patented technology) than it could have negotiated ex ante, where the difference is not explained by an increase in the technology’s value. To date, the literature principally has focused on—indeed, sometimes conflated—two potential sources of holdup: the sunk costs the user has incurred ex ante to adopt the technology, and the “switching costs” of adopting an alternative ex post. We demonstrate, however, that this literature tends either to over- or underestimate holdup risk, because holdup may arise even when sunk costs are zero, or be absent despite high ex post switching costs. More generally, we show that patent holdup is best understood as an opportunistic exploitation of path dependence, arising when prior commitment to a technology creates some dynamic distortion in the technology’s incremental value over alternatives.

Wednesday, February 21, 2018

Some New Papers on the Appropriate Royalty Base for FRAND-Committed Patents

1. Fredrick Nilsson has published a paper titled Appropriate Base to Determine a Fair Return on Investment:  A Legal and Economic Perspective on FRAND, in the December 2017 issue of GRUR Int. (pp. 1017-1023).  Here is the abstract:
This paper aims at contributing to the discussion regarding Fair, Reasonable and Non-Discriminatory (FRAND) licenses in the telecom industry.  Although there are many topics to debate this paper focuses solely on the royalty base.  As of today, there are two royalty bases favored by industry players:  the Entire Market Value Rule (EMVR) and the Smallest Salable Patent Practicing Unit (SSPPU).  By exemplifying with a case study on the Intellectual Property Right (IPR) Policy governing the Wi-Fi standardization process this article analyses which model is more likely to have a positive impact on technology creation and diffusion in the telecom industry when used as royalty base by the patent holder and implementer in their bilateral FRAND negotiations.
2.  Taking a somewhat different view of the matter is a paper by law student Zachary Coots titled Standardizing the Smallest-Functional Unit: A Tier-Stacking Approach to Frand Royalty RatesHere is  a link to the paper, and here is the abstract:
Apple's recent fight with Qualcomm, alleging that Qualcomm is overcharging apple to license Qualcomm's FRAND-encumbered standard essential patents (SEPs), raises an interesting issue regarding patent hold-up: whether a FRAND royalty rate should limit an SEP holder’s ability to extract larger royalties from end-product manufacturers — resulting from that manufacturer's increased sales prices due to unrelated, end-product advancements. This Paper advocates that uniformly assessing all FRAND-encumbered licenses against the smallest-functional unit would ameliorate this concern, and it further provides two methods for achieving this end while also avoiding issues of excessive royalty stacking.
3.  In this vein, I should also mention that Richard Stern has published a very interesting paper titled  Who Should Own the Benefits of Standardization and the Value It Creates?, 19 Minnesota Journal of Law, Science & Technology 107 (2018).  The paper discusses the appropriate royalty base, among several other topics relevant to calculating FRAND royalties; and though Mr. Stern and I may have to agree to disagree on certain issues (see, e.g., pp. 223 et seq.), the paper certainly merits the attention of readers interested in these issues.   Here is a link (I'm not finding an abstract).

Monday, February 19, 2018

Bharadwaj on Injunctions and the Public Interest in India

Ashish Bharadwaj has published an article titled Patent Injunction and the Public Interest in India, 40 EIPR 55-58 (2018).  Here is the abstract:
In Bayer Intellectual Property GmbH v Ajanta Pharma Ltd, the Delhi High Court weighs public interest with an injunction in an infringement suit pertaining to a drug patent on new grounds. The decision is functionally a compulsory licensing arrangement, although it is characterised as voluntary licensing. Moreover, the decision represents a dramatic expansion in the scope of patents that fall under the public interest exception to the grant of patents under the Indian patent law. The decisive ruling has implications for future cases in India, where courts could now refuse to grant injunctions for patent infringement based on a very broad economic rationale.
As the abstract suggests, the author argues that the case departs from Indian precedent in effectively permitting a court to issue a compulsory license in the public interest, even though the drug is not a life-saving medicine (it's an erectile dysfunction drug), based on "economic factors such as employment or tax revenues for the state."  (Ajanta was making the patented drug in India, without Bayer's permission, for export to other countries. Bayer itself was not working the drug in India.)   Several posts about the Bayer/Ajanta case also have appeared over the past few months on the SpicyIP Blog, as I noted here.  In addition, here is a link to a post on Mondaq from March 2017 by Dinesh Kumar Sharma, titled Patent Infringement in India and Interim Injunctions: Jurisprudence on "Public Interest" Continues to Evolve, which discusses Bayer/Ajanta among others.  Finally, I should note that in September Pankhuri Agarwal and Shamnad Basheer published two posts on Spicy IP titled Towards More Intelligible "Open Access" at the India Patent Office:  A Study of Compulsory Licensing Cases (see here and here), which discusses the difficulty one of the authors encountered in trying to obtain online access to compulsory licensing decisions of the India Patent Office, and provides their recommendations for improving online access.

Friday, February 16, 2018

Lex Machina 2017 Patent Litigation Year in Review

Lex Machina's Patent Litigation Year in Review 2017, authored by Brian Howard, is now available.  As in previous years, the report presents a wealth of data on U.S. patent litigation.  This year's report includes an extensive discussion of the effect of the TC Heartland case on patent venue (which, as many readers are probably aware, is now to some degree shifting away from the Eastern District of Texas to the District of Delaware), as well as a brief section on design patent litigation.  (For brief discussion of TC Heartland on this blog, see here.)  Page 28 includes some data on injunctions, which Lex Machina classifies by default/consent and merit-based decisions, as well as by permanent injunctions, preliminary injunctions, and TROs.  I was somewhat surprised to see that, among the merit-based decisions (80 cases in 2017), motions for permanent injunctions were granted in 31 cases and denied in only 2 cases.  (Is that because litigants can now predict most of the time whether a permanent injunction is likely or not, and thus either are (1) agreeing to the entry of a permanent injunction when it's likely one will be granted, and (2) not bothering to request a permanent injunction when it isn't?)  The grant rate for merit-based preliminary injunctions is 19% (8 out of 42), which seems about right to me, and for TROs 38% (but based on only a handful of cases, 3 grants out of 8 motions).  There are also data on damages, showing for example that in 2017 courts awarded $763 million in reasonable royalties and $284 million in lost profits, "with only a few outliers driving the high totals.  Among all damages awarded in cases filed since the year 2000, 90% of the reasonable royalty awards in cases have been less than $46.5m, 75% less than $15.2m, and half less than approximately $4.4m; the amounts for lost profits are lower" (p.30).  Finally, there is also a chart on ITC investigations, which indicates that 60 were filed in 2017 (p.39).

Thursday, February 15, 2018

Minor Changes to TCL v. Ericsson Opinion

David Long reports on the Essential Patents Blog that Judge Selna has issued an order making a few minor corrections to his December 2017 FRAND opinion in TCL v. Ericsson (previously discussed on this blog here).  Rather than repeating Mr. Long's analysis, I will simply direct readers to his post, here.  Basically, the court appears to have rebuffed most of Ericsson's arguments for amending the findings of fact found in the December opinion.

*                    *                    *

Just a reminder--Jorge Contreras, Christopher Thomas, and I will be participating in an IP Chat Channel webinar on TCL v. Ericsson on February 28.  More details soon.

Wednesday, February 14, 2018

Liability for Willful Infringement Without Knowledge of the Patent Prior to Suit?

On occasion I have posed the question whether, in the wake of the U.S. Supreme Court's decision in Halo, the trier of fact may find that the defendant willfully infringed if the defendant (1) lacked actual knowledge of the patent at the time the infringement began, but (2) continued to infringe after acquiring such knowledge, such as where the defendant continues to infringe after the patent owner sends a cease-and-desist letter or files suit.  (See, e.g., here, discussing an article by Feldman and Lemley.) On the one hand, the Court in Halo states that "culpability is generally measured against the knowledge of the actor at the time of the challenged conduct,” but does that necessarily mean that a defendant who continues to infringe once the lawsuit has been filed is potentially a willful infringer from that point forward?  Of course, the defendant may have a good faith basis for believing the patent is invalid or not infringed, in which case it probably isn't a willful infringer; so does the issue turn on the defendant's subjective state of mind once the suit is filed (or the cease-and-desist letter is received)?  Or might there be other considerations (such as the difficulty of designing around immediately) that should affect the analysis of willfulness?

Judge Lucy Koh effectively answered the question stated in the first sentence of the preceding paragraph in the affirmative in Apple Inc. v. Samsung Elecs. Corp., Case No. 12-CV-00630-LHK (N.D. Cal .June 23, 2017) (see previous discussion here); and now it appears that another court may have done so too, in Microsoft Corp. v. Corel Corp., Case No. 5:15-cv-05836-EJD (N.D. Cal. Feb. 9, 2018).  The jury verdict finds that Microsoft did not notify Corel of three of the design patents at issue prior to suit, but that Corel nonetheless willfully infringed those three design patents (as well as one other design patent and two utility patents).  (Here is a copy of the verdict.  Here is a link to a story about the case on Law360, and here is a link to one on IP Watchdog.) The jury awarded actual damages of $278,000, and I assume that it remains to be seen whether the judge will award an enhancement.  (I also infer from the Law360 article that the question of whether Microsoft notified Corel may have been relevant to the date on which actual damages began to accrue, under U.S. Patent Act section 287.  I gather that Microsoft was hoping for a larger damages award, based on the theory that damages started accruing several years prior to the initiation of litigation.  For discussion of section 287, see, e.g., here.)  Without knowing anything more about the case, I also can't say whether there was evidence that Corel had actual knowledge (as opposed to actual notice from Microsoft) of any of the patents pre-suit; and actual knowledge is irrelevant under section 287.  But if the case does stand for the proposition that willfulness can be based on a continuation of infringement post-filing, despite the defendant's lack of knowledge prior to that point, this could be an important precedent, assuming it withstands appellate review. 

Monday, February 12, 2018

Damages and Profits?

David Brodsky has posted an article on ssrn titled General Damages and an Account of Profits ‒ An Irish Innovation?, JIPLP (forthcoming 2018).  Here is a link, and here is the article:
This article considers the ‘orthodox’ rule requiring an election between damages or an account of profits in light of a recent Irish court decision that would appear to open the door for the granting of both remedies.
Following a brief review of the background and historical development of the ‘orthodox’ view, the specific judicial arguments underlying the decision are presented. The crux of the judge's reasoning centred on the distinction between special and general damages. Interpreting these terms in the manner set forth by the Irish Supreme Court for trade mark/passing off cases, the judge concluded that the ‘rule’ requiring a plaintiff to make an election between the two remedies refers to an election between special damages and an account of profits, so that nothing precludes a plaintiff from making a claim for general damages and an account of profits.
The article shows that the legal and economic logic underlying the judgment is not easily refuted. Moreover, at least in certain situations the ‘orthodox’ position can be seen to send a clear, albeit unintended, signal to potential infringers that they need not worry unduly about the quality of their workmanship, or tarnishing the victim's trade mark or reputation.  
The basic idea is that an award of the infringer's profit substitutes for "special" damages (lost profits, that is, profits actually lost on sales that would have been made but for the infringement) but not for "general" damages (injury to goodwill or reputation, which the author views as, in economic terms, encompassing more of a future harm yet to be suffered), and thus that there is no discrepancy between granting an award of infringer's profits and an award of general damages.  The author notes, however, that the infringer's profits could be greater or less than the plaintiff's lost profits, and that the plaintiff typically will seek whichever form of relief offers a higher payout.  So I would be concerned that an award of infringer's profits coupled with general damages for harm to reputation would result in overcompensation and, potentially, overdeterrence.  Of course, if there is reason to think that compensatory damages won't provide sufficient deterrence in a given type of case, there may be good economic reasons to award enhanced damages or, if that option isn't available in a particular country, an award of the infringer's profits instead.  But I'd still be wary about adding general damages on top of that; I don't see why an award of infringer's profits should be viewed as compensatory damages at all, though I recognize that courts in some countries (e.g., Japan) do continue to invoke that premise.

To be sure, the situation the author describes may not come up much in patent, as opposed to trademark, cases.  (He notes as well that in the case he's discussing, the judgment was later reversed on liability, so Justice Cregan's statements about damages are dicta.  Here's a link to Justice Cragen's opinion, by the way, in case you're interested.)  But there may be cases in which patent owners can make a reasonable case that the infringement has injured their reputation or caused some other less tangible harm.  See, e.g., Ronen Avraham's recent article arguing for pain-and-suffering damages in patent cases (a view I don't particularly share, however), which I mentioned here , and some of my previous posts on damages for "moral prejudice" in patent law (see, e.g., here and here).  So the issue Mr. Brodsky discusses could in theory come up in a patent case too, and if so it will be interesting to see if other courts find the Irish judge's reasoning persuasive.

For a discussion of a recent Canadian case holding (not surprisingly) that the defendant cannot elect between damages and an accounting of profits, see Norman Siebrasse's Friday post on Sufficient Description.

Friday, February 9, 2018

From Around the Blogs

1.  The U.S. Supreme Court's decision to grant cert in WesternGeco LLC v. ION Geophysical Corp., No. 16-1011, a case I have discussed several times previously (see, e.g., here), has been the subject of some recent blog commentaries in addition to those I've already noted, including this one by Steve Brachmann on IP Watchdog and this one on Patently-O citing a paper that Professor Sapna Kamur presented at UT in 2016.   

2.  There also have been at least three recent commentaries on the Federal Circuit's recent decision in Exmark Mfg. Co. v. Briggs & Stratton Power , which as I noted last month arguably opens the door a bit wider to the use of the entire market value as the royalty base.  For other discussions, see this one by Cass Christenson & Rob Kramer & Carl Bretscher on IP Watchdog; this one by David Long on Essential Patents; and this one by Mark Engstrom on Kluwer.

3.  IPKat recently published an interesting post titled Trial Sequence in SEP Litigation-Time for a Rejig?, discussing some dicta of Justice Carr in TQ Delta v. Zyxel to the effect that in FRAND/SEP cases it might make sense for the court to conduct the FRAND royalty trial before the trial on infringement and validity--what in the U.S.  is referred to as a "reverse bifurcation," such as Judge Holderman performed in Innovatio.  Hat tip to Norman Siebrasse for bringing this to my attention.

4.  Some other recent posts relevant to SEP/FRAND issues include Peter Picht, Standard Essential Patents, Antitrust, and Market Power on IP Watchdog; Joff Wild, The State of Mobile SEP Licensing, on the IAM Blog; and Michael Risch, What Is Essential?  Measuring the Overdeclaration of Standards Patents, on the Written Description Blog (discussing a recent paper by Sitzing, Sääskilahti, Royer, and Van Audenrode titled Over-Declaration of Standard Essential Patents and Determinants of Essentiality (I have not yet read the paper myself).

Wednesday, February 7, 2018

Should FRAND Royalties Be Returned to SEP Licensees if the SEP Is Invalidated?

Stephan Altmeyer and Christopher Weber have published an article titled Rückzahlung von Linzenzgebühren bei rückwirkender Vernichtung eines SEP? ("Reimbursement of Royalties in Response to a Subsequent Invalidation of an SEP?" in the December 2017 issue of GRUR, pp. 1182-88.  Here is the abstract (my translation):
The case law has long held that paid-out royalties are not to be returned, if the licensing IP right is subsequently invalidated.  On the other hand, it has never been decided whether this principle also applies to so-called standard-essential patents.  This essay presents the development of the case law from the Reichsgericht up to the most recent CJEU decisions, and identifies the fundamental legal and business differences between this case law and license contracts concerning SEPs.
The authors trace the general rule, that licensees are not entitled to recover back the fees they have paid to license a patent that is later declared invalid, back to 19th century case law, and then forward to the CJEU's more recent decisions such as Genentech finding no violation of EU competition law from a contractual provision requiring the payment of royalties even after a patent is found to be invalid or not infringed.  One of the rationales of the case law is that, even if a patent is eventually invalidated, up until that point the licensee enjoys a market advantage vis-à-vis non-licensees.  But this rationale, the authors argue, doesn't apply in the case of FRAND-committed SEPs, which can be used by any and everyone subject to the payment of a FRAND royalty.  The authors also argue that, under the present system, the incentive on the part of SEP licensees to challenge potentially invalid patents is deficient--due to, among other things, the cost of challenge, and though the authors don't mention it directly, the fact that the beneficiaries of a successful challenge include the challenger's competitors as well as the competitor itself--such that, as a result, the price of goods incorporating such technologies may be artificially high. 

Overall, it's an interesting argument, though I wonder if the authors' proposal were to be adopted if the upfront rate demanded by licensors would simply increase to offset the risk; if so, then without some regulation of that upfront rate, licensees might not be any better off, over time and in the aggregate, than they currently are.   For previous discussion on this blog, see here.
 
One further note--the general rule in France appears to be the same as in Germany, namely that the licensee doesn't get the royalties back even if the patent is invalidated.  See Alain B. v. Thiérart SARL, PIBD No. 1068, III, 202, 203-04, Trib. de la grande instance de Paris, Jan. 12, 2017 (citing SA New Holand France v. SA Greenland France, Cour de cassation, Jan. 28, 2003); see also Jacques Raynard, Anéantissement du brevet et sort des redevances de license:  efficacité de la clause prévoyant la non-restitution des redevances acquitées, Propriété Industrielle, July-Aug. 2017, pp. 27-30 (critiquing the rule, in the absence of a contractual provision permitting the licensor to keep the royalties). 

Monday, February 5, 2018

Federal Circuit Affirms Finding of Willfulness, Vacates and Remands Award of Treble Damages

The decision, which issued this morning, is WCM Industries, Inc. v. ICM Corp., nonprecedential opinion by Chief Judge Prost (joined by Judges Wallach and Taranto).  WCM owns three patents relating to an improvement in bathtub overflow assemblies.  The defendant marketed a product (referred to here as the "Classic Product") that allegedly infringed.  After WCM filed suit, the defendant stopped making that product and instead sold a "Revised Classic Product," which the plaintiff believed also infringed.  The jury verdict concluded that the Classic Product infringed literally, contributorily infringed, and induced infringement, and that the Revised Classic Product infringed under the doctrine of equivalents, contributorily infringed, and induced infringement.  The jury also found that a reasonable royalty rate was $1 per infringing unit of both products, and that the infringement was willful.  The district judge granted a JMOL on the doctrine of equivalents but concluded that the Revised Classic Product nevertheless indirectly infringed, and trebled the award of actual damages from $1,383,978 to $4,154,934.  (It did conclude that there was no willful infringement of one of the three patents in suit, because it issued after the complaint was filed, but that didn't affect the damages award.)  On appeal, the Federal Circuit affirms the judgment on liability, finding however that the defendant did infringe under the doctrine of equivalents as well as indirect infringement.  Focusing on remedies, the court also affirms as to the willfulness of the infringement of the two other patents in suit, but remands for further consideration of the amount, if any, of an appropriate enhancement.

On willfulness, the defendant argued that it lacked knowledge of the patents in suit until it was sued for infringement, and that as a result it couldn't be held liable for willful infringement.  The Federal Circuit expresses doubt that a lack of knowledge until the point at which one is sued necessarily means that one is not a willful infringer (which could be a big deal in other cases), though it also states that there was sufficient evidence for the jury to conclude that the defendant had knowledge before that (which would make the decision less of a blockbuster).  See what you think:
IPS’s principal argument on appeal is that the district court erred in refusing to grant judgment as a matter of law of no willfulness because there is no evidence that IPS had knowledge of the patents before the lawsuit began. In support, IPS largely relies on State Industries, Inc. v. A.O. Smith Corp., 751 F.2d 1226 (Fed. Cir. 1985), and Gustafson, Inc. v. Intersystems Industrial Products, Inc., 897 F.2d 508 (Fed. Cir. 1990). In State Industries, the court concluded that “[t]o willfully infringe a patent, the patent must exist and one must have knowledge of it.” 751 F.2d at 1236. Accordingly, the court held that the defendant’s infringement in that case was not willful because, among other reasons, its first notice of the existence of the issued patent came with the filing of the infringement suit against it. Id. Similarly, Gustafson held that “a party cannot be found to have ‘willfully’ infringed a patent of which the party had no knowledge.” 897 F.2d at 511.
We find IPS’s arguments unpersuasive. First, this court has already held that State Industries does not establish a per se rule, as IPS contends, but rather, “is in harmony with our prior and subsequent case law, which looks to the ‘totality of the circumstances presented in the case.’” . . . The Gustafson opinion itself also recognizes that “[w]hether an act is ‘willful’ is by definition a question of the actor’s intent, the answer to which must be inferred from all the circumstances.” 897 F.2d at 510–11 (emphasis added). Second, unlike in State Industries and Gustafson, here WCM provided sufficient evidence for a reasonable jury to conclude that IPS did know of WCM’s patents as they issued, if not earlier. . . . Not to mention, it is undisputed that IPS had knowledge of the ’220 patent and the ’970 patent at least as of the date the first Colorado suit [preceding the instant suit] was filed, about a month before this action was initiated.
In support of the jury’s verdict, WCM points to the evidence of record. First, although Mr. Casella, President of IPS’s Plumbing Division, knew that AB&A did not employ engineers or full-time product developers to create the Classic Product, he did not conduct an investigation into how AB&A developed the Classic Product during the due diligence period of the acquisition [of AB&A by IPS]. Additionally, IPS was aware of a 2010 patent lawsuit between WCM and AB&A at the time of the acquisition. Mr. Humber, IPS’s employee, testified that he had monitored WCM’s products for decades and possessed catalogs and other literature indicating that WCM’s products were marked with “patent pending.” . . .
WCM also introduced evidence of what it refers to as “a culture of copying at IPS,” including testimony from Mr. Kirk, former IPS Product Manager, regarding an email copying Gary Clarke, IPS’s Vice-President of Marketing and Engineering, in which Mr. Kirk asked Mr. Humber about one of WCM’s Watco drains. WCM provided evidence at trial that Mr. Ball had meticulously devised WCM’s Innovator Product and that a rational explanation for the Classic Products’ identical measurements and compatibility with WCM’s Innovator Product was that AB&A had copied the Innovator. 
In sum, WCM argues that the jury had more than enough evidence to conclude that IPS knew of WCM’s patents as they issued (if not earlier) and that the risk of infringement was known to IPS or so obvious that it should have been known. IPS continues to dispute several of these facts and what inferences might be drawn from them. For example, IPS points to Mr. Casella’s testimony that IPS did not have any notice of WCM’s asserted bath waste and overflow patents. The jury was free to decide, however, whose evidence it found more compelling on the question of willfulness and it found in WCM’s favor. . . (pp. 18-21).
On the issue of damages enhancement, however, the Court of Appeals believes that the district court gave some of the Read v. Portec factors short shrift, even though the factors themselves are "not mandatory" (pp. 22-25):
The first factor is “whether the infringer deliberately copied the ideas of another.” Read Corp., 970 F.2d at 827. The district court concluded that this factor weighed in favor of enhancing damages because there was evidence of copying on IPS’s part. In particular, the district court cited to testimony from Mr. Kirk, former IPS Product Manager, regarding an email copying Gary Clarke, IPS’s Vice-President of Marketing and Engineering, in which Mr. Kirk asked Mr. Humber about one of WCM’s Watco drains. That product, however, was not WCM’s Innovator product in this suit. Therefore, while there is evidence of a possible “culture of copying” at IPS that weighs in favor of enhancement, given that the email does not refer to a product involved in the litigation, this factor should not be weighed very strongly in favor of enhancing damages.
The second factor is “whether the infringer, when he knew of the other’s patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed.” Id. The district court found that this factor was “perhaps most important[]” and that IPS’s failure to investigate the asserted patents weighed strongly in favor of enhancing damages. J.A. 38. The evidence that the court cited in support of its conclusion, however, involves patents or products not at issue in this case. For example, the court cited to evidence that IPS knew that WCM’s products in general were patent protected and that IPS did not investigate certain patents involved in a different lawsuit. Thus, based on the record before the district court, this factor only slightly favors enhancing damages. The evidence certainly cannot support the district court’s conclusion that this factor was the most important and that it weighed strongly in favor of enhancing damages.
The third factor is “the infringer’s behavior as a party to the litigation.” Read Corp., 970 F.2d at 827. The court found that IPS did not engage in litigation misconduct and properly determined that this factor counseled against enhancement. The fourth and fifth factors are the “[d]efendant’s size and financial condition” and the “[c]loseness of the case.” Id. Despite IPS’s arguments to the contrary on appeal, the district court’s analysis of these factors is also reasonable. The district court determined that IPS’s size and financial condition weigh in favor of enhanced damages and that the closeness of the case was also in WCM’s favor because the jury verdict was not a close call and the evidence strongly supported WCM’s case.
The court did not analyze the sixth factor, which is the “[d]uration of the defendant’s misconduct.” Id. This factor would likely weigh against enhancement. For example, the patents issued only a short time before the filing of the lawsuit. Nor did the court analyze the seventh factor, “[r]emedial action by the defendant,” which may also weigh slightly against enhancement because IPS attempted to take remedial action (albeit ineffectively) when it modified its Classic Product and began selling its Revised Product during the pendency of this litigation. See id. . . .  
In sum, the district court clearly erred when it concluded that the second factor weighed strongly in favor of enhancement. Compounding this error, the district court did not appropriately weigh the third factor and other potentially mitigating factors, such as the sixth and the seventh factors, against the enhancement of damages. As WCM itself stated to the district court, when only a subset of factors weigh in favor of enhanced damages a court should award less than treble damages. Accordingly, we conclude that the district court made a clear error of judgment amounting to an abuse of discretion in deciding to award the maximum amount of damages.
Although the district court “may increase the damages up to three times the amount found or assessed,” 35 U.S.C. § 284 (emphases added), where the maximum amount is imposed, “the court’s assessment of the level of culpability must be high,” Read Corp., 970 F.2d at 828. The district court is also particularly obligated to explain the basis for the award where it awards treble damages. Id. Here, the district court provided only a single conclusory sentence as to why it was awarding the maximum amount. J.A. 41 (“The Court further finds, based on the egregious nature of IPS’s conduct, that treble damages are appropriate.”). We therefore vacate the district court’s decision to award treble damages and remand for the district court to reconsider, consistent with this opinion, the amount by which the damages should be enhanced, if at all.6/
6/Although the jury was not asked to decide the total number of infringing units sold by IPS on a product-by-product basis, on remand, in determining how much the damages should be increased, if at all, the district court may also consider whether the degree of the IPS’s culpability might be different for sales of the Classic Product as compared to sales of the Revised Product.
Going back to the issue of whether it is necessary to a finding of willfulness that the defendant know of the patent before infringing, perhaps this opinion will lend some support to Professor Dmitri Karshtedt's argument that courts should take into account whether the defendant was reckless in not searching for relevant patents in advance.  See Karhstedt, Enhancing Patent Damages, forthcoming UC Davis Law Review (available here).

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In other news, on FOSS Patents Florian Mueller has a very interesting post about a U.S. Huawei v. Samsung FRAND dispute pending in the Northern District of California, in which Samsung has filed a motion to enjoin Huawei from enforcing the injunction the court in Shenzhen recently granted it against Samsung.  For previous discussion of the Chinese case on this blog, see here.

Friday, February 2, 2018

Some Upcoming Events on FRAND/SEP Issues

1.  The American Bar Association (ABA) will be hosting a webinar on Friday, February 9, titled Update on Standard-Essential Patent Litigation in China, from 11:30-1 p.m. Eastern Time.  Speakers will be Fei Deng, Shan Jiao, Fang Qi, Su Sun, and Ye Zhao, moderated by Robert McNary.  Here is the description:
China has become a hot litigation battlefield for SEP owners and prospective licensees.  The Shenzhen Intermediate People’s Court issued an injunction decision in Huawei v. Samsung earlier in January, while a number of cases such as Apple v. Qualcomm, Iwncomm v. Sony, and Iwncomm v. Apple, are just heating up.  Lawyers and economists will discuss their first-hand experiences litigating SEP cases in China.
More information here.  Hat tip to the Antitrust & Competition Law Blog.

2.  On March 6, WilmerHale UK will be hosting an event from 5:30 to 9:30 p.m. titled Global IP Litigation and the UK's Future Role: A Discussion With Mr. Justice Birss.  Below is the description; I understand the event is free, but those planning to attend should register.
WilmerHale is delighted to invite you to a seminar in which Mr. Justice Birss, a judge of the Patents Court, and now the Business and Property Courts Supervising Judge for the Midland, Wales and Western Circuits, will discuss the future role of the UK in global and European IP litigation proceedings.
During what promises to be an interesting and lively evening, Mr. Justice Birss will address the UK's position in global IP litigation. The Judge will also discuss the introduction of the Business and Property Courts, the UPC, the shorter and flexible trials schemes, and some specific aspects of current litigation strategy, including Arrow declarations and FRAND.
Partners from WilmerHale's London Intellectual Property Litigation team (Trevor Cook, Matthew Shade, Anthony Trenton and Justin Watts) and IP Litigation Group Co-Chair Mark Selwyn will chair and introduce the evening, and discuss global IP litigation and possible future forum shopping in the UPC.
The seminar will be followed by drinks and canapés.
3. The IP Chat Channel will be hosting a webinar on Wednesday, February 28, titled FRAND Litigation After TCL v. Ericsson, from 2-3 pm Eastern Time.  I will be one of the speakers, along with Professor Jorge Contreras and Christopher Thomas of Hogan Lovells.  I will have more information soon.  Hat tip to me.