On June 28, 2012, Wells Fargo hit Christopher Wages and 21st Century Mediation LLC with a trademark infringement lawsuit (available here). Wells Fargo claims defendants sent fraudulent mortgage loan letters that appeared to be from Wells Fargo. Wells Fargo seeks an injunction, attorney’s fees, and treble damages, among other things.
Judge Godbey will hear the case.
Wells Fargo is represented by Mark Shoffner, of Andrews Kurth LLP; and Felicia Boyd of Barnes & Thornburg LLP.
In the old days, after finding infringers of your client’s patent you could file one lawsuit against all infringers in the Eastern District of Texas, knowing that it was highly unlikely that your defendants would be able to successfully obtain a severance of your claims. In some instances, literally hundreds of defendants would be sued in one case. Courts in the Eastern District of Texas had held that joinder in patent cases was appropriate where the accused products were not “dramatically different,” which was an easy standard to meet. See, e.g., MyMail, Ltd. v. Am. Online, Inc., 223 F.R.D. 455, 457 (E.D. Tex. 2004).
Those days are over. The America Invents Act contained a new joinder provision, codified at 35 U.S.C. § 299, that reads:
[P]arties that are accused infringers may be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, or counterclaim defendants only if— (1) any right to relief is asserted against the parties jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process; and (2) questions of fact common to all defendants or counterclaim defendants will arise in the action. . . . [A]ccused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents in suit.
(Emphases added.) (Defendants may waive these limitations.)
Accordingly, after the effective date of the AIA (September 16, 2011), defendants may be joined only if they engage in conduct with respect to the “same accused product or process.” For example, a manufacturer, distributor, and retailer of an infringing product could be joined together, but not defendants who independently manufacture different infringing products.
But what about those cases that were filed before September 16, 2011? (A large number of multi-defendant cases were filed in the Eastern District of Texas immediately before the effective date of the AIA.) They are likely subject to severance under the Federal Circuit’s recent decision in In re EMC Corp., 677 F.3d 1351 (Fed. Cir. 2012). There, the Federal Circuit held that “the mere fact that infringement of the same claims of the same patent is alleged does not support joinder, even though the claims would raise common questions of claim construction and patent invalidity.” Id. at 1357. Instead, “independent defendants satisfy the transaction-or-occurrence test of Rule 20 when there is a logical relationship between the separate causes of action. The logical relationship test is satisfied if there is substantial evidentiary overlap in the facts giving rise to the cause of action against each defendant.” Id. at 1358. The Federal Circuit overruled the “not dramatically different” standard used in the Eastern District of Texas. Id. at 1359. In summary, the Federal Circuit held:
We agree that joinder is not appropriate where different products or processes are involved. Joinder of independent defendants is only appropriate where the accused products or processes are the same in respects relevant to the patent. But the sameness of the accused products or processes is not sufficient. Claims against independent defendants (i.e., situations in which the defendants are not acting in concert) cannot be joined under Rule 20’s transaction-or-occurrence test unless the facts underlying the claim of infringement asserted against each defendant share an aggregate of operative facts. To be part of the “same transaction” requires shared, overlapping facts that give rise to each cause of action, and not just distinct, albeit coincidentally identical, facts. The sameness of the accused products is not enough to establish that claims of infringement arise from the “same transaction.” Unless there is an actual link between the facts underlying each claim of infringement, independently developed products using differently sourced parts are not part of the same transaction, even if they are otherwise coincidentally identical.
Id. at 1359.
But there may be a silver lining in In Re EMC for the patent holder, since “[i]n exercising its discretion, the district court should keep in mind that even if joinder is not permitted under Rule 20, the district court has considerable discretion to consolidate cases for discovery and for trial under Rule 42 where venue is proper and there is only ‘a common question of law or fact.’ Common pretrial issues of claim construction and patent invalidity may also be adjudicated together through the multidistrict litigation procedures of 28 U.S.C. § 1407.” Id. at 1360.
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On June 29, 2012, Innovation filed a patent infringement lawsuit (Complaint available here) against Toysmith and McManemin Companies in the Northern District of Texas. Innovation alleges that Toysmith and McManemin Companies infringe United States Patent No. 8,038,503, which claims a “vibration powered toy,” by selling their “Busy Bugs,” “Hurry Scurry Cockroach,” “Hurry Scurry Lady Bug,” and “Hurry Scurry Mouse” toys.
The case is assigned to Judge Lynn.
Innovation is represented by Stephen Carlin, of Greenberg Traurig LLP.
On July 3, 2012, Judge Robinson of the Northern District of Texas found Clayton Osbon, the Jet Blue pilot who, as we previously noted, interrupted a flight to Las Vegas with bizarre behavior, not guilty by reason of insanity. The United States agreed not to contest that Mr. Osbon was suffering from a severe mental disease or defect. Mr. Osbon’s mental health will continued to be examined by federal authorities. The next hearing in the case is on August 6, 2012.
Mr. Osbon is represented by E. Dean Roper, of the Law Office of E. Dean Roper, and Thomas Riney, of Riney & Mayfield LLP.
The United States is represented by Assistant United States Attorneys Christy Drake and Denise Williams
“Upon finding for the [patent holder] the court shall award the [patent holder] damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer[.]” 35 U.S.C. § 284. In the old days, proving reasonable royalty damages typically worked as follows: Your patent damages expert would find a “comparable” agreement that related (in some tangential way) to the subject matter of the patent-in-suit, and use that agreement to establish a “baseline” royalty rate (typically the “baseline” rate is whatever rate was in the “comparable” agreement). Or, the expert would determine how much profit the infringer made from selling the infringing product. The expert would then use 25% of the profit as the “baseline” rate (i.e., based on the assumption that 75% of the profit would stay with the infringer and the patent holder would be entitled to 25% of the profit).
The expert would then run through the 15 Georgia-Pacific damages factors, with each factor pushing the “baseline” rate either “higher” or “lower” (or having “no effect” on the rate). The expert would come up with a rate, which would then be multiplied by the defendant’s infringing product total sales to come up with a “reasonable royalty.” For example, your expert might find a “comparable” agreement that contained a 5% royalty rate. The expert would take the 5% rate, run through the 15 Georgia-Pacific, find that these factors “lower” the 5% baseline rate to 4%, then multiple 4% by the total amount of the defendant’s infringing products to establish a reasonable royalty.
This typical methodology has been turned on its head over the last couple of years by the Federal Circuit in three major decisions relating to damages.
Lucent. In Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009), Lucent sought $561 million in damages from Microsoft, which represented an 8% royalty applied to Microsoft’s infringing sales. Microsoft argued that a lump-sum payment of $6.5 million would have been the correct amount in damages. The Federal Circuit held that Lucent had not proven its damages by substantial evidence. To begin with, “Lucent submitted no evidence upon which a jury could reasonably conclude that Microsoft and Lucent would have estimated, at the time of the negotiation, that the patented date-picker feature would have been so frequently used or valued as to command a lump-sum payment that amounts to approximately 8% of the sale price of Outlook.” Id. at 1327.
And, although Lucent relied on eight prior license agreements, the Federal Circuit found that none of these agreements supported the awarded damages, given that, among other things, Lucent presented “no analysis of those license agreements, other than, for example, noting the agreement was a cross-license of a large patent portfolio and the amount paid.” Id. at 1327-29. “The law does not require an expert to convey all his knowledge to the jury about each license agreement in evidence, but a lump-sum damages award cannot stand solely on evidence which amounts to little more than a recitation of royalty numbers, one of which is arguably in the ballpark of the jury’s award, particularly when it is doubtful that the technology of those license agreements is in any way similar to the technology being litigated here.” Id. at 1329.
The Federal Circuit also found that Lucent had not established that the entire market value rule applied: “The first flaw with any application of the entire market value rule in the present case is the lack of evidence demonstrating the patented method of the Day patent as the basis—or even a substantial basis—of the consumer demand for Outlook.” Id. at 1338.
Accordingly, a new trial on damages was necessary.
Lucent also had the following to say regarding the entire market value rule (which would later be expressly disowned by Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011)): “Simply put, the base used in a running royalty calculation can always be the value of the entire commercial embodiment, as long as the magnitude of the rate is within an acceptable range (as determined by the evidence). . . . There is nothing inherently wrong with using the market value of the entire product, especially when there is no established market value for the infringing component or feature, so long as the multiplier accounts for the proportion of the base represented by the infringing component or feature.” Lucent, 580 F.3d at 1339.
ResQNet. In ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010), the Federal Circuit noted that “the trial court must carefully tie proof of damages to the claimed invention’s footprint in the market place.” Id. at 869. The court rejected the plaintiff’s expert’s attempt to rely on non-comparable licenses to inflate his royalty calculation, given that the expert “made no effort to link certain licenses to the infringed patent.” Id. at 871. The court also “observe[d] as well that the most reliable license in this record arose out of litigation.” Id. at 872. In other words, according to the court, the best license in evidence was a litigation settlement agreement. See also In re MSTG, Inc., 675 F.3d 1337, 1348 (Fed. Cir. 2012) (“Our cases appropriately recognize that settlement agreements can be pertinent to the issue of reasonable royalties.”)
(The court did not mention Fed. R. Evid. 408(a)(1), which would seemingly prohibit litigation settlement agreements from being used to establish damages.)
The court remanded the case to the district court, and indicated that the district court should not rely on unrelated licenses to increase the reasonable royalty rate above rates more clearly linked to the economic demand for the claimed technology. Id. at 872-73. “In sum, the district court erred by considering ResQNet’s re-bundling licenses [i.e., non-comparable licenses] to significantly adjust upward the reasonable royalty without any factual findings that accounted for the technological and economic differences between those licenses and the [patent-in-suit].” Id.
Uniloc. In Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011), the plaintiff’s damages expert found an internal Microsoft document that placed a value on “product keys” of anywhere between $10 and $10,000. The expert took the lowest value, $10, and applied the “25% rule of thumb” to it, resulting in a baseline royalty rate of $2.50 per license. The expert then considered the Georgia-Pacific factors, but found that they did not change the baseline rate of $2.50. Applying $2.50 to 226 million sales of infringing products resulted in a $565 million royalty. The expert “checked” this figure by calculating the gross revenue of the infringing products ($19 billion) and determining that the royalty ($565 million) was 2.9%. The expert presented this information in a pie chart, and the jury ultimately ended up awarding the plaintiff $388 million.
Microsoft contested the use of the 25% rule, and the use of the entire market value rule “check” because the product activation feature was not the basis of the consumer demand for Microsoft’s Office and Windows products. The district court agreed with Microsoft and granted a new trial, “because the ‘$19 billion cat was never put back into the bag’ and the jury may have ‘used the $19 billion figure to ‘check’ its significant award of $388,000,000.’”
The Federal Circuit held as follows. First, “as a matter of Federal Circuit law [] the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.” Uniloc, 632 F.3d at 1315. Microsoft was accordingly entitled to a new trial on damages.
Second, the Federal Circuit agreed with Microsoft that the use of the $19 billion “check” was improper under the entire market value rule. “The Supreme Court and this court’s precedents do not allow consideration of the entire market value of accused products for minor patent improvements simply by asserting a low enough royalty rate.” Id. at 1320. Because the plaintiff had not shown that the entire market value of the accused products was derived from the patented invention, the use of the $19 billion “check” was improper. Hence, the Federal Circuit ruled that the district court did not err in granting Microsoft a conditional new trial on damages in light of the plaintiff’s violation of the entire market value rule.
On June 26, 2012, SimCrest, Inc. filed a lawsuit against LS Retail ehf in the Northern District of Texas. (Complaint available here.) SimCrest claims that it and LS Retail joined into a partnership agreement whereby SimCrest would sell and market its own ERP software in conjunction with LS Retail’s point-of-sale software. However, according to SimCrest, LS Retail backed out of the deal after SimCrest had a potential client agree in principle to a deal with SimCrest, and LS Retail informed the potential client that SimCrest could not provide LS Retail’s point-of-sale software. SimCrest asserts breach of contract and promissory estoppel claims against LS Retail.
The case has been assigned to Judge Solis.
SimCrest is represented by Steven Callahan and Austin Curry, both of McKool Smith, P.C.
On June 26, 2012, Galderma Laboratories filed a lawsuit (available here) in the Northern District of Texas against Actavis Mid Atlantic LLC. Galderma claims that Actavis submitted an ANDA (abbreviated new drug application) seeking approval to engage in the commercial manufacture, use, and sale of generic Adapalene and Benzoyl Peroxide Gel. Galderma claims that this product infringes the claims of six of its patents: United States Patent Nos. 7,820,186; 7,964,202; 8,071,644; 8,080,537; 8,105,618; and 8,129,362. Galderma seeks, among other things, damages and injunctive relief.
The case is assigned to Judge Kinkeade.
Galderma is represented by Michael Wilson, Jamil Alibhai, and Daniel Venglarik, all of Munck Wilson Mandala, LLP; and Aaron Fountain, Stuart Pollack, and Jeffrey Johnson, all of DLA Piper LLP.
In the old days, if you proved that a defendant infringed your patent, you were nearly always entitled to an injunction prohibiting the defendant from continuing to infringe.
According to the Federal Circuit, “[b]ecause the ‘right to exclude recognized in a patent is but the essence of the concept of property,’ the general rule is that a permanent injunction will issue once infringement and validity have been adjudged.” MercExchange, LLC v. eBay, Inc., 401 F.3d 1323, 1338 (Fed. Cir. 2005) (quoting Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246-47 (Fed. Cir. 1989)); see also 35 U.S.C. § 261 (“Subject to the provisions of this title, patents shall have the attributes of personal property.”); 35 U.S.C. § 154(a)(1) (“Every patent shall * * * grant to the patentee, his heirs or assigns, [] the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States, and, if the invention is a process, of the right to exclude others from using, offering for sale or selling throughout the United States, or importing into the United States, products made by that process[.]”); 35 U.S.C. § 283 (“The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.”).
The “general rule” of a patent holder being entitled to an injunction once infringement had been established went out the window with the Supreme Court’s 2006 decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). eBay held that a patent holder seeking an injunction “must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.” Id. at 391.
This is a relatively high standard to meet, especially for entities that own patents but do not practice them, and, in eBay’s wake, courts increasingly deny requests for permanent injunctions.
An inventor cannot obtain a patent “if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.” 35 U.S.C. § 103(a). In other words, if your invention is obvious, you can’t patent it.
To determine whether an invention was obvious, the Federal Circuit had employed the “teaching, suggestion or motivation” test (“TSM”), “under which a patent claim is only proved obvious if ‘some motivation or suggestion to combine the prior art teachings’ can be found in the prior art, the nature of the problem, or the knowledge of a person having ordinary skill in the art.” KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 407 (2007).
In KSR, the Supreme Court held that the Federal Circuit’s “rigid” TSM test was not required to be satisfied in order to prove that a patent was obvious. 550 U.S. at 415 (“We begin by rejecting the rigid approach of the Court of Appeals.”). The Supreme Court also noted that “[t]he combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results” id. at 416; “[t]he question is not whether the combination was obvious to the patentee but whether the combination was obvious to a person with ordinary skill in the art” id. at 420; and “the fact that a combination was obvious to try might show that it was obvious under § 103” id. at 421.
Post-KSR, then, it has become easier to prove that a patent is invalid because it is obvious.
