Packet Intelligence LLC v. NetScout Systems, Inc. (Federal Circuit Opinion, July 14, 2020)

While this opinion arrived on our desk months ago, we feel it a necessary one to discuss. Defendant NetScout appealed a jury verdict and judgment order from Judge Gilstrap in the Eastern District of Texas. Relevant to our inquiry, the Federal Circuit reversed Judge Gilstrap’s findings on pre-suit damages, and it also clarified an opaque issue regarding method patents and damages.

Judge Gilstrap and the jury found for the plaintiff, Packet Intelligence, awarding pre-suit damages, post-suit damages and enhanced damages. Pre-suit damages hinged on two issues, with the district court agreeing: 1) with plaintiff Packet Intelligence that it was defendant NetScout’s burden to prove lack of marking; and 2) that method claims may be considered infringing for purposes of damages calculations, if the accused product is capable of infringing. The Federal Circuit reversed on both these issues.

Regarding the first issue, Packet Intelligence had licensed the patent-in-suit to several companies, including Exar, which sold a MeterFlow product that arguably practiced. This was important for damages analysis: if the MeterFlow product practiced the asserted patent, but Exar did not mark, then the damages period could not predate filing of the complaint or “notice.” Packet Intelligence successfully argued to the district court that it should be NetScout’s burden to prove the MeterFlow product practiced the patent and was not marked. NetScout argued that it was Packet Intelligence’s burden to show that the product did not practice, or was a marked and practicing product.

The Federal Circuit explained which party bore the burden of marking of licensed products:

The Federal Circuit found that the district court’s jury instruction was in “tension” with this guidance. The Federal Circuit explained that the alleged infringer bore the initial burden of identifying unmarked products and the patent holder and licensor bore the burden of demonstrating that the products identified did not practice the asserted patent:

Regarding the second issue, Packet Intelligence argued that it should be awarded pre-suit damages, if not on the marking issue, then on the fact that a patent holder may pursue damages up to six years prior to a complaint filing, if those asserted are method patents. The idea behind this rule is that one cannot mark a product with a method patent, because it is only practiced if the method is used, while the product itself is not infringing absent such specific use.

Packet Intelligence argued that asserted method claims were directly infringed by NetScout through the latter’s testing prior to filing of the complaint, and as a result, that pre-suit damages should be available. The Federal Circuit, however, disagreed:

This matter provides important guidance to attorneys and experts alike regarding both appropriate royalty bases and damages time periods.

Gree, Inc. v. Supercell OY (Opinions, July 20, 2020)

Anyone checking the PACER docket for the Eastern District of Texas will find voluminous filings on behalf of the companies above. It would appear that the makers of Clash Royale and Clash of Clans have differing views of damages in this latest round of litigation.

Gree counsel hired Stephen Becker, and SuperCell counsel hired Christopher Bakewell. Judge Payne found Supercell’s complaints about Dr. Becker’s analysis went to the weight, not admissibility of his opinions; he found the same for Mr. Bakewell’s opinions. Most interesting, however, is that Judge Payne did not allow Mr. Bakewell or Supercell to testify about the cost or implementation of a non-infringing alternative (below, “NIA”).

Judge Payne’s opinion provides yet another cautionary tale of defendant’s untimely disclosure. He found that Supercell did not properly disclose its non-infringing alternatives through interrogatory responses or deposition testimony, and consequently, it could not offer any testimony other than what had been supplied through an interrogatory response:

USAA v. Wells Fargo (Opinion, December 18, 2019)

Judge Payne of the Eastern District of Texas bench issued an opinion that is most interesting for its treatment of superfluous material included in a damages expert report. Wells Fargo requested that the court strike strike various opinions of Mr. Calman based upon a failure to apportion, based upon a violation of the entire market value rule, and based upon use of a 25% royalty rate which looked very similar to a 25% rule of thumb.

The court denied all requests to strike those opinions based on those claimed failures. The court did, however, strike certain portions of Mr. Calman’s report: namely, those that constituted narrative devoid of expert opinion. One set of such narrative related to industry history and background on the general product category:

A second set of excluded narrative related to willfulness:

Often, the first fifteen to twenty pages of an expert report are devoted to a narrative about the industry at issue or the history of the technology. It appears that such narrative is not only viewed as empty & irrelevant, but also subject to exclusion.

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.

Ericsson Inc., et al. v. TCL Communication Technology Holdings, LTD., et al. – Part 3 (Jury Verdict Reinstated May 10, 2018)

Yesterday, this blog witnessed a sudden surge in search-engine referrals for Ericsson v. TCL. Our earlier posts on this matter are located here and here. A summary of the damages issues is newly-provided by the court:

In an unexpected turn of events, Judge Payne has reconsidered his decision to vacate the jury verdict and has reinstated the previous award.

The crux of Judge Payne’s reversal hinges on his reconsideration of whether “the Daubert filter” was called for in this matter. Previously, he had concluded that it was; in his reversal, however, he decides instead that trial afforded sufficient opportunity to defendant to address issues of evidentiary weight.

With regard to the prior conclusion that future products – neither existing nor practicing – were improperly “accused” and thereby improperly made subject to damages, the indeterminate nature of a jury’s decision making now affords the plaintiff its award:

Judge Payne not only affirmed the jury’s verdict of $75 million, but he made the award subject to a $25 million enhancement.

His lengthy discussion of “willfullness” provides useful background to the topic and includes the pithy observation that, “One juror’s ‘malicious’ conduct might be another’s benign competitive business activity.” Finally, Judge Payne concludes:

We admit that we did not foresee Judge Payne’s reconsideration; we suspect TCL is even more surprised. Yesterday’s developments make a “Part 4” seemingly inevitable.

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:

Whirlpool v. TST Water (Judgment March 29, 2018)

Eastern District of Texas Judge Gilstrap denied TST’s motion for Judgment as a Matter of Law in this patent infringement case. The jury award of $7.6 million stands.

Mr. Bruce McFarlene, Whirpool’s damages expert, offered the opinion that damages for infringement of the ‘894 patent should be $8.7 million. TST sought to exclude Mr. McFarlene for violation of the entire market value rule; however, prior to the ruling, the parties had stipulated that a filter at issue was the smallest saleable unit.

When TST moved for judgment as a matter of law based upon for Mr. McFarlene’s failure to apportion, Judge Gilstrap reminded the parties of their stipulation and concluded that Mr. McFarlene “did engage in the proper apportionment required by the law, beginning with an appropriate rate.”

Rembrandt Wireless Technologies, LP v. Samsung Electronics Co. Ltd., et al. (Final Judgment March 28, 2018)

The long-running dispute between Rembrandt and Samsung may be over. Eastern District of Texas Judge Gilstrap issued final judgment in which he determined that Samsung owes Rembrandt $11,111,920 as damages for Samsung’s infringement of the ‘580 and ‘228 patents. This judgment came after years of litigation, after a February 2015 jury verdict, after a ruling on a JMOL, and after an appeal to the Federal Circuit.

In February 2015, a jury determined that Samsung infringed both patents and that the patent claims were not invalid. The jury awarded Rembrandt a lump sum of $15.7 million. Judge Gilstrap determined that this award fell within the range offered by Mr. Roy Weinstein (Rembrandt’s damages expert), who had suggested a damages range of $14.5 million to $31.9 million. Judge Gilstrap denied the JMOL on damages, and Samsung appealed to the Federal Circuit.

The Federal Circuit agreed with Judge Gilstrap’s opinions regarding infringement and damages, but it questioned his decision to allow Rembrandt to recover pre-notice damages. In its defensive case, it appears Samsung argued that a licensee of Rembrandt’s practiced claim 40 of the ‘580 patent, but that Rembrandt did not require said-licensee to mark those products. In response, Rembrandt disclaimed said-claim 40 which Samsung argued said-licensee practiced. Rembrandt then successfully argued to the district court that, because it disclaimed said-claim 40 of the ‘580 patent, there was no marking requirement for the Rembrandt licensee, who did not practice any other claim of the ‘580 patent. On appeal, the Federal Circuit questioned the district court’s allowance of pre-notice damages based upon disclaiming a claim, and remanded the case for adjustment of the damages award.

The Federal Circuit was interested in discussing whether the marking statute should be on a patent-by-patent basis – or instead, a claim-by-claim basis. But it did not offer any definitive determination and instead left decision on the matter to the district court. Ultimately, Rembrandt dropped its pre-notice damages award request, and accordingly, Judge Gilstrap left the patent-by-patent/claim-by-claim marking issue for another day.

The only remaining issue was how best to interpret the jury verdict in order to remove pre-notice damages. Both parties volunteered competing guidance to Judge Gilstrap concerning how best to remove the pre-notice damages:

Ultimately, Judge Gilstrap decided Rembrandt’s method made more sense and that damages should be $11,111,920, to reflect the jury award minus the pre-notice time period.

Which all leads us to proclaim that the strategy of seeking to reclaim pre-notice damages by disclaiming a claimed claim is one meritorious of some acclaim….

Ericsson Inc., et al. v. TCL Communication Technology Holdings, LTD., et al. (Jury Verdict Vacated on March 8, 2018) Part 2

In an earlier post, we discussed the possible reasons Judge Payne vacated a jury damages verdict of $75 million for TCL’s infringement of Ericsson’s patents. The redacted version of Judge Payne’s order now provides explanations for why he believes the jury’s award should not stand.

First, Ericsson’s damages expert, Mr. Robert Mills, relied upon a survey expert in a manner that, according to Judge Payne, was “not based on sufficient facts or data, not the product of reliable principles, and not reliably based on the facts of the case.” The survey asked consumers whether they would have purchased the accused products, had those products not possessed the commercial embodiment of the patented technology. Apparently, 28% of those survey respondents said they would not have made the purchase without the accused features. Mr. Mills linked that 28% survey response to a damages theory relating to 28% of TCL’s profits:

Judge Payne explains that Mr. Mills’ use of the otherwise-reliable survey: 1) fails properly to apportion the numerous “essential” features of the phone, and 2) fails to “account for how his theory would result in the erosion of all of TCL’s profit. Realistically, there are many features on a phone that would likely yield survey results similar to those obtained for the ’510 patent, e.g., ability to make a call, text messaging, Wi-Fi connection…. To conclude that any one of these features—simply because it is considered essential to a consumer—could account for as much as a quarter of TCL’s total profit is unreliable and does not consider the facts of the case, particularly the nature of smartphones and the number of patents that cover smartphone features.”

Second, Judge Payne found that Mr. Mills’ use of forecast-products, neither named nor accused in the case, together with a lump sum resulted in the inclusion of unaccused products in his royalty calculation.

Finally, more broadly and of expressed interest in our earlier post, Judge Payne notes timing issues involving a contemplated lump-sum payment, and implied consequences for discounting/interest, might need to be left for a jury to decide:

Ericsson Inc., et al. v. TCL Communication Technology Holdings, LTD., et al. (Jury Verdict Vacated on March 8, 2018)

Judge Payne of the Eastern District of Texas vacated a jury verdict awarding Ericsson a lump sum of $75 million for infringement of its ‘510 patent by TCL Communication. Noting “for reasons stated in a contemporaneous order” (which appears not to be on the PACER docket yet), Judge Payne decided that Plaintiff expert Robert Mills’ damages analysis – partially adopted by the jury – was not acceptable as a matter of law.

From defendant’s motion for judgment as a matter of law, it appears Mr. Mills relied upon sales forecasts which included products not accused of infringing. Further, he relied upon a survey expert who did not tie analysis to the claimed invention. He is also accused of violating the entire market value rule. Finally, Mr. Mills is accused of failing properly to discount his damages analysis back to the date of the hypothetical negotiation, having instead discounted back to the date of notice (i.e., that date damages began to accrue). All but the ultimate issue regarding discounting seem sound reasons for vacating a jury award.

This last alleged transgression is most interesting, however, because it is unclear which date might make most sense for discounting a damages value. Mr. Mills appears to have derived a lump-sum damages award using a hypothetical negotiation construct. The award appears to be based upon past and future (expected) infringement. Mr. Mills then adjusted his lump sum back to the date damages should begin to accrue based upon notice. The JMOL legal argument claims, in contrast, that he should have discounted the award back to the date of the hypothetical negotiation (which was years before the notice date):

The citation above to Wang Labs, Inc. v. Toshiba Corp. appears unrelated to the specific issue of discounting. Similarly, LaserDynamics addresses an issue unrelated to discounting a royalty payment. In both those cited cases, the expert failed to assess a reasonable royalty at the time of the hypothetical negotiation, and instead used the date damages began to accrue as the hypothetical negotiation date. This appears to be different from what Mr. Mills did. Defendants are not arguing that Mills used the wrong hypothetical negotiation date: rather, they are arguing that his proffered lump-sum damages should have been discounted to the date of the hypothetical negotiation. Judge Payne’s order, however, does not elaborate on which of the defendant’s arguments he found persuasive; nor does it afford guidance with regard to the specific issue of proper discounting.