Bio-Rad Laboratories, University of Chicago v. 10X Genomics Inc. (Federal Circuit, August 3, 2020)

This case finally made it to the Federal Circuit. A2C awaited its outcome and the prospect of available lessons. Way back in September 2018, Judge Andrews in Delaware issued an opinion on Daubert motions. The court found defendant expert Ryan Sullivan’s analysis of comparable licenses sufficiently reliable to pass Daubert.

The court also found that James Malackowski, Bio-Rad’s expert, offered sufficient support for his comparable license analysis opinion, but not enough economic analysis to support his lost profits opinions which asserted a two-supplier market:

Judge Andrews also rejected Mr. Malackowski’s apportionment of the royalty base, which presupposed apportionment through the comparable license relied upon:

Judge Andrews allowed Bio-Rad and Mr. Malackowski to “supplement” damages opinions after having excluded Mr. Malackowski’s lost profits and reasonable royalty opinions. In this second bite of the apple, Mr. Malackowski did not offer a lost profits opinion, but rather only a reasonable royalty opinion. Mr. Malackowski relied upon the same licenses as those relied upon by the opposing expert. And in relying upon those same licenses, Mr. Malackowski’s opinions, like Dr. Sullivan’s initial opinions, were not excluded. Judge Andrews explained that Mr. Malackowski provided sufficient evidence of apportionment with what A2C views as creative analogous analysis of unpatented and unlicensed features:

Trial ensued, Plaintiffs prevailed, and they were awarded approximately $24 million. Defendant appealed the award based upon infringement, validity, willfulness and damages. The Federal Circuit affirmed the jury verdict in full and rejected the claims by defendant 10X that Mr. Malackowski failed to apportion and failed to use comparable licenses. In the first instance, while the Federal Circuit found two of three asserted patents were not infringed, because jury instructions were mute on the question of division of damages among patents, the award necessarily stood:

With regard to comparability, the Federal Circuit noted there was sufficient analysis for its assessment, and that Mr. Malackowski had met a showing of “baseline comparability.” With respect to apportionment, the Federal Circuit agreed with Judge Andrews noting:

This case is interesting to A2C, because it concerns litigation strategy and second bites at the damages apple. Had defendant’s counsel not been so successful in its first Daubert motion, would an appeal have been subsequently more successful? Additionally, would different jury instructions have afforded a new trial on damages for only the single patent?

Takeda Pharmaceuticals v. Mylan Pharmaceuticals (CAFC opinion July 31, 2020)

In this matter, Judge Andrews of Delaware’s District Court rejected an injunction bid by Takeda, which Takeda in turn appealed. The Federal Circuit has now affirmed Judge Andrew’s decision. Important for A2C’s consideration is the Federal Circuit’s opinion regarding irreparable harm, or lack thereof:

This expressed need for reliance on experts is not new. In a CAFC opinion from January 2018, the Federal Circuit took issue with a District Court’s claim construction; however, both the District Court and Federal Circuit agreed with Liqwd’s economic expert analysis of the market. Critical to this opinion is the importance of expert testimony on the issues of both irreparable harm and the definition of the market.

These cases suggest that if a party requests that a court prohibit the sale of product, it had better hire an economic expert to assess harm and to define the relevant market. The courts have spoken.

Sprint Communications Company v. Time Warner Cable (Federal Circuit Opinion Modified March 18, 2019)

The Federal Circuit issued an opinion on March 18, 2019 that helps define what may be considered “a comparable” in a reasonable royalty analysis. In this case, a jury returned a verdict hitting Time Warner with a $140 million damages figure to be paid to Sprint. For its part, Sprint’s damages expert had offered a reasonable royalty rate analysis based, in part, on an earlier verdict from a different matter involving Sprint and Vonage.

Time Warner appealed the matter to the Federal Circuit on damages, contending that the district court improperly admitted the Sprint/Vonage verdict involving technology of disputed similarity and a different carrier. The Federal Circuit decided that the district court did not err in its admission:

The opinions of the Federal Circuit in this matter appear to broaden the scope of comparability so as to include comparable jury verdicts. But consistent with earlier Federal Circuit opinions, the differences between any comparable and the hypothetical negotiation at hand should be addressed.

In addition to the issue of comparability, the court made an interesting comment on apportionment. The court states that if the Georgia Pacific analysis is done correctly, then the analysis embodies apportionment principles. This suggests that apportionment may be done through the factor analysis, including at least via Factors 9 and 13:

We expect to see this language appear with frequency in responses to Daubert motions on apportionment.

Mark A. Barry v. Medtronic, Inc. (CAFC Decided January 24, 2019)

Medtronic appealed this patent infringement matter in which a jury in the Eastern District of Texas decided that Medtronic induced infringement of two patents owned by Dr. Mark Barry. The Federal Circuit affirmed the jury’s findings and preserved the damages award.

The damages award was based on a survey, the so-called “Neal Survey.” Medtronic argued that the Neal Survey failed to measure infringement by physicians; Plaintiff Barry represented that it did. Notably, the Federal Circuit provided some guidance for what Defendant Medtronic needed to show (but didn’t) to invalidate the Neal Survey:

Because Medtronic failed to show the errors in the survey results, the jury’s award was allowed to stand.

Surveys are a powerful empirical tool that can serve a wide variety of purposes, including damages analysis. At the same time, surveys must be properly formulated and executed, which are no easy tasks. As a result, an uneasy tension exists between the statisticians who are usually called upon to perform a survey, and the economists/accountants/financial analysts who must employ those results for damages analysis, without running afoul of Daubert.

We welcome any and all guidance from courts, like that highlighted above, specifying where the survey guardrails exist. We further expect surveys to prove an increasingly important area of judicial development for damages over the next decade.

Enplas Display Device Corp., et al. v. Seoul Semiconductor (Decided, November 19, 2018)

Although not considered “precedential,” the opinion by the Federal Circuit in this matter merits closer review. Often, damages experts are heard to discuss “freedom to operate” as a consideration at the hypothetical negotiation. The idea of freedom to operate is that one takes a license and then enjoys the freedom to practice any claim in the patent in any existing product and any future product.

The reason this becomes a relevant consideration is because any reasonable licensee would prefer to conduct one negotiation to allow the two companies to walk away and pursue business in any manner the licensee sees fit. This was the analytic approach Defendant’s expert took to damages in this matter, offering an opinion as to the “premium” that might be paid to afford freedom to operate.

The CAFC disagreed. The statutory language specifically states that a royalty rate should be “adequate to compensate for the infringement.” The language is not “adequate to compensate for any use of the patented technology.”

Arguments seeking to link a lump-sum construct to a broader freedom to operate were found unpersuasive, because the estimate relied on non-accused products.

This Enplas opinion is a gentle reminder that the hypothetical negotiation is not a real negotiation, but rather a fake one: one that didn’t happen and one that would never have happened. The CAFC reminded the district court that a damages expert does not enjoy freedom to operate in a manner that includes damages greater than the amount adequate to compensate for infringement.

Power Integrations, Inc. v. Fairchild Semiconductor International, et al. (Federal Circuit Opinion, July 3, 2018)

This recent opinion is a lesson in, “If at first you don’t succeed, try, try again,” and for defendant Fairchild, the third time proved the charm.

You see, when plaintiff’s damages expert, Dr. Putnam, first offered his opinion that the parties at the hypothetical negotiation would anticipate “lost sales, reduction in price due to competition, and lost licensing fees,” A2C doubted Judge Chesney would approve such methodology. When she did (on two occasions), we figured that the Federal Circuit would finally disapprove of the reduction-in-price analysis.

Alas, the Federal Circuit remanded this matter for a new damages trial… but not on the reduction-in-price analysis issue of interest to us. Rather, the remand was based on misapplication of the entire market value rule.

This litigation began years ago. At the first trial, the jury found that all but one patent was infringed and awarded Power Integrations $105 million. Less than a week after Judge Chesney’s denial of the JMOL on that verdict, the Federal Circuit issued its opinion in VirnetX. Accordingly, Fairchild requested – and was granted – a new damages trial based on violation of the entire market value rule. That ensuing trial, as the Federal Circuit observes in this recent opinion, resulted in a verdict of $139.8 million “based on damages testimony that relied solely on the entire market value rule.” An additional question on the verdict form asked whether the patented feature created the basis for consumer demand, to which the jury marked, “Yes.” After that trial and subsequent denial on JMOL, Fairchild appealed to the Federal Circuit which ruled in favor of Fairchild and remanded for further proceedings.

While much of this Federal Circuit opinion constitutes a summary of past entire market value rule matters, the court did provide the following valuable and pointed guidance for attorneys & damages experts alike:

With regard to the case at hand, Fairchild reaps the reward of determination:

Texas Advanced Optoelectronic Solutions, Inc. v. Renasas Electronics America, Inc. F/K/A Intersil Corporation – Part 2 (CAFC Opinion May 1, 2018)

A few months ago, we provided background on this matter and discussed the available oral argument. A summary of Intersil’s appeal is provided by the Federal Circuit:

The Federal Circuit issued an opinion reversing the District Court regarding disgorgement of profits. The Federal Circuit found that the monetary award for trade secret damages should be vacated, in part, because only one of three asserted trade secrets was found to have been misappropriated; whereas the plaintiff expert had advanced a single damages value concerning all three of those trade secrets… and the resulting monetary award had not been allocated on a trade-secret-by-trade-secret basis.

There were other issues relevant from this opinion. The Federal Circuit directs damages experts to embrace a finite period of time when assessing disgorgement of profits in trade secrets matters, especially as it concerns analysis involving a supposed “head start.”

The court also decided that TAOS was not entitled to a jury decision on disgorgement, and that the District Court should make that determination.

The Federal Circuit rejected “double recovery” of damages/monetary remedy awards on sales of the same accused product. In this instance, it was unacceptable that a reasonable royalty should be paid on the same accused sales for which disgorgement was afforded.

Finally, we were hoping for guidance on the issue of gross versus net profits, but alas… the Federal Circuit only briefly notes in passing:

Changzhou Trina Solar Energy et al. v. U.S. International Trade Commission, SolarWorld Americas (CAFC decided January 22, 2018)

In a precidential opinion, the CAFC affirmed a decision by the International Trade Commission which had determined that a U.S. industry was being injured due to importation of “crystalline silicon photovoltaic (‘CSPV’) cells and modules from China that [Commerce] has determined are subsidized and sold in the United States at less than fair value.”

Critical to this opinion, the CAFC explained that in order to determine injury in matters involving antidumping and countervailing duties :

The highlighted passage is critical, because it means that there must be demonstration of but-for causation. Citing Mittal Steel Point Lisas Ltd. v. United States, the CAFC explained that this “requires the finder of fact to ask whether conditions would have been different for the domestic industry in the absence of dumping.”

Ultimately, the CAFC and the Commission determined that the behavior of Changzhou Trina Solar Energy Co. Ltd. caused at least some injury. The courts stated that not all injury was due to the dumping, but there was enough evidence to demonstrate a causal nexus of at lease some harm.

Exmark Mfg. v. Briggs & Stratton Power Prods. Grp. LLC (CAFC Opinion January 12, 2018)

The CAFC issued a precedential opinion today which seems to offer a different interpretation of the entire market value rule. In this matter, Briggs appealed the damages award of $24,280,330, claiming that Exmark’s damages expert both violated the entire market value rule and failed to relate her 5% royalty rate to the facts of the case. The Nebraska District Court denied a new trial on damages.

The CAFC found that the expert did not violate the entire market value rule when employing as a royalty base the entire mower, as opposed to the flow control baffles in the mower.

While the CAFC agreed that the patent in suit “related to the mower’s flow control baffle” which serves to direct the cut grass to discharge through the side of the mower, the court cites to Astrazeneca and concludes that it was acceptable to employ the entire mower sales, rather than the smaller baffle component:

The court also notes that in a real-world negotiation, the parties would base a royalty rate on the lawn mower sales, not the baffle component.

The CAFC did find that the expert failed to tie the royalty rate to the facts of the case. The expert failed to guide the trier of fact to the rate, and instead just offered a “superficial recitation of the Georgia Pacific factors, followed by conclusory remarks,” as was done in the Whitserve case.

Damages experts in recent years have been understandably wary of running afoul of the court’s guidance on the entire market value rule when quantifying a royalty base. This decision, among others, appears to afford experts some leeway to make such recourse… when the facts of the case permit.

Part 2: Finjan v. Blue Coat (Mistrial January 10, 2018)

Judge Freeman declared a mistrial on the second Finjan v. Blue Coat matter (“Blue Coat II”).

In her order, Judge Freeman bifurcates the case and sets the infringement trial for February, and sets the damages trial for December.

It is unclear whether she will allow new reports on damages. The CAFC opinion appears to disagree with the use of the $8 figure (which is used as a “reasonableness” check in Blue Coat II). And the CAFC opinion also appears to disagree with the use of prior verdict royalty rates (which is relied on in Blue Coat II, as well).