From Around the Blogs

1.  On Law360, Ryan Davis published an article titled Ax of $85M Verdict Shows Hurdles in Proving Patent Damages.  The article discusses the Federal Circuit's recent decision in Apple Inc. v. Wi-LAN Inc., which (as I discussed here) reversed an $85 million patent damages award against Apple and the sent the matter back to the trial court for a third trial on damages.  The article quotes various people, including me, discussing how the use of (purportedly) comparable licenses to quantify a reasonable royalty is extremely fact-intensive, and how challenges arise when an expert tries to derive a royalty for a single patent on portfolio licenses that may include hundreds of other patents.

2. On the Kluwer Patent Blog, Enrico Bonadio, Ichiro Nakayama, and Anushka Tanwar published a post titled The Japanese Government calls for views on SEP Licensing Negotiations.  According to the authors, citing an article from IAM Media, the Ministry of Economy, Trade and Industry (METI) has "issued a call for views . . . from all stakeholders regarding SEP negotiation guidelines."  (The IAM article is behind a paywall but appears to say that the deadline was March 8.)  Japan's efforts in this regard would seem to parallel similar efforts underway in the U.S., U.K., and E.U. (as noted, e.g., here.) 

3. On JUVE Patent, Mathieu Klos published a piece titled Philips and Hoyng win final instance FRAND battle against Wiko.  According to the article, the Dutch Supreme Court recently affirmed judgments for Philips against Wiko, enjoining Wiko from selling devices in the Netherlands and rejecting Wiko's FRAND defense on the ground that Wiko was an unwilling licensee. 

4. IP Watchdog and Law360 both published pieces discussing a bill recently introduced in the U.S. Senate to rein in foreign courts' use of antisuit injunctions.  Specifically, in the event that a U.S. courts were to find that the party seeking an antisuit injunction infringed, there would be a presumption that the infringement was willful and the case exceptional--thus opening up the infringer to the possibility of enhanced damages and fees.  The bill also would preclude the PTAB from instituting review of the relevant patent.  Although the bill doesn't mention China by name, the accompanying press release does.

My view is that, while I'm not a big fan of antisuit injunctions--I think they should be issued rarely--I don't think this is a great idea, given among other things that U.S. courts sometimes have been known to issue them in patent matters, and one might expect foreign courts to respond in kind to legislation like this.  Moreover, the use of antisuit injunctions seems to have dropped (to zero?) since the German courts last year started expressing the view that a implementer seeking an antisuit injunction in another country would be considered an unwilling licensee.  

For a more detailed, cogent criticism of the bill, see Florian Mueller's post here and Jorge Contreras' post here; the latter also notes the risk of "reciprocal actions by other countries."

Remedies Issues in BASF v. CSIRO

Yesterday the Federal Circuit handed down its decision in BASF Plant Science, LP v. Commonwealth Scientific and Industrial Research Organisation (majority opinion by Judge Taranto, with Judge Newman filing a partial dissent).  The six patents in suit "concern the engineering of plants, particularly canola, to produce specified oils not native to the plants" (p.3), and the principal issues on appeal relate to venue, written description, and patent ownership under a materials transfer agreement.  Long story short, the majority finds that the species, but not the genus, claims of four of the patents in suit satisfy the written description requirement, and that BASF is not a co-owner of any of the patents.  The remedies issues are less significant, but for what it's worth the majority concludes, first, that the district court was correct not to submit the issue of willfulness to the jury, stating:

 

To establish willfulness, a patentee must show that the accused infringer had a specific intent to infringe at the time of the challenged conduct. . . . In this court, CSIRO identifies only two facts as creating a triable issue of willfulness: that certain BASF witnesses were aware and kept track of CSIRO patents and that BASF did not assert its co-ownership defense until after infringement and litigation had begun. . . . But the second fact cannot be significant given that the patents now at issue did not even issue to CSIRO until after BASF initiated litigation by bringing its declaratory-judgment action in Delaware. And the first fact, even if joined to the second, without additional facts could not establish more than “[k]nowledge of the asserted patent and evidence of infringement”—which “is necessary, but not sufficient, for a finding of willfulness.” Bayer Healthcare, 989 F.3d at 987–88; see also Arctic Cat Inc. v. Bombardier Recreational Prods. Inc., 876 F.3d 1350, 1371 (Fed. Cir. 2017) (relying on facts beyond knowledge of infringement to support a willfulness finding). CSIRO has not shown reversible error in the district court’s willfulness ruling (pp.45-46).

Second, the court affirms "the district court's decision to preclude jury determination of a royalty for past infringement" for lack of an adequate foundation (p.46):

CSIRO contends that the district court, as a matter of patent law, precluded CSIRO from presenting any evidence of a reasonable royalty for past damages on the mistaken premise that projections of future costs, sales, and profits are per se irrelevant to what the patentee could have insisted on as compensation for licensing its patents before sales began. . . . Such a ruling might well be error, as CSIRO suggests. See Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766, 771–72 (Fed. Cir. 2014) (stressing centrality of expectations of profits in past-damages calculation using hypothetical-negotiation framework). But the district court here ultimately did not so rule, see J.A. 10568–89, despite making some statements suggesting the irrelevance of future projections to past damages, see, e.g., J.A. 10581, as BASF itself urged, see, e.g., J.A. 10568–69; J.A. 10574.  

 

The district court never had to so rule because it ruled only on a threshold evidentiary question of whether CSIRO laid the proper foundation for the royalty rate grounded in future projections before CSIRO withdrew its past-damages claim (pp. 46-47). 

Specifically, CSIRO apparently had not responded adequately to questions, posed by the district court, such as "How much does their alleged infringement affect  your research costs? When did the infringement start? . . . Did it start when they first planted the product which produced allegedly infringing oil? . . . Did it start when you first notified them that you were claiming they were infringing? . . . [Y]ou have to lay your foundation before you hit the jury with any percentage royalty that you’re requesting" (p.47).

Third, the court "finds no reversible error in the denial of an infringement-stopping injunction in the circumstances presented," noting among other things that "CSIRO and its partners had not yet entered the commercial market" and "the potential harm done to the public by not allowing both Cargill and CSIRO to enter the underserved fish-food market" (p.48).  (But see below for further developments.)

Fourth, the court remands for reconsideration of the amount of the ongoing royalty, concluding that the district court had applied inconsistent reasoning in excluding two of CSIRO's five proposed comparables:

Although the first two licenses covered what appears to be the closest technology at issue, see LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 79–81 (Fed. Cir. 2012); Commonwealth Sci. & Indus. Rsch. Organisation v. Cisco Sys., Inc., 809 F.3d 1295, 1306–07 (Fed. Cir. 2015), the district court determined that those licenses were not sufficiently comparable to merit use for the royalty baseline because they were profit-sharing arrangements for research and development—not agreements between competitors. . . .

 

But that reasoning creates a problem of internal inconsistency because the agreements that the court instead used for its baseline (i.e., the Hamburg, Amatheon, and Bioriginal agreements) were also not competitor agreements. . . . The district court did not adequately explain why not being a competitor licensing agreement was an outright bar for consideration of two licensing agreements but only a surmountable obstacle for the other three (pp. 49-50).

Finally, moreover, on remand the district court will need to reconsider both the injunction and the amount of the ongoing royalty in view of, inter alia, the majority's conclusion that the lower court erred in entering judgment that one of the patents in suit was co-owned by BASF:

On the remand, the ’792 patent, which has a longer term than the Group A patents, will be part of an altered record for the prospective remedy (while the broader genus claims will not)—both for the ongoing royalty and for the infringement-stopping injunction. Besides noting the need to include the ’792 patent in the remedy and exclude the genus claims, we do not prejudge whether the altered basis of liability requires other changes in the remedy. . . .

 

We also are told that new facts will exist, namely that CSIRO and its partners have entered the commercial market, changing a fact on which the district court relied in denying an infringement-stopping injunction. On remand, the district court should therefore consider whether there are such new facts, whether governing law permits them to be considered as a basis for now granting an infringement-stopping injunction, and whether, if so, they warrant changes in the remedy (pp. 50-51).

Judge Newman dissents on the co-ownership issue.

The Fifth Circuit's Decision in Continental v. Avanci

On February 28, the United States Court of Appeals for the Fifth Circuit held in Continental Automotive Systems, Inc. v. Avanci, L.L.C., that Continental--a maker of telematics control units (TCUs) used in automobiles--lacked article III standing to pursue its claims that Avanci, a patent pool, and its SEP owner codefendants (including Nokia, Optis, and Sharp entities) violated sections 1 and 2 of the Sherman Act by refusing to license FRAND-committed SEPs to Continental (as opposed to end-user automobile manufacturers).  Put another way, the claims alleged that the defendants' refusal to license any member of the supply chain ("license-to-all"), in preference to a policy of licensing end users only ("access-to-all") is an antitrust violation (as well as a breach of contract under state law).  The district court had held, inter alia, that Continental failed to allege "antitrust injury" (that is, injury of a type the antitrust laws were intended to prevent), and that in any event the allegations did not state a claim upon which relief may be granted under federal antitrust law.   Without expressly addressing either of these issues, however, the Fifth Circuit majority holds that Continental did not allege a sufficient injury of any sort to sustain article III standing, a necessary prerequisite to federal jurisdiction in the United States.  In reaching this conclusion the states, among other things, that even if 

Continental is contractually entitled to a license on FRAND terms as a third-party beneficiary, the pleadings reflect that it has suffered no cognizable injury. . . .  [T]he contracts have not been breached because the SEP holders have fulfilled their obligations to the SSOs with respect to Continental. The supplier acknowledges that Avanci and Patent-Holder Defendants are “actively licensing the SEPs to the OEMs[,]” which means that they are making SEP licenses available to Continental on FRAND terms. As it does not need to personally own SEP licenses to operate its business, it has not been denied property to which it was entitled. And absent a “denial of property to which a plaintiff is entitled,” Continental did not suffer an injury in fact" (pp. 11-12).

Commentators are suggesting that, as a practical matter, the case probably sounds the death knell for "license to all" (see, e.g., here and here), and they may be right (unfortunately, in my view).  

Be that as it may, I am inclined to think that it would have been preferable to decide the case on the merits rather than to dismiss for lack of standing, for reasons suggested by the following thought experiment.  Suppose, for the sake of argument, that the FRAND commitment at issue is best construed as standing for the proposition that SEP owners must offer licenses to all, including component manufacturers; but that a group of SEP owners breaches the policy by offering licenses to end users only.  Presumably the SEP owners would argue that licensing at the end user level alone is more efficient because it conserves on transaction costs; component suppliers, in contrast, may argue that the actual purpose and effect is to extract higher (above-FRAND) royalties than would otherwise be possible.  Without passing on the merits of who's right about the rationale for the de facto "access to all" policy, shouldn't the component manufacturer at least have the ability to challenge that policy in court, if there is a reasonable argument that the FRAND commitment entitles it to a license?

The court here effectively says no--that the denial of a license to the component manufacturer does not cause the latter to suffer any cognizable harm, at least absent allegations (not present in the real case, according to the Fifth Circuit, see pp. 7-9) that the end users demand that component manufacturers indemnify them for having to pay above-FRAND royalties.  And that may sound reasonable--after all, in theory it preserves the ability of the end users to assert claims that they are being harmed by the access-to-all policy--but is it consistent with recent Supreme Court case law reaffirming that federal courts otherwise vested with subject matter jurisdiction can adjudicate claims for violations of common-law rights such as breach of contract, even if there is no showing of injury apart from the fact of the violation?  (To be sure, the Fifth Circuit majority expressed skepticism that Continental itself has any contract rights as a merely "incidental" third-party beneficiary, see p.11.  But the paragraph quoted above proceeds on the assumption that it does.)  Of course, federal jurisdiction in the present case hinges on the viability of the federal antitrust claim, not any state-law breach of contract claims, and the antitrust statute requires proof of injury to business or property; so maybe that makes all the difference, though it seems to me that that issue would be more appropriately discussed as a matter of antitrust injury/antitrust standing than constitutional standing, as the district court judge and the concurring appellate court judge believed.  Or maybe the Fifth Circuit majority simply is saying, without being explicit about it, that the FRAND commitment at issue requires only access-to-all; but if so, it would have been useful to review the actual language of the commitment before reaching that implicit conclusion.         

Blogging Break

I will be taking a blogging break next week, March 7-11.

Sandrik on Enhanced Damages

Professor Karen Sandrik has published an article titled An Empirical Study: Willful Infringement & Enhanced Damages in Patent Law After Halo, 28 Mich. Tech. L. Rev. 61 (2021).  Here is a link to the paper, and here is the abstract:

For decades, companies and attorneys have instructed teams of engineers, researchers, and computer scientists to ignore patents. The reasoning for this advice: if there is no pre-suit knowledge of a patent, then it is nearly impossible for a patent holder to prove that enhanced damages are warranted. Pre-suit knowledge is a prerequisite for a finding of willful infringement, which is itself a prerequisite for awarding enhanced damages. The median patent damages award is around ten million dollars, and large companies like Intel, Teva Pharmaceuticals, Microsoft, and Abbott Laboratories have all recently faced billion-dollar patent infringement judgments. In this landscape, a multiplier of up to three times the compensatory damages is strong motivation for companies to purposely create a patent-ignorant work environment. Yet this advice defeats an important goal of patent law: the disclosure and dissemination of technological information. How can technology companies learn from new and nonobvious innovation disclosed in patents if their heads are stuck in the sand?

In this empirical study with data spanning 2010 to 2020, I provide a data-driven answer to whether this deliberate ignorance strategy is effective. The answer, in short, is that reading patents, conducting patent clearance searches, and/or responding to cease-and-desist letters does not, in isolation, open the door to enhanced damages. Finally, by employing an original data set to seek this answer and potential solutions to deliberate patent ignorance, this study provides empirical statistics regarding willful infringement and enhanced damages. This includes empirical statistics illustrating the impact of the 2016 Supreme Court decision, Halo Electronics v. Pulse Electronics.

I read this paper in draft last year and thought it was excellent.  The descriptive statistics on how often different districts make findings of willfulness, and how often they enhance damages, are quite interesting, and the paper makes a good case for why deliberate ignorance is not a worthwhile strategy.  (For previous discussion of this issue on this blog, see, e.g., here, here, and here.)  Highly recommended.

Noninfringing Alternatives and Wins Above Replacement

A recent article in the Wall Street Journal, titled "A Nerdy Baseball Stat Is Going Mainstream. The Wonks Aren’tHappy," discusses a statistic, created by baseball analysts for purposes of evaluating and comparing baseball players' performances, called "Wins Above Replacement" or "WAR."  Major League Baseball's website defines WAR as a measurement of "a player's value in all facets of the game by deciphering how many more wins he's worth than a replacement-level player at his same position (e.g., a Minor League replacement or a readily available fill-in free agent).  For example, if a shortstop and a first baseman offer the same overall production (on offense, defense and the basepaths), the shortstop will have a better WAR because his position sees a lower level of production from replacement-level players."  According to the Wall Street Journal article, discussions are underway about "creating a performance-based bonus pool of money for young players who don’t yet qualify for salary arbitration" that would involve tying payouts to a player's WAR.  The article also discusses some possible problems with using the statistic to determine compensation, among them that different stats organizations use different formulas to compute player WARs, and these organizations are not necessarily willing to bear responsibility for what players get paid.  I can imagine some interesting IP questions as well, among them whether the statistics themselves are subject to copyright protection; as I recall, the case law on copyright protection for statistics like these is rather confusing.

 All of this may seem to have absolutely nothing to do with patent remedies, but it occurs to me that the WAR statistic is conceptually very similar to the "noninfringing alternative" concept that plays such a big role in the U.S. law of patent damages.  As I discussed recently at the OxFirst webinar on patent damages calculations in the United States, for over a century U.S. courts have taken noninfringing alternatives into consideration for purposes of calculating monetary awards for patent infringement (as illustrated, for example, in cases such as  Grain Processing Corp. v. American Maize-Products Co., 185 F.3d 1341 (Fed. Cir. 1999)).  The basic logic is twofold.  First, if the defendant could have avoided infringement by employing a noninfringing alternative to the patented technology, and would have made some or all of the sales it actually made using the patented technology, the infringement did not cause the patentee to lose those sales.  Second, the economic value of a technology is the value it confers upon the user in excess of what the infringer would have earned using the next-best available noninfringing alternative.  Ignoring noninfringing alternatives therefore would place the patentee in a better position than it would have occupied, but for infringement, and would risk overcompensating the patentee for its contribution to the state of the art.  All of this is, as I said, pretty standard in U.S. law, and courts in Canada and France have employed it as well.  Nevertheless, courts in the U.K. so far have adhered to a nineteenth century precedent, United Horse-Shoe & Nail Co. v. John Stewart & Co., (1888) 5 RPC 260 (H.L.), which rejected the relevance of non-infringing alternatives to patent damages calculations; and even in the U.S., practical considerations may limit the applicability of the principle in other types of IP cases, such as copyright.  (For discussion, see my article on extraterritorial copyright damages here. Moreover, other policy considerations may limit its applicability in other bodies of law, as discussed by Professor Yelderman here.)  That said, the concept makes a lot of sense as an indicium of value, and so it's interesting to see something like it being deployed in another context for an analogous purpose.  Perhaps if they start applying it to compare cricket players, as well as baseball players, the concept will eventually make its way into English patent law . . .

Of course, as in the law of patent damages, there is often plenty of room for debate about exactly how to determine the value of something or someone over the next-best alternative (as the article points out in the baseball context, where estimates of individual players can differ substantially).  I imagine there also may be difficulties determining what or who the next-best alternative is, as in the patent-law context where my coauthors and I have noted the lack of any good answer (so far) to the question of how to calculate value when the next-best alternative is itself patented.  In the baseball context, is a minor-league ballplayer analogous to a nonpatented alternative?