The “25% Rule” for Patent Infringement Damages After Uniloc

The 2011 decision by the Federal Circuit in Uniloc v. Microsoft properly condemned the “25% Rule,” which bases a reasonable royalty on 25% of an infringer’s profits. Nonetheless, at least one proponent of the Rule continues to argue that the Rule is fundamentally valid and should remain in use. This article analyzes the historical development of the Rule, its conceptual basis, its application in actual cases, and relevant insights from other recent Federal Circuit cases. Each analysis shows fundamental problems and contradictions that demonstrate the Rule can never be a reliable patent damages methodology. There is no reason to change the conclusion in Uniloc

An emerging paradigm or just another trajectory? Understanding the nature of technological changes using engineering heuristics in the telecommunications switching industry

The theoretical literature on technological changes distinguishes between paradigmatic changes and changes in trajectories. Recently several scholars have performed empirical studies on the way technological trajectories evolve in specific industries, often by predominantly looking at the artifacts. Much less - if any - empirical work has been done on paradigmatic changes, even though these have a much more profound impact on today's industry. It follows from the theory that such studies would need to focus more on the knowledge level than on the artifact level, raising questions on how to operationalize such phenomena. This study aims to fill this gap by applying network-based methodologies to knowledge networks, represented here by patents and patent citations. The rich technological history of telecommunications switches shows how engineers in the post-war period were confronted with huge challenges to meet drastically changing demands. This historical background is a starting point for an in-depth analysis of patents, in search of information about technological direction, technical bottlenecks, and engineering heuristics. We aim to identify when such changes took place over the seven different generations of technological advances this industry has seen. In this way we can easily recognize genuine paradigmatic changes compared to more regular changes in trajectory.technological trajectories; patents; network analysis; telecommunication manufacturing industry

The interplay between standardization and technological change: A study on wireless technologies, technological trajectories, and essential patent claims

In many technology fields, standardization is the primary method of achieving alignment between actors. Especially if strong network effects and increasing returns are present, the market often ends up with a single standard that dominates the technical direction, activities and search heuristics, for at least one full technology generation. Although literature has addressed such decision processes quite extensively, relatively little attention has been paid to the way in which standards affect - and are affected by - technological change. Building upon the concepts of technological regimes and trajectories (Dosi, 1982), and on the methodology proposed by (Hummon & Doreian, 1989) to empirically investigate such trajectories, this papers aims to study the interplay between standardisation and technological change. We conclude that the empirically derived technological trajectories very well match the standardisation activities and the main technological challenges derived from the engineering literature. Moreover, we also observe that the Hummon & Doreian methodology can indeed reveal technological discontinuities. To the best of our knowledge, this has not been the case in earlier studies using this technology, and refutes concerns that this methodology has a (too) strong bias towards incremental, continuous technological paths. Finally, we compare the set of patents in the most important technological trajectories to the set of so-called essential patent claims at standards bodies, and conclude that there is no significant relationship. This confirms earlier arguments that essential patents are not necessarily ‘important’ patents in a technical sense.technological trajectories, standardization, innovation

The rise and demise of Lucent Technologies

We analyze the rise and demise of Lucent Technologies from the time that it was spun off from AT&T in April 1996 to its merger with Alcatel in December 2006. The analysis, contained in the three sections that form the body of this paper, considers three questions concerning Lucent’s performance over the decade of its existence. 1.How was Lucent, with over $20 billion in sales in 1995 as a division of AT&T, able to almost double its size by achieving a compound growth rate of over 17 percent per year from 1995 to 1999? 2.What was the relationship between Lucent’s growth strategy during the Internet boom and the company’s financial difficulties in the Internet crash of 2001-2003 when the Lucent was on the brink of bankruptcy? 3.After extensive restructuring during the telecommunications industry downturn of 2001-2003, why was Lucent unable to re-emerge as an innovative competitor in the communications equipment industry when the industry recovered?Communications equipment; innovation; global competition; financialization

Cooperative Marketing Agreements Between Competitors: Evidence from Patent Pools

On numerous occasions, rival firms seek to market goods together, particularly in high-technology industries. This paper empirically examines one such institution: the patent pool. The analysis highlights five findings consistent with the theoretical predictions: (a) pools involving substitute patents are unlikely to allow pool members to license patents independently, consistent with our earlier theoretical work; (b) independent licensing is more frequently allowed when the number of members in the pool grows, which may reflect the increasing challenges that reconciling users? differing technological agendas pose in large pools; (c) larger pools are more likely to have centralized control of litigation, which may reflect either the fact that the incentives for individual enforcement in large pools are smaller or that large pools are more likely to include small players with limited enforcement capabilities; (d) third party licensing is more common in larger pools, consistent with suggestions that such pools were established primarily to resolve the bargaining difficulties posed by overlapping patent holdings; and (e) during the most recent era, when an intense awareness of antitrust concerns precluded many competition-harming patent pools, more important patents were selected for pools and patents selected for pools were subsequently more intensively referenced by others.

Patent Pool Outsiders

Individuals who decline to join cooperative groups — outsiders — raise concerns in many areas of law and policy. From trade policy to climate agreements to class action procedures, the fundamental concern is the same: a single member of the group who drops out could weaken the remaining union. This Article analyzes the outsider problem as it affects patents. The outsider question has important bearing on patent and antitrust policy. By centralizing and simplifying complex patent licensing deals, patent pools conserve tremendous transaction costs. This allows for the widespread production and competitive sale of many useful technologies, particularly in the consumer electronics industry. Because these transaction cost savings appear to outweigh the most common competition-related concerns patent pools raise, antitrust authorities generally view these private pools favorably. Others are less sanguine. Most patent pools are incomplete: for the technologies they cover, not all relevant patents are included. The reason for this is understandable: patent holders sometimes believe they can negotiate for higher royalties by declining to join an existing pool. Antitrust regulators are aware of this behavior, but do not worry much about it. A growing number of economists and legal scholars believe, however, that this outsider behavior may impose higher costs on pool licensees, detracting from the central benefit that patent pools offer — transaction cost savings. These commentators urge antitrust regulators to regard patent pools with greater caution and skepticism. These calls for caution, however, are based mostly on theories about how patent pools should work, rather than empirical study. Remarkably, little research has been done to shed light on the actual impact of patent pool outsiders. Through an original ethnographic study, this Article seeks to remedy this gap. A set of the most notable and public episodes of outsider behavior were collected from industry press reports, case reports, and historical archives. Crucial new information was then gathered through interviews with lawyers and executives directly involved with the episodes studied. The study reveals a characteristic of patent pools that has gone unappreciated until now: they subtly but powerfully influence bargains that take place “poolside” — i.e., deals between patent holders and licensees that take place “in the shadow” of the pool. This spill-over effect can beneficially limit the power that theorists have assumed outsiders to have. This is an unappreciated benefit of cooperation. The theorists, as it turns out, have not used the wrong approach, but rather, have been missing some important parameters. To further aid regulators, this Article builds upon its qualitative findings by introducing a new quantitative technique for estimating the cost that a licensee either incurs or saves due to an outsider. Applying this technique to original financial and industry data gathered from research subjects, this Article shows that, counterintuitively, patent licensees are sometimes better-off where cooperation among licensors is partial, rather than complete. The inflection point lies where the royalty rate hike that a unified pool would need to charge to draw in an outsider is equal to the transaction costs that licensees would conserve by dealing with a single pool. This study’s revelations have provocative implications that reach beyond patent law. Contrary to conventional wisdom, slightly fragmented property markets may sometimes be preferable to “grand coalitions.” There may exist in any given market for complementary patent rights (or other complementary property rights), an optimal level of diffusion of ownership that resides between total diffusion and total concentration. Some cooperation may not only be better than none, but also better than more. Drawing upon this study, antitrust regulators who must evaluate patent pools can assemble a clearer and more complete understanding of their overall costs and benefits — a topic that Robert Merges and I recently wrote on in a related article. This Article is also helpful beyond patent law. The ethnographic methodology followed here reveals dynamics between outsiders and groups that theory alone has not captured. Scholars concerned with outsiders in other areas of law and policy can refine and build upon theory by applying a similar ethnographic approach

The structure and the evolution of essential patents for standards: Lessons from three IT standards

This paper examines the structure and the evolution of the patents declared as essential for three major technical standards in information technology (MPEG2, DVD and W-CDMA). These standards have many essential patents, which are owned by many firms with different interests. Many patents have been applied even after the standard was set. We analyze three important reasons for why the essential patents are many and increase over time: they cover a number of different technology fields, there exist R&D competition even in a narrowly defined technology field and a firm can expand its patent portfolio by using continuations and other practices based on the priority dates of its earlier filed patent applications in the USA. Around 40% of the essential US patents for MPEG2 and DVD standards have been obtained by using these applications. However, our empirical analysis suggests that a firm with pioneering patents does not obtain more essential patents, using these practices.standard, essential patent, continuations