Monday, August 20, 2018

Blogging Break

I will be taking a blogging break the next two weeks, resuming on September 3.  In the meantime, read some of my old posts . . . or better yet, my book!  Reviews are always welcome.

https://www.amazon.com/Patent-Wars-Patents-Impact-Daily/dp/0190244437

Saturday, August 18, 2018

62nd Annual Intellectual Property Law Conference at John Marshall

John Marshall Law School in Chicago will be hosting the 62nd Annual Intellectual Property Law Conference on Friday, November 2, 2018.  Details here.  Federal Circuit Judge Pauline Newman will be the featured speaker, and I will be on a panel discussing section 101 (patentable subject matter) issues.  An early-bird discount runs through August 31, and John Marshall is offering a 10% discount to the first 30 readers off of the regular registration fee with a discount code “comparativepatentremedies”.  From the conference website:
The John Marshall Law School is proud to present its 62nd Annual Intellectual Property Law Conference. This one-day conference covers developments in patent, trade secrets, antitrust, trademarks, copyrights, IP management and in-house counsel practice, entertainment, and information technology and privacy law.
Last year, we expanded the scope of our long-standing IP event, moving from principally single-speaker sessions to panels, with plenty of time for discussions and questions from the audience. As part of this new format, we expanded our faculty to include a greater mix of expert speakers and thought leaders from government, the judiciary, corporations, NGOs, academia and, of course, practitioners. This has allowed us to add participants from across the country, while still drawing extensively from our local talent.
John Marshall’s Annual Intellectual Property Law Conference has always been a way for the practicing bar, students, and academics to discuss and stay on top of this ever-changing field of law. A mainstay in IP CLE programming, the conference features judicial, administrative, practitioner, and academic presenters from around the country who share their insights into the most important IP developments and their future impact.
We look forward to you joining us.
For further details, contact Professor Daryl Lim at daryllim@jmls.edu.  I hope to see some of my readers there1 

Friday, August 17, 2018

From Around the Blogs

1.  Divish Joshi, whose Spicy IP post on the Delhi High Court decision in Koninklijke Philips Electronics N.V. vs. Rajesh Bansal And Ors. I mentioned on this blog a couple of weeks ago, has posted a follow-up titled Philips SEP Judgement: India’s First Post-Trial SEP Judgement has Serious Flaws.  Mr. Joshi expands upon his initial critique of the judgment, and makes some persuasive points about the court's infringement, exhaustion, and damages analysis.

2.  Florian Mueller published a post on FOSS Patents titled Huawei, Qualcomm, and patent holders' three preferred ways to gain anticompetitive leverage.  The post discusses, among other things, "the three ways in which some aggressive patent holders are seeking undue, anticompetitive leverage in our times,"namely Chinese patent injunctions, ITC proceedings in the U.S., and German patent injunctions.  Interesting read.

3.  David Long published a post on Essential Patents titled Judge Mitchell rules there are factual issues whether patent is “essential” to a standard (Cellular Eqpt v. ZTE), discussing a recent ruling from the Eastern District of Texas denying a patent owner's motion for summary judgment that the patent in suit is not essential to the practice of an ETSI standard, and thus not subject to FRAND terms.  The court concluded that there was conflicting evidence, including the patent owner's own previous statements to the effect that the patent was standard-essential. 

4.  I'd bet that many of my readers are already aware of this, but until recently I wasn't.  Docket Navigator published a blog titled Docket Report that provides short descriptions of recent rulings in U.S. patent cases.  Some of them are related to remedies issues, such as this post reporting on a recent district court decision not increasing the royalty rate for an award of ongoing royalties (finally, some common sense!)  I have added Docket Report to the list of "Other Blogs of Interest," on the left-hand side of this post.  And while I'm on the topic of other blogs and websites, perhaps you've never noticed, but both the left- and right-hand sides contain lots of additional blogs and websites of possible interest.  In particular, the bottom left-hand side lists "Other Sites of Interest," including news sites but also a variety of other sites on topics relating to science, philosophy, and culture.  Some (relatively) recent additions that I greatly enjoy are Aeon and Five Books.  Check them out.

Wednesday, August 15, 2018

Federal Circuit Decides A Couple of Big Fee Award Cases

On Monday, the Federal Circuit issued a two-page per curiam nonprecedential Rule 36 order affirming the judgment in R+L Carriers, Inc. v. Qualcomm, Inc.  I would have had no idea what this was about, but Law360 published an article explaining that the affirmance means that Qualcomm gets to keep a $1.8 million attorneys' fee award in a dispute involving a shipping logistics patent.

Then today, the court affirmed in part, vacated in part, and remanded in In re Rembrandt Techs., LP Patent Litig., a case in which the district court had awarded $51 million in fees to a group of defendants whose individual cases had been consolidated by the district court.  The opinion today is quite lengthy and fact-specific, but here is the gist from the beginning of the opinion (p.4):
This appeal derives from a multitude of patent infringement actions that plaintiffs-appellants Rembrandt Technologies, LLC and Rembrandt Technologies, L.P. (collectively, “Rembrandt”) filed in the mid-2000s against dozens of cable companies, cable equipment manufacturers, and broadcast networks. The cases were consolidated in the District of Delaware. After several years of litigation, the district court entered final judgment against Rembrandt as to all claims.
Many of the defendants (collectively, “Appellees”) thereafter filed a motion requesting attorney fees under 35 U.S.C. § 285. Nearly four years after the litigation ended, the district court issued a brief order granting that motion and declaring the case exceptional. In re Rembrandt Techs., LP Patent Litig., No. 1:07-md-01848-GMS (D. Del. Aug. 20, 2015), ECF No. 951 (“Exceptional Case Order”). The court then granted the bulk of Appellees’ requests for fees, including nearly all of the attorney fees Appellees incurred in the litigation. In re Rembrandt Techs., LP Patent Litig., No. 1:07-md-01848-GMS (D. Del. Aug. 24, 2016), ECF No. 1013 (“First Fees Order”). In total, the court awarded Appellees more than $51 million in fees. In re Rembrandt Techs., LP Patent Litig., No. 1:07-md-01848-GMS (D. Del. Mar. 2, 2017), ECF No. 1044 (“Second Fees Order”).
Rembrandt appeals both the district court’s exceptional-case determination and its fee award. We conclude that the district court did not abuse its discretion in deeming this case exceptional, but that the court erred by failing to analyze fully the connection between the fees awarded and Rembrandt’s misconduct. We thus affirm the district court’s exceptional-case determination, vacate the district court’s fee award, and remand for further proceedings. . . .
An interesting set of substantive issues involves the interplay between inequitable conduct, which was one of the bases for finding the case exceptional, and fee awards. Normally, inequitable conduct is a defense that, when proven by clear and convincing evidence, renders a patent unenforceable.  There are two elements--intent and materiality--and the latter usually goes to whether someone associated with the prosecution of the patent withheld information that, if known to the examiner, would have resulted in a claim not being allowed.  Here, however, the conduct at issue related not to the prosecution but rather to the revival of two patents that the assignor had allowed to lapse for failure to pay maintenance fees.  The court concludes that alleged misconduct surrounding a revival nevertheless can constitute inequitable conduct (p.29 n.**):
In setting forth its test for materiality, Therasense contemplated statements made to the PTO during initial prosecution of a patent. 649 F.3d at 1291–95. But statements critical to the “survival of the patent”—even though they do not, strictly speaking, bear on patentability—also can be material within the meaning of Therasense. See Ulead Sys., Inc. v. Lex Comput. & Mgmt. Corp., 351 F.3d 1139, 1146 (Fed. Cir. 2003) (finding that a “false declaration of small entity status” in an effort to reduce the required maintenance fees satisfied the materiality prong of the inequitable conduct test).
Anyway, in this case the district court concluded that the assignor's revival of two patents constituted inequitable conduct, because the patents had been allowed to lapse not for inadvertence but because of a deliberate decision that they lacked commercial value.  The Federal Circuit agrees that the "the PTO would not have revived the patents if it had known that Paradyne consciously allowed them to expire. In other words, the statement was material to patentability—or at least continued enforceability" (p.29).  The court also affirms the finding that the assignor's conduct was intentional. Without going through all the evidence, I'll note only that an interesting question is whether the normal clear and convincing evidence standard applies to the inequitable conduct finding, or whether only a preponderance of evidence was required, given that the district court cited inequitable conduct on the part of the assignor as one of the reasons for finding the case exceptional for purposes of the attorneys' fee statute (section 285).  In the section 285 context, the standard according to Octane Fitness is merely preponderance of the evidence.  So which standard--clear and convincing evidence, or preponderance of the evidence--governs in determining whether a case is exceptional due to inequitable conduct?  Here, the court concludes that it doesn't matter, since it would find no abuse of discretion regardless of which standard applied (see pp. 26-27, and noting different views among the lower courts on this issue). Finally, the court concludes that for purposes of section 285 the case can be exceptional even if the assignee (Rembrandt) merely should have known of the assignor's alleged inequitable conduct (p.33):
Rembrandt argues that the district court’s implicit application of the “should have known” standard imposes too high a burden on Rembrandt and conflicts with our guidance in Therasense. See 649 F.3d at 1290 (“A finding that the misrepresentation or omission amounts to gross negligence or negligence under a ‘should have known’ standard does not satisfy [the] intent requirement.”). But Appellees are right that Rembrandt conflates the inequitable conduct and exceptional case inquiries. The first question—the one governed by Therasense—is whether Paradyne committed inequitable conduct. The second question—to which Therasense does not apply—is whether Paradyne’s conduct renders Rembrandt’s case exceptional. Rembrandt’s reliance on Therasense in the latter context is misplaced.
It remains to be the seen what the ultimate award will be.  The court concludes the opinion by stating that the district court has a lot more work to do:
In the run-of-the-mill patent infringement case involving a few patents and a couple of defendants, a finding of pervasive misbehavior or inequitable conduct that affects all of the patents in suit may justify an award of all of the fees incurred. But this massive case featured nine patents and dozens of defendants, and the claimed misconduct affected only some patents asserted against some defendants. Even if Rembrandt’s misconduct, taken as a whole, rendered the case exceptional, the district court was required to establish at least some “causal connection” between the misconduct and the fee award. Id. What the district court did here—award all fees with no explanation whatsoever of such a causal connection—was not enough.
The most appropriate course, therefore, is to remand for the district court to determine in the first instance how much of the claimed fees Rembrandt should pay. This does not require a tedious, line-by-line investigation of the hours Appellees expended. As the Supreme Court recently explained in Goodyear, “‘[t]he essential goal’ in shifting fees’ is ‘to do rough justice, not to achieve auditing perfection.’” Id. (quoting Fox v. Vice, 563 U.S. 826, 838 (2011)). “The court may decide, for example, that all (or a set percentage) of a particular category of expenses—say, for expert discovery—were incurred solely because of a litigant’s bad-faith conduct.” Id. “And such judgments,in light of the trial court’s ‘superior understanding of the litigation,’ are entitled to substantial deference on appeal.” Id. (quoting Hensley, 461 U.S. at 437).
We therefore vacate the district court’s fee award and remand for the district court to conduct the appropriate analysis in the first instance (p.42).

The court also notes, earlier in the opinion, that the amount of fees awarded are intended to be "compensatory, not punitive," and that deterrence is not a legitimate rationale for determining the amount (pp. 38-39). 

Update:  I should also note that yesterday the Federal Circuit issued a per curiam order vacating the judgment in Realvirt LLC v. Iancu in light of the court's recent fee award opinion in NantKwest.  For discussion of the latter, see here.

Monday, August 13, 2018

Big Numbers in Some Recent Patent Cases

The past few weeks have witnessed at least five multimillion dollar awards or settlements in patent or patent-related matters.  Without going into great depth about any of them, I thought it might be useful just to list them here, with some citations to further commentary.

1.   On July 27, a Delaware jury awarded IBM $82.5 million in a patent infringement case against Groupon.  The four patents in suit are all software/business method patents.  The jury also concluded that Groupon's infringement was willful, so there could be an enhancement yet to come.  For coverage, see articles on Bloomberg, CNET, IPWatchdog, and Law360.

2.  On August 1, a San Diego jury awarded Wilan $145 million in a suit against Apple, for the infringement of two patents related to wireless communications.  For coverage, see articles in Law360, the New York Times, and Reuters.

3.  On August 6, Arista agreed to pay Cisco $400 million to settle certain pending patent, copyright, and antitrust claims between the two firms.  For coverage, see articles in IPWatchdog, Law360Reuters, and the Wall Street Journal.

4.  On August 7, a jury in Chicago awarded three firms a total of $315 million in an antitrust action Scientific Games Corp., based on the latter's allegedly having engaged in sham litigation involving automatic card shufflers.  For coverage, see articles in Casino.org, Law360, and Reuters.

5.  On August 9, Qualcomm settled with the Government of Taiwan, in an antitrust dispute involving the licensing of Qualcomm patents in which the Taiwan Fair Trade Commission had previously leveled a $773 million fine.  The government will keep $93 million Qualcomm has already paid, and Qualcomm agreed to certain conditions in exchange, including investment in Taiwan.  For coverage, see articles in Bloomberg, IPWatchdog, and the Wall Street Journal.

Friday, August 10, 2018

More Papers on SEPs, Part 3

1.  Axel Walz, Claudia Feller, Matthias Zigann, Peter Georg Picht, and Raffael Probst have posted a paper on ssnr titled FRAND ADR Case Management GuidelinesHere is a link, and here is the abstract:
The present FRAND ADR Case Management Guidelines are a product of open exchange and discussions with international institutions, practitioners and scholars. Crafted in a process that was designed to incorporate arguments and experiences from SEP holders and standard implementers, lawyers and engineers, judges, arbitrators and mediators, standard-setting organizations and public offices, the Guidelines consolidate the input of various stakeholder's representatives from the telecommunication and automotive sectors, interest groups and standardization organizations. The Guidelines aim to provide orientation for parties that are looking to utilize the benefits of ADR in an ongoing or upcoming FRAND dispute. They take the interests of patent holders and patent users as well as public policy implications into consideration. Their intention is to enable parties to agree to efficient and mutually beneficial proceedings, without influencing the material positions of either side. To assist parties in deciding on whether and under which circumstances FRAND disputes might be resolved by reference to ADR mechanisms, the Guidelines illustrate procedural options that are available at different stages of the process. Following an overview on standardization and ADR, section I of the Guidelines contains an introduction to the specific issues associated with SEP and FRAND disputes. Section II summarizes how FRAND disputes can be submitted to mediation, arbitration, expert determination or hybrid ADR procedures. Section III sets out principles for case management and offers guidance to parties and neutrals on which aspects to take into account. The Annexes summarize case law on the determination of FRAND terms and conditions and existing ADR soft law. Further, specific clauses have been developed which can be referred to by parties in order to increase transparency in FRAND determination disputes and to provide for the option of appealing an arbitral award.
2.  Mary-Rose McGuire has published an article titled Wer bestimmt, was FRAND ist?  Über Rahmenbedingungen, Maßstab und Zuständigkeit für die Beurteilung der FRAND Konformität ("Who decides what FRAND is?  On conditions, standards, and jurisdiction for the determination of FRAND conformity"), in the July-August 2018 issue of Mitteilungen der deutschen Patentanwälten (pp. 297-308).  Here is my translation of the abstract:
With the Standard-Spundfass, Orange-Book-Standard, and Huawei/ZTE decisions, the case law has developed a roadmap for the assertion of the competition-law based compulsory license defense, which simulates the typical sequence of licensing negotiations.  So long as the rightsholder submits a FRAND-offer, the compulsory license defense should succeed only if--in order to avoid delay tactics--if the prospective licensee responds appropriately to it, that is, proves its willingness to license by rendering an accounting and posting security.  In place of accepting the offer, the prospective licensee can also present its own counteroffer.  This raises the question, what happens, if both rightsholder and prospective licensee submit FRAND offers, but cannot reach agreement.  This article addresses the open question, whether the court hearing the infringement action can determine FRAND-conformity, or even--as represented by the UK Patent Court in Unwired Planet--must set a concrete royalty rate.  To adopt the latter procedure, however, would unnecessarily jeopardize the efficiency of the infringement process.
I still have to read this article in its entirety, and may have more to say about it after I do.

3.  Wolfgang Kellenter and Axel Verhauwen have published a paper titled Systematik und Anwendung des kartellrechtlichen Zwangslizenzinwands nach «Huawei/ZTE« und «Orange-Book« ("Taxonomy and implementation of the competition law-based compulsory license defense after Huawei/ZTE and Orange-Book") in the August 2018 issue of GRUR (pp. 761-71).  Here is the abstract (my translation):
In the first part of this article, we investigate how the CJEU's judgment in Huawei/ZTE on the competition law-based compulsory license defense has been systematized in patent infringement litigation, and how it compares to the BGH's earlier judgment in Orange-Book.  In the second part, we show how the German courts of first instance have implemented Huawei/ZTE in patent infringement cases, and how they have addressed certain problem areas.

Wednesday, August 8, 2018

More Papers on SEPs, Part 2

1.  Youping Li and Jie Shuai have posted a paper on ssrn titled Licensing Essential Patents: The Non-Discriminatory Commitment and Hold-Up, Journal of Industrial Economics (forthcoming).  Here is a link to the paper, and here is the abstract:
Licensors of patents essential to a standard are often required to license on reasonable and non-discriminatory (RAND) terms. Using a model with owners of essential patents and licensees who invest into standard-conforming technologies, this paper demonstrates that the non-discriminatory commitment alleviates the hold-up problem. Moreover, it improves consumer and social welfare, and promotes upstream innovation as licensing revenue is increased. In an extended model with each licensor independently choosing whether to make the commitment, all licensors voluntarily commit in the unique equilibrium. 
2. Jonathan Putnam has published a paper titled Economic Determinations in FRAND Rate Setting:  A Guide for the Perplexed, 41 Fordham Int'l L.J. 953 (2018).  Here is a link to the paper, and here is the abstract:
Owners of standard-essential patents commit to be prepared to license their technology on “fair, reasonable and nondiscriminatory” terms and conditions. When negotiations over such terms break down, arbitrators and courts may be tasked with determining them. Such determinations face unusual obstacles, such as the frequent inapplicability of patent damages law to pricing large, standardized patent portfolios. The absence of good legal guidance is compounded by an economic narrative--the “standard FRAND paradigm”--which systematically misstates the circumstances, objectives and requirements of a proper FRAND determination, systematically favoring implementers of the standard. I contrast this static paradigm with the proper, economically consistent, dynamic paradigm. I then explain why a “FRAND rate determination” is usually difficult-- starting with the threshold error of confining the determination to a “FRAND rate.” I also identify related economic errors that pervade both expert economic testimony and legal characterizations of the evidence in a typical proceeding. Because of the non-discrimination requirement, the consequences of such errors can persist indefinitely in later proceedings. In addition to highlighting these errors for prospective fact-finders, I close with a test for the legitimacy of a proposed FRAND determination.
In the body of the paper, Putnam argues that :
Because both innovators and implementers make relationship-specific investments, and because neither group can specific ex ante the terms of the contract on which they will eventually agree, the standard-setting process inherently contains the potential for bilateral hold-up. As with hold-up by innovators, hold-up by implementers takes the form of exploiting the innovators' prior (R&D) investment to extract opportunistic gains from the relationship. Just as innovators can hold up implementers by demanding a price that is “too high” ex post, implementers can hold up innovators by demanding a price that is “too low” ex post. The “hold-up problem” is therefore symmetric.
I don't agree with that perspective--in my  view, the patent system is not designed to ensure inventors that they will recover their R&D costs, only to provide them with an opportunity for trying to do so--but it's an interesting twist on the standard holdup definition.

Monday, August 6, 2018

More Papers on SEPs

1.  Peter Georg Picht has posted a paper on ssrn titled Post-Signing Adjustment of Sep/Frand Licenses in les Nouvelles--Journal of the Licensing Executives Society, Volume LIII No. 2, June 2018.  Here is a link to the paper, and here is the abstract:
The question of whether, when and how SEP/FRAND licenses ought to be “adjusted” in case of a post-signing alteration in the set of licensed patents is of increasing practical relevance. Adjustment may be necessary to keep a license FRAND in the event of far reaching portfolio alterations and several legal instruments could potentially provide the basis for performing such adjustments, amongst them “adjustment clauses” which are integrated ex ante into the license contract or general principles of patent or competition law. On the other hand, the risk to generate continuous conflict between the parties cautions against making adjustment available too easily. This article maps the present legal framework regarding license adjustment on the EU as well as on certain parts of the Member State level. It highlights a selection of fundamental aspects that ought to be taken into consideration for the development of appropriate solutions. Against this background, potential tools for and elements of such solutions are evaluated.   
2.  Alexander Galetovic, Stephen Haber, and Lew Zaretski have published two papers on royalty stacking.  The first is Is There an Anticommons Tragedy in the World Smartphone Industry?, 32 Berkeley Tech. L.J. 1527.  Here is a link to the paper, and here is the abstract: 
An influential literature claims that standard setting for high–technology interoperable products potentially creates monopoly power for the owners of standard–essential patents. Moreover, because there are many owners of standard–essential patents, and each may independently exercise monopoly power (a phenomenon called royalty stacking), an anticommons tragedy may ensue. With actual data from the canonical case of the smartphone industry, this Article shows that royalty stacking theory predicts a cumulative royalty yield of nearly eighty percent. That is, it predicts that four–fifths of the price of a smartphone will accrue to patent holders. Even if all patent holders would combine to eliminate the tragedy of the anticommons and behave as a single monopolist, theory predicts a cumulative royalty yield of nearly sixty–seven percent. That is, it predicts that two–thirds of the price of a smartphone will accrue to patent holders.
This Article then uses actual data from licensors in the smartphone value chain to estimate the actual cumulative royalty yield. It finds that in 2016, the cumulative royalty yield in the world smartphone value chain was only 3.4 percent of the average selling price of a smartphone. This suggests that patent holders do not exercise any meaningful monopoly power to increase prices in the world smartphone market, much less that there is an anticommons tragedy in the smartphone industry.
The other is An Estimate of the Average Cumulative Royalty Yield in the World Mobile Phone Industry:  Theory, Measurement and Results, 42 Telecommunications Policy 263 (2018).  Here is a link, and here is the abstract:
An influential literature argues that dispersed patent ownership may lead to royalty stacking and excessive running royalties, thus increasing the long-run marginal cost of manufacturing phones and their prices. One set of estimates claims that the royalty stack is on the order of 20–40 percent of the value of the average phone. In order to assess this claim, we estimate the average cumulative royalty yield—the sum total of patent royalty payments earned by licensors, divided by the total value of mobile phones shipped— in the world mobile phone industry between 2007 and 2016. We “follow the money” and identify, with varying accuracy, 39 potential licensors in the smartphone value chain. We find that, of these, only 29 charged royalties in 2016, running from a low of $1.6 million to a high of $7.7 billion, summing to $14.2 billion in total, which compares with $425.1 billion in mobile phone sales. The average cumulative royalty yield in 2016 was 3.3 percent or $7.20 per phone. If we restrict this only to smart-phones, the result would be $9.60 per phone, roughly 3.4 percent of the average selling price. A sensitivity analysis shows that even under a very restrictive set of assumptions, the average cumulative royalty yield on a smartphone would not exceed 5.6 percent.