Federal Circuit Vacates Damages Award for Lack of Substantial Evidence

This morning the court handed down its opinion in Enplas Display Device Corp. v. Seoul Semiconductor Co. (majority opinion by Judge Stoll, with Judge Newman concurring in part and dissenting in part).  As described by the court, the patents in suit are "directed to methods of backlighting display panels, particularly LED displays used in televisions, laptop computers, and other electronics" (p.2).  Enplas filed an action for a declaratory judgment of noninfringement and invalidity, and Seoul Semiconductor counterclaimed for induced infringement.  The court affirms the district court's determination that the patents were not anticipated by the prior art, and that Enplas induced third parties to infringe; but it vacates and remands the damages award for lack of substantial evidence.  From the opinion:

Enplas argues that the district court erred when it denied JMOL that the damages award was not supported by substantial evidence. Specifically, it contends that the only evidence supporting the $4 million award was testimony from SSC’s damages expert that explicitly and improperly included non-infringing devices in the royalty calculation. Before trial, Enplas filed a Daubert motion to exclude this testimony. The district court deferred full consideration of that motion, stating that it was more appropriate for a motion in limine. Enplas filed a motion in limine, seeking to exclude SSC’s damages expert’s testimony regarding “other lenses” not at issue in this case. The district court denied that motion, holding:

Consistent with this Court’s prior rulings, [SSC’s expert] cannot assume that infringement can be proven for the lenses not in this case. However, [SSC’s expert] may present evidence that under a lump-sum royalty negotiation, [Enplas] would seek to cover all of its potentially infringing products. As long as [the] ultimate damages determination is adequately adjusted to only recover for those lenses in the case, [the] testimony is permitted.

J.A. 13144 (emphasis added). Thus, the district court’s order limited SSC’s expert to a damages theory based on infringing and “potentially infringing products.” Id. It did not allow a damages theory based on sales of nonaccused products.

At trial, SSC’s expert opined that Enplas would have agreed to a lump sum royalty in a hypothetical negotiation for the ’554 and ’209 patents. She testified that “[i]f the license [were] limited only to the accused lenses . . . the reasonable royalty for the ’554 Patent [would be] $500,000, and for the ’209 Patent $70,000.” J.A. 15539 at 722:3–5. She explained that “the $570,000 covers the[] five products” accused of infringement in this case. J.A. 15534 at 717:1–3. SSC’s expert did not stop there, however. She went on to testify that Enplas and SSC would not have limited the license to just the accused products “if there [were] a risk of infringing the patent by manufacturing other products that are similar in nature.”J.A. 15534 at 717:11–13 (emphasis added). The “more pragmatic approach,” explained SSC’s expert, would have been for the parties to agree to a premium “freedom to operate” license to avoid the need to test and negotiate licenses for additional or future potentially infringing lenses that Enplas might sell. J.A. 15534–35 at 717:22–718:3.

To determine the premium that Enplas would pay, SSC’s expert assessed the volume of sales of all nonaccused lenses made by Enplas. Because none of this information had been produced during discovery, SSC’s expert found “some publicly-available information from the Enplas website” and used that to “determine what that volume of sales would be.” J.A. 15535 at 718:17–25. SSC’s expert testified that “the volume of sales” for Enplas’s unit that sells lenses “is eight to ten times the sales of the specific products that we’re here to talk about today”—i.e., the accused infringing products. J.A. 15537 at 720:3–7.

Based on this information and theory, SSC’s expert testified that Enplas and SSC would have agreed to pay $2 to 4 million depending on the ultimate “volume of sales of potentially infringing products beyond the ones in this case.” J.A. 15538 at 721:2–5 (emphases added). SSC’s expert did not present any explanation or evidence whatsoever to show how the past revenue from Enplas’s noninfringing lenses could reasonably estimate the future revenue from Enplas’s infringing or potentially infringing lenses. . . .

Here, SSC’s expert opined that Enplas and SSC would have agreed to a $2 to 4 million royalty based on a royalty base comprising sales of non-accused lenses. J.A. 15538 at 721:2–5. This testimony cannot support the jury’s damages award, for § 284 and our precedent proscribe awarding damages for non-infringing activity. Thus, the jury’s $4 million award for infringement of the ’554 patent cannot stand (pp. 16-23).

Judge Newman dissents, arguing inter alia that the court should defer to the expert's testimony that a hypothetical ex ante license would have been in the amount of "$2 to 4 million for a freedom to operate license . . . to alleviate business uncertainty" (dissent p.9).  The dissent also makes more of the fact that the plaintiff did not challenge this testimony at trial or offer a rebuttal case on damages (p.12), and views the majority as permitting Enplas to "challenge admissibility under the guise of substantial evidence," rather than "under the framework of the Federal Rules of Evidence . . . through a Daubert challenge" (p.7).

Stierle on Non-Practiced Patents

Martin Stierle has published a book titled Das nicht-praktizierte Patent ("The non-practiced patent") (Mohr Siebeck 2018), based on his Ph.D. thesis (for which I understand he was awarded the Faculty Prize of the Law Faculty at Ludwig Maximilian University in Munich).  Here is a link to the book's Amazon webpage, and here is the book description (my translation from the German):

Patent trolls have become an essential part of patent law discussions over the past decade.  Inspired by developments in the U.S., the prevailing scholarly opinion in Germany is critical of the availability of injunctive relief for non-practicing entities, while the German case law on the subject nevertheless continues to afford claims for injunctive relief even to NPEs.  Martin Stierle undertakes a change in perspective.  He frees himself from the perspective of the patent owner and considers the problem from the standpoint of protective rights.  In the center stands the non-practiced in all its facets (blocking patents, licensing patents, sleeping patents, etc.).  With the use of patent function theory, he proposes the adoption of a legal obligation to practice one's patent, which would apply regardless of the type of patent holder.  He underpins his theory with legal history, comparative law, and law & economics considerations.

I haven't started reading it yet, but my library has obtained a copy.

IP Chat Channel Webinar on Enforcing IP at Trade Shows

I should have mentioned this earlier, but today at 2 p.m. Eastern time the IP Chat Channel will be presenting a webinar titled Trade Shows: IP Rights Enforcement in the U.S. and Internationally.  Here is a link, and here is the description:

Live trade shows are thriving, even in this age of digital marketing — and even for intangible products.  In fact, a poll of marketing professionals at a recent leading IT trade fair for cloud computing, AI, and blockchain illustrated their strong belief that trade shows still are cost-effective at generating leads and/or increasing brand awareness.
But trade shows can also be places where IP right holders frequently discover that their IP rights are being infringed.  Moreover, standing disputes can escalate, because IP owners have an opportunity to interact with alleged infringers on the exhibitors’ floor.
This webinar will give a global perspective on enforcing IP at trade shows, including trademarks, trade dress, design patents, and utility patents, as well as address the U.S. landscape related to these issues.  The panel includes a law professor who has done extensive research and analysis of the remedies available worldwide for infringement at trade shows, a law firm attorney who has won a number of temporary restraining orders from U.S. courts requiring the immediate removal of infringing exhibits, and an in-house patent counsel with experience dealing with infringers and counterfeiters at trade shows.  They will discuss:

• Obtaining an TRO post-eBay, now that U.S. courts may no longer presume the existence of irreparable harm in patent infringement cases
• The proper preparation before a trade show that will strengthen an IP owner’s legal case and allow rapid enforcement
• When it is necessary to alert the local U.S. Attorney and the best ways to work with law enforcement
• What kind of recourse is available at trade fairs in other countries that often host trade fairs
• The pros & cons of ADR mechanisms recently established by some trade fair organizers
• The opposite side of the coin for trade show exhibitors: What to do if a competitor files an action against your company

Speakers:

• Scott Markow, Stanley Black & Decker Inc.
• Michael McCue, Lewis Roca Rothgerber Christie LLP
• Prof. Marketa Trimble, University of Nevada Law School

This was also the topic of Professor Trimble's recent conference at UNLV, at which I too participated.

As for me, on Friday, I will be a panelist for a session on patent remedies at the Tenth Annual Conference on the Role of the Courts in Patent Law and Policy, at Georgetown Law's Washington campus (see here).  I believe I will mostly be addressing FRAND issues.

Two New Papers by Koren Wong-Ervin

1.  Koren Wong-Ervin and Georgios Effraimidis have posted a paper on ssrn titled Recommendations Following the FTC’s October 2018 Hearings on IP and Innovation.  Here is a link to the paper, and here is the abstract:

On October 23-24, 2018, the U.S. Federal Trade Commission (FTC) held hearings on intellectual property (IP) and innovation as part of its broader ongoing hearings on Competition and Consumer Protection in the 21st Century. The hearings focused on the role of IP protection in promoting innovation, as well as the foundational question of whether the FTC (and the government more broadly) should play a role in advancing or supporting innovation and, if so, what role. The Commission is seeking further public input through its consultation process on this important (and commendable) inquiry, including asking whether the FTC currently uses its enforcement and policy authority to advance innovation, and what factors it should consider in attempting to achieve this objective. The hearings also included sessions on the role of IP in business and investment decisions, emerging trends in patent quality and litigation, and industry and economic perspectives on current U.S. IP and innovation policy.

This short article summarizes some of the major themes from these hearings and provides an economic and legal analysis of the relevant testimony. We conclude with recommendations for the FTC to consider when evaluating possible future enforcement and policy work in this area. Our recommendations focus primarily on certain concerning positions taken in the Commission’s 2003 and 2011 IP Reports, namely with respect to patent quality and the recommendation that courts adopt an ex-ante incremental value approach when calculating patent damages.

2.  Ms. Wong-Ervin also has posted a paper titled The 2018 FTC Hearings on IP & Innovation: Key Testimony, Economic Learnings, and Recommendations for Further Study.  Here is a link, and here is the abstract:

This Article provides a summary of some of the key testimony from the U.S. Federal Trade Commission’s October 23-24, 2018 hearings on intellectual property (IP) and innovation, followed by insights from the economics literature and recommendations for future study. Covered topics include: the role and importance of IP rights in promoting innovation; the role of IP in business and investment decisions, including data on recent investment trends; and effects of recent patent law reforms, including U.S. Supreme Court decisions restricting patent eligible subject matter (2012 Mayo and 2014 Alice decisions) and weakening patentees’ ability to obtain injunctive relief (2006 eBay decision); the high invalidity rate of patents following the 2011 American Invents Act and its creation of post-grant challenges through the Patent Trial and Appeal Board (PTAB); and the general trend towards lower patent damages awards. Key testimony covered includes remarks by the Commissioner for Patents at the U.S. Patent and Trademark Office, the Acting Chief Judge of the PTAB, investors and other industry participants, and leading academics.  

For video of the aforementioned hearings, at which I was one of the participants, see here. 

Canadian Government Proposes That FRAND Commitments Should Bind Subsequent Assignees

Hat tip to Norman Siebrasse for calling to my attention a series of amendments to Canada's Patent Act proposed by the Government of Canada as part of a budget bill introduced in the House of Commons on October 29.  If you access the bill and scroll down to Division 7, titled "Intellectual Property Strategy," you will find the proposed amendments under Subdivision A.  Regarding standard-essential patents, the bill would add two new provisions, sections 52.1 and 52.2, to the Patent Act, as follows:

Subsequent patentee or holder bound

52.‍1 (1) A licensing commitment in respect of a standard-essential patent that binds the patentee, binds any subsequent patentee and any holder of any certificate of supplementary protection that sets out that patent.

Subsequent holder bound

(2) If a certificate of supplementary protection sets out a standard-essential patent, a licensing commitment that binds the holder of that certificate of supplementary protection, binds any subsequent holder of the certificate of supplementary protection.

Application

(3) Subsections (1) and (2) apply despite any other Act of Parliament and any decision or order made under such an Act.

Regulations

52.‍2 The Governor in Council may make regulations, for the purposes of section 52.‍1, respecting what constitutes, or does not constitute, a licensing commitment or a standard-essential patent.

The bill also would, among other things, add new provisions permitting the use of prosecution history "[i]n any action or proceeding respecting a patent," authorizing the regulation of demand letters, and establishing a statutory experimental use defense.

Judge Koh Grants Partial Summary Judgment to the FTC

Earlier today, in the FTC's lawsuit against Qualcomm, Judge Lucy Koh granted the FTC's motion for partial summary judgment on the issue of whether Qualcomm is obligated, as a matter of California contract law, to license its SEPs to rival chip makers on FRAND terms, in accordance with  the TIA and ATIS IPR policies.  Opinion here.  From the opinion:

For all of the above reasons, the Court agrees with the FTC that as a matter of law, the TIA and ATIS IPR policies both require Qualcomm to license its SEPs to modem chip suppliers. Because “after considering the language of the contract and any admissible extrinsic evidence, the meaning of the contract is unambiguous,” the Court GRANTS the FTC’s motion for partial summary judgment (p.25).

This doesn't necessarily mean that the FTC will prevail in proving that Qualcomm's conduct violates U.S. antitrust law, but the holding that Qualcomm was contractually obligated to license these rivals helps the FTC's case.

Some New Papers, Posts on FRAND Issues (Part 1)

1.  Justus Baron has posted a paper on ssrn titled Counting Standard Contributions to Measure the Value of Patent Portfolios-A Tale of Apples and Oranges.  Here is a link to the paper, and here is the abstract:

Measuring the value of portfolios of Standard-Essential Patents (SEP) is a difficult and controversial exercise. It has recently been suggested to use counts of technical contributions to Standard Development Organizations (SDO) as an indicator of the share of the value of a standard created by an SEP holder. Analyzing a comprehensive database of contributions to the Third Generation Partnership Project (3GPP), I find that contributions are highly heterogeneous in technical significance, outcome, and impact. The standardization process is not intended to screen contributions for value or significance. Against this background, contribution counts are not a suitable basis for apportioning the value of a standard between different SEP holders. The measure is prone to be easily manipulated. Furthermore, apportioning royalty payments by contribution counts would exacerbate commercial considerations and opportunistic strategies, which could hamper or even derail the technical work of SDO working groups.

2. Wenwei Guan has posted an abstract of a paper on ssrn, titled Diversified FRAND Enforcement and TRIPS Integrity, 17(1) World Trade Review 91 (2018).  Here is the abstract:

As an integral part of the WTO trading regime and in line with the international trend of antitrust control, TRIPS harmonized intellectual property protection with competition in mind. However, diverse national FRAND enforcement practices that take either a contractual or an antitrust approach challenge TRIPS integrity. While personal property recognition for SEPs lends constitutional support to the contractual approach to FRAND enforcement, private property's in-built limitation warrants a balance with the antitrust approach for needs from others. A critical examination of the TRIPS conclusion and the analytical structure of TRIPS provisions reveal that TRIPS obligation against anticompetitive practices is imperative. The imbalance of harmonized TRIPS with un-harmonized FRAND practices reflects TRIPS birth defect and challenges TRIPS integrity. To improve balance of rights and obligations in international trade and to ensure innovation and technology dissemination that is conducive to social and economic welfare, the paper calls for a contract–antitrust balanced approach to FRAND enforcement and the resumption of WTO's competition negotiations.

3. Daryl Lim has posted Third Post:  Standard Essential Patents on Daryl Lim's Blog, in which he discussed some of his previous work on the topic and also calls attention to two other recent papers which I had not yet seen, Michael Carrier's DOJ Giving Cover to Monopolizing Firms That Breach Antitrust Rules (an op-ed published in The Hill), and Elizabeth A.N. Haas's National Law Review article DOJ and FTC Signal Shifts in Antitrust Enforcement of Standard Essential Patents.

4. Renato Nazzini has posted a paper on ssrn titled FRAND-Encumbered Patents, Injunctions and Level Discrimination: What Next in the Interface between IP Rights and Competition Law?, 40 World Competition 213 (2017).  Here is a link, and here is the abstract:

Standards are of fundamental importance in our economy and competition law has an important role to play in ensuring that standard setting procedures are not distorted so as to result in negative effects on technological progress and social welfare. The Court of Justice in Huawei ruled on the circumstances in which the seeking of an injunction or a product recall by the holder of a standard essential patent (‘SEP’) may be an abuse of dominance under Article 102 TFEU. However, Huawei left many questions unanswered. One of them is whether the practice known as level discrimination is compatible with EU competition law. Level discrimination occurs when the holder of a SEP, having made a FRAND commitment, decides to license only undertakings at a given level of the supply chain, typically, the end-product manufacturers, rather than the component manufacturers. The economic and policy arguments for and against level discrimination are finely balanced and it may not be obvious whether this practice is likely to cause competitive harm if the SEP holder does not enforce the SEP against the component manufacturers who operate without a licence. However, as a matter of law, it appears that a refusal to license component manufacturers has the potential to exclude them from the market and, if the SEP holder made a FRAND commitment, such a refusal to licence may well be abusive, at least when the SEP holder is a vertically integrated undertaking. For non-practising entities, a first-principle analysis appears to point to the same conclusion. Both in the case of practising and non-practising entities, the abuse would be exclusionary. Somewhat paradoxically, the prohibition of abusive discrimination under Article 102(c) has no role to play in the competition law assessment of level discrimination.