The case is In re California Expanded Metal Products Co., nonprecedential opinion by Judge Taranto, joined by Judges Dyk and Mayer. According to the opinion, California Expanded Metal Products Co. (CEMCO) “is the current owner of the five patents at issue in this case,” which “generally describe and claim fire-retardant assemblies for the top of a wall, the assemblies including an intumescent strip that seals construction joints or gaps when exposed to heat” (p.2). “At the time of trial, there were two dominant participants in the market for fire-retardant head-of-wall products that can be installed before construction of a wall is complete: CEMCO’s exclusive licensee, Clarkwestern Dietrich Building Systems LLC (ClarkDietrich), and Seal4Safti,” Inc. (id.). In 2020 Seal4Safti filed an action for a declaratory judgment of invalidity and noninfringement; in turn, CEMCO asserted the infringement of the five patents in suit. A jury concluded that the patents are valid, and that Seal4Safti had willfully induced their infringement, and awarded a reasonable royalty in the amount of $156,000 (equal to “12% of $1,300,000 in sales made by Seal4Safti,” p.3). The “the district court set aside the jury’s damages award as a matter of law because it determined that the jury ‘had no basis to arrive at a reasonable royalty of 12%,’ so the award was ‘based on impermissible speculation,’” and it also denied CEMCO’s requested permanent injunction. The Federal Circuit finds no abuse of discretion as to the vacatur of the damages award, but vacates and remands the denial of the injunction.
As for the damages award:
At trial, CEMCO sought damages in the form of a reasonable royalty and adopted a hypothetical-negotiation approach incorporating a familiar recitation of facts courts have considered within that framework, set forth in Georgia-Pacific . . . . CEMCO presented several pieces of evidence corresponding to several Georgia-Pacific considerations. See, e.g., J.A. 363 (testimony about Clark-Dietrich’s sales under its license); J.A. 1131–32 (total sales of Seal4Safti’s fire-retardant gasket products); J.A. 1147–50 (inventor’s declaration discussing the benefits, commercial success, and popularity of patent-covered products); J.A. 1172–90 (profitability of similar products). But the district court concluded that CEMCO did not provide adequate testimony tying this evidence to any particular royalty rate, and CEMCO has not identified such evidence on appeal. . . . CEMCO first presented its proposed royalty rate of 20% in its closing arguments, and its analysis of Georgia-Pacific considerations was limited to attorney argument. See, e.g., J.A. 293 (arguing ClarkDietrich’s dominance in the market would “drive[] up” the reasonably royalty); J.A. 294–95 (arguing the commercial success of patent-covered products “is significant”).
“The burden of proving damages falls on the patentee.” Lucent, 580 F.3d at 1324. And when a party chooses to use a hypothetical-negotiation framework, “while mathematical precision is not required, some explanation of both why and generally to what extent the particular factor impacts the royalty calculation is needed.” Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10, 31 (Fed. Cir. 2012). We find no error in the district court’s conclusion that, as a matter of law, CEMCO failed to carry its burden to prove damages for lack of such explanation of the proper royalty rate in its evidence.
On Patently-O, Dennis Crouch has an informative write-up about this case, drawing in part on the district court record and arguing that "the answer to achieving a too large verdict award is not for the court
to reset the award to zero. Rather, the typical approach is to either
(1) hold a new trial on damages or (2) remittitur lowering the damages
to an amount actually proven or admitted (such as the 3% royalty)" which had been proposed by the defendant. Maybe he's right, though in other cases my sense has been that courts have sometimes been too permissive in allowing a damages do-over--though in some other recent cases, we have seen judges awarding nominal damages in the absence of acceptable proof. For previous discussion on this blog, see, e.g., here.
As for the injunction, however, the Federal Circuit concludes that the district court misconstrued ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 694 F.3d 1312 (Fed. Cir. 2012), “as standing for the proposition that “[w]henever a patentee only stands to lose licensing fees for the sale of a product when the licensee is not joined in the case,” an injunction should be denied because “‘[s]traightforward monetary harm of this type is not irreparable harm.’” J.A. 51 (quoting ActiveVideo, 694 F.3d at 1338). As the court notes, however, in ActiveVideo the patentee sought an injunction against defendant Verizon, which competed against ActiveVideo’s nonexclusive licensee, Cablevision. On those facts, the court held that ActiveVideo would be adequately compensated by a reasonable royalty. By contrast, the ActiveVideo “court did not conclude that, on different facts, particularly where a patentee has granted an exclusive license to a third party to sell patent-covered products, the patentee may not suffer irreparable harm from infringement. Such an exclusive-licensing patentee might well face harm beyond the simple loss of reliably measurable licensing fees, including price erosion, damage to intangible reputation, harm to brand loyalty, and permanent loss of customers” (p.7). “Because the district court based its denial of injunctive relief solely on its erroneous conclusion that CEMCO stood only to lose licensing fees and thus failed to demonstrate an irreparable injury, the court did not make additional findings necessary for the injunctive-relief inquiry” (p.8), and the Federal Circuit therefore vacates and remands for reconsideration. This seems like the right result to me, insofar as CEMCO through its exclusive licensee and Seal4Safti are effectively direct competitors.
No comments:
Post a Comment