Injunctive relief - is a re-assessment of Ebay on the way?

In its Ebay vs. MercExchange ruling of 2006 ("Ebay"), the US Supreme Court basically concluded that injunctive relief shouldn't be automatically granted for patent infringement. Monetary damages was ruled to always constitute adequate compensation unless the patent holder could demonstrate that a rigorous four-factor test was fulfilled on all points. As a practical consequence of Ebay, it became more complicated for a patent holder to obtain injunctive relief or exclusion orders against infringing products in US courts after 2006.

While the gist of Ebay may perhaps have been to minimize NPEs' possibilities of obtaining unreasonable compensation, it may well have been blunt enough to negatively affect also true innovators as well as true competitors.

In wireless SEP FRAND licensing for example, the reverse patent hold-up behaviour seen among infringers in recent times may at least partly have been fueled by Ebay. And for non-SEPs, we can look at Apple. Since launching its iPhone in 2007, the Ebay ruling arguably hasn't made Apple's struggle to protect its patented smartphone-related inventions any easier.

However, a potential re-assessment of injunctive relief in US patent cases may now be on its way, incidentally in relation to an Apple case. On September 17, 2015, the US Federal Circuit overturned a district court's denial of injunctive relief in Apple vs. Samsung.  The original request was for a feature-based injunction against multi-function products, to which mobile phones arguably belong, and the overturn could actually be seen as a slight softening of Ebay. The main point of discussion related to the first Ebay factor concerning "irreparable harm" and establishing a "causal nexus" between the patented feature and consumers' decision to purchase the multi-function product in question. 

Interestingly, on December 16, 2015, the Federal Circuit denied Samsung's request for an en banc revisit of the issue, and issued a revised opinion along with the order. This seems to indicate that the Federal Circuit's stance is becoming solidified. On the "causal nexus" requirement, it says:

"In short, the record establishes that the features claimed in [the patents] were important to product sales and that customers sought these features in the phones they purchased. While this evidence of irreparable harm is not as strong as proof that customers buy the infringing products only because of these particular features, it is still evidence of causal nexus for lost sales and thus irreparable harm. Apple loses sales because Samsung products contain Apple’s patented features.The district court therefore erred as a matter of law when it required Apple to show that the infringing features were the reason why consumers purchased the accused products. Apple does not need to establish that these features are the reason customers bought Samsung phones instead of Apple phones–it is enough that Apple has shown that these features were related to infringement and were important to customers when they were examining their phone choices." (emphasis in original),

and in the conclusion part of the opinion one can almost sense some underlying "frustration" with Ebay: 

"If an injunction were not to issue in this case, such a decision would virtually foreclose the possibility of injunctive relief in any multifaceted, multi-function technology.".

The Federal Circuit's stance seems quite reasonable to me. If a company invents a feature for a multi-function product that's attractive to consumers and implements that feature in its own multi-function products, shouldn't it have the legal right to, for a limited time-period, prevent others from implementing that very feature in their directly competing multi-function products? I don't really see such a right as being too far-fetched, given the definition of what a patent really is.

If Samsung wants to avoid an injunction, it now looks like a Supreme Court petition would be needed. This story will surely be interesting to follow.

Federal Circuit dismisses SSPPU "rule"

Readers of this blog will know that I've frequently questioned the idea that there's a "rule" mandating that royalty or damages for infringing multi-component products be calculated using a "Smallest Salable Patent-Practicing Unit" (SSPPU) as a value-base. The idea of this "rule" has attracted quite some powerful followers and in February 2015 it was even codified into the new IEEE patent policy (!).

Well, on December 3, 2015, in an appeal decision in the CSIRO vs. Cisco case, the US Federal Circuit made it crystal clear that no such "rule" exists.

The decision includes other interesting opinions too, but I'll limit this post to royalty-base aspects. 

This statement from the decision sums things up quite nicely:

"The rule Cisco advances — which would require all damages models to begin with the smallest salable patent-practicing unit — is untenable. It conflicts with our prior approvals of a methodology that values the asserted patent based on comparable licenses. ...Such a model begins with rates from comparable licenses and then “account[s]for differences in the technologies and economic circumstances of the contracting parties.” Finjan, 626 F.3d at 1211. Where the licenses employed are sufficiently comparable, this method is typically reliable because the parties are constrained by the market’s actual valuation of the patent."

In other words, an SSPPU royalty-base "rule" would e.g. conflict with the use of comparable licenses as evidence of damages value. Given the importance placed on comparable license evidence in US law, an SSPPU royalty-base "rule" can therefore not exist.

Besides the square dismissal of the imaginary SSPPU "rule", the Federal Circuit also noted that:

"The choice of royalty base — which is often the focus of the apportionment analysis—is irrelevant to the district court’s analysis. The particular rates relied on by the district court were contemplated as cents per end unit sold by Cisco, but they could equally have represented cents per wireless chip without affecting the damages calculation.",

and:

"Because the parties’ discussions centered on a license rate for the ’069 patent, this starting point for
the district court’s analysis already built in apportionment. Put differently, the parties negotiated over the value of the asserted patent, “and no more."".

It's good to also see this point being made. People - oddly - seem to forget that payments for legitimate use of others' IPR are not made in "percent", but in real money, i.e. Dollars, Euros, Yuan etc. So what's ultimately relevant is the value - in real money - that a patent portfolio brings to the end-product. In this sense, a too strong focus on a specific model parameter such as a royalty-base is arguably irrational.

Hopefully, this Federal Circuit decision can bring any ongoing debate about SEP FRAND license value in line with actual law. 

IEEE after the patent policy update

A number of technology-contributing IEEE members have now refused to be bound by the IEEE's new patent policy adopted in February 2015. The question is, what does that mean for the IEEE as a Standards Setting Organization (SSO)?

In my experience, the strength of the international competitive-collaborative style of telecommunications standardization - largely pioneered by ETSI - lies in the fact that individual technical contributions compete purely on technical merit. This means that the type of competence needed for the effort can be highly specialized; basically some of the very best research engineers in the field, from all over the world, get together to create these complex standards. This ensures cutting-edge, future proof, global standards.

This in turn is possible when the SSO's patent policy has been generally agreed by all members on a high level, and patent policy issues can therefore effectively be "removed" from the daily standardization work itself. Those specialist engineers can focus all their efforts on inventing new clever solutions and arguing about the technical pros and cons of each other's proposals. And importantly, they can spend zero time thinking about patent policy.

But in the IEEE today we have a fragmented situation where a subset of its members have publicly stated that they will not adhere to the IEEE's new patent policy. Here some readers may of course wonder why those members aren't then simply "thrown out" of the IEEE's SSO work? But actually, in order to make the work of an SSO - not only the IEEE - as inclusive as possible, contributors are allowed to declare on a case by case basis which patent policy their patented contribution would be licensed under, which in fact does not have to be the policy adopted by the SSO. It's just that the norm has typically been that all members have agreed with the SSO's policy. But in the IEEE we now have an anomaly. The existence of these "disagreeing members" creates some distinct challenges to the IEEE's standardization effort going forward, at least within 802.11 ("WiFi") standardization.

Prior to the new policy's acceptance in Feb 2015, disagreeing members had submitted - and the IEEE had accepted - certain so-called Letters of Assurance (LoA) endorsing the old IEEE policy for certain 802.11 standards. LoAs are documents describing under which conditions the submitter agrees to license its potential SEPs for a specified standard, i.e. essentially whether the existing IEEE patent policy is agreeable to the submitter or if another policy will be used instead. Now, with the assumption that accepted adherence to a given IEEE patent policy cannot be changed retroactively, SEPs relating to the IEEE standard(s) specified in those pre-Feb-2015 LoAs will therefore be subject to two different patent policies - the old and new IEEE patent policy - depending on who owns the SEP in question.

Some of those standards are already finalized, and in those cases the impact will largely be limited to the licensing and dispute resolution spheres. However, some standards are still being worked on, meaning that there can be an impact within the SSO work itself. There could be an increased risk of proposals not being selected purely on technical merit, but potentially also based on whether the submitter supports the new or old IEEE patent policy. Thankfully, standardization/research engineers' natural behaviour is to focus on technical merit, but one still can't rule out that their management could convince them to behave differently. 

Furthermore, regarding potential SEPs for IEEE standards not specified in those pre-Feb-2015 LoAs, new LoAs would have to be submitted. But a disagreeing member submitting a new LoA would - by definition - tick the box stating its disagreement with the (new) IEEE policy. So at least if the disagreeing member's proposed solution would technically outsmart all other proposals, there's a potential issue to resolve. Assuming that technical merit continues to be the yardstick, that proposal should be selected for inclusion into the IEEE standard in question. But in this case the IEEE would instead have to examine the LoA and decide whether it would be acceptable or not. This would generally have to be done on a case-by-case basis. And if the LoA would not be acceptable to the IEEE's members, the technical proposal itself can't be accepted. Or in other words, the admittedly best technical solution would have to be actively de-selected from the standard (!). 

There has been some speculation as to whether Qualcomm - one of the disagreeing members - could benefit from its recent acquisition of Cambridge Silicone Radio (CSR) in the sense that CSR had made a "broader than usual" pre-Feb-2015 blanket LoA covering all IEEE 802.11 (WiFi) standards. Qualcomm could then allegedly utilize the CSR LoA to license also its future SEPs according to the old IEEE policy at least for all future versions of WiFi. If so, it would at least save Qualcomm from having to make those new "potentially difficult" LoAs for IEEE 802.11. While that could reduce the probability of its proposals being rejected due to origin, the risk will still be there given that Qualcomm, after all, doesn't adhere to the new IEEE policy. 

Clearly, scenarios as described above threaten to remove the "pure technical bliss" of the classic international competitive-collaborative standardization effort within the IEEE. There may now have to be more patent engineers and patent attorneys involved in the SSO work processes. The efficiency of the IEEE as an SSO will likely suffer, and alarmingly, the IEEE's future standards run the risk of not containing the best technology out there. Even worse, the best technology may have been made available to the IEEE, who then actively rejected it. If such fears materialize, some companies might very well leave the IEEE and instead support - or perhaps even create - other competing standards through other means.

The new IEEE patent policy's apparent disconnect with the law is problematic. Only last week in its CSIRO vs Cisco appeal decision, the US Federal Circuit squarely rejected one of the key principles of the new policy, namely the mandatory chipset royalty base. In the same breath, the Federal Circuit re-emphasized the importance of evidence in the form of comparable licenses, also in stark contrast to the new policy. We also know that the new policy's rule on injunctive relief in practice also differs from Federal Circuit opinion. 

The IEEE, and ultimately the general public, would surely benefit the most if the IEEE stays strong and relevant, capable of efficiently creating top-notch standards going forward. So perhaps it's time for a pragmatic and open discussion among IEEE members with the aim to consolidate the different viewpoints in the light of the law. Another update of the policy may very well be needed to put the IEEE's standardization work back on track again.