The IP Enforcement Provisions of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA)

On September 26, 2014, Canada and the European Union concluded negotiations on the Canada-European Union Comprehensive Economic and Trade Agreement (CETA).  (The agreement has yet to be ratified, however, and my understanding is that that process may take some time; see this link from the EU's website.)  Part 22 of CETA (link here) is titled "Intellectual Property," and section 3 of Part 22 is titled "Enforcement of Intellectual Property Rights."  Section 3 deals partly with evidence and discovery (e.g., orders for turning over and preserving evidence). Articles 18-22 address injunctions, damages, and other remedies, and article 23 with the presumption of authorship and ownership.  Section 4 of Part 22 deals with border measures.  For now I'll just concentrate on comparing the provisions on injunctions, damages, and other remedies with the parallel provisions in the 2004 EC Enforcement Directive.  The provisions on border measures apply only to "counterfeit trademark goods, pirated copyright goods or counterfeit geographical indication goods," not patents.

For comparison, I've posted the CETA text on the left below, and the EC Enforcement Directive text on the right.

CETA	EC Enforcement Directive
Article 18 Provisional and Precautionary Measures 1. Each Party shall provide that its judicial authorities shall have the authority to order prompt and effective provisional and precautionary measures, including an interlocutory injunction, against a party, or where appropriate, against a third party over whom the relevant judicial authority exercises jurisdiction, to prevent an infringement of an intellectual property right from occurring, and in particular, to prevent infringing goods from entering the channels of commerce. 2. Each Party shall provide that its judicial authorities have the authority to order the seizure or other taking into custody of the goods suspected of infringing an intellectual property right so as to prevent their entry into or movement within the channels of commerce. 3. Each Party shall provide that, in the case of an alleged infringement of an intellectual property right committed on a commercial scale, the judicial authorities may order, in accordance with domestic law, the precautionary seizure of property of the alleged infringer, including the blocking of its bank accounts and other assets. To that end, the judicial authorities may order the communication of relevant bank, financial or commercial documents, or access to other relevant information, as appropriate.	Article 9 Provisional and precautionary measures 1. Member States shall ensure that the judicial authorities may, at the request of the applicant: (a) issue against the alleged infringer an interlocutory injunction intended to prevent any imminent infringement of an intellectual property right, or to forbid, on a provisional basis and subject, where appropriate, to a recurring penalty payment where provided for by national law, the continuation of the alleged infringements of that right, or to make such continuation subject to the lodging of guarantees intended to ensure the compensation of the rightholder; an interlocutory injunction may also be issued, under the same conditions, against an intermediary whose services are being used by a third party to infringe an intellectual property right; injunctions against intermediaries whose services are used by a third party to infringe a copyright or a related right are covered by Directive 2001/29/EC; (b) order the seizure or delivery up of the goods suspected of infringing an intellectual property right so as to prevent their entry into or movement within the channels of commerce. 2. In the case of an infringement committed on a commercial scale, the Member States shall ensure that, if the injured party demonstrates circumstances likely to endanger the recovery of damages, the judicial authorities may order the precautionary seizure of the movable and immovable property of the alleged infringer, including the blocking of his/her bank accounts and other assets. To that end, the competent authorities may order the communication of bank, financial or commercial documents, or appropriate access to the relevant information. 3. The judicial authorities shall, in respect of the measures referred to in paragraphs 1 and 2, have the authority to require the applicant to provide any reasonably available evidence in order to satisfy themselves with a sufficient degree of certainty that the applicant is the rightholder and that the applicant’s right is being infringed, or that such infringement is imminent. 4. Member States shall ensure that the provisional measures referred to in paragraphs 1 and 2 may, in appropriate cases, be taken without the defendant having been heard, in particular where any delay would cause irreparable harm to the rightholder. In that event, the parties shall be so informed without delay after the execution of the measures at the latest.  A review, including a right to be heard, shall take place upon request of the defendant with a view to deciding, within a reasonable time after notification of the measures, whether those measures shall be modified, revoked or confirmed. 5. Member States shall ensure that the provisional measures referred to in paragraphs 1 and 2 are revoked or otherwise cease to have effect, upon request of the defendant, if the applicant does not institute, within a reasonable period, proceedings leading to a decision on the merits of the case before the competent judicial authority, the period to be determined by the judicial authority ordering the measures where the law of a Member State so permits or, in the absence of such determination, within a period not exceeding 20 working days or 31 calendar days, whichever is the longer. 6. The competent judicial authorities may make the provisional measures referred to in paragraphs 1 and 2 subject to the lodging by the applicant of adequate security or an equivalent assurance intended to ensure compensation for any prejudice suffered by the defendant as provided for in paragraph 7. 7. 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 those measures.
Article 19 Other remedies 1. The Parties shall ensure that the judicial authorities may order, at the request of the applicant and without prejudice to any damages due to the right holder by reason of the infringement, and without compensation of any sort, the definitive removal from the channels of commerce, or the destruction, of goods that they have found to be infringing an intellectual property right. The Parties shall ensure that the judicial authorities may order, if appropriate, destruction of materials and implements predominantly used in the creation or manufacture of those goods. In considering a request for such remedies, the need for proportionality between the seriousness of the infringement and the remedies ordered, as well as the interests of third parties, shall be taken into account. 2. The Parties shall ensure that the judicial authorities have the authority to order that those remedies shall be carried out at the expense of the infringer, unless particular reasons are invoked for not doing so.	Article 10 Corrective measures 1. Without prejudice to any damages due to the rightholder by reason of the infringement, and without compensation of any sort, Member States shall ensure that the competent judicial authorities may order, at the request of the applicant, that appropriate measures be taken with regard to goods that they have found to be infringing an intellectual property right and, in appropriate cases, with regard to materials and implements principally used in the creation or manufacture of those goods. Such measures shall include: (a) recall from the channels of commerce; (b) definitive removal from the channels of commerce; or (c) destruction. 2. The judicial authorities shall order that those measures be carried out at the expense of the infringer, unless particular reasons are invoked for not doing so. 3. In considering a request for corrective measures, the need for proportionality between the seriousness of the infringement and the remedies ordered as well as the interests of third parties shall be taken into account.
Article 20 Injunctions 1. Each Party shall provide that, in civil judicial proceedings concerning the enforcement of intellectual property rights, its judicial authorities shall have the authority to issue an order against a party to desist from an infringement, and inter alia, an order to that party, or, where appropriate, to a third party over whom the relevant judicial authority exercises jurisdiction, to prevent infringing goods from entering into the channels of commerce. 2. Notwithstanding the other provisions of this Section, a Party may limit the remedies available against use by government, or by third parties authorized by government, without the use of authorization of the right holders to the payment of remuneration provided that the Party complies with the provisions of Part II of the TRIPS Agreement specifically addressing such use. In other cases, the remedies under this Section shall apply or, where these remedies are inconsistent with a Party's law, declaratory judgments and adequate compensation shall be available.	Article 11 Injunctions Member States shall ensure that, where a judicial decision is taken finding an infringement of an intellectual property right, the judicial authorities may issue against the infringer an injunction aimed at prohibiting the continuation of the infringement. Where provided for by national law, non-compliance with an injunction shall, where appropriate, be subject to a recurring penalty payment, with a view to ensuring compliance. Member States shall also ensure that rightholders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe an intellectual property right, without prejudice to Article 8(3) of Directive 2001/29/EC. Article 12 Alternative measures Member States may provide that, in appropriate cases and at the request of the person liable to be subject to the measures provided for in this section, the competent judicial authorities may order pecuniary compensation to be paid to the injured party instead of applying the measures provided for in this section if that person acted unintentionally and without negligence, if execution of the measures in question would cause him/her disproportionate harm and if pecuniary compensation to the injured party appears reasonably satisfactory.
Article 21 Damages 1. Each Party shall provide that: (a) in civil judicial proceedings, its judicial authorities shall have the authority to order the infringer who knowingly or with reasonable grounds to know, engaged in infringing activity of intellectual property rights to pay the right holder: (i) damages adequate to compensate for the injury the right holder has suffered as a result of the infringement; or (ii) the profits of the infringer that are attributable to the infringement, which may be presumed to be the amount of damages referred to in paragraph (i); (b) in determining the amount of damages for infringements of intellectual property rights, its judicial authorities may consider, inter alia, any legitimate measure of value that may be submitted by the right holder, including lost profits. 2. As an alternative to the previous paragraph, a Party's law may provide for payment of remuneration, such as a royalty or fee, to compensate a right holder for the unauthorized use of its intellectual property.	Article 13 Damages 1. Member States shall ensure that the competent judicial authorities, on application of the injured party, order the infringer who knowingly, or with reasonable grounds to know, engaged in an infringing activity, to pay the rightholder damages appropriate to the actual prejudice suffered by him/her as a result of the infringement. When the judicial authorities set the damages: (a) they shall take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rightholder by the infringement; or (b) as an alternative to (a), they may, in appropriate cases, set the damages as a lump sum on the basis of elements such as at least the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the intellectual property right in question. 2. Where the infringer did not knowingly, or with reasonable grounds know, engage in infringing activity, Member States may lay down that the judicial authorities may order the recovery of profits or the payment of damages, which may be pre-established.
Article 22 Legal Costs Each Party shall provide that its judicial authorities, where appropriate, shall have the authority to order, at the conclusion of civil judicial proceedings concerning the enforcement of intellectual property rights, that the prevailing party be awarded payment by the losing party of legal costs and other expenses, as provided for under that Party's law.	Article 14 Legal costs Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this.

To my mind, the most notable differences are, first, that the CETA provision on injunctions doesn't have a parallel to Enforcement Directive article 12, which explicitly authorizes member states to "provide that, in appropriate cases and at the request of the person liable to be subject to the measures provided for in this section, the competent judicial authorities may order pecuniary compensation to be paid to the injured party instead of applying the measures provided for in this section if that person acted unintentionally and without negligence, if execution of the measures in question would cause him/her disproportionate harm and if pecuniary compensation to the injured party appears reasonably satisfactory."  (Article 13(2) of the CETA IPR chapter, however, does state "In implementing the provisions of this Sub-Section, each Party shall take into account the need for proportionality between the seriousness of the infringement, the interests of third parties, and the applicable measures, remedies and penalties.")  It has long seemed to me that article 12 of the Enforcement Directive would permit members of the EC to enact an eBay-like rule for injunctive relief, though none of the large patent litigation systems in Europe have yet taken the bait.  The absence of such a provision in CETA, of course, wouldn't prevent Canada from doing so, and it does appear on the basis of limited evidence that Canadian courts are willing to deny injunctions in at least some cases, though probably not to the extent permitted under the U.S. eBay decision.  (See my book, pp. 181-82.)  Second, CETA article 21(a) appears to view awards of defendant's profits ("the profits of the infringer that are attributable to the infringement, which may be presumed to be the amount of damages referred to in paragraph (i)") as an alternative to awards of lost profits, while the status of such awards is somewhat unclear under the Directive.  (Countries such as the UK and Germany have traditionally permitted such awards as an alternative to lost profits while France did not, and exactly what the Directive means in article 13(a) by "they shall take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rightholder by the infringement" remains a matter of debate.  See, for example, my posts here and here.

It will be interesting to see if any of these or other matters relating to enforcement of IP rights come up in the debates over ratification. Hat tip to Norman Siebrasse for calling the CETA IP provisions to my attention.

Conference Next Week at Loyola-LA on IP in China

I won't be able to attend this November 7 conference (cosponsored by Loyola Law School, the Berkeley Center for Law & Technology, and Renmin University of China), but readers in Southern California might find it interesting, particularly the talk by Yin Xintian and Zhang Ping on "Judicial Remedies of Determining SEP Royalties Based on FRAND Principle: Commentary on Huawei v. IDC” and the panel discussion on "Challenges and Strategies in Cross-Border Patent Enforcement."   Here is the schedule:

8:00 – 8:45 a.m. BREAKFAST AND REGISTRATION, Girardi Advocacy Center (GAC) Patio
8:45 – 9:00 a.m. WELCOME REMARKS, Robinson Courtroom, GAC
Prof. Seagull Song, Loyola Law School Los Angeles
Dean Victor Gold, Loyola Law School Los Angeles
Dean LIU Chuntian, China Renmin University IP Academy
Prof. Robert Merges, Berkeley Law School
9:00 – 10:20 a.m. PANEL 1: REVISIONS TO THE COPYRIGHT LAW
MA XiaoGang, Hylands Law Firm (moderator)
Prof. David Nimmer, UCLA School of Law – “Visions of the Past, Glimpses into the Future”
Dean LIU Chuntian, China Renmin University – “Updates on Chinese Copyright Law Revision”
Maria Strong, United States Copyright Office – “Copyright Law Review in the U.S.”
LIU Ping, Music Copyright Society of China – “The Functions of China's Collective Management Organizations in Digital Environment”
Ronald Johnston, Arnold & Porter LLP – “Important Developments in Copyright Protection for Content and Software: Expanded protection Both for Entertainment and Infrastructure Technologies”
10:20 -11:30 a.m. PANEL 2: IP ISSUES RELATED TO THE ENTERTAINMENT INDUSTRY
Prof. Jay Dougherty, Loyola Law School LA (moderator)
Stacey Byrnes, NBC Universal – “Right of Publicity: Policy Considerations”
Prof. Seagull Song, Loyola Law School LA – “Copyright Protection of Reality TV: A Comparative Perspective”
Prof. GUO He, China Renmin University – “Legal Issues in Chinese Sports Industry”
Prof. Mary LaFrance, University of Nevada, Las Vegas – “The Future of Performers' Rights”
11:30- 11:50 a.m. BREAK
11:50- 1:00 p.m. PANEL 3: ROLE OF SPECIALIZED IP COURTS
Prof. Peter Yu, Drake Law School (moderator)
Prof. Karl Manheim, Loyola Law School LA- “The US Patent Office as an Administrative Court”
CHENG Yongshun, Former Chinese IP Judge – “Discussion on the Establishment of China Specialized IP Court”
Prof. Jeffery Atik, Loyola Law School LA - “European Unified Patent Court”
Prof. LUO Li, China Renmin University – “How Special is IP law: Consideration about the establishment and operation of specialized IP courts in China”
1:00 – 2:00 p.m. LUNCH, Burns Lounge, Fritz B. Burns Academic Center Keynote Speaker: Hon. Judge Andrew J. Guilford, United States District Court, Central District of California
2:00 – 3:40 p.m. PANEL 4: PATENT AND TRADE SECRETS
Prof. Robert Merges, Berkeley Law School - “Court Coordination: The New Era of Patent Invalidity Proceedings at the PTO”
YIN Xintian, Formerly with SIPO,
Prof. ZHANG Ping, Peking University Law School - “Judicial Remedies of Determining SEP Royalties Based on FRAND Principle: Commentary on Huawei v. IDC”
Prof. Terry Fisher, Harvard Law School - “Pharmaceutical Patents: Recent Developments and Opportunities for Improvement”
Prof. HUANG Wushuang, East China University of Political Science and Law – “On China's Trade Secrets Protection System”
3:40 – 4:00 p.m. BREAK
4:00 – 5:30 p.m. PANEL 5: CHALLENGES AND STRATEGIES IN CROSS-BORDER IP ENFORCEMENT
Prof. Robert Merges, Berkeley Law School (moderator)
Mark Cohen, United States Patent and Trademark Office
MA Yide, Beijing Zhongguancun IP Research Institute
Prof. Marketa Trimble, University of Nevada, Las Vegas
Prof. YU Jun, Beijing University of Chemical Technology
Raymond Kurtz, Hogan Lovells LLP
Zheng Liu, Orrick, Herrington & Sutcliffe LLP
David Wang, Winston & Strawn
5:30 – 5:40 p.m. CLOSING REMARKS
5:40 p.m. RECEPTION

Monday Miscellany: Patent Remedies, Protective Writs, and Preliminary Injunctions

1.  Ted Sichelman has published a short paper titled Meaning Is in the Mind of the Reader:  A Rejoinder to Burk, Cotter, and Lemley, in 93 Texas Law Review See Also 15 (2014).  Here is a link to the paper, and here is the abstract:

As beauty is in the eye of the beholder, meaning is in the mind of the reader. In three responses to my article, "Purging Patent Law of 'Private Law' Remedies," 92 Texas L. Rev. 517 (2014), Dan Burk, Tom Cotter, and Mark Lemley offer three distinct readings and, hence, attribute three distinct meanings. In this rejoinder to Burk, Cotter, and Lemley, I endeavor to convey to the reader my intended meaning by pointing out what I believe are mischaracterizations of my original article in Burk’s and Lemley’s responses. Additionally, I rebut various criticisms in all of the responses and stake out areas of consensus. 

For previous posts on Professor Sichelman's original paper and the responses by me, Dan Burk, and Mark Lemley, see here and here.

2.  Frank A. Angileri and David C. Berry have posted a short paper on ssrn titled The Federal Circuit's VirnetX Ruling Continues Focus on Requirements for Proving Patent Damages.  Here is a link to the paper, and here is the abstract:

The U.S. Court of Appeals for the Federal Circuit historically has afforded litigants substantial leeway in applying economic theory to establish damages in patent infringement cases, as long as the theories are based on reliable economic evidence and establish direct causation of loss. In recent years, the Federal Circuit has issued a number of decisions addressing the issue of “apportionment,” i.e., apportioning value between patented and unpatented features in an accused product. In a recent decision, VirnetX, Inc. v. Cisco Systems, Inc., the Federal Circuit addressed the issue again and further explained how apportionment can limit acceptable damages testimony. Although apportionment has roots in 19th century cases, it likely will cause parties to reevaluate their approaches to proving damages, particularly in cases involving technologies embodied in components for today’s complex products. 

For my initial take on the VirnetX case (titled Federal Circuit Trashes Nash), see here.

3.  As I have discussed previously (quoting from this blog post of January 13, 2014 and from my book), "in Germany and Switzerland potential infringement defendants can 'file, ex parte, a "protective writ" (Schutzschrift) [also known in English as a "protective letter"] with a court in anticipation of a possible ex parte motion for a preliminary injunction on the part of a patentee. The writ explains why, in the defendant’s opinion, a potentially accused product does not infringe. The existence of the writ is not disclosed to the patentee unless and until the patentee moves for a preliminary injunction.'"  Miguel Montañá has previously blogged on the Spanish courts' somewhat mixed reaction to attempts to introduce the procedure in Spain (see here).  He recently published an interesting follow-up post on the Kluwer Patent Blog titled Will the New Spanish Patents Act Introduce "Protective Writs" in Spain?, which discusses a July 24, 2014 report of Spain's General Council for the Judiciary.  The report recommends formally introducing the procedure in Spain.  Sr. Montañá concludes, however, by expressing doubt whether the Spanish Parliament will have time to enact the proposed new legislation before the next elections take place.

4.  Also appearing on the Kluwer Patent Blog recently are two posts by Kristof Roox, titled Important Change in Belgian Patent Litigation:  The Belgian Supreme Court Adopts a Less Strict Approach to the Prima Facie Validity of a European Patent and Important Change in Belgian Patent Litigation (2): Belgian Judges Must Take into Account Foreign Judgments and Cannot Merely Rely upon the Suspensive Effect of an Appeal Against an Invalidity Decision.  According to the author, until very recently some Belgian courts had held that on a motion for a preliminary injunction a patent would be deemed prima facie valid even if the patent had been revoked by the EPO Opposition Division or held invalid by a Belgian court of first instance, if the effect of the revocation had been suspended pending appeal.  In judgments handed down in June and September 2014, however, the Belgian Supreme Court has taken a very different approach, holding first that a court of first instance's decision that a patent is invalid terminates a preliminary injunction that has been granted, and second extending this principle so that (in determining whether to approve a seizure order) a Belgian court must take into consideration an invalidation decision rendered in another jurisdiction concerning a European patent. 

5.  Finally, Spadika Jayaraj published a post recently on Spicy IP titled Public Interest Prevails?  Bristol-Myers Denied Interim Injunction in Patent Infringement Suit Regarding Export of HIV Drug to Venezuela.  According to the author, the court's order is not yet available online, but she notes that 

In Roche v. Cipla, Justice Ravindra Bhat of the Delhi High Court had read in “public interest” into the 3 step test for temporary injunction, by making it a factor to consider when testing whether there is irreparable injury. That was a big moment in India’s Access to Medicines jurisprudence. While I don’t know if the public interest argument was instrumental in the Court’s decision in the present case, it is still great to see an Access to Medicines angle being argued in the Courts.

For further discussion of the Roche case (Hoffmann-La Roche Ltd. v. CIPLA Ltd., 2008 (37) PTC 71 (High Ct. Delhi), see Kalyan C. Kankanala, Arun K. Narasani & Vinita Radhakrishnan, Indian Patent Law and Practice 245-46 (Oxford Univ. Press 2010).  For other discussions of injunctive relief in India on this blog, see here and here. 

The Cour d'Appel's Referral to the CJEU on Royalties

Pierre Véron and Amandine Métier recently published posts on both EPLaw and the Kluwer Patent Blog on Genentech v. Hoechst and Sanofi-Avenis Deutschland, in which the Cour d'appel de Paris on September 23, 2014 referred a question to the Court of Justice for the European Union (CJEU).  His posts also link to the Cour d'appel's judgment (in French) and to Véron & Associés' translation of it into English.  Here is the question referred to the CJEU in the original French, followed by the English translation:

Les dispositions de l'article 81 du Traité devenu l'article 101 du Traité sur le fonctionnement de l'Union européenne doivent-elles interprétées comme faisant obstacle à ce qu'il soit donné effet, en cas d'annulation des brevets, à un contrat de licence qui met à la charge du licencié des redevances pour la seule utilisation des droits attachés aux brevets sous licence?

Should the provisions of Article 81 of the Treaty, now Article 101 of the Treaty on the Functioning of the European Union, be interpreted as an obstacle to giving effect, in case of invalidation of the patents, to a licence agreement which imposes on the licensee royalties for the sole use of the rights attached to the patents under licence?

As Véron and Métier explain, Genentech and Hoechst/Sanofi's predecessor in interest were parties to an agreement under which Genentech could use for research purposes certain patents, including two U.S. patents and one European patent on enhancers for eukaryotic expression systems.  The EPO revoked the European patent in 1999 but the two U.S. patents noted above were never invalidated.  As discussed in a subsequent U.S. Federal Circuit opinion, Sanofi/Aventis Deutschland GmbH v. Genentech, Inc., 716 F.3d 586 (Fed. Cir. 2013), more about which in a moment,

The Agreement specified that in exchange for fixed annual payments, Genentech could practice the patents-in-suit for research purposes. Genentech made these payments from 1992 to 2008. In addition, the Agreement required Genentech to pay a running royalty of 0.5% on the sale of commercially marketable goods incorporating a “Licensed Product.” The Agreement defined licensed products as “materials (including organisms), the manufacture, use or sale of which would, in the absence of this Agreement, infringe one or more unexpired issued claims of the Licensed Patent Rights.” The Agreement was governed by German law and required disputes to be settled by arbitration in accordance with the rules of the International Chamber of Commerce (“ICC”).

Genentech never paid any royalties on Licensed Products, but in June 2008 Sanofi/Hoechst notified Genentech that it believed two Genentech products, Rituxan and Avastin, infringed the licensed patents.  Genentech terminated the license, and with the agreement no longer in force the parties thereafter litigated a patent infringement suit in the U.S.  Ultimately the U.S. District Court for the Northern District of California and the U.S. Court of Appeals for the Federal Circuit concluded that Genentech was not infringing Hoechst/Sanofi's patents.  See Sanofi-Aventis Deutschland GmbH v. Genentech, Inc., Nos. C 08–4909 SI, C 09–4919 SI, 2011 WL 839411 (N.D. Cal. 2011), aff'd, 473 Fed. Appx. 885 (Fed. Cir. 2012).  

Meanwhile, Sanofi/Hoechst commenced an arbitration proceeding against Genentech in Europe, and eventually the arbitrator concluded that Genentech had breached the agreement and ordered it to pay damages in the amount of €108,322,850, plus interest and costs.  In the 2013 opinion quoted earlier in this post, the Federal Circuit affirmed the denial of Genentech's request for an injunction against the arbitration, on the ground that "the U.S. judgment of non-infringement is not dispositive as to breach of the Agreement," noting among other things that "the arbitrator determined that a drug could be a licensed article even though it did not contain the patented enhancers, so long as those enhancers were used in its manufacture. . . .  Because it concluded that the enhancers were used in making Rituxan, the arbitrator determined that Genentech was liable for damages under the Agreement."  Genentech, however, sought to have the French court overturn the arbitration award on the ground, among others, that "the decision of the sole Arbitrator who condemns it in this respect without finding any patent infringement contravenes European competition law and especially Article 101 of the Treaty on the Functioning of the European Union [TFEU]" (quoting here from the Véron firm's translation).  According to the Cour d'appel, the parties have stipulated that German law applies to the agreement and that under that law "it is not contested that it authorises the licensor to claim royalties from the licensee until the termination of the contract, notwithstanding the subsequent invalidation for the patents to which the granted rights were attached."  The referral to the CJEU asks whether this is correct under the TFEU.

I provide a very brief discussion of TFEU article 81 (the predecessor to article 101) and its relationship to patent validity challenges in my book at pp. 281-84.  In relevant part, this article generally prohibits, and renders automatically void, agreements “which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which . . . limit or control production, markets, technical development, or investment,” though regulations such as the TTBER and RDBER can render the general prohibition inapplicable to an agreement that contributes “to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not . . . impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives [or] afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.” (For links to the TTBER as updated earlier this year, see here, and for commentary, see here.)  As discussed in my book, scholarly opinion suggests that article 101 renders unenforceable any contractual provision forbidding a licensee from challenging patent validity. On the specific question referred to the CJEU in the above case, I'm not entirely sure how the CJEU will rule--I don't claim to be an expert on the TFEU and the applicable regulations insofar as they may impact this case--but I am inclined to agree with Véron and Métier that the Cour d'appel's understanding of German law is problematic.  As I understand German law, a licensee who has paid royalties doesn't get them back if the patent is later invalidated, but it also doesn't have to keep paying them after invalidation.  Moreover, even an adjudicated infringer is entitled to get back all of the damages it paid if the patent is later invalidated (see my post here).   I therefore would tend to think that it would be incorrect to order Genentech to pay royalties on an invalidated or noninfringed patent, even if those royalties cover only the period in time while the license agreement was in force, though perhaps there is more to the matter than I comprehend at this point.

I also am somewhat confused by the Cour d'appel's phrasing of the question in two respects.  First, it specifically uses the phrase "en cas d'annulation des brevets" ("in case of invalidation of the patents"), but as noted above the two U.S. patents at issue (though not infringed) were not invalidated.  The European patent was revoked, but are the royalties based only on activities that took place in Europe?  (I think not, but maybe I'm wrong.)  Second, the question also uses the phrase "redevances pour la seule utilisation des droits attachés aux brevets sous licence" ("royalties for the sole use of the rights attached to the patents under licence"), but the agreement at issue was a nonexclusive license (as the court itself recognized earlier in the judgment).  Maybe the court meant something like "royalties solely for the use of the rights attached to the patent under license," and maybe that meaning is clear to a native French speaker; but to me the phrasing comes across as a bit curious.

Another Upcoming Event, on FRAND

Following up on yesterday's post, I just came across a notice of this upcoming Law Seminars International event next week (October 30) in Seattle (and via webcast) on FRAND obligations.  Looks like there are some interesting speakers, including David Killough and Anne Layne-Farrar.

A Couple of Upcoming Events on Patent Remedies

First, as reported the other day on the Essential Patents Blog, the AIPLA Annual Meeting in Washington, D.C. will feature a session this coming Thursday, October 23, at 3:30 p.m. titled "Practical Considerations in Litigating Standard Essential Patents."  According to the post, David Long of Kelley Drye will moderate a one-hour panel discussion with United States District Judge James Holderman (the author of the FRAND opinion in In re Innovatio IP Ventures LLC, which I blogged about here) and Administrative Law Judge Theodore Essex (whose very different views on FRAND, as expressed in his Initial Determination in In the Matter of Certain Wireless Devices with 3G and/or 4G Capabilities and Components Thereof, were the subject of my blog post here).  Sounds like it should be a great session.
 
Second, American University's Washington College of Law and the University of Utah S.J. Quinney College of Law will be presenting a conference at American University in Washington, D.C., on November 11, 2014, titled "Patent + Policy -- The Future of Patent Remedies."  I will be presenting a paper I am currently working on with Norman Siebrasse, titled "A New Framework for Determining Reasonable Royalties in Patent Litigation."  (The paper is still a work in progress, but I will notify readers when it is up on ssrn.)  Here is a link to the conference website, and here is the conference description and schedule:

Over the past few years, the once-placid world of patent remedies has been thrown into upheaval.  Judicial decisions and pronouncements by enforcement agencies have both put pressure on traditional doctrines relating to damages, fee recovery and injunctive relief.  This symposium will explore recent developments and the future trajectory of patent remedies law from a judicial, regulatory and legislative standpoint.  Please join us for this important event.

8:30-9:00 – Registration and Coffee

9-9:50 – Panel 1: Remedies and Standards-Essential Patents 
Moderator: Jorge Contreras, University of Utah
Panel:
Tom Cotter, University of Minnesota
Dina Kallay, Ericsson
Jeff Totten, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

10:00-10:35 – Panel 2:  Injunctive Relief Developments
Moderator: Michael Carroll, American University Washington College of Law
Panel:
Suzanne Munck – Federal Trade Commission 
Jim Sherwood – Google, Inc.
Paul Schoenhard – Ropes & Gray

10:45-12:00 – Panel 3:  Monetary Damages: Royalties, Lost Profits and Costs
Moderator: Jonas Anderson, American University Washington College of Law
Panel:
Roy Lytle – Microsoft, Inc
David Cavanaugh – WilmerHale
Matt Levy – Computer and Communications Industry Ass’n

 

Some comments on the Contreras and Gilbert paper

A couple of weeks ago I mentioned a paper that Jorge Contreras and Richard Gilbert had recently posted on ssrn, titled A Unified Framework for RAND and Other Reasonable Royalties.  I stated that I agreed with the authors' thesis that "the reasonable royalty analysis should be conducted in essentially the same manner for all patents, whether or not they are encumbered by RAND commitments," but that I might have more to say about the paper after I had had a chance to read through all of it.  Having now read the paper and given it some thought, I can say that I recommend the paper quite highly, and I look forward to talking it over with the authors at an upcoming conference in D.C.  For what it's worth, here are a few more brief comments.

First, for reasons I have stated at length elsewhere (see, for example, here), I agree with the authors' statement that courts generally should deny injunctive relief for the infringement of SEPs, whether or not those SEPs are encumbered by a RAND commitment.  If anything, the authors make more of the RAND commitment than they really need to, for example when they state at p.7 that "courts informed by the patent owner's RAND commitment, can . . . apply the eBay factors to determine when an injunction is warranted" (emphasis in original; see also p.31).  But they rectify matters in part when they state at p.8 that, even in the absence of RAND commitment, "if the failure to license a patent that is essential to a standard would allow its owner to hold up firms and consumers that are locked in to the standard with serious negative consequences for economic welfare, it would not require a delicate balancing of equities for a court to conclude that injunctive relief should not be available, regardless of whether the patent is subject to a RAND licensing commitment."  Perhaps also, in countries that generally view injunctive relief not as a discretionary matter, but rather as a right accruing to the victorious patent owner, perhaps a RAND commitment would be necessary for a court to find a reason (grounded in competition law or the abuse of right doctrine) to deny an injunction--though maybe not, since even the German Orange-Book-Standard framework does not require that the SEP be subject to such a commitment.  And in any event, the authors are clear that as far as injunctive relief is concerned their analysis focuses only on U.S. courts (p.9).  

Second, the authors are right in stating that courts setting RAND royalties should apply an ex ante bargaining framework, where "ex ante" means "before the standard has issued and firms and consumers make irreversible commitments" (p.11; see also the discussion at pp. 26-27, 30-31).  As I mentioned last week, Norman Siebrasse and I are working on a paper that recommends the same result, though with the caveat that courts should assume the parties to the ex ante negotiation have access to all relevant ex post information as well.  But I'll hold off on elaborating on that point for the time being, since we're still working on the paper.

Third, I also agree with the authors' statement that "[t]he fact that there is no single best way to apportion the value of a technology to individual patents does not undermine the utility of the incremental value method to assess the total royalty for the technology at issue" (p.13).  It's important to know what the ideal is before you can determine what evidence can serve as an acceptable proxy for that ideal.  That said, and as the authors recognize, it can be fiendishly difficult to figure out how best to apportion value among patents (whether SEPs or not); this may be the single most important topic for which, if some aspiring economists is looking to make his or her mark on the profession, we really could use a breakthrough.

Fourth, on the issue of whether RAND is still relevant if courts are going to calculate reasonable royalties in the same manner regardless of the existence of a RAND commitment, the authors are probably right in noting that a RAND commitment may have other consequences, including other possible claims for relief (e.g., breach of contract); and that "even if the royalty that a patent holder may charge to a licensee under a RAND commitment is the same as the royalty it would have received as damages in an infringement suit absent the RAND commitment, it is more efficient to operate under a system in which there is a presumption that licenses will be granted on reasonable terms compared to a less certain environment in which disputes are more likely to be pursued in litigation" (pp. 31-32).

Fifth, one matter that I think needs to be corrected is the authors' characterization at p. 34 of the holding in the Grain Processing case (185 F.3d 1341 (Fed. Cir. 1999)).  As I recall it, the Federal Circuit on the second appeal affirmed Judge Easterbrook's determination that the plaintiff had not suffered any lost profits.  Maybe I'm misreading what the authors mean to say about this case, however.

Overall, this is a very good paper that deserves to be widely read.

Sedona Conference Commentary on Patent Damages and Remedies

The Sedona Conference describes itself as "a nonprofit, 501(c)(3) research and educational institute dedicated to the advanced study of law and policy in the areas of antitrust law, complex litigation, and intellectual property rights."  The Sedona Conference Working Group Series describes its mission as the pursuit of "in-depth study of tipping point issues in the areas of antitrust law, complex litigation, and intellectual property rights, with the goal of producing high-quality, non-partisan commentary and guidance of immediate, practical benefit to the bench and bar."  Just recently I learned that the Sedona Conference Working Group on Patent Damages and Remedies (WG9) has published a public comment version of a document titled Commentary on Patent Damages and Remedies, available here, and is soliciting public comments on the Commentary through January 30, 2015.  Here is a link to information on submitting comments, and here is a link (behind a paywall, however) to a recent write-up on Bloomberg BNA's Patent, Copyright & Trademark Law Daily about an October 9 webinar on the Commentary.

The Commentary is quite interesting and covers a range of issues, including principles for calculating reasonable royalties, best practices for pretrial and trial procedure relating to damages issues, and the availability of injunctive relief.  There is much here that I think is very sensible, including the Working Group's suggestions relating to the availability of injunctive relief (pp. 53-54).  On this issue, the Working Group argues, among other things, that injunctive relief generally should not be available for the infringement of a FRAND-encumbered SEP (though, like Contreras and Gilbert, I would go further and say that injunctions generally should not be available for the infringement of SEPs even in the absence of a FRAND commitment; and perhaps the Working Group would agree too, because it also states that "[a] patent owner's practice of licensing the patent widely to whomever has requested a license presents a strong case for denial of the injunction").

Perhaps the most interesting part of the Commentary is the Working Group's recommended Principle II-1, which states that

The reasonable royalty in patent infringement matters should fairly compensate the patent holder for the actual use made by the infringer of the patented invention and should be determined by considering what fully informed and reasonable persons in the position of the patent owner (or owners throughout the period of infringement) and the infringer would agree to at the time of trial as a fair price for the use of the patented invention, from the time of first infringement through the time of trial, taking into account all relevant facts and circumstances occurring before or during that period" (emphasis added).  

The Working Group refers to this as the "retrospective model" (I would use the term "ex post" approach).  It also acknowledges that what it refers to as the "status quo" approach (and what I would refer to as the "ex ante" approach) is for the court to determine the royalty the parties would have agreed to as of a date just before the infringement began (ex ante)--though it also allows courts to consider ex post evidence (the so-called "book of wisdom") as an aid in determining the terms the parties would have agreed to ex ante.  The Working Group nevertheless argues that the book of wisdom principle is "amorphous" and unpredictable, and that 

the Retrospective Model is the most economically sound approach that both accomplishes the goals of the patent damages statute and also is consistent with the economic principles governing patent valuation. Taking all facts known through the time of trial into account eliminates the potential for unfairness in the prospective model without introducing the cherry-picking and uncertainty that the book of wisdom imported into that model (p.16).

It also recognizes, however, that "[m]oving the hypothetical negotiation . . . to a time at or near the time of trial has potential infirmities as well. Specifically, it could lead to a higher (and potentially unfair) royalty due to what are commonly known as 'lock in' effects" (id.)  To rectify this consequence, the Working Group recommends as Principle II-7 that

Where the technology claimed in the asserted patent is necessary to practice because (1) it is essential to a de facto standard or a standard adopted by a recognized standard setting organization (i.e., standard-essential); (2) a technically feasible non-infringing design around alternative is restricted or prohibited by government regulations or requirements; and/or (3) the technically feasible design around is cost-prohibitive, then the reasonable royalty should exclude any premium the patent may command solely resulting from the adoption of the standard or the governmental/commercial prohibitions on design modification. All standards adopted prior to trial may be considered.

In particular, 

where lock-in effects exist at the time of trial, the valuation of the patented technology must be performed at an earlier time, before the infringer was locked-in, so as to avoid the attachment of a premium to the value of the patent technology that results from the user’s lock-in. Accordingly, the Working Group determined that, for purposes of addressing lock-in and avoiding holdup effects, the patented technology to which the infringer is locked in generally should be valued in a manner that would exclude any premium the patent would command as a result of the adoption of the standard, i.e., any premium divorced from the technical merits of the technology. . . .

The parties should encourage their damages experts to take care to exclude from their reasonable royalty determination any hold-up effects that may result from a valuation performed after the relevant lock-in date. The reasonable royalty analysis should assign the reasonable royalty value prior to the relevant lock-in date. Upon the filing of a Daubert motion challenging the reasonable royalty methodology, the court should explicitly consider whether lock-in/hold-up effects were properly accounted for in the challenged methodology (pp. 26, 40).

My own view, as expressed in a forthcoming draft of a paper I am coauthoring with Norman Siebrasse that is tentatively titled A New Framework for Determining Reasonable Royalties in Patent Litigation, is that the Working Group is right to focus on ex post information as an indicium of patent value, but that the Working Group's proposed implementation of that insight needs some reworking.  As I see it, both the "status quo" and "retrospective" approaches as described by the Working Group suffer from a common defect:  the assumption that a hypothetical bargain taking place ex ante can be based only on information that is available ex ante.  Inspired in part by a paper published by Mario Mariniello titled Fair, Reasonable and Non-Discriminatory (FRAND) Terms: A Challenge for Competition Authorities, 7 J. Comp. L. & Econ. 523 (2011), however, Professor Siebrasse and I will argue that there is no good reason why this must be so, and that in general courts should calculate royalties based on a hypothetical negotiation taking place ex ante but with knowledge of all relevant facts that are known ex post.  Although this may sound less “real” than the ex ante or ex post approaches described above, it is important to recognize that all of these approaches are fictions—that’s what “hypothetical negotiation” means—and that courts should employ the fiction that best serves the goals of the patent system.  In our view, the goal in setting damages should be to award compensation that is commensurate with (though less than) the social value of the invention, and ex post information is better suited than is ex ante information to determine that value--you know more later than you did before about the invention's value.  That value may be higher or lower than what reasonable parties would have expected ex ante, a point the Working Group to its credit makes at p.16.  Moreover, as both we and the Working Group point out, even aside from the "book of wisdom" issue courts already use some ex post information when setting royalties, for example in determining the value of the royalty base for a running royalty, or when assuming that the hypothetical negotiation took place on the assumption that the patent was valid and infringed (a fact that is not established until the conclusion of trial).  Nevertheless, we think that posing the question of what bargain the parties would have struck ex post risks overcompensating patentees precisely because of hold-up or lock-in costs, which we understand to encompass any value the patentee is able to extract that is based on the cost of switching from an infringing to a noninfringing technology.  Those costs are not dependent on the patent in suit being standard-essential (though in the context of SEPs they are likely to be particularly high), and they bear no relation to the value of the invention as such. 

We therefore conclude that royalties should be calculated based on a hypothetical negotiation occurring ex ante--preferably before the infringer has incurred costs in reliance on its ability to use the patented technology--but with full knowledge of how valuable (or not) the patented technology would be, in comparison with alternatives, ex post.  (Interestingly, courts in Germany have sometimes expressed the reasonable royalty framework in similar terms, as involving the question of "what reasonable contracting parties would have agreed to, at the conclusion of a licensing agreement, if they had foreseen the future development and specifically the duration and amount of the use of the patent.")  In our forthcoming paper, we will expound upon this theme over a variety of contexts, including but not limited to SEPs, where our thesis indicates that a FRAND royalty should be equivalent to what the parties would have agreed to ex ante (before the standard is adopted) but with full knowledge of the value of the patent (ex post) as part of that standard.  This allows the court to avoid awarding damages based on the hold-up value, but at the same time recognizes that a portion of the patent's value may be complementary to the value of other patents within the standard (in other words, part of the value the patent owner should recover is due to the fact that the patent winds up being incorporated into a standard).

As stated, Professor Siebrasse and I are still working on our paper, but we hope to have a draft ready to post on ssrn before too long.  When it is ready, we probably will file a comment on the Working Group's Commentary that explains our views at greater length.