Wednesday, June 28, 2017

Judge Koh on Enhanced Damages, FRAND

U.S. District Judge Lucy Koh has issued two important opinions within the past week on issues related to patent royalties.  First, in Apple Inc. v. Samsung Elecs. Corp., Case No. 12-CV-00630-LHK (N.D. Cal .June 23, 2017)--the case involving, among others, the slide-to-unlock patent--the court on remand from the Federal Circuit entered a 30% damages enhancement based on its finding that, under the Halo v. Pulse standard, Samsung willfully infringed.  Of particular interest here are the following findings and conclusions:  (1) Samsung copied the slide-to-unlock feature; (2) at the time it copied, the relevant patent hadn't issued yet; (3) copying in the absence of knowledge of the patent, standing alone, doesn't amount to willful infringement; (4) Samsung's continued infringement after having been put on notice of the patent, by virtue of the filing of the lawsuit, can support an inference of willful infringement; (5) Samsung had a noninfringing alternative but chose not to use it.  See in particular pp. 18-21:
The fact that Samsung copied is evidence of willfulness. The initial copying of the slide-to-unlock feature before the instant suit was filed, as discussed above, cannot alone support a willfulness finding. However, after Samsung was notified of the '721 patent by the filing of the instant suit, Samsung continued to sell the same copied designs. The continued sale of a copied product supports an inference that Samsung's infringement was willful. See Final Jury Instructions at 39 (“A factor that may be considered as evidence that Samsung or Apple was willful is whether it intentionally copied a product of the other side that is covered by a patent.”); see also Polara Eng'g, Inc. v. Campbell Co., 2017 WL 754609, at *15 (C.D. Cal. Feb. 27, 2017) (upholding willfulness jury finding where there was evidence that “Campbell intentionally copied Polara's two-wire device”). Accordingly, Samsung's copying supports the jury's finding of willfulness.
Second, there is evidence in the record that Samsung had a non-infringing alternative that it could have implemented quickly. ECF No. 1717 at 222–23 (Samsung Expert Saul Greenberg) (“Well, at the time of the filing of this case, which was February 8, 2012, there were [non-infringing alternatives, such as “circle unlock”].... So it would have taken them no time at all. They could have just swapped out the interface and used that instead.”). There is also evidence that the non-infringing alternatives were not well-received by Verizon, or were less effective. PX181 at 5 (discussing Verizon's “negative response towards our company's circle lock playing the role of the unlock visual cue”); ECF No. 1623 at 187–90 (Apple Expert Andrew Cockburn) (explaining that Samsung's alternatives had various flaws that made them less desirable). From this evidence, a reasonable juror could infer that Samsung chose to continue infringing because it did not want to give up market share by switching to a less desirable alternative.
Finally, Samsung's defenses at trial do not preclude a finding of willfulness. . . .
The court then applies the Read v. Portec factors to conclude that a 30% enhancement is appropriate (pp. 21-31):
The Read factors include: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer's behavior as a party to the litigation; (4) defendant's size and financial condition; (5) closeness of the case; (6) duration of defendant's misconduct; (7) remedial action by the defendant; (8) defendant's motivation to harm, and (9) whether defendant attempted to conceal its misconduct. Read, 970 F.2d at 827. . . .
Factors 1, 4, and 8 weigh in favor of enhanced damages; factor 2 slightly weighs in favor of enhanced damages; factors 3 and 5 weigh against enhanced damages; factors 6 and 7 weigh slightly against enhanced damages; and factor 9 is neutral. Taking into account the jury's finding and the above Read factors, the Court finds that enhancement is warranted in this case. The evidence of direct copying, continued sale of copied products after Samsung received notice of the '721 patent, Samsung's motivation to obtain a competitive advantage using Apple's own designs, and the availability of less desirable non-infringing alternatives that could be implemented in no time indicate that Samsung's actions were sufficiently egregious to warrant enhancement.
However, “[t]rebling damages is reserved for the cases at the most egregious end of the spectrum.” Polara, 2017 WL 754609 at *27. Here, Samsung's remedial actions, the duration of misconduct, the closeness of the case, and Samsung's litigation behavior, although insufficient to preclude the award of enhanced damages, weigh against an award of double or treble damages and weigh in favor of a moderate award. Accordingly, the Court exercises its discretion and finds that increasing the damages award by 30% of the compensatory damages award is a sufficiently punitive sanction for Samsung's conduct in this case. The jury awarded $2,990,625 to Apple on the '721 patent. The Court increases this amount by $897,187.50 to a total award of $3,887,812.50.
The other decision, which came down on Monday, is Judge Koh's order denying Qualcomm's motion to dismiss in FTC v. Qualcomm, Case No. 17-CV-00220-LHK.  (You can access a copy of the opinion on Westlaw or, via Scribd, on the FOSS Patents blog.) I'm not going to go into all the details of this complex antitrust matter here and now (and I still need to read the entire opinion myself, carefully), but will just note Judge Koh's conclusion that the FTC's complaint adequately alleges both that Qualcomm charges a supra-FRAND rate, in violation of its FRAND commitments, and that this harms the competitive process (an important point under U.S. antitrust law, because excessive pricing standing alone doesn't constitute an antitrust violation).  See, e.g., the following passage from the opinion:
Significantly, although Qualcomm nominally imposes the same surcharge on all modem chips sales, Qualcomm's surcharge does not affect Qualcomm and its competitors equally. For Qualcomm, as discussed above, Qualcomm's surcharge is a means for Qualcomm to functionally extract a higher price for Qualcomm's own modem chips without being underbid in the modem chips market by competing modem chips manufacturers. See Compl. ¶¶ 86, 85–95. The revenue from Qualcomm's surcharge comes back to Qualcomm as a form of profit, and it maintains Qualcomm's modem chips monopoly. Moreover, Qualcomm can offer OEMs incentive payments that provide OEMs discounts from Qualcomm's above-FRAND royalties if an OEM uses Qualcomm's modem chips as opposed to the modem chips of Qualcomm's competitors. Id. ¶ 103. Qualcomm's competitors, by contrast, cannot offer OEMs such incentive payments, and Qualcomm's surcharge works to reduce competitors' modem chips sales and margins, which prevents these competitors from effectively competing with Qualcomm. See id. ¶ 106. In effect, FTC alleges, Qualcomm's surcharge “artificially stunt[s]” its competitors' ability to effectively grow and challenge Qualcomm on the merits, in violation of the Sherman Act. McWane, 783 F.3d at 824, 839–40; see also United States v. Dentsply Intern., Inc., 399 F.3d 181, 191 (3d Cir. 2005) (finding monopolist's actions anticompetitive where the monopolist's conduct “help[ed] keep sales of competing [products] below the critical level necessary for any rival to pose a real threat to [the defendant's] market share”).

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