Friday, October 23, 2015

Some Recent Papers on Licensing

Readers of this blog might find these four articles of interest.  The first two call to mind some issues that Professor Alexander Peukert raised at a conference I attended earlier this year in Bayreuth, Germany, and which I blogged about here.

1.   Andrew Michaels has posted on ssrn a paper titled Tones that Echo from a Past Era of Rigid Jurisprudence: Pre-Challenge Royalties and the Federal Circuit's Shell Test, 31 Santa Clara Computer & High Tech. L. J. (forthcoming 2015).  Here is a link to the paper, and here is the abstract:
In the 1969 decision Lear v. Adkins, the Supreme Court held that patent licensees were no longer estopped from challenging the validity of licensed patents, citing the “federal patent policy” of incentivizing prompt adjudication of the validity of patents. In the 1997 Shell decision, where the licensed patent was found invalid, the Federal Circuit nevertheless held that a licensee was not relieved of royalty obligations that had accrued prior to the licensee’s validity challenge. The decision as a whole applied Lear in view of its underlying policies and reached the correct result. However, the end of the decision sets forth a one-sentence test which, when applied rigidly, can lead to results contrary to the policies and equitable considerations underlying both the Lear and Shell decisions. Some district courts have applied Shell’s test rigidly, whereas others have taken a more holistic and flexible approach. This article argues that the holistic and flexible approach to Shell is the correct one, comporting better with both Shell’s developmental roots, and the Supreme Court’s current tendency to repudiate rigidity in Federal Circuit jurisprudence. Besides the factors captured in Shell’s one-sentence test, an examination of the Shell opinion and the doctrine as a whole reveals that courts should also consider the structure of the license agreement at issue, as well as the nature of the invalidating prior art, in deciding whether and when a licensee should be relieved of royalty obligations accrued under an invalid patent.
2.   Allan Miller and Michal Gal have posted a paper on ssrn titled Licensee Patent Challenges, 32 Yale J. Regulation ___ (forthcoming 2015).  Here is a link to the paper, and here is the abstract:
We analyze contractual clauses which limit the ability of licensees to challenge patents at the basis of their licensing agreements. In particular, we study no-contest clauses, which prohibit licensees from contesting the validity of the patent, and challenge-penalty clauses, which penalize licensees for doing so. We develop a model that we use to compare three legal regimes: “No Restriction,” in which the patent holder is given complete contractual freedom, “Partial Restriction,” in which no-contest clauses are forbidden but challenge penalties are allowed, and “Total Restriction,” in which neither no-contest nor challenge penalty clauses are enforced. We show that No Restriction is unlikely to be optimal, and further, we provide necessary and sufficient conditions under which Total Restriction is optimal. The rule we suggest differs significantly from the one currently applied by most courts.
3.  Jorge Contreras has posted a paper on ssrn titled FRAND Market Failure: Analyzing IPXI's Unsuccessful Attempt to Establish an Exchange for Unitized Standards-Essential Patent LicensesHere is a link to the paper, and here is the abstract:
This case study pertains to Intellectual Property Exchange International, Inc. (IPXI), which was formed in 2008 to create a market-based trading exchange for aggregated patent license rights, particularly standards-essential patents (SEPs). IPXI based its model on existing commodities exchanges, proposing that non-exclusive patent licenses could be standardized, commoditized, and traded on an open market, thus eliminating costly and inefficient bilateral negotiations and providing a royalty rate likely to be viewed as “reasonable”. IPXI’s most ambitious offering involved a portfolio of 194 U.S., European and other patents deemed essential to IEEE’s 802.11n “Wi-Fi” standard. IPXI offered up to 50,000 tradable Unit License Right contracts (ULRs), each granting the holder a worldwide right to manufacture and sell 1,000 compliant devices. Despite the backing of several significant patent holders, IPXI’s offering failed to attract sufficient interest, and IPXI ceased operations in March 2015. This paper analyzes the failure of IPXI based on the documentary record, public statements by IPXI executives and interviews with industry experts. It concludes that, despite its potential to improve the efficiency of the SEP licensing market, factors including a lack of participation by key patent holders, an untested record of enforcing patents against infringers, and constraints imposed by the standardized ULR, led to IPXI’s demise.
4.  Finally, here is one that came out in 2012 but which only recently came to my attention (it was cited in the Mazzeo, Zyontz & Ashtor paper I recently mentioned here), and that readers might find interesting:  Jiaqing "Jack" Lu, The myths and facts of patent troll and excessive payment: have nonpracticing entities (NPEs) been overcompensated?,  47 Bus. Econ. 47 234 (2012).  Here is the abstract:
"Nonpracticing entities" (NPEs) own patents but do not practice the patented technologies. They are sometimes referred to as "patent trolls," who hold up practicing companies to seek exorbitant payments. This paper conducts a review of the theoretical literature, which is inconclusive on whether NPEs have been systematically overcompensated. This study offers the first empirical study in license royalty rates, and its econometric analysis demonstrates that NPEs have not been overcompensated in license markets, regardless of whether other relevant variables are controlled. This conclusion is then put back into the larger context of NPE economics to lay out topics for further research through cross-examining other major conclusions in this field.

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