Friday, January 31, 2020

Federal Circuit Agrees to Hear Interlocutory Appeal of Order Excluding Damages Evidence

The court issued a per curiam order yesterday in MLC Intellectual Property, LLC v. Micron Technology, Inc., accepting an interlocutory appeal.  Here are the relevant facts:
MLC sued Micron for infringement of a patent that has expired and sought reasonable royalty damages. MLC’s expert submitted a report proposing a royalty calculation using a royalty rate he derived from two license agreements and extrinsic evidence. He multiplied that rate by alternative royalty bases: either all revenue from the accused products or all revenue from what the parties agreed was the smallest salable patent practicing unit (“SSPPU”). Micron filed pre-trial motions to exclude the testimony.
The district court issued three separate damages orders, granting Micron’s motions and excluding MLC’s expert report and testimony. The district court then certified the three orders for review under 28 U.S.C. § 1292(b), which authorizes a district court to certify for appeal an otherwise-unappealable order when it is “of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b)./1  
/1 In the same certification order, the district court denied Micron’s motion for summary judgment of no remedy despite noting that it had excluded all of MLC’s expert evidence because it could not reach the conclusion that it is undisputed that zero was the only reasonable royalty rate here.  
I haven't researched the underlying facts and can't comment on them.  Based solely on the facts quoted above, however, the case potentially raises the question of what to do when a party prevails on liability but offers no admissible evidence on damages.  (An injunction wouldn't be available on the facts of MLC, because the patent has expired.)   It reminds me a bit of Apple Inc. v. Motorola, Inc., 757 F.3d 1286 (Fed. Cir. 2014).  As I wrote about the case at the time:
Judge Posner had granted summary judgment to Motorola with regard to Apple’s ‘647 Patent, on the ground that Apple had not presented admissible evidence as to what a reasonable royalty would be for this patent.  The potential weakness is that 35 U.S.C. § 284 states that “Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer”, which might suggest that some reasonable royalty is due even if a party presents weak or no evidence as to amount.  Here, I think Judge Reyna finessed the issue pretty well (see pp. 63-69):
If a patentee’s evidence fails to support its specific royalty estimate, the fact finder is still required to determine what royalty is supported by the record. . . .  Indeed, if the record evidence does not fully support either party’s royalty estimate, the fact finder must still determine what constitutes a reasonable royalty from the record evidence. . . . Certainly, if the patentee’s proof is weak, the court is free to award a low, perhaps nominal, royalty, as long as that royalty is supported by the record. . . . 
Thus, a fact finder may award no damages only when the record supports a zero royalty award. For example, in a case completely lacking any evidence on which to base a damages award, the record may well support a zero royalty award. Also, a record could demonstrate that, at the time of infringement, the defendant considered the patent valueless and the patentee would have accepted no payment for the defendant’s infringement. Of course, it seems unlikely that a willing licensor and willing licensee would agree to a zero royalty payment in a hypothetical negotiation, where both infringement and validity are assumed.
 At summary judgment, as is the case here, a judge may award a zero royalty for infringement if there is no genuine issue of material fact that zero is the only reasonable royalty. Thus, if a patentee raises a factual issue regarding whether it is due any non-zero royalty, summary judgment must be denied. In any event, simply because a patentee fails to show that its royalty estimate is correct does not, by itself, justify awarding a royalty of zero at summary judgment, as the district court did here. . . .
The record before us does not support granting summary judgment of no damages. Motorola has not met its burden of demonstrating, as the party who moved for summary judgment, that the record is uncontroverted that zero is the only reasonable royalty.
I also discussed these issues, very briefly, in my paper Patent Damages Heuristics, 25 Tex. Intell. Prop. L.J. 159 (2018), as follows:
Courts sometimes have employed heuristics to help determine if the claimant is eligible to recover a certain class of damages at all. Section 284 of the U.S. Patent Act, for example, states that “[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer” (emphasis added). . . . In Apple, Inc. v. Motorola, Inc., . . . the Federal Circuit interpreted the italicized language to mean that, even when the patent owner fails to introduce admissible evidence quantifying the amount of its loss, the court still has an obligation to “determine what constitutes a reasonable royalty from the record evidence” . . . —in effect, creating a rebuttable presumption that the patent owner is entitled to something as a consequence of the infringement. The rule is consistent with practice in some other countries,76 but it provides no guidance on how to calculate the royalty due when the parties’ evidence is deficient. One might imagine, though, that in such cases courts will have to take it upon themselves to apply methodology heuristics akin to those I discuss in a subsequent section below, based on whatever record evidence there may be concerning the amount of the use, comparable license rates, and the advantages of the technology over alternatives. For now, however, this appears to be an area in which U.S. patent damages law remains largely underdeveloped.77
76 See, e.g., Markus Schönknecht, Determination of Patent Damages in Germany, 43 IIC 309, 311–13 (2012) (discussing the German courts’ “free discretion” (nach freier Überzeugung) to estimate patent damages under § 287 of the Code of Civil Procedure); see also Charlotte Scott, Damages Inquiries and Accounts of Profits in the IPEC, 38 E.I.P.R. 273, 273 (2016) (asserting that the procedural rules employed in the Intellectual Property Enterprise Court of England and Wales—a sort of smallish-claims court in which damages are capped at £500,000—“enable a rough and ready determination with more limited disclosure”). According to Schönknecht, in Germany “[t]he injured party is not required to prove the exact amount of its damage; rather, it is sufficient if it presents a factual basis on which the court can establish ‘at least a rough estimate’ of the damage.” Schönknecht, supra, at 312 (citing Federal Supreme Court (Tolbutamid), 1980 GRUR 841, 842, translated in 11 IIC 763, 764 (1980)). Statutory damages, which are (by far) the dominant form of damages award for IP infringement in China, arguably are intended to play a similar role of allowing the court to provide compensation when the evidence on lost profits, royalties, and defendant’s profits is lacking, though critics argue that awards of statutory damages are not closely correlated with actual losses or gains. For discussion, see Jingjing Hu, Determining Damages for Patent Infringement in China, 47 IIC 5 (2016).
77 Although, as I have noted elsewhere, one of the recent FRAND cases—Microsoft Corp. v. Motorola, Inc., Case No. C10-1823JLR, 2013 WL 2111217, at *39-49 (W.D. Wash. Apr. 25, 2013), aff’d, 795 F.3d 1024 (9th Cir. 2015)—arguably provides some insight into how judges can determine damages without relying too closely on either side’s damages calculation. See Thomas F. Cotter, The Comparative Law and Economics of of Standard-Essential Patents and FRAND Royalties, 22 Tex. Intell. Prop. L.J. 311, 360 (2014). See also In re Marriage of Abu-Hashim, 14 N.E.3d 524, 531 (Ill. App. 2014) (affirming a trial judge’s methodology for valuing a daycare business in a divorce proceeding, on the ground that “where a party does not offer evidence of an asset’s value, the party cannot complain as to the disposition of that asset by the court”).
Maybe after MLC the law will no longer be so underdeveloped.

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