Apportion This! The State of IP Damages. February 12, 2015

Transcription

1 Apportion This! The State of IP Damages February 12, 2015

2 Overview: Monetary Awards in Patent Litigation Adam Kelly Loeb & Loeb LLP

3 Damages 35 U.S.C. 284: the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty Reasonable Royalty Lost Profits Combination of both Typical subject of expert reports/testimony 35 U.S.C. 284: the court may increase the damages up to three times the amount found or assessed. Enhanced damages, up to treble (often less) Usually briefed post-verdict on a finding of willful infringement

4 Damages Supplemental Damages A way to account for the timeframe between when discovery ends verdict/judgment/patent expiry/date injunction begins/etc. Sometimes needed post-verdict if no injunctive relief granted and patent remains in effect Sometimes determined on briefs, sometimes requires supplemental trial with fact and expert testimony

5 Attorneys Fees 35 U.S.C. 285: The court in exceptional cases may award reasonable attorney fees to the prevailing party. Recent Supreme Court cases Octane Fitness & Highmark arguably lower standard Motions for fees can happen at all stages of litigation (following frivolous motion practice, discovery abuses, litigation misconduct, etc.) Alleged infringers can request fees, too

6 Costs & Interest Costs (not fees) FRCP 54(d)(1) Awarded to the prevailing party in litigation Regional circuit law governs award of costs and timing of motion for costs Costs include copying, necessary transcripts expenses Alleged infringer gets costs if it prevails Pre and Post Judgment Interest Awarded in addition to damages Typically topic of supplemental expert reports Typically quite low (in comparison to damages award)

7 Provisional Rights Adam Kelly Loeb & Loeb LLP 7

8 Provisional Rights Under 35 U.S.C. 154(d), provisional rights provide the patentee the right to obtain a reasonable royalty from any person who: (i) makes, uses, sells, or offers for sale the invention claimed in the published application; and (ii) had actual notice of the published application Grants rights to obtain the reasonable royalty from the date of publication to the date the patent issued But the published claims must be substantially identical to the issued claims 8

9 Reasonable Royalty Robyn Bowland Akerman LLP Trevor Copeland Brinks, Gilson & Lione Karina Wong Brinks, Gilson & Lione

10 Reasonable Royalty: Quiz Q: When must you address the Georgia-Pacific factors in a reasonable royalty analysis? (a) Always, the Federal Circuit requires it (b) When the factor(s) are relevant to the facts of the case (c) Never, the Federal Circuit ended the use of the Georgia- Pacific factors (d) When your case involves paper products 10

11 Reasonable Royalty: Quiz Q: When must you address the Georgia-Pacific factors in a reasonable royalty analysis? (a) Always, the Federal Circuit requires it (b) When the factor(s) are relevant to the facts of the case (c) Never, the Federal Circuit ended the use of the Georgia- Pacific factors (d) When your case involves paper products 11

12 Reasonable Royalty: Quiz Q: When is use of the Nash Bargaining Solution appropriate? (a) Never (b) Always, it best models all negotiation situations (c) When your damages expert sufficiently shows it is relevant to the facts at hand (d) When Crosby and Stills are busy 12

13 Reasonable Royalty: Quiz Q: When is use of the Nash Bargaining Solution appropriate? (a) Never (b) Always, it best models all negotiation situations (c) When your damages expert sufficiently shows it is relevant to the facts at hand (d) When Crosby and Stills are busy 13

14 Reasonable Royalty: Basic Principles Reasonable royalty determined based on applying Georgia-Pacific factors: 1. The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty. 2. The rates paid by the licensee for the use of other patents comparable to the patent in suit. 3. The nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold. 4. The licensor's established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly. 5. The commercial relationship between the licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or whether they are inventor and promotor. 6. The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales. 7. The duration of the patent and the term of the license. 8. The established profitability of the product made under the patent; its commercial success; and its current popularity. 9. The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results. 10. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention. 11. The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use. 12. The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions. 13. The portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer. 14. The opinion testimony of qualified experts. 15. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp (S.D.N.Y. 1970). 14

15 Reasonable Royalty: Basic Principles Royalty may be running or lump sum Running royalty determined by selecting appropriate royalty base and rate (Royalty Rate x Royalty Base = $ Damages) Date of hypothetical negotiation is date infringement began LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012). There must be a basis in fact to associate royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011). Issues related to expert analysis of comparability of licenses and factual assumptions and considerations go to weight of evidence, not admissibility of testimony Activevideo Networks, Inc. v. Verizon Comms., Inc., 694 F.3d 1312 (Fed. Cir. 2012). 15

16 Reasonable Royalty: Basic Principles Royalty Base Apportionment Supreme Court precedent directing apportionment based upon patented features Garretson v. Clark, 111 U.S. 120 (1884) Even when apportioning, one can t cure overly large base by using lower rate Uniloc USA v. Microsoft, 632 F.3d 1292 (Fed. Cir. 2011) May be able to start with the smallest salable patent practicing unit LaserDynamics, Inc. v. Quanta Computer, 694 F.3d 51 (Fed. Cir. 2012) (still requiring apportionment of infringed patented value) Court must limit damages testimony, including for apportionment, to firm scientific or technical ground VirnetX v. Cisco Systems, 767 F.3d 1308 (Fed. Cir. 2014). 16

17 Reasonable Royalty: Recent Cases Ericsson, Inc. v. D-Link Sys., Inc., Case Nos , -1631, (Fed. Cir. Dec. 4, 2014). District Court allowed expert opinion on reasonable royalty based on previous licenses applying rate to value of entire electronic device rather than just infringing Wi-Fi chips Federal Circuit held it was appropriate to use entire value of devices where the licenses evaluated by expert applied rate to entire value of electronic devices and some basis for determining the license rates reflected an apportionment of the value of the patented chips existed Federal Circuit also held it was improper to instruct jury on all of the Georgia-Pacific factors when some were irrelevant or misleading based on the issues of the particular case Here, the Federal Circuit found GP factors 4, 5, 8, 9, and 10 were irrelevant or misleading to Ericcson s patents encumbered by a RAND commitment Federal Circuit declined to outline new reasonable royalty factors for RAND cases 17

18 Reasonable Royalty: Recent Cases VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014). Accused products: Apple s servers that run FaceTime on iphone, ipod, ipad and Macs Apple s iphone, ipad, and ipod Touch that include VPN on Demand Federal Circuit rejected application of Nash Bargaining Solution where an expert has not sufficiently shown the Solution is applicable to the facts at hand. Nash Bargaining Solution assumes that bargaining parties would agree to a solution where both bargaining parties would receive the same money profit (i.e. the parties would split the incremental profit evenly amongst themselves) 18

19 Reasonable Royalty: Apportionment Garretson v. Clark, 111 U.S. 120 (1884) The 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; or he must show, by equally reliable and satisfactory evidence, that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature. 19

20 Reasonable Royalty: Apportionment When is apportionment NOT required in determining a reasonable royalty? (a) The accused product is the smallest salable unit containing the patented feature (b) The patented feature allows you to use your phone to time travel (c) The accused infringer s sales model does not allow an accurate accounting for apportionment (d) The patented feature creates the basis for demand for the entire product (e) The patented feature is valuable, important or essential to the use of the overall product 20

21 Reasonable Royalty: Apportionment When is apportionment NOT required in determining a reasonable royalty? (a) The accused product is the smallest salable unit containing the patented feature (b) The patented feature allows you to use your phone to time travel (c) The accused infringer s sales model does not allow an accurate accounting for apportionment (d) The patented feature creates the basis for demand for the entire product (e) The patented feature is valuable, important or essential to the use of the overall product 21

22 Reasonable Royalty: Apportionment VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014) Patent owner s expert erroneously relied on the entire market value of accused products by: Failing to subtract unpatented elements from the base, e.g., touchscreen, camera, processor, speaker, and microphone Failing to separate software from hardware Failing to separate accused software from other valuable software components Relying on accused infringer s sales model to avoid the task of apportionment 22

23 Reasonable Royalty: Apportionment VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014) The lower court s jury instructions were legally erroneous: In determining a royalty base, you should not use the value of the entire apparatus or product unless either: (1) the patented feature creates the basis for the customers' demand for the product, or the patented feature substantially creates the value of the other component parts of the product; or (2) the product in question constitutes the smallest saleable unit containing the patented feature. The Federal Circuit found that this instruction inappropriately created a second exception that would allow a patentee to rely on the entire market value of a multi-component product so long as that product is the smallest salable unit containing the patented feature. 23

24 Reasonable Royalty: Apportionment VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014) [W]hen claims are drawn to an individual component of a multi-component product, it is the exception, not the rule, that damages maybe based upon the value of the multi-component product. Where the smallest salable unit is, in fact, a multicomponent product containing several non-infringing features with no relation to the patented feature... the patentee must do more to estimate what portion of the value of that product is attributable to the patented technology. To hold otherwise would permit the entire market value exception to swallow the rule of apportionment. 24

25 Reasonable Royalty: Apportionment VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014) It is not enough to merely show that the [patented feature] is viewed as valuable, important, or even essential to the use of the [overall product]. (citing LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012)) Instead, [a] patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts. (citing Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255 (Fed. Cir. 2013) In the absence of such a showing, principles of apportionment apply. 25

26 No Apportionment: Special Damages for Design Patents Trevor K. Copeland Brinks, Gilson & Lione

27 Design Patent Damages: 35 USC 289 Disgorgement of Infringer s Total Profit Catalina Lighting, Inc. v. Lamps Plus, Inc., 295 F.3d 1277 (Fed. Cir. 2002) A patent owner can t double-dip for utility+design infringement, but disgorgement damages may exceed reasonable royalty damages; For example: in Bernhardt L.L.C. v. Collezione Europa USA, Inc., 436 F. Supp. 2d 739 (M.D.N.C. 2006), the court used disgorgement damages the court, taking the infringer s profits rather than imposing a burden on patentee to determine determining reasonable royalty under Georgia Pacific factors or lost profits; No apportionment of profits to patented features, so design patents can be a useful tool for leverage Consider Pacific Coast Marine Windshields Limited v. Malibu Boats, LLC, (M.D. Fla., 1/ /2014), which settled on the eve of trial where an allegedly infringed windshield design patent could have resulted in disgorgement of profits on entire luxury boats retailing for $50k-100k, and Apple v. Samsung design patent appeals of an initial $1B jury verdict (basis not clearly provided/documented); 27

28 Lost Profits Mark Feldman DLA Piper Don Rupert Marshall, Gerstein & Borun LLP Sara Horton Jenner & Block 28

29 Lost Profits: Definition Lost profits consists of the additional profits that a patent owner would have made if there had been no infringement by the defendant. 35 U.S.C. 284 (2006); Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, (Fed. Cir. 1995) (en banc). A patent owner must prove: A reasonable probability that, but for the defendant s infringement, the patent owner would have made additional profits through the sales of all or some of the patented product or process that the defendant made. The amount of profit the patent owner would have made on those additional sales. The defendant reasonably should have foreseen that the patent owner would have lost profits. 29

30 Approaches to Proving Lost Profits Panduit Factors (575 F.2d 1152 (6th Cir. 1978)) Two Supplier Market Multiple Supplier Market/Market Share 30

31 Panduit Factors There was a demand for the patented product or process. There was no acceptable, non-infringing substitute for the patented product or process. The patent owner was capable of satisfying the demand. The amount of profit the patent owner would have made. 31

32 Two Supplier Market The patent owner and defendant are the only suppliers for the product or process in the market. The patent owner was capable of making all of the sales made by defendant. If the patent owner proves these things, it is entitled to recover its lost profits on all of the sales made by defendant unless the defendant proves that the patent owner would not have made some or all of the sales. 32

33 Multiple Supplier Market/Market Share When there are multiple suppliers in the market, if the patent owner proves that it is reasonably probable that it would have made additional sales of the patented product/process, the patent owner can obtain its lost profits relating to those sales. There are two proof requirements: The patent owner would have made some portion of defendant s infringing sales if defendant s infringing product had not been available. The patent owner was capable of making all of the sales made by defendant. For the market share approach, the patent owner will need to prove its market share and the market share of the defendant. The market share is then used in the calculation of the lost profits. 33

34 Other Types of Lost Profits Damages Damages flowing from the loss of collateral sales The unpatented, collateral product and the patented product are shown to be part of a complete machine or constitute a single functional unit. Damages flowing from the patent owner s price erosion Damages flowing from the patent owner s increased costs to meet defendant s competition 34

35 Lost Profits: Apportionment Does apportionment have a role in lost profits? (a) Yes (b) No (c) Maybe (d) Only on Thursdays 35

36 Lost Profits: Apportionment Does apportionment have a role in lost profits? (a) Yes (b) No (c) Maybe (d) Only on Thursdays 36

37 Lost Profits: Apportionment The Supreme Court s decision in Garretson v. Clark (1884) appears to require apportionment in every case unless the entire market value rule applies: The 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... Versata Software, Inc. v. SAP America, Inc., 717 F (Fed. Cir. 2013) The Panduit factors do not require showing demand for a particular embodiment of the patented functionality... Nor does it require any allocation of consumer demand among the various limitations recited in a patent claim. 37

38 Lost Profits: Apportionment DePuy Spine Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314, 1330 (Fed. Cir. 2009) The Federal Circuit held that the requisite demand first Panduit factor is not limited to demand for a patented feature. Instead, the first Panduit factor requires only demand for the patented product. [T]he focus on particular features corresponding to individual claim limitations is unnecessary when considering whether demand exists for a patented product under the first Panduit factor. Rather, the elimination or substitution of particular features corresponding to one or more claim limitations goes to the availability of acceptable noninfringing substitutes under the second Panduit factor... 38

39 Lost Profits: Apportionment Plantronics, Inc. v. Aliph, Inc., No. C WHA (N.D. Cal. Feb. 21, 2014) (order denying motion to strike expert damages studies) The district court found that the patent owner s lost profits expert had no duty to apportion consumer demand for allegedly infringing features, differentiating over reasonable royalty cases cited by the accused infringer. 39

40 Enhanced Damages & Attorney s Fees Michelle Marek Kaye Scholer LLP Shane Delsman Godfrey & Kahn (Milwaukee)

41 Enhanced Damages & Attorney s Fees Question Which of the answers below is a similarity between enhanced damages and attorney s fees in patent cases? A. They require the same evidentiary standard. B. They can be sought by an accused infringer or patentee. C. The Federal Circuit test for each was determined by the same underlying case. D. You have to be a dorky patent litigator to have to deal with either.

42 Enhanced Damages & Attorney s Fees Question Raise your hand for: Which of the answers below is a similarity between enhanced damages and attorney s fees in patent cases? A. They require the same evidentiary standard. B. They can be sought by an accused infringer or patentee. C. The Federal Circuit test for each was determined by the same underlying case. D. You have to be a dorky patent litigator to have to deal with either.

43 Enhanced Damages & Attorney s Fees Question Raise your hand for: Which of the answers below is a similarity between enhanced damages and attorney s fees in patent cases? A. They require the same evidentiary standard. B. They can be sought by an accused infringer or patentee. C. The Federal Circuit test for each was determined by the same underlying case. D. You have to be a dorky patent litigator to have to deal with either.

44 Enhanced Damages & Attorney s Fees Question Raise your hand for: Which of the answers below is a similarity between enhanced damages and attorney s fees in patent cases? A. They require the same evidentiary standard. B. They can be sought by an accused infringer or patentee. C. The Federal Circuit test for each was determined by the same underlying case. D. You have to be a dorky patent litigator to have to deal with either.

45 Enhanced Damages & Attorney s Fees Question Raise your hand for: Which of the answers below is a similarity between enhanced damages and attorney s fees in patent cases? A. They require the same evidentiary standard. B. They can be sought by an accused infringer or patentee. C. The Federal Circuit test for each was determined by the same underlying case. D. You have to be a dorky patent litigator to have to deal with either.

46 Enhanced Damages & Attorney s Fees Question Correct answer is: Which of the answers below is a similarity between enhanced damages and attorney s fees in patent cases? A. They require the same evidentiary standard. B. They can be sought by an accused infringer or patentee. C. The Federal Circuit test for each was determined by the same underlying case. Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993), See J. O Malley dissent in Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371(Fed. Cir. 2014). D. You have to be a dorky patent litigator to have to deal with either.

47 Enhanced Damages & Attorney s Fees Question Wrong Answers: Which of the answers below is a similarity between enhanced damages and attorney s fees in patent cases? A. They require the same evidentiary standard. Entitlement to attorney s fees need only be proven by a preponderance of the evidence. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. CT. 1749, 1758 (2014). B. They can be sought by an accused infringer or patentee. C. The Federal Circuit test for each was determined by the same underlying case. D. You have to be a dorky patent litigator to have to deal with either.

48 Enhanced Damages & Attorney s Fees Question Wrong Answers: Which of the answers below is a similarity between enhanced damages and attorney s fees in patent cases? A. They require the same evidentiary standard. B. They can be sought by an accused infringer or patentee. [A]n award of enhanced damages requires a showing of willful infringement. In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir. 2007). Therefore, only a successful patentee can seek enhanced damages. C. The Federal Circuit test for each was determined by the same underlying case. D. You have to be a dorky patent litigator to have to deal with either.

49 Enhanced Damages & Attorney s Fees Question Wrong Answers: Which of the answers below is a similarity between enhanced damages and attorney s fees in patent cases? A. They require the same evidentiary standard. B. They can be sought by an accused infringer or patentee. C. The Federal Circuit test for each was determined by the same underlying case. D. You have to be a dorky patent litigator to have to deal with either. At least one Court has found that the holdings in Octane Fitness apply to 35(a) of the Lanham act in trademark matters. Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014).

50 Enhanced Damages [T]he court may increase the damages up to three times the amount found or assessed. 35 U.S.C. 284

51 Enhanced Damages [T]he court may increase the damages up to three times the amount found or assessed. 35 U.S.C. 284 [A]n award of enhanced damages requires a showing of willful infringement. In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir. 2007).

52 Enhanced Damages [T]he court may increase the damages up to three times the amount found or assessed. 35 U.S.C. 284 [A]n award of enhanced damages requires a showing of willful infringement. In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir. 2007). To establish willful infringement, a patentee must satisfy, by clear and convincing evidence, a two pronged test that includes and objective and subjective test. Id. at 1371.

53 Enhanced Damages Objective: The infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. Id. at 1371.

54 Enhanced Damages Objective: The infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. Id. at Question of law, which the court must decide before sending to the trier of fact (reviewed de novo). Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc. 682 F. 3d 1003, (Fed. Circ. 2012); Powell v. Home Depot U.S.A., Inc., 663 F.3d 1221, 1236 (Fed. Cir. 2011).

55 Enhanced Damages Objective: The infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. Id. at Question of law, which the court must decide before sending to the trier of fact (reviewed de novo). Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc. 682 F. 3d 1003, (Fed. Circ. 2012); Powell v. Home Depot U.S.A., Inc., 663 F.3d 1221, 1236 (Fed. Cir. 2011). Subjective: The objectively high risk was either known or so obvious that it should have been known to the infringer. Seagate, 497 F. 3d at 1371.

56 Enhanced Damages Notes Enhanced damages, up to treble (often less)

57 Enhanced Damages Notes Enhanced damages, up to treble (often less) Usually briefed post-verdict on a finding of willful infringement

58 Enhanced Damages Interesting Cases [A] competent opinion of counsel concluding either that [the accused infringer] did not infringe the [asserted] patent or that it was invalid would provide a sufficient basis for [the accused infringer] to proceed without engaging in objectively reckless behavior with respect to the [asserted] patent. Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008). [N]o affirmative obligation to obtain opinion of counsel. In re Seagate at In a concurrence, two circuit judges suggest that enhancement be revisited by the Federal Circuit in light of Octane Fitness and Highmark because the current test for enhancement is similar to the test that was overturned for attorney s fees in those cases. Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371, (Fed. Cir. 2014).

59 Enhanced Damages Interesting Cases [A] competent opinion of counsel concluding either that [the accused infringer] did not infringe the [asserted] patent or that it was invalid would provide a sufficient basis for [the accused infringer] to proceed without engaging in objectively reckless behavior with respect to the [asserted] patent. Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008). [N]o affirmative obligation to obtain opinion of counsel. In re Seagate at In a concurrence, two circuit judges suggest that enhancement be revisited by the Federal Circuit in light of Octane Fitness and Highmark because the current test for enhancement is similar to the test that was overturned for attorney s fees in those cases. Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371, (Fed. Cir. 2014).

60 Enhanced Damages Interesting Cases [A] competent opinion of counsel concluding either that [the accused infringer did not infringe the [asserted] patent or that it was invalid would provide a sufficient basis for [the accused infringer] to proceed without engaging in objectively reckless behavior with respect to the [asserted] patent. Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008). [N]o affirmative obligation to obtain opinion of counsel. In re Seagate at In a concurrence, two Federal Circuit judges suggested that enhancement be revisited by the Federal Circuit in light of Octane Fitness and Highmark because the current test for enhancement is similar to the test that was overturned for attorney s fees in those cases. Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371, (Fed. Cir. 2014) (O Malley, J., concurring).

61 Attorney s Fees The court in exceptional cases may award reasonable attorney fees to the prevailing party. 35 U.S.C. 285 An exceptional case is simply one that stands out from others with respect to the substantive strength of a party s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. CT. 1749, 1756 (2014). District Courts should determine whether a case is exceptional in the case-by-case exercise of their discretion, considering the totality of the circumstances. Id. Entitlement to fees need only be established by a preponderance of the evidence (not clear and convincing as previously required). Id. at 1758.

62 Attorney s Fees The court in exceptional cases may award reasonable attorney fees to the prevailing party. 35 U.S.C. 285 An exceptional case is simply one that stands out from others with respect to the substantive strength of a party s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. CT. 1749, 1756 (2014). District Courts should determine whether a case is exceptional in the case-by-case exercise of their discretion, considering the totality of the circumstances. Id. Entitlement to fees need only be established by a preponderance of the evidence (not clear and convincing as previously required). Id. at 1758.

63 Attorney s Fees The court in exceptional cases may award reasonable attorney fees to the prevailing party. 35 U.S.C. 285: An exceptional case is simply one that stands out from others with respect to the substantive strength of a party s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. CT. 1749, 1756 (2014). District Courts should determine whether a case is exceptional in the case-by-case exercise of their discretion, considering the totality of the circumstances. Id. Entitlement to fees need only be established by a preponderance of the evidence (not clear and convincing as previously required). Id. at 1758.

64 Attorney s Fees The court in exceptional cases may award reasonable attorney fees to the prevailing party. 35 U.S.C. 285: An exceptional case is simply one that stands out from others with respect to the substantive strength of a party s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. CT. 1749, 1756 (2014). District Courts should determine whether a case is exceptional in the case-by-case exercise of their discretion, considering the totality of the circumstances. Id. Entitlement to fees need only be established by a preponderance of the evidence (not clear and convicting as previously required). Id. at 1758.

65 Attorney s Fees Notes Motions for fees can happen at all stages of litigation (following frivolous motion practice, discovery abuses, litigation misconduct, etc.) Alleged infringers can request fees, too Interesting Cases At least one Court has found that the holdings in Octane Fitness and Highmark apply to 35(a) of the Lanham act in trademark matters. Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014). There has been some discussion as to whether a fee award can be entered against an attorney. One district court has answered the question - no. Rates Technology Inc. v. Broadvox Holding Company, LLC, et al., 13-CV-00152, Doc. No. 181 (S.D. N.Y. Oct. 7, 2014).

66 Attorney s Fees Notes Motions for fees can happen at all stages of litigation (following frivolous motion practice, discovery abuses, litigation misconduct, etc.) Alleged infringers can request fees, too Interesting Cases At least one Court has found that the holdings in Octane Fitness and Highmark apply to 35(a) of the Lanham act in trademark matters. Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014). There has been some discussion as to whether a fee award can be entered against an attorney. One district court has answered the question - no. Rates Technology Inc. v. Broadvox Holding Company, LLC, et al., 13-CV-00152, Doc. No. 181 (S.D. N.Y. Oct. 7, 2014).

67 Attorney s Fees Notes Motions for fees can happen at all stages of litigation (following frivolous motion practice, discovery abuses, litigation misconduct, etc.) Alleged infringers can request fees, too Interesting Cases At least one Court has found that the holdings in Octane Fitness apply to 35(a) of the Lanham act in trademark matters. Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014). There has been some discussion as to whether a fee award can be entered against an attorney. One district court has answered the question - no. Rates Technology Inc. v. Broadvox Holding Company, LLC, et al., 13-CV-00152, Doc. No. 181 (S.D. N.Y. Oct. 7, 2014).

68 Attorney s Fees Notes Motions for fees can happen at all stages of litigation (following frivolous motion practice, discovery abuses, litigation misconduct, etc.) Alleged infringers can request fees, too Interesting Cases At least one Court has found that the holdings in Octane Fitness apply to 35(a) of the Lanham act in trademark matters. Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014). There has been some discussion as to whether a fee award can be entered against an attorney. One district court has answered the question - no. Rates Technology Inc. v. Broadvox Holding Company, LLC, et al., 13-CV-00152, Doc. No. 181 (S.D. N.Y. Oct. 7, 2014).

69 Offer of Judgment Amy Ziegler Greer, Burns & Crain 69

70 Rule 68. Offer of Judgment (a) Making an Offer; Judgment on an Accepted Offer. At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. If, within 14 days after being served, the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance, plus proof of service. The clerk must then enter judgment. (b) Unaccepted Offer. An unaccepted offer is considered withdrawn, but it does not preclude a later offer. Evidence of an unaccepted offer is not admissible except in a proceeding to determine costs. (c) Offer After Liability Is Determined. When one party's liability to another has been determined but the extent of liability remains to be determined by further proceedings, the party held liable may make an offer of judgment. It must be served within a reasonable time--but at least 14 days--before the date set for a hearing to determine the extent of liability. (d) Paying Costs After an Unaccepted Offer. If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made. 70

71 Question for Audience In the context of a Rule 68 Offer of Judgment, attorney s fees are likely to be included as costs in which type(s) of IP case? A) Patent B) Trademark C) Copyright D) All of the above 71

72 Rule 68. Offer of Judgment In the case of patents, attorney s fees are unlikely to be included as costs for Rule 68 purposes since the relevant statute does not designate fees as such and reserves an award of fees for exceptional cases. 35 U.S.C Similarly with trademarks, an award of attorney s fees is reserved for exceptional cases, whereas a prevailing plaintiff is normally entitled to recover costs. 15 U.S.C. 1117(a). 72

73 Rule 68. Offer of Judgment Offer of judgment in a copyright case may include attorney s fees as costs since 17 U.S.C. 505 defines costs to include attorney s fees. Harbor Motor Co. v. Arnell Chevrolet-Geo, Inc., 265 F.3d 638 (7th Cir. 2001) (... prevailing parties can receive attorney s fees pursuant to Fed. R. Civ. P. 68. ). However, in the majority of Circuits, including the 7 th Circuit, defendants cannot recover attorney s fees under Rule 68, regardless of what the relevant statute says about attorney s fees as costs. Poteete v. Capital Eng g, Inc., 185 F.3d 804, (7th Cir. 1999) (explaining that [Rule 68] applies only to a defendant who loses and the statutes and common law principles that sometimes entitle a party to recover his attorneys fees limit that entitlement to prevailing parties. ). 73

74 Trademarks Amy Ziegler Greer, Burns & Crain 74

75 Trademarks The Lanham Act 15 U.S.C. 1117(a) provides trademark owners five different types of monetary relief as compensation for infringement: an accounting of an infringer s profits (i.e., money the infringer made from the infringement) the actual damages the trademark owner sustained, which can be increased by the court up to treble the amount (i.e., money diverted from the mark owner to the infringer) a reasonable royalty representing a measure of the trademark owner s damages attorney s fees in exceptional cases costs 75

76 Trademark Quiz Which party bears the burden of proving the infringer s profits and any applicable deductions? A) Plaintiff bears the entire burden; B) Defendant bears the entire burden; or C) Plaintiff bears burden of proving Defendant s sales only; Defendant must prove all elements of cost or deduction claimed. 76

77 Counterfeiting A plaintiff in a case involving the use of a counterfeit mark may elect to receive statutory damages of not less than $1,000 or more than $200,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just. 15 U.S.C. 1117(c)(1). When the counterfeiting is found to be willful, the statute provides for statutory damages of up to $2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just. 15 U.S.C. 1117(c)(2). 77

78 Copyright: Actual Damages, Profits & Statutory Damages Bill McGrath Davis McGrath LLC John Marshall Law School 78

79 Copyright: Quiz #1 Who wrote: If General Motors were to steal your copyright and put it in a sales brochure, you could not just put a copy of General Motors corporate income tax return in the record and rest your case for an award of infringer s profits. A) Honorable James Holderman B) Honorable Richard Posner C) Melville Nimmer, copyright guru D) Michael Moore, creator of the film Roger & Me 79

80 Copyright: Answer #1 Who wrote: If General Motors were to steal your copyright and put it in a sales brochure, you could not just put a copy of General Motors corprate income tax return in the record and rest your case for an award of infringer s profits. A) Honorable James Holderman B) Honorable Richard Posner Taylor v. Meirick, 712 F.2d 1112 (7 th Cir. 1983) C) Melville Nimmer, copyright guru D) Michael Moore, creator of the film Roger & Me 80

81 Copyright: Quiz #2 Who wrote: It is too much to ask the plaintiff who has proved infringement also to do defendant s cost accounting. A) Honorable James Holderman B) Honorable Richard Posner C) William Patry, copyright guru D) Honorable Richard Linn 81

82 Copyright: Answer #2 Who wrote: It is too much to ask the plaintiff who has proved infringement also to do defendant s cost accounting. A) Honorable James Holderman B) Honorable Richard Posner Taylor v. Meirick, 712 F.2d 1112 (7 th Cir. 1983) C) William Patry, copyright guru D) Honorable Richard Linn 82

83 Copyright: Quiz #3 Who wrote: [In calculating profits of the infringer] Costs that would be incurred anyway should not be subtracted, because by definition they cannot be avoided by curtailing the profit-making activity. A) Honorable Richard Posner B) Anyone else in the world 83

84 Copyright: Damages A copyright infringer is liable for: Actual Damages AND Profits of the Infringer OR Statutory Damages 84

85 Copyright: Actual Damages Actual Damages = The extent to which the market value of a work has been diminished by the infringement. Examples: Reasonable license fee based on fair market value. Davis v. The Gap, Inc., 246 F.3d 152 (2d Cir. 2001) Software v. Media 100, 329 F.3d 557 (7 th Cir. 2003) Gaylord v. U.S., 2015 WL (Fed. Cir. 2015) (discussing hypothetical negotiations) Plaintiff s lost profits from lost sales as a result of the infringement. Taylor v. Meirick, 712 F.2d 1112 (7 th Cir. 1983) On McRoberts 85

86 Copyright: Profits of the Infringer 504(b) allows a copyright owner to recover profits of the infringer: The profits must be attributable to the infringement -- i.e., a causal nexus. Taylor v. Meirick Polar Bear Prod. v. Timex Corp., 384 F.3d 700 (9 th Cir. 2004) No double counting -- the profits must not be taken into account in determining actual damages. Bucklew v. Hawkins Ash Baptie & Co., 329 F. 3d 923 (7 th Cir. 2003) McRoberts Software v. Media 100, 329 F.3d 557 (7 th Cir. 2003) 86

87 Copyright: Profits of the Infringer 504(b) allocates the burden of proof Plaintiff need only show the infringer s gross revenues, but they must be reasonably related to the infringement. On Davis v. The Gap, Inc., 246 F.3d 152 (2d Cir. 2001) Defendant must prove deductible expenses Can deduct direct costs of creating and selling the infringing product (cost of goods sold) Can deduct variable costs Cannot deduct fixed costs (that would have been incurred even if defendant had not infringed) 87

88 Copyright: Statutory Damages Available only if plaintiff has complied with 412 (requiring registration prior to infringement or within grace period for published works). Range is $750 - $30,000. Innocent as low as $200; willful as high as $150,000 The award is for all infringements, involved in the action, with respect to any one work (c). Make 10,000 posters and 1,000 T-shirts from plaintiff s photo = 1 award Download 100 different songs = 100 awards Plaintiff can make the election at any time before final judgment is rendered 88

89 Trade Secrets Deirdre A. Fox, Scharf Banks Marmor LLC 89

90 Trade Secrets: Potential for Large Damages DuPont v. Kolon Indus. E.D. Va 2011 $919.M 4 th Cir. vacated Pacesetter, Inc. v. Nervicon Co. Cal. Sup. Ct $2.3 B reduced to $947 M Seagate Tech. LLC v. Western Digital Corp. Minn. Ct. App Lexar Media Inc. v. Toshiba Corp. Cal. Sup. Ct $630 M arbitration award $465.4M award settled for $288 M 90

91 Trade Secrets: Damages Overview Injunction Damages Actual Loss, e.g. Lost Profits Unjust Enrichment Reasonable Royalty (as an alternative) Exemplary Damages (Discretionary) Attorney Fees 91

92 Trade Secrets: U.T.S.A.* Damages Uniform Trade Secrets Act 3(a) 3( actual loss caused by the misappropriation unjust enrichment caused by the misappropriation that is not taken into account in computing actual loss OR in lieu of damages measured by any other methods a reasonable royalty for a misappropriator s unauthorized disclosure or use of a trade secret *MA and NY have not adopted the U.S.T.A. 92

93 Trade Secrets: Unjust Enrichment Measures? Increased revenues and resulting profits Reduced production costs and resulting profits Avoided cost of development and head start When accounting period starts? filing of suit OR a prior date 93

94 Trade Secrets: Head Start Limits duration of unjust enrichment damages to the time defendant saved in getting a product to market by virtue of its misappropriation In some jurisdictions Where misappropriation permitted defendant to develop a product sooner than it would have without the misappropriation. See, e.g. Russo v. Ballard Med. Prods., 550 F.3d 1004, 1020 (10 th Cir. 2008) 94

95 Trade Secrets: Reasonable Royalty Evidence of royalties charged in an actual licensing agreement => most persuasive measure Hypothetical negotiation between the parties occurring at the time infringement begins (like patent cases) Georgia-Pacific factors 95

96 Trade Secrets: Reasonable Royalty State Variation in lieu of damages measured by any other methods See, e.g., 6 Del. C (2010) (Majority View) Only if neither damages nor unjust enrichment are provable See, e.g. Cal. Civ. Code (2010) Only if neither damages nor unjust enrichment are proved by a preponderance of the evidence See, e.g. 765 ILCS 1965/4 (2011). Damages shall not be less than a reasonable royalty. See ORS (2009) If plaintiff is unable to prove an amount of damages that exceeds a reasonable royalty by other methods See, e.g., Wis. Stat (2010) Silent on reasonable royalty. See, e.g., Rev. Code Wash, (ARCW) ,030 96

97 Trade Secrets: Quiz OnlyInsurance LLC misappropriates SellOnlyInsurance Co. s proprietary computer code for an automated system to deliver multiple insurance products on a high volume basis through large employer relationships. Can SellOnlyInsurance Co recover damages under an actual loss, unjust enrichment or reasonable royalty theory? A) Under any or all theories. OnlyInsurance LLC is a thief! B) Not under any theory. These companies sell insurance policies, not computer software programs. C) Only under a reasonable royalty theory. It s just too hard to figure out direct losses as a result of the use of the software. D) Only under an actual loss or unjust enrichment theory because there s just nothing on which to base a royalty. 97

98 Trade Secrets: Quiz OnlyInsurance LLC misappropriates SellOnlyInsurance Co. s proprietary computer code for an automated system to deliver multiple insurance products on a high volume basis through large employer relationships. Can SellOnlyInsurance Co recover damages under an actual loss, unjust enrichment or reasonable royalty theory? A) Under any or all theories. OnlyInsurance LLC is a thief! B) Not under any theory. These companies sell insurance policies, not computer software programs. C) Only under a reasonable royalty theory. It s just too hard to figure out direct losses as a result of the use of the software. D) Only under an actual loss or unjust enrichment theory because there s just nothing on which to base a royalty. Member Services, Inc. et al. v. Security Mut. Life Ins. Co. of New York U.S. Dist. LEXIS 56910, *11-12 (N.D.N.Y. 2011) 98

99 Trade Secrets: Quiz After a falling out, DATACo, a data storage and recovery software developer, fires a director, Joe. Ticked off, Joe shares the source code, on which DataCo s products, depend with a rival. The rival does not hire or pay Joe. It does quickly come out with a competing software surprisingly similar to DataCo s. A jury awards DataCo $2.92M based on estimate of what a reasonable royalty would be for use of the misappropriated trade secrets. On appeal, Joe argues the award is excessive because DataCo did not offer proof that he profited or that the rival made commercial use of the source code. Is his appeal successful? StorageCraft Tech Corp. v. Kirby, 744 F.3d 1183 (10 th Cir. 2014) 99

100 Trade Secrets: Other Damage Measures Obligation to pay for what has been wrongfully obtained. In re Cross Media Marketing Corp. Defendants stole customer list and unsuccessfully attempted to auction it. Damages calculated by determining how much each lead on the customer list cost plaintiff to develop, and multiplying that cost by the amount of leads on the customer list to arrive at a result that most closely approximated plaintiff s losses U..S. Dist. LEXIS 56112, *15-16 (S.D.N.Y. 2006) 100

101 Trade Secrets: Don t forget other theories Wayman Fire Protection, Inc. v Premium Fire & Security, LLC Remedies available despite lack of a non-compete or misappropriation of trade secret Former employee used former employer s information to compete directly with employer by bringing employees to his firm who had taken proprietary information, used it to win a bidding war. Court dismissed claims for tortious interference and misappropriation but found violations of Delaware Misuse of Computer System Information Act and breach of fiduciary duty to employer Del. Ch. LEXIS 33 (Del. Ch. 2014) 101

102 Trade Secrets: U.T.S.A. Other Damages Court may award exemplary damages for willful and malicious misappropriation not exceeding twice 3(a) damages. U.T.S.A. 3(b) Court may award reasonable attorney fees if Willful and malicious misappropriation Claim of misappropriation made in bad faith Motion to terminate an injunction made in or resisted in bad faith U.S.T.A. 4 See., e.g., Tradesman Intl. Inc. v. Black, 724 F.3d 1004 (7 th Cir. 2013)(IL Law). 102

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