Perhaps the bigger damages news today from the Federal Circuit is the court's reversal of the $1.2 billion judgment awarded in Juno Therapeutics, Inc. v. Kite Pharma, Inc.--but the reversal is based on the lack of substantial evidence supporting the verdict in favor of the plaintiff on written description, so other than reciting what the damages award consisted of, there's no discussion of remedies. (As I noted just this past Monday, many of the U.S. megaverdicts in patent cases are reversed or altered on appeal, so here's yet another example.) The court does discuss damages at some length, however, in MLC Intellectual Property, LLC v. Micron Technology, Inc., by way of affirming a district court's interlocutory order excluding MLC's proposed expert opinion. The precedential opinion is authored by Judge Stoll, joined by Judges Newman and Reyna.
The opinion is very fact-intensive, but to cut to the chase MLC's expert was prepared to opine that the hypothetical royalty rate to which the parties would have agreed just prior to the date on which Micron allegedly began infringing would have been 0.375%, and that the base would have been either the entire revenue from sales of Micron's accused products based on a comparable license approach, or "approximately 87.4% of the total accused product revenue" based on an SSPPU approach, with the SSPPU being a "bare die" (p.7). The rationale behind the 0.25% rate was a 2007 license agreement between MLC's predecessor BTG and Hynix Semiconductor, and another 2007 license between BTG and Toshiba Corporation. The Hynix license, however, was a $21 million lump-sum for an entire portfolio of patents and for worldwide sales--though it also included a most-favored customer provision under which any future payments made by Hynix would be reduced, if BTG entered into a license with another licensee for a royalty of less than 0.25%. (But why would there be any future payments, you may ask, if Hynix was paying a lump-sum? Don't know.) Anyway, the Toshiba license was for a lump-sum of $25 million, and the expert was prepared to testify that "it’s reasonable to presume BTG considered the royalty rate in the Toshiba Agreement to reflect a running royalty that is at least equal to the rate reflected by the Hynix Agreement” (p.8). He then made some further adjustments (pp. 8-10) to arrive a hypothetical royalty rate of 0.375%. Applying this to the two proposed royalty bases results in an aggregate royalty (the patent in suit having long since expired) of either $70,207,876, or $63,142,053. (I don't quite see how that latter number is equal to 87.4% x 0.375% x the implicit total accused product revenue, but haven't reviewed the record.)
The district court didn’t buy it, and the Federal Circuit sees no abuse of discretion, stating inter alia:
Rather than deriving a rate from the lump-sum payments and projected sales, Mr. Milani’s testimony rests on an inference from the most favored customer clause that goes well beyond what the clause implies and is incompatible with the Hynix agreement as a whole. As the district court pointed out, if a 0.25% royalty had been applied to forecasts of revenue for the term of the licenses (2007–2017), the lump-sum amounts would have been far greater than $21 and $25 million. See MLC I, 2019 WL 2863585, at *13. . . .
We acknowledge that Mr. Milani’s testimony may well have been proper had he merely asserted that he “consider[ed] the 0.25% royalty rate called for in the most favored customer provision to reflect a relevant consideration for evaluating a reasonable royalty.” J.A. 906. But he crossed the line when he stated that he “under[stood] that [the 0.25%] rate was applied to Hynix worldwide sales” in calculating the lump-sum license payment of $21 million. Id. As the expert failed to do in Whitserve, Mr. Milani offered no testimony as to how the $21 million lump-sum payment could be converted to any royalty rate, let alone a 0.25% royalty rate (pp.14-16).
In addition, the court took issue with the expert’s determination of the appropriate royalty base:
We agree that Mr. Milani did not properly apportion either the royalty base or the royalty rate to account for the patented technology. . . .
We have previously approved the use of comparable licenses to account for apportionment. . . . We reject the view that the Hynix and Toshiba agreements are comparable licenses. As the district court properly explained, “there is no evidence regarding the Hynix agreement that supports [Mr.] Milani’s opinion that a specific royalty rate derived from the Hynix agreement already accounts for apportionment of non-patented features” in this case. . . .
We are also not persuaded by MLC’s argument that it need not further apportion beyond the single-component SSPPU because the asserted claims are directed to a memory device as a whole. Contrary to MLC’s suggestion in its briefing, claim 30 is the sole claim at issue in this appeal. Because claim 30 is an “[a]pparatus for programming an electrically alterable non-volatile memory cell having more than two predetermined memory states,” ’571 patent col. 15 ll. 10–12, it is not commensurate in scope with the SSPPU, which also contains “error correction hardware,” “data clocking hardware,” “addressing hardware,” “cache registers,” and “digital to analog converters.” J.A. 1242. Accordingly, we affirm the district court’s Daubert order excluding MLC’s expert testimony regarding a reasonable royalty for failure to apportion (pp. 24-27).
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