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Statutory Damages in Trademark Cases - Trends and Improvement

By: Antonio R. Sarabia II
Tel: 310-377-5171
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Eight years ago Congress decided that the existing measures of damages for trademark infringement were not deterring trademark infringement. It decided to supplement these measures with statutory damages - a specific range of damages which a court could award even in the absence of proof about plaintiff's losses or defendant's profits. Despite the fact that statutory damages for trademark counterfeiting were enacted almost a decade ago, most courts which award these damages continue to cite the authority of copyright cases on statutory damages. While it is true that there is a much longer history of copyright statutory damage cases, the assumption of most courts, practitioners, and even trademark treatises, that there is little jurisprudence on trademark statutory damages is not correct. There is already a solid body of trademark cases awarding statutory damages. There are at least 25 reported cases in which statutory damages were awarded for counterfeiting. This article will review why trademark statutory damages were enacted, list the prerequisites to an award of statutory damages in federal trademark cases, review the analyses and trends of those cases and recommend improvements to that analysis.

Before statutory damages were an alternative, courts awarded damages based on plaintiff's damages or defendant's profits from the sales of counterfeits. Because defendant's records were often poor or non-existent, this forced plaintiffs to reveal information about their business to recover damages. This put pressure on plaintiffs - particularly privately held plaintiffs - either reveal confidential information about their sales practices and profits or forgo damages. This valuable information was to be revealed to a defendant which already had a track record of taking the plaintiff's intellectual property. To plaintiffs it felt like giving the safety deposit box key to the fellow who had just broken into your house. The choice between disclosing trade secrets or giving up damages, is insult to injury for a company which has already suffered a serious trademark infringement. Statutory damages were enacted to provide another alternative:

    The creation of this alternative [statutory damages] to the more traditional remedies of recovery of the plaintiff's damages or the defendant's profits reflected a harsh reality - counterfeiters often do not keep or secrete records of their unlawful activities, thus making proof of the extent of the plaintiff's injury or the counterfeiter's profits impossible as a practical matter.

There are three prerequisites to an award of statutory damages in trademark cases. First, there must be a trademark registration. Second, the infringing mark must be nearly identical to the authentic mark. The third requirement is that the infringing product (or service) is listed in the federal trademark registration.

Courts have a wide range of discretion in setting statutory damages. A court may award $500 to $100,000 per counterfeit mark per type of goods or services. If the infringement is wilful the range ratchets up to $1 million. The full range of statutory damages has already been used. For example, there was an award of $500 per mark. There were also several awards of $1 million per mark.

In most counterfeiting cases liability can be quickly established without trial. A plaintiff proves that it owns the trademark by offering its federal registration. A plaintiff offers samples of the products or services that the defendant offered which bore the mark, and proves that this use was without authorization. Because counterfeiting cases involve only infringing uses in which the mark the infringer used is virtually identical to the registration, there is less room for litigation over issues such as similarity. Relatively simple counterfeiting cases lend themselves to resolution before trial. This suggests that cases awarding statutory damages would be decided without trial. That suggestion is on target.

In the vast majority of trademark statutory damage cases there were insufficient contested facts for a trial on the merits. Almost half involved default judgments. This means that a substantial portion were not contested at all. Another third of the statutory damage awards were during or after a motion for summary judgment. To a defendant the message is that you may be at greatest risk for a statutory damage award in a case that can be quickly resolved. To a plaintiff, these quick cases look like the ideal setting in which to seek statutory damages.

Consistent with the summary stage in which most statutory damages were awarded - and with a defendant having insufficient contested issues to get to trial - the average award per mark is substantial: $219,739. This figure must be considered in view of not only the relatively uncontested state of most of the cases, but also in view of the factors that the various courts considered, such as defendant's profits or sales.

The amount of damages a plaintiff recovered on other claims, such as state punitive damages, may also be important. In some cases there was also a punitive damage award. Arguably, the greater the recovery on other counts, the less likely a court was to award large statutory damages. None of the courts said this explicitly, but because discretion is so wide, it is probably considered.

Almost all the decisions considered the statutory factors of wilfulness and the number of marks counterfeited. Because the statute requires a determination of damages "per mark," many courts (more than 40%) reported that they first determined a damage amount and then multiplied it by the number of marks counterfeited. Although these cases stated that they followed the statute by first determining the amount and then multiplying by the number of trademarks counterfeited, one wonders if the real process was somewhat different. In other words, did courts tend to determine what a just total award was and work backwords by dividing it by the number of marks counterfeited? Or did courts determine the amount without regard to the number of marks?

Since the courts are under a statutory mandate to multiply the damages by the number of marks counterfeited, it is surprising that a number of courts admitted that they did the opposite: they determined a reasonable total statutory damage award and then divided it by the number of marks to reach the award per mark. In other words if the "right" award were $5,000 and there was one mark, it was $5,000 per mark. If there were ten marks, the award was $500 per mark. One way to view this is that it converts the statutory mandate to multiply times the number of marks into a meaningless exercise. Another way to view it is as the determination of courts to award what they view as fair. This highlights a critical point about statutory awards: because they are discretionary, the computation a court uses may not be the cause of the award as much as a reflection of what the court deems correct.

While the number of trademarks infringed - despite the statutory mandate - may not be important, there are a number of factors which did play an important role in determining statutory damages. When a defendant's profits could be determined, most courts considered these in awarding statutory damages. Some cases used a multiplier of defendant's profits. 14 In other cases the statutory award bore some relation to defendant's profits. Although lack of information about a defendant's profits was a main reason for the existence of statutory damages, when courts could get their hands on this information they used it in determining statutory damages. This makes sense because it is the best indicator of the extent to which an infringer has profited from the infringement, and therefore makes a good basis upon which to calculate an award.

A factor considered in three decisions on statutory damages was whether infringing sales were made over the Internet.16 The rationale was that sales over the Internet increased the amount of an award because use of the Internet made the infringement widely available. These cases did not include proof that plaintiff's web site sales of legitimate product were reduced. The logic of this approach is not strong. Without information about an infringer's sales volume (or the reduction in plaintiff's Internet sales) the fact that the infringer marketed in a particular way does not make the infringement more or less harmful.

The most rigorous analysis sprang out of copyright cases in the Second Circuit. Although many cases referred to precedent in copyright statutory damage cases, it was Judge Motley in New York who most thoughtfully applied this analysis. Citing Second Circuit copyright cases Judge Motley identified the factors a court should consider in determining an award of statutory damages. Her analysis was later refined into seven factors: (1) the profits made by the defendants; (2) the revenues lost by plaintiff; (3) the value of the mark; (4) the deterrent effect on others; (5) whether the conduct was innocent or wilful; (6) whether a defendant has cooperated in providing records; and (7) the deterrent effect on the defendant. These factors were used in three other cases in the Southern District of New York.

The value of Judge Motley's reasoning is that it identifies the factors a court should consider in making the discretionary award. It increases the likelihood that a range of factors are considered and reduces the likelihood that a court just reacts on the basis of feeling about the case. This approach also encourages placing the case in a larger perspective (deterrence on others).

If the same approach were used in the Ninth Circuit - closely following copyright precedent - the guiding case would probably be Los Angeles News Serv. v. Reuters TV Int'l, which listed these factors:

    The district court has wide discretion in determining the amount of statutory damages to be awarded, constrained only by the specified maxima and minima. The court is guided by what is just in the particular case, considering the nature of the copyright, the circumstances of the infringement and the like. Because awards of statutory damages serve both compensatory and punitive purposes, a plaintiff may recover statutory damages whether or not there is adequate evidence of the actual damages suffered by plaintiff or of the profits reaped by defendant in order to sanction and vindicate the statutory policy of discouraging infringement. (Citations and quotations omitted.)

This passage may be distilled into six criteria to be used when determining statutory damages: (1) what is just; (2) the nature of the trademark; (3) the circumstances of the infringement; (4) compensation to plaintiff; (5) deterence of the defendant; and (6) deterrence of other infringers. None of the three district court cases from the Ninth Circuit identified or used these factors.

These factors are similar, but not identical to those used in the Second Circuit. Both include the factors of deterence of the defendant and deterrence of other infringers. The Ninth Circuit's "nature of the trademark" and "compensation to plaintiff" are similar to the Second Circuit's "the value of the mark" and "revenues lost by plaintiff." The Ninth Circuit's "circumstances of the infringement" encompasses "profit made by the defendant's." The Second Circuit's "whether the conduct was innocent or wilful" is already mandated by the statute. The Ninth Circuit's "what is just" includes the Second Circuit's "whether a defendant has cooperated in providing records." However, it is a broader term which has the benefit of allowing a court to consider many other factors.

A feature of the trademark statute which differs from its copyright counterpart is the inclusion of the language "per type of goods or services sold" after "per counterfeit mark." This language suggested to two courts that the award should be multiplied by both the number of marks and the number of types of goods or services sold. Under the "per type" analysis damages are computed differently. This analysis was first used in Nike, Inc. v. Variety Wholesalers. The courts using this approach read the statute to mean that there are two multipliers: the number of trademark registrations and the number of different goods counterfeited. For example, if bracelets, earrings and rings (all in the description of goods in the registration) are counterfeited using two different trademarks, the statutory damage amount is multiplied by three because there are three different types of goods, then by two because there are two trademarks. This analysis turns "type of goods or services" into key terms, which might be the subject of expert testimony (i.e., whether particular goods are one type), and must be considered by the court in its computation.

None of the cases which used the Nike analysis referred to the class of the trademark registrations. There is no indication in the statute or its legislative history that the phrase "type of goods or services" is meant to refer to the different classes on a registration. But there are a number of important advantages to using the class system as a multiplier on damage awards under the phrase "type of goods or services" - especially when compared to using "type of goods" as a multiplier without reference to class.

First, as mentioned above, the Nike analysis opens the new issue of determining what are the "type of goods or service." The result is that there is another issue for courts to address and on which to hear testimony. The injection of another issue into a case is at odds with one feature of statutory damages, allowing courts to more readily award damages without extensive proof on a party's income or losses. In other words, statutory damages allow simplification of damage awards, but creation of a new issue as to the "type" of goods adds a complication. In contrast, if the class system were used there would not be another issue for the court to decide - the answer would lie in the registration. This would better serve the purpose of a simpler damage alternative.

Second, the Nike analysis hinges on the exact description chosen by the registrant. For example, if a registration specifies "boys' underwear" and "girls' underwear," that registrant is in a much better position to argue that it has two types of goods (assuming the infringer sold boys' and girls' underwear) than a registrant with a description of "children's underwear." The registrant with "boys' underwear" and "girls' underwear" would receive double the damages of a registrant with "children's underwear" under the analysis of Nike. It makes little sense to reward such an arbitrary difference.

Third, the class system is established and allocated by the agency with expertise - the U.S. Patent and Trademark Office. It is arguably better to rely on its determination, which is likely to be more consistent, then to rely on determinations by individual courts and witnesses.

Fourth, using a class system (awarding damages per mark per class) is better than using the system most courts follow - awarding damages per registration. For example, if a registration covers clothes in class 25 and fragrance in class 3, and a counterfeiter sold both, it would stand to reason that there should be a greater measure of damages. But since most courts use only the number of registrations, there would only be one unit of damages. However, if the same mark were covered by two registrations - one in class 3 and one in class 25 - most courts would award two measures of damages. Why should a trademark owner of one multiclass registration be worse off than the owner of two registrations, each in a different class?

To reward multiple single class registrations encourages inefficient trademark applications: numerous applications in individual classes, instead of a single multiple class application. Allowing a multiplier based on class would make better public policy by encouraging efficient registrations.

One issue not addressed by any of the cases is the problem of the lazy plaintiff. For example, consider a plaintiff which seeks ex parte relief. In its application for ex parte relief it argues that it needs to seize the defendant's records so that it will have information about the extent of counterfeiting. The application is granted and defendant's records of its sales and profits are seized.

In litigation plaintiff claims that it is not seeking its lost profits, so that it does not have to respond to defendant's discovery requests about its financial information. Plaintiff decides not to hire any damage expert as another economizing move. At trial plaintiff simply asks for statutory damages. On one hand, this is within the scope of the statute. On the other hand, the statute was enacted for those situations in which accurate information about the defendant's conduct was not available. This is not such a situation. Information about defendant's sales and profits assists a court in calculating statutory damages. In this case, plaintiff has that information in the records it seized, but just cannot be bothered to analyze it and present it to the court. Plaintiff is depriving the court of information which would be useful to it in determining damages. And it is depriving the court of this information after representing in its ex-parte motion papers that it needed this information. If a Ninth Circuit district court were faced with this situation and it chose to use the criteria of Los Angeles News, it could consider plaintiff's conduct under the "what is just" prong of the analysis. However, in the Second Circuit plaintiff's conduct is not one of the factors considered.

Statutory damage trademark cases have already covered a fair amount of ground. The Second Circuit decisions reflect the most thorough analysis. Ninth Circuit cases have not been as carefully reasoned. None of the cases has read the statute in light of the existing trademark classification system. This is unfortunate because using the classification system in computing damages would more evenly reward plaintiffs and would encourage efficient use of the trademark application system.

  1. There are actually two types of trademark statutory damages, one type for counterfeiting, 15 U.S.C. §1117(c), and one type for cybersquatting, 15 U.S.C. §1117(d). Only statutory damages for counterfeiting are discussed.
  2. Guess?, Inc. v. Gold Center Jewelry, 997 F. Supp. 409, 411 (S.D.N.Y. 1998) (citing Senate Report).
  3. 15 U.S.C. §1116(d)(1)(B)(i); Momentum Luggage & Leisure Bags v. Jansport, Inc., 2001 U.S. Dist. LEXIS 1517 (S.D.N.Y. 2001) (no counterfeit goods without a registration).
  4. 15 U.S.C. §1116(d)(1)(B)(ii); Tommy Hilfiger Licensing, Inc. v. Goody's Family Clothing, Inc., 2003 U.S. Dist. LEXIS 8788, note 8 (N.D. Ga. 2003) (no statutory damages for trim package which does not include a nearly identical mark).
  5. Carroll Shelby Licensing, Inc. v. Superperformance Int'l, Inc., 251 F. Supp. 2d 983 (D. Mass. 2002)(summary judgment for defendants because the infringing goods were not listed in the registration and therefore were not counterfeit). See, also, 15 U.S.C. §1115 (a) (registration establishes exclusive rights to goods listed in the registration); 15 U.S.C. §1057(b) (registration is evidence of exclusive right to use the listed goods).
  6. 15 U.S.C. §1117(c)(1), (2).
  7. Polo Ralph Lauren, L.P. v. 3M Trading Co., 1999 U.S. Dist. LEXIS 7913 (S.D.N.Y. 1999) ($500 per mark for some counterfeits where only basis was that allegations of complaint were true by virtue of default).
  8. Gucci America, Inc. v. Duty Free Apparel, 315 F. Supp. 2d 511 (S.D.N.Y. 2004), amended by, injunction granted at Gucci America, Inc. v. Duty Free Apparel, 328 F. Supp. 2d 439 (S.D.N.Y. 2004). Philip Morris USA, Inc. v. Castworld Products, Inc., 219 F.R.D. 494 (C.D. Cal. 2003); Rolex Watch U.S.A., Inc. v. Brown, 2002 U.S. Dist. LEXIS 10054 (S.D.N.Y. 2002).
  9. Petmed Express, Inc. v. Medpets.com, Inc., 2004 U.S. Dist. LEXIS 19176 (S.D. Fla. 2004); Philip Morris USA, Inc. v. Castworld Products, Inc., 219 F.R.D. 494 (C.D. Cal. 2003); Rolex Watch U.S.A., Inc. v. Brown, 2002 U.S. Dist. LEXIS 10054 (S.D.N.Y. 2002); Louis Vuitton Malletier v. Veit, 211 F. Supp. 2d 567 (E.D. Pa. 2002); Microsoft Corp. v. Wen, 2001 U.S. Dist. LEXIS 18777 (N.D. Cal. 2001); Rolex Watch U.S.A., Inc. v. Voiers, 2000 U.S. Dist. LEXIS 22127 (S.D.N.Y. 2000), adopted by, judgment entered by Rolex Watch U.S.A., Inc. v. Voiers, 2000 U.S. Dist. LEXIS 22128 (S.D.N.Y. 2000); Polo Ralph Lauren, L.P. v. 3M Trading Co., 1999 U.S. Dist. LEXIS 7913 (S.D.N.Y. 1999); Sara Lee Corp. v. Bags of New York, Inc., 36 F. Supp. 2d 161 (S.D.N.Y. 1999); Gucci America, Inc. v. Gold Center Jewelry, 997 F. Supp. 399 (S.D.N.Y. 1998); Guess?, Inc. v. Gold Center Jewelry, 997 F. Supp. 409 (S.D.N.Y. 1998); Playboy Enterprises, Inc. v. Asiafocus International, Inc., 1998 U.S. Dist. Lexis 10359 (E.D. Va. 1998).
  10. Philip Morris USA, Inc. v. Felizardo, 2004 U.S. Dist. LEXIS 11154 (S.D. N.Y. 2004); Rolex Watch U.S.A., Inc. v. Zeotec Diamonds, 2003 U.S. Dist. LEXIS 5595 (C.D. Cal. 2003); Microsoft Corp. v. V3 Solutions, Inc. , 2003 U.S. Dist. LEXIS 15008; Copy. L. Rep. (CCH) ¶28, 661 (N.D. Il. 2003)l; Rolex Watch U.S.A., Inc. v. Jones, 2002 U.S. Dist. LEXIS 6657 (S.D.N.Y. 2002); Microsoft Corp. v. Logical Choice, Inc., 2001 U.S. Dist. LEXIS 479; Copy. L. Rep. (CCH) ¶28, 211 (E.D. Ill. 2001); Microsoft Corp. v. Software Wholesale Club, Inc., 129 F. Supp. 2d 995 (S.D. Tex. 2000); Microsoft Corp. v Compusource Distributors, Inc., 115 F. Supp. 2d 800 (E.D. Mi. 2000); Altadis U.S.A., Inc. v. Monte Cristo de Tabacos, 2001 U.S. Dist. LEXIS 6892 (S.D.N.Y. 2001). For example, Altadis U.S.A., Inc. v. Monte Cristo de Tabacos, 2001 U.S. Dist. LEXIS 6892 (S.D.N.Y. 2001).
  11. Gucci America, Inc. v. Duty Free Apparel, 315 F. Supp. 2d 511 (S.D.N.Y. 2004); Rolex Watch U.S.A., Inc. v. Zeotec Diamonds, 2003 U.S. Dist. LEXIS 5595 (C.D. Cal. 2003); Microsoft Corp. v. V3 Solutions, Inc., 2003 U.S. Dist. LEXIS 15008; Copy. L. Rep. (CCH) ¶28, 661 (N.D. Il. 2003); Tommy Hilfiger Licensing, Inc. v. Goody's Family Clothing, Inc., 2003 U.S. Dist. LEXIS 8788 (N.D. Ga. 2003); Microsoft Corp. v. Logical Choice, Inc., 2001 U.S. Dist. LEXIS 479; Copy. L. Rep. (CCH) ¶28, 211 (E.D. Ill. 2001); Microsoft Corp. v. Tierra Computer, 184 F. Supp. 2d 1329 (N.D. Ga. 2001); Microsoft Corp. v. Software Wholesale Club, Inc., 129 F. Supp. 2d 995 (S.D. Tex. 2000); Microsoft Corp. v. Compusource Distributors, Inc., 115 F. Supp. 2d 800 (E.D. Mi. 2000); Polo Ralph Lauren, L.P. v. 3M Trading Co., 1999 U.S. Dist. LEXIS 7913 (S.D.N.Y. 1999); Gucci America, Inc. v. Gold Center Jewelry, 997 F. Supp. 399 (S.D.N.Y. 1998).
  12. Tommy Hilfiger Licensing, Inc. v. Goody's Family Clothing, Inc., 2003 U.S. Dist. LEXIS 8788 (N.D. Ga. 2003); Louis Vuitton Malletier v. Veit, 211 F. Supp. 2d 567 (E.D. Pa. 2002).
  13. Philip Morris USA, Inc. v. Felizardo, 2004 U.S. Dist. LEXIS 11154 (S.D. N.Y. 2004); Altadis U.S.A., Inc. v. Monte Cristo de Tabacos, 2001 U.S. Dist. LEXIS 6892 (S.D.N.Y. 2001); Guess?, Inc. v. Gold Center Jewelry, 997 F. Supp. 409 (S.D.N.Y. 1998).
  14. Rolex Watch U.S.A., Inc. v. Zeotec Diamonds, 2003 U.S. Dist. LEXIS 5595 (C.D. Cal. 2003); Microsoft Corp. v. Software Wholesale Club, Inc., 129 F. Supp. 2d 995 (S.D. Tex. 2000).
  15. Petmed Express, Inc. v. Medpets.com, Inc., 2004 U.S. Dist. LEXIS 19176 (S.D. Fla. 2004); Louis Vuitton Malletier v. Veit, 211 F. Supp. 2d 567 (E.D. Pa. 2002); Rolex Watch U.S.A., Inc. v. Jones, 2002 U.S. Dist. LEXIS 6657 (S.D.N.Y. 2002).
  16. Sara Lee Corp. v. Bags of New York, Inc., 36 F. Supp. 2d 161 (S.D.N.Y. 1999).
  17. Polo Ralph Lauren, L.P. v. 3M Trading Co., 1999 U.S. Dist. LEXIS 7913 (S.D.N.Y. 1999).
  18. Gucci America, Inc. v. Duty Free Apparel, 315 F. Supp. 2d 511 (S.D.N.Y. 2004), amended by, injunction granted at Gucci America, Inc. v. Duty Free Apparel, 328 F. Supp. 2d 439 (S.D.N.Y. 2004); Polo Ralph Lauren, L.P. v. 3M Trading Co., 1999 U.S. Dist. LEXIS 7913 (S.D.N.Y. 1999); Sara Lee Corp. v. Bags of New York, Inc., 36 F. Supp. 2d 161 (S.D.N.Y. 1999).
  19. 149 F.3d 987 (9th Cir. 1998), cert. denied, 525 U.S. 1141 (1999).
  20. 149 F.3d at 996.
  21. Philip Morris USA, Inc. v. Castworld Products, Inc., 219 F.R.D. 494 (C.D. Cal. 2003); Rolex Watch U.S.A., Inc. v. Zeotec Diamonds, 2003 U.S. Dist. LEXIS 5595 (C.D. Cal. 2003); Microsoft Corp. v. Wen, 2001 U.S. Dist. LEXIS 18777 (N.D. Cal. 2001).
  22. Cf. Copyright damages statute 17 U.S.C. §504(c).
  23. Nike, Inc. v. Variety Wholesalers, 274 F. Supp. 1352, 1374 (S.D. Ga. 2003); Playboy Enterprises, Inc. v. Asiafocus International, Inc., 1998 U.S. Dist. Lexis 10359 (E.D. Va. 1998). (A third case recognized this approach, but elected not to use it. Gucci America, Inc. v. Duty Free Apparel, 315 F. Supp. 2d 511 (S.D.N.Y. 2004).)
  24. 274 F. Supp. 1352, 1374.

Mr. Sarabia has become intimately familiar with the many business problems - and legal issues - which fashion companies may face. The start of his apparel industry experience was nine remarkable years as part of the senior management of Guess?, Inc. Guess? went through amazing growth during this period, one year alone its sales grew 400%! In these nine years, Guess? transformed from a fad into a mainstay fashion company. Those who were fortunate enough to work there saw a variety of challenges, problems and issues which most apparel companies do not encounter over decades.

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