Tuesday, April 5, 2016

Lichtman on Delay and Patent Remedies

Recently on the Written Description Blog, Professor Camilla Alexandra Hrdy published a post about a new draft paper by Professor Doug Lichtman titled Patient Patents:  Can Certain Types of Patent Litigation Be Beneficially Delayed?, available here.  Here is the abstract:
There was a time when patent cases would routinely end with the relevant court granting an injunction against future infringement. Today, however, injunctions are increasingly rare, and courts instead are allowing adjudged infringers to continue to use patented technologies, subject to an obligation to pay a court determined forward-looking royalty for any future use. A vast literature already exists thinking about this change; but that literature has missed one important implication: patent litigation can now be beneficially slowed. The intuition is simple. One reason why courts used to race to the finish was because they wanted to minimize the importance of their own damages calculations. Courts had no choice but to calculate damages for infringement that already occurred; but, the faster the case, the sooner the injunction, and thus the sooner that the litigants would be the ones negotiating about the future, setting prices and establishing terms. With injunctions now increasingly off the table, however, a court's attempted quantification remains important no matter when the case ends. Before the verdict, the court's influence is relevant under the banner of backward-looking patent damages. After the verdict, the court's influence is relevant in the form of court-determined forward-looking royalties. The end of the case thus no longer represents a significant reduction in the importance of the court's economic understandings. As a result, there is less of a reason to race through patent litigation, and thus a real opportunity for courts to slow down and in various ways increase the accuracy of their important work. 
Like Professor Hrdy, I think this is a very interesting paper; Professor Lichtman makes a number of insightful points about the social benefits and costs of injunctions, the extreme difficulty of accurately calculating patent damages, and (the most provocative part) the potential benefits of delay in terms of enabling better information to be developed and allowing more time for parallel validity proceedings to run their course. 

The paper makes me think about the FRAND-centered debate over patent holdup (where the patent owner armed with an injunction can extract royalties based in part on the implementer's sunk/switching costs) versus what has come to be known as patent holdout (where the implementer tries to derive some benefit by refusing to negotiate in good faith).  As for the latter, the concern is that implementers will be better off delaying matters rather than accepting a FRAND-range offer if they know that the damages ultimately awarded will not be fully compensatory; this may be a serious risk if, for example, calculation methods are inaccurate, or attorneys’ fees are not fully recoverable, or (as is the case in some countries) compound interest is not awarded.  (As Professor Lichtman notes, among the costs of delay are the time value of money.)  To my mind, there typically are good reasons to deny injunctions in FRAND (and some other) cases, but it would be beneficial if legislators and courts simultaneously strove to ensure that implementers cannot unfairly benefit from delay as well, for example by making compound interest the norm even in countries that traditionally have shied away from it.

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