EVE-USA was founded by former employees of Mentor — the named inventors on Mentor’s emulation software patents. Initially Mentor licensed the patents to EVE for its use, but that license was terminated when Synopsys later acquired EVE. Mentor then sued Synopsys and won a $36 million jury verdict for infringement of its U.S. Patent No. 6,240,376. Following the Federal Circuit’s decision largely supporting the verdict, EVE/Synopsis have petitioned the Supreme Court for writ of certiorari asking two questions relating respectively to Assignor Estoppel and Apportionment of Damages.
Assignor Estoppel: Although the patent act expressly indicates that invalidity is a defense to patent infringement, the doctrine of assignor estoppel operates to prohibit a defendant from asserting invalidity in certain situations. Here, the accused infringer asks:
1. The question is whether, and under what circumstances, assignors and their privies are free to contest a patent’s validity.
In addition to tying its arguments to the text of the statute, the petitioner also links its case with the Supreme Court’s decision in Lear, Inc. v. Adkins, 395 U.S. 653 (1969) which abolished the analogous doctrine of “licensee estoppel.” In some ways, this case sits in parallel with other recent equitable cases such as SCA Hygiene (2017) (eliminating laches as a bar to legal damages).
Apportionment of Damages in Lost Profits Cases: The second issue raised in the petition involves apportionment of damages in cases where the patent covers only a feature or portion of a machine being sold and where the patentee claims lost-profits. The defendant here argues that the Federal Circuit improperly “permits patentees to recover lost profits damages for an entire multi-component product, without apportioning the value between patented and unpatented features, simply by showing that the patentee would have made the sale “but for” the infringement.” Thus, the question presented is:
2. Did the Federal Circuit err in holding that proof of but-for causation, without more, satisfies the requirement that damages be apportioned between patented and unpatented features?
Although certiorari has not been granted, the case is moving in that direction. Four briefs amici were recently filed supporting petitioner and the Supreme Court has requested a response from the patentee Mentor.
- Federal Circuit Decision
- Federal Circuit En Banc Denial
- Petition for Writ of Certiorari
- Law Professor Brief (Bernard Chao): “An unbroken line of Supreme Court precedent holds that apportionment analysis is required in all damages calculations.”
- Eric Bensen Brief: “The patentee has the burden of identifying the portion of its lost profit that would have been attributable to the value of its patented invention as opposed to the value of the article’s unpatented components. It is only that portion that a patentee seeking a lost profits award may recover as damages under the Patent Act. Were it otherwise, a patentee could use a patent on a small feature to restrict the sale of goods that would otherwise trade freely in the marketplace.”
- Law Professor Brief (Stanford Clinic): Assignor estoppel should be limited to cases such as bad faith negotiations and only rarely applied to those in privy with the assignor. This brief substantially follows Mark Lemley’s article on the topic.
- HP, EBay, Oracle, et. al: The Federal Circuit’s “all or nothing” approach in the lost profit scenario “creates the risk of large damages awards far out of proportion to the value created by the patented features. This risk,
in turn, gives undue leverage to patentees and imposes potentially prohibitive costs on doing business—even in products and services that largely reflect the accused infringer’s own innovation.”
For its part, the Federal Circuit would likely argue that the briefs mischaracterize its decision that respects the apportionment requirement but that sees the entire market value rule (EMVR) as a longstanding element of apportionment doctrine applied in the limited circumstances where “the entire value of the whole machine . . . is properly and legally attributable to the patented feature.” Quoting Garretson v. Clark, 111 U.S. 120 (1884).