Wednesday, June 28, 2017

A Couple of Thoughts on Judge's Koh's Decision in FTC v. Qualcomm

I'll admit that, over the past few weeks, I haven't kept as close a watch on the Qualcomm antitrust litigation as I should have, but I have now read Judge Koh's opinion in FTC v. Qualcomm that I mentioned on the blog earlier today.  Perhaps there's something (or quite a lot) that I'm just not understanding yet, and I'm not saying Judge Koh was wrong to deny the motion to dismiss--this litigation is at a very early stage--but there are two matters that I'm finding perplexing about the FTC's case. 

First, according to the opinion the complaint alleges that Qualcomm is charging an above-FRAND rate for its SEPs.  That may well be what the complaint says, but I'm wondering how the FTC plans to prove this allegation if the matter proceeds to trial.  One possibility is that a FRAND royalty is a commitment to charge less than the market otherwise would bear, that is, to voluntarily forgo some revenue in return for participating in the standard setting process.  (If correct, this would suggest that in a patent infringement case involving a FRAND-committed SEP, the amount awarded as a FRAND royalty would be less than what would have been awarded as a reasonable royalty, absent the FRAND commitment.)  And maybe this is the right way to think about FRAND royalties, but as I've stated in the past I'm skeptical; by what criteria would a court measure the different between a FRAND royalty and a freely-negotiated (reasonable) royalty?  Of course, one might challenge my view by asking what the point of a FRAND commitment is, but I think the answer is that a FRAND commitment is just that--a commitment that otherwise wouldn't exist to license one's patents, one that might be enforceable in a breach of contract or promissory estoppel lawsuit.  

Alternatively, maybe the idea here is that Qualcomm is charging a royalty that exceeds the value of its technology because it includes "holdup" value--some amount, in addition to the value of Qualcomm's SEPs in comparison with alternatives, that reflects the implementer's sunk costs or differential switching costs ex post.  (See my blog post with Norman Siebrasse on this issue, here.)  But while I'm sympathetic to that theory when the facts are consistent with it (e.g., when the implementer has invested sunk costs already, and ex post the patentee uses the threat of an injunction to demand a royalty reflecting in part those sunk costs), if I'm reading the opinion here correctly it sounds as if Qualcomm negotiated the licenses at issue ex ante.  It certainly sounds like Qualcomm drove a hard bargain, too, but that fact alone doesn't in my view mean that Qualcomm is demanding a supra-FRAND royalty; rather, it's charging what the market would bear ex ante.  Am I missing something here?

The other issue I don't quite get is the theory that Qualcomm is putting its competitors in the market for modem chips at a disadvantage by (1) not licensing its SEPs to them, and (2) instead requiring the OEMs to license Qualcomm's SEPs, regardless of whether the chips the OEM is using come from Qualcomm or from one of Qualcomm's competitors.  The reason I don't get it is this:  if Qualcomm's patents are indeed standard-essential, then wouldn't the chips produced and sold by the competitors necessarily practice Qualcomm's technology?  If so, then Qualcomm is entitled to extract a royalty for the use of its patents in these chips, but I don't see why it has to extract it directly from the competitors instead of from the OEMs.  (Moreover, as I mentioned earlier today, U.S. antitrust law doesn't condemn monopoly pricing as such, but rather the willful acquisition or maintenance of monopoly power.  There has to be something more than just excessive pricing, which is why the FTC alleges and Judge Koh discusses whether Qualcomm is using its monopoly power to exclude competitors.)  Of course, if the proponents of the SSPPU concept are right, Qualcomm will be able to extract a higher royalty from the OEMs than it could from the competitors, because the OEMs' royalty base is higher; but as readers of this blog and of my scholarship are aware, I'm somewhat skeptical of that theory too.  I suppose if the SSPPU theory is correct, though, then this strategy may enable Qualcomm to extract a higher royalty overall than it otherwise could, and this potentially puts its competitors at a disadvantage, since they could otherwise underbid Qualcomm (which is what Judge Koh talks about).  Even so, I'm not sure I'd buy into the proposition that a FRAND commitment (or antitrust law) necessarily requires a firm to license its patents to the component manufacturer instead of to the end product manufacturer.

Then again, maybe I'm just missing something--maybe the competitors' chips don't practice Qualcomm's SEPs?  But if so, how could those chips be competitive in the first place?  I realize that overdeclaration may be a problem generally, but surely some of Qualcomm's asserted SEPs must be essential in fact, no? 

Readers, enlighten me.     

Judge Koh on Enhanced Damages, FRAND

U.S. District Judge Lucy Koh has issued two important opinions within the past week on issues related to patent royalties.  First, in Apple Inc. v. Samsung Elecs. Corp., Case No. 12-CV-00630-LHK (N.D. Cal .June 23, 2017)--the case involving, among others, the slide-to-unlock patent--the court on remand from the Federal Circuit entered a 30% damages enhancement based on its finding that, under the Halo v. Pulse standard, Samsung willfully infringed.  Of particular interest here are the following findings and conclusions:  (1) Samsung copied the slide-to-unlock feature; (2) at the time it copied, the relevant patent hadn't issued yet; (3) copying in the absence of knowledge of the patent, standing alone, doesn't amount to willful infringement; (4) Samsung's continued infringement after having been put on notice of the patent, by virtue of the filing of the lawsuit, can support an inference of willful infringement; (5) Samsung had a noninfringing alternative but chose not to use it.  See in particular pp. 18-21:
The fact that Samsung copied is evidence of willfulness. The initial copying of the slide-to-unlock feature before the instant suit was filed, as discussed above, cannot alone support a willfulness finding. However, after Samsung was notified of the '721 patent by the filing of the instant suit, Samsung continued to sell the same copied designs. The continued sale of a copied product supports an inference that Samsung's infringement was willful. See Final Jury Instructions at 39 (“A factor that may be considered as evidence that Samsung or Apple was willful is whether it intentionally copied a product of the other side that is covered by a patent.”); see also Polara Eng'g, Inc. v. Campbell Co., 2017 WL 754609, at *15 (C.D. Cal. Feb. 27, 2017) (upholding willfulness jury finding where there was evidence that “Campbell intentionally copied Polara's two-wire device”). Accordingly, Samsung's copying supports the jury's finding of willfulness.
Second, there is evidence in the record that Samsung had a non-infringing alternative that it could have implemented quickly. ECF No. 1717 at 222–23 (Samsung Expert Saul Greenberg) (“Well, at the time of the filing of this case, which was February 8, 2012, there were [non-infringing alternatives, such as “circle unlock”].... So it would have taken them no time at all. They could have just swapped out the interface and used that instead.”). There is also evidence that the non-infringing alternatives were not well-received by Verizon, or were less effective. PX181 at 5 (discussing Verizon's “negative response towards our company's circle lock playing the role of the unlock visual cue”); ECF No. 1623 at 187–90 (Apple Expert Andrew Cockburn) (explaining that Samsung's alternatives had various flaws that made them less desirable). From this evidence, a reasonable juror could infer that Samsung chose to continue infringing because it did not want to give up market share by switching to a less desirable alternative.
Finally, Samsung's defenses at trial do not preclude a finding of willfulness. . . .
The court then applies the Read v. Portec factors to conclude that a 30% enhancement is appropriate (pp. 21-31):
The Read factors include: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer's behavior as a party to the litigation; (4) defendant's size and financial condition; (5) closeness of the case; (6) duration of defendant's misconduct; (7) remedial action by the defendant; (8) defendant's motivation to harm, and (9) whether defendant attempted to conceal its misconduct. Read, 970 F.2d at 827. . . .
Factors 1, 4, and 8 weigh in favor of enhanced damages; factor 2 slightly weighs in favor of enhanced damages; factors 3 and 5 weigh against enhanced damages; factors 6 and 7 weigh slightly against enhanced damages; and factor 9 is neutral. Taking into account the jury's finding and the above Read factors, the Court finds that enhancement is warranted in this case. The evidence of direct copying, continued sale of copied products after Samsung received notice of the '721 patent, Samsung's motivation to obtain a competitive advantage using Apple's own designs, and the availability of less desirable non-infringing alternatives that could be implemented in no time indicate that Samsung's actions were sufficiently egregious to warrant enhancement.
However, “[t]rebling damages is reserved for the cases at the most egregious end of the spectrum.” Polara, 2017 WL 754609 at *27. Here, Samsung's remedial actions, the duration of misconduct, the closeness of the case, and Samsung's litigation behavior, although insufficient to preclude the award of enhanced damages, weigh against an award of double or treble damages and weigh in favor of a moderate award. Accordingly, the Court exercises its discretion and finds that increasing the damages award by 30% of the compensatory damages award is a sufficiently punitive sanction for Samsung's conduct in this case. The jury awarded $2,990,625 to Apple on the '721 patent. The Court increases this amount by $897,187.50 to a total award of $3,887,812.50.
The other decision, which came down on Monday, is Judge Koh's order denying Qualcomm's motion to dismiss in FTC v. Qualcomm, Case No. 17-CV-00220-LHK.  (You can access a copy of the opinion on Westlaw or, via Scribd, on the FOSS Patents blog.) I'm not going to go into all the details of this complex antitrust matter here and now (and I still need to read the entire opinion myself, carefully), but will just note Judge Koh's conclusion that the FTC's complaint adequately alleges both that Qualcomm charges a supra-FRAND rate, in violation of its FRAND commitments, and that this harms the competitive process (an important point under U.S. antitrust law, because excessive pricing standing alone doesn't constitute an antitrust violation).  See, e.g., the following passage from the opinion:
Significantly, although Qualcomm nominally imposes the same surcharge on all modem chips sales, Qualcomm's surcharge does not affect Qualcomm and its competitors equally. For Qualcomm, as discussed above, Qualcomm's surcharge is a means for Qualcomm to functionally extract a higher price for Qualcomm's own modem chips without being underbid in the modem chips market by competing modem chips manufacturers. See Compl. ¶¶ 86, 85–95. The revenue from Qualcomm's surcharge comes back to Qualcomm as a form of profit, and it maintains Qualcomm's modem chips monopoly. Moreover, Qualcomm can offer OEMs incentive payments that provide OEMs discounts from Qualcomm's above-FRAND royalties if an OEM uses Qualcomm's modem chips as opposed to the modem chips of Qualcomm's competitors. Id. ¶ 103. Qualcomm's competitors, by contrast, cannot offer OEMs such incentive payments, and Qualcomm's surcharge works to reduce competitors' modem chips sales and margins, which prevents these competitors from effectively competing with Qualcomm. See id. ¶ 106. In effect, FTC alleges, Qualcomm's surcharge “artificially stunt[s]” its competitors' ability to effectively grow and challenge Qualcomm on the merits, in violation of the Sherman Act. McWane, 783 F.3d at 824, 839–40; see also United States v. Dentsply Intern., Inc., 399 F.3d 181, 191 (3d Cir. 2005) (finding monopolist's actions anticompetitive where the monopolist's conduct “help[ed] keep sales of competing [products] below the critical level necessary for any rival to pose a real threat to [the defendant's] market share”).

Monday, June 26, 2017

Dow v. Nova: Canadian Federal Court Awards Pre-Infringement Damages, Post-Infringement Profits

The case is Dow Chemical Co. v. Nova Chems. Corp., 2017 FC 350 (Apr. 19, 2017), decision by Mr. Justice Fothergill.  In an earlier proceeding, Mr. Justice O'Keefe found the patent in suit, which relates to film-grade polymers, valid and infringed.  The more recent proceeding focused on the monetary award, and addressed several interesting issues.  Norman Siebrasse has published detailed posts on these issues on Sufficient Description (see here, here, here, and here), and I'll just summarize the important issues here.

1.  First, Dow sought an award of "reasonable compensation" under section 55(2) of the Canadian Patent Act for Nova's pre-grant use of what later issued as the '705 Patent.  Section 55(2) reads:
A person is liable to pay reasonable compensation to a patentee and to all persons claiming under the patentee for any damage sustained by the patentee or by any of those persons by reason of any act on the part of that person, after the application for the patent became open to public inspection under section 10 and before the grant of the patent, that would have constituted an infringement of the patent if the patent had been granted on the day the application became open to public inspection under that section.
As I discuss in my book, many countries award some form of compensation for the unauthorized use of what later issues as a patented invention, for the period of time between publication and grant (though to my knowledge there aren't too many published decisions addressing the question of how such awards should be calculated).  The counterpart in the U.S., for example, is Patent Act § 154(b), which (unlike the Canadian statute) expressly conditions such an award on the defendant having had "actual notice of the published patent application."  (According to the Federal Circuit, however, "actual notice" effectively means "actual knowledge," and doesn't necessarily require an affirmative act on the part of the patent owner.  For my critique of the decision reaching this conclusion, see here.)  Anyway, the court in Dow concluded that "reasonable compensation" means a reasonable royalty, which in turn implies use of a hypothetical bargaining construct.  The problem in the present case, however, was that in the but-for world in which the defendant had sought permission to use the invention, no bargain would have been reached, because the minimum amount Dow would have accepted exceeded the maximum amount Nova would have agreed to pay--a not uncommon circumstance, given that often the profit margin of a practicing patent owner with an effective monopoly will exceed the profit margin of the would-be user under duopoly.  (In the but-for world, in other words, the plaintiff would have excluded the defendant and denied permission to use, rather than granting a license.)  A lost profits award therefore would make more economic sense than a reasonable royalty, but according to Professor Siebrasse there is other Canadian precedent holding (rightly or wrongly) that courts can't award lost profits as such for pre-infringement use, only a royalty.  The Dow court gets around this dilemma by holding that the royalty should be Dow's minimum willingness to accept, in effect granting a lost profit without calling it that.  This would appear to me to be the correct economic result under the circumstances.

2.   For the period covering the issuance of the patent through the end of the year 2015, Dow opted for an accounting of the defendant's profits.  One interesting issue here was whether the award of profits could include a "springboard" award, that is, an award reflecting in part the additional the profit the defendant was able to earn post patent expiration, because the infringement provided it with a springboard to market entry (earlier market entry than would have been possible absent the infringement).  The court held that this was permissible under Canadian law, stating that "springboard damages are nothing more than a type of loss to be proven with evidence, and I see no reason why this principle should operate differently to a plaintiff’s gains in the context of an accounting of profits" (para. 124).  The second difficult issue was whether the defendant should be able to deduct any portion of its fixed costs, which would result in a reduction of the profit it would owe to Dow.  Courts throughout the world have reached differing conclusions on this issue (see, e.g., my book pp. 206-08, 271-73, 325-26), and while there are reasonable economic arguments in support of both sides of the issue I'm inclined to agree with Stephen Margolis that the better rule is to allow such a deduction at least where the defendant would have employed that overhead to other purposes absent the infringement.  In any event, in the present case the court held that it would be appropriate under the circumstances to allow Nova to deduct its apportionable overhead.

3.  A third set of issues related to prejudgment interest.  With regard to the pre-infringement royalty, the court used Dow's internal rate of return as the benchmark, rather than the otherwise applicable bank rate, which seems correct if the goal is to restore the plaintiff to the position it would have occupied but for the infringement.  In keeping with Mr. Justice O'Keefe's ruling in the earlier proceeding, however, the court did not award compound interest (which of course is not consistent with the goal of compensation, though Canada is hardly alone in its reluctance to award compound interest).  With regard to the award of profits, the court used the defendant's rate of return and did award compound interest (which seems more correct as a matter of economics).

4.  Finally, the court had to decide what date to use to convert the award from U.S. to Canadian dollars, and it opted for the date of judgment.  I think this generally makes sense for reasons of administrative convenience, rather than converting the award on a year-by-year (or even more granular) basis in cases in which the infringement spans a lengthy period of time.

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.