Quel dommage – part 2

In this second post on damages assessment in the Vorwerk v. Taurus case, I will focus on the computation of the royalty rate used for the assessment of damages (the first part of the story is here).

According to established case law, the rate used for assessing damages needs to be based on a reasonable royalty rate that the parties would have agreed on, had they negotiated a license agreement, but then a multiplying factor needs to be applied to the basic royalty rate. This is often termed an indemnifying royalty.

Some believe that, according to a fundamental principle of civil law, damages cannot have a punitive nature as they are meant to repair a harm suffered by a victim (“all the harm, but not more than the harm”). Thus, an indemnifying royalty simply reflects the fact that a defendant found guilty of infringement would not be in a normal bargaining position and would be put at a disadvantage at the negotiation table.

Others are of the opinion that an indemnifying royalty is necessarily punitive in nature. This line of thought in fact seems to be consistent with what the court itself suggests in the Vorwerk damages decision:

[…] One should take into account the detrimental situation that the patent proprietor is in, since they have to put up with an exploitation of the invention that they have not decided. It would thus be unfair to simply apply a royalty rate equivalent to the one that they would have agreed on if they had negotiated a license agreement.

In the case at hand, the court was confronted with three different calculations of a royalty rate.

The first calculation was the expert’s: the defendants’ operating margin before taxes is 9.6%. A normal royalty rate should thus be 25% of this figure, so approximately 2.5%. However, this rate should further be cut in half and then rounded up to 1.5%, taking into account the fact that the importance of the patent was not paramount for marketing the food processors at stake. Then, three possible multiplying factors were offered by the expert to the court, namely 1 (which is not much of a multiplying factor), 2 or 3.

The second calculation was the plaintiff’s: the main difference between this calculation and the expert’s is that the plaintiff requested that the rate be calculated based on the defendants’ contribution margin, which was assessed to be significantly higher than the operating margin before taxes, at 22%. According to the plaintiff, some fixed costs were erroneously deduced by the expert from the margin, since the defendants would have supported these fixed costs anyway.

Then, the plaintiff suggested a royalty rate of 25 to 33% of the above margin, to which a true multiplying factor should be applied. The plaintiff disagreed with the expert’s finding regarding the lesser importance of the patent for the food processors at stake. But on the other hand, they agreed that those food processors in which the infringing steam-cooking cover was only optional (namely the Mycook Pro series) should be subjected to a lower overall rate than food processors in which the infringing steam-cooking cover was mandatory (the Mycook series).

Last (and least, in terms of figures), the defendants’ calculation was based on the proposition that the royalty rate should not be based on the overall turnover of the complete food processors, but rather on the turnover attributable to the steam-cooking cover. The price of the cover represents approximately 8% of the overall price. As far as the royalty rate itself is concerned, Taurus sided with the expert’s proposition of 2.5% to be cut in half – so, 1.25% without any rounding up. Taurus objected to any multiplying factor, by relying on the principle recalled above that there cannot be punitive damages under French law, and by adding that Vorwerk did not suffer from any negative consequence in the absence of evidence of any direct or indirect exploitation of the patent.

A calculator of royalty rates
A calculator of royalty rates

So, in summary, the three royalty rates offered to the court were:

  • 13% for the Mycook processors and 6.5% for the Mycook Pro processors (patentee);
  • 1.5, 3 or 4.5% for all processors, depending on the indemnifying multiplying factor (expert); and
  • 0.1% for all processors, if my math is correct: 1.25 % times 8 % (defendant).

The court selected the middle option, namely the expert’s. And among the three possibilities offered by the expert, they chose again the middle one, namely the 3% rate.

In particular, the court agreed with the selection of the operating margin, and with the proposition that 25% of this margin should represent a valid starting point for the royalty rate. Said the court, this coefficient of 25%

represents an allocation key which is commonly accepted in terms of patent licensing. 

It is indeed common thinking in patent licensing that approximately one fourth to one third of the profit made by the licensee owing to the invention should be paid back to the licensor, while the licensee should keep the rest of the profit. It is rather comforting that the court adopted this real-world pragmatic approach.

The court also agreed with the reduction of the rate suggested by the expert:

[…] In the marketing of the food processors at stake, the part taken by the exploitation of the patent itself needs to be put into perspective and reduced since other intangible assets may have contributed to the sales of these products.

Again, this looks like a sound approach. Traditional French case law on computation of damages was mainly established in situations wherein one invention equals one patent equals one product. But this probably no longer correctly reflects the current state of affairs, IP-wise. Even though food processors are not smartphones which incorporate technologies protected by thousands of patents, it seems plausible that they may incorporate a number of patented inventions – not to mention other sources of value.

Finally, the court applied a multiplying punitive-like factor of 2, apparently trying to strike a balance between a low factor which would be unfair to the patentee who did not agree to the exploitation of their patent, and a high factor which would also be unfair since the patentee did not clearly explain how the patent is directly or indirectly exploited by them and thus how there could be additional economic harm.

As mentioned in the first post on this topic, an additional amount of 6,255 euros was also awarded in terms of financial harm. This additional amount was calculated by the expert (with the approval of the court) based on the long-term interest rate in Germany, and was meant to compensate for the accrued interest that the claimant should have earned based on the collected royalties.

It would be interesting to see whether readers believe that other national courts in other European countries would have likely come up with the same kind of figure or whether there are any marked differences of approaches.


CASE REFERENCE: Tribunal de grande instance de Paris, 3ème chambre, 2ème section, September 26, 2014, Vorwerk & Co. Interholding GmbH v. Electrodomesticos Taurus SL, Lacor Export, Lacor Menaje Profesional SL & Taurus France. RG No. 2008/10729.

Quel dommage – part 1

As interesting as revocation verdicts may be, patents are sometimes found valid and even infringed.

In such a case, a court in France has two main options for determining the amount of damages: either they decide on the quantum in the same ruling in which the patent is found valid and infringed, or they decide on validity and infringement first and then appoint an expert with the task of making a recommendation to them; it is in view of the expert’s report and of further submissions of the parties that the court then determines the quantum.

Damages computation tends to be more detailed and better reasoned in cases of the second category than cases of the first category. Therefore, I thought it would be interesting to have a closer look at one recent case where use was made of an expert, as an example of computation methodology.

On January 11, 2011, the Paris Tribunal de Grande Instance (TGI) held that Electrodomesticos Taurus SL and other codefendants infringed a European patent owned by Vorwerk & Co. Interholdings GmbH by inter alia importing food processors of the brands Mycook and Mycook Pro into France and marketing those on French territory. The TGI appointed an expert and entrusted him with the task of estimating the proper amount of damages.

This second part of the procedure led to another judgment handed down on September 26, 2014 – yes, this is three and a half years later I am afraid. In this judgment, Vorwerk was awarded 127,367 euros of damages corresponding to lost profits, and 6,255 euros corresponding to financial harm. However, since they had already been awarded 310,000 euros as a provision on damages, they in fact had to pay the difference back to the defendants.

This is probably not the end of the story though, since:

  • there may be an appeal pending further to the ruling of September 26, 2014 (any information that readers may have on this question would be welcome);
  • although the initial validity and infringement verdict was confirmed on appeal on February 15, 2013, the Cour de cassation (supreme court) set aside the appeal judgment on November 25, 2014, due to some procedural violation during the appeal proceedings, and remitted the case back to the Cour d’appel in a different composition.

So, on the procedural standpoint, this is a relatively unusual and interesting situation indeed.

Anyway, let’s go back to this amount of damages of 127,367 euros and how it was reasoned by the court.

Vorwerk had not been working the patent itself – although other companies of the same group had apparently been. Therefore, the “lost profits” that they claimed were in fact lost royalties.

In order to assess these lost royalties, a classical two-step process was applied: first, the turnover generated by the infringement (or “infringing mass”) was calculated; second, the royalty rate was assessed.

As to the first step, the court defined the starting point and the end point of the period of time during which infringement took place. The end point was the date of the first judgment on validity and infringement. The plaintiff requested that posterior acts be also taken into account but this request was denied since such posterior acts were prohibited by the injunction pronounced in the first judgment, so that any breach of the injunction should give rise to specific remedies (to be recovered in different proceedings).

The starting point was taken to be three years prior to the commencement of the legal proceedings against the defendants, in keeping with the French statute of limitation (the limitation period has now been extended to 5 years according to new legislation).

One interesting defense raised by some of the codefendants was that they were not “direct infringers so that the starting point should be postponed as far as they were concerned. Under French law, manufacturers or importers of infringing products are defined as direct infringers and are therefore liable for the infringement regardless of whether they were aware of it. In contrast, distributors, users or marketers of infringing products are liable only insofar as they are aware of the infringement – provided that they are different from the manufacturers / importers.

Here, there were four codefendants: two Spanish companies and two French companies. The two French companies argued that they were not direct infringers, and therefore were only liable when they became aware of the infringement, that is when legal proceedings were started against them.

This argument was unsuccessful, as the court did not want to make any difference between the defendants:

It obviously derives from the judgment of January 14, 2011 that the court held Taurus France and Lacor Export [the French companies] liable for the importation acts and did not distinguish their case from that of Taurus Spain and Lacor Spain [the Spanish companies].

Besides, even though these companies are incorporated under French law and are located in France, it results from the statements provided by the defendants to the expert that Taurus France exclusively buys from Taurus Spain, and that Lacor Export handles order placed in France for Lacor Spain, so that they are co-authors of the acts of importation.

Therefore they are liable regardless of any awareness. Consequently, the starting point for the infringement period should be three years prior to the commencement of legal proceedings against each company, as posited by the expert.

The exact date of the starting point was not the same for all companies as legal proceedings were started against them at different points in time, but the take-away message here is that indirect infringers (such as marketers or distributors) having close ties with direct infringers (manufacturers or importers) are not viewed as actual indirect infringers but rather as co-authors of the acts of direct infringement.

Then the court turned to the determination of which articles were infringing. Here, one issue was that some food processors were sold with a steam cooking cover while others were not. The court analyzed the first judgment and deduced from this judgment that the patent infringement was related to the presence of the steam cooking cover. Food processors sold without a steam cooking cover were not infringing. On the other hand, the defendants also marketed steam cooking covers independently of (the main part of) the food processors.

A steam cooking cover for humans.
A steam cooking cover for humans

The court decided that the number of infringing articles corresponded to the sum of (1) food processors sold with a steam cooking cover and (2) steam cooking covers sold separately. The court’s reasoning was that standalone steam cooking covers were necessarily meant to be used with food processors previously sold without a cover. Therefore, the sum of (1) and (2) should indeed be equal to the number of cover-equipped food processors held by end users.

Based on the definition of the relevant period of time and of the relevant articles, the court was able to compute the overall turnover generated by the infringement – based on the numbers provided in the expert’s report.

In the second post on this topic, we will look at the second main step of damages assessment, namely the computation of the royalty rate.


CASE REFERENCE: Tribunal de grande instance de Paris, 3ème chambre, 2ème section, September 26, 2014, Vorwerk & Co. Interholding GmbH v. Electrodomesticos Taurus SL, Lacor Export, Lacor Menaje Profesional SL & Taurus France. RG No. 2008/10729.

One K.O. for Kao

As a present to priority nerds, and probably a punishment to others, here is another post on the burning issue of partial priority.

In a previous post, I attempted to provide some practical tips to patent drafters anxious about the outcome of the referral to the Enlarged Board of Appeal on the issue of poisonous (or toxic, whichever you like best) divisionals. As was recalled in this post, the issue boils down to how partial priority is assessed: under what we could call a “broad” or “generous” interpretation of partial priority, any generalized claim can partly benefit from the priority of a partial original disclosure, and thus be immune to anticipation by any poisonous divisional, poisonous parent or any other poisonous you-name-it family member; if, however, one believes that partial priority requires certain specific conditions in order to be acknowledged (let’s call this the “narrow” or “strict” interpretation), then generalized claims which do not pass the test (whatever it is) may be prone to some kind of incestuous anticipation.

Several boards of appeal adopted the strict interpretation of partial priority, whereas Board 3.3.07 preferred the broad and generous interpretation, notably in decision T 1222/11. This is the divergence in case law which led to the referral to the Enlarged Board.

Today, I would like to focus on this decision T 1222/11 in more detail: not so much on the (very interesting) obiter part of the ruling where the Board discusses in detail why they believe the strict interpretation put forward by other boards is wrong; but rather on the rest of the decision, which should not be ignored and is very informative indeed.

Oh – and did I forget to mention it? In this ex parte case T 1222/11, the patent application died in the end. It did not die because of a toxic divisional though, as Board 3.3.07 does not believe in toxic divisionals – and as this was not an issue anyway. But it died all right, and because of an invalid priority claim.

With this in mind, is it possible that the broad and generous interpretation might not be so generous after all with applicants and patent proprietors? At any rate it is certainly worth having a closer look at what exactly went wrong in T 1222/11 for the applicant Kao Corporation, and how they were unfortunately K.O.-ed.

In the case at hand, the application claimed the priority of a Japanese patent application, and the text of the application as filed was identical to the English translation of this Japanese patent application (reasons, 7).

But there was also an earlier PCT application by the same applicant, D4b, with a similar disclosure. In particular, D4b included several examples falling within the scope of the claims of the application at stake.

According to Kao, since D4b was only intermediate prior art under Article 54(3) EPC, it was possible to introduce a disclaimer into the main claim, more precisely a G 1/03-type undisclosed disclaimer, so as to restore novelty over D4b. Various formulations for the disclaimer were put forward as a main request and auxiliary requests.

This line of defense by the applicant was based on the presupposition that the priority claim of the application was valid.

If however the priority claim was in fact invalid, then D4b became full prior art under Article 54(2) EPC, as a result of which the introduction of an undisclosed disclaimer to restore novelty over D4b was no longer permitted, in view of the conditions set forth in G 1/03.

This is why the Board examined the validity of the priority claim, focusing on the fact that

According to Article 87(1) EPC, a requirement for enjoying a right of priority for filing a European patent application is that the application for a patent […] on the basis of which the priority is claimed must be the first application in respect of the same invention (reasons, 7).

The Board therefore compared the teaching of the priority document with that of the earlier application D4b by the same applicant. The Board explained that, if the earlier application D4b related to the same invention as the Japanese priority document, then said Japanese priority document could not be considered as a “first application” and thus the priority claim was invalid.

As a side note, the applicant could not possibly rely on the mechanism of Article 87(4) EPC, per which

a subsequent application in respect of the same subject-matter as a previous first application and filed in or for the same State shall be considered as the first application for the purposes of determining priority, provided that, at the date of filing the subsequent application, the previous application has been withdrawn, abandoned or refused, without being open to public inspection and without leaving any rights outstanding, and has not served as a basis for claiming a right of priority.

Indeed, D4b had been published and (if only for this reason) could not be considered as having been merely replaced by the later Japanese application.

Let’s now go back to the comparison between the priority document (substantially identical to the application at stake) and the earlier application D4b. The priority document, just like the claimed invention itself, was directed to a leave-on hair cosmetic composition containing an organic dicarboxylic acid (A) and an organic solvent (B), and further characterized by a certain pH and a certain buffering capacity. The Board first of all noted that 6 examples of compositions in D4b fell within the scope of claim 1 – these were the formulations that the applicant tried to exclude from the application at stake by way of a disclaimer. In addition, there were many more similarities between the priority document and D4b, including in terms of preferred components.

Only the buffering capacity was not explicitly recited in D4b, but for the Board, this parameter was simply a consequence of the other technical features present in D4b.

This finding meant that the priority document related to the same invention as D4b – and therefore the priority claim was invalid.

A patent attorney before and after application of a leave-on hair cosmetic composition
A patent attorney before and after application of a leave-on hair cosmetic composition

One aspect was more particularly discussed by the applicant, namely the fact that D4b was limited to the use of a combination of malic acid and lactic acid as component (A), whereas the priority document and the claimed invention were not.

According to the Board, this

does not mean that D4b  and the present application do not contain a common subject-matter or invention, but only means that the disclosure of D4b does not extend to the use of malic acid without any lactic acid. In other words, the present subject-matter can be seen as the invention of D4b supplemented with additional subject-matter relating to the use of malic acid without lactic acid (reasons, 9.4).

To put it differently, the priority document as well as the claimed invention were generalized relative to the subject-matter of the earlier application D4b.

But, despite such generalization, both the priority document / the application and D4b were found to relate to the same invention. This is made quite clear in the other following statements by the Board:

It follows from the above that the combination of features defined in positive terms in the first part of present claim 1 of the Main Request cannot be distinguished from the disclosure of the earlier application D4b. Example Products 10 to 14 and Example Product 6 of D4b constitute prior disclosures of the combination of features defined in positive terms in the first part of present claim 1 of the Main Request and therefore cannot be held to relate to a different subject-matter, i.e. a different invention (reasons, 9.2)

It must be concluded […] that the Appellants cannot benefit from the priority claimed for the combination of features defined in positive terms in amended claim 1, in so far as it covers subject-matter disclosed in D4b, in particular in so far as it covers the six compositions disclosed in D4b which the Appellants are seeking to disclaim (reasons, 10).

Further down in the decision, in the obiter dictum on partial priority, the Board explains that it is sufficient for the purpose of benefiting from partial priority if alternative subject-matters in a broad claim can be conceptually identified – a very undemanding requirement.

The Board further notes that this

also implies in view of the necessary coherence of rules of law on the subject of claiming priority defined in the EPC, that when an application on the basis of which a priority date is claimed encompasses a narrower subject-matter already disclosed by the same applicant in an earlier application, the decision on whether the claim to priority on the basis of the later application is valid does not depend on whether the narrower subject-matter disclosed in the earlier application is identified in said later application. The latter situation is precisely the one underlying the case under appeal (reasons, 11.8).

The bottom line of this rationale is that, when two successive applications are filed by a same applicant, the second one having a broader subject-matter than the first one, then the second application can never be used to claim priority for a (yet) subsequent filing – unless use is made of the special provisions of Article 87(4) EPC, i.e. the first application is nipped in the bud.

Logically, one should reach the opposite conclusion if the “narrow” interpretation of partial priority advocated by the other, poisonous divisionals-friendly boards, is used.

So, the “broad” interpretation may save a number of patents from the unpleasant agony of being poisoned by another member of their family; but it may also toll the bell for some applicants who like to file successive applications for relatively similar subject-matters, and possibly broaden the definition of their inventions over time, starting from specific examples.

Thus, whatever the outcome of the pending referral is, it seems that extreme caution will still be required for properly claiming priority.

 


CASE REFERENCE: Board of Appeal 3.3.07, T 1222/11, Kao Corporation, December 4, 2012

Red card for Orange

In a previous post, I gave an example of a French patent which was revoked because it was considered as not relating to an invention but to a mere discovery.

Still on the subject of patent eligibility, the same section of the Paris Tribunal de Grande Instance (TGI), chaired by the same presiding judge, Ms. Courboulay, confirmed their relatively harsh stance on this topic, this time in relation with a computer-implemented invention. The judgment was already reported on the Blog du droit européen des brevets but since it is really remarkable I thought it would be worth mentioning it here as well, just in case some readers missed it.

The telecommunications giant Orange brought an infringement action against its competitor Free, based on European patent No. EP 2044797. Unsurprisingly, Free filed a revocation counterclaim, and, as the title of this post suggests, Orange lost the case. Indeed, the court revoked all of the patent claims which were asserted by Orange.

Some of these claims were held invalid due to lack of novelty, but this is not the part of the decision which I would like to discuss. I would like to focus on claims 12, 13, 14 and 15.

Claim 12 read as follows:

Computer program product downloadable from a communication network and/or stored on a computer-readable medium and/or executable by a microprocessor of a mobile terminal (2) including means for detecting the radio field (160) of a base station (16) of a home local area network (150), said home local area network including one or more home equipments (11-14) connected to a home gateway (15), said mobile terminal (2) including means for exchanging data with said gateway via a radio link with the base station (16), characterized in that it includes program code instructions for sending to said home gateway (15), in response to detection of the radio field (160), information relating to the establishment of a multimedia session in progress between said mobile terminal (2) and an applicative system (20), and in that it further includes program code instructions for displaying a list of home equipments sent by the home gateway (15) and means for selecting at least one home equipment (11; 12; 13; 14) in said list.

The court was apparently not very happy with how this claim was drafted. They stated:

Article 52 EPC is perfectly clear and does not require any interpretation: programs for computers as such are excluded from patentability, and this is because they are protected by copyright.  

The emphasis on “as such” was put by the court, and the way I understand it, the expression was interpreted as meaning that programs for computers are “inherently” or “absolutely” excluded from patentability.

But, wait a minute, isn’t this understanding completely at odds with the position taken by the Boards of appeal of the EPO? After all, the Enlarged Board of Appeal, in its opinion G 3/08 on computer programs, stated that:

The present position of the case law is thus that […] a claim in the area of computer programs can avoid exclusion under Articles 52(2)(c) and (3) EPC merely by explicitly mentioning the use of a computer or a computer-readable storage medium (reasons, 10.13).

In other terms, according to the case law that the Enlarged Board endorsed, the wording “as such” in Article 52 means quite the opposite to what the TGI believes, i.e. it means that only pure computer programs can possibly be excluded from patentability, but any mention of a technical feature such as a computer or a storage medium is sufficient to escape exclusion from patentability. To make this easier to understand, the Enlarged Board made a comparison between computer programs and pictures (also excluded from patentability as such), which can be printed on a (patentable) physical support:

a claim to a computer implemented method or a computer program on a computer-readable storage medium will never fall within the exclusion of claimed subject-matter under Articles 52(2) and (3) EPC, just as a claim to a picture on a cup will also never fall under this exclusion.

The TGI was evidently well aware of the EPO case law on the issue but was unimpressed:

It cannot be validly argued, as the sole defense to deny nullity of these two claims, that the practice of the EPO is to admit claims to programs for computers by calling them ‘program-products’.

In fact, it cannot be accepted that a mere trick of language would make it possible to grant patents contra legem. Indeed, the grant of patents to computer programs, even if they are called program products, is not supported by any statute or by any difficulty of interpretation of the EPC, and on the contrary those are clearly excluded as such from patentability.

Claims 13 and 14 contained the same wording of “computer program product” as claim 12 and they were therefore smashed for the same reason.

As for claim 15, it was directed to a “storage medium storing the program according to any one of claims 12 to 14”, but the court found that this does not make any difference:

In this case, and in view of the way claim 15 of the EP’797 patent is drafted, it appears that the storage medium does not have any particular technical feature. It is again a dressing which does not make it possible to escape the exclusion from patentability which concerns computer programs. There is in fact no more information on this storage medium in the description of the patent, and Orange has obtained a protection and the consequent monopoly on an object the only function of which is to contain computer programs which are excluded from patentability.

Claim 15 was therefore canceled as well.

US5331499-1
A storage medium suitable for storing non-inventions.

Scathing comments in a ruling often add some spice to it, and Ms. Courboulay did not skimp on those. In this respect, her statement on the EPO’s contra legem practice of granting patents to computer program products is nothing short of astonishing. I will leave it up to the readership to decide for themselves whether the red card mentioned in the title of this post should in fact be shown to her court rather than to the claimant.

But beyond this parfum de scandale, applicants should keep in mind that, at least according to latest case law, claims directed to computer programs seem to be simply outlawed in France. Therefore, they should definitely include method claims in their French or European applications if they want the novelty and inventive step of their inventions to be assessed at all.

In view of the very firm stance taken by the court in Orange, I would not bet on any argumentation advocating the technical character of computer program inventions in front of the TGI.

As to the significant discrepancy between French case law and EPO practice, there are other striking examples (not just in the software field), and I will probably come back to this issue in future posts.


CASE REFERENCE: Tribunal de Grande Instance de Paris, 3ème chambre, 1ère section, SA Orange v. SAS Free & SAS Freebox, June 18, 2015, RG No. 14/05735.