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 In a nonprecedential opinion last year, the Federal Circuit affirmed a judgment that the patent in suit (which "relates to a method of purchasing goods at a local point-of-sale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).
Tuesday, December 12, 2017
Monday, December 11, 2017
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
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
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
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
Annsley Merelle Ward of IPKat published a post last night on the Communication from the Commission to the Institutions on Setting out the EU approach to Standard Essential Patents (about which I also blogged yesterday, see here), stating that "neither of the camps who were intensely lobbying in advance of the publication seem able to declare an outright victory in respect of their primary positions . . . . It seems to be a score-draw." The IPKat post also notes that the Commission published two other communications yesterday relevant to IP enforcement, a Communication from the Commission to the Institutions on Guidance on certain aspects of Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights and a Communication from the Commission to the Institutions - A balanced IP enforcement system responding to today's societal challenges. I will try to make some time over the next few days to read these and provide some comments here; IPKat also promises a future post on these two additional communications. A busy end to the month!
Wednesday, November 29, 2017
Hat tip to Joff Wild of the IAM Blog, for reporting on the publication this morning by the European Commission of a document titled Communication from the Commission to the Institutions on Setting out the EU approach to Standard Essential Patents. It's not terribly long (just 13 pages), but in the interests of time I'll just reproduce the bullet points as presented in the document itself while noting two things in particular that caught my attention.
First, the Commission urges an improvement in the quality and accessibility of information recorded in SDO (standard development organization) databases:
- calls on SDOs to urgently ensure that their databases comply with the main quality features described above and will co-operate with SDOs to facilitate this process;
- calls on SDOs to transform the current declaration system into a tool providing more up-to-date and precise information on SEPs and will co-operate with SDOs in order to facilitate that process;
- considers that declared SEPs should be subject to reliable scrutiny of their essentiality for a standard, and will launch a pilot project for SEPs in selected technologies with a view to facilitating the introduction of an appropriate scrutiny mechanism.
Second, the Commission sets out certain general principles for FRAND licensing terms for SEPs. Among other things, this portion of the document states (at pages 6-7) that "Licensing terms have to bear a clear relationship to the economic value of the patented technology. That value primarily needs to focus on the technology itself and in principle should not include any element resulting from the decision to include the technology in the standard. In cases where the technology is developed mainly for the standard and has little market value outside the standard, alternative evaluation methods, such as the relative importance of the technology in the standard compared to other contributions in the standard, should be considered." The part about the value not including "any element resulting from the decision to include the technology in the standard" is consistent with a principle some of the U.S. case law has adopted, but inconsistent with Mr. Justice Birss's statement in Unwired Planet v. Huawei and with an argument made by Norman Siebrasse and me in our paper The Value of the Standard. (For previous discusion of this matter on this blog, see here.) The bullet points for this section are as follows:
- There is no one-size-fit-all solution on what FRAND is: what can be considered fair and reasonable can differ from sector to sector and over time. Efficiency considerations, reasonable licence fee expectations on both sides, the facilitation of the uptake by implementers to promote wide diffusion of the standard should be taken into account.
- Determining a FRAND value should require taking into account the present value added of the patented technology. That value should be irrespective of the market success of the product which is unrelated to the value of the patented technology.
- In defining a FRAND value, parties need to take account of a reasonable aggregate rate for the standard.
- The non-discrimination element of FRAND indicates that rightholders cannot discriminate between implementers that are 'similarly situated'.
- For products with a global circulation, SEP licences granted on a worldwide basis may contribute to a more efficient approach and therefore can be compatible with FRAND.
The Commission calls on SDOs and SEP holders to develop effective solutions to facilitate the licensing of a large number of implementers in the IoT environment (especially SMEs), via patent pools or other licensing platforms, while offering sufficient transparency and predictability.
The Commission will monitor licencing practices, in particular in the IoT sector. It will also set up an expert group with the view to deepening expertise on industry licensing practices, sound IP valuation and FRAND determination.
Third, in a section titled "A Predictable Enforcement Environment for SEPs," the Commission states that "When assessing the availability of injunctive relief, courts are bound by Article 3(2) of the IPR Enforcement Directive, and notably the requirement to ensure that injunctive relief is effective, proportionate and dissuasive. Given the broad impact an injunction may have on businesses, consumers and on the public interest, particularly in the context of the digitalised economy, the proportionality assessment needs to be done carefully on a case-by-case basis. The Commission feels that considerations need to be given to the relative relevance of the disputed technology for the application in question and the potential spill-over effects of an injunction on third parties" (p.10, section 3.2). I wonder if courts within the E.U., where injunctive relief still remains the default remedy for patent infringement at least outside the SEP context, will take this as a signal that they should be somewhat less wedded to that approach in a case in which an injunction would impose disproportionate harm on the infringer or the general public? If so, I for one would welcome that development. In any event, the bullet points for this section are:
The Commission considers that the FRAND process requires both parties to negotiate in good faith, including responding in a timely manner. Injunctive relief can, however, be sought against parties acting in bad faith (i.e. parties unwilling to take up a licence on FRAND terms), but it must be used proportionally.
The Commission will:
- work with stakeholders to develop and use methodologies, such as sampling, which allow for efficient and effective SEP litigation, in compliance with the industry practice of portfolio licensing;
- further facilitate the roll-out of mediation and alternative dispute resolution tools; and
- monitor the impact of PAEs in Europe.
Finally, the last (brief) section on open source and standards concludes with a bullet point stating that "The Commission will work with stakeholders, open source communities and SDOs for successful interaction between open source and standardisation, by means of studies and analyses."
Tuesday, November 28, 2017
This blog addresses the law and economics of patent remedies, and thus the constitutionality of inter partes review is a bit far afield; so I won't dwell on that matter, except to note one aspect of the oral argument that troubled me, from an economic perspective. I'm referring to the comments made by Justice Breyer at pp. 29-31, where he states
. . . suppose that the patent has been in existence without anybody reexamining it for 10 years and, moreover, the company's invested $40 billion in developing it. And then suddenly somebody comes in and says: Oh, oh, we -- we want it reexamined, not in court but by the Patent Office. Now, that seems perhaps that it would be a problem or not? . . .
. . . [D]o people gain a kind of vested interest or right after enough time goes by and they rely on it sufficiently so that it now becomes what? Is there something in the Constitution that protects a person after a long period of time and much reliance from a reexamination at a time where much of the evidence will have disappeared?
Later, at page 50, Justice Breyer appears to back away from a "vested right theory," but a related argument is taken up by Justice Gorsuch at pp. 47-48:
Mr. Stewart, let's say we had a land patent. Let's say the land patent said it becomes invalid if anybody in -- uses the land in an improper way, in violation of an environmental law, labor law, you choose.
Let's say the land then gets developed and turns into a housing development outside of, I don't know, Philadelphia. And it turns out, though, that a great-grandfather who owned the land originally back when it was a farm, indeed violated a labor or environmental law, rendering the land patent invalid on its terms.
Could -- couldn't the Bureau of Land Management, for example, or some other department, Interior, official just pull back the patent?
The implication here, particularly of the latter quote from Justice Gorsuch, seems to be that invention patents and land patents should be treated the same way, and thus that at some point reliance interests should trump the public's interest in seeing that invalid patents are cancelled. And yet from an economic perspective this makes no sense, because (as economists have been noting for decades) unlike land or personal property intellectual property is nonrivalrous. Only a limited number of people can inhabit or use the same real or personal property at the same time, but an infinite number of people could use the inventive principle that is the subject of an invention patent without depleting it. Or, to think of it another way, in Justice Gorsuch's example if my land is taken away I have to find another place to live. If my patent is invalidated, I may suffer a financial loss (I can't license the patent any more, or use it to exclude competitors), and that's obviously undesirable from my point of view; but unless some other body of law (such as FDA regulation) prevents me there is nothing stopping me from continuing to use the inventive principle as much as I want.