Bioverativ Inc., et al. v. CSL Behring LLC, et al. (Opinion, March 4, 2020)

This opinion by Judge Andrews in Delaware provides insight into the court’s thinking with respect to convoyed sales. Ultimately, the court excluded certain opinions of Dr. Matthew Lynde, plaintiffs’ damages expert, based upon his opinion that non-infringing uses of the drug at issue constituted convoyed sales and, therefore, were subject to damages.

This case involved not a patented drug itself, but rather “infringing prophylaxis uses and non-infringing prophylaxis and on-demand uses.” Judge Andrews agreed with defendants that those sales to patients prescribed a non-infringing dosing regimen should not be subject to damages. Citing American Seating and Juicy Whip v. Orange Bang, the court explained that such non-infringing sales – generally subject to separate prescription – were not available for damages because they did not pass the functional unit test.

Plaintiffs’ damages here appear a simple case of over-reach.

Precision Fabrics Group, Inc. v. Tietex International, Ltd. (Jury Verdict March 8, 2018)

Precision Fabrics (“PFG”) lost its patent infringement case against competitor Tietex. The jury found that Tietex did not infringe the two patents in suit. South Carolina District Judge Schroeder rendered judgment in favor of Defendant Tietex just one day after the jury verdict. The week before trial, Judge Schroeder had disallowed untimely-provided non-infringing substitute considerations. Months before, the judge granted in part and denied in part multiple motions in limine regarding lost profits. His opinions are interesting in that they are well referenced and very specific.

In an order issued in late February, Judge Schroeder granted in part PFG’s Motion to Strike Tietex’s Supplemental Interrogatory Response. Citing to Ziilabs v. Samsung, the judge denied the motion for products “whose sales are referenced in Dr. Alford’s expert report or deposition testimony, but otherwise granted as to other non-infringing alternatives sold by competitors apart from PFG and Tietex.”

In the earlier order on motions to strike, Tietex sought to preclude Joel Wacek’s opinions on lost profits. Mr. Wacek opined that the market for the infringing mattress fabric was divided into high-end and low-end products; and that PFG would have captured 100% of the high-end market, 90% of the low-end market, and 100% of sales to A. Lava & Sons (a purchaser of low-end product). The judge found all of these percentages grounded in a relatively sparse, but sufficiently acceptable measure of evidence, except for those sales to A. Lava & Sons. Citing to BIC Leisure Products, the court granted the motion to strike use of 100% lost profits for A. Lava & Sons based upon the existence and availability of non-infringing substitutes.

Finally, PFG sought to exclude the opinions of Dr. Charles Alford on lost profits. Dr. Alford opined that the percentages relied upon by Mr. Wacek were wrong. The judge decided to reserve judgment on this motion until after he heard Dr. Alford’s testimony.

The attached orders provide many interesting case citations. Ultimately, Judge Schroeder determined that if there was some evidence (albeit, weak), that made the damages expert’s opinion admissible.

GlaxoSmithKline LLC and SmithKline Beecham Ltd. v. Teva Pharmaceuticals USA, Inc. (JMOL granted March 28, 2018)

The jury verdict states that Teva infringed the ‘000 patent and owes GlaxoSmithKline (“GSK”) $234,110,000 in lost profits and $1,400,000 in reasonable royalty damages. District Court Judge Stark granted-in-part Teva’s JMOL motion and determined that Teva did not induce infringement. Consequently, the jury verdict was vacated.

While largely an issue of liability, this opinion collides with issues of damages. The damages analysis was focused on lost profits, and the lost profits construct requires that a damages expert conceive a but-for world where infringement does not occur. Conceptualization of that but-for world proved critical for Judge Stark.

A little history: It appears that GSK determined that a drug (carvedilol) which was already used to treat high blood pressure and left ventricular dysfunction (“LVD”) after a heart attack, was also effective for treatment of congestive heart failure (“CHF”). Glaxo applied for, and received a patent (namely, the ‘000 patent at issue) for the method of using carvedilol for CHF treatment.

Meanwhile, Teva and other generic manufacturers had been marketing and selling generic carvedilol for treatment of high blood pressure and LVD; but not explicitly for treatment of CHF. Four years after Teva entered the generic carvedilol market, the FDA instructed Teva to add CHF treatment indication to its labels. (The ‘000 patent had been delisted from the Orange Book.)

The question facing GSK’s damages expert, Dr. Robert Maness, and defendants’ experts, Dr. DeForest McDuff and Dr. Sumanth Addanki, was whether in the but-for world where GSK is entitled to lost profits, are generic carvedilol products (which are not indicated for practicing the patented method) on the market? Given the generic’s prior & ongoing availability for non-accused indications (i.e., high blood pressure and LVD), the answer is not self-evident. The experts answered the question differently and forced Judge Stark to decide.

Judge Stark’s pre-trial determination to exclude defendants’ experts, portions of which are reproduced below, seems to recognize when damages analysis diverges from liability, while also seeming to foreshadow his ruling on the post-trial JMOL motions. Ultimately, Judge Stark granted the motions to strike defendant experts Dr. McDuff and Dr. Addanki based upon their misapplication of the law when formulating a but-for world of lost profit damages. Their failure in this instance was to assume the existence of non-party generics, available for non-accused indications, and therefore available to satisfy the but-for demand. (Dr. Maness’ reliance upon a survey expert who determined what portion of the Teva users likely used the product in an infringing manner was allowed.)

With respect to vacating the jury award, Judge Stark pointed to the fact that GSK failed to establish a causal nexus between the purchase of accused Teva product and actual infringement of the patented method. Documents did not support Teva’s inducement; so there was no proof that Teva induced infringement. That is, product was sold, but toward what use, no one could provide the necessary evidence.

A physician, who provided testimony, claimed that when he prescribed the Teva generic for CHF, he did not look at the label first to determine whether the generic product was indicated for the infringing use. Absent that link between Teva and infringement, Judge Stark concluded the jury award could not stand.

Finally, in his footnote 16, Judge Stark offers insight into broader policy implications of this matter which is well worth the read. He notes, however, that those implications “have not impacted the Court’s ruling on the pending motions.”

Nox Medical EHF v. Natus Neurology Inc. (Order on Motion to Strike Issued March 26, 2018)

Delaware District Court Judge Andrews issued an order and an opinion regarding patent infringement damages analyses by Richard Bero and Scott W. Cragun. Judge Andrews granted in part the motion to exclude Mr. Cragun, while denying the motion to exclude Mr. Bero.

The alleged infringing product is a sleep belt that was used together with a non-accused sleep monitor. Plaintiff’s expert Mr. Cragun was excluded from issuing some, but not all of his lost profit opinions regarding accused belt sales. Mr. Cragun advanced the view that, but for the alleged infringement, 75 percent of accused belts would have been sold by plaintiff Nox. The basis for his 75 percent figure was grounded in three different categories of belt consumers: 1) those Nox monitor consumers who purchased the accused belt, 2) those Natus monitor consumers who, but-for infringement, would have purchased both Nox’s monitor and Nox’s belt, and 3) those consumers of defendant’s monitor or other third-party monitors, for which consumers would purchase an accused belt.

Judge Andrews allowed Mr. Cragun’s lost profit calculations on #1 (i.e., the installed base of Nox monitor users), but found that his categories #2 and #3 above were speculative.

With regard to category #2, Judge Andrews notes that Mr. Cragun failed to “identify a single customer who would have but did not purchase Plaintiff’s device due to Defendant’s alleged infringement.” With regard to category #3, Judge Andrews explains that Nox only had adapters which connected its patented belt to its own monitor base. To substantiate his third category, Mr. Cragun would have had to prove that “an adapter would have been available in the United States to use Plaintiff’s patented belt with Defendant’s or third-parties’ sleep-monitoring devices.” Mr. Cragun failed to prove any such adapter was available.

Judge Andrews did find Mr. Bero’s reasonable royalty calculation to be based on an acceptable methodology and chose not to exclude those opinions, despite what appears to be a strong motion by the plaintiffs. Mr. Bero appears to have used a novel method as the starting point for his royalty rate considerations: namely, he multiplied the estimate of plaintiff’s lost sales (i.e., 15%) times defendant’s profit margin on accused products to establish his starting point:

We will await to see whether the jury is convinced.

Integra Lifesciences Corp. et al. v. Hyperbranch Medical Technology, Inc. (Motion to Strike Granted in Part March 13, 2018)

Magistrate Judge Burke granted in part and denied in part John Jarosz’s damages analysis on November 14, 2017. Four months later, Judge Stark adopted the Magistrate’s order.

Judge Stark denied Defendant’s motion to strike Mr. Jarosz’s price-erosion analysis, but granted exclusion of Mr. Jarosz’s market-share apportionment.

Review of the redacted order by Magistrate Judge Burke reveals that the decision to strike – or not to strike – appears to have nothing to do with the actual analysis done, but instead pivots on whether Plaintiffs failed properly to disclose their damages theories. For Mr. Jarosz’s market-share apportionment analysis, Judge Burke and Judge Stark both agree that the late disclosure “could cause prejudice to Defendant.” The footnote excerpted below suggests that even late disclosure is better than no disclosure:

This case affords yet another cautionary tale about timely disclosure.

Exergen Corporation v. Kaz USA, Inc. (CAFC decided March 8, 2018)

The Court of Appeals for the Federal Circuit affirmed the damages analysis conducted by Exergen’s damages expert, Barry Sussman, but remanded the case back to the Massachusetts District court for further proceedings.

The two patents at issue involve a thermometer which takes body temperature from the forehead. The jury verdict form shows that Exergen was awarded both reasonable royalty and lost profit damages. The questions before the CAFC were: 1) whether the royalty rate, amounting to 71% of defendant-Kaz’s projected per-unit net profit, was adequately supported, and 2) whether lost profits should have included infringing sales to CVS, a store which did not sell plaintiff-Exergen’s competing thermometer.

Citing to Asetek v. CMI USA, the CAFC determined that the damages could be split between reasonable royalties and lost profits. In its affirmation, the court notes that the expert provided substantial evidence from analysis of the Georgia Pacific factors to support the reasonable royalty damages award. The court also found that the lost profits analysis showed that in a but-for world where Kaz was not selling to CVS, Exergen would have been the only other branded product available for CVS to sell, and that such information was sufficient to support the lost profits award:

Interestingly, because the court reversed the jury’s finding on infringement of claims of one of the two patents-in-suit, the parties agreed that the damages would need to be recalculated: accordingly, the CAFC remanded the damages issue for further proceedings. This is odd given plaintiff’s damages expert was allowed to offer one reasonable royalty damages figure for both patents, and did not proffer a per-patent rate.

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.

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.

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):

Georgetown Rail v. Holland (August 16, 2017)

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.