Monday, December 18, 2017

Petitions for Certiorari Relating to Patent Damages

There are two petitions for certiorari currently pending before the U.S. Supreme Court relating to patent damages issues.  It may be a few weeks or more before we know whether the Court will decide to hear either case.

The first is WesternGeco LLC v. ION Geophysical Corp., No. 16-1011, petition filed February 17, 2017.  The question presented is "Whether the U.S. Court of Appeals for the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f)."  Readers may be familiar with the underlying case, which I have blogged about before (see here, here, and here).  For background, section 271(f) of the Patent Act reads as follows:
(1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.
(2) Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

The defendant in this case was found liable under section 271(f), based on evidence that it supplied components of the invention from the U.S. to foreign customers, who then assembled them and performed marine seismic surveys for customers on the high seas.  The patent owner argues that, but for the infringement, it would have carried out those surveys and earned the resulting profit.  The Federal Circuit concluded, however, that the patent owner may not recover damages for lost profits arising from services it would have been performed outside the U.S., even if the evidence indicates that, but for the unlawful conduct that occurred within the U.S. (the supplying of the components), it would have performed those services.  Judge Wallach dissented.  (For more details, read my earlier posts.)  Anyway, here are links to the briefs filed so far (courtesy of Scotus Blog), including one filed this past week at the Supreme Court's behest by the Solicitor General (who urges the Court to reverse):




So far I've only carefully read the SG's brief, which argues that the principle of full compensation requires that the patent owner recover its lost profits on these facts, subject to normal tort law principles of proximate causation; and that such an award would not contradict the general principle against extraterritorial application of U.S. patent law.  Similar issues have arisen in the Federal Circuit's decisions in Power Integrations and Carnegie-Mellon v. Marvell (see previous posts here, here, here, here, and here), all of which the SG appears to believe were wrongly decided (see brief p.19).  The SG also argues that the rule Federal Circuit applied here departs from the rule that other courts have applied in copyright cases (see pp. 19-20); given the Supreme Court's predilection in some recent cases (Impression Products v. Lexmark, SCA Hygiene Products) to construe patent and copyright rules in a similar fashion, that might be a persuasive point for the Court.  In addition, the SG notes the possibility that in cases like these the defendant might have had available a noninfringing alternative (shifting its production overseas, where it wouldn't implicate U.S. patent law at all), but if so this is a matter the trier of fact should consider (see p.9 n.1).

In regard to the issues presented in this case, I should note that a few weeks back Norman Siebrasse published a very interesting post inspired by a recent Canadian case that could be read as implicating some analogous issues, see here.

2.  I am informed that EVE-USA, Inc. has filed a cert petition (No. 17-804) in a case that the Federal Circuit recently decided under the name Mentor Graphics Corp. v. EVE-USA, Inc. (see previous posts here and here).  I haven't seen a copy of the petition itself yet, but presumably it will be available on Scotus Blog or some other site before long.  In Mentor Graphics, the Federal Circuit held that the owner of a patent on a component that is incorporated into a multicomponent product can recover whatever profit it lost (if any) from sales it lost as a result of the defendant's infringement, rather than an apportioned lost profit.  For reasons stated in my previous posts, I think that decision is eminently correct, so I am hoping the Court will deny cert on this issue--a result that, it appears to me, would be dictated by the SG's full compensation principle in WesternGeco, were the Court to accept that principle.

Thursday, December 14, 2017

Cambridge Handbook of Technical Standardization Law

The Cambridge Handbook of Technical Standardization Law Competition, Antitrust and Patents, edited by Professor Jorge Contreras, is now available.  Here is a link to CUP's webpage for the volume, here is a link to Amazon's webpage, and here is the book description:
Technical standards are ubiquitous in the modern networked economy. They allow products made and sold by different vendors to interoperate with little to no consumer effort and enable new market entrants to innovate on top of established technology platforms. This groundbreaking volume, edited by Jorge L. Contreras, assesses and analyzes the legal aspects of technical standards and standardization. Bringing together more than thirty leading international scholars, advocates, and policymakers, it focuses on two of the most contentious and critical areas pertaining to standards today in key jurisdictions around the world: antitrust/competition law and patent law. (A subsequent volume will focus on international trade, copyright, and administrative law.) This comprehensive, detailed examination sheds new light on the standards that shape the global technology marketplace and will serve as an indispensable tool for scholars, practitioners, judges, and policymakers everywhere.
Norman Siebrasse and I contributed a chapter titled Judicially Determined FRAND Royalties.  Congratulations, Jorge, and good work on shepherding this project through to completion!

Tuesday, December 12, 2017

Federal Circuit Affirms Award of Attorneys' Fees for Entire Case, Including Appeal

The case is Inventor Holdings, LLC v. Bed Bath & Beyond, Inc., released this past Friday (opinion by Judge Chen, joined by Judges Wallach and Stoll)In a nonprecedential opinion last year, the Federal Circuit affirmed a judgment that the patent in suit (which "relates to a method of purchasing goods at a local point-of-sale system from a remote seller" (p.2)) was invalid under section 101, and now it affirms the district court's conclusion on remand that the plaintiff should have to pay attorneys' fees, including fees incurred on appeal, stating that "the district court acted within the scope of its discretion in finding this case to be exceptional based on the weakness of IH’s § 101 arguments and the need to deter similarly weak arguments in the future. . . . There were obvious issues with the ’582 patent’s claims that IH should have recognized post-Alice, and these issues persisted throughout the § 101 appeal. The district court was in a position to readily assess these issues as a collective whole and did not abuse its discretion in awarding BBB its appellate attorney fees" (pp. 9, 14).

Monday, December 11, 2017

Federal Circuit Clarifies Burden of Production on Patent Marking

In a decision handed down last Thursday, Arctic Cat Inc. v. Bombardier Int'l, the Federal Circuit addressed several issues relating to patent damages.  The opinion is authored by Judge Moore, joined by Judges Plager and Stoll.

The patents in suit "disclose a thrust steering system for personal watercraft ('PWC') propelled by jet stream" (p.2).  The principal substantive issue on appeal is nonobviousness, and the Federal Circuit affirms the district court's judgment that the inventions are nonobvious.  On damages, the major issue surrounds patent marking.  As I explained in this post of April  19, U.S. Patent Act section 287(a) reads as follows: 
Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word “patent” or the abbreviation “pat.”, together with the number of the patent, or by fixing thereon the word “patent” or the abbreviation “pat.” together with an address of a posting on the Internet, accessible to the public without charge for accessing the address, that associates the patented article with the number of the patent, or when, from the character of the article, this cannot be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice.In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.
Generally speaking, then, a patent owner can recover damages for patent infringement that occurs only after the owner has put the defendant on either actual notice (e.g., by sending an appropriately worded cease-and-desist letter, or serving a complaint for infringement) or constructive notice (by complying with the patent marking statute). By encouraging patent owners to provide public notice of the patent-protected status of their products, the statute is said to help both implementers and the general public to identify which products are subject to patent protection. The rule has many complications and exceptions, however, and for what it's worth my view is that we'd be better off if we didn't condition the availability of damages on marking. . . . 
Anyway, in the present case the question was whether one of the patent owner's licensees had substantially complied with the marking statute (because if it didn't, then the damages would accrue only from the point in time at which the defendant was put on actual notice). As the court explains:
A patentee’s licensees must also comply with § 287, because the statute extends to “persons making or selling any patented article for or under [the patentee].” . . .  Recognizing that it may be difficult for a patentee to ensure his licensees’ compliance with the marking provisions, we have held that where third parties are involved, courts may consider “whether the patentee made reasonable efforts to ensure compliance with the marking requirements.” . . .
There is no dispute that the patentee bears the burden of pleading and proving he complied with § 287(a). . . . There is no dispute that Arctic Cat did not require Honda to mark; in fact, it expressly authorized Honda to sell licensed products without marking. And it is likewise undisputed that Honda did not mark any of its PWCs with the patent numbers at issue. Thus, if Honda sold PWC products covered by the patents at issue, Arctic Cat has failed to satisfy the marking requirements. The only dispute between the parties is whether any of the Honda PWCs was covered by the patent claims at issue. . . (pp. 20-21).
Resolution of this issue, however, may depend on who has the burden of identifying the relevant unmarked products, and exactly what that burden entails:
There is a split among the district courts regarding which party must initially identify the products which it believes the patentee failed to mark. Some courts require the alleged infringer to initially identify products it believes practice the asserted patents. . . .
We hold an alleged infringer who challenges the patentee’s compliance with § 287 bears an initial burden of production to articulate the products it believes are unmarked “patented articles” subject to § 287. To be clear, this is a low bar. The alleged infringer need only put the patentee on notice that he or his authorized licensees sold specific unmarked products which the alleged infringer believes practice the patent. The alleged infringer’s burden is a burden of production, not one of persuasion or proof. Without some notice of what market products BRP believes required marking, Arctic Cat’s universe of products for which it would have to establish compliance would be unbounded. . . . Permitting infringers to allege failure to mark without identifying any products could lead to a large scale fishing expedition and gamesmanship. Once the alleged infringer meets its burden of production, however, the patentee bears the burden to prove the products identified do not practice the patented invention.
We do not here determine the minimum showing needed to meet the initial burden of production, but we hold in this case it was satisfied by BRP. At trial BRP introduced the licensing agreement between Honda and Arctic Cat showing Honda’s license to practice “Arctic Cat patents that patently cover Arctic Cat’s Controlled Thrust Steering methods, systems and developments.” . . .  BRP identified fourteen Honda PWCs from three versions of its Aquatrax series sold between 2002 and 2009. . . .  BRP’s expert testified that he “review[ed] information regarding those models” and believed if BRP’s OTAS system practiced the patents, so did Honda’s throttle reapplication system in the Aquatrax PWCs. . . . This was sufficient to satisfy BRP’s initial burden of production (pp.22-24).
The court then remands to determine if the plaintiff can prove that the Honda PWCs do not practice the patents in suit.
As for other damages issues, the court rejects the defendant's challenge to the plaintiff's expert's estimate of a reasonable royalty rate (without any extended discussion of the expert's methodology) and affirms the granting of an ongoing (future) royalty rate in lieu of an injunction at a higher rate (the actual rate awarded is not disclosed).   I've argued many times in the past that sound economic analysis would result in awarding the same rate for both pre- and postjudgment infringement (see, e.g., here), but for now the Federal Circuit continues to adhere to its silly precedent on this issue.
Finally, the court affirms the jury's finding of willfulness and the judge's grant of treble damages, noting among other things that post-Halo a finding of subjective willfulness will suffice:
. . . The jury’s willfulness finding is supported by substantial evidence. In denying BRP’s motion for judgment as a matter of law on willfulness, the district court found substantial evidence demonstrated that BRP knew about the patents before they issued, conducted only a cursory analysis of the patents, waited years before seeking advice of qualified and competent counsel, and unsuccessfully tried to buy the asserted patents through a third party. . . .
Finally, the district court did not abuse its discretion by trebling damages. While the district court initially trebled damages without much explanation . . . it explained its decision in a subsequent thorough and well reasoned opinion. See J.A. 99–116 (applying the factors outlined in Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992)). Although the district court did not allow the parties to brief the issue, we will not adopt a blanket rule that a district court abuses its discretion by deciding an issue without receiving briefing from the parties. . . (pp. 29-30).
  

Thursday, December 7, 2017

AIPPI Resolution on Quantification of Monetary Relief

In early October I mentioned that the AIPPI World Congress would be meeting in Sydney to discuss, among other matters, the quantification of monetary relief for the infringement of IP rights.  My post also included  a link to the AIPPI webpage on this topic, which in turn included links to forty individual country reports.  Anyway, if you go to that link now you will also find a link to the resolution AIPPI adopted on October 17.  I won't quote it in full, but here are some of the more interesting parts of the AIPPI resolution.

First, point (1) of the resolution sets out the general principle that "Damages should compensate the right holder: a) for its lost profits in respect of sales of products or services that the right holder would have made but for the infringement; and/or b) for its lost profits in respect of price erosion; and/or c) by a reasonable royalty in respect of infringing sales that are not proved to have been lost sales of the right holder, save that the right holder cannot recover twice for the same loss."  Proceeding from these premises, point (2) notes that "the task is by its nature one of estimation," and point (3) then lists various factors that may be relevant to the calculation of lost profits, including "the availability of other substitutable products or services in the market."  This last point would, if adopted in the U.K., require the overruling of the old United Horse-Shoe case, which stands for the proposition that noninfringing alternatives are not relevant to the calculation of lost profits--and would therefore be a welcome change in the law.  (For my critique of United Horse-Shoe, see, e.g., here.)  Interestingly, I don't see any discussion of this specific issue in the U.K country report.  In addition, point (6) states that "Damages should also be recoverable where sales of goods or services of the right holder that compete with the infringement but do not embody the IP right have been lost because of the infringement, as long as the right holder proves a causal nexus between the infringement and the lost sales. The court may take the degree or strength of causation into consideration when considering the appropriate quantum of damages."  This is the rule followed in the U.S. under the Rite-Hite case, and although it remains controversial among some scholars it has always seemed correct to me if the overarching goal is to ensure that the patent owner is no worse off as a result of the infringement. 

Second, point (9) lists various factors that may be relevant to determining a reasonable royalty:
a) other licence agreements of the same IP right as the IP right in suit (but taking due account of the circumstances in which any such other licence agreement was negotiated and, in particular, but not limited to, whether infringement and/or validity of the IP right in suit had been determined);
b) other licence agreements of similar IP rights to the IP right in suit;
c) the cost of non-infringing alternatives;
d) advantages of the IP right in suit when compared with alternatives (including any applicable licence fees for alternatives);
e) profitability of the products or services encompassing the IP right in suit;
f) development costs of the IP right in suit; and
g) the absence and/or circumstances of prior licensing discussions between the
parties.
Up to a point, this is a reasonable distillation of two of what in my view should be the three most relevant factors:  comparables (a and b), and the advantage of the IP over alternatives (c and d).  The other major consideration, in my view, is apportionment (to what extent does the invention contribute to the profitability of the end product), and I don't see subpoint "e" fully addressing this issue.  (Neither does point (13), which states "Where the IP right in suit relates to a part of a multi-component product or service sold by the infringer, the value to be attributed to the IP right in suit (and the compensation available by way of lost profits or reasonable royalty) should be assessed having regard to the extent to which the infringing component provides the basis for customer demand for that multi-component product or service.")  I think it would have good to make that issue clearer.  I also don't agree with subpoint (f), since patents and other IP rights (again, in my view) are a reward for success, not effort, though I realize there is a robust debate (see, e.g, Ted Sichelman's work) on the question of whether damages should be based more on the cost of development. 

In addition, point (10) states that "In assessing a reasonable royalty, the parties should be considered as if they were willing licensor and licensee respectively, with the attributes of the actual right holder and infringer, but disregarding the fact that one or both parties would not in practice have agreed to license the IP right in suit," and point (11) correctly observes that "A reasonable royalty should be assessed on the basis that the IP right in suit is valid and infringed where validity and infringement have been determined in the same proceeding or, otherwise, if warranted in the circumstances." That corrective is necessary to avoid a double discounting problem, as I have observed many times elsewhere (and the observation is hardly original to me).  And point (16) notes the possibility of ongoing royalties when no injunction is granted (though it doesn't address whether injunctions should always or almost always be granted--that's not the topic of the resolution), stating that "In assessing a reasonable royalty where no injunction is granted, the royalty should include a royalty in respect of future infringements, if any."  It might have been good to add that, contrary to current U.S. practice, the rate should be the same rate used for pre-judgment royalties (a point I've made before, see, e.g., here), but so it goes.  Overall, though, I'd say this is a reasonably good resolution.

Monday, December 4, 2017

Assistant AG Delrahim's Speech on FRAND, Patents, and SSOs

A speech delivered on November 10 by the new head of the Department of Justice's Antitrust Division, Makan Delrahim, has gotten a fair amount of publicity from a number of sources, with for example the IAM Blog reporting that former USPTO Director David Kappos referred to the speech as "the most important DOJ antitrust speech on IP during my decades practising law, ” and similar praise coming from Judge Douglas Ginsburg and Koren Wong-Ervin in a paper titled The Department of Justice's Long-Awaited and Much Needed Course-Correction on FRAND-Assured Standard-Essential Patents.  Though I could be wrong, my own somewhat contrarian view is that the speech isn't nearly as significant as some of these observers seem to think.

First, while it's true that Mr. Delrahim's speech is very pro-patent-owner in its orientation--arguing, for example, that "holdout" on the part of prospective licensees is "a more serious impediment to innovation" than is "holdup" on the part of  patent owners, and suggesting that injunctive relief should be more widely available in SEP/FRAND cases--it's important to recognize that these views, while deserving of consideration and respect, are not binding on any court.  The Antitrust Division has no more of a say over the conduct of patent infringement litigation than does any other unrelated entity or person.

Second, while the speech clearly indicates that the DOJ won't view alleged violations of FRAND commitments as antitrust violations, or seek to penalize patent owners for seeking injunctions, this is hardly a change in course for the DOJ.  I don't believe there were any cases during the previous administration in which the DOJ challenged these practices as antitrust violations.  As I discussed in this paper in 2014, among the reasons why U.S. antitrust law wouldn't be conducive to such claims are that U.S. antitrust law generally doesn't condemn monopoly exploitation as opposed to expansion or maintenance, and (as Mr. Delrahim points out) doesn't regulate prices; there's also might be a Noerr-Pennington problem in basing liability based on a non-sham request for injunctive relief.  True, in 2013 the DOJ and USPTO jointly published a document titled Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments, which addressed "whether injunctive relief in judicial proceedings or exclusion orders in investigations under section 337 of the Tariff Act of 19301 are properly issued when a patent holder seeking such a remedy asserts standards-essential patents that are encumbered by a RAND or FRAND licensing commitment."  This document was cited by USTR Froman later that year in his veto of an exclusion order entered by the ITC.  And in two cases (Robert Bosch and Google/Motorola) the FTC (by a 3-2 vote) conditioned its acquiescence in a corporate acquisition on the acquiring party's commitment to not to seek injunctive relief for the infringement of FRAND-committed patents by willing licensees.  Still and all, there are lots of reasons why U.S. antitrust law hasn't gone any further than this, and probably wouldn't have done so under a President Hilary Clinton administration.  

Antitrust law in other countries, of course, may take a different approach, though one reason for this (as I have argued) is that in most other countries injunctions remain the default remedy for patent infringement, thus leaving antitrust (or the "abuse of right" doctrine, or something else) to pick up the slack.  But I don't view Mr. Delrahim's speech as presenting a big change in U.S. antitrust law on this issue (and even if it did, of course, his comments would bind at most the DOJ, not the FTC or the courts or the course of private antitrust litigation).

Mr. Delrahim's commentary could be significant in two other respects, however.  First, his comments may suggest that at the margin the DOJ will take a more hands-off approach to other types of cases at the intersection of IP and antitrust law.  Second, and more explicitly, Mr. Delrahim's comments suggest that the DOJ may take a harder look at the conduct of standard-setting organizations (SSOs) as potential violations of the Sherman Act.  The obvious implication here is the DOJ will be less likely going forward to take a favorable view of policies like those adopted by the IEEE in 2015, under which the SSO requires members not to seek injunctive relief against willing licensees and to calculate FRAND royalties using the SSPPU as the royalty based.  (See the  February 2, 2015 Business Review Letter from Renata Hesse, Acting Assistant U.S. Attorney General, to Michael Lindsay, available here.)  That shift in policy is potentially of some consequence, though to my knowledge no other SSO has followed the IEEE's lead in this regard (perhaps due to the controversy, whether deserved or not, that that policy engendered).

All told, then, while I could surely be proven wrong, I don't think the speech merits quite the reaction it has received among some of the commentators. 

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!