Harvard Journal of Law & Technology Special Symposium Issue

The Harvard Journal of Law & Technology recently published a Special Symposium Issue on Private Law and Intellectual Property, available here.  The webpage states:

The 2017 Symposium on Private Law and IP involved both a conference and a series of short articles that analyze the intersection of private law and intellectual property. The conference, sponsored by Harvard Law School’s Project on the Foundations of Private Law, met in March 2016. The scholars who were in attendance completed fourteen papers that explore many of the topics discussed at the conference, which were published in January 2017.

Several of the papers address (among other matters) legal or economics issues relating to patent remedies, including the following.  (The published papers don't appear to have abstracts, so I'm using abstracts, where available, from the ssrn versions of these articles).

1.  Tun-Jen Chiang, The Paradox of IP.  Here's a link, and here's the abstract:

A central reason for having an IP system (over a prize or grant system) is the assumption that government actors lack the capability to make assessments of IP value. Yet the reality is that judges make assessments of IP value all the time. I call this seeming contradiction the “paradox of IP.”

This Essay does not attempt to offer a solution to this paradox. Rather, my argument is that the IP paradox is illuminative of many IP debates, including debates about IP scope and remedies. Most fundamentally, it illuminates the longstanding debate between those who regard IP as a form of public regulation versus those who regard IP as a form of private property. From the perspective of the IP paradox, the property/regulation debate is about how much fine-tuned control the government is able to, and should, exercise over IP rights. The property/regulation debate is intense and unsettled because it reflects the underlying conflict between the founding anti-calibration premises of the IP system and the empirical reality that our actual IP systems feature pervasive judicial calibration. Without resolving the underlying paradox, we cannot resolve the property/regulation debate.

2.  Jorge Contreras, From Private Ordering to Public Law: The Legal Frameworks Governing Standards-Essential Patents.  Here is a link to the paper, and here is the abstract:

Technical standard setting, though conducted largely through private organizations, possesses many attributes of a public function. By and large, SDO policies operate effectively to enable competitors to collaborate to develop standards that produce network effects and yield significant social welfare gains. At times, however, internal policing and enforcement mechanisms may not be sufficient to curb abusive behavior by SDO participants, particularly behavior that tends to diminish the value of patent-related commitments made by participants. In these cases, the intervention of public law principles may be appropriate. But while public law regimes such as antitrust and competition law may offer effective means for addressing the most egregious abuses of these commitments, it may be preferable for public agencies to promote legal measures assuring the enforceability of these private commitments on their own terms. Legal support for the enforcement such commitments, and the avoidance of new legal duties, should result in more adaptable and predictable mechanisms for ensuring the continued effective operation of private standardization systems, while the public character of standard setting should continue to be recognized when applicable legal rules call for consideration of the public interest.

3.  John M. Golden, Reasonable Certainty in Contract and Patent Damages.  Here is a link to the paper.  It's not on ssrn, but here's a portion of the Introduction:

This Article contends that private law decisions and doctrines can provide inspiration for judges’ efforts to regulate reasonable royalty awards in patent cases. In particular, the Article focuses on how contract law’s demand for “reasonable certainty” with respect to damages can offer instruction on how courts might flexibly regulate proof of reasonable royalties. The basic contention is that, in both situations, a standard of reasonableness of proof allows courts, in addressing the admissibility or sufficiency of evidence, to take into account context-specific factors not currently highlighted by the standard Georgia-Pacific factors for assessing reasonable royalty damages in patent cases. Such context-specific factors include the size of claimed damages amounts, the relative innocence or blameworthiness of the parties, and the potential availability or non-availability of better methods or evidence for developing a damages calculus. Attention to these context-specific factors can enable courts to tailor their approaches to determining the sufficiency or admissibility of evidence on reasonable royalty awards in ways that support proper ex ante incentives to innovate and to patent, deter opportunistic behavior by infringers and patentees, and encourage use of the best techniques and evidence for assessing damages that are justifiable in light of their cost.  

4.  Ted Sichelman, Patents, Prizes, and Property.  Here's a link to the paper.  It's not on ssrn either, but here's a portion of the Introduction:

This Article contributes to the literature [on patents and prizes] in two main respects. First, I extend Roin’s analysis to suggest that the property-rule aspect of patents provides benefits beyond those stemming from mere negotiation with governments-as-payors to more broadly engender greater commercialization incentives than under a prize system. Second, although property rules may distinguish patents from prizes in practice, I contend that the fungibility thesis nonetheless helps to legitimate an important theoretical claim about patents: like prizes, patents — despite often being effectuated via private law means — aim to achieve essentially regulatory, public-oriented goals.

Larouche & Zingales on Injunctive Relief in EU FRAND Disputes

Pierre Larouche and Nicolo Zingales have posted a paper on ssrn titled Injunctive Relief in FRAND Disputes in the EU--Intellectual Property and Competition Law at the Remedies Stage.  Here is a link to the paper, and here is the abstract:

In dealing with applications for injunctive relief by the holders of FRAND-encumbered SEPs in the course of protracted licensing negotiations, any legal system faces the challenge of reaching the proper balance between predictability for stakeholders and differentiation between possible scenarios (tough negotiations, holdup, holdout or exclusion). In the EU, that challenge fell to be addressed first under the various national laws concerning remedies for intellectual property violations, as partially harmonized by Directive 2004/48. The outcome was not optimal. After German courts introduced competition law in the equation in Orange Book, the European Commission felt compelled to intervene with a different approach in Motorola and Samsung, leading to a reference to the CJEU in Huawei v ZTE. That ruling sets out an elaborate choreography that SEP holder and implementer must respect, in order to avoid breaching Article 102 TFEU or avert injunctive relief, respectively. Huawei represents a satisfactory compromise in practice, but its theoretical foundation in competition law is not solid. Subsequent case-law has unmoored Huawei from competition law and is turning it into a stand-alone lex specialis for injunctions in FRAND cases. In the longer run, legislative intervention might be preferable to de facto harmonization via competition law. 

I thought this was a very thoughtful and informative paper.  Descriptively, the paper provides a good overview of the law of injunctions and its application to FRAND disputes in England, Italy, France,Germany, and the Netherlands.  Much of the authors' analysis turns on their classification of disputes between implementers and owners of FRAND-committed SEPs into four scenarios:  (1) "negotiation," where  "[t]he parties are locked in difficult negotiations to conclude a FRAND-compliant license," but "have no obvious interest to derail the negotiations by having recourse to outside options"; (2) "holdup," where the SEP owner exploits its market power to obtain exorbitant royalties, but normally isn't interested in excluding the implementer from the market; (3) "holdout," where the implementer wants to use the technology without a license or for an unreasonably low rate; and (4) "exclusion," where the SEP owner competes in a downstream market and wants to exclude the implementer from it (pp. 3-4).  The authors note that Huawei itself fell within the fourth category, and that as others have noted some of the CJEU's language in that decision supports the theory that the Huawei framework applies only in cases involving exclusion.  At the same time, however, other portions of the decision "seems to envisage that its reasoning applies more generally than as between competitiors," and that "a larger number of cases . . . apply Huawei to cases that do not fall within an exclusionary theory of harm. . . . [I]n most post-Huawei cases, the plaintiff is a patent assertion entity, which is by definition not competing with the defendant.  The theory of harm cannot then be exclusionary," but rather must be scenario 2 (holdup) (pp. 21-22).  The authors also argue that Huawei's imposition of certain obligations on implementers, which is part of what they refer to as the Huawei "choreography," cannot be justified under competition law; and they express concern that the limitation of Huawei to FRAND-committed SEPs (but not to de facto SEPs or FRAND-unencumbered SEPs) "risks introducing distortions into the standardization process" (p.29).  In addition, they express the view (which I've also tried to emphasize in recent work) that "On difficult issues such as these disputes, the key challenge for any legal system is to find the proper balance between accuracy (the ability to correctly identify which of the four scenarios is unfolding in a given case), consistency/predictability (the ability to treat like cases alike and enable firms to plan their actions accordingly) and efficiency (the minimum expense of resources in solving these cases)" (p.33); and, like the authors of the recent JRC report on SEPs, they argue that "FRAND is better seen as a guide for parties to deal with one another," rather than "to find a mystical 'right' FRAND set of terms and conditions" (p.36).  Finally, in a conclusion that calls to mind some thoughts I've expressed on these issues over the past few years, to the effect that competition law may be (for now) an adequate though imperfect source of legal norms for addressing FRAND/SEP disputes in Europe, the authors write:

On balance, even if it cannot be justified in theory, the unmooring of Huawei from competition law provides clear practical benefits. Considering that it would have been impossible to provide a comparable approach to SEP-related disputes from within IP law in such a short time, maybe Huawei represents the optimal institutional response by the EU to the proliferation of these disputes. Nevertheless, many questions remain open, and there is a risk that, sooner or later, the theoretical shortcomings will catch up with the evolution of the case law spawned by Huawei. It might be advisable for the EU institutions to follow up on Huawei via a legislative instrument that would rest on a more solid and broader foundation and would carry more legitimacy (p.37).

Overall, the paper is definitely worth a read.

R.I.P. Kenneth Arrow

Kenneth Arrow, recipient of the 1972 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, has died at the age of 95.  Here's a link to his obituary in the New York Times.  He was one of the truly great minds of our era, and his contributions to economics, including but certainly not limited to the economics of intellectual property, will be long remembered.

"The Value of the Standard" Is Now Out

The Minnesota Law Review has now published my article, coauthored with Norman Siebrasse, titled The Value of the Standard.  Here is a link to the published version of the article, and here is the abstract:

Standard-setting organizations (SSOs) often require member firms to license their standard-essential patents (SEPs) on undefined “fair, reasonable, and nondiscriminatory” (FRAND) terms. Courts and commentators in turn have proposed various principles for calculating FRAND royalties, among them that the royalty should not reflect “the value of the standard.” As we show, however, this principle could be understood to mean any or all of three distinct concepts, namely that the royalty should not reflect the implementer’s sunk costs; that the patentee should not be able to extract any of the value resulting from network effects; or that the royalty should be proportionate to the patent’s contribution to the standard.

This Article proposes, as an alternative benchmark, that a FRAND royalty should reflect the incremental contribution of the patent to the value of the standard to the user. This principle combines two related ideas: first, that royalties should reflect the hypothetical bargain the parties would have struck ex ante (prior to incurring sunk costs) in view of the incremental value of the technology over unpatented alternatives as revealed ex post; and second, that multiple patents reading on a standard should be valued in proportion to their marginal contribution (“ex post Shapley pricing”). Our proposal would prevent patentees from extracting sunk costs or a disproportionate share of standard value, but (contrary to some approaches) it would enable them to draw some of the increased value resulting from network effects. We show that our approach is more consistent with sound innovation policy, and suggest some practical applications.

Our experience of publishing with the Minnesota Law Review, by the way, was quite positive.  The journal met all of its announced deadlines, and the editors' suggested edits improved the article.  This is not always the case with student-edited law reviews, but I'm happy to say that the one at my home institution appears to be doing a very good job.

IP Chat Channel Webinar on Enhanced Damages

On Thursday, February 23, 2017, at 2 p.m. Eastern Time the IP Chat Channel will broadcast a webinar titled Willfulness, Enhanced Damages, and Opinions of Counsel Since Halo.   Here is a link to the website, if you're interested in registering, and here is a description:  

It's been more than six months since the U.S. Supreme Court's Halo decision lowered the bar for proving willful infringement, and this boon for plaintiffs is quickly changing trial strategy. Our panel of experienced litigators will begin by examining how courts post-Halo have decided the sufficiency of pleading for enhanced damages at the motion-to-dismiss stage. Then the panel will consider the factors that have most strongly influenced recent district court decisions to enhance - or not enhance - damages, including notice by the patent owner (cases such as CH2O and Finjan), copying (Westerbeke, Imperium, and PPC),and opinions of counsel (Dominion, Presidio, and Boston University). A favorably timed opinion of counsel can prove successful in warding off a finding of willfulness, but defendants need to consider the effect of an opinion of counsel on attorney-client privilege. 

Panelists will be Natalie Hanlon Lee, Christopher Marchese, and Michael Zeliger.

Stays Pending Design-Around in Germany?

The question of whether, in a case in which the patent owner prevails on liability, the court should consider "staying" an injunction for a period of time, rather than denying the injunction altogether, to enable the infringer to design around the patented invention is one that has received some attention in the U.S. scholarship and case law.  In some respects it's an attractive option, since it reduces the risk that an infringer under threat of an injunction will agree to a royalty that reflects holdup value, while also reducing the potential harm to the patent incentive scheme that may result if the court were to enter a permanent ongoing royalty that inaccurately reflects the value of the invention.  (When U.S. courts choose this option, they typically award a temporary or "sunset" ongoing royalty that lasts only for the design-around period.  Unfortunately, the rate for these ongoing royalties is frequently higher than the prejudgment royalty rate--which makes little economic sense, see discussion here--but at least when the court is only staying the injunction the impact of such an error is temporary.)

For the most part, courts outside the United States still tend to view awards of injunctive relief to the prevailing patent owner as more-or-less automatic (as did U.S. law, prior to eBay) other than in SEP/FRAND cases.  Moreover, a May 2016 decision of the German Bundesgerichtshof (BGH, or Federal Supreme Court) suggests that German courts aren't very receptive to  the stay-pending-design-around idea either.  (Hat tip to Norman Siebrasse, who called to my attention Jochen Buehling's discussion of this case last month on the Kluwer IP Blog.)  The case is the Judgment of 10 May 2016, X ZR 114/13 (Wärmetauscher, or "Heat Exchanger"), available in the original German here.  The patent in suit claims a heating system for vehicles, and the principal issue before the BGH was whether the defendants' products infringed.  The courts of first and second instance held that they did not, but the BGH reversed, and most of the decision discusses the appropriate principles of claim construction leading to this result.

Of interest to remedies mavens, however, is the court's discussion of the defendants' alternative request for an Aufbrauchfrist (a term that Dr. Buehling nicely translates as "transition period") to enable them to sell off their stock and fill orders that had been placed up until the reversal on appeal.  If I'm understanding this correctly, the BGH holds that the granting of such a transition period can only be granted when, in consideration of the interests of the patent owner and the infringer, the immediate enforcement of the injunction would result in a disproportionate and undue hardhip and thus would be in bad faith (para. 41a).  The court further states that the issue of whether such a transition period would ever be available in a patent case hadn't come before the high court before, but that the legal literature had proposed that a court could consider granting such a transition period on a case-by-case basis, taking into account all of the participants' interests; the infringer's good or bad faith; whether the patented invention formed just a small but functionally necessary component of a complex product; and whether an unpatented or licensed product could be substituted within a reasonable time. The court also doesn't see anything in TRIPs article 30 (which permits "limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties"), or in article 3 of the EC Enforcement Directive ("Member States shall provide for the measures, procedures and remedies necessary to ensure the enforcement of the intellectual property rights covered by this Directive. Those measures, procedures and remedies shall be fair and equitable and shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays. . . .  Those measures, procedures and remedies shall also be effective, proportionate and dissuasive and shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse."), that would require the more liberal granting of transition periods.

Applying these rules here, although the infringing subject matter comprised only a single element of a component (a vehicle seat) in a complex product (a vehicle), it wasn't an essential feature, and it wasn't shown that the defendants lacked alternatives or that an injunction would cause undue hardship.  Nor did it matter that the courts of first and second instance though the products were noninfringing.  

Based on the above discussion, as I understand it the court doesn't contemplate that a transition period could be accompanied by an interim royalty.  Rather, it would simply be an exception to the patent owner's exclusive rights, and barring some exceptional circumstances a German court won't grant it.  

New Dutch FRAND Case

On the EPLaw Blog today, Maurits Westerik has a write-up on a judgment published last Friday by the District Court of the Hague in Archos S.A. v. Koninklijke Philips N.V.  According to the post, the court concluded that the evidence did not show that the offer made by Philips was non-FRAND and that Archos's own offer was.  In particular, the court rejected Archos's arguments that Philips acted improperly by seeking to license its UMTS and LTE patent portfolios together, and that Philips's offer overestimated the share and quality of Philips's patents to the UMTS standard.  The post also links to the judgment itself, but most of it is in Dutch, which I can't read.  It would be great to have a translation into English, to help in better understanding some of the specifics.  

Canada's Federal Court of Appeal Reaffirms Relevance of Noninfringing Alternatives

The decision is Apotex Inc. v. ADIR, 2017 FCA 23 (Feb. 2, 2017).  Norman Siebrasse, who brought the case to my attention, has two more comprehensive write-ups on Sufficient Description, here and here.  The basic story is that in 2008 the district court found Apotex liable for the infringing manufacture and sale of perindropil tablets covered by Canadian Patent No. 1,341,196 (a finding later affirmed on appeal); and in 2016 it awarded an accounting (disgorgement) of the defendant's profits earned attributable to (1) sales in the domestic Canadian market and (2) sales to Apotex's U.K. and Australian affiliates for distribution in the U.K. and Australia.  Apotex didn't dispute that there were no noninfringing alternatives available for supply in the Canadian market, and thus that it was liable for all of the profit derived from domestic sales of the drug.  But it argued that there were noninfringing alternatives available for the export market--namely, that it could have arranged to have perindropil manufactured by companies in countries other than Canada in which the drug is not patented or the patent has been invalidated, and then distributed to the U.K. and Australian affiliates.  In 2015, the Federal Court (trial court) held, however, that the existence of such noninfringing alternatives was legally irrelevant--distinguishing the Canadian Supreme Court's decision in Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, on its facts--and that in any event the evidence did not show that Apotex could have arranged for the supply of noninfringing perindropil to the export market.  

On the legal issue, the Federal Court of Appeals reversed, reading Schmeiser (correctly, in my view) as standing for the proposition that noninfringing alternatives are indeed relevant.  In this regard, the court noted the Supreme Court's extensive discussion in Schmeiser of Professor Siebrasse's article A Remedial Benefit-Based Approach to the Innocent-User Problem in the Patenting of Higher Life Forms (2003) 20 C.I.P.R. 79, which argues in favor of the relevance of noninfringing alternatives.  (I'm happy to say that the appellate court also cited my book as persuasive authority that this rule makes sense as an economic proposition.)  Canadian therefore appears to be consistent with the long-standing U.S. recognition of the relevance of noninfringing alternatives, and at odds with the British approach as evidenced in cases such as United Horse-Shoe and Celanese.  On the facts, the court remands the case for the trial court to consider whether certain foreign companies could have supplied sufficient quantities of noninfringing perindropil to Apotex affiliates in the U.K. and Australian markets.  The court rejects Apotex's argument, however, that some of the profits it earned on foreign sales were for indemnity and legal services provided to its affiliates and not attributable to the drug itself.

It's an interesting question whether, in the U.S., the patent owner would be entitled to damages relating to products supplied to a foreign market under these circumstances, assuming there were no noninfringing alternative.  Probably not, I'd think; see, e.g, some of my previous blog posts and the sources cited therein, here, here, and here.  Would the availability of the disgorgement remedy, which U.S. patent law doesn't make available other than for design patent infringement, make a difference?

Finally, for another recent Canadian case addressing the topic of noninfringing alterantives (finding that there weren't any during the period in question), see Professor Siebrasse's February 3 blog post on Frac Shack Inc. v. AFD Petroleum Ltd.

UT Patent Damages Conference Part 2, February 17-18

As I mentioned last month, the University of Texas School of Law will be hosting Part 2 of the Conference on Patent Damages ("PatDam 2") on February 17-18, 2017 in Austin.  (Part 1 was held in June 2016.  Here is a link to the webpage from which you can download the papers from that conference.)  Information on PatDam 2 is available from the Review of Litigation's website, here; below is the schedule as of January 24, 2017.    I'm certainly looking forward to the conference; as you can see below, I'll be commenting on a paper on enhanced damages. 

Friday, February 17, 2017

8:50-9 Welcome

9-10:20 Paper Session 1

10:20-10:40 Break

10:40-12 Paper Session 2

12-1:40 pm Lunch at Texas Law with Judges’ Panel

1:40-2 Break

2-3:20 Paper Session 3

3:20-3:40 Break

3:40-5 Paper Session 4

6-9 Reception and Dinner with In-House Counsel Panel

Saturday, February 18, 2017

8:50-9 Opening Remarks for Day 2

9-10:20 Paper Session 5

10:20-10:40 Break

10:40-12 Paper Session 6

12-1:40 pm Lunch at Texas Law with Economic/Damages Experts’ Panel

This course has been approved for Minimum Continuing Legal Education credit by the State Bar of Texas Committee on MCLE in the amount of 8.00 credit hours, of which 0.00 hours are ethics.

The conference is supported by a fund at the University of Texas School of Law created through a gift from Intel Corporation. Papers from the conference will appear in the Texas Intellectual Property Law Journal and The Review of Litigation.

Composition of Panels

Judges’ Panel

Chief Judge Colleen McMahon (SDNY)

Judge Marilyn Huff (SD Cal)

Judge Sue Robinson (D Del)

Judge Lee Yeakel (WD Tex)

Moderator: Hilda Galvan (Jones Day–Dallas)

In-House Counsel Panel

Vanessa Bailey (Intel)

Ron Epstein (Epicenter)

Anthony Peterman (Dell–Austin)

Dan Sharp (UT-Austin)

Jennifer Wuamett (NXP–Austin)

Moderator: Justin Nelson (Susman Godfrey–Austin)

Economic/Damages Experts’ Panel

David Abrams (Penn Law & Wharton)

Elizabeth (Liz) Bailey (UC Berkeley Business)

John C. Jarosz (Analysis Group–Washington, DC)

James R. Kearl (BYU Economics)

Shirley Webster (Ocean Tomo–Houston)

Moderator: Michael Risch (Villanova Law)

Paper Session 1: Apportionment and Patent Damages

Moderator: Sapna Kumar (Houston Law)

Design Patent Remedies

o Presenter: Mark Janis (Indiana Bloomington Law)

o Commentator: Pamela Samuelson (Berkeley Law)

Apportionment and Reasonable Royalties

o Presenter: Anne Layne-Farrar (Charles River Associates)

o Commentator: David Adelman (Texas Law)

Paper Session 2: Guidance and Discretion

Moderator: Kevin Meek (Baker Botts)

Jury Instructions for Patent Damages (by Bill Lee (WilmerHale) & Doug Melamed (Stanford Law))

o Presenter: Jorge Contreras (Utah Law)

o Commentator: Bernard Chao (Denver Law)

Discretion and Patent Remedies

o Presenter: John Golden (Texas Law)

o Commentator: Rebecca Eisenberg (Michigan Law)

Paper Session 3: Damages for Deterrence?

Moderator: Marketa Trimble (UNLV Law)

Damages as Injunction Substitute

o Presenter: Dan Burk (UC Irvine Law)

o Commentator: Samuel Bray (UCLA Law)

Judicial Reasoning for Enhanced Damages

o Presenter: Karen Sandrik (Willamette Law)

o Commentator: Tom Cotter (Minnesota Law)

Paper Session 4: Circularity in Patent Valuation?

Moderator: Sarah Burstein (Oklahoma Law)

The Circularity Story for Reasonable Royalties

o Presenter: Oskar Liivak (Cornell Law)

o Commentator: Oren Bracha (Texas Law)

Patent Valuation and Taxation

o Presenters: Jennifer Blouin (Penn Wharton) & Melissa Wasserman (Texas Law)

o Commentator: Susan Morse (Texas Law)

Paper Session 5: New Approaches to Calculating Patent Damages

Moderator: Saurabh Vishnubhakat (Texas A&M Law)

Cost-Plus Patent Damages: An Economic Analysis

o Presenter: Michael Abramowicz (George Washington Law)

o Commentator: Sarah Wasserman Rajec (William & Mary Law)

Adjusting Patent Damages for Non-Patent Incentives

o Presenter: Lisa Ouellette (Stanford Law)

o Commentator: Glynn Lunney (Texas A&M Law)

Paper Session 6: Norms and Boundaries for Patent Damages

Moderator: Tun-Jen Chiang (George Mason Law)

Factoring Pain and Suffering into Patent Damages

o Presenter: Ronen Avraham (Texas Law)

o Commentator: Wendy Gordon (Boston University Law)

Normative Aims and the Assessment of Patent Damages

o Presenter: Peter Lee (UC Davis Law)

o Commentator: Robert Bone (Texas Law)

Federal Circuit Remands Apple v. Samsung Design Patent Damages Issues to Judge Koh

Here's the per curiam opinion, which states in relevant part "On remand, the trial court should consider the parties’ arguments in light of the trial record and determine what additional proceedings, if any, are needed. If the court determines that a new damages trial is necessary, it will have the opportunity to set forth a test for identifying the relevant article of manufacture for purposes of § 289, and to apply that test to this case."  For previous blog posts on this case, see, e.g., here.  I also participated in an IP Chat Channel webinar on the issue a few weeks ago, which (if you missed it but are interested in hearing it) you can still register to listen to, here.

Interesting IPKat Post on NDAs in German SEP Litigation

Available here.  Apparently the new procedures permitted by the Higher Regional Court of Düsseldorf will make it easier than it has been up to now in Germany for the owners of FRAND-committed SEPs to disclose to defendants and intervenors the licenses they have granted to others, for the purpose of substantiating that their offers are FRAND, without having to worry so much about the individuals to whom the information is disclosed disseminating the information more broadly. 

JRC Report on the Licensing Terms of SEPs

I've now had a chance to read through the Joint Research Centre (JRC) Science for Policy Report titled Licensing Terms of Standard Essential Patents:  A Comprehensive Analysis of Cases, which I mentioned on this blog last month (here).  (The JRC is "the European Commission’s science and knowledge service," and I have previously blogged on its recent report on patent assertion entities in the EU, here.)  The authors are Chryssoula Pentheroudakis and Justus A. Baron, and the editor is Nikolaus Thumm.  The report, which is fairly lengthy, provides a terrific summary of all of the FRAND/SEP cases from the U.S., the E.U., China, Japan, and India, and thus should be of immense interest to anyone involved with these cases.  (It's a long report, but if you're pressed for time there is a concise executive summary at the beginning; and, as noted, the report is a good reference to have on hand for the details of all the FRAND cases to date.)  The report also covers the various issues relating to holdup and holdout, royalty stacking, calculating FRAND royalties, whether or not to grant injunctive relief, and it concludes with some specific policy recommendations.  The principal normative conclusions, in my reading, is that (1) FRAND is a range, not a specific number;  (2) courts face immense difficulties in calculating FRAND royalties; and (3) at least within the E.U., the emphasis should be on encouraging voluntary negotiations by establishing some boundary conditions (e.g., the steps that SEP owners and implementers must take to avoid or invoke, as the case may be, the competition law defense, in accordance with the CJEU's Huawei v. ZTE decision).  On this last point in particular, the authors write, under the heading "There are limits to what courts can do or should be expected to do," the following:

Evidentiary rules and sophisticated methodologies developed by the US courts for the calculation of FRAND royalties are not particularly useful in the European context. These tools are designed to assist the US courts in determining a single FRAND rate. In contrast, in the context of injunctions, European courts have focused on defining the conditions under which the conduct of the negotiating parties is incompatible with their FRAND obligations. The increased reliance of firms on the judicial system for the determination of FRAND rates risks undermining their incentives to agree the price of intellectual property through bilateral negotiations. The judicially defined rates are generally based on 1) the prices of infringing components, which may bear little information on the value of the technology, and 2) comparable licenses that reflect the parties’ assumptions regarding the outcome of litigation rather than their valuation of the patented technology. It’s hard to imagine that substantial methodological progress could be made starting from these premises. An economically sound approach is only possible once it is recognized that the ex ante-driven methodological challenges that courts need to overcome to determine ex post an appropriate royalty rate are simply overwhelming.

Against this background, policies that support market mechanisms and conditions conducive to bilateral negotiations and their proper conduct as early on as possible can enhance clarity around the definition of FRAND and restore legal certainty in the field of SEPs (p.161).

See also p.124 (stating that "In order to determine a single royalty rate deriving from a hypothetical agreement of this kind, US courts are methodologically sophisticated when they approach FRAND. In contrast, European courts are more reluctant to define a single royalty rate. Instead, they focus on the conduct of the parties during the bilateral negotiations and assess whether it complies with the specific FRAND commitments made prior to awarding injunctions.").

Among the other notable aspects of the report are its discussions of the literature on the ex ante negotiation benchmark (e.g., when is the negotiation assumed to take place, the lack of a clear answer thus far as to how to take into account patented alternatives, etc.); the distinction between the stand-alone value of the patented technology and its value by  virtue of being included in the standard (see pp. 129-31, in particular); the use of comparable licenses as benchmarks (pp. 147-50); and a proposed four-step framework for choosing a royalty base (pp. 142-47).  On this last issue in particular, the authors argue that "it is necessary to move beyond the concepts of EMVR [entire market value rule] and SSPPU [smallest saleable patent practicing unit]," and that in some instances "appropriate compensation may be a very large share of the price of a component implementing the patented feature . . . not restricted to values below 100%," as Nicolas Petit has also observed.  The authors' proposed four steps, which they explain at some length, are (1) "Examine whether the suggested base (end product or component) satisfies the EMVR. Examine whether the suggested base (end product or component) is the SSPPU."; (2) "Examine whether the price of the chosen base accounts for the value of the technology."; (3) "If this is the case, examine whether a method exists to reliably isolate and identify the value from this price."; and (4) "Assess whether the reference to the base nevertheless invites for confusion and may mislead the jury in its decision."  The authors also suggest in passing that conjoint analysis can be helpful in carrying out the necessary apportionment.  Finally, I'm intrigued by the authors' discussion (pp. 156-57) of Judge Thomas Kühnen's proposed methodology for calculating FRAND royalties, which apparently is set out in the new (ninth) edition of his Handbuch der Patentverletzung (which I'll have to acquire; I don't think the English translation of this edition by Frank Peterreins is out yet.), which is reminiscent of some remarks by Judges Kühnen and Maimann as recorded in this article (and which I also cite in this article at p.45).  From the JRC Report: 

The purpose of determining a FRAND royalty is not to provide an adequate compensation to the SEP owner for the use of its patents, but to achieve a balance of interests. The court may use different methodologies for the royalty calculation such as cost-benefit analysis or comparable licenses. In the absence of comparable licenses, the court has to rely on the data points and market-related information provided by the parties in support of the proposed rates. Judge Kühnen cites concrete examples for the calculation of royalty rates as well as the apportionment of value for an SEP portfolio; factors relevant for this “undocumented” (“vorlagenfrei”) calculation are the number of SEPs/non-SEPs, the various degrees to which the underlying technology drives the sales of the end-product (“first class”, “second class”, non-practiced bundles with defensive use), essentiality and sales data. Albeit not binding, the calculation examples include a ceiling cap of about 1/3 of the net selling price of the highest-priced standard-compliant product and apportion a higher share of the total royalties for “first-class” SEPs as opposed to the merely nominal royalties apportioned for “second-class” SEPs. Irrespective of the chosen methodology, the ultimate purpose of the royalty calculation is not to achieve mathematical accuracy, but an approximation based on certain values and estimates for the sake of procedural efficiency.

The authors go on to note, however, that "most scholars believe it fairly improbable that German courts would imminently adopt novel arguments or develop certain methodologies on FRAND . . . ."

Siebrasse on Holdup, Holdout, and Royalty Stacking

Norman Siebrasse has posted a paper on ssrn titled Holdup, Holdout, and Royalty Stacking:  A Review of the Literature.  Here is a link to the paper, and here is the abstract:

This article provides a critical review of the theoretical and empirical literature on holdup, holdout, and royalty stacking, as they relate to remedies for patent infringement.

To give readers a little better sense of what the article is about, I'll also quote the introduction:

This article provides a critical review of the literature relating to remedies for patent infringement in the context of complex products, with a focus on the underlying theoretical issues of holdup, holdout, and royalty stacking.

A royalty can only be considered excessive when measured against some benchmark. Section 2 of this article considers the conceptually appropriate benchmark for a fair return to a patentee. Section 3 reviews the theory relating to “holdup,” which is used generically to mean any mechanism by which a patentee, bargaining with the expectation of being able to enjoin any unlicensed use, might be able to extract a royalty that exceeds the benchmark. Section 4 reviews mechanisms by which holdup can be mitigated. Section 5 attempts to place this debate relating to holdup into the context of the general literature on property rules versus liability rules. Section 6 considers “holdout” mechanisms, which may allow implementers to force a patentee to accept a royalty that is lower than the fair benchmark. Royalty stacking refers generally to any mechanism by which the total royalty burden is unduly increased by the presence of multiple patentees. It is the focus on Section 7, while Section 8 considers empirical evidence relating to holdup and royalty stacking.

I first read a draft of this article last summer, and in my view it provides a fair, thoughtful, and very thorough assessment of the law, economics, and literature relevant to the three topics.  Highly recommended.

Some New Articles on PAEs, Attorneys' Fees

I've published a couple of posts on the FTC's study on patent assertion entities, including one on the study itself and one on Wright and Ginsburg's response to it, as well as a post earlier this week on the JRC's study for the European Commission.  Here are some additional papers on PAEs, the first two responding to the FTC study:

1.  Michael Carrier has posted a paper on ssrn titled The US Federal Trade Commission Issues Report on Patent Assertion Entities, e-Competitions (Dec. 2016).  Here is a link to the paper, and here is the abstract:

In October 2016, the Federal Trade Commission (FTC) issued its long-awaited report on patent assertion entities (PAEs). Sometimes called “patent trolls,” these actors have elicited fierce debate, with critics lamenting their ability to demand ransom money and hold up an industry while proponents applaud their role in making markets more efficient and returning money to individual inventors. Pursuant to FTC Act Section 6(b), the agency issued subpoenas, seeking to obtain information not previously available on these questions. This brief article summarizes the report and then elaborates on the following five observations.

First, the report did not answer the $64,000 question about the effect PAEs have on inventors, as the agency could not “quantify the frequency or magnitude of revenue sharing with independent inventors” due to the “significant differences in how [the] PAEs maintained their data.”

Second, and more successfully, the report uncovered useful information on PAEs’ patents, in particular the timing of enforcement and number of citations.

Third, the FTC gained crucial insights on PAE enforcement, distinguishing between “Litigation PAEs” (which settle after filing suit, enter into licenses less than litigation costs, and pose transparency challenges for defendants) and “Portfolio PAEs” (which are more likely to resemble manufacturing firms in obtaining complex licenses without filing suit).

Fourth, the FTC offered four policy recommendations relating to discovery, transparency, litigation management, and notice. Although they make sense, the proposals do not directly follow from the report, which was “descriptive and limited to the observed sample,” rather than being “generalizable to the universe of all PAE activity.”

Fifth, the report was silent on the appropriate antitrust assessment of PAEs. Despite its robust detail, the report’s findings are not likely to affect antitrust analysis. As I have previously written (http://ssrn.com/abstract=2209521), the antitrust agencies can challenge PAE conduct based on the individual facts of cases, scrutinizing the evasion of standards-based promises through transfer, challenging mergers reflecting an ability and incentive to harm competition, and bringing Section 1 claims against collusive agreements.

In short, the FTC report sheds needed light on a phenomenon that has been shrouded in secrecy and controversy. Though it does not answer the question of the contribution PAEs offer in the innovation ecosystem and its proposals do not bear direct support from its findings, the report sheds invaluable light on PAEs’ patents and enforcement behavior, offering benefits that policymakers should consider in the years ahead.

2.  Anne Layne-Farrar has posted a paper on ssrn titled What Can the FTC's §6(B) Pae Study Teach Us? A Practical Review of the Study's Methodology, Results, and Policy Recommendations.  Like Wright & Ginsburg, Dr. Layne-Farrar is somewhat more critical of the study than is Carrier.  Here is a link to the paper, and here is the abstract:

On October 6, 2016, the Federal Trade Commission (FTC) released its survey of patent assertion entities (PAEs) and certain licensing and manufacturing firms. The study, conducted under authority of section 6(b) of the FTC Act, aimed to move past the limited information that can be gleaned from litigation records – an important goal given that over 90% of patent enforcement activity occurs outside the courtroom. By compiling and publishing nonpublic data on licensing agreements and patent acquisition practices from 2009 through 2013 the study provides new insight into how certain PAEs operate. The empirical approach the FTC took, however, does impose constraints on the study’s reported results. And importantly, the report presents case studies that cannot be generalized, calling into question the policy recommendations that would apply to all patent infringement suits. This article summarizes the key findings reported by the FTC and explains how the study’s methodology limits its conclusions and is disconnected from its policy recommendations. The study provides interesting case studies of certain PAE practices, particularly in terms of litigation. In regards to licensing practices, the study’s design restricts its ability to provide definitive information, but does offer some intriguing hints at different types of PAEs and should inspire additional empirical research. The study results, however, do not provide empirical support for the stated policy proposals, and moreover the proposals would impact more than PAEs.

3.  W. Keith Robinson has published an essay titled Awarding Attorney Fees and Deterring "Patent Trolls," 20 Lewis & Clark L. Rev. 281 (2016).  Here is a link to the article, and here is the abstract:

A court may award attorney fees to a prevailing party in a patent trial under exceptional circumstances. Since 2005, courts had applied a rigid formula to determine whether a case was exceptional. In the summer of 2014, the Supreme Court rejected this rigid test. Instead, the Court held that an exceptional case is “simply one that stands out from others.” Finding a case exceptional, the Court said, was at the discretion of the district court and only reviewable on appeal for an abuse of discretion.

A year and a half later, one interesting question is: How do district courts now determine what cases are exceptional in the absence of a more formulaic approach? The analysis of several cases decided soon after the Supreme Court’s decision reveals that district courts primarily analyze a party’s litigation position and litigation conduct to determine whether—in its discretion—to award attorney fees. To a lesser degree, district courts have also awarded attorney fees to deter infringement and unsavory litigation practices.

However, the deterrence rationale has the potential to be problematic: its purpose is to deter litigation practices, but given the current legal climate it could be used to unfairly penalize litigants that might be classified as “patent trolls.” The existing literature on the award of attorney fees in patent cases sheds very little light on the problems district courts’ reliance on the deterrence rationale could present. This Essay addresses these problems and offers practical insights as to when courts should rely on the deterrence rationale to award attorney fees. The Essay points out that what makes a case exceptional should have little to do with the identity of the parties. In addition, this Essay prescribes that district courts should not take into account the business model of the parties to justify deterrence as a rationale for awarding attorney fees.