APRIL 22-26, 2013

THIS WEEKS CONTRIBUTING AUTHOR IS MAC CONFORTI EDITED BY KOREN W. WONG-ERVIN PATENTS

U.S. Court Determines RAND Royalty Rate and Range for Motorolas SEPs
In a 207-page decision, U.S. District Court Judge James Robart became the first U.S. court to set a RAND royalty rate and range for standard-essential patents (SEPs) in a dispute between Microsoft Corp. and Motorola, Inc. The court adopted a modified-version of the Georgia-Pacific factors to recreate a hypothetical negotiation between the parties. The court determined that the parties in a hypothetical negotiation would set RAND royalty rates by looking at the importance of the SEPs to the standard and the importance of the standard and the SEPs to the products at issue. (Findings of Fact and Conclusions of Law at 7.) The court further stated that a proper methodology for determining a RAND-royalty should address the risk of royalty-stacking by considering the aggregate royalties that would apply if other SEP holders made royalty demands of the implementer. (Id. at 25.) Furthermore, a RAND commitment should be interpreted to limit a patent holder to a reasonable royalty on the economic value of its patented technology itself, apart from the value associated with incorporation of the patented technology into the standard. (Id. at 25-26.) Lastly, the court held that, [d]espite concerns with using a pool rate as the de facto RAND royalty rate, the court concludes that under certain circumstances, patent pools can serve as indicators of a royalty rate that falls within the range of royalties consistent with the RAND commitment. (Id. at 164.) In Georgia-Pacific, the Southern District of New York compiled the following list of fifteen factors relevant to a reasonable royalty calculation in the context of damages in a patent infringement suit: (1) royalties received by the patentee for the patents at issue; (2) rates paid by licensees for the use of comparable patents; (3) the nature and scope of the license; (4) the licensors policy and marketing program; (5) the commercial relationship between the licensor and licensee; (6) the effect of selling the patented specialty in promoting sales of other products of the licensee; (7) the duration of the patent and the term of the license; (8) the established profitability of the product made under the patent; (9) the utility and advantages of the patent property over the old modes or devices; (10) the nature of the patented invention; (11) the extent to which the infringer has made use of the invention, and any evidence probative to the value of that use; (12) the portion of the profit or of the selling price that may

be customary in the particular business or in comparable businesses; (13) the portion of the realizable profit that should be credited to the invention; (14) the opinion testimony of qualified experts; and (15) the amount that a licensor and a licensee would have agreed upon at the time infringement began if both had been reasonably and voluntarily trying to reach an agreement. Judge Robart held that factors 4 and 5 do not apply in the RAND context. With respect to factor 1, the court held that, in order to prove an established royalty rate for an SEP, the past royalty rates for a patent must be negotiated under the RAND obligation or a comparable negotiation. With respect to factors 6 and 8, the court noted that it is important to focus the analysis on the value of the patented technology apart from the value associated with incorporation of the patented technology into the standard. With respect to factor 7, the court stated that the analysis is greatly simplified in the context of a dispute over a reasonable royalty for a RAND-committed patent because the term of the license would equate to the duration of the patent. (Id. at 37.) As for factor 9, the court stated that [t]hrough this factor, the parties to a hypothetical negotiation under a RAND commitment would consider alternatives that could have been written into the standard instead of the patented technology. . . . Thus, through factor 9, Microsofts incremental approach to determination of a RAND royalty rate is realized, in part. (Id. at 37-38.) With respect to factors 10 and 11, the court stated that [i]n the RAND context, both of these factors focus the hypothetical negotiation on the contribution of the patent to the technical capabilities of the standard and also the contribution of those relevant technical capabilities to the implementer and the implementers products. (Id. at 38.) Factor 12 must be viewed through the lens of business practices involving RAND commitments. Under factor 13, in the RAND context, it is critical to consider the contribution of the patented technology apart from the value of the patent as the result of its incorporation into the standard. (Id. at 39.) And lastly, with respect to factor 15, the SEP owner and the implementer would consider the RAND commitment and its purposes in their efforts to reach a license agreement. (Id.) Lastly, the court stated that reasonable parties in search of a reasonable royalty rate under the RAND commitment would consider the fact that, to induce the creation of valuable standards, the RAND commitment must guarantee that holders of valuable intellectual property will receive reasonable royalties on that property. (Id.) In applying this framework, the court held that the RAND royalty rate for Motorolas H.264 SEP portfolio is 0.555 cents per unit, with the range set at between 0.555 and 16.389 cents per unit. This rate and range are applicable to both Microsoft Windows and Xbox products. For all other Microsoft products, the royalty rate is 0.555 cents per unit. With respect to Motorolas 802.11 SEP portfolio, the court held that the RAND royalty rate is 3.471 cents per unit, with the range set at between 0.8 and 19.5 cents per unit. This rate and range is applicable to Microsoft Xbox products. For all other Microsoft products, the royalty rate is 0.8 cents per unit. Motorola contended that it was entitled to a royalty rate of 2.25% of the net selling price of Microsofts Windows and Xbox products for both its H.264 and 802.11 SEP portfolios. Microsoft contended that the MPEG LA H.264 patent pool is the best indicator of a RAND royalty rate for Motorolas H.264 SEPs. The court concluded that several of Motorolas patents provided only minimal contribution to the standards and played only minor importance in the overall functionality of some of Microsofts products. Although the court agreed as a general matter that patent pools tend to produce lower rates than those that could be achieved through bilateral negotiation, the court nevertheless found that [b]ecause the characteristics of the MPEG LA H.264 pool closely align with all of the purposes of the RAND commitment, the court concludes that the pool rate is a strong indicator of a RAND royalty rate for Motorolas H.264 portfolio. (Id. at 160, 166.) According to the court, the fact that Google also

participates in the MPEG LA H.254 patent pool supports the conclusion that this pool provides a logical indicator for the RAND royalty rate at issue in this case. (Id. at 167.) The court also found that the Via Licensing 802.11 patent pool is an indicator of a RAND royalty rate for Motorolas 802.11 SEP portfolio, albeit not a strong indicator because neither Microsoft nor Motorola had joined the pool, and the pool had not been successful in encouraging widespread adoption of the standard. Source: Findings of Fact and Conclusions of Law, Microsoft Corp. v. Motorola, Inc. (April 25, 2013), available at http://www.scribd.com/doc/138032128/13-04-25-Microsoft-Motorola-FRANDRate-Determination.

A New Report Concludes that the Availability of Injunctive Relief for SEP Holders Varies Across the Globe
In April, Jones Day released a white paper analyzing the extent to which injunctive relief is available to holders of standard-essential patents (SEPs), and under what, if any, terms those holders are required to license their patents. The report concludes that jurisdictions vary in allowing injunctive relief for FRAND-encumbered SEPs. Courts in the United States have discretion to grant injunctions to stop patent infringement when the balance of traditional equitable factors, including a consideration of the public interest, weighs in favor of granting injunctive relief. (Report at 1.) However, in some countries, the issuance of an injunction is (almost) automatic once infringement is proven. Courts in Germany, the Netherlands, Japan, and China have recently issued opinions on the matter, and have taken differing approaches. Unlike U.S. courts, German courts generally have no discretion as to whether to grant an injunction. Instead, if infringement is proven, German courts issue an injunction as a matter of law. If the asserted patent is a FRAND-encumbered SEP, however, a German court may invoke a narrow limitation on the issuance of injunctions in exceptional cases based on principles of antitrust law, provided that the infringer actually pays reasonable royalties. (Id.) In China, a recent advisory decision suggests that a FRAND-based defense may be a complete defense to liability for infringement and that, in all events, the royalty rate for FRAND-encumbered SEPs should be significantly lower than for non-SEPs. Lastly, recent actions in the United States and the EU indicate that competition law enforcement will be more active in this area under the theory that seeking injunctive relief when an accused infringer is willing to license a FRAND-encumbered SEP would violate competition laws. Sources: Jones Day, Standards-Essential Patents and Injunctive Relief (April 2013), available at http://www.jonesday.com/files/Publication/77a53dff-786c-442d-8028906e1297060b/Presentation/PublicationAttachment/270fc132-6369-4063-951b294ca647c5ed/Standards-Essential%20Patents.pdf. Ryan Davis, Unsettled SEP Injunction Law Calls For Caution, Report Says, Law360 (April 22, 2013), available at http://www.law360.com/competition/articles/434744/unsettled-sepinjunction-law-calls-for-caution-report-says (subscription only).

Insurance Companies Attempt to Cover Risks of Patent Troll Litigation

Several insurance companies have recently designed products attempting to help companies mitigate the risks faced by patent troll litigation. For example, Intellectual Property Insurance Services Corp. announced a new product offering patent defense insurance, including coverage against suits brought by non-practicing entities. However, carrying such insurance is costly and brings its own risks for companies. Experts say that given the uncertainties surrounding patent litigation as well as the huge expense in defending such litigation, insurance companies are charging high premiums. Further, litigation costs also result in companies quickly exceeding their coverage limits, and buying the insurance may actually invite patent suits. Source: Erin Coe, Risks of Patent Troll Insurance May Slow Adoption, Law360 (April 22, 2013), available at http://www.law360.com/ip/articles/434841/risks-of-patent-troll-insurance-mayslow-adoption (subscription only).

Bipartisan Group Reintroduces the PARTS Act, Attempting to Shorten the Length of Auto Part Design Patents
On April 23, a bipartisan group of congressmen reintroduced the Promoting Automotive Repair, Trade, and Sales (PARTS) Act, which is designed to shorten the term of auto part design patents, particularly those covering collision repair parts. The proposed legislation would shorten the term of auto part design patents from 14 years to 30 months, during which time competing suppliers could test, research, and develop parts on a not-for-sale basis. The PARTS Act provides, in relevant part, that after 30 months of a company issuing a component part for sale to the public, it shall not be an act of infringement of such design patent to make or offer to sell within the United States any article of manufacture that is similar or the same in appearance to the component part . . . if the purpose of such article of manufacture is for the repair of a motor vehicle so as to restore such vehicle to its appearance as originally manufactured. (H.R. 1663 271(j)(1)(B).) According to Rep. Darrell Issa (R-CA), the PARTS Act will not only increase consumer choice therefore reducing aftermarket costs but encourage innovation and competition among other aftermarket parts manufacturers. (Issa Press Release at 1.) Similar legislation was proposed last year, where it met resistance from the Alliance of Automobile Manufacturers. Sources: Promoting Automotive Repair, Trade and Sales Act, H.R. 1663 and S. 780, available at http://articles.law360.s3.amazonaws.com/0435000/435591/Parts%20Act.pdf. Congressman Issa Press Release, available at http://issa.house.gov/press-releases/2013/04/issalofgren-whitehouse-and-hatch-introduce-parts-act/.

Ryan Davis, Bill Introduced To Shorten Term Of Auto Part Design Patents, (April 24, 2013), available at http://www.law360.com/ip/articles/435591/bill-introduced-to-shorten-term-ofauto-part-design-patents (subscription required). PHARMACEUTICALS

Court Certifies Class Action Alleging that Astellas Pharma Delayed Generic Versions of the Drug Prograf
On April 23, a Massachusetts federal court certified a class of direct purchasers asserting claims that Astellas Pharma US Inc. unlawfully delayed entry of a generic version of its drug Prograf. The class alleges that Astellas filed a sham citizens petition and court actions in an attempt to delay entry of its generic competitor. In certifying the class, the court concluded that: All of the Direct Purchaser Class members share a common interest in proving the existence, scope and effect of Astellass alleged anticompetitive conduct, which allegedly led to higher prices for tacrolimus in the actual world than would have been paid in the but-for world, and all Direct Purchaser Class members, share a common interest in recovering the overcharge damages prayed for in the consolidated amended complaint. (Order at 4.) Sources: Order Certifying Direct Purchaser Class (April 23, 2013), available at http://articles.law360.s3.amazonaws.com/0435000/435649//mnt/rails_cache/https-ecf-maduscourts-gov-doc1-09515449698.pdf. Kathryn Brenzel, Pharma Cos. Get Cert. In MDL Over Generic Prograf Delays, Law360 (April 24, 2013), available at http://www.law360.com/competition/articles/435649/pharma-cos-getcert-in-mdl-over-generic-prograf-delays (subscription required). THE TECHNOLOGY SECTOR

The EC Seeks Comments on Google Concessions in Search Bias Probe

The European Commission (EC) is seeking comments from interested parties and the public on the concessions that Google Inc. has offered to end a two-and-a-half year probe of its search advertising business. The ECs investigation into Googles search algorithms and result rankings began in 2010 as a result of complaints by rivals, including U.K.-based Foundem. Googles commitments include a five-year commitment to (1) label promoted links to its own specialized search services so that users

can distinguish them from natural web search results, (2) offer all websites the option to opt-out from the use of their content in Googles specialized search services, (3) cease including in its agreements with publishers any written or unwritten obligations that would require them to source online search advertisements exclusively from Google, and (4) cease imposing obligations that would prevent advertisers from managing search advertising campaigns across competing advertising platforms. Comments will be accepted for the next month. Sources: EC Press Release, Antitrust: Commission seeks feedback on commitments offered by Google to address competition concerns (April 25, 2013), available at http://europa.eu/rapid/pressrelease_IP-13-371_en.htm EC Memo, Commission seeks feedback on commitments offered by Google to address competition concernsquestions and answers (April 25, 2013), available at http://europa.eu/rapid/press-release_MEMO-13-383_en.htm EC Procedures for Comments, http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:120:0022:0024:EN:PDF UPCOMING PROGRAMS

Antitrust and Patent Assertion Entities: The DOJ-FTC Joint Workshop

May 7, 2013 12:00-1:15 Eastern In December 2012, the DOJ and FTC held a joint workshop on patent-assertion entity (PAE) behavior. The DOJ and FTC also solicited comments from the public, which were submitted through April 5, 2013. In this program, panelists from the DOJ, FTC, in-house, and private practice will discuss the recent joint workshop and public comments, as well as explore the legal theories concerning PAE activity through a series of hypothetical scenarios. To register and receive dial-in information, please visit http://www.americanbar.org/content/dam/aba/marketing/20130507_at13507.authcheckdam.pdf

Identifying Antitrust Issues in IP Matters

May 22, 2013 Noon-1:15 PM Eastern In this second of a two-part series of joint programs hosted by the ABA Section of Antitrust Law and the ABA Section of Intellectual Property Law, panelists from the government, in-house, and private practice will discuss how to identify possible antitrust issues in intellectual property matters. Topics will include acquisitions, enforcement, and standard setting.

To attend via teleconference, please register at http://www.americanbar.org/content/dam/aba/marketing/20130522_at13522.authcheckdam.pdf

International Licensing Issues in the U.S., India, and Japan

June 19, 2013 9:30-10:45 AM Eastern In this joint program hosted by the Intellectual Property and International Committees, panelists from the FTC, in-house, and private practice will explore licensing issues in the U.S., India, and Japan. The program will include an overview of existing law and new developments, as well as hypothetical questions aimed at providing a comparative analysis of the different jurisdictions. To attend via teleconference, please register at http://www.americanbar.org/content/dam/aba/marketing/20130619_at13619.authcheckdam.pdf Visit our resources page at: http://www.americanbar.org/content/dam/aba/publications/antitrust_law/at315000_resources_archived. authcheckdam.pdf A special thanks to Debbie Bellinger for her weekly contributions to tidBITS.