From Around the Blogs

1.  On Sufficient Description, Norman Siebrasse published a post on Rovi Guides, Inc. v. BCE Inc., 2022 FC 1388.  This is well worth a read, for its discussion of, among other matters, patent holdup, the standards for awarding an accounting of profits under Canadian law, and the right to injunctive relief under Canadian law.  I previously published a short write-up on the case here. 

2. Also relating to Canada, on Law360 Jasmin Jackson published a short article on the recent Supreme Court decision in Nova v. Dow.  I published a short post on this one last week, in which I expressed agreement with the dissenting justice.  Professor Siebrasse will, I believe, provide a more detailed treatment sometime soon.

3. Over in India, the Delhi High Court recently denied Nokia an interim royalty in its SEP/FRAND dispute with Oppo.  The court holds that such relief is not available in this case, given the dispute whether any of the asserted patents are SEPs, whether they are valid and infringed, and if so what an appropriate FRAND  royalty would be.  I thank a reader for sending me a copy of the decision.  There are also write-ups on SpicyIP and on FOSS Patents, both with links to the decision.

4. Also relating to SEPs is a post by Eileen McDermott and Inna Dahlin on IP Watchdog, describing a recent panel discussion on the evolving European case law.

5. Also relating to Europe, IPKat published a post by Jan Jacobi discussing a recent Opinion of the Advocate General in a case, referred from Poland, in which the CJEU will consider under what circumstances a putative IP owner may obtain information from an alleged infringer under article 8 of the Enforcement Directive.  The case before the court involves defendants who dispute whether there is an enforceable copyright in the relevant subject matter  in dispute; the author of the post argues that the AG focuses too much on the quantum of evidence needed to establish the identity of the owner of a right, as opposed to whether the right itself exists.

6. Finally, Anders Valentin published a post on the Kluwer Patent Blog discussing a Danish High Court decision holding that a court cannot issue a preliminary injunction prior to the granting of a patent.  The case affirms the conclusion reached by the lower court, and by some other courts in Europe recently, in an ongoing multi-country dispute involving the drug Fingolimod (previously discussed on this blog here and here).    

Some New FRAND-Related Papers

1. Nicolas Petit and Amandine Léonard have posted a paper on ssrn titled FRAND Royalties:  Rules v. Standards?, forthcoming in the Chicago-Kent Journal of Intellectual Property.  Here is a link to the paper, and here is the abstract:

Royalties for intellectual property (IP) are like taxes. Everyone agrees that some limits are necessary. However, no one agrees on the levels at which the limits should be set. One way to overcome disagreement consists in asking if a legal rule or standard should govern the limits of IP royalties. This paper discusses this issue in the context of Standard Essential Patents ("SEPs") governed by a commitment to license on Fair Reasonable and Non Discriminatory ("FRAND") terms. The paper find that FRAND rules generally surpass standards, but only under specific conditions.

2. Peter Picht has posted a paper on ssrn titled Arbitration in SEP/FRAND Disputes, in Research Handbook on Intellectual Property Rights and Arbitration (Kolpschinski & McGuire eds.,  Edward Elgar forthcoming 2023).  Here is a link to the paper, and here is the abstract:

This chapter analyses recent developments and key issues in arbitrating FRAND disputes. It addresses, inter alia, the European Commission's position on the matter and proposals made by its SEP expert group; whether FRAND arbitration can be made mandatory; how successful FRAND arbitration may be conducted procedurally; and which are typical key matters surfacing in such proceedings.

3. Jorge Contreras and numerous coauthors have posted a paper titled Preserving the Royalty-Free Standards Ecosystem.  Here is a link, and here is the abstract:

 

It has long been recognized in Europe and elsewhere that standards-development organizations (SDOs) may adopt policies that require their participants to license patents essential to the SDO’s standards (standards-essential patents or SEPs) to manufacturers of standardized products (“implementers”) on a royalty-free (RF) basis. This requirement contrasts with SDO policies that permit SEP holders to charge implementers monetary patent royalties, sometimes on terms that are specified as “fair, reasonable and nondiscriminatory” (FRAND). As demonstrated by two decades of intensive litigation around the world, FRAND royalties have given rise to intractable disputes regarding the manner in which such royalties should be calculated and adjudicated. In contrast, standards distributed on an RF basis are comparatively free from litigation and the attendant transaction costs. Accordingly, numerous SDOs around the world have adopted RF licensing policies and many widely adopted standards, including Bluetooth, USB, IPv6, HTTP, HTML and XML, are distributed on an RF basis. This note briefly discusses the commercial considerations surrounding RF standards, the relationship between RF standards and open source software (OSS) and the SDO policy mechanisms – including “universal reciprocity” -- that enable RF licensing to succeed in the marketplace.

Nova v. Dow: The Supreme Court of Canada on Accountings of Profits

I expect Professor Siebrasse to publish a more detailed post on this decision over on Sufficient Description, so I will be brief here.  The case is Nova Chemicals Corp. v. Dow Chemical Co., 2022 SCC 43.  Long story short, in an 8-1 decision authored by Justice Rowe, the Supreme Court of Canada (SCC) affirms the decision of the Federal Court of Appeal (previously noted on this blog here, and with links to Professor Siebrasse's posts on the appellate decision here).  The principal legal issue is how, exactly, to apply the non-infringing alternatives concept to awards of the infringer’s profits.  The majority concludes that the appropriate baseline is the difference between the infringer’s actual profit and the profit it would have earned “on the sale of a similar product without the patented feature—i.e., the non-infringing option” (para. 51).  In a case, like the present one, in which the infringer’s most profitable alternative would have been to use the raw materials that were used to produce the infringing product to produce a different, non-substitute product, the court should not take this alternative into consideration:  “A non-infringing option is not . . . an infringer’s ‘most profitable’ alternative sale product that it ‘would have’ and ‘could have’ sold had it not infringed” (para. 59).  The majority concludes that the rejected definition of non-infringing alternative is flawed, both because of a perceived conflict with the SCC’s decision in Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, and because  

            [62] . . . this reading of non-infringing options would distort the purpose of an accounting of profits and, in turn, undermine the patent bargain underlying the Patent Act. If an infringer is allowed to use any prior profitable business venture as a non-infringing option, an infringer would always be incentivized to switch its business capacity to a more profitable infringing product. At worst, the infringer would keep all the profits they would have earned selling the non-infringing products that they sold before. At best, the infringer keeps some or all of the extra profits earned from infringement. Reading “non-infringing option” as Nova and my colleague suggest would have the effect of creating a form of business insurance for infringers: an infringer could always use their previous product lines as a non-infringing option and protect those profits in the event their new product infringes a patent.

 

            [63]   This distortion of the purpose of an accounting of profits gives rise to unacceptable consequences, one being that the quantum of profits to be disgorged would vary with the size of the infringing business and the breadth of its product lines. Nova’s suggested approach disproportionately benefits large corporations (like itself) that have diverse product lines. Such businesses have multiple products that they “could have” and “would have” produced had they not infringed. Nova, for example, produces numerous non-infringing plastics. In circumstances like these, my colleague’s reasons would provide no incentive not to infringe. At best, Nova would retain all profits from infringement. At worst, Nova could keep the profits it would have made on any of its other product lines. Nova’s approach would allow it and other large enterprises to infringe with relative impunity. This undermines the bargain provided for in the Patent Act.

In dissent, Justice Côté argues that

            [187] . . . under the differential profit approach, a non‑infringing option does not need to be a true consumer substitute for the patented product. There are two principled reasons for this conclusion: (1) a true consumer substitute requirement is legally irrelevant in an accounting of profits given the different purposes and focus of this remedy when compared to damages; and (2) limiting non‑infringing options to true consumer substitutes distorts the causation analysis.

In my view, Justice Côté has the better of the argument.  As she discusses, for purposes of awarding the patent owner its own lost profit on lost sales resulting from the infringement, the non-infringing alternative must be a substitute for at least some consumers, because otherwise there are no lost sales resulting from the infringement.  For purposes of an award of profits, however, this distinction is irrelevant, since the goal should be ensuring that the defendant does not profit from the infringement, and this goal is satisfied by returning the defendant to the position it would have occupied absent the infringement, whatever that might be (see, e.g., para. 185).  As Justice Côté writes, in effect the majority’s approach isolates “the value of the patent in the abstract,” which “needlessly disadvantages infringers that could have and would have produced a different product that would not have been a consumer substitute for the patented product” (para. 194).  I should note that Justice Côté cites some portions of my book Comparative Patent Remedies, as well as the “Lost Profits and Disgorgement” chapter I coauthored with lead author Christopher Seaman and Norman Siebrasse, Brian Love, and Masabumi Suzuki, from the edited volume Patent Remedies and Complex Products: Toward a Global Consensus (C. Bradford Biddle et al., Cambridge Univ. Press 2019).  Both majority and dissent cite work by Professor Siebrasse, though from his previous posts on the Federal Court of Appeal decision in this case (see especially here), his views appear to align more with Justice Côté’s.

Both majority and dissent agree that “springboard” profits are an available remedy, where the plaintiff proves that the defendant continues to enjoy some advantage, post-patent expiration, from having previously infringed.

 

Court of Appeal Dismisses Appeals in Apple v. Optis FRAND Dispute

On October 27, the Court of Appeal for England and Wales handed down its decision in Optis Cellular Technology LLC v. Apple Retail U.K. Limited, [2022] EWCA Civ 1441.  The opinion is by Lord Justice Arnold, joined by Lady Justice Asplin and Lady Justice Elisabeth Laing.   Not surprisingly, in view of the U.K. Supreme Court's decision in Unwired Planet, the court rejects Apple’s claim that it is entitled to, in effect, wait and see whether it will take a court-determined FRAND license, without being enjoined from practicing the U.K. patent in suit during the interim; and it also rejects Optis’ argument that an implementer is permanently deprived of a FRAND defense if it does not commit, irrevocably, to accept a FRAND injunction immediately upon a finding of infringement and validity.  I have excerpted what I view as the key portions of the decision below, though reading the full text (including the court’s occasional references to each party’s arguments in terms such as “hopeless” and “impossible”) is worthwhile:

 

3  The essential issue raised by the appeals is whether the proprietor of a patent declared essential to a standard (a "standard-essential patent" or SEP) who has undertaken to the European Telecommunications Standards Institute ("ETSI") to grant licences on fair, reasonable and non-discriminatory ("FRAND") terms is entitled to an immediate injunction once it has been held by the court that the patent is valid, essential and has been infringed by an implementer unless the implementer has undertaken to take a licence on such terms as are subsequently determined by the court to be FRAND. Apple's position is that the patentee is not entitled to an injunction until such time as the court has determined what terms are FRAND and the implementer has had the opportunity to decide whether or not to take a licence on those terms. Optis' position is that the patentee is entitled to an immediate and unqualified injunction if the implementer has not by then undertaken to take a licence on the terms to be determined by the court as being FRAND. The judge held that neither side was correct, and that the right answer is that the patentee is entitled to an injunction unless and until the implementer undertakes to take a licence on the terms subsequently determined by the court to be FRAND (a so-called "FRAND Injunction" with the modification that the injunction bites unless the implementer undertakes to take a licence on terms to be determined to be FRAND rather than unless the implementer takes a licence on terms which have already been determined to be FRAND). The issue turns primarily on the proper interpretation of clause 6.1 of the ETSI Intellectual Property Rights Policy ("the ETSI IPR Policy"). . . .

 

64   As I have explained, the upshot of Trial B on 25 June 2021 was that Apple was found to be infringing EP744. Normally, when a party is found to be infringing a patent, an injunction will follow as a matter of course. (This is not to say that an injunction is an automatic remedy: it is a discretionary remedy which may be refused or qualified where it would be disproportionate, but such cases are rare.) Furthermore, although Optis had by then committed to enter into a Court-Determined Licence, Apple had not.

 

65  By their ground 1, Apple contend that the judge erred in law in concluding that, properly construed, clause 6.1 requires a beneficiary of the stipulation pour autrui created by that clause to commit to take a licence as soon as it is established that it is infringing a valid SEP, irrespective of whether the FRAND terms of that licence have yet been determined by the court. Apple contend that any person who seeks a licence in good faith is a beneficiary of the ETSI Undertaking, and therefore protected from an injunction, regardless of whether that person commits to take a licence upon terms determined to be FRAND by the court. The implementer is only obliged to take a licence (or else be injuncted) once both (a) a SEP has been found valid and infringed and (b) the FRAND terms of a licence have been determined.

 

66  In my view the fundamental problem with this contention is that it involves interpreting clause 6.1 in a way that would undermine a key part of the purpose of the ETSI IPR Policy, including clause 6.1, as analysed in UPSC. Apple do not challenge the Supreme Court's analysis of the context and purpose of clause 6.1 (not that such a challenge would be open to Apple in this Court anyway). Instead, Apple point out that the Supreme Court was not addressing the issue which arises in this case, because the question as to the appropriate relief only arose in Unwired Planet after the FRAND terms had been determined. That is a factual distinction between the circumstances of that case and those of the present one, but it does not diminish in any way the relevance of the Supreme Court's analysis. Apple characterise this case as only being concerned with an "interim" position between a finding of validity, essentiality and infringement and the determination of FRAND terms, and thus as different to other forms of hold out, but as the judge pointed out at [340] Apple's case involves a substantive loss of rights for the patentee in respect of an ageing (and time-limited) property right. . . .

 

71 Apple also argue interpreting clause 6.1 in this way requires the implementer to sign a blank cheque, and that the implementer should be protected against the risk that the court determines FRAND terms that are uncommercial or unviable. I disagree. The judge's interpretation only requires the implementer – as the price for not being restrained from continuing to infringe a valid patent that it has been found to be infringing – to commit to taking a licence on terms which the court objectively determines to be FRAND. That is not a blank cheque: as the judge found on the basis of the expert licensing evidence at [227], implementers are able, with information from research organisations, the ETSI database and SEP owners during negotiations, to estimate what a FRAND rate is likely to be. Moreover, as the judge essentially found on the basis of the expert economic evidence at [197]-[210], it is improbable that terms which are objectively FRAND will be uncommercial or unviable (as opposed to involving a higher royalty rate than the implementer wants to pay). If an implementer genuinely cannot afford to pay a royalty which is FRAND, it ought not to be practising the patented invention, and therefore should not be seeking a licence. . . .

 

76 Fourthly, Apple argue that the judge's interpretation deprives an implementer who has been found to infringe a SEP of the choice between taking the Court-Determined Licence, once its terms are known, and submitting to an injunction. The key words in this argument are "once its terms are known". The argument assumes that an implementer who has been found to infringe a SEP is entitled to the luxury of being able to wait until the court has determined what terms are FRAND before deciding whether to take a licence on those terms or not, and to continue to infringe the SEP in the meantime. But I see no reason why the implementer should be entitled to that luxury. If the implementer wants to avoid the normal consequences of having been found to infringe, it can commit to taking a Court-Determined Licence. If the implementer does not want to commit to taking a Court-Determined Licence, then it should be restrained from infringing (unless it changes its mind, which the judge's interpretation permits it to do). Otherwise, as the judge found, hold out by implementers would be promoted. I would add that, as counsel for Apple accepted, the logic of Apple's argument is that the implementer should not have to commit even once there is a first instance decision as to what terms are FRAND, but only when there is a final appellate decision against which no further appeal is possible. That, of course, would make the hold out problem even worse. . . .

 

82  Turning to Optis' appeal, by their ground 1 Optis contend that an implementer who fails to commit to take a Court-Determined Licence on having been found to infringe a SEP becomes permanently disentitled to rely upon the SEP owner's ETSI Undertaking.

 

83  I do not accept this contention. In my judgment the judge was correct for the reasons he gave at [300]-[302]. . . . 

 

86 . . . There is no reason why an implementer should not be able to change its mind for commercial reasons and every reason why it should be able to do so given that a key purpose of the ETSI IPR Policy is to ensure access to technology covered by SEPs. Optis argue that competition law would stop the SEP owner charging excessive royalties, but this misses the point that clause 6.1 is intended to prevent hold up occurring in the first place rather than merely providing a remedy for it after the event. Moreover, the royalties permitted by competition law might exceed those permitted by the SEP owner's FRAND obligation.

At the very end of the decision, under the heading “Postscript,” Lord Justice Arnold repeats a point he has made in print before, namely that the optimal solution to these global FRAND disputes would be for the SSOs to require mandatory arbitration:

115 These appeals illustrate yet again the dysfunctional state of the current system for determining SEP/FRAND disputes. Apple's behaviour in declining to commit to take a Court-Determined Licence once they had been found to infringe EP744, and their pursuit of their appeal, could well be argued to constitute a form of hold out (whether Apple have in fact been guilty of hold out is an issue for Trial E); while Optis' contention that an unqualified injunction should be granted would open the door to hold up. Each side has adopted its position in an attempt to game the system in its favour. The only way to put a stop to such behaviour is for SDOs like ETSI to make legally-enforceable arbitration of such disputes part of their IPR policies.

 For discussion of the decision, see, e.g., here and here.