Wednesday, April 19, 2017

Federal Circuit Remands Damages Award to Consider Patent Marking Issue

The opinion, Rembrandt Wireless Technologies, LP v. Samsung Electronics Co., was handed down on Monday of this week and is available here.  The two patents in suit "relate to 'a system and method of communication in which multiple modulation methods are used to facilitate communication among a plurality of modems in a network, which have heretofore been incompatible'" (p.3).  A jury found both patents valid and infringed, and on these issues the Federal Circuit affirms.  As for damages, the court also rejects Samsung's challenges to Rembrandt's expert's methodology, stating as follows:
. . . In an effort to determine the incremental value associated with implementing the infringing EDR [Bluetooth enhanced data rate] functionality, Mr. Weinstein compared the prices of two Bluetooth chips Samsung purchased from Texas Instruments—one with EDR functionality and the other without. After calculating the price premium Samsung had paid to procure the EDR chips as compared to the non-EDR chips, Mr. Weinstein concluded that the reasonable royalty rate would be between 5 and 11 cents per infringing unit, resulting in a total damages range of $14.5–$31.9 million.
We see no reversible error in the district court’s denial of Samsung’s motion to exclude Mr. Weinstein’s testimony. Samsung complains that the time periods that Mr. Weinstein chose to compare the two sets of chips were ones where Samsung purchased many more non-EDR chips than EDR chips, making the relative cost of EDR chips artificially high due to mismatched economies of scale. Rembrandt responds that Mr. Weinstein testified in his deposition that the seller of the chips, Texas Instruments, suggested to him that the data from these time periods were most suitable for his purposes. Rembrandt also explains that Mr. Weinstein aptly focused on the earliest periods where significant sales of infringing chips were made because the added value of technology fades with time. We find these explanations plausible, as they show that Mr. Weinstein’s royalty calculations were properly “based on the incremental value that the patented invention adds to the end product.” Ericsson, Inc. v. DLink Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014). We also note that while Mr. Weinstein compared the chips for a time period when the non-EDR and EDR chip price differential was on the high end of the spectrum, Samsung was free to cross-examine Mr. Weinstein on this issue and the jury’s award of $15.7 million fell within the low end of Mr. Weinstein’s $14.5–$31.9 million suggested damages range.
Samsung also takes issue with Mr. Weinstein’s attribution of the chips’ cost differential solely to the addition of the EDR functionality, which it asserts was not the only technological difference between the two sets of chips. Rembrandt responds that all of the technical expert testimony in the case shows that the major difference between the chips was the incorporation of EDR and that Samsung could have cross-examined Rembrandt’s damages expert on this point, but did not. Regardless, Samsung’s criticism of Mr. Weinstein’s selected benchmark “goes to evidentiary weight, not [its] admissibility.” . . (pp. 15-16).
The court also rejects Samsung's challenge to Mr. Weinstein's use, in forming his opinion as to the appropriate royalty rate, of two licenses that Rembrandt entered into in settlement of litigation, noting that "our cases allow relevant settlement agreements to be considered in determining a reasonable royalty rate" (pp. 16-17).

Nevertheless, the court remands for a recalculation of the damages award due to possibility that some of the award may be precluded under U.S. Patent Act section 287(a), the patent marking statute.  The statute reads as follows:
Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word “patent” or the abbreviation “pat.”, together with the number of the patent, or by fixing thereon the word “patent” or the abbreviation “pat.” together with an address of a posting on the Internet, accessible to the public without charge for accessing the address, that associates the patented article with the number of the patent, or when, from the character of the article, this cannot be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice.In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.
Generally speaking, then, a patent owner can recover damages for patent infringement that occurs only after the owner has put the defendant on either actual notice (e.g., by sending an appropriately worded cease-and-desist letter, or serving a complaint for infringement) or constructive notice (by complying with the patent marking statute). By encouraging patent owners to provide public notice of the patent-protected status of their products, the statute is said to help both implementers and the general public to identify which products are subject to patent protection. The rule has many complications and exceptions, however, and for what it's worth my view is that we'd be better off if we didn't condition the availability of damages on marking.  (For previous discussion on this blog, see, e.g., here, which also links to some slides I've used in my Advanced Patents class to work through the various complexities that can arise in specific cases.)  

Anyway, in this case,  Samsung alleges that, prior to the initiation of litigation  Rembrandt's licensee Zhone sold products embodying claim 40 of one of the patents in suit, and Rembrandt's complaint  initially accused Samsung of infringing that claim.  Eight days later, however, Rembrandt withdrew that specific allegation and filed a disclaimer of claim 40 with the USPTO; the matter eventually proceeded to trial on other claims.  As the Federal Circuit explains:    
The district court denied Samsung’s motion to bar Rembrandt’s recovery of pre-notice damages based on Rembrandt’s disclaimer of claim 40. The court accepted Rembrandt’s argument that any prior obligation to mark products embodying claim 40 vanished once it disclaimed claim 40. . . .
In denying Samsung’s motion, the district court relied on the proposition that a disclaimed patent claim is treated as if it “had never existed in the patent,” Guinn v. Kopf, 96 F.3d 1419, 1422 (Fed. Cir. 1996) (citing Altoona Publix Theatres, Inc. v. Am. Tri–Ergon Corp., 294 U.S. 477, 492 (1935)), and allowed Rembrandt’s disclaimer to retroactively excuse its failure to mark. But while we have held that a disclaimer relinquishes the rights of the patent owner, we have never held that the patent owner’s disclaimer relinquishes the rights of the public. Indeed, our precedent and that of other courts have not readily extended the effects of disclaimer to situations where others besides the patentee have an interest that relates to the relinquished claims. . . . As our marking cases make clear, the marking statute’s focus is not only the rights of the patentee, but the rights of the public. . . . Considering these rights held by the public, we hold that disclaimer cannot serve to retroactively dissolve the § 287(a) marking requirement for a patentee to collect pre-notice damages. . . 
Separate from its disclaimer argument, Rembrandt also argued to the district court that the marking statute should attach on a claim-by-claim, rather than on a patent-by-patent, basis. Applying Rembrandt’s claim-by-claim approach in this case, for example, would permit Rembrandt to recover pre-notice damages for Samsung’s infringement of claims other than claim 40, which is the only claim that Samsung alleges the unmarked Zhone product embodied. . . .
The patent-by-patent versus claim-by-claim marking dispute between the parties raises a novel legal issue not squarely addressed by our past decisions. . . . We therefore remand to the district court to address in the first instance whether the patent marking statute should attach on a patent-by-patent or claim-by-claim basis (pp. 18-23).
I'm inclined to think that, on the authority of Crown Packaging Tech., Inc. v. Rexam Beverage Can Co., 559 F.3d 1308,1316-17 (Fed. Cir. 2009), Rembrandt should be able to recover damages for infringing conduct preceding the filing of the complaint.  According to Crown Packaging, if I sue for the infringement of only the process claims in a patent that contains both process and product claims, my failure to mark doesn't affect my ability to recover damages for all infringing acts within the statute of limitations (because the marking statute doesn't apply to process claims).  At the same time, however, there are district court decisions holding that if I asserted both the process and product claims, my failure to mark would mean that I couldn't get damages for any infringing conduct occurring prior to having put the patent owner on notice--even if I lost in the product claims!  (See my slides, referenced above, for citations.)  All in all, though, to my mind this demonstrates the formalism that pervades this body of law, and in my view provides yet further support for my view that marking rules should be abolished.

Further discussion of this case may be found on Patently-O. 

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