Monday, February 29, 2016

A Recent English Decision on Accountings of Profits

The case is Design & Display Ltd v Ooo Abbott & Anor [2016] EWCA Civ 95, an appeal from a 2014 decision of the Intellectual Property Enterprise Court.  (Hat tip to Norman Siebrasse for calling this appellate decision to my attention.  I blogged about the 2014 IPEC decision here.)  The patent in suit concerns "display panels used in shops" (para. 3), claim 1 of which is reproduced in para. 4 and the "inventive concept" of which was summarized by the trial judge (Justice Birss) as "not just the idea of an insert made of a resilient metal (which was known)," but rather "the composite idea of an insert made of such a metal and its having a particular shape and its interacting with the slot of the panel in a particular way, such that the metal insert could engage with the panel by snap-in means" (para. 9).  The Court of Appeal (per Lord Justice Lewison) framed the appeal as presenting two issues:
The first main question raised by the appeal is whether Design & Display are liable for the whole of the profits made on the sale of panels sold together with infringing inserts. The second main question is whether Design & Display are entitled to set off any part of their general overheads against the gross profit for which they are accountable (para. 6).
On the first issue, the trial court had awarded the defendant's entire profit on sales of infringing displays, on the theory that although only some consumers bought the displays because of the inventive concept of the patent in suit, the defendant was "going to make a sale of inserts and panels both, or no sale at all. . . . Because the sales went together, the sale of the inserts caused (in the relevant sense) the sale of the panels in which they were incorporated. It was also foreseeable that the sale of the panels would be a consequence of the sale of the inserts" (para. 30).  The Court of Appeal disagreed, however:
Let me revert to the example given by the Full Court in Dart Industries Inc v Decor Corp Pty Ltd. A manufacturer sells a car which includes a patented brake. If the car did not have brakes, the manufacturer could not have sold it, but it did not have to have that particular brake. In those circumstances the Full Court clearly thought that it would be unjust to charge the manufacturer with the whole profit made on the car; and I agree with them. In my judgment the legal error that the judge made was to ask whether the sale of the panel plus insert would have happened separately rather than to ask himself how much of the profit on the sale was derived from the infringement. In a case in which the infringement does not "drive" the sale it seems to me that it is wrong in principle to attribute the whole of the profit to the infringement. In particular it does not follow from the fact that the customer wanted a slat wall that incorporated an insert that the customer wanted a slat wall that incorporated the infringing insert. Mr Cuddigan argued that the infringing inserts and the slot were the "very essence" of the incorporated and unincorporated panels. But the judge made no such finding, and his observations at [32] suggest the contrary. In addition I do not consider that the judge was correct at [31] in saying that "because the sales went together, the sale of inserts caused … the sale of the panels…" The mere fact that the two went together is not, in my judgment, sufficient to establish that the whole of the profit earned on the composite item was derived from the invention. One might just as well say that the sale of the panel caused the sale of the insert. As the judge himself recognised the customer specifies panels, and on the hypothesis that he was considering at [31] the customer is indifferent about the inserts (provided that some form of insert is included). On the judge's approach, because the sale of the patented brake went with the sale of the car, the whole of the profit on the car would be included in the account. If the judge had found on the facts that the infringing insert was "the essential ingredient in the creation of the defendant's whole product" (i.e. the incorporated panel), then he would have been justified, on the facts, in declining to apportion the profit. But I cannot see that he made that finding.
In my judgment therefore in cases simply falling within the factual hypothesis discussed at [31] the judge should have apportioned the overall profit. The question of apportionment will therefore have to be returned to IPEC, although the judge would not be precluded from finding as a fact that the infringing insert was the "essential ingredient" of the incorporated panel (paras. 36-37). 
In my opinion, Lord Justice Lewison is right to require apportionment of the defendant's profit where the patent did not drive demand for the defendant's product, because otherwise the defendant is being required to disgorge more than the value of the patented invention to it:  it's being required to disgorge profits that are properly attributable to other features.  With all due respect, however, the principle actually cuts deeper than the court seems to recognize.  From an economic perspective, the value of the invention to the defendant is only the surplus profit the defendant earned over and above what it would have earned from the use of the next-best available noninfringing technology.  Unfortunately, the House of Lords over a century ago in United Horse-Shoe & Nail Co. v. John Stewart & Co. (1888) L.R. 13 App. Case 401 held that the fact that the defendant could have resorted to a noninfringing alternative is irrelevant to the amount of the plaintiff's lost profit, and in Celanese Int'l Corp. v. BP Chemicals Ltd. [1999] R.P.C. 203 Justice Laddie held that the same principle applies to awards of defendant's profits.  The principle that noninfringing alternatives are irrelevant necessarily leads to overcompensation, as I discuss in my book at pp. 110-14, 189-90, 198-203, and as I have discussed several times on this blog (see here, here, here, here, and here); and as I further argue at pp. 199-200 of my book, apportionment and the relevance of noninfringing alternatives are "inseparable concepts." At least Lord Justice Lewison's opinion for the court undoes some of the damage of ignoring alternatives.

As for the second issue, the court holds that allocable overhead should be deducted under a wider range of circumstances than Justice Birss believed:
It seems to me to be clear that if the infringer would have manufactured or sold non-infringing products had he not infringed and would have incurred overheads in supporting that manufacture or sale, then he ought to be allowed a proportion of his general overheads. The question is not dependent on whether the infringer is or is not working to capacity. The bottom line is whether (a) the overheads would have been incurred anyway even if the infringement had not occurred and (b) the sale of infringing products would not have been replaced by sale of non-infringing products. It is in those circumstances that an allowance for overheads will not be permitted (para. 42).
As I have noted before (here), economic analyses of the question of whether courts awarding the defendant's profit should deduct allocable overhead from the defendant's gross profit are divided, though I am inclined to agree that as a general matter they should be.  So I think the Court of Appeal got this point right too.

For my September 2013 blog post discussing a range of other issues that policymakers must confront in deciding whether or how to award infringer's profits, see here.  For a critique of the U.S. rule, which (in design patent cases only) awards the defendant's entire profit, see here.

Friday, February 26, 2016

Federal Circuit Reverses $120 Million Apple v. Samsung Judgment

Opinion here.  This is the appeal from the judgment entered in May 2014, in which Apple asserted five patents against Samsung and Samsung counterclaimed for infringement of two of its patents (for previous discussion on this blog, see here, here, here, here, and here).  The Federal Circuit, in an opinion by Judge Dyk joined by Chief Judge Prost and Judge Reyna, reverses on liability, so it doesn't need to reach any damages questions:
With regard to Apple’s ’647 patent, we reverse the district court’s denial of Samsung’s motion for judgment as a matter of law (JMOL) of non-infringement and find that Apple failed to prove, as a matter of law, that the accused Samsung products use an “analyzer server” as we have previously construed that term. We also reverse the district court’s denial of JMOL of invalidity of Apple’s ’721 and ’172 patents, finding that the asserted claims of both patents would have been obvious based on the prior art. We affirm the judgment of non-infringement of Apple’s ’959 and ’414 patents, affirm the judgment of infringement of Samsung’s ’449 patent, and affirm the judgment of noninfringement of Samsung’s ’239 patent. In light of these holdings, we need not address the other issues on this appeal. Accordingly, we affirm-in-part and reverse-in-part.
Just a few months ago a panel of the Federal Circuit (without addressing the merits of the underlying judgment of liability) effectively held that Judge Koh should have entered a permanent injunction (see here and here).  Presumably the injunction will now be lifted too. 

Thursday, February 25, 2016

New Book on the Unitary Patent

My university's library recently received a copy of Transitions in European Patent Law:  Influences of the Unitary Patent Package (Rosa Maria Ballardini, Marcus Norrgård & Niklas Bruun eds., Kluwer Law International 2015).  Part IV is titled Enforcement and Procedural European Patent Law, and includes chapters by Kelli Larson titled Enforcement:  Legal Implications of the European and Unitary Patent Systems for Non-practicing Entity Patent Enforcement in Europe, and by Marcus Norrgård and Alicia Nylund titled The Requirements for Preliminary Injunctions in the Unified Patent Court.  Ms. Larson's chapter provides a interesting discussion of factors that cut both for and against the prediction that the new system will make Europe more NPE-friendly, while the chapter by Professor Norrgård and Ms. Nylund contrasts the UK approach to preliminary injunctions (involving something of a balancing inquiry) with the German approach (involving more of a prediction as to likelihood of harm). Norrgård and Nylund note that the relevant legal documents relating to the UPC do not clearly specify which approach the UPC should take toward preliminary injunctions, and they argue in favor of an approach (patterned after frameworks developed by Professor John Leubsdorf and Judge Richard Posner) that they refer to as "inverse sequential," which would begin "by weighing the interests of the parties, which in turn would define the standard of proof required.  In short, the graver the consequences for the plaintiff compared with the defendant's consequences, the lower the threshold for a preliminary injunction, and the other way around:  the greater the harm to the defendant (compared to the plaintiff's), the higher the threshold."  Interesting reading.

Tuesday, February 23, 2016

Halo & Stryker Oral Argument

Today's oral argument in these two cases involving the standard for awarding enhanced damages for patent infringement began with Jeffrey Wall arguing on behalf of both petitioners, Halo and Stryker.  He began by characterizing the Federal Circuit's standard as "rigid" (a characterization the Supreme Court has made about other disfavored Federal Standards!),  a departure from historical practice insofar as it is "all about recklessness rather than also intent" and "judges recklessness based on legal defenses developed in litigation rather than the facts at the time of the infringement," and similar to the standard for awarding attorneys' fees that the Court rejected in Octane Fitness and Highmark.  In its place, Mr. Wall says, the court should require a totality-of-the-circumstances, discretionary standard. Under that standard, if the plaintiff prevails on liability, the court should hear the "competing narratives" about whether the defendant had a good faith belief the patent was invalid or noninfringing.  After a few preliminary questions from some of the justices, Justice Breyer asked a detailed question highlighting the expense a small company may face if it is burdened with having to obtain an opinion of counsel upon receipt of a cease-and-desist letter; at p.13 he posed the possibility that perhaps a big company and small company should react differently when served with such a letter, with the big company undertaking a formal investigation.  Justice Sotomayor suggested that even if the ultimate standard is a discretionary one, district courts need some guidelines on how to exercise that discretion.  Mr. Wall's response was that "I think what you would say is that in judging  whether a reasonable person would have thought that there was a really high risk, you've got to take account of both the strength of the notice, what kind of notice were they on of the patent, and what would have been commercially reasonable in the industry as it exists."  Justice Alito asked whether courts are "going to be able to assess the state of mind of the infringer at the time of the infringer's conduct without getting into communications with the--with the company's attorneys," and how one could show that the infringer lacked a good faith belief at the time its began infringing.  Mr. Wall reiterated that what is reasonable will depend on the nature of the claim letter and of the recipient.

Next up was Assistant SG Ramon Martinez, who summarized the government's view that "the Federal Circuit is wrong to categorically bar such damages whenever an infringer presents an objectively reasonable defense at trial. That role creates an arbitrary loophole that allows some of the most egregious infringers to escape enhanced damages."  Mr. Martinez would have the court consider the infringer's subjective state of mind to some degree, stating that what the Federal Circuit is "essentially doing is taking the reasonable man and giving him the benefit of omniscience, giving him the benefit of hindsight and saying, what facts do we know at the time of trial?"  Justice Breyer responded by stating "I didn't think they were doing that. I thought what they were doing was saying, we are not going to allow punitive damages in a case where the patent is so weak" (to which I would note that, well, the patent turned out not to be "so weak" because by hypothesis the plaintiff won!), and suggested that maybe it makes sense to leave the standard to the expertise of the Federal Circuit.  To this, Mr. Martinez argued that the Seagate standard is not consistent with historical practice, and that negative consequences that are of concern to Justice Breyer could be dealt with within a traditional recklessness standard.  Mr. Martinez then elaborated that in the government's view there could be three types of cases meriting enhancements:  (1) cases where the defendant intentionally infringed a patent believing it to be valid; (2) cases where the defendant's conduct was reckless based on the facts and circumstances known to the defendant at the time it engaged in the conduct; and (3) cases involving other misconduct by the defendant.  All of these types of conduct could be classified as "willful," if it is necessary to use that term.  In addition, there could be cases where enhancements would serve a purely compensatory purpose (Mr. Martinez didn't elaborate).  Eventually Justice Kagan asked what the correct standard would be as a matter of policy, and Mr. Martinez said it would be the same standard he had been advocated, which would ensure deterrence and punishment.

Carter Phillips then argued on behalf of the respondents and had an extended (but on my reading rather inconclusive) colloquy with Justice Breyer about whether there was empirical evidence about people asserting weak patents.  Justice Sotomayor asked "if you come up with something, any defense whatsoever in the litigation that's not frivolous, that that gets you out of enhanced damages," to which Mr. Phillips answered "Objective reasonableness is the requirement that the Federal Circuit has looked at, and I think that's more than simply the ability to satisfy Rule 11. I think there has to be a substantial defense. And substantial defenses were put forward in both of these cases. Indeed these were, in both instances, close cases. So I would hope that that's where the Court would would focus its attention."  Chief Justice Roberts, however, noted that the statutory text is bare--"'The Court may increase the damages up to three times the amount found or assessed.' Period." and suggested that the Federal Circuit's construction of an "elaborate standard" based on this language was "surprising."  Mr. Phillips noted, however, that Congress didn't amend the Federal Circuit's standard when it enacted the America Invents Act, and indeed mentioned in section 298 that defendants are not obligated to obtain opinions of counsel.  Justice Kagan responded, however, that there's nothing to indicate that Congress approved of the Federal Circuit's specific definition of "willfulness."  Justice Ginsburg asked "Can we at least peel off the clear and convincing evidence that seems to come out of nowhere and the the the standard is de novo review rather than abuse of discretion?"  Mr. Phillips argued against abandoning de novo review of what he characterized as a question of law (whether there is "an objectively reasonable basis for what's been done here?" After some further questioning from Justice Alito and Justice Breyer about whether there are any good analogies in other bodies of tort law, Justice Kennedy asked "Is there any way to allow some consideration for a subjective intent to infringe in an egregious case, as an additional element for--as an additional way to define willfulness without completely wrecking the Seagate standard?"  (Justice Kagan helpfully restated the question as a hypothetical:  someone intentionally infringes, his lawyers comes up with a reasonable but ultimately unsuccessful invalidity or noninfringement argument, and it seems wrong that the defendant's subjective bad faith is irrelevant.)  Mr. Phillips responded that the defendant will have to pay compensatory damages and (on the premised facts) attorneys' fees.  Toward the end of his argument, he made the following policy argument:  "Now, I understand the desire to to have enhanced damages against that particular bad actor. That's why I say in a lot of ways, this case comes down to what do you worry about more, pirates or trolls? My assessment of this, and I think it's borne out by the way the Federal Circuit has looked at this problem, is that there are not that there are not very many pirates out there. And if you keep a rule that is designed simply to get the one in a million pirates I would call them unicorns but one in a million pirates, you'd end up with a rule that will allow the trolls to go after every legitimate producer of products and services in this country. And that's the price you'd have to pay to get at the at the really bad actor."  Whether that sways the Court remains to be seen.

In rebuttal, Mr. Wall stated that "reasonable, good-faith arguments to--to challenge patents are not going to result in enhanced damages," and that "Our approach incentivizes good, commercially reasonable behavior under the full set of circumstances at the discretion of the district court. Their approach is incentivizing good litigation."  He also argued that there is no basis for a clear-and-convincing burden of proof or de novo review.

It's always hard to read the tea leaves, but for now I'm guessing (though it is just a guess, and I may revise my opinion after I've though about it some more) the Court will restate "willfulness" as the standard, but say that willfulness should not be easy to prove (though it will allow some evidence of subjective intent to factor in independently of objective considerations); abandon clear-and-convincing; and maybe say something like the reasonableness of the defendant's arguments regarding validity and infringement can be a factor to consider in determining whether the district court abused its discretion in awarding a damages enhancement.    

Halo and Stryker Oral Argument Transcript Now Available

Here.  I'm just about to sit down to read it myself, and hope to have some comments later today.

Monday, February 22, 2016

New Book on Comparative Law and Economics

I am pleased to announce the publication of a new edited volume, Comparative Law and Economics (Theodore Eisenberg & Giovanni B. Ramello eds., Edward Elgar Publishing 2016).  I contributed a chapter titled A Comparative Law and Economics Analysis of Damages for Patent Infringement.  Other contributors of chapters devoted to IP law are Peter Yu (The Comparative Economics of International Intellectual Property Agreements), Wendy Gordon (Copyright and Tort as Mirror Models:  On Not Mistaking for the Right Hand What the Left Hand Is Doing), and Ivan Paak Liang Png & Qiu-Hong Wang (Copyright Law and the Supply of Creative Work:  Evidence from the Movies).  Yun-chien Chang and Henry Smith also contributed a chapter titled Structure and Style in Comparative Property Law.

 Comparative Law and Economics

Here is a link to further information, and here is the book description:
Contemporary law and economics has greatly expanded its scope of inquiry as well as its sphere of influence. By focussing specifically on a comparative approach, this Handbook offers new insights for developing current law and economics research. It also provides stimuli for further research, exploring the idea that the comparative method offers a valuable way to enrich law and economics scholarship.
With contributions from leading scholars from around the world, the Handbook sets the context by examining the past, present and future of comparative law and economics before addressing this approach to specific issues within the fields of intellectual property, competition, contracts, torts, judicial behaviour, tax, property law, energy markets, regulation and environmental agreements.
This topical Handbook will be of great interest and value to scholars and postgraduate students of law and economics, looking for new directions in their research. It will also be a useful reference to policymakers and those working at an institutional level. 

Friday, February 19, 2016

Final Briefs Filed in Halo, Stryker Enhanced Damages Case

The reply briefs of Stryker Corp. and of Halo Corp. were filed on February 12.  Thanks to the Scotus Blog, Stryker's reply is available here.  I haven't been able to get a copy of Halo's reply yet but will link to it when I can.  Also, the last remaining amicus brief that I am aware of, of EMC Corp. in support of respondents, is available here.  (This last brief is interesting in that, like the brief filed by Public Knowledge, the Electronic Frontier Foundation, and Engine Advocacy in December, it cites some recent academic literature on forum shopping, in arguing that a return to the pre-Seagate standards for awarding enhanced damages would only aggravate the problem.)  The case is set to be argued before the currently eight-member U.S. Supreme Court next Tuesday, February 23.  (I'll probably post something on this after I've read the transcript.)  For the other briefs that have been filed in this case and my thoughts on the availability of enhanced damages, see here, here, here, herehere, here, here, and here.)   

I also just learned that American University's Washington College of Law will be hosting a post argument discussion (with live webcast) on Halo and Stryker on Tuesday afternoon at 4:45 p.m., by which time the argument will have been heard and (I expect) the transcript will be out.  Here is a link to information on the event.  Speakers will include Jonas Anderson, American University Washington College of Law; Donald Dunner, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Counsel for Respondent, Zimmer, Inc.; Christopher Seaman, Washington and Lee University School of Law, Counsel for Amici, Intellectual Property Professors, in Support of Neither Party; James C. Otteson, Arnold and Porter, Counsel for Amici, Innovention Toys, in Support of Petitioners; Michael Feldman, Durie Tangri, Counsel for Amici, Internet Companies, in Support of Respondents; and Michael Carroll, American University Washington College of Law (Moderator).

UpdateHere is a copy of Halo's reply brief, fresh off the Scotus Blog.

Thursday, February 18, 2016

IPO Chat Channel Webinar on Damages for Extraterritorial Infringement

On Wednesday, February 24 at 2 p.m. EST, the IPO Chat Channel is presenting a webinar on damages for extraterritorial infringement.  This is a hot topic in U.S. patent law, and one that I have blogged about several times--most recently earlier today, concerning the settlement between Marvell and Carnegie Mellon (see this post below).  Here is a link to the webpage, and here is a description of the webinar:
One of the biggest unresolved legal issues in IP is whether reasonable royalties on domestic use of a patented technology can include extraterritorial sales as part of the royalty base. The resolution of that question, including issues such as whether a sale may have more than one location, is likely to have far-reaching consequences, not just for damages quantification, but also for where companies choose to conduct their R&D and sales support.
Patent owners and possible infringers face several years of considerable uncertainty. Our panel will clarify the issues and give advice on restructuring license agreements in light of the latest case law. Last year's Federal Circuit decision in Carnegie Mellon v. Marvell is awaiting a new district trial on remand and likely subsequent appeals, but savvy licensors can respond with new royalty structures. Our panel includes a litigator who is involved in long series of cases involving foreign sales; a law professor who studies extraterritoriality; and a damages expert.
Panelists will be  Blair Jacobs of Paul, Hastings; Professor Amy Landers of Drexel University; and David Harkavy of the Claro Group.

Marvell Settles with Carnegie Mellon for $750 Million

Here is a link to the story from the Wall Street Journal, here is the story from Reuters, and here is the story from the Pittsburgh Tribune-Review.  Thus ends a patent litigation that raised some interesting damages questions, most importantly the extent to which a reasonable royalty for the infringement of a U.S. patent may take into account uses occurring outside the United States.  For my previous posts on the case, see here, here, here and here.

Wednesday, February 17, 2016

From Around the Blogs: Patent Remedies in Canada, the U.K., and Denmark

1.  Norman Siebrasse has published a couple of damages-related posts on Sufficient Description.  The first, from January 27, is titled Inequitable Conduct by Patentee:  Defence v Reduction of Damages, and discusses a recent Canadian federal court decision in which the court concluded that some forms of inequitable conduct on the part of the patentee do not bar recovery entirely but rather may reduce the patentee's damages.  I'm inclined to think that is a sensible result, as I discussed here at pp. 750-51; one problem with the U.S. version of the doctrine, by contrast, is that is an all-or-nothing proposition.  A gradation of possible sanctions might be proportionate to the offense.  The second post, from February 5 and titled $2.9 Million Award is 30% of Actual Legal Fees, discusses a recent case in which the judge exercised his discretion and made an upward departure from the standard attorneys' fee that would have been awardable in the type of case at issue (which would have amounted to only 11% of actual fees incurred) and awarded an amount equal to 30%, which at least is closer to full compensation.

2.  The IPKat Blog on January 27 published a post titled Storm in a C Cup:  Mr Justice Carr Refuses Injunction and Account of Profits in Stretchline v. H&M Spat.  The parties had previously settled patent infringement litigation, but the plaintiff later sued the defendant for breaching that agreement by selling allegedly infringing fabric.  The court agreed that there was a breach but denied an injunction on the ground that the defendant had stopped infringing and the infringement was unlikely to recur, and also denied a request for an accounting of profits.  More recently, on February 2 the blog published a post (authored by Brian Whitehead of Kempner & Partners, which represented the plaintiff) titled Inquiry as to Damages:  No Longer a Rara Avis?, discussing a case in which the IP Enterprise Court (which handles relatively small-stakes patent disputes in England & Wales) awarded £0.5 million in lost profits just a few weeks after a December 2015 hearing.  The author concludes that "[t]his represents another means by which the IPEC improves access to justice for litigants, particularly for small and medium enterprises."  Another post on this case, authored by Emma Muncey and Rachel Mumby of Bristows LLP and titled AP Racing v. Alcon Compone, was published on EPLaw Blog on February 10, and also links to the decision itself.  

3.  Anders Valentin recently published a post on the Kluwer Patent Blog titled A Matter of Urgency--PI Application Turned Down for Lack of Urgency.  The post discusses a Danish case in which the court denied the patent owner, Minkpapir, a preliminary injunction which it applied for in 2015 despite its presumed knowledge that the defendant had been marketing an allegedly infringing product since 2011.  As I have mentioned several times before (more recently here), urgency is an important consideration for obtaining a preliminary injunction in Germany too.

Tuesday, February 16, 2016

Two Posts on Justice Scalia's IP Legacy

More on patent remedies tomorrow, but for today I'll just note for readers who may be interested that are a couple of interesting posts up on U.S. Supreme Court Justice Antonin Scalia's opinions in I.P. cases:  one by Lisa Larrimore Ouellette on Written Description, and another by Neil Wilkof on IPKat.  As readers I'm sure are aware, Justice Scalia died this past weekend.  I'm glad I got to hear him speak at the University of Minnesota Law School this past fall.

Monday, February 15, 2016

Geradin on PAEs and EU Competition Law

Damien Geradin has posted a new paper on ssrn titled Patent Assertion Entities and EU Competition Law.  Here is a link to the paper, and here is the abstract:
Patent Assertion Entities (“PAEs”) are playing a growing role in the United States, but also in Europe. Their activities are controversial in that while they may be a source of efficiencies, they may also create anticompetitive harm. Given the growing trend of operating companies transferring patents to PAEs in order to increase their licensing revenues, the risks of anticompetitive harm created by PAE activities must be taken seriously. When analysing the impact of PAE activities on competition, a distinction must be drawn between “pure” PAEs, which acquire patents from a variety of sources and generate revenues by asserting them, and “hybrid” PAEs, which acquire patents from operating companies and maintain a relationship with these companies post-acquisition. While pure PAEs create risks of exploitation, hybrid PAEs create exclusionary concerns as such PAEs may be used by operating companies to harm their rivals on downstream product markets. These exclusionary concerns are particularly serious when the operating company retains a significant degree of control over the activities of the PAE following the transfer of the patents. As there is currently no EU competition case-law on the activities of PAEs, this paper attempts to show through hypotheticals that depending on the circumstances of each case, privateering may lead to exclusion.
Professor Geradin discusses, among other things, some competing interpretations of the CJEU's decision in Huawei v. ZTE, and makes some compelling arguments regarding the extent to which E.U. competition law may place limits on the practices of both pure and "hybrid" PAEs.

Friday, February 12, 2016

Breaking News: U.S. Federal Circuit Adheres to National Exhaustion of Patent Rights

This case, Lexmark Int'l, Inc. v. Impression Products, Inc., is not directly related to the subject of patent remedies, but it's hardly irrelevant to the topic either and is certainly a very important decision.  From Judge Taranto's majority opinion (joined by Chief Judge Prost and Judges Newman, Lourie, Moore, O'Malley, Reyna, Wallach, Chen, and Stoll):
We decided to hear this case en banc to consider whether two decisions of this court concerning the uncodified doctrine of patent exhaustion—one decision from 1992, the other from 2001—remain sound in light of later decisions of the Supreme Court. Today we reaffirm the principles of our earlier decisions. First, we adhere to the holding of Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), that a patentee, when selling a patented article subject to a single-use/no-resale restriction that is lawful and clearly communicated to the purchaser, does not by that sale give  the buyer, or downstream buyers, the resale/reuse authority that has been expressly denied. Such resale or reuse, when contrary to the known, lawful limits on the authority conferred at the time of the original sale, remains unauthorized and therefore remains infringing conduct under the terms of § 271. Under Supreme Court precedent, a patentee may preserve its § 271 rights through such restrictions when licensing others to make and sell patented articles; Mallinckrodt held that there is no sound legal basis for denying the same ability to the patentee that makes and sells the articles itself. We find Mallinckrodt’s principle to remain sound after the Supreme Court’s decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), in which the Court did not have before it or address a patentee sale at all, let alone one made subject to a restriction, but a sale made by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.
Second, we adhere to the holding of Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), that a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority. Jazz Photo’s no exhaustion ruling recognizes that foreign markets under foreign sovereign control are not equivalent to the U.S. markets under U.S. control in which a U.S. patentee’s sale presumptively exhausts its rights in the article sold. A buyer may still rely on a foreign sale as a defense to infringement, but only by establishing an express or implied license—a defense separate from exhaustion, as Quanta holds—based on patentee communications or other circumstances of the sale. We conclude that Jazz Photo’s no-exhaustion principle remains sound after the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), in which the Court did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise infringing domestic acts. Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee’s rights in the United States.
Judges Dyk and Hughes dissent.

It's going to take me a little while to get through all 129 pages of the opinions, but initially I'm of the view that the majority is correct at least a matter of policy, particularly on the national exhaustion rule; a regime of international exhaustion, as Lisa Larrimore Ouellette and Daniel Hemel argue here, would threaten to raise the price of drugs in developing countries.  Next stop, I feel reasonably certain, will be the Supreme Court, and I'm not at all sure what to expect when the case lands there.

Wednesday, February 10, 2016

Federal Circuit Affirms $23 Million Walker Process Damages Award

Although for the most part this blog discusses developments in the law of patent remedies--meaning relief available to patent plaintiffs--from time to time I also discuss claims and remedies that may be available to persons who believe they have been falsely or wrongly accused of patent infringement.  Both in the U.S. and abroad there are a wide variety of legal doctrines that play a role in resolving this latter class of disputes; and at some point in the future I hope to get back to work on a project addressing the comparative law and economics of wrongful patent enforcement.  Anyway, all of this is background to the following discussion of a case decided this morning, TransWeb, LLC v. 3M Innovative Properties Co., in which the Federal Circuit affirmed a judgment of antitrust liability for the assertion of an allegedly fraudulently procured patent (a so-called "Walker Process" claim).  The opinion is by Judge Hughes, joined by Judges Wallach and Bryson.

The facts in brief are as follows.  Plaintiff and defendant are competitors in the market for respirator filters, and at some point both independently developed methods for imparting something called an "electret" characteristic to their filters.  At an exhibition in 1997, TransWeb's founder Ogale handed out samples of a filter material his firm had developed.  3M filed a patent application more than a year after this exhibition, eventually obtained two patents, and filed an infringement action against TransWeb.  The jury found, however, and the Federal Circuit affirmed, that Ogale's conduct constituted a prior public use more than one year prior to the date on which 3M's application was filed, and that the patents in suit were obvious in view of this prior public use.  (I won't review these rulings here.)  In addition, the Federal Circuit found no abuse of discretion in the finding that the patents in suit were unenforceable due to inequitable conduct, based on evidence that the inventor and 3M were aware of the prior public use and failed to disclose it properly to the USPTO.  (I won't review this ruling either, except to the extent it is relevant to the antitrust claim discussed below.  I will note only that the inequitable conduct defense has become more difficult to sustain following the Federal Circuit's 2011 en banc ruling in Therasense.)  Finally, the jury concluded that 3M's conduct constituted an act of attempted monopolization in violation of the antitrust laws, based on the alleged fraudulent procurement of the patents. 

In Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965), the U.S. Supreme Court held that enforcing a patent that had been fraudulently obtained (e.g., by knowingly and willfully making material misrepresentations to the USPTO) can violate Sherman Act § 2, though only if all of the other elements of a Sherman Act § 2 claim also are proven.  The other elements needed to prove a § 2 monopolization claim are “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).  To prove a § 2 attempted monopolization claim, a plaintiff must prove (1) predatory or anticompetitive conduct, (2) specific intent to monopolize, and (3) a dangerous probability of success.  See Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993).  Both monopolization and attempted monopolization claims require proof of the relevant market.
Turning now to the case at issue, on the issue of fraud in the procurement the Federal Circuit states:
After Therasense,the showing required for proving inequitable conduct and the showing required for proving the fraud component of Walker Process liability may be nearly identical. See, e.g., Gideon Mark & T. Leigh Anenson, Inequitable Conduct and Walker Process Claims AfterTherasense and the America Invents Act, 16 U. Pa. J. Bus. L. 361, 402 n.258 (2014). Regardless, because 3M does not challenge the sufficiency of the evidence supporting the jury’s Walker Process fraud finding beyond challenging the inequitable conduct finding, we will accept as admitted that TransWeb sufficiently demonstrated the Walker Process fraud component.
Second, on the issue of whether the market had been properly defined, the court observed among other matters:
While 3M points to evidence supporting a conclusion that fluorinated material does not form a distinct market, this does not undermine the sufficiency of the evidence supporting the jury’s conclusion to the contrary. Evidence demonstrated that: fluorinated material has a lower pressure drop while maintaining high filtration, as compared to other filter media; fluorinated material has a longer service life than other filter media; and customers would pay more for respirators with the fluorinated media. Taken together, this evidence provides a sufficient basis on which a reasonable jury could conclude that the price, use, and qualities of fluorinated material render it a distinct market from other filter media. . . .
The court also finds no error in the jury's determination of the relevant geographic market.

Third, and of most interest for purposes of this blog, the court affirms the award of damages:
Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. § 15(a) (2012). The jury concluded that TransWeb was entitled to its lost profits and attorney fees in recompense for 3M’s antitrust violation. The jury found 3M liable for approximately $34,000 in lost profits, which the district court awarded to TransWeb as the trebled amount of approximately $103,000. After review by a special master, the district court concluded that TransWeb incurred approximately $3.2 million in attorney fees prosecuting the antitrust claim and approximately $7.7 million defending the infringement suit. The district court awarded the $3.2 million on a one-for-one basis as “cost of suit” fees. The district court awarded the $7.7 million trebled to approximately $23 million as damages. 3M does not appeal the lost profits or cost of suit fees. 3M argues that the district court erred in awarding the $23 million of attorney-fees damages, because TransWeb failed to show any link between those attorney fees and an impact on competition. 3M argues that those attorney fees had no effect on competition because they did not force TransWeb out of the market or otherwise affect prices in the market. On this basis, 3M argues that those attorney fees are not an antitrust injury and thus cannot be a proper basis for antitrust damages.
Section 4 of the Clayton Act does not provide recompense for any injury causally linked to a violation of the antitrust laws, but rather only for antitrust injury. See Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). TransWeb’s injury-in-fact of $7.7 million must be “attributable to an anti-competitive aspect of the practice under scrutiny” in order to qualify as an antitrust injury. Atl. Richfield, 495 U.S. at 334. Stated another way, TransWeb’s injury-in-fact must “stem[] from a competition-reducing aspect or effect of the defendant’s behavior,” not from competition-increasing or competition-neutral aspects. Id. at 344. 
3M’s argument focuses on the fact that the harmful effect on competition proven by TransWeb at trial never actually came about. TransWeb proved at trial that increased prices for fluorinated filter media and respirators would have resulted had 3M succeeded in its suit. However, because TransWeb prevailed, these effects never materialized.
We do not read the antitrust injury requirement from Atlantic Richfield, Brunswick, and similar cases to so narrowly define the scope of antitrust injury. Those cases dealt with situations where the antitrust-defendants’ actions, though unlawful, would not have actually reduced competition. See, e.g., Atl. Richfield, 495 U.S. at 337–38 (rejecting attempt to recover profits lost due to an increase in competition and reduction in prices caused by vertical, maximum-price-fixing arrangement); Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 114–17 (1986) (rejecting attempt to block merger on the theory that the merged companies would increase competition and lower prices); Brunswick, 429 U.S. at 487–88 (rejecting attempt to recover lost marginal profits that were not achieved because an acquiring company purchased a failing company, thus maintaining competition with the antitrust plaintiff).
In this case, however, 3M’s unlawful act was in fact aimed at reducing competition and would have done so had the suit been successful. 3M’s unlawful act was the bringing of suit based on a patent known to be fraudulently obtained. What made this act unlawful under the antitrust laws was its attempt to gain a monopoly based on this fraudulently-obtained patent. TransWeb’s attorney fees flow directly from this unlawful aspect of 3M’s act. That is, TransWeb’s attorney fees “flow[] from that which makes [3M’s] acts unlawful,” Brunswick, 429 U.S. at 489, and are “attributable to [this] anti-competitive aspect of the practice under scrutiny,” Atl. Richfield, 495 U.S. at 334. The “competition-reducing aspect,” id. at 344, of 3M’s behavior was its attempt at achieving a monopoly by bringing the subject lawsuit. 3M’s failure to prevail in that lawsuit does not make the resultant attorney fees any less attributable to that behavior, and the attorney fees are precisely “the type of loss that the claimed violations would be likely to cause,” Brunswick, 429 U.S. at 489 (quoting Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 125 (1969)) (internal ellipses omitted). Therefore, TransWeb’s attorney fees are both injury-in-fact and antitrust injury. . . .
The court finds further support for awarding attorneys' fees spent in defending the patent infringement claim in precedent from other circuits involving sham litigation antitrust claims, and from the policy of encouraging parties to file meritorious antitrust suits. 

To be honest, I've never given much thought to the question of what appropriate antitrust damages should be for attempted (but unsuccessful) monopolization.  As 3M points out, when (as here) the attempt is unsuccessful there may be no exclusion of competitors or higher prices.  Nevertheless, I'm inclined to think the court is right:  that as long as Congress has proscribed attempted monopolization, the harms a target suffers to fend off the attempt ought to  be compensated, and here that harm took the form of almost $8 million in fees.  (I imagine there must be some scholarship out there addressing the law and economics of remedies for attempts, with which I should at some point familiarize myself.)  Of course, in a system in which prevailing parties are awarded their attorneys' fees as a matter of course, the question of whether fees expended in defense of an unsuccessful infringement claim can be awarded as damages for attempted monopolization might be less relevant--though in reality even in countries that routinely award fees to the prevailing party those fees often are not fully compensatory.  Moreover, as the material quoted above indicates, in U.S. antitrust law damages are automatically trebled, so by prevailing on an antitrust claim the successful infringement defendant is awarded much more than just its compensable out-of-pocket fees.  

As a matter of policy, enhanced damages conceivably make sense for antitrust violations that are hard to detect or that cause harm to a wider population--the optimal deterrence point--but it's never been clear to me why U.S. law awards successful private antitrust claimants treble damages for all types of antitrust violations.  Interestingly, in a recent non-antitrust patent infringement action the Federal Circuit vacated an award of double attorneys' fees to a successful defendant, which prompted me to wonder whether there might be circumstances in which courts should award fee multipliers to achieve adequate deterrence (see here).  But because it involved a successful antitrust claim, TransWeb is a case in which the prevailing infringement defendant  automatically got a fee multiplier.  Not sure the distinction makes sense as a matter of policy, but it's probably correct on the law.   

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.