Monday, March 18, 2024

Recovery for Springboard Convoyed Goods and Services in Germany

The German Federal Supreme Court recently held that patentees can recover compensation for springboard convoyed goods and services.  If you have no idea what I'm talking about, read on.

The decision is BGH, Judgment of Nov. 14, 2023, I ZR 30/21—Polsterumarbeitungsmaschine.  It can be found in 2/2024 Mitteilungen der deutschen Patentanwälte pp. 75-79; you can also find a short write-up about the case by Dr. Matthias Meyer and Dr. Daniel Misch here, and an English-language machine translation courtesy of Dr. Tillman Müller-Stoy on LinkedIn, here.

The patent in suit, EP 776 760, claimed a cushioning conversion machine (described as “relating generally to a cushioning conversion machine which converts paper stock into cushioning material”).  The lower court held that two types of machines sold by the defendants infringed.  On the question of monetary recovery, however, there were more than a few wrinkles.  One such wrinkle is that, under German law, the general statute of limitations for a claim for damages is only three years, and here the plaintiff was seeking compensation for harms preceding that period of time.  German law also provides, however, that a claimant has up to ten years to recover a reasonable royalty or the defendant’s profit, under an unjust enrichment theory (for previous discussion on this blog, see here).  A second wrinkle is that the plaintiff was seeking discovery (information and access to accounts, in German Auskunft und Rechnungslegung) pertaining to sales of what in the U.S. would be referred to as “convoyed goods”:  supplies for the infringing machines (especially paper), as well as leasing and maintenance contracts.  As I have previously noted in my book (p.272 & n.195), German courts “may award profits earned on convoyed goods (Peripherigeräten) that are attributable to the sales of the infringing goods and not to other factors,” and the BGH reaffirms that principle here subject to the caveat that the profits must be tied to the sales of products or services that are used with the patented subject matter (para. 39).  The court states that the causal connection would not be sufficient in cases in which, for example, the plaintiff sought the recovery of income the defendant earned from reinvesting its ill-gotten gain, or from the fame the defendant derived from its infringement (para. 34).  (In the U.S., by way of comparison, the patentee can recover lost profits on sales of convoyed goods only if those goods “function together . . . in some manner so as to produce a desired end product or result,” in a manner “analogous to components of a single assembly or . . . parts of a complete machine, or . . . constitute a functional unit,” and are not merely sold together “as a matter of  convenience or business advantage.”  Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1550 (Fed. Cir. 1995) (en banc).  For discussion of the pros and cons of the U.S. rule, see my article with Roger Blair, Rethinking Patent Damages, 10 Tex. Intell. Prop. L.J. 1 (2001).)  Third, the plaintiff was seeking discovery on sales the defendant made of these convoyed goods after patent expiration, but which the plaintiff asserts were caused by sales of infringing machines that occurred during the term of protection.  The court concludes that such springboard damages (as they are referred to in English) are permissible under German law.  (Where proven, such “springboard” damages also are allowed in the U.S., though springboard injunctions and related remedies such as destruction are not, as they are in the U.K. and Germany.  For discussion, see my article with Chung-Lun Shen, Destruction, Proportionality, and Sustainabiltiy:  A Law and Economic Analysis, 32 Tex. Intell. Prop. L.J. 111, 123 n.53 (2024), and my article Extraterritorial Damages in Patent Law, 39 Cardozo Arts & Enter. L.J. 1, 32 (2021).)  Along the way, the court also reaffirms the principle (which I have previously noted and disagreed with, see here) that (as in the U.K.) the defendant’s ability to have earned the same profit by resorting to a noninfringing alternative is irrelevant.  

Presumably the amount of the recovery will be determined, as needed, in future proceedings, if the parties do not settle.

Thursday, March 14, 2024

Stief on Preliminary Injunctions Prior to Grant

The issue of whether courts in EPO member states have authority to grant preliminary injunctions on the basis of pending patent applications has recently been litigated in a number of European countries (see previous mentions on this blog here, here, here, and here).  Marco Stief has now published two papers, one in German and one in English, on the topic, noting that such injunctions appear to be permissible in some countries, albeit in several of them only in exceptional cases.  His more recent contribution is Fingolimod—(no) injunction before patent grant, J. Intell. Prop. L. & Prac. __ (forthcoming 2024).  Here is the abstract:
This article analyses the position of European courts on the availability of preliminary injunctions on the basis of a patent application, reviewing several national decisions in the fingolimod litigation. The decisions handed down by the Düsseldorf Regional Court, the Tribunal Judiciaire de Paris, the Danish Maritime and Commercial Court, the District Court of The Hague and the Barcelona Commercial Court show that the courts, with limited exceptions, reject provisional legal protection on the basis of a mere patent application on the grounds of absence of legal certainty.  The analysis identifies four (minimum) prerequisites that must be fulfilled for the courts to consider the possibility of issuing an injunction before a patent is granted.
The corresponding German article is (Keine) Unterlassungsverfügung:  Zugleich Besprechung von LG Düsseldorf „Fingolimod‟ unter Berücksichtigung von Parallel-Verfahren in anderen Jurisdiktionen, ("No Preliminary Injunction:  As Well as Case Law from the Düsseldorf Regional Court in "Fingolimod" in Consideration of Parallel Proceedings in Other Jurisdictions"), 23/2023 GRUR 1651-60.

For a different point of view, see Matthieu Dhenne’s article Preliminary Injunctions Based on a Patent Application:  A Justified Solution? (Fingolimod Case), 45 EIPR 236 (2023), previously noted here, and his more recent post FINGOLIMOD or the Hesitation Blues: can preliminary injunctions be based on a patent application under French law?, Kluwer Patent Blog, Dec. 19, 2023, which updates the French case law discussed in his earlier article and in the two Stief articles.

Monday, March 11, 2024

The UPC’s October 10, 2023 Decision in 10x Genomics

This may be less consequential now than it may have seemed a couple of weeks ago, before the UPC Court of Appeals decision referenced here, but readers may recall that there was a second decision last fall in which the Munich Local Division considered a preliminary injunction against Nanostring.  As far as I can tell, the second decision (dated Oct. 10, 2023)—which, in contrast to the first (Sept. 19, 2023) decision involving a different patent, denied the claimant’s request for a preliminary injunction—is not available yet on the UPC’s website.  But it is excerpted in the 4/2024 issue of GRUR (pp. 199-205), and is the subject of a short article by Matthias Leistner and Sebastian Berns in the same issue (pp. 184-87).  As noted in this earlier write-up in English by Tilman Müller-Stoy and Kerstin Galler on the EPLaw Blog, in the second case the court was not persuaded that there was a sufficient probability of infringement, or of validity of the claims as granted (in contrast to the claims as amended pursuant to EPC article 105a), or of urgency (given that the patent in suit was, unlike the unitary patent in suit in the first decision, a “bundle” patent with effect in Germany, France, and the Netherlands, and the owner had not sought preliminary relief in France or the Netherlands).

Thursday, March 7, 2024

Cotter and Shen on Destruction and Proportionality

My article with Professor Chung-Lun Shen, Destruction, Proportionality, and Sustainability: A Law-and-Economics Analysis, 32 Texas Intellectual Property Law Journal 111 (2024), has now been published.  It is available on Westlaw and SSRN, and should be available soon on TIPLJ’s website.  Here is the abstract:

This Paper undertakes a law-and-economics analysis of the remedy of destruction (and, subsidiarily, the related remedies of recall and removal) of products that infringe intellectual property (IP) rights. We begin with a brief survey of international, regional, and domestic law and practice, observing that (1) courts generally are believed to be more likely to order the destruction of copyright- and trademark-infringing goods than of patent-infringing goods, and (2) the frequency with which courts order the destruction of patent-infringing goods varies from one country to another. Our observations lead us to present two principal theses.

 

The first is that a comparative reluctance to order the destruction of patent-infringing goods, as opposed to copyright- or trademark-infringing goods, would be consistent with economic considerations. From an economic standpoint, destruction can be viewed both as a complement to injunctive relief and as a substitute (albeit an imperfect one) for ongoing monitoring of an infringer’s compliance with the terms of an injunction. The social benefits arising from substituting destruction for monitoring, however, are likely to be lower—on average, and perhaps subject to regional variation—for patent-infringing goods than for products that infringe other IP rights. In addition, although observers have long noted that the private and social costs of destruction provide a rationale for withholding that remedy when it would cause disproportionate harm to the defendant or third parties, these costs may be unusually high in patent cases—particularly that subset of cases in which the risk of patent holdup is substantial. In view of these factors, the social costs of ordering the destruction of patent-infringing goods are likely to outweigh the social benefits in a comparatively broader swath of cases.

In addition, I may as well note a paper I just came across in the preceding volume of TIPLJ, Deepa Sundararaman & Cleve B. Tyler, A Detailed Study of Court Decisions on Admissibility of Intellectual Property Damages Experts, 32 Tex. Intell. Prop. L.J. 45 (2023).  Here is a link to the paper, and here is the abstract:

Damages experts’ opinions in intellectual property litigation are routinely challenged for failing to reach standards set forth in the Supreme Court’s 1993 Daubert decision. Our study is the first of its kind, in performing a systematic and in-depth review of court decisions, including an analysis of the substantive reasons for challenge. We studied more than 400 Daubert orders covering nearly 1,300 decisions over a six-year period from 2015 through 2020.

 

Patent cases make up a significant majority of our dataset. Overall, we find an exclusion rate of 24%. While plaintiff experts are challenged more frequently than defendant experts, their exclusion rates are not significantly different. However, the type of analysis challenged appears to matter—in particular, lost profits analyses are excluded at lower rates than other types of analyses, and experts described as offering legal opinions are excluded at higher rates. Exclusion rates vary by district, with the Northern District of California (NDCA) having higher exclusion rates and the Eastern District of Texas (EDTX) having lower exclusion rates than the rest of the country. We study the impact of the Supreme Court’s Heartland decision on exclusion rates, which has reduced a plaintiff’s ability to engage in “venue shopping.” Overall, rates of exclusion in EDTX and Delaware declined following the decision, with a moderate increase in exclusion rates in NDCA.

 

Finally, we find substantial disparities in exclusion rates among judges. Among the top ten judges ranked by number of decisions, five have relatively “low” exclusion rates of less than 15% and four have relatively “high” exclusion rates greater than 30%. Variations such as these, along with differences by jurisdiction, raise questions about courts’ consistency in application of the Daubert standard—questions that are left for future researchers and policymakers to address.

Monday, March 4, 2024

Federal Circuit Vacates Preliminary Injunction

I am a little late reporting on this one.  The case is UATP IP, LLC v. Kangaroo, LLC, decided on February 16, nonprecedential opinion authored by Judge Chen, joined by Judges Reyna and Taranto.  According to the opinion, the parties “are operators of ‘adventure parks’—indoor play facilities that includes trampolines, ziplines, ropes courses, and other attractions” (p.2).  UATP filed suit against Kangaroo for infringing U.S. Patent No. 10,702,729 (“Multi-level Play Equipment”) and also for infringing its trade dress; it moved for a preliminary injunction some ten months later.  The district court granted the preliminary injunction, “on the grounds that UATP was likely to succeed on the merits of both its patent and trade dress infringement claims, and that UATP was entitled to a rebuttable presumption of irreparable harm that Kangaroo failed to rebut” (p.3).      

The Federal Circuit reverses the order preliminarily enjoining patent infringement:

We find that UATP’s showing was legally insufficient to demonstrate likelihood of success on the merits of its patent infringement claim. “[W]hether performed at the preliminary injunction stage or at some later stage in the course of a particular case, infringement and validity analyses must be performed on a claim-by-claim basis.” Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1351 (Fed. Cir. 2001). But neither UATP’s motion for preliminary injunction nor the Order ever identified any claim of the ’729 patent that Kangaroo allegedly infringes. Instead of comparing Kangaroo’s allegedly infringing equipment to any of the claims of the ’729 patent, UATP and the district court appear to have assumed that Kangaroo’s equipment infringes the patent because it was previously used in an Urban Air Adventure Park. But the district court never determined that Urban Air Adventure Parks practice a specific claim of the ’729 patent. By assuming that similarities between Kangaroo’s equipment and the equipment in an Urban Air Adventure Park constitute infringement without any discussion of the claims, the district court erred in finding a likelihood of success on the merits.

 

The district court likewise erred in failing to make any findings on irreparable harm, balance of the equities, or the public interest in its analysis relating to UATP’s patent infringement claim. See Fed. R. Civ. P. 52(a)(2) (“In granting or refusing an interlocutory injunction, the court must [] state the findings and conclusions that support its action.”) (pp. 4-5).

On the trade dress claim, “the district court failed to make any findings on whether UATP’s alleged trade dress was nonfunctional, inherently distinctive, or had acquired secondary meaning. Instead, the district court found that UATP’s “trade dress claim against Kangaroo is likely to succeed on the merits, because it has shown that Kangaroo substantially imitated Urban Air’s total image by using the same colors, attraction structures, and park layout.” . . .  The district court’s failure to explain how it arrived at this finding in view of the relevant trade dress likelihood of confusion factors . . . and failure to address the non-functionality or distinctiveness of UATP’s alleged trade dress, render its analysis too conclusory to permit meaningful appellate review” (p.6).  Further:

The district court’s findings relating to irreparable harm are also deficient. First, the district court erred in failing to address UATP’s ten-month delay in moving for a preliminary injunction. . . . Second, the district court erred in finding that UATP was entitled to a rebuttable presumption of irreparable harm under 15 U.S.C. § 1116(a). Section 1116(a) entitles a plaintiff seeking a preliminary injunction under 15 U.S.C. § 1125 to a rebuttable presumption of irreparable harm “upon a finding of likelihood of success on the merits for a violation.” Because the district court’s analysis was premised on a flawed likelihood of success finding, the court’s application of the presumption cannot stand. . . .

 

Finally, as with its analysis relating to the patent infringement claim, the district court’s analysis relating to the trade dress infringement claim failed to make sufficient findings on the balance of the equities or the public interest (p.7)

The court vacates and remands as to the trade dress claim.

As readers may recall from some of my previous posts, a ten-month delay in moving for a preliminary injunction would strongly weigh against granting the injunction under German law, which emphasizes Dringlichkeit (“urgency”).