Federal Court Upholds Challenge to North Carolina's Abusive Patent Assertions Act

In May I mentioned some recent activity in Oregon and Washington involving state laws targeting bad faith patent assertion.  Recently Law360 published an article titled NC 'Patent Troll' Law Survives Constitutional Challenge, discussing a decision handed down on August 19 by U.S. District Judge Thomas Schroeder in Napco, Inc. v. Landmark Technology A LLC.  The decision denies Landmark's motion to dismiss a claim brought by Napco under North Carolina's Abusive Patent Assertions Act (APAA), N.C. Gen. Stat. § 75-140 et seq.  The decision concludes, among other things. that the complaint sufficiently pleads both objective and subjective bad faith (as required by Federal Circuit case law) to survive a preemption or Noerr-Pennington challenge; and that the act does not violate Landmark's rights under the First Amendment or the Equal Protection Clause (the latter argument arising because of the statute's carving out certain entities, including operating  entities, from liability).  On a first read, the decision seems thorough and well-reasoned, and the Law360 article helpful for those who may not have time to rummage through the 62-page opinion.  (One quibble, though:  the Law360 article describes the North Carolina law as one that "criminalizes patent licensing demand letters sent in bad faith," but I don't see anything in the APAA that specifically authorizes criminal actions--though I will leave it to those more knowledgeable than I whether N.C. Gen. Stat. § 75-13 would ever authorize a criminal prosecution for violation of the APAA.  The Napco case itself is a civil action, though, and I would be awfully surprised to see a criminal prosecution for violation of the act, even if it that is theoretically possible in some instances.)

Federal Circuit Affirms Order Excluding Expert Opinion on Royalties

Perhaps the bigger damages news today from the Federal Circuit is the court's reversal of the $1.2 billion judgment awarded in Juno Therapeutics, Inc. v. Kite Pharma, Inc.--but the reversal is based on the lack of substantial evidence supporting the verdict in favor of the plaintiff on written description, so other than reciting what the damages award consisted of, there's no discussion of remedies.  (As I noted just this past Monday, many of the U.S. megaverdicts in patent cases are reversed or altered on appeal, so here's yet another example.)  The court does discuss damages at some length, however, in MLC Intellectual Property, LLC v. Micron Technology, Inc., by way of affirming a district court's interlocutory order excluding MLC's proposed expert opinion.  The precedential opinion is authored by Judge Stoll, joined by Judges Newman and Reyna.  

The opinion is very fact-intensive, but to cut to the chase MLC's expert was prepared to opine that the hypothetical royalty rate to which the parties would have agreed just prior to the date on which Micron allegedly began infringing would have been 0.375%, and that the base would have been either the entire revenue from sales of Micron's accused products based on a comparable license approach, or "approximately 87.4% of the total accused product revenue" based on an SSPPU approach, with the SSPPU being a "bare die" (p.7).  The rationale behind the 0.25% rate was a 2007 license agreement between MLC's predecessor BTG and Hynix Semiconductor, and another 2007 license between BTG and Toshiba Corporation.  The Hynix license, however, was a $21 million lump-sum for an entire portfolio of patents and for worldwide sales--though it also included a most-favored customer provision under which any future payments made by Hynix would be reduced, if BTG entered into a license with another licensee for a royalty of less than 0.25%.  (But why would there be any future payments, you may ask, if Hynix was paying a lump-sum?  Don't know.)  Anyway, the Toshiba license was for a lump-sum of $25 million, and the expert was prepared to testify that "it’s reasonable to presume BTG considered the royalty rate in the Toshiba Agreement to reflect a running royalty that is at least equal to the rate reflected by the Hynix Agreement” (p.8).  He then made some further adjustments (pp. 8-10) to arrive a hypothetical royalty rate of 0.375%.  Applying this to the two proposed royalty bases results in an aggregate royalty (the patent in suit having long since expired) of either $70,207,876, or $63,142,053.  (I don't quite see how that latter number is equal to 87.4% x 0.375% x the implicit total accused product revenue, but haven't reviewed the record.)  

The district court didn’t buy it, and the Federal Circuit sees no abuse of discretion, stating inter alia:

Rather than deriving a rate from the lump-sum payments and projected sales, Mr. Milani’s testimony rests on an inference from the most favored customer clause that goes well beyond what the clause implies and is incompatible with the Hynix agreement as a whole. As the district court pointed out, if a 0.25% royalty had been applied to forecasts of revenue for the term of the licenses (2007–2017), the lump-sum amounts would have been far greater than $21 and $25 million. See MLC I, 2019 WL 2863585, at *13. . . .

We acknowledge that Mr. Milani’s testimony may well have been proper had he merely asserted that he “consider[ed] the 0.25% royalty rate called for in the most favored customer provision to reflect a relevant consideration for evaluating a reasonable royalty.” J.A. 906. But he crossed the line when he stated that he “under[stood] that [the 0.25%] rate was applied to Hynix worldwide sales” in calculating the lump-sum license payment of $21 million. Id. As the expert failed to do in Whitserve, Mr. Milani offered no testimony as to how the $21 million lump-sum payment could be converted to any royalty rate, let alone a 0.25% royalty rate (pp.14-16).

In addition, the court took issue with the expert’s determination of the appropriate royalty base:

We agree that Mr. Milani did not properly apportion either the royalty base or the royalty rate to account for the patented technology. . . .

We have previously approved the use of comparable licenses to account for apportionment. . . . We reject the view that the Hynix and Toshiba agreements are comparable licenses. As the district court properly explained, “there is no evidence regarding the Hynix agreement that supports [Mr.] Milani’s opinion that a specific royalty rate derived from the Hynix agreement already accounts for apportionment of non-patented features” in this case. . . .

We are also not persuaded by MLC’s argument that it need not further apportion beyond the single-component SSPPU because the asserted claims are directed to a memory device as a whole. Contrary to MLC’s suggestion in its briefing, claim 30 is the sole claim at issue in this appeal. Because claim 30 is an “[a]pparatus for programming an electrically alterable non-volatile memory cell having more than two predetermined memory states,” ’571 patent col. 15 ll. 10–12, it is not commensurate in scope with the SSPPU, which also contains “error correction hardware,” “data clocking hardware,” “addressing hardware,” “cache registers,” and “digital to analog converters.” J.A. 1242. Accordingly, we affirm the district court’s Daubert order excluding MLC’s expert testimony regarding a reasonable royalty for failure to apportion (pp. 24-27).

Berkeley Law Program on SEPs and Jurisdictional Competition

By way of the China IPR Blog, readers may be interested in a program coming up on August 30, from 4:30-6:00 p.m. PST, titled Concurrent Litigation and Jurisdictional Competition.  Registration is available here.  According the China IPR Blog post, antisuit injunctions will be one of the topics under discussion.  Speakers will include Vivienne Bath, former Judge Andrew Guilford, former Chief Judge Song Jian, Shan Jiao, and David Kappos.

Véron on Top European Patent Damages Cases

As I make my way through a backlog of European I.P. journals, I will probably blog more than once over the coming weeks about articles published in the February 2021 issue of GRUR, all of which is devoted to a Festschrift for Judge Peter Meier-Beck on the occasion of his 65th birthday.  Several articles address the topic of patent remedies and/or FRAND issues.  I'll start today with an article by Pierre Véron, titled What Price Crime?  A European Hit Parade of Patent Infringement Damages, 2021 GRUR 392.  (The French version of the article, titled Le prix du crime: palmarès européeen des dommages-intérêts pour contrefaçon de brevet d’invention, was just recently published in the July-August issue of Propriétê industrielle, pp. 7-13.)  Here is the abstract, from the English-language version:

A survey was conducted to identify judgments granting damages for patent infringement in the six most active European countries in patent litigation (Germany, Spain, France, Italy, the Netherlands, and the United Kingdom) between 2000 and 2019.  The total number of decisions granting damages was found to be 574 and the total amount granted 198.718.636 Euro: France (380 decisions, 113.934.191 Euro), Spain (79 decisions, 45.560.121 Euro), Italy (76 decisions, 19.191.968 Euro), Germany (29 decisions, 13.578.101 Euro), the Netherlands (6 decisions, 4.833.585 Euro) and the United Kingdom (4 decisions, 1.620.669 Euro).  The highest amount ever granted by a court in Europe was granted by the court of Lyon (25.320.946 Euro in a textile case in 2016).  The 10th largest amount was granted by the court of Barcelona (3.418.745 Euro in a cooking case in 2013).

(As the more recently-published French version notes in footnote 4, however, in September 2020--outside the range of cases discussed in the article--the Paris court of first instance awarded Eli Lilly €28,000,000, which would be the highest patent damages award ever in France.  For previous discussion, see here.)  The data on which the article is based come from Darts-ip.  Moreover, as the article notes, "only the judgments granting patent infringement damages handed down in first instances were taken into account, excluding the decisions given by appellate courts; as a result, some of the decisions in the list do not reflect the outcome of the case," as is the case for example for the €25,320,946 judgment mentioned in the abstract, which was reversed on appeal.  The article also notes that "not all the judgments granted patent infringement damages are available for data providers."  The author provides some possible reasons "France, dealing with less patent cases than Germany . . . issues ten times more judgments about damages," and why the number of damages judgments in the Netherlands and the U.K. are so small.  Among these are the lower stakes of proceeding with a damages trial if the infringement is quickly enjoined (as it often is in the Netherlands), the cost of proceeding further, and the parties' ability "to anticipate what the court's decision on damages will be" in Germany.  M. Véron also provides a table and a chart comparing the top U.S. patent damages awards with the top awards in Europe.  As the author puts it--and you would probably guess--"European courts and United States courts stand on different continents . . . when patent damages are concerned!"  Of course, many of the U.S. judgments are reversed on appeal too.  For discussion of this phenomenon in my 2013 book Comparative Patent Remedies, based in part on M. Véron's earlier work, see pages i, 7, 259-61.

The Third Edition of "Remedies in U.S. Patent Law: An Open-Source Casebook" Is Now Available

I am pleased to announce that LawCarta has published the third edition of my casebook, Remedies in U.S. Patent Law:  An Open-Source Casebook.  You can download an eBook copy for free, or get an eBook plus a hard copy for $22.50.  Here is a link, and here is the book description:

Remedies in U.S. Patent Law:  An Open-Source Casebook is a free, 'open' textbook designed for a one or two-credit course in U.S. patent remedies.  The casebook covers the law of permanent and preliminary injunctions, damages, and declaratory judgments. Thomas Cotter has used these materials for courses on patent remedies that he has taught at the University of Minnesota and the University of Iowa. Instructors may request access to the teacher's manual by emailing cotte034@umn.edu and creating a LawCarta account.  Model syllabi, upon request.

There is also a short teacher's manual available to instructors.

Federal Circuit: Expert Witness Fees Not a Recoverable Expense Under Section 145

35 U.S.C. § 145 is a little-used provision of the U.S. Patent Act, which provides that "[a]n applicant dissatisfied with the decision of the Patent Trial and Appeal Board in an appeal under section 134(a) may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the Eastern District of Virginia if commenced within such time after such decision, not less than sixty days, as the Director appoints. The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Patent Trial and Appeal Board, as the facts in the case may appear and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law. All the expenses of the proceedings shall be paid by the applicant."  Nearly two years ago, the U.S. Supreme Court held in Peter v. NantKwest, 140 S. Ct. 365 (2019), that the “expenses” referred to in the last sentence do not “include the salaries of attorney and paralegal employees of the” USPTO, thus putting an end to the USPTO’s quest to recover attorneys’ fees in § 145 actions (regardless of whether it actually won or lost at trial!).  Today in Hyatt v. Hirshfeld the Federal Circuit holds that the USPTO also isn’t entitled (even if it prevails at trial) to recover expenses for expert witnesses.  From the opinion (authored by Judge Hughes, joined by Chief Judge Moore and Judge Reyna):

We understand that this is a close case. There are many arguments that the phrase “[a]ll the expenses of the proceedings” should be understood to include expert fees. Indeed, many of these arguments apply to expert fees in a way that they do not apply to attorney’s fees, making this case a closer one than NantKwest. But the American Rule sets a high bar, and we find none of these arguments sufficiently specific and explicit to override the presumption against fee shifting (p.10).

The court notes, among other things, that the fact “that district courts have been awarding expert witness fees under this statute ever since the PTO began using experts” (p.11) is not controlling on this issue; and that while there are “other statutes where the term ‘expenses’ has been interpreted to include expert witness fees as evidence that the term consistently includes expert fees,” “the Supreme Court’s opinion in NantKwest countered much of the logic behind” them (p.13).