Friday, June 23, 2017

Federal Circuit: USPTO Director Entitled to Attorney's Fee Award

The decision is Nantkwest Inc. v. Matal, available here.  The examiner and the PTAB rejected the inventor's patent application on nonobviousness grounds, and rather than immediately appealing to the Federal Circuit (which is one option under these circumstances) the applicant initiated a lawsuit against the director in the U.S. District Court for the Eastern District of Virginia (which is another, less commonly invoked, option).  The district court ruled in favor of the director, and in May the Federal Circuit affirmed (here).  The district court also awarded the director expert witness fees but denied a request for attorney's fees. On appeal of this matter, the Federal Circuit (in an opinion by Chief Judge Prost) concludes that the relevant statute--which in the present context is not 35 U.S.C. § 285, but rather 35 U.S.C. § 145--requires the court to award both expert and attorneys' fees--and, although it isn't at issue in this case, since the director won--the rule applies regardless of outcome.  Here is the relevant statute (35 U.S.C. § 145):
An applicant dissatisfied with the decision of the Patent Trial and Appeal Board in an appeal under section 134(a) may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the Eastern District of Virginia if commenced within such time after such decision, not less than sixty days, as the Director appoints. The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Patent Trial and Appeal Board, as the facts in the case may appear and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law. All the expenses of the proceedings shall be paid by the applicant.
The majority concludes that the statute means what it says:
At the outset, we observe that we have previously construed other portions of § 145. See, e.g., Hyatt, 625 F.3d at 1322. Although Hyatt resolved a different issue than the one presented here, we based our holding, in part, on our recognition of the breath of the “all expenses” provision and the substantial financial burden that applicants must bear for initiating § 145 appeals. Id. at 1337. “To deter applicants from exactly the type of procedural gaming that concerns the Director, Congress imposed on the applicant the heavy economic burden of paying ‘[a]ll the expenses of the proceedings’ regardless of the outcome.” Id. (alteration in original) (citing 35 U.S.C. § 145). Put another way, Congress intended that all applicants unconditionally assume this financial burden when seeking review directly in district court—whether they win, or lose. We thus concluded that Congress drafted this provision without requiring any degree of success on the merits (much less a prevailing party) as a necessary precedent for shifting this “heavy economic burden” onto the applicant. Id. . . . 
Under the American Rule, “the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys’ fee from the loser.” Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247 (1975). Courts uniformly recognize an exception to this general proposition, however: when the statute itself “specific[ally]” and “explicit[ly]” authorizes an award of fees, the prevailing party may be entitled to collect its fees. Id. at 260. In agreement with  two other circuits, we conclude that “expenses” here includes attorneys’ fees. See Shammas, 784 F.3d at 222–23 (holding that the term “expenses” covers the USPTO’s attorneys’ fees); United States v. 110-118 Riverside Tenants Corp., 886 F.2d 514, 520 (2d Cir. 1989) (observing that attorneys’ fees are “expenses of the proceedings” under § 6342 of the Internal Revenue Code). . . .

Accordingly, we hold that “[a]ll expenses of the proceedings” under § 145 includes the pro-rata share of the attorneys’ fees the USPTO incurred to defend applicant’s appeal. To conclude otherwise would conflict with Hyatt, where we recognized the “heavy economic burden” that § 145 shifts onto applicants for electing this favorable appellate path. Hyatt, 625 F.3d at 1337.
Judge Stoll dissents.

In two other cases decided today, the court (1) affirmed the denial of a motion for a fee award under § 285, see Prism Techs. LLC v. T-Mobile USA, Inc.; and (2) reversed an award of fees, where the court reversed a grant of summary judgment in favor of the defendant, see Chaffin v. Braden.

Wednesday, June 21, 2017

New Papers on on FRAND, SEPs, Holdup & Holdout, Part 3

1.  Igor Nikolic has posted a paper on ssrn titled Alternative Remedies for Standard Essential Patents DisputesHere is a link to the paper, and here is the abstract:
The possibility to seek and obtain injunctions for the infringement of Standard Essential Patents (SEPs) is limited in both the US and the EU. The reasons for restricting the use of injunctions is due to concern of patent holdup, i.e. the possibility of SEP holder to force standard-implementers to accept onerous licensing terms, exceeding patent’s true economic value, as well as seeing injunctions as incompatible with the commitment given by the patent holder that it will license its SEPs on fair, reasonable and non-discriminatory (FRAND) terms.
Limiting the use of injunctions by SEP holders may enable implementers to engage in a holdout, i.e. delaying taking a license for as long as possible, forcing the patentee to engage in expensive and protracted litigation in order to settle for below FRAND terms.
Instead of focusing on injunctions, courts may use some procedural remedies in SEP disputes to restore the balance between the interests of patent holders and implementers. Courts could, at the beginning of the trial, order the defendant to make interim payments into escrow, or provide another type of security, reflecting the value of SEP holder’s whole portfolio, and not just for the patents in the litigation. Once interim payments are in place, courts may separate patent and FRAND issue and try patent issues first, as such could provide parties a sense of the overall strength of the SEP portfolio. Courts may adjust the level of interim payments, after patent issues have been resolved, by setting the higher amount if most of the patents have been confirmed valid and infringed or, conversely, lower the amount if most of the patents have been found to be invalid and non-infringed.
Interim payments could therefore secure the interests of SEP holders and make holdout strategy more costly, while at the same time dispense the need for injunctions and mitigate the concern about holdup.
2.  Georg Nolte and Lev Rosenblum have posted a paper on ssrn titled Injunctions in SEP Cases in EuropeHere is a link to the paper, and here is the abstract:
This paper discusses several public cases from Germany that deal with SEPs and FRAND and have been decided after the CJEU’s decision in Huawei v. ZTE. It starts with the patent law system and appeal possibilities in Germany, explains briefly the Orange Book decision, sets out some details of the Huawei decision and explains the questions sent by the Regional Court of Düsseldorf that form the basis of the CJEU decision. The paper also discusses the decisions or orders from the Regional Courts of Düsseldorf and Mannheim as well as the Higher Regional Courts of Düsseldorf and Karlsruhe that followed the Huawei decision. Although many open questions still remain, the Huawei decision has brought quite some clarity to the courts in Germany, setting out when a SEP owner can obtain an injunction while offering a safe harbor for licensees that seek protection from such an injunction. But still it is rather difficult for both parties to predict the outcome of a specific case.
3.  Peter Picht recently has posted two papers on ssrn that may be of interest to readers of this blog.  The first is titled  Unwired Planet/Huawei:  A Seminal SEP/FRAND Decision from the UKHere is a link to the paper, and here is the abstract: 
With its decision in Unwired Planet (UWP) v. Huawei, Birrs J has not only handed down the first major ruling on SEP/FRAND issues in England but also decided a case that poses a number of questions which are key for this area of the law. Well aware of this, he has drafted a thorough and extensive opinion that is likely to have considerable impact – not only – on the development of EC law. Inter alia, the decision discusses the legal nature of an ETSI FRAND declaration; the question whether “FRAND” is a range or a single set of licensing conditions; the procedural component of FRAND; the existence of a qualified “unFRANDliness”-threshold below which competition law is not triggered; the sequencing of negotiation and litigation over FRAND licences; hard-edged vs. soft-edged discrimination; the role of “Comparables” for calculating FRAND; and the anti-competitiveness of offering a mixed portfolio of SEPs and non-SEPs. 
The other is „FRAND wars 2.0“ – Rechtsprechung im Anschluss an die Huawei/ZTE-Entscheidung des EuGH („FRAND wars 2.0“ – Survey of court decisions in the aftermath of Huawei/ZTE), which is forthcoming in Wettbewerb in Recht und Praxis.  Here is a link to the paper (in German), and here is the abstract (in both German and English):
German Abstract: In seiner viel beachteten Huawei/ZTE-Entscheidung hat der EuGH einen Rechtsrahmen für die FRAND-Lizenzierung von standardessentiellen Patenten (SEPs) skizziert. Viele Einzelfragen sind damit indes noch nicht geklärt, sie tragen zu einer weiterhin sehr regen Prozessaktivität in diesem Bereich bei. Der vorliegende Beitrag gibt einen Überblick über die gesamte im Anschluss an Huawei/ZTE ergangene Rechtsprechung, wobei die Entscheidungen deutscher Gericht eingehender besprochen werden, Entscheidungen aus anderen Ländern immerhin kursorisch. Zu den von den Gerichten (und dem Beitrag) näher erörterten Fragen gehören die Möglichkeit einer Erfüllung der Huawei-Anforderungen nach Einleitung des Rechtsstreits; die Verpflichtung einer Partei, ihre Huawei-Verhaltensanforderungen zu erfüllen, obgleich die andere Partei dies nicht tut; Zeitpunkt, Adressat und Inhalt der Verletzungsanzeige sowie der beiderseitigen Lizenzangebote; die Geltung der Huawei/ZTE-Vorgaben für Schadensersatzklagen wegen Patentverletzung; sowie der Umgang mit Patentverwertern, die SEPs durchzusetzen versuchen.
English Abstract: In its landmark decision Huawei/ZTE the ECJ has sketched a conduct-based framework for negotiating FRAND licenses regarding standard-essential patents (SEPs). Many details remain un-clear, though, and they keep fueling intense SEP litigation. This paper undertakes to summarize the decisions rendered by German courts in the wake of Huawei. Decisions by non-German courts are briefly listed as well. Among the issues that have kept courts busy are the questions of whether Huawei requirements can be fulfilled even though a lawsuit has already been filed; whether a party has to comply with Huawei in spite of the other party not doing so; how and when exactly the notice of infringement and the respective licensing offers have to be communicated; whether the Huawei-rules of conduct extend to claims for damages; and how patent assertion entities are to be treated in SEP litigation.  
4. Haris Tsilikas has published a paper titled Huawei v. ZTE in Context--EU Competition Policy and Collaborative Standardization in Wireless Telecommunications, 48 IIC 151 (2017).  Here is a link to the article, and here is the abstract:
Collaborative standardization, an efficient and inclusive form of organized innovation under the auspices of standard-setting organisations (SSOs), has demonstrated significant technological achievements in the field of wireless telecommunications. At the core of collaborative standardization is a working balance of interests and incentives of all stakeholders involved, i.e. contributors of technology and users of standards, epitomized by licensing on FRAND terms. Standardization contributes to significant gains in consumer welfare, in the form of lower prices, more innovation and more consumer choice and convenience. At the same time, standardization fosters competitive markets, upstream and downstream. Public policy has not always been successful in accommodating collaborative standardization. The enforcement of Art. 102 TFEU by the EU Commission, for instance, reveals an underlying mistrust of the operation of markets in the context of collaborative standardization and a strong preference for court-determined FRAND terms. However, the recent CJEU ruling in Huawei v. ZTE provides strong incentives for private stakeholders to determine FRAND through bilateral commercial negotiations and as such it is a welcome shift in EU competition policy in collaborative standardization.

Monday, June 19, 2017

New Papers on on FRAND, SEPs, Holdup & Holdout, Part 2

1.  Bowman Heiden and Nicolas Petit have posted an article on ssrn titled Patent Trespass and the Royalty Gap:  Exploring the Nature and Impact of Patent HoldoutHere is a link to the paper, and here is the abstract:
This paper studies the problem of patent holdout. Part I reviews the economic theory of holdout, with a specific emphasis on patents. It shows that the ordinary concept of holdout refers to the non-transacting conduct of a property owner, and that “patent trespass” is a better characterization for technology implementers’ attempt to evade the conclusion of licensing agreements. Part II proposes a definition and provide illustrations of patent trespass. To that end, the paper relies on the qualitative data gathered during interviews with industry stakeholders as well as on an analysis of holdout in case-law. Part III exposes the factors that determinatively make patent trespass transactional, systematic and/or systemic. Part IV records the results of of a quantitative study of patent trespass, based on the intuitions that arose from received theory and qualitative interviews as exposed in previous parts. The preliminary empirical results show a correlational link between the nature of patent trespass and the heterogeneity of market actors and markets. In particular, MNCs operating in developed markets seem to primarily deploy extensive delaying tactics with the main goal of reducing their royalty payments, while large firms in emerging markets (LFE) and small to medium-sized enterprises (SMEs), especially the “long tail” of microvendors, seek to avoid payment altogether. 
2.  Richard Li and Richard Li-dar Wang have published a paper titled Reforming and Specifying Intellectual Property Rights Policies of Standard-Setting Organizations: Towards Fair and Efficient Patent Licensing and Dispute Resolution, 2017 U. Ill. J. L. Tech. Pol'y 1.  Here is  a link to the paper, and here is the abstract:
Standard-setting organizations (SSOs) rely on commitments to license on fair, reasonable, and non-discriminatory (FRAND) terms from standard-essential patent (SEP) holders to ensure access to standards and prevent potential anticompetitive conduct that unreasonably enforces SEPs against standard implementers. A substantial number of SEP disputes, however, have been raised unceasingly in recent years. In this Article’s research, a statistical analysis of the SEP litigation cases in the United States from 2000 to 2014 shows that the SEP disputes are closely related to the FRAND licensing terms that are required in the intellectual property rights (IPR) policies of the SSOs in the information and communications technology (ICT) sector. In accordance with opinions to date from the U.S. Court of Appeals for the Federal Circuit, the U.S. International Trade Commission, the U.S. competition authorities, the European Commission, and the Court of Justice of the European Union, there is no per se rule that prohibits seeking injunctive relief against SEP infringement. Nonetheless, the criteria to decide whether to grant injunctive relief are different among various forums. In principle, injunctive relief should not be granted against a standard implementer who is willing to take license and is still negotiating in good faith with the SEP holder, so as to be aligned with the SEP holder’s commitment to license on FRAND terms. With regard to FRAND royalties of SEPs, a fundamental principle emerging from several court decisions on SEP royalties in the United States is that a royalty award for an SEP should only be based on the value of the patented invention, not to include the value added from the standards.
Furthermore, through semi-structured interviews with standard-setting delegates and licensing negotiators from the ICT industry, this research finds that many existing IPR policies are too ambiguous to constrain potential anticompetitive conduct that enforces SEPs in an unreasonable way. In fact, in light of the results of the statistical survey, the case analysis, and the stakeholder interviews, it has become urgent and imperative to improve existing vague and ambiguous IPR policies. Concrete proposals for reforming IPR policies include: defining the standard essentiality clearly and using the accurate phrase “essential patent claim”; adding specific deadlines for SEP disclosure and declaration, legal effects of failing to disclose, and update obligations for material changes concerning SEPs; incorporating prerequisite conditions for seeking injunctive relief against SEP infringement; clarifying the FRAND obligation applicable to all offers of SEP royalties during licensing negotiations; identifying a series of steps or key factors for SEP royalty calculation under the FRAND obligation; and allowing reciprocal license to be a precondition for the commitment to license on FRAND terms. These proposals could substantially strengthen existing IPR policies, fix their ambiguities, and avoid potential disputes.
Finally, this research investigates fifteen representative SSOs, examining whether their IPR policies conform to the reforming proposals, by way of which the authors further elaborate on these proposals and provide substantial suggestions on how to amend the existing policies of the representative SSOs to avoid potential disputes. Based on the statistical and qualitative analysis and the specific reforming proposals, this Article concludes that it is imperative to reform existing IPR policies to facilitate fair and efficient SEP licensing and dispute resolution, and therefore to promote competition and to ultimately benefit consumers around the world.
3. Yang Li published a paper titled FRAND Holdup and Its Solution, 25 IIP Bulletin (2016).  Here is a link to the article, and here is the abstract:
Although many approaches have been raised to determine and calculate the royalty of SEP with FRAND commitment, because of grossly exaggeration of the risks of patent holdup and overemphasizing limiting or eliminating the availability of injunction, in the absence of scientific and uniform standard of determining FRAND royalty, not only FRAND royalty of substantive justice is still far away, but also FRAND holdup has become a serious issue perplexing SEP holder. In order to mitigate, prevent and even eliminate FRAND holdup and to determine FRAND royalty at the meantime, FRAND-oriented towards procedural justice is perhaps a good choice. The core of FRAND-oriented towards procedural justice is to design a set of rule of Notice and Counter-Notice to stimulate SEP holder and SEP implementer to negotiate royalty in good faith and settle FRAND royalty through negotiation. In case of negotiation failure, the third independent party (court, arbitration organization) can also depend on rule of Notice and Counter-Notice to determine whether injunction is necessary and decide what’s FRAND royalty.
I previously mentioned a version of this paper published in China Patents & Trademarks, here.  This issue of the IIP Bulletin also has an article titled Various Issues Concerning IP Litigation from the Perspective of the Legal System, which is "an English summary by the Institute of Intellectual Property based on the FY2015 JPO-commissioned research study report on the issues related to the industrial property rights system."  There is some discussion of damages and attorneys' fees at pp. 3-4.

4.  Marco LoBue has posted a short write-up on the Trust in IP Blog titled High Court rules in favour of the SEP holder and narrows the scope of competition law defence in Unwired Planet vs. Huawei.  He concludes that "[w]hile some judges (i.e. the Court of Appeal of Dusseldorf in Sisvel v. Haier) apply Huawei strictly, others keep into account specific features such as the defendant’s sophistication and its countervailing buyer power. Therefore, in spite of Huawei, lack of legal certainty across different jurisdictions continues to be a concern for companies active in SEP licensing."

Friday, June 16, 2017

New Papers on FRAND, SEPs, Holdup & Holdout, Part 1

1.  Vincent Angwenyi published an article titled Hold-up, Hold-out and F/RAND:  The Quest for Balance in the February 2017 issue of GRUR Int. (pp. 105-14).  Here is the abstract:
Hold-up and hold-out by analogy can be regarded as two sides of the same coin.  The coin in this case can be said to represent the patent or the technology in question, the ultimate beneficiary of which should be society.  A healthy patent ecosystem can be maintained in part by ensuring that innovators are motivated to continue creating new technology and implementers to convey the benefits of the innovation to society.  An ideal situation is one that balances the interests of innovators and implementers as much as possible.
2.  Jorge Contreras and Michael Eixenberger have posted a paper on ssrn titled The Anti-Suit Injunction - A Transnational Remedy for Multi-Jurisdictional SEP Litigation, to be published in the forthcoming Cambridge Handbook of Technical Standardization Law - Patent, Antitrust and Competition Law (Jorge L. Contreras, ed.).  Here is a link, and here is the abstract:
Litigation concerning standards-essential patents (SEPs) has become increasingly global, with parallel litigation occurring over the same issues in multiple jurisdictions throughout North America, Europe and Asia. As a result, litigants have sought mechanisms to coordinate these actions both to manage costs and to avoid inconsistent and incompatible results. One little-known procedural mechanism that has long been available to manage multi-jurisdictional litigation, and which is growing in popularity in SEP disputes, is the anti-suit injunction.
An anti-suit injunction is an interlocutory remedy issued by a court in one jurisdiction which prohibits a litigant from initiating or continuing parallel litigation in another jurisdiction or jurisdictions. Anti-suit injunctions thus contain litigation costs and reduce the likelihood of inconsistent results by ensuring that issues are resolved in one jurisdiction before they are litigated elsewhere. In the standards context, anti-suit injunctions can be particularly powerful tools for prospective licensees alleging that SEP holders have failed to comply with their FRAND licensing obligations. Specifically, a court reviewing a SEP holder’s compliance with a FRAND licensing commitment may issue an anti-suit injunction to prevent the SEP holder from bringing foreign patent infringement claims (including injunctions against the sale of infringing products) until the FRAND licensing dispute has been resolved in the issuing jurisdiction.
This chapter discusses the historical development and procedural requirements for anti-suit injunctions in both the United States and Europe. It also reviews recent SEP cases in which anti-suit injunctions have been granted, including Microsoft v. Motorola, Vringo v. ZTE and TCL v. Ericsson.

3.  Alexander Galetovic and Stephen Haber have published a paper titled The Fallacies of Patent-Holdup Theory, 13 J. Comp. L. & Econ. 1 (2017).  Here is a link to the article, and here is the abstract: 
Patent-holdup theory avers that the patent system threatens the rate of innovation in the U.S. economy, particularly in information technology industries that are heavily reliant on standard-essential patents. We show that arrays of empirical tests falsify the core predictions of the theory. We therefore examine the logic of patent-holdup theory. We show that patent-holdup theory conflates two mutually inconsistent economic mechanisms: holdup (the appropriation of a quasi rent) and the exercise of monopoly power (to set the market price to extract a monopoly rent). Moreover, three fallacies underpin patent-holdup theory: (1) that patent holdup is a straightforward variant of holdup as it is understood in transaction-cost economics; (2) that royalty stacking is holdup repeated multiple times on the same product; and (3) that standard-essential patents contribute little or no value to the markets they help create. These fallacies give rise to a theory that is logically inconsistent and incomplete, and that ignores economic fundamentals. The flaws in logic of patent-holdup theory, and its lack of fit with the evidence, suggest that a new theory about the mechanics and dynamics of SEP-intensive IT industries is called for, both as a matter of science and as a guide to antitrust and patent policies.
4.  Jens Leth Hougaard, Chiu Yu Ko, and Xuyao Zhang have posted a paper on ssrn titled A Welfare Economic Interpretation of FRANDHere is a link to the article, and here is the abstract: 
Setting an industry-wide standard is crucial for information and communication technologies for interoperability, compatibility and efficiency. To minimize holdup problems, patent holders are often required to ex-ante commit to licensing their technologies under Fair, Reasonable and Non-Discriminatory (FRAND) terms. Yet, there is little consensus, in both courtrooms and industries, on the exact meaning of FRAND. We propose a welfare economic framework that enables a precise distinction: fairness in the distribution of royalty payments among patent users, and reasonableness in setting the size of the compensation to the patent holder, where both the size and the distribution of payments are determined in a non-discriminatory way making sure that similar firms are treated similarly. We illustrate our approach in various classic models from industrial organization, and discuss further potential applications.
5.  Anne Layne-Farrar and Koren W. Wong-Ervin have posted a paper on ssrn titled Methodologies for Calculating Frand Damages: An Economic and Comparative Analysis of the Case Law from China, the European Union, India, and the United States, forthcoming in the Jindal Global Law School Law Review (2017).  Here is a link to the paper, and here is the abstract:
In the last several years, courts around the world, including in China, the European Union, India, and the United States, have ruled on appropriate methodologies for calculating either a reasonable royalty rate or reasonable royalty damages on standard-essential patents (SEPs) upon which a patent holder has made an assurance to license on fair, reasonable and non-discriminatory (FRAND) terms. Included in these decisions are determinations about patent holdup, licensee holdout, the seeking of injunctive relief, royalty stacking, the incremental value rule, reliance on comparable licenses, the appropriate revenue base for royalty calculations, and the use of worldwide portfolio licensing. This article provides an economic and comparative analysis of the case law to date, including the landmark 2013 FRAND-royalty determination issued by the Shenzhen Intermediate People’s Court (and affirmed by the Guangdong Province High People’s Court) in Huawei v. InterDigital; numerous U.S. district court decisions; recent seminal decisions from the United States Court of Appeals for the Federal Circuit in Ericsson v. D-Link and CISCO v. CSIRO; the six recent decisions involving Ericsson issued by the Delhi High Court; the European Court of Justice decision in Huawei v. ZTE; and numerous post-Huawei v. ZTE decisions by European Union member states. While this article focuses on court decisions, discussions of the various agency decisions from around the world are also included throughout.

Wednesday, June 14, 2017

Wenzel on Preliminary Injunctions in Germany

Stephan Wenzel has published an article in the November 2016 issue of Mitteilungen der deutschen Patentanwälten (pp. 481-85) titled Olanzapin macht aus dem Patent ein Gebrauchsmuster:  Ein Kommentar zue aktuellen Rechtslage bei einstweiligen Verfügungen aus einem erteilten Patent ("Olanzapin turns patents into utility models:  A commentary on the current state of the law concerning preliminary injunctions for issued patents").  Here is the abstract (my translation):
Since the Olanzapin and Harnkatheterset decisions of the Düsseldorf Court of Appeals, there has been an increase in denials of motions for preliminary injunctions on the ground that the validity of the patent in suit is uncertain.  Not all infringement courts follow this opinion, however.  An analysis.
To put the title in perspective, "utility model" (or sometimes "petty patent") is the term most commonly used in English for an intellectual property right in an invention that may not qualify for a patent (perhaps because it wouldn't satisfy patent law's nonobviousness criterion).  What I just said can be a bit misleading, though, because the law of utility models (in countries, unlike the U.S., that recognize them at all) can vary quite a bit from one place to another.  Indeed, since 2006 under German law utility models (Gebrauchsmuster) must satisfy the same "inventive step" criterion that applies to patents. They are generally easier to obtain, however, because there is only a cursory examination up front, and once obtained a German utility model can be converted into a patent (and thus provides a measure of temporary protection).  Another difference between patents and utility models is that in Germany patent validity and infringement decisions are bifurcated.  The German Patent Office's Bundespatentgericht, not the courts hearing infringement matters, resolve patent validity challenges, although in the end the Patent Office's determination can be appealed to the Federal Supreme Court.  With regard to utility models, on the other hand, validity is resolved in the context of infringement litigation, not in a proceeding before the Bundespatengericht.  For fuller discussion, see my book pp. 237-38. 

Anyway, this brief introduction to utility models illuminates the author's meaning above, where he suggests that, in deciding whether or not to grant a preliminary injunction in a patent infringement case, the Düsseldorf courts are too willing to substitute their own opinions on patent validity, and do not give sufficient weight to fact that the German or European Patent Office has granted a patent in the first place.  To be sure, this lack of deference can work in both directions.  In the Olanzapin case the author refers to, the court reversed a denial of a preliminary injunction, despite the fact that the patent had been found invalid by the Patent Office, on the ground that that decision was clearly erroneous (evident unrichtig).  (For discussion of Olanzapin, see my book pp. 243-44.)  But both Olanzapin and the subsequent decision in Harnkatheterset contain language suggesting that validity can be adequately ascertained only if the patent has already withstood a validity challenge, and it's this part that Dr. Wenzel finds most troubling.  (For a previous blog post on Harnkatheterset, see here.)  Dr. Wenzel cites work by other scholars and decisions from other courts in Germany that do not appear to make it quite so difficult for patent owners to obtain preliminary injunctions, though they differ somewhat in their verbal formulations.  (They may require a high probability of validity, for example, but not necessarily a Bundespatentgericht decision upholding validity.) He concludes by suggesting that courts are more willing to grant preliminary injunctions in favor of drug companies against generic drug makers, and that this favoritism violates the principle of equality.

Monday, June 12, 2017

U.S. Supreme Court Holds That Federal Law Does Not Authorize Injunctions to Compel Compliance with 42 U.S.C. § 262(l)(2)(A)

The Supreme Court this morning also issued a unanimous opinion in Sandoz Inv. v. Amgen Inc., which involved two questions arising under the Biologics Price Competition and Innovation Act (BPCIA).  The proper interpretation of this extraordinarily complex statute might seem even further afield from the subject of patent remedies than is the case I mentioned earlier this morning on inter partes review, but there actually is a remedies question at issue in Amgen.  The Court holds that, when an applicant seeking FDA approval to market a biosimilar pursuant to the BPCIA's abbreviated process does not provide the sponsor (that is, the firm which was originally granted approval to market the relevant biologic) with its application materials and manufacturing information within 20 days of receipt of notification that the FDA has accepted its application for review, pursuant to 42 U.S.C. § 262(l)(2)(A), 42 U.S.C. § 262(l)(9)(C) permits the sponsor to sue the applicant for a declaratory judgment "of infringement, validity, or enforceability of any patent that claims the biological product or a use of the biological product."  In addition, the act of submitting the application constitutes an act of artificial infringement under 35 U.S.C. § 271(e)(2)(C)(ii), regardless of whether the applicant has provided the sponsor with the application and manufacturing information,  and 35 U.S.C. § 271(e)(4) authorizes the court to issue an injunction against the infringing manufacture and sale of the biologic.  Neither 35 U.S.C. § 271(e)(4) nor 42 U.S.C. § 262(l)(9)(C), however, authorize the sponsor to sue for  an injunction compelling the disclosure of the application and manufacturing informationThe Court nevertheless remands for the Federal Circuit to determine whether or not an injunction compelling disclosure of the application and manufacturing information may be available under state law, Amgen having also asserted claims for relief against Sandoz under California unfair competition law.  (The Court leaves open the possibility that the Federal Circuit may conclude that application of state law here might be preempted, though.)  The other issue in the case was whether Sandoz could provide its notice of commercial marketing to Amgen in advance of receiving a license from the FDA to market its biosimilar, or whether it had to wait until receipt of that license, the practical consequence being that Sandoz can't market its biosimilar until at least 180 days from providing the notice to Amgen.  The Court holds that the requisite notice may precede the issuance of the license, which should work to speed up the introduction of biosimilars to the market.

Breaking News: U.S. Supreme Court to Hear Case on Constitutionality of Inter Partes Review

This is not directly related to patent remedies, but it is an important piece of news.   The U.S. Supreme Court this morning grant certiorari in Oil States Energy Services, LLC v. Greene's Energy Group, LLC, Case No. 16-712, to review the following question:  "Whether inter partes review—an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents—violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury."  Inter partes reviews, for those of you outside the U.S. who are not familiar with them, are an administrative procedure (enacted as part of the 2011 America Invents Act) for challenging the validity of issued patents.

Hat tip to Professor Dmitry Karshtedt for bringing this to my attention.

Update:  Here is a link to Scotus Blog's page for this case, from which you can download the cert petition, the briefs filed to date, etc.   Here is a link to the order list, which shows that the Court granted cert. as to the petitioner's first question (the one quoted above) only.

Saturday, June 10, 2017

Interesting Posts on Injunctions in India on SpicyIP

In recent weeks the SpicyIP Blog has published some interesting posts on injunctions in India, most recently one from May 11 by Maitreyee Dixit titled Lighting Up Injunction Jurisprudence:  US v. India and another from May 9 by Professor Shamnad Basheer titled And the US Issues Yet Another Compulsory License!  The latter notes, among other things, the discrepancy between the U.S.'s position regarding other countries' threats to impose compulsory licenses for patented inventions and the U.S. courts' actual practice under eBay--including the Federal Circuit's recent (and in my view, problematic) decision in Nichia v. Everlight (see my post here).  The author adds in a postscript, however, that "while US courts do a fairly decent job of explicating the standards for an injunction and largely adhering to them, Indian courts have made a hotchpotch of these criteria and we’re left with little to no clarity on this," and refers to the (then-forthcoming) Dixit post. Dixit discusses, among other matters, the lack of consistency among the Indian courts on the the meaning of the "public interest" factor--which the judge in the Bayer v. Ajanta decision from earlier this year interpreted as including "‘loss of employment’ and ‘revenue to the state,’" though two other more recent decisions including Bayer v. BDR have not followed this approach--and on the meaning of "prima facie case"   On the Ajanta and BDR matters, Dixit also links to this post and this post by Balaji Subramanian.  On the prima facie case issue, she also cites this post by Rupali Samuel and this paper by Shamnad Basheer, Jay Sanklecha and Prakruthi Gowda, titled Pharmaceutical Patent Enforcement:  A Development Perspective, the abstract to which reads as follows:
Although standards for the grant of intellectual property rights often take center stage in the literature on intellectual property and development, intellectual property enforcement is largely ignored. This paper seeks to fill this gap, albeit to a limited extent, by focusing on the standards for the grant of injunctions in patent infringement suits.
This is particularly relevant, as a number of developing countries, such as India, are faced with burgeoning patent disputes disputes that have enormous implications for the future of innovation and the issue of access to patented goods, notably pharmaceuticals. Given that interim injunctions are largely dispositive of intellectual property disputes in many cases, this chapter focuses largely on such injunctions.
The standards for the grant of injunctions ought to be calibrated in a manner that appropriately balances the interests of the patentee in securing timely and effective enforcement of her rights with the public interest in guarding against erroneous injunctions (i.e. where the patent turns out to be invalid or not infringed after trial). Such wrongly granted injunctions harm not only competitors against whom they are granted, but also consumers who are forced to pay a monopoly price during the subsistence of the injunction/restraining order.
We recommend that, when faced with a complex patent dispute where it is difficult to legitimately assess the strength of each party’s case at the interim stage and effectively predict who is more likely to win at trial, courts move directly to the trial stage - a suggestion that is coming to be increasingly adopted by the Indian Supreme Court. We argue that this is a TRIPS flexibility that developing countries, such as India, can legitimately exploit. We also highlight issues of institutional capacity and ask: Should developing countries such as India institute specialist intellectual property courts to decide patent infringement suits? Would this make for more optimal intellectual property adjudication? Though specific to India, most of the suggestions in this chapter could prove useful for a number of other developing countries, particularly those that follow common law and are yet to experience a significant number of patent infringement cases.
Finally, the post also links to a 2015 SpicyIP series on interim injunctions, here.

Readers also might be interested in this June 5 post by Prashant Reddy titled 143 patent infringement lawsuits between 2005 and 2015: Only 5 judgments.  From my less-than-perfect vantage point, it does seem to me that many of the most important Indian decisions on patent remedies in recent years have been from interim proceedings.  In addition, the blog has published some interesting posts recently on punitive damages for copyright and trademark infringement, here, here, here, and here.  See also my blog post of September 11, 2015.

Thursday, June 8, 2017

Judge Conley Denies Apple's Motion to Overturn $234 Million Verdict

The case is Wisconsin Alumni Research Foundation v. Apple Inc., and the opinion dated June 6, 2017, is here.  (I reported on the jury verdict in this case back in October 2015, here.)  I haven't had a chance to read it very carefully yet, but the judge denies Apple's motion to overturn the verdict; denies WARF's motion for enhanced damages; denies WARF's motion for an injunction and instead awards an ongoing royalty at a rate of $2.74 per unit; awards prejudgment interest at the prime rate and postjudgment interest at the statutory rate, both compounded; and awards costs of $841,000.  (For non-U.S. readers, "costs" does not mean attorneys' fees under U.S. law, but rather items such as filing fees, transcripts, and copying.  To be honest, I wasn't aware that awardable costs could be that high, but then this was a complex case.)  At page 17, the judge denies Apple's motion to reverse his decision allowing WARF's expert to testify that WARF would have agreed to a 50/50 split of the incremental profit Apple realized from its use of the patent in suit.  Again, hat tip to IAM Magazine, which retweeted Tom Hochstetter's tweet about this story by Ed Treleven on

Wednesday, June 7, 2017

Mr. Justice Birss's FRAND Injunction

Link here.  Hat tip to IAM Magazine, which tweeted about this three hours ago and links to this write-up on Lexology by Bristows UK.  I may have more to say about the matter tomorrow or Friday.

Update:  Here is a brief write-up on IPKat.

The Sedona Conference on Damages and Damages Disclosure

The Sedona Conference Working Group 9 (WG9) has published its Commentary on Case Management of Patent Damages and Remedies Issues: Section on Proposed Model Local Rule for Damages Contentions, and  another document titled Patent Damages Hearings, both of which are available for download from the organization's website (here).  I'm inclined to think that early disclosure of damages contentions, as contemplated for example in recent amendments to the Patent Local Rules of the Northern District of California, is a good idea; and I'm particularly intrigued by the second Sedona document's Best Practice Number 10, which would appear to adopt (for purposes of pretrial damages hearings) a variation on the "hot-tubbing" or concurrent evidence procedure that is sometimes used in Australia, Canada, and the U.K.  (For previous discussion of hot-tubbing on this blog, see here.)

In addition, the Sedona Conference is hosting a webinar on June 13 from 1-2:30 p.m. on Early Consideration of Patent Damages.  Here is a link for readers interested in the webinar, and here is the description:
Damages issues have received substantial attention from the Federal Circuit over the past several years, as the Court has attempted to provide guidance to litigants and the district courts in the face of public concerns about eight- and nine-figure patent damages awards. This attention has led has led to the rapid evolution of a complex area of law, and - perhaps counterintuitively - unpredictability about the viability of damages theories. To assist litigants and the courts, the Sedona Conference's Working Group 9 on Patent Damages and Remedies (WG9) developed a Proposed Model Local Rule for Damages Contentions, which provides for an early exchange of damages-related information to enable the parties to develop and disclose their damages theories earlier than might otherwise occur, and thus to allow for orderly Daubert and pretrial processes.
In furtherance of this effort, WG9 has also developed a framework for early damages-focused hearings (to be published shortly), to allow for a pre-Daubert discussion of damages theories with the court in order to clarify and narrow and damages-related disputes, and to simplify Daubert and pretrial proceedings. These efforts of WG9 have garnered significant attention from the patent community. Indeed, the Northern District of California has adopted a rule reflecting a substantial portion of WG9's Proposed Model Rule on Damages Contentions, and other courts have considered The Sedona Conference's Principles and Best Practice recommendations in individual patent litigation matters as well.
This webinar broadens the discussion so that litigants and courts around the country may gain the exposure to these proposals and consider how they can be incorporated into appropriate cases to bring efficiencies to patent litigation.

Monday, June 5, 2017

Federal Circuit Issues Two Precedential Opinions on Recovery of Attorneys' Fees

In two decisions handed down this morning, the U.S. Court of Appeals for the Federal Circuit reversed district court decisions on the recovery of attorneys' fees in patent cases.  As readers may be aware, under 35 U.S.C. § 285 U.S. courts may award the prevailing party in a patent matter its attorneys’ fees only in “exceptional” cases.  In Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014), the U.S. Supreme Court held that courts should consider whether a case is "exceptional" based on the totality of the circumstances and on the preponderance of the evidence; and in Highmark Inc. v. Allcare Health Management System, Inc., 134 S. Ct. 1744 (2014), the Court held that the standard of review on appeal is "abuse of discretion."  Highlighting the fact-specific nature of the inquiry, in the first case fr0m this morning, Rothschild Connected Devices Innovations, LLC v. Guardian Protected Services, Inc., the court (in an opinion by Judge Wallach, joined by Chief Judge Prost and Judge Mayer) concluded that it was an abuse of discretion to deny a request for attorneys' fees in a case in which the plaintiff moved to voluntarily dismiss its complaint for infringement of U.S. Patent No. 8,788,090, for a "[a] system and method for creating a personalized consumer product."  According to the panel, the district court "clearly erred by failing to consider [plaintiff's] willful ignorance of the prior art" (p.8). In addition, according to the panel, "in the absence of evidence demonstrating that [plaintiff] engaged in reasonable conduct before the District Court, the undisputed evidence regarding [plaintiff's] vexatious litigation warrants an affirmative exceptional case finding here" (p.11).  (According to the defendant, plaintiff "has asserted claim 1 of the '090 patent in fifty-eight cases against technologies ranging from video cameras to coffeemakers to heat pumps," and "has settled the vast majority, if not all, of these cases for significantly below the average cost of defending an infringement lawsuit" (id.).  Finally, the district court "improperly conflated" Federal Rule of Civil Procedure 11, which provides a "safe harbor" under which a litigant can withdraw a challenged allegation within 21 days without incurring sanctions under that rule, with the standard for an "exceptional" case under § 285 (p.12).  Judge Mayer added a separate concurring opinion, stating that the plaintiff's complaint "was frivolous on its face," and that its "continued assertions that its patent extends to products simply because they are configured using the Internet . . . are risible rather than simply unreasonable" (concurring opinion p.2).  Judge Mayer would find claim 1 unpatentable for lack of patentable subject matter (concurring opinion p.3).

By contrast, in the other opinion, Checkpoint Systems, Inc. v. All-Tag Security S.A., the panel (in an opinion by Judge Newman, joined by Judges Lourie and Moore) concludes that the court abused its discretion by awarding fees, in a case involving U.S. Patent No. 4,876,555, which the court describes as relating to "improved anti-theft tags that are attached to merchandise, and deactivated when the goods are purchased" (p.2).  The panel concludes, among other things, that contrary to the district judge's opinion there was no "harassment or abuse" on the part of the plaintiff in this case, and that "[t]here was no representation by [defendant] that the accused products were different from" the products tested by the plaintiff's expert" and "no allegation of falsity or fraud or bad faith on the part of [plaintiff] or its expert witness" (pp. 7-8).

Again, given the fact-specific nature of the inquiry, it's probably not appropriate to read too much into these two contrasting opinions.  Still and all, given the deferential standard of review, it's unusual to see two cases in one day both finding an abuse of discretion with regard to a fee award, with the abuse of discretion tending in different directions in the two cases.  

Friday, June 2, 2017

Apportionment of Infringer's Profits in the U.K.

As discussed recently on the EPLaw Blog, in late April Judge Richard Hacon (Intellectual Property Enterprise Court for England & Wales) handed down an opinion in OOO Abbott v. Design & Display, a case involving an award of the defendant's profits.  (I've previously blogged about earlier proceedings in this case here and here.)  The case involves EP No. 1,891,631, for a display panel, the "inventive concept" of which is an insert made of a resilient metal, typically aluminum.  In September 2014, Judge Hacon held that the defendant Design & Display was liable for an award of profits made on sales of panels that incorporated the infringing invention.  In addition, the judge also awarded profits on sales of inserts and panels, where the inserts and panels were sold separately.   Finally, he declined to allow Design & Display a deduction for an allocable portion of its overhead.  In February 2016, however, the Court of Appeal reversed, holding that (1) in awarding profits, the judge should have apportioned the profit (para. 37), and (2) allocable overhead is deductible in a somewhat wider range of circumstances that Judge Hacon had envisioned (paras. 51-52).  

On remand, Judge Hacon summarizes the legal principles relevant to the first point as follows (para. 37):
(1) In an account of profits the claimant is entitled to the infringer's profit made from the exploitation of the right infringed.
(2) Where the right is a patent, the invention must be identified. Where the invention is a product, the claimant is entitled to the infringer's profit made from the sales of articles or part articles which embody the invention.
(3) Where the patent protects only part of an article sold by the infringer, the claimant is entitled to the profit made by the infringer from the sale of the entire article if either
(a) the protected part is the essential feature of the entire article, or
(b) the entire article would never have been made by the infringer if there had been no infringement of the claimant's right.
(4) Part of an article is its 'essential feature' if the part is functionally and/or commercially the most significant part of the whole.
(5) If the patent protects part of an article and neither 3(a) nor (b) apply, the court must assess how much of the total profit made by the infringer on the sale of the article is to be apportioned to the protected part of the article. The claimant is entitled to that part of the total profit.
(6) Where the sale of an article protected by the patent drives the sales of other, unprotected, goods or services, the claimant is in addition entitled to the profit made by the infringer on the sale of those other goods and services (convoyed goods and services).
(7) The sale of an article 'drives' the sales of other goods or services if there is a causative link between the purchase of the article protected by the patent and a consequential purchase of the other goods or services.
(8) There will be a causative link where there is a perceived compatibility, functional interaction or other connection of that nature between the protected article and the other goods or services.
(9) The purchase of the putative convoyed goods or services must be consequential in the sense that the purchase of the protected article is the principal purchasing decision in the mind of the buyer and the purchase of the other goods or services follows as a consequence.
(10) In relation to the foregoing issues the evidential burden rests on the infringer.
Applying these principles here, the judge estimated first that, for instances in which the defendant sold the infringing inserts incorporated into panels, the inserts were an "essential feature" for only about 10% of those sales, such that Design & Display would have to pay its entire profit on only 10% of those sales (paras. 43-44).  Second, for instances in which the defendant sold the inserts and panels separately, the judge writes that "on a strict view the panels bought separately from the infringing inserts are not convoyed sales because part of the invention is embodied in the panels. There [sic] are therefore to be treated the same way as panels in which the infringing inserts were incorporated. . . .   I again estimate that in relation to sales of the panels with separate inserts, 10% of the sales of panels were driven by the sales of accompanying inserts in that way. Abbott is entitled to the whole of Design & Display's profit on 10% of its sales of infringing inserts and separate but associated panels" (paras. 45, 47). For the remaining 90% of instances in which customers "did not specify infringing inserts," Abbott was entitled to all of the profits on the inserts plus 10% of the defendant's profit on the associated panels (para. 51).  Altogether, this amounts to a substantial reduction from what the judge would have awarded prior to the appeal, where he concluded that Abbott was entitled to all of the profits from the sales of infringing inserts and the associated panels, despite the comparatively "modest" nature of the inventive concept (see para. 32 of the 2014 opinion).  As I suggested in my post on the Court of Appeal's 2016 opinion, the correction envisioned by the appellate court (and now carried out on remand) ameliorates some of the economic distortion introduced by the U.K. courts' adherence to the principle that, in awarding lost profits or infringer's profits, courts should not take into account the fact that the defendant could have made the same number of sale by employing a noninfringing alternative.  Perhaps something along these lines also will be relevant when the U.S. courts get around to applying the U.S. Supreme Court's rule in Samsung v. Apple that design patent owners are entitled only to the profit attributable to the "article of manufacture" that incorporates the infringing design, and not necessarily the profit on sales of the entire product (e.g., a smartphone) of which the article of manufacture is merely one component.

As for the second issue, the judge summarized the now-governing principles as follows (para. 57):
(1) Costs that were associated solely with the defendant's acts of infringement are to be distinguished from general overheads which supported both the infringing business and the defendant's other, non-infringing, businesses.
(2) The defendant is entitled to deduct the former costs from gross relevant profits.
(3) A proportion of the infringer's general overheads may be deducted from gross relevant profits unless
(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 the sale of non-infringing products.
(4) The evidential burden rests on the defendant to support a claim that costs specific to the infringement and/or a proportion of general overheads are to be deducted from profits due to the claimant.
The difference between this summary and the  judge's first opinion is that the first opinion would have permitted a deduction only when (under 3(b)) "the defendant was running to maximum capacity."  Under the new approach, although the fact that the defendant was running at maximum capacity would be evidence that, absent the infringement, it would have replaced sales of infringing products with sales of noninfringing product, such a showing is not a necessary condition for proving that the defendant would have deployed the overhead to sell noninfringing products in the but-for world.

Wednesday, May 31, 2017

From Around the Blogs: More Commentary on Impression Products v. Lexmark

As a follow-up to my posts yesterday on the U.S. Supreme Court's decision in Impression Products v. Lexmark, I thought I would refer readers to some interesting blog posts that have been published since yesterday in addition to Jason Rantanen's on Patently-O: one by Lisa Ouellette and Daniel Hemel on Written Description, titled Licensing in the Shadow of Impression Products; one by Florian Mueller on FOSS Patents, titled Supreme Court rules against Lexmark on patent exhaustion, strengthening FTC/Apple cases against Qualcomm; one by Ronald Man on Scotus Blog, titled Opinion analysis: Federal Circuit loses again, as justices categorically reject enforcement of post-sale patent restrictions; and two by Gene Quinn on IP Watchdog, one titled Patent Exhaustion at the Supreme Court: Industry Reaction to Impression Products v. Lexmark, which presents views of several prominent patent lawyers including Professor Michael Risch, and the other titled Supreme Court rules Lexmark sales exhausted patent rights domestically and internationally.

Update:  David Long also has a write-up on the Essential Patents blog.  My apologies for missing this one yesterday. 

Further Update (June 5):  Rahul Bajaj has published two posts on the decision on Spicy IP, here and here.

Tuesday, May 30, 2017

Observations on Impression Products v. Lexmark

This morning's opinion in Impression Products, Inc. v. Lexmark International, Inc. does not, directly, have anything to do with patent remedies, but the issues at stake are such important ones that I would be remiss not to say at least a few words about them on this blog.  To reiterate, in an opinion by Chief Justice Roberts, the U.S. Supreme Court today holds as follows:
This case presents two questions about the scope of the patent exhaustion doctrine: First, whether a patentee that sells an item under an express restriction on the purchaser’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit. And second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply. We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.
(Justice Ginsburg dissented on the second question only, and the newly-appointed Justice Gorsuch didn't participate; otherwise the opinion was unanimous.)  Since I was one of the signatories of an amicus brief urging the Court to affirm the Federal Circuit (that is, to go the opposite way on the two questions described above), I am rather disappointed in the outcome.  Jason Rantannen has an excellent overview of the opinion on Patently-O, so I'll just focus on a few additional observations that so far have occurred to me:

1.  My principal policy concern going forward is that the United States' adoption of a regime of international exhaustion could result in drug companies pulling certain drugs from the market, or substantially raising their cost, in developing countries.  (For analysis, see this article and this op-ed by Ouellette & Hemel.)  As a moral issue, the marginal benefits to U.S. consumers that the opinion may now permit do not, in my opinion, outweigh the substantial risk to the health and well-being of the poor in other parts of the world.  Then again, maybe there will be other ways for drug companies to continue to price discriminate (charge a lower price in developing countries) without the risk of having the drugs exported to the U.S.  Professor Fred Abbott so argued in an amicus brief he filed, and I hope he's right.

2.  I'm also not so eager to condemn price discrimination, for the standard reasons that many economists aren't--i.e., that it's better than single-price monopoly pricing which reduces output and excludes those consumers who would be willing to pay a price above marginal cost.  That said, I understand that the welfare effects of second and third degree price discrimination can be ambiguous, and there is a recent paper by Elhauge and Nalebuff arguing that metering ties are generally welfare-reducing.  So maybe I'll be proven wrong here.  It will be interesting to see, going forward, if the Lexmarks of the world who are now unable effectively to engage in price discrimination (unless they figure some other way around the decision) will raise the prices of their products.

Clarification:  What I mean by that last sentence is that it will be interesting to see if the price Lexmark charges for its printers, or the price it charges low-usage consumers for ink, goes up.  In effect, henceforth Lexmark customers will buy refillable cartridges at a price I would expect to be lower than the price Lexmark previously charged for refillable cartridges but higher than the price it charged for nonrefillable cartridges.  Customers who use a lot of ink will be better off, but those who use only a little will be worse off, if what I understand to be the standard economic predictions come true.  Then again, maybe that isn't how things will work out in this particular market. 

3.  As for the opinion itself, I'm a little disappointed at the formalistic character of much of it--reliance upon Lord Coke's distaste for restraints on alienation and all that--and I'm not all that persuaded by the policy illustration the Court provides at pp. 7-8, where it writes:   
Take a shop that restores and sells used cars. The business works because the shop can rest assured that, so long as those bringing in the cars own them, the shop is free to repair and resell those vehicles. That smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale. Those companies might, for instance, restrict resale rights and sue the shop owner for patent infringement. And even if they refrained from imposing such restrictions, the very threat of patent liability would force the shop to invest in efforts to protect itself from hidden lawsuits. Either way, extending the patent rights beyond the first sale would clog the channels of commerce,with little benefit from the extra control that the patentees retain. And advances in technology, along with increasingly complex supply chains, magnify the problem.See Brief for Costco Wholesale Corp. et al. as Amici Curiae 7–9; Brief for Intel Corp. et al. as Amici Curiae 17, n. 5 (“A generic smartphone assembled from various high-tech components could practice an estimated 250,000 patents”).
To be sure, no one wants to see "the smooth flow of commerce . . . sputter," but is that really a realistic risk under a regime of national exhaustion?  The E.U., for example, follows an analogous rule of regional exhaustion, so that sales outside the E.U. don't exhaust the E.U. IP owner's rights; but it surely wouldn't be fair to say that commerce in the E.U. has ground to a halt.  To use the Court's example, car manufacturers would face an outcry from consumers if they tried to "restrict resale rights and sue the shop owner for patent infringement," thus suggesting to me that the market provides some discipline against this parade of horribles; and when it doesn't, antitrust law in an appropriate case might prevent a monopolist from using some type of restraint to expand or maintain the scope of its monopoly.  The exhaustion doctrine, in other words, as Professor Herb Hovenkamp has argued, often seems to be stricter than necessary to prevent monopolist abuses.  Finally, note that in the above illustration if any of the patents wasn't cleared in advance, the patent owner would still have a cause of action against any maker, user, or seller in the chain of commerce.  Just because someone buys or sells the car at retail doesn't ensure them against being sued (though again, and putting aside occasional demands by patent assertion entities which sometimes might be abusive, one doesn't see too many suits against retailers or consumers in this space).

4. As to whether there will be ways to get around Impression Products by structuring more transactions as licenses, or by trying (somehow) to enforce contracts against purchasers or asserting state-law claims for tortious interference with contract . . . for now, I'm somewhat skeptical that any of these alternatives will be very effective.  And the bulk of the case law so far hasn't favored Lexmark's efforts to engage in price discrimination via the Digital Millennium Copyright Act.  On the other hand, the U.S. FDA still takes the position that the importation of drugs for personal use from abroad is illegal, though to my knowledge it doesn't enforce this rule very strictly, so I expect we'll see marginally more drug imports from Canada going forward.  (Maybe some day we will enact our own universal health care system and render that workaround superfluous, but prospects don't look very good at the moment, unfortunately.  My apologies for all the editorializing here today, which I trust will be, for different reasons, about equally offensive to both the right and the left.)

Update:  Maybe I'm just an outlier here, but to have an important rule of law determined in the year 2017 based in part on Lord Coke's views on restraints on alienation strikes me as just a tad absurd.  Cf. O.W. Holmes, The Path of the Law ("It is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV.").  Coke flourished some 200 years after the reign of Henry IV, but nonetheless . . .

Breaking News: U.S. Supreme Court Adopts International Exhaustion of Patent Rights

Just a few minutes ago, the Court reversed the Federal Circuit's decision in Impression Products v. Lexmark International.  From the opinion by Chief Justice Roberts:
This case presents two questions about the scope of the patent exhaustion doctrine: First, whether a patentee that sells an item under an express restriction on the purchaser’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit. And second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply. We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.
I'll start reading the full opinion and may have more to say about it later in the day.  My initial reaction is one of disappointment, for reasons previously stated here.

Monday, May 29, 2017

FRAND Papers from the Berkeley Technology Law Journal

1.  Jorge Contreras, Fabian Gaessler, Christian Helmers, and Brian J. Love, have posed a paper on ssrn titled Litigation of Standards-Essential Patents in Europe:  A Comparative Analysis, which is forthcoming in the Berkeley Technology Law Journal.  Here is a link to the paper, and here is the abstract:
Despite the significance of patent litigation in the EU and the looming structural overhaul of the European patent litigation system, there has been comparatively little empirical or statistical analysis of European patent cases across member states. This absence has largely been due to the lack of harmonized case-level data across European jurisdictions. Over the past few years, however, researchers in Europe have developed patent litigation databases that have enabled robust quantitative analysis. As a result, comparative empirical studies have recently been published concerning European patent litigation overall, as well as litigation by so-called non-practicing entities (NPEs). The present study extends this work to the important area of litigation relating to standards-essential patents (SEPs) in the EU. We find that that the assertion of SEPs has occurring in Europe at significant levels, and that PAEs are playing a large role in this activity.  
2.  Richard Epstein and Kayvan B. Noroozi has posted a paper on ssrn titled Why Incentives for "Patent Holdout" Threaten to Dismantle FRAND, and Why It Matters, also forthcoming in the Berkeley Technology Law Journal.  Here is a link to the paper, and here is the abstract:
An increasing number of judges, legislators and scholars wrongly believe that the FRAND commitment was principally created to advance the interests of technology implementers, and should be interpreted by giving a presumptive preference toward those interests. That premise has led courts to take a categorically hostile view toward awarding injunctions against implementers under all circumstances. Some courts have even allowed implementers to sue innovators for making an opening licensing offer that is “too high,” without making any counteroffer. An implementer-centric view of FRAND has also caused courts to conclude that innovators are not entitled to any share of the commercial benefits arising from the standardization of their technologies.
We demonstrate that an implementer-centric view of FRAND’s origins and purposes is false. FRAND is a contractual agreement that reflects a voluntary reciprocal exchange of benefits and obligations driven by the need to solve significant coordination problems in the face of otherwise prohibitive transaction costs. As part of that bargain, innovators agree to disclose their latest, confidential discoveries to standard-development organizations, and to waive their injunction rights as to eventual patents on those discoveries, in exchange for contractual protection against patent holdout by implementers who in turn are permitted to use standard-essential patents only on their willingness to pay fair and adequate royalties for that use.
Accordingly, we stress that implementers owe a significant duty to negotiate FRAND licenses in good faith, which courts have largely overlooked and under-enforced. We demonstrate that implementers’ good faith obligations are a critical component of basic FRAND architecture that is strictly necessary to the development of innovation-driven standards. We further observe that the FRAND bargain gives implementers access to otherwise confidential discoveries — inventions too recent to be disclosed in patents or published applications. In this way, FRAND supplies a solution to an iteration of Kenneth Arrow’s paradox of information, enabling the standards development effort to yield commercial benefits that would not exist absent innovators’ voluntary participation. We show both theoretically and empirically that courts’ failure to appreciate these aspects of the FRAND bargain, combined with their over-reliance on liability rules, i.e., damages over injunctions, incentivizes the very patent holdout problem FRAND was intended to avoid. That outcome, in turn, has motivated innovators to reduce their participation in FRAND bargains, threatening to unravel a massive innovation-commercialization marketplace, and its innumerable positive externalities to all parties.
To reverse these harms, we recommend that courts automatically issue an injunction where an implementer is found to infringe FRAND-committed patents that it did not attempt to license in good faith. We also recommend that a proper FRAND licensing rate should include some portion of the benefits achieved through standardization of the innovation(s) in question.
More broadly, we suggest that courts, policymakers, and academic commentators have wrongly favored implementation over innovation — “things” over ideas — unwisely frustrating the emergence of an “ideas economy” that correctly assigns profits to upstream innovators, and not to the low-margin firms that specialize in developing their commercial embodiments.
3.  Benjamin C. Li has published a student note titled The Global Convergence of FRAND Licensing Practices:  Towards "Interoperable" Legal Standards, 31 Berkeley Tech. L.J. 429 (2016).  Here is a link to the paper, and here is a portion of the introduction:
This Note summarizes recent FRAND developments in the most important patent jurisdictions and explains how these developments address the three major issues discussed above. Part I provides a brief background on standard setting organizations (SSOs), SEPs, and FRAND licensing. Section II.A addresses the legal and policy bases for regulating FRAND licenses, using the Rambus case to highlight the importance of a functional FRAND licensing system. Section II.B explains the three key issues of patent hold-up, license hold-out, and royalty pricing in greater detail. Sections III.A and III.B provide analysis of international cases implicating FRAND using the hold-up/hold-out and royalty pricing frameworks. Section III.C discusses the nationalistic issue of governments favoring domestic companies in FRAND disputes. Section III.D discusses the Institute of Electrical and Electronic Engineers’ (IEEE’s) new FRAND policy. Part IV concludes with a summary of recent FRAND trends across international jurisdictions and predicts convergence in international FRAND licensing practices. 

Friday, May 26, 2017

Stays Pending Design-Around in Germany, Part 2

A couple of months ago I blogged on the May 2016 German Federal Supreme Court decision in Wärmetauscher, in which the court denied a request for an Aufbrauchfrist--a transition period, or stay of an injunction pending a design-around.  (I had only recently come across Jochen Buehling's discussion of this case on the Kluwer IP Blog, and then read the relevant portions of the judgment itself.)  According to the court, the legal commentary on the subject suggested that a court should engage in a case-by-case analysis, taking into account all of the participants' interests; the infringer's good or bad faith; whether the patented invention formed just a small but functionally necessary component of a complex product; and whether an unpatented or licensed product could be substituted within a reasonable time.  Applying those considerations here, the court denied the stay.

Anyway, more recently as I was going through some back issues of some German law journals I came across a copy of the judgment in the October 2016 issue of GRUR (p.1031), along with a brief commentary by Dr. Anette Gärtner (pp. 1037-38).  As Dr. Gärtner notes, in the Wärmetauscher case itself the accused heat element was just one component of a complex product (a convertible), but (unlike, say, a component installed in a mobile phone) it was not essential and only was included in special models; moreover, the court wasn't persuaded by the fact that the lower courts had both ruled (erroneously, as it turns out) in favor of the defendant on the question of infringement.  Dr. Gärtner concludes by noting that the court didn't decided whether an infringer would have to pay damages in a case in which it received the benefit of a stay.  (In the U.S., when a court stays an injunction pending design around it requires the defendant to pay an interim or "sunset" royalty, and some might view this procedure as a reasonable halfway measure in between granting an injunction and denying one outright.)  Dr. Gärtner nonetheless is of the view that, in Germany, such a question would be of an academic nature only, since in her view it is scarcely conceivable that a showing of disproportionality sufficiently strong to merit such a stay would ever be forthcoming.

Wednesday, May 24, 2017

Resources on the Use of Conjoint Analysis in Patent Cases

Back in 2013 I published a short post about an article by S. Christian Platt & Bob Chen titled Recent Trends and Approaches in Calculating Patent Damages: Nash Bargaining Solution and Conjoint Surveys, Bloomberg BNA Pat., Trademark & Copyright L. Daily (Aug. 30, 2013), in which the authors discussed the use in IP litigation of conjoint analysis--a technique originally developed by marketing researchers to "measur[e] consumer preferences for specific product features" by "break[ing] a product down into bundles of attributes, and then test[ing] various combinations . . . to determine customer preferences."  In theory, conjoint surveys could help determine the relative importance to consumers of (say) a specific patented feature embodied in a complex product, and thus might be useful in calculating damages (based on the premise that a willing licensee would be willing to pay as much as, but not more than, the value the feature promises to deliver in comparison with other alternatives).  As Chen & Platt noted, as of 2013 there were only a small number of cases in which litigants had tried to employ conjoint analysis to this end, and the results were mixed.  (Judge Alsup rejected the use of conjoint analysis in the Oracle v. Google copyright case, for example.)  The authors concluding by stating that for conjoint analysis to be accepted in court, an expert "must be able to provide a principled basis" for why he or she focused on certain product features and not others. 

To my knowledge, conjoint surveys still are not exactly a staple of U.S. IP litigation, but a quick Westlaw search discloses that since 2013 there have been several more cases in which litigants have used or attempted to use conjoint analysis, though the results are still mixed.  The only time the Federal Circuit has addressed the matter in a patent case was in Apple Inc. v. Samsung Elecs. Co., 735 F.3d 1352, 1367-68 (Fed. Cir. 2013), in which the court vacated and remanded an order denying Apple a permanent injunction, on the ground that Judge Koh erred in considering the conjoint survey irrelevant to the question of whether there was a causal nexus between the infringement and Apple’s alleged harm.  Nonetheless, on remand Judge Koh concluded that the proffered conjoint analysis did not prove causal nexus, because (1) it "does not provide a way to directly compare consumers' willingness to pay for particular features to the overall value of the infringing devices"; (2) Dr. Hauser's results showed that "substantial portions" of the "price premiums" consumers were willing to pay were "attributable to features other than the patented features"; (3) "the survey appears to have failed to adequately account for noninfringing alternatives to the patented features"; and (4) the survey appeared to give "undue emphasis" to the patented features.   Apple Inc. v. Samsung Elecs. Co., Case No.: 11–CV–01846–LHK, 2014 WL 976898 (N.D. Cal. Mar. 6, 2014).   

Anyway, I thought I would mention here a few more resources on conjoint analysis and its cousin, discrete choice analysis, that readers might find useful.  I think it's likely that we'll see more attempts to use these techniques in IP litigation, both in complex products litigation and (as Pam Samuelson suggested at a recent conference) in U.S. design patent cases (where, post Samsung v. Apple, the court now has to figure out the profit attributable to the relevant design patent infringing component).

First, there's an article I mentioned in a post back in 2015, Greg M. Allenby, Jeff Brazell, John R. Howell & Peter E. Rossi, Valuation of Patented Product Features, 57 J. L. & Econ. 629 (2014).  Here is the abstract:
Ultimately, patents have value to the extent to which the product features enabled by the patents have economic value in the marketplace. Products that are enhanced by inclusion of patented features should generate incremental profits. Incremental profits can be assessed by considering demand for products with patented features and contrasting that demand with demand for the same product without the patented features. Profit calculations must be based on valid estimates of demand as well as assumptions about how competitive forces affect demand via computation of market equilibria. A conjoint survey can be used to estimate demand. Recently, conjoint methods have been applied in the patent setting, but the measures of value used are purely demand based and do not involve equilibrium profit calculations. We illustrate our method using the market for digital cameras and show that current methods can overstate the value of a patent.
Second, J. Gregory Sidak and Jeremy O. Skog recently published an article titled Using Conjoint Analysis to Apportion Patent Damages, 25 Fed. Cir. B.J. 581 (2016).  Here is the abstract:
Expert economic witnesses increasingly present survey evidence to support their calculations of reasonable-royalty damages in patent-infringement cases. In this article, we assess developments in the case law on the admissibility of expert testimony based on conjoint analysis, which is a particular type of survey analysis commonly used in market research to measure the tradeoffs that consumers make among salient features of a product. In a growing number of cases, experts have used conjoint analysis to estimate consumers’ average willingness to pay for a patented technology. That estimate informs the implementer’s maximum willingness to pay to license the patented technology, which is the upper bound on the bargaining range for a reasonable royalty in a hypothetical negotiation. We identify and analyze the factors that courts have considered when determining whether evidence from an expert’s conjoint survey is admissible. Further, one can use conjoint analysis to argue whether an infringing feature in a multicomponent product drives the demand for that product, which is relevant to the legal test in the United States for determining whether the patent holder may obtain an injunction and for identifying the appropriate royalty base for calculating damages. Decisions by the Federal Circuit and district courts in several disputes between Apple and Samsung indicate that the Federal Circuit has not yet provided comprehensive guidance on how to determine whether a patented feature drives demand for a downstream product for purposes of deciding whether a patent holder may obtain an injunction. Other Federal Circuit decisions indicate that, for purposes of identifying the appropriate royalty base, only evidence that a patented feature motivates consumers to purchase the product at issue will suffice to show that the patented feature drives demand for that downstream product.
Third, Professor Samuelson directed me to an article by Rohit Verma, Gerhard Plaschka, and Jordan J. Louviere titled Understanding Customer Choices: A Key to Successful Management of Hospitality Services, Cornell Hotel & Restaurant Admin. Q. 15 (2002), which (though not directly relevant to the topic of IP litigation) provides an accessible discussion of discrete choice analysis.  Here is the abstract:
We know that hospitality customers usually make purchases by simultaneously evaluating several criteria. A typical buying decision might take into account service quality, delivery speed, price, and any special buying incentives, for instance. It is imperative that businesses take into account customer preferences and choices when making decisions regarding product and service attributes. Managers need to understand how customers integrate, value, and trade off different product and service attributes. By the same token, information about customer demands and preferences must be incorporated into the design and day-to-day management of service-delivery processes.
In this paper we describe a particularly effective way to determine those customer preferences and to assess the tradeoffs that customers make in considering various product and service bundles. The methodology we describe is discrete-choice analysis (DCA). After explaining DCA, we provide guidelines for incorporating customer-preference information into the design and management of business processes. The DCA approach provides a robust and systematic way to identify the implied relative weights and attribute trade-offs revealed by decision makers' choices (whether customers or managers).
Fourth, Romain de Nijs has published an article titled Sondages et évaluation des préjudices économiques en matière de propriété intellectuelle ("Surveys and the evaluation of economic harm in regard to intellectual property") in the February 2017 issue of Propriété Industrielle (pp. 18-21). Here is the abstract (my translation from the French):
This article presents a panorama of the utilization of surveys for characterizing and quantifying economic harm in regard to intellectual property (trademark infringement, patent infringement, and online piracy of protected content).
Page 20 discusses the use of surveys in patent cases in particular, and cites some of the economic literature on conjoint analysis (as well as some articles on the use of conjoint analysis in antitrust law).  The article also alerted me to two more articles discussing the possible use of conjoint analysis in patent infringement cases:  a 2013 AIPLA White Paper by Joel Steckel, Rene Befurt & Rebecca Kirk Fair titled Is It Worth Anything? Using Surveys in Intellectual Property Cases, and a 2011 paper by Christopher K. Larus & Bryan J. Mechell titled Using Consumer Surveys to Prove Patent Infringement Damages at Trial, from the December 2011 issue of The Intellectual Property Strategist.