This was the classic case of “in like a lion and out like a lamb.”
Innovatio almost pulled off one of the most innovative patent campaigns in history. In particular, Innovatio negotiated control of an extremely potent portfolio of WiFi patents invented by Broadcom engineers. Instead of using those patents to go after WiFi equipment manufacturers, like Motorola, Cisco, Netgear and others, it went after numerous WiFi end users. Coffee shops, hotels, and other venues all received letters, or even had lawsuits filed against them. And the message was always the same – pay us a nominal sum, like $2500, and all of this pain can go away. This strategy, which had been employed so successfully by Jerome Lemolsen many years ago, paid some early dividends for Innovatio.
Eventually, however, the major manufacturers stepped in. While they raised the usual defenses; i.e., noninfringement, invalidity, etc., they also argued that the patents were subject to RAND licensing terms due to Broadcom’s participation in various standards processes. It was this argument that eventually caused Innovatio’s case to explode. Back in October, the Court ruled that Innovatio’s patents were subject to RAND terms, and set a very low royalty per device. The settlements began to role in shortly thereafter. Instead of the billions it was hoping to garner, Innovatio ended up pulling in a few million dollars.
Back in 2012, the state of vicarious liability in patent cases received a major boost when the Federal Circuit held in Akamai v. Limelight that a method claim could be infringed even though no single entity practiced all elements of the claim. However, what the Federal Circuit giveth, it also taketh away. The latter came in the form of a new Federal Circuit decision that held that a good-faith invalidity position could negate any “intent,” which makes it even harder for patent plaintiffs to collect past damages when alleging induced infringement (and probably contributory infringement as well).
In particular, in Commil v. Cisco, the Federal Circuit held that 1) mere negligence; i.e., “should have known,” is insufficient to establish actual knowledge, which is required to establish induced infringement, and 2) issues of validity should be considered by the jury to determine if a defendant had actual knowledge that it was inducing a valid patent.
In practice, this means that a good-faith invalidity position will shield a defendant from a finding of induced infringement, which will preclude past damages. Obviously, once a patent is held to be valid and infringed, the plaintiff can pursue damages for induced infringement.
While the holding of Commil is restricted to induced infringement, the same logic would apply to contributory infringement.
Plaintiff Gets to Present Damages Calculation Despite Missing Deadline / Unfair Competition Claims Dismissed
Nanochem Solutions v. Global Green Products, Case No. 10-5686, Slip Op. (N.D. Ill. Sept. 10, 2013)(Hart)
At issue in this opinion are (1) a motion in limine, and (2) a motion for summary judgment, both filed by defendant Global Green Products.
In their motion-in-limine, Global Green sought to block Nanochem from introducing any damages calculation at trial because it had originally claimed damages based on a reasonable royalty, but shifted to lost profits at the very end of the case. In fact, it had never unveiled its damages calculation (as required by Rule 26(a)(1)) until it responded to Global Green’s motion-in-limine. Nonetheless, as the date for the final pre-trial order has not yet been set, the Court determined that Global Green was not prejudiced, and therefore, Nanochem will be allowed to present its damages calculation.
Also in their motion-in-limine, Global Green claimed that the damages calculation presented by Nanochem is not a legally proper way to calculate lost profits. The Court essentially ruled that the proper venue to raise this issue is a rule 50 motion for JMOL. In addition, Nanochem will be able to revise its damages calculation (if needed) in the final pretrial order, in jury instructions, and in trial briefs.
Global Green had better luck with its motion for summary judgment. In particular, Global Green challenged count VI (unfair competition based on the Lanham Act) and VII (unfair competition based on Illinois law), and was successful in having both dismissed. The mark asserted by Nanochem (A-5D) was determined to be descriptive; i.e., not distinctive, and without secondary meaning (otherwise referred to as acquired distinctiveness). Under longstanding precedent – no distinctive mark (acquired or inherent), no cause of action for unfair competition. Accordingly, the Court granted summary judgment on both claims.
Commil USA v. Cisco Systems, Case No. 12-1042 (Fed. Cir. June 25, 2013)
The Federal Circuit effected a major change in the law of vicarious liability for patent infringement. In particular, the Federal Circuit has established a defense to induced infringement based on a good-faith belief by the infringer that the patents were invalid. This will likely make obtaining an opinion of counsel on invalidity even more important for those facing patent infringement suits – a well drafted opinion of counsel finding that asserted patents were invalid will greatly reduce the possibility of damages up to a determination of validity at trial, or at a minimum, a denial of summary judgment on invalidity.
Versata Software v. SAP America, Case No. 2012-1029, Slip Op. (Fed. Cir. May 1, 2013)
SAP appealed from an order of the Eastern District of Texas awarding damages of approximately $345 million and a permanent injunction. The Federal Circuit affirmed the order of the trial court, with the exception that it ordered the scope of the permanent injunction modified.
SAP first challenged the trial court’s determination that it infringed the patent-in-suit because its software supposedly did not contain software capable of performing customer and product hiearchies, and that its software allegedly did not use denormalized numbers. However, Versata’s expert explained that SAP’s software did perform customer and product hiearchies, that it was written by SAP engineers, and he demonstrated a SAP system that performed the functions. Nonetheless, SAP claimed that the expert somehow added the instructions necessary to perform customer and product hiearchies. The Federal Circuit rejected SAP’s arguments, and, in particular, stated that an accused product may be found to infringe if it is reasonably capable of satisfying the claim limitation. As Versata’s expert followed SAP’s own instructions in setting up SAP’s software, the Court determined that SAP infringed the asserted claims.
The Court similarly rejected SAP’s arguments that its software did not use denormalized numbers, which was not a claim term, but rather an agreed to claim interpretation. However, based on a number of items in the record, including the admission of SAP’s own expert on cross, the Court determined that SAP’s software could be interpreted as using denormalized numbers.
SAP also challenged the award of lost profits and the amount of the reasonable royalty. With regards to the award of lost profits, SAP argued that Versata’s expert report on lost profits was not in accord with sound economic principles and should have been excluded from evidence, and that the expert’s report cited to multiple markets and was therefore “legally defective.” The Court rejected both arguments as improperly raised, as SAP did not appeal any Daubert ruling.
SAP also challenged the award of lost profits as there was allegedly no evidence of demand for the product during the damages period beginning in 2001. However, the Federal Circuit pointed to Versata’s sales between 1995 and 1998 – prior to when SAP entered the market with a bundled product that included the functionality of Versata’s product.
SAP also argued that Versata did not prove the quantum of lost profits with reasonable certainty. However, Versata’s expert presented a sophisticated damage model showing that approximately 21 percent of the sales made by SAP would have gone to Versata, which the Court accepted as adequate.
Finally, SAP challenged the award of an $85 million reasonable royalty as violating the entire market value. Of interest is that Versata’s expert was not allowed to testify on a reasonable royalty, and so evidence of a reasonable royalty came from SAP’s expert, which only applied a royalty to the sale of a subset of products. The Court, accordingly, rejected this argument as well.
The Court did modify the permanent injunction on SAP to allow SAP to provide maintenance and additional seats to its present customers.
McDavid v. Nike USA, 8-CV-6854, Slip Op. (N.D. Ill. Apr. 23, 2013)(Holderman)
Nike challenged supplemental expert reports submitted by McDavid. In particular, Nike alleged that McDavid’s expert attempted to add a new theory of infringement. Nike asserted that McDavid had a duty to disclose this theory of infringement under Rule 26(e)(1), and the Court agreed. However, McDavid countered that it had disclosed the new theory of infringement with respect to a different, but related, patent. The Court found that this was not sufficient, and, as the new theory of infringement would have been prejudicial to Nike, who would not have sufficient time to prepare its defense, struck the new expert report.
Nike also challenged McDavid’s supplemental report on damages, which sought to switch from an entire market value theory to a theory based on only part of the Nike’s sales of the infringing product. McDavid argued that the law surrounding when a patentee could base a reasonable royalty on the entire market value of a product had changed after the Federal Circuit’s Uniloc decision. Somewhat surprisingly, the Court disagreed, and instead, found that Uniloc was perfectly consistent with Lucent and other cases discussing access to the entire market value.
However, the Court also found that new sales data, only available since the expert’s last opinion was offered, could have necessitated the change, and accordingly allowed McDavid’s updated report on damages into evidence.