Some Thoughts on the CJEU’s Decision in Mylan v. Gilead

As I noted the other day, on January 11 the CJEU issued its decision in Mylan AB v. Gilead Sciences Finland Oy, Case C-473/22.  The decision addresses, among other things, article 9(7) of the Intellectual Property Rights Enforcement Directive (IPRED), which reads as follows:

Where the provisional measures are revoked or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, the judicial authorities shall have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by those measures.

The operative portion of the Mylan decision reads as follows:

Article 9(7) of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights must be interpreted as not precluding national legislation which provides for a mechanism for compensation for any injury caused by a provisional measure, within the meaning of that provision, based on a system of strict liability of the applicant for those measures, in the context of which the court is entitled to adjust the amount of damages by taking into account the circumstances of the case, including whether the defendant played a part in the occurrence of the injury.

As Miquel Montaña has noted, the decision seems a bit hard to square with the CJEU’s 2019 decision in Bayer v. Richter, and leaves open several questions—though I was critical of Bayer v. Richter, and I am more sanguine about the Mylan decision than is Dr. Montaña.

As I have written before, portions of the Bayer decision (e.g., paragraphs 62-63) might be read as expressing the view that article 9(7) precludes a strict liability regime like Finland’s, although the operative part of the judgment states only that:

Article 9(7) of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, in particular, the concept of ‘appropriate compensation’ referred to in that provision, must be interpreted as not precluding national legislation which provides that a party shall not be compensated for losses which he has suffered due to his not having acted as may generally be expected in order to avoid or mitigate his loss and which, in circumstances such as those in the main proceedings, results in the court not making an order for provisional measures against the applicant obliging him to provide compensation for losses caused by those measures even though the patent on the basis of which those had been requested and granted has subsequently been found to be invalid, to the extent that that legislation permits the court to take due account of all the objective circumstances of the case, including the conduct of the parties, in order, inter alia, to determine that the applicant has not abused those measures.

In any event, Mylan v. Gilead clearly provides more leeway than some might have considered possible after Bayer v. Richter, for EU member states that wish to do so to apply some sort of strict liability approach.  On this issue, Dr. Montaña expresses the concern that, in the absence of a harmonized rule there will be an incentive for forum shopping, though I am not as convinced about the significance of this concern.  A company that believes its patent is being infringed, and that it is faced with irreparable harm pending trial, in numerous EU countries will still have an incentive to file suit in those countries in which it faces irreparable harm, I should think—though it will be more cautious, perhaps, in countries like Finland where the stakes of getting it wrong are more substantial.  To be sure, as Dr. Montaña notes, there could be forum shopping in favor of the UPC, which might adopt a more patentee-friendly interpretation of its governing provisions, but I’m not sure why forum shopping in favor of the UPC is a bad thing either, unless the rule it adopts is clearly suboptimal.

The actual rule adopted in Mylan nevertheless is a bit puzzling, as Dr. Montaña suggests; one would think that strict liability is, after all, strict, and not subject to a consideration of “the circumstances of the cases.”  But that is how the case was presented (see, e.g., para. 23, stating that “according to settled Finnish case-law . . . the amount of compensation may be reduced on the ground that the defendant himself or herself enabled the injury to occur or failed to take reasonable measures to avoid or mitigate the injury and thereby contributed to its occurrence”).  So maybe this means that member states may adopt a regime of strict liability in favor of the excluded defendant, as long as they provide courts with some discretion to tailor the remedy in consideration of the circumstances of the case?  For example, let’s suppose that the patentee acted in the good faith belief its patent was valid and infringed, and the defendant launched at risk; maybe the compensation due to the defendant will be lower than if there were fault on the part of the patentee, or if the defendant (as here) was poised to enter the market but hadn’t yet sold any products.  That said, I’m still not sure that outcome is entirely coherent, since it means that in some cases the excluded defendant will recover something, but not full compensation, for the harm of being temporarily excluded, and that it may be penalized for launching at risk even if it ultimately prevails on the merits.  Moreover, for what it’s worth, I don’t see what would be so bad about awarding the excluded defendant full compensation in every case in which the patent is invalid or not infringed; why should the temporary exclusion on the basis of a patent that is invalid or not infringed be damnum absque injuria?  (As I have noted previously, some law-and-economics scholars agree with me on this.) 

Maybe another solution that will emerge, in countries where this isn’t the practice already, will be to require the patentee to post a bond in a sufficient amount to cover any resulting injury, as permitted under article 9(6) of IPRED and noted in Phoenix Contact; though that leaves open the question whether the amount of the bond can be increased as time goes on and circumstances change, and also whether, if the bond turns out to be inadequate, the defendant should recover damages for its losses in excess of the bond (which is not done, for example, in the U.S., but may be permitted in some countries.)  

FRAND in China, Strict Liability in CJEU: Two Recent Decisions

Two newsworthy items I will be blogging about in greater detail in the days to come:

1. In a decision dated December 22, 2023, China’s Supreme People’s Court has ordered Oppo to pay Advanced Codec Technologies LLC (ACT) a FRAND royalty amounting to a little over US$2 million.  This is the second Chinese FRAND decision handed down in December, following the Chongqing court’s decision in Nokia v. Oppo, previously noted here.  For discussion, see Aaron Wininger’s posts here and here; the former links to the ACT decision, in the original Chinese.

2. On the Kluwer Patent Blog, Miquel Montaña discusses last week’s decision of the CJEU in Mylan v. Gilead.  Somewhat surprisingly, the court appears to have backtracked somewhat from its decision in Bayer v. Richter, by upholding Finland’s strict-liability approach to awarding compensation to a defendant who is preliminarily enjoined on the basis of a patent that is subsequently invalidated.  The author is quite critical of the decision.  I will have more to say about the decision, which I want to read carefully, in the coming days and in a forthcoming book project.  Stay tuned.

Surprise! Licensor’s Mid-Negotiation Transfer of Patents May Support Defense to Willful Infringement, but Not Breach-of-FRAND Counterclaim

In Law360 earlier this week, Dani Kass published an article titled Samsung DodgesWillfulness Claims Despite FRAND Setback, discussing a January 8, 2024 opinion by Judge Rodney Gilstrap (E.D. Tex.).  The opinion in interesting insofar as it sheds light on what would appear to be a privateering agreement between ZTE, the original owner of the patents in suit (all of which are declared SEPs that are subject, under the ETSI IPR Policy, to a FRAND commitment), and G+, its assignee.  As Erik Hovenkamp and I have previously noted, “’[p]rivateering’ is the term used when a practicing entity assigns patents to a nonpracticing third party who then seeks to enforce the patents. The third-party ‘privateer’ then distributes a portion of the resulting proceeds back to the assignor, in accordance with the terms of the assignment. . . .  The term ‘patent privateering’ was coined by Tom Ewing, who first drew an analogy between the practice described . . . above and the practice (long since abolished) under which sovereign states would authorize merchant vessels to plunder enemy vessels during time of war.”  According to the opinion, “[b]y its own admission, G+ was created in coordination with ZTE to license and enforce ZTE’s patents,” and “ZTE retains a 20% net royalty on all proceeds generated from G+’s licensing of the Asserted Patents” (pp. 2-3).  In 2019, ZTE and Samsung began negotiating a patent license, but the agreement was not completed until 2021.  Meanwhile, in October 2020 ZTE had transferred the patents in suit in this action to G+.  (According to an earlier opinion in this case, available on Westlaw, there are five patents in suit.)  Apparently Samsung thought that these patents were among the patents ZTE had licensed to Samsung, but they weren’t, and ZTE didn’t expressly inform Samsung of the transfer to G+ (though as the court states, "as a party to the ultimate ZTE-Samsung license, Samsung is assumed to have known the full scope and content of that license" (p.3).  G+ is now suing for, inter alia, patent infringement, and Samsung has counterclaimed for breach of contract (the FRAND commitment).

The upshot of the decision is that ZTE's alleged breach of its FRAND commitment is not attributable to G+, but that ZTE's alleged conduct may be relevant to defeating G+ claim of willful infringement.  From the opinion:

“In its briefing, Samsung argues that ZTE’s conduct runs with the Patents-in-Suit and is imputable to G+ because patents are property, and encumbrances run with the property. . . .

“None of [the] cases [cited by Samsung] establish why ZTE’s actions rise to the level of and constitute an encumbrance that burdens the Patents-in-Suit for purposes of a breach of FRAND. These cases, at most, establish that a predecessor’s actions may, in equity, prevent enforcement of the patents. They say nothing about why a predecessor’s actions would burden patents for all purposes, including for holding a successor-in-interest liable for a breach of contract. Neither party disputes and the Court finds that the FRAND commitment sounds in contract and is a legal obligation, not equitable in nature. . . .

“For all of the foregoing reasons, ZTE’s conduct may not be attributed to G+ for breach of FRAND purposes. . . .

“However, this holding does not mean that the facts identified by Samsung are irrelevant and may not be presented to the jury in support of other issues the jury will be asked to decide. . . .

“Indeed, the Court finds the facts identified by Samsung are relevant and probative as part of Samsung’s defense to G+’s charge of willful infringement. If Samsung reasonably believed that it was receiving a license to the Patents-in-Suit as part of the July 9, 2021 license from ZTE, only to later be surprised that G+ is asking for a license to the same patents, such could counter, to some degree, G+’s charge of willfulness. . . . These facts may also be relevant to Samsung’s general narrative of the case. . . .”

Elder on Contempt after TiVo

Nina Elder, a third-year law student at the University of Minnesota, has published an excellent student note titled The Contours of Contempt in Patent Law After TiVo, Inc. v. EchoStar Corp.: An Empirical Study, 25 Minnesota Journal of Law, Science & Technology 145 (2023).  Here is a link to the paper, and here is an excerpt from the introduction:

Contempt is a “potent weapon” patent owners can use to enforce injunctions. . . . The Federal Circuit first established the test for contempt of a patent injunction in KSM Fastening Sys. Inc. v. H.A. Jones Co., but only provided limited and confusing guidance on how it should be applied. In 2011, it modified and clarified this test in TiVo Inc. v. EchoStar Corp. This change prompted much speculation as to the effects on contempt in patent cases moving forward, with the prevailing view being that it would be easier to initiate contempt proceedings, but harder to succeed on contempt motions as a whole. Though more than eleven years have passed since the decision and empirical research into patent injunctions has grown, no studies have quantified TiVo’s effects on contempt outcomes.

 

This Note examines TiVo’s impact on the landscape of contempt by analyzing a new dataset of contempt motions filed between 2000 and 2022. Part II provides an overview of contempt of injunctions in patent law, how the test for contempt was altered in TiVo, and the effects many predicted the case would have on contempt outcomes. It also covers the limited empirical research previously conducted on this topic. Part III divulges the methodological design and limitations for this research. Part IV describes the results of this study and the finding that though initiation of contempt proceedings did increase after TiVo, the proportion of contempt motions granted did not increase. It proposes that the chance of prevailing on a contempt motion did not decrease because TiVo did not, in fact, heighten the standard for contempt. This Note concludes that despite concerns, TiVo succeeded in its goal of clarifying contempt law and increased access to contempt proceedings without excessively restricting the chance of success on a contempt motion.

Some End-of-the-Year FRAND Posts

1. On the Kluwer Patent Blog, Enrico Bonadio and Dyuti Pandya published a post titled Global FRAND Rates.  The post discusses the December 4, 2023 decision of the Intermediate People’s Court of Chongqing in Nokia v. Oppo.  The authors state that the decision has yet to be published in its entirety, but that excerpts of the opinion published elsewhere show that the court awarded Nokia a global FRAND royalty “lower than that asked by Nokia—$3.27/unit for 5G patent licensing.”

2. Further to the above, Tom Millikan and Kevin Zack published an article on Law360 titled The Year in FRAND:  What to Know Heading into 2024.  The article also discusses the Nokia v. Oppo decision.  According to the authors, the rates awarded were “for 4G SEPs, $.477 per phone (in China) and $.777 per unit (in Zone 1 and 2 countries, likely Western economies); for 5G SEPs, $.707 per unit (in China) and $1.151 per unit (in Zone 1 and 2 countries)”.  The authors also discuss, among other matters, the amended IEEE policy; the EWHC decisions in InterDigital v. Lenovo and Optis v. Apple; and the EC’s draft SEP regulation.  Very highly recommended!

3.  On IP Watchdog, Curtis Dodd and Chris Dubuc published The Top U.S. FRAND/RAND Licensing Developments of 2023 Part I:  Everybody into the Pool.  The pool refers to Avanci’s pool for connected vehicles and Sisvel’s cellular IoT pool.  The article also discusses several district court decisions in FRAND cases:  3G Licensing v. HTC (awarding damages and awaiting a decision on enhanced damages), and four interlocutory decisions addressing various claims or defenses, Atlas Global v. TP Link, G+ Communications v. Samsung, Philips v. Thales, and Continental v. Nokia.  The authors followed up with The Top U.S. FRAND / RAND Licensing Developments of 2023 Part II: Ghosts of Christmas Past and Christmas Future.  This one also discusses Nokia v. Oppo, as well as two dismissed U.S. antitrust actions.