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.

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.

Dowagiac Manufacturing v. Minnesota Moline Plow Co. (Supreme Court Decided January 1915)

Approximately 103 years ago (almost to the day), the Supreme court issued an opinion which we believe remains relevant. The opinion will likely be cited frequently this year in light of the Supreme Court’s future Westerngeco opinion (which we will hopefully read in June 2018), as well as in light of recent opinions regarding patent damages and apportionment.

This case has it all. Consider the following quotations by topic:

On foreign sales: Some of the drills, about 261, sold by the defendants, were sold in Canada, no part of the transaction occurring within the United States, and as to them there could be no recovery of either profits or damages. The right conferred by a patent under our law is confined to the United States and its territories (Rev. Stat. § 4884, Comp. Stat. 1913, § 9428), and infringement of this right cannot be predicated of acts wholly done in a foreign country.

Georgia Pacific Factor #1: So, had the plaintiff pursued a course of granting licenses to others to deal in articles embodying the invention, the established royalty could have been proved as indicative of the value of what was taken, and therefore as affording a basis for measuring the damages.

Georgia Pacific Factor #13: We think the evidence, although showing that the invention was meritorious and materially contributed to the value of the infringing drills as marketable machines, made it clear that their value was not entirely attributable to the invention, but was due in a substantial degree to the unpatented parts or features.

Apportionment: But as the drills were sold in completed and operative form, the profits resulting from the several parts were necessarily commingled. It was essential, therefore, that they be separated or apportioned between what was covered by the patent and what was not covered by it; for, as was said in Westinghouse Electric & Mfg. Co. v. Wagner Electric & Mfg. Co. supra (p. 615): ‘In such case, if plaintiff’s patent only created a part of the profits, he is only entitled to recover that part of the net gains.’

Georgia-Pacific Factor #15 or Profits for reasonable royalty damages: Of course, the result to be accomplished is a rational separation of the net profits so that neither party may have what rightfully belongs to the other, and it is important that the accounting be so conducted as to secure this result, if it be reasonably possible. As was said in Tilghman v. Proctor, 125 U. S. 136, 145, 31 L. ed. 664, 667, 8 Sup. Ct. Rep. 894: ‘It is inconsistent with the ordinary principles and practice of courts of chancery, either, on the one hand, to permit the wrongdoer to profit by his own wrong, or, on the other hand, to make no allowance for the cost and expense of conducting his business, or to undertake to punish him by obliging him to pay more than a fair compensation to the person wronged.’

Early Panduit or Lost profits proof: While the number of drills sold by the defendants was shown, there was no proof that the plaintiff thereby lost the sale of a like number of drills or of any definite or even approximate number. During the period of infringement several other manufacturers were selling drills in large numbers in the same localities in direct competition with the plaintiff’s drill, and under the evidence it could not be said that, if the sales in question had not been made, the defendants’ customers would have bought from the plaintiff rather than from the other manufacturers. Besides, it did not satisfactorily appear that the plaintiff possessed the means and facilities requisite for supplying the demands of its own customers and of those who purchased the infringing drills. There was therefore no adequate basis for an assessment of damages upon the ground of lost sales.

It is fun to see that a case over 100 years old may be so relevant.

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).

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.

Texas Advanced Optoelectronic Solutions v. Intersil Corp. (CAFC Oral Argument Jan 2018)

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):

Cox Communications v. Sprint Communications (terminated December 2017)

Judge Bataillon, Senior District Judge in Delaware, issued a ruling on summary judgment on the eve of trial. Shortly thereafter, the case settled. Prior to this ruling, the judge issued an opinion on several Daubert motions which were filed. The one motion of particular interest involves untimely disclosure, SSPU issues, and use of irrelevant profit information from unrelated, non-practicing, third parties.

The judge granted portions of the motion involving untimely disclosure and failure to tie the profit margin used to infringement. Judge Bataillon seems to be advising that if an infringer wishes to proffer any affirmative opinions (for which it bears the burden of proof) through its experts, those must be timely disclosed.

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.