Private Law & IP, Remedies and Prizes

Session 7: Remedies and Prizes

Moderator: Chief Judge Patti B. Saris (D. Mass.): 50% of all claim constructions are reversed, and 80% of all damages.  So judges are interested in improvements.

 

John M. Golden, “Reasonable Certainty in Contract and Patent Damages”: Damages controversy and uncertainty about reasonable royalties. There’s eBay, then sometimes huge amounts, and apportionment—not a new issue, but reappeared under reasonable royalty analysis. Not clear there ever will be a great methodology, and there certainly isn’t now.  Only easily done with a limited subset, as when a new process lowers costs by $1.  Was a court appointed expert in Motorola case w/Posner presiding by designation: trying to figure out value of particular gestures for a tablet/cellphone.  Posner threw out basically all the party experts; almost his only materials were reports produced by the experts who’d been thrown out on Daubert grounds; Posner then decided there were no damages that could be proven, and no need for an injunction, so he threw out the case.  That was reversed, but it did solve Golden’s immediate problem.

 

What could we do to reach an acceptable result?  Reasonable certainty standard in contract law might be used to address situations in which damages were difficult to assess.  Statute here says that damages shall be awarded adequate to compensate for the infringement, and in no event less than a reasonable royalty.  Learned Hand: reasonable royalty is really “a device in aid of justice, by which that which is really incalculable shall be approximated, rather than that the patentee, who has suffered an indubitable wrong, shall be dismissed with empty hands.” Admission that it’s a replacement for disgorgement, also equitable.

 

Georgia-Pacific multifactor test: courts look to it, more than a dozen factors; not clear that many of them are useful in particular cases. The framework factor is “hypothetical negotiation approach.”  What a willing licensor and licensee would’ve agreed to as a royalty if they’d successfully negotiated before infringement began, w/assumption that relevant claims were valid and would be infringed by d’s activity.  At least if injunction is off the table, we get a circularity problem out of this approach.  Cross-licensing and other terms such as benchmarks/milestones are common in real agreements.  Difficult counterfactual!  Uncertainty is not surprising/susceptible to elimination.  So we need to work with uncertainty.

Reasonable certainty doctrine in contract arose in the 19^th c. relaxing the requirements for showing damages, while still putting some limits on what a jury could do.  Certainty doctrine: consequential damages allowed if provable with certaintyàover time became reasonable certainty.  Rise of expert testimony; decline of rule against allowing a new business that failed because of the breach to recover lost profits.

 

Potential factors in intensity of demand for proof: blameworthiness or egregiousness of conduct; state of art/availability of evidence; magnitude of damages alleged—if $400,000 claimed, then shouldn’t require $1 million to prove it.

 

Commentator: Keith N. Hylton: Note that standard for reviewing contract damages is abuse of discretion—much more generous to lower court.  Don’t want to have damages so variable that certain activities become unpredictably risky.  Need to police courts/juries’ damage awards may differ as between contracts and torts in terms of private expectations/managing liability (replicating different methods of private interactions)—so which should be the model for patent?  Tort law is more a mix of public-private than contract is.  There is no pure private law (though criminal law may be as close to pure public law as you can get).

 

Ted Sichelman, “Patents, Prizes, and Property Rules”: recent scholarship questions sharp distinctions between patents and prizes. Taxes, subsidies, price controls can make the two look quite similar.  E.g., gov’t prize funded by sales tax on product, rather than general tax, creates deadweight losses that mirror those of patents.  Patents w/subsidies from the general fisc for consumers priced out of the market resembles the zero deadweight loss of a prize, cf. pharma.

 

Fungibility blurs distinction b/t patents and prizes, public and private. Ben Roin says patents are still different (as do Hemill & Willete (sp?)).  Fungibility implies the key concerns are less about deadweight losses than transaction and error costs.  Roin says property rules allow patentees to fully exclude third parties, esp. competitors; prizes provide no such absolute property right.  In dynamic setting, property rights may result in substantially lower transaction costs in important circumstances, providing more innovation incentives (in other circumstances property rights may make transaction costs substantially higher); there can also be endogenous effects on transaction costs.  Why are there patents even when gov’ts fully set drug prices?   Roin says: allows pharma co to credibly threaten not to provide the product at all to the country.  Why is that rational/credible? It’s a dynamic repeat game among many countries.  Forces the next gov’t to negotiate in good faith, lowering transaction costs of innovating and disseminating over the long run.

 

More important role for property rules in patent: commercialization/coordination, from Kitch.  Lowers the cost of coordination in the post-invention phase.  Central to patent/prize distinction—follow-on invention is not key as Merges & Nelson say; Kitch also includes commercialization such as testing, marketing, pricing, not just follow-on invention.  The role of property rules in pharma commercialization may thus yield greater benefits than narrower power of renegotiation w/gov’t actors, even if gov’t is setting drug prices—can still exclude others from follow-on activities for commercially viable drug.

 

What does this say about regulatory model of patents?  I have paper on purging patent of private law remedies; aren’t I contradicting myself like a political candidate?  One must distinguish between goals and means.  Purging patent law of private law goals was my aim; patent’s goals are primarily public in nature.  Innovation is a public oriented goal; at the same time, we may want to achieve them through private oriented means like property rights.

 

But it’s important not to forget about the aims.  Compare tort law, where individual interests play an important role—the bilateral right-duty relationship—then a private law baseline for remedies is essentially mandated: a wrong has occurred and we want to return the victim to the status quo ante. Patent is not like that.  One can unite public and private aspects of patent through functionally inclusive approach: private oriented legal rights, duties, powers, and concepts (Cohen’s transcendental nonsense) can serve public oriented functional aims.

 

Commentator: John F. Duffy: Patent racing self adjusts the patent prize. It doesn’t dissipate rents.  It dissipates private rents.  Even if we had a prize system, we might have patent-like litigation from competitors.  Patent damages again harness private parties to define the appropriate scope of the right—both plaintiffs’ and defendants’ attorneys work to define the scope of the right through assertion and challenge.

 

Tort law is often public too: punitive damages aren’t about corrective justice; class actions aren’t really either.  Qui tam action; citizen suits to enforce anti pollution statutes—tort or tort-like things that do what patent tries to do; don’t give so much to people who claim that tort is about corrective justice. 

 

Q: different conceptions of IP--are we arming a private actor with the right to sue in order to achieve a public good, as in qui tam/punitive damages, or with a right to corrective justice (recognizing that it might be both).