The case is Cyntec Co. v. Chilsin Electronics Corp., precedential opinion by Judge Stoll, joined by Chief Judge Moore and Judge Cunningham. There are two patents in suit, one directed to molded chokes (“a type of inductor used to eliminate undesirable signals in a circuit”) and one to a method for making them. The case was tried to a jury, which returned a verdict of infringement and awarded damages in the full amount requested (about $3.7 million); the judge thereafter awarded enhanced damages, bringing the total up to about $5.5. million. Before the case was submitted to the jury, the judge granted judgment as a matter of law (JMOL) that the patents in suit were nonobvious. On appeal, the Federal Circuit reverses the JMOL and remands for a new trial, reasoning that there was sufficient evidence for the jury to conclude that the patented combination would have been obvious to a person of ordinary skill in the art. The court affirms the finding of infringement but also vacates the damages award, which is the part I will focus on.
According to the opinion, “To prove damages, Cyntec presented a market-share lost profits theory. . . . Cyntec asserted that 27 companies purchased Chilisin’s accused chokes outside the United States and then placed them into devices that were then imported into the United States. . . . Cyntec’s expert opined that Cyntec was entitled to a total damages award of $1,872,956, with $1,552,493 in lost profits and $320,463 in reasonable royalties4” (pp. 7-8). (The footnote stays that the royalty “award is not at issue on appeal.”) Chilsin argues, however, “that the district court erred in denying its Daubert motion to exclude testimony from Cyntec’s expert, Mr. Van Uden” (p.13), and the court agrees, citing two other opinions, Power Integrations v. Fairchild Semiconductor Int’l, 711 F.3d 1348 (Fed. Cir. 2013), and Niazi Licensing Corp. v. St. Judge Med. S.C., Inc., 30 F.4th 1339 (Fed. Cir. 2022), in which the court states the patentee’s expert on included infringing and noninfringing products together to calculate damages:
In the present case, Cyntec’s
damages expert, Mr. Van Uden, estimated the amount of Chilisin’s sales of
accused products imported into the United States (“importation calculations”)
using U.S. Securities and Exchange Commission (SEC) filings or annual reports
of customers who purchased or acquired any of the alleged infringing products,
as well as third-party data from Gartner Research. . . . Mr. Van Uden determined
each customer’s importation rate by dividing the customer’s U.S. revenue by its
total worldwide revenue. . . . By “[m]ultiplying Chilisin’s accused revenues
made outside of the U.S. by the U.S. importation rates for each identified customer,”
Mr. Van Uden estimated the “infringement revenue subject to . . . damages.” . .
. Mr. Van Uden determined that Chilisin’s indirect sales to the United States
was approximately $ 9.8 million. . . . Mr. Van Uden also estimated that
Cyntec’s market share ranged from 31.2 percent to 39.4 percent. . . . Then,
“us[ing] this market share number, [he] applied it to the sales subject to
damages, [yielding an estimate of] Cyntec’s lost sales of approximately $3.8
million” (pp. 15-16).
The district court denied Chilsin’s Daubert motion on the ground that the expert’s data sources were sufficiently reliable, but the Federal Circuit vacates:
The revenue reported in the customers’ annual reports cited by Mr. Van Uden included sales of irrelevant products and services, and he failed to account for these irrelevant products and services. For example, Mr. Van Uden’s importation calculations for Apple Inc. use the reported revenue for 2016–2019 from Apple’s Form 10-K. See J.A. 4091; J.A. 11099–100. But Apple’s 10-K reported revenue includes revenue received from services and products that do not even contain chokes. See J.A. 11045–46 (Apple’s 2020 Form 10-K, defining its “Services” as advertising, warranty services, cloud services, digital content, and payment services); Apple Inc., Annual Rep. (Form 10-K), at 21 (Oct. 29, 2020) (stating that the “total net sales” consisted of sales of iPhones, Macs, iPads, Wearables, Home and Accessories, and Services). . . . Mr. Van Uden’s use of the reported revenue did not differentiate between what products would or would not incorporate the accused chokes. Mr. Van Uden therefore assumed all of Apple’s products imported into the United States contained the accused chokes, a mistake he repeated for other customers. . . .
Cyntec argues Mr. Van Uden “did not
. . . assume that every [third party] product contained an accused choke,” and
argues that he instead “estimated the portion of accused chokes that are
imported by starting with Chilisin’s actual sales data, and then applying
reliable data showing importation rates for products sold by Chilisin’s
customers incorporating the infringing chokes.” . . . But as we explained
above, this data for calculating importation rates contains the sales of
products and services that cannot or do not contain the accused chokes. Like
the erroneous assumptions in Power Integrations and Niazi, Mr. Van Uden assumed
that (1) the sales revenue reported in the customers’ Form 10-K reflected sales
of products with molded chokes; and (2) each third-party product shipped into
the United States contained an infringing choke. Further, Mr. Van Uden’s
importation calculations assumed that all 310 third-party products across all
27 customers infringed. . . . Yet no party knew whether the third-party
products contained the accused chokes or how many accused chokes were in these products.
. . . Indeed, no third-party discovery or testing from a technical expert was
performed to see if the third-party products contained the accused chokes (pp.
16-18). . . .
The court doesn’t say anything about extraterritorial damages, and I might be misunderstanding some of the underlying fact, but it seems to me that the damages case was premised on the assumption that Cyntec (which I believe is a Taiwanese company) lost sales of chokes that it would have made outside the U.S., but for Chilisin’s violation of domestic U.S. patent law. Things are a bit complicated, though. According to the district court’s pre- and post-trial opinions, available at 2020 WL 5366319 and 2022 WL 1443232, Cyntec’s theories of liability included (1) induced infringement, which under Federal Circuit precedent is actionable even if (as here) the activity that induces infringement within the United States itself occurs outside the United States, and (2) as far as the process patent is concerned, liability under 35 U.S.C. § 271(g). I’m a little confused about that second item, since § 271(g) states in relevant part that “[w]hoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent.” Perhaps the theory was that Chilisin (also Taiwanese firm, I think) or its U.S. affiliate (a codefendant in the case) were selling or offering to sell infringing products in the U.S., though under Federal Circuit precedent an offer to sell (regardless of where it takes place) is actionable only if there is a subsequent sale in the United States. So, maybe there were some infringing sales within the U.S.? That might comport with a statement quoted in the district court’s post-trial opinion that “over 95% of Cyntec's reasonable royalty damages base came from estimated importation by third parties,” which implies that a small portion of those damages were based on some other conduct within the U.S.
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