Monday, April 3, 2017

Federal Circuit Affirms Damages Award, Remands for Consideration of Injunction Against Non-Party

A modified version of the opinion in Asetek Danmark A/S v. CMI USA Inc. issued this morning (opinion here).  The original version came out in December, and I meant to blog about it then but didn't.  Chief Judge Prost dissented in part from the original opinion, but today the court granted in part a rehearing and issued a modified opinion that apparently satisfied Chief Judge Prost's concerns about the injunction.

Cooler Master Co. Ltd. (hereafter "Cooler Master") is a Taiwanese company that supplies cooler devices for heat-generating computer components, under the brand name "Cooler Master," to CMI USA Inc. (hereafter "CMI").  Asetek originally sued both companies for the infringement of two patents relating to cooling CPUs using cooling liquid.   At some point prior to trial, however, the parties stipulated to the dismissal with prejudice of Asetek's claims against Cooler Master.  Asetek then prevailed at trial on the issues of infringement and liability, and the court awarded a reasonable royalty in the amount of $404,941 and an injunction directed against both CMI and Cooler Master.  On appeal, the court affirms on infringement, validity, and damages, but remands for further consideration of the extent to which Cooler Master may be subject to the injunction.

As for damages, Asetek's expert testified that a reasonable royalty rate would be 14.5% (of the defendant's sales revenue derived from infringing products, I think), based in part on Asetek's own profit margin.  On appeal, CMI argued that the rate should have been lower, based on a license that Asetek concluded with another firm (Corsair) that specified a 7% rate, but the court rejects this argument for reasons that seem persuasive to me:
To the extent that Dr. Mody’s analysis referred to Asetek’s per-unit profit on its cooling units, CMI’s legal objection lacks merit. As we have recognized, a patent owner participating in a hypothetical negotiation would consider the profits on sales it might lose as a result of granting a license. . . . The fact that a royalty calculation relies in part on the patent owner’s per-unit profits does “not make it an unreasonable award.” . . . We have explained that a patent owner would be “unlikely” to be  “interested in” accepting a royalty rate lower than its profit margin on the patented products. . . . Negotiating for a per unit payment equal to its per-unit profit can be a logical approach for a patent owner that is uncertain of how many sales might be lost by granting the license at issue or is just using its own experience to place a value on the right to use the technology at issue (p.15).
In addition, the expert adjusted her hypothetical negotiation model to incorporate other relevant factors; and she testified that the effective royalty rate in the Corsair agreement fell between 10% and 19%, due in part to a minimum purchase requirement (pp. 16-17).

As for the injunction, CMI and Cooler Master argued, first, that it shouldn't have reached Cooler Master at all because the latter had been dismissed with prejudice; and second, that the injunction was too broad because it reached conduct of Cooler Master beyond merely abetting a violation by CMI.  The court rejects the first argument on the ground that a dismissal with prejudice does not preclude a court from entering an injunction directed against an entity's future conduct (pp. 19-20).  As for the second issue:
The fundamental principle relevant to appellants’ narrower, scope objection to the injunction here is that an injunction may not “make punishable the conduct of persons who act independently and whose rights have not been adjudged according to law.” . . . . But as that formulation suggests, an injunction may reach certain conduct by persons not held liable for the underlying wrong where the conduct is not undertaken “independently” of the persons who have been held liable. . . .
In this case, the injunction imposes two sorts of obligations on Cooler Master—it restricts conduct by Cooler Master that abets a new violation by CMI; and it also restricts conduct by Cooler Master that does not abet a new violation by CMI. Putting aside the dismissal-based contention, which we have  rejected, appellants object here only to the latter obligations. Those are found explicitly in paragraphs 3, 4, and 5 of the injunction. And they are found implicitly in paragraph 2, because, under well established law, that paragraph’s “active concert or participation” coverage includes some conduct not abetting a new violation by the liable person—such as might occur, under certain circumstances, if a liable person (like CMI here) turned over the wrongful operations to another person or even simply ceased operating or existing altogether, to be succeeded by another. As the parties made clear at oral argument, there is a current live dispute about the permissibility of barring Cooler Master from engaging in U.S.-focused activities involving the infringing products other than through CMI, and that substantive dispute arises under paragraph 2 as well as paragraphs 3, 4, and 5 (p.21).
The court then goes on to state that a non-liable party may be subject to an injunction if it is legally identified (in privity) with the liable party.  To determine whether this is so requires a fact-specific approach that "embraces at least two types of situations of potential relevance here":  when "the non-liable person is a successor of the liable person in a relevant respect, or when the liable person's "litigation of a case is sufficiently controlled  by another person that the latter may be said to have had its day in court and on that ground be subject to the injunctive obligations" (pp. 22-24).  Ultimately, then, the court remands "to resolve the issue of the proper scope of the injunction" pending further development of "the facts about the relationship of Cooler Master and CMI" (p.26).  The court then suggests some possibly relevant factors (such as the "nature of the exclusivity relationship between the firms" and "the origins of CMI and its relationship to Cooler Master"), and notes in the paragraph prior to the conclusion that it might not be necessary to hold such a hearing if Asetek were to file a new infringement against Cooler Master and seek a preliminary injunction.  Just before that final observation, the modified opinion released today adds a new paragraph  reading (in relevant part) as follows:
. . . the need for further proceedings to determine the proper reach of the injunction in this case leads us to vacate the injunction, effective upon issuance of our mandate, insofar as the injunction reaches conduct by Cooler Master that does not abet new violations by CMI. The district court is to conduct those proceedings in as reasonably prompt a fashion as possible. Our partial vacatur of the injunction does not foreclose Asetek from pursuing reinstatement of the vacated portion of the injunction should there be unjustifiable delay by Cooler Master in completing the proceedings, or from pursuing any other remedies against Cooler Master, if otherwise authorized by law.

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