Friday, April 20, 2018

Further Commentary on Conversant v. Huawei

Yesterday's post noted a post by Eibhlin Vardy on IPKat discussing Mr. Justice Carr's ruling earlier this week in Conversant Wireless Licensing S.A.R.L v Huawei Technologies Co. Ltd, ZTE Corporation and Ors [2018] EWHC 808 (Pat), concluding  that the court has jurisdiction to decide a global FRAND rate, even though the U.K. sales by Huawei and ZTE account for less than 1% of global sales.  Here are a couple of more commentaries, one by Nicholas Fox on EPLaw and another by Tristan Sherliker on Bird & Bird's blog, who notes that Mr. Justice Carr
assessed the conduct of negotiations and highlighted key issues that, he said, supported Conversant’s case for an injunction. In particular he referred to the following points, which will provide further guidance from the courts about how negotiations might be handled in a FRANDly manner:
  • the length of negotiations (several years) had not led to much progress;
  • the fact that no interim royalty payments had been made;
  • Huawei’s position that they would not take a global portfolio licence; and
  • that the Defendants did not acknowledge (when requested) that they were willing to take a licence, or that their willingness was unconditional.

Thursday, April 19, 2018

From Around the Blogs: Samsung's Antisuit Injunction, Global FRAND Rates in the U.K., and More

1.  Following up on my post this Monday on Judge Orrick's decision to grant an injunction forbidding Huawei from enforcing an injunction it obtained against Samsung in Shenzhen, China, David Long has posted an extensive discussion of the case on the Essential Patents Blog, and Mark Cohen provides some interesting context on injunctions, antisuit injunctions, and anti-anti-suit injunctions, on the China IPR Blog.  Mr. Cohen also reports that "China will soon introduce punitive damages for IP infringements," in its upcoming fourth revision to the Chinese patent law.  The introduction of such damages into Chinese law is something that has been under discussion for some time, and if it is now imminent this could be a very significant, indeed.

2.  Eibhlin Vardy has published a post on the IPKat about yet another FRAND case involving Huawei, Conversant Wireless Licensing S.A.R.L v Huawei Technologies Co. Ltd, ZTE Corporation and Ors [2018] EWHC 808 (Pat), in which  Mr. Justice Carr (Patents Court of England and Wales) ruled this past Monday that the court has jurisdiction to enter a global FRAND rate, even though sales of the allegedly infringing products within the U.K. account for less than 1% of global sales.  I haven't read the opinion yet myself, but I'm inclined to think that both this case and the Huawei/Samsung litigation suggest a need for some sort of global solution to questions of jurisdiction and forum shopping for FRAND litigation.

Ms. Vardy also reports that next month the Court of Appeal will hear the appeal of Mr. Justice Birss' decision in Unwired Planet, over the course of six days.  Well, it is a huge case.

3.  Norman Siebrasse published a post on Sufficient Description on a recent Canadian case, Adir v Apotex Inc 2018 FC 346, involving the question of whether the possibility of outsourcing the production of a product intended for export should reduce the amount the defendant must disgorge for the infringement of the plaintiff's patent, where the evidence suggests that the defendant could have, but for noneconomic reasons wouldn't have, undertaken such outsourcing.  Again, I haven't read the decision yet myself, but Professor Siebrasse makes what appears to me to be a valid critique of the court's decision not to reduce the award:
. . . the reward to the patentee should be commensurate with the value of the invention to the public; a valuable invention deserves a large reward, but an invention which is less valuable merits a correspondingly lesser reward. As the FCA explained in Lovastatin Damages [56], this is the rationale for considering the NIA [noninfringing alternative] in assessing damages: it is “only by comparing the patented invention to non-infringing alternatives can a court discern the market value of the patent owner’s exclusive right, and therefore his expected profit or reward.” On the facts in this case, the objective value of the Canadian patent was the value of the one-year head start that could be obtained by manufacturing in Canada as opposed to some other country. In holding that Apotex was not entitled to offset the profits it could have made by manufacturing abroad, Apotex has been required to disgorge more than the objective value of the invention, because of Dr Sherman’s idiosyncratic non-economic motivations. This is not consistent with the instrumental rationale for the patent system: the value of an invention to society does not turn on the identity or motivations of the infringer. 
I would add only that, as Professor Siebrasse himself has pointed out elsewhere, the question of whether the potential outsourcing of production should count as a noninfringing alternative for purposes of reducing damages is something that U.S. courts may need to grapple with if, as I now expect, the Supreme Court overrules the Federal Circuit in WesternGeco (see here).

4. Finally, on Patently-O Dennis Crouch has published a post on the Federal Circuit's attorneys' fees decision in Rainere v. Microsoft, which was also the subject of my post yesterday.

Wednesday, April 18, 2018

Federal Circuit Affirms Award of Attorneys' Fees Where Action Was Dismissed for Lack of Standing

This morning the Federal Circuit issued its decision in Rainiere v. Microsoft Corp. (opinion by Judge O'Malley, joined by Judges Lourie and Wallach) affirming an award of attorneys' fees in an action against Microsoft and AT&T.  The district court dismissed the action with prejudice on the ground that the plaintiff lacked standing to assert claims for the infringement of the five patents in suit, and the Federal Circuit affirmed this decision ijn 2017.  (According to today's opinion, the plaintiff and his coinventors at some point assigned their rights to a firm named Global Technologies, Inc.  The facts are complicated, but ultimately the district court wasn't convinced that the plaintiff had reacquired those rights, and thus it dismissed the action for lack of standing.)  From the opinion:
[Plaintiff] first disputes whether Appellees are prevailing parties under § 285. [Plaintiff] contends that dismissal with prejudice for lack of standing is not an adjudication on the merits, as he contends is required to find that a defendant is a “prevailing party” under our case law.  [Plaintiff] also asserts that dismissal with prejudice, without adjudication of a patent infringement claim, should preclude finding that a defendant has prevailed in a litigation.  We disagree with these statements, particularly in light of the Supreme Court’s recent decision in CRST Van Expedited, Inc. v. EEOC, which held that a favorable judgment on the merits is not necessary for a defendant to be deemed a prevailing party for purposes of statutory fee-shifting. 136 S. Ct. 1642, 1651 (2016). Even without CRST, we conclude that the district court’s dismissal with prejudice of [plaintiff’s] case for lack of standing is tantamount to a judgment on the merits. Under either of these rationales, Appellees have in fact prevailed in this case. . . (p.9).
The court also finds no abuse of discretion based on the district court's findings that the plaintiff
employed “a pattern of obfuscation and bad faith,” and that this behavior caused Appellees to incur significant fees and costs to oppose [plaintiff’s] positions. These positions, in the district court’s view, “were made in bad faith to vexatiously multiply these proceedings and avoid early dismissal”—in effect, to stall the termination of the proceedings.  Fees Decision, 2016 WL 4626584, at *5.  “Because the district court lives with the case over a prolonged period of time, it is in a better position to determine whether a case is exceptional and it has discretion to evaluate the facts on a case-bycase basis.”  SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344, 1351 (Fed. Cir. 2015) (internal quotations, alterations, and citations omitted).  The district court properly examined the totality of the circumstances in this case and found the case to be exceptional. We see no reason to disturb the district court’s well-reasoned determination (p.19).
Finally, the court finds no abuse as to the amount ("$300,295.71 to AT&T and $143,719.26 to  Microsoft in attorney fees and costs" (p.7)).

Monday, April 16, 2018

WesternGeco Oral Argument Transcript

is now available, here.  After I read it, I may return with some comments.

Update:  Having now read through the transcript, I predict a 9-0 reversal.  The rule will be that the patentee, whatever the theory of liability (271(a), 271(f)) and regardless of whether the requested award is lost profits or a reasonable royalty, is entitled to compensatory damages that are caused-in-fact and proximately caused by the domestic act of infringement--with (as suggested by Justice Breyer at p.44) comity concerns possibly factoring into the proximate cause analysis in an appropriate case.  

There were a couple of favor references to Professor Yelderman's amicus brief, which as I noted here helped me finally articulate my own view in this case.

Further Update:  For further discussion, see Ronald Mann's writeup on the Scotus Blog and Dennis Crouch's on Patently-O.  They both agree that the Court will reverse and embrace the proximate cause concept, though Professor Mann thinks there will be "a fair amount of back and forth among the justices before they come to rest on this one."

Judge Orrick Enjoins Huawei from Enforcing Its SEP Injunction Against Samsung

Both the IAM Blog and FOSS Patents are reporting this morning on an opinion entered by Judge William Orrick (N.D. Cal.) preliminarily enjoining Huawei from enforcing against Samsung the injunction entered by the Intermediate People's Court in Shenzhen, China, in January.  Here is a copy of Judge Orrick's opinion.

As readers of this blog are aware, in January the Chinese court issued an injunction against Samsung's infringement of two FRAND-committed SEPs owned by Huawei; the court found that Samsung had not negotiated in good faith, and that Huawei had.  (See previous posts here and here.)  Litigation between the parties was already pending in the U.S., however, involving multiple patents on both sides.  (Huawei filed the U.S. action on May 24, 2016, and the Chinese action the next day; Samsung counterclaimed in the U.S. action and has asserted its own patents against Huawei in China, where unlike in the U.S. each patent gets its own separate lawsuit.)  On February 1, 2018, Samsung moved to enjoin Huawei from enforcing the Chinese injunction, and last Friday Judge Orrick granted the motion.  Here are some highlights from the opinion:

1.  On the standard for granting an antisuit injunction:
“A federal district court with jurisdiction over the parties has the power to enjoin them from proceeding with an action in the courts of a foreign country, although the power should be ‘used sparingly.’” Seattle Totems Hockey Club, Inc. v. Nat'l Hockey League, 652 F.2d 852, 855 (9th Cir. 1981). “Such injunctions allow the court to restrain a party subject to its jurisdiction from proceeding in a foreign court in circumstances that are unjust.” E. & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984, 989 (9th Cir. 2006)(“Gallo”). The Ninth Circuit employs “a three-part inquiry for assessing the propriety of such an injunction.” Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 881 (9th Cir. 2012)(“Microsoft II”); see also Gallo, 446 F.3d at 990 (establishing framework for determining whether to issue anti-suit injunction).
First, we determine whether or not the parties and the issues are the same in both the domestic and foreign actions, and whether or not the first action is dispositive of the action to be enjoined. Second, we determine whether at least one of the so-called Unterweser factors applies. Finally, we assess whether the injunction’s impact on comity is tolerable (p.6).
Notably, the moving party doesn't have to prove the four Winter factors that are usually required for the entry of a preliminary injunction, including likelihood of success on the merits (pp. 7-8).

2.  The court concludes that the parties and issues are functionally the same, which on its face seems correct (pp. 10-15).

3.  The court also concludes that "domestic policy and other equitable considerations" favor Samsung, and I'm less sanguine about this:
Samsung argues that allowing Huawei to enforce the Shenzhen Court’s injunction would frustrate specific domestic policies against injunctive relief on SEPs and general public policies against anticompetitive conduct and breaches of contract. Mot. at 18. The bulk of precedent supports its position. See, e.g., Microsoft II, 696 F.3d at 884 (“Implicit in such a sweeping promise [made by Motorola to standards-setting organization] is, at least arguably, a guarantee that the patent-holder will not take steps to keep would-be users from using the patented material, such as seeking an injunction, but will instead proffer licenses consistent with the commitment made.”); id. at 885 (“[I]njunctive relief against infringement is arguably a remedy inconsistent with th[at] licensing commitment.”); Realtek Semiconductor Corp. v. LSI Corp., Case No. C–12–03451–RMW, 946 F. Supp. 2d 998, 1006–07 (N.D. Cal. 2013)(“In promising to license on RAND terms, defendants here admit that monetary damages, namely a RAND royalty, would be adequate compensation for any injury it has suffered as a result of Realtek’s allegedly infringing conduct.”); Apple, Inc. v. Motorola Mobility, Inc., No. 11-CV-178-BBC, 2012 WL 5416941, at *15 (W.D. Wis. Oct. 29, 2012)(“ I agree with Apple that from a policy and economic standpoint, it makes sense that in most situations owners of declared-essential patents that have made licensing commitments to standards-setting organizations should be precluded from obtaining an injunction or exclusionary order that would bar a company from practicing the patents.”)
But Huawei insists that there is no “per se rule that injunctions are unavailable for SEPs[.]” Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1331 (Fed. Cir. 2014), overruled on other grounds by Williamson v. Citrix Online, LLC, 792 F.3d 1339 (Fed. Cir. 2015). It highlights precedent and policy that suggest “an injunction may be justified where an infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect.” Id. at 1332 (citing U.S. Dep’t of Justice and U.S. Patent and Trademark Office, Policy Statement on Remedies for Standard–Essential Patents Subject to Voluntary F/RAND Commitments, at 7–8 (Jan. 8, 2013));see also Makan Delrahim, Asst. Attorney General, Antitrust Division, U.S. Dept. of Justice, Remarks as Prepared for Delivery at USC Gould School of Law – Application of Competition Policy to Technology and IP Licensing: Taking It to the Limit: Respecting Innovation Incentives in the Application of Antitrust Law (Nov. 10, 2017), available at https://www.justice.gov/opa/speech/file/1010746/download (“A patent holder cannot violate the antitrust laws by properly exercising the rights patents confer, such as seeking an injunction or refusing to license such a patent.”)(Greenblatt Decl. ¶ 5, id., Ex. 4, Dkt. No. 240-8).
That may be true, but the policy that is undermined is this court’s ability to determine the propriety of injunctive relief in the first instance. See, e.g., Zynga, Inc. v. Vostu USA, Inc., No. 11-CV-02959-EJD, 2011 WL 3516164, at *3 (N.D. Cal. Aug. 11, 2011)(“But one clear policy that all federal courts recognize—even those which have been loath to interfere with foreign proceedings—is the need to protect the court’s own jurisdiction.”). There is a risk of inconsistent judgments if I were to find that Huawei is not entitled to seek injunctive relief for its SEPs. See Microsoft I, 871 F. Supp. 2d at 1100 (“Courts have found that court policies against avoiding inconsistent judgments, forum shopping and engaging in duplicative and vexatious litigation sufficient to satisfy this step.”). In addition, in the absence of an antisuit injunction, Samsung faces the risk of significant harm, not just in China, but with impacts percolating around the world. The Chinese injunctions would likely force it to accept Huawei’s licensing terms, before any court has an opportunity to adjudicate the parties’ breach of contract claims.18 Under these circumstances, the Shenzhen Order “interfere[s] with ‘equitable considerations’ by compromising the court’s ability to reach a just result in the case before it free of external pressure on [Samsung] to enter into a ‘holdup’ settlement before the litigation is complete.” Microsoft II, 696 F.3d at 886. As in Microsoft, the Chinese actions “have frustrated this court’s ability to adjudicate issues properly before it.” Microsoft I, 871 F. Supp. at 1100. The integrity of this action, therefore, will be lessened without an anti-suit injunction. See id. (pp. 16-17).
4.  Finally, the court concludes that the injunction would not have an intolerable impact on comity:
Samsung points out that the Shenzhen Order provides that “Huawei can agree after the appeal that the injunction will not be enforced, and further states that the Shenzhen Court would also permit non-enforcement if the parties agree to an SEP cross-license.” Shenzhen Order at 209; Xie Decl. ¶ 7. So the relief it seeks would have no impact on the Chinese courts; rather, it asks me to restrain Huawei from enforcing any injunction order until I have the opportunity to determine the propriety of injunctive relief for the parties’ SEPs. It specifically notes that Huawei would remain free to seek damages for infringement of its Chinese patents while this action is pending (p.20).
I'm not sure I'm surprised by the result, but I have to say that decisions like this do seem a bit hard to square with the territorial nature of patent rights.  I recently blogged about the U.S. Supreme Court's pending decision in WesternGeco (see here), and I opined that granting damages that are proximately caused by an act of domestic infringement do not intrude upon other countries' laws, even when those damages are suffered in another country.  Reasonable observers may disagree with me on that, but (to me) it would seem odd to not award damages in a case like WesternGeco but to permit antisuit injunctions in a case like Huawei, where the intrusion on the ability of the foreign court to adjudicate a dispute according to its own lights seems more severe.  I'll be giving more thought to this matter throughout the day, however, and may come back with some further observations.

*          *          * 

In other news, the U.S. Supreme Court is hearing oral argument in the aforementioned WesternGeco case this morning.  I'll post the transcript when it is available later today.

Saturday, April 14, 2018

Risch on Declaratory Judgments Post-MedImmune

Michael Risch has posted an interesting empirical paper on ssrn titled Sue First, Negotiate LaterHere is a link, and here is the abstract:
One of the more curious features of patent law is that patents can be challenged by anyone worried about being sued. This challenge right allows potential defendants to file a declaratory relief lawsuit in their local federal district court, seeking a judgment that a patent is invalid or noninfringed. To avoid this home-court advantage, patent owners may file a patent infringement lawsuit first and, by doing so, retain the case in the patent owner’s venue of choice. But there is an unfortunate side effect to such preemptive lawsuits: they escalate the dispute when the parties may want to instead settle for a license. Thus, policies that allow challenges are favored, but they are tempered by escalation caused by preemptive lawsuits. To the extent a particular challenge rule leads to more preemptive lawsuits, it might be disfavored.
This article tests one such important challenge rule. In MedImmune v. Genentech, the U.S. Supreme Court made it easier for a potential defendant to sue first. Whereas the prior rule required threat of immediate injury, the Supreme Court made clear that any case or controversy would allow a challenger to file a declaratory relief action. This ruling had a real practical effect, allowing recipients of letters that boiled down to, “Let’s discuss my patent,” to file a lawsuit when they could not before.
This was supposed to help the accused potential defendants, but not everyone was convinced. Many observers at the time predicted that the new rule would lead to more preemptive infringement lawsuits filed by patent holders. They would sue first and negotiate later rather than open themselves up to a challenge by sending a demand letter. Further, most who predicted this behavior—including parties to lawsuits themselves—thought that non-practicing entities would lead the charge. Indeed, as time passed, most reports were that this is what happened: that patent trolls uniquely were suing first and negotiating later. But to date, no study has empirically considered the effect of the MedImmune ruling to determine who filed preemptive lawsuits. This Article tests MedImmune’s unintended consequences. The answer matters: lawsuits are costly, and increased incentive to file challenges and preemptive infringement suits can lead to entrenchment instead of settlement.
Using a novel longitudinal dataset, this article considers whether MedImmune led to more preemptive infringement lawsuits by NPEs. It does so in three ways. First, it performs a differences-in-differences analysis to test whether case duration for the most active NPEs grew shorter after MedImmune. One would expect that preemptive suits would settle more quickly because they are proxies for quick settlement cases rather than signals of drawn out litigation. Second, it considers whether, other factors equal, the rate of short lived case filings increased after MedImmune. That is, even if cases grew longer on average, the share of shorter cases should grow if there are more placeholders. Third, it considers whether plaintiffs themselves disclosed sending a demand letter prior to suing.
It turns out that the conventional wisdom is wrong. Not only did cases not grow shorter – cases with similar characteristics grew longer after MedImmune. Furthermore, NPEs were not the only ones who sued first and negotiated later. Instead, every type of plaintiff sent fewer demand letters, NPEs and product companies alike. If anything, the MedImmune experience shows that everyone likes to sue in their preferred venue. 

Thursday, April 12, 2018

French Court of Appeals Awards Triple the Contractual Royalty Rate as Damages

The case is Vorwerk & Co. Interholding GmbH v. Electrodomesticos Taurus SL, Cour d'appel de Paris, June 27, 2017, PIBD 1080, 679 (so yes, I am a little late to be blogging about it, but so go it goes).  In 2015 I blogged about the decision of the court of first instance here, and as I explained at the time:
The patent in suit is EP 0757530, titled Robot ménager comportant un bac á agitation et un mécanisme d'entrainement de l'agitateur du bac (a food processor comprising an agitator vessel and a mechanism for operating the agitator).  If I am understanding this correctly, the inventive feature in suit appears to be something called a chapeau de cuisson á la vapeur, which I would translate as "steaming cap."  Plaintiff Vorwerk sued defendant Taurus for selling allegedly infringing food processors.  In earlier proceedings the court held that the patent was infringed, and this judgment was affirmed. . . .
Vorwerk itself did not practice the patent but rather licensed some affiliated firms to do so.  Vorwerk asserted as its damages its lost profit (manque á gagner), based on the royalties it would have earned from Taurus and Taurus's distributors if they had concluded a license.  Again if I am understanding correctly, Taurus argued that Vorwerk's failure to work the patent meant that Vorwerk was not entitled to recover any damages, but the court disagreed and concluded that the injury suffered by the patent owner would be, at a minimum, equal to the royalties it would have received but for the infringement.
As for the amount, the court appointed an expert who first determined the infringing turnover (la masse contrefaisante).  The expert determined that this should include (1) sales of a model called Mycook that included the steaming cap, and (2) sales of a model called Mycook Pro that did not include the cap, but for which the cap was separately purchased as an accessory.  Altogether this equaled €4,245,557.  The court accepted the expert's analysis.
Next, to calculate the royalty rate the expert first calculated the infringer’s profit margin as 9.6%. Vorwerk argued that the expert deducted some fixed costs that were not tied to the manufacture of the infringing goods, and that the profit margin was actually 22%, but again the court affirmed the expert’s calculation.  Next, the expert multiplied 9.6% by 25%, a step the court refers to in the opinion as “une clé de repartition couramment admise en matière de license de brevet” (a sharing method commonly used in patent licenses)--basically, what sounds like a "rule of thumb" to me.  Next, the expert cut this figure in half based on his conclusion that the patented invention did not play a key role in the sale of the defendant's products, and then rounded this up to 1.5%.  Finally, the expert suggested that the court could multiply the 1.5% rate by 1, 2, or 3.  Taurus for its part argued that the royalty base should be reduced to the average price of the steaming cap times the number of infringing devices, and that any enhancement would be punitive in nature.  The court disagreed, specifically stating as to the latter issue the following (in my translation):
It is appropriate to apply the principle of enhancing the contractual royalty rate, because doing so takes into account the damaging situation in which the rightholder finds itself, who suffers the exploitation of the invention without any decision on its part.  It would be, in such a case, unjust to apply purely and simply a royalty rate equal to that which the parties would have consented to had they negotiated a license.
(For further discussion of royalty multipliers in France, see my book p.270 & n.187). Multiplying the masse contrefaisante as calculated by the expert (€4,245,557) by 3%, the court therefore awarded €127,367 in lost royalties.
On appeal, the Cour d'appel multiplies the "contractual rate" (1.5%) by 3 rather than 2, resulting in a royalty rate of 4.5% and an award of €191,051, reasoning that the lower court did not adequately evaluate the prejudice suffered by the plaintiff:
Considering that the act of awarding a higher compensatory royalty rate does not constitute a punitive award, contrary to the principal according to which compensation should only restore the harm suffered by the injured party,
and that in effect the principle of increasing the contractual  rate  takes into account the disadvantageous circumstance in which the patent holder, who suffered the exploitation of its invention, the subject matter of its patent, without any decision on its part, indeed unwillingly, finds itself, which has allowed, among other consequences, the possibility of a competitor penetrating what was at the time a rather narrow market for multifunction food processors;
Considering however that the first judges made an insufficient evaluation of the harm suffered by VORWERK in choosing only to double the rate, among the three proposals put forward by the expert;
That in effect having regard for the economic importance of this market and, in view of the consequences, to the harm suffered by VORWERK as a result of the infringing acts, it is fitting to impose a multiple of 3, such as proposed by the expert . . . .
I wonder how common it is for French appellate courts simply to substitute their own view of the appropriate royalty rate for that of the court of first instance?