Monday, October 14, 2013

Damages Before Liability

In Apple v. Motorola, Judge Richard Posner last year dismissed patent infringement claims brought by Apple and Motorola against one another, on the ground that neither party would be able to prove up the amount of damages to which they would be entitled, and there was no point in proceeding to trial on claims for nominal damages.  (Injunctive relief was also out of the question, under Judge Posner’s application of the eBay factors).  In Microsoft v. Motorola, Judge James Robart decided the amount of a FRAND royalty for Motorola’s patents, even though there has been no decision yet on the issue of whether Microsoft infringed those patents or whether the patents are valid.  Most recently, in September 2013, Judge James Holderman held a bench trial on damages (FRAND royalties) in the Innovatio IP Ventures Patent Litigation, even though there has not yet been a trial on liability or damages.  According to Judge Holderman’s opinion, the parties were of the view that settling the damages issue first might facilitate settlement.   Now that Judge Holderman has decided the amount of damages, we’ll see if that happens.   

Are we witnessing a new development in the law, with damages issues being resolved in advance of liability?

Of course, all these cases are different.  Judge Posner’s ruling may not be upheld on appeal, if the Federal Circuit concludes that he should have given the parties another chance to correct their damages theories (or that Judge Posner’s rulings on the proffered theories were incorrect).  And as I’ve pointed out before, a ruling like Judge Posner’s probably wouldn’t happened anywhere else in the world, given that most countries still award injunctive relief as a matter of course (and even if they decide not to do so in cases involving SEPs, only one of the patents in suit in Apple v. Motorola was an SEP); and that damages trials are usually bifurcated (in some U.S. districts bifurcation may now be common, but it hasn’t been until recently) and held only after there has been a decision on liability.  Also, judges in some countries may have a freer hand to determine damages even if the parties’ evidence is deficient, and the remedy of disgorgement of defendant’s profits may be available as an alternative to a reasonable royalty.  See my post from last May, here

As for Microsoft, Judge Robart heard the breach of contract case before the related patent infringement case; we’ll have to wait and see whether Judge Robart’s ruling that a FRAND commitment constitutes a contract for the benefit of third parties, thus giving rise to potential liability for breach of contract, becomes the established principle of law.  For my recent paper discussing this case, see here.  

As for Innovatio, it’s certainly unusual to have a damages trial before a liability trial, but maybe it makes sense in the context of that case; and maybe in other cases too.  If the damages aren’t very high, perhaps there isn’t much of a reason to proceed with a lengthy trial on liability and damages.  Of course, where damages are decided before liability there are some tricky questions relating to the presumption of validity and infringement, as I pointed out in my recent post on the Innovatio ruling.

In this light, it was interesting to see a recent article by Christoph Graf von der Groeben, Schadensersatzfeststellung im Grundprozess unter Einschluss der Berechnungsfaktoren des Höheprozesses, GRUR 2012, 864.  I would translate the title as something like “Damages Determination in the Liability Phase under the Inclusion of the Computation Factors from the Damages Phase.”  Mr. von der Groeben argues that it would make sense (and would facilitate settlement) to permit, during the liability phase of a patent infringement trial in Germany, evidence of the relevant royalty rate and of the extent to which the infringer's sales are attributable to the infringed patent, rather than delaying evidence on these issues until a formal damages trial.   I don't know whether it is likely that German courts will be receptive to this recommendation or not, but on its face it seems to me that it could make sense to have some idea where you're going, in terms of damages, at an earlier phase of the proceedings.

Finally, in the recent case in which the Canadian Federal Court of Appeals affirming the patentee's  right to punitive damages (noted here), the court held that an entitlement to punitive damages can sometimes be determined before the amount of compensatory damages is determined.  This is not the same issue as discussed above, but arguably worth noting in this context.  For Professor Siebrasse's analysis, see here.

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