Landmark German Case on Patent Damages, Part 2

Continuing my discussion from Wednesday of the Judgment of the Munich Regional Court of Apr. 16, 2026, 7 O8367/25, the second portion of the decision centers on issues relating to awards of the infringer’s profits.  The court states that calculating the award involves three steps:  determining the infringer’s revenue, deducting the appropriately deductible costs, and determining the appropriate proportionality factor (Anteilsfaktor) (para. 61).  As for the first of these, the patentee can rely on the amount the infringer discloses pursuant to its disclosure obligation (Auskunftsverpflichtung) (para. 63).  In addition, the court says it is fundamentally irrelevant whether the claim is for direct or (as here) indirect infringement; in such a case, the revenues from all of the machines sold by the defendant and assumed to have been used for the purpose of practicing the patented technology are to be taken into account (para. 64).  (More on this issue below.)  Further, for sales made up to three months following expiration of the patent (sometimes referred to in English as “springboard” profits), the court believes that there should be a rebuttable presumption that these sales were the product of infringing offers made during the patent term (para. 65).  Extrapolating from the BGH’s decision in Polsterumarbeitungsmaschine (Judgment of Nov. 14, 2023, I ZR 30/21, discussed on this blog here), moreover, the patentee also is entitled to recover profits earned from additional business (Zusatzgeschäften, a term that in the context of patent law I would normally translate as “convoyed goods,” but I hesitate to use that term here because this is a case involving indirect rather than direct infringement), including goods that were sold after patent expiration but which are traceable to infringing conduct during the patent term (paras. 66-72).  These effects presumably dissipate over time, however, and so the court concludes that it is appropriate to presumes that the portion of such sales decreases in a linear fashion over a ten-year period—to wit, in the first year following patent expiration, the monetary recovery can be assessed at 100%, in the second year 90%, and so on (para. 72).  The court next turns its attention to deductible costs, which in general are the variable costs of production only and not the fixed costs, in accordance with the BGH’s Gemeinkostenanteil decision as I noted the other day (see paras. 73-88, going into some detail about which costs typically should be classified as variable and which fixed).  The court then turns its attention to causality and the proportionality factor, stating that this inquiry involves two steps:  determining the appropriate base (Bezugsgröße) and then the appropriate percentage of the profit to allocate to that base (para. 89).  Again it references the brake pad example noted on Wednesday, stating that

To answer the question of the extent to which the infringer’s profit is attributable to the infringement, the specific Bezugsgröße of the infringing product must first be determined. For example, if the infringed patent concerns a specific design of a brake pad for a motor vehicle, the proportion factor will vary depending on whether the vehicle, the brake system, or the brake pad is taken as the reference. The larger the Bezugsgröße chosen, the lower the proportion factor to be applied. Another factor in determining the Bezugsgröße is whether the patent protects a minor improvement or a completely novel invention. It is also relevant whether alternatives exist on the market and whether the product is emotionally charged (e.g., a brand-name product), which is generally unlikely to be the case (para. 91).

 Tying together the proportionality factor and the presumption of springboard profits, the court states that

. . . when determining the causality factor, it must be noted that subsequent transactions concluded after the expiration of the patent’s term are likely to be based less and less on the infringement of the intellectual property right over the years (the “blurry factor”—derived from the English term “blurry”: blurred).  In its Polsterumarbeitungsmaschine decision, the BGH does not postulate a right of the patent holder to perpetual participation in the profits generated by the patent infringer through subsequent transactions. Rather, the intention is to achieve a fair balance of interests. Therefore, the Chamber assumes that follow-on transactions are generally included for a period of 10 years after patent expiration, and that the proportion of the infringer’s profits attributable to the patent infringement decreases by 10% of the baseline value each year. This means that, in the first step, the causation factor must be determined as the base value, for example, 50%. This value is to be applied for the first year. In the second year, only 45% is to be applied, in the third year 40%, and so on (para. 92).

The decision concludes with the application of this methodology to the facts of the case.  The defendant sold 28 machines (25 during the patent term, 3 within one month of expiration), which generated revenue of €1,994.312, from which the court deducts €986,365.40 in variable costs; the court then determines that the appropriate causality factor is 50%, reasoning that, although “the machine is solely suited to carrying out the patent-infringing process,” “particularly with such expensive machines, other factors also play a role in the purchase decision, such as the defendant’s reputation or the quality of the services it offers in connection with the machines” (para. 118).   The resulting sum is, according to the court, €503,972.80 (I get €503,973.30; not sure what accounts for the missing 50 cents).  The revenue from the sales of 26 canisters of solvent sold during the patent term amounts to €531,611.32, from which €245,486.08 is deductible, leaving €286,125.24, to which the court applies a causality factor of 70%, resulting in €200,287.67.  The court then turns to solvents sold post-expiration but before the court hearing (36 months), and comes up with a figure of €397.26 in profit per machine per month (I’m not quite following the math here), to which the “blurry factor” analysis leads to a reduction of 10%, resulting in €360,394.27.  So overall, the award is €1,064.654.74, plus interest.  

So, to summarize, in a case in which the defendant was found to have engaged in indirect infringement by selling machines and solvent used by third parties to perform the patented process, the patentee is entitled to recover an allocable share of the profits earned on the sale of those machines and solvent, including a portion of the profits earned on sales made post-expiration.  (Although the name of the solvent is redacted, my sense is that it is a staple article of commerce.  I should also mention, perhaps, that the defendant is appealing the underlying liability determination.)  Overall, I think this is pretty remarkable.

In and of themselves, awards of damages (or, in countries where the law so permits, profits) for Zugeschäften are not so remarkable, assuming that there is sufficient proof of a causal connection between the infringement and those sales—although with respect to convoyed goods as such, the law in the U.S., unlike in the U.K., France, and Germany, imposes an additional limitation that the damages must “function together with the patented component in some manner so as to produce a desired end product or result.”   See Rite-Hite Co. v. Kelley Corp., 56 F.3d 1538 (Fed. Cir. 1995) (en banc) (stating further that “[a]ll the components together must be analogous to components of a single assembly or be parts of a complete machine, or they must constitute a functional unit,” and that “precedent has not extended liability to include items that have essentially no functional relationship to the patented invention and that may have been sold with an infringing device only as a matter of convenience or business advantage”).  Recovery of springboard damages or profits also are not so remarkable either, again assuming proof of a sufficient connection between the infringing conduct and sales made post-expiration.  German law, however, as evidenced by the Posterumarbeitungsmaschine decision, already had gone one step further, in permitting the recovery of profits on springboard convoyed sales.  And now this decision applies that logic to the induced infringement of a process patent. 

Even if we put aside for the moment the question of whether the court’s presumptions pertaining to post-expiration profits are sound, something about awarding the profits earned by an indirect infringer on its sales to the direct infringer of machines and solvent used for carrying out the patented process seems odd to me.  Suppose, for example, that a direct infringer benefits from the use of a patented process because the process reduces its costs of production by €150; but that to carry out the process, it must first buy equipment that costs it €50, so its net benefit from using the process is €100.  Suppose further that the seller of the equipment (who, let’s assume, will be liable under applicable law for some form of indirect infringement) incurs costs of €25 to produce that equipment, and thus earns a €25 profit on sales of the equipment to the third party.  Alternatively, suppose that the equipment costs the direct infringer €100 but still only costs €25 for the indirect infringer to manufacture.  The direct infringer’s net benefit is now €50 and the equipment manufacturer’s profit is €75.  In either case, the optimal outcome ex ante would have been for the direct infringer to agree to pay a royalty for the use of the use of the process, in some amount up to €150 minus the cost of the equipment used to carry out the process.  If the price of the equipment was €50, the direct infringer should have paid a royalty of up to €100, but on these facts the patentee who sues the indirect infringer can recover only €25 (assuming that profits are an available measure of monetary recovery).  Conversely, if the price of the equipment was €100, the direct infringer should have paid a royalty of up to €50, but the patentee who sues the indirect infringer can recover €75.  In neither case is the award of profits really tethered to the value of the use to the direct infringer, which would seem to me to be the more appropriate measure.  Of course, this is just a stylized example, and I suppose one could argue that a rule allowing for the recovery of either the direct or indirect infringer’s profit encourages the parties to negotiate ex ante rather than to infringe.  Even so, it seems like an odd result to me, though I need to give the matter some more thought.   (On the topic of damages for indirect infringement, see this article by the late Professor Dmitri Karshtedt, which I noted here.)

Another thing that is striking about the decision is the court’s summoning out of thin air its three-month, ten-year, and “blurry factor” presumptions.  Oddly enough, in a talk earlier this week to a group in the Netherlands, I mentioned at one point how the conventional view is that common-law judges have some measure of discretion to make law in response to changing circumstances, whereas civil-law judges are constrained to follow the code; but in fact, it’s not very difficult to come up with examples in which civil law judges have sometimes crafted judge-made standards dehors the text.  The example I actually had in mind when I made the comment was the development by French and German courts, over a hundred years ago, of moral rights in copyright law, though later I thought about the Huawei v. ZTE “dance” as articulated by the CJEU and further refined by the UPC and domestic courts; and the above decision would seem to be yet another example.  Meanwhile in the U.S., our (in my view, sometimes excessively) textualist-minded courts seem to be moving in precisely the opposite direction, as witness, e.g., cases like Romag Fasteners (discarding both precedent and common sense in adopting a literal reading of the Lanham Act's provision on disgorgement of profits, see discussion here), AMG Capital Management (in contrast, holding that the FTC cannot seek disgorgement of profits, see discussion here), or in a related vein Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999) (holding that the Judiciary Act of 1789 precludes U.S. district courts from entering injunctions of a type that were unknown in 1789).  Freaky Friday, anyone?

Landmark German Case on Patent Damages, Part 1

Earlier this week, ip fray published a post discussing and excerpting a recent decision of the Seventh Chamber of the Munich I Regional Court, specifically the Judgment of Apr. 16, 2026, 7 O 8367/25.  The patent at issue is the German portion of EP 1 501 669 B1, for a “smoothing method for layered deposition modeling,” used in layered manufacturing techniques.  (I was interested to see that the inventors are from Eden Prairie, Minnesota, not much more than a stone’s throw from my house.)  The patent has expired, but the defendants were found to have engaged in indirect infringement during the patent term by selling machines and solvents used to carry out the process.  The present decision therefore focuses on damages, ultimately awarding €1,064,654.70 for the sale of 28 devices and 266 16-liter units of solvent (paras. 39-40), both used for carrying out the process.  But because “there are therefore few decisions regarding the amount of damages,” the court perceives “a need for judicial clarification on exactly how damages should be calculated. This is particularly necessary because, as a result of the European Court of Justice’s ‘BSH-Hausgeräte’ decision (GRUR 2025, 568), national courts are likely to have to deal with an increasing number of centralized claims for damages” (para. 42; I’ll be using machine translations throughout, subject to some adjustments of my own from the original German).  So beginning with paragraph 43 of the decision, the court sets out what it views as the relevant principles for calculating damages.  (These are summarized in the decision’s headnotes at the beginning of the decision, and these headnotes are the focus of the ip fray article.)  Overall, this appears to be quite an important decision, so I am dividing up my discussion and analysis into at least a couple of parts, with today’s post centering on the court's general statements regarding lost profits, royalties, and infringer's profits.

First, the court compares the three methods of determining damages (the aforementioned lost profits, royalties, and infringer’s profits), stating that the first of these is the hardest to prove but also tends to be result in a higher amount.  Reasonable royalties are comparatively easy to prove, and infringer’s profits something of a compromise between the two (para. 49), though the latter are not dependent on the amount of the patentee’s loss (para. 47).  This all seems largely correct to me, from an economic standpoint, although I would also point out that the infringer’s profit could be higher than the patentee’s own lost profit, if for example the infringer reaches markets the patentee doesn’t or is a more efficient producer of the patented article.  Overall, though, this discussion is in my view a welcome change from something I recall haven previously seen (see my discussion here) suggesting that in principle all three methods should converge on the same amount.

Second, the court notes that patentees’ reluctance to disclose their own financial information means that there are few decisions in which lost profits are awarded.  The court appears (to me) to want to change this, stating that all the patentee really needs to do is to prove its unit price and to offer the expert opinion of an auditor of what costs should be deducted (para. 51).  Moreover, the need to prove causation need not be insurmountable; all the patentee must do is prove a decline in sales following the infringement, and a rebuttable presumption then arises that these are caused by the infringement (para. 52).  The court suggests that the infringer can try to rebut the presumption through, perhaps, market reports--though the ip fray article suggests that in practice the presumption may be hard to overcome, because of the limited discovery available to defendants.

Third, the court says that patent owners can combine a lost profits award with a reasonable royalty or an award of profits, in cases in which the decrease in sales is at least partly attributable to other factors, or the infringer reaches additional markets that the patent owner didn’t serve.  But reasonable royalties can’t be combined with infringer’s profits (para. 53), all of which seems economically correct to me.

Fourth, in line with the BGH’s 2001 Gemeinkostenanteil decision, as a general rule when calculating an award of infringer’s profits, only the infringer’s direct costs should be deducted from its revenue (para. 54).  (The non-deductibility of allocable overhead, of course, leads to higher awards.)  In addition, however, the court stresses the importance of determining the extent to which the infringer’s profit is attributable to the infringement.  In this regard, it is essential to determine the appropriate base (Bezugsgröße).  Here, the court uses as an example an infringing brake pad.  In comparison with the entire vehicle the brake pad portion (Anteil) is vanishingly small; in comparison with the brake assembly, it is small; and in comparison with the brake pad itself it is, of course, 100% (para. 55).  In this regard, especially for a very small component of an entire product, the portion may be determined not be means of a percent but rather as a multiple of the standard license rate (para. 56).  In contrast, for machines which make use of a method or device claim, typically the percentage can be presumed to be 50% (para. 57).      

Fifth, a reasonable royalty can be viewed as a “safe harbor,” and the requirements for calculating it are minimal (niedrig).  The revenue from infringing products should be evident from the disclosure the defendant is required to make (in German, the Auskunft), after which it is necessary to determine the base (entire machine or component) and the typical license rate.  According to the court, the standard rate varies from 1% in the automobile industry to 10% for high-quality mechanical engineering (para. 58).  (The ip fray article suggest that these rates could really add up, since in Germany a separate action is required for each patent that is asserted by the plaintiff.  Or would the court take this procedural matter into account in calculating royalties, to avoid overcompensation?)

Sixth, the court states that because of differences between a negotiated license and license rate that is determined followed a finding of infringement, the latter can be higher, citing the Munich court’s 2010 Gülleausbringung decision (which I blogged about here).  This makes economic sense, since the infringer avoids certain risks that the voluntary licensee undertakes, and also because prior to final judgment there often will be some uncertainty as to infringement (though in Germany, there still may be substantial uncertainty as to validity, since the invalidation proceedings are separate from infringement proceedings).  As to the amount of the enhancement, the court says it can be up to three times higher (para. 59).  This actually seems pretty high to me, in view of the latter point about validity still potentially being in dispute.  

There is a lot more to the decision—some of it potentially quite path-breaking—including discussion of apportionment of profits, damages for convoyed goods, and springboard damages.  I will continue with my next installment on this decision in a few days.

Wrongful Patent Assertion: A Comparative Law and Economics Analysis

I am pleased to announce that the online edition of my new book, Wrongful Patent Assertion:  A Comparative Law and Economics Analysis (Oxford Univ. Press 2026), is now out.  The hardcover edition is scheduled to be published on May 21.  This is the culmination of a project I first conceived over ten years ago, and it is gratifying after so much time and effort to finally see it through to completion.  I am grateful to the many colleagues and students who provided feedback along the way.

 

Kapischke on Interim Licenses and AILIs

Justus Kapischke has published an article titled Interim Licences and Anti-Interim-Licence Injunctions:  Semi-strict non-interference or rules for the race?, 5/2026 GRUR 275.  Here is the abstract:

This article analyses and provides background information on two recent decisions of the LG Munich I and the LD Mannheim.  In both decisions, the courts react negatively to the English practice of awarding interim licence declarations in FRAND disputes, enjoining implementers from applying for such relief.  The LD Mannheim further offers its opinion on the limits of final FRAND determinations in England.

The decisions at issue are, of course, Judgment of Nov. 26, 2025, LG Munich I, 21 O 12112/25, and InterDigital VC Holdings, Inc. v. Amazon.com, Inc., UPC_CFI_936/2025 (LD Mannheim Dec. 22, 2025), both of which entered anti-interim license injunctions (AILIs) directed against Amazon.  (Both decisions are also excerpted in this same issue of GRUR, at pp. 313-30.  The appeal from the Mannheim LD decision will be heard on May 28.)  The author ably illustrates the incompatibility of the English approach to FRAND disputes (under which the court’s task, ultimately, is to set a rate) and the German/UPC approaches (which to date have focused on conduct), writing that “[a] foreign court making injunctions unavailable by ordering the SEP holder to grant a licence interferes with the incentive structure of injunction focused approaches,” whereas “conduct-based injunctions may force settlement before any court had the chance to establish FRAND terms either by determining them or by confirming the FRANDness of the SEP-holder’s offer, frustrating a rate-setting approach” (p.177).  He questions some of the analysis of the above two decisions, noting that they both seem premised on the coercive effect of an English declaration concerning interim licenses (effectively equating them to antisuit injunctions), even though “it is clear that interim licences do not force an SEP-holder to accept rate-setting proceedings in the implementer’s preferred forum” (p.179).  True, the SEP holder’s refusal to comply with the declaration could result in its being deemed an unwilling licensor, but the author states that the SEP holder’s seeking an AILI is “unlikely to change anything about that” (p.180).  (In addition, it would seem to me, the odds that the SEP holder would obtain an injunction in the U.K. are pretty negligible anyway, aren’t they?)  In addition, he notes both courts’ emphasis on the territorial nature of patents, which however in a strictly jurisdictional sense “appears not to be the current law in Germany or the EU as exemplified by the ECJ’s judgment in BSH” (p.182).  I’m glad to see someone making this connection, which seems quite important to me.  The author argues, however, that strict territoriality is not the Mannheim LD’s position, but rather only what he refers to as “semi-strict” territoriality in the sense that “courts can, on behalf of SEP holders, impose their view of global FRAND licences on implementers by way of injunctions,” but implementers “may not use similarly coercive measures as means of imposing global FRAND determinations on SEP holders, since this would interfere with foreign infringement proceedings” (p.182).  I’m not entirely sure of the author’s view here, but I’m not convinced of the merits of this distinction.  (I plan to explore the question more deeply in a forthcoming essay I will contributing to the Research Handbook on Extraterritoriality and Intellectual Property, which I mentioned here the other day.  Consistent with the author’s observation that “both sides can at least plausibly accuse each other of having taken the first ASI-like measure” (id.), it has long seemed to me that when courts start issuing ASIs, AASIs, AILIs, declarations concerning interim licenses, and so on, it is awfully difficult to say which jurisdiction is the one violating the comity norm.)  The author closes by suggesting that it would be helpful “to obtain authoritative constructions of the relevant (F)RAND undertakings from the French of Swiss courts,” and also if SEP holders “offer[ ] to refrain from seeking injunctive relief if the implementer agrees to be bound by a rate-setting procedure in Germany or at the UPC” (id.).  Might the German courts and/or UPC ever head in this direction?      

Lavie and Shapira on Rivalrous Remedies

Shay Lavie and Roy Shapira have posted an article on ssrn titled Rivalrous Remedies, Vand. L. Rev. (forthcoming).  Here is a link to the paper, and here is the abstract:

Legal scholarship typically conceptualizes enforcement as operating directly on wrongdoers: either by enjoining them ex ante or by imposing monetary sanctions on them ex post. Yet across a wide range of legal fields, courts and lawmakers have long employed a different and largely untheorized instrument. Instead of sanctioning the wrongdoer directly, these doctrines deter misconduct by conferring a legal advantage on the wrongdoer’s rival: a business competitor, a litigation counterparty, or another strategically positioned actor. For example, when a patent holder forces customers to sign aggressive licensing agreements, courts may allow the patent holder’s competitors to freely infringe the patent. And in family law, when one parent alienates a child from the other, courts often respond not by fining the alienator parent but by granting the alienated parent additional visitation rights.

 

This Article is the first to systematically analyze this institutional design, which we term “rivalrous remedies.” In the process, the Article makes three contributions. Conceptually, it identifies the conditions under which regulating behavior indirectly—by empowering rivals—can outperform classic remedies. Rivalrous remedies can leverage the superior information and incentives of rivals. At the same time, these remedies operate effectively only in certain market structures and pose risks of overuse and spillover harms to third parties.

 

Descriptively, the Article demonstrates the prevalence of rivalrous remedies by analyzing nine doctrines across diverse legal fields: from false advertising to defamation law to civil procedure. While each doctrine has been criticized by scholars in their respective fields, viewing them through a common lens reveals a shared institutional logic: they emerged to address chronic underenforcement problems. In particular, these doctrines respond to underenforcement by shifting who enforces (not necessarily the direct victim) and/or how enforcement occurs (through largely self-executed mechanisms requiring minimal judicial involvement).

 

Normatively, the Article offers guidance for courts interpreting existing rivalrous remedies, identifying when they should be expanded, constrained, or combined with traditional remedies. It also proposes the adoption of a new rivalrous remedy in trade secret law to address enforcement failures surrounding consumers’ “right to repair.”

Although I don’t necessarily with everything in the paper, its presents an intriguing analysis of a variety of doctrines—including one that I have written on from time to time (including in my forthcoming book, Wrongful Patent Assertion), namely IP misuse.  On misuse in particular, the authors argue that traditional remedies against, say, overextensive licensing practices are often ineffective, because the direct victim may have difficulty proving (for example) an antitrust violation (or, in the copyright sphere) fair use.  Patent and copyright misuse law can counter this potential underenforcement problem by conferring an advantage (unenforceability of the subject IP) on the patent or copyright owner’s rivals; in principle, this “rivalrous remedy” should serve as a deterrent against the overextensive licensing practice in the first place.  Of course, how effective that deterrent is depends on the rivals being aware of the overreaching, and being confident that they would prevail on the misuse defense if sued for infringement.  (One possible countervailing consideration, it occurs to me, is that under the traditional understanding of misuse the penalty of unenforceability lasts only until the misuse is purged, so a rival might still be hesitant to make any irreversible investments in reliance on its ability to lawfully access the subject IP.)  Moreover, as the authors note, “the patent misuse doctrine is imperfect,” because “[c]ourts sometimes have a hard time distinguishing between practices that do not hurt competition and those that do” (p.22).  All that said, this is an interesting way of thinking about misuse and doctrines in other bodies of law such as false advertising (where the idea of investing competitors with the right to sue has sometimes been thought of as, in effect, deputizing them to vicariously avenge the direct injuries suffered by consumers) and antitrust.  I think one could probably extend the analysis to the tort of interference with prospective business relations as well, insofar as that body of law confers upon a disappointed rival some recourse against a person who has used improper means to discourage third parties from doing business with the rival—though my sense is that, in its current form, this tort is rarely successful.  

China and ASIs

I don’t think I have previously this mentioned on this blog, but Professor Tim Holbrook and I have signed a contract with Oxford University Press to coedit an edited volume titled Research Handbook on Extraterritoriality and Intellectual Property Law.  I will have more to say about this project over the course of the next year or so, but for now will just note that we have assembled a list of about forty contributors, including ourselves, to address the many issues that may arise in evaluating the geographic scope of IP rights.

One group of such issues, of course, relates to standard-essential patents; among the relevant issues are whether courts can or should award global royalties, with or without consent of the parties, and whether they can or should award interim relief such as antisuit injunctions, anti-antisuit injunctions, or declarations concerning interim licenses.  In connection with antisuit injunctions, as readers are by now aware, a WTO arbitration panel last year ruled in favor of the EU's appeal from the original panel decision, in finding that China’s antisuit injunction policy violated TRIPS articles 28.1 and 28.2, read in light of article 1.1 second sentence (see my post here).  It is therefore notable that, as has been reported elsewhere, on April 1 the EU published an announcement that China had announced its withdrawal of the antisuit injunction policy at the WTO Dispute Settlement Body meeting in September.  The minutes of that meeting are available here, and the EU-China dispute is Item 2 (pages 6-9).  China expresses its agreement with the original panel opinion and its disagreement with the arbitration panel, before stating in paragraph 2.4 that the Supreme People’s Court had issued a notice on September 25 “stating that the so-called ‘ASI policy’, to the extent it ever existed, had been withdrawn and had no continuing effect upon how Chinese courts evaluated requests for anti-suit injunctions in the context of SEP litigation.”  The aforementioned EU announcement states that “[a]fter some initial technical issues were resolved, this notice is currently accessible online from outside China too” (if any readers can point me to it, I would appreciate it), but that “[g]iven the unwritten nature of China’s anti-suit injunction policy, the European Commission will continue to closely monitor the situation to ensure China’s full compliance . . .  and take further action, if necessary.”

In light of these developments, it was interesting to read an article by Yao Jianjun (former vice president of the Xi’an Intermediate People’s Court) in an issue of China Patents & Trademarks, No. 4, 2025, that recently came my way.  The article, appearing in English translation at pages 12-22, is titled Application of Anti-Suit Injunctions in SEP Disputes.  It provides an overview of Huawei v. Conversant, which was the first of five cases from 2020 in which a Chinese court (here, the SPC) granted an ASI (here, against the enforcement of an injunction granted against Huawei in Düsseldorf).  The author discusses where ASIs fit within Chinese civil procedure law, as well as the five conditions specified by the SPC for granting an ASI (“the impact of the enforcement of foreign judgments on Chinese litigation,” “the necessity of ASIs as a preservation measure,” the “balance of interests of both parties,” “the impact of ASI on the public interest,” and “international comity”) and how they played out on the facts of Huawei v. Conversant.  The author agrees with the court’s decision, though he also notes some of the limitations of ASIs, and cautions against the sequence of lawsuits being a dispositive factor (insofar as this would encourage races to the courthouse).  Apparently the article was written before the EU-China matter was completed, since the author references its existence but not its conclusion.

One thing I found interesting in the article, and which I plan to discuss in the essay I will be contributing to the edited volume I mentioned at the beginning of this post, is the author’s emphasis on the perceived need to counteract the impact of proceedings initiated in another country which, he writes, may “impair[ ] the legitimate rights and interests of the applicant,” thus requiring “a remedy . . . to the party that has suffered damage to the injunction” (pp. 14-15).   In this regard, he writes, if Conversant had applied to enforce an injunction in Germany, the result would have been that Huawei either would have exited the German market or would have settled with Conversant (at a rate, he says, that would have been 18.3 times higher than the rate determined by the Chinese first instance court); and that "such potential damage . . . may substantially harm Huawei's legitimate rights and interests" (p.18).  This framing of the issues bears some resemblance the "effects" test (as used, for example, in U.S. antitrust litigation), under which courts sometimes justify the exercise of prescriptive jurisdiction directed against extraterritorial conduct when such conduct has effects within the prescribing jurisdiction.  From an economic perspective, the application of the effects test is akin to the concept of internalizing an externality—though in this context, the twist is that the externality is caused by the foreign jurisdiction’s toleration or authorization of conduct which the domestic court would like to forbid.  Relevant to this point, a generation ago Professor Joel Trachtman wrote an intriguing paper titled Externalities and Extraterritoriality: The Law and Economics of Prescriptive Jurisdiction, in Economic Dimensions in International Law 642 (Jagdeep S. Bhandari et al. eds., 1997), in which he posits that, if we think of nations participating in a market for prescriptive jurisdiction, and of (in some cases) even having the ability to engage in some measure of Coasean bargaining, there is a range of possible options for allocating the right to prescribe.  Some allocations may be more efficient than others, under the circumstances at hand.  An unavoidable aspect of this framework, however, is determining exactly what counts or should count as a harmful externality—that is, one that causes cognizable harm, a topic that my colleague Claire Hill also has written about.  In the context of ASIs, of course, the country against which the ASI is directed (in effect though not in form, since the form of the injunction is inter partes) presumably believes that it is doing nothing wrong by entertaining a case that is lawfully before it, or by issuing an injunction against the infringement of domestic patent rights in accordance with domestic law; and indeed, if the WTO arbitration panel approach prevails, such conduct is in general privileged and does not cause cognizable harm under international law.  But one could also imagine an alternative rule under which the right to issue an ASI to prevent the perceived negative domestic effect (suffered by a domestic firm or by a domestic court) of a foreign injunction prevails over the foreign court's right to entertain a case or enter an injunction.  Determining which rule makes more sense from a policy standpoint might perhaps depend on how absolute the prohibition on ASIs is under the first approach, and how substantial the domestic effect must be under the second.  (Thinking of these issues from a slightly different angle, as I mention in a discussion of Professor Christopher Drahozal’s game theoretic approach to ASIs in my forthcoming book Wrongful Patent Assertion, in a given case reasonable minds may differ whether it is the country issuing the ASI, or the country against which the ASI is issued, that is deviating from the "comity" norm under which nations are largely left to determine their own domestic policies.)  At this stage, I'm not sure exactly where my analysis is going to lead, but this seems like an interesting problem for analysis through a law-and-econ lens; and if readers have any thoughts or suggestions, I’d be delighted to hear them.     

Blogging Break This Week

 Apologies, but once again I am swamped with other work.  I hope to resume blogging next week.