Apple Files Response to Petition for Rehearing Regarding Design Patent Damages

Florian Mueller has the details and links to Apple's brief, as well as to an amicus brief jointly filed by Dell, eBay, Google, Facebook, HP, Limelight, Newegg, and SAS here.   For my post earlier this month linking to Samsung's petition and an amicus brief filed by Professor Lemley, see here.

Two New Empirical Papers on the Effect of eBay on Injunctive Relief

1.  Christopher Seaman has posted a paper on ssrn titled Permanent Injunctions in Patent Litigation After eBay: An Empirical Study.  Here is a link to the paper, and here is the abstract:

The Supreme Court’s 2006 decision in eBay v. MercExchange is widely regarded as one of the most significant patent law rulings of the past decade. Prior to eBay, patent holders who prevailed on the merits in litigation nearly always obtained a permanent injunction against infringers. In eBay, however, the Court unanimously rejected the prevailing “general rule” that a prevailing patentee is entitled to an injunction, instead holding that lower courts must apply a four-factor test before granting such relief. Almost a decade later, however, significant questions remain regarding how this four-factor test is being applied, as there has there has been little rigorous empirical examination of eBay’s actual impact in patent litigation.

This Article helps fill this gap in the literature by reporting the results of an original empirical study of contested permanent injunction decisions in district courts for a 7½ year period following eBay. It finds that eBay has effectively created a bifurcated regime for patent remedies, where operating companies who compete against an infringer still obtain permanent injunctions in the vast majority of cases that are successfully litigated to judgment. In contrast, non-practicing entities almost always are denied injunctive relief. These findings are robust even after controlling for the field of patented technology and the particular court that decided the injunction request. It also finds that permanent injunction rates vary significantly based on patented technology and forum. Finally, this Article considers some implications of these findings for both participants in the patent system and policy makers more generally.

2.  Kirti Gupta and Jay Kesan have posted a paper on ssrn titled Studying the Impact of eBay on Injunctive Relief in Patent Cases.  Here is a link to the paper, and here is the abstract:

The Supreme Court’s 2006 decision on eBay Inc. vs MercExchange LLC (the eBay ruling) marked a turning point in the history of patent enforcement and policy. Almost a decade after the eBay ruling, there is still confusion about the implications and impact of this decision. Such questions still remain: Has the rate of injunctions been impacted, and if so, by how much? And, which types of parties are impacted - practicing or non-practicing entities? To our knowledge, there is not a systematic empirical study that explores whether the eBay ruling impacted practicing and non-practicing patent holders differentially, by examining an exhaustive set of rulings on both preliminary and permanent injunctions and comparing the rates pre-eBay and post-eBay. 

Employing a comprehensive dataset of patent cases from 2000-2012, we seek to address the following issues: (1) The difference in the rate at which both preliminary and permanent injunctions were granted for cases where an injunction was requested, including the rate at which these motions were filed pre- and post- eBay; (2) Whether the rate of injunctions granted was different based on patent ownership (practicing versus non-practicing entities). In addition, any outcome of patent cases must take into account the quality of the patents asserted. Therefore, while studying whether injunctions were granted or not, we control for proxies for patent quality based on the received citations and other metrics.

We find that the U.S. Supreme Court decision in eBay v. MercExchange has had a significant impact on injunctive relief in patent cases. Contrary to earlier empirical studies involving small sample datasets, our extensive analysis with a dataset involving thousands of patent cases both pre- and post- eBay shows that the eBay decision has reduced, rather dramatically, both the level at which injunctive relief is sought in patent cases and the rate at which they are granted, particularly for preliminary injunctions. We also study the impact of the eBay decision on the quality of patents for which injunctive relief is ought and the nature of the patent plaintiff (operating company vs. non-operating company) and their relative success rates with obtaining injunctive relief. This study raises important policy questions about the current diminished role for injunctive relief in patent cases and also the relationship between injunctions and the type of patent-plaintiff entity and patent quality.

Posner, Hovenkamp, Burshstein Respond to Kimble

I'm not the only one who is disappointed in the U.S. Supreme Court's refusal to overrule Brulotte v. Thys, the case establishing the per se unenforceability of postexpiration patent royalties (see my post here).  For further criticism of the Court's elevation of form over substance, see Judge Richard Posner's article in Slate (which also discusses the U.S. Supreme Court's decision in King v. Burwell, on the Affordable Care Act) and Professor Herb Hovenkamp's paper Brulotte's Web, available on ssrn here.  Key quote from Judge Posner:  "Justice Elena Kagan’s majority opinion is a veritable paean to stare decisis, which means adhering to precedent. When a half century–old precedent is demonstrably erroneous, and has not generated substantial reliance interests, and doesn’t even have a constitutional or statutory pedigree but is purely judge-created, the refusal to overrule it is mere antiquarianism."  Here is Professor Hovenkamp's abstract:

Kimble v. Marvel Entertainment held that stare decisis required the Supreme Court to adhere to the half century old, much criticized rule in Brulotte v. Thys. Justice Douglas' Brulotte opinion concluded that license agreements requiring royalties measured by use of a patent after its expiration are unenforceable per se. The court need not inquire into market power nor anticompetitive effects, effects on innovation, and it may not accept any defense. Congress can change the rule if it wants to, but has resisted many invitations to do so.

Under Brulotte a hybrid license on a patent and a trade secret requires a royalty reduction when the patent expires. But there is little reason for thinking that a process is worth more to a licensee when it is covered by both a patent and a trade secret than when it is covered by only a single right. What the licensee wants is access to a technology that reduces its costs or improves the quality of its output. Those numbers are determined by market value and product competition, and are not obviously affected by the number and kind of IP rights that they embody. For example, the price I am willing to pay for a patented weed killer for my back yard is not higher because I know that production of the weed killer is protected by a trade secret as well as a patent.
One area where Brulotte/Kimble threatens efficient risk sharing is reach through royalties. Researchers in some areas often require costly patented research tools, or inputs, that may produce considerable value once a successful product has been developed. The research might succeed in producing a valuable drug but there is also a high chance that it will fail. A rational way to price out such an asset is conditionally, perhaps with little or no royalty during the research period, but a substantial royalty down the road if the project succeeds. Depending on the age of the patent and the timeline for the project, this can contemplate royalties on the pharmaceutical drug long after the patent on the research tool expires.

A lively debate has emerged about the economics of reach through royalties, with some believing that they contribute to a patent "thicket" that is difficult for researchers to negotiate, and others arguing that they constitute a reasonable form of risk sharing. That issue is a serious one and should never be addressed by any rule as ham handed as the Brulotte per se rule against post-expiration royalties.

One problematic effect of Kimble is that antitrust tying law is undergoing a process of revision that is coming close to removing per se illegality. That has largely happened for just the reasons that the Court suggested: the underlying economic theory has changed, de-emphasizing harmful leverage and emphasizing efficiencies. By contrast, the patent law of tying arrangements -- heavily borrowed from antitrust -- remains stuck in a time warp until Congress gets around to changing it.

In defending its rule of stare decisis, the Kimble Court also observed that the challenged practice involved two areas of law, property and contract, where stare decisis has traditionally been regarded as strong because of reliance interests. A legal regime that previously permitted unlimited licensing but then adopted the Brulotte rule could certainly upset many reliance interests. When the legal change is in the other direction, however the weight of reliance interests is less clear. The real impact of overruling would be on those people, who like the parties in Kimble, wrote their agreements in ignorance of Brulotte. In such cases the effect of overruling would be that these parties would get precisely what they bargained for.

The Kimble Court rejected Kimble's proposed alternative -- namely, that post-expiration royalty extensions be addressed under a rule of reason. The Court found this unacceptable, substituting a bright line (although ill conceived) rule for something as complex and indeterminate as antitrust's rule of treason. But nearly every commercial transaction in the country is subject to antitrust evaluation under Section 1 of the Sherman Act. Agreements requiring post-expiration payments would join the general run of agreements that are nearly always legal. 

Finally, for those of you with access to Bloomberg BNA's World Intellectual Property Report, Canadian attorney Sheldon Burshstein has published an interesting article (available here, behind a paywall) titled "Law on Post-Patent Royalties Differs Between Canada and U.S."  As the title suggests, Mr. Burshtein believes that Kimble would have come out the other way in Canada.

Huawei v. ZTE: Analysis

The long-awaited CJEU judgment in Huawei Techs. Co. v. ZTE Corp., Case C-170/13, takes something of a middle path to the question of whether it is an abuse of dominant position for the owner of a FRAND-encumbered standard-essential patent (SEP) to request injunctive relief against an alleged infringer.  Here are a few things that struck me:

1.  Like the Advocate General in his November 2014 opinion (which I blogged about here), the court emphasizes the need to balance various considerations:  

". . . the Court must strike a balance between maintaining free competition — in respect of which primary law and, in particular, Article 102 TFEU prohibit abuses of a dominant position — and the requirement to safeguard that proprietor’s intellectual-property rights and its right to effective judicial protection, guaranteed by Article 17(2) and Article 47 of the Charter [of Fundamental Rights of the European Union] respectively" (para. 42). 

2.  The court does not address the issue of whether ownership of an SEP necessarily proves market dominance, noting that "As the referring court states in the order for reference, the existence of a dominant position has not been contested before it by the parties to the dispute in the main proceedings. Given that the questions posed by the referring court relate only to the existence of an abuse, the analysis must be confined to the latter criterion" (para. 43).  My own view is that ownership of an SEP generally does establish dominance in the market for the (very specific) technology at issue, given that (if the patent really is standard-essential) there is no substitute for it--though conceivably there could be competing standards, which would complicate the analysis.  Others may disagree with my take on this, and perhaps the issue will turn up in some future case.  

3.  Like AG Wathelet, the court rejects both the German Federal Supreme Court's Orange-Book-Standard approach (which recognizes a competition law defense to a claim for injunctive relief only if the implementer comes forward with an offer that the owner cannot in good faith refuse and deposit money in escrow) and an expansive understanding of the European Commission's decision in Samsung (under which the owner of a FRAND-encumbered SEP abuses its dominant position if it asserts a claim for injunctive relief against an implementer who is willing to negotiate a license).  Instead, the court places the initial burden of coming forward with an offer on the SEP owner (noting, among other things, that as AG Wathelet observed "in view of the large number of SEPs composing a standard such as that at issue in the main proceedings, it is not certain that the infringer of one of those SEPs will necessarily be aware that it is using the teaching of an SEP that is both valid and essential to a standard", para. 62), but it also requires the implementer to satisfy some stringent conditions (not just, to quote from the second question presented to the court, the implementer's oral statement that "in a general way . . . it is prepared to enter into negotiations").  Here's what the court says (paras. 60-61, 63, 65-68):

Accordingly, the proprietor of an SEP which considers that that SEP is the subject of an infringement cannot, without infringing Article 102 TFEU, bring an action for a prohibitory injunction or for the recall of products against the alleged infringer without notice or prior consultation with the alleged infringer, even if the SEP has already been used by the alleged infringer.

Prior to such proceedings, it is thus for the proprietor of the SEP in question, first, to alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed. . . .

Secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer for a licence on FRAND terms, in accordance with the undertaking given to the standardisation body, specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated. . . .

. . . [I]t is for the alleged infringer diligently to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

Should the alleged infringer not accept the offer made to it, it may rely on the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP in question, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.

Furthermore, where the alleged infringer is using the teachings of the SEP before a licensing agreement has been concluded, it is for that alleged infringer, from the point at which its counter-offer is rejected, to provide appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit. The calculation of that security must include, inter alia, the number of the past acts of use of the SEP, and the alleged infringer must be able to render an account in respect of those acts of use.

In addition, where no agreement is reached on the details of the FRAND terms following the counter-offer by the alleged infringer, the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party, by decision without delay.

4.  Importantly, the court preserves the implementer's right to challenge validity and infringement:

having regard, first, to the fact that a standardisation body such as that which developed the standard at issue in the main proceedings does not check whether patents are valid or essential to the standard in which they are included during the standardisation procedure, and, secondly, to the right to effective judicial protection guaranteed by Article 47 of the Charter, an alleged infringer cannot be criticised either for challenging, in parallel to the negotiations relating to the grant of licences, the validity of those patents and/or the essential nature of those patents to the standard in which they are included and/or their actual use, or for reserving the right to do so in the future.

5.  The court also holds (not surprisingly) that it is not an abuse of dominant position to seek discovery on past uses of the SEP and damages for those past uses.

6.  Left unresolved, in my view, is the question of whether the analysis changes at all in a case (like the one that gave rise to Orange-Book-Standard) in which the standard is a de factor standard for which no FRAND commitment has been made.  The court did make a point of distinguishing cases like the one under consideration from other cases in which the court has discussed abuse of dominant position, stating in para. 51 that "the case in the main proceedings may be distinguished by the fact, as is apparent from paragraphs 15 to 17 and 22 of the present judgment, that the patent at issue obtained SEP status only in return for the proprietor’s irrevocable undertaking, given to the standardisation body in question, that it is prepared to grant licences on FRAND terms."  So is the FRAND commitment indispensable to the framework the court develops, or merely a relevant consideration?

7.  The court also remarks in para. 52 that "Although the proprietor of the essential patent at issue has the right to bring an action for a prohibitory injunction or for the recall of products, the fact that that patent has obtained SEP status means that its proprietor can prevent products manufactured by competitors from appearing or remaining on the market and, thereby, reserve to itself the manufacture of the products in question."  But what if the proprietor is a nonpracticing entity?  Is the owner's status as a competitor of the implementer in a downstream market an indispensable factor or just a relevant consideration?

8.  I don't see how the court's framework would impact non-SEP cases, so it would appear to me that outside the SEP context patent assertion entities would still be able to obtain injunctions--a serious limitation, in my view, on the competition-law approach to the issue of injunctive relief, but so it goes.     

CJEU Judgment in Huawei v. ZTE

Here it is.  More later after I've read it.

Press Release on the CJEU Judgment in Huawei v. ZTE

The CJEU's press release is available here.  (Hat tip to IAM Magazine, first tweet I've seen on this.)  Still waiting for the judgment at 9:22 a.m. Central Time.  I'm monitoring the CJEU's website.

From the press release:

The bringing of an action for a prohibitory injunction against an alleged infringer by the proprietor of a standard-essential patent which holds a dominant position may constitute an abuse of that dominant position in certain circumstances

In particular, where the proprietor of the patent has undertaken in advance to grant third parties a licence on fair, reasonable and non-discriminatory terms, that proprietor must, before it brings such an action for an injunction prohibiting the infringement of its patent or for the recall of products for the manufacture of which that patent has been used, present to the alleged infringer a specific offer to conclude a licence . . .

In today’s judgment, the Court distinguishes actions seeking a prohibitory injunction or the recall of products from those seeking the rendering of accounts and an award of damages.

With regard to the first type of actions, the Court holds that the proprietor of a patent essential to a standard established by a standardisation body, which has given an irrevocable undertaking to that body to grant a licence to third parties on FRAND terms, does not abuse its dominant position by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:

‒ prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating the patent in question and specifying the way in which it has been infringed, and, secondly, presented to that infringer, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and

‒ where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

The Court has held, inter alia, that the alleged infringer which has not accepted the offer made by the proprietor of the SEP may invoke the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.

With regard to the second type of actions, the Court holds that the prohibition of abuse of a dominant position does not, in circumstances such as those in the main proceedings, prevent an undertaking in a dominant position and holding a patent essential to a standard established by a standardisation body, which has given an undertaking to that body to grant licences for that patent on FRAND terms, from bringing an action for infringement against the alleged infringer of its patent with a view to obtaining the rendering of accounts in relation to past acts of use of that patent or an award of damages in respect of those acts of use. Such actions do not have a direct impact on standard-compliant products manufactured by competitors appearing or remaining on the market.

New Edition of the Véron Treatise on Saisies-Contrefaçon

I recently was pleased to receive a complementary copy of the trilingual (French, English, and German) version of the third edition of Véron et Associés' treatise Saisie-Contrefaçon.  (For readers who are not familiar with it, the saisie-contrefaçon is a pretrial order used in France to obtain evidence of infringement.  I briefly discuss the procedure in my book at p.230).  Dr. Klaus Grabinski (Judge of the German Federal Supreme Court) and Sir Robin Jacob (formerly Lord Justice of Appeal of the Court of Appeals of England and Wales) contribute forewords.  The book also includes a chapter on the saisie-description in Belgium, and annexes discussing among other things analogous procedures before the Unified Patent Court and national laws in other European countries.  Should be a very useful resource for European practitioners and scholars.