2018 was a big year for patent remedies, the most important decision being the Supreme Court’s WesternGeco v. ION, which opened the door to foreign damages for patent infringement.
1. A Patentee may recover foreign lost profits for infringement under Section 271(f)(2)
Under Section 271(f)(2) of the Patent Act, it is an act of infringement to supply “in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention.” Section 284 provides that upon finding infringement, “the court shall award the claimant damages adequate to compensate for the infringement.”
In WesternGeco v. ION the Supreme Court held that Sections 271(f)(2) and 284 “allow the patent owner to recover for lost foreign profits.” Where a party supplies components that infringe a patent under §271(f)(2), the patentee may recover lost profit damages under §284, even if the lost profit damages occurred outside the United States. Section 271(f)(2) “protects against domestic entities who export components from the United States.” Accordingly, “the focus of §284, in a case involving infringement under §271(f)(2), is on the act of exporting components from the United States.” The relevant conduct of supplying infringing components clearly occurs in the United States, so the foreign lost profit award is simply “the means by which the statute achieves its end of remedying infringements.” The fact that lost-profits damages occurred outside the U.S., and that foreign conduct subsequent to the infringement was necessary to give rise to the injury is “merely incidental to the infringement.”
2. Expenses under Section 145 does not require the PTAB appellant to cover the USPTO’s attorney fees
Under Section 145 of the Patent Act, when an applicant appeals an adverse PTAB decision by filing an action in the district court, “[a]ll the expenses of the proceedings shall be paid by the applicant.”
In Nantkwest v. Iancu, the en banc Federal Circuit held that there was no specific and explicit directive from Congress to shift the USPTO’s attorney fees after an appeal under §145. The American Rule provides that, in the United States, “each litigant pays his own attorney’s fees, win or lose.” The rule may however be displaced by a congressional intent to provide for attorney fees that is “specific and explicit.” The Federal Circuit held that “[a]ll the expenses of the proceedings” under §145 lacks the specific and explicit congressional authorization required to displace the American Rule. Accordingly, §145 to provides for the recovery of the PTO’s “expenses,” and not its attorney fees.
3. A district court must particularly explain its basis for awarding fees for the entire lawsuit, and for denying fees after finding inequitable conduct
Under Section 285 of the Patent Act, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”
A district court may award attorney fees for the entire litigation, but there must be some causal connection between the claimed misconduct and the fees awarded. In Large Audience Display v. Tennman, the Federal Circuit affirmed the award of fees for the entire litigation. “The district court concluded that the factual bases for the exceptionality finding—from the venue fight, to the unreasonable claim construct[ions], to the use of the privileged email—permeated the entire litigation.” But in Rembrandt v. Comcast, the Federal Circuit vacated an attorney fee award of $51 million as “excessive and unreasonable.” “[A] finding of exceptionality based on litigation misconduct usually does not support a full award of attorneys’ fees.” The Rembrandt case featured nine patents and dozens of defendants, and the claimed misconduct affected only some patents asserted against some defendants. The Federal Circuit thus remanded for the district court to determine “how much of the claimed fees Rembrandt should pay.”
A district court may deny attorney fees after a finding of inequitable conduct, but it “must articulate a basis for denying attorneys’ fees.” Energy Heating v. Heat On-The-Fly (vacating the denial of fees).
4. A patentee may suffer irreparable harm even if it’s willing to license the patent
Under Supreme Court law, a patentee seeking an injunction must show: (1) irreparable harm; (2) that monetary damages are inadequate; (3) that the balance of hardships favor the injunction; and (4) that the public interest would not be disserved. eBay Inc. v. MercExchange.
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A patentee’s willingness to license does not mean it will not suffer irreparable harm absent an injunction. In Texas Advanced Optoelectronic v. Renesas, the Federal Circuit vacated the denial of a permanent injunction. The district court erred in reasoning that because the patentee had requested a reasonable royalty as compensation for past infringement, a reasonable royalty should be adequate to compensate for future infringement. “Irreparable harm, not adequately compensable at law, may exist even if there is evidence that, for example, the patent owner is willing to license its patent and does not commercially practice its patent.” A patentee’s willingness to license is relevant to the inquiry, but “not conclusive without further analysis.”
5. A district court may award treble damages only in cases with high culpability
Under Section 284 of the Patent Act, the district “court may increase the damages up to three times the amount found or assessed.”
Although district courts enjoy discretion in deciding whether to award enhanced damages, and in what amount, “the channel of discretion is narrow and damages are generally reserved for egregious cases of culpable behavior.” WCM v. IPS. In WCM, the Federal Circuit vacated the district court’s decision to award treble damages. The district court’s analysis of the Read factors was “either non-existent or incorrect.” The district court incorrectly analyzed the first and second factor, and failed to consider the sixth and seventh factors, thus making “a clear error of judgment” in awarding treble damages. “[W]here the maximum amount is imposed, the court’s assessment of the level of culpability must be high.” In trebling damages, the district court is “particularly obligated to explain the basis for the award.” In WCM, the district court only provided “a single conclusory sentence as to why it was awarding the maximum amount.” Similarly, in Polara v. Campbell, the Federal Circuit vacated the district court’s decision to award almost the maximum amount of enhanced damages. The enhancement was inappropriate here because the district court failed to consider the defendant’s public use defense, which presented a close question in the case. In both cases, the Federal Circuit remanded for a more complete decision on enhancement.
6. The Federal Circuit clarifies apportionment, the entire market value rule, and ongoing royalties
Under Section 284 of the Patent Act, upon finding infringement, “the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty.”
Although a patent owner is required to apportion the reasonable royalty to capture the incremental value of the patented invention, apportionment can be addressed in a variety of ways. Using the entire accused product as “a royalty base and apportioning through the royalty rate is an acceptable methodology.” Exmark v. Briggs & Stratton. In Exmark, the Federal Circuit vacated the jury award for failing to properly apportion the royalty rate. Plaintiff’s expert failed to explain the extent to which the advantages of the invention factored into the value of accused product and her 5% royalty rate. The expert also failed to conduct an analysis indicating the degree to which non-patented elements of the accused product impacted her suggested 5% royalty rate.
In Enplas Display v. Seoul Semiconductor (nonprecedential), the Federal Circuit similarly vacated a jury award for failing to properly apportion. There, the expert opined that the parties in the hypothetical negotiation “would not have limited the license to just the accused products if there were a risk of infringing the patent by manufacturing other products that are similar in nature,” and proposed a lump sum royalty based partly on the volume of sales of potentially infringing products not in the case. The jury award could not stand. “[A] reasonable royalty cannot include activities that do not constitute patent infringement.” Notwithstanding, the Federal Circuit in Sprint v. Time Warner (nonprecedential) affirmed a jury award that relied on a previous related jury verdict. While there “were several patents raised in each case that were not raised in the other,” the defendant did not show “any reason to believe that the technology asserted in the [earlier] case was materially different from the technology raised in this case.”
The entire market value rule is a demanding alternative to the general rule of apportionment. The rule allows for damages based on the value of an entire apparatus containing several features where “the patented feature is the sole driver of customer demand or substantially creates the value of the component parts.” Power Integrations v. Fairchild Semiconductor. Where the accused infringer presents evidence that its accused product has other valuable features beyond the patented feature, “the patent holder must establish that these features do not cause consumers to purchase the product.” The Federal Circuit vacated the jury award in Fairchild because the accused products contained other valuable features, and the plaintiff “presented no evidence about the effect of these features on consumer demand or the extent to which those features were responsible for the products’ value.”
There is a fundamental difference between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement. “[P]ost-verdict factors should drive the ongoing royalty rate calculation in determining whether such a rate should be different from the jury’s rate.” XY v. Trans Ova Genetics. The Federal Circuit in Trans Ova vacated the district court’s ongoing royalty because the court below considered the pre-suit licensing rate in determining the ongoing royalty. The pre-suit licensing rate “was arrived at in the context of the parties’ pre-suit bargaining positions.” The rate is thus not relevant to evaluating the ongoing royalty rate, which is based on a hypothetical negotiation postdating the infringement verdict.
Conclusion
The Federal Circuit and Supreme Court were busy this year, defining the contours of reasonable royalty and lost profit damages under §284. WesternGeco held that foreign lost profits are available for infringement under §271(f)(2). The question remains whether foreign damages are available for infringement under other sections of the Patent Act. In December, the Federal Circuit agreed to hear an interlocutory appeal of an order from a Delaware federal judge who held that WesternGeco covers more infringement scenarios than §271(f)(2). If the district court’s decision is upheld, patent owners may be able to recover foreign damages in direct infringement cases. The case should be argued later this year.