FTC Hits Vonage with $100 million Hammer for "Dark Patterns"

On November 3, 2022, the U.S. Federal Trade Commission fined Vonage $100 million for “dark patterns” to be paid to consumers. The tricky issue has been defining what exactly is a "dark pattern."  The FTC Press Release describes the "dark patterns" as:

• Eliminating cancellation options: Despite allowing its customers to sign up for services online, over the phone, and through other venues, the complaint alleges that starting in 2017, Vonage made the decision to force customers to cancel only by speaking to a live “retention agent” on the phone. The complaint notes that this practice runs counter to Vonage’s own advice to its clients not to “frustrate customers by requiring them to contact you for support that should be available on a self-service basis” and that “[i]t should be just as easy to return your product as it is to buy it.”

• Making cancellation process difficult: In addition to forcing customers into one cancellation method, it made that method difficult. The company created significant cancellation hurdles, including by making it difficult to find the phone number on the company website, not consistently transferring customers to that number from the normal customer service number, offering reduced hours the line was available and failing to provide promised callbacks. The complaint cites one internal Vonage email saying customers were “sent in a circle when they want to downgrade or remove the service.”

• Surprising customers with expensive junk fees when they tried to cancel: In many cases, customers who are able to access the cancellation line are told they will have to pay an unexpected early termination fee that was not clearly disclosed when they signed up for Vonage service. In some cases, these fees were in the hundreds of dollars.

• Continuing to charge customers even after they canceled: Customers who managed to speak to an agent and request cancellation often found that their accounts continued to be charged. Even when they contacted Vonage to complain, they received only partial refunds of the money they were charged without authorization.

A $2 Billion Trade Secret Misappropriation Verdict

U.S. courts can be fun.  Appian received over a $2 billion trade secret judgement in Virginia state court.  In addition, Appian secured over $23 million in attorney fees.  The case involved trade secret misappropriation and the Virginia Computer Crimes Act.  Appian was represented by Patterson Belknap.  The attorneys representing Appian included:  Adeel A. Mangi, Muhammad U. Faridi and Jeffrey Ginsberg.  The Appian Press Release is here and the Patterson Belknap Press Release is here. Apparently, a company should not call someone possibly engaged in corporate espionage for them a "spy" or something like that.  That looks bad later.   

Essentiality checks might foster SEP licensing, but they won’t stop over-declarations from inflating patent counts and making them unreliable measures

 Essentiality checks could help implementers determine with whom they need patent licenses.  However, essentiality checking does a poor job in adjusting for over-declaration in patent counts and will encourage even more spurious declarations.

We await a new policy framework from the European Commission (EC) with its Impact Statement regarding the Fair Reasonable and Non-Discriminatory (FRAND) licensing of Standard Essential Patents (SEPs). The EC is considering instigating checks on patents disclosed—to Standard Setting Organization (SSO) Intellectual Property Rights (IPR) databases as being possibly standard essential— to establish whether they are actually essential to the implementation of standards such as 5G. Objectives for essentiality checking are to:

1.      enable prospective licensees to determine with whom they need to be licensed

2.      correct for over-declaration and only count patents deemed essential; and

3.      use such figures in FRAND royalty determinations.

If clutches of selected patents are independently and reliably checked to establish that prospective licensors each have at least one patent that would likely be found essential by a court, these results might be used by several or many prospective licensees to determine with whom they need to be licensed.[1] But such checks would be of limited and questionable additional use to existent court determinations. Checks have already been made on some patents for all major licensors and many others in numerous SEP litigation cases over many years. Greater legal certainty is provided in court decisions where many patents have been found standard essential, infringed and not invalid.

My full paper on this topic, which can be downloaded here, focuses on the wider use of essentiality checks and sampling in patent counting. With too many patents to check them all properly, it is hoped that thorough checking of random samples of declared patents will—by extrapolation—also enable accurate SEP counts to be derived. However, essentiality checks do not fix and can only moderate exaggerations in patent counts due to over-declaration. For example, false positive essentiality determinations will exceed correct positive essentiality determinations where true essentiality rates are less than 10% unless at least 90% of determinations are correct.[2] Inadequate checking could imbue many with a false sense of security about precision while encouraging even more over-declaration by others which would further misleadingly inflate their measured patent counts and essentiality rates.

My empirical analysis also shows that declared essential patents are too numerous, and bias in checking and random errors in sampling are too great to provide even the modest precision expected and that should be required for patent counts to determine FRAND royalties without very thorough and highly accurate checks on thousands of patents per standard.

Even ignoring residual bias after improved but imperfect checking, sample sizes of thousands of patents would be required to provide even only modest levels of precision in essential patent counts (e.g. a ±15% margin of error on the estimated patent count at the 95% confidence level) on patent portfolios and entire landscapes where essentiality rates are low (e.g. 10%) due to over-declarations.

The dangers in not recognizing the sources and extent of bias and other errors and in not designing studies with sufficient scale and precision (e.g. for a court setting a royalty rate) is that far from increasing transparency, information provided will be imprecise, distorted and unreliable. Ignoring analytical errors, and mistakenly implying or pretending otherwise is even worse.

This new paper, also available on SSRN, is a follow-on to my previous research on essentiality checking and patent counting in 2011, 2017 and 2021.

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[1] This ignores validity and actual infringement in any specific product, which also determine whether licensing is required under patent law and FRAND conditions. These are also important issues.

[2] The essentiality rate is the number of essential patents divided by the number of declared essential patents. An estimated or found essentiality rate will differ from the true essentiality rate due to inaccuracies.

Can Patents Resolve the Quest for Capital?

 

Can Patents Resolve the Quest for Capital?

Most people recognise the utility of patents to be the exclusivity, albeit temporary exclusivity, they impart on their owners to profit from an invention. Yet patents also hold real value for companies that may not even sell a product yet: they can help in the quest for capital.

At present there is often a difference in approaches to patents depending on the industry. For the chemical or biotechnology industries, patents are vital intangible assets. In others though, for example software start-ups, a patent strategy might not be so high on the list of priorities. Yet patents ought to be important to all innovative enterprises looking to bring something new to the market.

Once start-ups run out of friends and family to seek funds from, they often turn to early-stage venture capital firms as a source of funds. For example, OxFirst has helped a young innovative company in the SaaS – Software as a Service – space access further capital. The patent valuation we undertook helped the firm access over 25 Million UK Pounds in funding. The patent valuation served as a substantial instrument to communicate the value proposition of the firm to investors.  

Investors looking to assess the risk/return profile of early-stage technology often content themselves with a simple Freedom to Operate search. However, a patent valuation goes way beyond such simple question. It allows an assessment of potential revenues associated with the intellectual property while at the same time supporting senior management decisions.

As this simple example illustrates, not only venture capital firms, but also investment banks, high net worth individuals and family offices may be prepared to finance otherwise risky technology ventures, provided the patent valuation allows them to get a better understanding as to what they may be getting themselves involved in.

Patents go a long way to mitigating the risk assumed by venture capital firms, and therefore making the start-up a more appetising investment opportunity by ensuring the future product they are investing in cannot be copied by another and a return can be made on that investment. The patent valuation can again help to size markets related to patents. There are several ways a patent valuation can be undertaken. Often one turns to the market, income or cost approach. In the case of start-ups, the early-stage nature of the firm often requires further assumptions, quite simply because markets are yet to be grasped. In an IP valuation this is often reflected in the risk rate.

The same basic logic also applies to later stage venture capital funding. A business need not have a product on the market to make themselves appealing to investors, a patent can be enough.

Should a business choose to go public through an IPO later in its life, knowledge that a company’s intellectual property is adequately managed and used to maximize revenues, will be an important element in enticing investors and driving up the potential funds from entrance to the stock market. Further use cases of a patent valuation can be the support of licensing revenues, technology transfer, transfer pricing and fostering a firm’s reputation.

Some estimations put 80-90% of a firm’s value in its intangible assets, of which patents are a component. That’s potentially a lot of money in the event of a sale. In 2021 Elon Musk’s Tesla bought Springpower International, a small Canadian start-up working on battery manufacturing technologies. At the time, Springpower had patents pending on core technologies – those patents changed ownership to Tesla following the purchase. Whilst by no means the only motivator behind the purchase, Tesla acquired Springboard’s employees and their expertise too, it is obvious the intellectual property was an important driver behind Tesla’s decision.  

Patents, then, are crucial throughout the full business lifecycle: from sourcing initial intuitional funding through to selling the company. A patent valuation can help realise these opportunities and render otherwise intangible assets into tangible business opportunities. Business owners should take advantage of the opportunities it presents. 

https://oxfirst.com/insights-&-news/can-patents-resolve-the-quest-for-capital/

Damage Calculations in Patent Infringement Cases under the Unified Patent Court

 

Considering Patent Infringement Damage Calculations under the Unified Patent Court

A primary benefit for future users of the UPC is that legal proceedings in relation to a Unitary patent or a non-opt-out European patent will not need to be divided throughout Europe and can instead be heard by a single court, with judgement applied to the entire territory – potentially 24 countries. This promises to reduce costs and time associated with the litigative process and may minimize the risk of ‘Forum Shopping’ within the E.U., where parties seek to take advantage of differences in the procedures and judgements of national courts. Given the importance of the UPC, we wish to outline the important factors that must be considered by parties when it comes to damage calculations.

Determination of damages: routes

On the 8^th July 2022 the UPC’s Administrative Committee adopted the final version of the Rules of Procedure (RoP, accessible here). Those rules offer two routes for determining damages and compensation in the event patent infringement is found to have occurred. Rule 118.1 outlines that “[t]he amount of the damages or the compensation may be stated in the order or determined in separate proceedings”. A successful party can – within one year of the final decision – apply for separate proceedings for the determination of damages (Rule 126). The court may also award interim damages (Rule 119), to “cover the expected costs of the procedure for the award of damages … on the part of the successful party”.

Determination of damages: calculation factors

When seeking to understand what factors contribute to damage calculation we look to the UPC Agreement (UPCA, available here), which defines the legal basis of court activity. That makes two commitments in relation to the award of damages: (1) the court will instruct an infringer to pay the injured party damages “appropriate to the harm actually suffered … as a result of the infringement” and (2) the court will – as far as is possible – place the injured party in a position as if no infringement had taken place. Additionally, the infringer shall not benefit from the infringement and damages shall somewhat not be punitive.

Having made these commitments the Agreement then seeks to define what the court should look to when calculating damages. The court is to take account of “all appropriate aspects” such as negative economic consequences, which may include lost profits, any unfair profits made by the infringer, and non-economic factors where necessary (for example, damage to a brand’s reputation). The court can also set damages on the basis of royalties that would have been due if the infringer had sought a licence. In a case where the infringer did so not knowingly, the court can order compensation.

Determination of damages: IP valuation expertise

Whilst the UPCA suggests areas of consideration for damage calculation, there remains substantial room for the presence of expert analysis in reaching that calculation. OxFirst Director Dr Roya Ghafele has authored many scholarly articles on patent valuation methods for assessing damages in patent infringement cases before the UPC. This work illustrates three important means of valuation: the income, cost and market approaches. These approaches appear in publicly sanctioned IP guidelines and assist in portraying value in a dynamic manner. All three play a role in delivering effective valuation and OxFirst operates a proprietary valuation method which accounts for their advantages. Method selection represents a crucial consideration when embarking upon a valuation and pays particular attention to the utility of the income method as the only method that can incorporate risk as a consideration. Using the income method, patent value is presumed to be based on future returns over the course of the time it retains protection. Whilst the commonly applied method by courts and regulators, the income method requires particular attention to be paid to contextual information and so requires particular expertise for its effective application.

The UPC is well equipped to exercise judgement on patents at question themselves – the technical judges bring the specialist knowledge required for this. Yet when calculating appropriate damages, the UPC will – like other courts – require assistance from patent valuation experts. This will be particularly true when the UPC has to, inevitably, consider FRAND cases. In these cases, debate has already been established around defining a royalty base, either the smallest saleable practicing unit (SSPU) or the entire market value (EMV). The choice of royalty base is decisive in calculations of appropriate FRAND rates as, in most cases, damages are calculated by factoring a royalty base with a royalty rate to establish a valuation. Patent valuation expertise will therefore be especially valuable in such circumstances. https://oxfirst.com/insights-&-news/considering-patent-infringement-damage-calculations-under-the-unified-patent-court/

How Economic Growth is driven by Intellectual Property

 

What is economic growth? why is it so important?

According to Nobel Prize winning economist Simon Kuznets a country's economic growth may be defined as “a long-term rise in capacity to supply increasingly diverse economic goods to its population, this growing capacity based on advancing technology and the institutional and ideological adjustments that it demands.”¹

To answer the question of why economic growth is important, we need to look at it from two different perspectives -  from a developing and a developed countries perspective. According to an OECD report, economic growth is the most powerful instrument for “reducing poverty and improving the quality of life” in developing countries. ² In the case of developed countries, high economic growth leads to increased profitability for firms, enabling more spending on research and development which can lead to technological breakthroughs, and it also increases confidence and encourages firms to take risks and innovate. According to the Bank of England, “the citizens of a country with high GDP are likely to have high incomes, people are likely to be earning and spending more and businesses are likely to be hiring and investing more (heavily in R&D).”³

Explanations of economic growth have increasingly focused on the role of innovation and on the power of expected profits to motivate innovation. ⁴ Private-sector companies and industries likewise are looking for ever-more competitive ways to succeed, by developing and incorporating creative and useful innovations into products and services that we all benefit from and enjoy in virtually every area of life. Intellectual property (IP) - the copyrights, patents, trademarks and other similar rights upon which creative and innovative products and services rely upon - have an important role in growing the economies of developed and developing countries all over the world.⁵ IP protection benefits the economy, promotes innovation, helps firms monetize their innovations and grow, helps small and medium enterprises (SME), and finally it benefits consumers and society. This is the patent bargain:  the trade-off between short term monopoly and long-term social service by bringing innovation to market. The monopoly on commercialisation encourages firms to innovate and profit (and so for the purposes of this article drives the economy).

The macroeconomic effects of IP:

Sectors that rely on IP protection are contributors to the economy. For example, according to a study by the EU IPO IP-intensive industries generated 29.2% of all jobs in the EU during the period 2014-2016 with 11% being patent intensive industries. In addition, another 21 million jobs were generated in industries that supply goods and services to IP-intensive industries. Over the same period, IP-intensive industries generated almost 45% of total economic activity (GDP) in the EU, worth €6.6 trillion out of which patent intensive industries accounting for 16%. It is also interesting to note that wages in IP intensive industries are higher compared to non-IP intensive industries with this wage premium being 72% in patent intensive industries.⁶ Also, in the G8 countries, copyright-based industries and interdependent sectors alone account for approximately 4-11% of Gross Domestic Product.⁷ IP also generates substantial economic activity, employment and growth in developing and developed countries. WIPO and other organizations and economists have done several studies on the economic contribution of patent-related industries in developing countries and found that patent-related industries generate GDP contributions of between approximately 2-6% and employment contributions of between 3-11% of total employment. ⁸ A more recent study by the OECD has further quantified the benefits of IP protection for foreign direct investment, not just with respect to patent protection but also copyright and trademark. A 1% increase in the strength of patent correlates to a 2.8% increase in FDI. ⁹ Patents are an engine of economic growth, which is quite evident based on the above evidence presented.

However, it is also important to note that in some instances the analyses simply focuses on quantitative patent data without taking into account the quality of the underlying patents. For example, patents from innovative areas such as artificial intelligence should not be weighted equally to less relevant technologies. Furthermore, the only figures used in some analyses are ones regarding a country’s patent applications. Many years may pass between the patent application and the final grant. Therefore, it is a country’s active patent portfolio and not merely the number of patent applications relevant to economic analysis.

As the ‘knowledge economy’ advances, more and more of the value that firms and the overall economy achieve will come from intangible assets—including IP. IP is on the rise of becoming the currency of the knowledge based economy, helping to promote economic growth, company competitiveness and innovation world-wide.

https://oxfirst.com/insights-&-news/how-economic-growth-is-driven-by-intellectual-property/

GW Law Professor Dmitry Karshtedt

I am very sad to inform you of the tragic death of George Washington University Law School Professor Dmitry Karshtedt.  Professor Karshtedt was a bright, kind, generous and good person.  I have pasted his biography from the GW Law School website below.  Also, I have pasted information about remembrance services for him.  Our deepest condolences are extended to his family and all who knew him.  

GW Law Biography

Dmitry Karshtedt's primary research interest is in patent law. His legal scholarship has been published in the Iowa Law Review, Vanderbilt Law Review, and Harvard Journal of Law & Technology, among other outlets, and cited in three of the leading patent law casebooks, a casebook on intellectual property, and several treatises. Professor Karshtedt's academic work has won several awards, including the Samsung-Stanford Patent Prize and the scholarship grant for judicial clerks sponsored by the University of Houston Law Center Institute for Intellectual Property and Information Law.

Before going into law, Professor Karshtedt completed a PhD in chemistry from U.C. Berkeley and worked as a staff scientist for a semiconductor materials startup. He is a co-author on five scientific publications and a co-inventor on twelve U.S. patents. Professor Karshtedt received his law degree from Stanford Law School, where he served as the Senior Symposium Editor for the Stanford Law Review. Professor Karshtedt practiced in the Patent Counseling and Innovation Group at Wilson Sonsini Goodrich & Rosati and clerked for the Honorable Kimberly A. Moore on the U.S. Court of Appeals for the Federal Circuit. Immediately prior to starting his position at GW, Professor Karshtedt was a Fellow at the Center for Law and the Biosciences at Stanford Law School. In the fall of 2021, Professor Karshtedt was a Visiting Scholar at the University of Copenhagen Faculty of Law in the Centre for Advanced Studies in Biomedical Innovation Law.

Remembrance Services

This Thursday, November 3rd from 6:30-7:30 PM, there will be a Panikhida in honor of Dmitry's life at St. Mary's Orthodox Church (7223 Roosevelt Avenue Falls Church, Virginia 22042).
The GW Community gathering will take place this Friday, November 4th from 1-1:30 PM (not 12-12:30 PM) on the Stockton patio.
Additionally, there will be a visitation this Friday, November 4th from 4-6 PM at Gawler's Funeral Home in Friendship Heights, Washington, DC.
Any contributions (in lieu of flowers) should go to a GW Law scholarship just created by the family to honor Dmitry. As his parents said, Dmitry would like to help other students.