Monday, August 26, 2013

Abuse of Right as a Rationale for Denying Injunctive Relief (and Damages?)

As I will be discussing in a forthcoming paper, courts in different countries have considered at least four different rationales for withholding injunctive relief to the prevailing plaintiff in a patent infringement case. 

First, in cases involving FRAND-encumbered standard essential patents (SEPs), there is the possibility that a court will consider the FRAND commitment to create a binding contract under which the patent owner commits itself to forgo the right to seek injunctive relief.  So far, the argument that FRAND commitments create enforceable contracts for the benefit of third parties has made some headway in the U.S.—specifically, in Microsoft v. Motorola contract dispute currently pending in the Western District of Washington and in the Apple v. Motorola suit that was before Judge Crabb in the Western District of Wisconsin--but not in some others, including Germany and South Korea. 

Second, in common-law countries including the United States, the U.K., and Canada, injunctions are discretionary, and courts may deny them in the exercise of their discretion.  (The eBay decision in the U.S., however, appears to grant considerably more discretion than do the relevant cases in England and Canada, where injunctive relief remains the norm.)    

Third, in an appropriate case courts may invoke competition law (antitrust) as a ground for denying an injunction.  The question of what conditions must be present for a patent owner’s alleged refusal to conclude a license to be considered an abuse of dominant position, in violation of competition law, is currently at issue in the E.C.’s investigations against Samsung and Google, and in the German case between Huawei and ZTE in which the Düsseldorf court has referred certain questions concerning the Orange-Book-Standard defense to the Court of Justice for the European Union.  (I think the antitrust rationale has less of a prospect for success in the U.S., notwithstanding the FTC's consent orders in Bosch and Google.)

A fourth, distinct, approach is to ask whether the patent owner’s alleged refusal to conclude a license amounts to an abuse of right or a failure to negotiate in good faith.  So far, two courts in the ongoing mobile devices patent litigation have held that, in the cases before them, Samsung’s failure to conclude a license with Apple amounted to an abuse of right.  The first was Rechtbank‘s-Gravenhage, Mar. 14, 2012, Nos. 11-2212, 11-2213, 11-2211, in which the court reasoned that an injunction would have enabled Samsung to abuse its patent rights, because the terms Samsung had offered were not FRAND and the evidence did not show that Apple was unwilling to take a license.  The court specifically declined to address whether Samsung’s conduct also amounted to an antitrust violation.  For further discussion, see Michael Fröhlich & Gertjan Kuipers, FRAND and Injunctive Relief, AIPPI e-News, No. 25 (July 2012); Christof Karl, PowerPoint,  The FRAND Defense in European Litigation Involving Standard-EssentialPatents (Mar. 27, 2013); Torsten Körber, Machtmissbrauch durch Erhebung patentrechtlicher Unterlassungsklagen?  Eine Analyse unter besonderer Berücksichtigung standardessentialer Patente, WRP 2013, 734, 740-41; and this post by Florian Mueller on Foss Patents. 

The second was Apple Japan Limited Liability Co. v. Samsung Electronics Co. Ltd., Tokyo District Court, Judgment of Feb. 28, 2013, Case No.  2011 (wa) No. 38969.  (Discussions can be found in Tomofumi Sato, Apple Japan Limited Liability Company (Plaintiff) v. Samsung Electronics Co., Ltd. (Defendant), Tokyo District Court/Judgment of Feb. 28, 2013/Case No.  2011 (wa) No. 38969; Case to seek declaration of nonexistence of liability, 38 AIPPI J. 174 (2013); and in write-ups by, among others, Judge Shinji Oda, Hogan Lovells, World Intellectual Property Review, Foss Patents (here and here, with a link to a filing by Apple in the U.S. ITC that includes a translation of portions of the decision) and (on IPKat, with a link to the decision in the original Japanese) Kaori Minami.)  Samsung had sought a preliminary injunction against the importation and sale of certain models of Apple devices that allegedly infringed a standard-essential patent, Japan Patent No. 4642898, that was subject to a FRAND obligation.  In response, Apple filed an action seeking a declaration that its devices did not infringe, and that Samsung did not have a right to claim damages.  With respect to Apple's claims, the court held, first, that two of the four devices infringed.  On the issue of remedies, however, the court invoked article 1 of the Civil Code of Japan, which states that:
(1) Private rights must conform to the public welfare.

(2) The exercise of rights and performance of duties must be done in good faith.
(3) No abuse of rights is permitted.
Thus (quoting here from Apple's translation), while "there are no express provisions regarding the duties of parties at the stage of preparation for contract execution . . . it is reasonable to understand that, in certain cases, parties that have entered into contract negotiations owe a duty to each other under the principle of good faith to provide the other party with important information and to negotiate in good faith.”  The court rejected Samsung’s argument that the duty to negotiate in good faith had not arisen because Apple’s offer reserved the right to contest validity, and concluded that Samsung had not acted in good faith because, inter alia, it had refused to disclose information Apple had requested to substantiate Samsung’s offer a 2.4% royalty for all patents essential to the UMTS standards, and had continued to seek a preliminary injunction in the Japanese proceedings.  The court therefore concluded that Samsung’s conduct constituted an abuse of rights precluding Samsung from the right to seek damages from Apple. 

Apparently the concept of "abuse of right" could come up in other countries as well.  In her book Industrial Property Rights, Technical Standards and Licensing Practices (FRAND) in the Telecommunications Industry (Carl Heymanns Verlag 2010), Dr. Claudia Tapia discusses the possibility that the prospective licensee could have a claim under BGB (the German Civil Code) section 242, in conjunction with sections 19 and 20 of the German Competition Law or (what is now) article 102 of the TFEU (the same statutory or treaty provisions that would be invoked in the application of Orange-Book-Standard).  (Florian Mueller also notes this possibility, in one his posts cited above.)  According to Dr. Tapia (pp. 39-41, 51, 74-75, 78-79), section 242 "does not allow the beneficiary of right to exercise its right, if it has previously acted in contradiction to it."  Cases in which this claim has succeeded, however, are "very rare," because the section "only prohibits conduct that is previous to the exercise of the rights and are later on 'in unsolvable contradiction it', which makes it 'unacceptable'" (citations omitted).  Dr. Tapia goes on to state that "to balance the interests of the parties, all circumstances of the case will be taken into account, such as, e.g., the expected economic disadvantages (of paying a license outside FRAND), or having a standard held-up."  In addition, the prospective licensee must show that it relied to its detriment.  She also notes similar provisions in the laws of some other countries, including Austria, Italy, Spain, and France.  Anyway, Dr. Tapia seems to think the theory might be applicable in Germany to some SEP/FRAND matters.  (It might be worthwhile to take a look at the recent German SEP/FRAND cases to see if they have discussed this theory as distinct from Orange-Book-Standard.  This is not something I have focused on previously in my research.) 

For what it’s worth, I think that the decision whether to enter an injunction should depend primarily on whether an injunction will enable patent holdup.  In this regard, probably the most relevant consideration is whether the value of the patent ex post (after adoption of the standard) is substantially higher than its value ex ante (before adoption), because when this condition is satisfied an injunction enables the patent owner (in effect) to extract a license the value of which depends in large part on the difficulty of designing around the standard, and not on the value of the patented technology as such.  Allowing injunctions under such circumstances threatens to harm consumers by increasing prices beyond what is necessary to induce invention and may work to undermine the standard setting process itself.  My view therefore is that some version of the common-law discretionary standard for entering injunctions, which (ideally) can take such matters into account, is the preferable tool for deciding whether to grant or deny an injunction.  (Presumably it can also take into account circumstances such as the possibility that the defendant is to blame for refusing to conclude a license on readily available FRAND terms.)  By contrast, I’m a little concerned that the “abuse of right” rationale invoked in the above two cases could be rather standard-less and ad hoc, and that it arguably places too much emphasis on the parties’ states of mind.  The Tokyo court’s approach seems particularly troubling for the additional reason that it appears to deny the SEP owner a damages remedy in the event of an abuse of right.  In that regard, it seems a little like the U.S. doctrine of patent misuse, which allows courts to render patents unenforceable where the patent owner has “misused” its patent.  I’ve critiqued the misuse doctrine for being ad hoc (unless it simply mirrors antitrust law, in which case it is largely duplicative), and potentially overdeterrent.  Perhaps, though, I just need to learn more about how the abuse of right doctrine is applied in Japan and the Netherlands; and, conceivably, the abuse of right doctrine provides the necessary exception to the patent owner's entitlement to injunctive relief, if no other doctrinal tool is up to the task under national law.     


  1. I’m not sure I agree that the decision as to whether to enter an injunction should depend “primarily” on whether an injunction will enable patent holdup, because patent holdup may be enabled even in classic uses of patents. Suppose company A holds a patent for an invention which it developed at substantial expense, and it exploits the patent by selling patented product - that is, it is a standard operating company, using its patent in the classic way to protect its investment in R&D. The investment in specialized physical plant needed to produce the patented invention is $10 million (that is, the cost over and above the cost of invention.) Company B independently develops the invention, and invests $10 million in the plant necessary to exploit it, then enters the market with a competing, infringing, product. A sues successfully. If A obtains an injunction, it will enable patent holdup (though whether A will use it for holdup or for exclusion is another question); but this is the classic situation where an injunction would traditionally be granted.

  2. Good point; perhaps I should be more precise about what I mean by patent holdup. I've argued before that three conditions are particularly relevant: (1) ex post value substantially higher than ex ante value; (2) patent reads on a small-value part of a more complex device; (3) infringement is inadvertent. I'm still uncertain whether all three conditions should be present before we dispense with injunctions, or if it should be a case-by-case determination. The problem with condition (3) is defining what we mean by inadvertence, as I think you have pointed out to me previously--though it may be necessary to come up with some sort of criterion if we are to consider awarding defendant's profits only in cases of deliberate infringement, which is where I think you may be going with your analysis of that topic. Is there a way to define, without making things unduly complicated, what sort of search the defendant should engage in before we dispense with injunctions (or awards of profits)? I think in the classic situation you outline above, it should be incumbent on the defendant to make an adequate search beforehand, whereas my sense in the IT sector this is often infeasible. But is there a way to make the analysis depend not on ad hoc assumptions but rather on something more concrete . . .

  3. I agree entirely with your statement of the key question. I have no good answer.