Monday, March 29, 2021

Sztoldman on Compensation for Wrongful Enforcement

In October 2019, I published a post titled Bayer v. Richter: Worst CJEU Decision Ever?, discussing the CJEU's decision in case C-688/17.  According to my description of the decision, "the fact that the defendants's launch of their generic contraceptive product put Bayer at risk of suffering irreparable harm may mean that Bayer isn't required to pay adequate compensation to the defendants, even though the patent in suit was later invalidated, for having been wrongly excluded from the market."  Exactly what the implications of the decision are still remains to be seen, as evidenced for example from the comment to my post and from a subsequent article by Léon Dijkman (noted here).  Anyway, Dr. Agnieszka Sztoldman has published a paper titled Compensation for a Wrongful Enforcement of a Preliminary Injunction under the Enforcement Directive (2004/48/EC), 42 E.I.P.R. 721-27 (2020), and it's fair to say that she's not a big fan of the decision either.  Here is the abstract:

This article explores legal mechanisms for compensating a wrongful enforcement of a preliminary injunction under the Enforcement Directive 2004/48/EC. Special focus is given to the recent judgment of the Court of Justice of the European Union in the case of Bayer Pharma of 12 September 2019. This article argues that the test proposed by the Court of Justice in national cases for compensating for a wrongful enforcement is incorrect in the view of art.9(7) of Directive 2004/48/EC. Despite art.9(7) of Directive 2004/48/EC, which strikes a balance of competing interests of a potential infringer and the intellectual property right holder, the Court of Justice held that, when the patent was ultimately invalidated, it does not automatically follow that the preliminary injunction was unfounded. As for specific issues, this article, notably, discusses whether the test for compensating a wrongful enforcement takes into account an abuse of a preliminary injunction and the behaviour of the defendant who launched a product without first challenging the patent. This article argues that it would be contrary to the aim of Directive 2004/48/EC if the compensation of defendants could be routinely refused when they do not wait for the invalidation of the injuncted patent. Otherwise this would encourage the misuse of preliminary injunctions. Finally, this article questions the applicability of national correction instruments to assessing of damage resulting from a wrongful enforcement of a preliminary injunction, implied in the case law of the Court of Justice.

I think this may be the summer when I finally turn my attention to a project I've been mulling over for a while, on the comparative law and economics of wrongful patent enforcement.  If so, the issues raised in Bayer v. Richter will be among the leading topics to consider.  

Thursday, March 25, 2021

More on VLSI's $2 Million Verdict Against Intel

1. Josh Landau published a post on Patent Progress titled One Case, All The Problems: VLSI v. Intel Exemplifies Current Issues In Patent Litigation.  The author states that "Patent litigation suffers from a number of issues at present," including "Hedge funds backing non-practicing entities (NPEs) in order to chase a share of billion-dollar judgments," "Plaintiffs using damages methodologies that have little to no relation to the reality of the patent system in order to obtain those billion dollar judgments," "NPEs asserting patents that they don’t use, and that they obtained from operating companies who never used the patents either," and "Plaintiffs picking the judge they want in order to avoid having the Patent Office review the validity of their patents. One recent case ticks all these boxes."

2. Alan Cox published a guest post on Patently-O titled The Damages Testimony in VLSI Technologies v. Intel.  The post discusses the damages evidence presented at trial, which Dr. Cox followed via telephone.  I read this paper in draft, and thought it was very helpful in understanding the evidence, in particular the use of hedonic regression analysis by the plaintiff.  

3. On the other hand, most of the relevant court-filed documents remain sealed, which prompted this letter by Professor Bernard Chao, which Patently-O also posted last week (and which I, among several others, signed).      

Monday, March 22, 2021

OxFirst Webinar on FRAND: The Unanswered (English) Questions

This coming Thursday, March 25, from 15:00 to 16:00 GMT, OxFirst will be hosting a free webinar titled "FRAND: The Unanswered (English) Questions."  Here is a link to register, and here is the description:

In this webinar, Sophie Lawrance (Partner) and Luke Maunder (Senior Associate) cover the latest developments in English jurisprudence on FRAND and then explore the key unanswered questions the English Court has not definitively decided. It will cover, amongst other things, the nature of actions concerning FRAND in England, the question of damages and FRAND valuation.

Also of FRAND-related interest is a recent article on Law360 by Jorge Contreras, titled A Framework for Evaluating Willingness of FRAND Licensees.  As Professor Contreras states, he presents "three broad categories of implement status," namely "willing, potentially willing, and unwilling," and "three subcategories under each."  He hopes that this taxonomy will help court to evaluate "the willingness of implementers to accept licenses on FRAND terms and, consequently, the acceptability of an SEP holder's attempts to seek injunctive relief against such implementers."    

Thursday, March 18, 2021

Interesting Chinese Case on Patent Damages

Kenneth Zhou has published an article titled Review of the year in Chinese patent litigation, 15 JIPLP 442-49 (2020) (available here, behind a paywall).  The article discusses, among other matters, the 2019 decision of the Supreme People's Court in Wuxi Guowei Ceramics Appliance v. Changshu Linzhi Electric Heating (brief discussion available here, in Chinese, as case number 2 ("二"), "PTC heater" ("PTC加热器").  By way of background, as the author notes in the majority of cases in which the patent owner prevails at trial, the court awards statutory damages, which are capped at 1 million RMB.  (This will go up to 5 million RMB on June 1, but that's still only about U.S. $700,000.)  A problem for patent owners is that it is often difficult to prove their actual damages or the infringer's profits (particularly given limitations on discovery).  In this case, however, the SPC was able to use "revenue information on the infringing products provided by the infringer," which it then multiplied by the plaintiff's profit margin of 15%, and then by another 50% to reflect the contribution of the patented technology to the infringing product (based on both its technical value and the fact that the defendant "had refused to participate in the court proceeding"), for a grand total of RMB 8.6 million (to which the court added an additional amount for other expenses, totaling in full RMB 9.5 million).

Mr. Zhou also discusses the 2019 conviction for extortion of an individual who allegedly filed a series of meritless patent infringement suits for the purpose of coercing settlements.  For previous mention on this blog, see here.   
 
Hat tip to Norman Siebrasse for calling this article to my attention.

Monday, March 15, 2021

University of Pennsylvania Symposium on Post-Chicago Antitrust

The University of Pennsylvania Law Review has published its symposium issue on the Post-Chicago Antitrust Revolution.  The articles, available here, address a range of cutting-edge issues, but I will note two of them here that may be of particular interest to readers of this blog (and which I highly recommend):

1.  Herbert Hovenkamp & Fiona Scott Morton, Framing the Chicago School of Antitrust Analysis.  Here is the abstract:

The Chicago School of antitrust has benefitted from a great deal of law office history, written by admiring advocates rather than more dispassionate observers. This essay attempts a more neutral examination of the ideology, political impulses, and economics that produced the School and that account for its durability.

The origins of the Chicago School lie in a strong commitment to libertarianism and nonintervention. Economic models of perfect competition best suited these goals. The early strength of the Chicago School was that it provided simple, convincing answers to everything that was wrong with antitrust policy in the 1960s, when antitrust was characterized by over-enforcement, poor quality economics or none at all, and many internal contradictions.

The Chicago School’s greatest weakness is that it did not keep up. Its leading advocates either spurned or ignored important developments in economics that gave a better accounting of an economy that was increasingly characterized by significant product differentiation, rapid innovation, networking, and strategic behavior. The Chicago School’s protest that newer models of the economy lacked testability lost its credibility as industrial economics experienced an empirical renaissance, nearly all of it based on models of imperfect competition.

What kept Chicago alive was the financial support of firms and others who stood to profit from less intervention. Properly designed antitrust enforcement is a public good. Its beneficiaries—consumers—are individually small, numerous, scattered, and diverse. Those who stand to profit from nonintervention were fewer in number, individually much more powerful, and much more united in their message. As a result, the Chicago School went from being a model of enlightened economic policy to an economically outdated but nevertheless powerful tool of regulatory capture.

The article presents quite an indictment of some recent cases, including (albeit briefly) FTC v. Qualcomm

Before I move on to the next article, I should note that I also highly recommend Hovenkamp's recent article FRAND and Antitrust, 105 Cornell L. Rev. 1683 (2020), a draft of which I have cited in some of my work but, to my surprise, I haven't previously noted on this blog.  Here is the abstract:

This Article addresses one question: when is a Standard Setting Organization (SSO) participant’s violation of a FRAND commitment an antitrust violation, and if it is, of what kind and what are the implications for remedies? It warns against two extremes. One is thinking that any violation of a FRAND commitment is an antitrust violation as well. In the first instance FRAND obligations are contractual, and most breaches of contract do not violate any antitrust law. The other extreme is thinking that, because a FRAND violation is a breach of contract, it cannot also be an antitrust violation. The question of an antitrust violation does not depend on whether the conduct breached a particular agreement but rather on whether it caused competitive harm. This can happen because the conduct restrained trade under section 1 of the Sherman Act, was unreasonably exclusionary under section 2 of the Sherman Act, or amounted to an anticompetitive condition or understanding as defined by section 3 of the Clayton Act. The end goal is to identify practices that harm competition, thereby injuring consumers.
2. The other article from the Penn symposium, a draft of which I have previously noted on this blog, is Mark A. Lemley & Carl Shapiro, The Role of Antitrust in Preventing Patent Holdup.  Here is the abstract:
Patent holdup has proven one of the most controversial topics in innovation policy, in part because companies with a vested interest in denying its existence have spent tens of millions of dollars trying to debunk it. Notwithstanding a barrage of political and academic attacks, both the general theory of holdup and its practical application in patent law remain valid and pose significant concerns for patent policy. Patent and antitrust law have made significant strides in the past fifteen years in limiting the problem of patent holdup. But those advances are currently under threat from the Antitrust Division of the Department of Justice, which has reversed prior policies and broken with the Federal Trade Commission to downplay the significance of patent holdup while undermining private efforts to prevent it. Ironically, the effect of the Antitrust Division’s actions is to create a greater role for antitrust law in stopping patent holdup. We offer some suggestions for moving in the right direction.

Friday, March 12, 2021

From Around the Blogs: Mostly, but not Exclusively, FRAND-Related

1. Mark Cohen published a post on the ChinaIPR Blog titled China's Evolving Case Law on ASI'sThe post discusses the SPC's selection of the Huawei v. Conversant antisuit injunction decision (see also here) as a case worth reporting in two recent publications discussing "typical" IP cases.  The post provides a rough translation of the factors relevant to determining whether to issue an ASI, and some additional context worth reading.

2. Florian Mueller also recently published a post on the ASI craze, titled Anti-anti-anti-antisuit injunctions (no kidding) widely available now in Munich: InterDigital v. Xiaomi decision lays out criteria, discussing in more detail a matter previously noted here; as well as another titled Brainstorming: how do we get out of this quagmire of extraterritorial patent rulings and multi-antisuit injunctions?  (plus a follow-up here).  ("Quagmire" is an appropriate term for what we are now facing, for reasons I have discussed here.)  The post asks readers to weigh in on various options.

3. David Kappos and Daniel Etcovitch have published an essay on Law360 titled US Should Learn from German Courts Balancing SEP Rights.  The essay focuses on the BGH's November 2020 decision in Sisvel v. Haier II, previously noted on this blog here.  It is fair to say that my own views on the BGH's approach to SEP issues are less favorable than Kappos and Etcovitch's, see, e.g., here.  Also of interest to readers of this blog is a Law360 essay by Daniel McGavock and Robert Goldman titled Assessing Damages Theories in Recent Trade Secret Verdicts, which discusses among other matters the use of an "avoided costs" theory of unjust enrichment in a recent case.            

4. Norman Siebrasse published a post on Sufficient Description titled Essential Reading on Costs, briefly discussing a recent decision by Canada's Federal Court providing, as Professor Siebrasse describes it, "an extremely helpful summary of costs [i.e., recovery of attorneys' fees and other expenses] principles in patent litigation."

Tuesday, March 9, 2021

Nominal Damages for Patent Infringement?

I admit that, in view of last week's $2 billion judgment against Intel in the Western District of Texas--and two more decisions reported today on Law360, one in the amount of $172.6 million in an action brought by Wapp Tech LP, and another in the amount of $62.7 million in an action brought by Solas LED, both emanating from the Eastern District of Texas and both subject to a possible enhancement--it might seem quaint to be discussing whether courts can ever award nominal damages for patent infringement.  As I discussed in a post a few weeks ago, however, the issue can come up in a case in which the court excludes the plaintiff's damages evidence on Daubert grounds, or the patented technology is no better than the next-best available noninfringing alternative (or perhaps also when the defendant makes an infringing article but then doesn't do anything with it).  In such a case, is the trier of fact obligated to award some sort of damages, based on whatever evidence may be in the record?  Or (if injunctive relief is also off the table, under eBay) should the court dismiss the case as moot?  I may take this issue up in a forthcoming paper, but for now I will note only that the Supreme Court yesterday issued its decision in the civil rights case (Uzuegbunam v. Preczewski) that prompted my post in January.  In an 8-1 decision, the Court held that nominal damages are available in such a case, and that the matter is not moot, even if the defendant has ceased its offending conduct.  I'll be giving some thought over the coming weeks to whether the Court's reasoning has any relevance to patent or other IP damages regimes.  (Based on my first reading of the opinion, though, I would say that the majority's reasoning seems broadly applicable.)  Meanwhile, if any readers have thoughts on this issue, please share them with me.     

Monday, March 8, 2021

Transparency in SEP Licensing

Towards the end of a paper I published in the Patently-O Law Journal in January titled Is Global FRAND Litigation Spinning Out of Control?, I wrote:

 

. . . while licensing agreements may be disclosed among parties to litigation, pursuant to confidentiality requirements that may differ in some respects among national courts, they generally are not matters of public record. Although the business rationales for keeping such information private are not hard to fathom, it is not at all clear how, in the absence of such information outside the litigation context, anyone can substantiate whether SEP owners are complying with their obligation to offer nondiscriminatory royalties (whatever the correct definition of “nondiscriminatory” happens to be)—or how decisionmakers can be confident that the comparables disclosed in litigation are representative of the whole. . . . That said, I don’t see any practical way for SSOs or, for that matter, even governments, to require such disclosure as a matter of course. . . .

 

Although I still think that it’s going to be difficult to solve this problem for the foreseeable future, some recently published papers give me hope that, at the very least, I am not alone in seeing these issues as something that desperately needs to be addressed.

 

First, as I noted not too long ago, in January the European Commission published a document titled Group of Experts on Licensing and Valuation of Standard Essential Patents ‘SEPs Expert Group’ - full contribution.  As other commentators have already noted—see discussions by Florian Mueller, Enrico Bonadio and Luke McDonagh (here and here), and Damien Geradin—the group didn’t reach consensus on very many issues.  Several members of the group nonetheless appear to have supported Proposal 47, which states “A confidential repository of SEP licensing agreements could be established to be used by courts, competition authorities, public arbitration boards, or trusted persons to promote transparency. . . . Having access to the terms and conditions of prior agreements would facilitate a comparison among terms and conditions offered to multiple parties, which is a key aspect of the ND assessment”; and also Proposal 67, which states “It is proposed to require parties to SEP licence agreements to submit these agreements (or specified key provisions of such agreements) to a market transparency office to be established, for building and maintaining a strictly secret repository of SEP licence agreements, solely for use by courts, competition authorities and possibly arbitration/expert boards and other trusted persons to be agreed upon.”  If proposals like these should come to pass, they would have the potential to reduce the risk of gamesmanship on all sides—though it should be noted that the specific disclosures envisioned would not go beyond the specified public entities or trusted persons.

 

In addition, several members also supported various proposals for encouraging collaborative efforts, such as the formation of patent pools, to streamline SEP licensing.  One proposal in particular that caught my attention was Proposal 75, in which it is “proposed to develop an appropriate mechanism and controls to allow licensee negotiation groups (industry associations representing member implementers or groups of individual implementers) to jointly negotiate licences with individual SEP holders and SEP patent pools without the risk of getting in conflict with antitrust regulation” (p.169).  The proposal calls to mind a similar proposal that was advanced by the U.S. Antitrust Modernization Commission in 2007, and which I wrote about at the time (see, e.g., here), under which joint bargaining prior to the adoption of the standard would be subject to antitrust scrutiny under the Rule of Reason (not per se illegal).  As I have also noted previously, however, the lone dissenting member of the AMC with regard to this proposal was one Makan Delrahim, who later went on to head the Antitrust Division of the U.S. Department of Justice during the Trump Administration.  Now that he is gone, though, I would expect that U.S. antitrust enforcers might be more inclined to take a favorable look at the sort of efforts contemplated by the AMC proposal or the SEP Expert Group’s Proposal 75.  Perhaps the time has come for some SSO to try this out.

Second, I would note a recent paper by Jorge Contreras and Richard Gilbert, titled Non-Discrimination—FRAND’s Last Stand?, CPI Antitrust Chronicle, Dec. 2020.  The authors argue, generally, that the “nondiscriminatory” aspect of the FRAND commitment “enables a level playing field for competition and investment by SEP licensees,” and “can be an effective means to assess fair and reasonable royalty rates in the fractious environment of FRAND compliance under some circumstances” (p.1). Further, “[i]f SEP holders commit to royalty terms before a standard is approved and released by the SDO, and if the ND prong of the FRAND commitment requires that such terms apply to future licensing negotiations, this would have the ancillary benefit of mitigating concerns about holdup that might arise after firms and consumers have committed to the standard” (id.).  To this end, the authors—noting that “[n]on-discrimination cannot be enforced without information about the royalty terms and conditions negotiated by other similarly-situated licensees” (p.7)—propose that “SSOs adopt measures to disclose royalty terms early in the development of a standard and limit rate escalation,” that is, to “post a royalty schedule for all patents that they declare essential to a standard early in the development of said standard,” and “impose caps on the rate at which royalties can increase for FRAND-encumbered patents” (pp. 7-8).  As they note, in 2006 one SSO (VITA) did adopt a requirement that members disclose maximum royalty rates ex ante, but to date no other SSOs have done so.  They suggest that such a requirement would reduce the risk of both holdup and holdout (p.8).

I certainly agree that increasing transparency in licensing would be beneficial.  Indeed, I would go farther and question why the nations of the world tolerate not only SEP owners’ keeping secret the terms of their licenses, which in the present context can frustrate efforts to substantiate compliance with the FRAND commitment; but also, more generally, patent owners’ R&D expenses (e.g. in the pharmaceutical industry).  After all, if we buy into the “patent bargain” construct—we grant patents in return for inventors disclosing how to make and use their inventions—it seems odd to me that we don’t also require, as a condition of the bargain, that we be provided with the information that would be necessary to evaluate whether the public is getting its money’s worth.  (To be sure, we may well be getting our money’s worth; it’s just that it’s impossible to tell, if there is no public examination of the books.  I also recognize that trade secret or other laws might, in theory, pose an obstacle to rules requiring the public disclosure of licensing information, R&D expenditures, and so on.  For present purposes, I will not be delving into the merits of such arguments, though they might make for an interesting research project at some point.  Of course, if trade secret or other laws do pose an obstacle, the question arises whether those laws themselves are too protective.)  But how to get from here to there is the key question.  As the authors cited above note, and as I have noted as well, it isn’t easy to get SSOs to agree on more expansive disclosure requirements for a variety of reasons, including the heterogeneity of their membership—although the SSOs’ exposure to antitrust liability, at least, may be somewhat diminished with the change in administration in the U.S.  Moving forward therefore will be difficult, and may require affirmative, and bold, action by governments to break the logjam.  Alternatively, there have been calls from time to time (principally by economists, in my experience) for considering whether SSOs should be liable for violating the antitrust laws, if they don’t take more aggressive steps to curtail their members from exploiting the substantial market power that the SSOs themselves confer upon them by adopting standards that inevitably wind up incorporating members’ patented technologies.  (See, e.g., here.)  For now, this remains a minority view, but perhaps over time it will gain strength.

 

Finally, I will note a recent paper by Jan Schmitz, a Policy Officer of the European Commission, and Fabian Hoffmann, a judge on Germany's Bundesgerichtshof, which suggests that maybe we could forgo the use of comparables altogether (or at least reduce our reliance on them) when setting FRAND royalties.  (Whether this would address the “nondiscriminatory” issues flagged above is another matter.)  The paper is titled SEP Royalty Rate Calculation on the Basis of the Present Value Added (PVA), 49 AIPLA Q.J. __ (forthcoming 2021).  As the abstract notes:

 

The most common method for standard essential patent (SEP) valuation and to determine a fair, reasonable and non-discriminative (FRAND) royalty rate is based on comparable license agreements. This method is relatively simple to apply, but has several disadvantages. Firstly, license agreements are often not comparable on important points. Secondly, they are usually based on a selection by the submitting party, who has an interest to select only favorable license agreements for comparison. And thirdly, those selected agreements might not result from a fair negotiation, because of possible market power by either of the two sides. 

 

As an alternative to the use of comparables, the authors propose a present value added (PVA) methodology that attempts to determine the incremental value of the patent or patents in suit to the relevant product (end product or component), and then to apportion that incremental value between the SEP owner and the implementer on a 50-50 basis.  The authors then provide some illustrative examples of how this would work.  As they note, their methodology would be easiest to carry out when it is possible to compare two products, one that embodies the patented technology and one that does not (as was the case, I would note, in the Japanese Apple/Samsung SEP litigation from a few years ago, where the IP High Court was able to do precisely that, see discussion here at p.20.  I would also note that the concept of estimating the incremental value of the patent in suit and apportioning it in some fashion between the patentee and the implementer is something that my coauthors are I recommended in the Reasonable Royalties chapter of the edited volume Patent Remedies for Complex Products, see here at pp. 16-17.  What Schmitz and Hoffmann are proposing could be a practical way of extending and carrying out this core idea.)  They also note that carrying out their methodology will be more complex when there are not “comparable products with and without the implemented patented technology” (p.23), but suggest that econometric techniques including hedonic price regression, choice modeling, conjoint analysis, and the estimation of full demand systems could be used (id.).  They conclude, however, that “the full estimation of a demand system,” while “theoretically the most sound option,” “requires much more information about the market and real transactions, including prices and volumes” (pp. 23-24).  I’m not familiar with this technique myself, and probably should educate myself by consulting the sources the authors cite; there is also a brief discussion of this technique in Annex 6 of the SEP Expert Group Report noted above, which is worth reading.