PATENT REMEDIES AND COMPLEX PRODUCTS – Chao Review

Vol. 10 No. 1 (September 2020) pp. 6-10 

PATENT REMEDIES AND COMPLEX PRODUCTS: TOWARD A GLOBAL CONSENSUS, edited by C. Bradford Biddle, Jorge. L. Contreras, Brian J. Love, and Norman V. Siebrasse.
Cambridge University Press, 2019. pp. xxxiii + 344, Hardcover, $125, and Open Access. 

Reviewed by Bernard Chao 
University of Denver 
Sturm College of Law 
bchao@law.du.edu 

Twenty leading scholars from around the world worked on the International Patent Remedies for Complex Products (“INPRECOMP”) project. One of the fruits of this project is the book entitled PATENT REMEDIES AND COMPLEX PRODUCTS: TOWARD A GLOBAL CONSENSUS. The title reveals the book and indeed the project’s aspirations: “to seek international consensus on issues affecting remedies in the context of complex products” (p.xxvii). The participants undoubtedly understood that this lofty goal was overly ambitious. In this complex global system, there are too many diverse viewpoints and agendas to achieve real consensus. Nonetheless, the authors have done an admirable job describing some of the most important issues in patent remedies law and setting forth different approaches countries have used to address these issues. 

The book frames the problems that complex products pose by initially noting, “[w]e no longer live in a world of simple inventions where the patented technology provides most, if not all, of the value of an end product” (p.xxi). A single end product (e.g., smartphone) may contain thousands of technologies that are covered by “tens or even hundreds of thousands of individuals patents issued by patent offices across the globe” (p.1). These patent “thickets” make it immensely difficult to calibrate patent remedies in way that satisfies two competing interests: 1) incentivizing invention by adequately compensating patent holders, and 2) promoting follow-on innovation. If the law provides too weak a set of remedies, it will under incentivize invention.¹ On the other hand, making remedies too powerful can stifle follow on innovation.² The challenge for policymakers and judges is determining where to draw the different lines. 

PATENT REMEDIES AND COMPLEX PRODUCTS divides the issues into seven chapters. The first four chapters discuss specific remedies, namely: “Reasonable Royalties”, “Lost Profit and Disgorgement”, “Enhanced Damages, Litigation Cost Recovery, and Interest”, and “Injunctive Relief”. The next three chapters then cover issues that makes this first set of topics even more complicated: “The Effect of FRAND Commitments on Patent Remedies”, “The Effect of Competition Law on Patent Remedies” and “Holdout, Holdup and Royalty Stacking: A Review of the Literature.” 

The book is well suited for readers of varying levels of expertise and patience. For those seeking bottom line answers, the book begins with a helpful “Executive Summary” that briefly summarizes the different chapter’s principal recommendations. Each chapter starts by introducing fundamental concepts associated with the topic. The chapters then delve into many of the nuances associated with each topic. In many cases, the deeper dive describes issues that even some experts may not have considered. By discussing a sample of relevant examples, this review seeks to illustrate both the breadth and depth of the book’s coverage. Indeed, PATENT REMEDIES AND COMPLEX PRODUCTS is currently the most comprehensive source of information about how patent remedies law is applied to modern complex products. 

U.S stakeholders will want to pay special attention to the chapter on reasonable royalties. Since 2010, roughly 82% of patent cases that awarded damages included reasonable royalty awards.³ Chapter 1 provides a wholistic treatment of the topic. It starts by providing a brief look at the numbers by highlighting studies that discuss how often reasonable royalty awards are awarded and what average awards are in the United States (different studies suggest that the range may be from $3.5 to $5.8 million) (pp.6-7). Although less data is available outside the United States, we still learn that awards are smaller in Japan (only 5 cases exceeded $1.7 million over a fourteen-year period) and rarer in China. The Chapter also briefly explores the theoretical justifications for awarding reasonable royalties and the principal approaches for calculating them. Of course, there is the discussion of the fifteen Georgia Pacific factors and its many failings. 

But PATENT REMEDIES AND COMPLEX PRODUCTS is not merely a descriptive view of the law, the authors make recommendations. Like others have done before, Chapter 1 suggests narrowing the number of factors that juries consider.⁴ In their variation of this reform, the focus is on: 1) determining incremental value, 2) assessing market evidence, and 3) then using the two prior steps as checks against each other. I am particularly heartened by two aspects of the discussion. 

First, when Chapter 1 describes incremental value, it does not assume that the entire value of a product is made up by the various patents that cover the product. The Chapter acknowledges that taking a product to market requires “manufacturing, distribution, marketing, process refinement . . ..” and concludes that a royalty should reflect “compensation to the party who made the investments and shouldered the risks related to these ancillary services” (p.24)⁵ This is a nuance that courts can overlook, and it is important to remind everyone that it is not just about patents. 

Second, I am delighted that there is also a discussion of cognitive bias in Chapter 1. When explaining the justifications for the entire market value rule and requiring royalties to be based on the smallest saleable unit, the authors discuss anchoring – the tendency to give undue weight to the first number they encounter (p.43). Law and psychology studies have repeatedly shown that people are subject to a variety of such cognitive biases. These insights have important implications in many legal contexts, and patent law is no exception. Patent juries literally make billion-dollar decisions. Policymakers and practicing attorneys need to understand how juries think. For example, my own recent mock jury study with Roderick O’Dorisio revealed that juries often use damages to punish companies even when they are instructed to award compensatory damages.⁶ Insights like these can help courts and policymakers calibrate new remedy policies that takes these heuristics into account.

Chapters 2-4 provide a similar treatment of lost profits, enhanced damages, and injunctions. For all three topics, the book provides a good baseline description of the doctrine, including some discussion of jurisdictions outside the United States. Then each chapter discusses some important nuances and provides a few recommendations. For the most part, these descriptions are extremely informative and provide a fair treatment of the law. And although I do not always agree with the recommendations, they are all certainly worthy of serious discussion. 

My primary disagreement with the book concerns Chapter 3’s recommendations on the treatment of unpatented goods and apportionment. The chapter advocates for legal rules that award lost profits associated with the sale of unpatented goods so long as the patentee can show causation. The chapter also endorses Mentor Graphics v. Eve USA, a Federal Circuit decision rejecting the idea of apportioning lost profits.⁷ At its core, both of these recommendations reflect what Ted Sichleman has called “make-whole” remedies and they are controversial. Scholarship by Sichelman, Eric Bensen, Amy Landers, Mark Lemley and myself have all staked out positions that seem inconsistent with Chapter 3’s view on lost profits.⁸ In one form or another, we have all argued that rents should be split between initial innovators and later follow-on innovators. These views are fundamentally inconsistent with the idea of basing remedies purely on “but for” causation, the justification Chapter 3 relies on in making its recommendations. While this portion of Chapter 3 certainly has its own advocates (including ample precedent), I wish the book had at least acknowledged that the issue is more controversial than the authors seem to suggest.⁹ 

I found the other parts of PATENT REMEDIES AND COMPLEX PRODUCTS less objectionable and more helpful. Chapter 5 was particularly informative. It discusses the effect that FRAND (fair reasonable and non-discriminatory) commitments have on remedies for standards-essential patents (“SEPs”). Early on, Chapter 5 sketches out to how to determine royalty rates using a “top down” approach, an approach that is quite different than the “bottom up” reasonable royalty calculation that most U.S. patent experts are familiar with. The top down approach begins by determining the aggregate royalty burden that a standard should bear. It then seeks to find the particular portion of that royalty that individual SEPs should receive. Although the top down approach appears to have only been used in the SEP context, it seems that courts may want to consider borrowing aspects of this approach for any product covered by a large number of patents.

Perhaps because FRAND commitments have no borders, Chapter 5 explores international law in greater depth than some of the other chapters. There are discussions of several relevant international FRAND decisions including the Court of Justice of the European Union’s landmark decision in Huawei v. ZTE.¹⁰ Huawei v. ZTE describes the procedural steps that a SEP holder must follow if it wishes to seek an injunction against an unlicensed implementer without violating European Competition law. Chapter 5 also provides an appendix that summarizes how different the laws of different countries assess monetary FRAND damages. The appendix includes a discussion of the laws of Germany, Switzerland, Korea, Japan, and China. Importantly, the entire book (including the Appendix) provides citations to source material so that the reader can research specific topics in greater depth. Because the implications of a FRAND commitment is probably one of the least well-developed areas of patent remedies, Chapter 5 probably has the most potential to educate and influence policymakers and judges. 

Of course, these are just a few of the many issues covered by PATENT REMEDIES AND COMPLEX PRODUCTS. In short, for both practicing attorneys and policymakers interested in how patent remedies should and do work for complex products, PATENT REMEDIES AND COMPLEX PRODUCTS is an excellent book with a wealth of helpful information. 

Suggested Citation: 10 The IP Law Book Review 6 (2020).

© 2020 Bernard Chao

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1. See generally Adam B. Jaffe, et al, eds., , Navigating the Patent Thicket: Cross Licenses, Patent Pools, And Standard Setting, in Vol. 1 INNOVATION POLICY AND THE ECONOMY, VOL. 1, 119 (2001) (describing the patent thicket problem).
2. See generally, Suzanne Scotchmer, , Standing on the Shoulders of Giants: Cumulative Research and the Patent Law, 5 J. ECON. PERSP. 29, 32 (1991).
3. Unpublished results of review author’s search on Lex Machina of all patent cases filed after January 1, 2010 that resulted in a monetary damages award as of February 20, 2020. 230 out of the 281 cases found resulted in an award of reasonable royalty damages.
4. See, e.g., Hon. Arthur J. Gajarsa, William F. Lee, A. Douglas Melamed, Breaking the Georgia- Pacific Habit: A Practical Proposal to Bring Simplicity and Structure to Reasonable Royalty Damages Determinations, 26 Tex. Intell. Prop. L.J. 51, 52 (2018); Stuart Graham et. al., Final Report of the Berkeley Center for Law & Technology Patent Damages Workshop 15 August 2016, 25 Tex. Intell. Prop. L.J. 115,140 (2017).
5. See also Mark A. Lemley, Distinguishing Lost Profits from Reasonable Royalties, 51 Wm. & Mary L. Rev. 655, 663–64 (2009).
6. Bernard Chao & Roderick O’Dorisio, Saliency, Anchors & Frames, A Multicomponent Damages Experiment, 26 Mich. Tech. L. Rev. 1 (2019).
7. Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275 (Fed. Cir. 2017).
8. Ted Sichelman, Purging Patent Law of “Private Law” Remedies, 92 Tex. L.Rev.517 (2014) (arguing that “make- whole” remedies are ill suited for patent law); Eric E. Bensen, Apportionment of Lost Profits in Contemporary Damages Cases, 10 Va. J.L. & Tech. 1 (2005) (making the historical case for apportioning lost profits), Amy L. Landers, Patent Claim Apportionment, Patentee Injury, and Sequential Invention, 19 Geo. Mason L. Rev. 471, 504-509 (2012) (arguing that dividing rents among different innovators optimizes innovation); Mark A. Lemley, Property, Intellectual Property, and Free Riding, 83 Tex. L. Rev. 1031, 1046 (2005) (“The assumption that intellectual property owners should be entitled to capture the full social surplus of their invention runs counter to our economic intuitions in every other segment of the economy.”); Bernard Chao, Lost Profits in a Multicomponent World, 59 B.C. L. Rev. 1321 (2018) (arguing that lost profits should be apportioned); see also Brian J. Love, The Misuse of Reasonable Royalty Damages as a Patent Infringement Deterrent, 74Mo. L Rev. 909, 931 (2009) (“[T]he ‘convoyed sales’ doctrine . . . overcompensate[s] patent owners by allowing them to earn a royalty on value they did not create.”).
9. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995) (en banc) (allowing for the recovery of lost profits of complementary goods that do not practice the patent); Roger D. Blair and Thomas F. Cotter, Rethinking Patent Damages, 10 Tex. Intell. Prop. L.J. 1, 2 (2001) (defending remedies based on “but for” causation).
10. Huawei Technologies Co. Ltd. v. ZTE Corp., C-170/13 ECJ (2015).