Thursday, March 26, 2015

Federal Circuit Punts, For Now, on Revisiting the Standard for Enhanced Damages

As noted in previous posts (here and  here), in some of its recent decisions the Federal Circuit has continued to apply the framework it announced in In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc), and Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., 682 F.3d 1003 (Fed. Cir. 2012), cert. denied, 133 S. Ct. 932 (2013), for determining whether an infringement was "willful" (and thus under the governing interpretation of  35 U.S.C. § 284 potentially subject to an award of "up to three times" actual damages), notwithstanding some doubts expressed by Judges O'Malley and Hughes whether that framework remains good law after the U.S. Supreme Court's decisions on attorneys' fees in 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).  In brief, the current framework requires, as a predicate to a possible award of enhanced damages, that the prevailing patentee establish, by clear and convincing evidence, that the defendant "willfully" infringed by acting "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.”  Seagate, 497 F.3d at 1371.  In addition, despite the court's one time characterization of willfulness generally as a question of fact, under Bard willfulness is a question of law (that is, for the judge to decide), subject to de novo review on appeal.  A potential difficulty arises because, until recently, the court applied a similar framework for evaluating whether a case was "exceptional" under § 285 and therefore potentially meriting an award of attorneys' fees; but in 2014 in Octane Fitness and Highmark the Supreme Court held instead that "[d]istrict courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances"; that the normal evidentiary burden of preponderance of the evidence, not the higher clear and convincing evidence standard, applies to this determination; and that the standard of review on appeal is abuse of discretion, not de novo review.  

Given the Federal Circuit’s policy over the last decades to construe the “exceptional case” and willfulness standards in a similar fashion, the question therefore arises whether the current standards for determining willful infringement remain valid.  Nevertheless, on Monday of this week the court denied a petition for rehearing en banc in Halo Electronics, Inc. v. Pulse Electronics, Inc. in which Halo presented for en banc review the question (as phrased by Judge Taranto) "whether the objective reasonableness of Pulse’s invalidity position must be judged only on the basis of Pulse’s beliefs before the infringement took place."  Aside from the brief per curiam order denying review, there are two separate opinions. The first (authored by Judge Taranto and joined by Judge Reyna), recognizes the multiple questions that now surround the court's willfulness jurisprudence, but concludes that Halo's petition does not raise a question meriting en banc review:
. . . Halo has not demonstrated the general importance of [the question quoted above] or that the panel’s assessment of objective reasonableness is inconsistent with any applicable precedents or produces confusion calling for en banc review. . . . Indeed, the panel’s approach to objective reasonableness—as negating the objectively high risk of harm (here, infringement) needed for willfulness—is strongly supported by Seagate and by the Supreme Court’s authoritative Safeco decision addressing the meaning of “willfulness” in non-criminal contexts. And that conclusion is not affected by Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), which does not address the term “willful” at all.
Those are sufficient reasons to deny further review here. Doubtless we will receive various requests for en banc review of some or all of the many possible § 284 questions in other cases. The standard for granting en banc review is necessarily a demanding one. We must apply the standard to particular issues in particular cases. Unlike Congress, we may not convene to clean the slate and write a set of rules that answer the host of questions about which § 284 is, at present, silent.
Dissenting, Judge O'Malley, joined by Judge Hughes, writes that
For the reasons detailed in my concurrence at the panel stage—Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371, 1383–86 (Fed. Cir. 2014) (O’Malley, J., concurring)—and reiterated here, I believe the full court should hear this case en banc to reevaluate our jurisprudence governing an award of enhanced damages under 35 U.S.C. § 284.
Also on Monday, the court released a revised version of its opinion (authored by Judge Prost and joined by Judges Newman and Hughes) in Stryker v. Zimmer (see my previous blog post here).  Unless I'm missing something, the only revision is the addition of the following footnote to page 18:
This court has not yet addressed whether Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), or Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1746 (2014), altered the standard of review under which this court analyzes the objective prong of willfulness. However, as the district court failed to undertake any objective assessment of Zimmer’s specific defenses, the district court erred under any standard of review and thus this court need not now address what standard of review is proper regarding the objective prong of willfulness. 
I think it's fair to say that the law of willful infringement will be "in play" over the coming months.  For other discussion of these cases, see Jason Rantanen's excellent post on Patently-O.

Wednesday, March 25, 2015

Indian Court Grants Ericsson an Interim Injunction Against the Infringement of Alleged SEPs

At SpicyIP, Kartik Chawla has published what appears to be the first of a two-part series on Telefonaktiebolaget LM Ericsson v. Intex, in which Justice Manmohan Singh of the Delhi High Court issued an interim injunction on March 13.  Although I haven't waded through the entire 257-page opinion just yet, it appears that an important consideration was the court's conclusion that the defendant was not a willing licensee (see paragraph 147).

Tuesday, March 24, 2015

Petitioner's Reply Brief in Kimble v. Marvel Enterprises

The petitioner's reply brief in Kimble v. Marvel Enterprises--the case in which the Supreme Court has been asked to overrule its 1964 decision in Brulotte v. Thys holding agreements to pay postexpiration patent royalties per se unenforceable--has been filed and is available here.  From the introduction:
At bottom, Marvel and the government each invite this Court to retain a per se rule that makes no economic sense and hampers innovation on the basis of a formalistic and cropped view of patent policy that itself does not survive closer examination. Brulotte should be overruled.
The case is scheduled for oral argument one week from today, on March 31, 2015.  For previous blog posts and links to the other briefs that have been filed in the case, see here, here, here, here, and here.

Monday, March 23, 2015

A Study of Reasonable Royalty Awards in Japan


I mentioned back in December that Professor Masabumi Suzuki of Nagoya University in Japan had brought to my attention a paper titled Predictability of Monetary Damages under Article 102(3) of the Japanese Patent Law which was recently published (in Japanese) by the Second Subcommittee, the Second Patent Committee, in 64 Intellectual Property Management 219 (2014).  My research assistants Gina Rhee and Takamasa Nakahara have now provided me with a rough translation of the article, which attempts to delineate and, to some degree, quantify the factors that go into awards of reasonable royalties in Japanese patent litigation.

To provide a little background, under article 102(3) of the Japanese Patent Act "A patentee or an exclusive licensee may claim against an infringer compensation for damage sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, by regarding the amount the patentee or exclusive licensee would have been entitled to receive for the working of the patented invention as the amount of damage sustained."  As I discuss in my book, however, prior to 1999 the relevant text included the word tsujono ("normally"), meaning that royalties would be measured by the amount the patent owner "normally" would have derived from licensing the invention.  That word was removed out of concern that it influenced "courts to rely heavily on previous licenses granted by the patentee, license rates paid for the use of government inventions, and published royalty rates compiled for particular industries," and that "these awards tended to undercompensate patentees and to encourage infringement" (p.311).  Anyway, the above study involved an examination of 68 cases from January 1, 1999 to March 5, 2013, in which courts awarded reasonable royalties pursuant to article 102(3).  (I believe this is intended to be comprehensive, not just a random sample of such cases.)  The authors show that, as I reported previously, courts awarded a 5% rate in 28% of the cases, 3% in 22% of the cases, and 10% in 16% of the cases.  (It appears, if I am not mistaken, that the rate is applied to the defendant's turnover of infringing products.  No need to be concerned about the entire market value rule in a system without juries!)  Comparing these data to survey evidence from 1992 and 2002, it appears that awards of 3% are less prevalent than in 1992 but more so than in 2002; while 5% and 10% rates are more common than in 1992 and about the same as reported in 2002.  (There may be some overlap, though, between the cases reflected in the 2002 survey and the cases the authors analyzed, some of which go back as far as 1999.)  Altogether, during the period under consideration, there were five cases in which the award exceeded ¥200,000,000 (U.S.$1,660,000 at current exchange rates); the vast majority were under ¥100,000,000.

Based on their analysis of these cases, the authors develop a formula to help predict the rate a court will award in a given case.  In 11 of the cases there were comparable licenses involving the same or another patent, which provided a starting point for the calculation; in most of the remaining cases, courts used as a starting point the standard rate for a given technological field as reported by the Japanese Institute of Inventors and Innovation (Hatsumei Kyokai) in the fifth edition of this book.  (See also the discussion in my book of the use of standard rates, at p.311 n.100.)  The authors uncover various positive factors (e.g., "the technical or economical value and importance of the invention," the plaintiff's own high profit margin, or the substantial contribution of the invention to the defendant's profitability) and negative factors (e.g., the invention does not contribute much to the value of the end product, there are available alternatives, or the end product is a mass-produced, inexpensive one) that affect whether a court will depart upwards or downwards from the starting rate.  The authors then weight each of these factors depending on whether the factor relates to the invention itself, the patentee, the infringer, third parties, or something else, and adjust the starting rate accordingly.  Finally, they take this "imaginary rate" (the starting rate plus or minus its "adjustment value") and multiply it by a "sales coefficient."  The sales coefficient reflects the fact that lower rates are awarded where the turnover of the infringing product is high, and vice versa; there tends to be an inverse relationship between the two.  Overall, in 70% of the 54 cases to which this analysis was applied, the authors were able to predict the rate awarded to within one percentage point.  In addition, on the whole there were "more cases in which the awarded rate is actually higher than the license agreement rate," which probably makes sense given that the cases that result in damages awards all involve patents that have been adjudged valid and infringed.

For another recent article (this one in English) discussing patent damages in Japan, see Nodoka Nakamura's Recent Trends in Court Judgments Concerning Damages in Japanese Patent Infringement Litigations, A.I.P.P.I.--Journal of the Japanese Group of AIPPI 389 (Nov. 2014), which is based on  Ms. Nakamura's  review of court judgments handed down from January 1, 2003 to January 30, 2014, and listed in the appendix to the article.  For my blog post on this paper, see here.

Friday, March 20, 2015

New Papers by Sidak and Angeli on FRAND and Injunctions

1.  J. Gregory Sidak has published a paper titled The Meaning of FRAND, Part II: Injunctions.  It is available for download here.  Here is the abstract:
Under what conditions may the holder of standard-essential patents (SEPs) seek to enjoin an infringing implementer without breaching the SEP holder’s contract with the standard-setting organization (SSO) to provide access to those SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms? I show that the SEP holder’s contractual obligations still permit it to seek an injunction. A FRAND commitment requires the SEP holder to offer a license for the SEPs on FRAND terms (or otherwise to grant implementers access to the SEPs). Extending an offer containing a price within the FRAND range discharges the SEP holder’s contractual obligation. Thereafter, the SEP holder may seek to enjoin an implementer that has rejected a FRAND offer. This analysis indicates the imprudence of categorically banning injunctions for the infringement of SEPs, as some scholars have advocated and as one of the world’s most significant SSOs—the Institute of Electrical and Electronics Engineers (IEEE)—had proposed, as of January 2015, in draft amendments to its bylaws. Such a ban would invite opportunism by implementers and is unnecessary. Courts already can prevent opportunism by SEP holders by conditioning an injunction on the implementer’s actual or constructive rejection of a FRAND offer.
I may have more to say about this paper after I've had a chance to read and digest it.  As always, whether I ultimately agree with Mr. Sidak's views or not, it should be a stimulating paper. 

2.  Michela Angeli has published a paper titled Willing to Define Willingness: The (Almost) Final Word on SEP-Based Injunctions in Light of Samsung and Motorola, Journal of European Compettion Law & Practice (2015).  Here is a link to the paper, and here is the abstract:
The decisions adopted by the Commission in the Samsung and Motorola cases establish that seeking injunctions on the basis of a standard essential patent (‘SEP’) for which a commitment to license under FRAND terms and conditions has been given to a Standard Setting Organisation (‘SSO’) violates Article 102 TFEU, unless it can be shown that the implementer is not willing to enter into a license agreement on FRAND terms and conditions.
While waiting for the CJEU to clarify the law in the Huawei case, both decisions contribute to the identification of a possible ‘safe harbour’ for both SEPs implementers who want to be protected from injunctions and SEPs holders who want to avoid antitrust liability arising out of the use of SEP-based injunctions.
In line with the Commission decisions, Advocate General Wathelet in his opinion in Huawei—handed down on 20 November 2014—proposes steps a SEP holder should take before seeking injunctions in order not to violate Article 102 TFEU, as well as obligations the alleged infringer should comply with to be considered willing. 
Hat tip to Danny Sokol's Antitrust & Competition Policy Blog for bringing this one to my attention.

Wednesday, March 18, 2015

Damages for Indirect Infringement: Smith & Nephew v. Arthrex

This morning the Federal Circuit handed down an opinion in Smith & Nephew Inc. v. Arthrex, Inc (available here).  The litigation has had a somewhat tortuous history, including "three trials and two previous appeals" over a patent concerning "a method used by surgeons to anchor a suture in bone, thereby helping to attach (or reattach) tissue to the bone."  Smith & Nephew (S&N) alleged that Arthrex indirectly infringed "by selling certain SutureTak and PushLock anchors having attached sutures . . . that surgeons use to perform the claimed methods."  A 2011 retrial resulted in a jury verdict in favor of S&N, a lost profits damages award in the amount of $67,793,868, and a reasonable royalty in the amount of $16,987,556 for infringing uses that did not deprive S&B of sales.  The judge entered a JMOL for Arthrex, which was reversed on appeal; on remand, and over Arthrex's objections, the court reinstated the jury verdict which forms the basis of the present appeal. 

Much of the dispute centers on whether the district court was correct in precluding Arthrex from relitigating certain matters on remand.  The court affirms the trial court's judgment that Arthrex was not entitled to relitigate validity.  It concludes that the district court erred, however, in refusing to consider Arthrex's post-remand challenges to the lost profit award, but "[o]n the merits . . . reject[s] Arthrex’s contention that the lost-profits award lacks substantial evidence support. See Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1310 (Fed. Cir. 2009) (applying substantial-evidence review of factual findings within methodologically proper damages determination)."

The lost profits inquiry is complicated in that, again, the defendant is accused of indirectly infringing by selling anchors that surgeons used to directly infringe the patent; and there are substitute anchors the surgeons' use of which would not have resulted in the infringement of the method patent.  S&N's theory was that it was entitled to recover lost profits on sales it would have made of these substitute anchors, based on its share of the market: 
To establish entitlement to lost profits, “the burden rests on the patentee to show a reasonable probability that ‘but for’ the infringing activity, the patentee would have made the infringer’s sales,” Crystal Semiconductor Corp. v. TriTech Microelecs. Int’l, Inc., 246 F.3d 1336, 1353 (Fed. Cir. 2001), though not necessarily all of those sales. S&N put on evidence to show (a) what products constituted “acceptable noninfringing substitutes” for the Arthrex Bio-SutureTak, Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978), and (b) S&N’s percentage of sales of that class of acceptable non-infringing substitutes (considering all sellers, including Arthrex). It is not meaningfully disputed on appeal that, if S&N was correct as to (a), then S&N, having ample production capacity, was entitled to apply the (b) percentage to Arthrex’s infringing sales and to receive an award of the profits it would have made on that number of sales. See Ericsson, Inc. v. Harris Corp., 352 F.3d 1369, 1377 (Fed. Cir. 2003) (citing State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1577–80 (Fed. Cir. 1989)) (endorsing a market-share approach). S&N’s expert presented that calculation to the jury, which adopted it.
The only aspect of the calculation meaningfully challenged by Arthrex on appeal is the identification of “acceptable non-infringing substitutes,” Panduit, 575 F.2d at 1156, by S&N’s expert as unduly narrow. We consider the evidentiary support for the jury determination bearing in mind that the object of the inquiry is to identify what products those surgeons who actually bought Bio-SutureTak anchors would have bought if Arthrex had not sold that product. And we also recognize that the inquiry typically “excludes alternatives to the patented product with disparately different prices or significantly different characteristics.” Crystal Semiconductor, 246 F.3d at 1356. 
On this issue, the court concludes that there was substantial evidence to support S&N's contention that "the class of acceptable non-infringing alternatives in this case consisted of anchors that were (1) bioabsorbable, (2) premounted on an inserter, (3) pre-loaded with a suture, and (4) inserted via a push-in or tap-in procedure," rather than a broader class including screw-in and toggle anchors proposed by Arthrex.  More specifically, "the S&N definition properly reflected the anchor features that matter for the lost-profits inquiry, namely, the features that mattered to the group of surgeons who in fact chose to use (and therefore controlled the buying of) the specific Arthrex product at issue. The jury could properly find that the preference for particular anchor characteristics revealed by the actual market behavior of those surgeons determined where those surgeons would have taken their business if they could not have purchased what they in fact bought."  Reviewing the record, the majority concludes that "The jury’s conclusion that surgeons chose anchors based on their insertion methods (and therefore that only press-in anchors were acceptable, non-infringing alternatives here) is supported by substantial evidence. The jury was free to disbelieve or discount Arthrex’s limited evidence pointing the other way."  The majority also was not persuaded by Arthrex's arguments about what it would have done but for the infringement, calling the evidence "scanty" and noting among other things that Arthrex was not actually a selling a noninfringing anchor during the relevant period. "The jury could find, given the dearth of evidence on the subject, that Arthrex would not have offered an acceptable non-infringing substitute in the 'but-for' world."

As for supplemental damages, “'[T]he amount of supplemental damages following a jury verdict is a matter committed to the sound discretion of the district court.” SynQor, Inc. v. Artesyn Techs., Inc., 709 F.3d 1365, 1384 (Fed. Cir. 2013) (internal quotation marks omitted).'"  Arthrex challenged the award of supplemental damages on the basis, inter alia, that during the time in between the JMOL and the reversal on appeal it had a good-faith belief that the sales it continued to make post-JMOL did not induce infringement of the patent in suit.  Implicitly noting that the issue of whether a good faith belief negates the state of mind necessary to sustain an judgment of induced infringement is currently before the Supreme Court in Commil USA, LLC v. Cisco Systems, Inc., the Federal Circuit rejected the challenge for the following reasons:
Whatever else may be said about Arthrex’s argument, the district court’s ruling and pronouncement could, at most, create a factual question, not an entitlement to a no-knowledge finding as a matter of law. But Arthrex does not request further factual adjudication, only a judgment as a matter of law of no indirect infringement for this period. We therefore reject Arthrex’s contention, without the need to consider more fully whether, as Arthrex suggests, liability for indirect infringement can turn successively off and on, based on the knowledge requirement, when a trial court reaches one conclusion but the conclusion is then reversed on appeal.
Judge Dyk dissented from the majority holding as it related to the lost profits award, based on his conclusion that substantial evidence did not support the characterization of push-in anchors as the only noninfringing alternative.

Addendum:  Upon re-reading the above this afternoon, I began to wonder if I had understood the plaintiff's damages theory correctly.  Was S&N requesting lost profits on lost sales of noninfringing push-in anchors (that is, push-in anchors the use of which would not result in the use of the method claim in suit, perhaps because they lack the necessary "intrinsic resiliency," see opinion p.3) that it would have sold, but for the infringement?  That's what I thought the court meant when it talked about "S&N's percentage of sales of that class of acceptable non-infringing substitutes," but then I wondered whether that meant that S&N was not selling any push-in anchors that could be used to practice the patented method.  A brief that S&N filed with the district court (2013 WL 5206244) now leads me to believe that S&N's position was that its BioRaptor product could be used to practice the patented method, so maybe what the court meant was that S&N's push-in anchors (which claimed 87.5% of the market for such products, according to Judge Dyk) were noninfringing, either because they weren't being used to practice the patented method or because their use for that purpose was authorized by S&N.  In the latter instance, I guess the court's use of the term noninfringing "substitutes" denotes substitutes for the defendant's product, not necessarily substitutes for the products that can be used to practice the method.  If any readers can clarify this point, I'd appreciate it.

Further Addendum:  I failed to note in my post yesterday that the above case is a nonprecedential opinion, and that the author is Judge Taranto.

Tuesday, March 17, 2015

Patent Remedies in Ireland

Lá fhéile Pádraig sona dhaoibh.  To my knowledge, there isn't a great deal of patent litigation in Ireland, and my book makes only a couple of passing references to Ireland.  Seeing how today is St. Patrick's Day, however, readers might be interested in taking a look at the remedies portions of Ireland's Patents Act (what better way to spend the holiday?).  Section 47 states:
(1) Civil proceedings for infringement of a patent may be brought in the Court by the proprietor of the patent in respect of any act of infringement which he alleges he is entitled under sections 40 to 43 and section 45 to prevent and (without prejudice to any other jurisdiction of the Court) in those proceedings a claim may be made—
(a) for an injunction restraining the defendant from any apprehended act of such infringement;
(b) for an order requiring the defendant to deliver up or destroy any product covered by the patent in relation to which the patent is alleged to have been infringed or any article in which the product is inextricably comprised;
(c) for damages in respect of the alleged infringement;
(d) for an account of the profits derived by the defendant from the alleged infringement;
(e) for a declaration that the patent is valid and has been infringed by the defendant.
(2) The Court shall not, in respect of the same infringement, both award the proprietor of a patent damages and order that he shall be given an account of the profits.
Other relevant provisions include sections 49(1) ("In proceedings for the infringement of a patent damages shall not be awarded, and no order shall be made for an account of profits, against a defendant who proves that at the date of the infringement he was not aware, and had no reasonable grounds for supposing, that that patent existed, and a person shall not be deemed to have been so aware or to have had reasonable grounds for so supposing by reason only of the application to a product of the word “patent” or “patented” or any word or words expressing or implying that a patent has been obtained for the product, unless the number of the relevant patent accompanied the word or words in question.") and 50(2) ("Where in proceedings for the infringement of a patent the plaintiff proves that the specification of the patent was framed in good faith and with reasonable skill and knowledge, the Court may grant relief in respect of that part of the patent which is valid and infringed, subject to the discretion of the Court as to costs and as to the date from which damages should be reckoned.").  The three provisions quoted are very similar to provisions found in sections 61 and 62 of the U.K. Patents Act, as discussed in my book at pages 184-85.