Prof. Doug Lichtman, UCLA School of Law
July 9, 2013
It is almost impossible for a judge or jury to accurately determine the amount of money that a patent holder should be paid to compensate for past patent infringement. To run the math right, that determination requires a rich understanding of the technology at issue; a rich understanding of how the technology compares to available next-best alternatives; and a rich understanding of what all that might mean for real-world products, services, prices, profits, and market share. Judges and juries are unlikely to have the necessary skill and background. And, while expert testimony can in theory speak to all of those issues, accurately evaluating complicated, adverse, hired-gun technical and economic analyses is itself a daunting, precarious task.
Patent courts have long recognized these challenges, of course, and their response for many years was simple: They issued injunctions. Specifically, at the end of a patent case, patent courts would routinely order the adjudged infringer to stop its unlawful behavior. Yes, the court would still have to quantify whatever infringement took place before the injunction issued. But, once the injunction was in place, any obligation to further quantify patent value would fall entirely on the litigating parties. The adjudged infringer would have to figure out how much to offer the patent holder for the privilege of continuing to use the patented technology. The patent holder would have to determine whether to accept that amount of money or decline. At that moment, then, the court’s economic imperfections would become irrelevant. Judges and juries could be happily ignorant about prices, profits, and technology details. As long as they could accurately answer the binary question of whether the accused product or service should be subject to the injunction, the parties could from that point forward privately engage in the difficult task of quantification.
Times, however, have changed. In 2006, an influential Supreme Court decision made clear that even a meritorious patent plaintiff might not qualify for injunctive relief. In those cases, patent holders today have no choice but to accept an admittedly imperfect, court-ordered, forward-looking royalty. In 2011, the Federal Trade Commission explicitly endorsed that same approach, warning that private negotiations undertaken in the shadow of an injunction will sometimes lead to outlandish results – and hence imperfect, court-ordered, forward-looking royalties might ironically be more accurate than private negotiations. In just these past 12 months, the United States Department of Justice and the European Commission have joined this chorus, each warning that injunctions can be abused and each echoing the theme that imperfect, court-determined royalties might ironically be more accurate than private arrangements struck after an injunction is either credibly threatened or in fact put into place.
This change in patent remedies is being driven by a changing understanding as to whether private parties or courts are better situated to quantify patent value. But the change has a presumably unintentional implication: Patent courts can now beneficially slow down. Why? Back when private negotiations were the preferred approach, delaying a court verdict by (say) one year was tantamount to taking a year when prices would have been set by the market and transforming that into a year when prices would have to be set by the court. Courts, after all, set damages, but private parties set prices once an injunction is in place. To whatever extent courts believed that prices set by private parties were more accurate than prices set by courts – and remember, that was the dominant view – this was a reason to hurry. Faster decisions meant less time governed by imperfect court valuations and more time governed by assumedly better private numbers. In cases where injunctions are not going to be available regardless, however, this trade-off disappears. In those cases, delaying a court verdict by one year simply takes a year when prices would have been set by the court under the rubric of court-ordered, forward-looking royalties and transforms that into a year when prices will be set by the court under the rubric of backward-looking damages. The court’s imperfections drive the numbers either way. Delay is suddenly not as costly as it might once have seemed.
The benefits of delay thus begin to loom large. For example, what better way to decide whether a given invention was obvious to those skilled in the art than to wait a few years and see if a sufficiently large number of skilled practitioners independently come up with the same invention? Similarly, would not court decisions on validity be more reliable if they could be delayed long enough for the Patent Office to first and fully run its own re-examination of any in-dispute patent? Moreover, fast litigations are systematically biased in favor of patent holders because a patent holder can prepare his case long before the complaint is filed, whereas accused infringers will often not even know about the patents at issue until after the complaint is served. Fast clocks exacerbate this difference in time to prepare; slower clocks would mitigate it.
This is certainly not to imply that delay has no costs. Of course, delay can be harmful. Delay means longer periods of uncertainty for both patent holders and accused infringers. Delay might also make it more difficult for poorly capitalized patent holders to pursue even valid claims. And delay will certainly require that courts take more seriously the need to award interest to patent holders to whom payments would now be even more overdue.
But might those costs and benefits trade off in a way that favors delay in certain cases? In one of the papers I am pursuing this summer, I am working to answer that question, along the way thinking more fully about the complicated calculus of patent litigation timing and speed. Of particular interest to me is the question of whether patent disputes involving standard-essential patents might be a perfect candidate for beneficial delay, especially in instances where the patents at issue are held by some large, capable risk-bearer like Samsung or Motorola. In those cases, after all, injunctive relief is today already almost always off the table, and delay could open the door to a flood of useful information about how valuable the patents in dispute are as compared to other patents that turn out to be similarly essential to the relevant standard.