Jodi A. Schwendimann, et al., v. Arkwright Advanced Coating, Inc. (Federal Circuit Opinion, May 5, 2020)

As regular readers know, we are perplexed by excessive statutory prejudgment rates applied to patent infringement awards. Those rates are historically sourced in a world financially & temporally removed from ours, which presently finds itself staring down negative rates. Antiquated statutory rates are increasingly unreasonable and afford plaintiffs windfall gains. The case below affords another such example.

Defendant Arkwright appealed this matter to the Federal Circuit based, in part, on the jury’s damages award, as well as on the prejudgment interest awarded by Judge Tunheim of the US District Court for the State of Minnesota. We do not address all of the damages-related decisions, but focus here on the determination that 10% per year was the appropriate prejudgment interest rate to apply to the jury’s award.

Here is the story: Initially, plaintiffs sought lost profits damages. Plaintiffs’ damages expert, Donald Gorowsky, provided an opinion relying only on lost profits – he did not provide any reasonable royalty alternative. In pre-trial motions, defense counsel sought to strike Mr. Gorowsky’s opinions, but Judge Tunheim chose to allow Mr. Gorowsky to testify. After plaintiffs presented their affirmative case at trial, however, Judge Tunheim granted defendant’s judgment as a matter of law on lost profits and instructed the jury to disregard the lost profits testimony of Mr. Gorowsky.

The jury then heard testimony from defendant’s expert, Arthur Cobb, who opined to a reasonable royalty of 2%. The jury ultimately returned a damages award of $2.6 million – a figure roughly seven times Mr. Cobb’s proffered damages amount. In his post-trial opinion, Judge Tunheim explained that the jury’s award of $2.6 million amounted to a 15.5% royalty rate on infringing sales from 2010 to 2017, when one averaged competing estimates for accused products at issue.

The court rejected a new trial on damages explaining that defendant’s gross margin supported the double-digit reasonable royalty.

Next, the court awarded prejudgment interest of $1.9 million on the $2.6 million award. This amount was derived using Minnesota’s statutory rate of 10% per annum. As the supporting Exhibit below shows, the 10% statutory rate was applied on the entire $2.6 million award from the date of first infringement through the date of judgment.

The prejudgment interest calculation does not afford consideration that the 15.5% reasonable royalty presumably would have been earned incrementally over the course of the infringement period as individual accused products were sold… and that as of the date of first infringement, only a small portion of total infringement had occurred. Instead, the prejudgment interest approach conceptually presupposes a fully paid-up, lump-sum royalty on the eve of infringement. Defense counsel made these arguments:

Importantly, nowhere in Judge Tunheim’s opinion do we find reference to the 15.5% rate as a “running” royalty; rather, it is described in the excerpt above as “a clean royalty rate.” And the only reference to “lump sum” is excerpted below, which quotes the passage above:

Accordingly, the court accepted Mr. Gorowsky’s PJI calculation.

All of these issues were appealed by defense counsel. In turn, the Federal Circuit ultimately affirmed Judge Tunheim’s judgment, as explained below:

We understand the charge of the trier of fact is to “make the patent owner whole”. Double-digit statutory rates increasingly afford windfall gains in a zero-rate environment by providing far more than the amount adequate to compensate for infringement. In this case, over 42% of the award was an interest payment (i.e., $1,915,328/$4,539,556 = 42.19%). Attorneys representing plaintiffs with a lump-sum royalty prospect stretching back years & years should consider the PJI windfalls evidently on offer from the US District Court for the State of Minnesota.

Bayer Healthcare LLC, v. Baxalta Inc., et al. (Order January 25, 2019)

It remains unclear what damages theories might remain after Judge Andrews provided his order on Daubert motions. Defendant’s expert was excluded in part and Plaintiff’s expert was excluded in part. The resulting questions: “What remains – what might damages testimony at trial look like?”

The order explains that Bayer sued Baxalta for patent infringement concerning the drug Adynovate. Dr. Rausser, Baxalta’s expert, claimed that the damages were small based upon the perspective that the patent possessed little to no value. Plaintiff’s counsel argued that Dr. Rausser failed to assume infringement, used non-comparable licenses and derived a lump sum from licenses that were, in contrast, running royalty licenses. Judge Andrews struck Dr. Rausser’s opinion based upon Plaintiff’s final complaint, noting:

Dr. Addanki, Bayer’s expert, argued that the patents are valuable and that damages would be derived from a 50/50 split of profits. Evoking the Nash Bargaining Solution (which damages experts should understand now to create Daubert exposure), Dr. Addanki claims that this outcome would be “reasonable as a matter of economics.” Judge Andrews disagreed and struck the 50/50 split analysis and “any subsequent opinions that rely on that mid-point rate.”

It would seem little remained of damages for this matter given the exclusions. We shall return later to see whether and how Baxter might advance opinions regarding damages at trial.

Acceleration Bay LLC v. Activision Blizzard, Inc. (Opinion on Motion to Exclude – August 29, 2018)

Delaware District Court Judge Andrews ruled on a very creative damages analysis. And when we say “creative” we mean really, really outlandishly creative.

Plaintiff’s expert, Dr. Christine Meyer, determined the hypothetical negotiation date for her patent infringement damages analysis and then recalculated a jury verdict award from a separate and unrelated patent infringement matter (namely, Uniloc USA, Inc. v. EA) to use as her anchoring point for her Georgia Pacific analysis.

Yes, you read that correctly, and we represented it faithfully:

It appears from Judge Andrew’s opinion that Dr. Meyer attempted to introduce an unrelated jury verdict award as a “comparable license” analog by relying upon a technical expert’s analysis of both the unrelated verdict-patents and their relative value as compared to the patents in suit. Such malarkey was unacceptable and the motion to exclude on this issue was granted.

Apart from this unrelated jury verdict “analytic” sideshow, Judge Andrews offered insight into lump sum and running royalty rates.

Dr. Meyer’s lump sum opinion was not excluded for looking into the future and thereby forecasting hypothetical future sales. But Judge Andrews suggests that such analysis would have been excluded if she had ultimately settled upon a running royalty rate:

Judge Andrews thereby clarifies a subtle, but important (and now specifically-articulated) rule for lump-sum opinions as necessarily distinct from running royalty opinions.

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.

Greatbatch Ltd. v. AVX Corp. and AVX Filters Corp. Court Grants Motion to Set Aside Verdict (March 30, 2018)

Delaware District Court Judge Stark granted AVX’s motion to set aside the damages verdict. The reason for the set aside was solely because the jury verdict form did not separate damages for each patent accused, and thus constituted a damages award for all patents and all products.

Judge Stark himself observes this case possesses “a convoluted history.” It seems that Judge Stark sanctioned AVX because of its late production of core technical documents relevant to the infringement issues on one of the four patents in suit (i.e., the ‘715 patent). The sanctions levied involved the judge granting a motion for summary judgment that all of AVX’s Ingenio products infringed the ‘715 patent. When the case proceeded to trial concerning the three other patents in suit, the jury returned a damages award in the form of a lump sum of $37.5 million for infringement of all four patents by all of AVX’s accused products. After the jury trial, the court granted a motion for reconsideration of the sanctions. A new trial for the ‘715 patent was held and the result was that the jury found no infringement concerning some of AVX’s Ingenio products, while finding infringement with regard to a smaller subset of Ingenio products.

The reason for the jury award set-aside is attributed to the jury verdict form, which failed to request damages figures on a patent-specific and product-specific basis. Citing two Federal Circuit cases (Verizon Services Corporation v. Vonage Holdings Corp. and DDR Holdings, LLC v. Hotels.com, L.P.), the judge’s opinion seems to provide the only solution – a new trial on damages.

Important to note, AVX initially requested that the verdict form offer a damages line on a patent-by-patent basis; however, Greatbatch prevailed with its insistence for the general verdict form ultimately provided to the jury. Note in this instance, however, that because not all accused Ingenio products were found to infringe the ‘715 patent, a patent-by-patent jury verdict form might not have obviated the need for a new trial on damages under these specific circumstances.

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: