Opinion ID: 6215967
Heading Depth: 3
Heading Rank: 2

Heading: Caltech’s Two-Tier Damage Model

Text: Caltech presented its damage theory to the jury through two experts, Dr. Catherine Lawton and Dr. David Teece. They opined that Caltech would have engaged in two simultaneous hypothetical negotiations, one with Broadcom at the “chip level” and one with Apple at the “device level.” Those negotiations would have excluded from Broadcom’s hypothetical chip license any Broadcom chips incorporated into Apple products sold in the United States and treated those identical chips as being subject to Apple’s separate hypothetical device license at a vastly different royalty rate. Both of Caltech’s experts testified that separate chip-level and device-level negotiations would have Case: 20-2222 Document: 63 Page: 28 Filed: 02/04/2022 28 THE CALIFORNIA INSTITUTE v. BROADCOM LIMITED been proper, rather than a single hypothetical negotiation for all of the accused chips, because both defendants were separate infringers and there would be no “cross-talk” between them as they each engaged in their own hypothetical negotiation. The district court considered the opinions of Caltech’s experts and, over Broadcom and Apple’s objection, permitted Caltech to present that theory to the jury. In doing so, the district court observed that “[p]atent owners will sometimes seek damages from accused infringers at different levels in the supply chain, and so long as they do not attempt to obtain a double recovery to violate other legal principles like patent exhaustion, they are free to do so.” J. App’x 225. In ruling in Caltech’s favor, the district court saw no concern over double recovery because Broadcom and Apple were different companies and because the experts’ opinions carved out of the Broadcom hypothetical negotiation chips sold to Apple. But in the absence of some evidence that companies in the positions of Broadcom and Apple would engage in such separate negotiations and in the absence of additional facts that might justify separate and different treatment of the same chips at different levels of the supply chain, the mere fact that Broadcom and Apple are separate infringers alone does not support treating the same chips differently at different stages in the supply chain and does not justify submitting such a two-tier damage theory to the jury. It is generally recognized that in the usual case, “a direct infringer or someone who induced infringement should pay the same reasonable royalty based on a single hypothetical negotiation analysis.” LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51, 76 (Fed. Cir. 2012). Caltech argued that separate royalty rates at different levels of the supply chain are proper because the reasonable royalty inquiry focuses on the amount of value that the patent technology adds to a product, citing Ericsson, Inc. v. Case: 20-2222 Document: 63 Page: 29 Filed: 02/04/2022 THE CALIFORNIA INSTITUTE v. BROADCOM LIMITED 29 D-Link Sys., 773 F.3d 1201, 1226 (Fed. Cir. 2014). The district court concluded that Broadcom and Apple’s products were different and therefore possessed different values simply because Broadcom and Apple were “different companies at different levels in the supply chain.” J. App’x 226. But to reach that conclusion without more ignores established precedent to the effect that, in the absence of a compelling showing otherwise, a higher royalty is not available for the same device at a different point in the supply chain. As we previously held, “a reasonable royalty is not to be separately calculated against each successive infringer. Once full recovery is obtained from one infringer with respect to a particular infringing device, at most nominal additional damages may be awarded against another with respect to the same device.” Stickle v. Heublein, Inc., 716 F.2d 1550, 1562 (Fed. Cir. 1983). Moreover, “[a] party is precluded from suing to collect damages from direct infringement by a buyer and user of a product when actual damages covering that very use have already been collected from the maker and seller of that product.” Glenayre Elecs., Inc. v. Jackson, 443 F.3d 851, 864 (Fed. Cir. 2006). The district court cited but distinguished those cases as only applying to damages calculations against two defendants involving overlapping royalty bases, a situation not existing here based on Caltech’s expert’s exclusion of chips sold to Apple from the royalty base considered for Broadcom. But that exclusion in this case is wholly contrived, lacks any basis of fact and is contrary to the customary way patent infringement disputes are ordinarily resolved. It is well settled that a reasonable royalty is what a willing licensor and a willing licensee would have agreed to at a hypothetical negotiation just before infringement began. See Carnegie Mellon Univ. v. Marvell Tech. Grp., 807 F.3d 1283, 1303-1304 (Fed. Cir. 2015). Here, there is nothing in the record to suggest that Broadcom and Apple would have been willing to negotiate in this artificial way rather than to more conventionally negotiate a single Case: 20-2222 Document: 63 Page: 30 Filed: 02/04/2022 30 THE CALIFORNIA INSTITUTE v. BROADCOM LIMITED license at a single rate for the same chips. Neither of Caltech’s experts offered any factual basis to conclude that Broadcom and Apple would have been willing to engage in separate negotiations leading to vastly different royalty rates for the same chips. The district court’s views to the contrary and its limiting of the Stickle and Glenayre cases to situations involving double recovery were misplaced and erroneous. Caltech’s two-tier damages theory is legally unsupportable on this record.