Thursday, November 30, 2017

Further News from the European Commission on IP Enforcement

Annsley Merelle Ward of IPKat published a post last night on the Communication from the Commission to the Institutions on Setting out the EU approach to Standard Essential Patents (about which I also blogged yesterday, see here), stating that "neither of the camps who were intensely lobbying in advance of the publication seem able to declare an outright victory in respect of their primary positions . . . . It seems to be a score-draw."  The IPKat post also notes that the Commission published two other communications yesterday relevant to IP enforcement, a Communication from the Commission to the Institutions on Guidance on certain aspects of Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights and a Communication from the Commission to the Institutions - A balanced IP enforcement system responding to today's societal challenges. I will try to make some time over the next few days to read these and provide some comments here; IPKat also promises a future post on these two additional communications.  A busy end to the month!

Wednesday, November 29, 2017

European Commission Publishes Communication on the EU Approach to SEPs

Hat tip to Joff Wild of the IAM Blog, for reporting on the publication this morning by the European Commission of a document titled Communication from the Commission to the Institutions on Setting out the EU approach to Standard Essential Patents.  It's not terribly long (just 13 pages), but in the interests of time I'll just reproduce the bullet points as presented in the document itself while noting two things in particular that caught my attention.

First, the Commission urges an improvement in the quality and accessibility of information recorded in SDO (standard development organization) databases: 
The Commission: 
- calls on SDOs to urgently ensure that their databases comply with the main quality features described above and will co-operate with SDOs to facilitate this process; 
- calls on SDOs to transform the current declaration system into a tool providing more up-to-date and precise information on SEPs and will co-operate with SDOs in order to facilitate that process; 
- considers that declared SEPs should be subject to reliable scrutiny of their essentiality for a standard, and will launch a pilot project for SEPs in selected technologies with a view to facilitating the introduction of an appropriate scrutiny mechanism.
Second, the Commission sets out certain general principles for FRAND licensing terms for SEPs.  Among other things, this portion of the document states (at pages 6-7) that "Licensing terms have to bear a clear relationship to the economic value of the patented technology. That value primarily needs to focus on the technology itself and in principle should not include any element resulting from the decision to include the technology in the standard. In cases where the technology is developed mainly for the standard and has little market value outside the standard, alternative evaluation methods, such as the relative importance of the technology in the standard compared to other contributions in the standard, should be considered." The part about the value not including "any element resulting from the decision to include the technology in the standard" is consistent with a principle some of the U.S. case law has adopted, but inconsistent with Mr. Justice Birss's statement in Unwired Planet v. Huawei and with an argument made by Norman Siebrasse and me in our paper The Value of the Standard(For previous discusion of this matter on this blog, see here.)  The bullet points for this section are as follows:
- There is no one-size-fit-all solution on what FRAND is: what can be considered fair and reasonable can differ from sector to sector and over time. Efficiency considerations, reasonable licence fee expectations on both sides, the facilitation of the uptake by implementers to promote wide diffusion of the standard should be taken into account. 
- Determining a FRAND value should require taking into account the present value added of the patented technology. That value should be irrespective of the market success of the product which is unrelated to the value of the patented technology. 
- In defining a FRAND value, parties need to take account of a reasonable aggregate rate for the standard. 
- The non-discrimination element of FRAND indicates that rightholders cannot discriminate between implementers that are 'similarly situated'.
- For products with a global circulation, SEP licences granted on a worldwide basis may contribute to a more efficient approach and therefore can be compatible with FRAND. 
The Commission calls on SDOs and SEP holders to develop effective solutions to facilitate the licensing of a large number of implementers in the IoT environment (especially SMEs), via patent pools or other licensing platforms, while offering sufficient transparency and predictability. 
The Commission will monitor licencing practices, in particular in the IoT sector. It will also set up an expert group with the view to deepening expertise on industry licensing practices, sound IP valuation and FRAND determination.
Third, in a section titled "A Predictable Enforcement Environment for SEPs," the Commission states that "When assessing the availability of injunctive relief, courts are bound by Article 3(2) of the IPR Enforcement Directive, and notably the requirement to ensure that injunctive relief is effective, proportionate and dissuasive. Given the broad impact an injunction may have on businesses, consumers and on the public interest, particularly in the context of the digitalised economy, the proportionality assessment needs to be done carefully on a case-by-case basis. The Commission feels that considerations need to be given to the relative relevance of the disputed technology for the application in question and the potential spill-over effects of an injunction on third parties" (p.10, section 3.2).  I wonder if courts within the E.U., where injunctive relief still remains the default remedy for patent infringement at least outside the SEP context, will take this as a signal that they should be somewhat less wedded to that approach in a case in which an injunction would impose disproportionate harm on the infringer or the general public?  If so, I for one would welcome that development.  In any event, the bullet points for this section are:
The Commission considers that the FRAND process requires both parties to negotiate in good faith, including responding in a timely manner. Injunctive relief can, however, be sought against parties acting in bad faith (i.e. parties unwilling to take up a licence on FRAND terms), but it must be used proportionally. 
The Commission will: 
- work with stakeholders to develop and use methodologies, such as sampling, which allow for efficient and effective SEP litigation, in compliance with the industry practice of portfolio licensing; 
- further facilitate the roll-out of mediation and alternative dispute resolution tools; and 
- monitor the impact of PAEs in Europe.
Finally, the last (brief) section on open source and standards concludes with a bullet point stating that "The Commission will work with stakeholders, open source communities and SDOs for successful interaction between open source and standardisation, by means of studies and analyses."

Tuesday, November 28, 2017

Yesterday's oral argument in Oil States

This blog addresses the law and economics of patent remedies, and thus the constitutionality of inter partes review is a bit far afield; so I won't dwell on that matter, except to note one aspect of the oral argument that troubled me, from an economic perspective.  I'm referring to the comments made by Justice Breyer at pp. 29-31, where he states 
. . . suppose that the patent has been in existence without anybody reexamining it for 10 years and, moreover, the company's invested $40 billion in developing it. And then suddenly somebody comes in and says: Oh, oh, we -- we want it reexamined, not in court but by the Patent Office. Now, that seems perhaps that it would be a problem or not? . . .
. . . [D]o people gain a kind of vested interest or right after enough time goes by and they rely on it sufficiently so that it now becomes what? Is there something in the Constitution that protects a person after a long period of time and much reliance from a reexamination at a time where much of the evidence will have disappeared?
Later, at page 50, Justice Breyer appears to back away from a "vested right theory," but a related argument is taken up by Justice Gorsuch at pp. 47-48:
Mr. Stewart, let's say we had a land patent. Let's say the land patent said it becomes invalid if  anybody in -- uses the land in an improper way, in violation of an environmental law, labor law, you choose. 
Let's say the land then gets developed and turns into a housing development outside of, I don't know, Philadelphia. And it turns out, though, that a great-grandfather who owned the land originally back when it was a farm, indeed violated a labor or environmental law, rendering the land patent invalid on its terms. 
Could -- couldn't the Bureau of Land Management, for example, or some other department, Interior, official just pull back the patent?
The implication here, particularly of the latter quote from Justice Gorsuch, seems to be that invention patents and land patents should be treated the same way, and thus that at some point reliance interests should trump the public's interest in seeing that invalid patents are cancelled.  And yet from an economic perspective this makes no sense, because (as economists have been noting for decades) unlike land or personal property intellectual property is nonrivalrous.  Only a limited number of people can inhabit or use the same real or personal property at the same time, but an infinite number of people could use the inventive principle that is the subject of an invention patent without depleting it.  Or, to think of it another way, in Justice Gorsuch's example if my land is taken away I have to find another place to live.  If my patent is invalidated, I may suffer a financial loss (I can't license the patent any more, or use it to exclude competitors), and that's obviously undesirable from my point of view; but unless some other body of law (such as FDA regulation) prevents me there is nothing stopping me from continuing to use the inventive principle as much as I want.  

This seems like a pretty fundamental distinction to me, and I certainly hope that the outcome of Oil States does not hinge on such a weak analogy between real and intellectual property.  Comments?

Monday, November 27, 2017

Federal Circuit Places Burden of Proof on Noninfringing Alternatives on Patentee

At least that's the most important point that I would take away from the Federal Circuit's decision last week in Presidio Components, Inc. v. American Technical Ceramics Corp., an opinion authored by Judge Dyk (joined by Judges Moore and Taranto).  The patent in suit is for a type of capacitor, and the opinion discusses a variety of topics, among them claim definiteness and intervening rights (i.e., whether an amendment made during the course of reexamination was significant enough to excuse the defendant from liability for the period of time preceding the amendment).  I'll pass over those substantive matters, however, and focus on the remedies issues, which involve (1) lost profits, (2) enhanced damages, and (3) injunctive relief.  To cut to the chase, the district court (1) awarded $2,166,654 in lost profits, (2) awarded no enhanced damages despite a jury finding of willfulness, and (3) granted a permanent injunction.  The Federal Circuit reversed on (1), affirmed on (2), and vacated and remanded on (3).

As for the first of the remedies issues, the plaintiff argued that it was entitled to lost profits on sales it would have made but for the infringement.  During the period in question, the defendant sold two types of capacitors, one of which (the "550" capacitor) infringed and the other of which (the "560L") did not.  The relevant question therefore was whether purchasers of the infringing product would have purchased the noninfringing alternative from the defendant, had the defendant not produced the infringing model; if so, then the infringement didn't deprive the patentee of any sales, and it would be entitled only to a reasonable royalty.  (As I've noted before, this is correct as a matter of economics and is standard law in the U.S. and France, though not in the U.K.)  A subsidiary question centers on which party has the burden of proof:  is it the patentee's burden to demonstrate the absence of an adequate noninfringing alternative, or the defendant's burden to show that purchasers would have considered the alleged alternative to be adequate?  As several coauthors and I write in a draft of a forthcoming chapter of an edited volume titled Patent Remedies and Complex Products: Toward a Global Consensus (Cambridge University Press, forthcoming 2018):
. . . although U.S. law appears to place the burden of proving the absence of non-infringing alternatives on the patentee, to our knowledge there is little discussion in the legal or economic literature addressing whether this allocation of the burden of proof is optimal. One might speculate that the infringer often would be better placed than the patentee to propose and substantiate the existence of feasible alternatives (though perhaps patent owners have unique insights into the matter that are not apparent at first blush); or maybe the allocation of the burden of proof on this issue does not matter much in practice, since both parties often will be motivated to present the evidence that best favors their position. Further consideration in the scholarly literature would be welcome.
Anyway, the Presidio opinion pretty clearly follows the practice of placing the burden on the patentee, while also stating (1) that the relevant question is whether consumers would have viewed the alternative as an adequate substitute for the product the plaintiff was selling, and (2) that an alternative doesn't have to be on the market to be "available" (pp. 16-18):
ATC argues that the district court erred by finding that substantial evidence supported that Presidio had satisfied the second prong of Panduit analysis—the absence of an acceptable, non-infringing alternative. To prove the absence of acceptable, non-infringing alternatives, the patentee may prove either that the potential alternative was not acceptable to potential customers or was not available at the time. Grain-Processing Corp. v. Am. Maize-Prod. Co., 185 F.3d 1341, 1353–55 (Fed. Cir. 1999). . . .
The district court’s analysis and Presidio’s argument were flawed. The correct inquiry under Panduit is whether a non-infringing alternative would be acceptable compared to the patent owner’s product, not whether it is a substitute for the infringing product. “The ‘but for’ inquiry therefore requires a reconstruction of the market, as it would have developed absent the infringing product, to determine what [sales] the patentee ‘would . . . have made.’” Grain Processing, 185 F.3d at 1350. The district court erred by relying on evidence about sales of the 560L capacitor in competition with the currently infringing product, rather than comparing the 560L capacitor to Presidio’s BB capacitor in a  hypothetical market without the infringing 550 capacitor. There was not substantial evidence in the record upon which a jury could conclude that the 560L was not an acceptable, noninfringing  alternative for Presidio’s BB capacitors. Undisputed evidence showed that the 560L capacitor was less expensive than Presidio’s BB capacitor and also had lower insertion loss for at least some  frequencies, which indicates better performance.
On the question of availability, the district court determined that sufficient evidence supported the finding that the 560L capacitor was not an available substitute because unlike the infringing 550  capacitors, ATC sold the 560L capacitor only to a single customer and did not list it on its website. An alternative does not need to be on the market to be available. Grain Processing, 185 F.3d at 1356. But here, the alternative was on the market. The undisputed evidence shows ATC sold 88,000 560L capacitors to the customer. The fact that ATC only sold the 560L capacitor to a single customer does not establish that it was unavailable. Moreover, the fact that the 560L capacitor was not widely advertised when sold in a market with the 550 capacitor does not show a lack of availability. In a hypothetical market including the 550 capacitors, ATC may have chosen not to advertise the 560L capacitor. . . .
In summary, Presidio failed to provide evidence that the 560L capacitor was either not an acceptable or available substitute to Presidio’s BB capacitor. We reverse the denial of judgment as a matter of law. The jury’s award of lost profits is set aside; Presidio is only entitled to receive a reasonable royalty award. . . . Under these circumstances, a new trial is needed to determine the reasonable royalty award.
As for enhanced damages, the court affirms the district judge's decision not to award any notwithstanding the jury's finding of willfulness, noting the judge's conclusion "that the present case was a 'garden-variety' hard-fought patent case, rather than an egregious case of misconduct" (pp. 19-20), and holding that the court is not required to discuss the Read v. Portec factors (which can be relevant in determining the extent to which damages should be enhanced) (p.20).

Finally, on injunctive relief, the court holds that where lost profits are not proven is is less likely that the patentee will be faced with the prospect of irreparable harm--though not impossible, hence the need for a remand:
To prove irreparable injury, a patentee must show “1) that absent an injunction, it will suffer  irreparable harm, and 2) that a sufficiently strong casual nexus relates the alleged harm to the alleged infringement.” Apple Inc. v. Samsung Elecs. Co., 695 F.3d 1370, 1374 (Fed. Cir. 2012). To determine whether the patentee will suffer irreparable harm absent an injunction, the court may consider factors such as the nature of competition between the patentee and the infringer, the willingness of a patentee to license, and any lost sales the patentee has proven. . . .
Where irreparable injury is based on lost sales, “a likelihood of irreparable harm cannot be shown if sales would be lost regardless of the infringing conduct.” Apple Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1324 (Fed. Cir. 2012). Here, the district court correctly pointed out that a jury award of lost profits may support a finding of irreparable harm because it necessarily results in a finding that the patentee lost sales and would continue to lose sales in the future. Presidio, 702 F.3d at 1363. The district court then based its conclusion as to irreparable injury on the jury’s lost profits award. The district court reasoned that “[t]he jury’s lost profits award also supports a finding of irreparable injury” because “the jury necessarily found ATC’s [550] capacitor sales caused Presidio to lose BB capacitor sales.” J.A. 87. In light of our reversal of the lost profits award for lack of proof of past lost sales, we must vacate the injunction.
However, we do not decide whether this should be the end of the matter. The district court has  discretion to determine whether other evidence could support a finding of irreparable injury. In this respect, on remand, the district court should reopen the record and consider current evidence of irreparable harm. Since March 17, 2017, the injunction against ATC from selling 550 capacitors has been in effect. Based on the arguments and evidence presented to this court, it appears that this injunction may have created the hypothetical market necessary to determine whether consumers would purchase Presidio’s BB capacitors in the absence of ATC’s 550 series capacitors. On remand, the district court should consider whether consumers have turned to noninfringing alternatives to the BB capacitor, such as the 560L capacitor, after the 550 series capacitors became unavailable or whether Presidio’s sales of the BB capacitor have increased because the 550 series is no longer on the market. Based on this further evidence and other relevant evidence, the district court should determine whether Presidio has established irreparable injury and the appropriateness of an injunction. 
*                  *                   *

In other news, the U.S. Supreme Court is hearing two cases today on inter partes review:  Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, on the constitutionality of inter partes review, and SAS Institute Inc. v. Matal, on the narrower question of whether the PTAB is obligated "to issue a final written decision as to every claim challenged by the petitioner."

Saturday, November 4, 2017

Blogging Hiatus

I'm going to take a blogging hiatus for the next few weeks, while I devote some time to some other matters.  I hope to resume the blog before too long.  Meanwhile, I've published 837 posts since May 2013, so for those of you who are new to the blog, there's plenty of back reading.

Friday, November 3, 2017

More New Papers on FRAND, SEPs

1.  Joseph A. Alfred has published a paper titled Licensing Standards Essential Patents in les Nouvelles, Sept. 2017, pp. 223-28.  Here is a link to the paper, and here is the abstract:
This article reviews the progress of cellular standards and compares that rise with the increase of standards essential patents because of the smartphone. Relevant case law is examined including the seminal Georgia-Pacific fifteen factors and how they were cited in 95 cases since 1995. Relevant articles are reviewed concerning the smartphone royalty stack, GATT and standards and in particular the case law surrounding device licensing represented by the key factors deciding the Microsoft v. Motorola case. A way forward is proposed that industry once again take the lead to determine reasonable royalty when licensing standards essential patents.  
2.  Roberto Grasso has published a paper titled Standard Essential Patents:  Royalty Determination in the Supply Chain, 8 J. Euro. Comp. L. & Prac. 283 (2017).  Here is a link to the paper, which lists among its "key points" the principles that royalties should be calculated based on the SSPPU and on incremental ex ante value; that for complex products, one must take into account the aggregate royalty demand; and that SEP owners "must negotiate with and provide a FRAND license to anyone who requests it, regardless of which level of the value chain it operates."

3.   David Kappos published a paper in the May 2017 issue of AIPPI-Japan (pp. 111-17) titled Patent Hold-Up and Royalty Stacking--From Theory to Data to Rethink.  From the conclusion:
Scientific inquiry begins with hypotheses--it does not conclude with them. . .  [W]e must accept that the latest and most robust empirical studies dispatch with the theories of patent holdup and royalty stacking, and point towards a future where patents and standard play an enduring, viral and harmonious, role.
The paper cites to papers by Galetovic, Haber, and others that I have from time to time criticized on this blog.

Wednesday, November 1, 2017

Some Recent Articles, Posts on Unwired Planet v. Huawei

Readers will recall that back in April Mr. Justice Birss concluded in Unwired Planet v. Huawei (paras. 148-61) that FRAND is a point, not a range--one reason being to avoid a situation where both parties make FRAND offers and the court then has to decide which (if either) to accept.  I'm not sure I find that reasoning compelling; it seems to me more sensible to think of FRAND as a range, even if one consequence of this view is that courts sometimes will need to (somehow) select a rate within that range to decide a specific case.  One of Greg Sidak's papers that I mentioned on this blog recently (see here, heading number 6) also argues that FRAND is better conceived as a range, not a rate.  Anyway, the papers and posts listed below also address this issue, among others.

1.  Jorge Contreras has published a paper titled Global Markets, Competition, and FRAND Royalties:  The Many Implications of Unwired Planet v. Huawei, in the August 2017 issue of The Antitrust Source.  Here is a link to the article, and here is the abstract:
The recent UK decision in Unwired Planet v. Huawei addresses, for the first time, several key issues arising from the international nature of SEP licensing transactions and the manner in which national court decisions can impact global business and litigation strategies. The court's analysis is deeply rooted in competition law principles, often at the expense of the contractual underpinnings of the FRAND commitment. Most importantly, the court's willingness to establish global license terms covering patents outside the UK has serious implications for international commercial litigation and licensing transactions.  
Professor Contreras critiques the single FRAND rate rule at pages 2-4.

2.  Maximilian Haendicke published an article titled Lehren aus der Huawei v. Unwired Planet-Entscheidung für das deutsche Patentrecht ("Teachings of the Huawei v. Unwired Planet Decision for German Patent Law") in the August-September 2017 issue of GRUR Int. (pp. 661-69).  Here is the abstract (my translation):
On April 5, 2017, the Patents Court (England and Wales) has in the person of Judge Birss has reached a decision on numerous questions that must be confronted in connection with standard essential patents.  From a German perspective, the decision deserves special consideration because it touches on themes which up to now have not been decided, either at all or not explicitly but rather only partially and in divergent ways, by the German courts.  These concern in particular the methods for determining the FRAND rate as well as the conditions under which a competition-law based compulsory license defense can be applied.  The present article illuminates the English decision with a focus on the suggestions that the German courts may take away from it, especially with regard to the design of FRAND licensing contracts and the determination of FRAND rates.  
Dr. Haendicke is not enthusiastic about the one-FRAND-rate concept either.
 
3. On the IAM Blog, Richard Lloyd recently published a post titled Microsoft v Motorola judge criticises recent UK Unwired Planet SEP licensing decision.  According to the post, Judge Robart stated at a recent IPO annual meeting that Mr. Justice "Birss was wrong to offer specific royalty rates for the technology in question, rather than offering a range, and stated that he did not expect the judgment to be particularly influential in US courthouses."

4.  Two recent papers in the Journal of European Competition Law & Practice provide an overview of the Huawei decision: Sophie Lawrence and Francion Brooks's Unwired Planet v. Huawei:  The First UK FRAND Determination, 8 Euro. J. Comp. L. & Prac. (forthcoming 2017), and Damien Neven & Pierre Régibeau's Unwired Planet vs Huawei: A Welcome Clarification of the Concept of FRAND and of the Role of Competition Law Towards SEP Licencing, 8 Euro. J. Comp. L. & Prac. 463 (2017), and Sophie Law.  In contrast to the above sources, neither appears to be critical of Mr. Justice Birss's one-single-FRAND-rate rule.