Contreras and Maupin on Unenjoined Infringement

Jorge Contreras and Jessi Maupin have posted a paper on ssrn titled Unenjoined Infringement and Compulsory Licensing.  Here is a link to the paper, and here is the abstract:

  

            The United States has traditionally held a dim view of compulsory patent licensing, which occurs when a government mandates the licensing of privately held patents to a third party in order to advance a public goal. Yet following the U.S. Supreme Court’s 2006 decision in eBay v. MercExchange, federal courts have denied a substantial number of requests for permanent injunctions following a finding of patent infringement. Without an injunction, an infringing party may continue to practice the infringed patent subject, in most cases, to the payment of a court-approved ongoing royalty. In the years following eBay, courts and scholars have debated whether unenjoined infringement and the payment of an ongoing royalty therewith constitutes a judicial compulsory license or something else.

 

            In order to assess the manner in which courts view unenjoined infringement, we identified seventy-seven post-eBay cases in which patent infringement was found but a permanent injunction was denied. In each case we analyzed the language used by the court in establishing the right of the infringer to continue to operate under the infringed patent(s) and its obligation to compensate the patent holder. This language, as well as the surrounding transactional and litigation context, suggests that at least some federal district courts have, both tacitly and expressly, been granting compulsory patent licenses upon the denial of permanent injunctions, and that the Federal Circuit, in some cases, agrees with this characterization.

 

            In order to remove any lingering uncertainty, we recommend that the Federal Circuit acknowledge that a district court that declines to enjoin the infringement of a valid and enforceable patent, and concurrently orders the infringer to compensate the patent holder for acts of future unenjoined infringement, has authorized a compulsory license of the patent. Such an acknowledgement would encourage courts to focus greater attention on the non-royalty aspects of such licenses, which are currently missing key terms such as license scope, field of use, duration and termination, and inform U.S. foreign policy regarding compulsory licensing by other countries.

FTC Chair Files Public Interest Statement in FRAND/SEP Matter Before the ITC

This matter has already been covered by Florian Mueller on FOSS Patents and by Britain Eakin on Law360, but I thought I would weigh in as well.  Last week Federal Trade Commission Chair Lina Khan and Commissioner Rebecca Kelly Slaughter filed a public interest statement in Investigation No. 337-TA-1240 Certain UMTS and LE Cellular Modules and Products Containing the Same.  According to the Law360 article, the case involves a complaint filed by Koninklijke Philips NV alleged that various companies including Thales Group are importing SEP-infringing products into the United States.  Philips is asking the International Trade Commission to review ALJ David Shaw's ruling that the products do not infringe, and also is pursuing litigation against Thales in U.S. district court.  With that backdrop, Chair Khan and Commissioner Slaughter have filed a statement focusing on the availability of exclusion orders for the importation of SEP-infringing products.  

I'm not a big fan of the neo-Brandeisian school of antitrust, with which Chair Khan is often associated--but I'm also not a big fan of ITC exclusion orders, particularly in SEP cases, and in this case I'm in agreement with Chair Khan's analysis 100%.  As I have noted previously (see, e.g., here), the ITC can be a popular venue for U.S. patent owners for a variety of reasons--among them that the Federal Circuit has held that the eBay factors do not apply in ITC proceedings.  See Spansion, Inc. v. Int' Trade Comm'n, 629 F.3d 1331, 1357-60 (Fed. Cir. 2010). And while the U.S. Trade Representative in 2013 overturned an exclusion order the agency had entered in a dispute between Samsung and Apple involving SEPs, it's not clear that in other instances the ITC would necessarily deny an exclusion order just because a patent is standard-essential.  As Chair Khan and Commissioner Slaugher note, this poses a risk of patent holdup, and their concluding statements are consistent with my views:

Particularly where the standard implementer is a willing licensee—including cases where the implementer commits to be bound by terms that either the parties themselves will determine are FRAND or that will be determined by a neutral adjudication/in a court proceeding—an exclusion order would be contrary to the public interest. At a minimum, the Commission should require a SEP holder to prove that the implementer is unwilling or unable to take a FRAND license as part of its public interest analysis before issuing an exclusion order. . . . Considering the willingness and ability of the potential licensee to take a license would support a balanced approach to ITC remedies by curbing opportunism by both SEP holders and potential licensees while recognizing that both the SEP holder and the standards implementer have a duty to negotiate in good faith towards a meaningful resolution of FRAND issues.

As a general matter, exclusionary relief is incongruent and against the public interest where a court has been asked to resolve FRAND terms and can make the SEP holder whole. We encourage the Commission to consider in its public interest assessment whether the facts at hand present a case where exclusionary relief would not be in the public interest, at least with respect to certain Respondents. . . .

In this case, the ALJ found that Philips has licensed its SEPs to numerous licensees and is willing to license Respondents, and that Respondents were engaged in licensing negotiations with Phillips. . . . There are several pending cases in the District of Delaware against various Respondents in which a party is seeking to have the court set FRAND terms for a license. When a District Court can make a complainant whole, both for past royalties with prejudgment interest and by establishing a future royalty rate, even a limited exclusion order is not in public interest.

I hope the ITC pays attention.

Federal Circuit Reverses Denial of Prejudgment Interest

The case is Kaufman v. MicrosoftCorp., precedential decision by Judge Taranto, joined by Judges Dyk and Reyna.  Most of the opinion is devoted to other issues, most importantly claim construction, as discussed by Dennis Crouch on Patently-O.  The Federal Circuit affirms on liability, but on the plaintiff’s cross-appeal it reverses the district court’s denial of the plaintiff’s motion for an award of prejudgment interest.   From the opinion:

  

           Damages awarded in patent-infringement cases must be “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” 35 U.S.C. § 284 (emphases added). The Supreme Court has explained that Congress intended that “prejudgment interest should ordinarily be awarded where necessary to afford the plaintiff full compensation for the infringement.” General Motors Corp. v. Devex Corp., 461 U.S. 648, 654 (1983). “In the typical case an award of prejudgment interest is necessary to ensure that the patent owner is placed in as good a position as he would have been had the infringer entered into a reasonable royalty agreement.” Id. at 655. The Court added, however, that because interest is “fixed by the court,” a district court has some discretion to decide whether to award prejudgment interest, and “it may be appropriate to limit prejudgment interest, or perhaps even to deny it altogether, where the patent owner has been responsible for undue delay in prosecuting the lawsuit,” among other potential, unnamed circumstances. Id. at 656–57. In any case, “some justification” is required to withhold prejudgment interest. Id. at 657.

 

            The district court provided two rationales for denying prejudgment interest to Mr. Kaufman: first, that the jury verdict “subsumed interest,” and second, that Mr. Kaufman was responsible for “undue delay” in bringing the lawsuit, causing prejudice to Microsoft. Prejudgment Interest Order, 2021 WL 260485, at *1. Neither rationale is supportable on the record here.

 

            The jury verdict cannot reasonably be understood to include interest. . . .

 

            [The jury instructions] stated that “the parties have agreed that a reasonable royalty in this case should take the form of a single lump-sum payment for the life of the patent, discounted to present value.” Id. That mention of “present value” did not suggest to the jury that its calculation should add interest accruing from the 2011 hypothetical negotiation date to the present; rather, it was a reminder that—consistent with the expert testimony, J.A. 3920–22—the lump-sum royalty payment should incorporate the hypothetical future royalty payments by using a discount rate to calculate the 2011 value of the stream of such payments, hence decreasing their numeral amounts. . . .

 

            The district court also erred in concluding that Mr. Kaufman was responsible for undue delay justifying denial of prejudgment interest. For one, the fact that Mr. Kaufman did not sue for five years after he became aware of Microsoft’s potential infringement does not alone justify a finding of undue delay. . .  (pp. 19-22, emphases in original).

The court goes on to note that Microsoft did not show that it was prejudiced by the five-year delay.  Among other things, the jury didn’t credit Microsoft’s evidence that it would have designed around the patent, or that its proposed noninfringing alternative was acceptable.

Overall, this is not a surprising outcome.  Prejudgment interest is necessary to restore the patentee to the position it would have occupied, but for the infringement.  Preferably it should be compounded to properly take into account the time value of money, but to my knowledge there is no fixed practice on this issue in the U.S., nor on the appropriate interest rate.  For discussion of pre- and postjudgment interest in patent litigation in the U.S. and elsewhere, see Colleen V. Chien, Jorge L. Contreras, Thomas F. Cotter, Brian J. Love, Christopher B. Seaman & Norman V. Siebrasse, Enhanced Damages, Litigation Cost Recovery, and Interest, in Patent Remedies and Complex Products: Toward a Global Consensus 204, 254 (C. Bradford Biddle, Jorge L. Contreras, Brian J. Love & Norman V. Siebrasse eds. 2019), available here.

Also on Friday, the court vacated decision of the Eastern District of Texas dismissing a claim for a declaratory judgment of noninfringement and invalidity, and remanded for further proceedings.  See Mitek v. United Services Automobile Ass’n.