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:
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:
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.
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.
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).
Today, the CAFC offered an opinion on Finjan v. Blue Coat Systems. In August 2015, a jury determined that Blue Coat owed approximately $39.5 million for its infringement of several of Finjan’s patents. For one patent, the CAFC found that Finjan’s expert failed to apportion, and failed to demonstrate the technological and economic comparability of the license on which she relied.
Regarding the failure to apportion, the CAFC cites to VirnetX and Ericsson stating,
Regarding the failure to establish comparability, the CAFC states:
With regard to damages concerning two other patents, Finjan’s expert was found to have properly apportioned revenue using the equal-apportionment methodology described below:
The CAFC explains that her quantification was supported by: 1) a document which suggested that there were 24 functions of the accused product, and 2) conversations with experts and witnesses who told her that the 24 functions were of equal value. Despite evidence that Blue Coat provided contradicting this equal division by 24, the CAFC concludes that the jury heard conflicting testimony and was entitled to make up its own mind.
For damages experts, however, it remains unclear precisely where the evidentiary threshold supporting “function analysis” lies; and thus, when one might pursue equal-apportionment to derive a royalty base.
We note that Finjan and Blue Coat are currently back in court. Attached is Judge Freeman’s most recent order on motions in limine.
The CAFC listened to oral argument in the TAOS v. Intersil matter in January 2018. At the forefront of the discussion was the question of whether disgorgement should be considered an equitable remedy or a legal remedy, and whether net or gross profits should have been used.
In 2015, the Texas jury awarded TAOS for the misappropriation of its trade secrets over $48 million as disgorgement of the Defendant’s gross profits. Judge Snell issued final judgment stating, “The Plaintiff shall recover from the Defendant prejudgment interest in the amount of $18,377,159.00 on the jury’s award of $48,783,007.00 for the misappropriation of the Plaintiff’s trade secrets.”
In the oral argument, Intersil argued that the disgorgement award should not have been determined by the jury. Citing to two Fifth Circuit cases, ERI Consulting Engineers, Inc. v. Swinnea and MGE UPS Sys., Inc. v. GE Consumer & Industrial, Intersil said this was an equitable issue. It was not appropriately categorized as a “damage” because TAOS never asked for lost profits, nor ever suggested that TAOS lost sales as a result of the misappropriation.
TAOS argued that the Supreme Court ruling in Dairy Queen should be followed and that the jury’s award should be preserved.
Intersil also argued that the award should not have relied on gross profits, but instead on net profits. A recent 5th Circuit case, Motion Medical Technologies v. Thermotek Inc., affirmed a judgment which vacated a lost profits jury award (for fraud) calculated using defendant’s gross profits instead of net profits.
The appropriate measure of any party’s economic benefit is a cornerstone for sensible damages. Reliance in this case on “gross profit” (which is formally defined as Net Sales – Cost of Goods Sold) inexplicably may ignore the other expenses (e.g., selling, general & administrative… a.k.a., “SG&A”… a.k.a., “operating expenses”) that the party required to place its product successfully in the marketplace.
The oral argument may be found here (start at 7:30 and when you get tired of listening, move to 30:00):
This case was originally filed in 2012 in Massachusetts. The case went to trial and BU won on infringement and validity, with the jury awarding damages in the form of a fully paid-up lump sum. On the jury verdict form, the jury chose a one-time payment for the life of the patent, as opposed to a running royalty rate based on sales.
The interesting question for damages came in post-judgment motions, when BU asked for prejudgment interest. BU argued such interest should accrue from the date of the hypothetical negotiation (i.e., January 2000), rather than from the point in time six to twelve years (for the three defendants) later, when notice occurred and damages began to accrue.
In her opinion, Judge Saris explained that since damages could not accrue until after the hypothetical negotiation, prejudgment interest could also not accrue until notice occurred. Her conclusion was based largely upon BU’s lack of supporting case law:
On December 8, 2017, the CAFC heard oral arguments on the issue (N.b., the relevant argument begins at 29 minutes & 30 seconds into the recording available below). The prejudgment interest case discussed was Gen. Motors Corp. v. Devex Corp., 461 U.S. 648, 655 (1983). Counsel for BU argued that the case supports the notion that lump-sum damages awarded by a jury should accrue interest from the hypothetical negotiation. It will be interesting to read the Court’s eventual opinion on this specific issue.
The CAFC issued this opinion regarding marking, ongoing royalties, willfulness and damages. The court reviewed the Daubert motion and found that the court did NOT err in NOT excluding the expert analysis which involved comparing an infringing product to a non-infringing product. Citing Apple v. Motorola the CAFC opined that, “factually attacking the accuracy of a benchmark goes to evidentiary weight, not admissibility.”
The initial rulings on the Daubert Motions and Motions for Summary Judgment are good reads as well.
The CAFC issued an interesting opinion which touched on some issues that arise in lost profit matters. The case provides a good meta-analysis of the lost profits damages requirements and summarizes where the case law on lost profits damages stands.
An important consideration in any lost profits analysis is an actual demonstration of causality; specifically, “reliable economic evidence of but for causation.” The opinion states:
The opinion also identifies the Panduit test as a “useful but non-exclusive” method to derive lost profits. The discussion in this matter is echoed by Calico Brands.