Wednesday, October 26, 2016

From Around the Blogs: "Inexorable Flow" in the U.S., Nominal Damages in Canada?, and More

1.  On the Patent Damages blog, there have been two posts in recent weeks (here and here) discussing  district court cases on the "inexorable flow" doctrine, under which (if the doctrine exists) a parent or licensor can recover damages based on profits a subsidiary or licensee would have earned but for the infringement, if the subsidiary's or licensee's profits "inexorably flow" back to the parent or licensor.  In Kahr v. Cole, the Western District of Wisconsin rejected the theory on the ground that if the doctrine exists, it's limited to exclusive licensees, and here the licensee was nonexclusive.  In Mars, Inc. v. TruRX LLC, Magistrate Judge Mitchell of the Eastern District of Texas questioned whether the theory is solid, based on her understanding that Federal Circuit case law limits the plaintiff seeking lost profits to recovering only its own lost profits.  However, she indicated that there's a possible workaround:
. . . according to the cases discussed above, a claim for lost profits is not synonymous with a claim for lost income. Therefore, because Mars does not itself sell the products that give rise to its lost profits claim, the Court recommends that Defendants‘ Motion for Summary Judgment Regarding Plaintiffs‘ Claim for Damages (Doc. No. 206) be GRANTED as to Mars‘s ability to recover its subsidiaries‘ lost profits.
This seems rather formalistic to me . . . .   

For brief discussion of the issue, see Mark Lemley's article Distinguishing Lost Profits From Reasonable Royalties, 51 Wm. & Mary L. Rev. 655, 673 & n.82. (2009).

2.  On Sufficient Description, Norman Siebrasse presents a thoughtful discussion of Arctic Cat, Inc. v. Bombardier Recreational Products, Inc., 2016 FC 1047, a Canadian case in which the judge found no infringement of a method for tuning a two-stroke snowmobile engine, but nevertheless discussed both parties' damages theories at length.  The problem, which also arises in FRAND cases but clearly is not limited to them, is how to value a patented invention that contributes only a small part of the value of the end device.  In the end, Judge Roy found that neither party's proposed methodologies were sound, but also expressed discomfort (had the defendant been found to infringe) over awarding nominal damages only.  I don't need to repeat Professor Siebrasse's discussion of the various proposed methodologies, the problems the judge perceived with them, and Professor Siebrasse's analysis--you can read his post yourself--but I will note that the issue of what to do about damages when the evidence is deficient is a tough one.  Should the judge award zero damages?  If not, what's the basis for the damages the judge should award?  I discuss this topic briefly at pp. 19-20 of my paper Patent Damages Heuristics, noting some U.S. and German law on the issue.

3.  On the Essential Patents Blog, there have been a couple of interesting posts recently (see here and here), on two pretrial orders entered in Core Wireless Licensing S.A.R.L. v. LG Electronics, Inc., a matter pending in the Eastern District of Texas.  In one of the orders, Judge Gilstrap denied a motion for summary judgment asking the court to rule that enhanced damages are never appropriate for the infringement of standard essential patents (SEPs).  (He didn't rule that they necessarily were appropriate here, only that there was no rule precluding a damages enhancement in the event of a finding of willful infringement.)  In the other, Magistrate Judge Payne denied a defense motion to preclude expert testimony on the basis of the entire market value rule (EMVR), where the expert had looked to the price of the end product to consider whether his proposed royalty rate would enable the defendant to earn a profit but didn't use the entire market value as the royalty base, and wouldn't be allowed to tell the jury what the EMV or profit was of the device was.

4.  On Patently-O, Dennis Crouch published a short post recently on another E.D. Texas case in which an entity affiliated with a hedge fund alleges that a patent owner violated the federal False Claims Act by overcharging Medicare, Medicaid, and other federal programs for a drug for which the patent allegedly is invalid.  Since according to Dennis the PTAB has upheld the patent's validity, I'd think this is an uphill climb, since the False Claims Act requires proof of  knowing falsity. 

Monday, October 24, 2016

A Recent French Case on Damages

The EPLaw Blog recently published a post about a recent French case on damages, Time Sport International v. Decathlon and D-H-G Knauer, No. 10/05487, Tribunal de la grande instance de Paris (June 1, 2016), with thanks to Pierre Véron of, Véron & Associés (who also provide copies of the oiriginal decision and an English-language translation).   I won't repeat more than is necessary of the facts--readers can refer to the EPLaw post and to the decision itself--but I will make a few comments on the damages award.

Plaintiff Time Sport owns a European patent on a “Device for retaining a helmet on the occiput.”  Defendant Knauer made bike helmets that were found to be infringing, and defendant Decathlon sold them in its stores.  Time Sport prevailed on liability, and in June 2-16 the TGI Paris issued an opinion awarding Time Sport  €1,524,036.04.  The award consists of two components::  first, for acts of infringement occurring April 2 to October 29, 2007; and second for acts occurring from October 29, 2007 to September 8, 2012.  This distinction arises because October 29, 2007, is the date on which a revised version of article 615-7 of the French IP Code went into effect.  (The amendment was made to conform to the EC Enforcement Directive.  Article 615-7 has been further amended since then, effective March 13, 2014, see here, but that most recent amendment is not relevant to this case.)  Prior to that date, French courts didn't take the defendant's profits into account in awarding damages.  Afterwards, they may, according to the version of article 615-7 applicable here, which in relevant part read "“To set damages, the court takes into account the negative economic consequences, including the loss of profit suffered by the injured party, the benefits made by the infringer and the moral prejudice caused to the right-holder because of the infringement."  

For the acts of infringement occurring during the earlier of the two periods, the court rejected Time Sport's request for lost profits on sales of helmets it might have sold during that time.  Time Sport actually hadn't made or sold any helmets for quite some time, and the court concluded that Time Sport hadn't established a sufficient relationship between the infringement and Time Sport's decision not to resume production.  Time Sport therefore was entitled only to a reasonable royalty, which the court calculated at 8% of Knauer's turnover from April 1-October 31, 2007.  The court rejected use of the defendants' proposed comparables, for which the royalty rates were lower, because it thought they weren't comparable enough (see p.13).  There's no explanation in the judgment itself, however, of why 8% is the correct royalty figure, other than the fact that it's a higher rate than the rates in the rejected comparables, and the court's statement that the invention was "relevant":
When it decided to sell its products to large stores specialised in sporting goods and obtained their listing from DECATHLON, TIME SPORT sold 3,250 helmets equipped with the patented device in France and exported 3,180 thereof, and became the victim of acts of infringement as of 1996. These elements are evidence of the relevance of the invention - element to be considered to assess the royalty rate - which persisted in 2008 even if, as DECATHLON claims, other devices of occipital adjustment were used" (p.13).   
How that translates into an 8% rate, though, is not stated.

For the acts occurring during the later period, the court awarded 20% of both defendants' turnover.  In reaching this result, the court concluded that the fact that plaintiff wasn't making any products didn't disqualify it from recovering a profit-based award.  On the other hand, the plaintiff wasn't entitled to more than 20%.  According to the court:
With regard to the provisions of the aforementioned Article L. 615-7 in its version then in force, the compensation of the damage suffered must therefore be determined by reference to the profits made by each of the defendants, but without, however, ignoring TIME SPORT's situation on the date of the acts at issue, namely its production capacity, its experience and technical know-how, the investments necessary to the direct exploitation of the patent and the results that it could have expected. . . .
Given TIME SPORT's particular situation at the time of the litigious acts, in that it had stopped exploiting its patent since 2000 after facing previous acts of infringement, and was experiencing great financial difficulties leading it at the end of 2008 to postpone its plan for resuming the helmet manufacturing activity, its damage can be estimated at 20% of the profits made by each of the infringers - this percentage also takes into account the method of calculation based on the gross margin - that is:
-€4,992,290 excluding taxes x 20% = €998,458 in respect of DECATHLON FRANCE's profits;
-€1,754,483 excluding taxes x 20% = €350,896.6 in respect of KNAUER GmbH's profits (pp. 14-16).
Maybe I'm just missing something, but I don't see where this 20% rate comes from either.  Is it just the rate the court thinks is fair, based on the totality of the circumstances?  It's also interesting, in my view, that the court refers to the award as "compensation" (in the original French, la réparation de l'atteinte subie), not as restitution or disgorgement, and yet I don't see what the basis is for concluding that the plaintiff's loss was 20% of the defendants' profit.  Finally, as indicated above, for the later period the plaintiff is awarded 20% of both the manufacturer's and the retailer's profit, but for the earlier period it's 8% of the manufacturer's profit only because Decathlon "would have . . . included in its purchase price the cost of the royalty pad to the right-holder" (p.13).

The court further awards €50,000 for moral prejudice (a type of award that is common in French patent infringement cases, see discussion here) and €60,000 in costs under article 700 of the Civil Procedure Code (for discussion, see here).

Thursday, October 20, 2016

Oops, They Have to Do It Again: Federal Circuit Remands Award of Attorneys' Fees to Britney Spears and Justin Timberlake

I never imagined I'd be mentioning Justin Timberlake and Britney Spears in a post for this blog, but there's a first time for everything.  In a nonprecedential per curiam opinion issued today, Large Audience Display Systems v. Tenman Productions, LLC, the Federal Circuit vacated an award of attorneys' fees in favor of the defendants Justin Timberlake, Tennman Productions, LLC, Britney Spears, and Spears King Pole, Inc.  The plaintiff, which owns a patent relating to a “panoramic imaging and display system for the imaging and displaying of visual-media content,” filed suit against the defendants based on their use of allegedly similar systems at concerts.  While the suit was pending, the defendants initiated an inter partes reexamination, which ultimately resulted in the invalidation of all of the claims the plaintiff was asserting in the infringement litigation (though some other claims of the patent survived reeexamination, and some new ones were added).  The district court then granted the defendants' motion to dismiss and their motion for attorneys' fees pursuant to 35 U.S.C. § 285.

In vacating the award, the Federal Circuit first concludes that "that the district court based its ruling, to some extent, on both a misunderstanding of what factors are relevant to an exceptionality determination and a clearly erroneous view of the record evidence" (p.9).  First, the court states that "argument that LADS was formed in the Eastern District of Texas to create jurisdiction is not convincing. Specific jurisdiction is based on the defendant’s contacts with a forum state, not the plaintiff’s contacts" (id.)  Second, "The fact that the PTO canceled the asserted claims after LADS filed its complaint, without more, does not support a finding of frivolousness," given the difference in the burden of proof (preponderance of the evidence) and the standard for claim construction (broadest reasonable interpretation) that the USPTO uses.  Third, the court states that "the record does not support the district court’s finding that" certain prior art "was dispositive in the reexamination" (p.10).  Thus, on remand, "[t]he district court may properly consider the totality of the circumstances in making its determination, including LADS’s use of the Langsam email to oppose Appellees’ motion for attorney’s fees, its opposition to the motion to transfer venue to the Central District of California, and the objective reasonableness of LADS’s claims given the standards and burdens that apply in district court, including the reasonableness of LADS’s proposed claim constructions. . . .  But the district court must assure both that the circumstances on which it relies are accurate and that the court affords only the appropriate measure of weight to each" (p.11).

In addition, the court disagrees with the district court's methodology for calculating attorneys' fees.  The district court had acknowledged that fees are usually calculated based on the "lodestar" method, which involves multiplying a reasonable hourly rate by the number of hours reasonably billed; but ultimately it awarded the defendants their requested fees of $755,925 on the ground that this figure was “in accord with the costs of defending a patent infringement suit as they are lower than the average cost to defend against patent infringement suits in which as little as less than $1 million is at stake, according to a 2013 [AIPLA] Report of the Economic Survey” (pp. 6-7).  The Court of Appeals disagrees:
The average cost of typical patent infringement suits . . . was not the sole evidence upon which the district court should have relied to determine attorney’s fees. In addition, the comparison was not appropriate because the survey provided only two benchmarks for average fees: (1) the end of discovery; and (2) through trial. In this case, little discovery had been conducted by the parties, and the case was dismissed with prejudice before trial.
On remand, if the district court finds the case exceptional, it must use the lodestar method to calculate attorney’s fees determining the reasonable hours and rates for the lodestar calculation. Though Appellees were represented by attorneys from New York, the litigation occurred in the Central District of California. California fee rates should be used to calculate the lodestar figure unless there is some special expertise Appellees’ counsel had that warrants a different rate, or a showing is made that there is a prevailing national rate applicable in patent cases (p.12).
The court also questions whether some of the fees requested were indeed reasonable, and remands for further consideration.

Wednesday, October 19, 2016

Some New Papers on Damages, Part 1

1.  Jason Bartlett and Jorge Contreras have posted on ssrn a draft of the paper they prepare for the University of Texas Patent Damages conference this past June, titled Rationalizing FRAND Royalties:  Can Interpleader Save the Internet of Things?  Here is a link to the paper, and here is the abstract:
Important technical interoperability standards may be covered by hundreds or thousands of patents held by dozens of parties. Patent holders are often required to license these patents to others on terms that are “fair, reasonable and non-discriminatory” (FRAND), and litigation regarding the level of FRAND royalties is expanding. One serious problem that has emerged is the inherent difficulty of determining a “reasonable” royalty rate for a particular standard-essential patent in isolation from the many other patents covering the same standard. Reasonable royalty determinations in litigation are made in a bottom-up manner, patent holder by patent holder, patent by patent, usually in separate proceedings. While individual royalty determinations in these proceedings may seem to adhere to judicial and contractual requirements regarding “reasonableness,” there is no reason to believe that the aggregate royalty rates established through these uncoordinated, serial processes will be reasonable in terms of the overall value that the patented technology contributes to the standard or the product. Unreasonable and inconsistent royalties on important interoperability standards create social costs by impeding value-creating transactions. To address this problem, we propose that the mechanism of statutory interpleader be used to join the holders of all patents covering a particular technology standard into a single proceeding in which an aggregate “reasonable” royalty may be determined and then apportioned among the holders of individual standards-essential patents. This approach will both enhance fairness of royalty determinations and reduce the costs inherent in multiple independent proceedings. Finding such a solution is particularly critical today, as technology convergence continues to impact standardization in key areas such as next-generation wireless communication and the “Internet of Things.”
2.  Sapna Kumar has posted on ssrn a new draft of the paper she presented at the University of Texas Patent Damages Conference, titled Patent Damages Without BordersHere is a link to the paper, and here is the abstract:
The presumption against extraterritoriality is a deceptively straightforward principle: that U.S. law applies only inside the United States. But there is confusion regarding whether the principle applies when a court calculates patent damages. The Federal Circuit has held that patent holders who show infringement under § 271(f) of the Patent Act cannot recover foreign lost profits. The court maintained that allowing recovery of such damages would result in the Patent Act applying extraterritorially, which cannot be done without Congress’s clear intent. This unusual interpretation lacks support from the Supreme Court and severely limits the ability of district courts to make patent infringement victims whole. This article maintains that the Federal Circuit’s reliance on the presumption is misplaced. The presumption was established to prevent U.S. law from applying to extraterritorial conduct; it was not intended to cover situations where harm flows from an act of domestic patent infringement. Moreover, even if the presumption does apply, it has been rebutted under the Supreme Court’s two-step extraterritoriality test. By creating this bright-line rule, the Federal Circuit has unduly restricted the ability of patent holders to recover damages, including in cases where there is no other applicable law. This Article proposes that courts use a more flexible test that balances prescriptive comity concerns with the United State’s interest in making victims of domestic patent infringement whole.

Monday, October 17, 2016

Two New Papers on Fee Shifting

1. Megan LaBelle has posted a paper on ssrn titled Fee Shifting for PTAB ProceedingsHere is a link to the paper, and here is the abstract:
Fee shifting in patent litigation has been a hot topic in recent years. In Octane Fitness v. ICON and Highmark v. Allcare, the Supreme Court made it easier to shift fees under 35 U.S.C. § 285, which allows courts to award reasonable attorney’s fees to prevailing parties in patent cases. Moreover, several bills have been introduced in Congress since 2013 that would expand courts’ power beyond the parameters of § 285. Various aspects of these proposals have been heavily debated, including whether fee shifting should be mandatory or discretionary, how to recover fees from the “real party in interest,” and whether to adopt a one-way or two-way fee shifting scheme.
These sort of design choices regarding a fee shifting regime are not simply about who should pay for patent litigation. Fee shifting schemes also provide a roadmap from lawmakers about whether and how litigation ought to proceed. Fee shifting regimes, in other words, are used to influence litigation conduct. Thus, if Congress is going to alter the fee shifting landscape for patent litigation, it must make careful choices in order to incentivize certain types of patent disputes, while simultaneously discouraging others.
This Article does not advocate for a new fee shifting regime for patent litigation, nor does it endeavor to design one. Instead, it focuses on one narrow but important question about fee shifting in patent cases that has received surprisingly little attention: whether prevailing parties should be able to recover attorney’s fees incurred for litigation before the Patent Trial and Appeal Board (PTAB) — the administrative tribunal of the U.S. Patent & Trademark Office that was created by the America Invents Act (AIA). With the steep rise in both PTAB proceedings (post-AIA) and fee motions (post-Octane/Highmark), district courts are bound to face this question more frequently. While the U.S. Court of Appeals for the Federal Circuit has allowed for the recovery of such fees in the past, the Federal Circuit’s analysis was flawed in light of Supreme Court precedent. Thus, this Article proposes that Congress enact legislation allowing parties who prevail at the PTAB to recover their attorney’s fees.

2.  Scott Flanz has published a paper titled Octane FitnessThe Shifting of Patent Attorneys' Fees Moves into High Gear, 19 Stanford Tech. L. Rev. 329 (2016).  Here is a link to the paper, and here is the abstract:
In 2014, the United States Supreme Court decided Octane Fitness. LLC v. ICON Health & Fitness, LLC, significantly altering the standard for granting attorneys’ fees shifting at the close of a patent litigation. Combine with precedent announced on the same day in Highmark Inc. v. Allcare Health Management Systems, scholars have opined that under the new regime, the standard for proving entitlement to attorneys’ fees in patent litigations will be considerably relaxed. Despite the widespread acceptance of the viewpoint, few empirical analyses—if any—have objectively confirmed it.
This paper provides a first glimpse into whether the Supreme Court’s decision in Octane changed the attorneys’ fees standard in practice. By investigating the rate at which courts have granted attorneys’ fees motions before and after Octane, broken down by whether the movant was a patentee or accused infringer, the technology of the patent asserted, the circuit and district where the suit was decided, and what factors were considered by each court in its opinion, this research confirms that Octane’s reinterpretation of § 285 has had observable effects. In particular, this study finds a statistically significant increase in the rate of attorneys’ fee shifting after Octane, particularly for motions filed by accused infringers and in motions concerning electronics and software patents. The results of this study shed light on meaningful and recent changes to the patent litigation incentive structure and will be helpful in predicting future changes to the patent litigation landscape.

Friday, October 14, 2016

Contreras on Injunctions in U.S. Patent Cases

Jorge Contreras has posted a paper on ssrn titled Injunctive Relief in U.S. Patent Cases.  It is a draft of a chapter in a forthcoming edited volume titled Injunctions in Patent Law (Rafal Sikorski ed., forthcoming 2017).  Here is a link to the paper, and here is the abstract:
The law of injunctive relief in United States patent cases presents a puzzling set of contrasts. On one hand, it is grounded in venerable common law principles of equity that have been applied by the courts for centuries. On the other hand, it reflects the unique complexities of massively multicomponent products and advanced technology standards. This chapter provides an overview of the U.S. law of patent injunctions, both generally and specifically as applied to standards-essential patents. It also addresses, briefly, considerations surrounding the issuance of exclusion orders by the U.S. International Trade Commission (ITC), a non-judicial federal agency that has recently become an important venue for patent litigation.
I understand that the edited volume in which this paper will appear is intended to provide a thorough look at the law of patent injunctions in the principal jurisdictions for patent litigation.  It should be a welcome addition to the literature.