Friday, May 29, 2020

Two New FRAND Papers

1.  Stephan Waldheim has published a paper titled Huawei v. ZTE Five Years AfterLuxembourg Locuta Causa Finita? in the Journal of European Competition Law & Practice.  From the "Key Points":
• The national patent court’s approach to Huawei/ZTE is both flexible and workable.
• While a holistic view is taken on whether the seeking of a prohibitory injunction is abusive in the individual case at hand, in the absence of investigative powers, (more) operational criteria are being applied to assess whether the SEP confers dominance to its holder. In principle, there is little to criticise about this practice.
• However, when push comes to shove the national patent courts (still) tend to decide in favour of plaintiffs, i.e. patent holders. Take their dealings with patent pools, for example, or the fact that a case where two opposing offers have both been accepted as FRAND is yet to be seen.
• Whether this is in line with the CJEU’s impetus of striking a fair balance between the opposing interests of patent owners and users may be reasonably doubted.
This is a very informative, yet relatively brief, paper, and I recommend it.  The title is a bit baffling, though.  The fact that Luxembourg (that is, the CJEU) locuta est hardly means that the causa is finita, as witness the paper itself.

2.  Bertram Neurohr has published a paper titled Dynamically Efficient Royalties for Standard-Essential Patents in the Journal of Competition Law & Economics.  Here is the abstract:
Some economists have argued that a reasonable royalty for a standard-essential patent should be based on the patent’s ex ante incremental value. Others have argued that a patent’s ex ante incremental value is insufficient, that a reasonable royalty is more akin to the prize in a winner-takes-all tournament, and that it should reflect the R&D costs associated with both the winning technology and unsuccessful alternative technologies. The results presented in this paper are favourable to the latter view, but with the additional qualification that a reasonable royalty ought to cover the costs of only those R&D efforts—successful or not—that are efficiency enhancing from an ex ante perspective. The notion of ex ante incremental value is core to identifying these efforts and hence to determining what the dynamically efficient outcome is. A reasonable royalty is one that induces this dynamically efficient outcome (i.e. a dynamically efficient level of R&D),balancing the costs incurred by innovators with the benefits that go to implementers and/or consumers. As such, a reasonable royalty is significantly higher than a technology’s ex ante incremental value. High ‘winner’ margins are offset by losses incurred by ‘losers’, leaving a significant proportion of the total
net value generated by R&D to implementers and consumers.
3.  I should note as well that Florian Mueller has posted an important update to his two previous posts on the Mannheim court's approach to FRAND, see here.  For the two previous posts, see here and here.

Wednesday, May 27, 2020

R.I.P., Oliver Williamson

I just learned from Danny Sokol's Antitrust & Competition Policy Blog that Oliver Williamson died last week at the age of 87.  Williamson and Elinor Ostrom were the recipients of the 2009 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.  Williamson is best known for his contributions to the economics of the firm and of transaction costs, and the application of his analysis of the holdup phenomenon is a centerpiece of contemporary debates in patent law (see, e.g., my article with Erik Hovenkamp and Norman Siebrasse here).  There is an obituary in yesterday's Washington Post and a notice from UC Berkeley.  

Nobel Prize 2009-Press Conference KVA-42.jpg

Monday, May 25, 2020

From Around the Blogs, Part 3

1.  On FOSS Patents, Florian Mueller published a post last week titled Mannheim court reverses position on FRAND defense: standard-essential patent injunctions become readily available again. The post discusses a decision of the Mannheim Landesgericht which adopts a narrow reading of Huawei v. ZTE, in effect allowing owners of FRAND-committed SEPs to obtain injunctions unless (1) the SEP owner has failed to make a FRAND offer, and (2) the implementer has made a FRAND counteroffer.  In other words, according to the post, there could be an injunction if either (1) the SEP owner made a FRAND offer and the implementer did not accept it, even if the implementer made its own FRAND counteroffer, or (2) the implementer has not made a FRAND counteroffer, even if the SEP owner did not make an initial FRAND offer.  If I understand correctly, there is no written decision yet.   

Update:  FOSS Patents' May 27 post states that during a trial last Friday in Mannheim, a different panel expressed "the same perspective on FRAND as before, thereby declining to perform the same about-face as Judge Dr. Kircher's panel" noted in the previous post.  So now there may be a conflict within the Mannheim court on the interpretation of Huawei v. ZTE.  

2.  On Bloomberg, Blake Brittain published an article titled Apple, Cisco Get $4.2 Million in Attorneys’ Fees in Patent Case.  The case is Straight Path IP Group, Inc. v. Cisco Systems, Inc., Nos. C 16-03463 WHA, C 16-03582 WHA (N.D. Cal. May 19, 2020), a case the district judge described as one "which should never have been brought" (emphasis in original).  Mr. Brittain's article links to the opinion, here.  Nadia Dreid also covers the case, and links to the opinion, on Law360, in an article titled Apple, Cisco Get $4.2M In Fees After Rebuke For 'G-R-E-E-D', which highlights the fact that the fee award was less than half of what the defendants sought. 

3.  Of possible relevance to patents and other forms of IP, on Law360, David Ziegler published an article titled A Primer On Foreign Judgment Enforcement In Canada.  The article states that "the common law in Canada is favorable toward the enforcement of foreign judgments," and discusses the two-pronged test the Canadian courts use to evaluate claims for enforcement.

Thursday, May 21, 2020

From Around the Blogs, Part 2

1.  Dennis Crouch has published a couple of short posts recently of interest to the patent remedies community.  Earlier this week, he published a post titled A Book of Wisdom, regarding the Federal Circuit's denial without opinion of a petition for rehearing en banc in Alfred E. Mann Foundation & Advanced Bionics v. Cochlear Corp.  As Professor Crouch explains, the district court awarded the plaintiff $268 million in damages.  The petition for rehearing en banc takes issue with the lower court's application of the "Book of Wisdom," which allows the trier of fact to take into account ex post information in estimating the ex ante royalty the parties would have negotiated.  Professor Crouch expects there will be a petition for certiorari.  Norman Siebrasse and I discussed the Book of Wisdom in our article A New Framework for Determining Reasonable Royalties in Patent Litigation, 68 Fla. L. Rev. 929 (2017); see also the chapter titled  Reasonable Royalties, pp. 28-33, in Patent Remedies and Complex Products:  Toward a Global Consensus 6, 41–46 (Brad Biddle et al. eds. 2019).

Professor Crouch also noted recently that TCL has filed a petition for certiorari in the TCL v. Ericsson dispute, posing the question  "Whether a patent owner required to license its standard-essential patents on fair, reasonable, and nondiscriminatory terms has a Seventh Amendment right to a jury trial in a proceeding seeking the equitable relief of specific performance."  Readers may recall that the Federal Circuit late last year reversed Judge Selna and held that Ericsson had a right to trial by jury; for my previous post, see here.  Law360 also has an article on the cert. petition here, and the Scotus Blog page can be found here.

2.  John LeRoy has published an article on Law360 titled A Musical Solution for Negotiating Wireless FRAND Rates.  The article discusses, among other things, the debate over license-to-all versus access-to-all, and argues that Congress should (1) establish a tribunal, similar to the Copyright Royalty Board, to determine FRAND rates, and (2) authorize the USPTO to make a preliminary determination whether the claims of an issued patent read on a standard.  As I have noted previously, Professor Jorge Contreras also has proposed a  FRAND rate-setting tribunal modeled on the Copyright Royalty Board in his article Global Rate Setting: A Solution for Standard-Essential Patents?, 94 Wash. L. Rev. 701 (2019). 

While on the subject of copyright, but the way, I've been enjoying Gary Rosen's recent book Adventures of a Jazz Age Lawyer:  Nathan Burkan and the Making of American Popular Culture (U. Cal. Press 2020).  Rosen's earlier book, Unfair to Genius: The Strange and Litigious Career of Ira B. Arnstein (Oxford Univ. Press 2012) was terrific too.

3.  .  Noting that TRIPS article 50.7 states that "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 these measures,” Sr. presupposes that the array of remedies available to the patent owner is not limited to legal actions for patent infringement. Quite the contrary; they include legal actions against mere 'threats of infringement.'"  If I understand correctly, Sr. article 9(a) of the E.C. Intellectual Property Rights Enforcement Directive, which states inter alia that "Member States shall ensure that the judicial authorities may, at the request of the applicant . . . issue against the alleged infringer an interlocutory injunction intended to prevent any imminent infringement of an intellectual property right," is at odds with this provision of TRIPS, since it only requires member states to issue preliminary injunctions based on "imminent" infringement. 

Monday, May 18, 2020

From Around the Blogs

1.  On Sufficient Description, Norman Siebrasse has published two posts (here and here) discussing a decision of Canada's Federal Court in Fluid Energy Group Ltd. v. Exaltexx Inc., [2020] FC 81.  The decision awarded Exaltexx a preliminary injunction prohibiting Fluid from threatening to bring infringement actions against end users of Exaltexx's "safe acid" products.  According to Professor Siebrasse, the decision provides a good overview of both the law of preliminary injunctions and of product disparagement under Canadian law.  On the latter issue, the court distinguishes between "informative" and "threatening" cease and desist letters, with the latter posing a risk that the recipient will comply with the sender's demands simply to avoid litigation.

2.  Matt Swinn has published a post on IPKat titled Australian government fails to recoup clopidogrel costs from Sanofi.  The post discusses a recent decision from the Federal Court of Australia,  Commonwealth of Australia v. Sanofi [2020] FCA 543, dismissing a claim made by the Australian government for compensation from the drug maker Sanofi.  Under Australia's Pharmaceutical Benefits Scheme, the government subsidized the price paid for Sanofi's Plavix drug.  Sanofi had obtained an interlocutory injunction restraining Apotex from entering the market with its generic version of the drug.  The relevant patent was later revoked, however, and Sanofi and Apotex settled Apotex's claim for compensation.  The government also sought compensation, but it was unable to prove that (1) Apotex would have entered the market at risk and applied to list its generic product, and (2) the government's loss was caused by the interlocutory injunction.   

3.  On Law360, Laurie Stempler and Dominic Persechini have published the first two of a three-part series on How Licensing Affects Patent Damages Apportionment (here and here).  The series proposes "best practices for considering the apportionment aspect of prior license agreements in a reasonable royalty analysis," with the first two installments discussing legal and economic considerations and providing advice relating to discovery and preparation of expert testimony.

4.  Also on Law360, Gregory Williams and Dominique Carroll published an article titled High Court TM Profit Ruling May Not Wreak Havoc in 3rd Circ.  The authors predict that the Supreme Court's recent decision in Romag (of which I have been highly critical, see here) "likely will not lead to a flood of meritless trademark infringement litigation or a significant increase in the frequency of the awarding of the infringers' profits to prevailing plaintiffs in trademark infringement litigation," at least not within the Third Circuit.

Wednesday, May 13, 2020

Federal Circuit: Prejudgment Interest on Lump-Sum Award May Run from the Date of First Infringement

Earlier this year, a student in my Patent Remedies course asked me a question about prejudgment interest to which I didn't know the answer.  In stylized form, the question goes something like this.  Suppose the plaintiff proves that the defendant infringed for, say, five years, and the court awards the plaintiff its damages over that five-year period.  The court also awards prejudgment interest, as it usually will in the United States.  Should the court simply take the amount of the award and award interest (whether simple or compound, at whatever rate it finds to be appropriate) on that amount from the date the infringement began?  Or should it award interest on each increment as it accrued?  For example, suppose the defendant made one infringing sale on January 1, 2015; another infringing sale on January 10, 2016; and so on, up through January 1, 2019.  For each infringing sale, the appropriate royalty is, say, $1 million, so the total royalty is $5 million.  Does the interest accrue on $5 million, beginning on January 1, 2015?  Or does the interest accrue on $1 million as of January 1, 2015; on another $1 million, as of January 1, 2016; and so on?  I was inclined to think that it would be too complicated to carry out the second option in the real world, and that the court should simply take the final damages amount and award interest accruing as of the date the infringement started (assuming it started within the relevant statute of limitations).  But if that's right, perhaps it suggests that the interest rate should be a little lower than what the plaintiff's actual rate of return would have been, because in effect we'd be awarding interest on damages that didn't accrue until after the infringement started.  But I honestly didn't know what the governing law, or common practice, was.  

I posed the question to Professor Norman Siebrasse, who called my attention to a Canadian decision,  Eli Lilly Co. v. Apotex Inc., 2009 FC 991, in which Justice Gauthier awarded interest "at the rate to be calculated separately for each year since the infringing activity began" (para. 674).  Professor Siebrasse also reported that, according to one of his sources, there is no firm rule on this subject in Canada, but that year-by-year interest had become fairly common--though in some cases, the award is made by quarter by month.  Anyway, I still didn't know what the U.S. practice was, but the Federal Circuit's opinion today in Schwendimann v. Arkwright Advanced Coating affirms a decision awarding prejudgment interest on a lump-sum royalty, beginning on the date the infringement began.  

The principal issues in the case relate to standing, ownership, and assignment, and the majority's disposition of them elicits a dissent from Judge Reyna.  Since this blog focuses on remedies, however, I will pass over these arguably more important (and rather complicated) issues and discuss the damages issues only.  According to the majority opinion, authored by Judge Wallach and joined by Judge O'Malley:
Following a jury trial, a judgment of willful infringement was entered against Arkwright and the jury awarded Ms. Schwendimann damages in the amount of $2,624,228.00. J.A. 39–40. Subsequently, the District Court awarded prejudgment interest on the damages in the amount of $1,915,328.00. See Schwendimann, 2018 WL 3621206, at *23; see also J.A. 104–05. Relevant here, the District Court determined that it would award a 10 per-cent prejudgment interest rate, pursuant to Minnesota Statute § 549.09 (2015). See Schwendimann, 2018 WL 3621206, at *22.5/ First, the District Court rejected Arkwright’s proposed 1.42 percent interest rate, concluding that it was “unpersuaded” that such a rate “[wa]s sufficient to place [Ms.] Schwendimann ‘in as good a position as [s]he would have been in had [Arkwright] entered into a reasonable royalty agreement.’” Id. (quoting General Motors Corp. v. Devex Corp., 461 U.S. 648, 655 (1983)). Second, the District Court determined that the prejudgment interest rate should be calculated based on the amount of damages awarded by the jury and not of Arkwright’s final settlement offer, as Arkwright failed to provide a written offer. Id. Third, the District Court concluded that prejudgment interest should be calculated on the total damages and not based on the number of infringing sales per year. Id.
5/ Section 549.09 states that, “[f]or a judgment or award over $50,000, . . . the interest rate shall be ten per-cent per year until paid.” MINN. STAT. § 549.09(c)(2).
As for the choice of interest rate, the court states:
We afford district courts “wide latitude in the selection of interest rates,” and have permitted the use of statutory rates set by states, U.S. Treasury bill rate, and the prime rate. See Gyromat Corp. v, Champion Spark Plug Co., 735 F.2d 549, 556 (Fed. Cir. 1984) (citing cases); see also Uniroyal, Inc. v. Rudkin-Wiley Corp., 939 F.2d 1540, 1545 (Fed. Cir. 1991) (“A trial court is afforded wide latitude in the selection of interest rates . . . and may award interest at or above the prime rate.” (internal citations omitted)). We review the award of prejudgment interest for abuse of discretion, “basing the award on clearly erroneous factual findings, legal error, or a manifest error of judgment.” King Instruments Corp. v. Perego, 65 F.3d 941, 952 (Fed. Cir. 1995). . . .
As for the accrual date, the court writes:
The District Court did not abuse its discretion in granting a prejudgment interest rate of 10 percent, starting from the first date of infringement. Typically, “prejudgment interest should be awarded from the date of [the] infringement to the date of [the] judgment.” Nickson Indus., Inc. v. Rol Mfg. Co., 847 F.2d 795, 800 (Fed. Cir. 1988). Where a jury awards a lump-sum amount as compensation for infringement, the prejudgment interest is properly applied to the entire amount beginning on the first date of the infringement. See Comcast IP Holdings I LLC v. Spring Commc’ns Co., L.P., 850 F.3d 1302, 1315 (Fed. Cir. 2017) (affirming the “district court’s assessment of prejudgment interest against [an infringer] based on the entire royalty award” where the jury awarded a lump-sum amount).
On my reading of the above text and the Comcast decision, however, it is still an open question whether interest on a running royalty should accrue, for the entire award, from the date of first infringement, or in stages.  Perhaps a court would have discretion to do it either way.  Here, however, if I'm understanding correctly, the district court concluded that the date the infringement began was the correct choice under the Minnesota statute it was applying, writing in its opinion at 2018 WL 3621206, at *22 (emphasis in original):
. . . the Court must consider whether to calculate prejudgment interest based on the number of infringing sales per year. AACI argues, “In the hypothetical negotiation between Schwendimann and AACI, the parties would have agreed to a royalty rate, not a lump sum payment for any and all infringing future sales, regardless of what the actual sales numbers were.” (Mem. Opp’n Mot. to Amend J. at 8-9, Dec. 11, 2017, Docket no. 798.) Consistent with the plain language of Minnesota Statute § 549.09, the Court concludes that it is appropriate to calculate prejudgment interest on the total damages award and not based on the number of infringing sales per year.
I would be interested in hearing from readers, if any of you have any thoughts on how litigants and courts do, or should, address this issue.