English version of Advocate General's Opinion in Huawei v. ZTE is now up

Thank you to one of my readers, Damir Isanbirdin, for calling this to my attention; here it is.  I'll be back this afternoon with my own brief summary.

Opinion of the Advocate General in the CJEU's Huawei v. ZTE FRAND Case

Here is a link to CJEU's webpage, from which you can download today's Opinion of the Advocate General in German, French, Spanish, Italian, and several other languages, but not English.  I've just started skimming the German version (it's 7:00 in the morning where I am), and I may report back later today with more detail, but here's what I gather so far based primarily on the conclusion (Ergebnis) paragraph 103: 

1.  The owner of a FRAND-encumbered SEP abuses its dominant position by seeking an injunction when it is shown that it has not kept his commitment even though the defendant is ready, willing, and able to conclude a license on FRAND terms.
2.  The SEP owner should convey a comprehensive written offer to the defendant before seeking an injunction.
3.  The accused infringer should react to this offer carefully and seriously.  If he rejects it, he should within a short time propose a counteroffer.  It is not an abuse of dominant position if the accused infringer's behavior is strategic or hesitant or insincere. 
4.  If negotiations are fruitless, the accused infringer is not acting hesitantly or insincerely if it requests a determination of FRAND conditions from a court or arbitration panel.  In such a case, the SEP owner can demand a bank guaranty or deposit in escrow for the payment of past or future royalties.
5.   The accused infringer is not acting hesitantly or insincerely if it requests a determination of whether the patent is valid and infringed.
6.  The SEP owner is not abusing its dominant position if it requests financial information, but the court should ensure that the measures are reasonable and proportionate.
7.  The SEP owner's request for damages for past infringement is not an abuse of dominant position.

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On a somewhat related note, Spicy IP and FOSS Patents both have coverage this week on the Indian FRAND case between Ericsson and Micromax.  The court lowered the interim royalty rates that Micromax must pay Ericsson pending trial.  According to the court's order, "It is made clear that the above order is purely an interim arrangement and is not a determination of the FRAND rates for the Ericsson portfolio," and "It is directed that the trial in any event will be completed not later than 31st December, 2015."

Video of Last Week's Patent Remedies Conference at American University

The video of last week's patent remedies conference at American University, which I blogged about here and here, is now available on the conference website, here.  I'd recommend clicking on the "Pop Out" window in the upper right-hand corner of the video screen, so you can fast-forward or rewind as you like. 

Patent Colloquium at University of Toronto This Friday, November 21

I won't be attending this one myself, but it looks like a terrific lineup of prominent jurists, economists, and law professors.  The final session, titled "Standards-Essential Patents: Enforcement Options with FRAND Terms," will be moderated by Anthony Niblett with presentations by Alison Jones, Jorge Contreras, and Norman Siebrasse.  Here's the conference website and the complete schedule.  Check it out if you're in Toronto Friday.

Papers from the Texas Intellectual Property Law Journal's February 2014 FRAND Conference

Some of the papers that were presented at or submitted in connection with the Texas Intellectual Property Law Journal (TIPLJ)'s February 21, 2014 IP Symposium on "FRAND and the Antitrust/Intellectual Property Interface," which I live-blogged (links here, here, here, here, here, here, and here), have now been published.  (Some of them also had been presented earlier at a workshop at the University of Florida, which I live-blogged in September 2013, see here, here, here, here, here, here, here, here, and here.  My own symposium paper, The Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties, is still awaiting publication; in the meanwhile, the ssrn version can be accessed here.)  The following is a list of the ones that have been published so far.  (I'm actually not 100% sure if Professor Ko's paper was submitted in connection with the symposium, but it fits with the theme.)  The papers do not appear to be available on TIPLJ's website, but readers with a subscription to Westlaw or Lexis should be able to access them.  Moreover, versions of the papers by Professors Sokol & Zheng, Page, Hylton, and Ko are available on ssrn.  

Christopher Yoo, Standard Setting, FRAND, and Opportunism, 22 TIPLJ 69-70 (2013).

D. Daniel Sokol & Wentong Zheng, FRAND in China, 22 TIPLJ 71-93 (2013).

Roger D. Blair & Thomas Knight, Problems in Sharing the Surplus, 22 TIPLJ 95-107 (2013).

William H. Page, Judging Monopolistic Pricing:  F/RAND and Antitrust Injury, 22 TIPLJ 181-208 (2014).

Keith N. Hylton, A Unified Framework for Competition Policy and Innovation, 22 TIPLJ 163-79 (2014).

Haksoo Ko, Facilitating Negotiation for Licensing Standard-Essential Patents in the Shadow of Injunctive Relief Possibilities, 22 TIPLJ 209-21 (2014).

 

New Papers and Other News on Reasonable Royalties, FRAND Royalties

1.  The Journal of Intellectual Property Law & Practice (JIPLP) has two articles relating to patent royalties this month (volume 9, issue 11, November 2014), both available here.  First, Jeremy Phillips has a short editorial titled The Typical License Royalty Rate:  A Sea of Change.  Second, Tilman Müller and Volkmar Henke have a paper titled Patent enforcement as a violation of antitrust law: EU Commission decisions in Samsung and Motorola, which previously appeared at pages 662-65 of the July 2014 issue of the German publication GRUR Int. under the title  Patentdurchsetzung als Kartellrechtsvertoß.  Die Entscheidungen der EU-Kommission in Sachen Samsung und Motorola, and which I blogged about this past July here.

2. The Essential Patent Blog noted recently that the European Commission is seeking public comments on patents and standards through January 31, 2015.  Here is a link to the Commission's webpage, from which readers may download and answer questions relating to eight key issues-- among them "What principles and methods do you find useful in order to apply [the terms "fair," "reasonable," and "non-discriminatory"] in practice?", and "How can it be ensured that injunctions based on standard essential patents are not used to (a) either exclude companies from implementing a standard or (b) to extract unreasonable, unfair or discriminatory royalties?"

3.  On September 10, 2014, U.S. Federal Trade Commission Chair Edith Ramirez delivered a speech titled Standard Essential Patents and Licensing:  An Antitrust Enforcement Perspective.  The speech briefly discusses the FTC's 2013 action relating to Google's acquisition of Motorola Mobility, the European Commission's investigations of Samsung and Motorola Mobility, and the FTC's recommendation in its 2011 report The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition that FRAND royalties be calculated on the basis of a hypothetical negotiation occurring "before the licensee has made significant investments to implement a technology" and reflecting the incremental value of the technology in comparison with alternatives.  More interesting, however, are some rather blunt statements about China:

In contrast to the FTC’s and EC’s approach, media reports indicate that China’s antitrust authorities may be willing to impose liability based solely on the royalty terms that a patent owner demands for a license to its FRAND-encumbered SEPs, as well as royalty demands for licenses for other patents that may not be subject to a voluntary FRAND commitment.

I am seriously concerned by these reports, which suggest an enforcement policy focused on reducing royalty payments for local implementers as a matter of industrial policy, rather than protecting competition and long-run consumer welfare.

The following week, FTC Commissioner Maureen Ohlhausen echoed these concerns about China in her speech titled Antitrust Enforcement in China-What Next?-Second Annual GCR Live Conference, and suggested that China was taking inspiration from the FTC's decision (from which she dissented) in Google/Motorola Mobility. 

4.  William Rooklidge has published an interesting paper titled Infringer's Profits Redux:  The Analytical Method of Determining Patent Infringement Reasonable Royalty Damages, in Bloomberg BNA Patent, Trademark & Copyright Law Daily (Nov. 5, 2014), available here behind a paywall.  As stated in Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed. Cir. 2009), as an alternative to the hypothetical negotiation or willing licensor/willing licensee framework for estimating reasonable royalties, U.S. courts sometimes employ an "analytic" approach that “focuses on the infringer's projections of profit for the infringing product.”  Mr. Rooklidge argues that, in practice, courts that use this method do not properly take into account what portion of the anticipated profits are attributable to the patent, and do not consider the expected profits as merely a cap on the prospective royalty.  Worse yet, in Mr. Rooklidge's analysis, courts sometimes use the infringer's actual profits as a proxy for its anticipated profits and thus effectively restore the remedy of an accounting of infringer's profits, which (though common in many parts of the world, and still available for design patent and other IP infringement in the U.S.) was eliminated from U.S. utility patent law in 1946.   

Conference on Patent Remedies at American University, Session 3: Monetary Damages

Professor Jonas Anderson is moderating this session.  Speakers are Rob Lytle (Microsoft), David Cavanaugh (WilmerHale), and Matt Levy (Computer and Communications Industry Association).

Anderson:  Panel will address Virnetx case, and also attorney's fees.

Lytle:  At one time, practice was to focus on a large feature of the product as the royalty base to try to increase royalties; not always proportional to value of invention.  Federal Circuit took action to rationalize damages law based on economic theory.

Lucent case:  focus is on how the plaintiff was hurt, and how parties would have negotiated ex ante.  Entire market value rule (EMVR) inapplicable unless defendant can show its product was the cause of the demand.   

Uniloc:  further move away from EMVR; can't put those entire revenues before jury unless defendant caused them (even if the rate is very small).  

Laserdynamics:  Just because a feature is important or competitively necessary doesn't mean it caused the revenue.  You wouldn't buy a car without tires, but tires don't drive the demand for the car.

Cavanaugh:  Discusses Virnetx case.  Three matters.  First, Virnetx expert identified smallest saleable unit as the entire iPhone.  CAFC:  no; too large.  Small royalty doesn't cure problem.  Second, Nash Solution Theory.  Expert posited a 55/45 split.  CAFC:  Need to establish that underlying premises apply, otherwise can't use the theory.  Third, you need to present something that is based on the economic value of the patent.  Damages theories must be grounded.  [For more on Virnetx, see my post here.]

Levy:  Discusses fee shifting.  CAFC case law until recently:  pro-defendant fee shifting requires sanctionable conduct or objective/subjective baselessness.  Defendants almost never got fee awards.  But this gave PAEs  a lot of leverage.  In December 2013, House of Representatives passed Innovation Act, which would have presumed fee-shifting unless losing party's side was reasonably justified or it otherwise would be unjust.  Senate didn't find that like that and bill died.  But Supreme Court took the matter up in Octane Fitness and Highmark and overrules CAFC standard.  "Exceptional cases" don't have to be frivolous, though they must stand out; and judge has discretion to award fees.  [For more on these cases, see my post here.]  Some concerns that this would lead to a great deal of fee shifting, but only 4-5 cases since April where defendants got fees.  So still not a big shift.  Judges don't like to award fees or sanction parties.  With change in Senate, though, fee shifting may come up again in Congress.   

Anderson:  CAFC addressing damages issues like Supreme Court addresses CAFC cases.  First, did lower get it right?  Often no.  Second, what do we do now?  We don't exactly say . . .  So what things are we to do now?

Cavanaugh:  Damages theories need to be supported.  I've found the most rational approach to be to ensure that the damages theory is well supported.  Don't necessarily choose the one with the highest or lower number.  Reasoned approach.         

PAEs:  Different dynamic, because they don't sell products.  Companies that do sell products may approach damages theories differently when they are acting as plaintiffs.  

Lytle:  A bit of a quandary;  we know what we can't do, but necessarily what we can.  Experts:  maybe would be better to hire academic economists to do studies.  Most economists are baffled by the Georgia-Pacific factors, in terms of how it shows what a patent is worth.

Levy:  Damages theories sometimes have not been connected to reality.  Reality is that a lot of patents aren't worth very much individually, but rather as part of a portfolio.  But you sue on individual patents.

Question from Dina Kallay:  Question re Laserdynamics.  Court said that actual licenses are highly probative.  You're not saying that Laserdynamics mandates smallest saleable unit in every case, if actual licenses don't?

Lytle:  In Laserdynamics, they also knocked out some of the licenses.  How do you establish the licenses are comparable?  I think law will move toward stricter scrutiny.  Will be more case-by-case, patent-by-patent.    

My questions:  The Federal Circuit probably was right to discard the 25% rule in Uniloc, and to caution against inappropriate use of the Nash bargaining model in its place.  But if we are trying to estimate the bargain the parties would have made ex ante, don't we sometimes need to start out with some sort of presumption about how they would divide up the expected surplus?  Does the plaintiff get nothing if it can't introduce evidence how the parties would have divided it up?  Is the fact that, uniquely among the nations of the world, we have jury trials in patent cases, driving the legal principles in ways that could be at odds with economic principles? Should we rely more on court-appointed experts or to the extent it is permissible under our rules of civil procedure and evidence, "hot-tubbing"?  Need a paradigm shift?

Cavanaugh:  To extent we have principles we rely on, need to be applied with rigor.  Nash Bargaining Solution isn't necessarily discounted but properly applied.  Establish fundamental predicates. 

Question from Jorge Contreras:  At a recent conference, David Teece argued that smallest saleable unit is economically senseless.  That's true.  High base times small rate, get same number as with smaller base and higher rate.  In the FRAND cases, often tiny rates times unit.  Is this the direction we should be going?

Levy:  People will be thinking in terms of the number they are given.  Framing.  But in economic terms, it makes sense to think in terms of actual value of the patent.  Sometimes it's nothing, sometimes it's small.

Lytle:  You can't just take the smallest saleable unit; CAFC telling us that in Virnetx.  Maybe a lump sum would be better in some cases.   

Cavanaugh:  We need to open to a number of ways of articulating value.  As we move into new areas, it becomes a challenge determining how that should be compensated.

Question from the audience (Tim Simcoe):  Trend toward linking damages more to economic value.  What is the value of the hypothetical negotiation, relative to just asking what is the value of the patent in a given case?

Lytle:  I don't like Georgia-Pacific; hypothetical negotiation may not always be the best way of measuring harm.  Hard to explain to jury what would have happened eight years ago.  What we are really trying to get at is what is the feature worth?

Levy:  How much is this worth is a hard question.  Georgia-Pacific was intended to be a good proxy, but may be just as hard.  I don't think it's all that helpful.