Tough times ahead for patent trolls in the US as Innovation Act is passed by House of Representatives

On 5 December 2013, the US House of Representatives passed the Innovation Act (otherwise known as the Goodlatte Bill).  The Act is widely considered to be, in part, an attempt to curb the practices of “patent trolls”.  Key provisions include:

  • increased pleading requirements for patent infringement claims;
  • limitations on the extent of discovery required at early stages in litigation; and
  • powers for the Court to order that the loser pays the prevailing party’s costs.

The behaviour of patent trolls has been the subject of intense scrutiny in the US following the publication of a White House Paper in June 2013 that was critical of the impact that patent trolls were having on the US economy.  In addition to the Innovation Act, the Senate are also currently considering another piece of draft legislation – the Patent Transparency and Improvements Act – which is also considered to be an attempt to curb the behaviour of patent trolls.  Furthermore, the FTC has requested input on its proposal to scrutinise the practices of patent trolls by posing a number of questions to a selection of trolls concerning their structures and practices.  The deadline for responses is 16 December 2013.  For more on the FTC study, see here.

We can expect the political and legal scrutiny of troll activity to continue well into the New Year.

Osman Zafar

The 4th Patent Settlement Monitoring Report – what’s new and what’s notl

The 4th annual report on the Commission’s pharma patent monitoring exercise was published yesterday (here).  The relative numbers of the different types of settlements (those which the Commission regards as non-problematic vs. those which restrict generic entry / include a “value transfer”) are not so very different from last year, at least once the effect of Portugal’s newly introduced Hatch Waxman-type regime is taken out of the equation.

Indeed, much of the text of the report is also very similar to previous years.  However, there are a few important additions which appear to give an indication of some of the issues in the various cases that the Commission has been looking at.  This is particularly useful information for the industry given the delayed public access to the Lundbeck decision. 

Probably the most interesting part of this report compared with previous years are the aspects which indicate how the Commission views early entry type agreements.  The Commission has not always been clear on how it views settlement agreements which split the difference between the date of the settlement agreement and the date of patent expiry.  It has been assumed by some in the industry that the Commission views such settlements more favourably than those which limit the generic company’s entry until patent expiry.  It appears that this is not – or not always – the case, unless the entry is immediate and not limited in any way (e.g. by any requirement to pay royalties, or by any constraints on the marketing of the generic company’s own product).  See paragraph 11 of the report which clearly states: “agreements providing for an early entry of a generic medicine will be seen as limiting generic entry where entry is not immediate”.  This approach is followed up in the analysis of the BII settlements (i.e. those that the Commission regards as most likely to attract competition law scrutiny) which distinguishes a number of settlements of in which the “value transfer” element consists of early entry and licence granted to the generic company. 

However, paragraph 13 also notes that in some cases “an early entry may be pro-competitive when compared to the parties’ anticipated outcome of the litigation”.  This is new to the report, and demonstrates that the Commission intends to infer the likely outcome of the litigation from the companies’ internal or other contemporaneous statements about the likely outcome.  (This is surely open to gaming – companies involved in patent litigation now have an incentive to make over-inflated statements of confidence in order to try to support their belief that they would have won the litigation.  In our view, a more appropriate point of comparison would be the actual context of the agreement, e.g. whether the generic has a marketing authorisation, is actually ready to enter immediately or not, although even in that case it should not follow axiomatically that any settlement agreement including restrictions and a value transfer will be unlawful.)   

Other new aspects worth noting are as follows:

  • The wide definition of the concept of “value transfer” continues, with the example of the  purchase of stocks from the generic at market price being explicitly listed (see paragraph 12).  It appears that this practice is drawn from one of the Lundbeck agreements that the Commission held infringed Article 101 earlier this year (the press release announcing the decision against Lundbeck stated that the company: “purchased generics' stock for the sole purpose of destroying it”);
  • There are a number of new references to the treatment of non-assertion clauses under which the patentee promises not to assert the patent, but does not specifically grant a licence.  These references do not sit easily with the sections describing the treatment of immediate entry settlements (as discussed above).  Contrary to the favourable view of immediate entry settlements, non-assertion clauses “may be perceived as constituting a value transfer” as “the generic gained marketable value”.  Although the report suggests that such agreements may not attract “the highest degree of antitrust scrutiny”, this is of little comfort to the parties to such an agreement in an age of private competition law actions, and given the potential unenforceability of such agreements.  
  • The Commission also responds to commentary suggesting that its policy will force companies to litigate to the bitter end, suggesting that the number of settlement agreements and the high proportion which are unproblematic in the Commission’s eyes means that there is no such problem.  This is difficult to assess fully without access to the settlement agreements themselves, but it is very likely that the majority of the settlement agreements in the A category (no restrictions imposed) in particular are not true settlements of litigation which remains contested, but rather discontinuations by the patentee.  There is a suggestion of this in the note in paragraph 37 which refers to the proportion of settlements concerning expired patents. Similarly, B1 settlements appear to involve the generic simply giving up and accepting to be bound by the patent.

The inconsistencies noted above suggest that even after a sector inquiry and four rounds of reports, a number of issues in this space still remain to be fully worked out even to make the Commission’s own internal policy fully coherent.  Given the recent appeals announced by the parties to the Lundbeck agreements, the General Court will eventually have the opportunity to look at the Commission’s approach.  However, it is likely to be a number of years before a clear view emerges.

Sophie Lawrance

Almunia's speech

Competition policy and its relationship with IP is the regulators’ topic of the moment. EU Commissioner Almunia chimed in today (9 December - see here) following the comments of FTC Commissioner Ohlhausen on 4 December (see here). Regulatory humility was the theme of one of the speeches; the other was quicker to advocate competition law intervention to remedy perceived defects in other mechanisms (in the case in point, where SSOs are said not to be acting quickly to limit recourse to injunctive relief for SEPs). Both mentioned the need for restraint and care in enforcement given possible ramifications for investment and innovation. However, the views of the two as to when intervention is appropriate/necessary appear to diverge. The tone and content of the speeches were markedly different and they are worth reading side by side to appreciate the distinctions. In sum, it seems likely that significant enforcement on IP issues in the EU will continue.

Pat Treacy

Commission turns its attention to online sales

In November 2013, Commissioner Almunia delivered a speech at the London School of Economics entitled “Competition in the Online World”.  Almunia set out his perception of the importance of competition law enforcement in the online sector, noting that “what happens in the online world today has important implications for virtually every other sector in the digital economy.”  Clearly as he moves into the final months of his term, Almunia is keen to stress the significance of the online world.

Following his speech, on 5 December 2013, the Commission confirmed that it had initiated unannounced inspections in several Member States at the premises of a number of retailers of consumer electronic products and small domestic appliances.  According to it press release found here, the Commission suspects that the companies in question may have put in place restrictions on online sales which may be anti-competitive.

The Commission’s focus on online sales is mirrored by national competition authorities.  A number of authorities are particularly watching this space, including Germany’s Bundeskartellamt and the UK’s OFT.  In its Annual Plan for 2013-14, the OFT stated that it would “continue to focus on online sales channels” on the basis that “online commerce brings many benefits for consumers and contributes to innovation and economic growth, but may also remain a significant area of potential consumer detriment.

Osman Zafar

Another front in the telecoms 'patent wars': a novel type of antitrust complaint

An NPE, Cascades, has accused a group of handset manufacturers of entering into a collective 'boycott' of licensing negotiations.  The collusion is alleged to have been orchestrated via RPX, which has been described as “a defensive patent aggregator – an “anti-troll” – formed to protect its members from NPEs”.   See“Anti-Patent Troll” Fails to Secure Dismissal of Amended Antitrust Complaint.

As if the antitrust analysis in the ' patent wars' wasn't complex enough...

Helen Hopson

How efficient is the Commission at making decisions under Article 101 (3)?

I attended a Kings College lecture given by Professor Richard Whish yesterday.  Prof Whish gave a typically well-argued presentation designed to provoke the rehabilitation of Article 101(3) as a basis for competition law exemption.  His suggestion (which he has also made to members of the DG Comp) is that more reasoned non-infringement decisions should be reached, in which Article 101(3) is applied, particularly in relation to matters such as online selling which (the world having moved on) are not addressed in any of the corpus of pre-self-assessment case law.

I can’t say I’m optimistic that the Commission will find the resources (and political willpower) to go in this direction.  Article 101(3) looks set to remain the last refuge of the desperate for some time to come…

Sophie Lawrance

The Commission clears Microsoft/Nokia merger

The European Commission unconditionally cleared the proposed purchase of Nokia’s smartphone arm by Microsoft. It decided that the overlap between activities of these two companies is relatively small and that the transaction is unlikely to lead to reduction of competition on the smartphone market. It also noted that even after the merger there will be still a number of other major competitors left, including Samsung and Apple. More details could be found in the Commission press release here

It is ironic that the Commission pointed out that Microsoft’s position on the mobile operating systems market and on the smart mobile devices market is limited and that the merger is unlikely is to change it. In the competition practitioners’ community Microsoft is most known for its lengthy dispute with (yes you guessed it) the Commission concerning abuse of dominant position on the desktop PC operating system market which resulted in record-breaking fine. It also opened up a discussion whether the competition law should trump the intellectual property rights (which is a topic for another post).

Another point to note is that the Commission did not address any concerns relating to Nokia’s portfolio of standard essential patents (SEPs), as they fall outside the scope of the merger review. However it will closely monitor Nokia’s licensing activities following the merger to ensure that it complies with the provisions prohibiting abuse of dominant position – the very same ones which Microsoft breached few years ago. The Commission is currently very active in the SEP area and in 2012 it initiated proceedings against Samsung and Motorola. Watch this space to stay tuned. 

Damian Pietrzak

IBC Standards and Patents conference

At the IBC Standards and Patent Conference in London on Wednesday (4 December) there were heated debates about FRAND and SEPs, as you would expect, with plenty of comment from industry ( including Microsoft, Philips, Nokia, Qualcomm, Intel) and regulators including Thomas Kramler from DG Comp’s Information Industries’ Unit.  In the context of all the detailed commentary about possible changes in how FRAND and SEPs are dealt with (both today and in the future, whether in SSOs; courts; through arbitration; or by regulators), the broader overview by FTC Commissioner Maureen Olhausen about the role of the FTC and her approach to the Antitrust/ IP interface was a useful counterpoint. Commissioner Olhausen stepped back to look at some fundamentals, explaining why she had dissented from a couple of recent FTC actions affecting IP. It is well worth a look if you are interested in this area and can be found here.

Pat Treacy

China has its say in the global F/RAND and SEP licensing debate

A recent Chinese appeal court's ruling is likely to have made quite an impression on those responsible for the negotiation for licenses for global SEP portfolios.   In a licensing dispute between Interdigital and Huawei, essentially it appears that the Chinese appeal court has affirmed the lower Shenzen court's ruling on two crucial points.

  1. On Huawei's abuse of dominance claim, that InterDigital had abused its dominant market position by: (i) tying its SEPs with non-SEPs during licensing negotiations; and (ii) seeking injunctive relief against Huawei before the US District Court in Delaware and before the ITC, while still in negotiations with Huawei to force it to accept unreasonable licensing terms including excessive royalties.
  2. On Huawei's F/RAND claim, that InterDigital failed to comply with the F/RAND commitments in relation to its SEPs by: (i) bringing injunction proceedings and asking Huawei to pay significantly higher royalties than those paid by Apple and Samsung; and (ii) insisting on Huawei’s licensing, to InterDigital, all of its own patents obtained globally on a royalty-free basis.  With few judgments/decisions actually making F/RAND determinations, perhaps of most interest to those in SEP licensing negotiations, is the fact that the Shenzen court had determined that the F/RAND royalty rate for the InterDigital SEPs concerned should not exceed 0.019 percent of the actual sales price of each Huawei product.  This (incredibly low and arguably protectionist) figure still stands...

There remains uncertainty about parts of the ruling,  but the Chinese appeal court appears also to have indicated that there are efficiencies from portfolio licensing, and appears also to have treated InterDigital as a form of PAE.  For the full article and excellent summary of the issues, see here.

Osman Zafar

EU authorities coordinate in bringing investigations against Amazon to a close

Given all that's been happening on the competition/IP interface in recent months (and the aversion of most competition lawyers to looking at contracts),  it's easy to see why 'most favoured nation' clauses may not been at the forefront of our minds.  However, building on the (brief) antitrust analysis of such clauses in the US and EU e-books investigations (see here), as Christmas shopping panic sets in the UK and German competition authorities may have done us all a favour...*

Both authorities have recently brought to a conclusion parallel investigations into Amazon's 'price parity' policy. Amazon had insisted on contractual provisions which meant that sellers on its Marketplace platform had to offer their lowest prices through Amazon, in effect preventing third party sellers from offering the same products for less on other platforms such as eBay or indeed their own sites online.  Both the OFT and the Bundeskartellamt only agreed to close their investigations once they were happy that not only had Amazon ceased to have its 'price parity' policy in place, but also that it had communicated its change of policy to third parties.

The cases are another good example of the appetite of national competition authorities (NCAs) for looking into problematic vertical restraints, and the coordination that one can now expect to be a given through the European Competition Network (ECN).

Speaking of which, of course many of the policies pursued by giants of the online world such as Amazon are set on a global basis.  For a interesting view from the other side of the Atlantic (albeit with little comment on antitrust issues), see here

* Depending of course on how reliant one is on Amazon!

Osman Zafar