Three Federal Circuit Damages Opinions in a Week

Yesterday, the court handed down its nonprecedential decision in EcoServices, LLC v. Certified Aviation Services, LLC.  The patents in suit relate to a system and method for cleaning jet engines.  The principal issues are patentable subject matter (regarding which Judge Dyk dissents from the majority), claim construction, claim definiteness, and nonobviousness, but there is a damages issue as well.  There were two patents in suit, but one of them had expired before the trial began.  Because the expert witness based his opinion regarding the amount of the royalty the parties would have negotiated ex ante, in part, on that now-expired patent--and, according to the panel opinion, "awarded little, if any, value to the" other one--the court concludes that the lower court abused its discretion in awarding $400 per wash, and remands for further proceedings.

Earlier in the week, in the nonprecedential Exmark Mfg. Co. v. Briggs & Stratton Corp., the court affirmed a judgment of infringement and validity, as well as the district court's calculation of prejudgment interest.  In an earlier proceeding, the district court had awarded prejudgment interest at the T-Bill rate (rather than, as the plaintiff requested, the prime rate) in part because it faulted the plaintiff for delaying suit and in part because it was also awarding substantial enhanced damages.  That judgment was reversed on appeal and remanded.  On remand, the the court awarded lower enhanced damages and adjusted the interest into a prejudgment and postjudgment component.  For the prejudgment component, the court still awarded the T-Bill rate but for the postjudgment interest it awarded the prime rate.  The Court of Appeals finds no abuse of discretion, stating:

Because the lower interest rate initially awarded was intended to penalize Exmark for its delay in filing suit, it became less representative as more time passed after the suit was filed. Under the circum-stances in this long, drawn-out litigation, we cannot con-clude that it was an abuse of discretion for the district court to correct the initially assigned interest rate by bifurcating the prejudgment interest award between pre-suit and post-suit time periods (p.17).

Finally, a week ago, the court in GlaxoSmithKline LLC v. Teva Pharmaceuticals USA, Inc., the court reversed a JMOL and reinstated that the jury verdict that Teva induced physicians to infringe GSK's method of treatment patent after Teva started marketing carvedilol with a "full" instead of a "skinny" label.  (Chief Judge Prost dissented.  For discussion of the substantive issues, see Dennis Crouch's write-up on Patently-O.)  The court also reinstated a $234 million lost profits judgment, affirming the district court's decision that other generic carvedilol products on the market were infringing, rather than noninfringing, alternatives, and thus didn't reduce the damages award.  At first blush, that sounds correct--but wouldn't that also potentially have been true in cases such as State Industries v. Mor-Flo Industries, where the court awarded market share lost profits damages against the infringer?  It was alleged in that case that the other firms in the market were infringing the plaintiff's patent too, and I've long thought that an implication of that case was that the patent owner would have had to file suit against those other firms to recover the sales it lost to them.  Maybe there's a difference in that (according to Professor Crouch) GSK is pursuing infringement actions against the other generic firms--though I'm not sure why that would matter, and I would hope that the courts in those other cases apply the single recovery rule, so that GSK doesn't recover more than once for the same loss.       

Correction:  As Norman Siebrasse has pointed out to me, GSK was seeking only to recover the profit it lost on sales to Teva (I think), not all the sales it lost to generic competitors.  If so, then it appears the decision is correct and the market share theory wouldn't come into play.

Bloomberg Law Article on Recent Federal Circuit Damages Cases

Perry Cooper has published an article in Bloomberg Law titled Sweat the Small Stuff: Lessons of Federal Circuit Damages Cases.  The article discusses six recent Federal Circuit damages opinions (most of which I also have mentioned on this blog, see here, here, here, here, and here):   Arctic Cat v. Bombardier Recreational Products,  Packet Intelligence v. NetScout Systems, Bio-Rad Laboratories v. 10X Genomics, Hologic v. Minerva Surgical, Hafco Foundry & Machine v. GMS Mine Repair, and WCM Indus., Inc. v. IPS Corp. The article quotes me (stating, among other things, that the opinions show how important seemingly small matters such as patent marking can be), Professor Dmitry Karshtedt, and Orrick partner Mel Bostwick. 

I plan to take a blogging break next week, August 24-28.

Federal Circuit Affirms Damages Judgment Despite Invalidity of One of Two Patents in Suit

The case is Hologic, Inc. v. Minerva Surgical, Inc., opinion by Judge Stoll.  This a complicated case, but basically its boils down to the following.  An inventor, Truckai, procured two patents, one including certain method claims and one a device claim.  He assigned the two patents to an assignee, and eventually they were acquired by Hologic.  Hologic later asserted that Truckai's firm, Minerva, was infringing the two patents.  Minerva petitioned for inter partes review of the two patents in suit.  The PTAB instituted review of the patent that includes the method claims in suit, and found those claims invalid; it did not institute review of the other patent.  The Federal Circuit, in a previous opinion, affirmed.  But before that happened, the district court entered summary judgment of validity and infringement, and held a trial on damages.  The jury awarded lost profits for a portion of the infringing sales and a reasonable royalty for the remainder, without distinguishing between the two patents.

Under Federal Circuit precedent, the doctrine of assignor estoppel precludes the defendant here from asserting the invalidity of the patents in suit as a defense to infringement.  However, the doctrine doesn't apply to IPRs. The defendant therefore asserts that the district court is bound by the doctrine of collateral estoppel to respect the PTAB finding, affirmed on appeal, of invalidity as to the method claims.  On appeal, the Federal Circuit agrees.  

One can debate the merits of this outcome as a matter of policy, but this blog is about damages, so I'll focus on the damages issues.  The most important of these is whether the damages case must be retried because the jury didn't distinguish between the valid and (subsequently determined to be) invalid patent.  The Federal Circuit says no:

“The general rule is that when a ‘jury was told it could rely on any of two or more independent legal theories, one of which was defective,’ the general verdict must be set aside.” WesternGeco L.L.C. v. ION Geophysical Corp., 913 F.3d 1067, 1073 (Fed. Cir. 2019) (citations omitted). “In a situation—such as this one—where the jury rendered a single verdict on damages, without breaking down the damages attributable to each patent, the normal rule would require a new trial as to damages.” Verizon Servs. Corp. v. Vonage Holdings Corp., 503 F.3d 1295, 1310 (Fed. Cir. 2007) (citing Memphis Cmty. Sch. Dist. v. Stachura, 477 U.S. 299, 312 (1986)); see also DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245, 1262 (Fed. Cir. 2014) (vacating the damages award upon holding the claims of one of the two patents-in-suit invalid as anticipated and noting that its decision “could warrant a new trial on damages” (citing Verizon, 503 F.3d at 1310)).

We have recognized, however, an exception to this general rule. A single damages award “can be sustained” if, despite the fact that some of the asserted claims were held invalid or not infringed subsequent to the award, “undisputed evidence” demonstrated that the sustained patent claim was necessarily infringed by all of the accused activity on which the damages award was based. WesternGeco, 913 F.3d at 1074. In such cases, “we apply a harmlessness analysis similar to our approach in the case of erroneous jury instructions.” Id. (citation omitted); see also Chrimar Holding Co., LLC v. ALE USA Inc., 732 F. App’x 876, 886 (Fed. Cir. 2018) (holding that a new trial to determine damages on a patent-by-patent basis was unnecessary because the same royalty damages applied whether the claims of one or three asserted patents were infringed). For the reasons that follow, we conclude that a departure from the general rule is warranted in this case.

In each of WesternGeco, Verizon, and DDR, this court vacated the damages award and remanded to the district court to determine in the first instance whether a new trial on damages was warranted based on this court’s invalidity or noninfringement ruling. See WesternGeco, 913 F.3d at 1075; Verizon, 503 F.3d at 1310; DDR, 773 F.3d at 1262. By contrast, the district court in this case addressed the issue of apportionment and determined that the jury verdict on damages was “adequately supported by the finding of infringement of Claim 1 of the ’348 patent.” JMOL Op., 2019 WL 1958020, at *3. The district court’s determination is supported by undisputed evidence. Hologic’s damages expert explained to the jury that the same royalty rate he used in his damages calculation would apply to either the ’183 patent or ’348 patent, “individually or the two patents collectively,” since they “both cover the entire procedure and device respectively.” J.A. 30439 at 1084:7–25. The expert was then cross-examined about his reasoning. Thus, Hologic presented evidence to the jury that the damages award could be supported if either or both of the ’183 and ’348 patents’ claims were infringed and valid. Minerva did not present any contrary evidence. Accordingly, we conclude that a departure from the general rule requiring a new trial is warranted in this case.

Minerva asserts that it asked for a jury instruction on apportionment but that its request was denied. The district court reasoned, however, that Minerva had not presented any evidence to the jury explaining why apportionment was necessary. . . . When asked during oral argument on appeal whether there was any evidence on apportionment other than the testimony by Hologic’s expert, Minerva’s counsel could not identify anything in the record. . . . Likewise, following oral argument, this court did not receive any supplemental briefing identifying any testimony or other evidence to rebut Hologic’s expert’s testimony.

Because Hologic’s expert’s testimony remains undisputed, we see no error in the district court’s conclusion that the jury’s royalty award should stand. We have considered Minerva’s additional arguments concerning the jury’s damages award, including its award of lost profits, but we do not find them persuasive. Accordingly, we affirm the district court’s denial of Minerva’s motion for judgment as a matter of law of no damages or, alternatively, for a new trial on reasonable royalty damages (pp. 21-23).

The court also rejects various arguments relating to the award of supplemental damages (damages for infringing acts from April 1, 2018 to November 19, 2018).  Nevertheless, it finds that the district court erred in using the date of judgment on the jury verdict (August 13, 2018) as the date from which to calculate pre- and postjudgment interest on the supplemental damages, because for interest on the supplemental award the relevant date is the date of entry of the judgment on supplemental damages (here, June 3, 2019). 

Federal Circuits Modifies Award of Postjudgment Interest in Multimillion Dollar Arbitration

The court's opinion this morning in Bayer CropScience AG v. Dow Agrosciences LLC is available here.  It's a complex commercial dispute involving an alleged breach of a patent licensing agreement and patent infringement, and the underlying facts raise a host of issues relating to (among other things) jurisdiction, written description and enablement, double patenting, postexpiration royalties, and damages for loss of opportunity under French law.  Since the parties had agreed to arbitrate disputes arising out of the licensing agreement, however, the scope of federal court review of the $455 million judgment—including just under $375 million for loss of opportunity, and just under $68 million for patent infringement--is very limited, and the court finds no reason to disturb the arbitration award on grounds of public policy.  The only matter that the court does disturb is the district court's decision to award postjugdment interest at the same rate (8%) that the arbitrators had awarded for prejudgment interest.  On the issue of interest, the Federal Circuit explains:

. . . the tribunal did not manifestly disregard Indiana law governing pre-judgment interest. Based on the evidence submitted by the parties, the tribunal found it highly likely that Dow and MS Tech would have pursued Option B if they had not breached the 1992 Hoechst-Lubrizol Agreement. . . .  The tribunal calculated contract damages based on the amount that Bayer would have received under the 2007 Bayer-MS Tech agreement and awarded pre-award interest based on that amount. The parties agree that Indiana law governs the pre-judgment interest award. . . .

Although we affirm the district court’s decision to confirm the arbitral award, we conclude that the court abused its discretion in denying Dow’s motion to amend the judgment to use the federal statutory rate for postjudgment interest for the period beginning with the entry of the district court’s judgment. 28 U.S.C. § 1961(a) provides that “interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment.” Dow argues that the court was obligated to replace the tribunal’s “post-award” interest rate with the statutory post-judgment rate for time after the district court’s judgment. We agree on the facts of this case.

Under the doctrine of merger, when “a valid and final judgment for the payment of money is rendered in favor of the plaintiff, the original claim of the plaintiff is extinguished and a new cause of action on the judgment is substituted for it.” Restatement (Second) of Judgments § 47. Reflecting that notion, numerous circuits have concluded that once a federal court confirms an arbitral award, the award merges into the judgment and the federal rate for post-judgment interest presumptively applies. . . . To overcome this presumption, courts have required the parties or arbitrators to unambiguously express their intent to replace the federal rate for the post-judgment period. . . .  

In this case, there is insufficiently clear evidence to displace the federal statutory rate. Here, the tribunal granted “post-award interest” “at the rate of 8% from the date of this Award until full payment.” J.A. 560, 563. And it is undisputed that the tribunal’s attention was not called to the distinction between the time from award to confirmation judgment and the time after confirmation judgment. We see no basis on which to distinguish these circumstances from other grants found to be insufficiently clear to displace the statutory post-judgment rate (pp. 23-26). . . .

If this had been a straight-up patent infringement action, of course, the prevailing patent owner would have been presumptively entitled to prejudgment interest under General Motors Corp. v. Devex Corp., 461 U.S. 648 (1983).  Devex holds that, in enacting § 284 of the Patent Act, “Congress sought to ensure that the patent owner would in fact receive full compensation for ‘any damages’ he suffered as a result of the infringement,” and that courts therefore should award prejudgment interest on the compensatory portion of an award “absent some justification for withholding” it (such as when the patent owner has delayed prosecution of the suit).  Postjudgment interest, by contrast, is governed as the Federal Circuit notes above by a separate federal statute, the applicability of which is not limited to patent cases. See 28 U.S.C. § 1961(a) (“Interest shall be allowed on any money judgment in a civil case recovered in a district court. . . . Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment.”); see also id. § 1961(b) (stating that postjudgment “[i]nterest shall be computed daily to the date of payment except as provided in section 2516(b) of this title and section 1304(b) of title 31, and shall be compounded annually”); Fed. R. App. P. 37(a) (“Unless the law provides otherwise, if a money judgment in a civil case is affirmed, whatever interest is allowed by law is payable from the date when the district court's judgment was entered.”).

The standards for awarding interest in patent cases appears to me to be one of the least-frequently discussed, and most undertheorized, topics in the literature on patent remedies.  Within the United States, courts have considerable discretion whether to award simple or compound prejudgment interest (despite the fact that compound interest is necessary to ensure adequate compensation for the time value of money), as well as which rate in particular to apply.  Practice in other countries can take several different paths, with some awarding prejudgment interest infrequently or never, others awarding (sometimes or always) only simple interest, and yet others awarding interest at a fixed statutory rate.  See Thomas F. Cotter Comparative Patent Remedies: A Legal and Economic Analysis 209, 276-77, 328 (Oxford Univ. Press 2013) (discussing practice in the U.K., France, Germany, and Japan); Global Patent Litigation: How and Where to Win 9-12 to-13, App. C. at C-48 tbl. A (Michael C. Elmer & C. Gregory Gramenopoulos eds., Bloomberg BNA 2016).  The best economic analysis of these issues that I've seen to date is Roy Epstein, Prejudgment Interest Rates in Patent Cases: Don’t Compound an Error, 24(2) IPL Newsletter, Winter 2006, available at http://www.royepstein.com/Epstein_ipl_winter_2006.pdf,  which recommends as a general rule that courts should choose a rate that reflects the defendant’s cost of short-term borrowing as reflected in statistics published by the Federal Reserve.

Update:  Dennis Crouch also has a write-up on this case on Patently-O, along with a link to the (redacted) arbitration award.  And I should have noted above that the Federal Circuit's opinion is designated as nonprecedential.