• Lessons from Five Years of PTAB Trials

    As we mark the fifth anniversary of the effective date of Patent Trial and Appeal Board trials on September 16, we find that the early years of the practice have been a learning experience both for the PTAB and for PTAB practitioners.  Reflecting on the past five years, three key lessons emerge for practitioners, from practice and directly from the APJs presiding over these cases when they have spoken on topic: Follow the rules, including those that are explicit and those that are unspoken,…

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  • Exclusive with Grant Philpott: Patenting Computer Implemented Inventions in Europe

    We try to be precise and stick to CII because “software” in itself is a term which lacks precision. It can refer to a high level program, a machine level program, or it can be an executable program. But if we speak about a computer-implemented invention the core of the discussion is rather on the technology. We have a general purpose computer and we program it, and when it runs it executes the instructions and performs certain functions. So the essence of our approach is to ask what the…

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  • The Bitcoin Network, Blockchain Technology and Altcoin Futures

    In 2008, as the financial markets crumbled in the largest economic crisis the world has seen since the 1930s, Satoshi Nakamoto published a white paper describing his Bitcoin network and the blockchain technology that was used to enable it.  Since then, while markets have recovered, Nakamoto’s creation has flourished and spawned countless other “altcoins” along with new uses and applications for his blockchain technology and its derivatives. Because the Bitcoin network and blockchain technology…

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  • CAFC Finds Harmless Error in USPTO Reliance On Doctrine of Inherency

    In Southwire Co. v. Cerro Wire LLC, the Federal Circuit upheld the USPTO decision rendered in an inter partes reexamination proceeding that found Southwire’s patent invalid as obvious. Although the court found that the USPTO Board had erred in relying on the doctrine of inherency,  it concluded the error was harmless because the Board’s factual findings…… Continue reading this entry

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  • D. Delaware addresses Heartland venue issue in case involving BMS’ Eliquis®

    The Dustrict Court of Delaware noted:


    On July 25, 2017, MPI moved to dismiss for improper venue under Federal Rule of Civil
    Procedure 12(b)(3), contending that venue is not proper under either the residency or place of
    business prongs of§ 1400(b).

    (…)

    Venue in a patent infringement action is governed solely and exclusively by the patent venue statute, 28 U.S.C. § 1400(b). See TC Heartland, 137 S. Ct. at 1516. The general venue statute, 28 U.S.C.
    § 1391(c), does not have any application in a patent case. See id. at 1521.
    If the Court grants a Rule 12(b)(3) motion based on improper venue, the Court “shall
    dismiss, or if it be in the interest of justice, transfer such case to any district or division in which
    it could have been brought.” 28 U.S.C. § 1406(a).

    Generally, “it is not necessary for the plaintiff to include allegations in his complaint
    showing that venue is proper.” Great W Mining & Mineral Co. v. ADR Options, Inc., 434 F.
    App’x 83, 86-87 (3d Cir. 2011). Hence, when confronted with a motion to dismiss for improper
    venue, the Court may consider both the complaint and evidence outside the complaint. See 14D
    Wright & Miller, Federal Practice & Procedure§ 3826 (4th ed. 2017). The Court will accept any
    venue-related allegations in the complaint as true, unless those allegations are contradicted by the
    defendant’s [*8] affidavits. See Bockman v. First Am. Mktg. Corp., 459 F. App’x 157, 158 n.l (3d
    4While § 1406(a) authorizes the Court to either dismiss or transfer a suit brought in an improper venue, for simplicity this Opinion will refer to the improper venue motion as a “motion to dismiss.”

    (…)

    Courts are not uniform in their views as to which party bears the burden of proof with
    respect to venue. Some hold that a plaintiff must prove that venue is proper in its chosen district,
    while others hold instead that a defendant must prove that such district is an improper venue. See
    14D Wright & Miller, Federal Practice & Procedure§ 3826 (4th ed. 2017) (“There are many
    cases -predominantly, but not exclusively, from the Third and Fifth Circuits-:– holding that the
    burden is on the objecting defendant to establish that venue is improper, because venue rules are
    for the convenience and benefit of the defendant.”).

    Case
    BRISTOL~MYERS SQUIBB COMPANY and PFIZER INC v, Mylan [“MPI”], 2017 U.S. Dist. LEXIS 146372 (11 Sept 2017)

    See also Boston Scientific v. Cook, 2017 U.S. Dist. LEXIS 146126, also involving Heartland LLC v. Kraft Food Group Brands LLC, 137 S. Ct. 1514 (2017).

    UPDATE.
    There was a post on 13 Sept 17 Frequent ANDA Filer May Have Regular and Established Place of Business in Delaware​

    IPBiz notes additional text in the decision, which relied on Acorda, 817 F3d. 755:


    In the Court’s view, the best, most reasonable conclusion after Acorda is that an ANDA filer’s future, intended acts must be included as part of the “acts of infringement” analysis for purposes of determining if venue is proper under the patent venue statute. In Acorda, the Federal Circuit plainly held that intended, planned, future acts that will occur in a district in the future (after FDA approval) are acts that must be considered now in determining whether an ANDA filer has sufficient contacts with that district right now to make Hatch-Waxman litigation in such a district appropriate from a jurisdictional perspective. See, e.g., id. at 760 (“[T]he minimum-contacts standard is satisfied by the particular actions Mylan has already taken — its ANDA filings — for the purpose of engaging in that injury-causing and allegedly wrongful marketing conduct in Delaware.”). It follows, in the Court’s view, that the same approach must apply in the context of a venue analysis: planned, future acts that the ANDA filer will take in this District must be considered now in determining whether venue is proper here. In the context of Hatch-Waxman, therefore, such future acts are properly considered part of the “acts of infringement” that “the defendant has committed” within the meaning of § 1400(b).

    The conclusion of the case:


    For the reasons stated above, the Court will deny without prejudice MPI’s motion to dismiss for improper venue. MPI has committed acts of infringement in Delaware based on its submission of an ANDA to the FDA, with the intention and for the purpose of selling products in Delaware that would allegedly infringe BMS’ patents. The Court is not yet able to determine whether MPI lacks a regular and established place of business in Delaware. Hence, the Court will permit venue-related discovery and allow MPI to renew its venue challenge after such discovery is completed.

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  • Reexamining the Private and Social Costs of NPEs

    It’s good to be returning from a longish hiatus. I’ve just taken over as the Associate Dean for Faculty Research; needless to say, it’s kept me busier that I would like. But I’m back, and hope to resume regular blogging.

    My first entry has been sitting on my desk (errrr, my email) for about six months. In 2011 Bessen, Meurer, and Ford published The Private and Social Costs of Patent Trolls, which was received with much fanfare. Its findings of nearly $500 billion in market value decrease over a 20 year period, and $80 billion losses a year for four years in the late 2000’s garnered significant attention; the paper has been downloaded more than 5000 times on SSRN.

    Enter Emiliano Giudici and Justin Robert Blount, both of Stephen F. Austin Business School. They have attempted to replicate the findings of Bessen, Meurer, and Ford with newer data. The results are pretty stark: they find no significant evidence of loss at all. They also attribute the findings of the prior paper to a few outliers, among other possible explanations. These are really important findings. Their paper has fewer than 50 downloads. The abstract is here: 

    An ongoing debate in patent law involves the role that “non-practicing entities,” sometimes called “patent trolls” serve in the patent system. Some argue that they serve as valuable market intermediaries and other argue that they are a drain on innovation and an impediment to a well-functioning patent system. In this article, we add to the data available in this debate by conducting an event study that analyzes the market reaction to patent litigation filed by large, “mass-aggregator” NPE entities against large publicly traded companies. This study advances the literature by attempting to reproduce the results of previous event studies done in this area on newer market data and also by subjecting the event study results to more rigorous statistical analysis. In contrast to a previous event study, in our study we found that the market reacted little, if at all, to the patent litigation filed by large NPEs.

    This paper is a useful read beyond the empirics. It does a good job explaining the background, the prior study, and critiques of the prior study. It is also circumspect in its critique – focusing more on the inferences to be drawn from the study than the methods. This is a key point: I’m not a fan of event studies for a variety of reasons. But that doesn’t mean that I think event studies are somehow unsound methodologically. It just means that our takeaways from them have to be tempered by the limitations. And I’ve always been troubled that the key takeaways from Bessen, Meurer & Ford were outsized (especially in the media) compared to the method.

    But Giudici and Blount embrace the event study, weaknesses and all, and do not find the same results. This, I think, is an important finding and worthy of publicity. That said, there are some critiques, which I’ll note after the break.

    The key difference between this and the prior paper, other than the timing, is the smaller, more targeted data set. This newer paper focuses on the largest 10 NPEs and their lawsuits against the 8 or 10 most targeted defendants (which still leads to hundreds of observations). Thus, they exclude many of the non-aggregator NPEs such as design houses that Bessen & Meurer include to the chagrin of many detractors. But they also exclude many smaller “patent holding” companies, which are responsible for many of the lowest value litigations. The authors explain that if there is going to be an effect, then surely we will see it with the ten biggest patent aggregators. I know this story well – I tell it in my own Patent Troll Myths, Generation of Patent Litigation, and Layered Patent System line of articles. And the story has the same problems for me as it does for them – there’s a question of representativeness. That said, these are the biggest plaintiffs and defendants, so you would expect that it would hit the news faster – so any effect should be seen.

    Furthermore, focus on the largest defendants is good for news dissemination, but I would think that smaller companies would be more susceptible to market drop upon lawsuit – Apple can weather a frivolous suit much more than a small company. Then again, the earlier paper didn’t find (that I recall) the largest drops from small companies. Indeed, the largest drops came from the biggest companies, because a tiny share price drop means a huge market value drop. In any event, this is a difference between the papers to be considered.

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  • Natalie Ram: Innovating Criminal Justice

    Natalie Ram (Baltimore Law) applies the tools of innovation policy to the problem of criminal justice technology in her latest article, Innovating Criminal Justice (forthcoming in the Northwestern University Law Review), which is worth a read by innovation and criminal law scholars alike. Her dive into privately developed criminal justice technologies—”[f]rom secret stingray devices that can pinpoint a suspect’s location to source code secrecy surrounding alcohol breath test machines, advanced forensic DNA analysis tools, and recidivism risk statistic software”—provides both a useful reminder that optimal innovation policy is context specific and a worrying depiction of the problems that over-reliance on trade secrecy has wrought in this field.

    She recounts how trade secrecy law has often been used to shield criminal justice technologies from outside scrutiny. For example, criminal defense lawyers have been unable to examine the source code for TrueAllele, a private software program for analyzing difficult DNA mixtures. Similarly, the manufacturer of Intoxilyzer, a breath test, has fought efforts for disclosure of its source code. But access to the algorithms and other technical details used for generating incriminating evidence is important for identifying errors and weaknesses, increasing confidence in their reliability (and in the criminal justice system more broadly), and promoting follow-on innovations. Ram also argues that in some cases, secrecy may raise constitutional concerns under the Fourth Amendment, the Due Process Clause, or the Confrontation Clause.

    Drawing on the full innovation policy toolbox, Ram argues that contrary to the claims of developers of these technologies, trade secret protection is not essential for the production of useful innovation in this field: “The government has at its disposal a multitude of alternative policy mechanisms to spur innovation, none of which mandate secrecy and most of which will easily accommodate a robust disclosure requirement.” Patent law, for example, has the advantage of increased disclosure compared with trade secrecy. Although some of the key technologies Ram discusses are algorithms that may not be patentable subject matter post-Alice, to the extent patent-like protection is desirable, regulatory exclusivities could be created for approved (and disclosed) technologies. R&D tax incentives for such technologies also could be conditioned on public disclosure.

    But one of Ram’s most interesting points is that the main advantage of patents and taxes over other innovation policy tools—eliciting information about the value of technologies based their market demand—is significantly weakened for most criminal justice technologies for which the government is the only significant purchaser. For example, there is little private demand for recidivism risk statistical packages. Thus, to the extent added incentives are needed, this may be a field in which the most effective tools are government-set innovation rewards—grants, other direct spending, and innovation inducement prizes—that are conditioned on public accessibility of the resulting algorithms and other technologies. In some cases, agencies looking for innovations may even be able to collaborate at no financial cost with academics such as law professors or other social scientists who are looking for opportunities to conduct rigorous field tests.

    Criminal justice technologies are not the only field of innovation in which trade secrecy can pose significant social costs, though most prior discussions I have seen are focused on purely medical technologies. For instance, Nicholson Price and Arti Rai have argued that secrecy in biologic manufacturing is a major public policy problem, and a number of scholars (including Bob Cook-Deegan et al., Dan Burk, and Brenda Simon & Ted Sichelman) have discussed the problems with secrecy over clinical data such as genetic testing information. It may be worth thinking more broadly about the competing costs and benefits of trade secrecy and disclosure in certain areas—while keeping in mind that the inability to keep secrets does not mean the end of innovation in a given field.

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  • Updated Interim Eligibility Guidance Quick Reference Sheet

    The USPTO has updated its subject matter eligibility page with a new quick reference sheet entitled: “Interim Eligibility Guidance Quick Reference Sheet.”  It is reproduced below and [here].  The April 2017 version is available [here].  The end of July 2017 version is available [here].
    _________________________________________________________________________________

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  • Did the Abrogation of Form 18 Raise Pleading Standards?

    by Dennis Crouch Lifetime Indus v. Trim-Lok (Fed. Cir. 2017) The district court dismissed Lifetime’s infringement complaint for failure to state a claim. Fed. R. Civ. Pro. 12(b)(6).  On appeal, the Federal Circuit reversed – holding that the inducement and contributory infringement claims were sufficiently pled. The most interesting aspect of the decision is actually a […]

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  • Criterion Journal on Innovation Papers on Patent Remedies

    Volume 2 of the Criterion Journal on Innovation, for which Greg Sidak serves as editor, includes several papers on damages and injunctions, including the following.  (Note that I haven’t read all of them yet myself.  Of these, I’m guessing, based on the abstracts, that I will agree at least in part with some of them and disagree quite vigorously with others, but in the meanwhile I will withhold judgment.)
    1.  J. Gregory Sidak, Irreparable Harm from InfringementHere is a link to the article, and here is the abstract:
    The Patent Act empowers a court to issue an injunction “to prevent the violation of any right secured by patent.” Whether a court will permanently enjoin an infringer depends on whether (1) the patent holder would suffer irreparable harm otherwise, (2) its legal remedies are inadequate, (3) the balance of hardships favors the patent holder, and (4) the injunction would not disserve the public interest. Similar factors inform the grant of a preliminary injunction. The Federal Circuit often says that the harm from patent infringement is irreparable if it cannot be measured. I say that such harm is irreparable because it irreversibly destroys wealth.

    Patent infringement irreversibly obliterates wealth when it impedes society’s technical progress. Patent infringement does more than transfer wealth involuntarily from the patent holder to the infringer; it also harms third parties by devastating the surplus that consumers would derive from using the product practicing the new technology. Damages are impotent to cure that harm to the public interest. A court’s order of damages can no more recreate the wealth that has been or will be destroyed by an act of patent infringement than it can restore an ancient redwood after the axeman has felled it.

    2.  J. Gregory Sidak, Is Harm Ever Irreparable?  Here is a link to the article, and here is the abstract:
    Economic analysis yields three insights on the meanings of irreparable harm. First, the interpretation of “irreparable” harm as immeasurable harm has diminishing plausibility. Quantitative and empirical methods are generally sufficient to estimate injury in business disputes with reasonable confidence. Second, harm can be irreparable because the infringer cannot afford to pay damages, but other vehicles exist to address that problem of undercapitalization—namely, bankruptcy law and the market for corporate control. Third, legitimate grounds remain for finding irreparable harm and issuing an injunction when the court’s failure to do so would reduce consumer or producer surplus by reducing static or dynamic efficiency. In this third category, the reliable quantification of the destruction of value may be challenging when assessing dynamic inefficiency.

    In contrast to the existing jurisprudence on injunctions, my three interpretations of irreparable harm would focus the objective of injunctive relief on averting the destruction of value caused by patent infringement, not the transfer of wealth from the patent holder to the infringer. The same logic would apply more generally to any form of involuntary exchange, including compulsory licensing or the forced sharing of valuable assets with competitors under competition law.

    Consider the following question: when would a court ever need to grant injunctive relief to remedy the invasion of the plaintiff’s property rights? I do not find any of my three economic interpretations of “irreparable harm” to have great explanatory power in answering this question. So I offer a new conjecture.

    Although courts are comfortable with the counterfactual framework of the hypothetical, voluntary exchange, I hypothesize that they are uncomfortable with including large estimates of opportunity cost in the bargaining range of that model. Perhaps courts (and competition authorities, for that matter) do not fully understand the implications of Armen Alchian’s definition that cost in economics means opportunity cost. This unease increases if the would-be licensor’s opportunity costs exceed the would-be infringer’s maximum willingness to pay. (This condition is a standard fact pattern in any of the high-profile margin squeeze cases in Europe and the United States, in which the wholesale price of access to the essential input exceeds the retail price that the vertically integrated firm charges in the downstream market.)

    Perhaps, too, courts care about appearances concerning their institutional competence. If no transaction occurs when the would-be licensor’s opportunity costs exceed the would-be infringer’s maximum willingness to pay, it may appear to outsiders to be the court’s fault in setting too high an access price. Consequently, when a court recognizes that the bargaining range is negative, it may prefer to grant a permanent injunction instead of awarding the patent holder damages that exceed what the infringer would have been willing to pay in a hypothetical, voluntary negotiation.

    If my conjecture is correct, it may signal an innate appreciation by courts of the Coase Theorem. If the would-be licensee does not value the would-be licensor’s asset at the level of the would-be licensor’s opportunity cost, the court will have no comparative advantage over a bilateral negotiation in making a transaction occur that increases social welfare. Rather than state publicly that the correct price emerging from a hypothetical, voluntary transaction would exceed the would-be licensor’s willingness to pay, the court may prefer to say that it cannot measure the harm from the unauthorized use of the asset. In that case, the court would issue a permanent injunction, which would permit the parties’ own post-injunction negotiations to confirm, in private, the conclusion that no gains from trade exist.

    3.  Paul R. Michel & Matthew Dowd, Understanding the Errors of eBay.  Here is a link to the article, and here is the abstract:
    eBay has had a profoundly negative effect on the enforceability of U.S. patents, including patents whose validity is beyond doubt. With the likelihood of an injunction severely diminished, patent infringers appear less willing to cease infringing activity. In contrast to U.S. practice, injunctions are routine in Germany and other European countries and becoming so in Asian nations, particularly China, for all technologies and all types of owners. Investment money is mobile and flows toward the high-value assets. eBay has crimped patent rights and thereby diminished investment incentives in the United States. The result: reduced research and development, less job creation, lower economic growth, and diminished American global competitiveness. This cannot be what the Supreme Court intended, but it is how the Kennedy concurrence is being implemented by most district courts that ignore the less forceful Roberts concurrence. The time has come for the Court, or at least the Federal Circuit, to rescue America from this folly.

    4.  Maureen K. Ohlhausen, The Federal Trade Commission’s Path Ahead.  Here is a link to the article, and here is the abstract:

    Given my extensive experience as a leader at the Federal Trade Commission (FTC), I have developed views about how the Commission should carry out its work. In the months ahead, I hope to realize my vision by continuing the agency’s good work to protect competition while advancing principles that the FTC overlooked or undervalued under the Obama Administration.

    First, a word on my antitrust philosophy: I believe in the power of markets—when free of restraints and unnecessary regulations—to provide the best outcomes for consumers. Antitrust enforcers guard the competitive process. We intervene when firms injure competition, and we advocate for consumers when governments consider anticompetitive legislation. But equally important is knowing when not to intervene.

    As you know, competitive markets tend toward static efficiency, as firms experience market pressures to price near a measure of their costs. But even periods of monopolistic pricing can be consistent with—if not indispensable to—dynamically efficient markets. That is especially so when dominance reflects a firm’s superior innovation. The continuing rise of technology-driven industries makes that consideration more fundamental than ever. The Arrow-Schumpeter debate remains live and nuanced.
    Importantly, competition enforcers should not intervene simply because they dislike certain market outcomes. Antitrust is about protecting the process, not guaranteeing a particular result at a particular time. We trust that markets in which firms must endure competitive pressures will produce favorable outcomes in terms of price, output, quality, and innovation in the long run. But if prices seem excessive or output stagnant at a point in time, we do not use antitrust enforcement to require firms to charge less or to produce more. In short, antitrust is not regulation. As the Supreme Court observed in National Society of Professional Engineers, “competition is the best method of allocating resources in a free market,” and even “occasional exceptions to the presumed consequences of competition” are not grounds for antitrust enforcement.

    My record shows that I favor meritorious intervention. But, I believe, it is critical to wield our competition laws with regard for the limits of our knowledge, the risk of getting it wrong, and the relative costs to society of over-enforcement and under-enforcement. Those considerations inform my lodestar of “regulatory humility,” which I will follow in the months ahead. Impressionistic assessments of harm should not drive major interventions in the market. Rather, empiricism should control. Moreover, a rigorous application of economic theory is crucial for understanding the likely effects of business conduct and for informing enforcement decisions.

    In this essay, I discuss the basic principles that inform my perspective on antitrust law and outlined certain policy priorities for me going forward. My philosophy of regulatory humility, my belief in the power of competitive markets, and a devotion to empiricism inform my view of antitrust. An important question, however, is how my views translate into specific policy goals for the FTC. I would like to see the Commission pursue some new directions. I specifically mention grounding action in a strong empirical basis, challenging abuses of the government process, and better use of Part 3. But, as I articulated at the Heritage Foundation recently, I have other goals, too. Those include the promotion of economic liberty, trimming the costs that the FTC imposes on business without hindering the Commission’s enforcement abilities, and protecting U.S. firms’ intellectual-property rights. I will continue to pursue those aims energetically.

    5.  J. Gregory Sidak, Fair and Unfair Discrimination in Royalties for Standard-Essential Patents Encumbered by a FRAND or RAND CommitmentHere is a link to the article, and here is the abstract:
    Legal disputes between SEP holders and implementers regarding FRAND or RAND royalties for SEPs have increasingly focused on the meaning of the nondiscrimination requirement contained in a FRAND or RAND commitment. However, as of August 2017, there is no agreement on the precise duties arising from such a requirement. The legal and economic literature has proposed divergent, and mainly normative, interpretations of the nondiscrimination requirement. Some commentators say that the nondiscrimination requirement prohibits the SEP holder from excluding individual implementers from using its SEPs, but that the requirement does not limit the terms and conditions that the SEP holder may offer to different licensees. Others say that the requirement imposes on the SEP holder a duty to offer similar terms to similarly situated implementers—although, even then, there is no agreement on how to implement the “similarly situated” construct in practice. The most misguided and unhelpful interpretation in that literature comes from economic scholars who contend that the nondiscrimination requirement imposes on the SEP holder the duty to create and maintain a “level playing field” among the SEP holder’s licensees. The majority of these proposed interpretations rest on normative expressions of what the nondiscrimination requirement should be, as opposed to positive principles of what that requirement is. Thus, they are limited in their ability to guide a court’s interpretation of the nondiscrimination requirement in the FRAND or RAND commitment at issue in a given dispute.

    If American law controls the interpretation of the obligations arising from an SEP holder’s FRAND or RAND commitment, there exists a rich positive jurisprudence on nondiscrimination that provides common principles that can aid a court’s interpretation of an SSO’s nondiscrimination requirement. Those principles, which are consistently applied across various fields of law, suggest that evidence that the SEP holder has treated similarly situated implementers differently is necessary but insufficient to prove that the SEP holder has violated the nondiscrimination requirement of a FRAND or RAND commitment. The court must also examine whether the SEP holder had a valid justification for the differential treatment of similarly situated implementers. Economic analysis can help a court to determine whether (1) the claimant is situated similarly to other implementers, (2) the SEP holder has treated the claimant differently, and (3) a valid justification exists for any differential treatment. A finding of impermissible discrimination is supportable only when the SEP holder lacks a legitimate justification for the disparate treatment of similarly situated implementers.

    6.  J. Gregory Sidak, Is a FRAND Royalty a Point or a Range?  Here is a link to the article, and here is the abstract:
    Justice Birss said in Unwired Planet that there can be only a single FRAND royalty rate for a given set of circumstances between parties negotiating a license for an SEP. However, it would be untenable on both economic and legal grounds to infer from that opinion that FRAND or RAND can be only a single point in a voluntary negotiation between two parties, or that an SEP must command the same price across all licensees for a given SEP.

    As an economic matter, an SEP holder’s commitment to license its SEPs on FRAND or RAND terms generates a range of reasonable royalties upon which the negotiating parties could voluntarily agree. The SEP holder’s minimum willingness to accept to license its SEPs and the licensee’s maximum willingness to pay to use those SEPs identify the bounds on the bargaining range. Any agreed-upon royalty within that prescribed range will make both the SEP holder and the licensee better off than they would be if they were not to execute the license. In a given negotiation, the royalty will converge on a point within that range according to the relative bargaining power of the specific negotiating parties. However, the ultimate point value of that royalty is not preordained by the supposed uniqueness of a FRAND or RAND rate; rather, the ultimate point value of the FRAND or RAND royalty in a given license depends on the circumstances surrounding the negotiation. Differences in the size of the bargaining range and differences in the relative bargaining power of the SEP holder and the implementer will surely exist across licenses for a given SEP, and those differences explain why the observed royalty rate for a given SEP routinely varies across licenses.

    Legal interpretation of the FRAND or RAND commitment (under American law) independently confirms that a FRAND or RAND royalty may be situated anywhere along a range of possible outcomes. In both their interpretation of section 284 of the Patent Act and their application of the hypothetical-negotiation framework to determine damages for patent infringement under section 284, the federal courts recognize that a range of reasonable royalties exists for a given patent. Any contractual bargaining away by the patent holder of its rights arising from that statutory framework would need to be indisputably clear. However, such clarity is nonexistent. The patent policies of the major SSOs allow the SEP holder and the implementer to set licensing terms for an SEP, including the ultimate royalty rate, through voluntary, bilateral negotiation. Far from dictating a unique point value, that mechanism permits a range of FRAND or RAND royalties for a given SEP.

    7.  J. Gregory Sidak, Using Regression Analysis of Observed Licenses to Calculate a Reasonable Royalty for Patent InfringementHere is a link to the paper, and here is the abstract:
    Patent licenses reveal information about how the market values a patented technology and how the market values new information concerning the probability of a patent’s validity and infringement. One can use that information to determine the value of the patent in suit under the assumed conditions in the Georgia-Pacific hypothetical negotiation that the patent is absolutely valid and infringed. Using regression analysis, an expert economic witness can use the change in royalty rates that occurs after pretrial rulings (by district courts, by the PTAB, or by the ITC or its individual administrative law judges) to calculate the market value of the increasing probability that the patent in suit is valid and infringed, and to predict the outcome of the hypothetical negotiation on the eve of the defendant’s first infringement of the patent in suit. The line of best fit might predict a gradually increasing royalty over time, as uncertainty about the patent’s validity and scope decreases. If so, extending the line of best fit to the trial date would provide a conservative (lower-bound) calculation of a reasonable royalty under the assumptions of absolute validity and infringement that apply in Georgia-Pacific’s hypothetical negotiation. This methodology enables the calculation of a reasonable royalty for the patent in suit that incorporates both the underlying legal assumptions of the hypothetical-negotiation framework and the market-disciplined prices that one subsequently observes in actual patent licenses voluntarily negotiated at arm’s length between the licensor and willing third parties.

    8.  J. Gregory Sidak and Jeremy O. Skog, Hedonic Prices and Patent RoyaltiesHere is a link to the article, and here is the abstract:
     A hedonic model explains a good’s price in terms of its characteristics. In this article, we use hedonic prices to estimate the permissible range for a reasonable royalty for a standard-essential patent (SEP) subject to its owner’s commitment to offer to license the patent on reasonable and nondiscriminatory (RAND) terms. Our methodology is equally applicable to the calculation of fair, reasonable, and nondiscriminatory (FRAND) royalties for SEPs.

    Hedonic price analysis provides a scientifically rigorous means to satisfy the Federal Circuit’s directive in Ericsson v. D-Link to disaggregate the value of having a standard of any sort from the incremental value of the chosen standard, and then to disaggregate further the incremental contribution that a given SEP or portfolio of SEPs makes to the overall value of the technologies that allow the chosen standard to operate. The common additive form of the hedonic regression model is the most appropriate econometric model to meet that directive.

    When implemented in an appropriate and thoughtful way, hedonic price analysis provides an expert economic witness—and, ultimately, the finder of fact—with a reliable methodology to determine whether a given license offer satisfies the reasonableness requirement of a RAND or FRAND commitment. If asked or required to set a specific RAND or FRAND rate for a specific portfolio of SEPs, a court or arbitral panel could take our analysis one step further, by determining where within the RAND or FRAND bargaining range a bilaterally negotiated royalty between the parties would most likely fall. Hedonic price estimation can also inform the calculation of a reasonable royalty in conventional patent litigation that does not involve standard-essential patents. Consequently, the use of hedonic price estimation is a conceptual breakthrough in the calculation of reasonable royalties for patent infringement, both for SEPs subject to a RAND or FRAND commitment and for patents that are not declared essential to any standard.

    This one I have read, so I can offer a few comments.  I thought this was an interesting paper, and while I can’t claim a deep understanding of the statistical techniques the authors use their proposal appears to me to be an improved version of the “top-down” approach used in Innovatio and Unwired Planet.  The authors try to isolate the ex post value of a new standard over an old one using the concept of hedonic prices, and then apportion that value to account for differing values among patents.  They accomplish the latter by analysis of forward citations, which as they point are a standard metric for patent valuation among economists.  But see Allison, Lemley & Schwartz, Understanding the Realities of Modern Patent Litigation, 92 Tex. L. Rev. 1769, 1798-99 (2014) (calling into question economists’ reliance on citation counts as evidence of patent quality). 

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  • Federal Circuit Cultivates Criteria for Obviousness Rejection: Rational Underpinning and Articulation Required to Establish Routine Optimization and a Reasonable Expectation of Success

    Author: John E. Nappi Editor: Sydney R. Kestle The Federal Circuit vacated and remanded the Patent Trial and Appeal Board’s (PTAB) decision in In re Stepan Co., No. 2016-1811 (Fed. Cir. Aug. 25, 2017), because the PTAB “failed to adequately articulate its reasoning, erroneously rejected relevant evidence of nonobviousness, and improperly shifted to Stepan the […]

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