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Advanced Patents Outline

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Advanced Patent Law Professor John Duffy - Spring 2017 Remedies (Chapter 9)
 Injunctions o Permanent Injunctions
 eBay Inv. v. MercExchange, LLC (2006, p. 792) - no rigid rules, 4 factors
 FACTS: ME had online marketplace patent, eB drove them out of the marketplace. ME sues eB, wins on validity and infringement, D. Ct. awards damages and denies permanent injunction, CAFC reverses because patents presumptively get injunctions
 RULE (Thomas): no per se rule for patents, they must follow traditional (DUFFY: really?) test for permanent injunction (i.e., not automatic, and not automatically no for NPE) - discretionary
 (1) Irreparable harm
 Patents are so unique (unlike fungible land), so more harm here
 (2) Inadequate remedies at law
 DUFFY: often difficult to prove damages (see Lucent, price erosion, lost profits, etc.)
 (3) Balance of hardships
 DUFFY: Lock-in Effect, especially for NPEs; lost investments in reaching monopoly price
 Licenses: willingness to license vs. existence of exclusive licenses or certain common limitations in licenses on things like quality
 See also Bilateral Monopoly Problem
 See also Kennedy Concurrence for NPEs
 (4) Public Interest
 DUFFY: maybe for cancer drugs or disruptions in supply of goods, probably not for NPEs except maybe Universities (see Roberts concurrence)
 Think disruption of supply for some important good
 Complex Issue: while competition (non-monopoly price) might be in the public interest for costs, in some cases it's matched or overcome by interest in providing large profits for difficult research (e.g., pharma)
 Standard Essential Patents: weigh against granting injunction (lock-in)
 DUFFY: must show first two factors, must show balance doesn't tip in favor of ∆, and must prove public interest won't be disserved
 CONCURRENCE (Roberts): history matters, and the nature of patents (like trespass right to exclude) means two of the factors (irreparable harm and inadequate remedies at law) will be triggered in nearly every case. Patents also serve the public interest of incentivizing cutting edge research, especially at Universities (NPEs)
 CONCURRENCE (Kennedy): there may be certain (1) technologies (e.g., small components of larger devices subject to numerous patents) and (2) situations (especially NPEs) where injunctions should not issue. NPE MercExchange only became an NPE because they were driven out of the market by eB. Also, injunctions may give (3) undue leverage (DUFFY: lock-in effect and bilateral monopoly)
 Price Erosion: once someone else enters the market monopoly prices are lost and hard to calculate because entry destroys data
 Lock-in Effect: where a company becomes dependent on using some technology.
 Bilateral Monopoly Problem: a permanent injunction can give patentee a windfall because they can extract royalties up to the cost of ceasing business, rather than the reasonable market rate (compare encroachment cases)
 DUFFY: exacerbated by the fact that had eBay licensed before starting business, they would have paid much less because the market had not yet been proven.
 See also Lock-in Effect

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CAFC RULE (Pre eBay): litigators assumed that permanent injunctions would issue in most cases
 D Court (overruled): NPE & willingness to license are sufficient to deny injunction. This is plainly wrong.
 Statutory Arguments:
 35 USC 261: "patents shall have the attributes of personal property" -
 SCOTUS: just because it's property doesn't mean you get an injunction
 35 USC 154: right to exclude
 SCOTUS: right to exclude doesn't imply a particular remedy
 35 USC 283: "may grant injunction"
 SCOTUS: this means injunctions are discretionary and do not automatically issue
 DUFFY: this is central and important o Preliminary Injunctions Amazon.com, Inc. v. Barnesandnobel.com, Inc. (Fed. Cir. 2001, p. 807) - 4 factor test
 FACTS: 1-click purchase patent; Amazon wanted injunction during holiday season
 RULE: 4 factor test (discretionary)
 (1) Reasonable likelihood of success on the merits
 (2) Irreparable harm if injunction is not granted (combo of eBay 1 and 2)
 (3) Balance of hardships
 (4) Public interest
 OUTCOME: preliminary injunction granted
 DUFFY: B&N should have pushed more on this considering holiday season. This ended up shutting down B&N's online ordering site during the holiday season.
 DUFFY: good case study in obviousness and 101 - this was basically doing with a computer what had been done before, and was abstract idea. Some say that patent was limited to specific secure method of doing this, Duffy disagrees.
 Damages o Bifurcation: sometimes district courts will separate out validity and infringement from damages, but this is within their discretion o Burden: on Plaintiff to prove damages, but don't make too high standard otherwise irreparable harm and could get injunction o Standing - Exclusive Licensees: exclusive licensees generally have the ability to sue, even without the patentee joining Injunction: treated just like patentee Lost Profits: can sue for lost profits just like a patentee; must be able to prove you can serve the entire market, and infringer has damaged your profits based on your exclusive license Reasonable Royalty
 (%potentially reasonable royalty if have the ability to license it themselves?)
 (%when can troll-licensee sue?)
 (%Effects of lump sum agreements?) o Reasonable Royalty Damages: statutory floor for damages - restorative NOTE: courts will generally not look to post-infringement settlement agreements or offers to settle because this could harm one of the parties later on in litigation, and we want to encourage settlement of claims See FRAND for royalties on standard essential patents on p. 838 DUFFY: difficult because each patent is unique DUFFY: two examples of methods to calculate
 (1) Start with sales of infringing goods, and then subtract off other stuff to approximate (not common) (but see entire market value rule)
 See VernetX
 (2) Hypothetical negotiation. Two ways to think about it (see Lucent)





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(a) Comparable license and then look at licensing rate (b) Measure the economics of the superiority of the technology - e.g., what people would pay with or without the invention, how much time saved. Can use survey evidence, but Duffy thinks it's unreliable
 Rule of thumb (25% of profits) is no longer appropriate Lucent Technologies, Inc. v. Gateway, Inc. (Fed. Cir. 2009, p. 817) - hypothetical negotiation
 FACTS: patents to date picker in GUI for filling in date field
 D COURT Calculation of Damages: considered numerous licenses (some of which were lump sum, some were royalty) many of which were not single patent licenses and covered different components, different criticalities in products, different lines of code
 RULE (1): You must calculate damages assuming that the patent is both valid and infringed (hypothetical negotiation)
 STRATEGY: P should explain that licensees assumed that the patent was invalid, so you need a multiplier. D should explain that there's other comparable alternatives
 DUFFY: no one would do this in the real world, and instead people take uncertainty as a multiplier
 REASON: avoid under compensation
 RULE (2): must consider evidence from comparable licenses (from Georgia Pacific Factor 2 - D Court didn't follow it)
 See Georgia Pacific factors in Appendix 1 - reviewed for abuse of discretion, but ultimate decision is given to jury. Duffy thinks they're accurate considerations in real negotiations, but the list is long AF and thus complicated to resolve.
 NOTE: also consider whether it's common practice to license based on royalty or lump sum
 RULE (3): jury verdicts are reviewed for substantial evidence VernetX, Inc. v. Cisco Sys. (E.D. Tex., 2014, supp. pp. 1-6, 24-41) - apportionment/smallest saleable unit
 FACTS: patent for establishing secure facetime connections
 Original Theories of Damages:
 (1) Identify a percent of whole iPhone profits
 (2) Nash Bargaining Solution: identify profits from FaceTime (i.e., percent of people that wouldn't buy the phone without facetime) and split them 50/50
 RULE (1): must calculate damages from the smallest saleable unit, unless "the patented feature creates the basis for customer demand or substantially creates the value of the component parts," in which case you may use the entire market value. You must tie the profits to the patented feature
 RULE (2): evidence must be relevant, as required by FRE
 NBS isn't relevant here because there are multiple components that make up the facetime profits as well as the fact that there might have been unequal bargaining power, thus producing asymmetry. If it's not 50/50 split then any other allocation using NBS is arbitrary. Thus, NBS is not relevant evidence.
 Licensing agreements + expert testimony on licenses with thousands of patents were nonetheless considered relevant (practice: get expert to account for differences)
 See also 25% "rule of thumb" for royalties rule which is no longer considered relevant. You must have more analysis
 RESULT: the evidence presented was irrelevant, and the jury instruction regarding NBS was wrong
 ***DUFFY: you can use the entire market value if (1) the patented feature creates the demand for the entire market value, or (2) you provide evidence that says that licensing agreements based the value of the patented feature on the entire market value

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o Lost Profits - alternative to reasonable royalty - restorative NOTE: for practicing entities only, not for NPEs STRATEGY: choosing between lost profits and reasonable royalties
 Sometimes lost profits don't fully compensate when there are alternatives or where there's price erosion and the monopoly price on all sales has been lost. You must consider (1) what the monopoly price would have been and (2) how many fewer items would have been sold at that price Rite-Hite Corp. v. Kelley Co. (Fed. Cir. 1996, p. 840)
 FACTS: P and D sold loading dock leveler. Each sold a higher end mechanized device and lower priced manual device. D used patented technology on the automated device, whereas P used it on the lower priced manual device.
 ISSUE: (1) can P use lost sales of the automated device that did not use the patented technology to D's infringing mechanized device for lost profits analysis? (2) Can P recover for the entire market value?
 RULE (1): injuries include those that are reasonably foreseeable within the relevant market, broadly defined.
 APPLICATION: It was reasonably foreseeable that P's higher end device would lose sales to D's infringing higher priced device
 UPSHOT: your product that lost sales does not need to implement the patented invention. It's simply that you lost sales of your product to D's infringing device (e.g., maybe patentee had an even better patented device, and they may want to prevent loss of sales to both devices)
 RULE (2): in order to obtain lost profits from the entire market value, the unpatented component must function together with the patented component in a way that would produce the desired result
 APPLICATION: The dock levelers were sold separately for marketing reasons, and thus did not work together with the entire product to perform a desired result
 AUTHOR'S EXPLANATION: if you have a patented pullout sofa, you can probably get lost profits for armchairs that were sold with it but not for the bedroom sets your customers also would have bought at your store, even if some fixed percentage of people likely go to buy sofas and bedroom sets from the same store. Noninfringing Substitutes
 Grain Processing Corp. v. American Maize-Products Co. (Fed. Cir. 1999, p. 851) - apportionment
 FACTS: P had patent to method of making a chemical, D infringed but there was a more expensive substitute that it could have practiced
 RULE: P can recover lost profits based on the amount D gained by using the infringing method (i.e., money they saved
 APPLICATION: P get's 3% of D's profits, which were attributable to what D saved (and thus got in profits) by using the infringing method. Important: market analysis showed that competition was so tight that D would have simply ate the 3% cost if D had not infringed
 DUFFY: a true non-infringing substitute would eliminate lost profits because D did not gain from infringement, and P did not lose out
 Difference between Rite-Hite and Grain Processing: in Rite-Hite, patentee was suing infringer for lost profits from patentees more expensive good that was not covered by the patent. In Grain Processing, patentee was suing infringer for lost profits from the cheaper good, that was covered by the patent, but that infringer would not have been able to practice due to the patent, and thus would have had to practice a more expensive substitute. Market Share Rule
 State Industries v. Mor-Flo Industries (Fed. Cir. 1989, p. 867)

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FACTS: patent on method of insulating water heaters RULE: calculate the lost profits based on the lost share of the market base due to infringement: LP = (hypothetical market share loss) x (D's sales) x (profits per sale) %check if this is correct
 DUFFY: this is a counterfactual of what their market share would be without infringement by competitor)
 NOTE: you must prove that you could ramp up production to meet the market demand "Entire Market Value" and "Tag-Along Sales" (p. 874)
 State Industries v. Mor-Flo Industries (Fed. Cir. 1989, p. 867)
 FACTS: patent on method of insulating water heaters
 RULE: Entire Market Value can be used for lost profits when the item can't be sold without the infringing component. If that is shown, P can also recover for any tag-along profits and sales that would be associated with the sale
 See also Rite-Hite: must work together to achieve the desired result o Attorney's Fees - discretionary, super-compensatory Octane Fitness, LLC. v. Icon Health & Fitness, Inc. (2014, p. 877)
 STATUTE: award fees to prevailing party in "exceptional circumstances"
 RULE: attorney's fees are awarded at district court's discretion for exceptional circumstances NOT limited by CAFC rule, and reviewed for abuse of discretion (not de novo)
 FED CIR RULE (overruled): can only receive attorneys' fees when "when there has been some material inappropriate conduct," or when the litigation is both "brought in subjective bad faith" and "objectively baseless." Reviewed de novo
 DUFFY: venue matters!
o Enhanced Damages & Willful Infringement - discretionary, supercompensatory Enhanced Damages = Treble Damages Halo Electronics, Inc. v. Pulse Electronics, Inc. (2016, p. 885)
 RULE: only awarded when the case is outside the ordinary, and there was subjective bad faith (willful infringement). It is also at the district court's discretion, as required by the use of "may award" in 284.
 Overruled CAFC rule requiring proof of willful infringement (both objective and subjective) to award enhanced damages (both clear & convincing evidence) o Patent Marking: Statutory Notice (p. 893) - mainly a limit on damages RULE: can only recover damages for when potential infringer was put on notice. If goods are marked then this is sufficient notice. If they are not, you can only recover for damages after you provide notice (i.e., through filing suit or cease & desist)


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Legal Process of the Patent System (Chapter 10)


(p. 898) Specialization Debate o District Courts
 Venue is a big issue here
 Patent Pilot Program: gave extra money for certain judges to hire specialized patent clerks to help foster more district court expertise on patent issues, and provided for transfers of patent cases to those judges
 Specialized District Court Rules: attempts to regularize exercises of discretion
 E.g., E.D. Tex. and some California courts
 Technical Juries: potential 7A problem, but before 1970s, all patent cases were tried in equity, and so there was no jury but instead a special master o Court of Appeals for the Federal Circuit
 Debate over whether it's a good idea to have a specialized appellate court for patent issues (see soon-to-be centralized European court)
 DUFFY: question of how many circuits you need is a question of optimization to reduce monopoly
 Holmes v. Vornado: held that compulsory counterclaims of patent infringement are not subject to CAFC jurisdiction. Congress overruled o Solicitor General
 SG has large influence over which get cert (Call for the Views of the Solicitor General), especially considering many cases involve the USPTO, and generally participates in most such cases o Supreme Court
 This is a generalist court, but some say that it should not review CAFC decisions.
 DUFFY: this would run into a constitutional problem - "one Supreme Court"
 Judicial vs. Appelate Review o Judicial Review: when A3 court is exercising original jurisdiction, e.g., appeal from A2 PTAB o Appellate Review: when A3 court is exercising appellate jurisdiction over A3 proceeding
 Fact vs. Law: o Validity:

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Fact: anticipation (Duffy: legal determination based on underlying facts that deserve deference), utility (Duffy disagrees), written description
 Law: enablement (Duffy wants this switched with written description)
 At Agency: decision of law, but findings of fact on certain issues are given deference Claim Interpretation:
 If there's only intrinsic evidence: de novo
 If there's extrinsic evidence: D Court makes findings of fact w/o jury trial, and is reviewed with deference per FRCP 52
 Debate over Who Decides What Issues DUFFY: Many current issues of fact, e.g., anticipation, utility, and written description, that go to the jury, are issues of law with underlying facts, especially considering enablement is an issue of law. Thus, they should be decided and reviewed by different standards: e.g., juries should be instructed to find factual predicates of obviousness to a clear and convincing standard, but the application of those facts to law do not receive clear and convincing standards.
 CAFC disagrees: wants to present the entire question (facts and law) and review it with one standard, and uses the finding of fact standard.
 SCOTUS will likely agree with Duffy (see, e.g., i4i concurrence) DUFFY: some issues of fact (see, e.g., Teva and claim interpretation extrinsic evidence) do not need to be found by the jury, and instead can be found by judges.
 Decisions of Fact: e.g., anticipation (fed cir), utility, written description Levels of review of findings of fact
 Dickinson v. Zurko (1999, p. 904): review of agency
 RULE: issue of validity is issue of law, but courts must review findings of fact deferentially based on APA that are made by the agency
 Must use more deferential standard from APA than the clearly erroneous standard adopted as "exception" by Fed Cir
 DUFFY: review is now for substantial evidence (could be A&C)
 Dennison Manufacturing Co. v. Panduit Corp. (1986, p. 900) - review of bench trial
 RULE: district court review of facts are reviewed under clearly erroneous standard, but courts review de novo issues of validity
 Review of jury findings of fact:
 GENERAL RULE: whether no reasonable jury could have possibly reached this standard (What is the standard of review for jury findings of fact)
 Decisions of Law: e.g., enablement o RULE: De Novo for things like statutory interpretation (but see USPTO Rulemaking) o Exception: where USPTO has Rulemaking Authority (minor)
 E.g., USPTO's rulemaking authority on it's own proceedings like Cuozzo Speed
 Merck & Co. v. Kessler (Fed Cir. 1996, p. 909): no authority on substantive questions like those in the Hatch-Waxman Act; only power over procedures)
 Presumption of Validity and Court Review o NOTE: Only applies in A3 review under 282, not in administrative proceedings.
 DUFFY: even though the presumption has not been applied in administrative proceedings, it still effectively operates wrt to some issues like 112, since after 9mo for non-CBM AIA patents, IPR is the only available adversarial proceeding and you may only present 102 and 103 arguments there
 DUFFY: the second two policy points in i4i are still relevant in IPRs, so as a matter of policy it might still make sense to apply the presumption, or some degree of administrative deference to post-grant proceedings o Microsoft Corp. v. i4i L.P. (2011, p. 923)
 FACTS: main piece of prior art was code that was not available for review. Witnesses tested to (1) when it existed and (2) what it included

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