Monday, December 22, 2014

Federal Circuit Affirms in Part, Reverses in Part, in Stryker v. Zimmer

I blogged about the district court opinion in this case, which awarded $217 million in trebled lost profits damages, almost a year ago (see here).  From my previous post:
The plaintiff and the defendant are the two principal competitors in the market for a medical device, known as an orthopedic pulsed lavaged device, used for cleaning wounds and tissue during surgery. In December 2010, Stryker sued Zimmer for infringing three patents.  Two years later, the jury returned a verdict that the patents were valid and willfully infringed, and awarded Stryker $70 million in lost profits.   In August 2013, the district court denied Zimmer’s post-verdict motions for judgment as a matter of law or for new trial; concluded that the case was exceptional and merited an award of attorneys’ fees, and that Stryker was entitled to $2,351,257.66 in supplemental (post-verdict) damages and $11,167,670.50 in prejudgment interest as well; and ordered judgment for treble the lost profits and supplemental damages, or about $217 million, not including the interest and fees. 
The Federal Circuit's opinion, authored by Judge Prost, came out on Friday (available here).  The court affirmed the jury's findings of validity and infringement (pp. 4-16).  Moving along to the damages issues, here are the highlights of the court's opinion:

First, as I noted in my January 2014 post, the district court had rejected Zimmer's argument that Stryker did not mark “substantially all” of its products, and therefore was not entitled to recover lost profits damages for the period preceding the date on which Stryker filed suit.  The Federal Circuit affirmed, though with a caveat (pp. 16-17 n.5):
Zimmer also appeals the jury’s finding that Stryker’s products were sufficiently marked by the ’383 patent during part of the period for which it sought damages. We need not reach this issue, because we affirm the finding that Zimmer infringed the ’807 and ’329 patents, which is sufficient to support all of Stryker’s award of damages for lost profit. However, we note that the jury was indeed incorrectly instructed that it should consider “whether some portion of the Stryker products not with other related patent notices.” Stryker Corp. v. Zimmer, Inc., No. 10-1223, slip op. at 18 (W.D. Mich. Aug. 7, 2013), ECF No. 537 (“Post-Verdict Order”) (emphasis added). Because of this instruction, the jury could have been misled to consider a product marked with the number of a patent related to the ’383 patent—but not with the ’383 patent number itself—as being sufficiently marked. While the district court appears to have relied on cases that suggest that there is some flexibility in what constitutes sufficient marking, the statute is not so broad as to allow marking with a different patent—with different claims—to provide sufficient notice to the public. Rather, the plain language of the marking statute provides that the patented article be marked with the “number of the patent.” 35 U.S.C § 287(a) (emphasis added). 
Second, the court affirmed the lost profits award without further explanation (p.20).

Third, and most significant, was the question of whether Zimmer had willfully infringed and therefore was potentially liable for enhanced damages.  Section 284 of the U.S. Patent Act states that "the court may increase the damages up to three times the amount found or assessed" but provides no criteria for determining when such an enhancement is appropriate.  Under Federal Circuit case law, however, enhanced damages are available only for “willful” infringement, see Cohesive Techs., Inc. v. Waters Corp., 543 F.3d 1351, 1374 (Fed. Cir. 2008); and in In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc), the court held that for infringement to be “willful” it must be both objectively and subjectively reckless.  More specifically, Seagate holds that “to establish willful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. . . . If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”  As noted in my January 2014 post, the district court in Stryker had rejected the argument that "because the Court did not grant Stryker's motions for summary judgment on the issues that went to trial, Zimmer's positions on those issues were, necessarily, reasonable," stating that "[t]he flaw in Zimmer's argument is that there is a difference between an 'objectively reasonable' position and a position with which a reasonable jury could agree. The bare fact that some jury, somewhere might adopt Zimmer's position does not mean Zimmer's position is objectively reasonable."  While not adopting Zimmer's argument about the effect of surviving a pretrial motion, the Federal Circuit nevertheless reversed the district court, stating that "[t]he district court failed to undertake an objective assessment of Zimmer’s specific defenses to Stryker’s claims," and that "[a]n objective assessment of the case," which the court then purported to undertake, "shows that Zimmer presented reasonable defenses to all of the asserted claims of Stryker’s patents" (p.18).  

Fourth, the court vacated the award of attorneys' fees because the award was based on the district court's determination of willfulness, and remanded for further consideration of that issue (p.20).

*                  *                    *

The standard for "willful infringement" continues to present some interesting issues.  First, although the fact that the defendant survived a pretrial motion for summary judgment doesn't necessarily mean that the defendant has a sufficiently reasonable defense to withstand a subsequent finding of willful infringement, one might imagine that if (as in Stryker) the defendant survived a dispositive pretrial motion it has a decent chance of succeeding against a subsequent willfulness finding.  See also, e.g., Halo Elecs., Inc. v. Pulse Elecs., Inc., 769 F.3d 1371 (Fed. Cir. 2014) (affirming a finding of no willfulness, where "[t]he record shows that although Pulse was ultimately unsuccessful in challenging the validity of the Halo patents, Pulse did raise a substantial question as to the obviousness of the Halo patents."); Spine Solutions, Inc. v. Medtronic Safamor Danek USA, Inc., 620 F.3d 1305, 1319 (Fed. Cir. 2010) (holding that “Medtronic was not objectively reckless in relying on” its nonobviousness defense, even though that defense was unsuccessful, and thus was not a willful infringer, and stating that the “‘objective’ prong of Seagate tends not to be met where an accused infringer relies on a reasonable defense to a charge of infringement”); but see Powell v. Home Depot, Inc., 663 F.3d 1221, 1237 (Fed. Cir. 2011) (affirming a finding of willfulness, notwithstanding the district court’s denial of the plaintiff’s motion for a preliminary injunction, and its rejection of the defendant’s inequitable conduct defense based only on the balance of equities).  Second, a question that Stryker does not address is whether the Federal Circuit’s willfulness framework still makes sense in the wake of Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014), and Highmark Inc. v. Allcare Health Mgt. Sys., 134 S. Ct. 1744 (2014), the Supreme Court’s opinions earlier this year on awards of attorneys’ fees in “exceptional cases” (see my post, here).  As Jason Rantanen has noted (see here) in his post on Judge O'Malley's recent concurring opinion in Halo Electronics, over the years the Federal Circuit has come to link the standards for willfulness and for “exceptional case.”  However, now that the “exceptional case” standard has changed, does it still make sense to premise a finding of willful infringement on proof, by clear and convincing evidence and subject to de novo review on appeal, of objective baselessness?  Whatever the right answer is, the Federal Circuit isn’t taking up these questions just yet, though it’s clear that at some point it will have to do so.  

Friday, December 19, 2014

Karshtedt on Damages for Indirect Patent Infringement; Brean on Injunctions

1. Dmitri Karshtedt has published a paper titled Damages for Indirect Patent Infringement, 91 Wash. U. L. Rev. 911 (2014).  Here is a link to the paper, and here is the abstract:
In many patent infringement cases, the only practical way that the plaintiff can obtain relief is on a theory of secondary liability, which is generally referred to as indirect infringement. The remedy in patent cases frequently includes damages for past infringement. Because jury verdicts in patent cases can amount to hundreds of millions of dollars, patent damages have become a hotly litigated issue. Nevertheless, much to the frustration of the litigants in these high-stakes lawsuits, the courts continue to struggle to clarify how damages for indirect infringement should be determined.

The Court of Appeals for the Federal Circuit, which has exclusive appellate jurisdiction over patent cases, has deepened the confusion over calculating damages. Two opinions from the Federal Circuit have made contradictory pronouncements on the issue of accounting for proven acts of primary (i.e., direct) infringement in determining damages for indirect infringement. Lucent Technologies, Inc. v. Gateway, Inc. held that the extent of directly infringing use of the patent should be viewed as one of many pieces of evidence for measuring the extent of damages (“the evidentiary approach”). In contrast, Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc. endorsed a rule that enables trial judges to limit damages as a matter of law to proven, enumerated acts of direct infringement of the asserted patents (“the atomistic approach”).

The conflict between the two approaches raises fundamental, unanswered questions concerning the relationship between patent infringement and ordinary torts. This Article fills a gap in the literature by identifying, and working toward unraveling, one of the puzzles of indirect infringement. Specifically, it examines what the legal fiction of formally imputing an act of one entity to  another—an important tenet of secondary liability in tort—means for patent damages. The answer is surprising: the atomistic approach is consistent with the principles of tort law, but is at odds with well-established, general rules for determining patent damages. Conversely, the evidentiary approach seems to ignore tort law’s imputation principle and embodies the pragmatic, patent-specific damages rules that the atomistic approach eschews. This Article resolves the tension in favor of the evidentiary approach and explains that considerations of policy, logic, and precedent support a damages analysis that reflects fundamental differences between patent law and tort law.

2.  Daniel Harris Brean has published Will the 'Nexus' Requirement of Apple v. Samsung Preclude Injunctive Relief in the Majority of Patent Cases?: Echoes of the Entire Market Value Rule, 51 San Diego L. Rev. 153 (2014).  Here is the abstract; an earlier version of the paper can be found on ssrn

In eBay Inc. v. MercExchange, L.L.C., the Supreme Court put an end to the practice of presuming that injunctive relief is appropriate upon a finding of patent infringement, where it held that “the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.” 547 U.S. 388, 394 (2006). This decision made injunctive relief much more difficult to obtain but also attempted to maintain discretion and avoid rigid rules for determining when injunctive relief is appropriate. Beginning with Apple, Inc. v. Samsung Electronics Co., 678 F.3d. 1314, 1324 (Fed. Cir. 2012), the Federal Circuit has added a “nexus” requirement for determining whether a patent owner has suffered irreparable harm in the form of lost sales—inquiring whether the sales were lost “because of” the infringement or for some other reason. This new hurdle to injunctive relief, which appears to be borrowed from patent infringement damages law, is exceedingly difficult to satisfy where the patented feature or component comprises only a portion of a larger accused product or system. Because most patents are directed to a single component or feature of a larger product or system, such a rule will likely preclude injunctive relief in the vast majority of cases. 

Apple adopts concepts and verbiage from precedent concerning the “entire market value rule,” which prevents patentees from collecting damages based on a multicomponent product unless it can be shown that the patented feature drives the consumer demand for the entire product. This standard is virtually indistinguishable from the nexus requirement and can rarely be satisfied in cases where many different factors are likely to influence consumers’ purchasing decisions, such as price, advertising, and brand name recognition, let alone the multitude of technical and design features not covered by a plaintiff’s patent. Importantly, however, failure to satisfy the entire market value rule results in a limitation on damages, but failure to satisfy the nexus requirement results in zero injunctive relief.

Despite several patents being infringed by Apple’s direct competitor Samsung and Apple’s lost sales to Samsung, Apple has thus far been denied preliminary and permanent injunctive relief across the board almost entirely on the basis of lack of nexus. If Apple’s innovative phone and tablet designs and features cannot satisfy this standard, few, if any, individual aspects of a multicomponent product can hope to do so. This result can be viewed as inequitable and is perhaps why a number of post-Apple decisions have found various ways to skirt or even ignore the nexus test and grant injunctive relief. However, the potential to relax the rigidness and potential inequity of the nexus test lies in the third of Apple’s appeals to the Federal Circuit by, for example, (1) recasting the way that nexus considerations are analyzed under eBay by addressing them outside the context of irreparable harm; (2) allowing nexus to be considered in the aggregate where multiple patents are infringed by a single product; and (3) encouraging more flexible injunctions to be entered that enjoin only the infringing features and allow time for those features to be designed around before the injunction goes into effect. 

Although the panel decision in Apple’s third appeal has been recently decided, the opinion is inconsistent with the prior Apple appeals concerning the nexus requirement, making the case ripe for en banc consideration by the Federal Circuit to bring uniformity to the law on this exceptionally important and timely issue.

Wednesday, December 17, 2014

Upcoming Conference in Bayreuth, Germany

On February 6-7, 2015, Bayreuth University will be hosting a conference titled "Intellectual Property and the Public Domain--Results and Perspectives."  I will be on a panel with Professor Herbert Zech of the University of Basel on the topic "Intellectual Property and Economics--Can You Have One Without the Other?"  I haven't finalized my presentation yet, but I plan to talk a bit on this paper that I presented at the University of Pennsylvania a few years ago, supplemented by some thoughts on whether it is preferable to deal with FRAND/SEP issues (such as the availability of injunctive relief) primarily by means of patent law/patent remedies or competition law or something else--a topic I discuss to some extent in this paper, and have continued to discuss on this blog.  Other speakers include leading European and U.S. IP scholars, and I'd be very happy to meet any of my European readers who happen to be in the area.

Here is a link to the conference agenda. 

Tuesday, December 16, 2014

Update on Ericsson v. Xiaomi SEP Dispute (India)

Spicy IP has a couple of updates (here and here), and a link to another article, on the Ericsson v. Xiaomi patent dispute that I mentioned here last week.  I don't have any further information beyond what I've read in these sources, but apparently Xiaomi will be allowed to sell devices that include chipsets made by Ericsson's licensee Qualcomm, and another hearing is scheduled for January 8.

Monday, December 15, 2014

Some More Recent SEP/FRAND Papers

1. Janusz Ordover and Allan Shampine published a paper titled Implementing the FRAND Commitment in the October 2014 issue of The Antitrust Source, available here.  From the introduction:
For many years, standard-setting organizations (SSOs) have required members to commit to license standard-essential patents (SEPs) on Fair, Reasonable and Non-discriminatory (FRAND) terms. How FRAND terms can and should be interpreted has been the subject of extensive debate (as well as litigation in many jurisdictions). While we acknowledge other objectives behind these commitments, we focus here on their role as constraints on the ability of the holders of the SEPs to hold up implementers of such FRAND-encumbered patents, with potential anticompetitive effects.
In this article, we explain why, from a practitioner’s perspective and given the economic goals of FRAND terms, a mere commitment to license on FRAND terms does not ensure that the ex-post negotiations will invariably satisfy the FRAND principles. We then describe when and how we believe FRAND commitments should be enforced to achieve the economic goals of FRAND terms and avoid anticompetitive effects.
2.  The same issue of The Antitrust Source also features an article by Douglas H. Ginsburg, Taylor M. Owings, and Joshua D. Wright titled Enjoining Injunctions:  The Case Against Antitrust Liability for Standard Essential Patent Holders Who Seek Injunctions, available here.  From the introduction:
A standard essential patent (SEP) may give the patent holder market power in the market for an input that technology manufacturers need in order to make their products compatible with each other. Several commentators have argued that, when a patent becomes part of a standard pursuant to an agreement among competitors given in exchange for the patent holder’s promise to license the technology under fair, reasonable, and non-discriminatory (FRAND) terms, antitrust law should limit the holder’s right to seek an injunction to stop an infringing manufacturer from selling its standardized product. We disagree for two reasons: First, antitrust sanctions are not necessary, given the law of contracts and of injunctions, to avoid harm to consumers and, second, the application of antitrust law in this situation could, by undermining the ability of courts to tailor appropriate remedies, diminish the incentives for companies to innovate and for industries to adopt standards.
3.  Elaine Xu has published a student comment titled Brave New Frontier:  Antitrust Implications of Standard-Setting Patents in the Smartphone Market, 32 Wisconsin International Law Journal 384 (2014).  It doesn't appear to be available yet on the journal's website but can be accessed on Westlaw.  From the introduction:
This article discusses two topics. Part I discusses standardization and how antitrust issues can arise as a result of standard essential patents. It introduces the legal framework for antitrust analysis, and gives an  overview of important standard setting cases. Comparing how Europe and the United States have ruled on antitrust violations of standard essential patents provides the framework for analyzing whether Samsung committed antitrust violations in its interactions with standard essential patents.
Part II, using the antitrust analysis, defines how Samsung's patented technology and its substitutes form the relevant market. It discusses Samsung's monopoly power and analyses whether Samsung abused its standing by withholding information regarding its patents from the European Telecommunications Standards Institute during the development of the third generation universal mobile telecommunication system standard.
4.  Philip Maume has a paper on ssrn titled Compulsory Licensing in Germany, which is a chapter in a forthcoming book titled Compulsory Licensing (Reto Hilty and Kung-Chung Liu eds., MPI Studies on Intellectual Property and Competition Law, Vol. 22, Springer).  Here is a link, and here is the abstract:
In the last 20 years, German courts have developed a sophisticated approach to compulsory licensing of patents. Compulsory licences under competition law are of particularly high relevance. In short, German competition law obliges the holder of a patent, which is essential in a standard to grant a licence on terms that are fair, reasonable, and non-discriminatory (FRAND). Users of such patents can also raise a so-called competition law defence against imminent injunction orders. 
The resonance of the German debate in international scholarly literature has remained relatively low, probably because of the language barrier. Most works merely scratch the surface of the particularly complex issues. This paper provides an in-depth analysis of the German legal background and the consequences in practice. It suggests a streamlined, simplified approach to competition-law-based defences.
5.  Gunther Friedl and Christoph Ann have published a paper in the October issue of GRUR titled Entgeltberechnung fur FRAND-Lizenzen an standardessenziellen Patenten ("Calculating FRAND License Fees with respect to Standard Essential Patents").  Here is the abstract (my translation from the German).  I haven't read the paper yet and may have more to say about after I have:
If SEP owners are obligated by competition law to license their patents on FRAND terms, questions remain concerning the terms of such licenses.  Above all is the question of how to calculate the amount of a FRAND-conforming license fee.  Fundamentally, valuation approaches are conceivable that are based on patent usage, but problems present themselves here with respect to complex products such as FRAND-notorious smartphones.  A cost-based assessment for FRAND license fees, such as is common in regulated industries, presents itself as suitable.  Such an approach, based on the total costs of a patent, is sketched in the present essay.   On the one hand, this approach ensures to the patent owner a reasonable rate of return, and on the other preserves the FRAND conformity of the so-determined license fee.

Friday, December 12, 2014

Breaking News: U.S. Supreme Court to Hear Case on Post-Expiration Royalties

Here is the order granting certiorari in Kimble v. Marvel Enterprises, Inc.  The petition for certiorari poses the following question:
Petitioners are individuals who assigned a patent and conveyed other intellectual property rights to Respondent. The court of appeals “reluctantly” held that Respondent, a large business concern, was absolved of its remaining financial obligations to Petitioners because of “a technical detail that both parties regarded as insignificant at the time of the agreement.” App. 2-3; 23. Specifically, because royalty payments under the parties’ contract extended undiminished beyond the expiration date of the assigned patent, Respondent’s obligation to pay was excused under Brulotte v. Thys Co., 379 U.S. 29, 32 (1964), which had held that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.”
A product of a bygone era, Brulotte is the most widely criticized of this Court’s intellectual property and competition law decisions. Three panels of the courts of appeals (including the panel below), the Justice Department, the Federal Trade Commission, and virtually every treatise and article in the field have called on this Court to reconsider Brulotte, and to replace its rigid per se prohibition on postexpiration patent royalties with a contextualized rule of reason analysis.
The question presented is: Whether this Court should overrule Brulotte v. Thys Co., 379 U.S. 29 (1964).
I don't want to appear overconfident about the outcome, since only four votes are required to grant cert; but I think it is reasonable to assume that the Court wouldn't have done so (against the wishes of the Solicitor General, no less) unless there was a very good chance of reversal.  As I've noted before (here and here), economic analysis suggests that Brulotte v. Thys was wrongly decided.  It looks to me like Brulotte's days are now numbered.

Indian Court Grants Ex Parte Injunction Against Xiaomi

Earlier this week the SpicyIP Blog published a couple of interesting posts on the availability in India of ex parte injunctions for the alleged infringement of FRAND-encumbered SEPs, one titled Delhi High Court Grants Injunction Against Xiaomi (available here) and another titled FRAND-ly Injunctions from India:  Has Ex Parte Become the "Standard"? (available here).  The authors are not happy about the way the Indian courts thus far have been dealing with the issue.  Within the last 24 hours the Wall Street Journal has published a few articles about the Xiaomi case as well, available here, here, and hereHere is a copy of the Delhi court's order.