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:

 

Apple Inc. v. Samsung Electronics Co. Ltd. et al. (Jury Verdict May 24, 2018)

Yesterday, a jury awarded Apple $533 million for the infringement of its design patents.  In doing so, the jury appears to afford design patents more value than patents supporting the underlying technology in a smart phone.  How could this determination have happened?

We think it useful to provide background to explain how this jury verdict came to be.

First, consider that this case revolves around the definition of the term “article of manufacture.”  The Supreme Court explained, “Section 289 of the Patent Act makes it unlawful to manufacture or sell an ‘article of manufacture’ to which a patented design or a colorable imitation thereof has been applied and makes an infringer liable to the patent holder ‘to the extent of his total profit.’ 35 U.S.C. §289.”

Way back in April 2011, Apple sued Samsung for infringement of (among other patents and a trade dress claim) three design patents which roughly cover: 1) a black, rectangular front screen face, 2) a front face with rounded corners and a bezel, and 3) a grid of colorful icons displayed on the screen face.  Judge Koh issued opinions on Daubert motions and the case went to a jury trial.

Samsung’s products were found to infringe multiple patents and found to violate trade dress allegations: as a result, a jury verdict awarded Apple close to $1 billion.  Judge Koh issued judgment for that jury verdict.

Samsung appealed to the Federal Circuit multiple times, and what remained for this most recent jury was the question of the monetary remedy associated with design patent infringement (N.b., there was an additional patent at issue which we are not discussing here).  During the appeals process, the Federal Circuit affirmed that the article of manufacture subject to disgorgement in this design patent matter should be the entire phone, because no portion was sold separately that might constitute a smaller, distinct article of manufacture.  Samsung appealed to the Supreme Court, which provided little guidance other than to observe that the Federal Circuit’s definition of the article of manufacture was too narrow.  Specifically, the Court found, “Because the term ‘article of manufacture’ is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not, the Federal Circuit’s narrower reading cannot be squared with §289’s text.”

The Federal Circuit then issued an opinion and remanded the case back to Judge Koh for further proceedings; and specifically to articulate a test to define an article of manufacture.  In her order for a new trial on damages, Judge Koh provided the following definition of an “article of manufacture”:

After providing the new definition, expert reports were submitted, subject to new rounds of Daubert motions, resulting in new Daubert rulings.  Judge Koh excluded Samsung’s damages expert, Mr. Wagner, for relying on surveys that did not properly tie to the facts of the case or to the patents’ footprint in the marketplace.  Ms. Davis, Apple’s damages expert, was allowed to testify, but neither expert could offer opinions regarding the actual “article of manufacture,” which was left to other experts.

The jury instructions arguably led jurors to an inevitable verdict.  The instructions specifically guided those jurors through the requisite analysis to arrive at disgorgement of total profits:

No doubt, Samsung will appeal.

Again.

Waymo LLC v. Uber Technology, Inc. et al. (Order on Acquisition Damages January 18, 2018)

As we all watch the Waymo v. Uber trial unfold this week, we thought it interesting to discuss Judge Alsup’s order issued on the eve of trial. The order strikes Waymo’s new theory regarding damages associated with the acquisition of the trade secrets at issue, as distinguished from damages associated with acquisition and use of those trade secrets.

Judge Alsup concludes that Waymo had not preserved its right to proffer a damages theory based upon Uber’s “acquisition” alone, but instead had only offered damages theories, previously struck, regarding the use of the trade secrets.

Fascinating to us is the notion that trade secret damages may be derived solely from “acquisition,” as opposed to acquisition and use/benefit.  Looking back at the motions written by both parties attempting to answer Judge Alsup’s question about whether “acquisition alone” is enough to support “an unjust enrichment theory,” it appears both sides conflate monetary remedies (such as unjust enrichment) with actual damage.  Our understanding is that damages experts are not retained simply to sum up values found in financial schedules, but rather to follow acceptable methodologies to quantify harm.  They are to apply their special understanding and expertise to provide analysis that laypersons could not do themselves.

Equating an “acquisition” to a damages analysis seems incorrect. We note that Judge Alsup was careful not to use the term “damages” in his questions to the attorneys on the subject of this acquisition issue.  Yet briefs provided by both attorneys do relate the acquisition of the trade secrets alone with “damages”; whereas we believe such quantification should be considered “a monetary remedy.”

 

 

Microsoft v. Corel (Jury Trial Scheduled for February 6, 2018)

In his recent opinion regarding a Daubert motion on Microsoft’s damages expert, Judge Davila in the Northern District of California contributed to the road map of dos & don’ts for design-around costs and damages in patent infringement matters.  The expert was allowed to opine about Corel’s estimated design-around costs; however, the expert was not allowed, instead, to use an estimate of what Microsoft would have spent had it needed to design around its own patented technology.  One interesting aspect of this order is that the technical expert and the damages expert appear to have had two different opinions about the design arounds:

We’ll see what the jury decides on this matter in the coming weeks.

 

 

Verinata Health, Inc. & Illumina vs. Ariosa Diagnostics (Verdict January 25, 2018)

A jury just awarded Illumina damages of $15.7 million for the infringement of the ‘794 patent and $11 million for infringement of the ‘430 patent.

Prior to the jury verdict, defendant Ariosa submitted a Daubert motion on plaintiff damages expert that was denied; and also submitted a JMOL on damages (in part) that was not granted.  One critical issue is that the JMOL alleges Mr. Malackowski violated the law of demand when he asserted that accused products sold by the defendant at a lower price would have been sold, in his but-for world, at a higher price.  The motion states:

The final judgment will be an interesting read.  Ariosa’s JMOL on lost profits damages is compelling.  Interestingly, the jury verdict form did not allow for a breakdown of a damages award between lost profits and reasonable royalty amounts.  There was only one line for the jury to write in its damages award (in words and in numbers), but there was no area to specify the type of royalty or the amount of lost profits.  It is unclear whether such an ambiguous form will impact Judge Illston’s post-trial rulings.

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).

 

Finjan, Inc. v. Blue Coat Systems, Inc. Decided January 10, 2018

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.

Waymo LLC v. Uber Technologies, et al. (November 6, 2017)

Anchoring is the concept of tying one’s ship to a mooring to keep it from drifting into the open seas.  In the late 1970’s Kahneman and Tversky determined that people can unconsciously tie opinions to unrelated moorings which keep them within a constrained area.

Anchoring may be found in all aspects of decision making.  And many academics have determined that juries anchor their opinions to potentially unrelated aspects of a matter.  For example, in Uniloc USA v. Microsoft, the court notes that “the ‘$19 billion cat was never put back into the bag,'” suggesting that once a jury hears a large number, its opinion regarding damages can be anchored to that number.  This appears to be the number one reason why the entire market value rule (EMV) and the smallest saleable practicing unit (SSPU) have become so important in damages.

In his recent opinion, Judge Alsup appears to conclude that the trade secret’s damages expert in the Waymo matter was in danger of anchoring the jury with a large value:

In short, anchoring issues appear to have reached the trade secret realm.