Category: Court of Appeals for the Federal Circuit

Princeton Digital Image Corp. v. Ubisoft Entertainment SA, et al. (Opinion December 11, 2018)

We have previously written about a damages opinion having been excluded for relying on a jury verdict from an unrelated matter. Another recent effort to use a jury verdict has also been excluded in this opinion from Judge Burke in the District of Delaware.

In the opinion, Judge Burke observes that some may reasonably conclude that courts appear to have established jury-verdict reliance as per se unreliable:

In contrast to this view, however, Judge Burke suggests no such blanket rule should be presupposed to exist:

Judge Burke goes on to describe in a footnote a scenario where a jury verdict might prove relevant for damages:

It appears clear to us that the lesson remains to exercise extreme caution when entertaining use of a jury verdict in damages analysis. While the unique facts of a case may support such reliance, those occasions will likely prove exceedingly rare.

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.

A2C Year In Review – 2018

A2C has been busy with client matters for several months. As anyone functioning in commercial litigation knows, work can be “dead,” “slow,” “busy” or “insane.”

We’ve been “insane.” As soon as the meter moves back toward “busy” or below, we will become regularly active here again. Promise.

In the meantime, when we started this project, we had no idea what interest others might have in its content. None. Zip. Zero. We would ask ourselves, “Does anyone really care about damages?” The motivation was to make available more broadly commentary that heretofore had been distributed privately through email. The larger goal is to develop an online clearinghouse for damages-related analysis.

What have we learned about interest in our first year? We are going to share the numbers. We posted 42 entries in 2018. The generic data-tracker attached to the website indicates that the blog enjoyed 1,211 visitors, who registered 2,195 views. (To answer a privacy concern, “No, we do not possess any personal information about anyone who visits.”) Does that constitute “a lot” of traffic? For a hyper-niche blog? We will let others decide, but we confess that it is more than we would have guessed back when we launched. So, we are happy with that.

The most surprising thing we’ve learned since launch is the international interest in the blog. We never foresaw interest beyond the United States. But such interest exists, and below is the available information we possess about the location of visitors to the blog.

May your practice (and ours…) prove “busy” in 2019!

EcoServices, LLC v. Certified Aviation Services, LLC (Order on Motions in Limine, June 19, 2018)

In this matter, Defendant sought to exclude evidence upon which Plaintiff’s damages expert relied for his reasonable royalty analysis.  Specifically, Defendant argued that lost profits should not be considered when conducting a reasonable royalty analysis.

The court, however, disagreed and offered a declarative view.

We have seen this Defendant’s argument floated numerous times over the years, and judges reliably explain that consideration of lost profits is rightfully relevant for the hypothetical negotiation construct.

It is relevant to Georgia Pacific Factor #5 (i.e., whether the licensor and licensee are competitors).

It is relevant to Georgia Pacific Factor #13 (i.e., the portion of the realizable profit that should be credited to the invention).

Last year, the Court of Appeals for the Federal Circuit ruled similarly in Asetek v. CMI:

Some subset of attorneys will likely continue to pursue the “No lost profits consideration!” line of attack.  We expect them to continue to encounter a judicial wall of adverse rulings that make pointless the time & effort.

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.

Chrimar Holding Company, LLC et al. v. ALE USA Inc. et al. (Federal Circuit – Decided May 8, 2018)

Plaintiff damages expert Robert Mills had his analysis excluded in part by Judge Love of the Eastern District of Texas.  The part that was not excluded formed Mr. Mills’ testimony in trial which resulted in a damages award of $324,558 for ALE’s patent infringement.

ALE challenged the damages award at the Federal Circuit stating that, “Mr. Mills, in calculating a reasonable royalty,  (1) relied on licenses not comparable to the hypothetical negotiation for the present case; (2) did not adequately separate the value of patented features from the value of standardization and the value of nonpatented features; and (3) prejudicially referred to ALE’s total net revenue and profit.”  The Federal Circuit sided with Chrimar and found ALE’s arguments wanting.

With regard to the first issue, the court noted that there was not sufficient basis to exclude Mr. Mills in the Daubert motion nor in the JMOL phase of the matter, and that his license analysis satisfied the standard of “reasonable adjustments for differences in contexts.”

Regarding the second issue, the court said that Mr. Mills relied upon a standards expert, and a damages expert has right to do so for their own opinion.

Finally, for the third issue, the court explained that it was ALE itself which had first “opened the door” to introduction of defendant’s net revenue.

As in Exmark v. Briggs, the court appears perhaps to afford EMV somewhat greater latitude as part of a comparable license approach, especially where licenses make reference to a unit larger than what might otherwise be considered “the smallest saleable unit” under other analytic approaches to damages.

Johns Hopkins University v. Alcon Laboratories, Inc. et al. (Order Issued April 25, 2018)

Judge Lawrence Stengel of the District of Delaware, Sitting by Designation, approved and adopted the recommendations of Magistrate Judge Sherry Fallon.  Among other recommendations, Judge Fallon recommended denying the motion to exclude plaintiff’s damages expert.

The case involves a method patent for performing eye surgery.  Alcon moved to exclude Brian Napper, plaintiff’s expert, based on alleged violation of the entire market value rule for his use of product and ancillary sales in his royalty base.  Mr. Napper relied upon a comparable patent licensing analysis to support his royalty base which included more than the accused cannula at issue.

Citing to Commonwealth Scientific and Industrial Research Organization (“CSIRO”) v. Cisco, Judge Fallon noted that the royalty base in the comparable license and the one contemplated by Mr. Napper were the same.

Judge Fallon also noted that Mr. Napper provided some accounting for non-infringing uses.  Accordingly, she recommended denying the Daubert motion related to these issues.

An additional issue that arose in the motions for summary judgment was whether the reasonable royalty could be tied to defendant’s sales.  Alcon explained that Alcon would not infringe the patented method because it only sells products; it does not use the products in an infringing manner.  Thus, Alcon reasoned, its sales are not the proper royalty base.  Judge Fallon denied Alcon’s motion because Johns Hopkins showed that the product was purchased for use in an infringing way and because both damages experts (for plaintiff and for defendant) used Alcon sales as the basis for their royalty base.