The Federal Circuit has been keeping me unusually busy this week with a number of remedies-related opinions. Today's entry is Verinata Health, Inc. v. Ariosa Diagnostics, Inc., nonprecedential opinion by Judge Reyna, joined by Judges Wallach and Hughes. Verinata, a wholly-owned subsidiary of Illumina (also a party plaintiff), makes and sells tools for DNA analysis. Illumina owns the ’794 patent, directed to DNA assay optimization techniques, and Verinata owns the ’430 patent, "which is directed to methods for NIPT screening of fetal chromosomal abnormalities." The plaintiffs filed suit against defendants Ariosa and its parent company Roche:
The jury returned a verdict finding the ’430 patent not invalid and infringed by the Harmony V1 product and the ’794 patent not invalid and infringed by both the Harmony V1 and Harmony V2 products; that Ariosa did not have an express license to the Harmony V1 product under the SSA [sale and supply agreement]; and that Illumina did not breach the SSA by suing Ariosa. The jury awarded plaintiffs approximately $27 million in damages (p.10).
Most of the opinion discusses validity and infringement, and affirms the district court judgment on these issues. Important though these issues are, I will skip over them and focus on remedies. Apparently there was no dispute on appeal over the amount of the compensatory damages (other than prejudgment interest, as noted below), so the only major issue is whether the district court abused its discretion by denying a permanent injunction. The Federal Circuit says no:
Regarding irreparable injury, Illumina argues that the district court failed to recognize that Roche and Illumina are direct competitors and that Roche’s infringement causes irreparable injury because each sale made by Roche is a sale forever lost by Illumina. . . . Illumina argues that the district court’s understanding of ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 694 F.3d 1312 (Fed. Cir. 2012), was too broad and caused it to err in its conclusion of no direct competition. Id. at 26-30. We disagree.
In ActiveVideo Networks, we held a lack of direct competition is a substantial basis for finding no irreparable harm. 694 F.3d. at 1338. We reversed the injunction because the defendant (Verizon) competed with ActiveVideo’s third-party licensees but not with the patentee (ActiveVideo). Id. The harm to ActiveVideo was therefore indirect, and ActiveVideo’s loss was a “[s]traightforward monetary harm” and “certainly not irreparable.” Id. Here, the district court found that Illumina licenses its patents and products under the SSA, allowing third party laboratories to conduct their own tests. . . . The district court also found that Ariosa does not utilize a licensing model but instead sells its Harmony V2 test directly. Id. Relying on ActiveVideo, the district court found that the different sales models evidenced a lack of direct competition because defendants compete with Illumina’s licensees. Id. The district court concluded that defendants’ losses would be quantifiable based at least on licensing fees per lost subscriber. . . . As we find no reason to disturb the district court’s findings on irreparably injury, we turn to the next eBay factor, available remedies.
Illumina argues that the district court erred by finding that monetary relief would be adequate. Illumina reasserts that the district court erred in its reliance on ActiveVideo and its reasoning that, where licensees compete with the infringer, royalties are adequate forms of compensation. See J.A. 60 (citing ActiveVideo, 694 F.3d at 1338). As noted above, the district court’s reliance on ActiveVideo does not constitute an abuse of discretion. And Illumina does not challenge the district court’s finding that third-party licensees compete with Ariosa. . . . Because Illumina failed to establish irreparable injury and inadequacy of monetary relief, the district court did not abuse its discretion in denying Illumina’s request for a permanent injunction (pp. 20-21).
As readers of this blog are aware, I believe that the eBay standard is an improvement over the near-automatic injunction rule that preceded it; but I believe that an even better standard would be one that focused on economic substance, rather than a slog through the eBay factors. For that reason, I've long had some reservations over the court's analysis in ActiveVideo, which is reaffirmed here. Here's my reasoning. On the one hand, I can see the logic of assuming that, where the plaintiff licenses its patent to third-party licensees, the infringement deprives the plaintiff of the royalty it would have earned from authorized sales by those licensees; so there's no uncertainty over the amount the plaintiff lost. But I'm not sure that the presence of third-party licensees necessarily dictates that result. I would want to know, for example, whether the plaintiff licensed to any company that wanted a license; if so, whether it charged them all the same rate; whether the licenses were exclusive or nonexclusive; whether the plaintiffs considered licensing this defendant on the same or similar terms, or on other terms; and whether there was any reason to think that patent holdup was a serious concern (e.g., the defendant was unable to bargain prior to launch, the product embodies numerous other patented features, etc.). To be fair, the lower court opinion does appear to address some of these issues (see here, pp. 57-61), finding that Illumina did want to license the defendant and others on a nonexclusive basis. I just wish the Federal Circuit had noted these points too (though I recognize this is a nonprecedential opinion).
The other remedies issues relate to supplemental damages and interest. First, the court declines to decide whether supplemental damages are appropriate here, since this issue was raised for the first time on appeal. Second, the court rejects the plaintiff's argument that the district court erred in its use of the T-bill rate rather than the prime rate, stating that "[d]istrict courts have wide latitude in the selection of interest rates" (p.21).
We may have discussed this before, but it seems to me that if P would have been willing to llicence this particular D on a non-exclusive basis, that is reason for granting an injunction, not denying it (absent a serious holdup problem); the licence will happen, and the only question is whether P or the court sets the rate.ReplyDelete
I would say:Delete
1. If the P's business model rests on exclusive licensing, that weighs heavily in favor of an injunction. If the P nonexclusively licenses, the argument in favor of an injunction is less strong. But the other policies in favor of an injunction (difficulty of calculating damages) and against (possibility of holdup) are not affected.
2. In this case, if I remember correctly, one of the patents in suit was licensed as part of a pool, so that removes some of the calculation problem. The other one, I think, had never been licensed before even though P wanted to license it.
3. I didn't see anything in the opinions that would lead me to think holdup was a serious problem here.
Given the above, I probably would have granted the injunction; but the case for doing so is a little less strong than I initially believed, for reasons discussed in the district court opinion but not the Federal Circuit opinion.