Federal Circuit Affirms $140 Million Award in Favor of Sprint

The case is Sprint Communications Co. v. Time Warner Cable, Inc., and the nonprecedential majority opinion is authored by Judge Bryson, joined by Judge Chen.  Judge Mayer dissents on validity and therefore doesn't address the damages issue.

As explained by the court, "[t]he technology at issue . . . involves methods for linking circuit-switched and packet-switched networks within a communications system" (p.3).  Without going into more detail than is necessary for purposes of discussing the damages portion of the case, Time Warner argues that the district court erred (1) in allowing the jury to hear about an earlier case Sprint had brought against Vonage, involving the same technology, and (2) by not properly apportioning the verdict.  The Federal Circuit isn't convinced.

As for the first issue, the court concludes that the district court acted within its discretion in letting the jury hear about the earlier case:

The district court ruled that the Vonage evidence was relevant to the jury’s assessment of reasonable royalty damages under a hypothetical negotiation theory. The court gave the jury an instruction limiting the use of that evidence to the jury’s consideration of the issues of damages and willfulness.

Although Time Warner argues that the introduction of evidence of a jury verdict from another case is invariably improper, that is not the rule that this court has applied. Instead, the court has held that such evidence can be admissible if it is relevant for some legitimate purpose. . . .

In this case, the court admitted the prior verdict evidence as relevant to willfulness, to Time Warner’s equitable defenses, and “to the extent that it informs Sprint’s executives concerning what [they] might expect as a reasonable royalty.” Thus, as the court explained, the verdict would be a factor of which the parties would have been aware at the time of their hypothetical negotiation in 2010, and a reasonable jury could well conclude that the verdict and the amount of damages awarded in a similar prior litigation would have influenced the outcome of a hypothetical negotiation in the case at bar.

Importantly, the district court gave the jury limiting instructions that the Vonage evidence was to be considered only on the issues of damages and willfulness. . . (pp. 4-7).

The Vonage verdict also was properly admissible on the hypothetical bargain issue, notwithstanding Time Warner's arguments that that verdict suffered from certain defects, and that Sprint failed to properly apportion:

The jury assessed damages against Time Warner in the amount of $1.37 per VoIP subscriber per month. Time Warner complains that the district court erred in several respects in handling the issue of damages. . . .

In addition to the previously raised objections to the admission of evidence of the Vonage verdict, Time Warner argues that the use of the Vonage verdict in the expert’s damages calculation was improper because the Vonage verdict was legally flawed. Time Warner argues that Sprint’s expert in the Vonage case improperly relied in part on the 25 percent “rule of thumb” that was frequently used in reasonable royalty cases prior to this court’s decision in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1315 (Fed. Cir. 2011), which held that “the 25 percent rule of thumb is a fundamentally flawed tool,” and that the Vonage verdict was therefore tainted. . . .

As for Time Warner’s argument that the Vonage verdict was tainted by the testimony in that case regarding the 25 percent rule, Sprint’s expert made clear that he was not relying on that rule in this case, and the jury in the Vonage case did not return a verdict that was based on the 25 percent rule as
the measure of damages. . . .

Time Warner next argues that the Vonage verdict should not have been admitted because the jury in that case awarded a royalty based on all of Vonage’s VoIP revenues, without determining which portions of the revenues were attributed to patented technology as opposed to unpatented features. But the fact that the jury in the Vonage case awarded a royalty based on total VoIP revenues does not make that verdict inadmissible; the jury in that case was called on to make a determination as to the appropriate royalty for the patented technology—the same technology at issue in this case—and it did so in the form of a lump sum royalty award. The reasonable royalty award in the Vonage case was based on the jury’s determination of the value of the technology that was taken as a result of Vonage’s infringement. By operation of the hypothetical negotiation method of calculating damages, the award compensated Sprint for the incremental value of Sprint’s technology, not for the value of unpatented features of Vonage’s VoIP system. The evidence showed that the damages award in the Vonage case of $1.37 per subscriber per month was approximately five percent of Vonage’s total VoIP revenues for the infringement period. The jury settled on the same amount for the damages award in this case as in the Vonage case. The Vonage verdict did not stand alone, however. In addition to the Vonage verdict, the jury had before it two licenses from Sprint to other communications companies for the patented technology, both of which were for approximately five percent of the companies’ VoIP revenue. The evidence showed that those licenses, like the Vonage verdict, were based on the value of the patented technology and not the value of other aspects of the companies’ VoIP technology that were not covered by Sprint’s patents. . . .

Time Warner argues that Sprint’s damages case was flawed because Sprint did not apportion the damages award to the incremental value that the patented invention added to the end product. See Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014). That argument, however, ignores that the objective of apportionment can be achieved in different ways, one of which is through the determination of an appropriate royalty by application of the so-called Georgia-Pacific factors. See Exmark Mfg. Co. v. Briggs & Stratton Power Grp., LLC, 879 F.3d 1332, 1349 (Fed. Cir. 2018) (“[T]he standard Georgia-Pacific reasonable royalty analysis takes account of the importance of the inventive contribution in determining the royalty rate that would have emerged from the hypothetical negotiation.”) (quoting AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1338 (Fed. Cir. 2015)). Such an analysis often considers rates from comparable licenses, and we have explained that “otherwise comparable licenses are not inadmissible solely because they express the royalty rate as a percentage of total revenues, rather than in terms of the smallest salable unit.” Commonwealth Sc. & Indus. Research Organisation v. Cisco Sys., Inc., 809 F.3d 1295, 1303 (Fed. Cir. 2015). The fact that two other licenses were granted for the same technology, together with the Vonage verdict—all of which were for the same royalty rate as the rate utilized in the Vonage case to yield the $1.37 per VoIP subscriber per month damages assessment—provides strong support for Sprint’s argument that the damages award in this case reflected the incremental value of the inventions and thus satisfied the requirement of apportionment. See Ericsson, 773 F.3d at 1227–28 (damages testimony regarding real-world relevant licenses “takes into account the very types of apportionment principles contemplated in Garretson [v. Clark, 111 U.S. 120 (1884)]).” . . .

Finally, Sprint introduced evidence from which the jury could conclude that Time Warner did not have available to it any reasonable non-infringing alternatives to Sprint’s patented technology for connecting PSTN networks to IP networks (pp. 8-12).

Georgetown-Berkeley Conference on Patent Law and Policy

Two weeks ago I spoke at the Tenth Annual Conference on the Role of the Courts in Patent Law and Policy at Georgetown Law's Washington campus (see my conference announcement here).  CLE materials, including some that I assembled on FRAND issues, are available here.  Slides, also including some prepared by me, are available here (scroll down toward the bottom of the page).  A transcript of the conference is available here.  Finally, readers who are interested in viewing my presentation on FRAND issues can access the video here. (I'm at the beginning of this segment.)  I'm not sure if there is any video available of earlier portions of the conference, but if I find any I will pass it along.

Patent Remedies and Complex Products: Toward a Global Consensus

I have previously mentioned my involvement, along with several other scholars from around the world, in the International Patent Remedies for Complex Products (INPRECOMP) project.  (INPRECOMP began as a joint venture between the Center for Law, Science and Innovation (CLSI) at Arizona State University's Sandra Day O'Connor College of Law and the Dickson Poon School of Law at King's College London, and is primarily funded by a gift to CLSI from Intel.)  The manuscript of our edited volume, Patent Remedies and Complex Products:  Toward a Global Consensus (Brad Biddle, Jorge L. Contreras, Brian J. Love & Norman V. Siebrasse eds.) is in the hands of Cambridge University Press, and should be available in hardcover sometime in the coming months.  I mention this project again today because the Introduction to the volume is now, at long last, available on ssrn, along with all of the other chapters.  And I really do recommend reading the Introduction, which provides a useful framework for understanding the assumptions underlying the rest of the book.

Here are links to each of the chapters, followed by the abstract: 

Introduction - Patent Remedies and Complex Products: Toward a Global Consensus (coauthored by Brad Biddle, Jorge L. Contreras, Thomas F. Cotter, Brian J. Love, and Norman Siebrasse):

This introductory chapter to the forthcoming book Patent Remedies and Complex Products: Toward a Global Consensus describes how innovative companies routinely bring products to market that implicate tens or even hundreds of thousands of individual patents issued by patent offices across the globe, and identifies a number of challenging questions with respect to how the law should value patents and provide remedies for their infringement in this context. For example, how should courts and, where applicable, juries calculate damages for infringement of one patent out of the thousands of (often complementary) inventions incorporated in a device? How can courts and juries tell if one feature among hundreds drove the sale of the entire product? Should patent law take into consideration that it might not be possible, let alone cost effective, for a product manufacturer in a fast-moving field to license all of the thousands of patents embodied in its product, even prior to beginning development? Should an injunction be granted to prevent the use of a patented technology that covers a minor feature of a complex product, when the effect of the injunction would be to keep the entire product itself off the market? How (if at all) can the risks of patent holdup be reduced without generating substantial error costs or other unintended negative consequences? This chapter describes the broader goals of the book - to begin to addressing these questions systematically by setting forth both the current state of the law and an agenda for future research - and identifies a set of foundational premises applicable across all of the book's chapters.

Chapter 1:  Reasonable Royalties (coauthored by Thomas F. Cotter, John M. Golden, Oskar Liivak, Brian J. Love, Norman Siebrasse, Masabumi Suzuki, and David O. Taylor):

This chapter (1) describes the current state of, and normative basis for, the law of reasonable royalties among the leading jurisdictions for patent infringement litigation, as well as the principal arguments for and against various practices relating to the calculation of reasonable royalties; and (2) for each of the major issues discussed, provides one or more recommendations. The chapter’s principal recommendation is that, when applying a “bottom-up” approach to estimating reasonable royalties, courts should replace the Georgia-Pacific factors (and analogous factors used outside the United States) with a smaller list of considerations, specifically (1) calculating the incremental value of the invention and dividing it appropriately between the parties; (2) assessing market evidence, such as comparable licenses; and (3) where feasible and cost-justified, using each of these first two considerations as a “check” on the accuracy of the other.

Chapter 2:  Lost Profits and Disgorgement (coauthored by Christopher B. Seaman, Thomas F. Cotter, Brian J. Love, Norman Siebrasse, and Masabumi Suzuki):

This book chapter addresses two types of monetary remedies for patent infringement: (1) recovery of the patentee’s lost profits and (2) disgorgement of the infringer’s profits. Both remedies make a comparison between what actually happened and a hypothetical “but for” world in which no infringement occurred. But the two remedies have substantially different objectives: lost profits are intended to compensate the patentee by restoring it to the position it would have occupied absent infringement, while disgorgement may serve other purposes, including deterrence, recapturing wrongful gains, and encouraging ex ante licensing of patented technology.

Part II addresses several key issues regarding lost profits awards, including the availability and standard of proof, the role of non-infringing alternatives, potential recovery for the sale of related but unpatented goods, whether and how to apportion lost profits awards for complex products, and potential recovery for other infringement-related harms. Part III describes the justifications for, and availability of, the disgorgement (accounting) remedy in major patent systems and, additionally, analyzes a number of questions related to calculating such awards. In both sections, we make recommendations and identify areas for further research.

Chapter 3:  Enhanced Damages, Litigation Cost Recovery, and Interest (coauthored by Colleen V. Chien, Jorge L. Contreras, Thomas F. Cotter, Brian J. Love, Christopher B. Seaman, and Norman Siebrasse):

This chapter discusses the law and policy of monetary awards—including exemplary damages and litigation cost recoveries—that go beyond the compensatory damages to which prevailing parties in patent litigation are normally entitled. Up to treble damages are authorized in the United States for knowing infringement, but attorney fees are awarded only in exceptional cases. The rest of the world tends towards the opposite: attorney fees are awarded as a matter of course, but punitive damages are generally prohibited as against public policy. In this chapter we discuss the theory, law, and policy of enhanced damages and attorney fee awards in the U.S., Europe, and Asia. While the availability of enhanced damages and fees can bring accused infringers that might otherwise “holdout” to the table, care must also be taken to ensure that it does not discourage productive learning from patents or challenges to overbroad and vague patents. Rather than endorsing any single set of doctrinal rules, we recommend further research into a number of unanswered questions about current and potential future configurations, in order to inform future policy-making.

Chapter 4:  Injunctive Relief (coauthored by Norman Siebrasse, Rafał Sikorski,  Jorge L. Contreras, Thomas F. Cotter, John M. Golden, Sang Jo Jong, Brian J. Love, and David O. Taylor): 

Patent systems commonly empower courts to order accused or adjudged infringers to refrain from continuing infringing conduct in the future. Some patentees file suit for the primary purpose of obtaining and enforcing an injunction against infringement by a competitor, and even in cases in which the patentee is willing to license an invention to an accused infringer for an agreed price, the indirect monetary value of an injunction against future infringement can dwarf the amount a finder of fact is likely to award as compensation for past infringement. In some of these cases, an injunction, if granted, would impose costs on accused infringers or third parties that go well beyond the more intrinsic value of the patented technology. This chapter explores the theory behind injunctive relief in patent cases, surveys the availability of this remedy in major patent systems, and suggests a general framework for courts to use when deciding whether injunctive relief is appropriate in individual cases.

Chapter 5:  The Effect of FRAND Commitments on Patent Remedies (coauthored by Jorge L. Contreras, Thomas F. Cotter, Sang Jo Jong, Brian J. Love, Nicolas Petit, Peter Georg Picht, Norman Siebrasse, Rafał Sikorski, Masabumi Suzuki, and Jacques de Werra):

This chapter addresses a special category of cases in which an asserted patent is, or has been declared to be, essential to the implementation of a collaboratively-developed voluntary consensus standard, and the holder of that patent has agreed to license it to implementers of the standard on terms that are fair, reasonable and non-discriminatory (FRAND). In this chapter, we explore how the existence of such a FRAND commitment may affect a patent holder’s entitlement to monetary damages and injunctive relief. In addition to issues of patent law, remedies law and contract law, we consider the effect of competition law on this issue. 

Chapter 6:  The Effect of Competition Law on Patent Remedies (coauthored by Alison Jones and Renato Nazzini):

Although competition law and IP law probably pursue complementary goals, competition laws can (i) affect remedies available for patent infringement; and/or otherwise (ii) limit the conduct of patentees, particularly when transferring or licensing their patents. This chapter discusses the cases in which tensions between the protection of patents in complex products and the competition laws have arisen or may arise, particularly as regards the ability of owners of standard essential patents (SEPs) to monetise their patents either by seeking an injunction against implementers or by refusing to grant licences complying with previously given commitments—generally, commitments to license on fair, reasonable and nondiscriminatory (FRAND) terms. This chapter also examines potential competition law constraints on the pricing of patent licences, other licensing terms, multi-level licensing and level discrimination, patent pools, sale of patent portfolios and patent acquisitions.

Chapter 7:  Holdup, Holdout and Royalty Stacking: A Review of the Literature (authored by Norman Siebrasse):

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.

Conference on Injunctions and Proportionality

On March 22, 2019, the Institute of Law and Technology at Friedrich-Alexander-Universität Erlangen-Nürnberg will be hosting a conference titled Enforcing Patents Smoothly: From Automatic Injunctions to Proportionate Remedies.  (I will be one of the speakers.)  Here is a link to the conference flyer, and here is the description:

The granting of an injunction is a remedy that is available to patent holders to enforce their rights. In many EU Member States, injunctions are conceived as default remedies. However, granting an injunction irrespective of the particular facts of the case can lead to hardship for stakeholders and the public. “One size fits all solutions” such as automatic injunctions are not necessarily fair and equitable.

First and foremost, the EU’s Intellectual Property Rights Enforcement Directive requires that remedies granted must be “fair and equitable” and be “effective, proportionate and dissuasive”. Scholars more and more accept that especially in patent cases, an injunction should not necessarily be granted in every case. Even the German Federal Court considered that under certain circumstances an injunction (temporarily) is not available (BGH, 10.5.2016 – X ZR 114/13 – Wärmetauscher). And the US Supreme Court´s decision eBay Inc. v. MercExchange, L.L.C., 547 U. S. 388 (2006), demonstrates that the competing interests can also be balanced via the means of remedies.

Against this backdrop many questions arise: e.g., How can patents be enforced instead so that the remedy granted is equitable and takes into account the range of different interests? Which factors need to be considered in deciding which remedy to grant? Is it possible to identify certain kind of cases where granting an injunction is inappropriate? Does a patent proprietor have to be compensated and, if so, how?

During the international symposium, these questions will be analysed from an international, European and national perspective.

I'm really looking forward to this conference, as well as another conference on injunctions to be held in Munich a couple of weeks later (I'll have more details about that one soon.) 

Some New Papers, Posts on FRAND Issues (Part 2)

1.  Dr. Spiros Makris and Dr. Claudia Tapia have posted a paper titled Confidentiality in FRAND Licensing After Huawei v ZTE: National Courts in Europe Searching for Balance, 53 les Nouvelles 210 (2018).  Here is a link to the paper, and here is the abstract:

In a landmark decision in the matter Huawei v ZTE, the Court of Justice of the European Union (CJEU) established a well-balanced framework for the licensing of Standard Essential Patents (SEPs) on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions. Following this judgement, national courts in Europe have been providing further guidance on several key questions related to the ruling, as illustrated in summary infographic starting on page 215. A significant portion of this case law has been developed in Germany. In their effort to interpret the Huawei v ZTE FRAND framework, German courts have repeatedly addressed an issue with significant practical relevance for the licensing of SEPs, which the CJEU did not expressly raise in its decision: The protection of confidentiality in the context of FRAND licensing negotiations and FRAND related litigation. The present paper examines whether the efforts of the German jurisprudence have produced viable solutions in this respect so far.

2.  J. Gregory Sidak and Urška Petrovčič have published a paper titled Will the CJEU's Decision in MEO Change FRAND Disputes Globally?, 3 Criterion J. Innov. 301 (2018).  Here is a link to the paper, and here is the abstract:

In April 2018, the Court of Justice of the European Union (CJEU) issued a decision in MEO v. Autoridade da Concorrência that clarified the circumstances in which price discrimination would trigger liability under Article 102(c) TFEU. The decision in MEO has so far received sparse attention from lawyers, academics, and competition law commentators. Yet, it represents an important addition to the analysis of price discrimination under EU competition law. The CJEU emphasized that Article 102(c) TFEU does not categorically prohibit a dominant firm from engaging in price discrimination, but instead prohibits only price discrimination that “tends to distort competition on the downstream market.�? The CJEU also said that one cannot assume that price discrimination will have that prohibited effect, but rather one must examine the circumstances of each case to determine whether the challenged practice has a prohibited effect on the downstream market and thus violates Article 102(c) TFEU.

Although MEO concerned the licensing of copyrights, for two reasons it has important implications for disputes concerning standard-essential patents (SEPs) that are subject to the owner’s commitment to offer to license them on fair, reasonable, and nondiscriminatory (FRAND) terms. First, MEO clarifies that an SEP holder’s differential offers to its licensees are discriminatory within the meaning of Article 102(c) TFEU only when that differential treatment is so substantial as to be capable of distorting competition in the market in which the licensees compete. Thus, after MEO, scrutiny of an SEP holder’s licensing practices under Article 102(c) TFEU turns on the potential effects of the differential treatment. Second, to the extent that the prohibition against discrimination in the FRAND contract is equivalent to the prohibition against discrimination contained in Article 102(c) TFEU, MEO will require an effects-based analysis in cases alleging a breach of the FRAND contract. In those cases, MEO provides guidance for scrutinizing an SEP holder’s discharge of its duties under the FRAND contract, not only in the European Union, but also in foreign jurisdictions where a court must construe and enforce the nondiscrimination requirement of an SEP holder’s FRAND contract.

3.  J. Gregory Sidak and Jeremy O. Skoh have published a paper titled Citation Weighting, Patent Ranking, and Apportionment of Value for Standard-Essential Patents, 3 Criterion J. Innov. 201 (2018).  Here is a link to the paper, and here is the abstract:

In patent-infringement litigation involving standard-essential patents, one must apportion the value of the patents in suit by deriving an appropriate measure of each patent’s value relative to the value of other patents that are also declared essential to the standard. Using data on patents declared essential to the LRDIMM standard, we have analyzed multiple methodologies that purport to measure the relative value of patents. We conclude that the choice of a particular patent-valuation methodology is secondary to the apportionment inquiry. In other words, we find that the particular weighting method that a researcher chooses to use is of secondary importance to the researcher’s decision to use some weighting method, rather than none. A simplistic patent-counting methodology that assigns each patent equal value relies on assumptions that are rarely satisfied in the real world. It produces a result that meaningfully differ from the results of any of the methods that rely on forward citations to measure a patent’s value.

We propose a half-life citation-weighting method that researchers might decide to use, in addition to adjustments for technology fields or unweighted citation counts. By placing greater weight on more recent citations, our proposed method attempts to account for the increasing number of citations and patents over time and the importance of speed during the standard setting process. Our proposed method might be particularly appropriate for standards in which the declared-essential patents cover similar technologies or in cases where innovation (and, consequently, the standards-development process) occurs rapidly.

4.  D. Daniel Sokol recently noted on the Antitrust & Competition Policy Blog that Professor Peter Picht will be presenting a webinar on industry challenges after recent case-law on confidentiality of FRAND agreements, and other relevant aspects of FRAND case law, on November 22 from 4-5 p.m. CET.  Details here.  

Federal Circuit Vacates Damages Award for Lack of Substantial Evidence

This morning the court handed down its opinion in Enplas Display Device Corp. v. Seoul Semiconductor Co. (majority opinion by Judge Stoll, with Judge Newman concurring in part and dissenting in part).  As described by the court, the patents in suit are "directed to methods of backlighting display panels, particularly LED displays used in televisions, laptop computers, and other electronics" (p.2).  Enplas filed an action for a declaratory judgment of noninfringement and invalidity, and Seoul Semiconductor counterclaimed for induced infringement.  The court affirms the district court's determination that the patents were not anticipated by the prior art, and that Enplas induced third parties to infringe; but it vacates and remands the damages award for lack of substantial evidence.  From the opinion:

Enplas argues that the district court erred when it denied JMOL that the damages award was not supported by substantial evidence. Specifically, it contends that the only evidence supporting the $4 million award was testimony from SSC’s damages expert that explicitly and improperly included non-infringing devices in the royalty calculation. Before trial, Enplas filed a Daubert motion to exclude this testimony. The district court deferred full consideration of that motion, stating that it was more appropriate for a motion in limine. Enplas filed a motion in limine, seeking to exclude SSC’s damages expert’s testimony regarding “other lenses” not at issue in this case. The district court denied that motion, holding:

Consistent with this Court’s prior rulings, [SSC’s expert] cannot assume that infringement can be proven for the lenses not in this case. However, [SSC’s expert] may present evidence that under a lump-sum royalty negotiation, [Enplas] would seek to cover all of its potentially infringing products. As long as [the] ultimate damages determination is adequately adjusted to only recover for those lenses in the case, [the] testimony is permitted.

J.A. 13144 (emphasis added). Thus, the district court’s order limited SSC’s expert to a damages theory based on infringing and “potentially infringing products.” Id. It did not allow a damages theory based on sales of nonaccused products.

At trial, SSC’s expert opined that Enplas would have agreed to a lump sum royalty in a hypothetical negotiation for the ’554 and ’209 patents. She testified that “[i]f the license [were] limited only to the accused lenses . . . the reasonable royalty for the ’554 Patent [would be] $500,000, and for the ’209 Patent $70,000.” J.A. 15539 at 722:3–5. She explained that “the $570,000 covers the[] five products” accused of infringement in this case. J.A. 15534 at 717:1–3. SSC’s expert did not stop there, however. She went on to testify that Enplas and SSC would not have limited the license to just the accused products “if there [were] a risk of infringing the patent by manufacturing other products that are similar in nature.”J.A. 15534 at 717:11–13 (emphasis added). The “more pragmatic approach,” explained SSC’s expert, would have been for the parties to agree to a premium “freedom to operate” license to avoid the need to test and negotiate licenses for additional or future potentially infringing lenses that Enplas might sell. J.A. 15534–35 at 717:22–718:3.

To determine the premium that Enplas would pay, SSC’s expert assessed the volume of sales of all nonaccused lenses made by Enplas. Because none of this information had been produced during discovery, SSC’s expert found “some publicly-available information from the Enplas website” and used that to “determine what that volume of sales would be.” J.A. 15535 at 718:17–25. SSC’s expert testified that “the volume of sales” for Enplas’s unit that sells lenses “is eight to ten times the sales of the specific products that we’re here to talk about today”—i.e., the accused infringing products. J.A. 15537 at 720:3–7.

Based on this information and theory, SSC’s expert testified that Enplas and SSC would have agreed to pay $2 to 4 million depending on the ultimate “volume of sales of potentially infringing products beyond the ones in this case.” J.A. 15538 at 721:2–5 (emphases added). SSC’s expert did not present any explanation or evidence whatsoever to show how the past revenue from Enplas’s noninfringing lenses could reasonably estimate the future revenue from Enplas’s infringing or potentially infringing lenses. . . .

Here, SSC’s expert opined that Enplas and SSC would have agreed to a $2 to 4 million royalty based on a royalty base comprising sales of non-accused lenses. J.A. 15538 at 721:2–5. This testimony cannot support the jury’s damages award, for § 284 and our precedent proscribe awarding damages for non-infringing activity. Thus, the jury’s $4 million award for infringement of the ’554 patent cannot stand (pp. 16-23).

Judge Newman dissents, arguing inter alia that the court should defer to the expert's testimony that a hypothetical ex ante license would have been in the amount of "$2 to 4 million for a freedom to operate license . . . to alleviate business uncertainty" (dissent p.9).  The dissent also makes more of the fact that the plaintiff did not challenge this testimony at trial or offer a rebuttal case on damages (p.12), and views the majority as permitting Enplas to "challenge admissibility under the guise of substantial evidence," rather than "under the framework of the Federal Rules of Evidence . . . through a Daubert challenge" (p.7).

Stierle on Non-Practiced Patents

Martin Stierle has published a book titled Das nicht-praktizierte Patent ("The non-practiced patent") (Mohr Siebeck 2018), based on his Ph.D. thesis (for which I understand he was awarded the Faculty Prize of the Law Faculty at Ludwig Maximilian University in Munich).  Here is a link to the book's Amazon webpage, and here is the book description (my translation from the German):

Patent trolls have become an essential part of patent law discussions over the past decade.  Inspired by developments in the U.S., the prevailing scholarly opinion in Germany is critical of the availability of injunctive relief for non-practicing entities, while the German case law on the subject nevertheless continues to afford claims for injunctive relief even to NPEs.  Martin Stierle undertakes a change in perspective.  He frees himself from the perspective of the patent owner and considers the problem from the standpoint of protective rights.  In the center stands the non-practiced in all its facets (blocking patents, licensing patents, sleeping patents, etc.).  With the use of patent function theory, he proposes the adoption of a legal obligation to practice one's patent, which would apply regardless of the type of patent holder.  He underpins his theory with legal history, comparative law, and law & economics considerations.

I haven't started reading it yet, but my library has obtained a copy.

IP Chat Channel Webinar on Enforcing IP at Trade Shows

I should have mentioned this earlier, but today at 2 p.m. Eastern time the IP Chat Channel will be presenting a webinar titled Trade Shows: IP Rights Enforcement in the U.S. and Internationally.  Here is a link, and here is the description:

Live trade shows are thriving, even in this age of digital marketing — and even for intangible products.  In fact, a poll of marketing professionals at a recent leading IT trade fair for cloud computing, AI, and blockchain illustrated their strong belief that trade shows still are cost-effective at generating leads and/or increasing brand awareness.
But trade shows can also be places where IP right holders frequently discover that their IP rights are being infringed.  Moreover, standing disputes can escalate, because IP owners have an opportunity to interact with alleged infringers on the exhibitors’ floor.
This webinar will give a global perspective on enforcing IP at trade shows, including trademarks, trade dress, design patents, and utility patents, as well as address the U.S. landscape related to these issues.  The panel includes a law professor who has done extensive research and analysis of the remedies available worldwide for infringement at trade shows, a law firm attorney who has won a number of temporary restraining orders from U.S. courts requiring the immediate removal of infringing exhibits, and an in-house patent counsel with experience dealing with infringers and counterfeiters at trade shows.  They will discuss:

• Obtaining an TRO post-eBay, now that U.S. courts may no longer presume the existence of irreparable harm in patent infringement cases
• The proper preparation before a trade show that will strengthen an IP owner’s legal case and allow rapid enforcement
• When it is necessary to alert the local U.S. Attorney and the best ways to work with law enforcement
• What kind of recourse is available at trade fairs in other countries that often host trade fairs
• The pros & cons of ADR mechanisms recently established by some trade fair organizers
• The opposite side of the coin for trade show exhibitors: What to do if a competitor files an action against your company

Speakers:

• Scott Markow, Stanley Black & Decker Inc.
• Michael McCue, Lewis Roca Rothgerber Christie LLP
• Prof. Marketa Trimble, University of Nevada Law School

This was also the topic of Professor Trimble's recent conference at UNLV, at which I too participated.

As for me, on Friday, I will be a panelist for a session on patent remedies at the Tenth Annual Conference on the Role of the Courts in Patent Law and Policy, at Georgetown Law's Washington campus (see here).  I believe I will mostly be addressing FRAND issues.

Two New Papers by Koren Wong-Ervin

1.  Koren Wong-Ervin and Georgios Effraimidis have posted a paper on ssrn titled Recommendations Following the FTC’s October 2018 Hearings on IP and Innovation.  Here is a link to the paper, and here is the abstract:

On October 23-24, 2018, the U.S. Federal Trade Commission (FTC) held hearings on intellectual property (IP) and innovation as part of its broader ongoing hearings on Competition and Consumer Protection in the 21st Century. The hearings focused on the role of IP protection in promoting innovation, as well as the foundational question of whether the FTC (and the government more broadly) should play a role in advancing or supporting innovation and, if so, what role. The Commission is seeking further public input through its consultation process on this important (and commendable) inquiry, including asking whether the FTC currently uses its enforcement and policy authority to advance innovation, and what factors it should consider in attempting to achieve this objective. The hearings also included sessions on the role of IP in business and investment decisions, emerging trends in patent quality and litigation, and industry and economic perspectives on current U.S. IP and innovation policy.

This short article summarizes some of the major themes from these hearings and provides an economic and legal analysis of the relevant testimony. We conclude with recommendations for the FTC to consider when evaluating possible future enforcement and policy work in this area. Our recommendations focus primarily on certain concerning positions taken in the Commission’s 2003 and 2011 IP Reports, namely with respect to patent quality and the recommendation that courts adopt an ex-ante incremental value approach when calculating patent damages.

2.  Ms. Wong-Ervin also has posted a paper titled The 2018 FTC Hearings on IP & Innovation: Key Testimony, Economic Learnings, and Recommendations for Further Study.  Here is a link, and here is the abstract:

This Article provides a summary of some of the key testimony from the U.S. Federal Trade Commission’s October 23-24, 2018 hearings on intellectual property (IP) and innovation, followed by insights from the economics literature and recommendations for future study. Covered topics include: the role and importance of IP rights in promoting innovation; the role of IP in business and investment decisions, including data on recent investment trends; and effects of recent patent law reforms, including U.S. Supreme Court decisions restricting patent eligible subject matter (2012 Mayo and 2014 Alice decisions) and weakening patentees’ ability to obtain injunctive relief (2006 eBay decision); the high invalidity rate of patents following the 2011 American Invents Act and its creation of post-grant challenges through the Patent Trial and Appeal Board (PTAB); and the general trend towards lower patent damages awards. Key testimony covered includes remarks by the Commissioner for Patents at the U.S. Patent and Trademark Office, the Acting Chief Judge of the PTAB, investors and other industry participants, and leading academics.  

For video of the aforementioned hearings, at which I was one of the participants, see here. 

Canadian Government Proposes That FRAND Commitments Should Bind Subsequent Assignees

Hat tip to Norman Siebrasse for calling to my attention a series of amendments to Canada's Patent Act proposed by the Government of Canada as part of a budget bill introduced in the House of Commons on October 29.  If you access the bill and scroll down to Division 7, titled "Intellectual Property Strategy," you will find the proposed amendments under Subdivision A.  Regarding standard-essential patents, the bill would add two new provisions, sections 52.1 and 52.2, to the Patent Act, as follows:

Subsequent patentee or holder bound

52.‍1 (1) A licensing commitment in respect of a standard-essential patent that binds the patentee, binds any subsequent patentee and any holder of any certificate of supplementary protection that sets out that patent.

Subsequent holder bound

(2) If a certificate of supplementary protection sets out a standard-essential patent, a licensing commitment that binds the holder of that certificate of supplementary protection, binds any subsequent holder of the certificate of supplementary protection.

Application

(3) Subsections (1) and (2) apply despite any other Act of Parliament and any decision or order made under such an Act.

Regulations

52.‍2 The Governor in Council may make regulations, for the purposes of section 52.‍1, respecting what constitutes, or does not constitute, a licensing commitment or a standard-essential patent.

The bill also would, among other things, add new provisions permitting the use of prosecution history "[i]n any action or proceeding respecting a patent," authorizing the regulation of demand letters, and establishing a statutory experimental use defense.

Judge Koh Grants Partial Summary Judgment to the FTC

Earlier today, in the FTC's lawsuit against Qualcomm, Judge Lucy Koh granted the FTC's motion for partial summary judgment on the issue of whether Qualcomm is obligated, as a matter of California contract law, to license its SEPs to rival chip makers on FRAND terms, in accordance with  the TIA and ATIS IPR policies.  Opinion here.  From the opinion:

For all of the above reasons, the Court agrees with the FTC that as a matter of law, the TIA and ATIS IPR policies both require Qualcomm to license its SEPs to modem chip suppliers. Because “after considering the language of the contract and any admissible extrinsic evidence, the meaning of the contract is unambiguous,” the Court GRANTS the FTC’s motion for partial summary judgment (p.25).

This doesn't necessarily mean that the FTC will prevail in proving that Qualcomm's conduct violates U.S. antitrust law, but the holding that Qualcomm was contractually obligated to license these rivals helps the FTC's case.

Some New Papers, Posts on FRAND Issues (Part 1)

1.  Justus Baron has posted a paper on ssrn titled Counting Standard Contributions to Measure the Value of Patent Portfolios-A Tale of Apples and Oranges.  Here is a link to the paper, and here is the abstract:

Measuring the value of portfolios of Standard-Essential Patents (SEP) is a difficult and controversial exercise. It has recently been suggested to use counts of technical contributions to Standard Development Organizations (SDO) as an indicator of the share of the value of a standard created by an SEP holder. Analyzing a comprehensive database of contributions to the Third Generation Partnership Project (3GPP), I find that contributions are highly heterogeneous in technical significance, outcome, and impact. The standardization process is not intended to screen contributions for value or significance. Against this background, contribution counts are not a suitable basis for apportioning the value of a standard between different SEP holders. The measure is prone to be easily manipulated. Furthermore, apportioning royalty payments by contribution counts would exacerbate commercial considerations and opportunistic strategies, which could hamper or even derail the technical work of SDO working groups.

2. Wenwei Guan has posted an abstract of a paper on ssrn, titled Diversified FRAND Enforcement and TRIPS Integrity, 17(1) World Trade Review 91 (2018).  Here is the abstract:

As an integral part of the WTO trading regime and in line with the international trend of antitrust control, TRIPS harmonized intellectual property protection with competition in mind. However, diverse national FRAND enforcement practices that take either a contractual or an antitrust approach challenge TRIPS integrity. While personal property recognition for SEPs lends constitutional support to the contractual approach to FRAND enforcement, private property's in-built limitation warrants a balance with the antitrust approach for needs from others. A critical examination of the TRIPS conclusion and the analytical structure of TRIPS provisions reveal that TRIPS obligation against anticompetitive practices is imperative. The imbalance of harmonized TRIPS with un-harmonized FRAND practices reflects TRIPS birth defect and challenges TRIPS integrity. To improve balance of rights and obligations in international trade and to ensure innovation and technology dissemination that is conducive to social and economic welfare, the paper calls for a contract–antitrust balanced approach to FRAND enforcement and the resumption of WTO's competition negotiations.

3. Daryl Lim has posted Third Post:  Standard Essential Patents on Daryl Lim's Blog, in which he discussed some of his previous work on the topic and also calls attention to two other recent papers which I had not yet seen, Michael Carrier's DOJ Giving Cover to Monopolizing Firms That Breach Antitrust Rules (an op-ed published in The Hill), and Elizabeth A.N. Haas's National Law Review article DOJ and FTC Signal Shifts in Antitrust Enforcement of Standard Essential Patents.

4. Renato Nazzini has posted a paper on ssrn titled FRAND-Encumbered Patents, Injunctions and Level Discrimination: What Next in the Interface between IP Rights and Competition Law?, 40 World Competition 213 (2017).  Here is a link, and here is the abstract:

Standards are of fundamental importance in our economy and competition law has an important role to play in ensuring that standard setting procedures are not distorted so as to result in negative effects on technological progress and social welfare. The Court of Justice in Huawei ruled on the circumstances in which the seeking of an injunction or a product recall by the holder of a standard essential patent (‘SEP’) may be an abuse of dominance under Article 102 TFEU. However, Huawei left many questions unanswered. One of them is whether the practice known as level discrimination is compatible with EU competition law. Level discrimination occurs when the holder of a SEP, having made a FRAND commitment, decides to license only undertakings at a given level of the supply chain, typically, the end-product manufacturers, rather than the component manufacturers. The economic and policy arguments for and against level discrimination are finely balanced and it may not be obvious whether this practice is likely to cause competitive harm if the SEP holder does not enforce the SEP against the component manufacturers who operate without a licence. However, as a matter of law, it appears that a refusal to license component manufacturers has the potential to exclude them from the market and, if the SEP holder made a FRAND commitment, such a refusal to licence may well be abusive, at least when the SEP holder is a vertically integrated undertaking. For non-practising entities, a first-principle analysis appears to point to the same conclusion. Both in the case of practising and non-practising entities, the abuse would be exclusionary. Somewhat paradoxically, the prohibition of abusive discrimination under Article 102(c) has no role to play in the competition law assessment of level discrimination.

Two New Papers by Jorge Contreras

1.  Jorge Contreras has posted a paper on ssrn titled Taking it to the Limit: Shifting U.S. Antitrust Policy Toward Standards Development, Minnesota L. Rev. Headnotes (2018, forthcoming).  Here is a link, and here is the abstract:

In November 2017, U.S. Assistant Attorney General Makan Delrahim, chief of the Department of Justice (DOJ) Antitrust Division, gave a speech at University of Southern California provocatively entitled “Take it to the Limit: Respecting Innovation Incentives in the Application of Antitrust Law”. In this speech, Mr. Delrahim announced a new DOJ policy approach to the antitrust analysis of collaborative standard setting and standards-development organizations (SDOs) -- the trade associations and other groups in which industry participants cooperate to develop interoperability standards such as Wi-Fi, Bluetooth, 4G and 5G, USB and the like. He explained that the DOJ had “strayed too far” in its focus on single firm conduct concerning standards, particularly the assertion of patents essential to the implementation of standards in technology products (“standards-essential patents” or “SEPs”), and that antitrust authorities should be more concerned with potential collusion by competitors within SDOs (i.e., an apparent shift in doctrinal focus from unilateral conduct under Section 2 of the Sherman Act to concerted action under Section 1 of the Sherman Act). One commentator described the DOJ policy shift announced by Mr. Delrahim as “a 180 degree turn” on SEP issues. The new policy also seems to put the enforcement priorities of the Antitrust Division at odds with those of the other principal U.S. antitrust enforcement agency, the Federal Trade Commission (FTC) and jeopardizes reliance of a long line of DOJ Business Review Letters outlining acceptable approaches to conduct such as forming patent pools. This article analyzes the contours of the emerging divide among U.S. antitrust agencies, as well as reactions to the “Take it to the Limit Speech” by industry, academics and Mr. Delrahim’s subsequent public statements.

2.  Professor Contreras also has posted a paper titled Global Rate-Setting:  A Solution for Standards-Essential Patents?, forthcoming in the Washington Law Review.  Here is a link, and here is the abstract:

The commitment to license patents that are essential to technical interoperability standards on terms that are fair, reasonable and non-discriminatory (FRAND) is a fundamental mechanism that enables standards to be developed collaboratively by groups of competitors. Yet disagreements over FRAND royalty rates continue to bedevil participants in global technology markets. Allegations of opportunistic hold-up and hold-out continue to arise, spurring competition authorities to investigate and intervene in private standard-setting. And litigation regarding compliance with FRAND commitments has led an increasing number of courts around the world to adjudicate FRAND royalty rates, often on a global basis, but using very different methodologies and doctrinal approaches. The issues affecting the FRAND licensing system can be summarized as deficiencies in transparency, consistency and comprehensiveness. Together, these issues reduce the overall fairness and accuracy of the system and result in excess administrative and transactional costs. This article, for the first time, lays out a roadmap for the establishment of an expert FRAND rate-setting tribunal that promotes the tripartite goals of transparency, consistency and comprehensiveness. This tribunal is modelled on the U.S. Copyright Royalty Board and similar rate-setting agencies, though it is envisioned not as a governmental body, but an international non-governmental organization. It is hoped that such a tribunal will bring greater predictability and stability to the technology development ecosystem while reducing inefficient litigation.