Source: https://intellectualip.com/author/tfcotter/
Timestamp: 2019-04-20 20:51:08+00:00

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The Commission has determined that the appropriate remedy is a limited exclusion order and a cease and desist order prohibiting Apple from importing into the United States or selling or distributing within the United States wireless communication devices, portable music and data processing devices, and tablet computers that infringe claims 75-76 and 82-84 of the ’348 patent. The Commission has determined that the public in terest factors enumerated in section 337(d)(1) and (f)(1) do not preclude issuance of the limited exclusion order and cease and desist order. The Commission has determined that Samsung’s FRAND declarations do not preclude that remedy.
Finally, the Commission has determined that a bond in the amount of zero percent of the entered value is required to permit temporary importation during the period of Presidential review (19 U.S.C. § 1337(j)) of wireless communication devices, portable music and data processing devices, and tablet computers that are subject to the order. The Commission’s order and opinion were delivered to the President and to the United States Trade Representative on the day of their issuance.
Commissioner Pinkert dissents on public interest grounds from the determination to issue an exclusion order and cease and desist order.
As I have discussed elsewhere, I think that a FRAND declaration generally should preclude entry of an exclusion order. I’ll be interested to read the Commission’s opinion and Commissioner Pinkert’s dissenting opinion when public versions become available.
We are living in interesting times . . .
Most countries routinely award permanent injunctions to the prevailing patentee. In the U.S., since the Supreme Court’s 2006 decision in eBay v. MercExchange, courts consider four equitable factors of irreparable injury, adequacy of the remedy at law, the balance of hardships, and the public interest. As a result, U.S. courts now award permanent injunctions to prevailing patentees about 75% of the time; in the remaining quarter of cases, they award an ongoing royalty.
CoreValve argues “that the criteria for award of lost profits were not met, stating that it “could have manufactured its device overseas by March 2007,” CoreValve Br. 3, and thus would have avoided all liability for infringement, by avoiding infringement. CoreValve argues that this eliminates liability for damages based on its manufacture in the United States, or that at most it should be liable for only a modest royalty. Neither the jury nor the district court was persuaded by this argument. Nor are we. Whether or not CoreValve could have avoided infringement, it did not do so, although it was notified as early as 2005 of Edwards’ position, and the record showed CoreValve’s familiarity with the patents and the inventors.
A patentee’s right to exclude is a fundamental tenet of patent law. Richardson v. Suzuki Motor Co., Ltd., 868 F.2d 1226, 1247 (Fed. Cir. 1989) (“The right to exclude recognized in a patent is but the essence of the concept of property.”) (quoting Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1548 (Fed. Cir. 1983)). The innovation incentive of the patent is grounded on the market exclusivity whereby the inventor profits from his invention. Absent adverse equitable considerations, the winner of a judgment of validity and infringement may normally expect to regain the exclusivity that was lost with the infringement. Edwards argues that the Court’s ruling in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S. Ct. 1837, 164 L. Ed. 2d 641 (2006) supports its position, for the willfulness of the infringement and other equitable aspects weigh in favor of restoration of the exclusive patent right.
The Court in eBay did not hold that there is a presumption against exclusivity on successful infringement litigation. The Court did not cancel 35 U.S.C. § 154, which states that “Every patent shall contain … a grant … of the right to exclude others from making, using, offering for sale, or selling the invention,” nor did the Court overrule Article I section 8 of the Constitution, which grants Congress the power to “secur[e] for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” The Court held that equitable aspects should always be considered, stating: “We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.” eBay, 547 U.S. at 394, 126 S.Ct. 1837. Statutory and historical as well as commercial considerations impinge on every equitable determination.
Precedent illustrates the variety of equitable considerations, and responsive equitable remedy in patent cases; for example, the grant of a royalty-bearing license instead of imposing an injunction in situations where the patentee would experience no competitive injury, as in ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 694 F.3d 1312, 1339–40 (Fed. Cir. 2012); or where there is an overriding public interest in continued provision of the infringing product, as in Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., No. 03–CV–0597 (D. Ariz. July 21, 2010), where the Gore vascular graft materials were not available from the successful patentee Bard. Another form of equitable response is illustrated in Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 704 (Fed.Cir.2008), where the court postponed the effective date of an injunction for twenty months, to relieve hardship on the infringer.
In Advanced Cardiovascular Sys. v. Medtronic Vascular, Inc., 579 F.Supp.2d 554 (D. Del. 2008), the court observed that: “Courts awarding permanent injunctions typically do so under circumstances where plaintiff practices its invention and is a direct market competitor.” Id. at 558. Edwards argues that these conditions here prevail. However, the district court declined to impose the requested injunction. First, the district court responded to Edwards’ argument that without exclusivity it would lose first-mover advantage and market share and reputation, by stating that these had already been lost—although Edwards states that this is incorrect, for sales in the United States had not yet been authorized by the FDA, as to either the Edwards or the CoreValve/Medtronic product. The district court also stated that Edwards had given up exclusivity by licensing the ′552 patent to another competitor. CoreValve does not dispute that the district court erred in its view of that transaction, and that no such license exists.
The district court’s explanation of why it was withholding an injunction placed significant weight on CoreValve’s statements that it was immediately moving this manufacturing operation to Mexico, and thus that infringement would terminate. Edwards at *16, 2011 U.S. Dist. LEXIS 12022, at *29 (“The remaining two eBay factors do not alter the court’s analysis, since the only practical effect of a permanent injunction would be that CoreValve would be forced to move its United States manufacturing operations for the accused product to Mexico.”). The district court stated that if CoreValve should renew its infringing manufacture in the United States, then “[a]s it did in this case, Edwards can bring suit against CoreValve and seek damages if CoreValve continues its infringing manufacturing operations in spite of the judgment of infringement.” Id. at *15, 2011 U.S. Dist. LEXIS 12022, at *28. Edwards states on this appeal, and CoreValve does not deny, that CoreValve never stopped its infringing manufacture in California. Whether or not that representation was known to be false when made, the situation before us reflects, at least, changed circumstances.
In TiVo Inc. v. EchoStar Corp., 646 F.3d 869, 890 n. 9 (Fed. Cir. 2011) this court en banc noted that “district courts are in the best position to fashion an injunction tailored to prevent or remedy infringement.” Recognizing that the circumstances have not been fully explored in the record before us, we vacate the denial of the injunction, and remand to the district court for consideration in light of ensuing events and any other relevant factors.
in all respects except one—the majority’s discussion of the permanent injunction standard. The majority opines that “[a]bsent adverse equitable considerations, the winner of a judgment of validity and infringement may normally expect to regain the exclusivity that was lost with the infringement.” Majority Op. 1314. To the extent that one reads this statement as creating the presumption of an injunction once the plaintiff prevails, which must be rebutted by the defendant, that is not the law.
Nor do the selected portions of eBay cited by the majority provide support for its position. First, while I agree with the majority that in eBay the Supreme Court did not cancel 35 U.S.C. § 154, the majority overlooks the Court’s explanation that “the creation of a right is distinct from the provision of remedies for violations of that right,” such that “injunctive relief ‘may’ issue only ‘in accordance with the principles of equity.’” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006) (quoting 35 U.S.C. § 283). Second, the majority excludes from its analysis the four-factor equitable standard, the preamble of which states that “the plaintiff must demonstrate” these factors. Indeed, the majority’s analysis might be read to suggest that the defendant, not the plaintiff, bears the burden of establishing the equitable factors.
Some complain of areas of patent law in which our guidance is mixed or muddled. This is not—or should not be—one of those areas after the Supreme Court’s clear pronouncement in eBay. eBay made clear that there is no general rule that a successful plaintiff is entitled to an injunction; rather, the plaintiff bears the burden of establishing the four equitable factors that weigh in its favor in order to obtain a permanent injunction. We should take care to avoid possible misinterpretation of an otherwise clear Supreme Court standard. Because the majority’s statements appear to me to deviate from the standard articulated by the Supreme Court and our court, I respectfully concur. See Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1149 (Fed. Cir. 2011) (recognizing that “ eBay abolishes our general rule that an injunction normally will issue when a patent is found to have been valid and infringed”).
Whether the Supreme Court decides to take the case or not, I find a couple of things notable about the majority opinion. First, contrary to Judge Newman, I don’t see any reason in principle why a product lawfully manufactured and sold abroad cannot be a noninfringing alternative to which the defendant could have resorted in order to avoid infringement; under appropriate circumstances, the existence of such an alternative could demonstrate that the patentee suffered no lost profits. If taken seriously, Judge Newman’s statements that we must focus on what the patentee actually did, not what it could have done, would overturn long-settled case law in the United States that the existence of noninfringing alternatives can reduce or eliminate a patentee’s entitlement to lost profits; indeed, Judge Newman’s language sounds a lot like the “reasoning” employed in the U.K. to deny the relevance of noninfringing alternatives to awards of lost profits (see my book, pp. 187-89). The district judge’s actual reasons for entering the jury’s lost profits awards, however, seem more sound; in relevant part, Judge Sleet stated that “the jury also properly rejected CoreValve’s noninfringing alternative of moving abroad because Edwards demonstrated that CoreValve had limited capital and could not design a marketable product abroad.” See 2011 WL 446203, at *16 (D. Del. Feb. 7, 2011). If moving abroad wasn’t an available alternative during the period for which the lost profits award was calculated, then it was correct to award lost profits.
I don’t claim to be familiar enough with the facts of Edwards to offer an opinion whether an injunction would be warranted or not. As a general matter, however, my own view is that a presumption in favor of permanent injunctive relief wouldn’t be such a bad idea, as long as the presumption is a rebuttable one—though I recognize that this is not what the Supreme Court held in eBay. More generally, I have argued that, as a theoretical matter, injunctive relief is often the better option because (1) if the patentee is the more efficient user of the patented invention, injunctive relief preserves the patent incentive by enabling the patentee to exclude others during the patent term; and (2) if the infringer is the more efficient user, the parties themselves can bargain toward an appropriate license—and should have better information than a court would have as to the value of such a license. When there is a risk of patent holdup, however—in particular, where the patent reads on only one feature of a complex device, the infringement is inadvertent, and the value of a license ex post would be substantially greater than the value ex ante—courts should deny permanent injunctions and enter ongoing damages instead. See my book, pp. 53-62, 105-07.
Readers may agree or disagree with my analysis, but I think it would be a brighter day if courts would focus on the underlying policies served by injunctions and damages rather than on formalistic legal doctrine.
Developments over the past few days suggested that it might be useful to say a few words about remedies for wrongful patent litigation or enforcement under U.S. law. I will probably follow up next week with a companion piece on this topic in Europe and other jurisdictions.
First, as reported earlier this week on FOSS Patents, on Monday United States District Judge Ronald Whyte entered a preliminary injunction against LSI Corporation and Agere Systems LLC, ordering those firms not to enforce “any exclusion order or injunctive relief by the ITC,” which obligation “shall remain in effect until this court has determined defendant’s RAND obligations and defendants have complied therewith . . . .” The action before Judge Whyte is similar to the action pending before Judge Robart in Microsoft v. Motorola, in that the plaintiff (here, Realtek Semiconductor Corp.) alleges that the defendants have breached an enforceable contractual obligation to license certain standard-essential patents (SEPs) on RAND terms. In his order on Monday, Judge Whyte granted “Realtek’s motion for partial summary judgment that defendants breached their RAND licensing obligations to Realtek by failing to offer a license to the declared standard essential ‘958 and ‘867 patents before filing a Section 337 action at the ITC seeking an exclusion order and injunctive relief,” and preliminary enjoined the defendants from enforcing any such an order they may obtain from the ITC. In finding for Realtek, Judge Whyte concluded that Agere had made “a binding contract with the IEEE” to license its SEPs on RAND terms, and that Realtek was a third-party beneficiary. He then concluded that “like in Motorola, the act of seeking injunctive relief (here, at the ITC before proposing a RAND license to Realtek) is inherently inconsistent and a breach of defendants’ promise to license the patents on RAND terms.” The judge then applied the four-factor test for preliminary injunctive relief, and concluded that all of the factors weighed in favor of granting the injunction.
My initial take is that the Ninth Circuit is likely to affirm, given its affirmance last year of a similar order entered by Judge Robart in Microsoft enjoining Motorola from enforcing against Microsoft any injunction it might receive from a German court relating to the patents in suit in that case. See Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012). That case involved a foreign anti-suit injunction, in which comity weighed against the injunction (though the court concluded that the impact was comity was tolerable); the comity factor is lacking here. Moreover, as Judge Whyte noted, Agere and LSI commenced the ITC litigation before offering Realtek a RAND license, a factor that wasn’t present in Microsoft (and Judge Whyte specifically limited his holding to the facts at hand, “where defendants did not even attempt to offer a license . . . until after seeking injunctive relief”). So altogether I would tend to think that the likelihood of affirmance is good.
Assuming the opinion withstands appellate scrutiny, I think it is a welcome development. As I have noted before, the ITC is not bound by the U.S. Supreme Court’s eBay decision and cannot award damages, so injunctive relief in the form of exclusion orders remain the norm there, even in cases in which the risk of patent holdup may be substantial. Colleen Chien and Mark Lemley have suggested some ways around this problem; the ITC could deny an exclusion order if it believes the public interest would be disserved, for example, or it could delay entry of an order to afford the defendant time to design around (though this might not be very helpful if the patent in suit is standard-essential). But Judge Whyte’s decision may provide yet another option for preventing ITC exclusion orders from enabling patent holdup, though it remains to be seen how broadly the opinion will be interpreted.
Second, this week the State of Vermont passed a law allowing the state Attorney General to seek injunctive relief, civil penalties, and/or restitution, and private parties to assert claims for injunctive relief and damages, against persons making bad faith assertions of patent infringement. The text of the statute is here, and the AG’s office reports that it filed its first lawsuit under the act yesterday. One possible hitch, as I see it, is that according to Federal Circuit case law a person asserting an unfair competition claim such as commercial disparagement or tortious interference with contract based on an allegedly false assertion of patent infringement must prove by clear and convincing evidence that the defendant acted in both objective and subjective bad faith. See Adept, Inc. v. Murex Securities, Ltd., 539 F.3d 1354, 1370 (Fed. Cir. 2008); Dominant Semiconductors SDN BHD v. Osram GmbH, 524 F.3d 1254, 1260 n.5 (Fed. Cir. 2008). The court’s rationale seems to rest on both patent preemption principles and Noerr-Pennington concerns. (The Noerr-Pennington doctrine is derived from antitrust case law in which the Supreme Court has held that a person’s right to petition the government for redress means that the person is immune from antitrust liability for, inter alia, the act of commencing civil litigation, unless the person asserting the antitrust claim proves objective and subjective bad faith by clear and convincing evidence. Not all courts believe that Noerr-Pennington applies outside the antitrust context; the issue is whether the doctrine is based upon the First Amendment or only an interpretation of antitrust law.) The Vermont statute doesn’t discuss the burden of proof or the requirement of both objective and subjective bad faith, and without such a limiting construction I think the statute might fail the Federal Circuit’s test–though whether the Federal Circuit’s test is the last word on the subject is of course another matter. It will be interesting to see how the AG’s action will compare with the unsuccessful effort by Cisco to invoke the federal racketeering act (RICO) against a patent assertion entity, see In re Innovatio IP Ventures LLC Patent Litig., __ F. Supp. 2d __, 2013 WL 427167 (N.D. Ill. 2013)).
A third possibility that I’ve been mulling over recently is whether it can ever be a violation of U.S. antitrust law for the owner of an SEP who has made a RAND commitment to attempt to obtain injunctive relief against an allegedly unauthorized user of the SEP. (For violations of U.S. antitrust law, the available remedies include injunctive relief and treble damages.) The FTC’s consent order relating to Google’s acquisition of Motorola Mobility included provisions prohibiting Google and Motorola from seeking injunctive relief against the infringement of SEPs (subject to exceptions), but that case was atypical because it involved an acquisition that was potentially anticompetitive and thus subject to review under section 7 of the Clayton Act. In a case not involving such facts, I think the likelihood that a U.S. court would impose antitrust liability are low. See, e.g., In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322, 1325-28 (Fed. Cir. 2000) (holding that unilateral refusals to license patents are actionable only under extremely narrow circumstances); Intergraph Corp. v. Intel Corp., 195 F.3d 1346, 1356-62 (Fed. Cir. 1999) (narrowly construing the essential facilities doctrine); Image Technical Servs. v. Eastman Kodak Co., 125 F.3d 1195, 1218-20 (9th Cir. 1997); Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1187 & n.64 (1st Cir. 1994). See also Rambus, Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008) (casting doubt on the use of antitrust law as a vehicle for redressing a lawful monopolist’s use of deception to extract higher royalties). It’s also possible that the Noerr-Pennington doctrine would preclude such an antitrust claim, an issue discussed in this paper by Thomas Dillickrath and David Emanuelson–though I tend to think not, since the limitation on the patentee’s right to petition would only be a limitation as to one type of remedy, injunctive relief, and not as to damages. But I need to think about the issue some more. I will be addressing some of these antitrust issues in a forthcoming paper and may blog about them further.
The remedy of lost profits has always seemed to me to be, conceptually, the simplest of the various damages remedies. You calculate how many infringing sales the infringer made; estimate how many of these infringing sales the patentee would have made, but for the infringement (a number which could range from “zero” to “all”); and you calculate the profit the patentee would have earned on those lost sales. To be sure, there are both underlying policy issues and difficult practical issues surrounding this simple concept. From a policy perspective, a recovery of lost profits (coupled with a reasonable royalty on infringing sales the patentee would not have made, but for the infringement) is intended to render the patentee no worse off as a result of the infringement, and therefore to preserve the patent incentive. I generally think this is a sound policy, though reasonable minds may differ–for example, see Ted Sichelman’s interesting paper in a forthcoming issue of the Texas Law Review (to which I will be contributing a response in the review’s online supplement), or Norman Siebrasse’s thoughtful argument that deterrence sometimes should play a greater, or at least somewhat different, role than my work advocates (a point to which I hope to respond in a forthcoming post). And there certainly are a number of practical difficulties, as there are with any damages remedy; there are inevitably tradeoffs between accuracy and administrative efficiency. One of these difficulties involves the accurate calculation of the number of sales the patentee would have made, but for the infringement. This requires one to determine, among other things, what the infringer would have done if it had not infringed. Resolving this issue, in turn, requires an inquiry into the next-best noninfringing alternative. Suppose, for example, that the infringer made 100 sales with the use of patented invention A; and that it could have substituted nonpatented invention B for patented invention A, but in doing so would have lost 10 sales to the patentee. In other words, 90 consumers were indifferent between A and B, but the 10 who preferred A to B would have purchased from the patentee, but for the infringement. The patentee should recover its lost sales on the 10 and a reasonable royalty on the other 90.
This is hardly cutting-edge economic reasoning, and it’s been part of U.S. law for a long time. One can also find application of this reasoning in French case law and, more recently, in cases from Canada. As I discuss in my book, however, the U.K. still follows an outdated nineteenth century precedent holding that courts may not take noninfringing alternatives into account in calculating lost profits (or in awarding defendant’s profits). And Japanese courts have denied the patentee the opportunity to recover both lost profits on sales it lost to the infringer and a reasonable royalty on infringing sales it would not have made. Under these precedents, the patentee must choose one remedy over the other, even though this necessarily renders the patentee worse off than it would have been, but for the infringement.
Two recent U.S. opinions (from the Federal Circuit), both authored by Chief Judge Rader, on the topic of lost profits also raise some questions, at least in my mind. The first, Presidio Components, Inc. v. American Tech. Ceramics Corp., 702 F.3d 1351 (Fed. Cir. 2012), was a case in which the patentee apparently thought it was selling a product that embodied its patent, but (as it turned out) it wasn’t: it was selling a product that was not covered by the patent in suit. The defendant’s infringing product competed with the patentee’s unpatented product, and the defendant’s infringing sales caused the patentee to lose sales on its unpatented product. The court affirmed an award of lost profits on those lost sales. The principle that the patentee can recover lost profits on sales of unpatented goods that compete with infringing goods was established in Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995) (en banc). As I discuss in my book, I think the principle is probably correct, if the goal is to restore the patentee to the position it would have occupied, but for the infringement. In Rite-Hite, however, there was (according to the majority) evidence that the “unpatented” Rite-Hite products actually were covered by other patents not in suit, and thus were not noninfringing alternatives available to Kelly. In Presidio, there is nothing in the Federal Circuit opinion that indicates whether Presidio’s unpatented products were covered by some other patents or other IP rights. If not, then it seems to me that those products themselves may have incorporated noninfringing alternative technology that the defendant could have used, and thus that a lost profits recovery may not have been appropriate. Perhaps there was good reason not to consider the unpatented products as an adequate substitute technology, but I think the court should have said something about this issue.
The other, more recent opinion, is Versata Software, Inc. v. SAP America, Inc., Nos. 2012-1029, -1049 (Fed. Cir. May 1, 2013). The court wound up affirming a lost profits award of $260 million (and a reasonable royalty award of $85 million). For all I know, these numbers may be the right ones, but there are two aspects of the opinion that I find perplexing. First, the court says (slip op. pp. 14-15) that it won’t consider defendant SAP’s arguments relating to the expert’s methodology because those arguments should be resolved under Daubert (U.S. case law relating to the conditions for the the admissibility of expert testimony), and SAP didn’t appeal the Daubert ruling. But SAP did appeal from the final judgment, which should have preserved SAP’s objection to the expert’s testimony. So does the court mean to say that SAP didn’t object to the expert’s methodology at trial and therefore is precluded from raising this argument on appeal, or is there some fine point of civil procedure that I am missing here? Second, the court affirms a reasonable royalty award, even though “the district court precluded Versata’s expert from presenting a reasonable royalty analysis, and the only evidence for a royalty award came from SAP’s expert.” But Versata, the plaintiff, had the burden of proof, so why is there any reasonable royalty award at all if it failed to carry its burden? At least, I think Judge Posner would wonder about that, as evidenced by his opinion last June in Apple v. Motorola . . .

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