Blogging Break

I'll be taking a break from blogging for the next two weeks, resuming the week of August 28.

Federal Circuit: No Right to a Jury Trial on Awards of Attorneys' Fees Under § 285

This morning the Federal Circuit handed down an opinion, AIA America, Inc. v. Avid Radiopharmaceuticals, holding that there is no right to a jury trial on awards of attorneys' fees under § 285 of the Patent Act.  The underlying case was an action for infringement relating to two patents "directed to research technologies stemming from the discovery of the 'Swedish mutation,' a genetic mutation that is associated with early-onset familial Alzheimer’s disease" (p.2).  The district court held a jury trial on the issue of whether AIA had standing to assert its claims, which resulted in a judgment that it did not.  The Federal Circuit summarily affirmed this judgment in 2014, and the litigation then moved to the issue of whether the defendants were entitled to an award of fees under § 285 ("The court in exceptional cases may award reasonable attorney fees to the prevailing party").  The district court awarded fees in the amount of almost $4 million, and AIA appealed, arguing that it was entitled to a jury determination.  Not surprisingly, in my view, the Federal Circuit thinks not:

We first address AIA’s argument that the Seventh Amendment requires a jury trial to decide the facts forming the basis to award attorney’s fees under § 285 of the Patent Act. Specifically, AIA argues that when an award of attorney’s fees is based in part or in whole on a party’s state of mind, intent, or culpability, only a jury may decide those issues. . . .  

A litigant has a right to a jury trial if provided by statute, or if required by the Seventh Amendment. . . . 

The Seventh Amendment preserves the right to a jury trial for “[s]uits at common law.” U.S. Const. amend. VII. The phrase “suits at common law” refers to suits in which only legal rights and remedies were at issue, as opposed to equitable rights and remedies. . . . A legal remedy requires a jury trial on demand, while an equitable remedy does not implicate the right to a jury trial. . . .  A two-step inquiry determines whether a modern statutory cause of action involves only legal rights and remedies. Tull v. United States, 481 U.S. 412, 417–18 (1987). First, we must “compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity.” Id. at 417. “Second, we examine the remedy sought and determine whether it is legal or equitable in nature.” Id. at 417–18. The Supreme Court has stressed the second step of this test is the more important of the two. . . .

Turning to the first step, the nature of the claim, English courts for centuries have allowed claims for attorney’s fees in both the courts of law and equity. . . . 

As to the second step, the nature of the remedy, the fact that the relief sought is monetary does not necessarily make the remedy “legal.” . . . In the context of attorney’s fees, when attorney’s fees are themselves part of the merits of an action, they are regarded as a “legal” remedy. For example, a lawyer’s fee claim against a client is a question for the jury, Simler v. Conner, 372 U.S. 221, 223 (1963) (per curiam), and a claim for attorney’s fees under a contractual indemnification provision is a contractual “legal right” that is also a question for the jury, McGuire v. Russell Miller, Inc., 1 F.3d 1306, 1315–16 (2d Cir. 1993). By contrast, when attorney’s fees are awarded pursuant to a statutory prevailing party provision, they are regarded as an “equitable” remedy because they raise “issues collateral to and separate from the decision on the merits.” . . . 

Despite the foregoing, AIA argues that if a decision on attorney’s fees involves considerations of a party’s state of mind, intent, and culpability, then those questions must be presented to a jury under the Seventh Amendment. AIA, however, has pointed to no cases finding that once an issue is deemed equitable, a Seventh Amendment right to a jury trial may still attach to certain underlying determinations. . . .

The court also rejects AIA's arguments that the district judge was precluded from "making factual findings on issues that were not considered by the jury," and that AIA was denied its right to due process of law.  Opinion by Judge Hughes, joined by Judges Newman and Lourie.

Federal Circuit: Standard for Awarding Attorney's Fees Is the Same in Patent and Trademark Cases

This morning the court issued an opinion in Romag Fasteners, Inc. v. Fossil, Inc., vacating a district court judgment granting attorneys' fees under § 285 of the Patent Act and denying fees under § 1117(a) of the Lanham Act.  (The district court also awarded fees under the Connecticut Unfair Trade Practice Act (CUTPA), the propriety of which does not appear to be discussed in the Federal Circuit opinions.)  The author of the principal opinion is Judge Dyk, joined by Judge Hughes; Judge Newman concurs in part and dissents in part.

This is the third time this case has come up on appeal.  In 2016, the Federal Circuit approved a reduction in damages due to laches (Romag's delay in filing suit until the eve of the Christmas shopping season in 2010), see discussion here.  Earlier this year the Federal Circuit vacated and remanded this aspect of the opinion in light of the Supreme Court's opinion in SCA Hygiene  that laches is no longer a defense to a claim for damages incurred within the statute of limitations.  This third appeal is all about attorneys' fees.  Following a jury trial, the district court entered judgment for Romag on its claims for patent infringement, trademark infringement, and violation of CUTPA, relating to Fossil's sales of handbags bearing allegedly infringing magnetic snap fasteners.  The court awarded fees in connection with the patent claim, finding the case to be "exceptional" under the Octane Fitness standard, but not for trademark infringement, based on the Second Circuit's understanding that Lanham Act § 1117(a) permits awards of attorneys' fees only for bad faith or fraudulent conduct.  (In a case like this one, the courts are supposed to apply regional circuit law to the non-patent issues, and here the case was litigated in the District of Connecticut, which is within the Second Circuit.)  The Federal Circuit, however, holds that after Octane Fitness the standard for awarding fees under the two statutes is identical:

Before Octane, the Second Circuit allowed recovery of attorney’s fees under 15 U.S.C. § 1117(a) only if there was bad faith or willful infringement on the part of the defendants. . . . The question is whether this standard survives after Octane. There have been no Second Circuit decisions on this issue since Octane. . . .   [H]owever, there is intervening relevant Supreme Court authority which, we think, would lead the Second Circuit to follow other circuits which have held that the Octane standard applies to the Lanham Act. . . . 

Since Octane was decided, the Third, Fourth, Fifth, Sixth, and Ninth Circuits have all held that the Octane “Court was sending a clear message that it was defining ‘exceptional’ not just for the fee provision in the Patent Act, but for the fee provision in the Lanham Act as well.” Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303, 315 (3d Cir. 2014) . . . .Indeed, no circuit has specifically considered Octane and then declined to apply it to the Lanham Act.

This is unsurprising, as the language of the Patent Act and the Lanham Act for attorney’s fees is identical. Both statutes provide that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285; 15 U.S.C. § 1117(a). “[W]hen Congress uses the same language in two statutes having similar purposes, . . . it is appropriate to presume that Congress intended that text to have the same meaning in both statutes.” Smith v. City of Jackson, 544 U.S. 228, 233 (2005).

The court therefore remands for the district court to reconsider the award of fees for trademark infringement.  Judge Newman joins in this aspect of the majority opinion. 

On the question of fees for patent infringement, however, the majority (Judge Newman dissenting) also vacates and remands, holding that the district court erred in concluding (1) that Fossil had not withdrawn its anticipation and obviousness challenges until after judgment was entered; (2) that the district judge who presided over an earlier part of the litigation had found Fossil's indefiniteness argument to be "woefully inadequate," words that the panel majority believes were taken out of context; and (3) that the impact of Romag's own conduct in delaying suit until shortly before the 2010 holiday season had been adequately addressed by the court's refusal to award fees in connection with Romag's motion for a TRO.  However, while the majority agrees with Romag that the district court's denial of a plaintiff's motion for judgment as a matter of law on the issue of infringement doesn't preclude a finding that the defendant's position was frivolous, the court finds that the district judge properly evaluated the strength of Fossil's position and sees "no error in the district court's refusal to consider this issue as an adverse factor in the totality of circumstances" (p.19).  Finally, the court sets aside an award of expert witness fees incurred in connection with Fossil's motion for summary judgment on indefiniteness.

IP Chat Channel Webinar: Asian FRAND and SEP Update

Apologies for the short notice, but the IPO IP Chat Channel will be presenting a webinar titled FRAND and SEP Update:  Asia at 2 pm Eastern time tomorrow, August 8.  Here is a link, for those who might be interested in registering, and here is a description:

Standard essential patents (SEPs) are a key part of global commerce. For instance, an Internet of Things or 5G mobile networks can only be built using standards that are licensed at rates that are fair, reasonable, and non-discriminatory (FRAND). Yet traditional jurisprudence has shown itself ill-suited for disputes involving SEPs.

This webinar will consider the impact of recent developments in involving SEPs in China, Korea, Japan, and India. Our panel, which includes a senior competition lawyer at a SEP owner, an attorney who represents implementers, and a leading academic authority, will discuss topics including: 

• The April release of the Beijing High People’s Court Guidelines for Patent Infringement Determination;
• The decision of the Beijing IP Court in March finding Sony infringed a SEP and was an unwilling licensee, resulting in the first injunction in favor of an SEP holder in China;
• The decision of the Korean Fair Trade Commission, now being appealed, to impose a $853 million fine on Qualcomm for FRAND violations; and
• The ongoing assertion campaign by Japanese sovereign patent fund IP Bridge;
• Ericsson’s campaign to win licensing royalties from local and Chinese phone makers in India.

Speakers:

• Jorge Contreras, University of Utah School of Law
• James Harlan, InterDigital Holdings, Inc.
• Paul Zeineddin, Zeineddin PLLC

Learned Hand's Cincinnati Car Opinion: When Everything Old Is New Again

I would venture to guess that the saying "There is nothing new under the sun" itself wasn't very new when some scribe long ago penned the biblical Book of Ecclesiastes.  Some version of or variation on the saying probably has existed in many cultures over the ages, including the 1974 song by Peter Allen and Carole Bayer Sager to which I allude in the title to today's blog post (memorably performed in the classic 1979 film All That Jazz).  Anyway, I was thinking about the saying and the song yesterday as I read Judge Learned Hand's opinion in Cincinnati Car Co. v. New York Rapid Transit Corp., 66 F.2d 592 (2d Cir. 1933) (hat tip to Professor John Golden, for calling this case to my attention).  The technology at issue, which relates to railway cars, seems rather dated, as does Judge Hand's indulgence in the occasional use of Latin adages (U.S. courts generally don't do that anymore.)  But the opinion is surprisingly prescient in its discussion of issues that continue to bedevil the law of patent remedies, to the extent that it almost seems it could have been written yesterday (if only we had judges of the caliber of Learned Hand to write them).  To wit:

1.  Should courts ever stay an injunction to provide the infringer with a period of time to design around?  Yes:

The plaintiff sued the defendant for infringement of patent No. 1,501,325, issued on July 15, 1924, to Thomas Elliott, and included two others in the bill. We held the patent just mentioned, and one of the others infringed; the third, not infringed. Cincinnati Car Co. v. New York Rapid Transit Co., 35 F.(2d) 679. Later we suspended the injunction to allow the defendant to substitute another device. 37 F.(2d) 100. It did so, and when the new structure came before us, we held that it escaped the claims of the patent. 52 F.(2d) 44.

For some previous posts on the subject, see here and here.

2.  Calculating damages for the infringement of one patent or a handful of patents in a complex device (say, a smartphone) is very difficult.  But are the core issues we're facing today anything new and different?  Maybe not:

The situation was . .  . one so common in patent accountings, in which the invention is not of the article as a whole, but of a small detail. The difficulty of allocating profits in such cases has plagued the court from the outset, and will continue to do so, unless some formal and conventional rule is laid down, which is not likely. Properly, the question is in its nature unanswerable. It is of course possible to imagine an invention for a machine, or composition, or process which is a complete innovation, emerging, full grown, like Athene, from its parent's head. It would then be easy to say that profits were to be attributed wholly to the invention. Such inventions are however mythological. All have a background in the past, and are additions to the existing stock of knowledge which infringing articles embody along with the invention. It is generally impossible to allocate quantitatively the shares of the old and the new . . . .

Of course, Judge Hand liked to say that various other issues in IP law were unanswerable too, before proceeding to attempt an answer. 

3.  Patent infringement is a strict liability offense, arguably for good reasons; but in the typical case, is it also a moral offense akin to stealing someone else's property?  I don't think so, and neither did Judge Hand:

Before Westinghouse Co. v. Wagner Co., 225 U.S. 604, it was generally assumed that the burden lay with the patentee, though there were exceptions even then. That case has at times been thought to lay down a different rule, treating the infringer in all cases as a trustee ex maleficio, and therefore subject to the severe standard imposed upon malversators. A rigid insistence upon this would cast him for full profits in all cases except those in which by artificial and unreal distinctions courts should come to satisfy themselves that they could dissect the contribution of the prior art from that of the invention. This would be as unsatisfactory a result as that which imposed upon the patentee the same duty, and, while it might be answered that he is a victim, and the infringer a tort-feasor, the character of the tort ought not really to have such sanguinary results. Patent infringement often involves nice and casuistical questions which it is mere artifice to treat as involving moral delinquency.

4.  The calculation of reasonable royalties is hardly an exact science:

In Dowagiac Manufacturing Co. v. Minnesota Moline Plow Co., 235 U.S. 641, the situation was reversed, the invention being itself for an avowed improvement upon an earlier reaper, and the new parts structurally distinguishable. There the court refused to impose the burden upon the infringer, though he had indubitably created the confusion by his wrong, and might, if he was caput lupinum, be held for the whole consequences. The patentee was required to make the division, and because he could not, was relegated to a reasonable royalty, the only satisfactory solution; perhaps because it abandons the appearance of rationalizing the irrational.

Again, the last phrase is the kicker.  Judge Hand goes on to say:

The whole notion of a reasonable royalty is a device in aid of justice, by which that which is really incalculable shall be approximated, rather than that the patentee, who has suffered an indubitable wrong, shall be dismissed with empty hands. It is no more impossible to estimate than the damages in many other torts, as for example, personal injuries with their accompanying pain and mutilation.

5.   Can expert witnesses at least help us to sort things out?  Well . . .

Though the testimony of experts was recognized as competent in Dowagiac Mfg. Co. v. Minnesota Plow Co.,  it is generally of small help.

But then Hand had been saying that at least ever since the Parke-Davis case in 1911.

6.   Finally, towards the end of the opinion, Judge Hand relies on comparables and doubles the award the special master had recommended.  Along the way, he notes the disagreement between the parties about what the appropriate royalty base should be (entire market value rule, anyone?), and whether licenses entered into in settlement are competent evidence (an issue the Federal Circuit recently addressed, see here).  On this last point, Judge Hand grasped the idea that the risk of incurring further attorneys' fees in the absence of settlement is symmetric and therefore (all else being equal) irrelevant: 

Here it is true that the witnesses agreed within limits as to the percentage upon cost which might be taken, though some spoke in terms of a percentage on profits. But the base used was widely different, the plaintiff's witnesses taking the whole cost of the cars; the defendant's the cost of the articulations alone. We are thrown back therefore upon very little that is tangible, and while any conclusion must inevitably be somewhat speculative, we must find some basis in the evidence; we cannot conjure figures from our own minds. Though the payments were not established royalties, we need not disregard them, any more than the master did. It is true that they were settlements for infringements, but both parties may have been influenced by a wish to be done with litigation; that consideration is a sword with two edges.

By the way, if you're ever looking for a good biography of a famous judge, I'd recommend Gerald Gunther's classic  Learned Hand:  The Man and the Judge, which I remember reading shortly after it came out, right before I started work as a law professor in 1994.  I believe there's a second edition with a foreword by Justice Ruth Bader Ginsburg that came out in 2010.

Some Recent Articles, Posts on Damages Multipliers and Attorneys' Fees in the E.U.

In July 2016, the CJEU handed down its judgment in UnitedVideo Properties, Inc v Telenet NV, C-57/15, on the recovery of attorneys' and advisors' fees in IP cases (see my blog post here), and in January of this year it handed down its judgment in Stowarzyszenie ‘Oławska Telewizja Kablowa’ v. StowarzyszenieFilmowców Polskich, Case C-367/15, on whether E.U. member states can award double damages for copyright infringement (see my blog post here).  Here are some recent articles and blog posts:

1.  Thibault Gisclard has published an article titled La nature des "dommages et intérêts" sanctionnant la contrefaçon:  À propos de l'arrêt de la CJEU, 25 janv. 2017, aff. C-367/15, Stowarzyszenie Olawska Telewizja Kablowa c/ Stowarzyszenie Filmowców Polskich ("The nature of "damages and interest" for infringement:  Regarding the Judgment of the CJEU, Jan. 25, Case No. C-367/15," etc.) in the May 2017 issue of Propriété Industrielle. (pp. 23-27).  Here is the abstract (my translation):

Directive 2004/48/CE of April 29, 2004 permits an award of lump-sum damages unconnected with just the harm effectively suffered and proven by the victim of the infringement.  The Court of Justice of the European Union indicates in its judgment of January 25, 2017 that such an award may correspond to double the royalty based on a hypothetical license, which does not consequently constitute punitive damages and interest.  The court, however, does not specify if the latter are compatible with the Directive.  In French law, if the laws of 2007 and 2014 permit an extension of the notion of damages and interest beyond injury in the tort-law sense, the award of a fictive license has more of a quasicontractual nature, and the disgorgement of the gain realized by the infringer, which is no way punitive, is just a form of restitution of the fruits of the illicit exploitation of the intellectual property.

2.  Magdalena Kogut-Czarkwoska and Dr. Birgit Clark have published an article titled "Copyright and Punishment":  CJEU Rules that the IP Enforcement Directive Does Not Prevent "Lump Sum" Damages in IP Cases, 39 E.I.P.R. 315 (2017).  Here is the abstract:

The Court of Justice of the EU (CJEU) has held that art.13 of the IP Enforcement Directive 2004/48 (the Directive) does not preclude an EU Member State from enacting national legislation which offers a method of establishing damages as a "lump sum" equivalent to double the hypothetical royalty rate. The decision confirms that the Directive merely aims to introduce "minimum" standard of protection, but does not prevent the Member States from introducing a higher level of protection: Stowarzyszenie Oławska Telewizja Kablowa v Stowarzyszenie Filmowców Polskich (C-367/15).

3.  Peter R. Slowinski has published an article titled Case Note on: "United Video Properties" , 48 IIC 373 (2017).   Mr. Slowinski argues that the CJEU has left open "a number of important practical questions," among them how to determine what "reasonable" costs are, given that "[a]s of today, all information on legal fees in Europe is based on more or less structured surveys, which must be categorized as anecdotal."

 

4.  Jan-Diederick Linemans has published two posts on the Kluwer Patent Blog, one titled First Belgian Ruling on Costs in Patent Proceedings Post United Video Properties/Telnet (May 4, 2017), and Recovering Lawyers' Fees in Belgium:  Antwerp Court Beats Mons Court to First Substantive Ruling (May 24, 2017).  According to Mr. Lindemans, in two recent cases Belgian courts have awarded fees for technical advisors, on the ground that "the 'direct and close link' required by the CJEU had . . . been proven."  In the case before the Antwerp court, however, the court concluded that "an individual can only invoke his rights under the directive against a Member state . . .  and not against another individual," although "the prevailing party could have a claim . . . against the Belgian government for not having implemented article 14 of the Enforcement Directive correctly or in a timely fashion."

Pedigo, Cox Square Off on the Analytical Approach

Although courts in the United States most frequently apply the willing licensor-willing licensee approach to calculating reasonable royalties, there is a less frequently used alternative known as the analytical approach.  The Federal Circuit has described this approach as

focus[ing] on the infringer's projections of profit for the infringing product. See TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 899 (Fed.Cir.1986) (describing the analytical method as “subtract[ing] the infringer's usual or acceptable net profit from its anticipated net profit realized from sales of infringing devices”); see also John Skenyon et al., Patent Damages Law & Practice § 3:4, at 3–9 to 3–10 (2008) (describing the analytical method as “calculating damages based on the infringer's own internal profit projections for the infringing item at the time the infringement began, and then apportioning the projected profits between the patent owner and the infringer”).

Lucent Techs., Inc. v. Gateway, Inc. 580 F.3d 1301, 1324 (Fed. Cir. 2008).  

In March, Mark Pedigo published on Law360 a short article titled Determining Reasonable Royalties with Analytical Approach, advocating greater use of the analytical approach in calculating reasonable royalties.  Mr. Pedigo argues, among other things, that although "the analytical approach may not be appropriate for every case," it can help to "isolate the value of the benefit (i.e., profitability) provided by the infringed features by comparing the infringing product profitability to noninfringing alternatives . . . (or other measures of normal profit)."  He also states that "In the cases where the analytical approach has been used, expected profit was used at times and actual profit was used at times (typically when expected profit or pre-infringement profit was not available). Normal profit has been based on profitability from the infringer’s industry or other products (other nonaccused products or noninfringing alternatives to the infringing product). An infringer’s target (not specific to the infringing product) profit has also been used as a proxy for its normal profit."

More recently, Alan Cox has published a response on Law360 titled The Limited Role of Analytical Approach to Reasonable Royalty.  Dr. Cox argues, among other things, that the analytical approach

arbitrarily awards the entire incremental profit to the patent owner. . . . A principal legal objection appears to be that the method does not allow for apportioning, nor does it accommodate a negotiation between a willing patent owner and a willing licensee. Instead, it awards all of the infringer’s incremental profits to the patentee, rather than calculating an award based on the harm suffered by the patentee. The calculation of the incremental profit, however, is sometimes used as a cap to a reasonable royalty calculation, as is implicitly suggested in the analytical approach article.

Whatever the legal objections, the analytical approach is an economically unreliable measure of the value of a feature, and the method generally cannot be used to apportion the residual between patented and nonpatented contributions to a feature.

Dr. Cox's principal economic objections are that the concept of "normal" or "target" profit is not very precise; that the approach doesn't account for various other factors that can explain a divergence from the normal rate of return, or for the fact that different products can have different profit margins; and that the approach can unfairly penalize an infringer who has a higher profit rate due to efficiencies in production.

For other critiques of the analytical approach, see William Rooklidge Infringer's Profits Redux:  The Analytical Method of Determining Paten Infringement Reasonable Royalty Damages, 88 BNA Pat., Trademark & Copyright L. Daily 1 (Nov. 5, 2014), which Dr. Cox cites in his paper, and Martha Gooding Analyzing the “Analytical Method” of Calculating Reasonable Royalty Patent Damages, BNA Pat., Trademark & Copyright L. Daily 4, May 14, 2012.  For what it's worth, I find the critiques more persuasive.