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The Source for Standard-Essential and Other Patent Litigation Issues

Federal Circuit revised injunction decision to emphasize patented feature being one of several that drive purchasing decision (Apple v. Samsung)

Posted in Appeals, Litigation, Patent Alerts

Last week, the Federal Circuit denied en banc review by the entire court of the three-judge panel decision in the Apple v. Samsung case that had revived the ability to obtain injunctive relief against multiple component products, such as smartphones (see our Sep. 17, 2015 post).  In doing so, the original three-judge panel (Prost, Moore and Reyna) issued an Order that withdrew their original opinion and issued a revised opinion that focuses on the patented feature being “one of several [features] that cause consumers to make their purchasing decision,” rather than the patented feature having to be “the exclusive or significant driver of customer demand” as prior decisions had intimated.

This is shown in the revision to the concluding paragraph under the “irreparable harm” factor for injunctive relief, which irreparable harm Apple had argued was caused by lost sales to Samsung’s accused infringing products that included Apple’s patented features:

Apple did not establish that these features were the exclusive or significant driver of customer demand, which certainly would have weighed more heavily in its favor.  Apple did, however, show that “a patented feature is one of several features that cause consumers to make their purchasing decisions.”  Apple III, 735 F.3d [1352] at 1364 [(Fed. Cir. 2013)].  We conclude that this factor weighs in favor of granting Apple’s injunction. [blackline showing insertions and deletions from prior opinion]

So update your current draft briefs and filings to cite to the newly revised panel opinion, rather than their prior withdrawn opinion (which withdrawn opinion was found at Apple v. Samsung, 801 F.3d 1352 (Fed. Cir. 2015)).

Ericsson and Apple settle patent disputes

Posted in Litigation

Ericsson and Apple reportedly have settled the patent disputes between them, including those involving standard essential patents that were pending in district courts in California and Texas as well as in the U.S. International Trade Commission.  This is reported to be a 7-year agreement that involves cross-licensing as well as Apple paying royalties to Ericsson.  Details of the agreement are not available.

It is not clear what spurred the settlement.  The Federal Circuit’s recent CSIRO decision a few weeks ago on determining infringement damages for standard essential patents probably favored Ericsson’s royalty requests in those cases because it continued the Federal Circuit’s trend of favoring damages model that rely on actual real world licenses and dispels the myth that all patent damages models must always start with the smallest salable patent practicing unit (see our Dec. 3, 2015 post).  This would have allowed Ericsson to rely more heavily on its established historical licensing program to establish royalty damages against Apple, and would have hindered a smallest salable patent practicing unit damages model that defendants have sought to assert against standard essential patents (as well as patents in general).

Federal Circuit provides guidance on royalty determination for standard essential patents (CSIRO v. Cisco)

Posted in Appeals, Litigation, Patent Alerts

Today, a three-judge Federal Circuit panel (Prost (author),  Dyk and Hughes) issued its awaited decision in CSIRO v. Cisco that agreed-in-part and disagreed-in-part with Judge Davis’ damages award based on patents alleged to be essential to the IEEE 802.11 WiFi standard, but which patents did not have any FRAND or other standard-setting obligation (see our July 28, 2014 post on Judge Davis’ decision).  This is an important decision that provides incremental insight into proving and determining a reasonable royalty for a standard essential patent, which includes further insight into the Federal Circuit’s first decision on this issue a year ago in Ericsson v. D-Link that involved a standard essential patent that did have a FRAND obligation under the IEEE 802.11 WiFi standard (see our Dec. 5, 2014 post on the Ericsson v. D-Link decision).

This is an important decision to read directly to catch all the nuances and import of the decision, and the incremental guidance it provides in determining a royalty rate as a matter of patent damages law for past infringement of a patent that is essential to a standard.  A few particularly important points come from the decision.

First, the Federal Circuit soundly rejected as “untenable” the accused infringer’s argument that there is a “rule” that all patent damages methodologies always must start out using the smallest salable patent-practicing unit.  The smallest salable patent practicing unit is a principle that can aid courts to determine if a damages expert’s methodology reliably apportions to the patent only the value that the patented technology provides to the infringing product and not other unpatented features.  But it is not the only approach that may be considered, and different cases present different factual circumstances that could lend themselves to different reliable methodologies.  For example, damages methodologies properly may rely on real-world comparable licenses to reliably apportion value to the patented technology, whether the royalties are based on end products or components thereof.  This decision may very well put to rest arguments that there is some “rule” requiring use of the smallest salable patent-practicing unit or that there is any problem per se in royalties being based on the end product rather than its components.

Second, the Federal Circuit clarified that the need to apportion the value of the patented technology from the value of standardization applies whether or not a standard essential patent is subject to a FRAND or other standard setting obligation.  This is based on the long-standing, fundamental principal that statutory damages for infringement under 35 U.S.C. § 284 must be based on the value of the patented invention and not other unpatented features, whether that’s other unpatented technology in an infringing  product or the value of the patent being essential to a standard.

Background

Patent owner Commonwealth Scientific and Industrial Research Organization (“CSIRO”) is the principal scientific research organization for the Austrialian Federal Government.  The patent-in-suit (U.S. Patent No. 5,487,069 or “the ‘069 Patent”) addresses multipath problems in a wireless local area network.  That technology was incorporated into certain versions of the IEEE 802.11 WiFi standard, including revision “a” adopted in 1999 and revision “g” adopted in 2003.  In December 1998, before IEEE adopted revision “a”, CSIRO provided the IEEE with a letter of assurance that it would license the specific patent-in-suit on RAND-terms if the patent were essential to the 802.11a standard.  IEEE sought additional letters of assurance from CSIRO for later revisions of the standard, but CSIRO declined to provide them.

Radiata Technology License Agreement (TLA).  Shortly after the patent issued, a company called Radiata Communications (“Radiata”)  was formed by the named inventor, CSIRO and others to commercialize the patented technology.  Radiata employed various CSIRO employees as well as another named inventor.  CSIRO entered a Technology License Agreement (TLA) with Radiata in February 1998 that, among other things, had a per-WiFi chip royalty payment, decreasing from 5% royalty per chip to 1% as the volume of licensed chips increased.  In 2001, Cisco acquired Radiata and started paying Radiata’s license fees under the TLA license agreement for Radiata products.  This agreement was renegotiated several times, always keeping the general concept of a per-chip royalty base.

CSIRO’s License Rate Card.  In 2003, CSIRO offered industry participants a license on RAND terms on all versions of the standard (at first indicating that it had agreed with IEEE to do so, but later clarifying there was no RAND obligation).  By June 2004, CSIRO developed a Voluntary Licensing Program offering licenses to the ‘069 Patent under “a flat-fee royalty, charged per end product unit sold” under what it called a “Rate Card” structure.  The lowest royalty rate under this structure was $1.40 to $1.90 per unit.  But CSIRO did not have anyone take a license under this Rate Card.

Cisco’s Offer In Negotiations.  In 2004, CSIRO approached Cisco about licensing the patent under the Rate Card schedule, but Cisco did not accept that offer.  During discussions in 2005, Cisco’s Vice-President of Intellectual Property informally suggested that $0.90 per unite might be an appropriate royalty rate.  That rate was about what Cisco had been paying under the initial TLA agreement after Cisco acquired Radiata.

District Court Litigation.  In July 2011, CSIRO sued Cisco for infringing the patent-in-suit.  Both parties stipulated to a bench trial solely on damages and that Cisco would not challenge the patent’s infringement or validity.  In February 2014, Judge Davis held a four-day bench trial on damages.

CSIRO’s damages model was premised on the profit difference between (1) Cisco products using versions of the 802.11 WiFi standard that incorporated the patented technology (IEEE 802.11 versions a and g) and (2) Cisco products using versions of the WiFi standard that did not use the patented technology (IEEE 802.11 version b).  CSIRO argued that the difference between the two versions primarily was attributable to the patented technology.  This led to CSIRO proposing a volume-tiered royalty ranging from $1.35 to $2.25 per end unit (totaling about $30 million for past infringement).

Cisco’s damages model was premised on the original Radiata TLA, leading to a volume-tiered royalty ranging from $0.03 to $0.37 per WiFi chip (totaling about $1 million for past infringement).

Judge Davis rejected both proposed damages models.  Rather, he created a model premised on CSIRO’s 2004 Rate Card and the rate informally suggested by Cisco’s Vice-President during negotiations with CSIRO.  This led to a “reasonable starting point” for negotiations of a royalty in the range from $0.90 to $1.90 per unit.  Judge Davis then considered various Georgia-Pacific factors to the extent he deemed them appropriate and ultimately concluded they were neutral and, thus, did not require adjusting the royalty rate further.  While he used that royalty rate for the Cisco-branded products, he did downwardly adjust that rate to Cisco’s Linksys-branded products because they had a lower profit margin.

So Judge Davis ultimately awarded a volume-tiered royalty structure that ranged from $0.90 to $1.90 for Cisco-branded products and a slightly lower structure ranging from $0.65 to $1.38 for the Linksys-branded products.  This led to a total damages amount of $16,243,067 for past infringement.

Below  is a table comparing the royalty argued by the parties and that awarded by Judge Davis:

  • CSIRO                 $1.35 to $2.25 per unit ($30 million total)
  • Judge Davis        $0.65 to $1.90 per unit ($16 million total)
  • Cisco                   $0.03 to $0.37 per unit ($1 million total)

Federal Circuit Decision

On appeal to the Federal Circuit, Cisco raised three arguments seeking reversal, alleging that Judge Davis erred by:

  • Not starting with the wireless chip as the royalty base, which was the smallest salable patent practicing unit
  • Not adjusting Georgia-Pacific factors to account for the patent being essential to a standard
  • Not giving credit to Cisco’s TLA evidence.

Smallest Salable Patent-Practicing Unit.  The Federal Circuit started with what it deemed a long-standing rule of apportionment when awarding damages for patent infringement under 35 U.S.C. § 284, stating:

Under § 284, damages awarded for patent infringement must reflect the value attributable to the infringing features of the product, and no more.  This principle—apportionment—is the governing rule where multi-component products are involved.  Consequently, to be admissible, all expert damages opinions must separate the value of the allegedly infringing features from the value of all other features. [internal quotations and citations omitted].

Courts must use their gate-keeping authority to ensure expert testimony “using whatever methodology” is “sufficiently reliable to support a damages award,” because parties have “great financial incentive … to exploit the inherent imprecision in patent valuation.”  The Federal Circuit said that the “essential requirement” for such reliability is apportionment:

And as we have repeatedly held, the essential requirement for reliability under Daubert is that the ultimate reasonable royalty award must be based on the incremental value that the patented invention adds to the end product.  In short, apportionment. [internal quotations and citations omitted]

There may be more than one reliable method to estimate the royalty, since different cases present different facts, but its important that whatever methodology is used is “sufficiently tied to the facts of the case”:

In practice, this means that abstract recitations of royalty stacking theory, and qualitative testimony that an invention is valuable—without being anchored to a quantitative market valuation—are insufficiently reliable.  Where the data used is not sufficiently tied to the facts of the case, a damages model cannot meet the substantive statutory requirement of apportionment of royalty damages to the inventions value. [internal quotations and citations omitted]

The Federal Circuit then discussed the smallest salable patent-practicing unit being one principle that can “aid courts in determining when an expert’s apportionment is reliable.”  There are two justifications for it:

First, where small elements of multi-component products are accused of infringement, calculating a royalty on the entire product carries a considerable risk that the patentee will be improperly compensated for non-infringing components of that product.  Second is the important evidentiary principle that care must be taken to avoid misleading the jury by placing undue emphasis on the value of the entire product.  *** Fundamentally, the smallest salable patent-practicing unit principle states that a damages model cannot reliably apportion from a royally base without that base being the smallest salable patent-practicing unit.  [internal quotations and citations omitted]

But the court found that principle did not apply here, because the district court was not apportioning from a royalty base, but started with real-world negotiations between the parties that “already built in apportionment” based on Cisco’s suggested $0.90 per unit royalty as a lower bound and the $1.90 per unit royalty from CSIRO’s Rate Card as the upper bound:

Because the parties’ discussions centered on a license rate for the ‘069 patent, this starting point for the district court’s analysis already built in apportionment.  Put differently, the parties negotiated over the value of the asserted patent, and no more.  The district court still may need to adjust the negotiated royalty rates to account for other factors, but the district court did not err in valuing the asserted patent with reference to end product licensing negotiations. [internal quotations and citations omitted]

The Federal Circuit soundly rejected as “untenable” Cisco’s suggested “rule” that “would require all damages models to begin with the smallest salable patent practicing unit,” which would conflict with other accepted methodologies such as using comparable licenses:

The rule Cisco advances—which would require all damages models to begin with the smallest salable patent-practicing unit—is untenable.  It conflicts with our prior approvals of a methodology that values the asserted patent based on comparable licenses.  Such a model begins with rates from comparable licenses and then accounts for differences in the technologies and economic circumstances of the contracting parties.  Where the licenses employed are sufficiently comparable, this method is typically reliable because the parties are constrained by the market’s actual valuation of the patent.  Moreover, we held in Ericsson that otherwise comparable licenses are not inadmissible solely because they express the royalty rate as a percentage of total revenues, rather than in terms of the smallest salable unit.  Therefore, adopting Cisco’s position would necessitate exclusion of comparable license valuations that—at least in some cases—may be the most effective method of estimating the asserted patent’s value.  Such a holding would often make it impossible for a patentee to resort to license-based evidence.

Accordingly, we conclude that the district court did not violate apportionment principles in employing a damages model that took account of the parties’ informal negotiations with respect to the end product. [internal quotations and citations omitted]

The Federal Circuit stated in a footnote that the choice of royalty base did not matter in the district court’s analysis in this particular case because it was per unit of end product, which in this case “could equally have represented” a per unit royalty per WiFi chip “without affecting the damages calculation.”

Standardization.  The Federal Circuit agreed with Cisco that the district court erred by not “account[ing] for any extra value accruing to the ‘069 patent from the fact that it is essential to the 802.11 standard.”  Relying on the Ericsson v. D-Link decision, the Federal Circuit stated that there are “unique considerations that apply to apportionment in the context of a standard-essential patent”, and these considerations applied even for standard essential patents that did not have a RAND or other standard-setting obligation (as is the case for the CSIRO patents at issue here).  Damages methodologies applied to standard essential patents (“SEPs”) must “capture the asserted patent’s value resulting … only from the technology’s superiority” and “not from the value added by the standard’s widespread adoption.”

[A] reasonable royalty calculation under § 284 attempts to measure the value of the patented invention.  This value—the value of the technology—is distinct from any value that artificially accrues to the patent due to the standard’s adoption.  Without this rule, patentees would receive all of the benefit created by standardization—benefit that would otherwise flow to consumers and businesses practicing the standard.  We therefore reaffirm that reasonable royalties for SEPs generally—and not only those subject to a RAND commitment—must not include any value flowing to the patent from the standard’s adoption.

The Federal Circuit found that Judge Davis erred by not taking account for standardization but, instead, he “increased the royalty award because the ‘069 patent is essential to the 802.11 standard.”  For example, Judge Davis found that Georgia-Pacific Factors 8-10 favored increasing the royalty given commercial success and widespread adoption of the technology, but “the district court never considered the standard’s role in causing commercial success.”  Further, Judge Davis relied on the rates as a starting point without considering whether such rates “themselves may be impacted by standardization”:

The parties do not dispute that CSIRO actively refused to submit a letter of assurance to the standard-setting body, for later iterations of the 802.11 standard, after the ‘069 patent was locked into the standard.  It seems quite possible, then, that CSIRO’s Rate Card rates attempt to capture at least some value resulting from the standard’s adoption.  CSIRO’s offer was not accepted by a single entity.  On remand, the district court should consider whether the initial rates taken from the parties’ discussions should be adjusted for standardization.

TLA Agreement Between CSIRO and Radiata.  The Federal Circuit found this to be a fact sensitive issue whether Judge Davis erred in not giving more weight to the TLA, and ultimately found that he had erred and should reconsider the issue on remand.  Among other things, the agreement “is the only actual royalty agreement between Cisco and [CSIRO]” and “it is contemporaneous with the hypothetical negotiation.”

Federal Circuit rules digital data transmitted into the U.S. is not an “article” within ITC’s juridiction (ClearCorrect, 337-TA-833)

Posted in Appeals, International Trade Commission, Litigation, Patent Alerts

Today, a divided three-judge panel of the Federal Circuit (Prost, O’Malley concurring and Newman dissenting) ruled that the U.S. International Trade Commission’s (ITC) authority to provide remedies for unfair acts involving importation of “articles” does not extend to electronic transmission of digital data into the United States.  In addition to its impact on the ITC’s jurisdiction over certain patent infringement matters, this case provides insight into administrative law that may be worth reading for those interested in that issue.  We will not go into that lengthy analysis here, but do provide below a summary of the infringement at issue.  Given the division among the three-judge panel and impact of this decision on the scope of the ITC’s jurisdiction and emerging technologies (e.g., transmission of digital files used to print 3D models), this decision may be subject to requests for en banc review by the entire Federal Circuit or Supreme Court review.

The patents and infringement at issue concern using different stages of teeth aligners that are progressively swapped out over time to slowly transition a patient’s teeth from an initial (e.g., crooked) position into a final (e.g., straightened) position.  ClearCorrect US (located in the U.S.) would take measurements of the patient’s initial teeth positions and transmit that data to ClearCorrect Pakistan (located in Pakistan).  That Pakistani entity would generate digital models of intermediate positions of the teeth, each intermediate position corresponding to an aligner to be made in the progressive process of moving the teeth from an initial position to a final position.  The Pakistani entity electronically transmits those digital models back to the U.S. entity, which uses those digital models to 3D print each of the physical aligners to be used by the patient.

The patent owner argued that the Pakistani entity contributed to infringement of the patents by electronically transmitting the digital models of the different teeth aligners into the U.S.:

Here, the accused “articles” are the transmission of the “digital models, digital data and treatment plans, expressed as digital data sets, which are virtual three-dimensional models of the desired positions of the patients’ teeth at various stages of orthodontic treatment” (“digital models”) from Pakistan to the United States.

The full Commission reviewed the ALJ’s decision and held that (1) the U.S. entity’s direct infringement was solely in the United States and, thus, was not a 337 importation violation within the ITC’s jurisdiction, but (2) the Pakistani entity contributorily infringed the patents by transmitting the digital models into the United States and such infringement was a 337 violation within the ITC’s jurisdiction to grant exclsionary relief.

As discussed, on appeal, the panel majority held that the electronic transmission of digital data into the United States is not an “article” of importation into the United States within the remedial authority of the ITC.  The panel majority stated that Congress is in the best position to determine whether the term “article” should be extended to cover these circumstances.

Supreme Court to review willful infringement (Halo and Stryker cases)

Posted in Appeals, Litigation, Patent Alerts

Today, the Supreme Court granted certiorari in two patent cases to review the standard for willful infringement.  The two cases, consolidated for review, are Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., No. 14-1513, and Stryker Corp. et al. v. Zimmer, Inc., et al., No. 14-1520.

The grant states that it will address Question 1 presented in the Halo case, which states:

     1.  Whether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C. § 284, that is the same as the rigid, two-part test this Court rejected last term in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014) for imposing attorney fees under the similarly-worded 35 U.S.C. § 285.

The Stryker case had two questions presented, which were as follows:

     1. Has the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of willfulness under a rigid, two-part test, when this Court recently rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases?

2. Does a district court have discretion under 35 U.S.C. § 284 to award enhanced damages where an infringer intentionally copied a direct competitor’s patented invention, knew the invention was covered by multiple patents, and made no attempt to avoid infringing the patents on that invention?

The Federal Circuit’s opinions subject to review are Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371 (Fed. Cir. 2014), in which a divided court denied en banc review., and Stryker Corp. v. Zimmer, Inc., et al., 782 F.3d 649 (Fed. Cir. 2015), in which the original Federal Circuit three-judge panel granted limited panel rehearing that issued a revised opinion on the objective recklessness prong of willful infringement.

Upcoming programs dealing with standard essential patents

Posted in Miscellaneous, Webinar

The Fall season brings not only football, changing leaves and pumpkins, but also many program opportunities on your favorite legal issues — ours being standard essential patents.  Here are some program opportunities in the coming weeks to consider:

Today, Tuesday Oct. 13 at 2pm – 3pm Eastern, Intellectual Property Owners Association IP Chat Channel online webinar program on Standards and FRAND: Recent Developments in the U.S. and Europe.  This program will look at recent developments in the U.S. and Europe concerning standard essential patents, including the Ninth Circuit’s decision in the Microsoft v. Motorola case (see our July 31, 2015 post), the European High Court’s ruling in Huawei v. ZTE (see our July 16,2015 post), and developments in the U.S. International Trade Commission after the U.S. Trade Representative’s disavowal in 2013 of exclusionary relief in the Samsung v. Apple investigation (see, e.g., our Aug. 31, 2015 post where full Commission again dodges FRAND issues).   Speakers for this program include our own David W. Long, who is a Vice-Chair of IPO’s Litigation Committee.  More information and registration can be found at this IPO website link.

Oct. 19 – 20 in Reston, VA, The 15th Annual Sedona Conference on Patent Litigation: Improving the Efficiency of Handling Patent Litigation.  This in-person program will focus on three main areas of patent litigation: (1) patent litigation case management in light of patent legislation efforts and recent case developments; (2) litigating standard essential patent cases; and (3) coordinating parallel proceedings in district court and inter partes review in the U.S. Patent and Trademark Office.  There will be three panels discussing standard essential patent issues in the areas of patent owner and prospective licensee obligations based on standard setting commitments, determining what is a fair, reasonable and non-discriminatory royalty rate, and efficiently managing cases before district courts and the International Trade Commission.  Our own David W. Long is a Co-Chair for the overall conference and a speaker.  More information and registration can be found at this Sedona Conference website link.

Oct. 22 – 24 in Washington, DC, American Intellectual Property Law Association’s 2015 Annual Meeting.  This year’s AIPLA Annual Meeting offers two programs on standard essential patents.  On Thursday, Oct. 22, at 3:30 pm, AIPLA’s Antitrust Committee and Standards & Open Source Committee are sponsoring a joint program on Antitrust Law/Standards.  This program will focus on the intersection of antitrust law and patent law, such as the U.S. and Chinese competition agency investigations and standardization reform.  Speakers include Renata Hesse, a Deputy Assistant Attorney General in the U.S. Justice Department’s Antitrust Division, and Dina Kallay, the Director of Intellectual Property & Competition at Ericsson.  This program will be moderated by our own David W. Long, Chair of AIPLA’s Standards & Open Source Committee.  On Friday, Oct. 23, at 10:30 am, there will be a program on Antitrust Challenges: The Interface Between the Competition Law and IP Law that will address those issues being faced in Europe and China.  Speakers include Mathew Heim of Qualcomm and Mark D. Whitener of General Electric.  More information and registration for AIPLA’s Annual Meeting can be found at this AIPLA website link.

Microsoft and Google resolve FRAND and other patent disputes

Posted in Litigation

Microsoft and Google announced that they have settled there global patent disputes, including the litigation underlying the FRAND dispute that gave rise to Judge Robart’s first-of-its-kind decision on determining a FRAND royalty that was recently affirmed on appeal at the Ninth Circuit (see our July 31, 2015 post).  Accordingly, the parties filed yesterday a stipulated motion to dismiss the remainder of the case still pending before Judge Robart.

The agreement between the parties is said to resolve about 20 lawsuits in the U.S. and abroad, so its not clear how much the Ninth Circuit’s ruling in the Judge Robart case impacted the settlement.  The settlement, however, was announced after the Ninth Circuit denied the petition for rehearing of its decision and its mandate issued without a party seeking further review from the Supreme Court.  So this decision may provide another example of a court’s determination of the royalty amount leading to resolution of the litigation without the parties or the court litigating the issue whether the patent is valid and infringed, as occurred in the Innovatio litigation before Judge Holderman under his “reverse bifurcation” procedure (see our Feb. 7, 2014 post on Innovatio).

Recall that Google inherited the Judge Robart case when it acquired Motorola Mobility, including its patent portfolio and mobile phone business, the latter of which Google later sold to Lenovo while holding onto the patents.  Google’s business model is much different from the Motorola Mobility entity it acquired, which had been actively enforcing its patent portfolio against Microsoft and others before the acquisition.  Google may value and use the patents differently than Motorola had been, such as using for defensive purposes if someone targets Google’s Android platform.  Recall that the U.S. Federal Trade Commission (FTC) investigation of Google a few years ago shifted to Motorola’s assertion of standard essential patents (SEPs) after Google acquired Motorola, which led to Google/Motorola entering a consent decree with the FTC (see our January 2013 post).  Google also ended patent litigation disputes that Motorola had with Apple, which also included SEPs (see our May 19, 2014 post).  So Google’s settlement with Microsoft here is not too surprising.

En banc Federal Circuit maintains laches defense with post-suit twist (SCA v. First Quality)

Posted in Appeals, Litigation, Patent Alerts

Today, in SCA v. First Quality, the Federal Circuit sitting en banc ruled that the equitable doctrine of laches remains a valid defense in patent infringement actions notwithstanding the Supreme Court’s recent decision in Petrella v. MGM, 134 S. Ct. 1962 (2014), that precludes laches as a defense for copyrights.  This decision was not too surprising given the wording and history of the patent statute and laches defense as compared to copyright law.  But the Federal Circuit did make some changes as to the applicability of laches for on-going infringement after the patent suit is filed:

Specifically, as to injunctions, considerations of laches fit naturally within the eBay framework.  In contrast, Menendez v. Holt, 128 U.S. 514 (1888), and Petrella counsel that laches will only foreclose an ongoing royalty in extraordinary circumstances.

That is the key take-away from this decision.  You may find it to be a lengthy, but interesting, read on the history of the laches defense in patent cases.  We will see how the twist on applying laches post-suit for on-going infringement will develop.

With respect to an on-going royalty post-suit in the absence of an injunction, the Federal Circuit’s decision was premised on maintaining the distinction between laches, which focuses on the patent owner’s delay in filing suit, and equitable estoppel, which focuses on misleading acts by the patent owner that led the accused infringer to believe it could proceed with what later is alleged to infringe:

With respect to ongoing royalties, while the principles of equity apply, equity normally dictates that courts award ongoing royalties, despite laches.  Menendez, an influential case contrasting laches and equitable estoppel in the trademark context, guides us here.  According to Menendez, delay in exercising a patent right, without more, does not mean that the patentee has abandoned its right to its invention.  Rather, the patentee has abandoned its right to collect damages during the delay.  Equitable estoppel, on the other hand, is different–the patentee has granted a license to use the invention that extends throughout the life of the patent …

Menendez and Petrella caution against erasing the distinction between laches and estoppel.  As Petrella stated, “the doctrine of estoppel may bar the copyright owner’s claims completely, eliminating all potential remedies.  The test for estoppel is more exacting than the test for laches, and the two defenses are differently oriented.  The gravamen of estoppel … is misleading and consequent loss.  Delay may be involved, but is not an element of the defense.  For laches, timeliness is the essential element.  For that reason, absent egregious circumstances, when injunctive relief is inappropriate, the patentee remains entitled to an ongoing royalty. [internal citations omitted]

 

Federal Circuit revives injunctive relief against multi-feature products (Apple v. Samsung)

Posted in Appeals, Litigation, Patent Alerts

Today, a divided Federal Circuit panel issued a decision that vacates district court’s decision not to permanently enjoin Samsung from selling mobile devices having features found to infringe Apple’s patents.  The majority decision breaths life back into injunctive relief against multi-component/multi-featured devices (like mobile phones) by not requiring the patent owner to show that its patented feature “drive[s] customer demand” for the infringing product in order to show a nexus between the infringement and alleged irreparable harm required for injunctive relief.  Rather, the patent owner need show “some connection” between the patented feature and consumer demand for the infringing product, which can be shown in “a variety of ways.”  For example, evidence that the patented features “is one of several features that cause consumers to make their purchasing decisions” or “makes a product significantly more desirable.”

Background

This case involves three Apple patents directed to features in touchscreen mobile devices:

  1. Slide-to-unlock image on touchscreen to unlock mobile device (the ‘721 Patent)
  2. Generating links within text upon detecting data structures, such as detecting a phone number in a text message and creating a link to dial that number (the ‘647 Patent)
  3. Automatic spell check and correction on touchscreen (the ‘172 Patent)

In 2012, Apple sued Samsung for infringing those patents (as well as others).  Samsung was found to infringe the three patents and a jury awarded Apple over $119 million in damages.  Apple then sought to enjoin Samsung from selling mobile phones or tablets with those infringing features — i.e., did not seek to enjoin sales of the mobile phone or tablets per se, just use of the infringing features in those devices.  Further, Apple proposed a 30 day “sunset period” before products would be enjoined, which time period coincided with Samsung’s representations at trial that it could quickly and easily remove the infringing features from the accused infringing Samsung devices.

But Judge Koh denied Apple’s request for a permanent injunction, finding that Apple failed to show it would suffer irreparable harm without an injunction.  Among other things, Apple had not shown that it lost sales to Samsung infringing devices, because Apple had not shown that the patented features drove customer demand for those products.

Decision

Judge Moore wrote the majority decision, which was joined by Judge Reyna, who also wrote a concurring opinion.  Judge Prost dissented.

The Federal Circuit’s standard of review here is whether the district court abused its discretion in deciding whether to grant injunctive relief based on the four eBay factors, which are whether the party seeking a permanent injunction has shown:

(1) that it has suffered an irreparable injury;
(2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
(3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
(4) that the public interest would not be disserved by a permanent injunction.

The majority then walked through each of the four factors, the most decisive one in this instance being whether Apple had shown irreparable harm through a “causual nexus relat[ing] the alleged harm to the alleged infringement.”

Irreparable Harm.  The patent owner satisfies this first factor by showing it has been “irreparably harmed by the infringement” based on “proof that a ‘causal nexus relates the alleged harm to the alleged infringement.'”  The majority rejected Apple’s argument that there is no causal nexus requirement when the patent owner seeks only to enjoin infringing features, rather than an entire product.  The majority explained that “[t]he causal nexus requirement ensures that an injunction is only entered … on account of a harm resulting from the defendant’s wrongful conduct, not some other reason.”  This is “entirely independent of the scope of the proposed injunction.”

But the majority found that the district court erred by requiring Apple to show that the infringing features “drive consumer demand for Samsung’s infringing products” in order to establish irreparable harm based on a causal nexus between the infringement and Apple’s lost sales.  While making such a showing would establish the causal nexus, it is not required and may be “nearly impossible from an evidentiary standpoint [to show] when the accused devices have thousands of features, and thus thousands of other potential causes that must be ruled out.”  Rather, the patent owner need only “show ‘some connection’ between the patented features and the demand for the infringing products”:

Thus, in a case involving phones with hundreds of thousands of available features, it was legal error for the district court to effectively require Apple to prove that the infringement was the sole cause of the lost downstream sales.  The district court should have determined whether the record established that a smartphone feature impacts customers’  purchasing decisions.  Though the fact that the infringing features are not the only cause of the last sales may well lessen the weight of any alleged irreparable harm, it does not eliminate it entirely.

In a footnote, the majority provide more insight into the range of ways that “some connection” between the patented feature and customer demand may be shown, which provides further insight into this issue:

As we explained in Apple III [735 F.3d 1352 (Fed. Cir. 2013)], “some connection” between the patented feature and consumer demand for the products may be shown in “a variety of ways,” including, for example, “evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions,” “evidence that the inclusion of a patented feature makes a product significantly more desirable,” and “evidence that the absence of a patented feature would make a product significantly less desirable.”  These examples do not delineate or set a floor on the strength of the connection that must be shown to establish a causal nexus.  Apple III included a fourth example to demonstrate a connection that does not establish a casual nexus–where consumers are only willing “to pay a nominal amount for an infringing feaure.” (using example of $10 cup holder in $2000 car).  There is a lot of ground between the examples that satisfy the causal nexus requirement and the example that does not satisfy this requirement.  The required minimum showing lies somewhere in the middle, as reflected by the “some connection” language.

Thus the district court erred in requiring Apple to show that “the infringing features were the exclusive or predominant reason why consumers bought Samsung’s [infringing] products.”  Rather, the court should have required Apple to show that “the patented features impact consumers’ decisions to purchase the accused devices.”

The majority then went through the record in the case and concluded that Apple had made the requisite showing here:

In short, the record establishes that the [patented] features … were important to product sales and that customers sought these features in the phones they purchased.  While this evidence of irreparable harm is not as strong as proof that customers buy the infringing products only because of these particular features, it is still evidence of causal nexus for lost sales and thus irreparable harm. … Apple does not need to establish that these features are the reason customers bought Samsung phones instead of Apple phones–it is enough that Apple has shown that these features were related to infringement and were important to customers when they were examining their phone choices. [emphasis in original]

The majority thus concluded that this irreparable harm factor weighs in favor of granting Apple’s requested injunction.

Inadequate Remedy at Law.  This second factor considers whether “remedies available at law, such as monetary damages, are inadequate to compensate” for the irreparable harm caused by continued infringement.  The district court had found that Apple’s lost sales “were difficult to quantify,” but still concluded that this factor weighed against an injunction because Apple had failed to establish irreparable harm.  The majority found this was error given its ruling on irreparable harm, finding that this factor “strongly weighs” in favor of an injunction given “the extent of Apple’s downstream and network effect losses are very difficult to quantify.”

Balance of Hardships.  This third factor concerns “assess[ing] the relative effect of granting or denying an injunction on both parties.”  The district court found that this factor favored injunctive relief based on (1) the proposed injunction targeting specific features, not entire products; (2) the proposed 30-day sunset provision and (3) Samsung’s repeated argument to the jury that “designing around the asserted claims … would be easy and fast.”  The latter point raises the typical Catch-22 accused infringers encounter when arguing that a patented feature has little value in order to avoid a large damages award, and then that argument being used against them when trying to avoid injunctive relief.  The majority held that this factor strongly weighed in favor of injunctive relief:

On this record, it is clear–Samsung will suffer relatively little harm from Apple’s injunction, while Apple is deprived of its exclusivity and forced to compete against its own innovation usurped by its largest and fiercest competitor.  Given the narrow feature-based nature of the injunction, this factor strongly weighs in favor of granting Apple this injunction.

Public Interest.  This fourth and final factor requires the patent owner to show that “the public interest would not be disserved by a permanent injunction.”  The district court found this factor favors injunctive relief, because (1) “enforc[ing] patent rights … promote[s] the encouragement of investment-based risk” and (2) “an injunction may prompt introduction of new alternatives to the patented features.”  The majority agreed, and then some, stating that “the public interest strongly favors an injunction” here [emphasis in original]:

Samsung is correct–the public often benefits from healthy competition.  However, the public generally does not benefit when that competition comes at the expense of a patentee’s investment-backed property right.  To conclude otherwise would suggest that this factor weighs against an injunction in every case, when the opposite is generally true.  We based this conclusion not only on the Patent Act’s statutory right to exclude, which derives from the Constitution, but also on the importance of the patent system in encouraging innovation.  Injunctions are vital to this system.  As a result, the public interest nearly always weighs in favor of protecting property rights in the absence of countervailing factors, especially when the patentee practices his inventions.  The encouragement of investment-based risk is the fundamental purpose of the patent grant, and is based directly on the right to exclude.

The majority thus vacated the district court’s denial of an injunction and remanded the case back to the district court for further proceedings consistent with this opinion.  The majority concluded that, “[i]f an injunction were not to issue in this case, such a decision would virtually foreclose the possibility of injunctive relief in any multifaceted, multifunction technology.”

Judge Reyna Concurrence.  Judge Reyna issued a concurring opinion, noting that the decision “leaves open the door for obtaining an injunction in a case involving infringement of a multi-patented device, a door that appears near shut under current law.”  He also would have ruled that irreparable harm would arise based on “injury that the infringement causes Apple’s reputation as an innovator.”  This type of harm, when it occurs, is irreparable. The majority decision written by Judge Moore, which Judge Reyna joined, stated that it need not reach that issue given the finding of irreparable harm based on lost sales.

Judge Prost Dissent.  Judge Prost dissented, finding that “[t]his is not a close case.”  Among other things, Apple did not use the patented spell correction feature and the other two patented features were “minor features (two out of many thousands) in Apple’s iPhone.”  The record does not show “clear error” in the district court’s factual findings underlying its decision to deny injunctive relief.

ITC finds Nokia does not infringe InterDigital patents, so does not address FRAND issues (337-TA-613)

Posted in International Trade Commission, Litigation

On Friday, the U.S. International Trade Commission issued a Notice on its review of Judge Essex’s decision in the InterDigital v. Nokia investigation and found that Nokia did not infringe InterDigital’s 3GPP patents (see our May 12, 2015 post on Judge Essex’s decision).  Recall that, in granting partial review of Judge Essex’s decision, the Commission focused on receiving comments on both a claim construction estoppel issue and FRAND issues (see our June 26, 2015 post).  The Commission’s decision was based on the claim construction issue preclusion issue without commenting on the FRAND issues presented, stating:

[T]he Commission finds that issue preclusion applies with respect to the proper construction of the claim limitation “successively [transmits/transmitted] signals” based on the Commission’s determination in [the ] Inv. No. 337-TA-868, which relies substantively on the Commissions’ determination in [the] Inv. No. 337-TA-800, as affirmed by the United States Court of Appeals for the Federal Circuit (InterDigital Commc’ns, Inc. v. Int’l Trade Comm’n, 2015 WL 669305 (Fed. Cir. FEb. 18, 2015)).  The Commission further finds its prior constructions of the claim limitation “successively [transmits/transmitted] signals” in the 868 and 800 investigations are persuasive authority which the Commission should apply uniformly to the asserted patents.

The Commission also finds that issue preclusion requires a finding of non-infringement with respect to the asserted claims of the ‘966 and ‘847 patents, and that the evidence in the record independently supports a finding of non-infringement with respect to the claim limitation “successively [transmits/transmitted] signals as previously construed by the Commission in the 868 investigation.

So the investigation is now terminated.

The Commission noted that it had received public comments from several interested entities.  These comments are summarized below.

Chairwoman Edith Ramirez, U.S. Federal Trade Commission.  Chairwoman Edith Ramirez of the FTC, submitted Comments reflecting her view — i.e., not the official views of the FTC itself.  She took issue with Judge Essex’s allocating to the putative licensee (or “implementer”)  the burden of proving breach of a FRAND obligation, asserting that the patent holder should establish that the implementer was an unwilling licensee as part of the public interest analysis:

This investigation raises an important and unresolved question for the ITC: what standard should the ITC use to evaluate evidence concerning patent hold-up when a complainant seeks an exclusion order for alleged infringement of a FRAND-encumbered standard essential patent?  I recommend that, as part of its public interest analysis before issuing an exclusion order, the ITC require a SEP holder to prove that the implementer is unwilling or unable to take a FRAND license.  This standard would ensure that an exclusion order issues only when it would not facilitate patent hold-up and thus only when such an order would be consistent with the public interest.  It would also establish a balanced approach to ITC remedies by ensuring that a SEP holder follows through with its FRAND licensing commitment, while at the same time recognizing that both the SEP holder and the standards implementer have a duty to negotiate in good faith towards a meaningful resolution of FRAND issues.

Chairwoman Ramirez also disagreed with Judge Essex’s view that patent hold-up is not real, citing the Microsoft v. Motorola decision by Judge Robart and the Realtek v. LSI decision by Judge Whyte as examples that “the danger that bargaining conducted in the shadow of an exclusion order will lead to patent hold-up is real.”  (see our May 1, 2013 post and Feb. 27, 2014 post for summary of the FRAND determinations in the Microsoft and Realtek decisions, respectively).  Thus, she would require the patent holder to show that the implementer is an unwilling licensee, and she provided some examples of how the patent holder would show that:

A SEP holder may demonstrate an implementer’s unwillingness in a number of ways.  First, an implementer may be unwilling if it affirmatively demonstrates that it will not negotiate with the complainant.  An implementer may also be unwilling if it engages in a “constructive refusal to negotiate a FRAND license with the SEP owner or refusal to pay what has been determined to be a FRAND royalty.”  For example, this may occur when an implementer refused to license the patent holder’s FRAND-encumbered SEPs unless it also obtains a license to the patent holder’s differentiating patents, or insists on terms that are clearly outside a reasonable interpretation of FRAND.  When there is a dispute between the parties about what terms are FRAND terms, the meaning of FRAND must first be determined by a neutral adjudicator in order for the implementer’s offer to be evaluated in the context of a FRAND range.  An implementer may be unable to take a license if its is bankrupt, or otherwise financially unable to satisfy the terms of a FRAND license.  Finally, an exclusion order may be in the public interest when the respondent is outside the jurisdiction of the United States District Courts or is otherwise judgment-proof.

Chairwoman Ramirez also recommended that, if a FRAND rate is determined during an ITC investigation, “the ITC delay the effective date of Section 337 remedies and provide parties an opportunity to execute a FRAND license.”

She indicated that an implementer may be a willing licensee if it “commits to be bound by terms that either the parties themselves will determine to be FRAND, or that will be determined by neutral adjudication,” such as by the implementer “instituting a declaratory judgment action or other proceeding in which a court will set FRAND terms.”  She also indicated that a respondent should be able to “present[] affirmative defenses, including arguments about non-infringement, invalidity, or unenforceability” without “waiv[ing] the alternative position that … the patent is a SEP and hence the SEP holder’s FRAND commitment applies.”

Commissioner’s Ohlhausen and Wright, U.S. Federal Trade Commission.  Commissioners Ohlhausen and Wright of the FTC submitted Comments with a very different view from Chairwoman Ramirez.   They do not recommend “presum[ing] patent holdup is prevalent” and, instead, recommend following Judge Essex’s “evidence-based approach to the public interest inquiry.”  They approach the issue from an imperical, evidentiary economics point of view that patent hold-up is not a widespread probability in all instances, even if a theoretical possibility in some.  Their introduction, reproduced below, summarizes their key points:

The ITC should not begin its analysis by initially imposing upon the SEP holder the burden of proving that the accused infringer is unwilling or unable to take a license on FRANd terms.  This approach presumes patent holdup is frequent and results in significant negative consequences for competition and innovation.  Such a sharp departure from the current state of the law requires substantiation in the form of robust and reliable empirical evidence.  However, the data simply do not support such a presumption.  Beyond lack of empirical support, the proposed approach is contrary to sound economic analysis, would be contrary to the United States Trade Representative’s (USTR’s) directive in the Samsung matter, and would create a conflict between the standard imposed by the ITC and that required by federal courts.  It would also threaten to deter participation in standard setting by, among other things, encouraging reverse holdup and holdout, thereby depriving consumers of the substantial procompetitive benefits of standardized technology.

There is no empirical evidence to support the theory that patent holdup is a common problem in real world markets.  The theory that patent holdup is prevalent predicts that the threat of injunction leads to higher prices, reduced output, and lower rates of innovation.  These are all testable implications.  Contrary to these predictions, the empirical evidence is not consistent with the theory that patent holdup has resulted in a reduction of competition.  To the contrary, wireless prices have dropped relative to the overall consumer price index (CPI) since 2005, output has grown exponentially, features and innovation continue at a rapid pace, and competition between mobile device manufacturers has been highly robust with meaningful entry over time.

Recognizing the theoretical nature of holdup concerns, federal courts, including the United States Court of Appeals for the Federal Circuit, have held that concerns about holdup must be proven, and that accused infringers must bear the burden of demonstrating that the patent holder used injunctive relief to gain undue leverage and demand supra-competitive royalties.  Likewise, in an August 3, 2013 disapproval letter in the Samsung matter, the USTR instructed the ITC to “make explicit findings” to the extent possible on the presence or absence of patent holdup or reverse holdup in each particular case when conducting the public interest inquiry.  Any proposal to presume the existence of holdup contradicts the decisions of federal courts and the USTR’s directive.

(see our Aug. 3, 2013 post for a summary of the USTR’s directive in the Samsung v. Apple ITC investigation referenced above).

The Commissioners also provide some insight into the difference between “holdup”, “reverse holdup” and “hold out”, stating:

Holdup requires lock-in, and standard-implementing companies with asset-specific investments can be locked in to the technologies defining the standard.  On the other hand, innovators that are contributing to a standard-setting organization (SSO) can also be locked-in if their technologies have a market only within the standard.  Thus, incentives to engage in holdup run in both directions.  There is also the possibility of holdout.  While reverse holdup refers to the situation when licensees use their leverage to obtain rates and terms below FRAND, holdout refers to licensees either refusing to take a FRAND license or delaying doing so.

Ericsson.  Ericsson had submitted Comments that favored Judge Essex’s evidentiary-based approach and recognition that “FRAND licensing places obligations on both” innovators and implementers.  Thus, “threats posed by either hold-up or reverse hold-up, should be evaluated based on evidence; mere conjecture regarding FRAND issues should not preclude the entry of an otherwise appropriate exclusion order.”  Ericsson also asserts that “[s]peculation regarding the impact of an exclusion order on the parties’ future negotiations shoudl play no role in the public interest analysis,” agreeing with Judge Essex that a district court action for breach of contract would provide a remedy if the patent holder breaches its obligation to license on FRAND terms after an exclusion order is entered.

Ericsson asserts that the patent holder’s “willingness to accept an arbitral determination of FRAND terms reflects an absence of hold-up.”  In contrast, “delaying tactics in negotiating indicate the presence [of] reverse hold-up.”  Ericsson also asserts that whether a patent covers a significant or minor portion of an accused device should not impact the grant of an exclusion order, because the FRAND obligation applies even after an exclusion order is entered and, “to the extent that the portion of the device that is covered by the claims is standard-essential, the FRAND commitment ensures fair and reasonable licensing terms commensurate with the value of the covered portion.”

Intel, Dell and Hewlett-Packard.  A joint submission of Comments was made by Intel, Dell and Hewlett-Packard that take a more implementer-oriented approach with concerns that standardization may confer unearned market power to SEP holders and that the public interest requires limiting exclusionary relief absent “extraordinary circumstances.”  They summarized their view as follows:

[T]he public interest generally precludes an exclusion order on FRAND-encumbered SEPs, except in limited circumstances, including when: (1) the respondent refuses to accept (or unjustifiably delays in accepting) a license on terms that have been independently determined to be FRAND-compliant by a court or binding arbitrator in a final, non-appealable judgment; (ii) the respondent is unable due to financial distress to pay a FRAND royalty; or (iii) the patentee has no ability to assert an infringement claim against the importer or its customer, such that in rem jurisdiction over imported goods in an ITC action is the only practical option that the patentee has to prevent continued infringement.

J. Gregory Sidak of Criterion Economics.  J. Gregory Sidak, Chairman of Criterion Economics, submitted Comments in response to those submitted by Chairwoman Ramirez of the FTC.  He states that Chairwoman Ramirez’s “proposal that the ITC make the SEP holder bear the burden of proving an implementer’s unwillingness is problematic and misguided.”  His discussion uses a hypothetical licensing transaction where there is a reasonable range of FRAND royalty rates, where focusing on whether the SEP holder accepted the implementer’s offer (or counter-offer) “would grant the implementer the right to obtain a FRAND rate at the lower bound of the FRAND range” that results in “a massive wealth transfer from SEP holders to implementers.”

He further states that “the Chairwoman’s presumption that patent holdup routinely occurs in the real world has no support in economic theory or empirical fact.”  Further, “if one assumes that patent holdup might occur, one should consider that the symmetric risk of reverse holdup might also occur.”  Placing the burden on the patent holder to establish reverse holdup, as Chairwoman Ramirez suggests, is an “asymmetric treatment of the patent-holdup conjecture and the reverse-holdup conjecture [that] has no basis in economic theory.”  Further, presuming that patent holdup exists in every case is contrary to the Federal Circuit’s instructions in Ericsson v. D-Link that “a jury may be instructed that a theoretical conjecture of patent holdup can affect the computation of a FRAND royalty only when empirical evidence supports that conjecture.” (see our Dec. 5, 2014 post summarizing Ericsson v. D-Link)

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