Magistrate Judge Nathanael M. Cousins recently denied Apple’s equitable defense that sought to hold a Core Wireless standard essential patent unenforceable because the prior patent owner Nokia allegedly failed to timely disclose to the ETSI standards body a pending patent application.  Judge Cousins also entered Final Judgment based on the jury’s recent verdict that awarded a $7.3 million lump sum reasonable royalty for Apple’s infringement of two SEPs (see our Dec. 15, 2016 post on the verdict).  This case provides incremental insight into litigating issues concerning a patentee’s alleged failure to disclose intellectual property rights to a standards body, at least with respect to the equitable theories of implied waiver and equitable estoppel.

In this case, the alleged failure to disclose related to a pending U.S. patent application that claimed priority to a Finnish patent application that was filed by the patent owner and pending while the standard was being developed.  The U.S. patent application did not issue as the patent-in-suit until several years after the standard was adopted.  Within a month or so of the patent’s issue, the patent owner disclosed the patent to the standards body, which was deemed to be “shortly after [the patentee] could point to the contours of its IPR with specificity because the claims were allowed.”

This did not give rise to an inference that the patent owner was relinquishing its patent rights as required to establish implied waiver.  And Apple, who did not create or sell its adjudged infringing products until many years later, did not show that it had relied on Nokia’s failure to disclose or was prejudiced by it, as required to establish equitable estoppel. Continue Reading Court denies Apple’s equitable defense that was premised on failure to disclose patent applications to a standards body (Core Wireless v. Apple)

Today, a Northern District of California jury in a trial before Magistrate Judge Nathanael M. Cousins entered a Verdict finding that Apple infringed two patents alleged essential to ETSI and 3GPP cellular standards, that the patents were not invalid and awarding a reasonable royalty in the amount of $3.4 Million and $3.9 Million for each patent, respectively, as single lump sum payments for past and future infringement.  It is not clear from the public record how the jury reached this damages verdict or whether it favors more the patent owner Core Wireless or the adjudged infringer Apple.  We may follow-up this post if more insight is provided by post-trial briefings or the trial transcripts become public.

Below is a discussion of some of the pre-trial rulings and jury instructions that would have shaped the jury’s reasonable royalty determination here.  These rulings touch-on the issues of royalty stacking, the smallest salable patent practicing unit, the form of a reasonable royalty, relevant Georgia-Pacific factors and apportionment to the value of the patented technology. Continue Reading Jury awards Core Wireless $7.3 Million lump sum for Apple’s infringement of two SEPs (Core Wireless v. Apple)

Judge Gilstrap recently entered Final Judgment that included a 20% enhancement of damages based on a Jury Verdict that LG willfully infringed two patents that patent owner Core Wireless alleged to be essential to certain cellular standards.  This appears to be the first case of a court enhancing damages based on willful infringement of a standard essential patent.  Recall that Judge Gilstrap previously denied LG’s pre-trial motion to preclude finding willful infringement of an alleged standard essential patent, but indicated that he might consider LG’s policy arguments if he were to consider enhancing damages if the jury found that LG willfully infringed the patents (see our Sep. 7, 2016 post).

Judge Gilstrap has now ruled that he will enhance damages following the jury verdict that LG willfully infringed the patent, and he did so sua sponte, meaning that he enhanced damages without the patent owner filing a post-trial motion seeking such enhancement or the parties briefing same.  Judge Gilstrap has since stayed execution of the judgment while the parties file post-trial motions, which motions most likely will address the issue of willful infringement and enhanced damages.

Judge Gilstrap’s decision to enhance damages  was due to LG’s negotiation conduct and apparently weak infringement/validity defenses, which led him to conclude that “LG’s decision to terminate negotiations and continue operations without a license was driven by its resistance to being the first in the industry to take a license, and not by the merits or strength of its non-infringement and invalidity defenses.” Continue Reading Judge Gilstrap enhances damages for willful infringement of SEPs (Core Wireless v. LG)

At the same time that Judge Gilstrap recently entered his bench trial ruling that rejected Metaswitch’s standards-based equitable defenses (see our Oct. 2, 2016 post), he also entered an Order that rejected Metaswitch’s request to set aside a jury’s verdict that it infringed valid patent claims based on, among other things, SEP-related grounds.  The ruling is interesting mainly due to the procedural issues it raises.  Judge Gilstrap did make a substantive ruling that the CableLabs, IETF and ITU-T intellectual property rights (IPR) agreements at issue applied on a patent claim-by-claim basis and not on a patent-by-patent basis (i.e., some claims in a patent may be subject to the IPR agreement, but other claims within that same patent may not). Continue Reading Judge Gilstrap rejects SEP-based arguments to set aside jury infringement and damages verdict (Genband v. Metaswitch)

Judge Gilstrap recently entered an Order that rejected various defenses raised by Metaswitch based on the prior patent owner’s (Nortel) activities in standards organizations CableLabs, the Internet Engineering Task Force (“IETF”) and the International Telecommunication Union (“ITU”).  The decision highlights the importance of considering the specific language of the standard setting intellectual property rights (“IPR”) policy and patent owner commitment at issue as well as the importance of showing that the standard incorporates the patented technology and is implemented in the accused infringing products.

For example, under the wording of the specific CableLabs IPR Agreement at issue, Judge Gilstrap ruled that (1) an entities’ commitment only applied to intellectual property (e.g., patents or applications) it owned at the time the entity made the commitment and did not apply to intellectual property that the entity later acquired and (2) a subsidiary’s intellectual property commitment did not obligate its parent entity.  Thus, although one of Nortel’s subsidiary’s that owned no patents participated in the CableLabs standards process, Nortel could hold (and later sell) patents relevant to the CableLabs standard without those Nortel patents being subject to the royalty-free licensing obligation that CableLab’s otherwise required of participants.

Further, Judge Gilstrap ruled that the accused infringer failed to show one or more material parts of the alleged standard setting obligation, such as showing that (i) the standard setting document at issue was actually an adopted standard subject to an obligation (e.g., not an expired draft or request for comment), (ii) the patented technology was incorporated into the standard (e.g., the patent claims actually are “essential” to the standard), and (iii) the accused products actually implement the standard and patented technology.  The latter requirement — e.g., show that the accused products implement the patented technology within the standard — can be particularly problematic, because accused infringer’s generally deny infringement (usually a first line of defense) and are reluctant to undermine that defense by arguing that the claims read onto their product in order to support a lower priority defense, such as the standard essential patent defenses raised here.

The decision also provides incremental insight into common equitable defenses raised in standard essential patent cases: laches, equitable estoppel, implied waiver, and implied license.  In this case, the circumstances that lead to a failure to establish breach of an expressed standard setting commitment also doomed the equitable defenses as well.  Perhaps this is not too surprising, because equity generally does not step-in when there is an adequate remedy at law–e.g., enforcement of a contractual obligation that sets the rights, obligations and expectations of the parties.  This further bolsters the importance of the language used in the specific standard setting IPR policy and specific patent owner commitment at issue when determining rights and obligations under standard essential patents subject to a standard setting obligation. Continue Reading Judge Gilstrap rejects Metaswitch’s SEP defenses based on Nortel participation in CableLabs, IETF and ITU standards bodies (Genband v. Metaswitch)

Judge Gilstrap recently denied accused infringer LG’s motion for summary judgment that alleged standard essential patents (“SEPs”) were not willfully infringed, letting that issue go to the jury;  if the jury finds willful infringement, then the court may decide whether and to what extent to enhance damages based on such willful infringement.  An important procedural point is that Judge Gilstrap did not rule that there was willful infringement in this case; rather, under the permissive summary judgment standard, he ruled that there was sufficient evidence to let the jury decide the issue.  He did rule as a matter of law, however, that there is no special rule for SEPs that precludes finding willful infringement or enhancing damages, and  he left the door open to consider policy arguments about SEPs subject to FRAND commitments when exercising discretion whether to enhance damages. Continue Reading Judge Gilstrap rules that damages can be enhanced if SEPs subject to a FRAND commitment are willfully infringed (Core Wirless v. LG)

Judge Payne recently denied  defendant LG’s motion to exclude damages expert testimony on alleged standard essential patents (SEPs) where LG challenged the experts opinion (1) because he did not start with a royalty-rate that is then adjusted  by applying Georgia-Pacific factors and (2) because he failed to apportion value to the patented feature given his reliance on the end product price.  The patents-in-suit are alleged to be essential to the GSM, UMTS/HSPA and LTE cellular standards, but the parties disagreed whether the patents are SEPs and other patents-in-suit are not alleged to be SEPs.

The decision sheds some incremental insight on the entire market value rule (EMVR) that concerns when one can use the end product as the royalty base.  The court considered it a rule of evidence for U.S. jury trials to avoid jury confusion and found that the expert properly considered the end product price to assess profitability of the accused device, but otherwise did not rely on the end product as a royalty base.  He ruled that the expert may rely on that end product price in his analysis, but he cannot “publish” (i.e., disclose) that end product price to the jury given the EMVR’s “important evidentiary principle” that “care must be taken to avoid misleading the jury by placing undue emphasis on the value of the entire product” and concern that “diclosure of the end product’s total revenue cannot help but skew the damages horizon for the jury, regardless of the contribution of the patented component to this revenue.” Continue Reading Judge Payne applies “important evidentiary principle” to preclude telling jury about end product price (Core Wireless v. LG)

Judge Payne recently denied a request to proceed with all of the parties’ alleged FRAND-obligated standard essential patents in the same case, disappointing counterclaimants who had wanted to resolve together the single controversy over each of the parties’ standard essential patents.  Huawei brought suit asserting patents alleged to be essential to 3GPP LTE standards and subject to a FRAND obligation.  Nokia filed a counterclaim against Huawei on patents that also were alleged to be essential to 3GPP LTE standards and subject to a FRAND obligation.  Judge Payne decided that it would be more efficient to proceed with the Huawei and Nokia patents in their own separate cases, rather than together. Continue Reading Judge Payne severs each parties’ SEPs into separate cases (Huawei v. Nokia)

Yesterday, Judge Andrews in the District of Delaware issued an Order that denied InterDigital’s motion to dismiss Microsoft’s Complaint that alleged violation of antitrust laws based on InterDigital’s enforcement of patents alleged to be essential to 3G and 4G cellular ETSI standards and subject to commitments to license on fair, reasonable and non-discriminatory (“FRAND”) terms.  At this early procedural stage of the case, the issue was not whether Microsoft would prevail in the case or whether the allegations in the Complaint were true; rather, at this initial case stage Judge Andrews considered whether Microsoft had stated “plausible” claims against InterDigital upon which relief could be granted if what Microsoft alleged in the Complaint was true when viewing the Complaint in a light most favorable to Microsoft.  He decided that was the case and is allowing the case to proceed.

This ruling itself is not necessarily important as a precedential matter given the relatively low threshold for surviving a motion to dismiss and inability to challenge the factual assertions, but this will be an interesting case to follow as it matures because it is one of the few contemporary instances of a U.S. court considering the application of competition law to standard essential patents (“SEPs”) with sophisticated parties on both sides of the issue. Continue Reading Judge Andrews permits Microsoft’s SEP-based antitrust claims against InterDigital to proceed (Microsoft v. InterDigital)

Recently the House Judiciary Committee voted  24-8 to approve a revised version of the Innovation Act.  As we previously discussed, the Innovation Act was re-introduced in the House earlier this year in the same form approved by the entire House at the end of 2013.  The Judiciary Committee recently met to mark-up and vote on the bill.  A summary of the Act’s provisions as well as the approved amendments is provided below.

Demand letters and willful infringement.  The Innovation Act (Sec. 3, beginning at page 18) would prohibit a patent plaintiff from relying on a pre-suit demand letter as evidence of willful infringement if the demand letter did not identify “with particularity the asserted patent,” the “product or process accused,” and “the ultimate parent entity of the claimant” nor explain “with particularity, to the extent possible following a reasonable investigation or inquiry, how the product or process infringes one or more claims of the” asserted patent(s).  The PATENT Act, which was recently recently approved by the Senate Judiciary Committee, contains a similar provision but also goes farther.  Specifically, as we previously discussed, the PATENT Act would expressly regulate demand letters sent in bad faith by patent owners by granting the Federal Trade Commission the express authority to bring enforcement actions against individuals and entities that send such bad faith demand letters.  The Innovation Act simply requires the PTO to conduct a study of bad faith demand letters and their potential impact on the marketplace, with a report to Congress on the findings of the study due within a year.

Heightened infringement pleading standardsSimilar to the PATENT Act, the Innovation Act (§ 281A(a), beginning at page 2) would increase the specificity and information required to plead patent infringement.  Specifically, “unless the information is not reasonably accessible,” a patent plaintiff would be required to identify, in its initial complaint, the patents, the asserted patent claims, the accused infringing products or services, and an element-by-element description of how each accused product or service infringes the asserted patent claims.  As we previously discussed, the Judicial Conference has already taken steps to increase the specificity of patent infringement complaints by amending the Federal Rules of Civil Procedure to eliminate Form 18 “Complaint for Patent Infringement,” which only requires a patent plaintiff to provide a bare recitation for pleading direct patent infringement.  Form 18 will be eliminated in December of this year.  The Federal Circuit also held that, while Form 18 kept it from requiring more specificity in pleading direct infringement, it did not prevent it from requiring more specificity with respect to pleading indirect infringement.  The elimination of Form 18 may allow courts to require more detailed pleadings than the current Rules require.  Given this, the full House might consider whether and to what extent there remains support for the heightened pleading provisions of the reintroduced Innovation Act.

Patent ownership and financial information.  Like Section 3 of the Senate Judiciary Committee’s PATENT Act (§ 281B(b), beginning at page 7), the Innovation Act (Sec. 4(b), beginning at page 22) would require a patent plaintiff to disclose at the outset of an infringement case certain patent ownership and financial interest information to the court, other parties, and the U.S. Patent and Trademark Office (PTO), including the patent assignee, the assignee’s parent entity, any entity with a right to sublicense or enforce the patent, and any entity with a financial interest in the patent.

Disclosure of Standard Setting Obligations.  Simliar to the PATENT Act (§ 281B(b), beginning at page 8), the Innovation Act (Sec. 4, at page 23) would require a patent plaintiff to disclose to the court, other parties and the PTO certain information regarding obligations to Standard Setting Organizations (SSOs).  The Innovation Act would require a patent plaintiff to state “whether a standard-setting body has specifically declared” any of the asserted patents “to be essential, potentially essential, or having potential to become essential to that standard-setting body, and whether the United States Government or a foreign government has imposed specific licesning requirements with respect to such patent.”  As we explained previously, this language is a misnomer, as SSOs generally do not declare patents essential or potentially essential.  Instead, the patent owner declares whether its patent may be essential to an industry standard, usually by way of a a letter of assurance or similar assurance to the SSO.  These assurances often only state that the identified patents might cover a standard and what the patent owner would do as far as licensing the patent if the patent actually is essential to the standard.   And often patent owners submit blanket letters of assurance that do not identify any particular patent. The Senate’s PATENT Act more accurately reflects this practice, requiring a patent plaintiff to state “whether the patent is subject to an assurance made by the [patentee] to a standards development organization to license others under such patent[(s)]”  if “the assurance specifically identified such patent or claims therein” and “the allegation of infringement relates to such standard.”  The PATENT Act would also require a patent plaintiff to state “whether the Federal Government has imposed specific license requirements with respect to” the asserted patents, but not whether a foreign government has imposed specific licensing requirements.

Discovery cost shifting.  The Innovation Act (Sec. 6, beginning at page 34) would require six district courts participating in the patent pilot program to develop rules and procedures governing discovery of core documentary evidence, including rules addressing whether cost should be shifted for such discovery, potential phasing of discovery of electronic communications, and other limits on discovery in patent cases.  The PATENT Act (Sec. 6, beginning at page 19), would authorize the Judicial Conference to develop such rules and procedures.

Customer stay.  Like Section 4 of the PATENT Act (§ 299A(b), beginning at page 13), the Innovation Act (Sec. 5, § 296(b), beginning at page 30) would require district courts to stay patent infringement suits against customers of allegedly infringing products if certain conditions are met.  Specifically, courts would be required to stay a case against a customer if (1) the manufacturer of the accused product or process is a party to the action against the customer or a separate action involving the same patent(s) “related to the same covered product or covered process”; (2) the customer agrees to be bound by the court’s ruling on any issues in common between the customer and manufacturer; and (3) the stay is sought within 120 days after the first complaint for infringement is served or before the first order, whichever is later.   In cases where the customer impleads the manufacturer as a party to the infringement action against the customer, a district court would be required to stay the portion of the case against the customer if the manufacturer and the customer consent in writing to the stay.  “In any other case in which the covered manufacturer did not consent in writing to the stay, the court may not grant the motion to stay if the stay would be inconsistent with an indemnity or other agreement between the covered customer and the covered manufacturer,” or “if the covered manufacturer shows that the covered customer is in a better position to understand and defend against the claims of infringement.”

As we previously discussed, the Federal Circuit’s decision in In re Nintendo may impact this provision.  In Nintendo, the Federal Circuit ordered a district court to stay claims against defendant retailers accused of selling an infringing product in favor of letting the manufacturer of the accused product and the patentee litigate the merits of the infringement claims.  The district court was ordered to sever the claims against the retailers from those against the manufacturer, and to transfer the case against the manufacturer to the Western District of Washington, where the manufacturer’s U.S. operations are based.

Prevailing party fee/cost shifting.  Similar to Section 7 of the PATENT Act (§ 285(a), beginning at page 24) the Innovation Act (§ 285(a), beginning at page 5) also includes fee and cost shifting provisions, although the competing bills take a different approach.  Under the PATENT Act, a district court would first be required to determine “whether the position of the non-prevailing party was objectively reasonable in law and fact” as well as “whether the conduct of the non-prevailing party was objectively reasonable.”  Only if the court finds that the position of the non-prevailing party was “not objectively reasonable in law or fact or that the conduct of the non-prevailing party was not objectively reasonable” is the court required to “award reasonable attorney fees to the prevailing party unless special circumstances would make an award unjust.”

The Innovation Act, however, would set a default rule that would require fees and costs to be awarded to the prevailing party unless the positions of the non-prevailing party are shown to be objectively reasonable:

The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a name inventor) make an award unjust.

As we previously discussed, recent Supreme Court decisions have relaxed the standard for showing a case to be “exceptional,” thereby permitting the prevailing party to collect their reasonable attorney fees, from “clear and convincing evidence” to the lower preponderance of the evidence standard.  The high Court also changed the standard of review of fee awards in patent cases from de novo to the more relaxed “abuse of discretion” standard which grants much more deference to the district court’s decision.  The House and the Senate may consider whether statutory fee shifting provisions are necessary given this recent Supreme Court jurisprudence.

The venue amendment.  One of the amendments that was approved during mark-up of the Innovation Act would change the rules governing where a patent infringement action or an action seeking a declaratory judgment of non-infringement or invalidity may be brought.  Under the Act’s provision, such cases may only be filed where: (1) the defendant has its principal place of business or is incorporated; (2) the defendant has committed an act of infringement and has a regular and established physical facility; (3) the defendant has agreed or consented to be sued; (4) the invention claimed in a patent-in-suit was conceived or actually reduced to practice; (5) significant research and development of an invention claimed in a patent-in-suit occurred at a regular and established physical facility; (6) a party has a regular and established physical facility that such party controls and operates and has (a) engaged in management of significant research and development of an invention claimed in a patent-in-suit, (b) manufactured a product that embodies an invention claimed in the patent-in-suit, or (c) implemented a manufacturing process that embodies an invention claimed in a paten-in-suit; or (7) for foreign defendants that do not meet (1) or (2) above, wherever personal jurisdiction may lie over them.

Supporters of this amendment indicated that it was designed to restore limits on venue in patent cases and make it more difficult for patentees to file infringement suits in district courts that they perceive as more favorable to patent owners but which are inconvenient for accused infringers who often do not have any real, substantial contacts with such fora.  The House Judiciary Committee’s website specifically states as follows:

Restores Congress’s intent that patent infringement suits only be brought in judicial districts that have some reasonable connection to the dispute.  Since 1987, Congress has regulated the venue in which patent actions may be brought.  These limits protect parties against the burden and inconvenience of litigating patent lawsuits in districts that are remote from any of the underlying events in the case.  In 1990, the U.S. Court of Appeals for the Federal Circuit ‘re-interpreted’ that statute in a way that robbed it of all effect.  The Innovation Act corrects the Federal Circuit’s error, and restores the congressional purpose of placing some reasonable limits on the venue where a patent action may be brought.

At this time, the House has not scheduled a full vote on the Innovation Act.