Extraterritorial Damages in Copyright Law

My article Extraterritorial Damages in Copyright Law, 74 Fla. L. Rev. 123 (2022), is now in print.  Here is a link to the paper on the Florida Law Review's website, here is a link to the paper on ssrn, and here is the abstract:

 

          A recurring fact pattern in U.S. copyright infringement litigation involves a defendant who makes an unauthorized copy of a copyrighted work in the United States; exports it to another country, where it is used to generate additional copies; and then profits from the use or sale of these copies outside the United States. Under these circumstances, the question that sometimes arises is whether a U.S. court can award damages or profits reflecting the foreign uses and sales, without overstepping traditional territorial limitations on the application of U.S. copyright law. Over the years, several courts have concluded that the answer is yes, as long as the initial act of U.S. infringement is what enabled the subsequent foreign exploitation. This Article argues that this “predicate act” doctrine is largely correct, both doctrinally and as a matter of policy, though subject to certain limitations. More specifically, this Article argues that if the defendant proves that the defendant could have exploited the work in another country by employing a cognizable noninfringing alternative to the predicate act of domestic infringement—for example, by acquiring a lawfully made copy in the U.S. and exporting that copy for further use abroad—the only damages or profits that are properly attributable to the U.S. infringement are those that reflect the incremental loss or benefit occasioned by the defendant’s avoidance of this alternative. In such a case, consistent with the territoriality principle, the amount awarded specifically for the U.S. infringement may be minimal—though U.S. courts should be receptive to exercising jurisdiction over supplemental claims arising under foreign copyright law. In other cases, by contrast, where the defendant could not have engaged in the foreign activity without a predicate act of U.S. infringement, the courts are right to award damages or profits reflecting the foreign exploitation—albeit subject to traditional proximate cause principles and the single-recovery rule. Application of these standards will enable courts to abide by the territorial limitations of U.S. copyright law while at the same time ensuring full compensation as the facts warrant.

 

The paper is a companion piece to my paper Extraterritorial Damages in Patent Law, 39 Cardozo Arts & Enter. L.J. 1 (2021).

 

I may as well note here that (sometime later this week, I hope) I will be posting a new paper on ssrn, Standing, Nominal Damages, and Nominal Damages “Workarounds” in Intellectual Property Law After TransUnion, 56 UC Davis Law Review __ (forthcoming 2023).  More details soon.

Federal Circuit Affirms Exclusion of Portions of Damages Expert's Report

The decision is Niazi Licensing Corp. v. St. Jude Medical S.C., Inc., which as I mentioned earlier this week issued on Monday.  This is a precedential opinion by Judge Stoll, joined by Judges Taranto and Bryson.  Principal issues on appeal include claim definiteness, induced infringement, sanctions for failure to disclose predicate facts relevant to expert opinions, and the exclusion of portions of a damages expert's report.  Only the last of these is directly relevant to the subject matter of this blog, so I will focus on that.

Specifically, the district court excluded portions of an expert report asserting that the appropriate royalty base for a method claim relating to use of a double catheter to treat congestive heart disease.  As the Federal Circuit explains:

[Plaintiff's expert] Mr. Carlson concluded that a royalty rate of 14.6% “is the minimum reasonable royalty” rate for infringement of claim 11, directed to a procedure for implanting an electrical lead into a lateral branch of a coronary sinus vein using a double catheter. . . . As for the royalty base, he opined that the royalty base for infringement of claim 11 includes an outer catheter, an inner catheter, a guide wire, and a lead, because: (1) the method claims recite these elements; and (2) this court “has recognized that in some instances, a royalty based upon actual use of a method – as opposed to a royalty applied to the sale of a device that practices the method – is impractical in view of real-world considerations.” J.A. 727 (citing Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1334 (Fed. Cir. 2009)).

Mr. Carlson did not explain why a royalty based on the alleged use of the method would be impractical in this case. Instead, Mr. Carlson stated merely that because claim 11 requires an outer catheter, an inner catheter, a guide wire, and a lead, these components comprise the smallest saleable component used by an electrophysiologist to practice the claimed method. Accordingly, Mr. Carlson concluded that the royalty base should include all sales of these components. The district court excluded Mr. Carlson’s expert opinion as legally insufficient because Mr. Carlson failed to “apportion” between infringing and noninfringing uses and because he could not properly include leads in the royalty base. Daubert Op., 2020 WL 5512507, at *10–11. We affirm the district court’s exclusion. . . .

Mr. Carlson did not even attempt to explain why a royalty based on use of the method would be impractical in this case. He did not attempt to value any efficiencies or patient health advantages gained by practicing the patented method compared to non-patented methods or explain why this could not be done. Nor did he identify any other evidence relating to the value of the claimed method relative to other methods or explain why such a valuation would not be possible.

In addition, Mr. Carlson included in his damages calculations sales of all of St. Jude’s outer catheters, inner catheters, guide wires, and leads, even though it was undisputed that not all of those sold devices had been used to practice the claimed method. Appellant’s Br. 56 (noting that claim 11 is the “predominant” method). Whether one refers to this as failure to “apportion” as the parties and district court did or as failing to limit damages to a reasonable approximation of actual infringing uses of the claimed method, Mr. Carlson’s failure to account for noninfringing uses of the sold devices was legally improper. In this regard, we disagree with Niazi’s carefully worded assertion on appeal that apportionment does not apply to method claims. Damages should be apportioned to separate out noninfringing uses, and patentees cannot recover damages based on sales of products with the mere capability to practice the claimed method. Rather, where the only asserted claim is a method claim, the damages base should be limited to products that were actually used to perform the claimed method. Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 576 F.3d 1348, 1358–59 (Fed. Cir. 2009).

It is true that “we have never laid down any rigid requirement that damages in all circumstances be limited to specific instances of infringement proven with direct evidence.” Lucent, 580 F.3d at 1334. But Mr. Carlson did not address or rely on any evidence—such as testimony of electrophysiologists, other anecdotal testimony, or survey evidence—that estimated the amount or percentage of sold devices that were actually used to infringe the claimed method. Niazi asserts in its appeal brief that the claimed method was the “predominant method” and that, therefore, because damages do not have to be more than a reasonable approximation, it was reasonable to include all sales. First, the appendix page that Niazi cites for this “predominant method” assertion, J.A. 716, says nothing about frequency of use and does not support its assertion. Second, even assuming that the record supported the notion that the claimed method was the “predominant” method, predominant is a broad word that merely means “most frequent” or “common.” Such a broad, unsupported, and conclusory assertion does not reliably establish how often the patented method was used by doctors to allow a reasonable approximation of the damages base.

We are also not persuaded by Niazi’s argument that Mr. Carlson properly included leads in his calculation of the royalty base because he accounted for apportionment in the royalty rate. Appellant’s Br. 54–55 (citing Exmark, 879 F.3d at 1348). We do not see any apportionment analysis—either in calculating the base or calculating the rate—in the portions of Mr. Carlson’s report provided to this court. There is simply no explanation of how (or even whether) he apportioned to account for unpatented uses when selecting the minimum royalty rate of 14.6%. And the explanation provided in Niazi’s brief—that Mr. Carlson selected a range of rates from 6.0% to 16.63% . . . is contradicted by the report itself. Mr. Carlson did not provide a range of reasonable royalty rates; rather, he concluded that a royalty rate of 14.6% “is the minimum reasonable royalty [rate] under [his] quantitative analysis.” J.A. 728 (emphasis added); see also J.A. 726 (opining that a “reasonable royalty rate is 14.60%, and that [Niazi] and St. Jude would have reasonably entered into a license at that rate”); J.A. 729 (indicating 14.6% is the reasonable royalty rate) (pp. 28-31).

To summarize, I'd say that the principal substantive principles coming out of this case are that (1) apportionment applies to method claims; and (2) patentees cannot recover damages for the infringement of method claims based on sales of devices that are only capable of infringing uses, without some basis for inferring how often the devices are used for these purposes. 

Federal Circuit Vacates $137 Million Damages Award

Last  Friday the Federal Circuit published its precedential  decision in Roche Diagnostics Corp. v. Meso Scale Diagnostics, LLC, majority opinion by Judge Prost (joined by Judge Taranto), with a dissent by Judge Newman.   As the opinion states, “[t]he patents-in-suit concern immunoassays that exploit a phenomenon called electrochemiluminscence (ECL)” (p.3).  The principal issue in the case was whether counterclaim-plaintiff Meso owned an exclusive license to the patents in suit, or whether Roche subsidiary BioVeris owned them.  For present purposes, suffice to say that the majority affirms the judgment, entered after a jury verdict, that Meso is the exclusive licensee of the ‘939 patent and that Roche directly infringed one claim of that patent.  (Judge Newman dissents on the ownership issue, for which reason she would find in favor of Roche.)  The majority reverses a judgment of induced infringement relating to two other patents, however—without reaching the ownership issue—“on two independent grounds: (A) absence of intent, and (B) absence of an inducing act that could support liability during the” statute of limitations period (pp. 11-12).  On the “absence of intent” issue in particular, the majority notes that the trial judge had “granted Roche’s JMOL motion regarding willfulness by concluding that ‘at no time did Roche have a subjective intent to infringe (or induce infringement of) Meso’s patent rights,’” because Roche’s interpretation of the relevant contractual provisions on which the patent ownership issue hinged was “reasonable” (p.13).  The majority goes on to state that “[i]n some respects, the intent standard for inducement is akin to the one for willfulness, as both rest on the subjective intent of the accused infringer” (p.14)—an observation that may be relevant down the road on the issue of whether “willful blindness,” which can satisfy the intent requirement for induced infringement, ever satisfies the intent requirement for “willful infringement.”  (For previous discussion on this blog, see, e.g., here.)   

Seeing how the majority reversed the liability judgment in part, it follows that the damages award cannot stand either, so there will be a new trial on damages.  Instead of just saying that, however, the majority takes pains to discuss the damages evidence produced at trial, and why “the parties and the district court should proceed on remand with careful attention to the apportionment requirement set forth in our caselaw” (p.18).  Specifically:

 

Before trial, the district court precluded Meso’s damages expert from offering his reasonable-royalty opinion due to various errors in that opinion. . . . For that reason, “the jury did not hear a reasonable royalty rate opinion” from Meso’s expert. . . . The expert “was permitted to testify about a royalty base,” however, “which he calculated to be between $170 million and $183 million.” . . . And, in the context of analyzing the Georgia-Pacific factors . . . “he was further permitted to present his estimate of the profit margin Roche earned on these sales,” which “he opined was roughly 75% during the relevant damages period.” . . . And later, during closing arguments, “Meso’s counsel told the jury: ‘we believe that what is right is that Meso . . . should get the profits, the profits on the $183 million that Roche made in our lane [that is, out-of-field sales]’” (p.19).

Roche argued before the district court that the jury’s award—$137,250,000, or exactly 75% of $183 million—reflected no apportionment and amounted instead to a disgorgement of Roche’s entire profit.  The district court denied a post-trial motion to vacate the award, however, on the grounds that the trier of fact could have concluded that the royalty base was even higher than $183 million, based on evidence in the record, and that “the jury could have arrived at its damages award by multiplying the 65% royalty rate negotiated for in the 2003 License times a royalty base of approximately $211 million” (p.20).   The Federal Circuit does not outright say this was wrong, but it does add the following cautionary notes for remand:

 

As we have previously explained, “where a royalty is at issue, ‘[n]o matter what the form of the royalty, a patentee must take care to seek only those damages attributable to the infringing features.’” Omega Pats., LLC v. CalAmp Corp., 13 F.4th 1361, 1376 (Fed. Cir. 2021) (alteration in original) (quoting VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed. Cir. 2014)). “Consequently, to be admissible, all expert damages opinions must separate the value of the allegedly infringing features from the value of all other features.” Commonwealth Sci. & Indus. Rsch. Org. v. Cisco Sys., Inc., 809 F.3d 1295, 1301 (Fed. Cir. 2015) (citing VirnetX, 767 F.3d at 1329). And, particularly relevant to the district court’s license-based rationale, while “a damages theory that is dependent on a comparable license (or a comparable negotiation) may in some cases have built-in apportionment,” the license “must be sufficiently comparable in that principles of apportionment were effectively baked into the purportedly comparable license.” Omega, 13 F.4th at 1377 (cleaned up).

 

. . . [W]e take Roche’s apportionment argument to be that Meso hasn’t demonstrated the requisite comparability between the 2003 license (to the 100+ BioVeris patents) and the hypothetical negotiation undergirding the jury’s reasonable-royalty award. At least for this reason, Roche’s challenge to the jury’s verdict is indeed “powerful.” Post-Trial Op., 503 F. Supp. 3d at 175. That said, we need not decide whether the district court erred in assessing the sufficiency of the evidence on apportionment, as the parties agree that reversing on induced infringement but not direct infringement would require a new damages trial. Oral Arg. at 8:26–9:29, 31:08–32:10. Accordingly, we vacate the damages award and remand for a new trial on damages (pp.  22-23).

For what it’s worth, I have long believed that it would make sense to require juries to explain, by way of special interrogatories, exactly how they calculate the reasonable royalties they award in patent litigation.  But I recognize that in our jury-centric system that is, for now, a losing battle. 

*          *          *

The court handed down an opinion today in Niazi Licensing Corp. v. St. Jude Medical S.C., Inc., a portion of which addresses damages.  I'll try to have something on this later this week. 

From Around the Blogs: FRAND News

1.  On Law360, Noah Brumfield published an essay titled What DOJ'S Shifting Stance on IP Means for SEPs, Mergers.  The articles discusses, among other matters, the USPTO, DOJ, and NIST Draft Policy Statement on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments, which (as previously noted here) would replace these agencies' 2019 (Trump-era) Policy Statement, which in turn replaced the 2013 (Obama-era)Policy Statement.  As the author notes, the draft policy statement "avoids wading into important questions of what it means to be FRAND," and by focusing "on process over substance reflects a cautious and uncertain view of the role of antitrust agency in policing standards-based IP policies."  He also speculates on how the pending revisions to the DOJ/FTC  merger guidelines may affect acquisitions of patent portfolios.

Also on Law360, David Kappos and Andre Iancu published another tiresome screed against the draft policy, SEP Draft Policy Imperils US Investment In Innovation, for those who have a taste for that sort of thing.

2.  JUVE Patent published a post titled Munich Regional Courts takes new approach to FRAND, discussing guidance provided by Presiding Judge Georg Werner in the pending Nokia/OPPO litigation. According to Judge Werner, both SEP owner and implementer "must demonstrate willingness to conclude a licence over a long period of time," in the hope that the parties will agree to terms during the course of proceedings.  This would be consistent with the German courts' reluctance, which I believe I have noted previously and which contrasts with the practices of courts in the U.K., China, and the U.S., to themselves establish the terms of FRAND licenses.  Florian Mueller also has excellent coverage of this on FOSS Patents--as well as a follow-up post titled Great news for standard-essential patent holders: Munich court looking to streamline multi-patent SEP disputes through unified FRAND hearing in 'lead case' and sequencing of trials, discussing a new procedure for FRAND cases in which the court will decide a "lead case" first  with the objective "to explore the possibility of a settlement based on the lead case."

3.  JUVE also published a post titled Federal Court of Justice considers SEP questions in IP Bridge dispute, discussing a case pending before the German BGH (Federal Supreme Court) which, according to the author, will address, inter alia,  the question of whether the SEP owner's offer is FRAND-compliant if  it "is compliant for the average licence seeker but not for individual market participants based  on their business."  

4.  FOSS Patents also published a post titled Philips, Xiaomi settle standard-essential patent dispute: interesting questions involving FRAND transparency, French jurisdiction, ETSI responsibility left for another day.  The post notes that the settlement, announced by a court in London in concurrent litigation there, will obviate the need for the trial court in Paris to set FRAND terms or to determine if ETSI has any responsibility for SEP owners' compliance with their FRAND obligations--but that that latter issue may be resolved in some other pending case.

Two Articles of Interest in China Patents & Trademarks No. 1, 2022

China Patents and Trademarks magazine has a couple of articles that may be of interest to readers of this blog.  I hope they may be available on the magazine's website at some point.

The first is by Zhang Weijun, Zhuang Yuqing, and Jia Shiqi, and is titled On the System Arrangement Regarding IP Infringement Penalties-Comments on Application of Punitive Damages (English-language translation at pp. 11-20).  This is an interesting paper, and it goes beyond discussing punitive damages as such by also addressing topics such as whether any damages liability is desirable in cases of innocent infringement, or in cases in which a defendant makes an infringing product but does not sell it (the latter being an issue I too discuss in a forthcoming paper); royalty multipliers (permitted under Chinese IP law and in certain bodies of IP law elsewhere); statutory damages (which are available in China for patent infringement); awards of the infringer's profits; injunctions as providing greater deterrence than damages; and criminal penalties and fines.  As the authors rightly note, "Although each country may not necessarily provide punitive damages due to its jurisprudential logic and legal traditions, different punitive factors undoubtedly have 'hidden' in various legal systems."  The article concludes by discussing punitive damages for IP infringement under Chinese law, which now permits them in all types of IP cases (from one to five times actual damages).  They note the practical difficulties that arise when evidence on actual damages is not readily available, and note that interpretations of the new Patent Act appear to permit courts to use multiplied royalties as the base for punitive damages.  This practice seems like a bit of bootstrapping--or, as the authors put it, "superimposed" punishment.  They disapprove of it.      

The second is by Andy Sun and is titled Can Suppression of Litigation Rights Be a Good Way to Ban Litigation? (English-language translation at pp. 79-90).  The article briefly discusses a 2018 case in which a Chinese court found two defendants liable for "patent extortion."  The case achieved some notoriety at the time, including an article on Patently-O by Yang Yu and Jorge Contreras.  Most of the article, however, focuses on anti- and anti-antisuit injunctions, including an extended discussion of the Chinese cases from 2020 and 2021 and the Munich court's practice, under which seeking (or even not adequately disclaiming an intent to seek) an ASI in another country may render an implementer an unwilling licensee.  I agree with the author that, in general, courts should enter antisuit injunctions only in rare circumstances (he favorably cites Judge Robart's decision to do so in Microsoft v. Motorola as one such circumstance), though I would take issue with a few points made in the article (whether it's a matter of the original or the translation, I don't know).  First, he states that the U.K. Supreme Court in Unwired Planet held that it could grant an antisuit injunction for the patent in that case, but I don't think it did (as I recall, that was an issue that came up in the trial court in one of the joined cases, though at the end of the day no such injunction was entered).  Second, the author discusses three proposals found in the E.U.'s  Group of Experts on Licensing and Valuation of Standard Essential Patents ‘SEPs Expert Group’ - full contribution., specifically proposals 62, 63, and 64 (which would permit, inter alia, enhanced royalties to be assessed against an unwilling licensee and discounted royalties where it is the licensor who is at fault).  He states that the group "recommends" these three proposals, but under the group's voting procedure I'm not sure any of the proposals were, literally, recommended (see p.18 of the report for discussion), though each of these three did earn over three out of five stars.  Third, the author states that in Optis Wireless Technology, LLC v. Apple Inc., Case No. 2:19-cv-00066-JRG (E.D. Texas 2019), the court entered a "holding that the litigation [between these parties] in the United Kingdom was seriously defective and the judgment made should not be completely accepted."  I'm not sure what he is referring to, in particular since the U.K. litigation he references is from 2021.  Perhaps I am misunderstanding something.