Federal Circuit Affirms $95 Million Damages Award; Other News; Blogging Break

 

The case is Altria Client Services LLC v. R.J. Reynolds Vapor Co., opinion for the court by Judge Prost, with an opinion concurring in part and dissenting in part by Judge Bryson.  Despite the high damages award, and the fact that Judge Bryson dissented on one of the damages issues, this is a nonprecedential opinion.  Altria filed suit against Reynolds for the infringement of three patents relating to pod-based vaping devices.  The jury found the patents valid and infringed, and the Federal Circuit agrees that there was sufficient evidence for these findings.  On damages, Reynolds argues that the evidence did not support the 5.25% royalty rate Altria’s expert calculated on the basis of a comparable license, and that the expert did not properly apportion damages, but the majority disagrees on these issues as well. 

On the first of these two damages issues, Reynolds didn’t challenge Altria’s expert’s methodology under Federal Rule of Evidence 702, so the jury award “must be upheld unless the amount is grossly excessive or monstrous, clearly not supported by the evidence, or based only on speculation or guesswork” (p.8, citation omitted).  According to the majority:

Altria offered several theories supporting the proposition that a comparable license used a 5.25% royalty rate, and it suffices for our purposes to identify one supported by the evidence. Altria sought to use a comparable license to prove its damages. One was a license between two companies, Fontem and Nu Mark. One part of this license is a lump-sum payment from Nu Mark to Fontem of $43 million granting Nu Mark the right to practice Fontem’s patents in the United States until at least 2030. To calculate the effective per-unit royalty rate from this lump-sum payment, Altria’s damages expert relied on a projection made by Nu Mark. This projection applied a 5.25% royalty to sales from 2017 to 2023 and resulted in $44 million of estimated royalties. J.A. 28365–66. Thus, Altria’s expert, noting the similarity between the $43 million lump-sum payment and the $44 million in projected sales, concluded that the $43 million lump-sum payment in the Fontem-Nu Mark license was calculated using a 5.25% per-unit royalty rate (p.9).

The majority rejects Reynolds’ arguments that, first, the expert used the wrong projection, stating that “[t]he jury was presented with expert testimony explaining multiple different sales projections that the jury could use to “deriv[e] a [per-unit] rate from the lump-sum payments and projected sales,” and noting that “Reynolds did not object to the admission or use of these projections” (p.9, citation omitted).  Second, the majority rejects the argument “that the maximum per-unit royalty rate the jury could calculate from the licenses in this record was 3.6%, or perhaps 2.1%,” noting that “Reynolds and Altria presented the jury with several different per-unit royalty rates likely supportable on this record—5.25%, 3.6%, 2.1%, and 0.21%,” and that in view “of this competing testimony, and again in the absence of an objection from Reynolds on the methodology that Altria’s expert used to calculate a per-unit rate in a comparable license,” it was up to the jury to “decide for itself which royalty rate best fit the facts of this case” (p.9). 

Judge Bryson, however, thinks that the 5.25% rate is not supported by the record, writing:

The court’s opinion relies on the Fontem-Nu Mark license, under which Nu Mark paid Fontem a lump sum of $43 million for the right to practice Fontem’s patents until at least 2030. Altria’s expert noted that Nu Mark prepared a number of projections. One projected a level of sales under that license between 2017 and 2023 that would yield a total royalty payment of $44 million at a royalty rate of 5.25%. Altria’s expert testified that the similarity between the $43 million actually paid under the Fontem-Nu Mark license and the $44 million expected to be paid at a royalty rate of 5.25% for the years 2017 through 2023 gave him “great confidence” that the 5.25% rate “was the real benchmark.” . . .

 

The problem with that line of analysis is that the $44 million projected royalty payment was based on projected sales only through 2023, while the $43 million actually paid for the license was for rights extending all the way to 2030, seven more years than the 2017–2023 period. What that means is that if the projected sales for 2024 through 2030 were similar to the projected sales from 2017 through 2023, the $43 million paid for the license would represent a royalty rate of only about half the 5.25% claimed by Altria. . . . Put another way, Altria’s expert attributed the entire $43 million in royalties to the first seven years of projected sales, rather than spreading out the royalties over the entire Fontem license period. . . . Altria pointed to no basis in the record to ignore the years between 2024 and 2030, so the expert’s testimony on the Fontem-Nu Mark license provides no support for the 5.25% royalty figure adopted by the jury.

 

Altria identifies various other pieces of evidence that it argues support the 5.25% royalty rate. Like the majority, however, I view the Nu Mark projections as the strongest piece of evidence as to the proper royalty rate. The remaining pieces of evidence are not sufficient to support the jury’s verdict.

 

I would therefore grant a new trial to Reynolds on the damages issue unless Altria agreed to a remittitur of approximately half of the $95.3 million award (dissent, pp. 1-3).

On the apportionment issue, which involved that same license (and for which Reynolds apparently did raise a Rule 702 objection), the majority writes that “Altria offered a detailed accounting for differences in the economic and technological circumstances of the contracting parties and explained how it valued Altria’s patents,” with a technical expert opining that certain licensed patents were of little value in comparison with five families covering “key features of an e-cigarette device,” and the economic expert concluding that “the importance of the patented features to Nu Mark was similar to the technical importance of the patented features from Altria’s patents to the” Reynolds device (pp. 10-11).  Reynolds’ challenges, the court says, are “disagreements with the particular adjustments that Altria’s damages expert made, but that the lower court did not abuse its discretion in concluding that the expert’s methodology was reliable and in its (unspecified) wording of an apportionment jury instruction (pp. 11- 12).

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In other news, I was one of four witnesses invited to testify yesterday morning at a hearing of the United States House of Representatives Judiciary Committee's Subcommittee on Courts, Intellectual Property, and the Internet, titled “IP and Strategic Competition with China: Part IV - Patents, Standards, and Lawfare.”  I provided a comparative overview of litigation involving FRAND-committed SEPs in the U.S., the U.K., Germany, and China.  Yesterday afternoon, Professor Jorge Contreras—who’s been visiting this past semester at the University of Minnesota—testified at a hearing of the U.S. Senate Judiciary Committee’s Subcommittee on Intellectual Property on the RESTORE Act (for coverage of which, see here, here, and here).  In addition, on Tuesday USITC ALJ McNamara concluded that Lenovo infringes three FRAND-committed SEPs owned by Ericsson, and the Munich Division of the UPC awarded Huawei an injunction against Netgear in another FRAND case (see discussions here, here, here, and here).  I may have more to say about these two cases after the New Year, but plan to take a blogging break between now and then.  Happy holidays!      

Patra on Daubert and Indian SEP Litigation

At the outset of this post, I’ll note that Dennis Crouch published another very interesting post today on the pending EcoFactor en banc, in which he notes that the Federal Circuit on December 4 issued an order which states:

The court granted rehearing en banc “limited to addressing the district court’s adherence to Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), in its allowance of testimony from EcoFactor’s damages expert assigning a per-unit royalty rate to the three licenses in evidence in this case.” Google’s argument at pages 41–58 of its brief exceeds the scope of the court’s en banc rehearing, as its footnote 11 all but recognizes. EcoFactor should not address this argument in its response brief.

Pages 41-58 address apportionment, so apparently that topic is off-limits.  Obviously it’s up to the court to decide the appropriate scope of the en banc, but still it might be helpful at some point if the court could devote some further attention to apportionment.  Anyway, I note this here as a segue to a recent article by Soumya Prakash Patra titled Applicability of the Daubert Standard to Indian SEP Litigation:  Analysing the Lava v Ericsson Case, 47 EIPR 55 (2025).  Here is the abstract:

This article demonstrates the potential benefits of using the Daubert standard in Indian Standard Essential Patent litigation. While the situation with SEP litigation and the quality of evaluation of expert witness testimonies is relatively undeveloped in the country, following the Daubert standard is likely to bring several improvements. The Daubert standard is a principle set by the US Supreme Court that provides rules by which experts’ testimonies may be evaluated. Following Daubert–like principles would improve the situation in India, as more specific and standardized criteria would be involved in assessing the reliability of expert testimonies.

The article discusses the use of expert economic and technical evidence in Lava v. Ericsson, a case I blogged about here, in which the Delhi High Court awarded Ericsson a global FRAND royalty, covering a portfolio of FRAND-committed SEPs for the period 2011-20, plus costs, totaling approximately USD $30 million.  Professor Patra states that under current law Indian judges have considerable discretion in deciding what evidence is admissible, and suggests that departing from this “flexible, context-based reception of expert testimony” would meet resistance; but that, nonetheless, more rigorous scrutiny of whether expert testimony is scientifically valid would improve decisionmaking, as would better training for judges “in examining complex technical and economic evidence.”  The author also briefly discusses the use of expert testimony in EU and Chinese SEP cases.  

Of course, as the introduction to this post indicates, it almost goes without saying that simply having something like a Daubert standard in place leaves open many important questions about how to apply it, so that parties have a fair opportunity to present their cases but unreliable evidence is excluded from consideration.

My Faculti Interview on Comparing the German and U.S. Approaches to FRAND Disputes

A few weeks I gave a 20-minute interview for the platform "Faculti."  The topic was the essay I published in the edited volume FRAND:  German Case Law and Global Perspectives (Peter Georg Picht, Thomas F. Cotter & Erik Habich eds., Edward Elgar Publishing 2024), titled Like Ships That Pass in the Night: U.S. and German Approaches to FRAND Disputes.  Here is a link to the video; I think it turned out pretty well.  The abstract for my essay is the following:

            The U.S. and German approaches to resolving disputes involving FRAND-committed standard-essential patents (SEP) diverge in many respects. While U.S. courts are reluctant to award injunctive relief in SEP cases, but have shown some willingness to determine FRAND royalties in both bench and jury trials, the German approach is precisely the opposite—with German courts interpreting the CJEUs decision in Huawei v. ZTE as authorizing awards of injunctive relief in many instances, while showing little enthusiasm for actually determining FRAND royalties themselves. The U.S. and Germany also differ in their tolerance for antisuit injunctions, which have become a recurrent topic in global FRAND disputes; and the countries’ perspectives on antitrust law differ fundamentally as well, with antitrust providing one of the few avenues for denying injunctive relief in Germany, while having relatively little bearing on SEP disputes in the U.S. thus far. These divergences reflect not only important differences in legal cultures and institutions but also, arguably, different understandings of optimal innovation policy. One way to transcend these differences might be through the establishment of a global FRAND tribunal or mandatory FRAND arbitration, as others have suggested, though whether such a solution will ever be forthcoming remains to be seen.

In case you're interested, my coeditors and I have participated in a couple of webinars relating to the topics of the book, see here and here, and I published a short piece on Patently-O as well, here.

Patent Assertion as Abuse of Economic Dependence?

 

In 2023 I blogged about a July 2022 decision of the Tribunal de l'entreprise de Brussels francophone, Chamber of Injunctions, Tunstall Group Holdings Limited v. Victrix Socsan S.L.  Tunstall is a company that markets telecare devices (reception units), and also markets and licenses software that implements a platform and protocols for use with the devices.  Tunstall is the owner of EP 2 160 038 B2 (“Tone signalling”), validated in Belgium, which the trial court described as “protecting the protocols used in the televigilance sector that it has developed.”  Télé-Secours, which markets televigilance services for elderly and vulnerable people, had been a customer of Tunstall for several years, but was unhappy with Tunstall’s delay in providing an updated platform.  Tunstall therefore sought to hire Victrix, a Spanish firm, as a replacement.  Tunstall refused to license Victrix, however, although it licenses other firms against which Tunstall competed in the Belgian market.  Tunstall then sued Télé-Secours and Victrix for infringement, arguing that Victrix had offered to supply an infringing platform to Télé-Secours, and that that certain “test calls” between Télé-Secours and Tunstall constituted infringing uses.  The defendants in turn counterclaimed for abuse of dominant position (in violation of competition law) and for abuse of economic dependence (in violation of a Belgian statute enacted in 2019).  The trial court concluded that Tunstall had not proven infringement by either defendant, and dismissed the competition-law claim on the ground that Tunstall was not dominant throughout the entire EU.  (That rationale struck me as shaky back in 2023, and as we shall see the appellate court dismissed the claim on the merits instead.)  But the trial court found that Tunstall had abused its economic dependence, and ordered the companies to conclude a license on terms in line with market value. 

I had been wondering if the appeal from the first instance judgment had been decided, and so I was pleased that, at the recent conferences I attended in Asia, Professor Amandine Léonard was able to share with me a copy of the appellate court decision (Cour d’appel de Bruxelles, 9^e ch., June 8, 2023), reversing the judgment below on the abuse of economic dependence issue.  The court also affirmed the finding of no abuse of dominant position, on other grounds, and affirmed the judgment that Tunstall did not prove infringement.

On abuse of economic dependence, the appellate court states, as had the trial court, that there are three cumulative conditions:  a situation of economic dependence, an abuse, and damage to competition (para. 21).  More precisely: 

The situation of economic dependence is “a position of subjection of one enterprise toward another or many other enterprises, characterized by the absence of an alternative reasonably equivalent and available without delay, on reasonable conditions and at reasonable cost, enabling the enterprise or each of them to extract benefits or conditions which could not be obtained under normal market conditions” (para. 22).

Here, however, the court concludes that the first element is not satisfied, stating that

In affirming that it does not have, for its platform, an alternative supplier to Victrix, Télé-Secours proceeds from an erroneous premise:  the existence of an alternative must be sought in comparison with the existing platform, and not that of Victrix.

 

According to the judgment of the court of first instance, Télé-Secours is a captive of Tunstall's technology in that “Tunstall possesses the patented technology needed to ensure the connection between the vast majority of the reception units of Télé-Secours’ subscribers and the future platform to be implemented.”  But it admits that ESI France has an alternative—this company benefiting from a license from Tunstall and having proposed a platform to Télé-Secours. Télé-Secours also acknowledges the existence of a new platform, launched in 2022, from Enovation, of which it concedes the architecture appears to be similar to that of Victrix. It appears as well that Z-Plus (another telemonitoring operator in Belgium) has recently opted for the platform proposed by Mextal.

 

The question is therefore whether the platforms proposed by the three above-mentioned players constitute a reasonably equivalent alternative, available within a reasonable timeframe, on reasonable terms and at reasonable cost. They cannot be disqualified on the grounds that their suppliers are Tunstall licensees, for the use of the disputed protocols, the sector to be considered being that of platforms.

 

It is not disputed that the above-mentioned platforms are currently available. Although Télé-Secours asserts that it “must have a task management tool such as Victrix's, which it does not find in Tunstall's licensees” (its conclusions, p. 53), it acknowledges that it has already installed this management tool, which brings real added value to the work of its operators, even if its non-integration in the platform limits its possibilities of use. It does not demonstrate, nor does it assert, that this feature is indispensable and that the aforementioned platforms do not offer a “reasonably equivalent” alternative in this respect. For the rest, it merely asserts that the Victrix platform is more flexible and easier and more efficient to use than the other platforms. With regard to the Enovation platform in particular, Télé-Secours states that it rejected it on the grounds that it did not meet its needs, in addition to the fact that it is substantially more expensive than the Victrix platform, a criticism also levelled at the ESI platform. Télé-Secours’ requirements in terms of flexibility of architecture or easier, more efficient use of the Victrix platform, in the absence of further details, are not such as to lead to the conclusion that there is no reasonable alternative(s) within the meaning of the aforementioned provision.

 

Télé-Secours relies on offers made to another operator . . .  with Victrix and ESI France’s offers being EUR 175,000 and EUR 201,519 respectively, for five years, which does not allow us to conclude that ESI France’s offer is “substantially” more expensive, given that it includes the cost of Tunstall’s license fees, which amount to EUR 17,000.00 for five years. It has therefore not been established that the cost of the above-mentioned platforms is “unreasonable.”

 

Lastly, Télé-Secours asserts, but does not prove, that Z-Plus is not fully satisfied with the Mextal platform, and at the very least does not explain why (paras. 25-27).

The court therefore does not need to consider the second element, whether Tunstall demands benefits or imposes conditions upon Télé-Secours that would be abnormal (para. 28).

Turning next to Victrix, the appellate court concludes, contrary to the court of first instance, that such a claim can only be brought by a party that is already in a business relation with the abuse defendant; the claim does not extend to precontractual negotiations (para. 30).

 On abuse of dominant position, the appellate court finds that, under governing CJEU standards (e.g., the IMS Health decision from 2004), Tunstall’s refusal to license would not constitute an abuse of dominant position unless there were evidence that the refusal precluded the development of a new product or new technology for which there exists potential consumer demand, Tunstall lacked an objective justification for the refusal, and the refusal would tend to exclude all competition in a derivative market.  On the facts, the court doesn’t find that to be the case here.  It also notes that, if these conditions are too readily found, there would be less of an incentive to invest in creating the asset at issue (paras. 32-37).

I am inclined to agree with the appellate court's reasoning, that the successful invocation of either abuse of dominant position or abuse of economic dependence as a rationale for obligating the patent owner to license its IP should be rare--though perhaps not quite as rare as such cases are under U.S. antitrust law (e.g., Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP).  I'm especially wary of the abuse of economic dependence doctrine, an expansive interpretation of which would open quite a Pandora's box, in my view (see my post on the court of instance case here).  Limiting such claims to cases in which the patent owner is exploiting an existing commercial relationship makes me think, however, that perhaps abuse of economic dependence could play some role, in those countries that recognize it at all, in regulating "holdup" in the sense originally developed by Oliver Williamson and others, as a form of opportunism on the part of the dominant party in a contractual relationship; for discussion, see pages 1514-29 of my article with Erik Hovenkamp and Norman Siebrasse discussing the origins of holdup theory and its subsequent application to patent infringement cases.

 Postscript:  For a summary of a more consequential decision, involving a finding by the European Commission that Teva abused its dominant position by missing the patent system and disparaged a competing product, see here.  I've been holding off blogging about it until there is a publicly available decision to read.