In many patent infringement cases, the only practical way that the plaintiff can obtain relief is on a theory of secondary liability, which is generally referred to as indirect infringement. The remedy in patent cases frequently includes damages for past infringement. Because jury verdicts in patent cases can amount to hundreds of millions of dollars, patent damages have become a hotly litigated issue. Nevertheless, much to the frustration of the litigants in these high-stakes lawsuits, the courts continue to struggle to clarify how damages for indirect infringement should be determined.
The Court of Appeals for the Federal Circuit, which has exclusive appellate jurisdiction over patent cases, has deepened the confusion over calculating damages. Two opinions from the Federal Circuit have made contradictory pronouncements on the issue of accounting for proven acts of primary (i.e., direct) infringement in determining damages for indirect infringement. Lucent Technologies, Inc. v. Gateway, Inc. held that the extent of directly infringing use of the patent should be viewed as one of many pieces of evidence for measuring the extent of damages (“the evidentiary approach”). In contrast, Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc. endorsed a rule that enables trial judges to limit damages as a matter of law to proven, enumerated acts of direct infringement of the asserted patents (“the atomistic approach”).
The conflict between the two approaches raises fundamental, unanswered questions concerning the relationship between patent infringement and ordinary torts. This Article fills a gap in the literature by identifying, and working toward unraveling, one of the puzzles of indirect infringement. Specifically, it examines what the legal fiction of formally imputing an act of one entity to another—an important tenet of secondary liability in tort—means for patent damages. The answer is surprising: the atomistic approach is consistent with the principles of tort law, but is at odds with well-established, general rules for determining patent damages. Conversely, the evidentiary approach seems to ignore tort law’s imputation principle and embodies the pragmatic, patent-specific damages rules that the atomistic approach eschews. This Article resolves the tension in favor of the evidentiary approach and explains that considerations of policy, logic, and precedent support a damages analysis that reflects fundamental differences between patent law and tort law.
2. Daniel Harris Brean has published Will the 'Nexus' Requirement of Apple v. Samsung Preclude Injunctive Relief in the Majority of Patent Cases?: Echoes of the Entire Market Value Rule, 51 San Diego L. Rev. 153 (2014). Here is the abstract; an earlier version of the paper can be found on ssrn.
In eBay Inc. v. MercExchange, L.L.C., the Supreme Court put an end to the practice of presuming that injunctive relief is appropriate upon a finding of patent infringement, where it held that “the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.” 547 U.S. 388, 394 (2006). This decision made injunctive relief much more difficult to obtain but also attempted to maintain discretion and avoid rigid rules for determining when injunctive relief is appropriate. Beginning with Apple, Inc. v. Samsung Electronics Co., 678 F.3d. 1314, 1324 (Fed. Cir. 2012), the Federal Circuit has added a “nexus” requirement for determining whether a patent owner has suffered irreparable harm in the form of lost sales—inquiring whether the sales were lost “because of” the infringement or for some other reason. This new hurdle to injunctive relief, which appears to be borrowed from patent infringement damages law, is exceedingly difficult to satisfy where the patented feature or component comprises only a portion of a larger accused product or system. Because most patents are directed to a single component or feature of a larger product or system, such a rule will likely preclude injunctive relief in the vast majority of cases.
Apple adopts concepts and verbiage from precedent concerning the “entire market value rule,” which prevents patentees from collecting damages based on a multicomponent product unless it can be shown that the patented feature drives the consumer demand for the entire product. This standard is virtually indistinguishable from the nexus requirement and can rarely be satisfied in cases where many different factors are likely to influence consumers’ purchasing decisions, such as price, advertising, and brand name recognition, let alone the multitude of technical and design features not covered by a plaintiff’s patent. Importantly, however, failure to satisfy the entire market value rule results in a limitation on damages, but failure to satisfy the nexus requirement results in zero injunctive relief.
Despite several patents being infringed by Apple’s direct competitor Samsung and Apple’s lost sales to Samsung, Apple has thus far been denied preliminary and permanent injunctive relief across the board almost entirely on the basis of lack of nexus. If Apple’s innovative phone and tablet designs and features cannot satisfy this standard, few, if any, individual aspects of a multicomponent product can hope to do so. This result can be viewed as inequitable and is perhaps why a number of post-Apple decisions have found various ways to skirt or even ignore the nexus test and grant injunctive relief. However, the potential to relax the rigidness and potential inequity of the nexus test lies in the third of Apple’s appeals to the Federal Circuit by, for example, (1) recasting the way that nexus considerations are analyzed under eBay by addressing them outside the context of irreparable harm; (2) allowing nexus to be considered in the aggregate where multiple patents are infringed by a single product; and (3) encouraging more flexible injunctions to be entered that enjoin only the infringing features and allow time for those features to be designed around before the injunction goes into effect.
Although the panel decision in Apple’s third appeal has been recently decided, the opinion is inconsistent with the prior Apple appeals concerning the nexus requirement, making the case ripe for en banc consideration by the Federal Circuit to bring uniformity to the law on this exceptionally important and timely issue.