Tuesday, March 15, 2022

'Defending American Courts Act' presently looks more like PR stunt than serious and well-thought-out legislative proposal to combat foreign interference in U.S. patent enforcement

The "Defending American Courts Act" is by far and away the lowest-quality piece of work I've ever seen from U.S. lawmakers in an IP context. It's so poorly done that even if one totally agreed, for the sake of the argument, with its sponsors' objective as laid out in that jingoistic press release, it still wouldn't make sense. That is remarkable.

The world definitely has a problem with standard-essential patent (SEP) rulings that encroach on other jurisdictions. Patents are meant to be territorial rights, strictly country-by-country (with the upcoming Unitary Patent treating the EU's Single Market as a country), but SEPs involve questions under contract and/or antitrust law. Contracts, or even just offers to enter into contracts, can have global scope, and relevant antitrust markets or determinations on whether a party's conduct was fair can be global, too.

I discussed the problem of extraterritorial overreach last May and published the slide deck I used for my contribution to a European Commission webinar on SEP enforcement.

So I'm definitely not a denier--I just advocate symmetry and rationality. It's key to understand that some extraterritorial decisions are actually just a reaction to what previously went wrong in other places. Also I've consistently praised the restraint that American courts exercise: if one party declines to be bound by a global FRAND rate-setting decision, they don't force it into such a license agreement; and even if both parties ask a U.S. court to set a global rate for them, U.S. courts don't necessarily devote time to such an effort.

The EU is complaining about Chinese antisuit injunctions. Its pending request for consultations, which is a complaint by any other name, is soon going to be put before a WTO Dispute Settlement Body (DSB) panel as it's a given that the EU won't be satisfied with China's response no matter the content. The United States could advocate its approach--being the last major jurisdiction not to force SEP holders or implementers into global license agreement--at the WTO level and/or through bilateral talks. If everyone exercised the same restraint as American courts, there wouldn't be a problem left to be solved by the proposed bill. There would be no more global rate-setting decisions in China, no more UK patent injunctions that become enforceable unless a defendant takes a license on court-ordered terms, no more German patent injunctions that come down because all that an implementer is prepared to do to avoid a German sales ban is to take a license to the German part of a given SEP portfolio.

To be fair, SEP holders do have a point when they argue that negotiated license agreements are almost always global, and piecemeal resolution requiring litigation in numerous jurisdictions isn't practical. That's a very valid policy concern. Hold-out is a serious issue in the technology industry, and there are implementers who would have to lose in maybe five or ten (if not more) jurisdictions before they would come to reason and finally take a global license. I'm not denying that part either.

Let's not spend too much time on the press release, which is replete with anti-Chinese rhetoric. Just one observation: Those "so-called 'anti-suit injunctions'" are not a Chinese legal innovation. The first Chinese SEP-related antisuit injunction came about a decade after the Microsoft v. Motorola antisuit injunction in the Western District of Washington that (for good reason) barred Motorola Mobility from enforcing a pair of Mannheim SEP injunctions. Maybe the concept of an antisuit injunction is part of the "American Intellectual Property" that Senators Thom Tillis (R-NC), Chris Coons (D-DE), Tom Cotton (R-AR), Mazie Hirono (D-HI), and Rick Scott (R-FL) accuse "the Chinese Community Party" of "stealing"--though America inherited it from the UK as a common law instrument.

It just doesn't come across as very sophisticated and thoroughly-researched when a press release makes it sound like China had contrived something strange and the reality is that it's part of American legal tradition.

Now let's finally turn to the proposed statute (S.3772). The plan is to add an additional § 274 to U.S. patent law (35 U.S.C.) relating to "foreign interference." It then defines "anti-suit injunction" as "an injunction issued by a foreign tribunal that purports to restrict the rights of a person to file or maintain [...] a claim of infringement of any claim of a United States patent in a tribunal of the United States [or the equivalent in the form of an ITC complaint]" as well as the related appeals. Those of you who have litigated SEP antisuit (and anti-antisuit) cases may already have noticed a major flaw: it's a narrow definition of an "anti-suit" injunction that doesn't--or at a minimum does not with sufficient clarity--cover "anti-enforcement" injunctions. For instance, the Microsoft v. Motorola antisuit injunction that Judge James Robart ordered in Seattle (and which the Ninth Circuit upheld) was not strictly an antisuit injunction: Motorola remained free to litigate the case (as it did) and to seek damages. It just wasn't able to enforce an injunction.

The language of the proposed statute refers only to "claims of infringement" but not to the enforcement of injunctive remedies. I've looked up various legal dictionaries. Cornell Law School's Legal Information Institute explains the term "claim" extremely well:

"A set of operative facts creating a right enforceable in court."

That dictionary also clarifies that "'claim' is slightly broader [than 'cause of action']," but in my understanding--please let me know via my contact form if you find evidence to the contrary--that does not mean it's a synonym for the enforcement of remedies.

The way those SEP antisuit injunctions typically work--and again, we don't have to look to China but can find examples in the U.S., especially the seminal one from Seattle--is that the enforcement of injunctive relief (as it has the potential to force someone into a global license deal, which would resolve a global dispute, thereby depriving all other courts of jurisdiction) is barred until the enjoining court has decided its case, which may then lead to a global license agreement that does away with the foreign infringement action.

Not only does the bill wrongly focus on "claim" (rather than the enforcement of remedies based on a claim) but it then also envisions the wrong sanctions--and especially sanctions that make no sense with respect to those alleged Chinese infringers. Just when you think it can't get worse...

The sanctions for someone leveraging a foreign antisuit injunction would be that:

  • § 274 (b) Civil Action Presumptions:

    • "(1) the infringement is willful when determining whether to increase damages under section 284; and

    • "(2) the action is exceptional when determining whether to award attorney fees under section 285"

  • § 274 (c) PTAB: discretionary denial of IPR petition

If we assume, for the sake of the argument, that there is a need to prevent China from stealing U.S. intellectual property, what Chinese company would really be impacted or deterred by this? Where are those Chinese companies that sell tons of smartphones and similar devices in the U.S. so that treble damages would hurt? Americans sure buy lots of China-made phones, but those are mostly iPhones...

Even if it's not about China, but say, you have a dispute between Samsung and a U.S. patent holder, it still wouldn't make sense on the bottom line. Samsung does a lot of business in the U.S., sure. So damages could be costly (though Samsung would never actually have to pay them if a foreign court meanwhile forces the patent holder into a global license agreement, which resolves the global dispute). But what would be the point in Samsung (which obtained a Chinese antisuit injunction against Ericsson about a year ago) not getting a PTAB review of the U.S. company's patents-in-suit? If the PTAB upholds those patents, great. If it doesn't, then those patents are invalid, and invalid patents aren't property. But Samsung would also do U.S. defendants a favor by eliminating patents that shouldn't have issued in the first place. Samsung and Ericsson settled quickly, but Apple is now actually recycling Samsung's 2021 PTAB petitions.

A few constructive suggestions:

  • Instead of taking ill-conceived unilateral action through legislation, U.S. Senators should have more confidence in their country's courts. In this context, U.S. judges are probably in a better position to come up with solutions than the legislature. For example, Judge Rodney Gilstrap in the Eastern District of Texas granted Ericsson an anti-antisuit injunction against Samsung's Chinese antisuit injunction. It was appealed to the Federal Circuit, but then they settled.

  • As I said further above, the U.S. does stand on higher ground with respect to extraterritorial patent rulings. Its antisuit injunctions come down only in exceptional cases (and interestingly, Chinese courts perform a multifactorial analysis that is far more similar to the U.S. approach than what you see in the UK or Germany). With the EU and China having a WTO dispute over the issue, the United States could and in my view should call on all other jurisdictions (including the EU and the UK) to refrain from patent rulings, including patent injunctions, that effectively force one party or the other to take a global license.

  • If you want to enact a Defending American Courts Act, just make it easy--or, in fact, mandatory--for American courts to decline to recognize unilaterally-imposed global patent license agreements with respect to U.S. patents. If a UK court forces Apple to take a global portfolio license, a German court threatens to enjoin Ford unless it caves to a SEP holders demands on a global basis, or a Chinese court orders a patent holder like Dolby at an implementer's request to grant a global portfolio license--just don't recognize the U.S. part of those contracts. Let the patentee enforce those U.S. patents as if that foreign-imposed contract didn't exist in the first place, or let the implementer (such as an Apple) ask a U.S. court to set a FRAND rate for the U.S. part of the portfolio and potentially seek a refund if the foreign-imposed license agreement requires the implementer to overpay. If in the next step a party avails itself of the foreign court to impose contempt sanctions on the other party only because it wants American courts to rule on U.S. patents, the sanctions in the U.S. should be draconian so they truly deter bad behavior.

However, if it's a mid-term election year and you just want to fire some cheap shots at China, the current legislative proposal may be good enough. But only if the objective has nothing or very little to do with actually defending American courts' jurisdiction over U.S. patents.

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