Saturday, July 26, 2014

Blogging break

I'll be taking another short break from blogging until Monday, August 4.  But there's plenty in the archives if you're starved for analysis of comparative patent remedies next week!

Friday, July 25, 2014

Love on University Patents

Brian Love's paper Do University Patents Pay Off?  Evidence from a Survey of University Inventors in Computer Science and Electrical Engineering, 16 Yale J. L. & Tech. __ (forthcoming) is available on ssrn.  Here is the abstract:
Studies of the costs and benefits of university patent ownership have, to date, focused on life sciences technology. Increasingly, however, many of the most lucrative university-owned patents relate to computing and telecommunications, not genes or pharmaceuticals. In 2007, a University of California spin-off named Eolas settled a patent suit with Microsoft for $100 million. In 2010, Cornell University won a $184 million jury verdict against Hewlett-Packard in a case that later settled on confidential terms. And most recently, in 2014, Carnegie Mellon University received a $1.5 billion judgment — one of the largest patent damages awards in history — in an ongoing suit against Marvell Semiconductors. 
As universities shift their focus in the patent arena, so too must those studying tech transfer. Commentators generally agree that the costs and benefits of the patent system vary greatly across industries and many place the high-tech and bio-tech industries at opposite ends of that spectrum. Accordingly, universities would be well advised to reassess the costs and benefits of their own tech transfer programs as they shift from bio-tech to high-tech. 
This Article examines the pros and cons of university patenting in the high-tech field by reporting the findings of a survey of professors at major U.S. universities who teach and research in the areas of electrical engineering and computer science. Among other findings, survey responses suggest that: Patenting high-tech inventions made on university campuses may not be a profitable undertaking, even at those universities best-positioned to profit from tech transfer. Based on the patenting and licensing activities of survey respondents, I estimate that university patent programs earn a negative 3.5% rate of return on high-tech patents. The prospect of obtaining patent rights to the fruits of their research does not motivate university researchers in high-tech fields to conduct more or better research. Eighty-five percent of professors report that patent rights are not among the top four factors motivating their research activities. Moreover, fifty-seven percent of professors report that they do not know how, or if at all, their university shares licensing revenue with inventors. University patent programs may, instead, actually reduce the quantity and quality of university research in high-tech fields by harming professors’ ability to obtain research funding, to collaborate with faculty from other institutions, and to disseminate their work to their colleagues. University patent programs are, at best, a modest benefit to professors seeking to commercialize high-tech academic research. Entrepreneurial professors report that these programs hinder their ability to work as a consultant with companies that show interest in their research, and fewer than half of university spinoff founders report that the ability to patent their research affirmatively helped their commercialization efforts.
As Professor Love explains, he sent out surveys to "2,387 tenured and tenure-track faculty members affiliated with the nation's top twenty ECE and CS departments" and "collected 269 responses . . . .  Respondents in this sample are highly representative of the target population with respect to publicly-observable characteristics" such as "duration of work experience, gender, and rate and quantity of patenting and entrepreneurial activities" (pp. 10, 13-14).  At page 16-18, he further explains:
Approximately two-thirds of respondents reported that they have been named as an inventor or co-inventor on a U.S. patent application resulting from their university research, with a median of four applications per respondent. Of those who had filed an application covering their university research, more than four-fifths reported that at least one of their applications had resulted in an issued U.S. patent, with the median respondent-patentee reporting that his or her research had resulted in three issued patents. Of respondents whose research had been patented, about two-thirds reported licensing at least one of their patents, with the median respondent-licensor reporting that licenses to his or her patents have, to date, earned his or her university a total of $30,000 in royalties.
. . . aggregate licensing revenue is heavily dependent on a small number of licenses that are extreme outliers.  More than seventy percent of the reported royalty total was generated by less than three percent of licensors, and the top nine percent of licensors were responsible for over eighty-five percent of all reported licensing revenue. By contrast, almost twenty-five percent of all respondent licensors reported that their licenses have, at least to date, failed to earn any royalties. Another nine percent of licensors each reported earning $5,000 or less for their universities.
Beginning at page 19, Professor Love sets out his methodology for estimating the cost of prosecuting the relevant applications, based on his analysis of a sample of those applications and data reported by the AIPLA on median costs of prosecuting applications in the U.S.  His conclusion is, as stated above, that the median rate of return on patenting in the fields of electrical engineering and computer science at the top twenties universities in these fields is negative 3.5% (p.27).  As for why universities pursue patents in these fields if the return is likely to be negative, Professor Love suggests, among other things, that they may be "basing patent policy on extreme outliers" (p.42), e.g., cases like those mentioned in the abstract in which very large damages were awarded.

Overall, it appears to me that Professor Love's research is thorough and his methodology fully explained in the text and accompanying appendix.  I don't do empirical work like this myself, and perhaps others who do will find fault with one thing or another or suggest areas for improvement.  But it seems to me from my initial read-through that Professor Love has made a substantial contribution to our understanding of the costs and benefits of university patenting in these particular fields.

Some readers of this blog may have already seen the response to Professor Love's article by Bob Zeidman, which was published last week on the IPWatchdog Blog, so I'll say a few words about Mr. Zeidman's analysis as well.  Mr. Zeidman titles his post "Sloppy, Misleading Yale Paper Challenges University Patenting," and he begins by stating that he attended a conference at Stanford earlier this year (titled "Patent Trolls and Patent Reform") at which "professors from elite universities around the country explained why patents, and those who license or litigate them, had made the United States such a plodding, backward nation that is desperately trying to catch up with progressive countries like China, Russia, and Europe."  (Europe's a country?)  Anyway, Mr. Zeidman asserts that Professor Love's paper was the worst at the conference, "a ridiculous example of how our universities are putting out 'research' that is terribly shoddy, detached from the real world, and simply reinforces generally faulty assumptions about how the world works."  His first bone of contention is that Professor Love "sent out only 2,387 questionnaires to tenured and tenure-track faculty members at select elite universities," "a miniscule .15% of the 1,565,504 professors in the United States as of 2011," citing a U.S. Department of Education Report titled "Employees in Postsecondary Institutions, Fall 2011 and Student Financial Aid, Academic Year 2010-11."  If I'm reading this document correctly, however, it states (table 1, p.4) that there were 1,565,504 "[s]taff whose primary responsibility is instruction, research, and/or public service" at Title IV institutions in the United States in the fall of 2011.  Presumably this figure includes professors from all disciplines (English, philosophy, law, etc.), so it's a little hard to see what the relevance of the number is to the subject Professor Love is studying, which focuses on electrical engineering and computer science in particular.  (If there were 1,565,504 professors of computer science and engineering, that would be one for about every 200 Americans!)  Moreover, Professor Love's focus on professors at the top twenty universities in these fields would seem, if anything, to bias the rate of return upwards, since you'd expect the top twenty universities would gain a disproportionate share of whatever benefits are to be derived from university-derived patents in these fields (a point that Professor Love makes at pp. 10-12).

Moving on, Mr. Zeidman states that "rather than relying on financial data that could have been obtained from university records and finance departments, Professor Love relied on asking simple questions of professors who have no particular access to that information."  Perhaps I'm wrong, but I'm not at all sure that one can simply obtain information on these universities' rates of return on specific types of patents by, say, checking to see how much licensing revenue they derive from all of their patents in a given year.  The University of California 2012 Technology Transfer Annual Report, for example, which Professor Love cites at p.21 n.71, reports technology transfer income and expenses for the University of California system for 2012 but unless I'm missing something it's not broken down by field of technology (although it does list the top-earning inventions at p.20).  Again, Professor Love's focus is on patents in computer science and electrical engineering, not in other fields.  Moreover, as Professor Love explains (p.26 n.81), under U.S. law universities are obligated to share licensing revenue with university inventors. so you'd expect those inventors who are getting substantial royalties to be aware of what they're getting and what it's based on.  On this issue, however, Mr. Zeidman believes that the question Professor Love posed to the respondents--"[A]bout how much total licensing revenue have your university patents earned?"--was ambiguous, since it might be asking how much the university earned or how much the researcher earned.  Looked at in context, however, I'm not persuaded that there is an ambiguity.  In the appendix, Professor Love sets out the questions and the order in which they were presented, as follows:
Have any of your university patents brought in licensing revenue for your
 Yes
 No
 One or more of my university patents was licensed, but those license(s)
never generated any revenue for the university.
 One or more of my university patents has been licensed, but those
license(s) have not YET generated any revenue for the university.
If so, how many of your university patents have been licensed?
Also, if so, about how much total licensing revenue have your university patents
earned? (A gross approximation is sufficient.)
According to your university’s policies, are you entitled to a share of the revenue
your patents earn the university?
 Yes
 No
 Don’t know
If yes, do you know (without looking it up) what percent of the revenue you are
entitled to receive?
 Yes
 No
If yes, what percent or other arrangement?
Taken in context, I don't see the ambiguity.

Finally, Mr. Zeidman states that the "most significant, glaring problem" is Professor Love's statement at p.2 that "[F]ifty-seven percent of professors report that they do not know how, or if at all, their university shares licensing revenue with inventors."  He emphasizes the point by stating that "Professor Love has concluded that universities do not earn returns on their investment in patents and at the same time concluded that more than half of all respondents to his survey admitted they do not know anything about what the survey was purporting to study."  But Professor Love addresses this very point at p.31 n.99:
These licensors’ lack of knowledge about revenue sharing arguably calls into question the amounts of overall revenue they reported earlier in the survey. However, as discussed supra in Part II.A, total licensing revenue is heavily driven by a small number of large licenses. The majority of licensors who did not know precisely how royalties are shared also reported that their licensed patents had not earned any royalties to date or, perhaps in an abundance of caution, did not answer the survey questions asking for licensing revenue. The rest reported relatively small sums of revenue that, even if trebled, would raise the estimated rate of return shown in Table 4 by just one-tenth of 1%. 
Anyway, as I said, I'm not an empiricist, and for all I know there may be better ways of trying to estimate what Professor Love is trying to estimate.  Based on his careful explanation of what he has done, however, his analysis certainly seems plausible to me, and Mr. Zeidman's critique strikes me as off the mark. 

Wednesday, July 23, 2014

Follow-up to the Discussion of ALJ Essex's FRAND Analysis

I reported recently on the June 26, 2014 publication of the public version of ALJ Essex's initial determination in In the Matter of Certain Wireless Devices with 3G and/or 4G Capabilities and Components Thereof,  United States International Trade Commission Investigation No. 337-TA-868.  Although the judge concluded that the respondents' products did not infringe InterDigital's patents, he went on to address (and reject) their arguments that an exclusion order would be inappropriate because the patents in suit were FRAND-encumbered SEPs.  In a follow-up post, I stated that I would take a look at the four third-party submissions on the FRAND issue—which have already been summarized on, and are available for download from, the Essential Patents blog—and would respond to some comments on my earlier post.  (Since then, as reported yesterday on Essential Patents, InterDigital filed its own public interest statement too.)   So, here goes. 

First off, I don’t think that the third-party submissions add a whole lot new to the mix.  Three of the four submissions (filed by Ericsson, the Innovation Alliance, and Senator Bob Casey) supported InterDigital, while one (filed by Microsoft) supported the respondents.  The statements that struck me the most were from Ericsson—in particular Ericsson’s statement that "as the ALJ rightly found, neither "law nor public policy require [the Commission] to offer [implementers] a safe haven, where they are free to avoid their own obligations under the agreements, can manufacture potentially infringing goods without license or consequence, can seek to invalidate the [patents] in question and yet are free from the risk of' an exclusion order."  (Ericsson repeats the point at p. 5, stating that "as the ALJ recognized . . . if exclusion orders are unavailable . . . 'the only risk to [the implementer] for violating the agreement is to pay a FRAND based royalty or fee.'")  The point is similar to that raised in the Müller-Henke paper that I blogged about last week, where the authors state that an infringer who makes use of the “safe harbor” the European Commission refers to in its Memo, Antitrust Decisions on Standard EssentialPatents (SEPs) - Motorola Mobility and Samsung Electronics - Frequently AskedQuestions, will be no worse off than if it had directly concluded a license. 

As I stated in that post, however, I don’t find this line of analysis persuasive.  An analogy that comes to mind is that, if I say you owe me a $10,000 debt and you say you don't, I can take you to court and if I prevail you have to pay up.  (I realize that the question of whether FRAND commitments are contractual in nature is a hotly contested one; I'm just using this example to illustrate a point, not to advocate a position on the contract question).  In a sense, one might say that you're no worse off contesting the debt, but that’s the way it goes if we want to preserve your right to a day in court.  And of course, you are worse off to the extent you've incurred your own attorneys' fees, and even more so if you have to pay mine.  Plus I am entitled to interest on the judgment, and as long as the interest is properly computed ultimately I’m no worse off.  (To be fair, I recognize that interest might not always be properly computed, and there is no compensation due for either side’s having to devote time to litigation that could more productively be spent doing something else.)  So at the end of the day I'm still having a hard time seeing why, going back to the FRAND context now, an injunction or exclusion order is necessary.  The main reasons for awarding injunctions in patent cases (which I think are often valid) are to reduce adjudicative and error costs that flow from having courts instead of parties determine patent value.  The main reason for not doing so is to avoid a situation where the patent owner can extract switching costs as part of the royalty.  In my judgment, the latter is a serious consideration in the FRAND context, and a right to injunctive relief makes it worse.

That said, I agree generally with Ericsson, Innovation Alliance, and ALJ Essex (and with Professor Risch, who commented on my July 9 post) that the implementer must indeed be willing to negotiate in good faith.  If the evidence shows that the implementer is acting in bad faith perhaps an injunction is appropriate—though inevitably there will be quite a difference of opinion on the question of what it means for the implementer to act in bad faith, and this is an issue that I need to focus on more deeply in the coming weeks.  I am inclined to think, though, that any approach to implementer bad faith must take into account the fact that, in general, a substantial plurality (or more) of asserted patents are either invalid or not infringed, in which case that the patent owner is legally entitled to no royalty whatsoever.

The other issue that came up in the comments to my post was whether ALJ Essex was correct in concluding that implementers should negotiate before implementing, or whether this is practically infeasible in the SEP context.  Like Professor Siebrasse, I was inclined to think the latter, but I’d be interested in hearing more about this topic.  To be sure, implementers who are SSO members themselves are aware of what is likely going to go into the standard as the standard adoption process evolves, as Kirti Gupta points out here.  But does that necessarily mean that they have a realistic opportunity to negotiate all of the necessary patent licenses in advance?  Note that the “nondiscrimination” aspect of FRAND could play a role here, as Richard Gilbert and others have pointed out:
Bilateral negotiations over licensing terms that occur before a standard issues protect those who make binding agreements with rights holders. But those who do not negotiate ex ante, including technology adopters that enter the industry after a standard has issued, may be exposed to ex post opportunistic conduct. The non-discrimination prong of a FRAND commitment can provide an umbrella of protection for technology users that negotiate licenses after firms and consumers have made investments that are specific to a standard.18
18/ Anne Layne-Farrar, Considering Whether Ex Ante Joint Negotiations within Standard Setting Are “Reasonably Necessary,” GCP (May 2008) and Anne Layne-Farrar, Gerard Llobet, & Jorge Padilla, Preventing Patent Hold Up: An Economic Assessment of Ex Ante Licensing Negotiations in Standard Setting, 37 AIPLA Q. J. 445 (2009) (Once pivotal players obtain reasonable rates, the “non-discriminatory” component of a RAND licensing commitment ensures that other pivotal players receive reasonable rates as well).
Of course, for that to work, we need a better understanding of what nondiscriminatory means in the FRAND context (see this paper by Dennis Carlton and Allan Shampine), and the parties would need to know the terms of the licenses that have been granted to others.  Nothing is easy in this space.

Monday, July 21, 2014

PricewaterhouseCoopers Releases Its 2014 Patent Litigation Study

On July 10 PricewaterhouseCoopers released its 2014 Patent Litigation Study, available here.  (The focus is on U.S. patent litigation only.)  From the introduction:
In some ways, 2013 appeared to be a moderating year in patent infringement litigation. The “mega” verdicts of prior years (2012 saw three cases that resulted in damages awards of over $1 billion) were missing, with the largest new award falling to just over $200 million.1 Four of the ten largest awards from previous years were settled, overturned, modified or remain under appeal in 2013. And the median damages award continued its gradual downward tapering, to $4.3 million in the most recent four-year period.
On the other hand, both the number of patent cases filed and the number of patents granted continued to grow rapidly in 2013—by 25% (to almost 6,500 cases) and 7% (to almost 300,000 patents), respectively, over 2012. And mega-cases continued to make headlines, including one involving an “at-risk” launch of a generic pharmaceutical that was settled mid-trial for $2.15 billion, and another matter involving medical devices where post-trial bench consideration added substantial punitive damages, potentially bringing total damages to over $1 billion. The year 2013 also saw the continuation of the multi-year “smartphone wars,” both in district courts and before the International Trade Commission (ITC).
Nonpracticing entities (NPEs) continued to play a growing role in patent litigation in 2013. One recent analysis reported that in 2013 NPEs filed 67% of all new patent infringement cases, compared to 28% in 2009.2 Our statistics indicate that only 20% of identified decisions in 2013 involved NPE patent holders, reflecting the much higher tendency for NPE-filed cases to settle or be dismissed. However, as further detailed in this year’s study, NPEs’ median damages award in recent years has been triple that of practicing entities.
Also of considerable interest are the following, which I am quoting from the "Summary of Key Observations":
• The median jury award amounted to nearly 37.5 times the median bench award between 2010 and 2013. 
• Reasonable royalties remain the predominant measure of patent damages, consistently representing around 80% of awards since 2000. However, lost profits showed a surprising resurgence over the last four years, growing to a 37% share of the awards.
• NPEs have been successful 25% of the time overall, versus 35% for practicing entities, due to the relative lack of success for NPEs at summary judgment. However, both types of entities win about two-thirds of their trials.
• The median damages award in the telecommunications industry was the highest, at $22 million over the full study period. Biotechnology/pharmaceutical, medical devices, and computer hardware/electronics also had relatively high median damages awards, at double to triple the overall median across all industries. 
Unlike PwC's studies from previous years, this year's study also includes statistics on patent litigation appeals to the Federal Circuit.  According to the study, in "65% of appealed patent infringement decisions . . . some aspects of the appeal were affirmed while others were reversed, remanded or vacated.  Twenty-four percent of cases were affirmed in total and 11% were entirely reversed, vacated and/or remanded" (p.25).

Overall, this study provides a nice companion to the recently published Lex Machina Patent Litigation Damages Report, which I blogged about here.  One matter that strikes me as odd, though, is that PwC reports median damages for 2013 of $5.9 million (p.6), while Lex Machina reports a 2013 median compensatory award of only $688,000 (Lex Machina report p.15).  (Lex Machina also reports median enhanced damages of $699,000 (6 cases), median attorneys' fees of $199,000 (15 cases), and median prejudgment interest of $1.362 million (15 cases))  Perhaps the difference is attributable to methodology.  Lex Machina excludes "cross-category" decisions, which it defines as follows (  "A cross-category damages award is one awarded on the basis of different claim types, without apportionment of the amount among those claim types, (or where documents specifying the types/apportionment are not available). For example, the much-publicized $290 million award in the November 2013 Apple v. Samsung case (N.D. Cal., 5:11-cv-01846-LHK) was not apportioned between patent infringement and trade-dress infringement; thus LMI classifies this award as cross-category."  (Query:  I thought there weren't any trade dress damages at issue in the November 2013 retrial?)  PwC appears to include such cases in its statistics, see p.2 n.1.  

On the other hand, it looks like Lex Machina may include more damages decisions overall.  If you look at Figure 7 (p.6) of the Lex Machina report, you'll see that from 2010-13 it reports a total of 116 reasonable royalty decisions, 46 lost profits decisions, and 101 "compensatory lump" decisions.  (At p.v, "compensatory lump" is defined as follows:  "Where a damages award is clearly compensatory but the specific sub-type (reasonable royalties or lost profits) is not specified or the apportionment of the award between sub-types is not specified, we have coded the award as a compensatory lump.")  Even given some overlap among these categories (say, in a case in which both lost profits and reasonable royalties are awarded and clearly apportioned), these numbers seem higher than the 114 decisions (total) that PwC reports at p.6 for 2010-13.

For the reports' respective statements about methodology, see the PwC study at p. 27 ("To study the trends related to patent decisions, PwC identified final decisions at summary judgment and trial recorded in two Westlaw databases, US District Court Cases (DCT) and Combined Jury Verdicts and Settlements (JV-ALL), as well as in corresponding Public Access to Court Electronic Records (PACER) system records."); Lex Machina report p. 63 ("This report draws on data from Lex Machina’s specialized intellectual property litigation database. Although most of our data is derived from litigation information publicly available from PACER (federal court system) or EDIS (the ITC system), Lex Machina applies additional layers of intelligence to bring consistency to, and ensure the completeness of, the data.").

Anyway, if readers notice that I'm missing or overlooking something important in my analysis of these two reports, I'd appreciate hearing what it is.

Friday, July 18, 2014

Law360 Article on the Top IP Verdicts of 2014

Ryan Davis of Law360 published an article last week titled Top IP Verdicts of 2014--and the Law Firms That Won Them.  According to the article, "[t]he largest [U.S.] intellectual property verdicts of 2014 so far include six that exceeded $100 million in damages," and the article discusses the seven verdicts so far this year that exceeded $50 million.  Citing the recent Lex Machina report on patent damages (see my post here), the article notes that there has overall been an upward trend in patent damages since 2008, but also that  "cases that result in nine-figure patent damages awards . . . represent only a tiny fraction of all patent litigation, since most cases settle."  The highest so far this year is the $393 million awarded to Edwards LifeScience against Medtronic (the case has since settled).  Number 4 on the list is the $120 million from the May installment of the Apple v. Samsung saga (see my posts here and here) which, you may recall, nevertheless was viewed largely as a victory for Samsung.

The article also quotes Kenneth Serwin of Berkeley Research Group, Owen Byrd of Lex Machina, and me.

Wednesday, July 16, 2014

Müller and Henke on the European Commission's Decisions in Samsung and Motorola

As most readers probably are aware by now, in April the European Commission published a press release accepting Samsung’s commitment not to seek injunctions within the European Economic Area for a period of five years for the unauthorized use of its SEPs relating to smartphones or tablets “against any company that agrees to a particular framework for licensing the relevant SEPs.”  According to the Commission, “[t]he licensing framework provides for a negotiation period of up to 12 months; and if no agreement is reached, a third party determination of FRAND terms by a court if either party chooses, or by an arbitrator if both parties agree on this.  An independent monitoring trustee will advise the Commission in overseeing the proper implementation of the commitments.”  The Commission also published a press release announcing its finding that Motorola Mobility had abused its dominant position by seeking and enforcing an injunction for the infringement of an SEP.  In this press release, the Commission stated:

Seeking injunctions before courts is generally a legitimate remedy for patent holders in case of patent infringements. However, the seeking of an injunction based on SEPs may constitute an abuse of a dominant position if a SEP holder has given a voluntary commitment to license its SEPs on FRAND terms and where the company against which an injunction is sought is willing to enter into a licence agreement on such FRAND terms. Since injunctions generally involve a prohibition of the product infringing the patent being sold, seeking SEP-based injunctions against a willing licensee could risk excluding products from the market. Such a threat can therefore distort licensing negotiations and lead to anticompetitive licensing terms that the licensee of the SEP would not have accepted absent the seeking of the injunction. Such an anticompetitive outcome would be detrimental to innovation and could harm consumers. . . .

The Commission also found it anticompetitive that Motorola insisted, under the threat of the enforcement of an injunction, that Apple give up its rights to challenge the validity or infringement by Apple's mobile devices of Motorola SEPs. Implementers of standards and ultimately consumers should not have to pay for invalid or non-infringed patents. Implementers should therefore be able to ascertain the validity of patents and contest alleged infringements.

Finally, in a separate document titled “Frequently Asked Questions,” the Commission also wrote that

Whether a company can be considered a "willing licensee" needs to be determined on a case by case basis taking into account the specific facts. Today's decisions provide a "safe harbour" for willing licensees who want to avoid the risk of being the subject of an injunction on the basis of SEPs, i.e. companies which, in case of dispute, are willing to have FRAND terms determined by a court or arbitrators (if agreed between the parties) and to be bound by such a determination. The decisions do not make findings on the willingness of licensees outside this "safe harbour".

We’re still waiting for the Commission to release its detailed findings in these two cases, but in the meanwhile Tilman Müller and Volkmar Henke have just published an article titled Patentdurchsetzung als Kartellrechtsvertoß.  Die Entscheidungen der EU-Kommission in Sachen Samsung und Motorola (“Patent Enforcement as Competition Law Offense:  The European Commission’s Decisions in the Samsung and Motorola Cases”) at pages 662-65 of the July 2014 issue of GRUR Int.  Here is the abstract (my translation from the German):

On April 29, 2014, the European Commission announced in two press releases that the competition law investigations against Samsung and Motorola had ended.  The specifics of the Commission decisions are not yet fully known, but the releases provide some principles for the enforcement of SEPs in Europe that may prove to be significant.

Drs. Müller and Henke argue, among other things, that for the time being litigants and courts in the E.U. are in an awkward position, insofar as the Commission's decisions in these two cases are not technically binding in other cases; the issue of whether the owner of a FRAND-encumbered SEP may seek injunctive relief is currently pending before the CJEU in the Huawei-ZTE case; and, at least in Germany, the Orange-Book-Standard procedure is still in place.  They also argue that the Commission's decision betrays a favoritism for infringers.  According to the authors, an infringer can, with minimal risk, make use of the procedure the Commission has spelled out and thereby figure that even in an unfavorable case it will be no worse off than if it had directly concluded a license ("Ein Verletzer kann beinahe risikolos die von der Kommission geforderte Verplichtungserklärung abgeben und damit rechnen, dass er selbst im ungünstigen Fall nicht schlechter steht als wenn er sich unmittelbar auf seinen Vergleichsabschluss eingelassen hätte.").  They also question how patent owners will in the future be fairly compensated for their contribution to the art, if their right to exclude others is taken away; and they wonder how the procedure the Commission envisions will play out if the compensation for single patents must be determined country-by-country, if there are hundreds of SEPs in a given portfolio, and if patent owners have to wait until the conclusion of lengthy proceedings to be compensated.

These are all fair questions; and as I've stated before, I'm not altogether convinced that addressing these types of issues through the lens of competition law, as opposed to the law of patent remedies, is ideal.  Nevetheless, as I've also stated before, I don't think it's quite right to state that allowing courts to award FRAND royalties and to dispense with injunctions in certain classes of cases is unduly favorable to infringers.  One could argue just as well, as indeed the Commission has, that an automatic entitlement to injunctive relief puts undue pressure on defendants to settle on terms that reflect the difficulty of designing around the SEP ex post (and therefore are not related to the inventor's contribution to the art).  Moreover, not every defendant necessarily is an infringer, given the high percentages of litigated patents that are either not infringed or invalid.  And if the defendant is an infringer and ultimately has to pay a FRAND royalty, it will also have to pay interest (albeit in some countries, including Germany, the interest is not compounded even though from an economic perspective it probably should be), its own attorneys' fees, and at least some portion of the patentee's attorneys' fees.  Finally, while it certainly is possible that the costs of litigating hundreds of patent royalties in dozens of countries could be enormous, one would expect that in most instances the parties will, at the end of the day, settle, as they do in most cases most of the time.

I do think it is fair to say, though, that the law in Europe will remain in a state of confusion until the CJEU renders its decision in Huawei v. ZTE.  And if that court mostly agrees with the Commission's perspective, perhaps the next major topic the European tribunals will need to take up will be how courts should calculate FRAND royalties.

Tuesday, July 15, 2014

ABA Journal Blawg 100

Readers who are interested in doing so have until August 8 to nominate their favorite law blogs for inclusion in this year's ABA Journal Blawg 100 (an annual list of the 100 best legal blogs).  The journal encourages bloggers to tell their readers about Blawg 100 and to invite them to send messages on behalf of one's blog, so consider yourself invited. You don't have to be an ABA member or based in the U.S. to participate. Further information is here