Landmark German Case on Patent Damages, Part 2

Continuing my discussion from Wednesday of the Judgment of the Munich Regional Court of Apr. 16, 2026, 7 O8367/25, the second portion of the decision centers on issues relating to awards of the infringer’s profits.  The court states that calculating the award involves three steps:  determining the infringer’s revenue, deducting the appropriately deductible costs, and determining the appropriate proportionality factor (Anteilsfaktor) (para. 61).  As for the first of these, the patentee can rely on the amount the infringer discloses pursuant to its disclosure obligation (Auskunftsverpflichtung) (para. 63).  In addition, the court says it is fundamentally irrelevant whether the claim is for direct or (as here) indirect infringement; in such a case, the revenues from all of the machines sold by the defendant and assumed to have been used for the purpose of practicing the patented technology are to be taken into account (para. 64).  (More on this issue below.)  Further, for sales made up to three months following expiration of the patent (sometimes referred to in English as “springboard” profits), the court believes that there should be a rebuttable presumption that these sales were the product of infringing offers made during the patent term (para. 65).  Extrapolating from the BGH’s decision in Polsterumarbeitungsmaschine (Judgment of Nov. 14, 2023, I ZR 30/21, discussed on this blog here), moreover, the patentee also is entitled to recover profits earned from additional business (Zusatzgeschäften, a term that in the context of patent law I would normally translate as “convoyed goods,” but I hesitate to use that term here because this is a case involving indirect rather than direct infringement), including goods that were sold after patent expiration but which are traceable to infringing conduct during the patent term (paras. 66-72).  These effects presumably dissipate over time, however, and so the court concludes that it is appropriate to presumes that the portion of such sales decreases in a linear fashion over a ten-year period—to wit, in the first year following patent expiration, the monetary recovery can be assessed at 100%, in the second year 90%, and so on (para. 72).  The court next turns its attention to deductible costs, which in general are the variable costs of production only and not the fixed costs, in accordance with the BGH’s Gemeinkostenanteil decision as I noted the other day (see paras. 73-88, going into some detail about which costs typically should be classified as variable and which fixed).  The court then turns its attention to causality and the proportionality factor, stating that this inquiry involves two steps:  determining the appropriate base (Bezugsgröße) and then the appropriate percentage of the profit to allocate to that base (para. 89).  Again it references the brake pad example noted on Wednesday, stating that

To answer the question of the extent to which the infringer’s profit is attributable to the infringement, the specific Bezugsgröße of the infringing product must first be determined. For example, if the infringed patent concerns a specific design of a brake pad for a motor vehicle, the proportion factor will vary depending on whether the vehicle, the brake system, or the brake pad is taken as the reference. The larger the Bezugsgröße chosen, the lower the proportion factor to be applied. Another factor in determining the Bezugsgröße is whether the patent protects a minor improvement or a completely novel invention. It is also relevant whether alternatives exist on the market and whether the product is emotionally charged (e.g., a brand-name product), which is generally unlikely to be the case (para. 91).

 Tying together the proportionality factor and the presumption of springboard profits, the court states that

. . . when determining the causality factor, it must be noted that subsequent transactions concluded after the expiration of the patent’s term are likely to be based less and less on the infringement of the intellectual property right over the years (the “blurry factor”—derived from the English term “blurry”: blurred).  In its Polsterumarbeitungsmaschine decision, the BGH does not postulate a right of the patent holder to perpetual participation in the profits generated by the patent infringer through subsequent transactions. Rather, the intention is to achieve a fair balance of interests. Therefore, the Chamber assumes that follow-on transactions are generally included for a period of 10 years after patent expiration, and that the proportion of the infringer’s profits attributable to the patent infringement decreases by 10% of the baseline value each year. This means that, in the first step, the causation factor must be determined as the base value, for example, 50%. This value is to be applied for the first year. In the second year, only 45% is to be applied, in the third year 40%, and so on (para. 92).

The decision concludes with the application of this methodology to the facts of the case.  The defendant sold 28 machines (25 during the patent term, 3 within one month of expiration), which generated revenue of €1,994.312, from which the court deducts €986,365.40 in variable costs; the court then determines that the appropriate causality factor is 50%, reasoning that, although “the machine is solely suited to carrying out the patent-infringing process,” “particularly with such expensive machines, other factors also play a role in the purchase decision, such as the defendant’s reputation or the quality of the services it offers in connection with the machines” (para. 118).   The resulting sum is, according to the court, €503,972.80 (I get €503,973.30; not sure what accounts for the missing 50 cents).  The revenue from the sales of 26 canisters of solvent sold during the patent term amounts to €531,611.32, from which €245,486.08 is deductible, leaving €286,125.24, to which the court applies a causality factor of 70%, resulting in €200,287.67.  The court then turns to solvents sold post-expiration but before the court hearing (36 months), and comes up with a figure of €397.26 in profit per machine per month (I’m not quite following the math here), to which the “blurry factor” analysis leads to a reduction of 10%, resulting in €360,394.27.  So overall, the award is €1,064.654.74, plus interest.  

So, to summarize, in a case in which the defendant was found to have engaged in indirect infringement by selling machines and solvent used by third parties to perform the patented process, the patentee is entitled to recover an allocable share of the profits earned on the sale of those machines and solvent, including a portion of the profits earned on sales made post-expiration.  (Although the name of the solvent is redacted, my sense is that it is a staple article of commerce.  I should also mention, perhaps, that the defendant is appealing the underlying liability determination.)  Overall, I think this is pretty remarkable.

In and of themselves, awards of damages (or, in countries where the law so permits, profits) for Zugeschäften are not so remarkable, assuming that there is sufficient proof of a causal connection between the infringement and those sales—although with respect to convoyed goods as such, the law in the U.S., unlike in the U.K., France, and Germany, imposes an additional limitation that the damages must “function together with the patented component in some manner so as to produce a desired end product or result.”   See Rite-Hite Co. v. Kelley Corp., 56 F.3d 1538 (Fed. Cir. 1995) (en banc) (stating further that “[a]ll the components together must be analogous to components of a single assembly or be parts of a complete machine, or they must constitute a functional unit,” and that “precedent has not extended liability to include items that have essentially no functional relationship to the patented invention and that may have been sold with an infringing device only as a matter of convenience or business advantage”).  Recovery of springboard damages or profits also are not so remarkable either, again assuming proof of a sufficient connection between the infringing conduct and sales made post-expiration.  German law, however, as evidenced by the Posterumarbeitungsmaschine decision, already had gone one step further, in permitting the recovery of profits on springboard convoyed sales.  And now this decision applies that logic to the induced infringement of a process patent. 

Even if we put aside for the moment the question of whether the court’s presumptions pertaining to post-expiration profits are sound, something about awarding the profits earned by an indirect infringer on its sales to the direct infringer of machines and solvent used for carrying out the patented process seems odd to me.  Suppose, for example, that a direct infringer benefits from the use of a patented process because the process reduces its costs of production by €150; but that to carry out the process, it must first buy equipment that costs it €50, so its net benefit from using the process is €100.  Suppose further that the seller of the equipment (who, let’s assume, will be liable under applicable law for some form of indirect infringement) incurs costs of €25 to produce that equipment, and thus earns a €25 profit on sales of the equipment to the third party.  Alternatively, suppose that the equipment costs the direct infringer €100 but still only costs €25 for the indirect infringer to manufacture.  The direct infringer’s net benefit is now €50 and the equipment manufacturer’s profit is €75.  In either case, the optimal outcome ex ante would have been for the direct infringer to agree to pay a royalty for the use of the use of the process, in some amount up to €150 minus the cost of the equipment used to carry out the process.  If the price of the equipment was €50, the direct infringer should have paid a royalty of up to €100, but on these facts the patentee who sues the indirect infringer can recover only €25 (assuming that profits are an available measure of monetary recovery).  Conversely, if the price of the equipment was €100, the direct infringer should have paid a royalty of up to €50, but the patentee who sues the indirect infringer can recover €75.  In neither case is the award of profits really tethered to the value of the use to the direct infringer, which would seem to me to be the more appropriate measure.  Of course, this is just a stylized example, and I suppose one could argue that a rule allowing for the recovery of either the direct or indirect infringer’s profit encourages the parties to negotiate ex ante rather than to infringe.  Even so, it seems like an odd result to me, though I need to give the matter some more thought.   (On the topic of damages for indirect infringement, see this article by the late Professor Dmitri Karshtedt, which I noted here.)

Another thing that is striking about the decision is the court’s summoning out of thin air its three-month, ten-year, and “blurry factor” presumptions.  Oddly enough, in a talk earlier this week to a group in the Netherlands, I mentioned at one point how the conventional view is that common-law judges have some measure of discretion to make law in response to changing circumstances, whereas civil-law judges are constrained to follow the code; but in fact, it’s not very difficult to come up with examples in which civil law judges have sometimes crafted judge-made standards dehors the text.  The example I actually had in mind when I made the comment was the development by French and German courts, over a hundred years ago, of moral rights in copyright law, though later I thought about the Huawei v. ZTE “dance” as articulated by the CJEU and further refined by the UPC and domestic courts; and the above decision would seem to be yet another example.  Meanwhile in the U.S., our (in my view, sometimes excessively) textualist-minded courts seem to be moving in precisely the opposite direction, as witness, e.g., cases like Romag Fasteners (discarding both precedent and common sense in adopting a literal reading of the Lanham Act's provision on disgorgement of profits, see discussion here), AMG Capital Management (in contrast, holding that the FTC cannot seek disgorgement of profits, see discussion here), or in a related vein Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999) (holding that the Judiciary Act of 1789 precludes U.S. district courts from entering injunctions of a type that were unknown in 1789).  Freaky Friday, anyone?

UPC’s Hamburg L.D. Concludes that Infringing Offer Caused No Proven Damages

The decision is Fives ECL v. REEL GmbH, UPC_CFI_274/2023, issued on February 11, 2026.  The decision is the subject of a recent blog post on ip fray.  Last June, I blogged about an earlier decision (of the UPC Court of Appeal) in this dispute, writing that “the patent owner had obtained from a German national court a judgment of infringement, prior to June 1, 2023, and a declaration that the defendant would be liable for damages; but it thereafter pursued its damages claim before the UPC.  The UPC Court of Appeal held that the UPC was competent to hear the damages claim (but left open the question of whether national or UPC law would apply to that claim).”  The current decision holds that German domestic law applies to the damages claim, but that it wouldn’t matter in any event in view of the Intellectual Property Rights Enforcement Directive (paras. 100-10).  More interesting, however, is the court’s conclusion that, although the defendant was adjudicated to have made an infringing offer, it isn’t liable for any damages.  A copy of the original decision, in German, is linked to above; below, I use a machine translation that I have compared with the original.

The patent in suit is EP  c1 740 740 B1, for a “compact service module which is intended for electrolytic aluminium production plants.”  Plaintiff and defendant compete “in the market for special purpose cranes, which are used worldwide in various countries in aluminum furnaces as part of aluminum production” (para. 5).  In December 2016, the parties submitted competing bids for a project in Bahrain, which was to be built by Bechtel.  The first offers, dated December 2, were for twelve service modules and auxiliary bridges.  Defendant’s offer was higher than plaintiff’s.  Bechtel then requested that the parties provide a price “in the event these two parts were split and continued separately,” which the parties responded to on December 15.  Defendant offered a price reduction, while the plaintiff did not (para. 70).  Plaintiff didn’t get the contract; but then Bechtel decided to reopen the bidding process, and plaintiff submitted a new bid on February 21, 2017, which included a price decrease of €6,500,000.  Apparently plaintiff was then awarded the contract, but it (successfully) sued the defendant for having made an infringing offer, which it then followed up with this claim for lost profits.

The court rejects the claim for lost profits, for failure of proof as to amount and for lack of proof of causation.  From what I gather, the plaintiff didn’t proffer the December or February offers to the court (see paras. 18, 47), but rather sought to rely on evidence of (1) the defendant’s typical profit margin, according to the latter’s publicly available financial data from 2011-16, and (2) “projects implemented by the plaintiff in the past” (para. 51).  The former, however, is not sufficient proof, given that “defendant’s activities span multiple business segments,” and also that the submitted evidence reports the defendant’s gross margin (Bruttomarge), which may not be comparable to the profit margin for this project.  The latter as well is not sufficient, because the projects “predate the tender for the [present project] by eight to thirteen years,” “included contracts with a wide range of volumes,” and were reflective in part of both the greater market power enjoyed by the plaintiff at those earlier dates and a better economic environment generally for aluminum manufacturers and suppliers.  In addition, the court casts doubt on the technical advantage provided by the patented technology in comparison with alternatives (discussed further below), and concludes that in any event there is no evidence that any assumed advantage over the state of the art could justify the plaintiff’s alleged margin.  Moreover, the defendant’s bid included an “erection and installation concept” that Bechtel favored, to the point of requesting the plaintiff to include a similar concept in its proposal when bidding reopened—which “contradicts the assumption that the plaintiff would have prevailed in a hypothetical scenario without the defendant’s patent-infringing bid,” insofar as “the defendant had a competitive advantage over the plaintiff that was independent of the” machinery at issue (paras. 76-77).

Finally, we come to the causation issue.  The court begins this section by stating that it cannot “be ruled out that, even if the defendant had submitted an alternative offer that did not infringe the patent, the plaintiff would have had to reduce its offer of December 2/15, 2016” (para. 78).  Here, the analysis gets a bit confusing, with the court first seeming to indicate that the existence of a noninfringing alternative is irrelevant to the plaintiff’s entitlement to lost profits, and then appearing to walk it back:

79 As a general rule, the claim—in this case, the asserted loss of profits—cannot be countered by the defense of lawful alternative conduct (see BGH, GRUR 2024, 1201, para. 43 et seq. – Verdampfungstrockneranlage). According to the case law of the Federal Court of Justice (BGH), the defense that the damage would have occurred even if lawful conduct had been adopted may be relevant for the attribution of the damage. The relevance of the defense depends on the protective purpose of the respective infringed provision (BGH NJW 2017, 1104, para. 24; BGHZ 194, 194 = GRUR 2012, 1226, para. 35 – Flaschenträger).

 

80 In the case of a patent infringement, the defense that the same economic result could have been achieved through non-infringing acts cannot, in principle, lead to the exclusion of a claim for damages. A patent does not preclude third parties from competing with the right holder by offering non-infringing products. However, the offering and placing on the market of the protected subject matter is reserved to the right holder. A culpable infringement of this exclusive right must result in the infringer having to compensate for the resulting damage even if he could have offered other products. These principles also apply to the patent-infringing offering of a product.

 

81 These principles do not apply in the present case. This is because it is undisputed between the parties that the customer would always have requested a second offer in order to foster competition . . . .

 

82 If one therefore assumes that a non-infringing alternative offer must be included in the assessment, it cannot be definitively established that the plaintiff would certainly have been awarded the contract with its original offer.

The court then goes on to explain why the defendant’s Pavlodar model would have been both technically and economically more attractive than the proposals the plaintiff submitted in December 2016.  As a consequence, as stated above, the plaintiff fails to prove that it “would certainly have been awarded the contract with its original offer” (paras. 83-89).

I’ve noted (what I view as) similar inconsistencies in the German courts’ analyses of noninfringing alternatives before, for example in my June 2024 post on the Verdampungstrockneranlage decision cited above.  Maybe it’s fair to say, however, that under German law, the existence of a noninfringing alternative doesn’t necessarily preclude the plaintiff from recovering damages for infringement, but that the plaintiff still must present evidence as to the amount of those damages; and where, as here, it proceeds instead with an untenable lost profits theory, it gets nothing, though perhaps under other circumstances it would still be entitled a reasonable royalty—as may have been the case in Verdampfungstrockneranlage, where it is conceivable that there was some value to the defendant in making an infringing offer within Germany, as opposed to a noninfringing offer somewhere else, even if the end result would have been the same in that the defendant would have been awarded the contract (for a noninfringing project carried out outside of Germany).  If so, the German position may not be all that different from the U.S. position, under which (as reflected in cases such as Grain Processing Corp. v. Am. Maize-Prods. Co., 189 F.3d 1341 (Fed. Cir. 1999)), the existence of a noninfringing alternative means that the plaintiff can’t recover a lost profit (because it wouldn’t have made the allegedly forgone sales even absent the infringement), but the plaintiff may still recover a reasonable royalty reflecting the cost saving the defendant incurred by having used the patented technology over the noninfringing technology. 

In any event, my most recent effort to compare and contrast the law of noninfringing alternatives can be found at page 144 of my book Remedies in Intellectual Property Law, where I note that, although Canadian and French case law seems more or less consistent with the U.S. approach, the U.K. courts “continue to follow the House of Lords’ 1888 decision in United Horse-Shoe & Nail Co. v. John Stewart & Co., holding that the existence of noninfringing alternatives is irrelevant” to both lost profits and awards of infringer’s profits (though the U.K. courts recognize that noninfringing alternatives are relevant to reasonable royalties); and that “German courts also have held that the existence of noninfringing alternatives does not preclude an award of lost profits, though such evidence can affect the amount awarded,” citing both Verdampfungstrockneranlage  and Flaschenträger.

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.

Judge Albright’s Order in BMW v. Onesta

As noted on this blog previously (see here and here), in December Judge Alan Albright (W.D. Tex.) issued a temporary restraining order, later converted into a preliminary injunction, ordering U.S. patent assertion entity Onesta from adjudicating claims against BMW for the infringement of U.S. patents in the Munich Regional Court.  On February 13, the judge issued his written order explaining his reasoning.  The order is available on Westlaw (2026 WL 474871) and from other sources, such as Pacer.

By way of background, one year ago the Court of Justice for the European Union issued its decision in BSH v. Electrolux.  In that case, the owner of a European Patent filed an action in Sweden, against a defendant domiciled in Sweden, for the infringement not only of the Swedish part of the patent in suit, but also for the infringement of the corresponding parts validated in nine other European Patent Convention (EPC) member states--including at least one (Türkiye) which is not an EU member.  One of the questions presented was whether the Brussels Regulation Recast conferred exclusive jurisdiction over a Turkish court in respect of the part validated in Turkey.  The court held that it did not, but rather that the Swedish court may adjudicate both the infringement and validity of the Turkish part, although the validity ruling would apply only inter partes (in other words, the effect of the ruling would not be to nullify the Turkish part as against the world).  In reaching this conclusion, the court stated that

. . . the court of the Member State in which the defendant is domiciled which is seised, as in the case in the main proceedings, on the basis of Article 4(1) of the Brussels I bis Regulation, of an infringement action in the context of which the issue of the validity of a patent granted or validated in a third State is raised as a defence, does have jurisdiction to rule on that issue if none of the restrictions referred to in paragraphs 63 to 65 of the present judgment is applicable, given that the decision of that court sought in that regard is not such as to affect the existence or content of that patent in that third State, or to cause its national register to be amended.

 

. . . As the Advocate General observed in point 62 of his Opinion of 22 February 2024 and as the parties to the main proceedings and the European Commission stated at the hearing on 14 May 2024 before the Court, that decision has only inter partes effects, that is to say, a scope limited to the parties to the proceedings. Thus, where the issue of the validity of a patent granted in a third State is raised as a defence in an action alleging infringement of that patent before a court of a Member State, that defence seeks only to have that action dismissed, and does not seek to obtain a decision that will cause that patent to be annulled entirely or in part. In particular, under no circumstances can that decision include a direction to the administrative authority responsible for maintaining the national register of the third State concerned (paras. 74-75).

The court’s reasoning does not, at least explicitly, appear to hinge on the “third State” being a party to the EPC, and thus could be cited in support of the Munich court’s jurisdiction to adjudicate claims for the infringement of a U.S. patent in an action filed against a company (like BMW) domiciled in Germany.  Then again, as Judge Albright notes in his order, the BSH “decision never expressly grants long-arm authority to divest U.S. courts of jurisdiction to enforce U.S. patents.”  Fair enough.

In any event, in granting the ASI, Judge Albright goes through the Fifth Circuit’s test for granting an ASI, which is largely similar to what other U.S. circuits require.  First, it is undisputed that the parties to the U.S. and Munich actions are the same, and the U.S. action (BMW’s action for a declaratory judgment of patent misuse, noninfringement, and invalidity) would dispose of the relevant issues in Munich.  Second, the Munich action would “frustrate a policy of the forum issuing the injunction” or, alternatively, would “cause prejudice or offend other equitable principles.”  In this regard, he writes that “[a]llowing the Munich proceedings to continue threatens the United States' policy interest in adjudicating its own patents and protecting litigants' jury rights in infringement cases. Similarly, proceedings in the Munich court necessarily deprive BMW of critical defendant rights available only here—e.g., fact discovery; invalidity consideration with erga omnes effect; and juries as a bulwark against the improper grant or assertion of U.S. patents. . . .  [E]nsuring that U.S. patent infringement claims are adjudicated in U.S. courts is ‘necessary to provide full justice to the parties’ in this case because BMW seeks a jury trial on the infringement claims” (citation omitted).  Further, in Judge Albright’s reading, the Paris Convention “expressly affirms the independence of each country’s patent system and reserves the ‘provisions . . . relating to . . .  jurisdiction’ to each member state” (quoting Voda v. Cordis Corp., 476 F.3d 887, 898-99 (Fed. Cir. 2007)).  In addition, although there is case law authorizing the adjudication of U.S. copyright claims in foreign courts (and, I would note, vice versa), the court notes that “[u]nlike with copyrights, receiving patent protections in the U.S. requires a rigorous application and examination process”; and he cites the act of state doctrine, which in general counsels against second-guessing the exercise of another state’s sovereign authority.  Third, the court finds that an ASI would not offend international comity because “comity is implicated by ‘public international issues,’ but not ‘private’ disputes” (though one might ask, if that is the case, why courts should bother considering comity at all in the context of deciding whether to grant an ASI in a private dispute).  He does note, however, that

 

There are factors present in this case that are abnormal in the ASI context. For instance, the Court is unaware of any cases where an ASI has been granted to terminate the first filed proceedings between the parties. Moreover, this case features the unusual argument by Onesta that BMW would be inconvenienced by defending in a forum outside of its domicile, while BMW seeks courts outside its domicile. . . . But there is no recognized first-filed principle. See Laker Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909, 927 (D.C. Cir. 1984) (“The mere filing of a suit in one forum does not cut off the preexisting right of an independent forum to regulate matters subject to its prescriptive jurisdiction.”); Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 887 (9th Cir. 2012) (“The order in which the domestic and foreign suits were filed ... [is] not dispositive.”). And making sure that U.S. patents are tried in U.S. courts, which regularly apply U.S. patent law is more “convenien[t]” for the courts of each sovereign. . . .Finally, given Onesta's domicile in the United States and BMW's desire to litigate here, the Court finds that neither party would be inconvenienced by doing so. . . .

It will be interesting to see what happens on appeal if the parties do not settle the matter or at least agree to some procedure for resolving it--though I suspect that under U.S. law it may be difficult to overturn the decision on appeal.  Nevertheless, here are a few random thoughts:

1.     The court invokes the United States’ interest in adjudicating its own patents and protecting litigants’ rights to a jury trial, to fact discovery, and to an invalidity determination with erga omnes effect.  But of course all of those things would be unavailable in a case in which a foreign court adjudicates foreign copyright rights, about which the court is more sanguine.  And is it really true that the adjudication of U.S. patent infringement claims in a U.S. court is “necessary to provide full justice to the parties” because BMW seeks a jury trial?  To my knowledge, no other country in the world provides jury trials in patent infringement actions (or discovery to the same extent the U.S. does, for that matter); does that mean that every country’s system is unjust?  I suppose the response would be no, it’s just that actions for the infringement of U.S. patent rights come with a guarantee of right to trial by jury, as a matter of U.S. constitutional law (and regardless of whether the party requesting a jury is the plaintiff or the defendant, domestic or foreign), and therefore the Munich court’s inability to convene a jury would render its decision on U.S. patent infringement claims unjust.  But again, if that is true, why isn’t it true for copyright claims—or other instances in which foreign courts might make determinations under U.S. law?

2.  A more serious problem, in my view, is that in countries such as Germany infringement and validity determinations are bifurcated—determined by different courts in different proceedings—such that a judgment of infringement may be entered with regard to a patent later determined to be invalid (the “injunction gap”).  Moreover, injunctive relief in favor of the prevailing patentee is near-automatic, indeed often viewed as being part of the claim for relief, rather than merely a remedy as in Anglo-American law.  See my new book, p.10 n.23 (stating that “in common law systems the law of remedies is viewed as something of a stand-alone discipline, albeit one that may be applied in different ways in relation to different bodies of private law.  In civil law countries such as Germany, by contrast, rights and remedies are viewed as being more closely connected, such that, as indicated in the text above, the infringement of a patent (for example) almost always results in the entry of an injunction. See Franz Hofmann and Franziska Kurz, Introduction to the “Law of Remedies,” in Law of Remedies: A European Perspective 3, 5 (Franz Hofmann and Franziska Kurz eds., Intersentia Ltd. 2019) (stating that “[u]nlike in common law countries, the question is not: which remedies are available to cure a wrong? Instead, German lawyers comprehend the legal system as a compilation of ‘subjective rights’”).”  So if a German court were to decide the infringement action against BMW, would it have to depart from its standard practice and consider whether the U.S. patent is valid?  Would the availability of an injunction be determined under German or under U.S. (eBay) law?  Beats me—but I can see why BMW, despite not being “inconvenienced” by litigating in its home forum, might prefer to take its chances in Texas, despite the possible risk of a larger damages award under U.S. law, if the case were to proceed that far.

3.  As many readers know, German courts generally disapprove of other states granting ASIs directed against the litigation of disputes or the enforcement of judgments in German courts.  That perspective may not matter so much here, however, if the German court itself would prefer not to have to decide some of the questions above, or if it would be inclined in any event to stay the adjudication of the U.S. patents pending proceedings in the U.S. (something the CJEU expressly suggested as a possibility in a case in which an E.U. court is asked to adjudicate a claim arising under another E.U. member state’s law).  But let’s imagine, just for the sake of argument, a case in which an E.U. court was asked to adjudicate a claim for the infringement of a U.S. patent and was not willing to cede jurisdiction to the U.S. court that enjoins the E.U. plaintiff from proceeding in the E.U.; maybe the E.U. court issues an AASI in response.  Which country is violating the comity norm:  the country issuing the ASI (which, one could agree, indirectly interferes with the operation of a foreign court), or the court that claims the right to adjudicate foreign patent claims (which, one could argue, indirectly interferes with the operation of its counterpart)?  Note that the WTO arbitration award last summer in the dispute between the EU and China can be read as disapproving both of ASIs (that is, disapproving of them beyond the context of the Chinese ASI policy at issue) and of the adjudication of foreign IP rights.  See my post on the WTO decision here, points 6b and 6c.  Then again, what precedential value, if any, does a WTO arbitration award have?

4.  There is some non-binding authority under U.S. law that might disagree with the position staked out by Judge Albright in BMW.  For example, section 211 of the American Law Institute’s 2007 Principles of the Law—Intellectual Property, titled “Subject-Matter Jurisdiction over Claims,” recommends that, in general, “a court is competent to adjudicate claims arising under foreign laws pertaining to the subject matter of these Principles,” as long as it has subject matter and personal matter jurisdiction under local law, and as long as “[a] judgment holding registered rights granted under the laws of another State invalid is effective only to resolve the dispute between or among the parties to the action.”  Similarly, in her dissent in Voda v. Cordis, 476 F.3d 887 (Fed. Cir. 2007), Judge Pauline Newman disputed, among other things, the characterization of patent grants as “acts of state” (as opposed to ministerial acts) for purposes of the act of state doctrine, and also did not believe that the Paris Convention or TRIPS Agreement “prohibits resolution by a national court of private disputes that include foreign patent rights.  She wrote:

The panel majority raises the specter that foreign courts might adjudicate United States patent rights, proposing that if our courts are permitted to decide questions under foreign patent law, other countries will feel free to decide questions of United States patent law. Cordis too sounds the alarm, stating that creative litigants will choose exotic foreign forums to resolve complex patent issues, and that the district court's decision will open the door to international chaos. I doubt that a United States district court is an exotic foreign forum; and it is not new for courts in other countries to apply the law of other nations when warranted. . . . All nations have recognized their obligation to provide a judicial forum to address disputes involving their citizens; no warrant has been shown to remove foreign patents from this purview.

Judge Newman’s dissent did not expressly grapple with Paris Convention articles 2(3) and 4bis, however, though perhaps an argument could be made that neither provision necessarily or inherently entails exclusive adjudicatory jurisdiction.  Whether that is the correct reading of the Convention, I’m not sure.  

Gervais on Territoriality and Global FRAND Rate-Setting

Daniel Gervais, one of the world’s leading experts on the TRIPS Agreement, has published a very interesting article titled The Principle of Territoriality in International Intellectual Property Law and Its Implications for Global FRAND Rate-Setting, GRUR Int. (advance access pdf available here).  Here is the abstract:

The principle of territoriality under which intellectual property (IP) rights exist and are enforced only within national borders sits uneasily alongside the global nature of standard-essential patent (SEP) licensing disputes. In recent years, courts in Brazil, China, Colombia, Germany, India, the United Kingdom, and now the Unified Patent Court have asserted authority, directly or indirectly, to determine worldwide fair, reasonable, and non-discriminatory (FRAND) licensing terms, often without both parties’ consent. These practices, ranging from injunction-driven leverage to comprehensive judicial rate-setting, raise difficult questions about jurisdiction, comity, competition norms, and the coherence of international IP law.

 

This article provides a systematic and comparative analysis of the principle of territoriality in international IP law and its tension with non-consensual global FRAND determinations. It traces the origins and enduring role of territoriality in treaties such as the Paris Convention and TRIPS Agreement, examines its implications for jurisdiction and choice of law, and explains why territoriality remains a cornerstone of global IP governance. It then turns to the distinctive case of SEPs, highlighting the role of standard-setting organizations and the unique licensing challenges they generate. Against this backdrop, the article maps national approaches across key jurisdictions, identifying functional categories (adjudicators, regulators, and leverage providers) and analyzing how their practices interact in transnational disputes.

 

Drawing on recent case law, WTO findings, and comparative treatment of other IP rights, the article argues that non-consensual global FRAND rate-setting undermines the territorial foundation of international IP law and risks destabilizing global markets. At the same time, it acknowledges arguments for efficiency and uniformity, and considers how these objectives might be pursued within a framework that respects sovereignty and due process. The article concludes by proposing both short-term and longer-term solutions, ranging from national court strategies and WTO enforcement to a possible role for WIPO, the US Congress, and the EU, designed to reconcile innovation incentives, market access, and the legitimacy of international dispute resolution.

I may have more comments to follow, but two things leap out to me upon first reading.  One is Professor Gervais’ argument that even the granting of purely domestic injunctions in FRAND cases, as in Germany, effectively albeit indirectly erodes the territoriality principle by “plac[ing] enormous pressure on the implementer to capitulate to the SEP holder’s terms” (p.13).  It might seem to follow from his analysis, then, that to uphold the territoriality principle nations would have to temper their enthusiasm for granting injunctions in at least some cases.  This may be right, though it also may seem a bit paradoxical that upholding the territorial principle under international law, as Professor Gervais understands it, would require nations to temper the use of a remedy (injunctions with domestic effect only, as a legal if not practical matter) that domestic law otherwise would permit in a given case.  (Again, that may be right—the principle seems logically appealing—but I wonder what the limiting principle would be?)  The other thing that caught my attention was Professor Gervais’ embrace of the view that, absent consent by both parties, only domestic courts can adjudicate questions of infringement and validity under domestic patent law.  This is, as previously noted here, the issue at the heart of the pending BMW v. Onesta dispute, in view of the CJEU’s 2025 decision in BSH v. Electrolux (which seems to me to point, whether rightly or not, in the opposite direction).   (Note that the Federal Circuit has temporarily stayed Judge Albright's antisuit injunction from last week, and we are still awaiting Judge Albright's written decision in that case.)

Judge Albright Enjoins Onesta from Proceeding in Munich with Claims for the Infringement of U.S. Patents

In December, I noted that, at BMW’s request, Judge Albright (W.D. Tex.) had entered a TRO prohibiting Onesta from litigating claims for the infringement of two U.S. patents in the Munich I Regional Court.  ip fray is now reporting that the judge yesterday converted the TRO into a preliminary injunction, that is, an antisuit injunction forbidding Onesta from proceeding with litigation over the U.S. patents in Munich.  I’ve checked both Pacer and Lex Machina, which show that Onesta has already filed a notice of appeal to the Federal Circuit; but there is no written opinion (yet) from the judge, though I would expect some sort of written opinion might follow.

As I noted in December, the order comes after Onesta asserted claims against BMW for the infringement of both German and U.S. patents in Munich—something that the CJEU’s February 2025 decision in BSH v. Electrolux appears, on my reading, to permit it to do in a case like this, in which the defendant is domiciled in an EU member state, subject to the caveat that any decision concerning patent validity would apply only inter partes (in other words, the validity ruling would not be binding in other litigation between Onesta and another party).  BMW contested this reading in its initial motion papers, which were available from Law 360 (and on Pacer and Lex Machina).  Dennis Crouch has an excellent writeup on the issue of whether courts may adjudicate claims for the infringement of foreign patents, which notes among other things the Federal Circuit’s 2007 opinion in Voda v. Cordis (denying supplemental jurisdiction to adjudicate such claims, over a dissent from Judge Newman).  The ip fray post mentions expert declarations in the BMW case have been filed by three people I know, admire, and have worked with, namely Professors Peter Picht (in support of Onesta), Margo Bagley (in support of BMW), and Matthias Leistner (also in support of BMW).  Their declarations, attached to the motion papers, are available here, here, and here.  (I have not yet read through all of them carefully myself.)

For my February 2025 writeup on BSH, see here.  Also note that, in my December post, I flagged as a possible issue (to which I do not claim to know the answer) whether the German court, if it were to adjudicate claims for the infringement of U.S. patents, would apply German or U.S. law to the question of remedies, especially permanent injunctive relief.  That would be a huge issue here, where under U.S. law an injunction in a  case like this would be difficult to obtain.

Federal Circuit Reverses Injunction, Reverses and Remands on Willfulness

I resume blogging this week with a post about the Federal Circuit’s December 17 precedential decision in Wonderland Switzerland AG v. Evenflo Co., majority opinion by Chief Judge Moore joined by Judge Prost, with a separate opinion by Judge Reyna concurring in part and dissenting in part.  (Still to come are my promised posts on Acer, Inc. et al. v. Nokia Technologies Oy, [2025] WHC 3331 (Pat.) (Eng.) and related developments in the UPC, as well as the UPC COA’s damages decision in Bhagat Textile Engineers v. Oerlikon Textile GmbH & Co KG.  Meanwhile, I am heading to the Association of American Law School’s Annual Meeting in New Orleans tomorrow, and will be speaking there on Thursday on the remedy of destruction, which was the subject of a paper I coauthored with Professor Chung-Lun Shen in 2024; and I eagerly await publication of my book Remedies in IP Law, which should be out within the next week.)  

In Wonderland, the plaintiff filed suit for the infringement of two patents (ʼ043 and ʼ951) relating to child car seats.  The jury found that the accused products (referred to as the 3-in-1 and 4-in-1 seats) infringed; the Federal Circuit, in portions of the opinion I will omit here, reverses the finding that the 4-in-1 seats infringed ʼ043, but otherwise affirms on liability.  The court nevertheless concludes that the district court abused its discretion in granting a permanent injunction as to both patents.  As for ʼ951, the court concludes that the district court abused its discretion “because Wonderland expressly declined to request [injunctive] relief” (p.13).  Moreover, this was not harmless error, because “the injunction could affect Evenflo’s release of other products, which may not necessarily infringe the ʼ043 patent”—and because it was an abuse of discretion to enjoin the infringement of ʼ951 (p.13).  With regard to ʼ951, the district court erred in relying “solely on speculative and conclusory evidence that Wonderland suffered, and would continue to suffer, irreparable harm or injury that could not be compensated with monetary damages” (p.14).  More specifically:

. . .  the district court did not point to any non-speculative or non-conclusory evidence establishing Wonderland’s business partner, Graco Children’s Products Inc. (Graco), lost sales or market share of car seat products to Evenflo as opposed to the large number of other competitors in the market. . . . for non-car seat products, the district court improperly relied on speculative and conclusory testimony from Wonderland’s managing director, Renee Wang, that a lost car seat sale “naturally leads” to the loss of market share across other products. . . . This testimony was concededly based on “no[thing] more than [the notion that] the parents will buy other products under the same brand name.” . . . Without providing any evidence of such consumer behavior, Ms. Wang merely speculated that after buying a car seat, a parent “may” also choose to buy other products under the same brand. . . . Such speculative testimony is not sufficient to establish irreparable harm. . . .

 

With respect to reputational loss, the district court cited no record evidence to support its findings that “[t]he similarity between Graco’s products and Evenflo’s Accused Products has caused Graco’s products to lose some of their ‘distinctiveness and market allure’ and has also harmed Graco’s reputation as an innovator in the marketplace.” . . . Nor did the district court cite any evidence to support its finding that such reputational factors “cause Wonderland irreparable harm because of Graco and Wonderland’s close working relationship and exclusive supplier arrangement.” . . . Similarly, the district court failed to identify any evidence from the trial record supporting its assertions that “an average customer . . . [would] assume that Graco’s products do not contain unique or innovative technologies,” that such reputational harm would flow to Wonderland, or that Wonderland would suffer reputational harm because it “may be seen as failing to enforce its intellectual property rights.” . . (pp. 14-15).

The preceding analysis would seem to demonstrate the importance of eBay’s allocation to the plaintiff of the burden of proof on the eBay factors, in contrast with practice in other common-law countries where it would be the defendant’s burden to come forward with evidence showing why the court should deny permanent injunctive relief.

On the issue of willfulness, the district court invoked Federal Rule of Evidence 403 to exclude an email chain, in which “Evenflo’s affiliated corporation, Goodbbay Child Products Co., Ltd. . . . notified Evenlo employee that one of the accused products might fall with the scope of claim 1 of the ʼ043 patent and asked how to ‘avoided the claims of the patent’” (p.16), on the ground that the probative value of this evidence was substantially outweighed by the danger of unfair prejudice and confusion.  The majority concludes that this too was an abuse of discretion because portions of the email chain were highly probative of willfulness, and “not merely cumulative in view of Evenflo’s stipulation to awareness of the ʼ043 patent” (p.19).  Moreover, the majority concludes that the district court could have managed the risks of unfair prejudice and confusion by limiting instructions or redaction; the text of the email did not raise any privilege or hearsay concerns; and the error was not harmless.  So this issue is remanded for a new trial.  Judge Reyna dissents on this issue only, in view of the substantial deference normally accorded to Rule 403 rulings; in his view, the trial judge’s decision was neither irrational nor arbitrary.

Judge Albright Issues Antisuit TRO Relating to Assertion in Munich of Claims for the Infringement of U.S. Patents

This dispute is reported this morning on Law360 and on ip fray.  When BSH v Electrolux came out earlier this year (see my blog post here, a more recent one noting an article about the case here, and a third I hadn't previously noted here), I predicted that before long it would cause a stir in the U.S.  Well, here we are.  It was reported recently that Onesta, an NPE, had asserted claims in the Munich I Regional Court against BMW for, inter alia, the infringement of two U.S. patents.  U.S. District Judge Albright has now issued a TRO ordering Onesta to refrain from making “any request, claim, application, or motion further pursuing or enforcing an injunction from a foreign court—including but not limited to the Munich Regional Court I—which would prohibit, deter, impose monetary fines on, or otherwise limit in any way BMW’s, and all of its corporate parents, subsidiaries, and affiliates, ability to fully and completely prosecute this action, request and enforce relief, or which would impair this Court’s ability to adjudicate any and all matters in this lawsuit”; and from making “any request, claim, application, or motion further pursuing or enforcing an injunction from a foreign court—including but not limited to the Munich Regional Court I—which would prohibit or otherwise limit in any way BMW’s, and all of its corporate parents, subsidiaries, and affiliates, ability to make, use, offer to sell, or sell within the United States or import into the United States any vehicle, product, or other item on the basis of Onesta’s United States patent.”  The TRO was granted ex parte, so there will be a further hearing.  The Law 360 article includes BMW’s complaint and motion(see pp. 13-14).

One very important issue lurking in the background, in cases like this and in the event that other litigants invoke BSH v. Electrolux in an effort to litigate claims for the infringement of U.S. patents in European courts, is whether those courts will apply U.S. or their own domestic law with regard to remedies, especially injunctive relief (which is much more limited in the U.S.--here's a decision rendered today, for example, by the Federal Circuit, which I will have to blog about at some point after I finish exam grading).  Another is whether an EU court might, at least in some cases, voluntarily stay litigation involving foreign patents so that claims involving those patents could be litigated on their home turf.  To my knowledge, civil law jurisdictions do not recognize, as a general matter, recognize the doctrine of forum non conveniens; but the BSH decision itself suggests the possibilities of at least stays pending invalidity determinations, and perhaps domestic law would allow stays more generally where there is parallel litigation in another country.  (I'd appreciate any information others may have on this issue.)  A third is whether paragraph 61 of BSH (which states that "It follows that, under the general rule laid down in Article 4(1) of the Brussels I bis Regulation, the courts of the Member State in which the defendant is domiciled have, in principle, jurisdiction in an infringement action brought against that defendant by the holder of a patent granted or validated in a third State which is domiciled in another Member State") authorizes a plaintiff such as Onesta, which if I understand correctly is domiciled in the U.S. (or is the German action being filed by a German subsidiary?  I don't think so, but if any readers know better, please correct me), to assert a claim in an EU member state against a defendant domiciled in a member state, for the infringement of a U.S. patent.  In other words, does the Brussels Regulation (Recast) apply in such a case, regardless of where the plaintiff is domiciled?  My understanding is that it does, but I would appreciate any insights from someone who is more knowledgeable than I about that very specific issue. 

Criminal Contempt in Munich

Florian Mueller has published a post on ip fray concerning a December 10 decision of the Munich I Regional Court, ordering the general manager of a patent infringement defendant to be imprisoned for one month, following the defendant’s alleged failure to comply with an Auskunft (essentially, an order for the provision of information that will be relevant to assessing damages) and a previously-imposed contempt fine of €15,000.  According to ip fray, the order likely will be stayed pending appeal (and, to be sure, may induce compliance with the Auskunft in the interim). 

To my knowledge, resort to contempt proceedings is not all that common either in Germany or the U.S.—and this use of criminal contempt is, according to ip fray, unprecedented in Germany (and would be unavailable in the UPC).  (For a good discussion of contempt proceedings in U.S. patent cases, see my former student Nina Elder’s article The Contours of Contempt in Patent Law After TiVo, Inc. v. EchoStar Corp.: An Empirical Study, 25 Minnesota Journal of Law, Science & Technology 145 (2023), previously noted on this blog here.  She describes criminal contempt in U.S. patent cases as "nearly non-existent," id. at 147 n.18 (citing John M. Golden, Injunctions as More (or Less) than “Off Switches”: Patent-Infringement Injunctions’ Scope, 90 Tex. L. Rev. 1399, 1409–10 (2012).)  On a related note, which I discuss in chapter 6 of my forthcoming book Remedies in Intellectual Property Law, the U.S. does not impose criminal sanctions for patent infringement itself—although many other countries do, at least in principle.  (Germany is one, though in practice German prosecutors rarely if ever file charges for patent infringement.)  The criminal prosecution of IP infringement may be most common in certain Asian jurisdictions, as discussed by a group of authors (Masabumi Suzuki, Su-Hua Lee, Byungil Kim, Xiuqin Lin, Prashant Reddy, Heng Gee Lim, Jyh-An Lee, and Kung-Chung Liu) in a chapter titled Civil Follow Criminal or Criminal Follow Civil Procedure as Models to Deal with IP Infringement: Asian vis-à-vis Western Approaches, in Kreation Innovation Märkte - Creation Innovation Markets:  Festschrift Reto M. Hilty 663 (Florent Thouvenin, Alexander Peukert, Thomas Jaeger & Christophe Geiger eds., Springer 2024), previously noted on this blog here—but the only jurisdiction discussed in that chapter that appears to make extensive use of criminal prosecution for patent infringement appears to be Japan.  (The TRIPS Agreement, for its part, only requires criminal sanctions for “wilful trademark counterfeiting or copyright piracy on a commercial scale,” and in most places I am aware of criminal sanctions are generally reserved for copyright and trademark infringement, and for trade secret misappropriation.)  Among the reasons for some Asian jurisdictions’ more extensive use of criminal law are, according to Suzuki et al., the perceived need for additional deterrence, in view of the practical difficulty of obtaining preliminary injunctions, enforcing permanent injunctions, and/or obtaining fully compensatory damages awards; and, relatedly, the ability of civil litigants to file criminal complaints as a means for obtaining discovery.  (For other useful sources of information on criminal IP law, see, e.g., Eldar Haber,  Criminal Copyright (Cambridge Univ. Press 2018), and other sources cited in chapter 6 of my book.)

Anyway, the German court’s resort to criminal contempt certainly is notable—and, somewhat paradoxically perhaps, contrasts with Japan, where--despite the country's heavier reliance on criminal law generally--Professor Suzuki writes that courts do not order criminal contempt for failure to comply with injunctions.  As for Germany, however, I wonder if we will see more of this, as a deterrent to perceived non-compliance with court orders?