Wednesday, January 31, 2018

Papers from the February 2017 Patent Damages Conference at the University of Texas

Monday's post listed the papers that were presented at the June 2016 Patent Damages Conference at UT.  There was a follow-up conference in February 2017, and the papers presented there are available in draft on The Review of Litigation (TROL) website.  (I attended the conference as a commenter on Professor Sandrik's paper, which I greatly enjoyed.)  Below is the list: 

John Golden, Discretion in Patent Damages Infringement (Draft):

Mark Janis, Statutory Damages as a Remedy for Design Patent Infringement (Draft)

Karen Sandrik, Punishing the Malicious Pirate in Patent Law (Draft)

Dan Burk, Punitive Patent Liability: A Comparative Examination (Draft)

Ronan Avraham,  Should Courts Award Pain and Suffering Damages in Patent Infringement Cases (Draft)

Anne Layne-Farrar, The Patent Damages Gap: An Economist's Review of U.S. Statutory Patent Damages Apportionment Rules (Draft)

Jennifer Blouin and Melissa Wasserman, Tax Solutions to Patent Damages (Draft)

Hon. Arthur Gajarsa, William Lee, and Douglas Melamed, Breaking the Georgia-Pacific Habit: A Practical Proposal to Bring Simplicity and Structure to Reasonable Royalty Damages Determinations (Draft)

Oskar Liivak, Beyond Circularity: Licensing for Innovation (Draft)

Michael Abramowicz, Cost-Plus Patent Damages (Draft)

Peter Lee, Distinguishing Damages Paid from Compensation Received: A Thought Experiment (Draft)

Lisa Larrimore Ouellette, Adjusting Patent Damages for Nonpatent Incentives (Draft)

Monday, January 29, 2018

Papers from the June 2016 Patent Damages Conference at the University of Texas

The Review of Litigation (TROL) has published seven of the papers presented at this conference back in June 2016.  The remaining eight papers (including one of mine) will be published in the Texas Intellectual Property Law Journal (TIPLJ) and should be out soon.  In the meantime, all fifteen papers, published and not-yet-officially-published, are available on TROL's website.  Below is a comprehensive list:
Foreword:  Patent Damages: Working With Limits (John M. Golden)
Reliable Problems from Unreliable Patent Damages (Erik Hovenkamp and Jonathan Masur)
A Restitution Perspective on Reasonable Royalties (John M. Golden and Karen Sandrik)
Rationalizing FRAND Royalties: Can Interpleader Save the Internet of Things? (Jason Bartlett and Jorge Contreras)
U.S. Patent Extraterritoriality within the International Context (Amy L. Landers)
Patent Assertion Entities, Reasonable Royalties, and a Restitution Perspective (W. Keith Robinson)
Enhanced Damages for Patent Infringement: A Normative Approach (Keith Hylton)
The Federal Circuit Disavows Mandatory Smallest Salable Patent-Practicing Unit "Rule" (Douglas A. Cawley and Lindsay Leavitt)
Patent Damages Heuristics (Thomas Cotter)
Reconceptualizing Patent "Comparables" (Colleen Chien)
Final Report of the Berkeley Center for Law & Technology Patent Damages Workshop (Stuart Graham, Peter Menell, Carl Shapiro, and Tim Simcoe)
Allocating Patent Litigation Risk Across the Supply Chain (Michael Meurer)
Patent Damages Without Borders (Sapna Kumar)
Innovation Factors for Reasonable Royalties (Ted Sichelman)
Buying Monopoly: Antitrust Limits on Damages for Externally Acquired Patents (Erik Hovenkamp and Herbert Hovenkamp)
Gatekeeping Trends in Reasonable Royalty Cases (Andrew Amerson)

Friday, January 26, 2018

Sganga and Scalzini on Abuse of Right

As I have noted several times previously, in recent years courts in some countries have invoked the civil law doctrine of "abuse of right" as a basis for denying the owner of a FRAND-committed SEP an injunction against a willing would-be licensee.  (Cases on point have arisen in Japan and the Netherlands in particular; see, e.g., discussions here at pp. 52-53, 73-74.)  Partly in response to these developments, several insightful papers on the abuse of right doctrine have appeared in the last year or so, including works by Amandine Léonard, Richard Steppe, and Yuzuki Nagakoshi & Katsuya Tamai  (discussed here, here, and here).  A new addition is an article by Caterina Sganga and Silvia Scalzini titled From Abuse of Right to European Copyright Misuse:  A New Doctrine for EU Copyright Law, 48 IIC 405 (2017).  As the title suggests, the focus is on European copyright, not patent, law, but readers interested in the possible application of the abuse of right doctrine to patents may find illuminating the authors' general discussion of the doctrine as it exists in several different European countries, including its occasional use to deny injunctions in copyright cases where the exercise of the right would cause disproportionate harm to the defendant (pp. 417-21).  Here is a link to the paper, and here is the abstract:
The great expansion of EU copyright law has paved the way for several rightholders’ abusive or dysfunctional conducts, without providing adequate solutions to prevent or remedy them. The answer from EU sources is characterized by extreme fragmentation, with tools mostly borrowed from external bodies of law. Paradoxically, the doctrine of abuse of right has long been neglected as a potential solution, mainly due to its flaws – difficult evidence-taking and weak remedies – and its incompatibility with the discretionary nature of continental authors’ rights. Yet, the notion emerges between the lines of several ECJ decisions and finds its way from civil codes to copyright in a number of national courts’ precedents. Due to the paradigm shift towards a market-oriented and industry-based inspiration, EU copyright seems now to be open to admitting the possibility of misuse. Starting from these premises, this article argues that a unitary doctrine of copyright misuse may constitute an effective balancing tool for most of the dysfunctional conducts that copyright law and other bodies of law are still unable to resolve. In addition, it may also act as a regulatory paradigm to ensure greater certainty and transparency in the judicial development of key principles and rules of EU copyright law. To this end, this paper (a) proposes a four-prong test of abusiveness, incorporating criteria of proportionality and reasonableness inspired by the normative function(s) of exclusive rights; and (b) offers new perspectives on potential remedies and on the positive impact of the doctrine on the systematization of the current legislative framework.

Wednesday, January 24, 2018

Federal Circuit Vacates Denial of Preliminary Injunction

This (nonprecedential) case, Liqwd, Inc. v. L’Oréal USA, Inc., was handed down last week; opinion by Judge Taranto, joined by Judges Dyk and Reyna.  Liqwd and its exclusive licensee Olaplex allege that L’Oréal is directly and indirectly infringing their patent on a method of bleaching hair.  The patent recites the application of a mixture comprising a bleaching formulation and a "a second formulation containing an active agent that reduces or repairs damage to the keratin proteins of the hair," specifically maleic acid and its salts; the claim further requires that “the mixture does not contain a hair coloring agent.”  The district court denied the motion for preliminary injunction, primarily on the ground that, under the court's construction of the claim term "hair coloring agent," L’Oréal's product doesn't infringe.  The Court of Appeals disagrees with the claim construction, however, and thus with the district court's conclusion that the moving parties had not demonstrated a likelihood of success on the issue of infringement.  In addition, the Federal Circuit concludes that the district court erred in its analysis of likelihood of success on the issue of indirect infringement:
In rejecting Olaplex’s allegation that L’Oréal indirectly infringed by inducing direct infringement by its customers, specifically salon technicians, the district court stated one reason in addition to the claim-construction rationale for rejecting the direct-infringement allegation. It concluded that Olaplex had “not satisfied the knowledge requirement” for induced infringement because Olaplex failed to “demonstrate[] that [L’Oréal] knew that [its] customers’ acts [in following the products’ instructions for use] constitute infringement.” . . . That conclusion is faulty. As evidenced by the district court’s use of the past tense “knew,” the court considered only whether Olaplex could prove past knowing inducement. But patent infringement, including active inducement of infringement, is often “an ongoing offense that can continue after litigation has commenced.” . . .
Accordingly, to obtain a preliminary injunction, Olaplex need not demonstrate that it is reasonably likely to succeed in proving that L’Oréal knew, before this suit began, that its instructions for use would induce infringement. Rather, Olaplex must demonstrate, inter alia, that it is reasonably likely to succeed in proving that the instructions for use induce infringement and that L’Oréal knows, at the time a preliminary injunction is to take effect, that the instructions for use will induce infringement. . . . Our claim construction today makes it likely that the knowledge element for inducement of  infringement may be satisfied when, on remand, the district court reconsiders entry of a preliminary injunction (pp. 8-10).
In addition, since the district court had tied the "public interest" factor to the erroneous claim construction, that finding had to be vacated too:
. . . the sole rationale given by the district court for that determination was that “the public interest is not served by protecting valid patents as against noninfringing uses.” . . . That finding is entitled to no weight, because it rests on the district court’s erroneous claim-construction and noninfringement analysis (p.10).
On the other hand, however, and possibly working in favor of L’Oréal on remand, the Federal Circuit also disputed the district judge's analysis of the question of validity:
It is the patent holder’s burden, when moving for a preliminary injunction, to establish a likelihood of success on the merits. . . . If the alleged infringer presents a “substantial question” of invalidity, and the patent holder does not establish the likely lack of merit of the invalidity contention, the  preliminary injunction should not issue. . . . The burden on the challenger to show a substantial question of invalidity at this stage is lower than what is required to prove invalidity at trial (p.11).
Although the Federal Circuit does not think there is a "substantial question" on L’Oréal's indefiniteness defense, it does believe that the district court should give some more thought to   L’Oréal's nonobviousness defense:
L’Oréal argued before the district court that the ’419 patent claims are invalid for obviousness in light of two references: Ogawa and Kim. . . . It stated: “At this stage in the proceedings, the court is not inclined to second guess the assessment of the examiner, who had the Ogawa and Kim references before her, and who we assume had some expertise in interpreting the references and some familiarity with the level of skill in the art.” . . .
We do not read this explanation as giving blanket deference to the PTO, which would be impermissible . . . . But the district court set forth no independent discussion of the merits of the obviousness challenge. We think that such a discussion is needed.
After the district court entered its decision denying a preliminary injunction, the Patent Trial and Appeal Board instituted a Post-Grant Review of claims 1–8 and 10 of the ’419 patent, concluding that those claims are more likely than not unpatentable for obviousness over the combination of Ogawa and two other references . . . . At the same time, the Board noted that there were substantial unresolved questions related to secondary considerations, and so it stressed that its conclusions were being drawn “on the present record and for the purposes of the present decision.” , , ,
We rely on the Board’s opinion here for a limited purpose. Having carefully examined the  obviousness issue presented to us in this appeal, we think that the content of the Board’s discussion shows the need for the district court, in the case before us, to present a fuller discussion of the obviousness evidence and arguments than the opinion under review here contains. We do not defer to the Board’s preliminary institution decision or assert agreement with all of the Board’s analysis. We merely find it sufficient to indicate why there may well be a “substantial question” of invalidity here, necessitating more analysis in this case than we now have (pp. 14-16).
Finally, on the issues of irreparable harm and balance of harms, the court engages in an extended discussion of whether the parties compete in a "two-player" market, and (as with the induced infringement issue) notes that changes in circumstances could be an important consideration on remand:
L’Oréal challenges the district court’s finding that Olaplex would suffer irreparable harm in the absence of a preliminary injunction. . . . We see no clear error of fact (or legal error) in the court’s finding. . . . But we do not preclude reconsideration of the issue when the case returns to the district court, by which time the market will have changed since July 2017 in ways of potential relevance to the irreparable-harm question. . . . 
We conclude that the district court did not err when it determined that the bond-builder market is a “two-player national market” and that Olaplex would likely suffer irreparable harm from L’Oréal’s “direct competition in [its] primary market.” . . .  We need not here consider issues that might arise in a situation in which more firms are in the market but their products are themselves infringing. It suffices to say here that L’Oréal has not shown the district court’s two-player-market finding to be clearly erroneous. Nor has it otherwise shown reversible error in the irreparable-harm finding or in balancing the equities on the present record. As noted, however, the irreparable injury issues may be reconsidered on remand, which could lead to a change in the balancing of the equities.
L’Oréal also argues that the district court erred by concluding that the balance of the equities favored granting the injunction. But L’Oréal makes its argument contingent on its irreparable-harm arguments, stating, “the district court relied principally on the purported harm to Olaplex, which itself is insufficient to warrant injunctive relief.” Appellees’ Br. 56. Because we do not find reversible error in the district court’s finding of irreparable harm to Olaplex, this argument likewise fails (pp. 17-18).

Monday, January 22, 2018

New Book, "Complications and Quandaries in the ICT Sector: Standard Essential Patents and Competition Issues"

Drs. Ashish Bharadwaj, Vishwas Devaiah, and Indranath Gupta, recently published a book (available here under an open access CC BY 4.0 license), titled Complications and Quandaries in the ICT Sector:  Standard Essential Patents and Competition Issues (Springer 2018).  Here is the book description:
With technology standards becoming increasingly common, particularly in the information and communications technology (ICT) sector, the complexities and contradictions at the interface of intellectual property law and competition law have emerged strongly. This book talks about how the regulatory agencies and courts in the United States, European Union and India are dealing with the rising allegations of anti-competitive behaviour by standard essential patent (SEP) holders. It also discusses the role of standards setting organizations / standards developing organizations (SSO/SDO) and the various players involved in implementing the standards that influence practices and internal dynamics in the ICT sector. This book includes discussions on fair, reasonable and non-discriminatory (FRAND) licensing terms and the complexities that arise when both licensors and licensees of SEPs differ on what they mean by “fair”, “reasonable” and “non-discriminatory” terms. It also addresses topics such as the appropriate royalty base, calculation of FRAND rates and concerns related to FRAND commitments and the role of Federal Trade Commission (FTC) in collaborative standard setting process. This book provides a wide range of valuable information and is a useful tool for graduate students, academics and researchers.
The eight chapters are as follows:
  • National Disparities and Standard Essential Patents: Considerations for India
    Contreras, Jorge L.
  • FRAND Commitments and Royalties for Standard Essential Patents
    Scott Bosworth, D. (et al.)

  • The Policy Implications of Licensing Standard Essential FRAND-Committed Patents in Bundles
    Layne-Farrar, Anne (et al.)

  • Calculating FRAND Licensing Fees: A Proposal of Basic Pro-competitive Criteria
    Ghidini, Gustavo (et al.)

  • Selected Issues in SEP Licensing in Europe: The Antitrust Perspective
    Grasso, Roberto

  • Competition, Intellectual Property Rights and Collaboratively Set Standards: Federal Trade Commission Advocacy and Enforcement
    Dubiansky, John E.

  • Standard Setting Organizations and Competition Laws: Lessons and Suggestions from the United States
    Knebel, Donald E.

  • CCI’s Investigation of Abuse of Dominance: Adjudicatory Traits in Prima Facie Opinion
    Gupta, Indranath (et al.)

Friday, January 19, 2018

Recent Case Notes on IWNComm v. Sony, Unwired Planet v. Huawei

1.  Last year I published several posts on IWNComm v. Sony, in which the Beijing IP Court issued an injunction for the infringement of a FRAND-committed standard essential patent (see here, here, here, here, here, here, and here).  Ashish Bharadwaj and  Dipinn Verma have now published a case note titled China’s first injunction in standard essential patent litigation, 12 JIPLP 717 (2017).  Here is a link to the paper, and here is the abstract: 
Xian Xidian Jietong Wireless Communication Co., Ltd (IWNComm) v SONY mobile communication products (China) Co. Ltd., Beijing Intellectual Property Court, 22 March 2017
The first injunction in a Chinese case concerning standard essential patents was recently granted by the Beijing Intellectual Property Court to a Chinese company that owns a standard essential patent for WLAN access.
2.  I've also published several posts on the 2017 decision in Unwired Planet v. Huawei (Patents Court of England and Wales).  (See here, here, here, here, here, here, here, here, here, here, here, here, and here.)  Following the above case note by Bharadwaj and Verma is a case note by Tommy Chen and Ian Karet titled UK High Court sets FRAND rates: first substantive decision on SEP licence terms in Europe, 12 JIPLP 719 (2017).  Here is a link, and here is the abstract:
Unwired Planet International Ltd v Huawei Technologies Co. Ltd & Ors, High Court of England and Wales, [2017] EWHC 711 (Pat), 5 April 2017
The UK Patents Court has decided that the commitment made by a holder of standards essential patents (SEPs) to license on fair, reasonable and non-discriminatory (FRAND) terms is enforceable separately from any obligation to license based on competition law and that there can be only one set of FRAND licence terms in a given set of circumstances.
In addition, Pat Treacy and Matthew Hunt have published, simul;taneously in the January 2018 issue of GRUR Int. (pp. 91-96) and in 13 JIPLP 124-31 a paper titled Litigating a 'FRAND' Patent Licence:  The Unwired Planet v. Huawei JudgmentHere is a link, and here is the abstract:
  • Companies holding standard essential patents (SEPs) are required to license those patents at a fair, reasonable and non-discriminatory (FRAND) rate.
  • The judgment of the High Court of England and Wales in Unwired Planet v Huawei is very significant: it is the first time an English court has determined a FRAND royalty rate.
  • This article unpacks the key findings of the judgment: (i) the enforceability of FRAND, (ii) the ability of a court to declare that terms are FRAND, (iii) the existence of only one set of FRAND terms in any given circumstances, (iv) the FRAND obligations placed on SEP holders and implementers, (v) the principle that not all offers made need to be FRAND, (vi) how a FRAND rate can be calculated, (vii) ‘hard-edged’ non-discrimination, (viii) the geographic scope of a FRAND licence, (ix) the availability of injunctive relief and damages and (x) whether an abuse of dominance has been committed.

Wednesday, January 17, 2018

Petitions for Certiorari Relating to Patent Damages, Part 2

As I mentioned last week, the U.S. Supreme Court has granted cert in WesternGeco LLC v. ION Geophysical Corp., No. 16-1011, in which the question presented is "Whether the U.S. Court of Appeals for the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f)."  Here is a link to the Scotus Blog's webpage for the case.  I'm guessing there will be a fair number of amicus briefs filed in this one, on both sides.  Meanwhile, Dan McDonald has published an interesting essay on the case in Law360, and Tim Holbrook has posted a thoughtful analysis on Patently-O, both of which I commend to readers' attention.

In addition, as I noted last month, there is also a petition for certiorari pending in EVE-USA, Inc. v. Mentor Graphics Corp., No. 17-804, petition filed Nov. 30, 3017, in which the two questions presented are "(1) Whether, and under what circumstances, assignors and their privies are free to contest a patent's validity; and (2) whether the U.S. Court of Appeals for the Federal Circuit erred in holding that proof of but-for causation, without more, satisfies the requirement that damages be apportioned between patented and un-patented features."  The briefs filed thus far--in addition to the petitioner's brief, there are four amicus briefs--are available for download from Scotus Blog hereI joined the brief on the assignor estoppel issue, but definitely not on the damages issue.  (For my views on the latter, see here and here).

Monday, January 15, 2018

Drafting Around the Entire Market Value, Part 2?

Nearly three years ago I published a post titled Drafting Around the Entire Market Value Rule?, in which I wrote:
Over at the Patent Damages blog, Chris Marchese published an interesting post a few weeks back titled Damages base--is the name of the game the claim? . . .
. . . suppose an inventor invents component ABC, and that ABC serves as a small component in a larger, multicomponent product such as a smartphone.  Would the inventor be well-advised to include at least one dependent claim comprising "ABC incorporated into a smartphone"?  In a case in which a defendant infringes by incorporating ABC into a smartphone, could the inventor then assert that, with respect to the infringement of the dependent claim, the "smallest salable patent-practicing unit" is ABC plus smartphone?  Sure, the inventor would have to apportion the value of the patented feature further, under VirnetX.  But now the jury has heard the entire market value of the end product, which is what the EMVR is supposed to prevent.

According to Mr. Marchese, the case law thus far is not very clear on this issue.  But perhaps it wouldn't be surprising if patent owners started to include claims like the hypothetical dependent claim above, just in case it could come in handy later on in the event of litigation.  Indeed, in Ericsson the Federal Circuit was willing to allow the jury to hear about comparable licenses that use the EMVR as the royalty base as long as the court, on request, gives an appropriate cautionary instruction.
Well, we now have a Federal Circuit opinion in which (although it wasn't a dependent claim that was at issue) the court to some degree vindicates Mr. Marchese's speculation.  The case is Exmark Mfg. Co. v. Briggs & Stratton Power, decided last Friday (opinion by Judge Stoll, joined by Judges Wallach and Chen) and involving a patent "directed to a lawn mower having improved flow control baffles."  The district court "entered summary judgment that claim 1 . . . was not invalid because the claim survived multiple reexaminations involving the same prior art," and also denied summary judgment of indefiniteness.  The matter proceeded to trial on infringement and damages, and the jury awarded $24 million in compensatory damages, which the judge doubled following a jury determination of willfulness.  On appeal, the court vacates and remands for further consideration the summary judgment of invalidity based on prior art, and affirms the judgment as to definiteness.  On damages, which is what I will focus on, the court vacates and remands.

The first, and to my mind most important, damages issue relates to the royalty base, and the court's resolution of this issue arguably pulls back a bit from cases like LaserDynamics and VirnetX (as well as last week's opinion in Finjan, see discussion here).  Here are the most relevant portions of the court's discussion:
Briggs first argues that the district court erred by allowing Exmark to compute a royalty rate without properly identifying a royalty base to apportion the value of the patentee’s invention in comparison to the value of the whole lawn mower. The parties do not dispute that apportionment is required in this case. Although claim 1 of the ’863 patent is broadly directed to “a multiblade lawn mower,” our law recognizes that a reasonable royalty award “must be based on the incremental value that the patented invention adds to the end product.” Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014). Here, the patent makes clear that the patented improvement relates to the mower’s flow control baffle, which through its structure and orientation within the mower deck purportedly efficiently directs grass clippings toward a side discharge and thereby improves the quality of grass cut in a manner that distinguishes it from prior art. See, e.g., ’863 patent col. 1 l. 30–col. 2 l. 9. The remaining limitations of claim 1 recite conventional features of a lawn mower, including a mower deck, a side discharge opening, and a power means for operating the mower. In these circumstances, the patent owner must apportion or separate the damages between the patented improvement and the conventional components of the multicomponent product. . . .
On appeal, Briggs argues that Exmark’s expert should have apportioned or separated the value of the baffle from the other features of the mower through the royalty base rather than the royalty rate. We disagree. We have held that apportionment can be addressed in a variety of ways, including “by careful selection of the royalty base to reflect the value added by the patented feature [or] . . . by adjustment of the royalty rate so as to discount the value of a product’s non-patented features; or by a combination thereof.” Ericsson, 773 F.3d at 1226. So long as Exmark adequately and reliably apportions between the improved and conventional features of the accused mower, using the accused mower as a royalty base and apportioning through the royalty rate is an acceptable methodology. Id. (citing Garretson, 111 U.S. at 121). “The essential requirement is that the ultimate reasonable royalty award must be based on the incremental value that the patented invention adds to the end product.” Id.
Using the accused lawn mower sales as the royalty base is particularly appropriate in this case because the asserted claim is, in fact, directed to the lawn mower as a whole. The preamble of claim 1 recites a “multiblade lawn mower.” ’863 patent col. 5 l. 60. It is not the baffle that infringes the claim, but rather the entire accused mower. Thus, claim 1 covers the infringing product as whole, not a single component of a multi-component product. There is no unpatented or non-infringing feature of the product. Nonetheless, “[w]hen a patent covers the infringing product as a whole, and the claims recite both conventional elements and unconventional elements, the court must determine how to account for the relative value of the patentee’s invention in comparison to the value of the conventional elements recited in the claim, standing alone.” AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1338 (Fed. Cir. 2015) (citing Ericsson, 773 F.3d at 1233). We hold that such apportionment can be done in this case through a thorough and reliable analysis to apportion the royalty rate. We have recognized that one possible way to do this is through a proper analysis of the Georgia-Pacific factors. . . .
Finally, we note that Exmark’s use of the accused lawn mower sales as the royalty base is consistent with the realities of a hypothetical negotiation and accurately reflects the real-world bargaining that occurs, particularly in licensing. As we stated in Lucent Technologies, Inc. v. Gateway, Inc., “[t]he hypothetical negotiation tries, as best as possible, to recreate the ex ante licensing negotiation scenario and to describe the resulting agreement.” 580 F.3d 1301, 1325 (Fed. Cir. 2009). “[S]ophisticated parties routinely enter into license agreements that base the value of the patented inventions as a percentage of the commercial products’ sales price,” and thus “[t]here is nothing inherently wrong with using the market value of the entire product, especially when there is no established market value for the infringing component or feature, so long as the multiplier accounts for the proportion of the base represented by the infringing component or feature.” Id. at 1339. This is consistent with the settlement agreement relied on by Exmark’s damages expert, which the parties agree provided an effective royalty of 3.64% of the sales of the accused mowers (pp. 21-24).
Second, however--and I don't think I need to go into as much detail on this issue--the court agrees with the defendant that 5% royalty rate proposed by the plaintiff's expert was not sufficiently tied to the facts, stating that her report did not "tie the relevant Georgia-Pacific factors to the 5% royalty rate or explain how she calculated the . . . rate using these factors" (p.24).  In addition, the court holds that the district court erred by excluding evidence relating to certain prior art, which went to the question of whether the patent in suit was a major or minor advance over the state of the art (pp. 28-30).  

Moving on to willfulness:
Before trial, the district court found that Briggs’ litigation defenses were unreasonable. Based on that finding, the district court precluded Briggs from presenting any evidence regarding the validity of claim 1 or how closely the prior art tracks claim 1. Briggs argues that it should have been allowed to present such evidence to mitigate any finding that it acted with an objectively high risk of infringement. Briggs further argues that the district court’s exclusion of this evidence is inconsistent with Halo, which mandates that the inquiry into the degree of risk of infringement is for the jury, not the district court, to decide. We agree with Briggs that the district court erred to the extent it excluded this evidence without also determining whether it was relevant to Briggs’ state of mind at the time of accused infringement. . .  (p.31).
Finally, the court affirms the judgment dismissing the defendant's laches defense, noting that
The Supreme Court recently held in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, that laches is no longer a defense against damages for patent infringement that occurred within 35 U.S.C. § 286’s six-year statute of limitations period. 137 S. Ct. 954 (2017). Because Exmark only seeks damages for the six-year period prior to filing its complaint against Briggs, we agree with the district court that Briggs cannot assert laches as a defense (p.32).

Friday, January 12, 2018

U.S. Supreme Court Grants Cert in WesternGeco

The case is WesternGeco LLC v. ION Geophysical Corp., No. 16-1011, and here is the question presented:  "Whether the U.S. Court of Appeals for the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. section 271(f)."  I've blogged about this case several times now, most recently here, and it appears this will not be the last time.  I may have more to say next week, but for now here is a link to today's Supreme Court order list, courtesy of Scotus Blog, and here is a link to a story on Law 360 that alerted me to this development.

Thursday, January 11, 2018

Losing on Summary Judgment Doesn't Make a Case "Exceptional" for Purposes of Fee Award

Dennis Crouch has already blogged about this morning's nonprecedential opinion in Honeywell Int'l Inc. v. Fujifilm Corp., and the opinion itself is only five pages long, so I won't take much space discussing it here.  Basically, Honeywell asserted a patent against Fujifilm, but the latter succeeded in proving on a motion for summary judgment that the patent was invalid under the on-sale bar (Patent Act section 102(b)).  The Federal Circuit subsequently affirmed that judgment, and the matter eventually returned to the district court on Fujifilm's motion for attorneys' fees.  The district court applied the Octane Fitness standard for determining "exceptional case" and denied the motion, engaging in what the Federal Circuit refers to as "a detailed and structured analysis."  In this appeal, Fujifilm argues that it was an abuse of discretion for the district court to deny the few award, but the Federal Circuit disagrees:
. . . we cannot say that the district court abused its discretion in denying fees. The district court applied the correct legal test under § 285 and Octane. Indeed, it examined the totality of the circumstances—including all of the circumstances raised by appellants on appeal—to determine whether this case stood out from others. . . . The district court’s analysis demonstrated the totality-of-the-circumstances approach, detailing the reasons why Honeywell’s positions on the merits and litigation tactics did not make this case, in its judgment, exceptional. The district court’s fact findings on the issue are not clearly erroneous. Further, we agree with the district court that losing a summary judgment motion should not automatically result in a finding of exceptional conduct. The district court did not abuse its discretion in denying appellants’ motions for attorneys’ fees. We affirm.

Shenzhen Court Enters Injunction Against Samsung for Infringement of Huawei SEPs

I just learned that the Intermediate People's Court in Shenzhen, China has awarded Huawei an injunction against the infringement of two Huawei SEPs.  (Hat tip to Yijun Ge.)  Here is a link to what I understand is the court's official WeChat announcement.  There is coverage so far by Jacob Schindler on IAM and by Kelvin Chan on USNews. This is the second case in which a Chinese court has awarded an injunction against infringement of a SEP, the first being last year's decision in IWNComm v. Sony (for previous coverage on this blog, (see here, here, here, here, here, here, and here).  According to the above reports, the court concluded that Huawei was a willing licensor but that Samsung was not a willing licensee, having "maliciously delayed" negotiating with Huawei.  I'm sure I will have to more to say about this matter as further information, including I would hope a translation of the opinion into English, trickles in.

Wednesday, January 10, 2018

Federal Circuit Reverses in Part Damages Verdict, for Failure to Apportion

In a precedential opinion published this morning, Finjan, Inc. v. Blue Coat Systems, Inc., the Federal Circuit affirmed in part and reversed in part a judgment in favor of the patent owner.  The author of the opinion is Judge Dyk, joined by Judges Linn and Hughes.  A jury found the four patents in suit, all of which relate to software used for detecting and protecting against malware, valid and infringed, and awarded reasonable royalties totaling $39.5 million.  On appeal, the Federal Circuit affirms on liability with regard to three of the four patents.  On damages, it affirms with regard to two of the these three and reverses as to the other one.  I'll focus on the damages issues, starting with the portion of the judgment that was reversed.  

The court begins by describing the accused product:
WebPulse, the infringing product, is a cloud-based system that associates URLs with over eighty different categories, including pornography, gambling, shopping, social networking, and “suspicious”—which is a category meant to identify potential malware. WebPulse is not sold by itself. Rather, other Blue Coat products, like Proxy SG, use WebPulse’s category information to make allowability determinations about URLs that end users are trying to access.
DRTR, which stands for “dynamic real-time rating engine,” is the part of WebPulse responsible for analyzing URLs that have not already been categorized. DRTR performs both infringing and non-infringing functions. When a user requests access to a URL that is not already in the WebPulse database—a brand new website, for instance—DRTR will analyze the content, assign a category or categories, and collect metadata about the site for further use. As part of that analysis, DRTR will examine the URL for malicious or suspicious code, create a kind of “security profile” highlighting that information, and then “attach” the security profile to the given URL. This infringes the ’844 patent. But the DRTR analysis also evaluates whether the URL fits into categories ranging from pornography to news. These additional categories are unrelated to DRTR’s malware identification function but are still valuable for companies trying to, say, prevent employees from using social media while on the job. DRTR also collects metadata about the URL for Blue Coat’s later use. In other words, all of the infringing functionality occurs in DRTR, but some DRTR functions infringe and some do not (p.18).
The court then discusses what it views as wrong with Finjan's damages methodology:
At trial, Finjan attempted to tie the royalty base to the incremental value of the infringement by multiplying WebPulse’s total number of users by the percentage of component that performs the infringing method. DRTR processes roughly 4% of WebPulse’s total web requests, so Finjan established a royalty base by multiplying the 75 million worldwide WebPulse users by 4%. Although DRTR also performs the non-infringing functions described above, Finjan did not perform any further apportionment on the royalty base.
Finjan argues that apportionment to DRTR is adequate because DRTR is the “smallest, identifiable technical component” tied to the footprint of the invention. . . . This argument, which draws from this court’s precedent regarding apportionment to the “smallest salable patent-practicing unit” of an infringing product, does not help Finjan. . . . [T]he fact that Finjan has established a royalty base based on the “smallest, identifiable technical component” does not insulate them from the “essential requirement” that the “ultimate reasonable royalty award must be based on the incremental value that the patented invention adds to the end product.” Ericsson, 773 F.3d at 1226. As we noted in VirnetX, if the smallest salable unit—or smallest identifiable technical component—contains non-infringing features, additional apportionment is still required. . . .
Because DRTR is itself a multi-component software engine that includes non-infringing features, the percentage of web traffic handled by DRTR is not a proxy for the incremental value of the patented technology to WebPulse as a whole. Further apportionment was required to reflect the value of the patented technology compared to the value of the unpatented elements (19-20).
As I have noted before (see, e.g., here), I have mixed feelings about the Federal Circuit's SSPPU rule as embodied in Laser Dynamics and VirnetX, since (among other things) a large base multiplied by a correspondingly small rate would give you the same number as a small base multiplied by a correspondingly larger rate.  Be that as it may, the court further concludes that the rate wasn't supported by the evidence either:
To arrive at a lump sum reasonable royalty payment for infringement of the ’844 patent, Finjan simply multiplied the royalty base by an $8-per-user royalty rate. Blue Coat contends that there is no basis for the $8-per-user rate.
We agree with Blue Coat that the $8-per-user royalty rate employed in Finjan’s analysis was unsupported by substantial evidence. There is no evidence that Finjan ever actually used or proposed an $8-per-user fee in any comparable license or negotiation. Rather, the $8-per-user fee is based on testimony from Finjan’s Vice President of IP Licensing, Ivan Chaperot, that the current “starting point” in licensing negotiations is an “8 to 16 percent royalty rate or something that is consistent with that . . . like $8 per user fee.” . . . Mr. Chaperot further testified that the 8–16% figure was based on a 2008 verdict obtained by Finjan against Secure Computing. On this basis, Finjan’s counsel urged the jury to use an $8-per-user royalty rate for the hypothetical negotiation because “that’s what Finjan would have asked for at the time.” . . .
. . . Mr. Chaperot’s testimony that an $8-per-user fee is “consistent with” the 8–16% royalty rate established in Secure Computing is insufficient. There is no evidence to support Mr. Chaperot’s conclusory statement that an 8–16% royalty rate would correspond to an $8-per-user fee, and Finjan fails to adequately tie the facts of Secure Computing to the facts in this case. . . . 
Secure Computing did not involve the ’844 patent, and there is no evidence showing that the patents that were at issue are economically or technologically comparable. . . . In any case, Mr. Chaperot’s testimony that an 8–16% royalty rate would be the current starting point in licensing negotiations says little about what the parties would have proposed or agreed to in a hypothetical arm’s length negotiation in 2008 (pp. 21-22).
The court leaves open the question of whether Finjan will able to rectify these problems on remand:
While it is clear that Finjan failed to present a damages case that can support the jury’s verdict, reversal of JMOL could result in a situation in which Finjan receives no compensation for Blue Coat’s infringement of the ’844 patent. Ordinarily, “the district court must award damages in an amount no less than a reasonable royalty” when infringement is found . . . , unless the patent holder has waived the right to damages based on alternate theories . . . . We therefore remand to the district court to determine whether Finjan has waived the right to establish reasonable royalty damages under a new theory and whether to order a new trial on damages (p.22).
As for the other two patents, the court concludes that Finjan's expert's apportionment of the revenue comprising the royalty base between the infringing and noninfringing functionality of the accused product, Proxy SG, was supported by the evidence (pp. 23-24).  Finally, the court sees no error in the fact that the jury came back with a damages award that exceeded what Finjan requested:
. . . Finjan’s damages expert gave a range of $2,979,805 to $3,973,073 for infringement of the ’731 patent and a range of $833,350 to $1,111,133 for infringement of the ’633 patent . . . but the jury awarded $6,000,000 for the ’731 patent and $1,666,700 for the ’633 patent, J.A. 125. We agree with Blue Coat that the statute’s direction to award damages “in no event less than a reasonable royalty” does not mean that the patentee need not support the award with reliable evidence. 35 U.S.C. § 284. A jury may not award more than is supported by the record, but here the record contains evidence that the expert’s estimates were conservative and that the underlying evidence could support a higher award (p.24 n.1).

Monday, January 8, 2018

Some New Papers on FRAND

1.  Jorge Contreras has posted a paper on ssrn and on the website of Sage Publications titled Aggregated Royalties for Top-Down FRAND Determinations: Revisiting 'Joint Negotiation', 62 Antitrust Bulletin 690 (2017).  Here is the abstract:
In an environment in which widely-adopted technical standards may each be covered by large numbers of patents, there have been increasing calls for courts to determine “fair, reasonable and non-discriminatory” (FRAND) royalties payable to holders of standards-essential patents (SEPs) using “top-down” methodologies. Top-down royalty approaches begin with the aggregate royalty that should be payable with respect to all SEPs covering a particular standard, and then allocate a portion of the total to individual SEPs. Top-down approaches avoid many drawbacks associated with bottom-up approaches in which royalties for individual SEPs are assessed, often in an inconsistent and piecemeal manner, without regard for the other SEPs that cover the standard. Yet despite the potential benefits of top-down methodologies, one of the most promising means for determining aggregate royalty levels – joint agreement by the members of the relevant standards-development organization (SDO) – has gained little traction. The idea of SDO participants jointly negotiating FRAND royalties attracted the attention of commentators and antitrust agencies about a decade ago, when a handful of SDOs began to explore mandatory ex ante rate disclosure requirements. But few SDOs adopted such policies, and joint negotiations were never incorporated into the mainstream standardization process. One of the principal reason that SDOs have been hesitant to endorse joint royalty negotiations is the perceived risk of antitrust liability arising from concerted action among competitors. But as numerous commentators and antitrust officials have reiterated, this fear is largely misplaced in the context of industry standard-setting. Thus, SDOs should follow the lead of patent pools and begin more actively to determine aggregate patent royalty burdens for standards that they develop. In addition, antitrust and competition authorities should assure the market that collective agreement on aggregate royalty rates alone should not give rise to antitrust liability. 
2.  Jinyul Ju has posted a paper on ssrn titled Recent Developments in Korean Antirust Cases Concerning FRAND-Encumbered Standard-Essential Patents, 8 Jindal Global Law Review 221 (2017).  Here is a link to the paper, and here is the abstract:
In Korea, there have been four antitrust cases concerning the “fair, reasonable, and non-discriminatory” (FRAND) related standard-essential patents (SEPs) in the last six years: (1) Seoul Central District Court’s decision in Samsung v. Apple (August 2012); (2) Korean Fair Trade Commission (KFTC)’s consent decision on Microsoft’s acquisition of Nokia (August 2015); (3) Seoul High Court’s decision in Qualcomm v. KFTC (August 2012) pending in the Supreme Court; and (4) KFTC’s decision against Qualcomm (January 2017) pending in the Seoul High Court.
3.  A. Douglas Melamed and Carl Shapiro have posted a paper on ssrn titled How Antitrust Law Can Make FRAND Commitments More EffectiveHere is a link to the paper, and here is the abstract:  
In this article, we argue that the antitrust laws have an important role to play in ensuring that the rules established by standard-setting organizations are effective in preventing the owners of standard-essential patents from engaging in patent holdup after the standard is established and becomes commercially successful. These organizations and their members can violate Section 1 of the Sherman Act if the rules adopted are ineffective in preventing the owners of standard-essential patents from exploiting the ex post monopoly power they gain because of the standard. 

Friday, January 5, 2018

Two more articles on TLC v. Ericsson

I've mentioned this recent, important FRAND case a couple of times now on this blog  (here and here) and cited some discussions of the case elsewhere.  Here are two more articles that just came out:

1. On January 4, Ryan Davis published 4 Things to Know About the Latest FRAND Rate-Setting Case in Law360.  The article discusses, among other things, the question of whether Judge Selna's opinion in TCL v. Ericsson creates a precedent; the judge's "novel approach" to the nondiscrimination prong of FRAND and his use of the top-down approach to calculating FRAND royalties; and how the Federal Circuit may now have the opportunity to "shed more light on FRAND."  (Ericsson has already filed its notice of appeal.)  The article also quotes David Long, Jorge Contreras, Stephen Korniczky (attorney for TCL), and me.

2.  On the IAM Blog, Richard Lloyd published a post titled Key Ruling in High-Profile US FRAND Case "Highly Biased in Favour of Infringers", Says Ericsson's Chief IP Officer.  As the title suggests, the post summarizes an interview between Mr. Lloyd and Ericsson's Chief IP Office, Gustav Brismark.  

*                    *                    * 

In other news, I will be remote-teaching a one-week intersession course titled "Remedies in Patent Law" for the University of Iowa College of Law next week (Jan. 8-12).  Looking forward to it!

Thursday, January 4, 2018

Trimble on TROs

Professor Marketa Trimble has posted a paper on ssrn titled Temporary Restraining Orders to Enforce Intellectual Property Rights at Trade Shows: An Empirical Study, 83 Brooklyn Law Review __ (forthcoming 2018).  Here is a link to the paper, and here is the abstract:
Infringements of intellectual property (“IP”) rights by exhibitors at trade shows (also called trade fairs or exhibitions), such as infringements committed through exhibitions of or offers to sell infringing products, can be extremely damaging to IP right owners because of the wide exposure that trade shows provide for infringing IP; the promotion of the infringing IP and the contacts made by infringers at trade shows can facilitate further infringements after a trade show that can be very difficult for IP right owners to prevent. IP right owners therefore seek to obtain emergency injunctive relief to stop trade show infringements immediately — if possible, during the trade show itself. In the United States, the relief that courts issue in these situations is typically a temporary restraining order (“TRO”). This article reviews the law and practice of TROs requested and issued for trade shows and reports original empirical findings about the practice at the U.S. District Court for the District of Nevada — the court that issues TROs for trade shows that take place in Las Vegas, Nevada, a major international trade show center. Based on an analysis of the law and practice, the article argues that in the context of trade shows, current law on injunctive relief in IP cases relegates a TRO to a position as a tool that is available only against foreign infringers who have infringed IP rights before the trade show in question. While there may be multiple reasons why TROs issued for trade shows often target foreign infringers, current TRO law might be a contributing factor to the high percentage of trade show-related TROs issued against foreign infringers. The limited availability of TROs for trade shows is problematic because it leaves IP right owners without access to emergency relief in situations other than those involving pre-existing infringements by foreign infringers. Absent a change in the current law, alternative dispute resolution mechanisms may offer a route to more accessible emergency relief at trade shows.
I read a version of this in draft, and I thought it was quite good.  For me the principal takeaway point was that the general problem with TROs is that they are available only for emergency situations, but in order to obtain a TRO the movant has to provide among other things a detailed evidentiary basis of irreparable harm, which presumably is very difficult to do in a genuine emergency.  Some deserving cases therefore don't result in TROs.  Moreover, I suspect the problem might get worse before it gets better, in view of recent Federal Circuit cases (Nichia v. Everlight, Amgen v. Sanofi; see discussion here and here) that read eBay as requiring the movant to prevail on all four factors to obtain an injunction (rather than, as under a  traditional equitable approach would have it, four factors to be balanced and considered, such that weak or nonexistent evidence on one factor could be compensated for by stronger evidence on another).  Thus, a traditional approach as I understand it might not require such a detailed showing of irreparable harm if the balance of hardships weighed very strongly in favor of the IP owner (and perhaps the balance would weigh in favor of the IP owner if it was required to post a meaningful security bond).  But under eBay and Winter as understood by the Federal Circuit, I think it will become even more difficult to get a TRO (or other form of injunctive relief).

Tuesday, January 2, 2018

Thoughts on the TCL v. Ericsson FRAND Decision

As noted last week, just before Christmas U.S. District Judge James Selna released the public redacted version of his memorandum of findings of fact and conclusions of law in TCL Communication Technology Holdings, Ltd. v. Telefonaktiebolaget LM Ericsson, Case No. SACV 14-341 JVS (DFMx) (available in three parts:  part 1, part 2, and part 3).  Professor Jorge Contreras has already published a thorough post on the decision on Patently-O, and Richard Vary of Bird & Bird recently published an analysis as well (here).  I don't see much point in my repeating what they've already said, but I will note a few things that made a particular impression on me.

First, this particular matter was litigated as a declaratory judgment/breach of contract matter brought by the implementer, TCL, so in that sense it's a little like Microsoft v. Motorola.  Presumably the procedural posture of the case means that the royalty awarded implicitly includes a discount based on the probability of invalidity--unlike in a patent infringement case litigated to judgment, where the damages are supposed to be based on the bargain the parties would have agreed to knowing the patents in suit to be valid and infringed (for discussion, see, e.g., here).

Second, as Professor Contreras notes, consistent with statements the Federal Circuit has made in other cases Judge Selna attempted to determine a royalty that does not reflect any of the value of standardization itself (p.108).  This is contrary to the view expressed by Mr. Justice Birss in the English Unwired Planet case (and to some arguments that Norman Siebrasse and I have made elsewhere), though perhaps as a practical matter it's a distinction without much of a difference in cases like these.  Also contrary to Mr. Justice Birss, Judge Selna concludes that there is no one, single FRAND rate (though he does so in the context of his discussion of nondiscrimination, discussed below), which I think probably is the more sensible view.  Mr. Justice Birss's views on the latter matter have been critiqued, see, e.g., sources noted here

Third, in applying a top-down methodology, Judge Selna uses the price of the end product as the appropriate base, which I think is probably sensible here as well--though, as Professor Contreras notes, this choice might have been problematic had TCL not agreed to it, given the Federal Circuit's preference in some though not all cases for using the "smallest saleable patent practicing unit" or (SSPPU) as the royalty base.  (In any event, this is in my view an improvement over Judge Holderman's use of the profit margin on the sales of WiFi chips as the appropriate base in Innovatio IP Licensing, for reasons discussed here.)  As for determining the aggregate royalty burden, Judge Selna uses statements by industry participants, including Ericsson itself; relies on expert testimony to determine the number of SEPs relevant to the standards at issue (and tries to approximate which ones really are essential), as well as Ericsson's share of them; and then uses patent counting (numeric proportionality) to determine an appropriate rate for Ericsson's patents.  This last step means that, as in Unwired Planet, the same rate applies to all of the SEPs, rather than (as in Microsoft and Innovatio) having the judge try to calibrate the rates depending on their relative importance.  I have mixed feelings about this.  On the one hand, not all standard-essential patents are of equal importance, since (as Judge Selna himself notes at p.38) you could have a popular standard that omits certain features that consumers care less about.  Moreover, perhaps one could try to game the system by filing for multiple patents on variations on the same invention for no reason other than simply to increase one's share.  On the other hand, applying such a finely-grained methodology requires evidence of how skewed the distribution of value is and some basis for determining whether the patent owner's SEPs are of greater than average value.  That introduces an additional complication, if nothing else, and as Judge Selna notes early in the opinion "The search for precision and absolute certainty is a doomed undertaking" (p.14)--something I've referred to elsewhere as a tradeoff between accuracy and administrability.  (Judge Selna also rejects Ericsson's argument that the FRAND rate should reflect its contribution of ideas to the standard, see pp. 74-75, a concept I think Greg Sidak had floated in one of his early papers on FRAND.)

Fourth, as in Unwired Planet, Judge Selna calculates a set of global FRAND rates (here, breaking matters down into three regions, the U.S., Europe, and the rest of the world).  Ultimately he derives a blended rate based on the top-down methodology and comparables--though Judge Selna appears to view the top-down methodology as primary and comparables as the "check," which is the reverse of how Mr. Justice Birss applied the two methodologies in Unwired Planet.  Overall, I think that in complex products cases like these the use of a top-down approach has a lot going for it, at least when the evidence necessary for applying this methodology is available; though one can say the same about comparables, which (despite various theoretical pitfalls) at least are based on market evidence.  Using both, one as a check against the other, arguably is warranted when doing so is feasible and when the amount in question is substantial enough, as will often be true on FRAND cases.  It may be significant as well, however, that the two U.S. cases to date in which courts have applied a top-down methodology were both nonjury trials.  I'm inclined to think that it might be more difficult to get some of the relevant evidence in, if the case is tried before a jury, though I'm not sure I'm right about that; and of course that's not a consideration at all anywhere outside the U.S.   

Fifth, as Professor Contreras notes, Judge Selna concludes that the "nondiscrimination" aspect of a FRAND commitment means that a SEP owner must charge the same rate to all similarly situated parties, even if the failure to charge such a rate would harm only the other party to the lawsuit and not (as antitrust law would require) competition in the market as a whole.  This too is contrary to Mr. Justice Birss's views as expressed in Unwired Planet.  Purely as a matter of economics, I'm more inclined to agree with Mr. Justice Birss, on the ground that forbidding price discrimination might make consumers worse off by inducing the SEP owner to charge a single monopoly price that is higher than what some licensees (here, the bigger players like Apple and Samsung) otherwise would pay.  I realize, though, that there are economic arguments to the contrary as well, see, e.g., here.  And if we view FRAND as a contractual commitment of some sort, I suppose the answer ultimately comes down to how applicable contract law would view the nondiscrimination commitment; and in that light perhaps interpreting the nondiscrimination prong as requiring the SEP owner to charge similarly situated parties the same rate is the correct one.

Update:  Here is a post on the case by Rajiv Kr. Choudhry on SpicyIP.

Further Update:  David Long has published a thorough analysis of the case on the Essential Patents Blog.