Tuesday, February 9, 2016

Federal Circuit Affirms Judgment of No Damages for Alleged Pre-Issuance Use of Invention

In a case of first impression, the Federal Circuit today held in Rosebud LMS Inc. v. Adobe Systems, Inc. that section 154(b) of the U.S. Patent Act permits the owner of an issued patent to recover damages for the pre-issuance use of a claimed invention when the defendant has actual knowledge of the pending application.  (Opinion by Judge Moore joined by Judges Hughes and Stoll.)  The relevant statute (which I will, coincidentally, be teaching in my Advanced Patents class on Thursday--students, take note!) reads as follows (with my emphasis added):
(1) In general.--In addition to other rights provided by this section, a patent shall include the right to obtain a reasonable royalty from any person who, during the period beginning on the date of publication of the application for such patent under section 122(b) . . . and ending on the date the patent is issued–
(A)(i) makes, uses, offers for sale, or sells in the United States the invention as claimed in the published patent application or imports such an invention into the United States; or
(ii) if the invention as claimed in the published patent application is a process, uses, offers for sale, or sells in the United States or imports into the United States products made by that process as claimed in the published patent application; and
(B) had actual notice of the published patent application . . . .
(2) Right based on substantially identical inventions.--The right under paragraph (1) to obtain a reasonable royalty shall not be available under this subsection unless the invention as claimed in the patent is substantially identical to the invention as claimed in the published patent application. . . .
In Rosebud LMS
Adobe moved for summary judgment of no remedies, claiming that Rosebud was not entitled to post-issuance damages because Adobe had discontinued use of the accused technology in January 2013, ten months before the issuance of the ’280 patent. Adobe also asserted that Rosebud was not entitled to preissuance damages under § 154(d) because Adobe had no  actual notice of the published patent application that led to the ’280 patent. Rosebud did not oppose Adobe’s motion for summary judgment with respect to post-issuance damages. Instead, Rosebud argued that there remained a genuine dispute of material fact as to whether Adobe had actual knowledge of the published ’280 patent application. Specifically, Rosebud argued that Adobe had actual knowledge of the grandparent patent to the ’280 patent application; that Adobe followed Rosebud and its product and sought to emulate some of its product’s features; and that it would have been standard practice in the industry for Adobe’s outside counsel in Rosebud II to search for the ’280 patent application, which was published before Rosebud II was filed and related to the patent asserted in that suit (pp. 2-3).
The district court granted the motion, on the ground that "Rosebud had not met § 154(d)’s requirement of actual notice because Rosebud’s evidence did not identify the ’280 patent application by number, and was, at best, evidence of constructive notice" (p.3).

The Federal Circuit affirms, but in doing so it holds that "actual notice" doesn't necessarily require an affirmative act by the patent owner: 
We agree with Adobe and the district court that constructive knowledge would not satisfy the actual notice requirement. We do not, however, agree with Adobe that § 154(d)’s requirement of actual notice requires an affirmative act by the applicant giving notice of the published patent application to the infringer. Certainly, “actual notice” includes a party affirmatively acting to provide notice. See, e.g., 58 Am. Jur. 2d Notice § 4 (2015) (defining actual notice as “notice expressly and actually given”); Black’s Law Dictionary 1227 (10th ed. 2014) (defining actual notice as “[n]otice given directly to, or received personally by, a party”). But the ordinary meaning of actual notice” also includes knowledge obtained without an affirmative act of notification. “Indeed, ‘actual notice’ is synonymous with knowledge.” 58 Am. Jur. 2d Notice § 4 (2015) (also explaining that “[a]ctual notice rests upon personal information or knowledge while constructive notice is notice that the law imputes to a person not having personal information or knowledge”).
The court also rejects Adobe's argument that the legislative history of the provision suggests that it requires an affirmative act by the applicant, on the ground that the statutory text does not require this; and that the provision should be read consistently with section 287(a), the patent marking statute:
We have interpreted this latter provision to require “the affirmative communication of a specific charge of infringement.” Amsted Indus. Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 187 (Fed. Cir. 1994) (citing Dunlap v. Schofield, 152 U.S. 244 (1894)). But we will not read this requirement into § 154(d), where the statute itself does not recite the condition. If § 154(d) contained § 287(a)’s “proof that the infringer was notified” language, our interpretation of § 287(a) would be relevant, and likely dispositive. But that is not the case. Section 287(a) explicitly requires an act of notification, unlike § 154(d), which merely requires “actual notice.” If anything, these differences suggest that we should interpret the two statutes differently. Section 287(a) shows that Congress knows how to use language requiring an affirmative act of  notification when it wishes. It could have used that language in § 154(d) and did not.  
Perhaps there are, as Adobe argues, policy reasons for requiring an affirmative act of notification by the patentee. Requiring the applicant to affirmatively provide notice to potential infringers is in line with the extraordinary nature of statutory pre-issuance damages. Moreover, a strict rule requiring notification by the applicant is simpler to implement and does not leave the accused infringer in the difficult situation of having to rebut allegations that it knew of the published application. If Congress wishes, it can amend the statute to require an affirmative act by the patentee. We cannot. In the absence of such action, we interpret the actual notice requirement of § 154(d) as it is clearly written to have its ordinary meaning (pp. 6-7).
Nevertheless, on the facts, the court agrees that Adobe did not have sufficient notice because (1) the fact that Adobe had knowledge of the '280 Patent's grandfather application does not demonstrate that it had knowledge of the published application that matured into the '280 Patent; (2) the evidence did not show that Adobe was monitoring Rosebud's products, and (3) the evidence did not show that outside counsel necessarily would have come across the '280 application while preparing for litigation between the parties involving an earlier-issued related patent, which litigation never proceeded beyond the claim construction stage. 

My initial reaction to the court's rule is not positive.  I would think that actual notice should be construed to mean just that, notice, not actual knowledge; I think the policy considerations cited by Adobe deserve some consideration; and I'm not all that persuaded by the citations to Am. Jur., though I'll leave it to others for now to track down the source and context of the materials supporting the Am. Jur. quotes.  Perhaps the number of cases in which this sort of issue will come up will continue to be small, but I worry that the court has created a potential Pandora's box by permitting damages liability to arise absent an affirmative act by the owner of the pending application.    

R.I.P. Artur Fischer

According to this obituary in today's New York Times, the German inventor Artur Fischer, who died recently at the age of 96, was one of the most prolific inventors of all time.  The recipient of even more patents than Thomas Edison, Fischer made contributions to among other fields photography, home repair, and hobby kits/toys (Fischertechnik).  Here's an interview he gave to Der Spiegel in 2015 (in German).

Monday, February 8, 2016

Sidak on Royalties, SEPs, China

J. Gregory Sidak has some new papers on patent remedies and related issues, including the following:
 
1.  Ongoing Royalties for Patent Infringement, forthcoming in 24 Texas Intellectual Property Law Journal (2016).  Here is a link to the paper, and here is the abstract:
Section 283 of the Patent Act provides that, to prevent the ongoing infringement of a patent, courts “may grant injunctions in accordance with the principles of equity.” If the court decides that the issuance of an injunction is not appropriate, it may direct the parties to negotiate a royalty for the infringer’s future use of the patented technology. When such a negotiation fails, the court will impose an ongoing royalty that the infringer must pay. The U.S. Court of Appeals for the Federal Circuit has clarified that the calculus for an ongoing royalty differs from the calculus for a reasonable royalty typically awarded for past infringement, but it has not prescribed any particular methodology for a court to apply when determining an ongoing royalty. I conduct an empirical analysis of the courts’ decisions on ongoing royalties, which shows that a court-awarded ongoing royalty typically exceeds the jury-determined reasonable royalty imposed for past infringement. However, my analysis does not identify any single variable that affects the court’s determination of an ongoing royalty, which suggests that the courts have not yet developed a consistent methodology for determining an ongoing royalty. This article aims to fill that gap in the existing legal guidance by providing a simple yet rigorous economic methodology that courts can apply when determining an ongoing royalty. Because an ongoing royalty is an equitable remedy, awarded in lieu of a permanent injunction, no jury needs to be involved in determining the ongoing royalty. Consequently, Daubert and its progeny are not implicated (or, at the very least, the role of Daubert differs from its role in cases in which a jury acts as the finder of fact). In addition, the rationale for the entire market value rule (EMVR)—namely, avoiding jury confusion because of a large damage base—is inapplicable when calculating an ongoing royalty. When determining an ongoing royalty for the prospective use of a patented technology, courts can apply a methodology similar to that used to calculate a reasonable royalty. Courts need to consider the changes in economic circumstances from the time of first infringement to the time of the jury’s verdict and then determine how those changes affect the hypothetical negotiation for an ongoing royalty. In economic terms, courts should examine how the information that became available after the first infringement affects the bargaining range for the use of the patent or patent portfolio. That is, courts need to identify any changes in the patent holder’s minimum willingness to accept and the infringer’s maximum wiliness to pay. Next, courts need to examine whether the parties’ relative bargaining positions have changed (compared to their bargaining positions at the time of first infringement) to determine a point royalty within the bargaining range. I show that, although the court’s determination of an ongoing royalty will be fact-specific and will vary on the basis of the specific circumstances of each case, the changes in the economic conditions between the time of first infringement and the time of the hypothetical negotiation for an ongoing royalty will typically support the award of an ongoing royalty that exceeds the reasonable royalty for past infringement. An ongoing royalty that exceeds the reasonable royalty for past infringement should not be confused with an award of enhanced damages for willful infringement, which courts rarely award.
2. The Value of a Standard Versus the Value of Standardization, forthcoming in 68 Baylor Law Review (2016).  Here is a link, and here is the abstract:
The Federal Circuit said in Ericsson, Inc. v. D-Link Systems, Inc. that a jury instructed to determine a fair, reasonable, and nondiscriminatory (FRAND) royalty for standard-essential patents (SEPs) “must be told to consider the difference between the added value of the technological invention and the added value of that invention’s standardization.” The court emphasized that a FRAND royalty “must be premised on the value of the patented feature, not any value added by the standard’s adoption of the patented technology.” The Federal Circuit reasoned that “those steps are necessary to ensure that the royalty award is based on the incremental value that the patented invention adds to the product” and is not based on any value that the standardization of that technology adds to the product. 
The Federal Circuit’s phrase “the value of standardization” is abstract and ambiguous. Restated in more direct and more intuitive terms, the phrase appears to denote the value from making a collective decision to conform to a standard—that is, the value that arises when inventors and potential implementers agree that they will comply with a standard to solve a particular technological challenge. That agreement to create a standard does not imply that a feasible technology already exists to become the standard, nor does it indicate that the required technology (if it does not yet exist) will be straightforward to develop. The standard-setting organization (SSO) cannot simply hypothesize that an available and acceptable technology exists for the standard because the SSO would like to have a standard. 
Consequently, in patent litigation after Ericsson v. D-Link it is essential to disaggregate “the value of standardization” from the value of the technologies incorporated into the standard. “The value of standardization”—that is, the value of the agreement to implement a unified standard—can arise from (1) a reduction in transactions costs for implementers of the standard and for SEP holders and (2) the network effects generated by interoperability between standard-compliant products. The value of the technologies incorporated into the standard comprises the rest of the total value of the standard.
3. Evading Portfolio Royalties for Standard-Essential Patents Through Validity ChallengesHere is a link to the paper, and here is the abstract:
A no-challenge clause prevents a patent licensee from challenging the validity of a licensed patent. In the 2014 Guidelines on Technology Transfer Block Exemption Regulation, the European Commission discouraged parties from including a no-challenge clause in a settlement and license agreement concerning standard-essential patents (SEPs). The Commission said that eliminating invalid patents serves the public interest because it promotes competition. For similar reasons, in 2014, the Advocate General of the Court of Justice of the European Union opined in Huawei Technologies Co. v. ZTE Corp. that EU competition law should allow a licensee to retain the right to challenge a licensed SEP’s validity notwithstanding that the licensee has entered into a settlement and license agreement with the SEP holder. I analyze the Commission’s and the Advocate General’s assumption that a licensee’s challenging the validity of SEPs unambiguously benefits consumers. I assess the merits of that legal proposition within the well-established economic framework of cost-benefit analysis. I particularly focus on the marginal benefits and the marginal costs that eliminating no-challenge provisions would generate for consumers. I explain that the Commission and the Advocate General exaggerated the marginal benefits and understated the marginal costs of validity challenges to licensed SEPs, particularly when the typical SEP holder repeatedly licenses its SEPs in a large portfolio to a sophisticated licensee. The discovery that several SEPs in a licensed portfolio of hundreds are invalid would neither surprise the parties nor justify reducing the portfolio royalty. The Commission and the Advocate General ignored that encouraging a licensee to challenge the validity of individual licensed SEPs invites opportunistic litigation by the licensee so as to delay paying the SEP holder the agreed-upon royalty for the use of the many more valid patents in its licensed portfolio. Thwarting the SEP holder’s ability to receive prompt compensation for its innovative contribution lessens the SEP holder’s incentive to invest in innovation and thus decreases quality of collective standard setting. Those effects in turn impose significant marginal harm on consumers. Consequently, the Commission and Advocate General erred to assume that consumers derive a net marginal benefit from the announced policy encouraging a licensee to challenge to the validity of licensed SEPs.
4. Comments on the Revised Draft Amendments to the Patent Law, available here, and Comments on the Anti-Monopoly Guidelines on the Abuse of Intellectual Property Rights, available here.

Friday, February 5, 2016

Hovenkamp & Cotter on Anticompetitive Patent Injunctions

I am pleased to announce that the Minnesota Law Review has now published the article I coauthored with Erik Hovenkamp, titled Anticompetitive Patent Injunctions, 100 Minn. L. Rev. 871-919 (2016)Here is a link to the published version of the paper.  The abstract reads:
The current approach for determining when courts should award injunctions in patent disputes involves a myopic focus on the hardships an injunction might impose on the litigants and the public. This article demonstrates, however, that courts sometimes could rely instead on a consideration far more relevant to the patent system's goal of promoting innovation: the extent to which the right to exclude was actually a necessary quid pro quo for the plaintiff's decision to bring its products to market. We illustrate the value of this approach with a critique of a recent Federal Circuit decision, Trebro Mfg. Inc. v. FireFly Equipment, LLC, which held that injunctive relief may be appropriate when a defendant infringes a patent that the plaintiff-competitor does not practice, and against which it lacked any legal protection when it entered the relevant downstream market. These circumstances — which are increasingly common in industries with rich markets for secondhand patents, result in the formation of what we refer to as a “diagonally integrated” nonpracticing entity (NPE) — a producer who owns a patent it does not practice, and who competes with downstream rivals who use (or would like to use) the patented technology. We develop a simple model showing that if such a firm acquired the unpracticed patent after entering the relevant product market, an injunction poses a threat to competition and consumer welfare that is not offset by any plausible benefit to innovation. Further, diagonally integrated NPEs have a perverse incentive to exclude or substantially limit all use of the patented technology, making them more likely to seek excessive licensing fees and aggressively seek injunctive relief than are conventional, “unintegrated” NPEs. This effort to foreclose all use of a technology is novel in the patent literature, but the spirit of this tactic is well known in antitrust: a dominant firm acquires patents that it has no intent to use simply in order to deny the technology to rivals, thus perpetuating its dominant position. The model’s implications also extend to a range of topics at the core of contemporary patent policy debates, including patent privateering, FRAND-encumbered patents, and preemptive patenting. It also suggests that in considering appropriate remedies the court should weigh competition concerns more seriously, particularly when there is little or no tradeoff with innovation concerns. 

Thursday, February 4, 2016

Another Cert Petition on Disgorgement of Profits for Design Patent Infringement

Hat tip to Sarah Burstein and Patently-O for flagging this one.  The case is Systems, Inc. v. Nordock, Inc., which I blogged about when the Federal Circuit issued its opinion in September (see here).  Like Samsung v. Apple (see my most recent blog post here), the cert petition here asks the Court to consider whether Patent Act § 289 requires the disgorgement of a design patent infringer's entire profit from sales of articles embodying the protected design, or only the portion of those profits that are attributable to the design itself.  The questions presented are:
1.  Where a patented design is applied to only a component of a product, should an award of infringer's profits be limited to those profits attributable to the component?
2.  Is the Federal Circuit's interpretation and application of 35 U.S.C. § 289 inconsistent with this Court's prior precedent?
It will be interesting to see if the Court grants cert in one or both cases, and if so whether it will find a way to interpret the statute that is economically rational--or instead leave the matter for Congress to correct.

Update:  And while on the topic of the Samsung v. Apple case, over on FOSS Patents Florian Mueller reports that Apple has now filed its respondents' brief in opposition to cert (almost two weeks early!).  And though it's not relevant to design patents, Florian also reports this news article stating that a jury in the Eastern District of Texas has awarded VirnetX $625 million against Apple on remand from the 2014 VirnetX v. Apple appeal (see my blog post here).  It will be interesting to see if this one holds up.

Further Update to the VirnetX v. Apple Verdict:   Patently-O has posted the verdict form here.  As is standard practice in the U.S., there is nothing in the form to indicate how the jury arrived at its numbers ($334,908,773.73 for 2009-13, and $290,725,067.31 for "this infringement through the time of trial").  In the past I have wondered whether it would be desirable in patent (and perhaps other) cases if courts submitted to the jury a form for a general verdict with special interrogatories, pursuant to Federal Rule of Civil Procedure 49(b), so we would have a clearer understanding of what the basis is for a damages award (rate, base, etc.) . . . but to my knowledge this practice is rarely used in this context.  Maybe it wouldn't be worth the added effort.

Tuesday, February 2, 2016

Japan Fair Trade Commission Publishes Amended Antitrust/IP Guidelines

Kaori Minami published a short post on the IPKat yesterday about the JFTC's release of its amended Guidelines for the Use of Intellectual Property under the Antimonopoly Act.  Readers may recall that I blogged about the draft amendments in a post last July.  Comparing the draft version to the final version, it appears that the final version includes the very same language found in the draft  in what is now subpart (e) to Part 3 ("Viewpoints from Private Monopolization and Unreasonable Restraint of Trade"), paragraph (1) ("Viewpoints from Private Monopolization"), subparagraph (1) ("Inhibiting the Use of Technology"):
The standard setting organization or trade association (hereinafter referred to as the "SSO") generally makes the document (IPR Policy) describing principles for license of patents (including the other intellectual property rights) essential for implementation of the standards (hereinafter referred to as the “Standard Essential Patent”). It is specified in IPR Policy that, in order to prevent exercise of right in respect of Standard Essential Patents from impeding research & development, production or sale of the products adopting the standards and to broadly diffuse the standards, it makes the participants in standard setting clearly show whether they hold any Standard Essential Patents and their intention for licensing for fair, reasonable and non-discriminatory conditions (such conditions are generally called “FRAND conditions”). A Standard Essential Patent holder’s declaration in writing to show that it is willing to grant licenses under FRAND conditions to the SSO is generally referred to as the “FRAND Declaration”. According to the IPR policy, the SSO will study change of the standards to exclude the technology protected by such if such declaration is not made. Since FRAND Declaration makes it possible for the Standard Essential Patent holders to receive reasonable compensation for the use of the Standard Essential Patent and also makes it possible for those who research & develop, produce or sell the  products adopting the standards to access Standard Essential Patents under FRAND conditions, FRAND Declarations promote research and development investment of the technologies concerning the standards and also promote positive investments required for research & development, production or sale of the products adopting the standards.
Refusal to license or bringing an action for injunction against a party who is willing to take a license by a FRAND-encumbered Standard Essential Patent holder, or refusal to license or bringing an action for injunction against a party who is willing to take a license by a FRAND-encumbered Standard Essential Patent holder after the withdrawal of the FRAND Declaration for that Standard Essential Patent may fall under the exclusion of business activities of other entrepreneurs by making it difficult to research & develop, produce or sell the products adopting the standards.
The description above shall be applied no matter whether the act is taken by the party which made the FRAND Declaration or by the party which took over FRAND-encumbered Standard Essential Patent or is entrusted to manage the FRAND-encumbered Standard Essential Patent. (The same holds for the case described in Part4-(2), (iv).)
Whether a party is a “willing licensee (who willing to take a license on FRAND terms)” or not should be judged based on the situation of each case in light of the behavior of the both sides in licensing negotiations etc. (For example, the presence or absence of the presentation of the infringement designating the patent and specifying the way in which it has been infringed, the presence or absence of the offer for a license on the conditions specifying its reasonable base, the correspondence attitude to the offers such as prompt and reasonable counter offers and whether or not the parties undertake licensing negotiations in good faith in light of the normal business practices.) Even if a party which intends to be licensed challenges dispute validity, essentiality or possible infringement of the Standard Essential Patent, the fact itself should not be considered as grounds to deny that the party is a “willing licensee” as long as the party undertakes licensing negotiations in good faith in light of the normal business practices (pp. 10-11).
Second, however, the final version does make a few changes to the draft version of subparagraph (iv) to Part 4 ("Viewpoints from Unfair Trade Practices"), paragraph 2 ("Inhibiting the Use of Technology").  The final version reads as follows.  I have highlighted what I perceive to be the only substantive differences between the translations of the final and the draft versions.  In particular, the language in the first paragraph now appears more tentative (the word "may", as opposed to the draft's "generally makes it difficult," "will be deprived . . . or impeded," "such acts adversely affect," and "tend to impede"); and the highlighted portions in paragraphs 2 and 3 are new:
The acts described in Part3-(1), (i), (e), such as refusal to license or bringing an action for injunction against a party who is willing to take a license by a FRAND-encumbered Standard Essential Patent holder, or refusal to license or bringing an action for injunction against a party who is willing to take a license by a FRAND-encumbered Standard Essential Patent holder after the withdrawal of the FRAND declaration for that Standard Essential Patent may deprive the entrepreneurs who research & develop, produce or sell the products adopting the standards of trading opportunities or impede the ability of the entrepreneurs to compete by making it difficult to research & develop, produce or sell the products adopting the standards.
Such acts are considered to be Unfair Trade Practices (Paragraph (2) and (14) of the General Designation) if they tend to impede fair competition, even if the acts do not substantially restrict competition in the product market and are not considered to be Private Monopolization.
The judgement whether a party is a “willing licensee” or not is described in Part3-(1), (i), (e) (pp. 17-18).
As Ms. Minami states, "Although the JFTC’s investigation Guidelines do not have any binding effect on courts' decisions, it will be interesting to see how the future FRAND disputes in Japan will be resolved at court and if the new Guidelines will have any impact."  As she also notes, the 2014 Japanese IP High Court judgments in Apple v. Samsung denied Samsung an injunction on the ground of abuse of right, not on competition law grounds; for link to my previous blog posts on this case, see here.

Monday, February 1, 2016

Hoppe-Jänisch on Delay and Preliminary Injunctions Under German Law

Daniel Hoppe-Jänisch has published an article titled Das Zögern zu Gunsten Dritter ("Delay in Favor of a Third Party") in GRUR 2015, 1075.  Subtitled Verlust der Dringlichkeit durch  Zögern gegenüber Dritten unter Berücksichtigung des Patentverletzungsverfahren ("Lack of Urgency Through Delaying an Action Against a Third Party in the Context of Patent Infringement Actions"), the article discusses among other things the Judgment of the Berlin Kammergericht (KG) of Feb. 20, 2015, 5 U 150/14-Mobilfunkgerät, in which the court vacated a preliminary injunction for lack of urgency, as evidenced by the patent owner's delay in filing its motion even though it had contacted the defendant's parent company, a Chinese firm, two years earlier about the possibility of its having sold infringing phones, and must have been aware of a sister company's having exhibited allegedly infringing phones at an exhibition in Germany a year earlier (which gave to rise to an Erstbegehungsgefahr, or danger of imminent infringement).  Here is the abstract (my translation from the German):

Summary protection of rights assumes urgency.  If the movant wants to invoke this urgency, it must proceed expeditiously against the opposing party.  This is common knowledge.  There is less notice in practice of the circumstance in which the lack of urgency can reveal itself on other grounds.  In a noteworthy decision, the KG has accepted this in a case in which the movant did not proceed quickly enough against similar infringing conduct of a third partyThis article undertakes an attempt at a systematization of this class of case.

Mr. Hoppe-Jänisch argues that there may be circumstances in which a movant's failure to proceed against a third party is relevant to the question of urgency, but that such failure should not give rise to a general inference of lack of urgency; and he critiques the KG's judgment for not being more precise in its reasoning.  Instead, Mr. Hoppe-Jänisch proposes that courts should consider all the facts and circumstances, since there may be a range of factors motivating the movant's hesitancy towards the third party.  

For earlier discussion on this blog of the urgency (Dringlichkeit) criterion under German law of preliminary injunctions, see here, here, and here.