Dennis Crouch's Patently-O: 3 new topics, including “IEEE Amends its Patent (FRAND) Policy” |  |
- IEEE Amends its Patent (FRAND) Policy
- EO Wilson on the Next Bio-Innovations
- Admin Patent Law
- Guest Post: Transfer Prices Are an Evidentiary Gold Mine for Patent Defendants
| IEEE Amends its Patent (FRAND) Policy Posted: 09 Feb 2015 11:26 AM PST Guest Post by Professor Jorge L. Contreras On February 8, the Board of Directors of the Institute of Electrical and Electronics Engineers (IEEE) voted to approve a set of amendments to the organization's patent policy. The changes largely relate to the commitment of IEEE members to license patents to users of IEEE standards on terms that are "fair, reasonable and nondiscriminatory" (FRAND). As most readers are aware, these commitments have been the subject of recent litigation. IEEE's Wi-Fi standards alone have played prominent roles in Microsoft v. Motorola, Apple v. Motorola, In re. Innovatio and Ericsson v. D-Link, among others. In most of these cases, there has been sharp disagreement over whether the patent holder complied with its FRAND obligations. To decide these cases, judges and juries have been required to speculate regarding the scope and intent of these obligations, choosing between the divergent views advanced by the litigants and their experts. Observers of these disputes have long wondered why standards-setting organizations (SSOs) like IEEE have not simply clarified these issues in their patent policies. Doing so would eliminate much of the uncertainty and debate that currently characterizes disputes over FRAND compliance. In fact, in a 2013 article, the chief economists of the U.S. Department of Justice, Federal Trade Commission and European Commission Directorate-General for Competition jointly urged SSOs to clarify issues surrounding FRAND in their patent policies. Yet few SSOs, if any, did so. Until now. The IEEE amendments do several things. Most notably they makes clear that IEEE members holding patents covering IEEE standards:
Readers may recall that disputes regarding several of these issues have arisen in recent litigation. For example, myriad articles and briefs have debated whether or not a FRAND licensing commitment precludes a patent holder from seeking injunctive relief against an infringer who is willing to negotiate a license. On one hand, committing to license one's patents on FRAND (or any) terms implies that monetary compensation is acceptable to the patent holder, thus weighing heavily against the issuance of an injunction under the Supreme Court's 4-factor test in eBay v. MercExchange (U.S. 2006). However, patent holders have argued that FRAND commitments were never intended to eliminate one of the principal equitable remedies available to them should potential licensees be intransigent or unwilling to negotiate on reasonable terms. Arguments have been made under antitrust, contract, estoppel and various other theories, all seeking to adduce the "intention" of the parties submitting to the FRAND commitment. Now, the speculation is over, at least for IEEE standards. The SSO members have announced what their FRAND commitment means, and further dispute is unnecessary. The same can be said for most of the other issues addressed by the IEEE amendments. Such clarity can only help to reduce the uncertainty and litigation burden that has affected the standardization world over the last few years. IEEE sought and obtained clearance for the amendments from the Department of Justice, which issued a favorable Business Review Letter on February 2. Among other things, the DOJ concluded that the amendments have "the potential to benefit competition and consumers by facilitating licensing negotiations, mitigating hold up and royalty stacking, and promoting competition among technologies for inclusion in standards." Readers may recall that this is not the first DOJ Business Review Letter that the IEEE has obtained. It 2007 it also sought clearance for a set of patent policy amendments that permitted patent holders to disclose maximum royalty rates prior to approval of a standard (so-called "ex ante" disclosure). Though the DOJ approved these amendments as well, the procedures they introduced were not widely used by IEEE members. The passage of the amendments within IEEE required a significant effort over a period of approximately two years. As reported in the DOJ letter, the initial drafts generated 680 public comments. The resulting document was narrowly approved by a 3-2 vote of the IEEE Standards Association's (IEEE-SA) Patent Committee. The IEEE-SA Standards Board approved it by a vote of 14-5, and the IEEE-SA Board of Governors, usually the final authority on standardization matters, voted 9-3 in favor of the amendments. Nevertheless, opponents brought the amendments before the Board of Directors of the IEEE parent organization, which finally voted to approve the amendments on February 8. In the weeks leading up to the final vote, both supporters and opponents of the amendments mustered support from industry and academia, resulting in numerous public statements and letters both pro and con the proposed amendments. The vigorous pubic debate over the IEEE amendments highlights a rift in the standardization world between what I have termed patent-centric and product-centric firms. The business models that these firms have adopted are different, yet they have co-existed for decades. Some have predicted that important contributors will leave IEEE as a result of the recent amendments. This may happen. But more likely it will not. Similarly dire predictions were made prior to the IEEE's 2007 amendments, but the ill effects that were predicted never materialized. In this author's opinion, the IEEE's policy amendments offer much-needed clarity to the murky world of FRAND commitments, and it is hoped that other SSOs will soon follow with clarifications of their own patent policies.  |
| EO Wilson on the Next Bio-Innovations Posted: 09 Feb 2015 10:52 AM PST |
| Posted: 09 Feb 2015 06:29 AM PST |
| Guest Post: Transfer Prices Are an Evidentiary Gold Mine for Patent Defendants Posted: 09 Feb 2015 04:32 AM PST Guest Post by Andrew Blair-Stanek, Assistant Professor of Law at University of Maryland Carey School of Law Patent owners routinely tell the IRS, under penalties of perjury, that their patents have little value. Litigators representing defendants should take advantage of these remarkable admissions. IP has become the world's leading tax shelter. Multinational corporations develop IP in the U.S. and promptly transfer it for artificially low prices to subsidiaries in tax havens, where profits from the IP escape tax. As IP becomes increasingly essential to economic activity, more and more profits have been siphoned off to tax havens. The low transfer price is crucial to this strategy, minimizing the tax paid in the U.S. Tax law cannot easily stop this abuse, because of international tax law norms enshrined in bilateral tax treaties. But this tax avoidance presents great opportunities for litigators representing IP defendants sued by multinationals. As I discuss in a new UCLA Law Review article, defendants can discover transfer-pricing evidence and use it to argue for invalidity, non-infringement, lower damages, and no injunctions. For example, a low transfer price for a patent weighs towards lower damages. Tax law requires multinationals to use a transfer price equal to a patent's fair market value. Multinationals must hire appraisers to justify this valuation and then attest that the valuation is accurate under penalties of perjury. The fair market value of a patent approximately equals the profits or royalties that it is expected to generate, so a low transfer price is an admission by the multinational that it expected low profits or royalties. Since patent damages are measured by either lost profits or royalties, the low transfer price is evidence weighing towards lower damages. As another example, a patent's low transfer price is nontechnical evidence – akin to the existing secondary considerations – that the patent is invalid for obviousness. Obviousness is measured by reference to a person having ordinary skill in the art before the patent application's filing date. To minimize taxes, multinationals typically transfer patent rights as soon as possible, often around the same time the patent application is filed. A multinational is ideally situated to evaluate how substantial the advance was, because it employs the inventors, who have ordinary or above-ordinary skill in the art. In short, low transfer prices are admissions, at the relevant time, by an ideally-situated party, that the invention was not a substantial advance. A low transfer price also negates evidence of a patent's commercial success. Courts consider commercial success to be evidence of nonobviousness under the reasoning that if the invention had been both obvious and lucrative, then someone would have thought of it earlier. But this reasoning rests on the implicit assumption that the invention's potential commercial success was perceived before its development. A low transfer price refutes this implicit assumption and severs any logical connection between commercial success and nonobviousness. A low transfer price proves that the multinational perceived little potential commercial success from the invention, even after its development. Low transfer prices can also help defendants fight injunctions, which require the patentee to demonstrate that it faces irreparable injury that cannot be compensated by damages. But a patent's value roughly correlates with the maximum damages for infringing it. A low transfer price for a patent demonstrates that harm from infringement can be quantified and, indeed, was quantified at a low number. The transfer prices themselves are only half of the evidentiary gold mine. IRS regulations require that multinationals hire appraisers to prepare rigorous documentation justifying the low transfer prices as accurate valuations. This documentation typically makes as strong a case as possible that the patents have little profit or royalty potential. Sometimes the documentation even contains damaging opinions or facts about the patent's validity or scope. My article's arguments do not impact patents transferred between unrelated parties, such as an individual inventor selling a patent to a manufacturer. When unrelated parties sell or license patents, the prices can reflect any number of distortions ranging from information asymmetries to differences in bargaining power. None of these distortions exist when a multinational transfers a patent to its own tax-haven subsidiary. Individual inventors, start-ups, and other small businesses cannot avoid taxes by transferring their IP to tax-haven subsidiaries. Multinationals can. This advantage distorts the employment market for scientists and engineers, making them more likely to work for multinationals. This distortion likely reduces the overall progress of the useful arts, given the higher research productivity of start-ups and other small firms. By making the arguments discussed in the article, litigators representing patent defendants can not only serve their clients' interests, but also reduce this distortion. In sum, during discovery, patent defendants should request transfer prices and the supporting appraisal documentation.  |
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