Last Friday the Federal Circuit published its precedential decision in Roche Diagnostics Corp. v. Meso Scale Diagnostics, LLC, majority opinion by Judge Prost (joined by Judge Taranto), with a dissent by Judge Newman. As the opinion states, “[t]he patents-in-suit concern immunoassays that exploit a phenomenon called electrochemiluminscence (ECL)” (p.3). The principal issue in the case was whether counterclaim-plaintiff Meso owned an exclusive license to the patents in suit, or whether Roche subsidiary BioVeris owned them. For present purposes, suffice to say that the majority affirms the judgment, entered after a jury verdict, that Meso is the exclusive licensee of the ‘939 patent and that Roche directly infringed one claim of that patent. (Judge Newman dissents on the ownership issue, for which reason she would find in favor of Roche.) The majority reverses a judgment of induced infringement relating to two other patents, however—without reaching the ownership issue—“on two independent grounds: (A) absence of intent, and (B) absence of an inducing act that could support liability during the” statute of limitations period (pp. 11-12). On the “absence of intent” issue in particular, the majority notes that the trial judge had “granted Roche’s JMOL motion regarding willfulness by concluding that ‘at no time did Roche have a subjective intent to infringe (or induce infringement of) Meso’s patent rights,’” because Roche’s interpretation of the relevant contractual provisions on which the patent ownership issue hinged was “reasonable” (p.13). The majority goes on to state that “[i]n some respects, the intent standard for inducement is akin to the one for willfulness, as both rest on the subjective intent of the accused infringer” (p.14)—an observation that may be relevant down the road on the issue of whether “willful blindness,” which can satisfy the intent requirement for induced infringement, ever satisfies the intent requirement for “willful infringement.” (For previous discussion on this blog, see, e.g., here.)
Seeing how the majority reversed the liability judgment in part, it follows that the damages award cannot stand either, so there will be a new trial on damages. Instead of just saying that, however, the majority takes pains to discuss the damages evidence produced at trial, and why “the parties and the district court should proceed on remand with careful attention to the apportionment requirement set forth in our caselaw” (p.18). Specifically:
Before trial, the district court precluded Meso’s damages expert from offering his reasonable-royalty opinion due to various errors in that opinion. . . . For that reason, “the jury did not hear a reasonable royalty rate opinion” from Meso’s expert. . . . The expert “was permitted to testify about a royalty base,” however, “which he calculated to be between $170 million and $183 million.” . . . And, in the context of analyzing the Georgia-Pacific factors . . . “he was further permitted to present his estimate of the profit margin Roche earned on these sales,” which “he opined was roughly 75% during the relevant damages period.” . . . And later, during closing arguments, “Meso’s counsel told the jury: ‘we believe that what is right is that Meso . . . should get the profits, the profits on the $183 million that Roche made in our lane [that is, out-of-field sales]’” (p.19).
Roche argued before the district court that the jury’s award—$137,250,000, or exactly 75% of $183 million—reflected no apportionment and amounted instead to a disgorgement of Roche’s entire profit. The district court denied a post-trial motion to vacate the award, however, on the grounds that the trier of fact could have concluded that the royalty base was even higher than $183 million, based on evidence in the record, and that “the jury could have arrived at its damages award by multiplying the 65% royalty rate negotiated for in the 2003 License times a royalty base of approximately $211 million” (p.20). The Federal Circuit does not outright say this was wrong, but it does add the following cautionary notes for remand:
As we have previously explained, “where a royalty is at issue, ‘[n]o matter what the form of the royalty, a patentee must take care to seek only those damages attributable to the infringing features.’” Omega Pats., LLC v. CalAmp Corp., 13 F.4th 1361, 1376 (Fed. Cir. 2021) (alteration in original) (quoting VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed. Cir. 2014)). “Consequently, to be admissible, all expert damages opinions must separate the value of the allegedly infringing features from the value of all other features.” Commonwealth Sci. & Indus. Rsch. Org. v. Cisco Sys., Inc., 809 F.3d 1295, 1301 (Fed. Cir. 2015) (citing VirnetX, 767 F.3d at 1329). And, particularly relevant to the district court’s license-based rationale, while “a damages theory that is dependent on a comparable license (or a comparable negotiation) may in some cases have built-in apportionment,” the license “must be sufficiently comparable in that principles of apportionment were effectively baked into the purportedly comparable license.” Omega, 13 F.4th at 1377 (cleaned up).
. . . [W]e take Roche’s apportionment argument to be that Meso hasn’t demonstrated the requisite comparability between the 2003 license (to the 100+ BioVeris patents) and the hypothetical negotiation undergirding the jury’s reasonable-royalty award. At least for this reason, Roche’s challenge to the jury’s verdict is indeed “powerful.” Post-Trial Op., 503 F. Supp. 3d at 175. That said, we need not decide whether the district court erred in assessing the sufficiency of the evidence on apportionment, as the parties agree that reversing on induced infringement but not direct infringement would require a new damages trial. Oral Arg. at 8:26–9:29, 31:08–32:10. Accordingly, we vacate the damages award and remand for a new trial on damages (pp. 22-23).
For what it’s worth, I have long believed that it would make sense to require juries to explain, by way of special interrogatories, exactly how they calculate the reasonable royalties they award in patent litigation. But I recognize that in our jury-centric system that is, for now, a losing battle.
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The court handed down an opinion today in Niazi Licensing Corp. v. St. Jude Medical S.C., Inc., a portion of which addresses damages. I'll try to have something on this later this week.