What’s New in Patent Damages? Erik Puknys, Partner, Finnegan Karen Robinson, Director of Litigation, Adobe Kim Schenk, Principal, Charles River Associates Patrick Weston, Senior Litigation Counsel, Google Inc. Danielle Williams, Partner, Winston & Strawn LLP

Agenda Willfulness and enhanced damages New N.D. Cal. damages rules Lost profits Reasonable royalty Extraterritoriality

Honorable Mentions Design patent damages Patent exhaustion Laches

Willfulness and Enhanced Damages Halo Elecs. , Inc. v. Pulse Elecs Willfulness and Enhanced Damages Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S.Ct. 1923 (2016)

Willfulness and Enhanced Damages Seagate test abrogated Evidentiary standard lowered from “clear and convincing evidence” to “preponderance of the evidence” Appellate standard of review increased from “de novo” to “abuse of discretion”

Willfulness and Enhanced Damages “Courts should continue to take into account the particular circumstances of each case in deciding whether to award damages, and in what amount” “Awards of enhanced damages under the Patent Act over the past 180 years establish that they are not to be meted out in a typical infringement case” “Designed as a ‘punitive’ or ‘vindictive’ sanction for egregious infringement behavior . . . variously described in our cases as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.” “Consistent with nearly two centuries of enhanced damages under patent law, however, such punishment should generally be reserved for egregious cases typified by willful misconduct.”

Willfulness and Enhanced Damages SimplivityCorp. v. Springpath, Inc., No. CV 4:15-13345-TSH, 2016 WL 5388951 (D. Mass. July 15, 2016). “[A]part from its emphatic abrogation of Seagate's willfulness test, Halo itself offered little by way of a concrete standard to assume the mantle.” “Indeed, Halo—somewhat confoundingly—ennobles courts ‘to punish the full range of culpable behavior,’ while also ‘limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement.’”

Willfulness and Enhanced Damages 19 decisions on enhanced damages (LegalMetric through 3/17; DocketNavigator through 4/7/17) 9 granting enhanced damages (47%) N.D. Cal. – denied all 4 motions Damages multiplier range 1.5 to 3 times award Highest – N.D. Ill. Lowest – N.D. Tex.

N.D. Cal.’s New Patent Local Rules For Damages

Northern District of CA Patent Local Rules Case Timeline Disclosure of Asserted Claims and Infringement Contentions Damages Contentions Initial Case Management Conference Day 59 (+45 days) Day 139 (+30 days) Day 14 (+14 days) Day 109 (+50 days) Invalidity Contentions and Document Production Responsive Damages Contentions NDCA Patent Local Rules (effective 1/17/17) Available at: http://www.cand.uscourts.gov/localrules/patent Summary Available at: http://www.crai.com/sites/default/files/publications/IP-Insights-0217.pdf

Case Filings in Northern District of CA Comparable year-over-year change (Q1 to Q1) National +2% ED TX +8% D DE +113% ND IL -30% -52% Source: DocketNavigator. Includes cases with a complaint for patent infringement or declaratory judgment.

Lost Profits Mentor Graphics Corp. v. EVE-USA, Inc Lost Profits Mentor Graphics Corp. v. EVE-USA, Inc., 2017 WL 1024502 (Mar. 17, 2017 Fed. Cir.)

Entire Market Value Rule (“EMVR”) Damages can be based on the value of an entire apparatus only when the patent-related feature is the basis for customer demand. Otherwise, damages must be apportioned between patented and unpatented features.

Apportionment & EMVR “[T]he patentee . . . must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative.” LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67 (Fed. Cir. 2012) (quoting Garretson v. Clark, 111 U.S. 120, 121 (1884)).

Apportionment & EMVR “The entire market value rule is a narrow exception to this general rule. If it can be shown that the patented feature drives the demand for an entire multi-component product, a patentee may be awarded damages as a percentage of revenues or profits attributable to the entire product.” LaserDynamics, 694 F.3d at 67.

Mentor Graphics v. EVE-USA Panduit factors (1) demand for the patented product (2) absence of acceptable non-infringing alternatives (3) manufacturing and marketing capability to exploit the demand (4) the amount of profit patentee would have made

Mentor Graphics v. EVE-USA Issue presented: Assuming EMVR cannot be met, does a patentee need to apportion lost profits after conducting a Panduit analysis? Answer: “We hold that in this case, on these facts, apportionment is achieved through the court’s use of the Panduit factors.”

Mentor Graphics v. EVE-USA We have explained the relationship between the first two Panduit factors. The first factor—demand for the patented product— considers demand for the product as a whole. The second factor—the absence of non-infringing alternatives—considers demand for particular limitations or features of the claimed invention.

Mentor Graphics v. EVE-USA Together, requiring patentees to prove demand for the product as a whole and the absence of non-infringing alternatives ties lost profit damages to specific claim limitations and ensures that damages are commensurate with the value of the patented features For example, if the customer would have bought the infringing product without the patented feature or with a different, non-infringing alternative to the patented feature, then the patentee cannot establish entitlement to lost profits for that particular sale. And this determination is made on a customer-by-customer basis.

Reasonable Royalty Prism Techs. LLC v. Sprint Spectrum L. P. , 849 F Reasonable Royalty Prism Techs. LLC v. Sprint Spectrum L.P., 849 F.3d 1360 (Fed. Cir. 2017)

Prism Techs. , LLC v. Sprint Spectrum L. P Prism Techs., LLC v. Sprint Spectrum L.P. Reasonable Royalty Based on Cost Savings Although a patentee “must carefully tie proof of damages to the claimed invention’s footprint in the market place,” that requirement for valuing the patented technology can be met if the patentee adequately shows that the defendant’s infringement allowed it to avoid taking a different, more costly course of action.

Prism Techs. , LLC v. Sprint Spectrum L. P Prism Techs., LLC v. Sprint Spectrum L.P. Admissibility of Settlement Agreements 403 What is needed for assessing the probativeness and prejudice components of the Rule 403 balance…is consideration of various aspects (of which we have mentioned some) of the particular litigation settlements offered for admission into evidence. That approach, reflected in our decisions, is also supported by the inherent connection between patent licenses and at least the potential for litigation. A patent gives nothing but the right to exclude, which in our system generally means a right to call on the courts. ::: as a logical matter, the mere filing of a complaint—shifting from potential to actual litigation—does not automatically turn the prejudice side of the Rule 403 balance into one that substantially outweighs the probativeness side. The particulars of the case that was settled and the settlement, as well as of the case in which the settlement is offered as evidence, matter to the Rule 403 balance.

Extraterritoriality Life Techs. Corp. v. Promega Corp. , 137 S. Ct

Extraterritoriality Section 271(f)(1): Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.  

Life Techs. Corp. v. Promega Corp. DNA testing kits comprised of many components Taq polymerase, a polymerizing enzyme Life Tech manufactured Taq in US, then shipped it to UK for assembly in the kits Life Tech sold the kits worldwide District court granted JMOL based on lack of infringement evidence Fed. Cir. reversed, holding supplying a single component of a multicomponent invention combined outside US can meet the "substantial portion" requirement. Taq was a "substantial portion“ because "[w]ithout Taq polymerase, the genetic testing kit recited in the Tautz patent would be inoperable.”

Life Techs. Corp. v. Promega Corp. Supreme Court reversed Fed. Cir. “[A] single component does not constitute a substantial portion of the components that can give rise to liability under section 271(f)(1).“ “A substantial portion" requires a quantitative measurement, not a qualitative one, which would "complicate the factfinder's review."  A single component cannot constitute a "substantial portion of the components of a patented invention"  Section 271(f)(1) specifies “components,” plural; while section 271(f)(2) specifies “component,” singular.  Reading section 271(f)(1) to cover a single component would render section 272(f)(2) duplicative.