Source: https://www.schwabe.com/newsroom-publications-14023
Timestamp: 2019-04-24 12:22:51+00:00

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Summit 6 –The jury awarded Summit $15 million for Samsung's infringement of a patent directed to enhancement of photos prior to being uploaded, and the Circuit affirms the district court decision. In doing so, the Circuit rejects Samsung's argument that because the damages testimony of Summit's expert was not based on a commonly-used approach in patent cases, it should have been rejected under Daubert. Because the expert's damages theories and testimony were closely tied to the facts of the case, the damages award is affirmed. Summit argued in its cross-appeal that the $15 million did not include prospective royalties (which might have accounted for as much as $45 million for each of the remaining 11 years of the patent), but the Circuit affirms that the $15 million covered through the expiration of the patent, noting that the jury had written on the jury form that the $15 million was a "lump sum award."
Shire –The panel affirms the district court's judgment of nonobviousness and rules that the court did not abuse its discretion in denying defendants' motion to amend their invalidity contentions to include an on-sale bar claim. However, the panel reverses the determination of induced infringement because Johnson Matthey is within the safe harbor provision of § 271(e)(1); that is, it provided the ANDA defendants with an ingredient of the compound so they could submit the compound to the FDA for approval. These sales, and the ANDA defendants' use of the API for filing the ANDA, were within the safe harbor provision stating that it shall not be an act of infringement to sell a patented invention solely for uses reasonably related to the submission of information under a federal law which regulates the sale of drugs.
The jury found the asserted claims of the '482 patent not invalid and infringed and awarded Summit $15 million. The parties raise various issues relating to the proper legal framework for evaluating reasonable royalty damages in the patent infringement context. Questions were also addressed on appeal relating to claim construction, infringement and invalidity. Because the most interesting part of the case deals with damages, that will be the focus of this summary.
Summit's '482 patent relates to the processing of digital photos, allowing a user to place the photo into a website form either by dragging and dropping a photo from the user's computer or by using a mouse click within the website, and then using intelligent pre-processing of the photos prior to an upload. The "intelligent preprocessing" includes the ability to control the width and height of the media object identifier and the ability to preprocess the media objects in any number of ways prior to transporting to a second location.
Summit sued Samsung, Research in Motion ("RIM") and Facebook, asserting that the process of sending photographs used by Samsung smartphones and tablets via the multimedia messaging service ("MMS") infringes the '482 patent. RIM and Facebook settled after rulings on claim construction and summary judgment as to infringement. The jury found the five asserted claims not invalid and infringed, awarding Summit $15 million, noting on the jury form that this was a "lump sum award."
To estimate a reasonable royalty rate in this case, Summit's expert Benoit started by estimating that the carriers pay Samsung $14.15 to include a camera component in Samsung's phones. To arrive at this estimate, Benoit used Samsung's annual reports, internal cost and revenue spreadsheets, and interrogatory responses to determine that the camera component accounted for 6.2% of the phone's overall production cost. Accordingly, he attributed 6.2% of Samsung's revenue from selling each phone—i.e., $14.15—to the camera's functionality.
To apportion the camera-related revenue further, Benoit estimated the percentage of camera users who used the camera to perform the infringing methods rather than for other purposes. To do this, he relied on surveys commissioned by Samsung in the ordinary course of its business and on another survey he found on his own. Using the surveys, Benoit estimated that at least 65.3% of camera users used the camera regularly to capture only photos rather than video. He calculated that at least 77.3% of those users who captured only photos shared the photos, and that at least 41.2% of those users who shared the photos did so by MMS rather than by email or web storage. Lastly, Benoit observed that 100% of those photos shared by MMS were resized. Multiplying these percentages together, Benoit estimated that at least 20.8% of camera users utilized the camera for the infringing features rather than for other camera-related features.
Based on these usage statistics, Benoit concluded that 20.8% of Samsung's $14.15 revenue for including the camera component in each phone—i.e., $2.93—was due to the infringing features. Using Samsung's annual reports to estimate its profit margins and capital asset contributions, Benoit concluded that $0.56 of the $2.93 revenue was profit attributable to the infringement.
Benoit testified that to determine a reasonable royalty at a hypothetical negotiation, the parties would focus on allocating the $0.56 benefit Samsung gained by utilizing the patented features. Benoit testified that the negotiation would concern the entire $0.56 benefit because Samsung had no non-infringing alternatives, and the entire benefit was therefore incremental profit from using the patent. Benoit testified that because neither party had a stronger negotiating position, the parties would have split the $0.56 evenly to derive a reasonable royalty of $0.28 per device. Benoit cited three academic articles and the Nash Bargaining Solution to support his theory of an even split. Based on the per-device royalty and on the number of infringing devices sold by Samsung, Benoit estimated that a hypothetical negotiation would have resulted in a reasonable royalty of $29 million.
In this case, Benoit's damages methodology was based on reliable principles and was sufficiently tied to the facts of the case. He first estimated Samsung's economic benefit from infringement by specifically focusing on the infringing features and by valuing those infringing features based on Samsung's own data regarding use and on its own financial reports outlining production costs and profits. Benoit then envisioned a hypothetical negotiation in which the parties would have bargained for respective shares of the economic benefit, given their respective bargaining positions and alternatives to a negotiated agreement. Benoit's methodology was structurally sound and tied to the facts of the case.
That Benoit's methodology was not peer-reviewed or published does not necessitate its exclusion. We recognize that the fact-based nature of Benoit's damages testimony made it impractical, if not impossible, to subject the methods to peer review and publication. But publication is not a sine qua non of admissibility, and in some instances well-grounded but innovative theories will not have been published. Daubert. Consequently, where an expert otherwise reliably utilizes scientific methods to reach a conclusion, lack of textual support may go to the weight, not the admissibility of the expert's testimony.
Samsung argues that Benoit's premise that a feature's use is proportional to its value was incorrect and contradicted by expert testimony. But as we noted in Lucent, an invention used more frequently is generally more valuable than a comparable invention used infrequently and frequency of expected use and predicted value are related. Georgia-Pacific factor 11 looks at use of the invention and at evidence probative of the value of that use. Here, the district court did not abuse its discretion in determining that Benoit's methodology, involving the correlation of use with value, was not unreliable.
Samsung's argument that Benoit was unqualified to rely on survey data compiled by third parties is also not persuasive. As the district court held, Benoit need not be a survey expert to testify about the information compiled by third-party surveys, so long as the information is of a type reasonably relied upon by experts in the field to form opinions upon the subject.
To the extent Benoit's credibility, data, or factual assumptions have flaws, these flaws go to the weight of the evidence, not to its admissibility. Once an expert has been qualified, the trial court's gatekeeping inquiry focuses on the expert's methodology and on whether the methodology is sufficiently tied to the facts of the case. Where the methodology is sound and the evidence relied upon is sufficiently related to the case, disputes over the expert's credibility or over the accuracy of the underlying facts are for the jury. Here, Samsung cross-examined Benoit and, ultimately, the jury evaluated Benoit's opinions. In sum, Samsung has not shown that the district court abused its discretion in allowing Benoit to testify regarding his apportionment methodology.
In its JMOL motion, Samsung argued that the jury's damages award of $15 million is not supported by substantial evidence. Samsung now argues that Benoit's analysis was flawed and that it should not have been admitted, and therefore cannot support the damages verdict. Samsung also argues that the RIM settlement agreement cannot support the damages award because they are not sufficiently comparable. Thus, Samsung concludes that substantial evidence does not support the jury's damages award.
The damages evidence presented by Summit included Benoit's testimony regarding the apportionment methodology and the RIM license agreement. Samsung conflates the issue of whether the RIM license should have been excluded with whether the license supported the jury's damages verdict. Benoit's testimony and the RIM license support the jury's damages verdict. Benoit testified that the RIM license conveys rights to the '482 patent and that both RIM and Samsung are similarly situated because both sell camera phones containing the accused MMS functionality. The jury also heard evidence regarding the royalty amount in the RIM license and about Samsung's sales volume in comparison to RIM's. The RIM license was therefore sufficiently relevant to a hypothetical negotiation, and in conjunction with Benoit's testimony, it provided substantial evidence supporting the jury's damages verdict.
Summit cross-appeals, challenging the district court's determination that the jury verdict represents an amount of a lump-sum license through the life of the patent and compensates Summit for both past and future infringement. Summit argues that the jury's award cannot be a lump sum through the life of the patent because the relevant evidence, arguments, and instructions, and the verdict form were all limited to damages for past infringement. Summit also argues that its equitable claim for future damages is not an issue for the jury. Thus, Summit concludes that it is entitled to recover damages for future infringement because the $15 million award did not cover future infringement.
This court has not directly addressed whether a jury can award lump-sum damages through the life of the patent, but we have permitted such relief in other cases. In this case, the court properly denied Summit's request for an ongoing royalty because the jury award appears to have been intended to compensate Summit for both past and future infringement through the life of the patent. Samsung's expert, Martinez, testified that a lump-sum award was appropriate. He also testified regarding the weight the jury should give the license agreements introduced into evidence, all of which were lump-sum licenses. Moreover, Summit's expert, Benoit, admitted that a lump-sum award would compensate Summit through the life of the patent. When the jury returned its verdict, it indicated on the verdict form that the award was a lump sum by writing "lump sum award" on the verdict form. We hold that the district court did not abuse its discretion in denying Summit's request for an ongoing royalty.
Comments: The opinion presents another example of how carefully the Circuit examines whether an expert's damages theories and testimony are tied to the facts of the case. Here and in Ericsson, Inc. v. D-Link Sys ., 773 F. 3d 1201(Fed. Cir. 2014), the theories and testimony were based on the evidence while in WesternGeco L.L.C. v. Ion Geophysical Corp., 791 F. 3d 1340 (Fed. Cir. 2015) and in VirnetX, Inc. v. Cisco Sys., 767 F. 3d 1308 (Fed. Cir. 2014) they were not. The Circuit makes a point here of explaining that the damages theory doesn't have to be taken out of a text book or even used in other cases as long as it was reasonably tied to the evidence. Note that in opining that the profits would have been split 50/50 between the licensor and licensee in a theoretical negotiation, Benoit cited to the Nash Bargaining Solution, which was discredited in VirnetX.
Amneal, Actavis, Mylan, Roxane and Sandoz (the "ANDA defendants") and Johnson Matthey Pharmaceutical ("defendants") appeal the decision granting Shire's motion for summary judgment that the asserted claims are not invalid. Defendants also appeal the decision denying their motion to amend their invalidity contentions to include an on-sale bar claim. Johnson Matthey appeals the decision that it induced infringement of certain claims by providing the active pharmaceutical ingredients to the ANDA defendants.
Shire markets LDX dimesylate capsules distributed as Vyvanse®. The ANDA defendants filed ANDAs for their generic versions of Vyvanse® seeking approval prior to the expiration of the patents-in-suit, asserting invalidity and/or non-infringement. In response, Shire sued the ANDA defendants and Johnson Matthey, which supplies LDX dimesylate to the ANDA defendants.
After discovery was complete defendants moved to amend their invalidity contentions to allege that the claims of the '253 patent were invalid based on an on-sale bar. Under Local Patent Rule 3.7, amendments to contentions must be based on "a timely application and showing of good cause." The rule lists "examples of circumstances that may, absent undue prejudice to the adverse party, support a finding of good cause," including "recent discovery of material prior art despite earlier diligent search." The district court denied defendants' motion to amend, finding the motion untimely because defendants had access to the information, the alleged prior art as it relates to the On-Sale Bar, and permitting amendment would unduly prejudice Shire, who relied on defendants' previous invalidity contentions for a year in preparing its case.
The court then granted summary judgment that: (1) the ANDA defendants infringed the compound claims, (2) the ANDA defendants induced infringement of claim 4 of the '486 patent, (3) Johnson Matthey induced infringement of the compound claims, and (4) the asserted claims were not invalid as anticipated or obvious. The district court denied Shire's motion for summary judgment that Johnson Matthey directly infringed the compound claims and certified its ruling for immediate appeal under Rule 54(b).
The district court concluded that (1) the prior art did not disclose LDX or make it obvious; (2) even if it did, the prior art did not disclose that LDX was known as an active drug substance; (3) even if it did, the prior art provided no motivation to pick LDX as a starting compound; and (4) even if it did, the prior art provided no motivation to make mesylate salts of LDX. Shire did not introduce and the district court did not analyze any secondary considerations.
On this record, there is no genuine issue of material fact that the prior art did not disclose or make obvious the mesylate salt of LDX. Defendants' primary reference, AU '168, is listed on the face of the patents-in-suit and therefore the examiner is presumed to have considered it. Defendants therefore have the added burden of overcoming the deference that is due to a qualified government agency presumed to have properly done its job, which includes one or more examiners who are assumed to have some expertise in interpreting the references and to be familiar from their work with the level of skill in the art and whose duty it is to issue only valid patents.
The hindsight nature of defendants' argument is confirmed by the fact that out of the thousands of possible compounds it discloses, AU '168 actually provides thirty specific examples, none of which is LDX. Thus, read in context, a person of skill in the art would not have any reason to specifically select LDX.
Defendants allege that they were timely in seeking leave to amend their invalidity contentions, because (1) Shire delayed in producing documents relevant to an on-sale bar defense, (2) defendants had to sift through more than two million pages to find the relevant evidence, and (3) there is no undue prejudice to Shire because Shire itself was responsible for the delay.
Defendants have not explained why their motion to assert an on-sale bar defense was not filed earlier and have failed to even challenge the finding that documents produced much earlier contained information that should have led defendants to raise the on-sale bar. Defendants did not ask Shire for permission to supplement their invalidity contentions until more than a year later. Accordingly, we find no reason to conclude that the district court abused its discretion in denying defendants' motion to amend.
Under § 271(e)(2), Congress made it "an act of infringement to submit an ANDA application for a drug claimed in a patent." But Congress also provided a safe harbor in § 271(e)(1), which states that "it shall not be an act of infringement to make, use, offer to sell, or sell a patented invention solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products."
Johnson Matthey does not seek FDA approval to sell a generic form of Vyvanse® and has therefore made no ANDA filing. Its only involvement in this dispute arises from its actions in supplying the ANDA defendants with the active pharmaceutical ingredient LDX dimesylate. Johnson Matthey argues that providing the ANDA defendants with an active ingredient so they could submit their ANDAs was reasonably related to the submission of information under a federal law and was therefore within the safe harbor of § 271(e)(1). Shire counters by asserting that Johnson Matthey can be liable for induced infringement because Forest Laboratories, Inc. v. Ivax Pharmaceuticals, Inc., 501 F.3d 1263 (Fed. Cir. 2007), held that a party can be liable "under section 271(e)(2) for its future infringement under section 271(b) as the ANDA-filers' API supplier."
Johnson Matthey, as an API supplier, has thus far done nothing more than provide material for use by the ANDA defendants in obtaining FDA approval. These sales, and the ANDA defendants' use of the API for filing the ANDA, were "reasonably related to the submission of an ANDA." As such, Johnson Matthey's activities are protected by the safe harbor of § 271(e)(1), and the district court erred by entering judgment that Johnson Matthey has induced infringement of the compound claims at issue.
Moreover, as Johnson Matthey did not submit an ANDA, it cannot be liable for infringement under § 271(e)(2). We do not agree with Shire that this Court's decision in Forest requires a different result. To the contrary, Forest involved the scope of an injunction under § 271(e)(4). No such injunction has been issued against Johnson Matthey here and thus Forest is inapposite. Johnson Matthey is therefore not currently liable for infringement.

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