August 2015

Marvell v. Carnegie Mellon: $300 million is a lot, but not $1.5 billion

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The Federal Circuit has greatly reduced the $1.5 Billion award to Carnegie Mellon University — leaving a still healthy $278 million to be paid by chip manufacturer Marvell Technology (plus interest) with the potential of additional receipts from a new trial on whether foreign sales are actually US sales. [Read the Decision]

1. Willful Infringement: A portion of the original damage award (~20%) in this case came from enhanced damages.  The statute provides that “the court may increase the damages up to three times the amount found or assessed.”  Although seemingly open-ended, the court has restricted enhanced damages only to the situations involving willful infringement — and further requiring “clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” and “this objectively-defined risk . . . was either known or so obvious that it should have been known.” (quoting Seagate).

The Federal Circuit has ruled that an adjudged infringer who presents an objectively reasonable (though ultimately deficient) defense at trial cannot be held liable for enhanced damages.  Here, the court found that Marvell’s invalidity defense had some merit and was not ‘objectively unreasonable.’

2. Foreign Infringement: The original verdict included damages for all of the chips that resulted from Marvell’s use of the infringing methods sold worldwide – including chips that were manufactured abroad and never imported into the US.  On remand, the Federal Circuit asked the lower court to reconsider particularly whether those chips made and used outside of the US could be considered as “sold” in the U.S. since, at times, the “place of inking” can be the location of the sale even if delivery is at a different location.

3. Laches: Under the equitable doctrine of laches, a patentee who has unreasonably and prejudicially delayed the filing of an infringement lawsuit will be barred from collecting damages for pre-filing infringement.  The non-statutory (and potentially defunct) doctrine of Laches sits atop the statutory limit on collecting back damages that accrued more than six years before the filing of the infringement action.  Here, the district court found that CMU’s six-year delay in filing suit after noticing the infringement was “unreasonable and inexcusable” and that Marvell had suffered some amount of evidentiary prejudice.  However, the district court found that Marvell did not suffer economic prejudice due to the delay because, “Marvell . . . would have gone ahead with its infringement regardless, accepting the risk of liability.”

Patent and Trade Secret Legislation Updates

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There are a number of patent and trade secret related bills pending in Congress. Here are a few updates:

INNOVATION ACT: Rep. Goodlatte’s Innovation Act (H.R. 9) proposes a set of changes to our “patent-enforcement system.”  A newly released 200-page report from the Judiciary Committee explains the proposed legislation and its purposes.  The report also includes dissenting views from a group of seven Democratic members who argue that the proposal goes too far in diminishing patent rights. That said, the dissenters agree that “Congress must respond to the problems of abusive patent litigation in the courts and the gaming of the patent process at the USPTO.” [LINK].

In July, the Defend Trade Secrets Act of 2015 was introduced in both the House and Senate.  The proposal would create a federal civil cause of action for trade secret misappropriation that would run in parallel to the state causes of action already available. [DTSA2015][Dave Levine explains his Opposition]

The Innovation Promotion Act of 2015 is a tax-bill that would cut the corporate income tax rate on profits from the use of innovations and intellectual property.(Down to 10% from ~30%). The amount of qualifying profits is reduced by the percent of corporate expenses from the past five years spent on U.S. R&D.  The way that the bill is designed is that it basically serves as an additional incentive to conduct R&D within the U.S.  R&D activities are already deductible as business expenses, but the proposal here would allow those to be double-counted (more particularly, counted 1.71 times).

 

 

RAND Agreement Proving Powerful Limit on Patentee Action: Microsoft v. Motorola

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Microsoft v. Motorola and Google (9th Cir. 2015)

In a well written decision, the 9th Circuit has affirmed the lower court ruling that Motorola/Google owes $14 million to Microsoft for failing to live-up to its RAND commitments.   Although Motorola (now Google) committed several WiFi-essential patents to Reasonable and Non-Discriminatory (RAND) licensing, it later demanded that Microsoft pay a hefty royalty rate lest it be blocked from using WiFi.  Those demands from Motorola should more properly be seen as a counter-offensive  prompted by Microsoft’s demands for royalties on every Android implementation.

The basic rulings: (1) affirming that Motorola had breached its RAND good faith and fair dealing obligations in its dealings with the third-party-beneficiary Microsoft – resulting in $14.5 million in damages; (2) affirming that the district court had not erred in determining the RAND royalty rate at a few cents per device (rather than the few dollars per device requested by Motorola).  The court previously agreed to hear the case (rather than the Federal Circuit) and that prior finding was left undisturbed based upon the “law of the case.”

The damages here are interesting.

Motorola had challenged the district court’s RAND royalty determination as failing to follow Federal Circuit damages precedent.  On appeal, the 9th Circuit held that neither Federal Circuit precedent nor the Patent Act requirement of “a reasonable royalty” floor control because the RAND rate is a contract obligation rather than a patent damage.  That said, the 9th Circuit did agree that the Georgia-Pacific factors are helpful in guiding the analysis.

The $14 million breach-of-contract damages actually stemmed from Motorola’s infringement action filed in Germany.  When that lawsuit was filed, Microsoft quickly relocated its infringing European distribution center to the Netherlands (at a cost of several million dollars).  The German court did grant an injunction against Microsoft’s ongoing infringement in Germany.  Back in the U.S. the district court determined that the German action (and demand for injunctive relief) was a breach of Motorola’s RAND agreement and awarded Microsoft $11 million to compensate for moving its distribution center and $3 million in attorney fees for having to fight the legal battle in Germany.  Those findings have now been affirmed by the 9th Circuit.

Motorola  argued that the U.S. policy of open access to the courts should bar liability for consequential damages associated with filing a lawsuit.  That argument is embodied by the Noerr-Pennington doctrine that shields parties from liability for simply engaging in litigation.  Here, however, the 9th Circuit found the doctrine inapplicable when contractual obligations bar certain litigation strategies — here, in particular, the RAND agreement was seen as barring any request for injunctive relief.

Overall, the outcome provides power to RAND/FRAND agreements – proving that they provide significant assurances to third parties on a global scale.

 

 

 

 

Commissioner of Patents: Drew Hirshfeld

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Drew Hirshfeld has now taken-on the role as Commissioner of Patents at the USPTO after being appointed by Secretary of Commerce Penny Pritzker.  Hirshfeld is filling the office left by Peggy Focarino’s recent retirement.  Earlier this year I suggested that Hirshfeld was a likely appointee.

Commissioner Hirshfeld has been with the USPTO for more than 20-years.  He originally joined as an examiner but moved up through the ranks by proving himself to be smart, reliable, and reasonable.  Hirshfeld was David Kappos Chief of Staff and has been the Deputy Commissioner for Patent Examination Policy under Director Lee. Prior to that, he served as a group director for TC2100.

Congratulations on an excellent appointment.

 

Patentlyo Bits and Bytes by Anthony McCain

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