Federal Circuit Provides Guidance on Methodologies for Calculating FRAND Royalty Rates, Vacating the Jury Award in Ericsson v.

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1 In this Issue: WRITTEN BY COURTNEY J. ARMOUR AND KOREN W. WONG-ERVIN EDITED BY KOREN W. WONG-ERVIN The views expressed in this e-bulletin are the views of the authors alone. DECEMBER 1-6, 2014 Federal Circuit Provides Guidance on Methodologies for Calculating FRAND Royalty Rates, Vacating the Jury Award in Ericsson v. D-Link China s MIIT Proposes Template for SSO IPR Policies Jury Finds for Defendant AstraZeneca in Nexium Pay-for-Delay Antitrust Litigation Suboxone Product Hopping Suit Survives Motion to Dismiss STANDARD-ESSENTIAL PATENTS Federal Circuit Provides Guidance on Methodologies for Calculating FRAND Royalty Rates, Vacating the Jury Award in Ericsson v. D-Link On December 4, the Federal Circuit issued a decision in Ericsson v. D-Link, providing guidance on appropriate methodologies for calculating FRAND royalty rates. The court held that: There is no Georgia-Pacific-like list of factors that district courts can parrot for every case involving RAND-encumbered patents. (Opinion at 56.) Instead, a district court must instruct the jury only on factors that are relevant to the specific case at issue. The court should instruct the jury on the actual RAND commitment at issue. (Id.) [D]istrict courts must make clear to the jury that any royalty award must be based on the incremental value of the invention, not the value of the standard as a whole or any increased value the patented feature gains from its inclusion in the standard. (Id.) [It is not entirely clear from the decision how the court defines incremental value, i.e., 1

2 whether it is limited to apportionment or whether it includes consideration of competition from alternatives at the time the standard was chosen.] [I]f an accused infringer wants an instruction on patent hold-up and royalty stacking, it must provide evidence on the record of patent hold-up and royalty stacking in relation to both the RAND commitment at issue and the specific technology referenced therein. (Id.) To prove hold-up, the implementer must provide evidence that the SEP holder started requesting higher royalty rates after adoption of the standard. (Id. at 54.) To prove royalty stacking, the implementer must provide evidence of the actual amount of royalties it is currently paying for the court to determine whether the cumulative royalty is excessive in the aggregate. (Id. at 55.) The Federal Circuit vacated the jury s damages and ongoing royalty award (roughly $10 million in damages, approximately 15 cents per infringing device), finding that: (Id. at 56.) the district court committed legal error in its jury instruction by: (1) failing to instruct the jury adequately regarding Ericsson s actual RAND commitment; (2) failing to instruct the jury that any royalty for the patented technology must be apportioned from the value of the standard as a whole; and (3) failing to instruct the jury that the RAND royalty rate must be based on the value of the invention, not any value added by the standardization of that invention while instructing the jury to consider irrelevant Georgia-Pacific factors. Source: Opinion, Ericsson, Inc. v. D-Link Systems, Inc., No (Fed. Cir. Dec. 4, 2014), available at China s MIIT Proposes Template for SSO IPR Policies The Intellectual Property Center of China s Ministry of Industry and Information Technology (MIIT) released a proposed Template for Intellectual Property Rights Policies of Industry Standardization Organizations. Among other things, the Proposed Template includes recommendations on the availability of injunctive relief, provides factors to consider in determining a reasonable royalty rate, and addresses the appropriateness of bundling SEPs and non-seps and requiring cross-licenses. Specifically, with respect to the availability of injunctive relief, Article X of the Proposed Template states that [a] Member shall not seek injunctive relief against a potential Licensee based on alleged infringement of a Necessary Claim unless the potential Licensee is not subject to the jurisdiction of, fails to participate in, or fails to comply with the outcome of, an independent adjudication of FRAND licensing terms. Article XI addresses the meaning of reasonable in FRAND, stating that a reasonable royalty shall be based on the following factors: 2

3 (1) The value contributed to a Compliant Portion by the Necessary Claim shall be assessed against the smallest component or device that is compliant with the Final Standard and that practices the relevant Necessary Claims; (2) A reasonable royalty shall also take into account the total aggregate royalties that may apply if other owners of intellectual property demand similar terms; (3) The degree of innovativeness of the Necessary Claims in the standard, the technical area of the standard, the nature of the standard, the implementation scope of the standard, relevant licensing terms and other factors; (4) Other relevant factors concerning licensing matters. The royalties shall not take into account the value, if any, associated with inclusion of the Necessary Claims in the Final Standard. Article XII would appear to prohibit owners of FRAND-encumbered SEPs from bundling SEPs and non-seps or requiring cross-licenses of patents that are not essential to the same standard. Source: Mark Cohen, Some Comments on MIIT s Template for IP Policies in Industry Standards Organizations, China IPR Blog (Nov. 28, 2014), available at (includes a link to an unofficial English translation of the proposed template). PHARMACUETICALS Jury Finds for Defendant AstraZeneca in Nexium Pay-for- Delay Antitrust Litigation On December 5, a jury rejected the plaintiffs pay-for-delay claims in the class action antitrust lawsuit against Nexium manufacturer AstraZeneca. Plaintiffs had argued during a six week trial that AstraZeneca harmed competition by entering into agreements with generic drug manufacturers to settle Hatch Waxman patent lawsuits that delayed the entry of generic versions of Nexium. AstraZeneca entered into settlement agreements with several generic companies, but the agreement with generic manufacturer Ranbaxy is central to the plaintiff s theory because it was the first to file an Abbreviated New Drug Application (ANDA) and thus posed to potentially receive 180 days of exclusivity from the FDA among generics. AstraZeneca s settlement with Ranbaxy provided that Ranbaxy would not enter the market until May 27, 2014, and that Ranbaxy would receive $1 Billion and a promise that AstraZeneca would not launch an authorized generic to compete with Ranbaxy during the 180 day exclusivity period. Plaintiffs alleged that this entry date was much later due to this promise not to compete and that but for this later date other generics would have negotiated earlier entry dates in their settlements. The 3

4 jury agreed with the plaintiffs on many points, but ultimately entered a verdict for the defendants finding that AstraZeneca would not have agreed to enter into settlement agreements with other generics any earlier than the May 2014 date (which corresponds to the expiration of the brand s medicine patents for the drug). The jury did agree with the plaintiffs that AstraZeneca possessed market power with Nexium, that the Ranbaxy settlement amounted to a large and unjustified payment (a requirement outlined by the Supreme Court in the 2013 Actavis pay-for-delay ruling), and that the anticompetitive harm of the deal outweighed its benefits under the rule-of-reason analysis. The plaintiffs have asked the court to review the jury s decision and are seeking a curative jury instruction. Sources: Melissa Lipman, BREAKING: Jury Hands AstraZeneca Win In Nexium Pay-For-Delay Case, LAW360 (Dec. 5, 2014), available at Motion for Curative Instruction, In re: Nexium Antitrust Litigation, (D. Mass. filed Dec. 2, 2014), available at (subscription required). Suboxone Product Hopping Suit Survives Motion to Dismiss On December 3, Judge Goldberg of the Eastern District of Pennsylvania affirmed in part and denied in part defendants motion to dismiss in the Suboxone product hopping antitrust litigation, leaving the plaintiff product hopping theory intact. Plaintiffs allege that brand drug manufacturer Reckitt Benckister Inc. engaged in a product hopping scheme and manipulated FDA regulations to delay the entry of generic Suboxone onto the market, thereby unlawfully maintaining a monopoly in violation of 2 of the Sherman Act and state law. (Opinion at 1-2.) It is alleged that Reckitt switched the market from Suboxone sublingual tablets to a Suboxone film in order to avoid generic competition. Reckitt allegedly withdrew the tablets within a few weeks of generic entry, despite having publically announced months earlier that it would remove the tablets due to safety concerns. It is further alleged that Reckitt engaged in a fraudulent marketing campaign to question the safety of the tablets and raised the prices of tablets prior to generic entry in an effort to convert the market over to the patent protected film version of the drug. (Id. at 1.) According to the court, Reckitt s motion to dismiss essentially argu[ed] that Plaintiffs complaint describes nothing more than new product development and marketing. Judge Goldberg agreed that the development and marketing of new products is typically viewed as procompetitive, but went on to explain that [t]he key question is whether the defendant combined the introduction of a new product with some other wrongful conduct, such that the comprehensive effect is likely to stymie competition, prevent consumer choice and reduce the market s ambit. (Id. at 2, 18.) The judge determined that the facts presented sufficiently allege that the disparagement of Suboxone tablets took place alongside coercive measure and that [t]he threatened removal of 4

5 the tablets from the market in conjunction with the alleged fabricated safety concerns could plausibly coerce patients and doctors to switch from tablet to film. (Id. at 19.) In response to defendant s argument that generics were not completely foreclosed from the market, Judge Goldberg noted that [c]ompetitors need not be barred from all means of distribution, if they are barred from the cost-efficient ones. (Id. at 21 (internal citations omitted).) And, according to the court, the plaintiffs had plausibly alleged that various market forces unique to the pharmaceutical industry make generic substitution the cost-efficient means of competing for companies selling generic pharmaceuticals. (Id. at 21.) Ultimately, the court held that [d]ue to market characteristics unique to the pharmaceutical industry, I conclude that some of Plaintiffs claims do plausibly allege antitrust violations and should survive Defendant s motion to dismiss. (Id. at 2.) Sources: Opinion, In re Suboxone Antitrust Litigation, No. 13-MD-2445 (E.D. Penn. Dec. 3, 2014), available at Khadijah M. Britton, Reckitt Can't Escape Antitrust Case Over Product-Hopping, LAW360 (Dec. 4, 2014), avaiable at 5