In January 2013, Taiwan’s InnoLux Corp. filed an appeal with the Federal Circuit, requesting the Court to overturn an award of enhanced post-judgment (“ongoing”) royalties that appeared to be enhanced, at least in part, because the trial judge took offense at an out-of-court remark made by the defendant’s CEO, after losing at trial.
Specifically, in the case of Mondis Technology v. ChiMei InnoLux Corp., et al., No. 2:11-CV-378 (E.D. Tex. Sept. 30, 2011), a jury found InnoLux liable for infringing certain computer monitor patents and ordered it to pay $15,000,000 in damages, plus royalties of 0.5% per monitor sold in the final months prior to judgment, for which sales figures had not yet been available.
Following the verdict, the defendant’s CEO was quoted in a Taiwan newspaper as having said, “The issue of patent infringement is being taken too seriously sometimes.”
By the time you are reading this I will already be off on a cross country voyage in search of some rest and relaxation. Renee and I are vacation bound, and off to our usual favorite vacation spot — Southern California. Newport Beach, Californiato be more specific.
We will be away from the crack of dawn on August 14 through the stroke of midnight on August 28. Business will seem to go on as usual though. I have written a number of articles in advance, which I will post over this two-week span. I have a number of excellent guest contributions, although I’m always looking for more if you want to contribute. I also have several interviews I’ve conducted over the past several weeks, which will publish over the course of the next several weeks. I will also inevitably author some contemporaneous original articles while away, particularly relating to the avalanche of final rules due out for the next wave of implementation of the America Invents Act. So stay tuned! I’ll be gone, but will have laptop and Internet access at the ready.
As I prepare to head out of the office I thought in this relaxing state of mind I might take the opportunity to offer my comments and analysis of the garbage passed off as Judge Posner’s opinion in Apple v. Motorola (June 22, 2012). I have so far successfully avoided writing anything, trying to distance myself in time and emotional state from the moment this ridiculous decision stream of wholly irrelevant dicta was handed down. But there is no way I am going to let the delusional anti-patent ramblings of Judge Posner ruin my vacation! I feel compelled to comment, so this cathartic expression of incredulity will hopefully wash away the bad and bring with it a sense of calming peace that will lead me into much needed rest and relaxation.
In my last article, I posed the question whether the “Smart Phone Patent Wars” were giving IP rights – and more specifically, patents – a bad rap? My conclusion was an unfortunate “yes,” with the villains being a handful of companies that willingly contributed patented technologies to various standard setting organizations (SSOs), encouraged their use in a host of consumer electronics, and years later charge the very producers they encouraged to implement these standards with patent infringement. Now in this article – the second in a six-part series – I examine the so-called “Fair, Reasonable and Non-Discriminatory” (FRAND) licensing terms that SSOs require of their participants.
First, before discussing the meaning of FRAND licensing terms, we must understand the nature and importance of SSOs. These national or international organizations are typically private, non-profit organizations whose members include for-profit company participants seeking to establish one or more technical standards that will be incorporated into a product or technical system. Some of the more widely recognized SSOs include the Institute of Electrical and Electronics Engineers (IEEE), the Joint Electron Device Engineering Council (JEDEC) and the Telecommunications Industry Association (TIA). The technical standards adopted by these SSOs are voluntary (unless they are enacted into law by, for example, a state legislature), but influential. Why, however, have technical standards? Well, would you buy a smart phone if it could not connect to a mobile network so that you can communicate (by voice or text) to your peers, visit all your favorite websites on the Internet or download pictures, videos and the like? That is, standardization delivers consumer benefits, especially in product markets where the very value of the product is the fact that a great number of other consumers use the same or a compatible product.
Recently I did an interview with Gene Quinn, which was published on IPWatchdog.com. See Exclusive Interview with Ray Niro, Mr. Patent Litigation. During this interview we discussed important issues and the undeniable reality that innovators are frequently and unjustifiably maligned for enforcing patent rights granted to them by the United States government.
During the interview Gene asked me about bad actors within the industry. Our exchange, in part, went as follows:
QUINN: It strikes me that there are some really bad actors out there that give everybody in the industry a bad name… Have you given any thought as to what could be done with respect to the bad actors without penalizing everybody that’s just engaged in legitimate business?
NIRO: Well, you raise an interesting point. There are clearly bad actors. And generally the bad actors fall into the category, I don’t think you can quantify based on what they’re seeking in damages. And I’ll circle back to that in a minute. I think you quantify on the basis of whether or not they truly represent the interest of inventors. I see an NPE as someone who’s created to help inventors. I don’t represent companies be they NPEs or whatever you want to call them, that are associated with inventors unless their model methodology is to help inventors. You do have a bunch of opportunists. Some of them are publically traded now. They’re playing a numbers game. They got—I don’t want to mention the company, but I think you can figure it out. That has a methodology of a bunch of people in horizontal across the board who’s job it is to generate revenue for the company. And their report card gets graded on how much revenue they generate. And they’re not as selective in what and how they enforce —they’re playing a numbers game. They don’t really care whether they win, lose, or draw, they get some lawyers to represent them and if I bring ten lawsuits and one turns out to be okay, that’s good for me. That methodology is bad. Because there isn’t a careful legitimate evaluation of the merits of the claim. They also happen to be the same kind of people that in my view are disconnected from the inventors. Their interest is not in helping an inventor.
In September of last year, the Federal Circuit overturned a “mega” jury award of over $357 million in damages in Lucent Technologies, Inc. v. Gateway, Inc. because the “lump-sum” royalty payment was not supported by “substantial evidence.” See Entire Market Value Rule Lives As $357 Million Verdict Dies. At the heart of the Lucent case was how to calculate damages based on a reasonable royalty using the Georgia-Pacific factors, especially the “entire market value” rule (aka factor 13). In the recent case of ResQNet.com, Inc. v. Lansa, Inc., a majority of a Federal Circuit panel (per curiam) overturned a even more modest damage award (just over half a million dollars) based on an allegedly incorrect royalty rate based on the Georgia-Pacific factors, this time factor one (aka “existing licenses”). Judge Newman, who was a member of the Lucent panel, took a different view of the evidentiary value of these “existing licenses” and dissented in part.
The appeal in Lucent Technologies, Inc. v. Gateway, Inc. from the Southern District of California was considered in many quarters as the potentially seminal case on how to calculate damages based on a reasonable royalty using the Georgia-Pacific factors, especially the “entire market value” rule (aka factor 13). That Microsoft and others were currently on the hook to Lucent Technologies (the patentee) for approximately $357 million in damages based on the jury award definitely raised some “eyebrows” about this case. In fact, with all the “hub-bub” about altering the “entire market value” rule in the damages provision of the Patent Law Reform Act of 2009 (S. 515 and H.R. 1260), the Federal Circuit’s handling of the damages award issue in Lucent Technologies case was being watched very carefully.