by Dennis Crouch
In EVE-USA v. Mentor Graphics, petitioner raises two important questions of patent law involving assignor-estoppel and damage apportionment respectively. Here, EVE-USA was founded by former Mentor employee-inventors. Initially Mentor licensed-back their patents, but terminated that license when Synopsys acquired EVE. The resulting lawsuit ended with a $36 million jury verdict for infringement of U.S. Patent No. 6,240,376. Note here, Mentor owns the ‘376 patent, but the two listed inventors – Luc Burgun and Alain Raynaud – are the co-founders EVE.
In January, I suggested that the case has a good shot of being heard by the Supreme Court. Today, the Supreme Court requested the Solicitor General file views of the U.S. Government on the issue — tilting the odds significantly further toward grant.
Assignor Estoppel: Although the patent act expressly indicates that invalidity is a defense to patent infringement, courts applied “assignor estoppel” to prevent EVE-USA (through its parent company Synopsys) from challenging the patent validity. Here, the court effectively pierced the corporate veil to extend the traditional inventor limits to their corporate entities as well. The question presented by the adjudged infringer:
1. [W]hether, and under what circumstances, assignors and their privies are free to contest a patent’s validity.
Apportionment of Damages in Lost Profits Cases: The second issue involves damages apportionment in cases where the patent covers a feature or portion of a whole product and where the patentee claims lost-profits derived from sales of the product itself. The infringer 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?
When I wrote in January, Mentor had not filed its brief in opposition. Now, the party briefs are in. US Government tends to be fairly slow in submitting its views in the CVSG situation — thus, I would not expect a brief before Autumn.
Documents in the Case:
- Federal Circuit Decision
- Federal Circuit En Banc Denial
- Petition for Writ of Certiorari (EVE-USA)
- Opposition Brief (Mentor)
- Reply Brief (EVE-USA)
- 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.”
In its opposition brief, Mentor argues that petitioner waived any argument relating to assignor estoppel “except that the doctrine should be abolished entirely;”
Definitely agree.
“Those that would “stay” away from injunction are often the very same ones that simply do not understand the nature of the patent right itself.”
I would go so far as to say they do not understand the nature of “rights” as such.
Sorry, this was meant in reply to anon @ 1.1.3.2.1.1
I had a bad feeling about this after not having a heard a peep out of Ned for a while. Rest in peace, Ned Heller! 70 years ain’t nothing to sneeze at. My apologies to everyone if I missed an earlier announcement somewhere along the way.
I think Ned would be the first to admit that there wasn’t a whole lot of shared ground between him and me, politics-wise (LOL), but I respected the fact that he didn’t let our respective stances get in the way of finding the light (or shedding it) on mostly unrelated patent law issues. Outside of politics, in my experience, he stepped up to the plate with some attempt at a reasonable response whenever he was challenged here. The comment section hasn’t been quite the same since he left it, and I guess now we can rest assured that it never will be. So long, buddy.
link to legacy.com
Edward Peter Heller III, 70, of Aptos, California, died Tuesday, April 10, 2018, at University of California-San Francisco Medical Center in San Francisco, California.
He was born April 29, 1947, in Chicago, the son of Dr. Edward Peter Heller Jr. and Mary Rolfe Heller. He married Lindalva Silva Drummond on July 23, 1979.
Edward is survived by Lindalva; one daughter, Monika (husband, Kurt) Roots of Madison, Wisconsin; two grandchildren, Preston and Parker; one sister, Nanette (husband, Alan) Applebee of Jacksonville; and three nieces and nephews, JJ Diesi, Alden Applebee and Alex Applebee. Edward also will be fondly remembered by numerous cousins, aunt, uncles, colleagues and friends.
Edward was a patent attorney and chief patent counsel for Alliacense Limited LLC, and previously was chief IP counsel for Seagate Technology and Control Data. He served on numerous advisory boards, including the Board of Directors of Intellectual Property Owners Association, for which he was chair of its Patent Law Committee; and was a longtime member of the Board of the Inventors Hall of Fame. Edward loved history and politics and spoke about them frequently. He could speak for hours on such topics, especially the Roman Empire.
A funeral Mass will be celebrated at 1 p.m. Friday, April 20, 2018, at Church of Our Saviour in Jacksonville, with burial at Memorial Lawn Cemetery. Visitation will be from 11:30 a.m. to 12:30 p.m. Friday at Williamson Funeral Home. Memorials are suggested to the family. Condolences may be left online at airsman-hires.com.
Rest well Ned.
It seems that the dissent in the rehearing decision is confusing statements about the sales made by the infringer, and statements about the sales lost by the patentee. In general, the sales made by the infringer are more than the sales lost by the patentee.
I have not researched it, but my understanding is that assignor-estoppel is judge-made law, just like the “law of nature” exception to 101 is judge-made law. If the judge who originally made assignor-estoppel law was a Scotus justice way back then or Scotus has blessed the doctrine along the way somewhere, then assignor-estoppel will survive. If it was one of those lesser beings…. not so much.
Or is the rule that judge-made law that helps patentees can get canned (like TSM or “adjudged infringers get enjoined”) but judge-made law that hurts patentees gets anointed.
There are at least two SCT cases that have addressed assignor estoppel:
Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 252, 66 S. Ct. 101, 102, 90 L. Ed. 47 (1945) (“[A]n assignor of a patent right is estopped to attack the utility, novelty or validity of a patented invention which he has assigned or granted as against one claiming the right under his assignment or grant. As to the rest of the world, the patent may have no efficacy and create no right of monopoly; but the assignor can not be heard to question the right of his assignee to exclude him from its use.” – but, finding estoppel did not apply in the specific case – quoting Westinghouse Electric & Mfg. Co. v. Formica Insulation Co., 266 U.S. 342, 349, 45 S. Ct. 117, 119-20, 69 L. Ed. 316 (1924))
Westinghouse Electric & Mfg. Co. v. Formica Insulation Co., 266 U.S. 342, 349, 45 S. Ct. 117, 119-20, 69 L. Ed. 316 (1924) (“[A]n assignor [120] of a patent right is estopped to attack the utility, novelty or validity of a patented invention which he has assigned or granted as against one claiming the right under his assignment or grant. As to the rest of the world, the patent may have no efficacy and create no right of monopoly; but the assignor can not be heard to question the right of his assignee to exclude him from its use. . . . [350] If one lawfully conveys to another a patented right to exclude the public from making, using and vending of an invention, fair dealing should prevent him from derogating from the title he assigned . . .” – ruling that while assignor could not challenge the validity of the patent, the assignor could introduce evidence of the state of the art to argue for a narrow construction, and finding that under the state of the art the patent had to be limited to the two-step process disclosed even though not expressly recited in the asserted claim)
While the SCT has addressed the doctrine, I don’t believe it has directly addressed the question of privity in the application of assignor estoppel.
How likely is that the Sup. Ct. will take up BOTH of two very different, even equitable versus legal, issues in one case, even if both are arguably vulnerable* and of general interest?
*Noting modern Sup. Ct. patent law decision trends in laches, design patent damages, licensee-estoppels, etc.
The EVE-USA brief opener is unusually cert-inviting if true:
“The Court should eliminate or greatly narrow assignor estoppel. Mentor does not disagree that “the [assignor-estoppel] doctrine as applied by the Federal Circuit might warrant this Court’s consideration at some point.” Opp. 19. Mentor does not defend the scope of assignor estoppel. Nor does Mentor dispute the fundamental problems with assignor estoppel as a whole: it is contrary to the Patent Act; was understood by Congress, courts, and academics as abolished after Lear; impedes the strong public policy favoring eliminating invalid patents; and imposes costly constraints on employee mobility. Pet. 15-21.
“But for Portion”
But for the infringement, what portion of the market demand for (or sales of) the infringing article would instead have been maintained by the patentee, had infringer sold only non-infringing articles.
If there was a significant price differential between the [two] competing products will that not makes the question even more complicated, unless the product with the patented feature renders the competitive product obsolete and effectively unsaleable?
This seems to overlap with Apple v. Samsung and design patent damages where ALL the profits from the sale of an article are considered lost profits to the patentee.
Apportioning the article of manufacture leads immediately to some kind of lost profit analysis for the article if it’s less than the whole product.
Sometimes brand loyalty sells an inferior product- can you credit a patentee seller for general goodwill value and add that portion to damages?
One absolutely should be able to sue for something like damages to goodwill, or unjust enrichment.
If you ARE the only one who can improve things so that they work this well, and you have done it because you have expended the effort, an infringer not only steals of your profit but also of your reputation. He dilutes in the minds of the consumers, the fact of reality that you are the only one that can do it… and commits a kind of meta fraud by presenting the infringing device under his brand.. stating to the world.. “I also can do this”, when in fact he did not and could not have done it without pirating from you.
Anon2- Apple can charge $100 for an article that other vendors can only charge $40 for. That is because Apple owns enormous goodwill from all of their non-infringing activity, which they paid for, and increases their profits. However, it also means that any given feature /article is worth less as a but-for instrument of loss to Apple, because people will buy Apple products regardless of that feature/article.
Lost profits are a counterfactual- inherently speculative- so to me, the goodwill loss or gain should wash out of the equation, unless the feature /article is so basic that it represents a majority of the profits of the entire product.
Manufacturing margin is a good start at what the actual economic value of a component really is. It’s really a battle of spending on expert witnesses spinning those dice…
“Apple can charge $100 for an article that other vendors can only charge $40 for.”
With or without infringement having occurred? Are you prosing infringement literally has no effect on these prices or how many devices are sold as between Apple and these vendors?
“any given feature /article is worth less as a but-for instrument of loss to Apple, because people will buy Apple products regardless of that feature/article”
A worth of a feature or article of Apple’s iphone is literally beside the point. Apple does not sell “parts” of devices, it sells devices. A hypothetical regarding lost sales should not ignore that reality. The question “what position could have Apple been in but for the infringement of its rights” has nothing to do with a ratio of worth of its parts to its devices, in fact it has nothing to do with whether nor not Apple even includes OR EXCLUDES parts from ALL of its own devices which would read on its patent.
Apple’s patent is an exclusive license, it does not apply in any way to Apple’s products. It only serves to exclude competitors to ensure the market is open and free from illegal competition caused by pirating of Apple’s own innovation.
Design patent damages is a differently written law.
That should matter.
BTW, don’t forget that a suit by a patent owner which is the manufacturer or seller of the patented product against an infringer that is a competitive seller of the infringing product is the kind of case in which the patent owner should still be the most likely to get an injunction.
Yes, very complicated.
A rational “but for” test tries to compare reality with a hypothetical, which given uncertainty could have had different outcomes with different likelihoods.
The idea of “damages” is to put the victim hypothetically “back” to where they would have been, or better “make them whole” in the context of a violation of their property right and the chain of results that followed.
It does not matter that a an infringing product is only 10% better than a non-infringing product, or if the infringing bit is 10% of the area. IF (consumers being as irrational and/or as picky as they are) a non-infringing article which is 90% as good is simply NOT good enough, and would only get 15% of the market, then the patentee is out that 85% of the market.
Of coursed it depends on the patent, not all patents are equally “consumer valuable”, finding 10% lighter construction might be incredibly ingenious, but it might not be as valuable as say 10% brighter display or 10% longer battery life.
I’m not sure what percentage of electronics consumers are innovation driven, but if there is anything like the 80-20 rule at play, e.g. 80% of goods are sold for the top 20% of cutting edge features, then facts are facts are no matter what the size, cost, or area of the “chips” doing the secret sauce… they are still doing the secret sauce, and command the majority of “causation” for the market share.
Ivory tower “apportionment” which proceeds absent real evidence could assigns a pittance to the important patented features, based on size, area, number of chips, or number of features or number of patents. Sometimes an accounting can be based on ridiculous metrics in the absence of evidence, but their accuracy or propriety should not be improperly touted as being somehow above actual evidence, they are not, and the gathering of real evidence, no matter how complicated should not be discouraged.
anon2 has there been empirical work done on stacked royalty calculations that show tens of thousands of dollars per phone of potential patent licenses required to manufacture? Clearly those models can’t be cumulatively so wrong, which means expected damages from litigation are well above real-world costs and profits- not unexpected since litigation alone carries such a burden.
Who said anyone trying to sell something in the marketplace should “stack” royalties? What does “stacking” even mean?
I’m no business mogul but wouldn’t it be much simpler to:
1. research what consumers are willing to pay P for a device that does X
2. determine, develop, and build something Z that does X which you can sell for P and still make money. If Z utilizes technology anyone else owns, negotiate with technology owners.
3. Do not infringe anyone else’s rights.
4. If you get an agreement with everyone required, sell your gadget.
5. If you DO NOT get agreement, DO NOT infringe, build something else.
It’s in everyone’s interest to sell products at prices they can be sold at. If no one sells anything no one makes any money. Technology and innovation producers have to get their act together to make things work.
The patent system needs to ensure that it is decidedly ALWAYS INEFFICIENT to infringe. This protects the rights of patent owners. As for their ability to get their act together and make things at prices which sell, they are free to do so, or to fail.
“The patent system needs to ensure that it is decidedly ALWAYS INEFFICIENT to infringe.”
Just not so.
By this I mean that there are those who would not want the patent system to actually work like that.
Plenty of people.
Those that wish to make “exclusivity” into a mere profit number are the t001s of the Efficient Infringer.
One of the strongest tools in the art of negotiation is the ability tot say “no deal” and walk away from the table.
If one is unwilling to pay what is asked – no matter how outlandish that price may be – then the options are:
1) do without
2) invent something better (or at least different).
THIS is part of the “stick” of the patent system.
THIS is part of its strength in promoting progress.
Necessity is the mother of invention. Remove necessity and replace it with some nominal fee (of which Big Corp already has plenty of) and you retard the very reason for having a patent system.
Making whole has to do with the nature of the item.
The nature of patents is exclusivity.
Until this is treated in an inte11ectually honest manner, you will have spin and obfuscation.
anon, is this a reply to me or MS?
I’m not sure where you were going with “Making whole has to do with the nature of the item”. What item? How was it un whole?
The nature of a patent is indeed exclusivity, and the exclusivity was violated, broken, damaged and all the consequences thereof are what need to be considered to make the patent owner whole. My position is that there IS a concept of making one whole after the violation of a patent property right.
Call it restitution or recompense but the sense is that justice requires from the perpetrator a return of what was lost and suffered by the victim. Of course I would also condone illegal profit or unjust enrichment over and above this, since it is a windfall which was “caused” by the virtue of the injustice, should not stay in the hands of the perpetrator and should go to the victim. Finally, punitive measures are often appropriate to deter others and ensure justice when the behavior of the perpetrator warrants it.
The nature of the remedy to the violation of a patent right – the “making whole” is the single clearest call for injunction that the world of equity can present.
However, those that come up in the world of equity are trained that injunctions are the “harshest” form of equity, and – it appears – one that is bent over backwards in all attempts to avoid.
This laxity though (of applying the full weight of injunction at the point where the merit is most clear) is one of the drivers of the weakening of the patent system.
I hear you (on restitution and recompense) and do not disagree with you.
My post merely suggests that injunction should be the floor of any decision on infringement. Damages on top of restoring the wholeness of exclusivity should be a case by case decision, and yes, I agree with you that even punitive action may in some cases be merited.
Those that would “stay” away from injunction are often the very same ones that simply do not understand the nature of the patent right itself.
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