Helmers and Love: Empirical Assessment of eBay, PTAB, and Alice

Christian Helmers and Brian J. Love have posted a paper on ssrn titled Patent Law Reform and Innovation:  An Empirical Assessment of the last 20 Years.  Here’s a link, and here is the abstract:

We ask whether the most important U.S. patent system reforms of the last 20 years—elimination of presumptive injunctive relief for victorious patent enforcers in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), creation of the Patent Trial and Appeal Board (PTAB) in the America Invents Act, and restriction of software’s eligibility for patent protection in Alice Corp. v. CLS Bank Int’l, 573 U.S. 208 (2014)—had a measurable impact on innovation in the U.S. Specifically, we construct firm-level measures of innovation and of exposure to each reform and adopt a variety of dif-in-dif approaches that assesses how innovation-related activities changed post-reform at relatively exposed versus relatively unexposed firms. We find: a positive association between eBay and R&D spending by firms that were relatively more exposed to patent litigation prior to the Court’s decision; a positive association between the introduction of PTAB proceedings and both R&D expenditures and patent filings by firms that innovate in tech classes where PTAB has been most active; and a positive association between Alice and both R&D spending by software firms and patenting by firms that held relatively more software patents prior to the Court’s opinion.

With regard to eBay, the authors’ reported findings are consistent with results reported by Filippo Mezzanotti & Timothy Simcoe, Patent Policy and American Innovation After eBay: An Empirical Examination, 48 Rsch. Pol’y 1271 (2019) (finding no evidence that eBay has hindered innovation), and Filippo Mezzanotti, Roadblock to Innovation: The Role of Patent Litigation in Corporate R&D, 67 Mgmt. Sci. 7362 (2021) (finding that eBay had a positive impact on R&D spending by established firms) (previously noted here, along with another paper reporting similar findings by Bersekin, Hsu & Wang).  At the end of the paper, however, the authors note some possible limitations, stating “we caution that the nature of our analysis requires that we source data from publicly traded firms and our results should be considered with that limitation in mind. While it is reassuring that patenting and R&D spending trends among our panel of firms closely mirror those seen in aggregate statistics, the reactions of publicly traded firms may not be representative of the reactions of privately held firms, which may tend to be relatively smaller and newer on average.”

Do Nonexclusive Licensees Have Standing to Sue for Patent Damages?

A couple of recent posts on other blogs has led me to consider a topic that Roger Blair and I addressed long ago in our paper The Elusive Logic of Standing Doctrine in Intellectual Property Law, 74 Tulane L. Rev. 1323 (2000).  In that paper, we noted that under U.S. law exclusive licensees have standing to sue for patent infringement (though normally the patentee must be a named party as well), whereas nonexclusive licensees do not.  Doctrinally, the limitation imposed on nonexclusive licensees stems from the fact that under U.S. law a nonexclusive license is merely a permission to use, and conveys no promise that the licensor will refrain from licensing others.  On this logic, there is no legal injury to the nonexclusive licensee when that entity is forced to compete with an infringer (though of course the patentee suffers a cognizable injury, if only from the loss of an opportunity to license the infringer).  On a policy basis, moreover, it may be unduly difficult to ascertain ex post the extent to which the infringer diverted sales that otherwise would have gone to the nonexclusive licensee (since, again, the licensor was free to license others, including the infringer, and may well have done so absent the infringement).  Awarding the nonexclusive licensee an unfettered right to sue also could put the patent at risk, if the nonexclusive licensee initiates litigation without the consent of the patent owner and/or other licensees, though I suppose the license contract itself could impose some limitations on the nonexclusive licensee’s ability to do this.  Where the patentee has granted an exclusive license, by contrast—meaning, in the simplest case, that the patentee has promised not to license anyone other than the exclusive licensee—the exclusive licensee can sue for its own lost profits, and the patentee can recover whatever additional royalty it would have obtained from the exclusive licensee on the latter’s lost sales.

What prompted me to consider these issues again was, as I noted above, two recent posts, one on JUVE Patent and one on Sufficient Description.  The JUVE Patent post, titled No damages for Lilly France in Pemetrexed dispute with Viatris, states that a recent decision by the Judicial Court Paris rejected Lilly France’s request for infringement damages, because Lilly France is merely a subsidiary of the Eli Lilly Group, and neither the patent holder itself nor a licensee; and the French I.P. Code limits standing to sue to patent holders and licensees.  The post does not link to the decision itself, though Law360's UK edition has a story and a link to an English-language translation of the decision.  According to the decision, Lilly France "expressly states that it is not a licensee of the patent," and article 615-2 of the French Intellectual Property Code requires that one be either an owner or a licensee to assert an action for infringement.  It does allow even a nonexclusive licensee to sue, however, if the license contract expressly permits this and it informs the patent owner first ("si le contrat de licence l'y autorise expressément, à condition, à peine d'irrecevabilité, d'informer au préalable le titulaire du brevet").  I have to admit, I'm not sure why Lilly France wouldn't be considered some sort of licensee, given that "it claims to manufacture pemetrexed disodium in France on behalf of the companies of the Eli Lilly group."  If any readers can enlighten me on this point, I would appreciate it.

Over in Canada, Norman Siebrasse published a recent post titled Can the Election Between Damages and an Accounting Be Made After Discovery?, discussing a Canadian case, Angelcare Canada Inc. v. Munchkin Inc., 2023 FC 1111, in which the court held that two plaintiff companies in addition to patentee plaintiff Angelcare (Edgewell and Playtex) may recover infringement damages, even though there were never any formal licenses in place.  The decision states that under § 55(1) of the Canadian Patent Act, a person “claiming under the patentee” can claim damages, and the trend in Canadian law (as discussed in the decision in great detail) has been to interpret this provision broadly.  "The law does not require a license, be it exclusive or nonexclusive; it does not require that it be in writing, yet in this case we have the proof of such unwritten license through a variety of instruments" (para. 124).  (As the post notes, the decision also permits the patentee to elect for an accounting or damages after discovery has been completed; and denies a request for punitive damages, citing authority for the proposition that willful and knowing infringement is, by itself, insufficient to sustain an award of punitive damages.)

For what it’s worth, as I noted in my book (p.294 n.25) the rules in Japan are somewhat complicated, though as in the U.S. nonexclusive licensees cannot sue.

Dutch Supreme Court: Health Insurer Not Entitled to Reimbursement for Payments Made in Connection with Subsequently Invalidated Patent

While we await the CJEU’s judgment (date not yet announced) in Mylan AB v. Gilead Sciences Finland Oy, Case C-473/22 (see post discussing Advocate General Szpunar’s opinion here), the Supreme Court of the Netherlands has issued a decision addressing whether compensation is due for losses suffered during the period of time a patentee enforced a preliminary injunction concerning a patent that is later revoked.  The case, Menzis Zorgversekeraar N.V. v. AstraZeneca B.V., is briefly excerpted in this post on EPLaw, which links to the decision in the original Dutch and in English translation.  The patent in suit covered a sustained release formulation of a drug, quietapine.  (An earlier patent on the immediate release version of the drug expired in 2012.)  The District Court of the Hague sustained the validity of the sustained release patent in 2012, after which AstraZeneca obtained a preliminary injunction prohibiting Sandoz from marketing a generic version of the sustained release formulation in the Netherlands.    In 2014, however, the Court of Appeal for the Hague reversed the 2012 judgment and revoked the Dutch patent for lack of inventive step, following which Astra Zeneca’s competitors launched their generic versions.  In 2016, Menzis, a health insurer, filed a complaint alleging that AstraZeneca should be required to compensate Menzis for losses sustained from having to reimburse insureds for the use of AstraZeneca’s brand-name sustained release formulation during the time the generic drugs were excluded from the market.  The district court ruled for Menzis, but the Court of Appeal reversed, and the Supreme Court affirms the Court of Appeal.

In so ruling, the Court of Appeal ruling (which the Supreme Court quotes with approval) held that “[i] follows from the CFS Bakel/Stork judgment [no citation provided] that Dutch law conforms to the view - also held in our neighboring countries - that some form of culpability on the part of the patentee is required in order to assume liability after the revocation of a patent” (para. 5.2).  The Court of Appeal either distinguished or overruled what I assume to be a previous Netherlands Supreme Court decision, Ciba Geigy/Voorbraak (paras. 5.7 - .5.8):

In that judgment, the Supreme Court ruled that, in principle, it should be assumed that the person who, by threatening enforcement, forced his opposing party to behave in accordance with an injunction issued in summary proceedings, has acted unlawfully if, as the judgment on the merits of the case shows with hindsight, he was not entitled to require the opposing party to refrain from the acts in question. Irrespective of whether that judgment is consistent with the rules of the European Enforcement Directive as interpreted in the Court of Justice's judgment in Bayer/Richter (AstraZeneca disputes that), it does not follow from the Ciba Geigy/Voorbraak judgment that the patentee has strict liability to others other than the party who has been forced to comply with an interlocutory injunction by threat of enforcement. The rationale for this judgment focuses exclusively on the special position of that opposing party and is based in part on the consideration that penalties forfeited for failure to comply with the interlocutory injunction will continue to be forfeited following a contrary judgment on the merits. The latter strikes a certain balance between the clashing interests. That balance is lacking when extending strict liability to parties such as Menzis, which are not liable to forfeit penalties for non-compliance with the injunction.

 

. . . [T]he judgment in Ciga Geigy/Voorbraak is not exclusively based on the provisional nature of a decision in summary proceedings, but also on (the precisely definitive nature of) the indebtedness of forfeited penalties. . . .

The Court of Appeals further correctly concluded that AstraZeneca’s reliance on the patent during the relevant time period was not unlawful.  The standard is whether “AstraZeneca knew, or should have realized, in that period that a serious, non-negligible chance existed that the patent would not stand up in opposition or nullity proceedings,” (para. 5.10), and the Court says no:  the 2012 district court decision supported validity, and some other European countries also upheld the validity, although the English High Court found the U.K. portion of the patent invalid in 2012.  Finally, the Supreme Court states that, although “the circumstance that AstraZeneca did not act unlawfully does not automatically imply that the enrichment alleged by Menzis is justified,” the facts do not support a finding of unjust enrichment.     

One additional notable thing about this case is that, as stated above, it was the health insurer that was seeking reimbursement, rather than the excluded generic firms.  Except for the fact that the present case does not involve any allegation of fraud, this situation is reminiscent of Sec’y of State for Health v. Servier Labs. Ltd., [2021] UKSC 24, in which the U.K. Supreme Court rejected a claim that the defendants, who allegedly caused the U.K.’s National Health Service to suffer economic harm by defrauding the EPO into issuing a patent that later was found to be invalid, could be liable under the doctrine of “unlawful means.”  The UKSC held that the doctrine does not apply unless the defendant’s conduct affected the third party’s (EPO’s) freedom to deal with the plaintiff.  Here, by contrast, it appears that the Dutch courts would permit a health insurer to collect reimbursement on the right set of facts.