Supreme Court on Damage Apportionment and Assignor Estoppel

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).

 

10 thoughts on “Supreme Court on Damage Apportionment and Assignor Estoppel

  1. 2

    “An unbroken line of Supreme Court precedent holds that apportionment analysis is required in all damages calculations.” – until the ’52 Act changed that requirement “no less than a reasonable royalty” because apportionment was being gamed with complexity. There Professor, fixed that for ya.

    1. 2.1

      There are also the basic differences between damages and a RR.

  2. 1

    Just a few thoughts on the assignor estoppel issue:

    (1) If the Court wants to be consistent (and I realize that this is a big “if”), then they should treat assignor estoppel the same way that they treated the Brulotte rule in Kimble v. Marvel Entertainment. That is to say, it really does not matter whether (as Synopsis is arguing) assignor estoppel is or is not good public policy. The only thing that matters is that the Court blessed assignor estoppel in Westinghouse Elec. v. Formica Insulation Co., 266 U.S. 342 (1924), and Congress has revised the patent act since without abrogating assignor estoppel. Therefore, assignor estoppel should be treated as a fixture of the law unless and until Congress acts clearly to rescind assignor estoppel.

    (2) That said, in view of the CAFC’s Husky v. Athena decision, an assignor who cannot challenge a patent’s validity in court may nevertheless petition for IPR. This makes assignor estoppel to be almost a dead letter with regard to §§102/103 challenges. Given that the overwhelming majority of validity challenges are §§102/103 challenges, assignor estoppel is nearly effaced from the law in any event, regardless of what the Court does with this cert. petition.

    1. 1.1

      If I recall correctly, I am not sure that your Kimble analogy is spot on, as there in that case, the Court maintained a holding against the patent holder (and acknowledging the ‘existing legal error,’ AND the actions of Congress in the interim ALSO spoke to throwing out the earlier Court view (but the Court went “meh, we do not care what Congress may have said).

    2. 1.2

      Thanks Greg for a really substantive comment.
      But isn’t 1924 a long time ago even for judicial evidence attitudes on barring certain evidence sources altogether rather than giving them less weight, even in DCs? Question 1 might thus have better better odds for cert grant than question 2, if question 2 is not fairly representing what the Fed. Cir. actually said?

      1. 1.2.1

        Yes, 1924 is a long time ago. On the other hand, 1804 is even longer ago, and yet I do not hear a chorus of scholars calling for reconsideration of Murray v. Schooner Charming Betsy, 6 U.S. 64 (1804). It is to be expected that a lot of legal doctrines will be very old, given that the human circumstances that they are intended to govern are older still. Is there something about basic notions of human fairness (which is the essential ground on which assignor estoppel rests) that have changed since 1924, that makes reconsideration particularly timely? I do not perceive any such change.

        1. 1.2.1.1

          Greg,

          I agree with your intonations here (and likewise again remind you that in the Kimble case that there WERE intervening considerations that the Court simply ignored).

        2. 1.2.1.2

          You raise a very valid point, particularly given the holding in the Westinghouse case (assignor estoppel). While Congress has not abrogated assignor estoppel, I’m not sure Westinghouse can be reconciled with current claim interpretation and validity principles. While the Court held that the assignor may not challenge the validity of the assigned patent, the Court also stated that the assignor/accused infringer can use the prior art to narrow the scope of the claims:

          “As between the owner of a patent and the public, the scope of the right of exclusion granted is to be determined in the light of the state of the art at the time of the invention….We think, however, that the better rule, in view of the peculiar character of patent property, is that the state of the art may be considered. Otherwise the most satisfactory means of measuring the extent of the grant the government intended and which the assignor assigned would be denied to the court in reaching a just conclusion. Of course, the state of the art cannot be used to destroy the patent and defeat the grant, because the assignor is estopped to do this. But the state of the art may be used to construe and narrow the claims of the patent, conceding their validity.”

          In other words, the assignor cannot attack validity but does have a “practicing the prior art” defense–a defense to infringement that is not included under the statute.

          And what about 112 problems? How should a court construe a claim term that is hopelessly vague and indefinite when the accused infringer is estopped from challenging validity?

          1. 1.2.1.2.1

            reply stuck in the filter…

            1. 1.2.1.2.1.1

              reply STILL stuck in filter…

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