Two Recent French Cases on Invalidation Actions/Declarations of Noninfringement

The first is Raccords et Plastiques Nicoll v. MEP, TGI Paris, Nov. 6, 2014, PIBD no. 1020, III-44, discussed in the April 2015 issue of Propriéte Industrielle by Jacques Raynard and Privat Vigand.  The plaintiff filed an action for a declaration of patent invalidity.  The defendant argued that, since a statutory amendment in 2008, the applicable statute of limitations for actions involving personal property (found in the French Civil Code article 2224) was five years, that the five year period began to run from the date on which the patent application had been published (February 11, 2005), and that the action (filed October 4, 2013) was therefore time-barred.  The plaintiff responded that the statute began to run from the date on which the patent owner had put it on notice of its alleged infringement (February 25, 2013).  The court agreed with the plaintiff, stating that the statute begins  to run from the moment when the plaintiff has had effective knowledge of the patent.  Professors Raynard and Vigand note some ambiguity whether article 2224 applies to such an action, but that the parties assumed it did.  Nevertheless, they argue that the rule the court announced goes too far in one direction and not far enough in another.  On the one hand, the date on which the statute begins to run should not be the date on which the plaintiff becomes aware of the patent, but the date on which it should have been aware of it.  On the other, it should not be enough that the plaintiff knew (or should have known) of the patent, but rather when it knew the ground for the patent’s invalidity.  They also argue that, in a passage concluding this potion of the opinion, the court meant to say that if the defendant had filed sued for infringement, the plaintiff would have been able to assert invalidity notwithstanding the statute of limitations (though they wonder whether a judgment of invalidity under the circumstances would be applicable only inter partes or erga omnes).

Second, in Bolton Manitoba SpA v. Reckitt Benckiser LLC, TGI Paris, Mar. 13, 2015, PIBD no. 1028, III-341, the plaintiff filed an action for a declaration of invalidity and noninfringement.  The court held that the five-run statute of limitations did not run from the date of publication, but rather from the date of grant.  On the other hand, the request for a declaration of noninfringement was not cognizable.  As I discuss in my book (p.281), under article L. 615-9 of the Intellectual Property Code:

Any person who proves working on the territory of a Member State of the European Economic Community, or real and effective preparations to that effect, may invite the owner of a patent to take position on the invocability of his title against such working, the description of which shall be communicated to him. If such person disputes the reply that is given to him or if the owner of the patent has not taken position within a period of three months, he may bring the owner of the patent before the Court for a decision on whether the patent constitutes an obstacle to the working in question, without prejudice to any proceedings for the nullity of the patent or subsequent infringement proceedings if the working is not carried out in accordance with the conditions specified in the description referred to in the above paragraph.

Here, the above conditions were not complied with, and while it would be permissible to file such a claim as a counterclaim to an action for infringement, adding it to a claim for a declaratory judgment of invalidity was not permissible absent a sufficient connection to that claim.  The two claims pursue different objectives.

Japan Fair Trade Commission Seeks Public Comments on Proposed FRAND Policy

Professor Masabumi Suzuki just called to my attention the following matter that will be of interest to readers of this blog.  On July 8, the Japan Fair Trade Commission (JFTC) published a press release seeking public comments on the partial amendment of its Guidelines for the Use of Intellectual Property Under the Antimonopoly Act.  Here is a link to the press release, which provides directions for interested parties to submit comments.  The Guidelines with the proposed amendments (Tentative Translation) are available here, and the Survey Report on Issues related to Essential Patent (Tentative Translation) is available here.  The proposed amendments would add the following subpart (e) to Part 3 ("Viewpoints from Private Monopolization and Unreasonable Restraint of Trade"), paragraph (1) ("Viewpoints from Private Monopolization"), subparagraph (1) ("Inhibiting the Use of Technology") (see pp. 10-11):

The standard setting organization or trade association (hereinafter referred to as the "SSO") generally specifies in the document (IPR Policy) describing principles for license of patents (including the other intellectual property rights) essential for implementation of the functions and effects prescribed in the standards (hereinafter referred to as the “Essential Patent”) that, in order to prevent exercise of right in respect of Essential Patents from impeding research & development, production or sale of the products adopting the standards and to broadly diffuse the standards, it makes the participants in standard setting clearly show whether they hold any Essential Patent (including those pending) and their intention for licensing for fair, reasonable and non-discriminatory conditions (such conditions are generally called “FRAND conditions”). An Essential Patent (including those pending) holder’s declaration in writing to show that it is willing to grant licenses under FRAND conditions to the SSO is referred to as the “FRAND Declaration”. According to the IPR policy, the SSO will study change of the standards to exclude the technology protected by such if such declaration is not made. Since it can be considered that those who research & develop, produce or sell the products adopting the standards can access all Essential Patents under FRAND license conditions, they can positively make investments required for research & development, production or sale of the products adopting the standards.

Essential Patent is essential for realization of the functions and effects prescribed in the standards, and its use is indispensable in the market of the products adopting the standards diffused broadly.

Under such circumstances, refusal to license or claim for injunction to a party who is willing to take a license by a FRAND-encumbered Essential Patent holder, or refusal to license or claim for injunction to a party who is willing to take a license by a FRAND-encumbered Essential Patent holder when the standard which includes the Essential Patent had already been set and subsequently, the FRAND declaration for that Essential Patent was withdrawn, generally makes it difficult to research & develop, produce or sell the products adopting the standards diffused broadly. Therefore, such acts may fall under the exclusion of business activities of other entrepreneurs.

The description above shall be applied no matter whether the act is taken by the party which has the Essential Patent at the of the standard setting or by the party which accepts assignment of Essential Patent or is entrusted to manage the Essential Patent after standard setting.

Regarding the fact that an exercise of the right in respect of Essential Patent against FRAND declaration makes it difficult to research & develop, produce or sell the products adopting the standard diffused broadly, whether a party is not a “willing licensee (who willing to take a license on FRAND terms)” should be strictly judged based on the situation of each case. Therefore, for example, in case the parties do not reach an agreement of license conditions even after a certain period of negotiations, a party which shows its intention to determine the license conditions at court or through arbitration procedures is deemed to be the “willing licensee”. Even if a party which intends to be licensed challenges dispute validity, essentiality or possible infringement of the Essential Patent, the fact itself should not be considered as grounds to deny that the party is a “willing licensee”.

Second, they would add the following subparagraph (iv) to Part 4 ("Viewpoints from Unfair Trade Practices"), paragraph 2 ("Inhibiting the Use of Technology") (p.17):

The acts described in Part3-(1), (i), (e), that is, refusal to license or claim for injunction to a party who is willing to take a license by a FRAND-encumbered Essential Patent holder, or refusal to license or claim for injunction to a party who is willing to take a license by a FRAND-encumbered Essential Patent holder when the standard which includes that Essential Patent had already been set and subsequently, the FRAND declaration for that Essential Patent was withdrawn, generally makes it difficult to research & develop, produce or sell the products adopting the standards diffused broadly. As the entrepreneurs who research & develop, produce or sell the products adopting the standards will be deprived of trading opportunities or impeded the ability of the party to compete, such acts adversely affect the competition in the market of the products adopting the standards and tend to impede fair competition.

Therefore, such acts are considered to be Unfair Trade Practices (Paragraph (2) and (14) of the General Designation), even if the acts do not substantially restrict competition in the product market described above and are not considered to be Private Monopolization. 

Interested readers may want to read the Guidelines with proposed amendments and the survey carefully to see how everything fits together.  In addition, here is a link to the Antimonopoly Act, and here is a link to the Designation of Unfair Trade Practices (Fair Trade Commission Public Notice No. 15 of June 18, 1982).

It will be interesting to see if the Guidelines are adopted.  Meanwhile, we await the CJEU's judgment in Huawei v. ZTE, which is due to be released next Thursday, July 16.

Seaman on Ongoing Royalties

Christopher Seaman has published an article titled Ongoing Royalties in Patent Cases After eBay: An Empirical Assessment and Proposed Framework, 23 Texas Intellectual Property Law Journal 203 (2015).  I'm not finding a copy of the article on the journal's website, but here is a link to what appears to be the final version of the article on ssrn.  Here is the abstract:

The Supreme Court’s landmark decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 288 (2006), significantly changed the remedial landscape for patent owners, holding that a permanent injunction would not automatically follow a finding that an asserted patent was infringed and not invalid. As a result, a substantial number of prevailing patentees have been denied the ability to exclude future acts of infringement. eBay’s impact is perhaps most acute for patent assertion entities (“PAEs”) — firms that own, license, and assert patents in litigation, but do not themselves directly practice the patented technology — who rarely can satisfy eBay’s four-factor test.

In eBay’s wake, the Federal Circuit has approved an alternative prospective remedy called an ongoing royalty. But despite lower courts’ increasing use of this remedy, numerous questions about the structure and methodology for determining an ongoing royalty remain unresolved. This Article addresses the issue of ongoing royalty awards from both an empirical and doctrinal perspective. First, it reports the results of an original empirical study regarding ongoing royalty awards by district courts since eBay. Second, it proposes a new framework for computing an ongoing royalty that requires consideration of actual or anticipated changes to the relevant product market, as well as potential future alternatives to the patented technology, in determining the amount of an ongoing royalty award.

Professor Seaman reports, among other things, that from the date of the eBay decision through January 2015 there have been 57 ongoing royalty decisions in all, involving 54 separate awards (10 in 2014); that 40% (23) of these cases were litigated in the Eastern District of Texas; that the leading technologies in these cases (accounting for 81% of them) were software (21), electronics (14), and medical devices (11); and that the mean postjudgment royalty was 1.84 and the median 1.34.   

Westerngeco v. ION: No Lost Profits on Lost Extraterritorial Sales

Last week, the Federal Circuit handed down opinions in WesternGeco L.L.C. v. ION Geophysical Corp. (link here).  At issue are four patents asserting claims "relating to technologies used to search for oil and gas beneath the ocean floor" (p.3).  WesternGeco makes and sells products embodying the patented technologies, and its accused its competitor ION of violating 35 U.S.C. § 271(f)(1) and (2).  I'll focus exclusively on the remedies issues.

In relevant part, § 271(f) reads: 

(1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

(2) Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

The Federal Circuit affirmed the jury's finding of liability under § 271(f)(2) (and did not reach the issue of liability under § 271(f)(1)), but the majority (in an opinion by Judge Dyk, joined by Judge Hughes) concluded that this did not entitle WesternGeco to lost profits on certain contracts that WesternGeco believes it would have earned, but for the violation.  

To understand the ruling requires some factual background.  According to the court (pp. 16-17):

WesternGeco makes the Q-Marine [described earlier in the opinionas "its commercial embodiment of the patented technologies"] domestically and performs the surveys abroad on behalf of its customers—oil companies looking to extract oil from the sea floor. ION makes the DigiFINs [described earlier as the "allegedly patent-practicing device"] domestically and then ships them overseas to its customers, who, in competition with WesternGeco, perform surveys abroad on behalf of oil companies. WesternGeco identified ten surveys for which it believes that, but for ION’s supplying of DigiFINs to ION’s customers, WesternGeco would have been awarded the contract. These ten surveys allegedly would have generated over $90,000,000 in profit. According to WesternGeco, ION’s customers would not have been able to win the contracts if they did not have access to the DigiFINs. Thus, according to WesternGeco, but for ION’s sales to its customers, WesternGeco would have earned over $90 million in profit from the ten lucrative services contracts performed abroad. 

ION argues that WesternGeco cannot receive lost profits resulting from the failure to win these contracts. The service contracts were all to be performed on the high seas, outside the jurisdictional reach of U.S. patent law. There is also no contention that the service contracts were entered into in the United States.

Invoking the presumption against extraterritoriality, and characterizing § 271(f) as expanding territorial scope only to the extent of treating the export of components of a patented system the same way as the export of a finished system, the court sided with ION (pp. 18-19):

It is clear that under § 271(a) the export of a finished product cannot create liability for extraterritorial use of that product. The leading case on lost profits for foreign conduct is Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F.3d 1348 (Fed. Cir. 2013). There, the patentee, a chip supplier, lost contracts to supply a prospective customer with computer chips in the United States and abroad because the accused infringer became a competitor for such contracts as a result of the U.S. infringing sales. If the accused infringer had been precluded from U.S. infringement, the patentee alleged that the accused infringer could not have competed for the contracts which necessarily involved supplying chips both in the United States and abroad. The patentee argued that it should recover world-wide lost profits. 

We rejected that argument: “[Our patent laws] do not thereby provide compensation for a defendant’s foreign exploitation of a patented invention, which is not infringement at all.” Power Integrations, 711 F.3d at 1371. Rather, “we find neither compelling facts nor a reasonable justification for finding that [the patentee] is entitled to ‘full compensation’ in the form of damages based on loss of sales in foreign markets which it claims were a foreseeable result of infringing conduct in the United States.” Id. at 1372. “[T]he entirely extraterritorial production, use, or sale of an invention patented in the United States is an independent, intervening act that, under almost all circumstances, cuts off the chain of causation initiated by an act of domestic infringement.” Id. at 1371–72. Under Power Integrations, WesternGeco cannot recover lost profits resulting from its failure to win foreign service contracts, the failure of which allegedly resulted from ION’s supplying infringing products to Western-Geco’s competitors.

The majority also responded to dissenting Judge Wallach's arguments in support of a lost profits award (pp. 20-22):

First, the dissent identifies Supreme Court cases it believes approved awards of lost profits for foreign sales, citing Goulds’ Manufacturing Co. v. Cowing, 105 U.S. 253 (1881), Dowagiac Manufacturing, Co. v. Minnesota Moline Plow Co., 235 U.S. 641 (1915), and Duchesne, 60 U.S. 183. None of these cases is remotely similar to this one. To be sure, they suggest that profits for foreign sales of the patented items themselves are recoverable when the items in question were manufactured in the United States and sold to foreign buyers by the U.S. manufacturer. See Goulds’ Mfg., 105 U.S. at 254; Dowagiac Mfg., 235 U.S. at 642–43; Duchesne, 60 U.S. at 196. There is no such claim here. Rather, the claim is for lost profits from the use abroad of the items in question. . . .

Second, the dissent argues that the surveys should be recoverable as “convoyed sales” of the domestically manufactured components of the infringing DigiFINs. But, WesternGeco did not raise this argument before the district court or this court. And, the dissent points to no case extending the convoyed sales doctrine to cover sales of related products or services abroad. . . .

Third, the dissent expresses concern that our ruling today might effectively prevent WesternGeco from recovering lost profits at all, as the surveys were conducted on the high seas and were outside of the territorial reach of any patent jurisdiction in the world. This may or may not be the case. Indeed, WesternGeco does not contend that it is barred from recovering in the jurisdiction in which the services contracted was negotiated and signed, nor does it contend that it is barred from recovering in the jurisdiction from which the ship performing the seismic surveys is flagged. In any event, the possible failure of liability provides no basis for ignoring the presumption against extraterritoriality.

As a result, the court held that WesternGeco could recover only a reasonable royalty--noting, however, that  "[t]he extent to which these royalties may be affected by lost profits suffered abroad is an issue not presented here. See Union Carbide Chems. & Plastics Tech. Corp. v. Shell Oil Co., 425 F.3d 1366, 1378 (Fed. Cir. 2005), overruled on other grounds, Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 576 F.3d 1348, 1365 (Fed. Cir. 2009) (en banc); see also Warsaw Orthopedic, Inc. v. NuVasive, Inc., 778 F.3d 1365, 1378 n.7 (Fed. Cir. 2015)" (p.20 n.7).  The issue of whether a royalty can reflect foreign use that allegedly is attributable to an initial act of infringement in the U.S. is currently on appeal in the Carnegie-Mellon case (see blog post here.)

Also on the issue of royalties, the court affirmed the district court's decision to exclude testimony from WesternGeco's expert  that an appropriate royalty would have been 10% of the $3.3 billion in revenue that ION's customers received from performing surveys with ION's DigiFIN, reasoning that the court did not abuse its discretion given that the proposed royalty "would have exceeded ION's revenue by four times" (p.24).  The court also affirmed the decision not to enhance damages, on the ground that ION's defenses were reasonable.

Though I need to give the matter some more thought, I'm inclined to think the majority view is correct. WesternGeco may have lost sales, and thus profits, to foreign customers as a result of ION's alleged conduct in violation of § 271(f), but to allow recovery would seem to undermine the presumption against extraterritoriality.  The causal chain has to stop somewhere.  I am more receptive in such cases to the idea of basing a reasonable royalty on the value of the use to the defendant, where such value contemplates sales to foreign buyers; though there too I'm not entirely sure I've made up my mind.  This is quite a complex area of damages law.

Attorneys' Fees to Octane Fitness on Remand; Cert. Petitions Filed re Standard for Enhanced Damages

Hat tip to my colleague Prentiss Cox for bringing to my attention this July 1 opinion from Judge Ann Montgomery determining, on remand, that Octane Fitness is entitled to recover attorneys' fees under 35 U.S.C. section 285.  The amount of the award is yet to be determined.  For my blog post on the Supreme Court decision from last year, see here.

In other news, both Halo and Stryker have filed cert. petitions (Numbers 14-1513 and 14-1520, respectively) asking the Supreme Court to eliminate willfulness as a precondition for an award of enhanced damages, and also to eliminate the Seagate requirement of a showing of objective and subjective recklessness, which is simialr to the standard for exceptional case that the Court discarded last year.  (Hat tip to BNA Bloomberg's Patent, Trademark, and Copyright Journal.)  Here is Halo's question presented (there is a second question relating to the definition of "sale" or "offer to sell" under section 271(a), which I will skip):

1. Whether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C. § 284, that is the same as the rigid, two-part test this Court rejected last term in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014) for imposing attorney fees under the similarly-worded 35 U.S.C. § 285.

And here are Stryker's:

1. Has the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of willfulness under a rigid, two-part test, when this Court recently rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases?

2. Does a district court have discretion under 35 U.S.C. § 284 to award enhanced damages where an infringer intentionally copied a direct competitor’s patented invention, knew the invention was covered by multiple patents, and made no attempt to avoid infringing the patents on that invention?

While there is certainly an arguable case for both petitioners' positions, in my opinion the policy arguments for awarding attorneys' fees are much stronger than the arguments for awarding enhanced damages (as suggested by the fact that in many countries attorneys' fees are routinely awarded, while enhanced or punitive damages almost never are).  A return to something like the pre-Seagate standard for enhanced damages would in my view be a colossal mistake.  But we'll see what happens.  So far the Supreme Court has no IP cases yet on its docket for 2015-16.  For previous blog posts on Halo and Stryker, see here and here.

This is a busy day.  The Federal Circuit also decided an interesting damages case today, Westerngeco L.L.C. v. ION Geophysical Corp.  I'll be back either tomorrow or Monday with a write-up.

CJEU to Decide Huawei v ZTE on July 16

As reported on the EPLaw Blog today, the Court of Justice for the European Union will be releasing its judgment in Case No. C-170/13 (Huawei v. ZTE) on July 16 at 2:30 p.m. (which will be 9:30 7:30 a.m. in the U.S. Central Time Zone.)   This will be big news, whichever way it turns out.

For my blog posts from last November on AG Wathelet's opinion, see here and here.

Samsung Seeks En Banc Review of Federal Circuit Panel Decision on Design Patent Damages

Florian Mueller has already covered this on FOSS Patents, but if you haven't seen it yet, here's a copy of Samsung's petition for rehearing en banc in the Apple v. Samsung case.  (The panel opinion, which I blogged about here, came down in May.)   The petition takes issue with the panel decision both on the substantive law of design patents and on damages.  In addition, here is a copy of an amicus brief in support of Samsung's petition filed by Professor Mark Lemley.  

As you may recall, the panel read 35 U.S.C. § 289 as requiring the defendant to disgorge its entire profit earned as a result of the infringement of a design patent, without any apportionment--a result that is impossible to square with any rational principle of damages.  I would be delighted to see the court grant en banc review, though admittedly the Supreme Court's recent decision in Kimble  doesn't say much for the courts' receptiveness to arguments based on economic rationality alone.   The petition and the brief make some interesting arguments based on legislative history, text, and precedent, though, so there may be hope that the court will see fit to reconsider.  We'll see.