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

Reasonable certainty doctrine in contract arose in the 19th 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
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).

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