Some Recent Scholarship on Patent Remedies

1.  Eric Clayes has published a paper titled The Conceptual Relation Between IP Rights and IP Remedies, 22 George Mason Law Review 825 (2014).  Here is a link to the paper, and here is the abstract:

This Essay contributes to a symposium held at George Mason University, and sponsored by GMU's Center for the Protection of Intellectual Property, on the common ground between creators and inventors in intellectual property. The Essay focuses on the legal concepts involved in remedy determinations in copyright and patent infringement suits. In its 2006 decision eBay v. MercExchange, the U.S. Supreme Court handed down a decision widely viewed as weakening the relationship between a judgment of infringement and the entry of an injunction prohibiting the infringement. The opinions in the Supreme Court and lower courts joust about how the property in a patent relates to the remedies for infringement. Much scholarly commentary on the eBay decision follows Calabresi and Melamed's 1972 'Cathedral' article and studies infringement remedies using the vocabulary of property rules and liability rules.

Both the judicial opinions and the Cathedral-inspired scholarly commentary make problematic conceptual assumptions about the meanings of: property, infringement, injunctive relief, and awards limiting prevailing infringements to money damages. This Essay recounts relevant conceptual-philosophy scholarship critiquing the conceptual assumptions about remedies made in the Cathedral framework. The Essay adapts those prior critiques to account for the special features of small-component/large-assembly undue hardship arguments in property disputes, and applies those critiques so adapted to eBay-related issues.

When soundly conceived, a 'property right' consists of a right of exclusive use over an asset. Such a right gives a proprietor presumptive freedom to dispose of the asset as she likes, but that freedom may be limited in cases in which the asset gets justifiably entangled with the labor or property of others. Orders of injunctive relief and damages-only awards specify the circumstances in which the owner retains her disposition rights and the ones in which she claims more control over disposition than her exclusive use entitles her to. Several of the judicial opinions in eBay misstated these concepts by portraying the property in patents as a 'right to exclude'; this portrait makes property rights seem broader and more likely to generate injunctive relief than they are in social concepts or practice. The Cathedral-inspired commentary portrays damages-only awards as 'liability rules'; this portrait misstates the conceptual character of damages-only awards, and does so in ways that obscure the normative influence that 'property' can have in remedy determinations.

2.  James Ryan has published a paper titled A Short History of Patent Remedies, 6 Cybaris:  An Intellectual Property Law Review 150 (2015).  From the introduction:

This paper provides guidance on how enhanced damages and the entire subject of patent remedies (in both law and equity) should be reassessed. History shows that that there is an interdependent and intricate relationship of law and equity in patent remedies that has been missing in most of the current literature. This paper argues that the current applications of reasonable royalties, lost profits, enhanced damages, injunctions, and ongoing royalties should all be reevaluated in light of this history.

3.  Douglas G. Smith  has published an article titled The Increasing Use of Challenges to Expert Evidence Under Daubert and Rule 702 in Patent Litigation, 22 J. Intell. Prop. L. 345 (2015).  Here is a link to the paper and here is the abstract:

This paper discusses the increasing use of challenges to expert evidence under Rule 702 and Daubert in patent cases. It includes a discussion of both appellate and district court decisions addressing the admissibility of expert evidence relating to various substantive issues as well as damages in patent cases.

- See more at: https://journals.law.stanford.edu/stanford-technology-law-review/online/bargaining-power-and-patent-damages#sthash.uTIgz5Vc.dpuf

Reddy on Punitive Damages for IP Infringement in India

Prashant Reddy published an interesting post earlier this week on SpicyIP critiquing a recent Delhi High Court decision (Sholay Media & Entertainment v. Sanghavi)  awarding punitive damages in the amount of 10 Lakh in a case involving allegations of trademark, copyright, and moral rights infringement.  (A lakh is equal to 100,000 rupees, and a rupee is at present worth 0.015 U.S. dollars, so 10 Lakh would equal 1,000,000 rupees or U.S.$15,000.) Mr. Reddy is critical of the decision, given the court's failure to explain how it arrived at the figure of 10 Lakhs, and the fact that the plaintiff had not proved its actual damages (see para. 41 of the opinion).  For a previous write-up on the Sholay decision on SpicyIP by Spadika Jayaraj, see here.  As Ms. Jayaraj notes, the case was heard ex parte, which I assume means it was a default judgment.

As I mention in my book (p.376), according to Raj Bhola Indian courts have awarded punitive damages for trademark infringement (as mentioned by Mr. Reddy as well), and might be open to the possibility of doing so in an appropriate patent case.

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In other news, interesting post yesterday on the ChinaIPR Blog ("Asking the “Better Questions”: Lessons for the AML … from a Nobel Physics Laureate") concerning the antitrust/IP interface in China.

Wright and Ginsburg Respond to the Canadian Competition Bureau's Draft Updated IP Guidelines

I mentioned a couple of weeks ago that Canada's Competition Bureau recently published Draft IP Enforcement Guidelines, available here, that addressed (among other things) SEPs, FRAND, and settlement of pharmaceutical patent disputes.  Unfortunately, I learned of the draft only after the time for submitting comments had passed.  Former FTC Commissioner Joshua Wright and U.S. Circuit Judge Douglas Ginsburg, however, submitted comments which are now available on ssrn, here.  Here is the abstract:

This comment is submitted in response to the Canadian Competition Bureau’s (the Bureau’s) draft stage 2 update of its Intellectual Property Enforcement Guidelines (Draft Updated Guidelines). This comment addresses five issues in the Draft Updated Guidelines: (1) product switching in the context of pharmaceutical patents; (2) settlement of patent infringement litigation between competitors, commonly referred to as “reverse-payment settlements”; (3) deceptive failure to disclose patents essential to a standard, commonly referred to as “patent ambush”; (4) reneging on a commitment to license a standard-essential patent (SEP) on fair, reasonable, and nondiscriminatory (FRAND) terms; and (5) seeking injunctive relief against infringement of a FRAND-encumbered SEP.

I've only taken a quick look at the comments, but the section on SEP and FRAND is consistent with the authors' view, as expressed in their comments to the Japan Fair Trade Commission's proposed FRAND policy (which I mentioned here), that antitrust is not the optimal tool for addressing FRAND/SEP issues.

Different Views on Comparable Licenses in Recent Patent Remedies Scholarship

I mentioned a few weeks back that Erik Hovenkamp had posted an interesting paper expressing a skeptical view of the use of comparable licenses to determine reasonable royalties in patent infringement litigation (see post here).  Since then, a few additional papers on the use of comparable licenses have come out:

1.  Jonathan Masur has posted a paper on ssrn titled The Use and Misuse of Patent Licenses.  Here is a link to the paper, and here is the abstract:

As the number of nine- and ten-figure verdicts continues to increase it is impossible not to take notice: patents are becoming an ever bigger business with more and more wealth at stake. At the center of that business lie the damages that courts award at trial, and the ways in which courts go about calculating those damages. Yet the legal standards meant to govern patent damages are notoriously ambiguous and unhelpful. In the face of these difficulties, courts have sought a market mechanism that would aid them in calculating patent damages. The solution they have seized upon is to use existing licenses, typically granted by the plaintiff to third parties, as evidence of the proper measure of damages. But the use of existing licenses to measure reasonable royalty damages creates three significant and distinct problems: first, it relies upon private information available only to the parties to the pre-existing licensing agreement; second, it is ineluctably circular; and third, it creates incentives for the patent holder to distort the value of the licenses it negotiates in order to mislead the court. The Article describes and analyzes these three problems, and then turns to potential solutions. It analyzes a variety of possible reforms, including selection of particular licenses for comparison or the application of a multiplier to the value of existing licenses. Though several of these solutions show promise, none come close to being a complete answer. It may well be that courts have no choice but to largely ignore existing licenses when calculating patent damages, leaving them more at sea than ever.

2. Expressing a different view on the use of comparable licenses, J. Gregory Sidak has published an article titled Bargaining Power and Patent Damages, 19 Stan. Tech. L. Rev. 1 (2015).  Here is a link to the paper, and here is the abstract:

In patent-infringement litigation, if no established royalty for the patent in suit has emerged from multiple market transactions at a readily observable price, then the finder of fact needs to infer a reasonable royalty from the many factors identified in the Georgia-Pacific framework. The well-recognized problem with the Georgia-Pacific framework is that it poses many potentially relevant questions but does not say how the finder of fact should weight the answers. The case law offers no algorithm or decision tree for the finder of fact to follow. Courts find expert testimony inadmissible if it does not apply intellectually rigorous economic methods and principles to the facts and data of the case to produce results that are replicable and falsifiable. With modest effort, and without repudiating existing precedent, the courts can make the Georgia-Pacific framework far more coherent, predictable, and intellectually rigorous. From an economic perspective, that framework ultimately leads the finder of fact, first, to determine the gains from trade—which economists call “surplus”—arising from a hypothetical, voluntary negotiation between a willing licensor and a willing licensee just before the moment of first infringement and, second, to divide that surplus between the licensor and licensee according to their relative bargaining power. For brevity and clarity, I call these two culminating steps the surplus-division principle. This principle is more reliable than purporting to set a reasonable royalty on the basis of a mathematical theory (such as the Nash bargaining solution) that is too abstract to fit the facts and data of the case. It is also more reliable than an expert’s idiosyncratic and nonfalsifiable claim to have balanced the totality of the circumstances in light of his professional experience. In contrast to both a theoretical black box and an expert’s ipse dixit, the surplus-division principle uses elementary principles of microeconomics to give coherence to the Georgia-Pacific factors that courts have already defined and applied. The result enables the finder of fact to determine a licensor’s minimum willingness to accept and a licensee’s maximum willingness to pay for the patented technology, and thereby to define the bargaining range for a hypothetical  negotiation. This method is robust across different factual scenarios and multiple defendants.

3. Mr. Sidak also has posted a paper titled Apportionment, FRAND Royalies, and Comparable Licenses After Ericsson v. D-Link (forthcoming 2015 University of Illinois Law Review).  Here is a link to the paper, and here is the abstract:

Standard-setting organizations (SSOs) usually require that their members clarify whether they are willing to provide access to their technology essential to a  standard under development on fair, reasonable, and nondiscriminatory (FRAND) terms and conditions—or, in American parlance, reasonable and nondiscriminatory (RAND) terms and conditions. After the patent holder has agreed to license its standard-essential patents (SEPs) on FRAND terms, a licensor and a licensee negotiate the exact licensing terms for the use of the SEP portfolio. In the few cases in which parties cannot agree on the exact terms, they might ask a court or an arbitration tribunal to determine a FRAND royalty. The decision of the U.S. Court of Appeals for the Federal Circuit in Ericsson, Inc. v. DLink Systems, Inc. identifies important economic principles for determining a FRAND royalty for the use of SEPs. Ericsson is the owner of several patents essential to the 802.11(n) standard—the standard promulgated by the Institute of Electrical and Electronics Engineers (IEEE) that is commonly known as Wi-Fi—and committed to license those patents on RAND terms. When negotiations between Ericsson and several manufacturers of multicomponent devices that incorporated the Wi-Fi standard failed to result in a license, Ericsson sued in the U.S. District Court for the Eastern District of Texas and demanded a jury trial to determine the RAND royalty that the manufacturers should pay to use Ericsson’s SEPs. Relying on evidence from comparable licenses—that is, licenses that Ericsson had signed with third parties similarly situated to the defendants to use Ericsson’s patents essential to the Wi-Fi standard—the jury awarded damages of roughly $10 million to Ericsson. In reviewing the case on appeal, the Federal Circuit confirmed that royalties specified in comparable licenses provide accurate and reliable evidence of the value of a patented technology for calculating a FRAND royalty. The Federal Circuit rejected the defendants’ argument that a chipset (rather than the mobile device) should represent the royalty base to calculate a FRAND royalty. (In simple terms, one typically calculates total damages by multiplying a royalty rate by a royalty base). The Federal Circuit also reiterated the fundamental principle that a party should support allegations about abstract conjectures, such as patent holdup and royalty stacking, with relevant evidence. Unsupported allegations about the SEP holder’s supposedly opportunistic licensing practices should not influence the determination of a FRAND royalty. Finally, the Federal Circuit said that a FRAND royalty should not include the value that a technology acquires by virtue of its inclusion in a standard. Although the Federal Circuit was correct in reiterating that a FRAND royalty, like any other royalty for the use of a patented technology, should compensate the SEP holder for the incremental value of its patented technology, the Federal Circuit’s decision should not be interpreted as excluding any of the standard’s value from a FRAND royalty. To the contrary, when a patented technology creates part of the standard’s value, only a FRAND royalty that includes part of that value will adequately compensate the SEP holder for its contribution.

Friday Miscellany: Damages Issues in Canada, Validity Challenges in France, Interim Injunctions in India

1.  Norman Siebrasse has published three very interesting recent posts on damages issues.  On August 28, he published a short post titled Deduction for Fixed Costs in an Accounting Denied, discussing a recent Federal Court (Canada) case denying a deduction for the infringer's fixed costs.  As Professor Siebrasse notes, "On the one hand, fixed costs would have been incurred in any event and so are not costs caused by the infringement, but on the other hand a business cannot run profitably without covering its fixed costs."  This is a tough issue, as I discuss in my book (see pp. 206-08).  Perhaps most famously, the German Federal Supreme Court in the Gemeinkostenanteil decision of 2000 concluded that fixed costs should not be deducted (see my book pp. 271-72).  It will be interesting to see if Canada's Federal Supreme Court takes up the issue, which Professor Siebrasse believes they will do at some point.  

In addition, Professor Siebrasse published two posts (here and here) on the recent Apotex Inc v Merck & Co, Inc / Lovastatin Damages  matter, which I also blogged about here.  Professor Siebrasse discusses the question of whether a noninfringing alternative, which the court has now recognized is relevant tot he recovery of lost profits, must be one that (1) was instantaneously available on the market, and (2) the infringer actually would have used (as opposed to doing something else with its resources).  I think his analysis of both issues is correct.

2.  Last month Isabelle Romet published a post on Kluwer Patent Blog titled Patent Revocation Actions in France:  Which Slot?, discussing some recent French decisions two of which I previously blogged about (see here) addressing the statute of limitations for challenging patent invalidity under French law.      

3. The June 17, 2015 issue of Bloomberg BNA's World Intellectual Property Report includes an article by Madhur Singh titled Indian patent attorneys Question frequency of Injunctions; Call for Speedier Resolution of Cases (available here, but behind a paywall).  The article discusses some of recent cases and presents differing views on whether Indian courts are granting interim injunctions too readily.  The author cites complaints on the part of some practitioners involving, among other things, the availability under some circumstances of ex parte and quia timet injunctions, as well as forum shopping, the length of time that some injunctions remain in place pending trial, and the "widely varying standards" in determining whether to grant an injunction.  According to Swaraj Barooah (editor of the SpicyIP Blog), although the criteria for granting interim injunctions are the familiar ones (prima facie case, likelihood of irreparable injury if the defendant is not enjoined, balance of conveniences, and the public interest), these criteria have not "been conceptually clarified by Indian courts."  Barooah also states that "a majority of patents that have been challenged in recent years have been revoked, and argues that "in cases where the patent has been challenged, the interim phase should be dismissed and the case should proceed to trial."  On the other hand, some practitioners defend the current system, stating that injunctions bring defendants to the bargaining table and may be necessary given the relatively short patent term, and noting some recent instances in which litigants have been able to speed the process along.

For previous discussions of interim injunctions in India on this blog, see here and here.  

U.S. District Court Awards Octane Fitness $1.6 Million in Attorney's Fees

35 U.S.C. § 285 permits awards of attorneys’ fees only in “exceptional” cases.  As most readers of this blog probably are aware, in Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014), the U.S. Supreme Court held that exceptionality should be determined based on the totality of the circumstances.  On July 1 of this year, Judge Ann Montgomery held that Octane was entitled to fees in an amount yet to be determined (see blog post here), and I just learned (courtesy of my colleague Prentiss Cox) that Judge Montgomery has now awarded Octane "attorney’s fees of $1,633,333 and costs of $144,697."  Here is a copy of the decision.  For my blog post on two recent papers presenting some statistics on fee litigation post-Octane Fitness, see here.

Siebrasse and Cotter on the Value of the Standard

Norman Siebrasse and I have posted a draft paper on ssrn (an earlier version of which I presented this past June in Tokyo and Fukuoka).  Here is a link to the paper, and here is the abstract:

Standard-setting organizations (SSOs) often require member firms to license their standard-essential patents (SEPs) on undefined “fair, reasonable, and nondiscriminatory” (FRAND) terms.  Courts and commentators in turn have proposed various principles for calculating FRAND royalties, among them that the royalty should not reflect “the value of the standard.”  As we show, however, this principle could be understood to mean any or all of three distinct concepts, namely that the royalty should not reflect the implementer’s sunk costs; that the patentee should not be able to extract any of the value resulting from network effects; or that the royalty should be proportionate to the patent’s contribution to the standard.   

This Article proposes, as an alternative benchmark, that a FRAND royalty should reflect the incremental contribution of the patent to the value of the standard.  This principle combines two related ideas:  first, that royalties should reflect the hypothetical bargain the parties would have struck ex ante (prior to standard adoption), in view of the incremental value of the technology over unpatented alternatives as revealed ex post; and second, that multiple patents reading on a standard should be valued in proportion to their marginal contribution (“ex post Shapley pricing”).  Our proposal would prevent patentees from extracting sunk costs or a disproportionate share of standard value, but (contrary to some approaches) it would enable them to draw some of the increased value resulting from network effects.  We show that our approach is more consistent with sound innovation policy, and suggest some practical applications.