Thursday, October 31, 2013

The Draft Fourth Amendment of the Chinese Patent Act Would Authorize Treble Damages for Willful Infringement

The draft fourth amendment of the Chinese Patent Act would, among other things, authorize treble damages for willful infringement.  Here is SIPO's translation of the affected provisions (hat tip to my former student Yijun Ge of Bird & Bird for forwarding this to me), and another from the Youqi law firm in Beijung.  There is also a discussion of the draft law in Professor Zhang Guangliang's recent article Thoughts on Effect of Patent Protection in China with Analysis of Some Important Issues Involved in Amendment to Chinese Patent Law, China Patents & Trademarks No. 3, 2013, pp. 100-03, as well in various online sources, including this one by Paolo Beconcini and this one from Covington & Burling.  In addition, this article by Stephen Yang discusses recent changes to China's patent marking regulations as well as the draft amendment.  As Mr. Yang notes, the new law also would allow the local SIPO offices--which currently can conduct administrative proceedings for claims for patent infringement but may not award damages (see my book p.343)--to award damages.  

Professor Zhang's article briefly discusses several other issues relating to enforcement as well, including discovery and damages.  In addition, it cites a talk by Mark Cohen, titled Future of IP Rights in China:  Copyright and Patent Right, given at the International Symposium on New Developments in IP Rights in China held at the University of California at Berkeley on October 4, 2012, which I would like to get a copy of.  According to Professor Zhang, Mr. Cohen's paper has some empirical data on "the average time for closing IP lawsuits" based on a sample of 12 cities.

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On a different issue of remedies under Chinese IP law, Ms. Ge and Christine Yiu  have authored a brief paper on Eli Lilly v. Huang, "the first interlocutory injunction order in a trade secret action based on Article 100 under the new PRC Civil Procedure Law."  Link is here.  I previously blogged about an article by Professor Zhang on the new civil procedure law, here.


Tuesday, October 29, 2013

Tuesday Miscellany: Patent Damages, FRAND, Patent Law Conference . . .

1.  I'm quoted in this article from Reuters, by Dan Levine and Tom Hals, concerning an ongoing patent damages dispute between Intellectual Ventures (IV) and two defendants, Symantec and TrendMicro.  At issue right now are the defendants' Daubert motion directed against IV's damages expert.  The interesting theoretical issue is whether it's relevant that IV purchased the patents at issue for a sum that is much, much lower than what it is now seeking in royalties.  My own view is that, for any patents that were sold before the date of the hypothetical licensing negotiations that form the basis for calculating a reasonable royalty, economic reasoning does not exclude the possibility that the royalty could exceed the amount of the purchase price.  New information about the value of the patent could have come to light in the interim; and maybe IV just made a good business deal by buying the patents at a low price and then discovering that they were worth more than initially thought.  At any rate, it seems to me that that's an issue for the trier of fact.  For any patents that were was sold after the date of the hypothetical licensing negotiations, however, the defendants' position makes sense.  It would make little or no economic sense to say that the royalty the parties would have agreed to ex ante could far exceed the purchase price ex post.

2.  Professor Jorge Contreras has a new paper up on ssrn, titled Patent Pledges.  Here is the link, and here is the abstract:
In the midst of today’s global smartphone wars, patent holders are promising to refrain from asserting their patents under certain conditions or to license their patents on terms that are “fair, reasonable and non-discriminatory” (FRAND). These promises are not being made in closed door negotiations, but in public, for the benefit of entire markets. I call these public, market-facing promises “patent pledges”, and they are beginning to dominate certain large and heavily litigated sectors of the global technology marketplace. But despite their increasing prevalence, current contract and antitrust law theories used to explain and enforce these pledges have fallen short. Most importantly, they fail to take into account the diverse range of settings in which technical standards and other common technology platforms are developed, and the public, rather than private, character of these commitments. Thus, a new theory is needed to secure the market-wide benefits that patent pledges offer. This article proposes a novel “market reliance” theory that adapts the equitable doctrine of promissory estoppel to the patent pledge framework by adding a rebuttable presumption of reliance borrowed from the “fraud-on-the-market” theory under Federal securities law. Under this new approach, a patent holder’s public commitment to refrain from enforcing its patents should be enforceable by any participant in the relevant market, absent a showing that it knowingly rejected the commitment.
3.  The October issue of PIBD (Propriété Industrielle Bulletin Documentaire) reports a May 24, 2013 decision of the Tribunal de grand instance de Paris, France Télécom SA et al. v. M.G.F. SaS, in which the court awarded a reasonable royalty for the infringement of certain FRAND-encumbered MPEG ISO/IEC standard-essential patents.  The award is 50 centimes per infringing product, amounting to € 50,531 for 101,062 products.  The opinion doesn’t indicate how the court calculated the royalty, though I suspect the rate may be based on a patent pool.  I’d appreciate hearing from any readers who have more information.

4.  Finally, just a reminder that there is a free patent law conference at Georgetown Law this coming Friday.  I’ll be speaking on patent remedies.  Other speakers will include Federal Circuit Judge Kathleen O'Malley, District Judges Robinson and Gilstrap, former USPTO Director David Kappos, and acting USPTO Solicitor Nathan Kelley.  Information here.

Monday, October 28, 2013

Congressman Goodlatte's New Patent Bill's Provision on Attorneys' Fees

Full text of the bill (called the Innovation Act) is here.  If enacted, it would introduce a number of reforms, including heightening the pleading burden for patent infringement, limits on discovery until claim construction has taken place, and requiring more transparency with respect to patent ownership.  Good coverage at Patently-O, with some comments suggesting the bill has a reasonable chance of passing.  From the standpoint of remedies, the most important provision is section 3(b) on attorneys' fees.  In relevant part it reads:
(1) AMENDMENT.—Section 285 of title 35, 10 United States Code, is amended to read as follows:
‘‘§ 285. Fees and other expenses
‘‘(a) AWARD.—The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, unless the court finds that the position of the nonprevailing party or parties was substantially justified or that special circumstances make an award unjust.
 ‘‘(b) RECOVERY.—If a nonprevailing party is unable to pay reasonable fees and other expenses awarded by the court pursuant to subsection (a), the court may make the reasonable fees and other expenses recoverable against any interested party joined pursuant to section 299(d). . . ."
Presumably a lot will turn on how the term "substantially justified" is interpreted.  According to the Judiciary Committee's Section-by-Section Analysis, this provision "aligns fee shifting in patent cases with the standard that is used for awarding fees against the U.S. under the Equal Access to Justice Act (28 U.S.C. §2412(d)). The EAJA was enacted in 1980, and there is now a well-developed body of case law explaining what 'substantially justified' means in the fee-shifting context. The standard is reasonably fair and predictable and is reliably enforced. The provision also allows for limited joinder of parties (ex: parent entity) to satisfy a fee-shifting award."  Here is the text of the Equal Access to Justice Act (EAJA).  Section (1)(A) provides:
Except as otherwise specifically provided by statute, a court shall award to a prevailing party other than the United States fees and other expenses, in addition to any costs awarded pursuant to subsection (a), incurred by that party in any civil action (other than cases sounding in tort), including proceedings for judicial review of agency action, brought by or against the United States in any court having jurisdiction of that action, unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.
You also may recall that some questions relating to the current law on fee awards in patent cases are before the Supreme Court this term, as explained here.  When the Federal Circuit denied a rehearing en banc in one of those two cases, Highmark, Inc. v. Allcare Health Mgt. Sys. Inc., 701 F.3d 1351, both Judge Dyk (joined by Judge Newman), concurring, and Judge Moore (joined by Judges Rader, O'Malley, Reyna, and Wallach) dissenting, mentioned the EAJA standard as it relates to the standard of review on appeal.  Judge Moore's dissent also notes the following about the "substantially justified" standard:
In Pierce v. Underwood, 487 U.S. 552 (1988), the Supreme Court analyzed the EAJA fee-shifting provision and concluded that the “substantially justified” language means “justified to a degree that could satisfy a reasonable person,” which is “no different from the ‘reasonable basis both in law and fact’ formulation” adopted by the vast majority of the appellate courts having addressed the issue. 487 U.S. at 565. As a result, the Court concluded that the issue should be reviewed under the abuse of discretion standard. The Court reasoned that the district court was in the best position to make this determination: 
[D]etermining whether mixed questions of law and fact are to be treated as questions of law or of fact for purposes of appellate review . . . has turned on a determination that, as a matter of the sound administration of justice, one judicial actor is better positioned than another to decide the issue in question. We think that consideration relevant in the present context as well, and it argues in favor of deferential, abuse-of-discretion review. To begin with, some of the elements that bear upon whether the Government’s position was substantially justified may be known only to the district court. Not infrequently, the question will turn upon not merely what was the law, but what was the evidence regarding the facts. By reason of settlement conferences and other pretrial activities, the district court may have insights not conveyed by the record, into such matters as whether particular evidence was worthy of being relied upon, or whether critical facts could easily have been verified by the Government.
Interestingly, it looks like the burden of proving "substantial justification" rests on the government in an EAJA case.  See Scarborough v. Principi, 541 U.S. 401, 414-15 (2004).  I wonder whether this feature of the EAJA, as well as the standard of appellate review, would be incorporated into the Innovation Act.  For one court's take on the standard of appellate review under the EAJA, see Murkeldove v. Astrue, 635 F.3d 784, 789-90 (11th Cir. 2011):
We review a district court's decision to grant or deny a party's request for attorney's fees pursuant to the EAJA for an abuse of discretion. Pierce v. Underwood, 487 U.S. 552, 570, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988). We noted in Houston Agricultural Credit Corp. v. United States that the abuse of discretion standard under the EAJA requires the court to conduct “a highly deferential review of district courts' tentative findings of fact,” but to closely scrutinize “the district courts' rulings on questions of law.” 736 F.2d 233, 235 (5th Cir.1984) (citing Spencer v. N.L.R.B., 712 F.2d 539, 565 (D.C.Cir.1983) (citations and internal quotation marks omitted)). Because the district court's determination turns on its interpretation of the EAJA and statutory interpretations are conclusions of law, we review the district court's interpretation de novo. See Teemac v. Henderson, 298 F.3d 452, 456 (5th Cir.2002). However, we do so with the understanding that the “EAJA is a partial waiver of sovereign immunity, and it must be strictly construed in the government's favor.” Tex. Food Indus. Ass'n v. USDA, 81 F.3d 578, 580 (5th Cir.1996) (citation omitted).
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There is also a provision in Rep. Goodlatte's bill (section 5) dealing with stays of suits against customers that is worth a look.

Friday, October 25, 2013

Friday miscellany: SEPs, FRAND, China, JPO Immunity . . .

1.  Last week Danny Sokol's Antitrust & Competition Policy blog featured a mini-symposium on non-SSO patent commitments and pledges.  (Link is here.)  Commenting were David Balto, Logan Breed, Jorge Contreras, Robert Harris, and Simon Steel.  

2.  Professor Contreras and David Newman of Arnstein & Lehr also have posted an article on ssrn, titled Developing a Framework for Arbitrating Standards-Essential Patent (SEP) Disputes, which is forthcoming in the Journal of Dispute Resolution.  Here is a link to their article, and here is the abstract:
A growing chorus of voices is calling for the use of arbitration to resolve disputes concerning standards-essential patents (SEPs). Those advocating the arbitration of SEP-related disputes include academic commentators, government officials and members of the professional bar. Most cite the potential savings of cost and time that arbitration could achieve over the multi-year, resource-intensive lawsuits that currently characterize these disputes. But despite these ringing endorsements, there is surprisingly little guidance available for parties, standards-development organizations (SDOs), and tribunals that wish to implement effective arbitration procedures for these complex disputes.

In this article, we lay the groundwork for the development of such procedures and identify several key areas in which further study and deliberation will be required. We pay particular attention to fundamental questions such as whether SEP arbitration should be mandated by SDOs, which issues should be arbitrated, whether arbitral decisions should be confidential, and what form arbitration proceedings should take. While, at this early stage, we do not purport to answer these difficult questions in a definitive manner, we offer a framework for further discussion that we hope will be useful for policy makers, industry participants and commentators considering these important issues.
3.  Professor Sokol and his colleague Wentong Zheng have posted an article on ssrn titled FRAND in China.  This is the paper they presented at the University of Florida workshop last month, and which I blogged about hereHere is a link to the article, and here is their abstract:
This Essay discusses antitrust-related FRAND issues in China. In Part I, the Essay provides an overview of China’s antitrust regime and its interaction with intellectual property rights. In doing so, the Essay offers an explanation of the nature of the Chinese antitrust regime that builds upon both the industrial organization and the political economy literatures. In Part II, this Essay discusses standard setting in China, and how FRAND-related issues are handled under Chinese standard-setting laws and regulations. In Part III, the Essay explores recent developments in Chinese courts that impact FRAND. In particular, it discusses the Huawei v. InterDigital case and its implications for global FRAND licensing. In Part IV, the Essay offers thoughts on the lack of transparency in China’s antitrust regime as well as the use of industry policy in the FRAND setting and how these issues may negatively impact consumer welfare.
4.  Florian Mueller last week noted an article by Jay Jurata and David Smith of Orrick titled "The Next Chapter of Disputes Involving Standard-Essential Patents."  As Florian notes, the article shows that "only about one in eight SEP assertions by companies like Samsung, Motorola and InterDigital succeeds in court."  Here's a link to Florian's post at Foss Patents, and here's a link to the article.  Regarding an issue that happens to be important to Samsung's recent proposal (see here), the authors assert that "Alternatively, some SEP owners have suggested that a putative licensee is 'unwilling' if it does not agree to pay a FRAND royalty after binding arbitration. But absent certain procedural defenses—such as meaningful discovery, transparent and reasoned adjudication of all of the underlying issues, and appellate review—the threat of vaguely-defined arbitration can be leveraged by SEP owners almost to the same extent as the threat of injunction."  Very interesting paper.  

5.  Finally, in the September 2013 edition of AIPPI-Journal of the Japan Group of AIPPI, there is a write-up by Yosuke Kurita on EP Room, K.K. v. Japan Patent Office, Case No. 2013 (ne) No. 10011 (I.P. High Court Apr. 24, 2013).  The court affirmed a judgment dismissing a claim for damages against the Japanese Patent Office, for allegedly wrongfully revoking the plaintiff's patent.  The court held that the JPO lacks the capacity to be sued in a civil action.

Wednesday, October 23, 2013

Samsung's proposed commitment to forgo injunctive relief for the infringement of its Mobile SEPs

As reported last week, the European Commission is seeking public comments on Samsung's proposed commitment to limit its ability to seek injunctions for the infringement of its Mobile SEPs.  (Samsung, like Motorola Mobility, is the subject of an ongoing investigation into whether seeking injunctions for the infringement of FRAND-encumbered SEPs constitutes an abuse of market dominance under E.U.)  Here is a link to Samsung's proposed commitment, and here is a link to the E.C.'s press release.  You may want to read the documents in their entirety, but here are the most relevant parts excerpted from Samsung's proposed commitment:
1. Samsung Electronics commits not to file a claim seeking Injunctive Relief before any court or tribunal in the EEA for infringement of Samsung Electronics’ Mobile SEPs against any Potential Licensee who, by signing and returning Samsung Electronics’ Invitation to Negotiate . . . within thirty (30) days of receipt, agrees to, and thereafter complies with, the framework for determining FRAND terms for a license for Mobile SEPs for Mobile Devices set out in this Clause 1 (“Licensing Framework”) as the exclusive means for determining FRAND terms of a license agreement for Mobile SEPs for Mobile Devices covering, to the extent not already licensed, (i) Samsung Electronics’ Mobile SEPs (“Unilateral License”); or, if either Party seeks Reciprocity, (ii) both Samsung Electronics’ Mobile SEPs and certain of the Potential Licensee’s Mobile SEPs as covered by Reciprocity (“Cross-License”):

a. Samsung Electronics and the Potential Licensee (each a “Party”, collectively the “Parties”) shall negotiate for a period of twelve (12) months starting on the Commencement Date (“Mandatory Negotiation Period”) on FRAND terms with a view to agreeing a Unilateral License or a Cross-License, as specified above . . . .

b. In the event that neither the FRAND terms for a Mobile SEPs license nor an alternative procedure for determining FRAND terms for a Mobile SEPs license has been agreed by the Parties during the Mandatory Negotiation Period, the Parties shall submit the matter to arbitration or to court adjudication in order to determine the FRAND terms of a Unilateral License or. as applicable, a Cross-License, in accordance with Section B of these Commitments (the “Third-Party Determination of FRAND Terms”). . . .

2. Samsung Electronics is relieved from its obligations under these Commitments, and may, in particular, file a claim for Injunctive Relief before any court or tribunal in the EEA for infringement of Samsung Electronics’ Mobile SEPs against the Potential Licensee, without so doing constituting a breach of these Commitments, if:
a. the Potential Licensee fails to agree or comply with the provisions of the Licensing Framework;
b. the Potential Licensee is facing Imminent Default, or, where a particular Potential Licensee legal entity is facing Imminent Default, with respect to that legal entity;
c. the Potential Licensee has filed and maintains, or files a claim for Injunctive Relief before any court or tribunal in the EEA against Samsung Electronics or a customer of Samsung Electronics for a Mobile Device or component thereof that is made, marketed, distributed or sold by Samsung Electronics, based on infringement of any of the Potential Licensee’s Mobile SEPs, and Samsung Electronics, subsequent to the Potential Licensee’s claim for Injunctive Relief, offers to be bound by the Licensing Framework applied to it as potential licensee of certain of the Potential Licensee’s Mobile SEPs, by signing and delivering to the Potential Licensee an Annex A Invitation to Negotiate for, as relevant, a Unilateral or a Cross-Licence and/or, as the case may be, to the extent the Potential Licensee’s claim for Injunctive Relief is based on any Mobile SEPs which are not covered by the Annex A Invitation to Negotiate, an Annex B Invitation to Negotiate, which, if accepted, will lead to a separate Third Party Determination of FRAND Terms, unless the Parties otherwise agree;
d. a Unilateral License or a Cross-License is terminated under the circumstances provided for in Clause 3.f.
3. Nothing herein shall . . .

f. preclude Samsung Electronics from terminating a Unilateral License or a Cross-License concluded in the context of the Licensing Framework in the event the Potential Licensee files a claim for Injunctive Relief before any court or tribunal in the EEA against Samsung Electronics based on alleged infringement of any of the Potential Licensee’s Mobile SEPs, where Samsung Electronics has offered or offers to be bound by the same process as set out in the Licensing Framework applied to it as licensee of such Mobile SEPs by signing and delivering the Annex B Invitation to Negotiate.
4. Nothing in these Commitments shall restrict the ability of the Potential Licensee, in the case of a Unilateral License, or either Party, in the case of a Cross-License, from challenging the validity, essentiality or infringement of the other Party’s Mobile SEPs outside the context of the Third-Party Determination of FRAND Terms.


5. In the event that neither the FRAND terms for a license nor an alternative procedure for determining FRAND terms for a license has been agreed by the Parties during the Mandatory Negotiation Period, the Parties shall, within sixty (60) days of the end of the Mandatory Negotiation Period, choose whether to submit the matter to arbitration or to court adjudication in order to determine the FRAND terms of a Unilateral License or, as applicable, a Cross-License. If the Parties within this sixty (60) day period mutually agree to submit the matter for arbitration of the FRAND terms, the Parties shall commence Third-Party Determination of FRAND Terms by way of arbitration, in accordance with the arbitration procedure set out in Clause 9. If the Parties within this sixty (60) day period mutually agree to submit the matter to court adjudication of the FRAND terms, the Parties shall commence Third-Party Determination of FRAND Terms by way of court adjudication, in accordance with the court adjudication procedure set out in Clauses 10 and 11.
6. If the Parties have failed to reach agreement on whether to submit the Third-Party Determination of FRAND Terms for arbitration or to court adjudication within this sixty (60) day period, the Parties shall commence Third-Party Determination of FRAND Terms by way of arbitration, in accordance with the arbitration procedure set out in Clause 9. . . .

Court Adjudication:
10. The venue for the court adjudication procedure will be the Patents Court, High Court of England and Wales (or any successor court), or the UPC as is agreed between the Parties (the “Court”). . . 

14. These Commitments will be applicable for five years from the Effective Date and all obligations arising from these Commitments will terminate upon expiration of this five-year period. Any license agreement concluded in the context of the Licensing Framework will remain valid for the duration provided by its terms. . . .


16. Nothing shall prevent Samsung Electronics from selling or assigning any of its Mobile SEPs to any Third Party, provided that: 

a. the Third Party agrees to become a successor to Samsung Electronics' FRAND Commitments in relation to such Mobile SEPs, and
b. where Samsung Electronics retains any financial interest in the revenues that are or could be generated by its Mobile SEPs being sold or assigned following this sale or assignment, Samsung Electronics shall ensure that the Third Party to whom Samsung Electronics sells or assigns such Mobile SEPs agrees to comply with these Commitments, in relation to the Mobile SEPs so sold or assigned, until these Commitments have expired.
On the blogs, some of the commentators have objected to A.3.f, which allows Samsung to terminate a unilateral license or cross-license if the licensee seeks injunctive relief against Samsung for the infringement of Mobile SEPs and doesn't agree to be bound by the same procedure.  Some also dislike the fact that arbitration, rather than a judicial proceeding, is the default procedure for determining a FRAND license. See commentary at Foss Patents and at PatLit in particular.  Other coverage can be found at Essential Patents and at Patently-O.

Monday, October 21, 2013

Richard Epstein versus the Federal Circuit on Contempt of Court

Suppose that Patent Owner sues Defendant and wins, and that the court grants an injunction prohibiting Defendant from making, using, or selling Defendant's ABCD Device.  Defendant designs around and makes, uses, or sells an ABCD* Device.  Patent Owner then goes back to court and moves for the entry of an order holding Defendant in contempt.  In TiVo Inc. v. EchoStar Corp., 646 F.3d 869 (Fed. Cir. 2011) (en banc), the Federal Circuit held that when this happens the patent owner has the burden of proving, by clear and convincing evidence, that the "newly accused product is not more than colorably different from the product found to infringe and that the newly accused product actually infringes."  If it succeeds, then the patent owner must also prove, by clear and convincing evidence, that the design-around infringes.  More specifically: 
. . . the contempt analysis must focus initially on the differences between the features relied upon to establish infringement and the modified features of the newly accused products.
The primary question on contempt should be whether the newly accused product is so different from the product previously found to infringe that it raises “a fair ground of doubt as to the wrongfulness of the defendant's conduct.” Cal. Artificial Stone Paving Co., 113 U.S. at 618, 5 S.Ct. 618. The analysis must focus not on differences between randomly chosen features of the product found to infringe in the earlier infringement trial and the newly accused product, Additive Controls, 154 F.3d at 1350, but on those aspects of the accused product that were previously alleged to be, and were a basis for, the prior finding of infringement, and the modified features of the newly accused product. Specifically, one should focus on those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims. Where one or more of those elements previously found to infringe has been modified, or removed, the court must make an inquiry into whether that modification is significant. If those differences between the old and new elements are significant, the newly accused product as a whole shall be deemed more than colorably different from the adjudged infringing one, and the inquiry into whether the newly accused product actually infringes is irrelevant. Contempt is then inappropriate. Arbek Mfg., Inc. v. Moazzam, 55 F.3d 1567, 1570 (Fed.Cir.1995) (“[T]he modifying party generally deserves the opportunity to litigate the infringement questions at a new trial.”).

The significance of the differences between the two products is much dependent on the nature of the products at issue. The court must also look to the relevant prior art, if any is available, to determine if the modification merely employs or combines elements already known in the prior art in a manner that would have been obvious to a person of ordinary skill in the art at the time the modification was made.  A nonobvious modification may well result in a finding of more than a colorable difference. Where useful, a district court may seek expert testimony in making the determination. See Abbott Labs., 503 F.3d at 1380 (allowing the use of expert testimony on the colorable differences question). The analysis may also take account of the policy that legitimate design-around efforts should always be encouraged as a path to spur further innovation. State Indus. Inc. v. A.O. Smith Corp., 751 F.2d 1226, 1236 (Fed.Cir.1985) (“One of the benefits of a patent system is the so-called ‘negative incentive’ to ‘design around’ a competitor's products”). But an assertion that one has permissibly designed around a patent should not be used to mask continued infringement. Determining the requisite level of difference is a question of fact.

Conversely, when a court concludes that there are no more than colorable differences between the adjudged infringing product and modified product, a finding that the newly accused product continues to infringe the relevant claims is additionally essential for a violation of an injunction against infringement. KSM, 776 F.2d at 1528. Thus, the court is required to evaluate the modified elements of the newly accused product against the asserted claim, on a limitation by limitation basis, to ensure that each limitation continues to be met. In making this infringement evaluation, out of fairness, the district court is bound by any prior claim construction that it had performed in the case. The patentee bears the burden of proving violation of the injunction by clear and convincing evidence, a burden that applies to both infringement and colorable differences. As with other factual determinations, both findings are reviewed for clear error. Where the court finds a violation and awards sanctions, such a sanctions award is reviewable for an abuse of discretion.
The Federal Circuit recently applied these principles in NCube Corp. v. SeaChange Int'l Inc. (The opinion was handed down on October 10, with errata on October 17; unless I am mistaken, the second change in the errata is itself an erratum, but we'll see.)  According to the Federal Circuit, the district court properly held that the defendant’s design change constituted a significant change, and therefore that a contempt finding was not warranted.  (The infringing system used an identifier known as Client ID, which contains among other things a 6-byte MAC address, to update a Connection Table.  The change involved using an identifier known as Session ID, which also contains among other things the same 6-byte MAC address, to update a Connection Table, and placing Client ID elsewhere in the system.)  The court held that the change was significant, because Client ID "still performs the same relevant functions in both systems, but does so in a way that all parties admit puts the ClientID outside the claim"; and because at trial the patent owner never relied on the MAC address alone as the infringing aspect of the claim element at issue.  "As the separation of the colorable-differences and infringement components in TiVo indicates, the colorable-differences standard focuses on how the patentee in fact proved infringement, not what the claims require." As a result, the Federal Circuit "need not reach the question of actual infringement by the modified ITV system."  Dennis Crouch had a nice write-up about the case last week, here.  Bloomberg BNA's discussion is here.

Shyam Balganesh's recently published edited volume Intellectual Property and the Common Law (which I blogged about here) includes an article by Professor Richard Epstein titled Sequential Injunctions in Patent Litigation: The Gratuitous Novelty of TiVo v. EchoStar.  According to Epstein:
nothing justifies the creation of a remedial rule that allows the defendant to profit, perhaps repeatedly, from its own wrong. The sensible approach, therefore, is to use an initial determination of resemblance to determine whether to expedite the hearing on whether the second device infringes the original patent. The argument here is that, because the chances that the new device infringes on the old patent are better than they were the first time round, it becomes proper to make some adjustments in the trial procedures to take account of that fact.
Epstein argues that the pre-TiVo standard, under which a plaintiff merely had to prove by a preponderance of the evidence that there were "colorable differences" to initiate contempt proceedings, and then prove by clear and convincing evidence that the design around infringed, got it right.  Under TiVo:
the prior finding of substantial similarity between the original and modified device must be proved by the same high standard of proof. If there is failure on the first part of the test, the finding of infringement on the second part of the test is not sufficient to carry the day. 

What is so striking about this reformulation of the original test is how it works at cross-purposes with the fundamental objective of error minimization in sequential injunction cases. The two-part test of KSM makes a real shot at this task by stressing the ultimate fact of infringement after a preliminary finding of similarity. The newer test goes the opposite way. It never explains why a finding of infringement, by clear and convincing evidence, should be rejected solely because the level of proof was insufficient at the earlier stage – which had the sole purpose of seeing whether the contempt proceeding was warranted in the first place. In putting forward the revised test, the Federal Circuit achieves an unfortunate double blunder by endorsing a process that invokes more expensive procedures to produce less reliable results.  
Although Epstein completed his essay before the district court's decision on the contempt motion in nCube, he talks about (what was then the pending) proceeding at the end of his essay.  Epstein seems to think that the design around in that case would easily have been found to violate the injunction, under the pre-TiVoi standard.   

Thursday, October 17, 2013

National Research Council Publishes "Patent Challenges for Standard-Setting in the Global Economy"

As reported earlier this week at the Essential Patents Blog, the National Research Council of the National Academies just published a 162-page document titled Patent Challenges for Standard-Setting in the Global Economy:  Lessons from Information and Communications Technology (Keith Maskus & Stephen A. Merrill, eds.).  You can download a copy, or order a hard copy, here.  I may have more to say about the report after I’ve had time to read through and digest more of it, but here are some highlights that may be of interest for now.

The report begins with a summary, followed by an introductory chapter and a chapter comparing SSO policies and practices.  Chapters 3-8 then discuss a variety of issues and make recommendations.  One series of recommendations (chapters 3-4) calls on SSOs to clarify their policies relating to FRAND licensing commitments and disclosure.  Another series of recommendations (chapter 5) calls for SSOs to require that successors in interest remain bound by an SEP owner's licensing commitments, and that "public recordation with the patent office of transfers of all patents should be required by legislation of regulation."  

Chapter 6 discusses the issue of whether the owners of FRAND-encumbered SEPs should be able to obtain injunctive relief.  It provides an overview of the case law in the U.S. and Europe to date; section 6.4 is titled “Industry Views” and notes a variety of competing positions. At the end, the committee makes only one unanimous recommendation and reports two that were supported only by a majority of the committee.  Here is what it says (from pages 111-12):

6.5 Recommendations to SSOs, Courts, and Government Agencies
 The committee believes that a FRAND commitment limits a licensor’s ability to seek injunctive relief, including exclusion orders, and recommends the following steps to help avoid or resolve disputes, prevent anti-competitive conduct, and ensure reasonable compensation to SEP holders whose patents are infringed.

Recommendation 6:1

SSOs active in industries where patent holdup is a concern should clarify their policies regarding the availability of injunctions for FRAND-encumbered SEPs to reflect the following principles:

· Injunctive relief conflicts with a commitment to license SEPs on FRAND terms and conditions [sic] should be rare in these cases;

· Injunctive relief may be appropriate when a prospective licensee refuses to participate in or comply with the outcome of an independent adjudication of FRAND licensing terms and conditions; and

· Injunctive relief may be appropriate when a SEP holder has no other recourse to obtain compensation.

The committee could not reach unanimous agreement on appropriate venues for adjudicating FRAND disputes. However, a majority of the committee members endorse the following:

Majority Recommendation 6:2

SSOs should clarify that disputes over proposed FRAND terms and conditions should be adjudicated at a court, agency, arbitration or other tribunal that can assess the economic value of SEPs and award monetary compensation.38
The committee also could not reach unanimous agreement on the scope of any limitations that a FRAND commitment might place on SEP holders’ rights to seek injunctive relief. However, a majority of the committee members endorse the following recommendation in that regard:

Majority Recommendation 6:3

SSOs should clarify that, before a SEP holder can seek injunctive relief, disputes over proposed FRAND terms and conditions should be adjudicated at a court, agency, arbitration, or other tribunal that allows either party to raise any related claims and defenses (such as validity, enforceability and non-infringement).39
38 A minority of committee members endorse this alternative recommendation: Courts, agencies, arbitration bodies or other tribunals (including the USITC) that consider patent essentiality, FRAND determination, or public interest factors should be presented with the facts and render injunctive relief decisions based on existing law, such as the eBay decision and/or ITC Section 337.

39 A minority of committee members endorse this alternative recommendation: SSOs should clarify that a SEP owner that has made an offer and offered to negotiate, with a prospective licensee, a license that will embody FRAND terms should be allowed to include injunctive relief in its pleadings when a FRAND dispute is brought to a court, agency, arbitration, or other tribunal that can consider equities, party conduct, reciprocity, and FRAND factors (including FRAND rates and terms).
Note that, in recommendation 6.1, the word "conditions" probably should read "injunctions," as it does in the summary at p.9.  (On the substance, I’ve expressed my own views on the matter many times by now and need not repeat them here.  If you’re interested, see my recent paper on the comparative law and economics of standard-essential patents and FRAND royalties.)

Finally, chapter 7 addresses Patent Office-SSO cooperation, and chapter 8 IPR standards and emerging economies (specifically, China, India, and Brazil).  Page 131 discusses the case between InterDigital and Huawei, in which a Chinese court calculated a FRAND royalty rate of 0.019% of the price of Huawei products.  (I blogged on this here.)