PLI IP Discussions—Damages

A few weeks ago, I had the pleasure of participating, along with Shelly Irvine and Megan New, in a Practicing Law Institute (PLI) program moderated by Joshua Simmons and titled "IP Discussions—Damages."  The program is now available on PLI website, here.  Here is a portion of the program description:    

Damages are an integral part of every litigation.  Yet, there are several ways in which the courts do not approach them in the same manner.  This may be because different causes of action permit different kinds of damages.  It, however, also may be because judges have different perspectives on fundamental damages principles. 

What You Will Learn:

After completing this program, participants will learn: 

• When are enhanced damages permitted? 

• How do you determine when prior agreements are comparables? 

• What circumstances are required to seek extraterritorial damages?

My remarks largely centered on the first and third questions above, as well as unjust enrichment, apportionment, and damages for noneconomic harm.  Feedback welcome!

Federal Circuit Affirms Denial of Attorneys' Fees, Declines to Award Sanctions for Allegedly Frivolous Appeal

The case is United Cannabis Corp. v. Pure Hemp Collective Inc., precedential opinion by Judge Stark joined by Judges Louries and Cunningham.  Plaintiff United Cannabis (UCANN) filed suit against the defendant Pure Hemp for infringement of a patent relating to cannabis extracts.  While the litigation was pending, UCANN filed for bankruptcy, and the parties thereafter stipulated to dismissal.  The trial court dismissed UCANN’s infringement claims with prejudice, and Pure Hemp’s counterclaims for invalidity and inequitable conduct without prejudice.  Pure Hemp then moved for an award of attorneys’ fees pursuant to 35 U.S.C. § 285, 28 U.S.C. § 1927 (which authorizes sanctions for unreasonable and vexatious conduct), and the court’s inherent authority.  Pure Hemp informed the court that it wasn’t seeking an evidentiary hearing on these motions, however, and the district court subsequently denied the motion based on the record before it.   On appeal, “Pure Hemp identifies three supposed errors committed by the district court: (1) failing to find Pure Hemp to be the prevailing party in the litigation; (2) not concluding that the undisputed facts establish inequitable conduct; and (3) not recognizing that UCANN’s attorneys had a conflict of interest for which they should be sanctioned” (pp. 6-7).  

As for the first issue, although the Federal Circuit agrees that the district court erred in stating that Pure Hemp was not the “prevailing party” for purposes of § 285, the court agrees with UCANN that the error was harmless because “the district court went on to consider the question of whether this case is exceptional,” and did not abuse its discretion in concluding that “Pure Hemp failed to meet its burden on this additional, necessary element of its motion” (p.7).  In regard to the first ground, inequitable conduct, the court states

 

. . . we have no findings to review. The district court made no findings, and was not required to do so, because Pure Hemp voluntarily dismissed its counterclaim for inequitable conduct before any such findings had been made and, thereafter, in connection with its post-dismissal motion for attorney fees, Pure Hemp told the district court it did not seek any further evidentiary proceedings. . . . It is self-evident that a district court does not abuse its discretion by not conducting a post-dismissal inequitable conduct proceeding, in aid of resolution of a § 285 motion, when the moving party explicitly disclaims any desire for such a proceeding (p.8).

The court similarly finds unpersuasive the argument that it should find inequitable conduct on the basis of supposedly undisputed facts in the record, or on the basis of its own (appellate-level) factfinding (pp. 8-11).  On the conflict of interest issue—involving an allegation that Pure Hemp’s counsel “simultaneously took conflicting positions for two of its clients, by prosecuting identical patents for both UCANN and Gw Pharma” (p.12)—the court concludes, first, that Pure Hemp waived the argument by failing to “cite Rule 1.7 of the Model Rules of Professional Conduct, which is the basis for its conflict contention before us, to the district court”; and second that, in any event, the “allegations . . .  lack merit” because Pure Hemp “presented no evidence that the patents Cooley prosecuted and obtained are identical” (pp. 12-13).

The court concludes by denying UCANN’s motion for sanctions for filing a frivolous appeal, stating that although the matter presents “a close call,” the appeal was not frivolous:

 

While Pure Hemp’s position is extremely weak, it is neither “frivolous as filed” nor “frivolous as argued.” Pure Hemp has prevailed on its appeal from the district court’s erroneous conclusion that Pure Hemp was not the prevailing party. While UCANN never contested this point, Pure Hemp’s victory on it persuades us that its appeal was not entirely frivolous when filed. As for how it has argued its appeal, there is much on which to fault Pure Hemp, including its contentions that the fact-laden issue of an attorney’s specific intent can be resolved on our record as undisputed and that, alternatively, we should sit as factfinders. Then there are Pure Hemp’s unsupported attacks on the integrity of UCANN’s prosecution counsel (as discussed above in connection with inequitable conduct) and on UCANN’s litigating counsel (whom Pure Hemp, unconvincingly, accuses of misconduct on appeal). . . . We take this opportunity to remind counsel of their obligation not to lightly launch attacks on one another’s integrity and most certainly not to do so without a sound basis and solid evidence. Although we are not pleased with how Pure Hemp has argued this appeal, we cannot say this appeal, as a whole, was “frivolous as argued” (pp. 14-15).

 

Some New Papers on SEPs, FRAND

1. Gustav Brismark, Mattia Fogliacco, Carter Eltzroth, Matteo Sabattini, and Richard Vary published an article titled   Overview of SEPs, FRAND Licensing and Patent Pools, in  les Nouvelles - Journal of the Licensing Executives Society, Volume LVIII No. 1, March 2023.  Here is a link, and here is the abtract:

 

An SEP is a patent, necessarily infringed when implementing a technical standard adopted by a standards development organization (SDO), for example, IEEE, ISO/IEC MPEG or DVB. In order to eliminate the risk of hold-up by an SEP owner, SDOs generally include in their IPR policies a requirement that members declare whether they are prepared to offer licences to their SEPs on terms that are fair, reasonable and non-discriminatory (FRAND). A second obligation that selected SDOs implement is to require notification of patents that are or may become essential. If SEP owners identify a patent and say that they will not offer licences on FRAND terms, the SDO may remove the technology from the standard.

 

SEP ownership, together with the FRAND promise, is treated by courts within a framework based on antitrust rules or contract law. These IPR policies work well for the SDOs, ensuring reward for the technology contributors and access to SEPs, and therefore to the standard, for implementers. But bilateral licensing negotiation between the SEP holder and the implementer has become drawn out, subject to delaying tactics and other gamesmanship by implementers. Costly litigation is often the result. Patent pools are an alternative, efficient and pro-competitive mechanism for licensing, bringing together in a licensing program SEPs owned by multiple owners. The pool offers a one-stop shop, a lower aggregate royalty and transparency in the offered SEPs and in the licensing terms, and evaluations of essentiality performed by independent third party experts. One SDO, DVB, actively encourages pools of DVB-essential standards by fostering their formation in a pre-commercial process. Pools reduce the overall number of litigations, thanks to aggregation. Further, over the past decade judicial decisions, such as Sisvel v Haier, have been useful in identifying the steps in good-faith negotiation, the elements of a FRAND offer, and the conditions under which the SEP holder can enforce its rights through injunctions. This judicial framework, together with pooling, can be applied to increase transactional efficiency, especially at a time of growing complexity through convergence of new industries, benefitting not only large market players but also small and medium-sized enterprises.

2. Joachim Henkel published a paper (linked to in his Kluwer Patent Blogpost that I mentioned last week) titled Licensing standard-essential patents in the IoT – A value chain perspective on the markets for technology, Research Policy 51 (2022) 104600.  Here is a link, and here is the abstract:

 

Innovative industries need efficient markets for technology (MFTs). One determinant of MFT efficiency neglected until now is licensing level—that is, the level in the value chain where patents are licensed. Patents may be licensed upstream, to firms that put the patented knowledge into practice. I refer to this as integrated licensing. Alternatively, patents may be licensed further downstream in the value chain, in particular to makers of final devices. I call this bifurcated licensing since it separates intellectual property rights from the technical knowledge they cover. I study the licensing level of essential patents on communication standards such as LTE and Wi-Fi in relation to the Internet of Things (IoT). The choice of licensing level in this context is currently a hotly debated topic. To show how bifurcated licensing affects MFT efficiency, I present empirical evidence from a qualitative study comprising interviews with 30 individuals from 22 diverse firms, focusing on startups. IoT device makers clearly find the uncertainty regarding infringement, patent validity, and the licensing process hinders efficient licensing, which is compounded by the large number of IoT device makers and, for SMEs and startups, by resource constraints. As a theory contribution, I show that a patent's licensing level need not correspond with the implementation level of the patented knowledge—in other words, licensing may be bifurcated rather than integrated. I develop a model of how licensing level affects MFT efficiency. Implications for practice are that device-level licensing of standard-essential patents (SEPs), if broadly implemented, would have a negative effect on innovation and entrepreneurship in the IoT. Policymakers should ensure that SEP licensing is simplified.

3. Henrik Horn posted a paper on ssrn titled International Jurdisdiction Over Standard-Essential Patents.  Here is a link, and here is the abtract:

 

Countries are alleged to pursue commercial interests through their antitrust interventions regarding FRAND commitments for standard-essential patents (SEPs). This paper examines pros and cons of allocating jurisdiction according to fundamental principles in international law, assuming that countries’ regulations promote national objectives. It shows why the Territoriality Principle yields too lenient treatment of patent-issuing countries’ SEPs, and too strict of treatment of other countries’ SEPs, and why the Nationality Principle yields too lenient treatment generally. Non-discrimination obligations can, but need not, improve on outcomes. Hence, existing international law will typically not implement efficient outcomes, suggesting that an international agreement is required.