Monday, November 27, 2017

Federal Circuit Places Burden of Proof on Noninfringing Alternatives on Patentee

At least that's the most important point that I would take away from the Federal Circuit's decision last week in Presidio Components, Inc. v. American Technical Ceramics Corp., an opinion authored by Judge Dyk (joined by Judges Moore and Taranto).  The patent in suit is for a type of capacitor, and the opinion discusses a variety of topics, among them claim definiteness and intervening rights (i.e., whether an amendment made during the course of reexamination was significant enough to excuse the defendant from liability for the period of time preceding the amendment).  I'll pass over those substantive matters, however, and focus on the remedies issues, which involve (1) lost profits, (2) enhanced damages, and (3) injunctive relief.  To cut to the chase, the district court (1) awarded $2,166,654 in lost profits, (2) awarded no enhanced damages despite a jury finding of willfulness, and (3) granted a permanent injunction.  The Federal Circuit reversed on (1), affirmed on (2), and vacated and remanded on (3).

As for the first of the remedies issues, the plaintiff argued that it was entitled to lost profits on sales it would have made but for the infringement.  During the period in question, the defendant sold two types of capacitors, one of which (the "550" capacitor) infringed and the other of which (the "560L") did not.  The relevant question therefore was whether purchasers of the infringing product would have purchased the noninfringing alternative from the defendant, had the defendant not produced the infringing model; if so, then the infringement didn't deprive the patentee of any sales, and it would be entitled only to a reasonable royalty.  (As I've noted before, this is correct as a matter of economics and is standard law in the U.S. and France, though not in the U.K.)  A subsidiary question centers on which party has the burden of proof:  is it the patentee's burden to demonstrate the absence of an adequate noninfringing alternative, or the defendant's burden to show that purchasers would have considered the alleged alternative to be adequate?  As several coauthors and I write in a draft of a forthcoming chapter of an edited volume titled Patent Remedies and Complex Products: Toward a Global Consensus (Cambridge University Press, forthcoming 2018):
. . . although U.S. law appears to place the burden of proving the absence of non-infringing alternatives on the patentee, to our knowledge there is little discussion in the legal or economic literature addressing whether this allocation of the burden of proof is optimal. One might speculate that the infringer often would be better placed than the patentee to propose and substantiate the existence of feasible alternatives (though perhaps patent owners have unique insights into the matter that are not apparent at first blush); or maybe the allocation of the burden of proof on this issue does not matter much in practice, since both parties often will be motivated to present the evidence that best favors their position. Further consideration in the scholarly literature would be welcome.
Anyway, the Presidio opinion pretty clearly follows the practice of placing the burden on the patentee, while also stating (1) that the relevant question is whether consumers would have viewed the alternative as an adequate substitute for the product the plaintiff was selling, and (2) that an alternative doesn't have to be on the market to be "available" (pp. 16-18):
ATC argues that the district court erred by finding that substantial evidence supported that Presidio had satisfied the second prong of Panduit analysis—the absence of an acceptable, non-infringing alternative. To prove the absence of acceptable, non-infringing alternatives, the patentee may prove either that the potential alternative was not acceptable to potential customers or was not available at the time. Grain-Processing Corp. v. Am. Maize-Prod. Co., 185 F.3d 1341, 1353–55 (Fed. Cir. 1999). . . .
The district court’s analysis and Presidio’s argument were flawed. The correct inquiry under Panduit is whether a non-infringing alternative would be acceptable compared to the patent owner’s product, not whether it is a substitute for the infringing product. “The ‘but for’ inquiry therefore requires a reconstruction of the market, as it would have developed absent the infringing product, to determine what [sales] the patentee ‘would . . . have made.’” Grain Processing, 185 F.3d at 1350. The district court erred by relying on evidence about sales of the 560L capacitor in competition with the currently infringing product, rather than comparing the 560L capacitor to Presidio’s BB capacitor in a  hypothetical market without the infringing 550 capacitor. There was not substantial evidence in the record upon which a jury could conclude that the 560L was not an acceptable, noninfringing  alternative for Presidio’s BB capacitors. Undisputed evidence showed that the 560L capacitor was less expensive than Presidio’s BB capacitor and also had lower insertion loss for at least some  frequencies, which indicates better performance.
On the question of availability, the district court determined that sufficient evidence supported the finding that the 560L capacitor was not an available substitute because unlike the infringing 550  capacitors, ATC sold the 560L capacitor only to a single customer and did not list it on its website. An alternative does not need to be on the market to be available. Grain Processing, 185 F.3d at 1356. But here, the alternative was on the market. The undisputed evidence shows ATC sold 88,000 560L capacitors to the customer. The fact that ATC only sold the 560L capacitor to a single customer does not establish that it was unavailable. Moreover, the fact that the 560L capacitor was not widely advertised when sold in a market with the 550 capacitor does not show a lack of availability. In a hypothetical market including the 550 capacitors, ATC may have chosen not to advertise the 560L capacitor. . . .
In summary, Presidio failed to provide evidence that the 560L capacitor was either not an acceptable or available substitute to Presidio’s BB capacitor. We reverse the denial of judgment as a matter of law. The jury’s award of lost profits is set aside; Presidio is only entitled to receive a reasonable royalty award. . . . Under these circumstances, a new trial is needed to determine the reasonable royalty award.
As for enhanced damages, the court affirms the district judge's decision not to award any notwithstanding the jury's finding of willfulness, noting the judge's conclusion "that the present case was a 'garden-variety' hard-fought patent case, rather than an egregious case of misconduct" (pp. 19-20), and holding that the court is not required to discuss the Read v. Portec factors (which can be relevant in determining the extent to which damages should be enhanced) (p.20).

Finally, on injunctive relief, the court holds that where lost profits are not proven is is less likely that the patentee will be faced with the prospect of irreparable harm--though not impossible, hence the need for a remand:
To prove irreparable injury, a patentee must show “1) that absent an injunction, it will suffer  irreparable harm, and 2) that a sufficiently strong casual nexus relates the alleged harm to the alleged infringement.” Apple Inc. v. Samsung Elecs. Co., 695 F.3d 1370, 1374 (Fed. Cir. 2012). To determine whether the patentee will suffer irreparable harm absent an injunction, the court may consider factors such as the nature of competition between the patentee and the infringer, the willingness of a patentee to license, and any lost sales the patentee has proven. . . .
Where irreparable injury is based on lost sales, “a likelihood of irreparable harm cannot be shown if sales would be lost regardless of the infringing conduct.” Apple Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1324 (Fed. Cir. 2012). Here, the district court correctly pointed out that a jury award of lost profits may support a finding of irreparable harm because it necessarily results in a finding that the patentee lost sales and would continue to lose sales in the future. Presidio, 702 F.3d at 1363. The district court then based its conclusion as to irreparable injury on the jury’s lost profits award. The district court reasoned that “[t]he jury’s lost profits award also supports a finding of irreparable injury” because “the jury necessarily found ATC’s [550] capacitor sales caused Presidio to lose BB capacitor sales.” J.A. 87. In light of our reversal of the lost profits award for lack of proof of past lost sales, we must vacate the injunction.
However, we do not decide whether this should be the end of the matter. The district court has  discretion to determine whether other evidence could support a finding of irreparable injury. In this respect, on remand, the district court should reopen the record and consider current evidence of irreparable harm. Since March 17, 2017, the injunction against ATC from selling 550 capacitors has been in effect. Based on the arguments and evidence presented to this court, it appears that this injunction may have created the hypothetical market necessary to determine whether consumers would purchase Presidio’s BB capacitors in the absence of ATC’s 550 series capacitors. On remand, the district court should consider whether consumers have turned to noninfringing alternatives to the BB capacitor, such as the 560L capacitor, after the 550 series capacitors became unavailable or whether Presidio’s sales of the BB capacitor have increased because the 550 series is no longer on the market. Based on this further evidence and other relevant evidence, the district court should determine whether Presidio has established irreparable injury and the appropriateness of an injunction. 
*                  *                   *

In other news, the U.S. Supreme Court is hearing two cases today on inter partes review:  Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, on the constitutionality of inter partes review, and SAS Institute Inc. v. Matal, on the narrower question of whether the PTAB is obligated "to issue a final written decision as to every claim challenged by the petitioner."

No comments:

Post a Comment