by Dennis Crouch
In a nonprecedential disposition issued March 20, 2024, the Federal Circuit vacated a district court’s denial of a permanent injunction to a patent owner, finding the lower court read Federal Circuit precedent too broadly to categorically preclude injunctions in situations where a patentee has a history of licensing the patent to third parties. In re California Expanded Metal Products Co., No. 2023-1140 (Fed Cir. Mar. 20, 2024). The decision reaffirms that the equitable framework laid out by the Supreme Court in eBay Inc. v. MercExchange, L.L.C. requires a case-by-case analysis of irreparable harm and the other injunction factors, even when the patentee’s business model relies on licensing revenue rather than direct competition in practicing the patents. 547 U.S. 388, 391 (2006). However, the decision may well be seen simply as distinguishing between exclusive and non-exclusive licensing approaches.
In its decision, the Federal Circuit also affirmed the district court’s R.59(e) order setting aside the damages verdict — meaning that although the patentee proved infringement, it will receive $0 in compensatory damages.
In 2020, Seal4Safti, Inc. sued California Expanded Metal Products Co. (CEMCO) — seeking a declaratory judgment that CEMCO’s patents are invalid, unenforceable, and not infringed. The patentee counterclaimed with infringement allegations, and won a jury verdict finding that Seal4Safti willfully induced infringement. The jury awarded CEMCO $156,000 in reasonable royalty damages. However, the district court set aside the jury verdict under FRCP 59(e) and also denied CEMCO’s request for a permanent injunction. On appeal, the Federal Circuit affirmed the damage denial but vacated and remanded on the injunction question. I take these in reverse order:
Injunction Denied: The Federal Circuit vacated the denial of a permanent injunction, which the district court had based upon its finding that CEMCO failed to demonstrate irreparable injury under the 4-part eBay test. The district court particularly relied on the Federal Circuit’s prior decision in ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 694 F.3d 1312 (Fed. Cir. 2012), to conclude categorically that whenever a patentee only stands to lose licensing fees, an injunction should be denied because “‘[s]traightforward monetary harm of this type is not irreparable harm.'” quoting ActiveVideo. The district court suggested that if the licensees are being harmed, then they should have joined the infringement lawsuit as co-plaintiffs.
On appeal, the Federal Circuit held the district court read ActiveVideo too broadly, noting the facts were materially different. In that case, the court found that an infringer’s competition with a non-exclusive licensee was insufficient to support an injunction, particularly in a situation involving “extensive licensing, licensing efforts, solicitation of the defendant [for a license] over a long period of time preceding and during litigation, and no direct competition between.”
In contrast, the CEMCO court clarified that ActiveVideo “does not foreclose consideration” of potential irreparable harms “where a patentee has granted an exclusive license to a third party to sell patent-covered products.” An exclusive-licensing patentee “might well face harm beyond the simple loss of reliably measurable licensing fees, including price erosion, damage to intangible reputation, harm to brand loyalty, and permanent loss of customers.” citing Robert Bosch LLC v. Pylon Manufacturing Corp., 659 F.3d 1142, 1152-55 (Fed. Cir. 2011)).
One way to see this case is distinguishing between exclusive and non-exclusive licensing approaches. In ActiveVideo, the patentee had granted a non-exclusive license, and the Federal Circuit found no irreparable harm largely because of that non-exclusive licensing along with other factors like the patentee’s licensing efforts and lack of direct competition with the defendant. The CEMCO court noted that ActiveVideo “does not foreclose consideration” of potential irreparable harms “where a patentee has granted an exclusive license to a third party to sell patent-covered products.” This distinction suggests that in situations involving a non-exclusive licensing patentee, courts might still presume no irreparable harm based on ActiveVideo, absent other case-specific factors.
= = = =
On the damages side: The jury was asked to fill out a verdict form that asked for “An on-going royalty payment of ___% of $_____ in total sales.” As shown above, the jury chose 12% of $1.3 million sales — resulting in an award of about $150k. The patentee had asked for 20% and the accused infringer suggested 3%. The 12% is roughly in the middle of the two requests. In post-verdict ruling, the district court rejected the damages calculation — finding that it was based on impermissible speculation and was not supported by the evidence presented at trial. The issue here is that the 20% evidence was apparently excluded at trial. The patentee also presented evidence of a 43% profit rate by the infringer — arguably sufficient for the jury to award a 12% royalty. At oral arguments, the patentee’s attorney Joseph Trojan argued that the court should not invade “the black box of the jury.”
a 12% royalty is objectively a reasonable royalty rate for such a successful product in which someone’s making 43% profit on. There’s nothing objectively unreasonable, the jury did.
Trojan oral args. But, the court was unconvinced — asking for evidence of why such a split in profits would be appropriate. The court wanted expert testimony of an industry standard on point, but Trojan argued that “those kinds of numbers are rarely available, because most licensing agreements are private agreements.”
The district court acknowledged that while expert testimony is not required to prove damages under 35 U.S.C. § 284, the evidence cited by CEMCO, such as its licensee’s sales, the parties’ competitive relationship, and the commercial success of the patented products, did not enable the jury to determine a specific royalty rate. The court noted that the only suggestions of a specific rate came from CEMCO’s attorney’s argument in closing and a license that was not admitted into evidence.
On appeal, the Federal Circuit affirmed the district court’s decision to set aside the damages award. The appeals court found no abuse of discretion in the district court’s conclusion that CEMCO “failed to carry its burden to prove damages for lack of . . . explanation of the proper royalty rate in its evidence.” The Federal Circuit emphasized that when using the hypothetical negotiation framework to determine a reasonable royalty, “while mathematical precision is not required, some explanation of both why and generally to what extent the particular factor impacts the royalty calculation is needed.” quoting Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10 (Fed. Cir. 2012).
A few notes:
- I expect that the patentee would have been better served by a simpler form that simply asked the jury for a lump sum amount rather than two separate numbers.
- It seems to me that the answer to achieving a too large verdict award is not for the court to reset the award to zero. Rather, the typical approach is to either (1) hold a new trial on damages or (2) remittitur lowering the damages to an amount actually proven or admitted (such as the 3% royalty).
Although the patentee is not receiving any money damages, I will note that the district court recently awarded $600k in attorney fees and costs. However the party appears effectively bankrupt and collection is unlikely.
Re directly from this In re California Expanded Metal Products Co. (CEMCO) decision remand for a 4-part eBay injunction test: “..an exclusive licensing patentee might well face harm beyond the simple loss of reliably measurable licensing fees, including price erosion, damage to intangible reputation, harm to brand loyalty, and permanent loss of customers. See Robert Bosch, 659 F.3d at 1152–55 (finding irreparable harm even though neither the plaintiff nor defendant directly sold patent-covered products to customers).”
There is a similar more than 60 year old Illinois appellate court case where an copyright author grants an EXCUSIVE license and is dependent for its creative compensation on protecting that licensee from infringers). [I am assuming that CEMO here was the patent-inventing company, not a patent-buying PAE, which, as Dennis notes is still unlikely to get an injunction.]
Closer – but still not properly focused on the actual nature of the right transgressed.
Patent rights are simply not the right to DO.
P.S. This decision should be of benefit to Universities for their licensed patents IF licensed exclusively.
Technically, there is no Statutory difference for patent infringement suit recoveries between the extremes of an inventor or an inventive company suing for infringement of its own patents and a PAE suing on patents bought for pennies in a bankruptcy sale. However, there as practical or real world matter there is a difference – in the equitable viewpoints of judges and juries -and that is what counts.
Keep on tryin g to peddle that misinformation, oh Cheerleader.
“. However, there as practical or real world matter there is a difference – in the equitable viewpoints of judges and juries -and that is what counts.”
When “equitable viewpoints” are grounded in proper understanding of what a patent right is – your desired narrative is eviscerated.