Tuesday, August 4, 2020

Federal Circuit Affirms Damages Award, Partially Vacates Injunction

The case is Bio-Rad Laboratories, Inc. v. 10X Genomics Inc., opinion by Judge O'Malley, joined by Judges Newman and Taranto.  There were three patents in suit, all of them
directed to systems and methods for forming microscopic droplets (also called “plugs”) of fluids to perform biochemical reactions. Microfluidic systems—often called “labs-on-a-chip”—allow scientists to conduct microscale chemical and biological reactions. For example, the technology allows scientists to analyze and compare DNA, RNA, and proteins within large numbers of individual cells. This technology therefore has applications in medical diagnostics and high-throughput screening (p.3).
The jury found all three patents valid and willfully infringed, and awarded damages in amount of $23,930,716.  (The opinion doesn't say anything about a damages enhancement, notwithstanding the finding of willfulness; maybe that issue is still pending before the district court?)  On appeal, the Federal Circuit affirms the finding of infringement under the doctrine of equivalents as to the ’083 patent, which is an apparatus claim.  It vacates the finding of infringement as to the other two (method) patents, based on a disagreement over claim construction, and remands for further proceedings as to those two patents.  It affirms as to damages and partially affirms the entry of a permanent injunction, as discussed below.  As usual, I'll just focus on the remedies issues; the other issues are quite interesting but also complex, and not necessary to the discussion below.  

First, as to damages, the court states that the award can stand even though two of the patents in suit possibly weren't infringed:
Despite vacating the district court’s judgment of infringement of two of the patents-in-suit, we proceed with considering the parties’ arguments concerning damages because we affirm the judgment of infringement of the ’083 patent—which covers all six accused product lines. The jury verdict and jury instructions show that the damages award is not predicated on infringement of any one patent. . . . As Bio-Rad explained during oral argument, affirming the judgment of infringement on the ’083 patent—which includes the only asserted apparatus claims—would leave the damages award undisturbed. . . . 10X did not dispute this point either at oral argument or in its briefing to us (p.25).
On the merits, the defendant's principal argument was that the plaintiff's expert witness relied on three purportedly comparable licenses that weren't sufficiently comparable; and that the defendant's own proposed comparable license would have resulted in a lower royalty rate.  The Federal Circuit, however, concludes that there as no abuse of discretion in allowing the jury to hear about the licenses the plaintiff's expert relied upon (even though, on a post-trial motion, the district court concluded that one of them wasn't technologically comparable after all), and that there was sufficient evidence to support a damages award in the full amount sought by the plaintiffs.  The discussion here mostly centers on the factual evidence, which the court reviews at some length (pp. 26-32).  In addition, the court rejects the defendant's argument that the plaintiff's expert failed "to apportion damages between the patented and unpatented features of the accused products" (p.33).  Again, resolution of this issue largely comes down to the sufficiency of the evidence:
In 10X’s view, Mr. Malackowski claimed that his 15% royalty rate was already apportioned in the comparable licenses, but failed to provide any numerical value to support his analysis. 10X also argues that none of the other witnesses provided any testimony that could fill the gaps as to the technical contributions of any of the patents. We disagree.
As Bio-Rad correctly points out, there is no blanket rule of quantitative apportionment in every comparable license case. In Elbit Systems Land & C4I Ltd. v. Hughes Network Systems, LLC, for example, we accepted “built in apportionment” for a comparable license agreement. 927 F.3d at 1301 (internal quotations omitted). 10X argues that Elbit is distinguishable because the license at issue in that case was the “closest” comparator and the expert in Elbit actually made a quantitative adjustment to the comparator license. . . . But this argument rests primarily on the faulty assumption that the Chicago/RainDance license (with the 1–3% royalty rate) is the most comparable license in this case. As discussed above, the jury was free to accept Bio-Rad’s evidence that this license was not comparable (p.33).
Finally, the court affirms the entry of an injunction as to those of 10X's products for which there was a noninfringing alternative, but not as to those of its products for which there isn't.  First, on the issue of irreparable harm, the court states:
It is undeniable that Bio-Rad has suffered harm from 10X’s first mover advantage and “sticky” customer relationships. The district court found that Bio-Rad is being forced to compete with 10X’s products that incorporate the infringing technology. Based on its willful infringement—a finding 10X does not challenge on appeal—10X has established a strong market lead over Bio-Rad. The court also found that, based on 10X’s first mover advantage, Bio-Rad had to increase its marketing costs. Money damages will not be able to compensate Bio-Rad for the harms stemming from 10X’s first mover advantage (p.36). 
Second, however, as to balance of hardships:
We acknowledge that Bio-Rad, although a much larger company, will suffer considerable hardship absent an in-junction because it has invested almost half a billion dollars to develop its products, including acquisitions and tens of millions of dollars a year on research and development. But at the same time, 10X, a much smaller company, de-pends entirely on the sales of the enjoined products for its revenue. Although the district court concluded that the hardship to 10X is mitigated because it can sell its non-in-fringing alternatives, the district court failed to consider the lack of non-infringing products for two out of the five product lines. In the absence of non-infringing alternatives for the Linked-Reads and CNV products, we conclude it was an abuse of discretion for the district court to enjoin sales of these two product lines (p.37).
Finally, the court concludes that the district court's carve-out for products used or sold before the injunction's effective date sufficiently mitigates any harm to the public interest:
The district court carved out an exception for infringing products that were sold or in use before the effective date of the injunction (the “Historical Installed Base”). For these products, 10X can also continue to supply consumables, and support, service, repair, and replace them under warranty. This exception is conditional on 10X paying a 15% royalty on the net revenue 10X receives from the permitted Historical Installed Base sales until the expiration of the patents-in-suit. . . .
We see no abuse of discretion here. Under the district court’s injunction, 10X’s existing customers are not enjoined from using their installed systems, as long as 10X pays royalties. Thus, there is no basis for 10X’s argument that scientists will lose their years of research or be financially precluded from working on existing projects. On-going research projects will not be affected . . . .
. . . In these circumstances, we conclude that the district court did not abuse its discretion in granting Bio-Rad an injunction, except as to the Linked-Reads and CNV product lines. . . (p.38).
The one thing I find a bit odd here is the apparent conclusion that, as long as an injunction is (as a practical matter) unnecessary, because the defendant has ready access to a noninfringing alternative, there is no abuse of discretion in granting one; but where the defendant cannot compete except by infringing, it is entitled to do so upon payment of an ongoing royalty, notwithstanding the irreparable harm accruing to the plaintiff.  On the other hand, under an equitable standard, a sufficient showing of irreparable harm to the defendant (and to the public) might outweigh the irreparable harm to the plaintiff, so perhaps the result can be defended on that basis.

No comments:

Post a Comment