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International Intellectual Property, Spring 2009

International Intellectual Property, Spring 2009

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Is there more damage than remedy in reforming patent law Document Transcript

  • 1. INTERNATIONAL INTELLECTUAL PROPERTYIs there more Damage than Remedy in Reforming Patent Law: A Comparative Study of Patent Infringement Damages Kathleen Broughton CWRU School of Law April 28, 2009
  • 2. Introduction The prophetic mantra found in history repeating itself is not exclusive. As thePatent Reform Act of 2009 was recently presented to the House and Senate this spring, it iscurious as to whether or not the act will pass or again be given a nix like the Patent ReformAct of 2007.1 One of the major barriers is the proposed method to assess damages. Thisissue alone may cause a halt to reform the current patent statutory code. The intent of this article is understand the current method the United States is usingto calculate damages and determine if the Patent Reform Act of 2009 is similarly situated toother countries methods to calculate damages or if the reform act cuts away in a differentdirection. First, a review of the current statutory language governing the method damagesare calculated will be reviewed in light of judicial interpretation. Then, a transition will bemade to look at the method other countries are calculating damages. An intended focuswill be with England and Canada since these two countries are more prone to also hear andhave remedies for patent infringement suits. Then, the focus will look closer at the PatentReform Acts of 2007 and 2009 to determine what the statutory changes are and how thecurrent Congress and patent gurus interpret and predict the impact will have on thevarious forms of technological arts. The Patent Reform Act of 2009 of the 111 Congress, at S. 515 and H.R. 1260, was presented to the House and1Senate on March 3, 2009. A copy of the Patent Reform Act of 2009 presented to the Senate can be found athttp://www.patentlyo.com/patentreformactof2009.pdf; and the bill presented to the House can be found athttp://www.patentlyo.com/housepatentbill.pdf. A copy of the Patent Reform Act of 2007 presented to the Senatecan be found at http://www.patentlyo.com/patent/files/PatentReform2007.SENATE.pdf; a copy of the same billpresented to the House can be found at http://www.patentlyo.com/patent/files/PatentReform2007.HOUSE.pdf. 2
  • 3. Current U.S. Patent Damages Calculations Patent law in the United States is rooted in Constitution since its adoption onSeptember 17, 1787. The Constitution gives Congress the power “to promote the progressof science and the useful arts, by securing for limited times to authors and inventors theexclusive right to their respective writings and discoveries.”2 Congress has enacted variouslaws to promote innovation.3 One method to promote innovation is through protection ofthe ideas through incentives to the patent owners. With this, patent infringement hasbecome a very dangerous and costly business. Many companies devote large portions oftheir internal cost budgets to not only to innovate, but to protect the propriety rights oftheir intellectual property. Furthermore, infringement remedies have continued toexponentially increase as technology has become more complex, and damage awards haveskyrocketed in the last decade.4 It is common knowledge that the best damage remediesare found by jury in the Eastern District of Texas followed by the Eastern District ofVirginia. Thus, the issue of damages, specifically how to calculate damages, is critical.Currently, damages calculated under 35 U.S.C. §284 reads in pertinent part: Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. U.S. Constitution Article I, section 8, clause 8.2 The most recent statutory law governing patents was enacted on July 19, 1952, effective January 1, 1953, and is3codified in Title 35 of the United States Code. See Empirical Data on Patent Damages and Permanent Injunctions Presented at Federal Trade Commission4Hearings on “The Evolving IP Marketplace” which discusses the overall trends in US patent infringement suits. 3
  • 4. When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed.5Adequate compensation holds a baseline of a “reasonable royalty.” It is more likely that avictim of infringement will seek damages based on lost profits.6 Under either analysis thecourt can award up to three times the amount assessed. Courts apply varied methods at arriving at a reasonable royalty rate. Two of themost utilized forms of calculating patent infringement damages are using a single lumpsum fee or analyzing a rate per year multiplied by the total number of years the productwas infringed. One of the factors used in determining the royalty rate is the market of theproduct; if an invention leads to significant change in the number of units sold or additionaldevices by the company, then courts will factor such changes into the analysis to determinean appropriate royalty rate. Courts may also consider other similar contracted royaltyrates in determining what the infringer should pay. The patent claim may additionally havean impact on the method of analyzing the royalty rate because the claim may limit thescope of what was protected by the patent. Overall, the courts typically look to sales of aproduct prior to or at the time of the infringement occurring in determining a reasonableroyalty rate. 35 U.S.C. §2845 See Assessing Damages Recoverable in Patent Infringement Cases, New York Law Journal, April 3, 2003, which6states “Lost Profits damages are assessed under Panduit. To recover lost profits, a patentee must show that “butfor” the infringement, the patentee reasonably would have made additional profits. A patentee may use anymethod to show the “but for” connection, but this argument usually involves a fairly sophisticated marketreconstruction. As the Federal Circuit explained, “[t]o show ‘but for’ causation and entitlement to lost profits, apatentee must reconstruct the market to show, hypothetically, likely outcomes with infringement factored out ofthe economic picture.” http://www.thelen.com/resources/documents/NYLJ-4-8-03.pdf, (last viewed April 6, 2009).The Actual Panduit factors are: 1) a demand for the patented product, 2) the manufacturing and marketingcapacity to meet the demand, 3) the absence of acceptable noninfringing alternatives that offer the advantages ofthe patented device, and 4) the amount of profit the patentee would have made. Panduit Corp. v. Stahlin Bros.Fibre Works, Inc., 575 F2d 1152, 1156 (6 Cir. 1978). th 4
  • 5. There are two primary effects on the market and patent claim scope based onroyalty rate calculations recognized by practitioners and the courts – “entire market valuerule” and “apportionment.” The “entire market value rule” recognizes that “the economicvalue added to a produce by a patented feature may be greater than the value of the featurealone.”7 Federal Courts rely on Rite-Hide which decided the governing rule that where apatent infringement occurs in a product or process which is the selling point of a product,the reasonable royalty rate should be based on the entire unit of the sale rather than justthe product or process that was infringed. Under this analysis a patentee claiminginfringement must prove that the sale of a product was due to the alleged infringedinnovation. The burden of proof placed on a plaintiff is very similar to tort law. The other type of royalty rate calculation recognized in patent infringementdamages is “apportionment,” which is based on making an assessment of relevant factors todetermine what an appropriate royalty rate is. Georgia Pacific is the leading case definingfifteen relevant factors to defining reasonable royalty rates under the apportionmenttheory.8 9 These factors have created a great deal of concern in the legislature because ofthe manner courts have applied them post Georgia Pacific. William C. Rooklidege, “Reform” of Patent Damages: S. 1145 and H.R. 1908.7http://www.patentsmatter.com/press/pdfs/Patent_Damages_Reform_Rooklidge.pdf (last viewed April 4, 2009). Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), modified and8aff’d, 446 F.2d 295 (2nd Cir. 1971), cert. denied, 404 U.S. 870 (1971). Gene Quinn, Patent Infringement Damages, http://www.ipwatchdog.com/patent/patent-infringement-9damages/, (last visited April 1, 2009). The Georgia Pacific factors to calculate a reasonable royalty rate underapportionment include: 1. The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty. 2. The rates paid by the licensee for the use of other patents comparable to the patent in suit. 3. The nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold. 4. The licensor’s established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly. 5
  • 6. With the current methods available to calculate damages related to patentinfringement, the juries, along with the courts, have continued to increase damagesawarded. Such awards can be seen as an exponential rate of growth.10 The largest patentdamage award granted to date was in the U.S. District Court for the Southern District ofCalifornia, in 2008, for over $1.5 billion in reasonable royalty damages.11 This has leadsome people wary in the method of calculating patent damages and has lead to attempts tolegislatively reform patent law.12 Reform measures were introduced to Congress recentlyin 2005, 2007 and now again this spring 2009. 5. The commercial relationship between the licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or whether they are inventor and promoter. 6. The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales. 7. The duration of the patent and the term of the license. 8. The established profitability of the product made under the patent; its commercial success; and its current popularity. 9. The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results. 10. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention. 11. The extent to which the infringer has made use of the invention; and any evidence probative of 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 to allow for the use of the invention or analogous inventions. 13. The portion of the realizable profit that should be credited to the invention as distinguished from non- patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer. 14. The opinion testimony of qualified experts. 15. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee — who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention — would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license. See http://www.dilanchian.com.au/ip/patent-infringement-damages-skyrocket.html which discusses the overall10trends in venues and juries compared to damage awards given for patent infringement. Lucent Technologies Inc. v. Gateway, Inc., 543 F.3d 710, (2008).11 David Blackburn and Mario Lopez, Where’s the Economics behind Lucent v. Gateway et al? NERA Economics12Consulting, March 22, 2007. http://www.nera.com/image/PUB_Microsoft-Lucent_paper_0708.pdf. (last viewedApril 4, 2009). 6
  • 7. Patent Reform Acts Patent law continues to be scrutinized as intellectual property becomes the wealthof a business. Business people, and not only inventors, are waking up and seeing light inprotecting their propriety rights. This has given rise to stronger patent protection andenforcement of rights. In response, the statutes governing patents have been underquestion for at least the last decade. In 2005, legislation was first presented to Congress which would modify the processpatents are issued by the Patent and Trademark Office and interpreted by Federal Courts.Republican Congressman Lamar S. Smith, who introduced the Patent Reform Act of 2005on June 8, 2005, stated that the Act was “the most comprehensive change to U.S. patent lawsince Congress passed the 1952 Patent Act."13 Some of the main proposals included:changing to a first-to-file system rather than first-to-invent, eliminate the requirement ofdisclosing a best mode, limiting the scope of continuation applications, limiting thedamages for willful infringement, and limiting damage calculations to the inventivecontribution rather than the value of the entire product sold.14 The FTC was a majorpusher for the Act and made many proposals on what to reform in 2005.15 The Act neverpassed beyond congressional committees in either the House or the Senate. In 2007, an attempt to again reform patent laws was introduced to Congress. ThePatent Reform Act of 2007 was introduced to both Congressional branches on April 18,2007 by Democrat Howard Berman in the House and Democrat Patrick Leahy in the Senate. Dennis Crouch, Patent Reform: Patent Act of 2005, June 9, 2005.13http://patentlaw.typepad.com/patent/2005/06/patent_reform_p.html. (last viewed April 4, 2009). Id.14 Id.15 7
  • 8. This Act’s highlighted modifications to patent law included: switching to a first-to-filesystem, revising procedures for patent interference disputes, redefining “inventor,” andmodify patent infringement damage provisions. Such damage provisions include requiringa court to conduct an analysis of a patent’s specific contribution over prior art, allowincreased damages for willful infringement, and expand the prior user defense. The 2007Act was favored among Democrats and disfavored by Republicans.16 Ultimately, the Actwas passed by the House but was not voted on in the Senate before the bill died. A verysimilar Act was introduced in 2009. The 2009 Patent Reform Act is an identical bill produced for the 111th Congress andwas introduced on March 3, 2009 by Senators Orrin Hatch and Patrick Leahy andRepresentative John Conyers. This proposal is similar to the 2005 and 2007 Acts in suchrespects as first-to-file and expanding on the reexamination process. The Act again stirscontroversy in the proposed method for calculating a reasonable royalty.1718 However, the The Patent Reform Act of 2007: Report Together with Additional and Minority Views, to Accompany S. 1145,16Report No. 110-259, January 24, 2008 Patent Reform Act of 2009 §284(c) Proposal.17(c) STANDARD FOR CALCULATING REASONABLE ROYALTY.—(1) IN GENERAL.—The court shall determine, based on the facts of the case and after adducing any furtherevidence the court deems necessary, which of the following methods shall be used by the court or the jury incalculating a reasonable royalty pursuant to subsection (a). The court shall also identify the factors that arerelevant to the determination of a reasonable royalty, and the court or jury, as the case may be, shall consider onlythose factors in making such determination.(A) ENTIRE MARKET VALUE.—Upon a showing to the satisfaction of the court that the claimed invention’s specificcontribution over the prior art is the predominant basis for market demand for an infringing product or process,damages may be based upon the entire market value of that infringing product or process.(B) ESTABLISHED ROYALTY BASED ON MARKETPLACE LICENSING.—Upon a showing to the satisfaction of the courtthat the claimed invention has been the subject of a nonexclusive license for the use made of the invention by theinfringer, to a number of persons sufficient to indicate a general marketplace recognition of the reasonableness ofthe licensing terms, if the license was secured prior to the filing of the case before the court, and the courtdetermines that the infringer’s use is of substantially the same scope, volume, and benefit of the rights grantedunder such license, damages may be determined on the basis of the terms of such license. Upon a showing to thesatisfaction of the court that the claimed invention has sufficiently similar noninfringing substitutes in the relevantmarket, which have themselves been the subject of such nonexclusive licenses, and the court determines that the 8
  • 9. 2009 compared to the 2007 Act appears to have statutory language more in tune with thecurrent common law. For example, the Act will apply an “entire market value” approach tocalculate the value of the infringed invention if it is found that the “specific contributionover the prior art is the predominant basis for market demand for an infringing product orprocess.”19 The legislatures tactfully also use an established royalty rate analysis or in thecatch-all a valuation calculation. In the 2007 Act, under the “entire market rule” there wasno allowance to calculate patent infringement damages based on the entire unit rather thanthe infringed innovation.20 One of the positive elements of the 2009 Act over the 2007proposed Act is that courts are no longer required to apply an apportionment analysis ininfringer’s use is of substantially the same scope, volume, and benefit of the rights granted under such licenses,damages may be determined on the basis of the terms of such licenses.(C) VALUATION CALCULATION.—Upon a determination by the court that the showings required undersubparagraphs (A) and (B) have not been made, the court shall conduct an analysis to ensure that a reasonableroyalty is applied only to the portion of the economic value of the infringing product or process properlyattributable to the claimed invention’s specific contribution over the prior art. In the case of a combinationinvention whose elements are present individually in the prior art, the contribution over the prior art may includethe value of the additional function resulting from the combination, as well as the enhanced value, if any, of someor all of the prior art elements as part of the combination, if the patentee demonstrates that value.(2) ADDITIONAL FACTORS.—Where the court determines it to be appropriate in determining a reasonable royaltyunder paragraph (1), the court may also consider, or direct the jury to consider, any other relevant factors underapplicable law.(d) INAPPLICABILITY TO OTHER DAMAGES ANALYSIS.—The methods for calculating a reasonable royalty describedin subsection (c) shall have no application to the calculation of an award of damages that does not necessitate thedetermination of a reasonable royalty as a basis for monetary relief sought by the claimant On April 2, 2009 the Senate judiciary committee amended the act, included the proposed damages provisions.18The amendments can be found at: http://www.patentsmatter.com/issue/pdfs/20090402_amendments.pdf, (lastvisited on April 2, 2009). As the Act still remains in its initial state until the amendments are approved by theSenate, the analysis of this paper shall continue under the original language of the Act. The revisions, in pertinentpart will modify the proposal to §284(c) by eliminating any express language as to how to analyze patentinfringement damages. Id. This analysis is strikingly similar to the Rite-Hide approach to calculating damages.19 Patent Reform Act of 2007 §284 (c) (3) ENTIRE MARKET VALUE RULE.—Unless the claimant shows that the20patent’s specific contribution over the prior art is the predominant basis for market demand for an infringingproduct or process, damages may not be based upon the entire market value of that infringing product or process. 9
  • 10. every infringement suit to determine a reasonable royalty rate.21 In the end, there is stillmuch heated debate amongst the main parties this Act could affect. As this is now the third go-around at reforming patent law, legislators are takingindustry leader’s views into greater consideration through stronger lobbying by affectedmarkets, such as electronic technology. For example, the Coalition for 21st Century PatentReform, composed of about 40 large companies such as 3M, Caterpillar, Eli Lilly, Motorola,Procter & Gamble, Pfizer, and Texas Instruments, “is pressing for Congress to introduce amore tailored bill focused simply on reforming the PTO.”22 On the other hand, the Coalitionfor Patent Fairness, including the Business Software Alliance, Apple, Symantec, and Google,believes that there is still room for interpretation after modifying the current statutorylaws of 35 U.S.C.23 Another organization, Manufacturers Alliance on Patent Policy thatrepresents some of the same companies as the Coalition for 21st Century Reform, such asDow Corning, DuPont, and Texas Instruments “met with key legislators this year to discussa report it commissioned to show the potential economic effects of a damages provision.”24 As controversy exists in interpreting the Act, the various industries either applaudor fear the potential for patent law reform. Two major industries affected are the biotechand IT industry. Biotechnology Industry Organization (BIO) President and CEO JimGreenwood released the following statement regarding the patent reform legislation: Id at §284 (c) (2) RELATIONSHIP OF DAMAGES TO CONTRIBUTIONS OVER PRIOR ART. –The court shall conduct an21analysis to ensure that a reasonable royalty under paragraph (1) is applied only to that economic value properlyattributable to the patent’s specific contribution over the prior art. See also Roolidge who argues that thisstatutory language would have required courts to conduct an apportionment analysis in every patent infringementanalysis despite the few actual cases that require such an analysis. Stephanie Condon, Patent Bill to be reintroduced to Congress this week, March 2, 200922http://news.cnet.com/the-iconoclast/?keyword=Patent+Reform+Act (last viewed April 5, 2009). Id.23 Id.24 10
  • 11. “BIO appreciates the efforts of Senator Kyl and his staff to address the concerns of many stakeholders with the patent reform legislation currently pending in the Senate, and commends him for introducing the Patent Reform Act of 2008. This legislation is a vast improvement over previous bills in the House and Senate with respect to many of the discrete issues and concerns raised by BIO, patient groups, universities, labor unions and many other stakeholders over the past two years.”2526 The Biotech industry has a large push against reforming patent law, which may bedue to the fact that few patents are pushed in the industry. For example, Arizona, a leadingstate of the Biotech industry, voted heavily against the Patent Reform Act of 2007.Similarly, Ohio, another state home to the Biotech industry, voted 3-13 against the PatentReform Act of 2007.27 One of the main reasons for a split in industries regarding whetheror not reform is necessary is that different technologies follow different business models.Kevin Sharer, CEO of Amgen, told the House Hearing on Patent reform: I pointed out that there are different business models between the software technology and the biopharmaceutical industry, and I think those are at the root of some of the industry different points of view on what is the right way forward. I would only offer that our patents are relatively few for a product. Technology have many, many. Our product R&D cycle is very long, and the products last a long time.28The difference between industry business models creates the strong separation in desire toreform patent laws. During the introduction to the House of Representatives committeehearing into the 2007 bill the Honorable Howard L Berman, the house representative forCalifornia, said that the “while the media has portrayed the debate as a tech vs. PhRma Vincent McBurney, 2009 Show Down: Democrat Software Patent Reform versus the Republican Biotech Patent25Reform, October 10, 2008. http://it.toolbox.com/blogs/infosphere/2009-show-down-democrat-software-patent-reform-versus-the-republican-biotech-patent-reform-27662, (last visited April 1, 2009). A Patent Reform Act was also introduced in 2008. The 2008 Bill did not receive much attention compared to the262005, 2007 or 2009 Acts. The views and opinions sought in 2008 are recognized and reflected in much of the 2009Act. See footnote 25.27 Id.28 11
  • 12. battle—I prefer to see it as the inability of current patent laws to accommodate thedifferences of industry business models.”29 California, a heavily packed software state, voted 45-8 in favor of the 2007 Act in theHouse. The software industry has taken many hits with the current patent laws andcontinues to lobby heavily for reform. In example, Microsoft, in Lucent Technologies Inc. v.Gateway, Inc., argued that Alcatel infringed approximately $17M in patents. The jury,however, found that Microsoft was liable for all revenue for all MP3 players ever soldrather than just the royalty of the music sold on Microsoft MP3 plays and awarded $1.52B.Anthony Peterman, patent counsel for Dell Computer Company stated to the House thisproblem in 2008: …Plaintiffs are exploiting litigation rules and seeking artificially high damages. It is litigation as a business, and these cases cost a lot, and they take a long time to resolve, even when the defendant has a straightforward defense. Businesses faced with these claims have two options: defend the patent in court, agree to pay settlement fees. And with the cost of legal defense significant, the risk of irrational damage high, a growing number of companies agree to settle even when they believe they would have won on the merits. 30The costs of patent litigation are high. The potential damage awards for infringement,especially willful infringement, are even higher. Those who litigate patents know thesehigh stakes all too well and therefore usually have well informed opinions, even if suchopinions, just like industries and political parties, are split. In assessing potential economic effects, there are differing views on whether thereform Act is a help or a hindrance. Case Western Reserve economics Professor Scott Id.29 Id.30 12
  • 13. Shane concluded that “limiting patent infringement damages could reduce patent value bybetween $34.4 billion and $85.3 billion. That lowered value would supposedly lead to adecrease in the value of U.S. public companies by $38.4 billion to $225.4 billion, whichwould supposedly jeopardize 51,000 to 298,000 U.S. manufacturing jobs.”31 Professor Shane, in his assessment submitted January 14, 2009 to theManufacturing Alliance on Patent Policy, argued that apportionment analysis of patentinfringement damages should not change because to do so, the value of the patent could bereduced in value by 20 to 39 percent.32 However, in the reported study the disclosure of thesurvey used was not published, nor was it indicated as the size of the sample set, theindustries of the practitioners surveyed, and the previous surveys recognized in the reportwere outdated by a number of years. An even larger concern is that the studies relied on byShane are based on average values of patents; whereas it is well recognized that manypatents hold no economic value but are established to prevent further development by acompetitor. He further estimates what problems might arise if there is a decrease in thevalue of patents to speculate that R&D would naturally decline which would also affect thenumber of manufacturing jobs available. The figures of loss are all based on speculationwhich is based on what appears as flawed surveys. These fundamental defects in thereports creates a reliability issue in depending on the analysis to conclude that there will, infact, be issues with modifying the laws of infringement suits. Unfortunately, some See footnote 22.31 Scott Shane, The Likely Adverse Effects of an Apportionment-Centric System of Patent Damages, January 14,322009. http://www.mfgpatentpolicy.org/images/Apportionment_of_Damages_Adverse_Effects_Jan14_09.pdf. (lastvisited April 17, 2009). 13
  • 14. politicians still rely on this, and similar, reports to claim to the public that patent reform fordamage awards are unwarranted and unjust. This claim of devaluing the worth of a patent is shared by some politicians. U.S.Reps. Don Manzullo (R-IL) and Mike Michaud (D-ME) claim reform to patent law wouldactually weaken intellectual property protections for American manufacturers and puthundreds of thousands more Americans on the unemployment lines. Manzullo andMichaud led a bipartisan coalition of 64 Members of Congress last fall fighting for majorchanges in last year’s patent reform bill. On Manzullo’s website, he stated in a press release: This year’s version of the so-called patent reform bill again weakens America’s strong patent system, making it easier for foreign companies to take our ideas and our jobs. By diminishing the damage awards in patent infringement cases, this bill would encourage intellectual property theft by foreign competitors, putting 298,000 American manufacturing jobs at risk and curtailing U.S. research and development spending by $66 billion, according to a recent economic study. It makes no sense to us why we would threaten the jobs of hundreds of thousands of Americans at a time when our people are in desperate need of jobs.33 When the 2007 Act was presented many practitioners raised brows and becamehighly concerned. The Licensing Executives Society, an organization comprised of over6,000 American and Canadian IP oriented business people, lawyers, academics, scientistsand engineers conducted a survey to determine what the initial reaction was to the Act.The survey found that about 52 percent of IP professionals believe that “limitationsconcerning damages calculations will inhibit innovation by reducing the penalties forinfringement, while about 8 percent indicated that the limitations would promote Manzullo & Michaud: New Patent Bill Encourages IP theft, Destroys American Jobs, March 3, 2009,33http://manzullo.house.gov/news/DocumentSingle.aspx?DocumentID=113152. (last viewed April 19, 2009). 14
  • 15. innovation by reducing the costs of potential damages.”34 Simultaneously, “about 40percent indicated that the damages calculations will fairly apportion the economic value ofthe patented technology.”35 One of the popular sites for reviewing patent-oriented professionals is Patently-O.On this site, a discussion was held when the 2007 Patent Reform Act was underconsideration. At that time, the damage apportionment was one of the main issues indebate. Federal Circuit Chief Judge Mitchel released an opinion to Senators Leahy andHatch on May 3, 2007 discussing his personal views of reforming patent law damages.36His overall assessment of changing the law related to apportionment is negative andsummarized that such modifications would “require courts to adjudicate the economicvalue of the entire prior art, the asserted patent claims, and also all other features of theaccused product or process whether or not patented”37 He further stated that the billwould open a flood-gate to litigators using “hired-gun” expert witnesses to analyze andassess the value of the patent. An interesting observation made was that in reforming thedamage calculations today, the patent law system would return to a method used prior tothe 1940s. In a comment regarding Judge Mitchel’s letter, one blogger wrote: “Until the 1930s, we did damages calculation[n]s the way the bill proposes - establish value separately of the combination and of the prior art, and subtract. That was found to be impractical, and led to too many anom[a]lous awards. The damages Al Rickard, Patent Reform Legislation Proposes Sweeping Changes to U.S. Patent Laws34Licensing Executives Society raises important questions about the impact on innovation, September 27, 2007.http://www.usa-canada.les.org/press/archives/9.27.07Patent.asp. (last viewed April 4, 2009). Id.35 Chief Judge Michel, Letter to Senator Leahy and Senator Hatch, May 3, 2007,36http://www.patentlyo.com/patent/files/MichelLetter.pdf (last viewed April 19, 2009). Id37 15
  • 16. statute was amended in 1938 (? from memory) to get to the ‘reasonable royalty’ language we have today.”This astute observation may have made a point that reform was necessary in the 1940s. Atthe same time it is a general idea that as time changes, law changes. Such a principleshould apply in, above all else, patent law because it is the governing law of technology.Another note that should be made is that the Patent Reform Act seeks to modify themethod of calculating apportionment and will not affect the opportunity of calculatingdamages based on a reasonable royalty rate. One thing is sure in modifying the statutesassociated with patent infringement, damages—the changes will affect the entire patentlaw world.INTERNATIONAL PATENT INFRINGEMENT REMEDIES From an international perspective, the Act holds controversy because of theacknowledgment of the impact. The Coalition for 21st Century Patent Reform states: At a time when we need to stimulate our innovation and aid U.S. manufacturers, this bill sends an international signal that patented American technology can be copied with little or no consequence. We will erode our global leadership in research and invention if we eviscerate this cornerstone of our patent system. Specifically, provisions intentionally designed to reduce damages, such as prior art subtraction, should not be part of any patent reform enacted by Congress.38As the Coalition for 21st Century Patent Reform indicates, legislators must keep a global eyeif and when reform happens to patent laws in the United States. The United States is thelast remaining superpower and is the driving engine of innovation. Patent law in the U.S.shapes and impacts the rest of the world’s views regarding patent regulation. Bill Mashek, Coalition Statement on Introduction of Patent Reform Legislation America’s Patent System: Creating38Jobs and Growth by Stimulating Invention, March 3, 2009.http://www.patentsmatter.com/press/20090303_patent_reform_legislation.htm. (last viewed April 2, 2009). 16
  • 17. Canada, U.S.’ friendly neighbor to the north, is another country with strongIntellectual Property protection. Liability for patent infringement is regulated under theCanadian Patent Act Section 55. Under §55(1), an infringer is “liable to the patentee and toall persons claiming under the patentee for all damage sustained by the patentee or by anysuch person, after the grant of the patent, by reason of the infringement.”39 The statutorylanguage indicates that liability is extended to all damage sustained for infringement. Theliability extends only after the patent became open to the public for inspection. When thepatent is pending but known to the public, a person could infringe and would be “liable topay reasonable compensation.”40 In Canada, a patentee whose rights were infringed mayelect either an accounting of profits or an award of damages as a remedy.41 Patent damagecalculations, governed by Section 55 of the Canadian Patent Act, was first interpreted bythe Canadian Courts in Jay-Lor International Inc. and Jay-Lor Fabricating Inc. v. Penta FarmSystems Ltd. and Penta One Limited (2007 FC 358). In Jay-Lor, Penta Farm and Penta Onewere found liable for patent infringement and Jay-Lor opted for an award of damages asthe remedy. The court determined that “reasonable compensation” may mean somethingbeyond the scope defined by §55(1) and by means beyond a royalty. Neither partyprovided interpretation of “reasonable compensation,” however, thus the Court interpreted Canadian Patent Act §55(1).39 Canadian Patent Act §55(2) states: A person is liable to pay reasonable compensation to a patentee and to all40persons claiming under the patentee for any damage sustained by the patentee or by any of those persons byreason of any act on the part of that person, after the application for the patent became open to public inspectionunder section 10 and before the grant of the patent, that would have constituted an infringement of the patent ifthe patent had been granted on the day the application became open to public inspection under that section HB Radomski, Richard Naiberg and Miles Hastie, Canada Enforcement of Intellectual Property, 2007.41http://www.goodmans.ca/pdfs/Enforcement%20of%20Intellectual%20Property%20-%20IP%20Value%202007.pdf.(last viewed April 5, 2009). 17
  • 18. the damages calculation under a “reasonable royalty” analysis.42 In defining a reasonableroyalty, the Court determined that an anticipated profits approach was judiciallyappropriate. Under that approach, “Penta Farm would negotiate a reasonable royalty byestimating its anticipated profits arising from the sale of the patented invention and thenpaying a portion of those profits to the Plaintiffs.”43 The Canadian interpretation of patentdamages is similar to the manner in which the U.S. calculates infringement damages. The European Union is another entity with a strong presence in patent law.European Patent Convention article 64 (3) states that “any infringement of a Europeanpatent shall be dealt with by national law.”44 The approach of the EU to handle patentinfringement situations is appropriately parallel to the method of receiving protection – astate by state approach. In the United Kingdom, the U.K. Patent Act of 1977 governs. Section 60 throughSection 71 of the 1977 Act governs patent infringement from definition to declaration ofnon-infringement. Similarly to Canada, the U.K. typically will review infringement from adamages approach or an account of profits. In both cases, the potential infringer mustdisclose financial benefits from the patent in question so the accuser can determine whichform of infringement remedy is sought. In the case of account of profits, the infringedpatentee is entitled to a disgorgement of profits. This method is rarely pursued becausethe outcome is unpredictable despite the potential large award. Damages for patent Intellectual Property Group Stikeman Elliott, Canada: Federal Court Calculates "Reasonable Compensation" For42Patent Infringement Occurring Between Published Application And Issuance, July 27, 2007.http://www.mondaq.com/article.asp?articleid=50604. (last viewed April 5, 2009). Id.43 European Patent Code Article 64(3).44 18
  • 19. infringement were restated in the 1996 English case, Ultraframe v. Eurocell. In Ultraframe,the patent and design rights under question were related to a conservatory and the courtfound that Eurocell infringed a patent by Ultraframe and sold the competitive product at alower price. The court reiterated that an infringee can recapture lost profits for sales thathe would have made but for the infringement, lost profits for his own sales to the extentthat he was forced to reduce his own price and a reasonable royalty on sales by thedefendant which he would not have made.45 The same year the Intellectual PropertyEnforcement Directive made changes in the way damages are calculated to allow courts toconsider “both any unfair profits made by the defendant and the ‘moral prejudice’ causedto the claimant.”46 This form of damage award—moral prejudice—is unique to Englishcourts for patent infringement but aligns well with European moral rights in Copyright law. In comparison to Canada and the United Kingdom, it appears that Japan takes adifferent approach to viewing patent infringement damages. Japan originally relied less oninjunctive relief or apportionment and focuses on reasonable royalty rates in thealternative. One of the main reasons why Japanese courts would not conduct loss profitanalysis is because causation of damages by infringement was difficult to establish by aplaintiff.47 This is caused by a lack of established case law for a plaintiff to infer causationand an overwhelming response that “Japanese courts are eager to accept defendants Slaughter and May Intellectual Property Group, Ultraframe: a view of patent damages. IP Plus. Intellectual45Property sector supplement, July/August 2006.http://www.slaughterandmay.com/media/39218/intellectual_property_plus_1_jul_-_aug_2006.pdf. (last viewedApril 19, 2009). Id.46 Center for Advanced Study & Research on Intellectual Property University of Washington – School of Law, Big47Change in Measurement for Japanese Patent Infringement Damages? Tokyo District Court Awards $23.5 Million inLost Profits Damages. CASRIP Newsletter - Fall 1998, Volume 5, Issue 3.http://www.law.washington.edu/Casrip/newsletter/Vol5/newsv5i3jp1.htm. (last viewed April 18, 2009). 19
  • 20. arguments to negate causation between infringement and lost profits.”48 As a result,Japanese courts typically rewarded a reasonable royalty based on royalty agreementsestablished with government license rates. These rates are known for being lower thanprivate industry. The Japanese PTO attempted to reform the statutes in 1997 to awardmore appropriate damage remedies. The statutes of civil remedies did not pass but courtsdid respond to the proposed direction of reforming the law. In Smithkline & BeechamFrench Lab. Ltd. v. Fujimoto Seiyaku the Tokyo District Court awarded damages worth U.S.$23.5M by using a lost profit analysis. The Court found that Fujimoto copied a process ofSmithkline to produce a generic drug equivalent and the court adopted a 3.5% royalty rateas well as awarded the total 3059.36 M yen with a 5% statutory interest to Smithkline. TheJapanese courts are, therefore, moving along also to follow similar trends to Europe andNorth America.CONCLUSION As patent infringement remedies continue to increase as litigation remainspredominant in patent law, reform has remained an issue of debate the past decade. WithCongress continually looking for the proper approach to reform patent laws, it seemsinevitable that change is bound to occur. As many spectators predict, 2009 appears as theyear Congress will solidify new statutory laws affecting 35 U.S.C. By changing the approachof analyzing damages, some fields of technology will benefit and some will not. From theinternational perspective it appears that whatever change occurs in the United States, therest of the world will likely follow suit in analysis of infringement remedies. In the end, it Id.48 20
  • 21. seems that change is inevitable and when patent law is statutorily changed it is the dutyand responsibility of everyone to implement laws that properly protect innovation andpromote the progress of science through adequate compensation and remedies. 21