From Around the Blogs, Part 2

1.  Sarah Burstein published a post on Patently-O titled Against the Design Seizure Bill.  As the titled suggests, the post argues against passage of a bill, the Counterfeit Goods Seizure Act of 2019, which "would allow Customs and Border Patrol (CBP) to seize goods accused of design patent infringement."  Professor Burstein contends, inter alia, that the bill would "allow design patent owners to foist their private enforcement costs onto taxpayers, under circumstances that are unlikely to result in accurate determinations of infringement," and elaborates on three specific reasons why she believes the bill is a bad idea.  The post also cites some other commentary on the bill, both pro and con, including this piece by Josh Landau.

2.  On Kluwer, Enrico Bonadio and Luke McDonagh have published a post titled 2020 is set to be a crucial year for Standard-Essential Patent litigation in Europe.  The post asserts that "a further reference to the CJEU during 2020 will have to be made in order to resolve the tensions between the German and Dutch approaches," and also discusses the pending Unwired Planet case in the U.K.

3.  On Law360, Dorothy Atkins published a post titled Baker Botts Atty Says Halo Drastically Titled Patent Trial Odds.  The article summarizes a presentation given by Wayne Stacy at the 20th Annual Berkeley-Stanford Advanced Patent Law Institute, asserting that "since Halo put the question of willfulness to jurors, there's been a shift in the plaintiff's favor when willfulness is on the verdict form, increasing plaintiff's wins from 48% before Halo to 78% after Halo."  The presentation slides are available on the Institute's webpage here.  That webpage also links to slides from a presentation by Alyssa Caridis titled Exceptional Cases - Five Years After Octane Fitness, which states inter alia that "In the last 5 years, courts deemed 200 cases exceptional and awarded fees," and that "when a court renders a decision on the merits (as compared with deferring or dismissing as moot) exceptional case filings have a 34 percent success rate"; slides from another presentation (given by Hon. Susan van Keulen and Paul Bondor, and moderated by Greg Pinsonneault) titled Damages Contentions:  Theory and Practice; and from a presentation (by DJ Healey, Celeste Savaria, LauraStorrto, and Ellisen Turner) titled FTC vs. Qualcomm and Other Recent Antitrust Developments in High Tech and Life Sciences.

4. Also on Law360, Dan Werner published an expert analysis titled Latest Daubert Cases, Econ Studies Hold IP Damages Lessons.  The article discusses four recent U.S. district court decisions addressing the use of forward citation analysis as an aid in determining patent valuation/damages.  The article also cites to an article that was published last year that I had overlooked, Peter Malaspina's Patent Citation Analysis and Patent Damages, 18 Chi -Kent J. Intell. Prop. 232 (2019).

5.  Although it's not directly relevant to patent remedies, Amy Howe's Scotus Blog post titled FTC files own petition, suggesting divide in federal government may be of interest to readers of this blog.  The post discusses some recent Supreme Court cert petitions addressing the question of whether the Federal Trade Commission Act authorizes courts to award restitution (for example, of money obtained through deceptive advertising).  Apparently the FTC and the Solicitor General are taking different positions on whether the question is ready for Supreme Court review.  Also of interest, for those interested in FTC matters, are articles on Bloomberg and Law360 discussing Axon Enterprises' recent argument before a district court challenging the constitutionality of the structure of the FTC.

Federal Circuit Discusses the Meaning of "Irreparable Harm" in LEGO Case

The case, decided last week, is LEGO A/S v. Zuru, Inc. (nonprecedential opinion by Judge Clevenger, joined by Judges Wallach and Hughes), and involves allegations of copyright, trademark, and design patent infringement.  More specifically, the plaintiff asserted copyright and trademark claims against defendant's action figures; design patent claims against defendant's bricks; and a copyright claim directed against an image, allegedly substantially similar to that of a LEGO figurine, found on the packaging of defendant's "Toy Tape" product.  The court affirms the entry of the preliminary injunction against the action figures on copyright grounds (not reaching the trademark claims).  I'll omit the discussion of substantive copyright law here, but note the Federal Circuit's discussion of irreparable harm:

. . . the district court found that: (1) “the construction toy market is highly competitive and . . . selling products that infringe on . . . LEGO[’s] . . . copyrights would allow ZURU . . . to increase its sales and market share, and would also enable it to establish relationships with customers for whom . . . LEGO . . . competes,” . . .  and (2) LEGO would likely suffer lost goodwill and damaged reputation absent an injunction. With respect to the latter finding, the district court relied on a social media post noting that while ZURU’s Action Figures were “[a]wesome,” a problem is that “the bod[ies] come[] apart extremely easily.” . . . The risk of consumers associating defective products with the LEGO brand-name is apparent. According to the district court, “[t]hese injuries are unquantifiable.” LEGO, 2019 WL 4643718, at *17.

Harm might be irremediable, or irreparable, for many reasons, including that a loss is difficult to replace or difficult to measure, or that it is a loss that one should not be expected to suffer. Salinger, 607 F.3d at 81. Thus, where LEGO’s “losses would be difficult to measure and monetary damages would be insufficient to remedy the harms,” the Second Circuit has found that irreparable harm is likely. WPIX, Inc. v. ivi, Inc., 691 F.3d 275, 286 (2d Cir. 2012).

Accordingly, we find that the district court did not abuse its discretion in finding a likelihood of irreparable harm to LEGO absent a preliminary injunction.

As for the design patent claim, however, the court vacates the injunction despite the defendant's not disputing that LEGO is likely to succeed on the merits.  The problem lies with the lack of evidence of irreparable harm on this claim:

At oral argument, counsel for LEGO stated that the district court relied on two things to show irreparable harm: (1) that absent an injunction, LEGO would effectively be forced into a compulsory license; and (2) that LEGO would suffer a loss of goodwill and brand equity because the accused Max Build More Bricks’ “clutch power,” i.e., their ability to remain stuck together, is inferior. . . . However, counsel for LEGO admitted that the compulsory license argument is circular, because the result of not being enjoined necessarily entails allowing the alleged infringer to continue selling their accused products in every case. . . . Additionally, when pressed, counsel for LEGO could not point to any record cite supporting the notion that the Max Build More Bricks, as opposed to the ZURU Action Figures, had inferior “clutch power.” . . . After reviewing the evidence of record, this Court finds that the only references to “clutch power” are with respect to the allegedly infringing ZURU Action Figures, not the Max Build More Bricks. Thus, LEGO’s compulsory license and “clutch power” arguments are insufficient to show that LEGO would likely suffer irreparable harm absent a preliminary injunction on the allegedly infringing Max Build More Bricks.

In support of its finding, however, the district court also found that LEGO has “shown that the patent infringement will lead to . . . LEGO . . . losing market share.” . . . Specifically, the district court found that LEGO’s bricks covered by the Asserted Patents and the corresponding Max Build More Bricks are virtually indistinguishable . . .  and that, as a result, LEGO is at risk of losing sales and market share to the defendant. However, as counsel for LEGO admitted at oral argument, there is no evidence of this. 

Accordingly, because every stated rationale for the district court’s finding is either incorrect or unsupported, we find that the district court abused its discretion in finding that LEGO would likely suffer irreparable harm absent a preliminary injunction with respect to its design patent infringement claims. . . .

For the reasons discussed above with respect to the ZURU Action Figures, the district court did not abuse its discretion in finding that ZURU’s injuries result solely from its own deliberate acts of alleged infringement. Nevertheless, because we find that the district court incorrectly found that LEGO would be irreparably harmed absent an injunction directed to the allegedly infringing Max Build More Bricks, ZURU’s own inability to show harm does not prevent us from finding that LEGO, as the party seeking a preliminary injunction, failed to demonstrate that the balance of equities tips in its favor.

As for the remaining copyright claim, the court agrees that there is a likelihood of success on the merits, but again vacates for lack of irreparable harm:

ZURU alleges that the district court abused its discretion in finding that LEGO would likely suffer irreparable harm because: (1) there is no evidence that the MAYKA Toy Tape is lacking in quality or in any way inferior to LEGO products; (2) the LEGO witness testimony and one customer comment on which the court relied was not directed to the MAYKA Toy Tape; and (3) LEGO does not sell a product similar to the MAYKA Toy Tape. We agree.

The court also finds, however, that the balance of hardships favors the defendant on this claim.

*                    *                    *

In other non-patent, but remedies-related news, here is the transcript of last Tuesday's oral argument in the Romag case, dealing with the question of whether disgorgement of profits in a trademark case requires a showing of willful infringement.  For previous discussion on this blog, see here.  An article on the oral argument is available on Law360.

More Commentary on the German Ministry's Proposed Amendment

1.  Léon Dijkman has published a post on IPKat titled Patent Injunctions Update: German Ministry of Justice publishes draft amendment to Patent Act and Hague Court of Appeal decides in further Philips FRAND cases.  The post discusses the German Ministry's proposed amendments, including a translation of the new sentence to be added to section 139 that reads better than my translation of it.  The author's take is generally positive, stating that "It will now be up to lawyers and scholars to argue which cases warrant application, and for courts to further crystallize this young but crucially important doctrinal exception to patent exclusivity – but first let's see how the proposal will fare" (emphasis in original).  

The post also discusses two recent decisions out of the Netherlands on the Philips v. ASUS and Wiko FRAND litigation. 

2. Expressing a very different perspective is Florian Mueller, who blogged about the proposed amendment earlier this week and remains highly critical of the draft in his new post titled Proportionality clause in draft German patent reform bill falls short of not only eBay v. MercExchange but also the EU's definition.  (Mr. Mueller also provides a more fluent translation of the sentence in question that the one I produced the other day.)  I certainly agree that "the German statute falls far short of eBay v. MercExchange."  Mr. Mueller also presents an interesting argument, as the title of the post suggests, that the amendment might not conform to E.U. law either (a matter on which, however, I do not at present feel confident enough to express an opinion).  

 

3.  Meanwhile, IP2Innovate has sent this letter to the European Commission, with the heading "Industry Calls on New Commission to Issue Guidelines to Support Homogeneous and Effective Application of Proportionality in Patent Enforcement."  The letter does not address the proposed German amendment specifically, but (as the heading indicates) "call[s] on the Commission to work with Member States, judges and stakeholders to publish targeted guidelines to support the homogenous and effective application of proportionality in patent enforcement."  These would include "a list of factors that courts should consider in deciding whether to issue a permanent injunction or grant an alternative remedy and guidance on how those factors might apply in different scenarios."

 

*                    *                     *

 

For my two posts earlier this week on the proposed amendment, see here and here.

More on the German Ministry's Proposal Regarding Injunctions

As I mentioned earlier, on Tuesday the Germany Ministry of Justice and Consumer Protection released its draft of a proposed set of amendments to the German Patent Act.  The draft would, among other things, add the following sentence to § 139 para. 1 of the German Patent Act: 

Der Anspruch ist ausgeschlossen, soweit die Durchsetzung des Unterlassungsanspruchs unverhältnismäßig ist, weil sie aufgrund besonderer Umstände unter Beachtung des Interesses des Patentinhabers gegenüber dem Verletzer und der Gebote von Treu und Glauben eine durch das Ausschließlichkeitsrecht nicht gerechtfertigte Härte darstellt.

I would translate this to mean:

The claim [to injunctive relief] is precluded, insofar as the enforcement of a claim to injunctive relief is disproportionate because, due to special circumstances and taking into account the interest of the patent holder against the the infringer and the obligation to act in good faith, enforcement of the right of exclusion would present an unjustified hardship.

I've now read the portions of the discussion draft (principally pages 50-54) that elaborate on this change.  Here's what I get out of it.

First, I can better understand Florian Mueller's concern that the proposal doesn't go far enough, by a wide margin, because the commentary does indeed provide a great many caveats.  At page 50, for example, the commentary describes the proposal as a "legislative clarification" (gesetzgeberische Klarstellung), and states that the proportionality criterion is now made "explicit" (ausdrücklich), which suggests that it was really there all along.  (See also the top of page 51, stating that the interested stakeholders essentially agree that proportionality already can be considered under applicable law.)  The commentary also  refers, as the proposed statutory text itself does, to "special circumstances" (besonderer Umstände), but then also mentions the possibility that injunctions can be "exceptionally disproportionate" (ausnahmsweise unverhältnismäßig). It also cites literature suggesting that the "proportionality objection" must be limited to exceptional cases.  Note, however, that the proposed statutory text above itself doesn't use the term "exceptional" (ausnahmsweise).  In addition, the commentary states that limiting the patent owner's right to an injunction encroaches on the core of IP rights (. . .  "greift jedoch in den Kern des Rechts des geistigen Eigentums ein"). 

Second, however, at page 51 the commentary acknowledges that some sectors of German commerce, including the automotive industry and portions of the telecommunications industry, are concerned that this "corrective" can scarcely come into effect at the district court level (that is, if I understand correctly, without this legislative clarification); it also mentions that up to now the courts have considered proportionality only very cautiously (nur sehr zurückhaltend) .  Page 50 reaffirms the BGH's decision in Wärmetauscher, which authorizes the use of an Umstellungfrist or Aufbrauchfrist (a stay or "grace period," during which the infringer may design a noninfringing alternative or at least sell off the infringing merchandise)--albeit conditioned on evidence that the immediate enforcement of an injunction would result in unreasonable prejudice, beyond that which normally accompanies an injunction.  (For previous discussion on this blog, see, e.g., here.)  Further, however, and without using the term "holdup," the commentary at page 51 notes that there can be cases in which the effect of an injunction would go beyond what is necessary for adequate deterrence, by for example threatening the loss of sales of already manufactured products.

Third, and also at page 51, the commentary is clear that the burden of showing why an injunction would be disproportionate rests with the infringer (as it does in many other countries), and states that judges will not be overly burdened by the new law's requirements.

Fourth, the commentary stresses that courts will have to carefully weigh of all the circumstances in a given case.  The statutory text itself therefore will not lay out criteria or examples, but the commentary sets out some specific considerations by way of example.  These include:

1.  The interest of the patent owner.  Is the patent owner a practicing entity or a patent monetization entity?  Has it made clearly excessive (eindeutig überzogene) license demands?  On the other hand, the fact that the patent owner is not a practicing entity is not sufficient to justify a stay, since the court should also consider the prejudice facing the patent owner.  The commentary specifically notes that injunctions may be appropriate (for example) for individual inventors or universities that derive value from their patents with the assistance of third parties.  

2.  The commercial consequences of injunctive decrees.  Here, the commentary again mentions the possibility of a stay under appropriate circumstances, to avoid holdup-type problems.

3.  Complex products.  The commentary notes that the increasing complexity of many products, in industries such as electronics, telecommunications, IT, and automotives, means that end products often incorporate a large number of patented components (again, citing Wärmetauscher).  Sometimes it won't be hard to design around, but other times this will take a considerable investment in time and money (especially when the defendant must consider other legal or regulatory requirements).  Suspending production for a long period of time might be so out of proportion to the value of the infringed patent that (exceptionally) the unrestrained enforcement of an injunction must be constrained.

4.  Subjective elements.  It may be appropriate to consider the type and extent of fault on the part of the infringer, including whether the infringer has attempted to bargain in good faith.  It also may be appropriate to consider if the patent owner has acted in good faith, e.g., by not practicing what I and others have referred to as "patent ambush."

5.  Third party interests.  The commentary states that the interests of third parties has not yet been clarified by the highest court, but notes that the Düsseldorf court has taken the position that this is an appropriate consideration only when the defendant is requesting a compulsory license under Patent Act § 24.  The commentary suggests, however, that third party interests may be indirectly relevant--for example, when an injunction would cause the infringer to suffer an unjustified hardship because the care of patients with the infringer's products could no longer be secured or important infrastructure would be harmed, which would lead to the infringer to face the possible forfeiture of its market share.

Finally, this portion of the commentary notes that the patent owner could still claim damages (e.g., for the period of the stay pending injunction).  It also states that a permanent refusal to grant an injunction should come into play only in very few cases, and only when a grace period wouldn't suffice (p.53).

I should also note that the draft would add a new sentence to Patent Act § 83, to require that,  in a patent invalidation action, the Bundespatentgericht must provide a preliminary appraisal of patentability within six months.  The intent is to better synchronise infringement and invalidation actions, which are bifurcated in Germany, so as to reduce the effect of the so-called injunction gap (the fact that infringement actions are speedier than invalidation actions, which gives patent owners additional leverage in infringement actions). There is also a new provision, § 145a, which I haven't really focused on yet, that would regulate the use of confidential information in litigation (e.g., in FRAND cases).  Other than that, the draft doesn't discuss FRAND matters, which I take it means that the question of whether to grant an injunction in these cases will continue to be a matter of competition, not patent, law.  

Update (Jan. 16):  I've tweaked my translation of the new sentence slightly.  For further coverage, see also this article on JUVE Patent.    

German Ministry Proposes Amendment to Automatic Injunction Rule

Yesterday Germany's Ministry of Justice and Consumer Protection released its draft of a proposed set of amendments to the German Patent Act.  (Hat tip to Professor Martin Stierle for calling this to my attention this morning.)  Of most interest to readers of this blog is a proposed amendment to § 139 para. 1, which would add the sentence in boldface:

Wer entgegen den §§ 9 bis 13 eine patentierte Erfindung benutzt, kann von dem Verletzten bei Wiederholungsgefahr auf Unterlassung in Anspruch genommen werden. Der Anspruch besteht auch dann, wenn eine Zuwiderhandlung erstmalig droht.  Der Anspruch ist ausgeschlossen, soweit die Durchsetzung des Unterlassungsanspruchs unverhältnismäßig ist, weil sie aufgrund besonderer Umstände unter Beachtung des Interesses des Patentinhabers gegenüber dem Verletzer und der Gebote von Treu und Glauben eine durch das Ausschließlichkeitsrecht nicht gerechtfertigte Härte darstellt.

In translation:

Any person who uses a patented invention contrary to sections 9 to 13 may, in the event of the risk of recurrent infringement, be sued by the aggrieved party for cessation and desistance. This right may also be asserted in the event of the risk of a first-time infringement.  The claim is precluded, insofar as the enforcement of a claim to injunctive relief is disproportionate because, due to special circumstances and taking into account the interest of the patent holder against the the infringer and the obligation to act in good faith, enforcement of the right of exclusion would present an unjustified hardship.

Note that the translation of the proposed new sentence is my own, very unofficial one. 

I may have more to say about this later today or later this week, after I've read some of the accompanying commentary to the draft bill.  Florian Mueller has already published a (strongly negative, because he thinks the proposal doesn't go far enough) post on FOSS Patents.  My own initial reaction is mildly positive; I was beginning to lose hope that the ministry would make any change in the direction of recognizing proportionality as a governing principle, and I am pleased to see that this draft explicitly mentions the concept.

Update:  The substantive discussion of the proposed amendment is mostly found at pages 50-54 of the discussion draft.  I will start plowing through that soon, and get back to you.

From Around the Blogs, Part 1

1.  Michael Carrier has published a piece on Bloomberg News titled New Statement on Standard-Essential Patents Relies on Omissions, Strawmen, Generalities.  The article presents a (deservedly) critical take on the recently published USPTO/DOJ/NIST Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.  For my comments on the policy, see here.

Meanwhile, the DOJ is asking the Ninth Circuit for permission to participate in oral argument, on behalf of Qualcomm, next month when the court hears FTC v. Qualcomm.  (See article on Law360 here.)  Yes, that would mean two agencies of the U.S. government arguing against each other before a federal court of appeals.  I couldn't make this stuff up if I tried.

2.  Léon Dijkman published a post on IPKat titled Hague Court of Appeal Stays Enforcement of Patent Injunction.  The post discusses what the author describes as an "exceptionally rare" decision in which the Hague Court of appeal stayed enforcement of an injunction pending appeal, on the grounds that (1) the district court failed to consider some of the defendant's arguments, (2) the enforcement would cause significant damage to the defendant, and (3) the patent owner might not be able to provide recourse to the defendant if the decision on the merits is overturned on appeal.  Very good post.  The decision (VG Colours B.V. v.  HE Licenties B.V.) is available here (in Dutch).

Also of possible interest to readers of this blog is a recent guest post on IPKat by Bohdan Widła titled Polish Constitutional Tribunal Rules That Rightholders Can Claim Damages Amounting to Twice a Hypothetical Licence Fee in Copyright Infringement Cases.

3.  On Patently-O, Jorge Contreras and Yang Yu published a guest post titled The Uncertain Criminal Status of PAE Litigation in China.  The post discussed a decision of the Shanghai Pudong New Area People's Court finding that two individuals guilty of extortion, where they allegedly falsified and backdated a license agreement to compel a company to settle infringement litigation on the eve of an IPO, but otherwise finding no wrongdoing simply for the assertion of patents against other companies that similarly were preparing for IPOs.  The prosecutor has appealed the latter ruling.

ZGE Issue on Erlangen Injunctions Conference

Volume 11, Issue 3 of Zeitschrift für geistiges Eigentum (ZGE)/Intellectual Property Journal (IPJ) is now out.  This is the issue that includes articles from the "Conference on Enforcing Patents Smoothly: From Automatic Injunctions to Proportionate Remedies," held at Friedrich-Alexander-Universität Erlangen-Nürnberg in March 2019.  I was one of the speakers at that conference, so my article, titled On the Economics of Injunctions in Patent Cases, is one of those published in this issue.  Here is the abstract:

Courts in many countries continue to award the prevailing patent owner a permanent injunction, absent exceptional circumstances. First- generation law- and- economics scholarship largely supported this practice, based upon the perceived advantages of injunctions in inducing bargaining and reducing valuation errors. More recent scholarship, however, has questioned the wisdom of automatic injunctions, particularly in cases in which the conditions conducive to patent holdup are present. Building upon this more recent work, I argue that the social benefits and costs of injunctions vary depending on the circumstances. To assist policymakers in rendering decisions in the real world, I propose two simplifying assumptions that would enable courts to compare the expected cost of holdup with the expected cost of valuation error. A simple set of recommendations follows, namely that courts generally should (1) grant injunctions when the probability of holdup is low, and (2) deny them when the probability of holdup is great and the expected harm from valuation error low to moderate. For indeterminate cases – for example, when the probability of holdup and the expected harm from valuation error are both high – courts can mitigate both risks to some degree by granting injunctions subject to stays pending design- around.

The full set of contributions includes:

Franz Hofmann, Enforcing Patents Smoothly: From Automatic Injunctions to Proportionate Remedies. Balancing interests via remedies in Intellectual Property Law

Lea Tochtermann, Injunctions in European Patent Law

Daniel Alexander, Injunctions and alternative remedies in English Intellectual Property Law

Thomas F. Cotter, On the Economics of Injunctions in Patent Cases

Jan Bernd Nordemann, Die Aufbrauchfrist im deutschen Wettbewerbs-, Marken und Urheberrecht

Peter Georg Picht, FRAND Injunctions: an overview on recent EU case law

Martin Stierle, Patent Injunctions – Identifying Common Elements

Peter Tochtermann, A judge’s practical perspective on the proportionality of injunctions in patent infringement disputes

Even if your organization does not subscribe to this journal, you might want to get a copy of this very timely issue.  (The German government is still mulling over possible changes to the German Patent Act, as this article from JUVE Patent notes.)  The papers also should be accessible, for a fee, from the ZGE website shortly.  

For previous coverage of the conference on this blog, see here and here.  For an earlier version of my paper on ssrn, see here.

Let's see, we're now nine days into the new year, and I've published two law review articles (for the other one, see here) and a Law360 expert analysis; and an edited volume for which I coauthored several chapters has won an award.  It's nice to be productive, but I probably won't keep this pace up for the rest of the year.  Or maybe I should just take the rest of the year off?  Just kidding . . .