Interesting Post on IPKat on Fordham IP Law Conference Session on Remedies

Post here.  The whole thing is worth reading, and includes a link to the recent Model Patent Jury Instructions published by the Federal Circuit Bar Association (not by the Federal Circuit itself, however, as the post suggests), which have a section on reasonable royalties stating inter alia that 

In determining the reasonable royalty, you should consider all the facts known and available to the parties at the time the infringement began. Some of the kinds of factors that you may consider in making your determination are:
(1) The value that the claimed invention contributes to the accused product.
(2) The value that factors other than the claimed invention contribute to [the accused product].
(3) Comparable license agreements, such as those covering the use of the claimed invention or similar technology (p.72).

Note, however, that the instructions go on to say that "No one factor is dispositive and you can and should consider the evidence that has been presented to you in this case on each of these factors. You may also consider any other factors which in your mind would have increased or decreased the royalty the alleged infringer would have been willing to pay and the patent holder would have been willing to accept, acting as normally prudent business people."

In addition, the post notes comments by Nicholas Groombridge and by Brian Pandya which I read as suggesting that when courts award reasonable royalties (which are based on an assumption of validity and infringement) or ongoing royalties in lieu of injunctive relief (which are calculated only after the patent has been found valid and infringed), they should either apply a multiplier to the rate set forth in comparable licenses (on the theory that the rate negotiated in a real-world license typically will reflect a discount for the possibility of invalidity or noninfringement) or use a settlement agreement (though in my view this raises a risk that the rate will also reflect holdup value).  These comments echo a proposal recently made in a very interesting paper by Professor Jonathan Masur, which I previously mentioned on this blog here.

Link to the Fordham IP Conference website here.

Federal Circuit Approves Reduction of Damages Due to Laches in Romag v. Fossil

In other news today, the Federal Circuit in Romag Fasteners, Inc. v. Fossil, Inc.  affirmed a judgment of patent and trademark infringement against Fossil and other defendants, as well as the district court's judgment reducing the amount of the patent award due to laches and refusing to allow the disgorgement of the defendants' profits as a remedy for non-willful trademark infringement.  According to the opinion (authored by Judge Dyk, joined by Judges Wallach and Hughes), the patent in suit is "U.S. Patent No. 5,777,126 (“the ’126 patent”) on magnetic snap fasteners, which Romag sells under its registered trademark, ROMAG."  Following a finding of liability, the jury awarded "a reasonable royalty of $51,052.14" for the patent infringement, and for the trademark infringement "an advisory award of $90,759.36 of Fossil’s profits under an unjust enrichment theory, and $6,704,046.00 of Fossil’s profits under a deterrence theory," even though it also found that the infringement was not willful (pp. 3-4).  The district court thereafter concluded that "Romag’s delay in bringing suit until just before 'Black Friday' constituted laches, and reduced the jury’s reasonable royalty award for patent infringement by 18% to exclude sales made during the period of delay. . . . The district court also held as a matter of law that, because Fossil’s trademark infringement was not willful, Romag was not entitled to an award of Fossil’s profits" (p.4).

On appeal, the court first rejects Romag's argument that damages cannot be reduced under the equitable doctrine of laches, citing its recent en banc decision in SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC to that effect (p.5).  (For previous discussion of SCA Hygiene Products on this blog, see here.)  Second, the court holds that willfulness remains a prerequisite for awards of infringer's profits under the Second Circuit's interpretation of the Lanham Act (the federal trademark and unfair competition statute), though it notes that there is a circuit split on this issue (pp. 5-17).  I'm inclined to think this is right as a matter of policy, and would note only that this is an important issue of federal trademark law; and that at some point it might be useful either for Congress to clarify the law in this regard or for the Supreme Court to resolve the circuit split.  For further discussion, see, e.g., Barton Beebe, Thomas F. Cotter, Mark A. Lemley, Peter S. Menell & Robert P. Merges, Trademarks, Unfair Competition, and Business Torts 295-99, 511 (Aspen Publishers 2011) (second edition coming soon!)   Of course, when it comes to U.S. patent law, disgorgement of profits is off limits except in design patent cases, and the Supreme Court will be addressing the matter as it relates to design patents later this year in Apple v. Samsung (see here).

Federal Circuit Denies Rehearing En Banc in ClearCorrect v. ITC

This past November, a panel of the Federal Circuit held in ClearCorrect Operating, LLC v. International Trade Commission that digital data are not "articles," and thus that section 337 of the U.S. Tariff Act (which renders unlawful the importation of infringing "articles" into the United States, subject to certain conditions) does not confer jurisdiction on the U.S. International Trade Commission (ITC) to issue a cease and desist order directed against the electronic transmission of such data into the United States.  (For my post on the original panel opinion, see here.)  This morning the court denied a petition for rehearing en banc (order and opinions here).  Judge Newman filed a dissenting opinion, arguing inter alia that "Section 337 does not distinguish between infringing goods imported electronically and infringing goods imported on a physical medium," and that the ITC's interpretation of the statute (that articles do include digital data) is entitled to deference under the Chevron doctrine.  Chief Judge Prost, the author of the original panel opinion, filed an opinion (joined by Judges O'Malley and Wallach) concurring in the order denying the petition for rehearing and responding to certain points raised in Judge Newman's dissent.  

Delhi High Court Allows Competition Law Investigation of Ericsson's SEP Licensing Practices to Proceed

Story here from Shamnad Basheer of the Spicy IP Blog; opinion available here.  Bottom line appears to be that complaints filed by Micromax and Intex with the Competition Commission of India (CCI), alleging abuse of dominant position by Ericsson in relation to its FRAND-committed SEPs, may proceed.  Key portion of the opinion (paras. 199-200, pp. 151-52):

. . . there is good ground to hold that seeking injunctive reliefs by an SEP holder in certain circumstances may amount to abuse of its dominant position. The rationale for this is that the risk of suffering injunctions would in certain circumstances, clearly exert undue pressure on an implementer and thus, place him in a disadvantageous bargaining position vis-a-vis an SEP holder. A patent holder has a statutory right to file a suit for infringement; but as stated earlier, the Competition Act is not concerned with rights of a person or an enterprise but the exercise of such rights. The position of a proprietor of an SEP cannot be equated with a proprietor of a patent which is not essential to an industry standard. While in the former case, a non-infringing patent is not available to a dealer/manufacturer; in the latter case, the dealer/manufacturer may have other non-infringing options. It is, thus, essential that bargaining power of a dealer/manufacturer implementing the standard be protected and preserved.

In the present case, apart from instituting suits for infringement against Micromax and Intex, Ericsson has also threatened Micromax with complaints to SEBI, apparently, while Micromax was contemplating and/or in the process of floating a public offer of its shares. Such threats were, undoubtedly, made with the object of influencing Micromax to conclude a licensing agreement. It is not necessary for this Court to examine whether in the facts of this case, such threats also constitute an abuse of Ericsson's dominant position. Suffice it to state that in certain cases, such threats by a proprietor of a SEP, who is found to be in a dominant position, could be held to be an abuse of dominance. Clearly, in certain cases, such conduct, if it is found, was directed in pressuring an implementer to accept non-FRAND terms, would amount to an abuse of dominance.

The court then holds that the CCI has jurisdiction to proceed with its investigation, though the judge is careful to say that he is not taking a position on the merits of the allegations.  After discussing the CJEU's decision in Huawei v. ZTE among other matters, the judge also expresses the view--consistent with Huawei, and at odds with the German courts' pre-Huawei Orange-Book-Standard framework--that one can be a willing licensee and still reserve the right to challenge the validity of the licensor's patent (see pp. 155-58, paras. 204-07).

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Elsewhere in the blogosphere today, Florian Mueller has an interesting post on FOSS Patents on the disgorgement of profits remedy at issue in the U.S. Apple v. Samsung case (now pending before the U.S. Supreme Court, see here) and the U.S. Oracle v. Microsoft copyright case.

Two More Papers on the Smallest Salable Patent Practicing Unit

The question of whether the royalty base for standard-essential or other patents should normally be the smallest salable (or saleable--according to Webster's, either spelling is acceptable) patent practicing unit (SSPPU) is one that has elicited scholarly commentary recently.  The other day I mentioned Nicolas Petit's new article The Smallest Salable Patent-Practicing Unit ('SSPPU') Experiment, General Purpose Technologies and the Coase Theorem and The IEEE-SA Revised Patent Policy and Its Definition of 'Reasonable' Rates: A Transatlantic Antitrust Divide? (see post here); and others including Greg Sidak and Richard Stern have also weighed in (see here and here).  Here are two more recent papers on the topic:

1. David Teece and Edward Sherry have posted a paper titled On the ‘Smallest Saleable Patent Practicing Unit’: An Economic and Public Policy Analysis.  Here is a link to the paper.  From the introduction:

The “smallest saleable patent practicing unit” (SSPPU) doctrine was developed in the context of patent infringement damages awards. It provides that, in calculating patent infringement damages, the damages base should be the imputed revenues that the infringer would have earned had all of the actual sales been made of the “smallest saleable patent practicing unit” containing the patented invention. This article does not attempt to summarize the SSPPU doctrine from a legal perspective or examine its legal foundations (or lack thereof). A good summary of the doctrine, which the author characterizes as arising from “a recent series of confusing and contradictory opinions,” and many of the decisions, is found in Sidak (2014).

We show that the doctrine makes no economic sense and is completely at odds with the long standing view that in determining reasonable royalties one should mimic licensing practices in the real world. Such practice usually specify percentages removing royalties on the device revenues or per unit device royalties, but never a SSPPU. The reason is that the value from patented technology is manifested in many places besides components; moreover, transaction cost considerations make SSPPU licenses difficult to monitor and enforce. Accordingly, mandating SSPPU licensing would be a fool’s errand if the goal is a properly functioning natural (or global) system of innovation.

2.  Anne Layne-Farrar has posted on ssrn a paper titled The Practicalities and Pitfalls of the Smallest Saleable Patent Practicing Unit Doctrine: A Review of Teece and Sherry.  Here is a link to the paper, and here is the abstract:

In early 2016, David Teece and Edward Sherry released a new paper assessing the economics of the “Smallest Saleable Patent Practicing Unit” (SSPPU) doctrine. The doctrine was first espoused in 2009 by Judge Randall Rader in Cornell v. Hewlett Packard. In the simplest terms, the SSPPU doctrine calls for setting the revenue base for reasonable royalty patent infringement damages at the smallest possible product level that still reflects the patented invention. In their new paper, Teece and Sherry walk through the justifications expressed in support of applying the SSPPU doctrine and discuss the assumptions embedded within those justifications. The authors also explain a number of the limitations of the doctrine, both logical and practical. In this brief review, I summarize the key findings reported in the Teece and Sherry paper and highlight the policy implications.

FRAND Royalty Issues in Metaswitch v. Genband

The Patent Damages Blog recently published a post on Magistrate Judge Roy S. Payne's recent Memorandum Order in response to a motion to exclude certain opinions of the plaintiff's proposed expert in Metaswitch Networks Ltd. v. Genband US LLC, a case now pending in the Eastern District of Texas.  Reminiscent of Microsoft v. Motorola, the magistrate will allow the expert to rely "on the W-CDMA patent pool as evidence of the FRAND rate in this case," and to apply a multiplier of three to that rate, "based on real-world factors such as the participation rate and the value of expected cross-licenses" (Order p.4).  Reminiscent of In re Innovatio IP Ventures LLC, the expert also wanted to apply, in the alternative, a "top-down" approach that would "allocat[e] the available profit on the smallest saleable unit ('SSU') across an estimate of the minimum number of all relevant SEPs" (Order p.5).  The court excluded this testimony, however, stating:

the way Mr. Lynde determines the “proportion of Genband’s ’006 patent to total SEPs for the Metaswitch accused product” is by counting the number of companies that provided intellectual property disclosures to the IETF standard setting organization, and assuming that the value of each participant company’s patent portfolio is the same. (Dkt. No. 177-3 at ¶ 48). This approach ignores the size of each company, the number of patents in each company’s portfolio, and the differences in value between patents—his approach necessarily assumes that every participant company’s patent portfolio was exactly the same as Nortel’s. Mr. Lynde’s only justification for glossing over these details is that “Nortel is one of many large technology companies with significant patent portfolios in this area.” (Id.). He does not attempt to quantitatively (or even qualitatively) compare Nortel’s portfolio to the portfolios of the other participant companies.

Mr. Lynde’s top down approach is highly speculative and not supported by sufficient “facts or data.” See In re Innovatio IP Ventures, LLC, 2013 U.S. Dist. LEXIS 144061 at *168 (N.D. Ill. Sept. 27, 2013) (top down approach “requires verifiable data points, such as the number of 802.11 standards-essential patents”). Mr. Lynde admits in his report that “there is no information available with regard to the specific patents that may be covered under the blanket declaration by a given company.” (Dkt. No. 177-3 at ¶ 48). An absence of information is not a license to speculate. Mr. Lynde’s opinions relating to the “top down” approach are excluded (Order pp. 5-6).

As I've stated in a couple of recent papers coauthored with Norman Siebrasse (see here and here), I am somewhat sympathetic to some version of a top-down approach to estimating FRAND royalties (though not necessarily to the Innovatio approach in every particular).  At the same time, I recognize that it may be problematic to apply such an approach when the evidence as to the number of (valid and infringed) SEPs and the relative importance of the SEPs at issue in comparison with the others is lacking.  In a sense, the issue boils down to whether courts should allow the use of certain shortcuts or assumptions--what I might refer to as "soft presumptions"--because, notwithstanding their shortcomings, they are better than any other alternative.  I'm not yet sure what the right answer is, but I plan to being addressing this issue in a forthcoming article.

Vringo v. ZTE Brazil SEP Case

As a follow-up to this post on the Romanian Vringo v. ZTE matter, here is a link to the original and an English-language translation of a November 2015 decision from Brazil's Superior Court of Justice in ZTE do Comércio, Serviços e Participações Ltda v. Vringo Infrastructure Inc., dismissing an appeal from the entry of a preliminary injunction against ZTE's Brazilian subsidiary.  Again, thanks to David Cohen of Vringo for passing this along.

For previous discussion on this blog of FRAND issues in Brazil, see here, here, here, and here.