Posts Tagged: "patent damages"

In a previous article, we discussed the difference between a reasonable royalty for patent infringement and a FRAND licensing rate, both in terms of their origins and objectives: the former being a creature of statute and case law that seeks to compensate a patent owner for infringement, whereas the latter is rooted in contract and seeks, amongst other things, to address issues of royalty stacking and discriminatory licensing. Despite these differences, we noted that these two concepts have often been treated interchangeably by courts, often leading to confusing results…. Pursuant to appeal of that decision, however, the United States Court of Appeals for the Fifth Circuit has now addressed the photonegative question in HTC Corp. et al. v. Telefonaktiebolaget LM et al., case number 19-40643: are patent laws regarding what constitutes a reasonable royalty applicable to questions of compliance with FRAND-related contractual obligations? Though the majority decision did a great job highlighting the distinction between these two different concepts, there was a concurring decision that continues to blur the line.

The Federal Circuit upheld the district court’s damages award of approximately $140 million for Sprint after Time Warner was found to infringe claims of five patents covering technologies related to methods for linking circuit-switched and packet-switched networks within a telecommunications system. Despite the nonprecedential designation, Circuit Judge Haldane Mayer issued a dissenting opinion reflecting his views that the damages award should be vacated and the asserted patent claims found invalid for failing the written description requirement… The Federal Circuit majority also disagreed with Time Warner that the references to the 25 percent rule of thumb in the 2007 Vonage verdict made it inadmissible as evidence to the jury in district court.

Courts consistently focus on the availability of non-infringing substitutes as of the date of the hypothetical negotiation. In most of the cases reviewed, the determination of available substitutes was limited to those available at the date of first infringement. If an alternative introduced after the hypothetical negotiation was considered, its impact was discounted to reflect uncertainty as of the date of the negotiation. For example cases, please contact the author. From a review of the above cases, it is clear that the book of wisdom can be relevant and useful, but it is not always allowed by courts. Use and acceptance of the book of wisdom is case and court specific.

The resurrection of the ‘814 patent claims was of great importance to Fitness Anywhere because it covered a modification to the company’s fitness equipment that helped it achieve great success in the marketplace. The invention essentially consisted of taking a handle accessory that was attachable to the fitness equipment via velcro and making it a permanent fixture of the equipment. Although Fitness Anywhere had told the court that it wouldn’t pursue further infringement damages against Woss based on the reinstated ‘814 patent claims, in large part because of Woss’ bankruptcy status, Judge Freeman’s granting the motion for reconsideration restores an important asset that can now again be asserted against many of the at least 100 companies that are allegedly infringing the patent behind TRX fitness equipment.

John O’Quinn, partner at Kirkland & Ellis and counsel representing Time Warner at the Federal Circuit, argued that the entire verdict should be vacated, not just the damages portion, because the court allowed the jury to use a 2007 verdict granted to Sprint against Vonage on the same asserted patents as evidence to determine the damages award. That verdict involved the use of a 25 percent rule of thumb for determining a royalty rate, a rule that the Federal Circuit has subsequently held to be inappropriate in a landmark ruling in 2011. 

Last week, Chief Judge Stark issued a ruling from the District Court in Delaware that applies WesternGeco broadly to increase patent damages from foreign sales resulting from direct infringement.  Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., Civil Action No. 04-1371-LPS (Slip Op., October 4, 2018).  This might occur where a patented product is made in the U.S., but sold abroad, or where the distribution channel for an infringing article includes warehousing in the U.S.  The Judge ruled that WesternGeco overruled the prior law limiting these damages to U.S. sales—now, foreign sales are subject to the full panoply of U.S. patent damages any time there is infringement in the U.S.  The Judge also certified this decision for interlocutory appeal, paving the way for the Federal Circuit to consider this development sooner rather than later.

To base its damages theory on the entire market value rule, Power Integrations bore the burden of proving “the patented feature is the sole driver of customer demand or substantially creates the value of the component parts.” Both parties, however, agreed that the accused products contained other valuable non-infringing features. Nevertheless, Power Integrations presented no evidence about the effect of these other non-infringing features on consumer demand or product value. Accordingly, the Court held that the evidence submitted by Power Integrations was insufficient to invoke the entire market value rule, and vacated the award of damages, and remanded for a new trial.

Power Integrations, Inc. owns U.S. Patent Nos. 6,212,079 (“the ‘079 patent”) and 6,538,908 (“the ‘908 patent”). Power Integrations sued Fairchild Semiconductor Corporation and Fairchild (Taiwan) Corporation (collectively “Fairchild”) for infringement. A jury found Fairchild literally infringed the ‘079 patent and infringed the ‘908 patent under the doctrine of equivalents. The jury subsequently awarded damages of $140 million, applying the entire market value rule in calculating damages. Fairchild appealed. The Federal Circuit affirmed the judgments of infringement, but concluded that the entire market value rule was inappropriately used in this case to calculate damages.

We reached out to our distinguished panel of industry insiders, and the initial reaction is this decision is a clear win for patent owners. Efrat Kasznik: “The expansion of lost profits to include foreign lost profits enhances the ability of a patent owner to recover the appropriate amount damages that would make them whole, without artificially excluding foreign lost profit damages from the pool of available damages. It’s economic justice.” Ronald Abramson: “Today’s decision in WesternGeco is clearly a win for patent owners, though the Court made considerable efforts to limit its ruling…”

Earlier today the United States Supreme Court issued a decision in WesternGeco LLC v. ION Geophysical Corp., which in a 7-2 decision ruled that a patent owner may recover lost foreign profits for infringement under 35 U. S. C. 271(f)(2). The question decided, as set forth in the opinion by Justice Thomas, writing for the majority, was: “The question in this case is whether these statutes allow the patent owner to recover for lost foreign profits.” Thomas simply answered the question in the opening paragraph saying: “We hold that they do.”

For many years, foreign companies were reluctant to seek and enforce intellectual property protection in China.  A combination of challenging litigation with low damages, the lack of ability to effectively enforce judgments, allegations of protectionism by the courts; a lack of ability to patent certain subject matter, a lack of transparency on legal matters and other factors made China a less desirable jurisdiction.  The Chinese intellectual property legal system has matured rapidly, however.  From improvements in the scope of allowable patent subject matter to enhancements of litigation options, and a strong desire by China to be seen as having a level playing field for all parties, China deserves a second look… More companies are looking to China as a stand-alone enforcement jurisdiction, as a cost-effective second front to open in conjunction with US litigation.

Patent damages law is one of the most complex areas in patent law and it is constantly evolving. Attorneys and courts often confuse the principles and get the law wrong. Further, even without the backdrop of constantly evolving and complex damages law, proving damages at trial is one of the hardest aspects of patent litigation. And properly apportioning damages can be one of the most difficult aspects of damages law to get right. The Federal Circuit’s two recent decisions in Exmark Man. Co. v. Briggs & Stratton Power Prods. Grp., No. 2016-2197, __ F.3d __ (Fed. Cir. Jan. 12, 2018) and Finjan, Inc. v. Blue Coat Sys., Inc., No. 2016-2520, __ F.3d __ (Fed. Cir. Jan. 10, 2018) shed light on calculating damages for multi-component products. Together, these cases show that the royalty rate must be apportioned based on the incremental value the novel elements add to conventional elements of a claim, while the royalty base must be apportioned based on the incremental value the patented features add to the accused product.

In invalidating the Idenix patent, the Delaware district court effectively overturns what had been the largest award for royalty damages in a U.S. patent infringement case ever handed out. After a two-week trial in December 2016, the jury had awarded Index $2.64 billion in damages, which was based on finding Gilead infringed the Idenix patent – U.S. Patent No. 7,608,597 — by selling the hepatitis C virus (HCV) treatments Harvoni and Sovaldi.

While Exmark invites a more flexible approach to apportionment, allowing, at least in some cases, a focus on the royalty rate to value the patented invention, the rate analysis itself must be properly supported. Indeed, Exmark serves as a cautionary reminder that any expert opinions on reasonable royalty damages must be closely tied to the facts of the case. Damages opinions that are purely speculative and unsupported by the facts of the case are likely to be found inadmissible. As a result, apportionment approaches will continue to be case-specific, variously focusing on the royalty base, the royalty rate, or a hybrid-model involving both elements.