Landmark German Case on Patent Damages, Part 1

Earlier this week, ip fray published a post discussing and excerpting a recent decision of the Seventh Chamber of the Munich I Regional Court, specifically the Judgment of Apr. 16, 2026, 7 O 8367/25.  The patent at issue is the German portion of EP 1 501 669 B1, for a “smoothing method for layered deposition modeling,” used in layered manufacturing techniques.  (I was interested to see that the inventors are from Eden Prairie, Minnesota, not much more than a stone’s throw from my house.)  The patent has expired, but the defendants were found to have engaged in indirect infringement during the patent term by selling machines and solvents used to carry out the process.  The present decision therefore focuses on damages, ultimately awarding €1,064,654.70 for the sale of 28 devices and 266 16-liter units of solvent (paras. 39-40), both used for carrying out the process.  But because “there are therefore few decisions regarding the amount of damages,” the court perceives “a need for judicial clarification on exactly how damages should be calculated. This is particularly necessary because, as a result of the European Court of Justice’s ‘BSH-Hausgeräte’ decision (GRUR 2025, 568), national courts are likely to have to deal with an increasing number of centralized claims for damages” (para. 42; I’ll be using machine translations throughout, subject to some adjustments of my own from the original German).  So beginning with paragraph 43 of the decision, the court sets out what it views as the relevant principles for calculating damages.  (These are summarized in the decision’s headnotes at the beginning of the decision, and these headnotes are the focus of the ip fray article.)  Overall, this appears to be quite an important decision, so I am dividing up my discussion and analysis into at least a couple of parts, with today’s post centering on the court's general statements regarding lost profits, royalties, and infringer's profits.

First, the court compares the three methods of determining damages (the aforementioned lost profits, royalties, and infringer’s profits), stating that the first of these is the hardest to prove but also tends to be result in a higher amount.  Reasonable royalties are comparatively easy to prove, and infringer’s profits something of a compromise between the two (para. 49), though the latter are not dependent on the amount of the patentee’s loss (para. 47).  This all seems largely correct to me, from an economic standpoint, although I would also point out that the infringer’s profit could be higher than the patentee’s own lost profit, if for example the infringer reaches markets the patentee doesn’t or is a more efficient producer of the patented article.  Overall, though, this discussion is in my view a welcome change from something I recall haven previously seen (see my discussion here) suggesting that in principle all three methods should converge on the same amount.

Second, the court notes that patentees’ reluctance to disclose their own financial information means that there are few decisions in which lost profits are awarded.  The court appears (to me) to want to change this, stating that all the patentee really needs to do is to prove its unit price and to offer the expert opinion of an auditor of what costs should be deducted (para. 51).  Moreover, the need to prove causation need not be insurmountable; all the patentee must do is prove a decline in sales following the infringement, and a rebuttable presumption then arises that these are caused by the infringement (para. 52).  The court suggests that the infringer can try to rebut the presumption through, perhaps, market reports--though the ip fray article suggests that in practice the presumption may be hard to overcome, because of the limited discovery available to defendants.

Third, the court says that patent owners can combine a lost profits award with a reasonable royalty or an award of profits, in cases in which the decrease in sales is at least partly attributable to other factors, or the infringer reaches additional markets that the patent owner didn’t serve.  But reasonable royalties can’t be combined with infringer’s profits (para. 53), all of which seems economically correct to me.

Fourth, in line with the BGH’s 2001 Gemeinkostenanteil decision, as a general rule when calculating an award of infringer’s profits, only the infringer’s direct costs should be deducted from its revenue (para. 54).  (The non-deductibility of allocable overhead, of course, leads to higher awards.)  In addition, however, the court stresses the importance of determining the extent to which the infringer’s profit is attributable to the infringement.  In this regard, it is essential to determine the appropriate base (Bezugsgröße).  Here, the court uses as an example an infringing brake pad.  In comparison with the entire vehicle the brake pad portion (Anteil) is vanishingly small; in comparison with the brake assembly, it is small; and in comparison with the brake pad itself it is, of course, 100% (para. 55).  In this regard, especially for a very small component of an entire product, the portion may be determined not be means of a percent but rather as a multiple of the standard license rate (para. 56).  In contrast, for machines which make use of a method or device claim, typically the percentage can be presumed to be 50% (para. 57).      

Fifth, a reasonable royalty can be viewed as a “safe harbor,” and the requirements for calculating it are minimal (niedrig).  The revenue from infringing products should be evident from the disclosure the defendant is required to make (in German, the Auskunft), after which it is necessary to determine the base (entire machine or component) and the typical license rate.  According to the court, the standard rate varies from 1% in the automobile industry to 10% for high-quality mechanical engineering (para. 58).  (The ip fray article suggest that these rates could really add up, since in Germany a separate action is required for each patent that is asserted by the plaintiff.  Or would the court take this procedural matter into account in calculating royalties, to avoid overcompensation?)

Sixth, the court states that because of differences between a negotiated license and license rate that is determined followed a finding of infringement, the latter can be higher, citing the Munich court’s 2010 Gülleausbringung decision (which I blogged about here).  This makes economic sense, since the infringer avoids certain risks that the voluntary licensee undertakes, and also because prior to final judgment there often will be some uncertainty as to infringement (though in Germany, there still may be substantial uncertainty as to validity, since the invalidation proceedings are separate from infringement proceedings).  As to the amount of the enhancement, the court says it can be up to three times higher (para. 59).  This actually seems pretty high to me, in view of the latter point about validity still potentially being in dispute.  

There is a lot more to the decision—some of it potentially quite path-breaking—including discussion of apportionment of profits, damages for convoyed goods, and springboard damages.  I will continue with my next installment on this decision in a few days.

Federal Circuit Reverses Judgment Awarding Extraterritorial Damages

The case in Trustees of Columbia University v. Gen Digital Inc., precedential opinion by Judge Dyk (joined by Judges Prost and Reyna), published this morning.  This is a very complicated matter, involving among other things an inventorship dispute that devolved into a contempt order against trial counsel for the defense (which contempt order is reversed in a separate appellate decision also handed down today, which I need not address here), as well as two previous appeals on claim construction and validity (which I also will not address).  The current decision involves questions of patent eligibility, claim construction, and damages; and as is my typical practice for purposes of this blog, I will focus only on the last of these.

There are two patents in suit, both of which related “primarily to protecting computer systems from viruses and other malicious activity” (p.2).  The claims at issue consist of one system claim, two method claims, and a computer-readable medium claim, all of which allegedly are infringed by software marketed by the defendant under the Norton brand.  The district court denied a motion to dismiss for lack of patent eligibility.  Then jury then returned a verdict of willful infringement and awarded damages of $185,112, 727; the district court awarded enhanced damages and fees.  On appeal, the Federal Circuit reverses and remands for further proceedings on the issue of patent eligibility--but “[b]ecause other issues may arise on the remand,” the court addresses one remaining issue of claim construction as well as the issues pertaining to damages and fees.  As noted, I will address the damages and fees issues only.  The most interesting of these—at least in my view, since I’ve written a fair amount now about this topic—is whether, on the facts of this case and assuming the patents in suit are valid, the patentee is entitled to damages reflecting foreign sales of Norton software.

As readers may be aware, the general rule that seems to be emerging from Supreme Court, Federal Circuit, and district court case law over the last few years is that, although U.S. patents are territorial rights, if the defendant engages in the unauthorized manufacture, use, or sale of patented products in the United States, and this domestic infringement causes-in-fact and proximately causes either (1) the plaintiff to lose sales that the plaintiff would have made to foreign customers, or (2) the defendant to make sales abroad that the defendant otherwise would not have made, the plaintiff is entitled to recover, respectively, either its own lost profit on its lost foreign sales, or a royalty reflecting some portion of the profit the defendant would have expected to earn from the defendant's foreign sales, as of the date of the hypothetical ex ante bargain.  In view of this precedent, the district judge gave the jury the following instruction:

Columbia is entitled to damages based on sales to customers located outside of the United States if you find that the infringing product sold to those customers was made in or distributed from the United States, even if the infringing product is delivered to a customer and used by the customer outside the United States (p.23; emphasis added by the Federal Circuit).

The jury found that the defendant (referred to throughout the opinion as “Norton”) sold antivirus software abroad, and that “the infringing product” was made in or distributed from the United States.  (The jury did not find that the sales to foreign customers “substantially occurred in the United States,” (p.24 n.7)).  The appellate panel nevertheless agrees with Norton that “no reasonable jury could conclude that any infringing copies of Norton’s software that were sold to customers outside the United States were made in the United States or distributed from the United States” (p.24). 

This seems correct to me under the governing standards for determining what an infringing software product is, principally Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2006).  As the panel explains:

Microsoft establishes that software in the abstract—that is, software not physically encoded in a “tangible copy” like a CD or hard drive—is akin to a “blueprint” or “a schematic, template, or prototype.” Id. at 449–50. If someone abroad builds an infringing product based upon a blueprint that exists in the United States, for example, then the product was still made abroad. See id. at 442. So too, software is not tangible—or capable of infringing the asserted claims—until tethered in a particular copy of the software encoded in a computer-readable medium (p.25).

Applying this principle:

The system claim, ’322 patent, claim 27, includes a “processor.” Like the apparatus claim at issue in Microsoft, this claim is not infringed until a particular instance of software is installed onto a computer with a processor. See Centillion Data Sys., LLC v. Qwest Commc’ns. Int’l, Inc., 631 F.3d 1279, 1288 (Fed. Cir. 2011). Because the instances of software sold to customers located abroad are not installed on a computer in the United States, those instances were not made in or distributed from the United States.

 

The same conclusion follows as to the other claims asserted here. A method claim is only infringed when the claimed process is performed; it is not infringed by the mere existence of software that, if installed on a computer, could perform the method. See Ericsson, Inc. v. D-Link Sys., 773 F.3d 1201, 1219 (Fed. Cir. 2014). Because the infringing software is only capable of performing either of the claimed methods once installed on a computer, the versions installed abroad also cannot give rise to domestic infringement. In any event, “[t]here is no established recognition in patent law of direct infringement by ‘making’ a ‘method.’” See Brumfield, 97 F.4th at 879. The methods here were not “made” in the United States nor “distributed” from the United States.

 

This leaves only claim 11 of the ’322 patent, the computer-readable medium claim. Columbia argues that this claim must be treated differently, because it does not require that a particular version of software be first installed on a computer with a processor to be infringing. It is true that claim 11 does not require software to be installed on a device with a processor, but claim 11 does still require that the software be encoded in a particular “non-transitory computer-readable medium.” ’322 patent, claim 11. While a non-transitory computer-readable medium may be created on a server in the United States, that medium is not exported abroad. The computer-readable media sold to foreign customers are only created once the foreign computer encodes the software on its hard drive, which occurs outside the United States. These computer-readable media are—like the apparatuses in Microsoft—created outside the United States and therefore cannot be domestically infringing. Under the logic the Court applied in Microsoft, these cannot constitute infringing products that were made in or distributed from the United States (pp. 25-26).

Columbia tries a few additional arguments on appeal, but none of them work.  The one that might have worked, had it been presented at trial, was that “the jury could have found that the domestic infringement involved in creating its master copies, which enabled the foreign sales, were the cause of the foreign sales damages. However, the jury was not instructed, and Columbia did not seek an instruction, that they could grant a reasonable royalty for foreign sales based on this theory. We cannot reform the damages theory actually presented to the jury in favor of an alternative that was not, even if the alternative would have been legally valid. . . . We thus need not reach the question of whether Columbia’s theory of foreign damages was proper under the causation theory of Brumfield.” (p.25).  My initial reaction is that that theory probably wouldn’t have worked either, because the causal connection between the domestic manufacture of the master copies and the foreign sales is too tenuous to satisfy proximate causation, though I would want to know more about the underlying facts to assert that opinion with confidence.  (Alternatively, if the domestic manufacture of the master copies could have been outsourced, then in my opinion outsourcing should count as a noninfringing alternative, and any royalty awarded for the resulting foreign sales should reflect only the cost saving, if any, of domestic over foreign manufacture of the master copies.  Whether the courts would agree with me on this remains to be seen.)  The appellate court also rejects arguments that Norton could be liable as a joint infringer with the foreign customers, or that Norton could be liable under an inducement theory (pp. 27-28).

As for willfulness and enhanced damages, the court affirms the finding of willfulness, primarily on the basis of evidence that Norton was aware in advance of “‘the Columbia professors’ designs and work before the patents issued’ including the provisional application,” and the lack of evidence that, during the relevant time period, Norton was aware of and acted upon its subsequently asserted objectively reasonable defenses (pp. 21-22).  The court nevertheless vacates the district judge’s enhancement of actual damages (2.6 times the actual damages) and the award of attorneys’ fees, in part because the amount awarded and the finding of exceptionality were based on the vacated finding of contempt of court.  In addition, the case was close (on patent eligibility) and Norton’s assertion of allegedly “repetitive” arguments did not amount to litigation misconduct.

Federal Circuit Authorizes Royalty Calculation Based on Nonpatented Articles

I’ve been busy the last several days reviewing the page proofs for my forthcoming book, Wrongful Patent Assertion:  A Comparative Law and Economics Analysis (Oxford Univ. Press 2026), which is due out in late spring or early summer.  Now that I have some time to resume blogging, I’ll start by discussing a short (but precedential) Federal Circuit decision from last Friday, Exafer Ltd. v. Microsoft Corp. (opinion by Chief Judge Moore, joined by Judges Taranto and Stoll).  It presents an interesting question relating to damages calculation. 

Exafer owns two patents in suit relating to “systems and methods for optimizing communication paths between virtual network devices by controlling data forwarding rules at intelligent switches” (p.2).  Exafer claims that “Microsoft’s Azure Platform, and specifically the Azure Smart Network Interface Cards (SmartNICs) and Virtual Filtering Platform (VFP) Fastpath technology (Accused Features),” infringe the two patents.  Exafer’s damages expert Mr. Blok was prepared to present an opinion concerning the hypothetical royalty the parties would have agreed to ex ante, using as the royalty base the value of certain noninfringing virtual machines (VMs).  The theory is that Microsoft’s use of the patented technology enabled “Microsoft to reduce the central processing unit (CPU) usage in Azure servers, freeing up CPU cores to host additional VMs” (p.6); and that the value to Microsoft of using the patented technology is therefore the revenue derived from hosting those additional VMs.  The district court agreed with Microsoft’s argument that it was impermissible to use the noninfringing VMs as the royalty base, but the Federal Circuit reverses and remands.

I think the Federal Circuit got it right, though I can understand the appeal of Microsoft’s argument that the royalty should not be calculated using the value of some other, noninfringing product.  (Going back in time, one might perceive a similar perspective in cases such as Zenith Radio Corp. v. Hazeltine Rsch., Inc., 395 U.S. 100, 135 (1969), which held that setting royalty rates on the basis of the licensee’s sales of unpatented products constituted patent misuse (while also holding that, if the licensee is not coerced into taking unwanted patents, but instead agrees for convenience to take a portfolio of patents, the arrangement is not misuse).)  The premise that the royalty must be related to the use of the patented technology is of course correct, but I think the Federal Circuit is right in finding a sufficient causal connection between that use and the increase in the number of VMs Microsoft can host; and as long as the revenue derived from that increase is a type of benefit that Microsoft would have anticipated ex ante, it stands to reason that the amount Microsoft would have been willing to pay ex ante would have reflected that expected benefit.  This is essentially the court’s view, as I read it:

[Exafer’s technical expert] Dr. Congdon opined that the network optimization and efficiency improvements achieved by the claimed inventions “would translate to, among other benefits, the ability to operate more virtual machines on a single CPU or host (i.e., increasing virtual machine density). Accordingly, by increasing virtual machine density, Microsoft would be able to sell more virtual machines without the need for additional network infrastructure.” . . . Mr. Blok’s VM-hour royalty base captured this incremental benefit of being able to offer additional VMs due to operation of the Accused Features within the Azure Platform. . . . This methodology is tethered to the patented invention and does not expand Exafer’s patent monopoly to unpatented technology. Mr. Blok’s testimony therefore satisfies the admissibility standards of Rule 702 (p.8).

Put another way, as long as the additional revenue associated with hosting more VMs was, ex ante, a foreseeable consequence of the use of the patents in suit, a willing licensee would have taken that added benefit into account in determining how much it was willing to pay for a license.  By contrast, requiring that the royalty be limited to the immediate benefit of the use (perhaps the cost savings associated with reduced CPU usage for purposes of powering the Azure platform, without any consideration of the next-best use of those otherwise idle CPUs) strikes me as a formalistic constraint lacking in economic substance.  That said, if the actual benefit derived ex post from freeing up some of the CPUs were of a type that would not have been foreseeable ex ante, then it should be excluded from consideration; but that is not my understanding of the facts here.

The case does make me think about the connections between the hypothetical bargain construct; the situations in which it might be rational for courts to make use of ex post information (which Norman Siebrasse and I wrote about a few years back); and the doctrine of proximate cause, which limits damages to those that are, inter alia, foreseeable.  I may have more to say about this in a future post.

Johnson on Assessments of Patent Damages in the U.K.

Phillip Johnson has published an interesting article titled The assessment of damages in patent infringement:  General Tire and a history of uncertainty, 15 Queen Mary J. Intell. Prop. 440 (2025).  Here is the abstract:

A court undertaking an assessment of damages has been a rare thing across most of the history of patent law. The House of Lords decision in General Tire & Rubber Company and Firestone Tyre and Rubber Company [1976] RPC 197 looked like it would provide some certainty. But as an exploration of the archive materials surrounding the Patents Bill shows, contemporaries took an entirely different view of the decision. A historical analysis shows not only the importance of the case but also the confusion it caused and how the proposed remedy of a statutory damages rule might have been worse than the cure.

The article traces the development of U.K. case law concerning patent damages beginning in the nineteenth century.  After enactment of the Patents, Designs and Trade Marks Act 1883, there was a flurry of case law on damages from 1885-1925, after which there were no reported decisions until General Tire in the mid-1970s.  Lord Wilberforce’s speech in that case embraced the framework proposed in Lord Justice Fletcher Moulton’s 1911 decision in Meters Ltd. v. Metropolitan Gas Meters Ltd., to the effect that judges should consider licenses already “granted and the rates of royalty fixed by them, to estimate their relevance and comparability, to apply them so far as he can to the bargain hypothetically to be made between the patentee and the infringer, and to the extent to which they do not provide a figure on which the damage can be measured, to consider any other evidence, according to its relevance and weight, upon which he can fix a rate of royalty which would have been agreed.”  Professor Johnson’s research shows that in the wake of this decision, there was serious discussion of enacting a bill that might have expressly codified a “willing licensor/willing licensee” approach to royalty awards, though ultimately no such bill was passed.  Although the Intellectual Property (Enforcement, etc.) Regulation 2006 reflects IPRED article 13 and does reference “the royalties or fees which would have been due had the defendant obtained a licence,” Professor Johnson states that it “did not change practice significantly.” He concludes that the proposed statutory provision in the 1970s might not have improved matters and that “General Tire remains a precious precedent.”

For what it’s worth, I provide some discussion of General Tire, Meters, and some of the other relevant British cases in chapter 3 of Comparative Patent Remedies and in chapter 4 of my new book, Remedies in Intellectual Property Law.  I will be sure to note the above article in any subsequent editions!

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I've been very busy lately, and will be taking a blogging break next week.  I plan to return the week of February 9. 

Damages for Industrial Property Infringement in France

Grégoire Desrousseaux, Mayeul Ottaviani, and Louis Jabert have published an article titled L’évaluation du prejudice de la contrefaçon devant les juridictions françaises, Propriété Industrielle (“Quantifying infringement harm before the French courts”), Sept. 2025, pp. 15-26.  I highly recommend the article to anyone who wants to understand how the French courts calculate damages for the infringement of patents, trademarks, and designs.  The abstract reads as follows (my translation):

 

The transposition into French law of the damages calculation rules of Directive 2004/48/CE has caused a lot of ink to flow.  The authors have attempted an empirical, cross-sectional approach for the amount and calculation of damages, in compiling the accessible decisions rendered between 2016 and 2025 concerning patents, trademarks, and design and models.  An objective was to analyze, concretely, how the parties and the courts make use of the economic factors (often incomplete) to which they have access, to justify their demands and to guide their decisions.  Another objective was to try to identify—if they exist—the most common methods of calculation.

The article is enlightening.  The authors identified 52 decisions from the relevant time period, decided by courts of first or second instance (juridictions du fond), consisting of 26 patent decisions, 19 trademark decisions, and 7 involving designs and models.  They divide these into two basic categories, paragraph 1 and paragraph 2, reflecting the division set forth in the relevant statutory provisions for patents, trademarks, and designs, which for all three reads the same, to wit (again, my translation):

            For assessing damages and interest, the court takes into account distinctly:  (1) the negative economic consequences of the infringement, including lost profits and the loss sustained by the injured party; (2) the moral prejudice incurred by the latter; and (3) the profits realized by the infringer, including the intellectual, material, and promotional investments which the latter has derived from the infringement.

    

            However, the court may, alternatively and upon request by the injured party, award damages as a lump sum.  This amount is higher than the royalties or fees that would have been due if the infringer had requested authorization for the use of the right infringed.  This sum does not exclude compensation for moral prejudice inflicted upon the injured party.

According to the authors, 45 of the 52 cases (87%) made use of the first paragraph, and only 7 (13%) the second.  Of those falling into the first class, they found 4 that (wrongly, in their view) cumulated (that is, added together, if I understand correctly) lost profits with infringer’s profits.  15 were based on lost profits, 24 on infringers’ profits, and 2 used a mixed methodology (meaning that the amount awarded fell in between lost profits and infringers’ profits).  They describe the formula for lost profits as follows:  (1) the number of infringing products sold by the infringer, (2) multiplied by the price at which the plaintiff would have sold those products, (3) multiplied by the plaintiff’s profit margin, (4) multiplied by the taux de report—a term I find difficult to translate into idiomatic English, but which they define as the percent of the infringing products the plaintiff would have sold but for the infringement—(5) multiplied by the taux de pondération (the percent by which the infringed right contributed to the infringer’s sales).  The formula for calculating the infringer’s profits is:  (1) the number of infringing products sold by the infringer, (2) multiplied by the price at which the infringer sold them, (3) multiplied by the infringer’s profit margin, (4) multiplied by the taux de pondération.   They also find that plaintiffs frequently request and frequently are granted some amount for moral prejudice.  Finally, they remark that courts have a fair amount of discretion in applying the rules; they do not have to follow a strictly mathematical rule, and sometimes the relevant evidence (e.g., of consumer  behavior) have to be estimated qualitatively rather than quantitatively.

Merges on Lost Profits and Reasonable Royalties

Rob Merges’ paper Lost Profits and Reasonable Royalties:  Two Distinct Remedies for Two Separate Harms, 40 Berkeley Tech. L.J. 323 (2025), is now available on the journal’s website.  (I was favorably impressed with an earlier version of the paper, which I blogged about here.)  Here is the abstract:

I argue that the two types of damages described in the Patent Act are more than a menu of compensatory options. They describe two distinct types of harm caused by patent infringement. Each comes with a distinctive cluster of remedies. Harm to Product Markets (HPM) is redressed by lost profit damages, and in most cases a permanent injunction against future infringement. This type of damages can be thought of as the mirror image of damages for violations of antitrust law. Antitrust cases are about illicit lack of competition: a wrongful reduction in the competitive state of a product market. Patent damages are about illicit competition: the presence of an unauthorized competitor (the infringer) wrongly increasing the level of competition in the market for the patented item. Odd as it may seem to students of microeconomics, HPM damages are all about giving compensation for interference with a virtuous, or at least statutorily protected, monopolist.

 

The other type of harm, Lost Licensing Opportunity (LLO), occurs when a patent owner is not a participant in the product market for products embodying the patented invention. The traditional remedy of a reasonable royalty is applied in these cases: the law in effect writes a hypothetical contract in which the patent owner licenses its patent to the infringer. Compensation takes the form of an estimate of the value the infringer gained by using the patent owner’s technology as an input. When the input adds real value, and the patent owner is a repeat-player, specialized research and licensing company, the reasonable royalty measure of damages does much the same as HPM damages. The only difference is that damages in LLO cases are measured in markets for patent licensing, rather than for patented products.

 

But not all LLO harm is truly equal. Not all involuntary conferral of benefits should be thought of as the equivalent of a market exchange. Restitution emerged as a distinct branch of equity to address just this issue. Restitution principles reflect the fact that sometimes a benefit is conferred not on a willing market participant, but on a recipient who never asked for the “benefit” and had no effective notice of it; would prefer not to have received it; and in some cases is the victim of strategic, opportunistic tactics that make “receipt” of the benefit unavoidable. One example from patent law is when a patent owner alters patent boundaries to capture some of the value of the recipient’s own contributions. I call this “engineered encroachment.” In most contemporary private law interactions, the law protects the innocent defendant by requiring fault or intent before liability is imposed. But lack of notice, and the good vs. bad faith of the patent owner, are irrelevant in patent law’s regime of strict liability for direct infringers. My proposal here is for courts to sort out the different types of LLO harm using traditional principles of restitutionary recovery. When a patented, intangible input (benefit) is used (received) by an infringer, patent courts should deploy the full spectrum of restitutionary doctrine in pursuit of interparty fairness under the facts of each infringement case. In extreme cases of “engineered encroachment,” for example, courts might deny any recovery for infringement.

I don’t have much to add in addition to my comments from last year’s blog post on the draft version of the article.  One thing that struck me forcefully on reading the published version, however, was this portion from near the end of the paper, where Professor Merges argues against U.S. patent law’s turn towards formalism:

What’s needed, in my view, is patent law heresy. We need a little more wiggle room in at least parts of patent law. Formalism—or better, a stale formalism—stands in the way of flexibility, adaptability. Rules dominate over standards, when sometimes it ought to be the reverse. It seems at least odd, if not in fact heretical, to argue for the exercise of more judicial discretion. That goes against the grain of patent law in the Federal Circuit era. And it raises the anti-democratic specter of elite Platonic Guardians—monarchs in black robes—who are in charge because “they know better.” I realize all that.

 

But I have two extremely powerful responses. First, ironically perhaps, is history: patent law has always been a flexible and adaptable body of law. It has not, traditionally, been (as the Supreme Court put it in a not-long-ago opinion) “the prisoner of a formula.” Most notably, federal judges have at times invented doctrine out of thin air. In response to felt needs, they made up more stringent tests for patentability [citing to the origins of the nonobviousness doctrine], resolved a knotty issue of follow-on inventions [citing to the origins of the rule against double patenting], adapted remedies (as we have seen) to fit different types of patent-related harms . . . and so on. . . .

 

The second reason to install more flexibility in patent infringement doctrine is that flexible standards will promote true innovation more than the current rigid formalism. This is certainly true when it comes to remedies for LLO-type infringement harm. . . . Engineered patent encroachment may be in some sense legitimate in more than a few cases. But in many others, intentional boundary-shifting to capture third-party contributions will be the real story. There is little social value in this. . . .

 

The kind of balancing I am calling for ensures continued attention to overall fairness, and to the primary goals of the patent system. A conventional objection to this sort of attention to the big picture is that it is subjective, it is unpredictable. But absolute predictability through strict adherence to clear rules can produce unfairness. Especially when clever and creative actors take advantage of strict rules to manufacture an injustice (as, arguably, small component patent owners did when receiving a permanent injunction, pre-eBay). To prevent the “gaming” of rules, it is sometimes necessary to resort to meta-rules or principles whose very purpose is to modify strict rules when they lead to an unfair outcome [citing to Henry Smith, Equity as Meta-Law, 130 Yale L.J. 1050, 1080-81 (2021)].

I am inclined to agree.  Especially in this era of hyper-textualism, it is important to recognize that many familiar doctrines of patent law originated as judge-made common law, and that even the current statute leaves many gaps that have to be filled by judicially-crafted doctrine.  There is, to be sure, some risk that too much flexibility, balancing, and resort to multi-factor standards (as opposed to bright-line rules) will result in unpredictable, inconsistent, arbitrary, ad hoc, uninformed, or otherwise unwise results (as Merges recognizes).  But especially in IP law, some degree of “ad hockery” is inevitable, as Learned Hand pointed out more than once in the context of IP law.  More generally, in my view, judging sometimes requires the exercise of, well, judgment, as opposed to mechanical application of formal rules; and much the same reasoning underlies the civil law’s abuse of right doctrine, as I understand it from my reading of the work of Amandine Léonard and others.  That said, the debate is unlikely to be resolved anytime soon, if ever; and for a thoughtful discussion of a contrasting perspective, primarily within the context of copyright law, I recommend taking a look at Norman Siebrasse's paper Against Balancing, 35 IPJ 181 (2023).       

Harvard JOLT Issue on IP Remedies

Volume 38, Issue 3 of the Harvard Journal of Law & Technology is titled “The Role of Intellectual Property Remedies in the Global Innovation Economy Symposium 2024.”  I’d seen (and noted on this blog) drafts of some of these articles before; among those I hadn’t, and that are deserving of attention, are John Golden’s The Rise of Judicial Ratemaking in Patent Law and Poorna Mysoor’s License Fee Damages and the Nature of IP Rights.  Here is the entire list:

• Comparative Online Bad Guys - Justin Hughes
• The Economic Impact of Patent Holdout - Bowman Heiden & Justus Baron
• Compulsory Licensing Under Actavis - Emily Michiko Morris
• Copyright Social Justice in Service of Art: Lessons from Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith - Lateef Mtima
• Injunctive Relief in Patent Cases: The Impact of eBay - Kristina M.L. Acri née Lybecker
• Reconsidering the Patent Jurisdiction of the International Trade Commission - Jorge L. Contreras
• The Rise of Judicial Ratemaking in Patent Law - John M. Golden
• The World-Wide Retreat on Patent Protection of Bayh-Dole March-In Rights and EU Takeovers of Licensing by Government Decree - Richard A. Epstein
• License Fee Damages and the Nature of IP Rights - Poorna Mysoor
• Capturing Intangibles in a Property Restatement - Christopher M. Newman & Henry E. Smith
• Injunctions for Patent Infringement: Historical Equity Practice Between 1790–1882 - Adam Mossoff 

Federal Circuit Affirms Award of Nominal Damages

The case is Rex Medical, L.P. v. Intuitive Surgical, Inc., precedential opinion by Judge Stoll, joined by Judges Dyk and Prost.  Rex sued Intuitive for infringing two surgical stapling patents, U.S. Patent Nos. 9,439,650 and 10,136,892, but while the litigation was pending Rex agreed to dismiss with prejudice its  claims regarding ‘892. The infringement action with respect to ‘650 then went to trial and resulted in a jury award of $10 million, but the trial judge granted Intuit’s motion for JMOL and awarded $1 in nominal damages.  On appeal, Rex challenges the exclusion of its damages expert’s testimony and the reduction of the damages award, while Intuit cross-appeals the district court’s rulings on infringement and validity.  The Federal Circuit affirms the judgment in its entirety.  As is my practice on this blog, I will confine my remarks to the remedies issues.

Rex’s damages expert’s report opined “that a hypothetical negotiation between Rex and Intuitive for a license to the ‘650 patent would have resulted in a lump sum payment of $20 million,” and that the closest comparable was a settlement agreement between Rex and (nonparty) Covidien in which the latter agreed to pay $10 million for a portfolio that included the ‘650 and ‘892 patents, as well as seven pending U.S. applications and nineteen foreign patents or applications.  (The expert also analyzed an agreement between Rex and Boston Scientific, but "Rex concedes that its expert did not form an opinion about a reasonable royalty based on that license," see pp. 6 n.2, 17; and it's possible that some of the other patents that formed part of the Covidien license had expired before that agreement was signed, but there was no admissible evidence confirming that point, see p.15 & n.4.)  During trial, however, the district court granted Intuit’s motion to exclude the expert’s testimony to this effect, on the ground that the expert had “failed to adequately address the extent to which [the] ‘892 and the other patents contributed to the lump sum payment in the Covidien license” (p.7).  In the event, neither party’s damages expert testified at trial, although Rex’s president Mr. Carter did.  On appeal, the Federal Circuit (citing, inter alia, EcoFactor, Inc. v. Google LLC, 137 F.4^th 1333 (Fed. Cir. 2025) (en banc)), finds no abuse of discretion in the exclusion of the damages expert’s testimony.  The court notes, among other matters, that the expert “opined that most of the value in a license to Rex’s patent portfolio ‘is contained in a license to either the ‘892 Patent or the ‘650 Patent” (emphasis added by the court), but as noted above only the ‘650 was at issue at trial, and the expert didn’t apportion value among all of the licensed patents and applications.  In addition, the court affirms the district court’s judgment in the amount of $1, concluding that there was insufficient evidence in the record from which the trier of fact could have derived an appropriate reasonable royalty:

            . . . the patent damages statute, 35 U.S.C. § 284, “does not require an award of damages if none are proven that adequately tie a dollar amount to the infringing acts.” TecSec, Inc. v. Adobe Inc., 978 F.3d 1278, 1291 (Fed. Cir. 2020). Damages “must not be left to conjecture by the jury. They must be proved, and not guessed at.” Promega, 875 F.3d at 660 (citation omitted). Section 284 “requires the award of a reasonable royalty, but to argue that this requirement exists even in the absence of any evidence from which a court may derive a reasonable royalty goes beyond the possible meaning of the statute.” Devex Corp. v. Gen. Motors Corp., 667 F.2d 347, 363 (3d Cir. 1981) (affirming an award of zero damages for lack of evidence). “[T]here must at the least be enough evidence in the record to allow the factfinder to formulate a royalty.” Id. (p.14). 

Further to this point, “Rex presented no evidence that would allow the jury to overcome the deficiencies in [the] excluded expert opinion.” The testimony of the company’s president didn’t suffice, for the following reasons:

 

Mr. Carter testified that the “factors” that Rex considered in licensing to Covidien were: (1) Covidien settled “very early in the litigation process,” (2) Covidien was “very cooperative,” (3) Covidien “wanted special language in the license,” (4) Covidien did not challenge Rex’s patents in the U.S. Patent and Trademark Office, and (5) Covidien “saw real value in licensing the ’650 and the ’892 Patents.” . . . But the jury heard no testimony on how to consider these five “factors” to apportion the value of the ’650 patent—or whether all, some, or none were applicable. Moreover, Mr. Carter also testified that (1) there may be a royalty rate range for licensing the ’650 patent, but he was not sure of an established royalty rate; (2) he did not know what Intuitive would conclude is a reasonable royalty or what Intuitive hypothetically would have paid for a license to the ’650 patent; (3) he was not sure whether the Covidien license was relevant to damages; (4) Covidien did not agree to the $10 million figure based on the amount of its product sales, rather, Covidien and Rex just came to a negotiated agreement; and (5) he could not actually assign any value to the ’650 patent. . . .

 

. . . The record does not provide evidence from which the jury could find or infer a damages number for a license to the ’650 patent between ~$1 and $10 million. Nor does there appear to be any other record evidence that would allow reasonable apportionment. The jury would have to speculate as to how much of the $10 million would be allocated to the ’650 patent. But damages may “not be determined by mere speculation or guess.” Oiness v. Walgreen Co., 88 F.3d 1025, 1030 (Fed. Cir. 1996) (citation omitted). . . .

 

The outcome here is fact-specific. Had Rex (or Intuitive) put forth other evidence from which a jury could reasonably determine damages for infringement of the ’650 patent without speculation, JMOL of no damages would be inappropriate and a new trial might be appropriate. But the parties did not, and it was Rex’s burden to do so. Because, on this record, awarding damages between ~$1 and $10 million for a license to the ’650 patent would require improper guesswork, we affirm the JMOL of no damages.

 

We also discern no abuse of discretion in the district court’s denial of Rex’s request for a new damages trial (p.17).

The opinion seems correct to me, based on previous Federal Circuit case law including TecSec, which I have written about in my article Standing, Nominal Damages, and Nominal Damages “Workarounds” in Intellectual Property Law After TransUnion, 56 UC Davis L. Rev. 1085, 1142-45 (2023).  As I noted there, the court has rejected the argument that § 284 entitles the prevailing patent owner to some nontrivial reasonable royalty award if no damages are proven, even if it seems unlikely that the actual value of the patent in suit is greater than zero.