Delhi High Court Awards Royalty, Punitive Damages for Infringement of DVD SEP

The opinion, handed down yesterday, is Koninklijke Philips Electronics N.V. vs. Rajesh Bansal And Ors., and Divij Joshi has an informative write-up about it on Spicy IP.  I will probably have more to say about it myself next week after I've had a chance to read it carefully.  The damages portion of the opinion begins at p.39 and takes up the last third of the opinion.  Awards of punitive or enhanced damages outside the U.S. are unusual, though not unheard of in Commonwealth countries, and very unusual in SEP cases (I can think of only one U.S. case where they have been awarded to date); but the amount here, 5 Lakh (500,000 rupees) is equal to only a little over US$7,000.  No injunction is awarded because the patent has expired.

Federal Circuit Reverses Damages Award Based on Entire Market Value Rule

The decision is Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., handed down last Tuesday, July 3.  Judge Dyk authored the majority opinion, joined by Judges Clevenger and Chen.  This case involves a different set of patents than the ones that were in suit in the 2013 appeal involving these two parties, which involved a question of damages for extraterritorial losses.  (The status of the holding in that case is in question after WesternGeco.)  The court affirms the judgment of infringement, but vacates a $139.8 million award for violating the entire market value rule.  From the opinion:

Undertaking an apportionment analysis where reasonable royalties are sought generally requires a determination of the royalty base to which the royalty rate will be applied. We have articulated that, where multicomponent products are accused of infringement, the royalty base should not be larger than the smallest salable unit embodying the patented invention. We have cautioned against reliance on use of the entire market value of a multi-component product that includes a patented component because it “cannot help but skew the damages horizon for the jury, regardless of the contribution of the patented component to this revenue.” Uniloc, 632 F.3d at 1320. . . . Even when a damages theory relies on the smallest salable unit as the basis for calculating the royalty, the patentee must estimate what portion of that smallest salable unit is attributable to the patented technology when the smallest salable unit itself contains several non-infringing features. VirnetX, 767 F.3d at 1327.

The damages verdict here rests on Power Integrations’ reliance on a demanding alternative to our general rule of apportionment, the entire market value rule. Id. “The entire market value rule allows for the recovery of damages based on the value of an entire apparatus containing several features, when the feature patented constitutes the basis for consumer demand.” Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1336 (Fed. Cir. 2009) . . . .

If the product has other valuable features that also contribute to driving consumer demand—patented or unpatented—then the damages for patent infringement must be apportioned to reflect only the value of the patented feature. This is so whenever the claimed feature does not define the entirety of the commercial product. In some circumstances, for example, where the other features  are simply generic and/or conventional and hence of little distinguishing character, it may be appropriate to use the entire value of the product because the patented feature accounts for almost all of the value of the product as a whole. See AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1338–40 (Fed. Cir. 2015).

Power Integrations’ royalty rate is premised on the ’079 patent’s frequency reduction feature as driving consumer demand for Fairchild’s controller chips. To support this contention, Power Integrations provided evidence that the ’079 patented frequency reduction feature was essential to many customers, as it allowed the products to meet the federal government’s Energy Star program. In addition, Power Integrations provided evidence that some customers asked for the ’079 feature, that products with the ’079 feature outsold other products, and that technical marketing materials promoted the ’079 feature. Both parties, however, agreed that the accused products contained other valuable features as well. Power Integrations presented no evidence about the effect of those features on consumer demand or the extent to which those features were responsible for the products’ value. Power Integrations did not seek a separate jury determination as to damages for infringement of the asserted claims of the ’908 patent, and it is clear that the jury calculated damages only for the ’079 patent. . . .

As LaserDynamics, Versata, and VirnetX held, the entire market value rule is appropriate only when the patented feature is the sole driver of customer demand or substantially creates the value of the component parts. LaserDynamics, 694 F.3d at 67; Versata, 717 F.3d at 1268; VirnetX, 767 F.3d at 1326. The burden of proof in this respect is on the patent holder. LaserDynamics, 694 F.3d at 67. The question is whether the accused product, compared to other products in the same field, has features that would cause consumers to purchase the products beyond the patented feature, i.e., valuable features. Where the accused infringer presents evidence that its accused product has other valuable features beyond the patented feature, the patent holder must establish that these features are not relevant to consumer choice. A patentee may do this by showing that the patented feature “alone motivates customers to purchase [the infringing product]” in the first place. See id. at 69. But when the product contains multiple valuable features, it is not enough to merely show that the patented feature is viewed as essential, that a product would not be commercially viable without the patented feature, or that consumers would not purchase the product without the patented feature. Id. at 68. When the product contains other valuable features, the patentee must prove that those other features did not influence purchasing decisions. 

Here, the power supply controllers had other valuable features, such as jittering. . . . There is no proof that these features, including jittering, did not affect consumer demand. Without such proof, Power Integrations did not meet its burden to show that the patented feature was the sole driver of consumer demand, i.e., that it alone motivated consumers to buy the accused products (pp. 19-23).

The result doesn't seem all that surprising to me.  (Whether it's right or wrong as a matter of policy is another matter.)  To be sure, the Federal Circuit has permitted some variations from the EMVR--for example, in CSIRO v. Cisco, where the court (in a bench trial) used the entire market value as the royalty base, because the parties themselves had done so during their own (unsuccessful) negotiations over a royalty; in Ericsson v. D-Link, where the court allowed the plaintiff's expert witness to base his opinion on comparables that used the entire market value as the base; and in Exmark, where the claim covered the end product as a whole (see discussion here).  But this case doesn't appear to have any of these distinguishing features, or at least there's no mention of any such features in the opinion.

Federal Circuit Affirms Finding of Willfulness, Remands on Enhancement

The decision, handed down this morning and authored by Judge Lourie (joined by Judges Dyk and Hughes) is Polara Engineering Inc v. Campbell Co.  The patent in suit, as described by the court, "relates to a two-wire control system for push-button crosswalk stations for a traffic-light controlled intersection with visual, audible, and tactile accessible signals" (p.3).  The court affirms a finding of liability, rejecting among other things Campbell's argument that the invention was in public use (rather than experimental use) more than one year prior to the filing date.  Since this blog focuses on the damages issues, however, I'll limit my discussion to the court's affirmance of the finding of willfulness and its decision to remand for further consideration on the question of a damages enhancement.

As for willfulness, the court concludes that there was substantial evidence that the defendant's pre-litigation conduct constituted willful infringement:

We agree with Polara that substantial evidence supports the jury’s finding of willful infringement. Based on the evidence adduced at trial, the jury reasonably could have found that Campbell intentionally copied the ’476 patent despite a significant known risk that its two-wire AAPS would infringe the ’476 patent. It is undisputed that Campbell was aware of the ’476 patent prior to developing its AAPS. Campbell’s president testified that Campbell developed its AAPS to compete with Polara’s Navigator-2, and that Campbell did not have a product that could compete with the Navigator-2 when Polara launched it in 2003. The jury also heard evidence that Campbell adopted a two-wire design for its AAPS despite being advised by University of Idaho counsel and its lead developer of “areas of potential conflict,” J.A. 2572–73, 2575, and “similarities,” J.A. 3362, with the ’476 patent. 

Campbell asserts that its reliance on competent opinion of counsel demonstrates its good faith belief that the ’476 patent was invalid or not infringed. Campbell has not pointed to any documentary or third-party evidence showing it received an opinion of counsel that the asserted claims of the ’476 patent are invalid and/or would not be infringed by its AAPS. To the extent Campbell relies on the testimony of its president that Campbell allegedly eventually received “a clean bill of health” from the University of Idaho and “got the go” from his own “IP attorneys,” J.A. 2574, the jury was entitled not to credit this testimony, see Harper, 533 F.3d at 1021 (“While the court must review the entire evidentiary record, it must . . . disregard all evidence favorable to the moving party that the jury is not required to believe.”).

The only written opinion of counsel Campbell received that it alleges shows its good faith only substantively discusses claim 11, which is not at issue in this case. . . . 

Moreover, Campbell’s contention that it “was not allowed to present its pre-litigation non-infringement defenses to the jury to refute willfulness,” Appellant Br. 53–54, is belied by the record. . . .

Additionally, Campbell waived its argument that the district court erred by presenting the jury with a verdict form that required a simple “yes” or “no” answer on the question of willfulness, rather than requiring the jury to specify the time period during which Campbell’s conduct was willful. While Campbell is correct that “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct,” Halo, 136 S. Ct. at 1933, Campbell did not object to the district court’s proposed verdict form on this basis, see Post-trial Motions Opinion, 237 F. Supp. 3d at 979. By not timely informing the district court that failing to adopt Campbell’s proposed verdict form would be “an error of law or abuse of discretion,” Campbell waived its objection to the verdict form. United States v. Parson Corp., 1 F.3d 944, 945 (9th Cir. 1993).

Similarly, Campbell waived its Seagate-based argument that the district court should have considered that Polara did not seek a preliminary injunction in its analysis by failing to raise it to the district court. . . . Moreover, the relied-upon language does not even apply to this situation because the jury’s finding of willful infringement was not “based solely on the infringer’s post-filing conduct.” Seagate, 497 F.3d at 1374. . . (pp. 22-24).

(Editorial note:  on the question of whether the failure to seek a preliminary injunction retains any relevance, post-Halo, to the issue of willfulness--the answer to which is, probably not--I would commend readers' attention to the discussion of this issue in Magistrate Judge Burke's recent opinion in Välinge Innovation AB v. Halstead New England Corp., Civil Action No. 1601082-LPS-CJB, 2018 WL 2411218 (D. Del. May 29, 2018).  This opinion also provides a nice summary of the views of various district courts on the relevance of post-litigation conduct to willfulness and enhanced damages, post-Halo.) 

Moving on enhanced damages, the Federal Circuit appears to want more in the way of an explanation of why the district court enhanced damages two and a half times:

Although “the district court is not required to discuss the Read factors,” Presidio Components, Inc. v. Am. Tech. Ceramics Corp., 875 F.3d 1369, 1382 (Fed. Cir. 2017), it “is obligated to explain the basis for the [enhanced damages] award, particularly where the maximum amount is imposed,” Read, 970 F.2d at 828. . . . After Halo and under Read, the “closeness of the case” remains a relevant consideration for determining the appropriateness of enhancement. Here, the district court awarded almost the maximum amount of enhanced damages, but did not adequately explain its basis for doing so, and failed to even mention Campbell’s public use defense, which presented a close question in this case.

The district court referred to Campbell’s invalidity theories generally in the closeness of the case Read factor. In determining that this factor was “neutral,” the district court merely observed that “obviousness was a close call” and that the “other invalidity theories were weaker.” Post-trial Motions Opinion, 237 F. Supp. 3d at 993. This explanation is insufficient for us to determine why the court viewed this factor as “neutral.” The court’s use of the relative term “weaker” provides little insight because it did not explain its reasons for viewing the other defenses, especially public use, as comparatively “weaker.” We view the public use defense, which the court did not explicitly address, as a closer call than obviousness. Thus, to the extent the district court determined that the public use defense was weak in this case, the court clearly erred.

Accordingly, we vacate the award of enhanced damages and remand. . . . On remand, we instruct the district court to provide a more complete explanation, including a discussion of the public use defense, in exercising its discretion. We express no view on whether damages should be enhanced or, if so, by what amount (pp. 24-26).

Federal Circuit Issues Slightly Revised Version of TAOS v. Renesas Opinion

I blogged about this one on May 1, and devoted most of my discussion to the disgorgement of profits issue.  That opinion, however, also affirmed a judgment that the plaintiff TAOS could not recover patent damages for certain extraterritorial sales.  The defendant filed a petition for rehearing en banc, which the court today denies, but the court also issues an order and opinion modifying that portion of the original opinion that discussed extraterritorial damages--though not in any way that makes a difference to TAOS, which still loses on this argument.  Below is the relevant language from the original and the new opinions.  First, the original:

TAOS renews its argument on appeal, but it now relies, in large part, on trial testimony and trial exhibits, rather than the exhibits submitted at the summary judgment stage. Compare TAOS Br. 29–31 (citing primarily to joint appendix cites at numbers over 20000, corresponding to trial evidence), and TAOS Reply Br. 10–11 (same), with J.A. 14498–15702 (TAOS exhibits submitted in response to Intersil’s motion for summary judgment); see also TAOS Br. 89 (argument focuses on trial evidence). Such evidence, which was not before the district court on summary judgment, is not a proper ground for disturbing the summary judgment ruling. See Meyer Intellectual Props. Ltd. v. Bodum, Inc., 690 F.3d 1354, 1371 (Fed. Cir. 2012) (A party “cannot for the first time on appeal introduce deposition testimony that was not before the district court when it was deciding the motions for summary judgment.”). 

As for the evidence that may properly be considered, that evidence—of domestic negotiations and testing of some of Intersil’s products—does not demonstrate “substantial activities regarding sales” sufficient to raise a material dispute of fact as to sales or offers to sell in the United States. TAOS Reply Br. 10. . . .  

And the new opinion:

TAOS renews its argument on appeal, but it now relies, in large part, on trial testimony and trial exhibits, beyond the foregoing evidence. But even the additional evidence—e.g., of domestic negotiations and Intersil’s testing of some of Intersil’s products—does not demonstrate “substantial activities regarding sales” sufficient to raise a material dispute of fact as to sales or offers to sell in the United States. TAOS Reply Br. 10. . . .

So, that's it--no changes brought about the Supreme Court's recent WesternGeco opinion, or anything along those lines.

IP Chat Channel Webinar on Damages After WesternGeco

On Thursday, July 12, from 2-3 p.m. Eastern Time the IP Chat Channel will be presenting a webinar titled Damages After Western Geco: Impact on Patent Litigation Strategy and Client Counseling.  Here is a link, and here is the description:

At the U.S. Supreme Court oral argument in Western Geco v. Ion, a case about expanding the damages for infringing a U.S. patent to include foreign lost profits, a heated and far-ranging debate ensued.  Earlier, some amici curiae had stressed the huge stakes at issue.  For instance, Fairchild Semiconductor joined forces with The Internet Association, arguing that allowing lost profits damages from outside the U.S. “would have negative fallout for economic policy, U.S. commerce, and foreign relations.”  Even the “threat [of such damages] would encourage important industries to relocate abroad,” they claimed.

In late June, the Court disposed of the matter with an opinion from Justice Thomas.  This webinar will focus on the impact of this decision on patent litigation strategy, as well as client counseling. The Court’s decision overturned decades of Federal Circuit precedent by holding that Western Geco’s award for lost profits was a permissible domestic application of § 284.  Our panel includes the chief IP counsel for a major multinational; the former head of patents at Microsoft who is now with a law firm where he focuses on strategic IP counseling, IP transactions, and license agreements; and a patent litigator who has been involved in these issues for years on behalf of a patent owner. They will discuss:

• How Western Geco might impact decisions regarding the location of R&D, manufacturing, and contract signing.
• The immediate and long term effects on litigation strategy for both plaintiffs and defendants.
• Whether the impact will be limited to § 271(f)(2) cases or may be broader.
• What kind of proof plaintiffs will need to bolster their claims for worldwide damages.
• How the question of proximate cause “could limit or preclude damages in particular cases,” an issue the Court explicitly declined to address.

Speakers:  

• Buckmaster de Wolf, General Electric Company 
• Bart Eppenauer, Shook, Hardy & Bacon LLP 
• Blair Jacobs, Paul Hastings LLP

Blogging Break

I will be taking a blogging break next week, July 2-6.  Meanwhile, take a look at my new book Patent Wars:  How Patents Impact Our Daily Lives, which comes out in hardcover on Monday, July 2, as well as my blog post about the book on the OUP Blog, which also goes live on Monday.   

Friday Miscellany: A $400 Million Verdict in Texas, Damages and Injunctions in China, and More

1.  Many readers probably are aware of this already, but two weeks ago a jury in the Eastern District of Texas returned a verdict in favor of KAIST IP against Samsung in the amount of $400 million.  The jury also concluded that Samsung willfully infringed, thus potentially opening the door to enhanced damages.  Story on Bloomberg News here, copy of the jury verdict here.

2.  On Trust in IP, Yangjin Li published a post titled Latest status and trend of patent litigations in China.  The post discusses a report prepared by IPHOUSE providing data on the number of patent cases filed in China, the duration of proceedings, and so on, and concludes with some statistics on damages:

Compared to the past, the damages awarded by the Chinese courts in patent infringement cases have increased significantly in the last few years. The report records a so far highest damage for patent infringement of over 80 million yuan (10.6 million Euro), which was ordered in 2017 in a case between Huawei and Samsung. However, according to the report, the average amount of damage awarded in all the patent civil cases with published decisions from 2013 to 2017 is still just about 102,000 yuan (13,500 Euro), wherein the average amount is about 443,000 yuan (58,700 Euro) if counting invention patents only.

One reason for the relatively low damages may be the fact that statutory damages have been awarded in most cases. As shown in the report, statutory damages have been awarded in 188 out of 227 top cases in Beijing, Shanghai and Guangdong. . . .

 Highly recommended.

3.  Also in this vein, Mark Cohen published a post on the China IPR Blog titled Reviewing the 2017 SPC Report on IPR Judicial Protection:  The Generalities and the Exceptions, summarizing the Supreme People's Court 2017 Report on the Situation Regarding Judicial Enforcement of IPR in China.  There were 16,010 first-instance patent cases filed in China in 2017 (presumably this includes not only invention patents but also utility models and design patents).  Interesting to hear that China is considering implementing a specialized IP appellate court.

4.  Clifford Chance's Global Intellectual Property Newsletter SEP/FRAND and Other IP Topics (Issue 06/18) is available here and contains articles by Claudia Milbradt titled Germany:  Update on the Latest Decisions by German Courts Regarding FRAND/SEP; by Miquel Montañá, titled Spain:  The Latest European Commission Guidance on FRAND Licensing of SEPs; and by Jill Ge, titled China:  Huawei v. Samsung--FRAND Litigation in China.

5.  Finally, for further commentary on the U.S. Supreme Court's WesternGeco opinion on damages and extraterritoriality, see these posts from Tim Holbrook, Michael Risch, Gene Quinn, and Gene & Renee Quinn.  The IP Chat Channel also will be hosting a webinar on the case soon; I'll provide details when I have them.  For my post on the case, see here.