Federal Circuit Reverses Denial of Prejudgment Interest

The case is Kaufman v. MicrosoftCorp., precedential decision by Judge Taranto, joined by Judges Dyk and Reyna.  Most of the opinion is devoted to other issues, most importantly claim construction, as discussed by Dennis Crouch on Patently-O.  The Federal Circuit affirms on liability, but on the plaintiff’s cross-appeal it reverses the district court’s denial of the plaintiff’s motion for an award of prejudgment interest.   From the opinion:

  

           Damages awarded in patent-infringement cases must be “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, together with interest and costs as fixed by the court.” 35 U.S.C. § 284 (emphases added). The Supreme Court has explained that Congress intended that “prejudgment interest should ordinarily be awarded where necessary to afford the plaintiff full compensation for the infringement.” General Motors Corp. v. Devex Corp., 461 U.S. 648, 654 (1983). “In the typical case an award of prejudgment interest is necessary to ensure that the patent owner is placed in as good a position as he would have been had the infringer entered into a reasonable royalty agreement.” Id. at 655. The Court added, however, that because interest is “fixed by the court,” a district court has some discretion to decide whether to award prejudgment interest, and “it may be appropriate to limit prejudgment interest, or perhaps even to deny it altogether, where the patent owner has been responsible for undue delay in prosecuting the lawsuit,” among other potential, unnamed circumstances. Id. at 656–57. In any case, “some justification” is required to withhold prejudgment interest. Id. at 657.

 

            The district court provided two rationales for denying prejudgment interest to Mr. Kaufman: first, that the jury verdict “subsumed interest,” and second, that Mr. Kaufman was responsible for “undue delay” in bringing the lawsuit, causing prejudice to Microsoft. Prejudgment Interest Order, 2021 WL 260485, at *1. Neither rationale is supportable on the record here.

 

            The jury verdict cannot reasonably be understood to include interest. . . .

 

            [The jury instructions] stated that “the parties have agreed that a reasonable royalty in this case should take the form of a single lump-sum payment for the life of the patent, discounted to present value.” Id. That mention of “present value” did not suggest to the jury that its calculation should add interest accruing from the 2011 hypothetical negotiation date to the present; rather, it was a reminder that—consistent with the expert testimony, J.A. 3920–22—the lump-sum royalty payment should incorporate the hypothetical future royalty payments by using a discount rate to calculate the 2011 value of the stream of such payments, hence decreasing their numeral amounts. . . .

 

            The district court also erred in concluding that Mr. Kaufman was responsible for undue delay justifying denial of prejudgment interest. For one, the fact that Mr. Kaufman did not sue for five years after he became aware of Microsoft’s potential infringement does not alone justify a finding of undue delay. . .  (pp. 19-22, emphases in original).

The court goes on to note that Microsoft did not show that it was prejudiced by the five-year delay.  Among other things, the jury didn’t credit Microsoft’s evidence that it would have designed around the patent, or that its proposed noninfringing alternative was acceptable.

Overall, this is not a surprising outcome.  Prejudgment interest is necessary to restore the patentee to the position it would have occupied, but for the infringement.  Preferably it should be compounded to properly take into account the time value of money, but to my knowledge there is no fixed practice on this issue in the U.S., nor on the appropriate interest rate.  For discussion of pre- and postjudgment interest in patent litigation in the U.S. and elsewhere, see Colleen V. Chien, Jorge L. Contreras, Thomas F. Cotter, Brian J. Love, Christopher B. Seaman & Norman V. Siebrasse, Enhanced Damages, Litigation Cost Recovery, and Interest, in Patent Remedies and Complex Products: Toward a Global Consensus 204, 254 (C. Bradford Biddle, Jorge L. Contreras, Brian J. Love & Norman V. Siebrasse eds. 2019), available here.

Also on Friday, the court vacated decision of the Eastern District of Texas dismissing a claim for a declaratory judgment of noninfringement and invalidity, and remanded for further proceedings.  See Mitek v. United Services Automobile Ass’n.  

From Around the Blogs

1.  On Law360, Gabe Sukman published an article titled Avoiding Willful Patent Infringement in Freedom-to-Operate.  The article presents a series of best practices for companies to follow in determining freedom-to-operate, while reducing the risk of a finding of willful infringement.  It discusses, among other matters, the risk that a do-not-read policy could result in a finding of "willful blindness" sufficient, according to some courts, to constitute willful infringement.  For other recent commentary on this blog concerning willfulness, see here.  Also of interest on Law360 is Timothy Syrett and David Katz's 5th CIr. Antitrust Ruling Misinterprets FRAND's Purpose, critiquing the appellate decision in Continental Automotive Systems Inc. v. Avanci LLC, previously discussed on this blog here.

2.  On ChinaIPR, Mark Cohen published an article titled Three Countries Seek to Join the EU SEP Case.  He writes that the U.S., Japan, and Canada "have now asked to join the EU consultation request with China at the WTO regarding Chinese practices in issuing anti-suit injunctions ("ASIs") for standards-essential patents (SEPs)".  For previous discussion on this blog of the EU's request, see here.   

3.  On Sufficient Description, Norman Siebrasse published a post titled Brulotte Is Not the Law in Canada.  The post discusses a recent decision of the Court of Queen's Bench of Alberta construing a contract as requiring a party to pay royalties for the use of an invention post-patent expiration.  As Professor Siebrasse notes, the decision is consistent with a previous decision of the Queen's Bench of Saskatchewan--and inconsistent with U.S. Supreme Court decisions Brulotte v. Thys and Kimble v. Marvel.  I agree with Professor Siebrasse that the U.S. rule is foolish and have previously argued, albeit unsuccessfully, that it should be repealed.  Siebrasse also published an interesting post last month regarding a case in which the Federal Court awarded elevated costs to the prevailing party, in part because the unsuccessful plaintiff refused to bifurcate proceedings on liability and damages.  As he notes, "the question of how to deploy costs awards to encourage just yet efficient resolution of a dispute is always tricky."  This is something I hope to tackle in my pending project on wrongful patent assertion.

Federal Circuit Vacates "Obey-the-Law" Injunction

The nonprecedential decision, handed down today, is Carl Zeiss Meditec, Inc. v. Topcon Medical Systems, Inc., unanimous opinion by Judge Linn, joined by Judges Hughes and Stoll.  The case involves alleged trade secret misappropriation, among other things, but the legal principle at issue--that an injunction cannot merely order a defendant to "obey the law" or to "not infringe"--applies to patents as well. (For discussion, see John M. Golden, Litigation in the Middle: The Context of Patent-Infringement Injunctions, 92 Tex. L. Rev. 2075-2115 (2014); John M. Golden, Injunctions as More (or Less) Than "Off Switches": Patent-Infringement Injunctions’ Scope, 90 Tex. L. Rev. 1399 (2012); Marketa Trimble, Cross-Border Injunctions in U.S. Patent Cases and Their Enforcement Abroad, 13 Marquette Intell. Prop. L. Rev. 331 (2009).) 

Plaintiff CZMI alleges that defendants Topcon and others misappropriated seventy of CZMI’s trade secrets, and obtained a preliminary injunction stating:

            IT IS HEREBY ORDERED THAT Plaintiff CZMI's Renewed Motion for Preliminary Injunction is GRANTED.

 

            1. THS and TMS are enjoined from releasing and selling Glaucoma Module to the public, pending further order of the Court.

 

            2. THS, TMS and Kurzke are enjoined from, directly or indirectly, obtaining, retaining, using, transmitting, disseminating, or disclosing, or attempting to obtain, retain, use, transmit, disseminate, or disclose, any CZMI confidential, proprietary, or trade secret information, including any files obtained from the Hard Drive or during the course of Former Defendants' employment with CZMI.

(See 2021 WL 1186335.)  Topcon argues that the injunction violates Federal Rule of Civil Procedure 65(d), which states “Every order granting an injunction and every restraining order must: (A) state the reasons why it issued; (B) state its terms specifically; and (C) describe in reasonable detail—and not by referring to the complaint or other document—the act or acts restrained or required.”  The Federal Circuit agrees:

            We agree with Topcon that the district court’s injunction fails to provide the kind of notice required by Fed. R. Civ. P. 65(d) as to whether and to what extent Topcon’s continued use of its Harmony platform and DICOM decoder is outlawed. At the outset, we note that the district court’s opinion expressly says that “CZMI now limits the proposed injunction to Glaucoma Module specifically.” Preliminary Injunction Order at 7 n.6. CZMI inexplicably does not address this footnote in its briefing. Moreover, the injunction order heavily focuses on the improper acquisition, disclosure, and use of the confidential HFA reports, rather than any confidential information associated with OTC data. The acquisition theory wholly revolves around Kurzke’s hard drive, and the use/disclosure theory also heavily focuses on the “145 HFA reports” Kurzke kept on the hard drive and delivered to Calcey for the purpose of testing the Glaucoma Module.

 

            There is no evidence cited by either the district court or CZMI that the hard drive contained any confidential OCT information. While there is some mention that the hard drive contained OCT data of Kurzke’s own eyes, there is no discussion by the district court that that information was confidential.

 

            CZMI’s contention that paragraph 2 properly captures all 70 trade secrets it asserted against Topcon because it made the argument to the district court and because the district court did not qualify its injunction is not sufficient to remove the ambiguity in the scope of the injunction. First, the district court did not address whether all that information was confidential, or whether it was acquired, used, or disclosed improperly. Second, as Topcon convincingly argues, the scope of the asserted trade secrets captured under CZMI’s argument is staggering, including unspecified software architecture, unnamed user interfaces, generically noted research, and other information simply identified as trade secrets. The district court did not engage an analysis of the likelihood of success on these many and varied alleged trade secrets. Finally, Rule 65(d) expressly requires that the injunction order itself must “describe in reasonable detail—and not by referring to the complaint or other document—the act or acts restrained or required.” (emphasis added).¹

 

                    ^1/  We recognize that the Ninth Circuit “has not taken a rigid approach” to Rule 65(d)’s no-incorporation requirement and has allowed, for example, attachment of a confidential appendix as part of the injunction. . . .

After addressing a few additional arguments, the court vacates paragraph 2 and remands for the district court “to clarify the scope of the injunction as to whether and to what extent it enjoins the continued use of Topcon’s Harmony platform and DICOM decoder.”

One thing I find a mildly surprising is that the preliminary injunction order was entered in March 2021, that is, fourteen months ago.  I haven't looked into when the appeal was argued, or whatever other extraneous circumstances may have intervened, but normally I would have expected that an interlocutory appeal like this would have been handled more quickly.

Kiefer and Walesch on Antisuit Injunctions

Miriam Kiefer and Benedikt Walesch have published an article titled Anti^x-Suit-Injunctions in a nutshell—Ein Beitrag zum Verständis eines jungen Begleitphänomens in SEP-Streitigkeiten (“Anti^x-Suit Injunctions in a nutshell—A Contribution Toward Understanding A Recent Phenomenon Accompanying SEP Disputes”), in the March 2022 issue of Mitteilungen der deutschen Patentanwälten, pp. 97-106.  Here is the abstract (my somewhat free translation, from the German):

           

          Anti^x-Suit Injunctions are a relatively new phenomenon accompanying international SEP disputes.  Patent implementers and owners use these injunctions to affect the conditions under which SEP disputes may be prosecuted.  A closer look at these injunctions reveals not only their multifaceted legal features, but also tensions between the legal systems of different states.

The superscript “x” after “Anti”, of course, reflects the fact that there can be anti-antisuit injunctions, and further permutations thereof.  

France's Cour de Cassation Rejects Appeal from Judgment Finding Abuse of Right

The decision is San-Ei Gen FFI Inc. v. Nexira SASU, PIBD 1 179-III-1 (Jan. 26, 2022).  The facts are as follows.  In June 2011, patent owners San-Ei and Phillips, a Japanese and a British firm, respectively, notified Nexira of its alleged infringement of European Patent 1611159, titled "Modified Gum Arabic from Acacia Senegal."  Discussions between the parties followed in January 2012, at which time Nexira informed the patent owners of its belief that the patent was invalid by reason of an amendment of claim 1 that (if I understand correctly) broadened the claim beyond what was supported by the international application.  In May 2012, Nexira filed an action to nullify the French portion of the patent, after which the patent owners sought a saisie-contrefaçon and, in March 2013, initiated infringement litigation against Nexira.  The court of first instance dismissed the infringement action in December 2013.  By judgment dated May 28, 2015, the court before which the nullification action was pending nullified the patent with retroactive effect, after which Nexira sought damages for abuse of right.  The Cour de Cassation rejects the patent owners' appeal from a judgment in favor of Nexira in the amount of €104,499.45,  noting that the patent owners were professionals in the sector of concern here; and that they proceeded with knowledge, which could only have been bolstered by the January 2012 meeting with Nexira and the latter's subsequent nullity action, that their claim was questionable.  The court concludes that this behavior could only be explained by a willingness to engage in unfair competition, which the Court of Appeals could consider to have degenerated into an abuse of right.

The Comparative Patent Remedies Blog Turns Nine

Tomorrow is the ninth anniversary of my launching this blog.  Originally intended as a means for updating my 2013 book Comparative Patent Remedies: A Legal and Economic Analysis, it has also proven to be a valuable tool for floating new ideas and for engaging with others, from around the world, with an interest in the field.  Thank you, readers!

Federal Circuit Reverses Enhanced Damages Award, Affirms Reasonable Royalty

The case, decided this past Friday, is Sunoco Partners Marketing & Teminals L.P. v. U.S. Venture, Inc., precedential opinion by Judge Prost, joined by Judges Reyna and Stoll.  The patents at issue “describe a system and method for blending butane with the gasoline at a point close to the end of the distribution process: immediately before being distributed to the tanker trucks that take gasoline to consumer gas stations” (p.3, quoting the district court).  Among the issues presented are the application of the experimental use exception to the on-sale bar under U.S. law and claim construction.  I will pass over those and discuss the damages issues, first Venture’s appeal from an award of enhanced damages and second Sunoco’s cross-appeal relating to the type and amount of actual damages.

The district court concluded, and the Federal Circuit affirms, that the defendants had infringed claim 17 of U.S. Patent No. 6,679,302 (reciting “a method for blending gasoline and butane at a tank farm”) and claim 31 of U.S. Patent No. 7,032,629 (reciting “a computer-implemented method for blending a butane stream and a gasoline stream”).  The court awarded a $2 million royalty, which it trebled for a $6 million award.  On the issue of enhancement, the Federal Circuit notes that the Read v. Portec factors, one of which refers to “whether the infringer investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed,” can be relevant.  (Under Patent Act § 298, “[t]he failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed,” but the defendant is free to offer such evidence to show that it had a good-faith belief, and I believe that is what happened here.)  The district court concluded nonetheless that the opinion letter by attorney John Manion “does not show that venture had a good-faith belief that it was not infringing.”  In this regard, claim 17 of the ‘302 Patent recites, among other elements, that the method involves “blending the butane and gasoline streams, at the tank farm, to form a blend” and “dispensing the blend to gasoline transport vehicles using a dispensing unit located at a rack.”  (A “tank farm” is a storage facility or terminal, and a “rack” is “the location where gas is dispensed to trucks.”)  In providing a noninfringement opinion, the attorney “relied on the fact that Venture’s system inserted an intermediate tank between the blending unit and the rack,” which the district court understood as suggesting that the attorney “did not know the blended gasoline in Venture’s system could still flow immediately from the intermediate tank to the rack where it would be dispensed” (p.24).  But this was a misunderstanding of the attorney’s knowledge:

  

            But as Venture demonstrates, Manion’s testimony makes clear that he did indeed understand this point. E.g., J.A. 7467 (“As an engineer, I realized that there was product flowing in to the tank and there’s product flowing out of the tank, and it’s conceivable that that could be happening simultaneously.”); J.A. 7473 (“[A]gain, the proposed system was blending to a tank; and as we talked about before, you know, it’s very common for you to be filling a tank and emptying a tank at the same time. There’s nothing that says you can’t drain a tank while you’re filling a tank. . . . So, it’s very normal to be filling and dispensing at the same time.”). The district court disregarded that testimony because of other testimony that it saw as indicating that Manion “had never heard of the type of tank that Venture used between the blending instrument and rack.” Post-Trial Op., 436 F. Supp. 3d at 1134. But the record shows that Manion was merely confused by an unfamiliar term—“online rack tank”—that Sunoco’s attorney was using. E.g., J.A. 7459 (“I’m sorry, you said an online rack tank? . . . . I don’t know what an online rack tank is. . . . I would have to figure out what that means.”); J.A. 7468 (“Like I said previously, I’d never heard of an online rack tank.”).

 

            This error also undermines other grounds the district court relied on for enhancement (pp. 24-25).

On the cross-appeal, the district court concluded that Sunoco had proven the absence of an acceptable noninfringing alternative, it had not proven the amount of its purported lost profits.  Specifically, Sunoco had argued that, but for the infringement, Venture would have signed a butane-supply agreement with Sunoco under which the latter would have earned about $64 million, which the parties would have split 50-50.  According to the district court and the Court of Appeals, however, this figure “reflect[s] a bundle of goods and services beyond just the patented invention” and thus “more than just the damages Sunoco incurred from Venture’s agreement” (p.27).  I found this part of the appellate opinion a little obscure, so I looked at the district court opinion (436 F. Supp. 3d at 1128), and if I understand correctly that court concluded that the infringement was either not the cause-in-fact of the failure to conclude a supply agreement, or that if it was the proposed damages nevertheless were excluded under Rite-Hite v. Kelley's limitation on awards of damages for convoyed (collateral) sales:

            . . . the problem with this analysis is that neither butane nor blended gasoline is the patented invention. And neither butane nor blended gasoline constitute a “functional unit” with the patented invention. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1549–50 (Fed. Cir. 1995) (explaining that in cases in which “the entire market value” of the patented and unpatented components are considered for a damages calculation, “the unpatented and patented components together were considered to be components of a single assembly or parts of a completed machine, or they constituted a functional unit”). After all, Sunoco does not even require their blending partners to use Sunoco-supplied butane. (Trial Tr. at 536:13–16.) That $31.585 million figure represents more than just the damage Sunoco incurred from Venture's infringement. As Venture's expert, Dr. James Malackowski testified, Sunoco's butane supply agreements do not translate into the value of the patent. (See id. at 1747:15–1748:1.)

As for a reasonable royalty, the court affirms the district court’s conclusion that $2 million was about right:

            Venture’s reasonable-royalty analysis . . . was based on the difference between using a manual blending system and using Sunoco’s automated system to blend butane—calculating a $5.6 million royalty as the maximum royalty the parties would have hypothetically agreed upon. . . . The district court then credited the opinion of Venture’s expert that a more likely royalty would be a $2 million lump sum, and it checked that figure against a $1.714 million figure calculated from a prior license Sunoco granted to the previous owner of its patents, Texon, after buying Texon’s blending business. . . . Because we see no clear error or abuse of discretion, we affirm the reasonable-royalty award. . . (p.28).