Wednesday, October 16, 2019

Ghafele on FRAND

As previously noted, on Friday of this week I will be participating in an event titled "OxFirst's Fourth IP and Competition Forum: Globalisation And FRAND: Coming to Grips With The Interplay of IP & Competition Law," to be held at St. Cross College, Oxford.  (Further details here.)  In this regard, forum organizer Professor Roya Ghafele has posted the following two recent papers on FRAND.  The first is titled Economic Perspectives on FRAND.  Here is the abstract:
The economic valuation of intellectual property is an area with which IP professionals still need to fully come to grips with. In the context of Standard Essential Patents (SEPs), the valuation of fair, reasonable and non-discriminatory (FRAND) royalty rates adds an additional level of complexity. Against this background, this paper aims at economically clarifying basic elements of FRAND valuation and royalty rate determination. The concept of FRAND will be briefly touched upon, so as to establish the framework for the discussion. Specifically, it discusses FRAND royalty calculations in light of the conception of the ‘present value-added’. The method hinges the concept of value on the ability to generate earnings. The concept can be used in the absence of comparable licenses and/or newly developing business sectors and remains neutral with respect to the royalty base or the question whether a SEP should be valued on an ex-ante basis, that is before the standard was developed or on an ex-post level, that is after the standard was adopted.
The second is Global FRAND Licensing in light of Unwired Planet vs Huawei.  Here is the abstract:
The 2017 decision by Justice Birss, which was upheld on appeal by Lord Kitchin, and Lord Justices Floyd and Asplin in the matter of Unwired Planet versus Huawei, significantly changes the Standard Essential Patents (SEPs) licensing ecosystem at the global level. In light of the fact that the case will be heard by the UK Supreme Court in October 2019, this paper intends to address its potential effects on future SEPs licensing negotiations that are to be concluded on fair, reasonable and non-discriminatory (FRAND) terms.
The (FRAND) licensing rate set by the judgment, which was set on a global basis, makes the validity, essentiality and infringement of global SEPs contingent on the opinion of the judiciary of England and Wales. At the same time as this allows the patentee to reduce transaction costs associated with global FRAND licensing, it increases information asymmetry with respect to extraterritorial SEPs as a national Court is inherently limited in an international undertaking. This can affect FRAND licensing negotiation that precede formal Court intervention.
To overcome the inherent tension between a territorially limited patent system and an increasingly international economic order, a global FRAND licensing rate should be set (if at all) by an international Court, which is equipped with transnational authority. At the European level, the establishment of such a Court is already under way in the form of the Unified Patent Court which is expected to come into place at some point. 
I should note, by the way, that the U.K. Supreme Court will be hearing the appeals in Unwired Planet and in Conversant next week.   Case details can be found at here, and the order granting review here.  For my recent discussion on Law360, see here.

Monday, October 14, 2019

Bayer v. Richter: Worst CJEU Decision Ever?

OK, so maybe that's a bit harsh.  But the September 12, 2019 judgment in Case C-688/17, Bayer Pharma AG v. Richter Gedeon Vegyészeti Gyár Nyrt. and Exeltis Magyarország Gyógyszerkereskedelmi Kft. seems very problematic to me.  This case first came to my attention via blog posts on IPKat and Kluwer, after which I mentioned it on this blog but said I would return to it after I had read the decision myself.  Now I have, and if I'm reading it correctly, the court is reading article 9(7) of the Intellectual Property Rights Enforcement Directive and the corresponding recitals (as well as article 50(7) of TRIPS) as standing for the proposition that, when a patent owner demonstrates irreparable harm and the court issues a preliminary injunction (based on irreparable harm and other factors), but the patent is later invalidated (and the preliminary injunction therefore dissolved), the court may not award the defendant compensation unless the patent owner's act of requesting the injunction constituted an abuse.  (Further, the court states that this interpretation must be a matter of uniform EU law.)  The court's reasoning is that the application for a preliminary injunction is "unjustified" only if there was no risk of irreparable harm (see paras. 62-63).  Therefore, the fact that the defendants's launch of their generic contraceptive product put Bayer at risk of suffering irreparable harm may mean that Bayer isn't required to pay adequate compensation to the defendants, even though the patent in suit was later invalidated, for having been wrongly excluded from the market.  (I say "may" only because, as the commentator on IPKat notes, the injunction was lifted on other grounds before the patent was invalidated, and thus the defendants may still have a basis for seeking compensation in the Hungarian court.  But the broader principle against compensation otherwise would appear to apply.) 

Here is the relevant text of article 9(7):
Where the provisional measures are revoked or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, the judicial authorities shall have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by those measures.
This interpretation strikes me as bizarre, particularly in light of what I understood to be common practice outside the U.S. of requiring plaintiffs who obtain a preliminary injunction but then lose on the merits to compensate the defendant for its losses, even beyond the amount of the judgment bond.   (For previous discussion on this blog, see here; see also, titled )  Perhaps that practice was not as widespread as I had thought?

Now, maybe the case will be limited to its facts--the defendants here launched before they filed an invalidation action, and Hungary has a bifurcated system such that a patent could be infringed but later found invalid.  But this still seems like a bad policy.  The court's statement that a contrary holding would "run counter to the directive's objective of ensuring a high level of protection of intellectual property" ignores the harm that follows if the owner of a nonexistent IP right can exclude a competitor from the market.

Thursday, October 10, 2019

News on Injunctions, Part 1

1.  Several commentators recently have published posts on recent events at which a topic of discussion was whether the German government will amend section 139 of its Patent Law to require courts to consider proportionality before issuing injunctions--or whether, instead, it will undertake some more limited procedural reforms (e.g., relating to stays pending invalidity proceedings), or not address the injunction issue at all.  JUVE Patent reports that whatever is forthcoming "will likely disappoint many experts and not include the major changes to the automatic injunction that have been called for by the German automotive and telecommunications industries."  Léon Dijkman published a post on IPKat titled Industry takes stance on automatic patent injunctions as German Ministry of Justice considers reform of the patent law, while on FOSS Patents Florian Mueller published a post titled "Press release: IoT Innovators send strong message in support for reform of Germany's outdated 'automatic injunctions' law (ACT | The App Association)."

2.  Simon Holzer published a post on Kluwer titled Irreparable Harm Discussion Awakens from Its Slumber in Switzerland, discussing two recent Swiss decisions discussing how irreparable harm in connection with requests for preliminary injunctions.  Mr. Holzer provides links to the relevant decisions.  I have not read them yet myself, but according to his analysis in the first of the two cases the Swiss Federal Supreme Court concluded (1) that irreparable harm could be based on the risk that, absent a preliminary injunction, other firms will be tempted to enter the market, and (2) that it was not arbitrary to assume that the Swiss patent owner would be harmed, where the authorized Swiss distributor is a related company (both firms being subsidiaries of the same larger entity).  The other decision, by the Swiss Federal Patent Court, arguably takes a narrower view on the second issue.

Update (10-14-2019):   Kilian  Schärli also has a write-up  of these two cases on EPLaw.

3.  In the U.S., Judge Mazzant (E.D. Tex.) denied a permanent injunction to Texas Advanced Optoelectronic Solutions, Inc. in its long-fought litigation against Renesas Electronics America. (Discussion on Bloomberg here; link to the opinion here.) Although the jury found the latter to have willfully infringed, the court was convinced that the defendant no longer sells any infringing products in the U.S., and thus that there was no prospect of irreparable harm.  In addition, the court concluded that there was no causal nexus between the infringement and the plaintiff's potential loss of a sale to Apple in 2008; that there was an adequate remedy at law; and that balance of hardships and public interest were neutral.  For previous discussion on this blog of this complex case, which resulted in substantial monetary awards for trade secret misappropriation and other claims, see here, here, and here.

Tuesday, October 8, 2019

Some Upcoming Conferences

1.  On October 11-12, the University of Pennsylvania Law Review will host a symposium titled "The Post-Chicago Antitrust Revolution."  Details here.  I understand there will be at least one panel on patent holdup.

2.  On October 18, Oxfirst will host an event titled “Globalizing FRAND” at St. Peter’s College, Oxford.  Details are available here.  I’ll be one of the speakers.

3.  John Marshall Law School will be presenting the 63rd Annual Intellectual Property Law Conference in Chicago on November 1.  I will be on the competition law panel.  Here is a link to the conference webpage, from which you can access the program and other information.

4.  FOSS Patents will be putting on an event titled “Component Level SEP Licensing” in Brussels on November 12.  Details here.    

5.  Finally, a belated welcome to the blogosphere to Professor David Taylor's new FedCircuitBlog, which promises "Comprehensive coverage of activities and news regarding the U.S. Court of Appeals for the Federal Circuit." 

Monday, October 7, 2019

Peters v. NantKwest

This morning, the U.S. Supreme Court will hear oral argument in Peters v. NantKwest Inc.  The question presented is "Whether the phrase '[a]ll the expenses of the proceedings' in 35 U.S.C. 145 encompasses the personnel expenses the USPTO incurs when its employees, including attorneys, defend the agency in Section 145 litigation."  As I wrote in June 2017 (and quoted again in March 2019):
The examiner and the PTAB rejected the inventor's patent application on nonobviousness grounds, and rather than immediately appealing to the Federal Circuit (which is one option under these circumstances) the applicant initiated a lawsuit against the director in the U.S. District Court for the Eastern District of Virginia (which is another, less commonly invoked, option).  The district court ruled in favor of the director, and in May the Federal Circuit affirmed (here).  The district court also awarded the director expert witness fees but denied a request for attorney's fees. On appeal of this matter, the Federal Circuit (in an opinion by Chief Judge Prost) concludes that the relevant statute--which in the present context is not 35 U.S.C. § 285, but rather 35 U.S.C. § 145--requires the court to award both expert and attorneys' fees--and, although it isn't at issue in this case, since the director won--the rule applies regardless of outcome.  Here is the relevant statute (35 U.S.C. § 145): 
An applicant dissatisfied with the decision of the Patent Trial and Appeal Board in an appeal under section 134(a) may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the Eastern District of Virginia if commenced within such time after such decision, not less than sixty days, as the Director appoints. The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Patent Trial and Appeal Board, as the facts in the case may appear and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law. All the expenses of the proceedings shall be paid by the applicant.
The Federal Circuit later decided sua sponte to rehear the case en banc, and concluded that the statute does not authorize awards of attorneys' fees to the USPTO.  Then in March 2019 the Supreme Court granted cert.  I was a little surprised, because to my knowledge § 145 actions are rare.  (R Street Institute's Supreme Court amicus brief states at p.17 that "There appear to be only eight such actions of colorable merit filed since 2011.")  On the other hand, the Federal Circuit's en banc opinion created a conflict with the Fourth Circuit's interpretation of the analogous statute applicable in trademark matters, so that may explain the Supreme Court's interest.  If it were up to me, I would have let it go, but for what it's worth the argument is today.  Scotus Blog has a good write-up by Professor Ronald Mann, and links to the briefs here.  Discussion also on IPWatchdog here.

Update:  Here's the oral argument transcript.

Friday, October 4, 2019

Carrier Responds to Iancu

Last December, U.S. Antitrust Division chief Makan Delrahim announced that the DOJ was withdrawing its assent to the USDOJ/USPTO 2013 Policy Statement on Remedies for the Standards-Essential Patents Subject to Voluntary F/RAND Commitments.  (For previous coverage on this blog, see here and here.)  The USPTO is still studying the matter, according to a recent speech USPTO Director Andre Iancu gave at the Solvay Institute in Brussels.  (For previous mention on this blog, see here.) Yesterday Professor Michael Carrier published an expert analysis in Law360 titled Answer To Iancu's SEP Policy Call Is In Plain Sight (available here, behind a paywall).  Professor Carrier rightly notes that the "balance" Director Iancu says is necessary, between encouraging innovation and discouraging abuses on the part of patent owners, is already built into the Policy Statement--an observation with which I agree, as stated for example in this piece published shortly after Mr. Delrahim's announcement last December.  Or, as Professor Carrier puts it, "Iancu is reasonably looking for a balanced and structured approach to standard essential patents that relies on good faith on both sides and disincentivizes holdup and holdout.  That answer is lying right in front of him: the 2013 PTO/DOJ Statement." 

Thursday, October 3, 2019

My Law360 Article on the Upcoming Unwired Planet Hearing

Later this month the U.K. Supreme Court will hold hearings in Unwired Planet v. Huawei.  I discuss some of the pending issues in an October 2, 2019 Law360 article titled Huawei Case Might Mean UK Forum Sets Global FRAND Rates, now available here and on Law360's website.

Wednesday, October 2, 2019

Willful Blindness (And Maybe Recklessness?) Can Support Finding of Willful Infringement

The decision, which I first read about on Bloomberg, is Motiva Patents LLC v. Sony Corp., No. 9:18-CV-00180  (E.D. Tex. Sept. 27, 2019).   On a motion to dismiss claims for induced infringement, contributory infringement, and willful infringement, Judge Gilstrap first concludes that the facts as pleaded provide a sufficient basis for denying the motion to dismiss the induced infringement claim because, inter alia, Motiva alleges that HTC "has a policy or practice of not reviewing the patents of others," and that it instructs its employees accordingly.  Judge Gilstrap reasons that such "allegations plausibly suggest that additional discovery will reveal evidence in support of Motiva's claim."  These allegations in turn support the willful infringement claim:
HTC argues that Motiva failed to plead a sufficient factual predicate to state a claim for willful infringement. HTC argues that even a well-pled allegation of willful blindness is insufficient to state a claim for willful infringement. The Court disagrees, and finds that a well-pled claim for willful blindness is sufficient to state a claim for willful infringement. There are at least three reasons which support such a holding.
First, Global-Tech held that willful blindness is a substitute for actual knowledge for purposes of the infringement analysis. Global-Tech rested upon two "traditional rationale[s]" for recognizing willful blindness in the context of inducement: a knowledge-based rationale and a culpability-based rationale. Global-Tech, 563 U.S. at 766 . With respect to the knowledge-based rationale, Global-Tech explained that "persons who know enough to blind themselves to direct proof of critical facts in effect have actual knowledge of those facts." Id . (emphasis added). With respect to the culpability-based rationale, Global-Tech explained that "defendants who behave in this manner are just as culpable as those who have actual knowledge." Id .; see also id . ("'[U]p to the present day, no real doubt has been cast on the proposition that [willful blindness] is as culpable as actual knowledge'" (quoting J.J. Edwards, The Criminal Degrees of Knowledge, 17 Mod. L. Rev. 294, 302 (1954)) (latter alteration in original) (emphasis added).
For both of these reasons, Global-Tech held that willful blindness is a substitute for actual knowledge in context of infringement. Recognizing the equivalence between actual knowledge and willful blindness makes clear why alleging willful blindness is sufficient in this case—if Motiva had alleged actual knowledge, it would indisputably state a claim for willful infringement. Since the Supreme Court has explained that willful blindness is a substitute for actual knowledge in the context of infringement, it follows that willful blindness is also a substitute for actual knowledge with respect to willful infringement. See id. at 769 . ("Under this formulation, a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts."). 
A contrary holding would produce inconsistent results such that the same infringing act performed by the same defendant could be both willful (sufficient to be willfully blind to infringement) and not-willful (insufficient to willfully infringe). The Court declines to create such an inconsistency.
Second, the culpability rationale underlying Global-Tech also supports treating an allegation of willful blindness as sufficient to allege willful infringement. Global-Tech repeatedly noted that willful blindness involves serious culpable conduct. Id. at 765-66 . In fact, acting with willful blindness is "just as culpable as . . . actual knowledge." Id. at 766 . Consistent with its rationale, the high standard for willful blindness set out by Global-Tech requires substantial culpable behavior. The Supreme Court made clear that qualifying culpable conduct "surpasses recklessness and negligence," which do not suffice to state a claim for willful blindness. Id. at 769 . Instead, the Court's test had "two basic requirements: (1) The defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact. We think these requirements give willful blindness an appropriately limited scope . . . ." Id . Thus, conduct which suffices to state a claim for willful blindness inherently—or at least, plausibly—requires culpable conduct.
Third, Halo's description of subjective willfulness suggests that willful blindness is sufficient to state a claim for willful infringement. Halo described subjective willfulness as "'knowing or having reason to know of facts which would lead a reasonable [defendant] to realize'" that its conduct is "unreasonably risky." Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923 , 1933 , 195 L. Ed. 2d 278 (2016). Halo also recognized that "reckless" conduct—that is, conduct that is reckless to the risk of infringement—may give rise to willful infringement. Id. at 1932 . By definition, willful avoidance requires more than mere recklessness—and Halo holds that recklessness alone is enough to show willful infringement. Similarly, Halo described "[t]he sort of conduct" justifying a finding of willful infringement as "willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate." Id . These descriptions have a common thread that runs through them: culpability.
The Supreme Court made clear that willful blindness is culpable conduct of the same tenor as the foregoing list. The Supreme Court's two-part test for willful infringement essentially parallels language from Halo: it requires a "conscious" belief on the defendant's behalf, compare Global-Tech, 563 U.S. at 769 ("defendant must subjectively believe"), with Halo, 136 S. Ct. at 1933 (defendant is "conscious"), as well as a "deliberate" act to effectuate that belief, compare Global-Tech, 563 U.S. at 769 ("defendant must take deliberate actions"), with Halo, 136 S. Ct. at 1933 (defendant's conduct must be "deliberate"). Put simply, willful blindness is an allegation that the defendant should have known of the plaintiff's patents, and took deliberately wrongful steps to ignore them. Cf. Halo, 136 S. Ct. at 1933 (defendant's conduct was willful when it acted "'knowing or having reason to know of facts which would lead a reasonable [defendant] to realize'" that its conduct was "unreasonably risky"). This is just the type of allegation that Halo suggests should suffice. Accordingly, Halo's description of willfulness instructs that a well-pled claim of willful blindness is sufficient to state a claim for willful infringement.
HTC's primary argument against treating an allegation of willful blindness as sufficient is that willful blindness does not involve intentional, affirmative conduct as required by Halo. This argument is misplaced. The second prong of Global-Tech's willful blindness test requires a defendant to engage in intentional, affirmative conduct to blind itself. Global-Tech, 563 U.S. at 769. For example, in this case, Motiva alleges that HTC engaged in affirmative conduct by creating a willfully blind policy, and then took additional affirmative steps to police its employees in complying with such policy. Both the act of creating a policy and acts of implementation constitute intentional, affirmative conduct within the ambit contemplated by Halo. Since allegations of affirmative conduct are required to state a claim for willful blindness under the second prong of Global-Tech, well-pled allegations of willful blindness generally entail allegations of affirmative conduct. Thus, a well-pled claim for willful blindness embodies an allegation of affirmative conduct. HTC's argument to the contrary is incorrect.
In short, both the holding and the twin rationales of Global-Tech suggest that well-pled allegations of willful blindness suffice to state a claim for willful infringement. The alternative would create a legal quagmire where a defendant's infringing conduct could simultaneously be willful (induced infringement) and not-willful (willful infringement). By contrast, the factual requirements for and culpable nature of willful blindness are squarely consistent with Halo's articulation of subjective willfulness. As a result, this Court finds that a well-pled allegation of willful blindness is sufficient to state a claim for willful infringement. Since Motiva has included well-pled allegations of willful blindness, the Court finds it has also stated a claim for willful infringement.
So did the court get it right?  In Global-Tech Appliances, Inc. v. SEB, S.A., 563 U.S. 764 (2011), the Supreme Court held that willful blindness could suffice for the "knowledge" needed to prove active inducement, but it rejected the Federal Circuit's rule that "deliberately disregard[ing] a known risk that [the plaintiff] had a protective patent" is enough.  Isn't that all that HTC is alleged to have done here?  Its alleged conduct certainly seems less "willfully blind" than the more specific conduct alleged in Corephotonics, Ltd. v. Apple, Inc., a 2018 case I blogged about here, in which Judge Lucy Koh also concluded that willful blindness suffices to satisfy the "intentional and knowing" standard for willful infringement.  (Of course, if this analysis is correct, then the induced infringement claims in Motiva should have been dismissed.)  

On the other hand, if Judge Gilstrap is right in stating that, under Halo, courts may award enhanced damages for merely "reckless," as opposed to "willful," infringement, then maybe the conduct alleged here suffices even if it's more "reckless" than "willfully blind."  I'm not 100% sure I agree with Judge Gilstrap's interpretation of Halo, though I'm not sure he's wrong either, and I would note that Professor Dmitry Karshtedt also reads Halo in that manner.   See his article here--and take a look at the Halo opinion itself here (pages 10-11, which correspond to the pages Judge Gilstrap cites) and see what you think.

Finally, as Judge Gilstrap notes, this case is just at the pleading stage, so it remains to be seen what sort of specifics, if any, turn up in discovery.

Tuesday, October 1, 2019

Remembering Professor Kenneth Port

I just learned from Professor Sharon Sandeen, via Twitter, that Professor Kenneth Port, the founder of Mitchell-Hamline Law School's Intellectual Property Institute, has died.  Ken was a professor at Mitchell-Hamline in St. Paul and a prolific trademark and Japanese law scholar.  We had several contacts over the years, both before and after I moved to Minnesota, including at least one dinner in Tokyo long ago.  We also overlapped in law school, with Ken graduating two years after I did.  He will be missed.

    Kenneth L. Port

Monday, September 30, 2019

New Papers, Posts on FRAND

1.  J. Gregory Sidak has published an article titled What Makes FRAND Fair?  The Just Price, Contract Formation, and the Divison of Surplus from Voluntary Exchange, 4 Criterion J. Innov. 701 (2019).  Here is a link to the paper, and here is the abstract:
Long before anyone understood what an economist does and why it might matter, Saint Thomas Aquinas had already endeavored to define “the just price.” Seven centuries after Aquinas opined on the just price there emerged a new institution of capitalism, the standard-setting organization (SSO), which by contract typically obligates the owner of standard-essential patents (SEPs) to offer to license its SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms to willing implementers of the standard. (It is notable that some SSOs require that licenses to SEPs be offered on merely reasonable and nondiscriminatory (RAND) terms.) SSOs generally permit each SEP holder to set a FRAND royalty for its SEPs through private bilateral negotiations with each implementer, rather than require the SEP holder to post tariffed rates for all customers. Such voluntary exchange benefits both parties, who divide their aggregate gains from trade, which economists call surplus. This economic principle—that voluntary exchange is mutually beneficial—is as profound as it is simple, and for that reason economists call it, “The Fundamental Theorem of Exchange.”
This question of the meaning of a fair price turns out to have very real legal ramifications in the present day. Rarely do I disagree with Judge Richard Posner, but I do with respect to his view that “fair” is surplusage in the FRAND contract. Judge Posner, sitting by designation as the trial judge in Apple, Inc. v. Motorola, Inc. in 2012 in the Northern District of Illinois, said that, in the context of FRAND, “the word ‘fair’ adds nothing to ‘reasonable’ and ‘nondiscriminatory.’” My previous writings have followed this convention of making no legal or economic distinction between FRAND and RAND royalties, though I have never excluded the possibility that someone might eventually make a compelling argument for why “fair” is not a throwaway word for parties to insert into a contract. And so, I have previously analyzed at length the differences between actual FRAND contracts and actual RAND contracts with respect to how fairness creeps into the constraint to license SEPs on nondiscriminatory terms. This article will show why courts should take the distinction between FRAND contracts and RAND contracts more seriously.
More than 30 years ago, Robert Frank of Cornell University proposed a precise economic definition that is directly relevant to the question of what makes a FRAND royalty fair:
Using the notions of reservation price and surplus, we can construct the following operational definition of a fair transaction: A fair transaction is one in which the surplus is divided (approximately) equally. The transaction becomes increasingly unfair as the division increasingly deviates from equality.
Frank then explained the problem that unfairness presents: “People will sometimes reject transactions in which the other party gets the lion’s share of the surplus, even though the price at which the product sells may compare favorably with their own reservation price.” This reasoning is very close to the conclusion I had reached before benefiting, late in the process of revising this article over the course of several years, from reading Frank’s 1988 book. Frank and I each find ourselves using Judge Posner as our foil, though for different reasons. Frank criticized Judge Posner’s writings through the mid-1980s as denying what Frank argued was the considerable explanatory power of fairness considerations in law and economics. In contrast, I gently chide Judge Posner for overlooking roughly 25 years later that, by the private ordering of contract law, some SSOs had chosen to impose an obligation of fairness so that (according to my economic interpretation) those SSOs could nudge parties into exercising the degree of moderation in their negotiation demands that is necessary to achieve contract formation reliably and expeditiously.
The irony is that my interpretation of why the word “fair” must have an independent meaning within the FRAND contract is quintessentially Posnerian: a division of surplus that is perceived by both parties to be fair maximizes the probability of contract formation, which in turn immediately benefits the parties to the contract. Thus, fairness clearly promotes static allocative efficiency. Moreover, across time the fairness constraint on the division of surplus also benefits countless consumers, whom the grand edifice of the FRAND contract is surely intended to benefit (though not necessarily by the formal machinery of conferring on those consumers legally enforceable rights of a third-party beneficiary, as the FRAND contract does confer on implementers). As Joseph Schumpeter taught us, it is the consumption of innovative products in the future that delivers radical—not marginal—gains in consumer surplus. Thus, the fairness constraint promotes dynamic efficiency as well. In this respect, Posner’s emphasis on efficiency and Frank’s emphasis on fairness are reconcilable. A lopsided division of surplus is a cost imposed on efficient transactions to the extent that it prevents some otherwise promising negotiations from achieving successful contract formation; if that cost can be eliminated or mitigated, a larger number of efficient transactions will occur. Therefore, regardless of whether one prefers to call it a quest for fairness or a quest for efficiency, an SSO’s constraint on the SEP holder that a royalty for its SEPs be fair is a privately ordered feature of contract—a self-imposed cattle prod—that contributes to a result that proponents of fairness and proponents of efficiency can both applaud.
Thomas Aquinas understood in the Summa Theologica that voluntary exchange produces the just price, which does not have a unique value. If, as I believe, it is more realistic to view voluntary exchange concerning the licensing of standard-essential patents as an infinitely repeated game, then one can explain the constraint of “fairness” in FRAND licensing transactions as a facilitator of efficient contract formation. This explanation does not require one to resort to any normative expression of the aesthetic features of a just or fair distribution of value within the economy. This insight also does not diminish the independent significance of fairness as a goal. To the contrary, it outlines a richer linkage between justice, innovation, and voluntary exchange than appears previously to have been appreciated by either jurists or scholars. And it suggests why the quest for a better understanding of the just price is as salient and profound today as it was in the 13th century.
2. Also of possible interest:  Jacob Schindler published a post titled Nanjing Judge Sets Chinese SEP Rate in Dispute Between Conversant and Huawei on the IAM Blog; David Cohen published an interesting post on IP Watchdog titled Standard Essential Patents: Examining and Learning from the European Approach; JUVE Patent recently has published posts titled Mannheim Regional Court grants Sisvel injunction against Wiko; Interdigital v. Lenovo:  more SEPs at UK court; and Unwired Planet Patent Paves Way for FRAND Discussions; and another titled Navigating the Fog: SEP litigation in Europe; IPKat published a post titled Huawei makes a surprising announcement, or, the changing role of patents in the global economy; and Law 360 published an article by Ryan Richardson, Michael Specht, and Timothy Tang titled SEPs in the Wake of Qualcomm:  4 Enforcement Issues.

3.   Finally, USPTO Director Andre Iancu recently gave a speech on SEPs at the Solvay Business School in Brussels.  For coverage on Law360, see here.

Friday, September 27, 2019

Injunction Bonds and Wrongfully Issued Injunctions

Law360 published a story this week titled NJ Track Clears Hurdle In Long-Shot Bid For Betting Revenue, discussing the Third Circuit's recent decision that the New Jersey Thoroughbred Horsemen's Trade Association (NJTHTA) had been wrongly enjoined from offering sports betting, and was entitled to recover up to the amount of the injunction bond the NCAA and four professional sports leagues had posted--which, however, amounts to only $3.4 million, much less than the $150 million NJTHTA alleges it suffered as a result of the wrongly-issued injunction.  The case had nothing to with patents or other IP law, but it does call to mind the (arguable) oddity of the U.S. practice of not allowing a wrongly enjoined defendant from recovering the full extent of its damages, beyond the amount of the injunction bond.  This is something I blogged about back in 2014 (see here), where I noted that in other countries wrongly enjoined defendants in patent (and other) cases can recover beyond the amount of the bond, when necessary, and cited a law review article questioning the merits of the U.S. rule.  The Law360 article cites some other commentators suggesting that (though it's a longshot) there might be a basis for recovering above the amount of the bond if the parties seeking an injunction acted in bad faith, so it will be interesting to see what happens on remand.  Perhaps this is an area of U.S. law that needs to be reformed.

Further to this point, however, I should note that the Court of Justice for the European Union recently issued a judgment in Case C-688/17, which appears to take a restrictive view of compensation for a wrongly issued preliminary injunction in patent litigation.  There are write-ups on IPKat and Kluwer.  I haven't yet read the judgment myself--should I wait until an English version comes out, or read the French or German version now?--but will come back with something, I hope in the next week or so, after I have.

Wednesday, September 25, 2019

Papers on Reforming the Law of Injunctions in Germany

1.  Martin Stierle has published a paper titled Der quasi-automatische Unterlassungsanspruch im deutschen Patentrecht:  Ein Beitrag im Lichte der Reformdiskussion des § 139 I PatG ("The quasi-automatic injunction claim in German Patent Law:  A Comment in Light of the Reform Discussion of  Patent Act § 139 I"), in the September 2019 issue of GRUR (pp. 873-85).  Here is the abstract (my translation from the German):
In various foreign patent systems and in general German civil law, a new development can be perceived at present, of rendering the right to an injunction less mandatory.  To this discussion can be added also the current deliberation over reforming  Patent Act § 139 I, which in practice leads to a quasi-automatic claim for injunctive relief.  For now, four problem areas are discussed:  cases relating to non-practicing of patents, complex products, infringing implementations in which there is a heightened third party interest, and standard-essential patents (SEPs).  The limitation on the right to an injunction with regard to SEPs is clear in its basic structures, in contrast to the considerable lack of clarity regarding the other problem areas.  In these other areas the case law categorically refuses to limit injunction claims, or at least imposes an artificially high factual threshold, even while a substantial portion of the literature critically opposes an unlimited right to an injunction.  From a doctrinal perspective, the law as it exists--especially BGB § 242 in connection with the legal concept of BGB § 251 II--offers adequate possibilities for implementation, which also would permit compensation for the limitation on injunctive relief.  Nevertheless, at least for reasons of clarification, a limited exception--one that can be applied on a flexible, case-by-case basis, and allows for financial compensation as a legal consequence--should be incorporated into Patent Act § 139 I.  The procedural approaches to reform, discussed in parallel, cannot solve the substantive problem areas. 
For readers not familiar with the above provisions of German law, Professor Stierle is arguing that German courts cannot rely exclusively on the Aufbrauchfrist (grace period, stay of injunction) to alleviate the disproportionate hardship that may arise in the problem areas noted above.  Rather, the legislature should amend the German Patent Act to make it clear that in exceptional cases (the types of cases referred to above, not including SEPs which already are adequately addressed by competition law) courts may depart from the norm and award an ongoing royalty in lieu of injunctive relief.  Specifically, he would add language to the effect that the improper assertion of rights could result in the complete or partial loss of the right to an injunction; would note as possible examples the non-practicing of the patent by the owner or a third party, or disproportionate harm in special cases; would require the justifiable interests of third parties to be taken into account; and would specify that, when injunctive relief is denied, reasonable compensation can be awarded. 

2. Taking a somewhat different tack, in the same issue of GRUR (pp. 886-91), are Sascha S. Zhu and Marcel Kouskoutis, in their article Der patentrechtliche Unterlassungsanspruch und die Verhältnismäßigkeit:  Die Vollstreckungsrechtliche Lösung über die Anpassung des § 712 ZPO im Patentgesetz ("The right to an injunction in patent law and proportionality:  The execution-of-judgment solution through the adaptation of Civil Procedure Code § 712 into patent law").  Here is their abstract (again, my translation):
How can one take into account, in a balanced manner, the interests of both sides in patent cases involving claims for injunctive relief?  Aside from the approach of fundamentally altering the character of Patent Act § 139, there is the (hereinafter explained more closely) "Fine adjustment solution." This would allow courts to take into account the proportionality of legal consequences, by making temporary execution of judgments more flexible.  While the infringement plaintiff can at the latest enforce its claim for injunction before the BGH without hindrance, the courts of first and second instance can provide the defendant with reasonable protection against the drastic consequences of enforcement.
Professor Stierle, above, is less convinced about the feasibility of this solution.  

For further discussion of reform efforts in Germany, and of the Aufbrauchfrist, see my posts here and here.

Monday, September 23, 2019

Two Papers on Damages Apportionment

1.  As readers of this blog may already be aware, last week Bernard Chao posted an essay on Patently-O titled Implementing Apportionment.  The essay takes as its starting point the pending cert petition in Time Warner Cable, Inc. v. Sprint Communications Co., L.P., in which the petitioner is trying to overturn a patent damages award in the amount of $139 million.  (For my post on the Federal Circuit decision, see here.  The Scotus Blog page for the case is here.  A Law360 article also discusses Intel's amicus brief in the case.)  Professor Chao's thoughtful analysis notes that there are no easy solutions to the problem of apportioning the value attributable to the patented feature of a complex product, but along the way discusses conjoint analysis, the top-down approach, and other matters.  Definitely worth a read!

2.  Axel Gautier and Nicolas Petit have published a paper titled The Smallest Salable Patent Practicing Unit and Component Licensing:  Why $1 Is Not $1, 15 J. Compet. L. & Econ. 690 (2019).  Here is a link to the paper, and here is the abstract: 
The smallest salable patent pricing unit (SSPPU) is a valuation method used as a preliminary step toward the calculation of fair, reasonable, and nondiscriminatory royalties for licenses over standard-essential patents (SEPs). Under SSPPU, royalties should reflect the value added to the smallest salable component implementing the patented invention. In this paper, we discuss policy-making proposals to convert SSPPU into a pricing rule that not only assists the assessment of SEPs’ added value but also forces the specification of royalties terms as a share of component costs in SEP licensing negotiations. We call this new rule SSPPU+ and we show that it distorts the distribution of surplus between SEP owners and implementers by laying down a revenue cap on standardized technologies. Therefore, a change in the royalty basis is not neutral and $1 is not $1. Furthermore, SSPPU+ imposes uniform pricing of SEPs across different industries and does not allow SEP owners to take advantage of complementarities between technologies. This pleads against a generalization of SSPPU+ at early standardization and negotiation stages.
Update (September 26, 2019):  On FOSS Patents, Florian Mueller has published an interesting post on Time Warner v. Sprint.