Comparative Patent Remedies Now Available on Kindle

I'm pleased to announce that my book Comparative Patent Remedies:  A Legal and Economic Analysis is now available on Kindle, as well as in the more traditional hard copies available from or through OUP, Barnes & Noble, and Amazon.  Also, my article (coauthored with Norman Siebrasse) titled A New Framework for Determining Reasonable Royalties in Patent Litigation, 68 Florida Law Review 929 (2016), is now available on the Florida Law Review's website as well as on ssrn. 

In other news, I'm both happy and sad to announce that effective July 1 my colleague at the University of Minnesota, Professor Ruth Okediji, will be taking a position as the Jeremiah Smith Jr. Professor of Law at Harvard Law School.  I'm delighted for Ruth, who is a noted authority on international intellectual property law and development, but sad personally that a dear and esteemed colleague will be heading off to other pastures.  Nonetheless, our paths will continue to cross in the months and years to come, and our loss is Harvard's gain.  Congratulations, Ruth!

Léonard on Abuse of Right Under Belgian, French, and E.U. Law, Part 2

A couple of weeks ago I blogged about Amandine Léonard's article L’abus de droit dans le contentieux des brevets:  Entre divergences nationales et vœu d’harminisation de la jurisdiction unifiée du brevet—une piste à suivre? (“Abuse of right in patent litigation:  between national differences and the desire for harmonization in the unified patent jurisdiction—a path to follow?”), published in the January 2017 issue of Propriété Industrielle (pp. 10-14).  I thereafter learned that Ms. Léonard has published two other very interesting papers, in English, on the abuse of right doctrine.  (In case you're not familiar with abuse of right, it's a civil law doctrine--potentially applicable in all types of cases, not just patent cases--that in recent years courts in the Netherlands and Japan invoked to prevent Samsung from asserting claims for injunctive relief in litigation charging Apple with the infringement of certain FRAND-committed SEPs.  I've discussed the Japanese case several times on this blog (e.g., here), and the Dutch case in this article.)  

Anyway, the first of the two English-language articles by Ms. Léonard is ‘Abuse of Rights’ in Belgian and French Patent Law – A Case Law Analysis, 7 JIPITEC 30 (2016).  Here is a link to the article, and here is the abstract:

This paper examines what types of actions undertaken by patent holders have been considered as abusive in the framework of French and Belgian patent litigation. Particular attention is given to the principle of the prohibition of “abuse of rights” (AoR). In the jurisdictions under scrutiny, the principle of AoR is essentially a jurisprudential construction in cases where judges faced a particular set of circumstances for which no codified rules were available. To investigate how judges deal with the prohibition of AoR in patent litigation and taking into account the jurisprudential nature of the principle, an in-depth and comparative case law analysis has been conducted. Although the number of cases in which patent holders have been sanctioned for such abuses is not overabundant, they do provide sufficient leads on what is understood by Belgian and French courts to constitute an abuse of patent rights. From this comparative analysis, useful lessons can be learned for the interpretation of the ambiguous notion of ‘abuse’ from a broader perspective.

The other paper is coauthored with Richard Steppe and is titled Catching Patent Trolls in the Net of Abuse of Rights:  Applying the General Principle of Union Law in the Context of the Unitary Patent Package, 39 EIPR 163 (2017).  The paper is available in hard copy and on Westlaw.  Here is the abstract:

The phenomenon of "patent trolling" is recurrently alleged to obstruct the founding purposes of patent law. This contribution assesses to what extent the prohibition of abuse of rights, as a principle of Union law, may serve as a corrective mechanism. First, the article sets out the relationship between "patent trolls" and other (e.g. non-practicing) entities, establishing a behavioural definition of the former. Secondly, EU and national perspectives on abuse of rights are outlined and their applicability to patent rights tested. Lastly, the criteria of abuse are applied to trolls’ behavioural characteristics within the context of the Unitary Patent Package.

"Non omne quod licet honestum est. Summum jus, summa injuria; malitiis non est indulgendum."

I like the Latin maxims, which I believe come from Roman law and which might be translated as "Not everything that is permitted is honorable.  Extreme justice is extreme injustice.  The wicked are not to be indulged."  Perhaps I will use them myself if I ever get back to my contemplated project on the comparative law and economics of wrongful patent enforcement . . . .

Disgorgement of Infringer's Profits in Germany

As I mentioned last week, an article by Tobias Wuttke titled Aktuelles aus dem Bereich der „Patent Litigation‟: Überblick über aktuelle instanzgerichtliche Rechtsprechung ("News in the Area of Patent Litigation:  Overview of Recent Lower Court Decisions”) and published in the February 2017 issue of Mitteilungen der deutschen Patentanwälten discusses, among other topics, a decision of the Düsseldorf Court of Appeals (Case No. I-15 U 34/14, June 3, 2015) that elaborates on the disgorgement remedy under German law.   As Dr. Wuttke observes, the formula for awarding the infringer's profits can be summarized as ((Turnover - Costs) x Causal Portion).  The burden of production and proof lies with the defendant.  As for costs, under German law the defendant generally is entitled to subtract only the variable costs of production, and not an allocable portion of its fixed costs.  (See discussion in my book at pp. 271-73.)  A good portion of the judgment  in the above case therefore is devoted to determining which of the defendant's costs were properly deductible.  Another major portion of the opinion, which Dr. Wuttke focuses on, discusses the factors that are relevant to determining the portion of the profits that are properly attributable to the infringed patent.   With regard to this issue, the court holds, it is irrelevant whether the infringement was negligent, grossly negligent, or intentional (para. 457).  Instead, the fundamental factor is the difference between the protected invention and the market-relevant state of the art (para. 286).  Thus, where alternatives to the patent were on the market, or the defendant could have designed around the patent, the portion of the profit attributable to the infringed patent is likely to be comparatively smaller.  (I thought this was an interesting point, since as I discuss in my book German courts, like those in the U.K., often "haven't warmed to the objection that the infringer could have earned the same profit from selling a non-infringing alternative" (p.273 & n.202). Nevertheless, if I'm understanding matters correctly, they are open to the possibility that the existence of noninfringing alternatives may show that the patented feature didn't play a big role in attracting customers to buy the defendant's product, where such alternatives were actually available on the market.)  Also relevant is whether the defendant's lower price was attributable more to the patented technology or to its own efforts, and the extent to which other patented features, whether they are in suit or not, may have influenced consumer demand.   

On the facts of the case, the appellate court concluded that the plaintiff was entitled to 15% of the defendant's profit on sales of infringing products over the relevant time period, amounting to €344,866.57.  In addition, the court affirmed the lower court's award of €52,591.59 in royalties for the time period in between publication of the patent application and grant, applying the same general methodology that would be used for calculating a postgrant royalty.

PDF of Beijing IP Court Judgment (in Chinese)

Here is a link to a pdf of the Beijing IP Court's judgment in the IWNCOMM/Sony case I've mentioned on this blog over the last two days (here and here).  Again, I thank Professor Haijun Jin of Renmin University of China School of Law for sending this my way, and I'll see what I can do to obtain an English-language translation of the judgment sometime soon.

Text of Beijing IP Court Decision (in Chinese)

Here is a link to an abstract of the Beijing IP Court's judgment in the SEP case that I discussed in yesterday's post, and to the judgment itself, both in the original Chinese.  If you don't read Chinese (and I don't, unfortunately), Google Translate will provide you with a more-or-less reasonable translation of the abstract (which I am informed is not part of the judgment, but officially made).  I'll see what I can do over the coming days or weeks to get an English-language translation of the judgment itself.  Thank you to Professor Haijun Jin of Renmin University of China School of Law for sending this my way.

Beijing IP Court Awards Injunction, RMB 9 Million for Alleged Infringement of SEP

Here is a post on LinkedIn by Justin Shi of Ericsson titled "Landmark decision of SEP in China-Sony Mobile is determined to infringe a patent of Chinese company," and here is another story on Lexology from LexField Law Offices titled" Beijing Intellectual Property Court Grants First Injunction in a SEP infringement suit."  According to these sources, this morning the Beijing IP Court awarded a Chinese company, IWNCOMM, just under RMB 9 million (equal to three times the royalty IWNCOMM had submitted as a reference, from other licenses it had entered into) and an injunction for Sony's alleged infringement of a SEP relating to a standard (required in China) known as WAPI.   I hope to have more information on this decision as it comes in.

Update (March 23):  Here is a further write-up on the case by Jacob Schindler on the IAM Blog.  It links to both of the above two posts, as well as to this one on China Economic Net. 

Further Update (March 24):  As I note in my book, with regard to reasonable royalties article 21 of China's Patent Trial Guidelines permits courts to award "one to three times the patent licensing fee" (p.358).  Chinese law has not yet authorized treble damages for willful infringement, however--that's a separate issue--though I believe such a reform remains under consideration (see, e.g., here).

U.S. Supreme Court Holds That Delay in Filing Suit Is Not a Defense to a Claim for Patent Damages

This morning the U.S. Supreme Court handed down its opinion in SCA Hygiene Products Aktieblog v. First Quality Baby Products.  The Court holds that, under § 286 of the Patent Act (“Except as otherwise provided bylaw, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action”), the equitable defense of laches (defined as "unreasonable, prejudicial delay in filing suit") cannot bar a claim for patent damages suffered within the six years prior to the filing of complaint.  The opinion, authored by Justice Alito and joined by seven other justices, therefore aligns patent law with the rule the Court announced for copyright cases in its 2014 decision Petrella v. Metro-Goldwyn-Mayer, Inc. (see discussion here), and overrules Federal Circuit precedent holding that (Petrella notwithstanding) the laches defense could bar a claim for patent damages brought within the six-year statutory window (see discussion here).  According to the majority, "[l]aches is a gap-filling doctrine, and where there is a statute of limitations, there is no gap to fill" (p.5).  The Court rejects the argument that § 282 of the Patent Act, which states among other things that "unenforceability" is a defense in patent infringement actions, codifies a laches defense that would "bar a claim for damages incurred within the period set out in § 286," concluding that there was no such well-established practice prior to the enactment of the 1952 Patent Act.  

Justice Breyer, who also dissented in Petrella, is the sole dissenter here.  He argues that the pre-1952 case law does establish that courts viewed laches as a viable defense even as against claims brought within the statute of limitation, and expresses concern that absent a laches defense some patent owners will be motivated to delay suit until after the defendant has incurred substantial costs.  (He also is less sanguine than the majority that the doctrine defense of "equitable estoppel" will pick up the slack.  This doctrine, which the Supreme Court in Petrella  characterized as involving "intentionally misleading representations concerning [one's] abstention from suit" whereby "the alleged infringer detrimentally relies on the . . . owner’s deception," survives § 286, since delay "is not an element of the defense.")  Basically, Justice Breyer's concern about delay and "lock-in" is a variation on the "patent holdup" theme, which is often brought to bear as an argument against mandatory injunctive relief against a defendant who has incurred substantial sunk costs and who may face disproportionately high ex post design-around costs.  I'm sympathetic to this concern as it relates to injunctions, and it may be that the concern is equally valid here, though I would note that (1) the damages that would be due for harms accruing to the utility patent owner over the six years preceding the filing of the complaint would take the form of lost profits or a reasonable royalty which (in theory) should not reflect any holdup costs, and (2) post-eBay it's hardly a foregone conclusion that the prevailing plaintiff will obtain an injunction against future infringement--though if not, and the court awards an ongoing royalty, there is a risk under U.S. practice that the ongoing royalty will reflect some degree of holdup value (see, e.g., discussion here).   

In this regard, and since this is a blog about damages law, I would call attention to Justice Breyer's discussion of a possible distinction between damages awards in patent and copyright cases at pp. 9-10 of his dissent:

For another thing, the Copyright Act, unlike the Patent Act, has express provisions that mitigate the unfairness of a copyright holder waiting for decades to bring his lawsuit. A copyright holder who tries to lie in wait to see if a defendant’s investment will prove successful will discover that the Copyright Act allows that defendant to “prove and offset against . . . profits ‘deductible expenses’ incurred in generating those profits.” Id., at ___ (slip op., at 12) (quoting 17 U. S. C. §504(b)). Thus, if the defendant invests say $50 million in a film, a copyright holder who waits until year 15 (when the film begins to earn a profit) to bring a lawsuit may be limited to recovering the defendant’s profits less an apportioned amount of the defendant’s initial $50 million investment. But the Patent Act has no such deduction provision.

With all due respect, this doesn't seem to make much sense.   For one thing, awards of infringer's profits are available in patent cases only for design patent infringement; and in those cases  the defendant presumably is allowed to deduct its costs, as it would in copyright.  Of course, as we know from Samsung v. Apple it may have to disgorge profits that go beyond the profits attributable to the infringed design, so this might have been a valid distinction to draw (albeit one of limited applicability), but it doesn't appear to be the point Justice Breyer was trying to make.  Justice Breyer also ignores the availability in copyright but not patent cases of statutory damages, which might seem to cut against his point that copyright has more damages-limiting doctrines than does patent.

One other thing I would note, relevant more to damages law than to laches as such, is the majority's characterization of the remedy of an accounting of profits (that is, disgorgement), which the majority mentions in its discussion of the pre-1952 case law.  The majority specifically refers to this remedy as "equitable"  and "not the same as damages" (p.11).  I repeat, then, a query I've made before with regard to design patent litigation, where the disgorgement remedy persists:  are we sure there's a right to a trial by jury on the amount of the disgorgement in such cases--and if not, why hasn't anybody (yet, to my knowledge) raised this point in their discussions of Samsung v. Apple and of Nordock?

Update:  One further thought:  does the Court's alignment of the copyright and patent law rules in this case herald a similar treatment of the issue of exhaustion, which was argued this morning in Impression Products, Inc. v. Lexmark International, Inc.?  Here's a link to the transcript, which I hope to read this afternoon.  For what it's worth, my own views of the exhaustion matter are in line with those expressed in an op-ed in this morning's Wall Street Journal by Professors Daniel Hemel and Lisa Larrimore Ouellette, here.

Some New Papers on FRAND

1.  Hanns Ulrich has posted a paper on ssrn titled FRAND Access to Open Standards and the Patent Exclusivity:  Restating the Principles.  Here is a link to the paper, and here is the abstract:

When technical standards are to be defined pursuant to the claims of a patent and, therefore, the use of the standard will necessarily infringe that standard-essential patent (SEP), the proprietor may commit to granting all users a license at fair, reasonable and non-discriminatory (FRAND) conditions as a way to promote acceptance of the standard by the market. However, the relationship between such FRAND licensing commitment and a patentee’s right to seek and obtain injunctive relief from patent infringement by standard implementers not (yet) having entered into a license agreement remains controversial. In Huawei Technologies v. ZTE, the Court of Justice of the EU has shown a way to overcome the tension between the protection of patents by prohibitory orders and open access to innovative standards that has its origin in general principles of commercial law rather than in competition law. In view of this new approach, the paper restates the legal principles that, as a matter of public policy, govern the interaction of patent protection and open standardization in the EU. These principles are the free choice of patent protection and of a standard setting organization pursuing a particular IPR policy, and the self-regulatory organization of open, innovative standard setting on the one hand, and, on the other, the complementary functioning of patent protection and institutionalized open standard setting as a way to promote innovation and its dissemination. That principled framework regulation of dynamic markets also calls for holding all market actors concerned responsible for exercising their freedom in conformity with rules of fairness so that, ultimately, the complementary public policies underlying patent protection and innovative standardization, respectively, will be satisfied. While competition law reinforces the rules for such responsible conduct, they rest on and need to be implemented by reference to the legal framework of open innovative standardization itself. By way of conclusion, the EU’s negotiation approach to determining the meaning of FRAND in a particular case is put in contrast to quasi-regulatory approaches that by assimilating a standard to an essential facility subject SEPs to a mandatory licensing rule and, therefore, also to determination of FRAND terms by administrative or judicial decision. 

2.  Jonas Block has published a paper titled Achtzehn Monate nach EuGH „Huawei/ZTE‟:  Die Rechtsprechung der deutschen Instanzgerichte (“Eighteen Months following the CJEU’s Huawei/ZTE Deciion:  The Case Law of the German Lower Courts”) in the February 2017 issue of GRUR (Gewerblicher Rechtschutz und Urheberrecht), pp. 121-27.  Here is the abstract (my translation):Since the publication of the July 16, 2015 decision of the CJEU in the Huawei Technologies/ZTE  case (GRUR 2015, 764), the patent bar has paid close attention to the lower courts’ application of the conditions set out in the decision.   Within the first year there have been a range of fundamental, as well as corrective, decisions of the patent dispute chambers and senates in Mannheim, Karlsruhe, and Düsseldorf.

3.  Tobias Wuttke has published a paper titled Aktuelles aus dem Bereich der „Patent Litigation‟: Überblick über aktuelle instanzgerichtliche Rechtsprechung ("News in the Area of Patent Litigation:  Overview of Recent Lower Court Decisions”) in the February 2017 issue of Mitteilungen der deutschen Patentanwälten (pp. 56-62).  Here is the abstract (again, my translation):

The law of patent infringement has developed in numerous relevant respects within the period under review.  Following the opinion of [German jurist] Keukenschrijver, the Munich District Court has established a two-step test for analyzing when the prior user right applies to further developments of the technology in question.  Moreover, the Mannheim and Düsseldorf patent dispute chambers have clarified the CJEU’s conditions for asserting the FRAND objection.

The article also discusses a decision of the Düsseldorf Court of Appeals (Case No. I-15 U 34/14, June 3, 2015) setting out the framework for determining the portion of the infringer’s profits to award when the patent owner seeks an award of infringer's profits.  I’ll read this more closely and report back in the near future.  

  

For other recent discussions of the German FRAND cases, see the papers I've mentioned here and here.

Mentor v. EVE-USA: No Apportionment of Lost Profits Award

This morning the Federal Circuit issued an opinion in Mentor Graphics Corp. v. EVE-USA Inc. (available here).  The underlying facts are somewhat complex, and the opinion (authored by Judge Moore and joined by Judges Lourie and Chen) addresses a number of issues (including infringement, assignor estoppel, claim definiteness, patentable subject matter, written description, and claim preclusion) that for present purposes I'll skip.  What I will address is the court's affirmance of a jury award of $36,417,661 in lost profits and $242,110.45 in reasonable royalties for the infringement of one of the patents in suit, and its vacatur of an order precluding the plaintiffs from introducing evidence relating to willful infringement.  To cut to the chase, I think the court’s analysis is spot-on right. 

All of the patents in suit involve simulation/emulation technology.  Prior to trial, however, the court granted summary judgment for the defendants on all but one, the '376 Patent, which "relates to debugging source code after synthesis," "the process of transforming Hardware Description Language (“HDL”) into gate-level 'netlists'" (p.5).  The court affirms the jury's finding that Synopsis infringed the patent, and the judge's conclusion that Synopsis was precluded from challenging its validity under the doctrine of assignor estoppel.  That leaves the question of damages:

Mentor argued it was entitled to obtain lost profit damages for lost sales of its Veloce emulators resulting from Synopsys’ infringing sales of its ZeBu emulators because Mentor would have made additional Veloce sales but for Synopsys’ infringing ZeBu sales. The district court gave detailed instructions to the jury about the standard for awarding lost profits, including extensive discussion of each of the four Panduit factors. . . .  Synopsys appeals arguing that the damage award should be vacated because the district court failed to apportion the lost profits (p.8).

The Federal Circuit disagrees, however, stating (pp. 9-10 & n.3):

The Patent Act provides: “the court shall award [the patent owner] damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer.” 35 U.S.C. § 284. Under the statute, “damages adequate to compensate” means “full compensation for any ‘any damages’ [the patent owner] suffered as a result of the infringement.” Gen. Motors Corp. v. Devex Corp., 461 U.S. 648, 654–55 (1983). As the Supreme Court explained in Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S 476, 507 (1964) (plurality opinion), the statutory measure of damages is “the difference between [the patent owner’s] pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred.  The Court went on to distinguish between disgorgement of defendant’s profits, which had been allowed prior to the 1946 statutory amendment, and the compensatory damages of § 284, which are defined as “compensation for pecuniary loss he (the patentee) has suffered from the infringement, without regard to the question whether the defendant has gained or lost by his unlawful acts.” Id. (quoting Coupe v. Royer, 155 U.S. 565, 582 (1895)).^3/  Section 284 damages “have been said to constitute ‘the difference between his pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred.’” Id. (quoting Yale Lock Mfg. Co. v. Sargent, 117 U.S. 536, 552 (1886)). Put simply, “[t]he question to be asked in determining damages is ‘how much had the Patent Holder and Licensee suffered by the infringement. And that question (is) primarily: had the Infringer not infringed, what would Patent Holder-Licensee have made?’” Id. 

^{3/Synopsys cites a number of pre-1946 Supreme Court cases discussing apportionment in the context of the pre-1946 state of the law which reference disgorgement of the defendant’s profits and patentee’s damages to argue that lost profits must be further apportioned after applying the Panduit factors. See Garretson v. Clark, 111 U.S. 120, 121 (1884); Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641, 646 (1915); Seymour v. McCormick, 57 U.S. 480, 487 (1853). While these pre-§ 284 cases apply to a different damages regime, nonetheless, we find the basic principle of apportionment which they espouse applies in all of patent damages. We do not depart from this principle today. Rather we hold that in this case, on these facts, apportionment is achieved though the court’s use of the Panduit factors.} 

The court further notes that "[c]ompensatory damages are a staple across most every area of law," and that "[t]heir form is fairly standard; 'but for' some harmful act by a defendant, a plaintiff would be in a certain position. When a plaintiff proves it would have been in a certain position but for a defendant’s harmful act, it is entitled to damages to put it in the same position it would have occupied had the harmful act never occurred" (p.10).  Therefore, "[i]n this regard, lost profit patent damages are no different than breach of contract or general tort damages. Thus, the fact finder’s job is to determine what would the patent holder have made (what would his profits have been) if the infringer had not infringed" (p.14).

The court then goes on to discuss the Panduit factors--"(1) demand for the patented product; (2) absence of acceptable non-infringing alternatives; (3) manufacturing and marketing capability to exploit the demand; and (4) the amount of profit it would have made"--while noting that (1) Panduit is only one "'useful, but non-exclusive' method to establish the patentee’s entitlement to lost profits," p.11;  (2) in some cases lost profits must be awarded on a market-share basis, p.14 n.5; and (3) "[d]amages under Panduit are not easy to prove," often due to the second factor, absence of acceptable non-infringing alternatives.  Expanding on this theme, the court states:

The first factor—demand for the patented product—considers demand for the product as a whole. DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314, 1330–31 (Fed. Cir. 2009). The second factor—the absence of non-infringing alternatives—considers demand for particular limitations or features of the claimed invention. Id. at 1331. Together, requiring patentees to prove demand for the product as a whole and the absence of non-infringing alternatives ties lost profit damages to specific claim limitations and ensures that damages are commensurate with the value of the patented features. . . .

Under [the second] factor, if there is a noninfringing alternative which any given purchaser would have found acceptable and bought, then the patentee cannot obtain lost profits for that particular sale. . . .  For example, if the customer would have bought the infringing product without the patented feature or with a different, non-infringing alternative to the patented feature, then the patentee cannot establish entitlement to lost profits for that particular sale. And this determination is made on a customer-by-customer basis. For this reason, it is quite common to see damage awards where, as in this case, the patentee proves entitlement to lost profits for some of its sales, but not others. See BIC Leisure, 1 F.3d at 1219–20; DePuy Spine, 567 at 1333–34. For sales in which the patentee cannot prove the elements necessary to establish entitlement to lost profits, the statute guarantees the patentee a reasonable royalty for those sales. In those circumstances, the patentee obtains its lost profits on the sales where it can prove all the Panduit factors and a reasonable royalty on the other infringing sales (pp. 13-15).

Applying the law to the facts, “The jury found, and Synopsys does not dispute on appeal, that Mentor satisfied all of the Panduit factors with regard to the sales to Intel for which the jury awarded lost profits . . . (p.15).  At length, then we get to the apportionment issue:

. . . Synopsys advocates for a two-step process for calculating lost profits. First, Synopsys argues a patentee must calculate the amount of profits it lost as a result of the infringement using the Panduit factors. Second, Synopsys argues a patentee must further apportion its lost profits to cover only the patentee’s inventive contribution. . . .  Synopsys does not dispute that “but for” its infringement, Mentor would have made $36,417,661 in lost profits. Instead, Synopsys argues that the allegedly infringing features were just two features of emulators that comprise thousands of hardware and software features. . . . Thus, according to Synopsys, Mentor is not entitled to recover what it lost, the amount necessary to make it whole for the sales it lost, but rather the value attributable to its patented features.

Synopsys argues that “[p]rinciples of apportionment play an especially vital role in this age of complex, multicomponent electronic devices.” . . .  Synopsys argues that the patentee does not “deserve,” . . . lost profits for the whole emulator when it only invented some of the features on the emulator. Thus, according to Synopsys the damages should not be the profits the patentee lost when it lost the emulator sale because of Synopsys’ infringement, but rather only the amount of profit properly attributable to its patented features.

We agree with Synopsys that apportionment is an important component of damages law generally, and we believe it is necessary in both reasonable royalty and lost profits analysis. . . . In this case, apportionment was properly incorporated into the lost profits analysis and in particular through the Panduit factors. Panduit’s requirement that patentees prove demand for the product as a whole and the absence of non-infringing alternatives ties lost profit damages to specific claim limitations and ensures that damages are commensurate with the value of the patented features. We leave for another day whether a different theory of “but for” damages adequately incorporates apportionment principles.^7/. . . We hold today that on the undisputed facts of this record, satisfaction of the Panduit factors satisfies principles of apportionment: Mentor’s damages are tied to the worth of its patented features. , , ,

^7/Synopsys argues that we have held in other cases that lost profits must be apportioned. Synopsys Br. 51–56. The cases cited by Synopsys, however, did not address whether lost profits were appropriate under the Panduit factors (where the apportionment was subsumed within the Panduit analysis). Id. (citing Ferguson Beauregard/Logic Controls v. Mega Sys., LLC, 350 F.3d 1327, 1345–46 (Fed. Cir. 2003); Kori Corp. v. Wilco Marsh Buggies & Draglines, Inc., 761 F.2d 649, 656 (Fed. Cir. 1985)). Synopsys recognizes, however, that in other cases, we have declined to apportion when the four-part Panduit test establishing but for causation has been met. See, e.g., Synopsys Rep. Br. 24–25 (citing Paper Converting Mach. v. Magna-Graphics Corp., 745 F.2d 11, 22–23 (Fed. Cir. 1984) (declining to further apportion a lost profits award because the patentee proved it would have made the sales in question but for the infringing sales)).

Synopsys and the amicus brief argue that complex multi-feature devices necessitate change in patent damages law. They argue that not requiring an additional apportionment step after the Panduit test has been met would “allow multiple entities to obtain lost profits on the same product where each entity holds a patent on a different ‘but for’ feature of the same product.” Amicus Br. 11. This claimed threat of “serial infringement claims” is not correct. Again, we do not speak to all damages models. Under Panduit, however, there can only be one recovery of lost profits for any particular sale (pp.16-20).

The court then provides a very good example of why its analysis is correct:

With such multi-component products, it may often be the case that no one patentee can obtain lost profits on the overall product—the Panduit test is a demanding one. A patentee cannot obtain lost profits unless it and only it could have made the sale—there are no non-infringing alternatives or, put differently, the customer would not have purchased the product without the infringing feature. Consider the laptop example. If the only patented component is the extended life battery and a customer will only buy a laptop with this battery (meaning a laptop with a lower quality battery is not an acceptable noninfringing alternative to the customer), then when an infringer who appropriates the patented extended life battery sells a laptop, the infringer has deprived the patentee of the lost profits on the laptop sale which only it could have made. If a laptop with a lower-quality battery would be an acceptable non-infringing alternative to certain customers, the patentee would not be entitled to lost profits for these laptop sales. For those customers, the patented battery was not a factor in their purchasing decision; it was not necessary for the sale. The only sales for which the patentee can obtain lost profits are the customers who would refuse to purchase laptops without the patented extended-life battery. For these lost customers, the extended-life battery drives their purchasing decisions (pp. 21-22).

Finally, however, the court disagrees with the district court’s order precluding Mentor from seeking enhanced damages, which was premised on (1) the conduct at issue occurring only after suit had been filed, and (2) Mentor’s failure to seek a preliminary injunction, which the court believed prevented a finding of willfulness under Seagate.  The Federal Circuit vacates this order and remands, concluding that (1) the district court miscalculated the date on which suit had been filed with respect to the ‘376 Patent (defendants filed a declaratory judgment action regarding the '376 Patent, and the alleged willful infringement occurred after this but before Mentor filed a counterclaim for the infringement of that patent), and (2) even under the now-overruled Seagate standard, there was no hard-and-fast rule that the patentee must seek a preliminary injunction to obtain enhanced damages.   

As stated above, I think the court’s analysis is spot-on.  I’ve been arguing for years that the “entire market value rule” is basically irrelevant in the lost profits context, and that the only applicable principle is restoration of the patentee to the position it would have occupied but for the infringement.  See, e.g., Thomas F. Cotter, Comparative Patent Remedies:  A Legal and Economic Analysis 114-16 (Oxford Univ. Press 2013) (using a laptop example very similar to Judge Moore’s); Roger D. Blair & Thomas F. Cotter, Rethinking Patent Damages, 10 Tex. Intell. Prop. L.J. 1, 27-28 (2001).  I'm very happy to see that the court has now explicitly acknowledged the point.  Bravo, Judge Moore, for a very persuasive economic analysis.  

In closing I'll note two more things.  First, as the court acknowledges, in a case like this one it makes perfect sense to award a patent owner its lost profit on those sales it would have made but for the infringement, and a reasonable royalty for the infringing acts that didn't deprive the patent owner of any sales.  My understanding, though, is that in some countries (for example, Japan--see discussion in my book at pp. 317-18--and Germany) the patent owner can only use one single methodology (lost profits, reasonable royalty, or disgorgement) for any given patent; in my view, this can lead to undercompensation in some instances.  Second, I wonder if the case will be cited as support for the proposition that only conduct occurring prior to filing of the lawsuit counts for purposes of determining whether the patentee may recover enhanced damages?  That may well be a sensible rule; I'm just not sure whether the law is settled on this point post-Halo.  For somewhat related discussion, see here.