EWHC Awards £13.4 Million in Patent Damages

The decision of the Patents Court (England and Wales), authored by Miss Charlotte May KC sitting as Deputy High Court Judge and handed down on September 27, is Geofabrics Limited v. Fiberweb Geosynthetics Limited [2022] EWHC 2363 (Pat.).  Claire Wilson and Eden Winslow have published a detailed summary on EPLaw and on the Kluwer Patent Blog, which I commend to readers’ attention.  Although, with one exception noted below, the legal issues in the case seem fairly straightforward, the factual issues relating to the appropriate lost profits damages for the infringement of the plaintiff’s patent (for a geosynthetic railway track bed liner) were complex.  The final paragraph gives you a sense of the painstaking analysis the court went into to determine the appropriate award (ultimately calculated by the parties, following the court’s factual conclusions): 

284. For the reasons set out above, I have concluded as follows:

 

i) In the counterfactual, there would not have been an exclusive distribution agreement between the Claimant and [third party distributor] Aqua for the sales of [plaintiff’s product] Tracktex to Network Rail.

ii) All sales of [accused product] Hydrotex 2 in the actual would have been sales of Tracktex in the counterfactual, and the Claimant would have had capacity to make them.

iii) The price of Network Rail sales should be based on the 2011-2012 Network Rail price matrix, with an annual price increase of 3.25% applied every two years.  The price of non-Network Rail sales should be based on the 2011-2012 Aqua price matrix, with an annual price increase of 2% applied  every year. The pricing matrices should be calculated on the basis of number of rolls.  There should not be an additional rebate in respect of the non-Network Rail sales beyond that included with the pricing matrix.

iv) The Claimant’s damages should be reduced by a figure of £189,008 to reflect the savings that it made from redundancies that would not have occurred in the counterfactual.

v) Future losses should be calculated by reference to a period of price depression over two years and based on Mr Chapman’s approach to estimating the ASP.

 

vi) The Claimant cannot recover damages based on the £6.50 Crossrail price, which is too remote.

vii) The appropriate interest rate is 2% above base.

 

285. The parties will need to carry out calculations in accordance with my findings. I will hear further argument on this if necessary, and in due course as to the appropriate form of order.

As stated above, the legal issues for the most part seemed fairly straightforward; the plaintiff has the burden of proving but-for causation (“that ‘but for’ the infringement, the damage would not have occurred”), but “cannot recover damages for losses that are too remote” (paras. 69-70). The court also has “discretion to award simple interest for such period and at such rate as it thinks fit” (para. 78).  The part that is less straightforward relates to the “loss of chance” doctrine, which the court (after summarizing other cases and authorities) boils down to the following:

 

77. These authorities make clear that the “loss of chance” analysis applies if the uncertainty on quantum rests on hypothetical future events or the actions of a third party. By contrast, where the uncertainty on quantum rests on what the claimant hypothetically would have done, then this is determined on the balance of probabilities.

In the present case, the application of the rules summarized in para. 77 resulted in the court rejecting one of the defendant’s arguments for a damages reduction.  Specifically, there was testimony that, in the real world, the plaintiff entered into an exclusive distribution agreement with Aqua “to avoid the risk of Aqua purchasing Hydtrotex 2 instead of Tracktex and to maintain good relations with Aqua” (para. 33).  The plaintiff argued that the exclusive distribution agreement was less profitable for the plaintiff than it would have been to deal directly with end customers.  The defendant countered that the plaintiff would have entered into an exclusive distribution agreement with Aqua even in the absence of the infringement, but the court disagrees:

 

80. The Defendant argues that the Claimant would have entered into an exclusive distribution agreement with Aqua in the counterfactual, either (i) because the Claimant would have offered it or (ii) because Aqua would have demanded it. The parties agree that I should assess (i) as a balance of probabilities because it is dependent upon what the Claimant would have done and (ii) as a % chance because it is dependent upon the hypothetical actions of a third party. That is consistent with the case law that I have set out above. . . .

 

111. . . . I reject the Defendant’s arguments that the Claimant would have offered an exclusive distribution agreement to Aqua in respect of all Tracktex sales. On the balance of probabilities, the Claimant would have continued the supply arrangements that were in place immediately before Hydrotex 2 came onto the market, which comprised direct supply to Network Rail and exclusive distribution via Aqua to contractors, specific projects, and non-Network rail customers. . . .

 

118. For all these reasons, there was no material before me upon which I could conclude that there was any real chance that Aqua would have demanded an exclusive distribution agreement, and I reject this part of the Defendant’s case also.

 

119. I should note for completeness that Mr Hicks also argued that even if there was a chance that Aqua would have demanded an exclusive distribution agreement in the counterfactual, then the Claimant would have refused that demand on the balance of probabilities. It was not put to Mr Donald in cross-examination that the Claimant would have agreed to an exclusive distribution agreement if Aqua had demanded one, and there was no other evidence to support this part of the  Defendant’s case. Based on what I have held above, I do not have to decide this point. However, in case it matters, I would have held that it is more likely than not that the Claimant would have refused the demand if it had been made. This is essentially for the same reasons that I have given above in support of my view that the Claimant would not have been likely to offer an exclusive distribution agreement. The Claimant would not have needed to accede to such a demand, and it would not have been in its commercial interest to do so.

I’ll stop with this, and note only (as I have noted before, see here, here, and here, as well as the coauthored "Lost Profits" chapter from Patent Remedies for Complex Products, pp. 71-72) that although damages for loss of chance are available, under some circumstances, in IP disputes in (at least) the U.K., Canada, and France, to my knowledge they are not available in IP disputes in the U.S. (though a few U.S. states award loss of chance damages in medical malpractice cases).  On its face, the unavailability of such damages under U.S. law seems (to me) likely to be suboptimal, but I must confess that this is a theoretical matter that I have yet to devote sufficient attention to.  There is a established law-and-economics literature on the subject, including for example this recent article by Professor Robert Rhee, that I need to familiarize myself with, and would welcome any insights or further materials on point from readers.

From Around the Blogs

1. Bashayer Almajed and Bashar Malkawi published a post on IPKat titled Damages for Patent Infringement: The Chinese Perspective.  The post notes, among other things, that statutory damages remain the most common type of patent damages in China, and that on June 1 the highest amount of statutory damages permitted rises to RMB 5 million, and that up to quintuple actual damages or profits will be permitted for willful infringement.  The authors also have posted an article on ssrn titled Royalty Rate Determination in Patent Infringement Cases: The U.S. and China Compared, 17 J. Intell. Prop. L. & Prac. __ (forthcoming 2022).  Here's a link, and here's the abstract:

Intellectual Property is the cornerstone for a thriving economy. Indeed, intellectual property protection is a major determinant of economic growth. One important part of this legal and economic environment is patent. Licensing plays an important role in patent as it is one of the methods by which an intellectual property owner can reap the benefits of his labor.

This article will focus on determining royalty rates and damages in U.S. and China's patent cases. While the article focuses on court decisions, it also reviews the different laws to see the manner in which these laws have played in the development of methods for calculating royalty rates and damages. There are different factors that may not allow for the adherence to a one-size fits all recipes for calculation of royalty rates and damages. Each country adopts its own methods. The remainder of the article is organized as follows. Section II of this article examines the different methods employed in the U.S. legal system to facilitate royalty rate and damage calculations for patents. This section examines methods such the 25 percent rule, Georgia-Pacific factors, reasonable royalty rate, the analytical approach, and the smallest salable practicing patent unit (SSPPU) method. Section III of this article looks at the Chinese model for damage calculations. The section explores China’s shift from the traditional framework for calculating damages in cases of infringement relying on actual compensation to statutory and punitive damages and the key factors that played in this transition towards. Section IV provides a set of conclusions.

I would advise the authors to clarify earlier than they do that Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011), disposed of the 25% rule of thumb in the U.S.

2.  Another recent post on IPKat, by Hayleigh Bosher, is titled Shady's back: Quantifying damages for copyright infringement of Eminem's album, and discusses a recent decision of the Intellectual Property Enterprise Court awarded £7,452.50, under the "notional license" framework, as a reasonable royalty for copyright infringement.  The court rejected a claim for additional damages under a "loss of opportunity" theory.

3.  On Law360, Richard Kamprath and Abigail Clark published an article titled Hedonic Regression Shows Promise For Modeling IP Damages.  The authors discuss the use of hedonic regression in the recent VLSI v. Intel case, which produced a $2.1 billion judgment, and its previous use in some antitrust and products liability cases.

4. Last week, the Seattle Times published a story by Paul Roberts titled ‘Any business with a web presence is a potential target’: State sues ‘patent troll’ targeting Washington firms.  According to the article, the case is the first one brought under Washington State's "Patent Troll Protection Act, a 2015 law that, according to the Attorney General’s Office, was intended to “‘"crack down"’ on ‘"patent trolls"’ who harass and threaten small businesses with patent infringement claims.'" As readers may be aware, several U.S. states began enacting legislation against alleged bad-faith patent assertions in the mid-2010s, though to my knowledge they haven't been used much.  Stories this week about this lawsuit can be found on Law360 and Bloomberg Law.

Update:  Josh Landau just called to my attention an article by Brian Craig, titled Standard of proof for claims under Oregon bad-faith patent enforcement law preempted by Patent Act, discussing a case last year in which a federal court dismissed without prejudice a counterclaim against what would appear to be a company related to the patent owner in the Washington case (asserting a different patent, however) under Oregon's Unlawful Trade Practices Act, for failure "to allege facts demonstrating the objective baselessness of the plaintiff’s claim, ascertainable loss, and reliance."  The preemption defense raised by the patent owner in this case presumably also will come up in the Washington lawsuit.  For a critical appraisal of the Federal Circuit's preemption standard for state-law claims implicating patents, see Paul Gugliuzza, Patent Trolls and Preemption, 101 Va. L. Rev. 1579 (2015).  

From Around the Blogs

1. IPKat published a post by Alain Strowel and Amandine Léonard titled How to Deal with Abusive Patent Enforcement Within the EU Enforcement Framework.  The authors argue that, in view of "a sharp rise in the number of patents applied for in Europe" and the "increased activity of aggressive Patent Assertion Entities (PAEs)," "courts in Europe (and, in particular, German courts) should infuse more flexibility into the ways that patent enforcement claims are considered."  They call particular attention to proportionality under article 3(2) of the IP Enforcement Directive, and the "abuse of right" doctrine under civil law.

The authors have previously published a somewhat more extended treatment of this topic in their article Cutting Back Patent Over-Enforcement – How to Address Abusive Practices Within the EU Enforcement Framework, JIPITEC–Journal of Intellectual Property, Information Technology and E-Commerce Law 11(1) 2020.

2.  Also on IPKat, Léon Dijkman published a post titled Neurim v. Mylan:  UK Court of Appeal denies interim injunction in face of a launch-at-risk, but are damages really adequate?  The post discusses a recent decision of the Court of Appeal affirming the denial of an interim injunction against a generic drug company that launched at risk, on the ground that damages would be an adequate remedy.  The author states that the decision is notable because it had become expected that U.K. courts would "readily grant interim injunctions if the generic entrant does not first seek to invalidate the patent," as in this case.  Link to the Court of Appeal's decision here.

Brian Cordery and Rachel Mumby also published a post on this case on the Kluwer Patent Blog, titled A wake-up call for patentees?, in which they poses several questions about the implications of the decision, and notes that at a later proceeding the court awarded Mylan 65% of its costs.   

3.  On the Kluwer Patent Blog, Roberto A. Jacchia has published a post titled Italian Court of Appeals awards EUR 1,5 mio damages in pharma patent case for 40 days infringement.  The post discusses a decision in a case filed by Merck Sharp & Dohme against Teva.  The author describes the case as "a considerable success for MSD for several reasons," but is critical of some of the court's reasoning, asking why "loss of margins caused by the decrease in the medicine's reimbursed price triggered by generic entry should be capable of compensation, whereas loss of margins caused by loss of volumes" or "loss of depreciation" should not. 

4.  On Law360, James Donohue and Marie Minasi published an article titled When Is the Hypothetical Negotiation for Patent Damages?   Noting that U.S. courts often determine reasonable royalties using a construct that "envisions a hypothetical negotiation at the time of first infringement," the authors state that "the analysis can be complicated by many factors," and that "[w]hich products are accused, covenants not to sue, license expirations, corporate transactions, assignments, asserting multiple patents, product development and testing, importing, and various other situations can all influence the date of first infringement."  For a somewhat different take on this issue, see pages 28-30 of the Reasonable Royalties chapter that my coauthors and I published in Patent Remedies for Complex Products:  Toward a Global Consensus (Cambridge Univ. Press 2019).

Law360 also recently published the third and final installment of Laurie Stempler and Dominic Persechini's series How Licensing Affects Patent Damages Apportionment.  For previous mention of the first two parts, see here.  The third part focuses on how the litigant's technical expert "can help protect the damages expert's opinion from exclusion."