Yamaguchi on Japanese Patent Litigation, Damages

Kazuhiro Yamaguchi has published an article in the May 2016 volume of AIPPI Journal-Japan (pages 128-42), titled Japanese Patent Litigation and Its Related Statistics--Current Environment and Future Agenda.  Here is a link from Mr. Yamaguchi's law firm's webpage, courtesy of AIPPI-Japan.  The article discusses some possible reasons why, despite the fact that Japan ranks third in the world in GDP as well as in number of patent applications and registrations, there is so little patent litigation (and IP litigation generally) in Japan compared to other major countries (see descriptive statistics on p.129).  The article rejects the hypotheses that it's too difficult to obtain an easily enforceable patent right in Japan, that there is a comparatively low patentee win rate, and that litigation costs are too high.  The author does conclude, however, that damages may be too low (see pp. 135-38, including a table on first instance judgments from Tokyo and Osaka in 2014 and another table listing the top 5 damages awards from 2014).  Number 1 was Case No 2011 (Wa) 16885, in the amount of ¥1,568,040,000, or about US$ 15,568,040.  One thing I find interesting is Figure 7, which compares for the years 2011-13 the amount of damages claimed (which is usually much higher than the amount awarded, as shown in table 7 and figure 6) compared with the amounts received in settlements.  I wasn't aware that the terms of settlement would be made public--perhaps some Japanese readers could provide me with some more information on this?  The author briefly notes a survey found in a report prepared by the JPO that Japanese firms are reluctant to litigate, a topic I discuss in my book at pages 288-90, 332.  Finally, he concludes with a discussion of three government reports addressing the future of patent litigation in Japan, with the most recent one (from March 2016) calling for, among other things, better procedures to collect evidence; "making it easier to calculated the amount of damages larger than the regular royalties"; "creating a database, etc. concerning regular royalties"; "making it easier to demand payment of an attorneys' fee based on the actual costs"; and for the time being, adopting "no universal restrictions on injunctions, but rather taking "[n]ecessary measures on a case-by-case basis through the doctrine of abuse of right and the competition laws" (p.140).     

Two New Papers by Bernard Chao and Coauthors

Professor Bernard Chao has published two new papers, one solely and one with several coauthors, on damages-related topics: 

1.  First, appearing at 2016 Wisconsin Law Review 287 is Professor Chao's article Horizontal Innovation and Interface Patents.  The paper is available on ssrn and Westlaw.  Here is a link to the ssrn page, and here is the abstract:

Scholars understandably devote a great deal of effort to studying how well patent law works to incentive the most important inventions. After all, these inventions form the foundation of our new technological age. But very little time is spent focusing on the other end of the spectrum, inventions that are no better than what the public already has. At first blush, studying such “horizontal” innovation seems pointless. But this inquiry actually reveals much about how patents can be used in unintended, and arguably, anticompetitive ways.

This issue has roots in one unintuitive aspect of patent law. Despite the law’s goal of promoting innovation, patents can be obtained on inventions that are no better than existing technology. Such patents might appear worthless, but companies regularly obtain these patents to cover interfaces. That is because interface patents actually derive value from two distinct characteristics. First, they can have “innovation value” that is based on how much better the patented interface is than existing technology. Second, interface patents can also have “compatibility value.” In other words, the patented technology is often essential to make products operate (i.e. compatible) with a particular interface. In practical terms, this means that an interface patent that covers little or no meaningful advance can give a company the ability to extract rents and foreclose competition.

This undesirable result is a consequence of how patent law has structured its remedies. For years, patent law has implicitly awarded both innovation and compatibility values. Recently, the courts have taken a sensible first step and excluded compatibility value from reasonable royalty recoveries for standard essential patents. This Article argues that the law needs to go further and do the same for all essential interface patents. Additionally, patent law should discard the use of injunctions and lost profits in these contexts because both of these remedies inevitably award compatibility value. The sole remedy should be an innovation-value-based reasonable royalty. This proposal has two benefits. First, it would eliminate the incentives for wasteful patents on horizontal technology. Second, and more importantly, the value of all interface patents would be better aligned with the goals of the patent system.

Interesting paper, though I disagree with Professor Chao's premise that patent owners shouldn't get any of what he refers to as "compatibility value."  It seems to me that the value to the user of the use of an article that incorporates a patented feature is higher if the article is compatible with other products, and that there is no reason in principle why patent infringement damages shouldn't compensate for that higher value.  Moreover, any argument that patent owners shouldn't benefit from network effects (if that is Professor Chao's position, though I don't want to misattribute it to him if it isn't) seems misguided, since running royalties are always calculated based on volume of use, which network effects may exacerbate.  In addition, Professor Chao's discussion of The Value of the Standard (an article I coauthored with Norman Siebrasse) at p.304 seems slightly off, since the specific example in which Professor Chao embeds this discussion is premised on the patented technology having no ex ante benefit over other alternatives--which would mean that Siebrasse and I agree that its value would be zero, if those other alternatives were in the public domain, notwithstanding its widespread use. 

2.  Second, appearing at 101 Iowa Law Review 543 (2016) is a paper by Professors John E. Campbell, Bernard Chao, Christopher T. Roberson, and David V. Yokum titled Countering the Plaintiff's Anchor: Jury Simulations to Evaluate Damages Arguments. As with the above paper, I don't see this one yet on the law review's website but it is on ssrn and Westlaw.  The paper doesn't discuss patent damages in particular but is an interesting study of experimental evidence on how the anchoring effect may affect damages awards; I cite it in my Patent Damages Heuristics paper.  Here is a link to the ssrn page, and here is the abstract:

Numerous studies have shown that anchoring strongly effects juries. For scholars and policymakers, this evidence is worrisome for the legitimacy and accuracy of jury decisions, especially in the domain of non-economic damages (e.g., pain and suffering). For litigators, this evidence had led some to believe that “the more you ask for, the more you get.” Others believe that the damage demand must pass the “straight-face” test. But little scholarly literature exist to determine whether an outrageously high request really does undermine the plaintiff’s credibility, and whether this “credibility” effect outweighs the anchoring effect.

Likewise, little scholarly attention considers whether a defendant can effectively respond to the plaintiff’s high anchor. One obvious strategy would be a “counter-anchor” – the defendant suggesting a much lower damages award. However, defense attorneys worry that juries may interpret such a strategy as an admission of liability. Thus, in fact, defendants often allow the plaintiff’s anchor to go unrebutted, but this strategy has also not been rigorously tested.

To answer these questions, we conducted a randomized controlled experiment in which we exposed mock jurors to a shortened medical malpractice trial, manipulated with six different sets of damages arguments in factorial design. The plaintiff demanded either $250,000 or $5,000,000 non-economic damages. The defendant responded in one of three ways: (1) offering the counter-anchor that, if any damages are awarded, they should only be $50,000; (2) ignoring the plaintiff’s damage demand; or (3) attacking the plaintiff’s demand as outrageous and using this characterization to argue that the plaintiff’s entire case was not credible. Mock jurors were then asked to render a decision on both liability and damages. We then ran these individuals decisions through a computer simulation to create mock jury decisions.

Our study confirmed that anchoring has a powerful effect on the amount of damages mock juries award. However, a large damages demand also had a small negative effect on liability determinations. When looking at the expected value of the case – the average award when both liability and damage award are considered – these “credibility effects” were overwhelmed by anchoring effects. Different defendant responses also resulted in different outcomes when plaintiff anchored low, but none of these defense strategies are an effective antidote to the plaintiffs’ high anchor. We discuss implications for litigation strategy and policy.

Rödiger on the May 31 German FRAND Decision

As I noted last month (here), on May 31 the Oberlandesgericht Karlsruhe rendered its judgment (available here) in an appeal presenting the question, among others, whether, in a case in which the owner of a FRAND-committed SEP has sued an implementer for an injunction and the implementer raises the competition-law defense, the district court must ascertain whether the owner has made a FRAND offer to the defendant; or whether instead the defense is inapplicable if the defendant has not fulfilled its responsibilities under Huawei v. ZTE (of responding to the plaintiff's offer in a timely fashion, and so on).  The appellate court, agreeing with an earlier decision by the Oberlandesgericht Düsseldorf, held that the court must determine whether the plaintiff's offer was FRAND, and that it isn't enough simply to determine on summary examination that the offer is not evidently non-FRAND.   The July 2016 issue of Mitteilungen der deutschen Patentanwälte has now published the decision (again, in the original German; I'm not aware of an English-language translation) with a short commentary (also in German) by Felix Rödiger of Bird & Bird.  Mr. Rödiger concludes by noting that the court appears to require in every such case that the district court examine the SEP owner's offer in detail, to see if it conforms to FRAND; and that the owner therefore may have to come forward with comparable licenses.  Whether corresponding national or worldwide licenses should be viewed as indicative of FRAND terms remains to be seen. 

 For other discussion of the German FRAND decisions to date on this blog, see, e.g., here.

Two New Empirical Studies of Injunctions

1. Ryan T. Holte and Christopher B. Seaman have posted a paper on ssrn titled Patent Injunctions on Appeal:  An Empirical Study of the Federal Circuit's Application of eBay.  Here is a link to the paper, and here is the abstract:

Ten years after the U.S. Supreme Court’s 2006 seminal decision in eBay v. MercExchange, the availability of injunctive relief in patent cases remains hotly contested. For example, in a recent decision in the long-running litigation between Apple and Samsung, members of the U.S. Court of Appeals for the Federal Circuit sharply divided regarding whether an injunction was warranted to prevent Samsung from continuing to infringe several smartphone features patented by Apple. To date, however, nearly all empirical scholarship regarding eBay has focused on trial court decisions, rather than the Federal Circuit.

This article represents the first comprehensive empirical study of permanent injunction decisions by the Federal Circuit following eBay. Through an original dataset of appeals in nearly 200 patent cases — representing all cases involving contested permanent injunction decisions for a 7½ year period after eBay — we assess the impact of the Federal Circuit on the availability of permanent injunctions. The findings from this study indicate that the Federal Circuit is generally more favorable to prevailing patentees regarding permanent injunctive relief than the district courts following eBay. District courts that grant an injunction after a finding of liability are highly likely to be affirmed on appeal, whereas district courts that deny an injunction have a statistically significant lower affirmance rate. This suggests the Federal Circuit is generally inclined toward a property rule rather than a liability rule as a remedy against future patent infringement. It also appears to lend support to claims by scholars and others that the Federal Circuit, as a specialized court with a large number of patent cases, is more pro-patentee than the generalist district courts. Finally, some implications of this and other empirical findings from the study are considered.

2.  Kirti Gupta and Jay P. Kesan have posted a paper on ssrn titled Studying the Impact of eBay on Injunctive Relief in Patent Cases.  (This appears to be a substantial reworking of the paper by the same name that they posted a little over a year ago, which I mentioned on the blog here.)  Here is a link to the paper, and here is the abstract:

We find that the U.S. Supreme Court decision in eBay v. MercExchange has had a significant impact on injunctive relief in patent cases. Our extensive analysis with a significant dataset involving thousands of patent cases both pre- and post-eBay shows that the eBay decision has reduced, rather dramatically, both the level at which injunctive relief is sought in patent cases and the rate at which they are granted, particularly for preliminary injunctions. We find that all entities – practicing and non-practicing – are less likely to file for a motion of an injunction after eBay, and that this likelihood of filing for an injunction reduces at a higher rate for NPEs compared to PEs. Therefore, the fact that the rate at which injunctions are granted – calculated as a proportion of the total number of patent cases filed – is decreasing is clearly occurring due to the self-selection by patentees who are moving less often for an injunction.

We also study the impact of the eBay decision on the quality of patents for which injunctive relief is sought and the nature of the patent plaintiff (operating company vs. non-operating company) and their relative success rates with obtaining injunctive relief. We do find a statistically significant difference between some of the observable patent quality characteristics of the patents held by PEs vs. NPEs, for which a motion for an injunction is filed, but we find that NPEs tend to file a motion for an injunction for higher quality patents on average. We do not find that the overall quality characteristics of patents for which a motion for an injunction is filed has increased after eBay, which could have served as one potential mechanism of the self-selection by firms to seek injunctions only for slightly higher quality patents post-eBay.

By controlling for various patent and case level observable characteristics, we estimate whether or not the likelihood of obtaining an injunction varies across PEs and NPEs. We find that both for preliminary and permanent injunctions, NPEs are less likely to obtain an injunction, after controlling for patent characteristics and the length of the case (from filing to termination) throughout the 2000-2012 time period. We also find that the eBay ruling reduced the likelihood of all firms receiving either preliminary or permanent injunctions.

In order to understand whether or not the eBay ruling had a differential impact on PEs vs. NPEs, we utilize a diff-in-diff model. We find that the eBay ruling did not have a differential impact on the likelihood of NPEs to be granted a preliminary injunction as compared to PEs – in other words – the likelihood of being granted a preliminary injunction reduced equally both for NPEs and PEs post eBay. However, we do find a differential impact of the eBay ruling on PEs vs. NPEs for permanent injunctions. We find that NPEs are less likely to be granted a permanent injunction post-eBay compared to PEs, after eBay. In sum, this study raises important policy questions about the current diminished role for injunctive relief in patent cases.

This is an interesting paper, though I still wonder as I did last year why the authors' descriptive statistics for grants of permanent injunctions pre-eBay (which in the current draft never exceed 80.7% during any of the years studied) are so much lower than would ve suggested by the conventional wisdom that permanent injunctions were almost always granted to the prevailing patentee.  Is it because some motions for permanent injunctions were withdrawn prior to being adjudicated, as a result of settlement leading to the licensing of the patented technology?  

I also disagree with the authors' statement, toward the end of the paper, that "classic legal and economic theory suggests that patent courts should be agnostic regarding who owns the patents [that is, PE versus NPE] but rather rule upon the quality of the patents at issue and their infringement."  It seems to me, however, that NPEs on average would have a much harder time showing irreparable harm, inadequacy of a remedy at law, or that the balance of hardships favors them, than would a PE, since unlike many PE/competitors, NPEs are not, ultimately, interested in excluding the defendant from the market.  From an economic standpoint, I would also think that the risk of holdup on average tends to be greater with NPE litigation, much of which does not involve copying by the defendant but rather inadvertent infringement for which an injunction would enable the extraction of sunk costs (i.e., holdup).

CJEU Rules on Recovery of Attorney's Fees and Other Costs

I'm a little delinquent in reporting on this judgment, which came out on July 28 and was the subject of a post on IPKat on August 9, but so it goes.  The case is United Video Properties, Inc v Telenet NV, C-57/15, which as I reported back in April (here) involves the questions of whether Belgian law, which caps the recovery of attorneys' fees awarded to the successful party in litigation at a maximum of €30,000, and awards expenses for technical advisers only when the other party is at fault, is consistent with article 14 of the 2004 Enforcement Directive, which states that "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."  In the underlying litigation, the court awarded the prevailing defendant in a patent case just €11,000 in legal fees for the proceedings at each instance (so I guess €22,000 in total) and denied its request to be compensated for having retained a technical adviser, despite the fact that the defendant asserted actual legal fees of €185,462.55 and a technical adviser fee of €44,400.

More specifically, the questions referred were:

(1)      Do the terms “reasonable and proportionate legal costs and other expenses” in Article 14 of Directive 2004/48 preclude the Belgian legislation which offers courts the possibility of taking into account certain well-defined features specific to the case and which provides for a system of varying flat rates in respect of costs for the assistance of a lawyer?

(2)       Do the terms “reasonable and proportionate legal costs” and “other expenses” in Article 14 of Directive 2004/48 preclude the case-law which states that the costs of a technical adviser are recoverable only in the event of fault (contractual or extra-contractual)?

Regarding the first question, the CJEU concludes:

25.  . . . [L]egislation providing for a flat-rate of reimbursement of a lawyer’s fees could, in principle, be justified, provided that it is intended to ensure the reasonableness of the costs to be reimbursed, taking into account factors such as the subject matter of the proceedings, the sum involved, or the work to be carried out to represent the client concerned. This may be the case, in particular, if that legislation is intended to exclude the reimbursement of excessive costs due to unusually high fees agreed between the successful party and its lawyer or due to the provision, by the lawyer, of services that are not considered necessary in order to ensure the enforcement of the intellectual property rights concerned.

26      On the other hand, the requirement that the unsuccessful party must bear ‘reasonable’ legal costs cannot justify, for the purposes of the implementation of Article 14 of Directive 2004/48 in a Member State, legislation imposing a flat-rate significantly below the average rate actually charged for the services of a lawyer in that Member State. . . .

28      As regards . . . the requirement that account be taken the specific features of the present case, it is apparent from the very wording of the first question that the national legislation at issue in the main proceedings offers the courts, in principle, the possibility of taking account of those features.

29      However, . . . it must be stated that Article 14 of Directive 2004/48 provides that the legal costs to be supported by the unsuccessful party must be ‘proportionate’. The question of whether those costs are proportionate cannot be assessed independently of the costs that the successful party actually incurred in respect of the assistance of a lawyer, provided they are reasonable within the meaning of paragraph 25 above. If the requirement of proportionality does not imply that the unsuccessful party must necessarily reimburse the entirety of the costs incurred by the other party, it does however mean that the successful party should have the right to reimbursement of, at the very least, a significant and appropriate part of the reasonable costs actually incurred by that party.

30      Therefore, national legislation that lays down an absolute limit in respect of costs attached to the assistance of a lawyer, such as that at issue in the main proceedings, must ensure, on the one hand, that that limit reflects the reality of the rates charged for the services of a lawyer in the field of intellectual property, and, on the other, that, at the very least, a significant and appropriate part of the reasonable costs actually incurred by the successful party are borne by the unsuccessful party. It is not possible for such legislation, particularly in a situation in which that limit is too low, to prevent the amount of those costs vastly exceeding the limited provided for, so that the reimbursement which the successful party may claim becomes disproportionate or even, where applicable, insignificant, thus depriving Article 14 of Directive 2004/48 of its practical effect.

31      The conclusion in the preceding paragraph cannot be called into question by the fact that Article 14 of Directive 2004/48 excludes from its scope situations in which equity does not allow the legal costs to be borne by the unsuccessful party. That exclusion covers national rules allowing courts, in a specific case in which the application of the general scheme regarding legal costs would lead to a result considered unfair, to disregard that scheme by way of exception. On the other hand, equity, by its very nature, cannot justify a general unconditional exclusion of reimbursement of costs exceeding a specified ceiling. . . .

32      In the light of all the foregoing, the answer to the first question is that Article 14 of Directive 2004/48 must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which provides that the unsuccessful party is to be ordered to pay the legal costs incurred by the successful party, offers the courts responsible for making that order the possibility of taking into account features specific to the case before it, and provides for a flat-rate scheme for the reimbursement of costs for the assistance of a lawyer, subject to the condition that those rates ensure that the costs to be borne by the unsuccessful party are reasonable, which it is for the referring court to determine. However, Article 14 of that directive precludes national legislation providing flat-rates which, owing to the maximum amounts that it contains being too low, do not ensure that, at the very least, that a significant and appropriate part of the reasonable costs incurred by the successful party are borne by the unsuccessful party.

Regarding the second: 

39.  . . . [T]he costs of research and identification incurred in the context of actions covering, inter alia, a general observation of the market, carried out by a technical adviser, and the detection by the latter of possible infringements of intellectual property law, attributable to unknown infringers at that stage, do not appear to show such a close direct link. On the other hand, to the extent that the services, regardless of their nature, of a technical adviser are essential in order for a legal action to be usefully brought seeking, in a specific case, to have such a right upheld, the costs linked to the assistance of that adviser fall within ‘other expenses’ that must, pursuant to Article 14 of Directive 2004/48, be borne by the unsuccessful party.

40      In those circumstances, the answer to the second question is that Article 14 of Directive 2004/48 must be interpreted as precluding national rules providing that reimbursement of the costs of a technical adviser are provided for only in the event of fault on the part of the unsuccessful party, given that those costs are directly and closely linked to a judicial action seeking to have such an intellectual property right upheld.

So, in short, flat-rates are okay as long as they compensate "a significant and appropriate part of the reasonable costs" actually incurred, and technical adviser fees are compensable if they are "directly and closely linked to" the judicial proceeding at issue. 

The IPKat post raises an interesting question whether the  Draft Decision of the Administrative Committee of the Unified Patent Court on the Scale of Recoverable Cost Ceilings (June 16, 2016), which as I noted here  contemplates that the prevailing party generally will be able to recover its legal costs, up to certain specified levels, but also confers some discretion on the court to raise or lower these amounts under certain circumstances, would satisfy the CJEU's standard.