EX-POST LIABILITY RULES IN MODERN PATENT LAW Ex-post aansprakelijkheidsregels in een modern octrooirecht Proefschrift ter verkrijging van de graad van doctor aan de Erasmus Universiteit Rotterdam op gezag van de rector magnificus Prof.dr. H.G. SCHMIDT en volgens besluit van het College voor Promoties. De openbare verdediging zal plaatsvinden op 17 September 2010 om 11.30 uur door Rosa Julieta Fiorella Maria Castro BERNIERI geboren te Londen, Verenigd Koninkrijk ERASMUS UNIVERSITEIT ROTTEKDAM
CONTENTS Acknowledgments List of Abbreviations v xi Introduction 1 Chapter I. Property and Liability Rules: Implications for Patent Rights 13 1. Introduction 13 2. Economics of patent protection 15 2.1. The economic rationale of patents 18 2.2. The economics of patent enforcement 21 2.3. The interface between substantive and enforcement patent law 22 3. Property rules and liability rules 26 3.1. Property rules and liability rules in IP 34 3.1.1. Descriptive studies 36 3.1.2. Critics against IP liability rules 43 3.1.3. Privately organized liability rules 46 4. Property and liability rules in patent law 47 4.1. The case against liability rules for patent rights 49 4.2. The case for patent liability rules: Transaction costs 50 4.2.1. Strategic behavior and patent hold-ups 52 4.2.2. Patent hold-ups 54 5. The modern patent landscape 56 5.1. Multi-parties negotiation: The anti-commons 58 5.2 Network externalities 61 5.3. Uncertainty over rights 62 5.4. Patent quality problems 62 6. Conclusions 63 Chapter II. Ex-Post Liability Rules: A Historical View 65 1. Introduction 65 2. Compulsory licensing in international history 66 vii
Ex-Post Liability Rules in Modern Patent Law 2.1. Early patent times 66 2.2. The first compulsory licensing provisions 68 2.3. Origins of the principal national patent systems 73 2.3.1. U.K 73 2.3.2. U.S 77 2.3.3. France 79 2.3.4. Germany 80 3. Ex post liability rules in the TRIPS Agreement 82 3.1. Article 31 of the TRIPS Agreement 86 3.2. Article 44 of the TRIPS Agreement 88 4. A post-trips landscape 91 5. Remedies for patent infringement 94 5.1. Common law countries 95 5.2. Civil law countries 99 5.2.1. Creation of rights and choice of remedies 103 5.2.2. The inibitoria in the industrial property context 106 5.3. The European landscape with respect to IP remedies Ill 6. Conclusions 116 Chapter III. Ex-Post Liability Rules: A Comparative Legal View 119 1. Introduction 119 2. Ex-post liability rules 121 3. U.S. ex-post liability rules 125 3.1. The ebay case 127 3.2. Post ebay interpretation of the four-factor test 132 3.2.1. Irreparable harm 133 3.2.2. Inadequate remedies 134 3.2.3. Balance of hardships 136 3.2.4. Public interest 137 3.3. The post ebay decision landscape 138 3.4. Willful v. inadvertent infringement 141 3.5. Preliminary Injunctions 142 3.6. Other liability rules in the U.S 143 4. U.K 144 4.1. Injunctions as an equitable remedy 144 4.2. Discretion to award damages in lieu of injunctions 146 4.3. The rationale of ex-post liability rules in the U.K 149 4.4. Other ex-post liability rules: Compulsory licenses 150 5. Italy 154 5.1. Property rules: Final injunctions 156 VHl
Contents 5.2. Judicial discretion: How much space? 158 5.3. Preliminary injunctions 161 5.4. Willful and Inadvertent infringement 164 5.5. Other ex-post liability rules: Compulsory licenses 165 6. Conclusions 169 Chapter IV. Ex-Post Liability Rules: When Should They Be Used? 173 1. Introduction 173 2. Patent hold-ups: Economic theory 174 2.1. Economics of patent hold-ups: The Lemley and Shapiro model 179 2.1.1. Refinements and critics 184 2.1.2. Assumptions of the models 186 2.2. From patent hold-ups to patent strategic behavior 191 3. Strategic behavior and ex-post liability rules 192 3.1. Problems put forward by ebay v. MercExchange 193 3.1.1. Strategic behavior 195 3.1.2. Multi component patents 195 3.1.3. Dubious quality patents 196 4. The landscape of strategic behavior in Europe 199 4.1. Incidence and effects of strategic behavior 201 4.2. A case study: the European pharmaceutical sector 205 4.2.1. Patent strategies in the European pharmaceutical sector 208 4.2.2. Policy suggestions of the Final Report 211 4.2.3. Beyond the European pharmaceutical sector 213 5. Patent strategic behavior: Towards a broader framework 215 5.1. Actors: Non-manufacturing entities, trolls, ambushes and others... 216 5.1.1. Definition and business models 217 5.1.2. Evolution of patent strategic behavior 224 5.2. The conduct: Trolling behavior 228 6. Conclusions 231 Chapter V. Ex-Post Liability Rules: Towards an Efficient Design 233 1. Introduction 233 2. The Efficient implementation of ex-post liability rules 234 2.1. How could courts efficiently apply ex-post liability rules? 234 The balancing test in post-ebay cases 235 3. A monetary substitute for a property rule 237 3.1. TRIPS: Adequate compensation and adequate remuneration 238 3.2. Determining the level of compensation: An impossible task? 241 ix
Ex-Post Liability Rules in Modern Patent Law 3.3. Remuneration for compulsory licenses after the TRIPS Agreement.. 243 3.4. Patent infringement: The goals of damages substituting injunctions 245 3.4.1. Post-eBay application 247 3.4.2. Law and economics of damage remedies 252 4. Other costs of patent liability rules 253 4.1. Interference with bargaining outcomes 253 4.2. Ex-post liability rules and legal uncertainty 253 5. Cost-benefit analysis of the rules 254 5.1. A comparative overview of costs and benefits of rules 255 6. Conclusions 258 Chapter VI. Conclusions 261 1. The research question 262 2. Findings of the research 263 2.1. Chapter 1 263 2.2. Chapter II 264 2.3. Chapter III 266 2.4. Chapter IV 267 2.5. Chapter V 268 3. Impact and applications of this research 269 3.1. Lessons from the entitlements literature to the patent field 269 3.2. Patent policy. Efficiency and other goals of public interest 270 3.3. Intellectual property as property 272 3.4. Rules of interpretation: The role of courts and agencies 278 3.5. The design of patent liability rules 279 4. Future research 282 4.1. Other IP rights: Copyright, trademarks and unfair competition law 282 4.2. Public choice applications 283 4.3. Antitrust and IP interface 284 4.4. Further national, international and European harmonization 286 List of References 289 Appendix 309