Archive for the ‘federal circuit’ tag
Microsoft Word Injunction and Damages Upheld in the Federal Circuit
A three judge panel of the Court of Appeals for the Federal Circuit recently upheld the injunction against Microsoft that goes into effect January 11, 2010. The panel also upheld the nearly $300 million in damages from the U.S. District Court for the Eastern District of Texas. The injunction will bar Microsoft from selling versions of Word that contain the ability to open documents with “custom XML.” The injunction does not affect any versions of Word sold before January 11, 2010, but does prevent Microsoft from “instructing or assisting new customers in the custom XML editor’s use.” Technical support can still be offered by Microsoft from versions of Word sold before January 11. Regardless, Microsoft has said that it is ready to remove the infringing feature from copies of Word and Office that will be sold after January 11. The upcoming 2010 versions of Word and Office should not have the infringing feature, and thus should be unaffected by the injunction.
The only changes to the injunction by the panel were a modification of the effective date of the injunction, from the original 60 days (stayed during appeal) to 5 months from the original issue date of the injunction. This was because the panel determined that the district court erred in setting a time frame of 60 days, when the only evidence concerning time to remove the infringing XML functions from Word was “at least” 5 months. As Microsoft has said, it initiated steps in August to remove the infringing feature, so the change in the effective date of the injunction should have little practical impact.
In regard to the damages, most significant is the $200 million damages for royalties. The panel even admitted that, “Given the opportunity to review the sufficiency of the evidence, we could have considered whether the $ 200 million damages award was “grossly excessive or monstrous” in light of Word’s retail price and the licensing fees Microsoft paid for other patents.” The opinion makes it sound as if the panel, if able to review sufficiency, would have significantly reduced the royalty damages. This is because the baseline royalty rate used by i4i’s expert witness to calculate damages was $98, when certain Word products could sell for as low as $97. On a sufficiency review, it seems entirely possible that the baseline royalty used was grossly excessive and monstrous, since it could be greater than the entire selling price of a single copy of Word. Further, Microsoft told the court the typical license it paid to use a patent was in the $1 – $5 million range, something completely out of line with the i4i calculations of $200 million. But the panel stated it was unable to review the sufficiency of the evidence, as Microsoft had failed to file a pre-verdict judgment as a matter of law motion, restraining the panel’s review to the standard of a clear showing of excessiveness. The panel even seemed to question Microsoft’s failure to file a pre-verdict JMOL motion as to the sufficiency of the evidence for the damages, stating, “Had Microsoft filed a pre-verdict JMOL, it is true that the outcome might have been different” because then the panel could decide “whether there was a sufficient evidentiary basis for the jury’s damages award.” Given the panel’s statements, Microsoft might have blown its chance to have the damages significantly reduced on appeal by deciding not to file a JMOL motion for sufficiency of the evidence as to damages.
It also seems as if i4i’s decision to file in Texas has paid off, after gaining some measure of approval from the panel of the Court of Appeals for the Federal Circuit. I don’t know if I would go so far as to call the panel’s opinion “a complete and utter vindication of the judgment,” given the statements of the panel regarding the royalty calculation and the limited level of review available for the findings of the jury, but it does give some credence to the inability of an appeal to alter the jury verdict. While Microsoft’s loss on appeal may not make the district court’s decision completely right, it may well signal the verdict’s irreversibility. The Federal Circuit may well refuse a request for a full hearing, as the decision clearly sets out the limits of appellate review in this case.
The size of the verdict against Microsoft makes you wonder why they didn’t just license the patent from i4i back in 2000, when Microsoft was aware of i4i’s presence in the market, or even at the start of litigation in 2007. At this point, there appear to be very few reasons for i4i to consider talking with Microsoft about licenses or settlement, as i4i looks to have a winning case and a firm hold on nearly $300 million from Microsoft.
Who Determines Post-Verdict Damage Awards for Patent Infringement in a Post-eBay World?
by: Michael Sadowitz, Associate Editor, MTTLR
Introduction
It was once almost a foregone conclusion that a court would grant a permanent injunction to the patentee, when finding a patent valid and infringed.1 The injunction functioned as a powerful negotiations tool, and put the balance of power in the patentee’s hands. In eBay v. Mercexchange, the Supreme Court held that the traditional four-factor test for granting a permanent injunction (irreparable injury, inadequacy of remedies at law, balance of hardships favoring the party seeking the injunction, and public interest) applies to disputes arising under the Patent Act.2 Thus after eBay, a patentee might find herself prevailing with a judgment of infringement, but not be granted an injunction.3 The Supreme Court did not provide guidance as to appropriate relief in such cases. The Federal Circuit has not significantly reduced that uncertainty, but it has declared that district courts should consider pre- and post-verdict damages separately.4 Who determines these damages? Is it a matter for the judge or the jury? For now, the answer is either, and in some cases, perhaps neither.
The Federal Circuit: Pre-Verdict Infringement is Distinct from Post-Verdict Infringement
In Paice v. Toyota Motor Corp., the Federal Circuit found that the jury’s award of $25 per infringing vehicle was for pre-verdict infringement. The district court decided, with no articulated reasoning, to value the ongoing royalty at the same rate.5 The case was remanded to allow the district court to account for the change in the parties’ positions pre- and post-verdict.6
The Paicecourt allowed the district court, at its discretion, to have the parties attempt to negotiate a license before stepping in and assessing an ongoing royalty.7 Judge Rader, taking it a step further, would have required the court to have the parties negotiate or to obtain their permission before assessing the royalty.8 As Judge Rader saw it, the court was imposing a compulsory license but labeling it an “ongoing royalty.”9 However, if a compulsory license has the complexity and detail of other licenses, but an ongoing royalty is simply an imposition of damages for future infringement, then the compulsory licensee might be considered a willful infringer no longer, whereas the recipient of an ongoing royalty would still be willfully infringing.10 Since willful infringers are subject to enhanced damages up to a factor of three,11 the choice of courts to impose a royalty, a license, or to have the parties attempt a negotiation could have serious implications.
Likewise, in Amado v. Microsoft Corp. the Federal Circuit found that the jury’s reasonable royalty of $0.04 per infringing unit, which was trebled for willful infringement and imposed as an ongoing royalty by the district court, was based on pre-verdict infringement.12 Further, this case involved different economic factors than Paice because that court had to determine a royalty under the denial of an injunction whereas the Amado court had stayed the injunction imposed on Microsoft so they could continue infringing.13 Therefore, there was no willful infringement because the court-ordered stay permitted it, and the damage assessment under threat of an injunction should consider the economic factors that such a threat imposes.14
Both Paiceand Amado allowed the district court to decide the royalty without a jury’s determination and without requiring the parties the opportunity to bargain. The Paicecourt specifically rejected the argument that Paice had a Seventh Amendment right to a jury trial to determine the ongoing royalty since a legal remedy, damages, was at stake. The court stated that a question of monetary relief does not necessarily imply a question of damages and the district court had discretion to determine the ongoing royalty.15
Recent Eastern District of Texas Cases: Juries Should Decide Ongoing Royalties
A string of recent cases, all before Judge Ron Clark in the renowned Eastern District of Texas, lend support to the notion that ongoing royalties may be decided by juries more often than not in the future. In the absence of strong objections from the parties, Judge Clark will submit an ongoing royalty rate question to the juries in three cases pending trial.16 Judge Clark gives an example of such a question as follows:17
What rate or sum of money, if any, do you find is adequate as a reasonable royalty to compensate Plaintiff for the conduct you found to infringe that occurs in the future? Answer in a percentage or in dollars and cents.
Judge Clark stated that it makes sense to consider past and future damages simultaneously because there are some identical factors that go into both calculations.18 Judge Clark told the parties to have their damages experts analyze, and be prepared to answer questions related to, ongoing royalties or other future damages.19 \
Another Judge Clark case, Anascape v. Microsoft et al.,20 involved a situation similar to Amado, where a permanent injunction was stayed conditioned upon payment of an ongoing royalty. The stay was conditioned upon an ongoing royalty of 7% of the selling price for one type of video game controller and 5% for another type of controller, to be paid by defendant Nintendo.21 The jury awarded $21 million in damages for pre-verdict infringement.22 It appears, although not expressly stated, that the jury decided the ongoing royalty as well.
Can Post-Verdict Damages be Severed?
The plaintiff in Voda v. Cordis23 suggested severing the action for post-verdict damages. The court declined because it thought the only issue to be decided in a separate proceeding would be a “simple mathematical calculation based on defendant’s sales.”24 The jury awarded the plaintiff an ongoing royalty of 7.5% of defendant’s gross sales of infringing catheters.25 However, the somewhat bizarre Avid v. Phillips26 case allowed severance of the post-verdict damages claim without reasoning.27
Conclusion
Whether judges or juries decide post-verdict patent infringement damages appears to be largely up to the discretion of the district court. As long as the court considers pre- and post-verdict infringement separately, the Federal Circuit will likely not reverse the award based on which party decided the damages. If other courts follow Judge Clark in the Eastern District of Texas, it is likely that many future cases will allow the jury to decide ongoing damages. Who makes the calculation in a given case can have implications on the parties’ strategies for arguing damages, and if the jury decides, it could mean more judgments notwithstanding the verdict. Perhaps more importantly, if it is a question of fact, the jury’s determination is entitled to deference on appeal, whereas a question of law is subject to plenary review. The decision of who decides could be a battleground issue in future patent cases.
1 See, e.g., Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1548 (Fed. Cir. 1983) (“[t]he right to exclude recognized in a patent is but the essence of the concept of property”).
2 eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006).
3 eBay, 547 U.S. at 393-94.
4 See Paice, LLC v. Toyota Motor Corp., 504 F.3d 1293, 1315 (Fed. Cir. 2007) (finding the jury’s award of $25 per infringing vehicle for pre-verdict infringement only), Amado v. Microsoft Corp., 517 F.3d 1353, 1362 (Fed. Cir. 2008) (finding the jury’s award of $0.04 per infringing unit for pre-verdict infringement only).
5 Paice, 504 F.3d at 1315.
6 Id. (Remanding so the court could “take additional evidence if necessary to account for any additional economic factors arising out of the imposition of an ongoing royalty”); id. at 1317 (Rader, J., concurring) (“But pre-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties’ legal relationship and other factors”).
7 Id. at 1315 (majority opinion).
8 Id. at 1316 (Rader, J., concurring).
9 Id.
10 George M. Newcombe et al., Prospective Relief for Patent Infringement in a Post-eBay World, 4 N.Y.U. J. L. & Bus. 549, 574 (2008).
11 Id. at 576.
12 Amado, 517 F.3d at 1359.
13 Id. at 1362.
14 Id. (listing factors such as “the infringer’s likelihood of success on appeal, the infringer’s ability to immediately comply with the injunction, the parties’ reasonable expectations if the stay was entered by consent or stipulation, etc”).
15 Paice, 504 F.3d at 1316. The court cited for support an 1882 Supreme Court case that allowed the court, “in order to avoid a multiplicity of suits,” to decide compensation for past injury based on profits and not “by assessing damages.” Id. (citing Root v. Ry. Co., 105 U.S. 189, 207 (1882)).
16 See Seoul Semiconductor Co. Ltd. v. Nichia Corp. et al, 9:07-cv-00273 (E.D. Tex. July 9, 2008); SciCo v. Boston Scientific, 9:07-cv-0076 (E.D. Tex. July 9, 2008); Iovate Health Sciences Inc. et al v. Bio-Engineered Supplements & Nutrition, Inc., 9:07-cv-00046 (E.D. Tex. July 9, 2008).
17 Seoul Semiconductor, 9:07-cv-00273 at *1.
18 Id. at *2.
19 Id.
20 Anascape, Ltd. v. Microsoft Corp. et al., 9:06-cv-158 (E.D. Tex. July 23, 2008).
21 Id. at *3-4.
22 Id. at *2.
23 Voda v. Cordis Corp., 2006 WL 2570614 (W.D. Okla. Sept. 5, 2006), aff’d in relevant part, 536 F.3d 1311 (Fed. Cir. 2008)
24 Id. at *6.
25 Id. at *1.
26 Avid Identification Sys. v. Phillips Elecs. N. Am. Corp., 2008 WL 819962 (E.D. Tex. Mar. 25, 2008). In Avid, injunctions were denied because of “unclean hands” due to inequitable conduct before the USPTO which led to the unenforceability of one of the three patents-in-suit. Id at *13-14. The denial of an injunction for all three patents, where inequitable conduct was found relating to only one of the patents, was not explained by the court.
27 Id. at *13-14.
The Supreme Court’s Recent Patent Decisions from the Perspective of a New IP Associate
by: Ming Shui, MTTLR Alum
Beginning in 2006 with eBay v. MercExchange,1 the Supreme Court has heard and agreed to hear a significant number of patent cases relative to recent years. eBay signaled that the Court was beginning to push back against what some would argue as too many patent-friendly decisions coming from the Federal Circuit which were beginning to stifle rather than spur innovation.
eBay was found to be infringing a patent held by MercExchange. MercExchange sought to enjoin eBay from using its product. Under the Federal Circuit doctrine prevailing at the time, an injunction was virtually guaranteed once infringement was found. The Supreme Court in eBay, however, held that courts should consider the traditional four-factor test for issuance of an injunction, and should not issue injunctions automatically.
The result is that patent holders potentially lose one of the most powerful weapons they have against infringers — the ability to exclude. Whether this is a good result is debatable, and there are many good arguments for each side that I will not repeat here. But the effect has been that although in most cases the injunction still issues, the District Courts have greater flexibility to decide whether to issue injunctions in specific cases.
In KSR v. Teleflex,2 the Supreme Court weighed in on one of the most litigated areas in patent law: obviousness. The issue in obviousness is whether a person of ordinary skill in the art (POSITA) would have found the patented invention to be obvious. The Federal Circuit for many years used a test commonly referred to as teaching/suggestion/motivation (T/S/M) to determine if an invention that combines two or more items is obvious. The T/S/M test asks if there is some teaching, suggestion, or motivation in the prior art to combine those two items. If yes, then the invention is obvious.
The Supreme Court held in KSR that the Federal Circuit’s rigid application of the T/S/M test, which Justice Scalia referred to as “gobbledygook”,3 is inconsistent with the Court’s holding in Graham v. John Deere.4 The Court essentially invalidated the T/S/M test and held that courts should follow Graham’s “expansive and flexible framework” in determining if an invention is obvious. The “expansive and flexible framework” leaves a lot of room for lower courts to develop new tests and standards for determining obviousness. Where it will end up, nobody is exactly sure. However, one thing is clear: since KSR, a lot more patents have been found to be invalid for obviousness.
The court has also accepted for this term Quanta Computer v. LG Electronics,5 a case that questions whether a patent holder can seek royalty fees from more than one company in the supply chain that uses the patented product. This has the potential for profound impact on the possible damages in a patent case. The basic facts are LG licensed to Intel the right to produce and sell the patented chip. But license agreement Intel has with LG only authorizes Intel to combine the chips with other Intel products. Quanta uses the chip and combines it with non-Intel products. Can LG sue Quanta for infringement damages?
This was argued under the exhaustion doctrine at the Federal Circuit which is similar to the first sale doctrine in copyright law. The textbook example is if you buy a book, you are then free to resell the book to someone else without having to pay the copyright owner royalties for your sale of the book. The District Court found there to be an exhausting sale. The Federal Circuit reversed. Oral arguments are scheduled for January 16, 2008.
Finally the USPTO recently made final several changes to the way patents are prosecuted.6 Some notable changes include: an applicant may only make one request for continued examination after a final rejection, an applicant is limited to two continuing applications, and an applicant is limited to 5 independent and 25 claims total. These changes were to take effect on November 1, 2007. However, the United District Court for the Eastern District of Virginia issued an injunction on October 31, 2007 barring implementation of the rule changes.7
These cases and rule changes will have a profound effect on how patents are prosecuted, defended, and sold for the foreseeable future as practitioners adjust to the new framework the lower courts and USPTO will establish over the next few years.8
1 eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2007).
2 KSR v. Teleflex, 127 S. Ct. 1727 (2007).
3 Transcript of Oral Argument at 41, KSR v. Teleflex, 127 S. Ct. 1727 (2007).
4 Graham v. John Deere Co., 383 U.S. 1 (1966).
5 Quanta Computer, Inc., et al. v. LG Electronics, Inc., 453 F.3d 1364 (Fed. Cir. 2006), cert. granted, 128 S. Ct. 28 (Sept. 25, 2007) (No. 06-937).
6 See Department of Commerce, Patent and Trademark Office, Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications: Final Rule (Aug. 21, 2007).
7 Tafas v. Dudas, No. 1:07cv846 (JCC), (E.D. Va. Oct. 31, 2007).
8 Microsoft v. AT&T, 550 U.S. ___, is another interesting patent case that the Supreme Court decided in 2007. While the issues and holding are important, they are less relevant to general day-to-day patent practice and so I’ll simply mention that this is another case to explore if interested.