Wednesday, October 26, 2016

From Around the Blogs: "Inexorable Flow" in the U.S., Nominal Damages in Canada?, and More

1.  On the Patent Damages blog, there have been two posts in recent weeks (here and here) discussing  district court cases on the "inexorable flow" doctrine, under which (if the doctrine exists) a parent or licensor can recover damages based on profits a subsidiary or licensee would have earned but for the infringement, if the subsidiary's or licensee's profits "inexorably flow" back to the parent or licensor.  In Kahr v. Cole, the Western District of Wisconsin rejected the theory on the ground that if the doctrine exists, it's limited to exclusive licensees, and here the licensee was nonexclusive.  In Mars, Inc. v. TruRX LLC, Magistrate Judge Mitchell of the Eastern District of Texas questioned whether the theory is solid, based on her understanding that Federal Circuit case law limits the plaintiff seeking lost profits to recovering only its own lost profits.  However, she indicated that there's a possible workaround:
. . . according to the cases discussed above, a claim for lost profits is not synonymous with a claim for lost income. Therefore, because Mars does not itself sell the products that give rise to its lost profits claim, the Court recommends that Defendants‘ Motion for Summary Judgment Regarding Plaintiffs‘ Claim for Damages (Doc. No. 206) be GRANTED as to Mars‘s ability to recover its subsidiaries‘ lost profits.
This seems rather formalistic to me . . . .   

For brief discussion of the issue, see Mark Lemley's article Distinguishing Lost Profits From Reasonable Royalties, 51 Wm. & Mary L. Rev. 655, 673 & n.82. (2009).

2.  On Sufficient Description, Norman Siebrasse presents a thoughtful discussion of Arctic Cat, Inc. v. Bombardier Recreational Products, Inc., 2016 FC 1047, a Canadian case in which the judge found no infringement of a method for tuning a two-stroke snowmobile engine, but nevertheless discussed both parties' damages theories at length.  The problem, which also arises in FRAND cases but clearly is not limited to them, is how to value a patented invention that contributes only a small part of the value of the end device.  In the end, Judge Roy found that neither party's proposed methodologies were sound, but also expressed discomfort (had the defendant been found to infringe) over awarding nominal damages only.  I don't need to repeat Professor Siebrasse's discussion of the various proposed methodologies, the problems the judge perceived with them, and Professor Siebrasse's analysis--you can read his post yourself--but I will note that the issue of what to do about damages when the evidence is deficient is a tough one.  Should the judge award zero damages?  If not, what's the basis for the damages the judge should award?  I discuss this topic briefly at pp. 19-20 of my paper Patent Damages Heuristics, noting some U.S. and German law on the issue.

3.  On the Essential Patents Blog, there have been a couple of interesting posts recently (see here and here), on two pretrial orders entered in Core Wireless Licensing S.A.R.L. v. LG Electronics, Inc., a matter pending in the Eastern District of Texas.  In one of the orders, Judge Gilstrap denied a motion for summary judgment asking the court to rule that enhanced damages are never appropriate for the infringement of standard essential patents (SEPs).  (He didn't rule that they necessarily were appropriate here, only that there was no rule precluding a damages enhancement in the event of a finding of willful infringement.)  In the other, Magistrate Judge Payne denied a defense motion to preclude expert testimony on the basis of the entire market value rule (EMVR), where the expert had looked to the price of the end product to consider whether his proposed royalty rate would enable the defendant to earn a profit but didn't use the entire market value as the royalty base, and wouldn't be allowed to tell the jury what the EMV or profit was of the device was.

4.  On Patently-O, Dennis Crouch published a short post recently on another E.D. Texas case in which an entity affiliated with a hedge fund alleges that a patent owner violated the federal False Claims Act by overcharging Medicare, Medicaid, and other federal programs for a drug for which the patent allegedly is invalid.  Since according to Dennis the PTAB has upheld the patent's validity, I'd think this is an uphill climb, since the False Claims Act requires proof of  knowing falsity. 

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