Enplas Display v. Seoul Semiconductor: How to Police Damages Expert Testimony

by Dennis Crouch

Enplas Display Device Corp. v. Seoul Semiconductor Co. (Fed. Cir. 2018)

In this appeal, the Federal Circuit has largely sided with the patentee Seoul Semiconductor — affirming the jury verdict on induced-infringement and validity.  However, the panel split on the issue of damages — with the majority finding that the damages verdict was not supported by the evidence.  In particular, the court ruled that the SSC’s expert had included non-infringing sales in her calculations.  Judge Stoll authored the majority opinion that was joined by Judge Hughes. Judge Newman wrote in dissent and would have let the jury verdict stand.

The patent at issue here claims a method of backlighting LED displays — used in lots of TVs. Back in 2012, Enplas filed for declaratory relief, but the jury sided with the patentee on all counts — finding the patents valid and infringed and awarding $4 million as a reasonable royalty for the life of the patent. (Verdict Form Below).

The infringement theory here rests on induced infringement under 35 U.S.C. 271(b)

(b) Whoever actively induces infringement of a patent shall be liable as an infringer.

Unlike ordinary direct infringement, inducement requires specific intent to cause the infringement.  This requires knowledge of the patent and that the acts being induced “constitute patent infringement. Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 766 (2011). At trial, the patentee showed that the defendant knew of the patents and had been informed that its products were infringing once combined into TVs. “In addition, SSC presented evidence that Enplas provided its customers with product specifications that recommended infringing configurations for its accused lenses.”

Note here, that Enplas made lighting products that it supplied to other manufacturers – particularly TV makers.  Enplas products themselves didn’t fully practice the invention until used in a certain way by the TV manufacturers.  In the appeal, Enplas argued that it didn’t “know” that its lenses would be used in the infringing way.

As an issue of law, the Federal Circuit agreed with the accused infringer that “mere knowledge of possible infringement is not enough” for a finding of inducement.  However, in this case, the circumstantial evidence was enough for the jury to find knowledge of infringing use by customers and intent to induce that infringement.

The Federal Circuit called this a “close case.” Truthfully though, but it doesn’t appear close in the way described by the court since the infringer (1) had knowledge of the patents and (2) was directly informed that customers using its instructions would be infringing.

Damages: The damages case here was similar to a convoyed damages situation.  The patentee’s expert testified that the reasonable royalty for the accused lenses would have been $500,000.  However, the expert testified more “pragmatic license” negotiations would be for a broader freedom-to-operate license that would include additional similar (i.e. non-infringing) products as well as future developed infringing products.  That broader license would go for $4,000,000.

On appeal, the Federal Circuit rejected this approach to calculating damages because it goes beyond compensation for the infringement.

Here, SSC’s expert opined that Enplas and SSC would have agreed to a $2 to 4 million royalty based on a royalty base comprising sales of non-accused lenses. This testimony cannot support the jury’s damages award, for § 284 and our precedent proscribe awarding damages for non-infringing activity. Thus, the jury’s $4 million award for infringement of the ’554 patent cannot stand. . .

According to SSC, because its expert  characterized her use of the volume of sales of nonaccused lenses as a “paid-up, lump sum royalty” to ease an “administrative burden,” her application of a royalty to non-accused lenses was acceptable. We disagree. Regardless of the characterization by SSC’s expert, damages calculated by applying a royalty to sales of non-accused lenses cannot support a jury’s verdict on damages. To be sure, we have held that a jury may award a lump-sum, paid-in-full royalty in lieu of a running royalty on future sales. See Lucent. But that lump-sum must be based on an estimate of the extent of future sales of accused products, not on past sales of non-accused products.

The result here is that on remand the damages are likely cut down to $500,000 instead of $4 million.

Writing in dissent, Judge Newman suggests that the statute only sets a floor for damages — not a ceiling.

Neither side argues that the jury’s damages award was not adequate to compensate for the infringement. No argument is presented that the jury awarded less than a reasonable royalty for the use made of the invention. Nonetheless, Enplas argues on appeal that an improper theory was presented by SSC’s damages expert and, thus, the jury verdict is fatally flawed. Enplas is mistaken, in law and in reality, as well as in contravention of standard litigation procedures. . . .  The lump-sum reflects a reasonable royalty that the infringer would have been willing to pay on hypothetical negotiation under the circumstances that existed.

Judge Newman suggests here that if the patentee’s expert testimony was flawed then it should have been either challenged under FRE 702 (Daubert) or exposed on cross-examination or via counter-presentation of evidence.   The infringer did not raise any appeal on those issues.

31 thoughts on “Enplas Display v. Seoul Semiconductor: How to Police Damages Expert Testimony

  1. 4

    I read the post and figured Newman probably had the better of the argument, then I read the opinions and changed my mind. I’m still not sure, but key passage of the majority seems to be at page 17.

    SSC’s expert estimated a $570,000 royalty for the actual infringement claims in this case–i.e., limited to the accused products and the asserted claims. Then SSC’s expert inflated that number to $2-$4M by arguing that in the real world Enplas might have purchased a much broader license covering more products and more patents. That may be so, but (a) the expert relied on evidence outside the record to come up with that, and (b) what’s the legal basis for awarding $4M in damages based on that asserted fact? If the CAFC had affirmed, would Enplas actually have freedom to operate, or could SSC turn around and sue them on other patents or “potentially infringing” products. This tactic seems like a patentee shenanigan.

    I think I take Judge Newman’s point that Enplas could have and maybe should have made its arguments as ex ante Daubert/702 objections to SSC’s expert evidence rather ex post challenges to the sufficiency of the evidence supporting damages… but I don’t fully understand why it has to be one or the other or why the evidence-sufficiency label doesn’t fit here. It looks like SSC proved $570,000 in damages, but the rest of the verdict was supported only by legally insufficient testimony.

    1. 4.1

      Yes, the majority notes that the patent owner has the burden of damages proofs, and that the defendant did challenge below, by JMOL, the jury’s $4 million damages award for the ’554 patent as excessive and not supported by substantial evidence.
      A defendant has no burden to put on its own damages case.

      1. 4.1.1

        If you read Newman’s dissent, and take it as having the better position at law, then the points that each of you raise here are answered fully.

  2. 3

    This is an interesting variation on the problem I discussed in this article.

    link to openscholarship.wustl.edu

    For the reasons I explain, I think it’s probably fine to count potentially infringing products in figuring a lump-sum royalty under Georgia-Pacific. To be clear, the problem I address is a little different: I discuss taking into account units of the same accused device that end users did not deploy in an infringing way, rather than a different product. But, as Lucent says, the inquiry hinges on “what parties regularly do during real-world licensing negotiations.” I don’t think it’s a stretch for parties to bargain for a license over a set of related products. I also don’t understand what the majority means by “that lump-sum must be based on an estimate of the extent of future sales of accused products, not on past sales of non-accused products.” Under the book of wisdom principle, evidence of actual sales is admissible as a proxy for how the parties would have actually structured the license. I think Judge Newman has a better reading of Lucent here.

  3. 2

    Note that this patent litigation was started by the defendant, not the patent owner, by their filing a declaratory judgment action, seeking a declaration that the two threatened patents were invalid and not infringed. That produced the usual automatic counterclaim infringement suit by the patent owner.
    The apparent result here is that both parties lose, because the amount they must have spent on attorney fees going all the way through trial and appeal must be several times the indicated $500,000. [That amount might have been a reasonable low cost pre-trial settlement amount once initial discovery showed that was really all the provable actual infringement damages?]
    This suit apparently started before both AIA IPRs and the Sup. Ct. un-mooting of the long-existing anti-forum-shopping patent venue statute made DJ actions even less attractive than they already were.

    1. 2.1

      Correct Paul. There is no possibility for the patentee to be made whole for the infringement. There is no benefit for respecting patent rights anymore, only wasted money on the rights and legal costs. Rarely does obeying the law result in exclusivity or profit.

      1. 2.1.1

        There was no apparent attempt to get any injunction here, and
        infringement recovery might do better with better damages evidence and argument on remand. In particular, if the patent and the infringing product have several more years to run after validity and infringement have been established, those anticipated future infringement damages ought logically to be based on the very much higher royalty the patent owner could demand in negotiations for a license for a patent with unchangeable validity and infringement, assuming absence of non-infringing alternative products?
        BTW, just to be semantically technical, infringing a patent is not disobeying the law. But doing so willfully or deliberately allows up to treble damages recoveries by patent owners.

        1. 2.1.1.1

          BTW, just to be semantically technical, infringing a patent is not disobeying the law.

          That’s not even remotely close to being correct.

          1. 2.1.1.1.1

            In view of your unsupported “not even remotely close to being correct” allegation, please point out what state or federal criminal law, or government-enforced law, is being broken or made unlawful conduct by infringing a patent?
            A patent is a government issued right for the patent owner to bring a private civil suit for infringement of the patent.

            1. 2.1.1.1.1.1

              To match your accusation of unfounded, what do you have to show ANY founding for your assertion of not against the law?

              Do you understand why infringement can be penalized under the law?

              Yes, it is up to the patent holder to enforce, but he enforces under the law.

              If not against the law, then how can there be any penalty whatsoever?

            2. 2.1.1.1.1.2

              anon’s right.

              Patent infringement isn’t a crime, and I suppose it’s not something the executive branch enforces directly (e.g., DOJ or the EEOC enforcing non-criminal antitrust or anti-discrimination laws). But a “private civil suit” is still the use of government to enforce a law. And once you consider that injunctions and treble damages are on the table in appropriate cases, it seems like only a narrow, uncommon usage of “disobeying the law” would exclude patent infringement.

              1. 2.1.1.1.1.2.1

                More accurately, “only a narrow, uncommon usage of “disobeying the law” would include patent infringement.” Also, Anon’s attempt to confuse very different statutory damages provisions for copyright infringement with patent infringement is noted.
                The government is not a party in private civil actions for patent infringement, nor does the government encourage or require such suits. The government does actively participate in many PTO patent invalidation proceedings – but you would not normally call the owners or obtainers of such invalid patents “unlawful” or “unlawfully obtained.”

                1. Anon’s attempt to confuse… is noted

                  NO attempt at confusion Paul. I note the same source (Article I Section 8) and ALSO note that the two have coverage of different aspects.

                  Your own attempted conflation here is noted: PTO invalidation proceedings have NOTHING to do with the point being discussed vis a vis “unlawful.”

                  You were wrong – and only getting more wrong as you attempt to cover yourself. You would be immensely better off simply admitting that you were wrong.

                2. I might add that (1) the Supreme Court describes the Patent Act as making infringement “unlawful,” (Samsung v. Apple, 137 S.Ct. at 433), and describes section 284 as “allow[ing] district courts to punish the full range of culpable behavior.” (Halo, 136 S. Ct. at 1933), and (2) the Patent Act refers specifically to the “right” of patentees to exclude others (35 USC 154)…

                  But beyond that, at this point I think we’re definitely just quibbling over semantics. Everyone more or less agrees on how the law works; we just disagree about whether “disobeying the law” is an appropriate label for patent infringement. I take your point, and think you’re wrong, but have nothing further to add.

          2. 2.1.1.1.2

            There is a lot of confusion on this point. The new theory is that a patent is a monopoly or public franchise that a company can purchase from the government. The inventor or the invention is not really relevant. Once a company has acquired this monopoly or public franchise they have a right to make infringers pay them some money. That is the current thinking under Ebay and Oil States and the AIA.

            Infringement used to be like trespassing which is against the law. But now it is very confusing and many lawyers and infringers do not believe that infringement is against the law. A patent means nothing to them – it is just something to argue about. These lawyers and infringers believe it is legal to practice the claimed invention without the patent holders’s permission. In the rare circumstance they are named on an injunction order, only then do they begin to think it might be illegal.

            It is weird but the issuance of a patent has no effect under this thinking. It was legal before the patent issued and they think it is legal afterward.

            This way of thinking seems very rationale for readers of this blog. But I will tell you inventors, entrepreneurs, and ordinary Americans are aghast when they learn about this. To them it is the epitome of unlawful to steal someone else’s invention! I believe they are waking up and hopefully readers of this blog will begin to wake up as well and demand an end to this insanity.

            1. 2.1.1.1.2.1

              This way of thinking seems very rationale for readers of this blog.

              Certainly not all, Josh – and certainly not those who have NOT drunk from the Efficient Infringer’s Kool Aid.

            2. 2.1.1.1.2.2

              Compare and contrast the other type of IP protected under Article I Section 8: copyright.

              While there are meaningful differences (due in part to the different aspects being protected — copyright and expression versus patent and utility), copyright infringement DOES carry criminal weight.

              It is also worth noting the type of entity that most pushes for that type of criminality (think Big Business).

            3. 2.1.1.1.2.3

              many lawyers and infringers do not believe that infringement is against the law. A patent means nothing to them – it is just something to argue about.

              Nobody could have predicted this result back when the CAFC opened the gates to patenting information and logic and a tiny army of patent attorneys started shaking down diverse industries based on information that was being sent “wirelessly” or “remotely” or “over the Internet”.

              Nevertheless, I am sitting here now crying a massive river of imaginary tears for those poor, poor tortured patent holders.

            4. 2.1.1.1.2.4

              This way of thinking seems very rationale for readers of this blog. But I will tell you inventors, entrepreneurs, and ordinary Americans are aghast when they learn about this. To them it is the epitome of unlawful to steal someone else’s invention! I believe they are waking up and hopefully readers of this blog will begin to wake up as well and demand an end to this insanity.

              This is a weird comment. I think patent infringement is “unlawful,” but the “epitome of unlawful” probably looks more like Larry Nassar, Bernie Madoff, or any of the recent mass shooters than some company on the wrong end of an EDTexas verdict.

              1. 2.1.1.1.2.4.1

                Indeed, rather than the semantic issue I stirred up here over technical misuse of the word “unlawful” for infringement [especially before any infringement judgment], the ire should be directed against those companies that refuse to even respond, much less negotiate, in response to patent licensing offers.

                1. This is still confusing public franchise talk. There is this presumption that infringement is a matter for negotiation. It should not be so. The inventor / patentee should be deciding who gets to practice the invention. The idea that big companies have a right to practice the invention as long as they pay a “reasonable royalty” is a huge part of our problem. The ire is not that the trespassers are not paying a high enough rent on time, the ire is that the trespassers think they are entitled to steal property that does not belong to them.

                2. Your naked assertion of “technical misuse” has been rebutted Paul.

                  Still waiting for you to support your statement.

                3. the ire is that the trespassers think they are entitled to steal property that does not belong to them.

                  My computer. And my instructions, which you can’t patent.

                  Go f – ck yourself.

                4. More Internet tough guy from Malcolm…

                  Guess what Malcolm, when you take a bunch of “your stuff” and reconfigure that “your stuff,”*** you run into keep out zones of patented items – all the Fn time, in all types of art units.

                  All we have here is you on display with your dichotomy of not wanting to provide protection to innovation of a type that is most accessible to the non-wealthy.

                  S uck it up and get over your feelings and realize that patents provide protection for innovations of utility, even if (especially if) that innovation of utility is in the field of computing (that’s where a large majority of innovation is these days — look up Kondratiev waves).

                  *** and again, the “your stuff” may include such things as protons, neutrons and electrons; as has been a long running point now used to lambaste you.

                5. Guess what Malcolm, when you take a bunch of “your stuff” and reconfigure that “your stuff,”*** you run into keep out zones of patented items – all the Fn time, in all types of art units.

                  LOL

                  Except that the claims in other art units recite, directly or indirectly, structural configurations that distinguish the claimed inventions from the prior art.

                  Not true of software. That’s why software patents are w0rthless.

                  Infringe without worry. Take it the Supreme Court. Be a part of history– a positive part. That’s my advice to everyone.

                  At this stage, I would choose a big target with an army of lawyers (like D0rkbook) because that will make the task easier, not harder.

                6. structural configurations that distinguish the claimed inventions from the prior art.

                  again with the dissembling about a certain OPTIONAL claim format…?

                  And maybe you want to add something (anything) on point vis a vis innovation points such as Kondratiev waves… You know, instead of being your usual @$$.

            5. 2.1.1.1.2.5

              Josh,

              To your “new theory is that a patent is a monopoly or public franchise that a company can purchase from the government. The inventor or the invention is not really relevant.” — we are not there yet, as even though the AIA stuck a camel’s nose under the tent, the role of the inventor (vis a vis Stanford v Roche), and the notion of the Quid Pro Quo, and making an inventor’s inchoate right into a full legal property right are still on the books.

      2. 2.1.2

        The patentee would have wasted even more money trying for an injunction.

        Trying for more damages on remand means another trial, at least another $3M in costs and fees. It is throwing good money after bad.

        It just is not possible to be made whole in the current system. Damages affirmed rarely exceed the costs and fees incurred by the patentee.

        This country needs to restore respect for patents and streamline resolution of patent disputes.

        1. 2.1.2.1

          It just is not possible to be made whole in the current system.

          I INVENTED THE LOOK UP TABLE IN THE CONTEXT OF CYBER MONDAY YEAR TO YEAR COMPARISON ALGORITHMS WHEN ONE YEAR IS A MIDTERM ELECTION YEAR

  4. 1

    Stoll against Newman on matters of substantive law…

    With Hughes providing the “winning” vote.

    I have to wonder why Newman’s superior command of law so often is found in dissent.

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