While the IPKat has the Amerikat, Lucentinus has Gary Rinkerman (Drinker Biddle & Reath LLP and Lecturer at Magister Lvcentinvs) to bring you any relevant information from the US
Uniloc USA, Inc. v. Microsoft Corp. (Fed. Cir. 2011)
In, Uniloc USA, Inc. and Uniloc Singapore Private Ltd. v. Microsoft Corp., No. 2010-1035, -1055, an opinion issued on January 4, 2011, the CAFC reversed a lower court’s acceptance of the «25% Rule» in calculating damages for patent infringement. Essentially, the rule allowed an assumption (as a baseline) that, in a hypothetical negotiation to determine a reasonable royalty rate, an infringer would have accepted a royalty of 25% of its profits from the infringement. The analysis then proceeds to determine if the amount should be adjusted upwards or downwards.
The case involves an award of $388 million in damages against Microsoft based on Microsoft’s use of a «Product Key» licensee verification and tracking technology that allowed Microsoft to determine if the number of copies of a program used by a licensee complied with the number of copies actually licensed for use. Although the district court correctly noted that the 25% Rule had been widely accepted in patent litigation, the CAFC nonetheless found that the Rule actually has no proper relation to the facts of specific cases, wherein numerous factors affect the amount a licensee would be willing to pay for a license.
The CAFC explained: «The admissibility of the bare 25 percent rule has never been squarely presented to this court. Neverthe-less, this court has passively tolerated its use where its acceptability has not been the focus of the case . . . This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible . . . because it fails to tie a reasonable royalty base to the facts of the case at issue.»
NOTE: The previously wide acceptance of the 25% Rule to establish a hypothetical baseline for determining reasonable royalty rates (the predominant means of determining patent infringement damages) was criticized in a number of journal articles as not reflecting the realities of license negotiations where, for example, numerous patents may cover an accused product technology. This new development – the rejection of the 25% Rule – will require litigants to focus more specifically on any number of factors that would affect negotiations regarding the specific, accused product or technology – without the «shortcut» previously provided by the 25% Rule. Based on the amount of damages involved in the case, however, it is probable that the patentee may seek Supreme Court review.
More on this decision here (Patently-O)
Spansion v. The International Trade Commission
In its December 21, 2010 opinion in the case of Spansion v. The International Trade Commission («the ITC» or «the Commission»)(opinion attached), the US Court of Appeals for the Federal Circuit («the CAFC») affirmed the ITC’s determination that its issuance of patent-based relief in the form of exclusion orders under 19 U.S.C.§ 1337 («Section 337») need not be based on the the traditional four-factor test for injunctive relief that district courts apply under eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).
The subject ITC investigation was a patent-based investigation concerning certain imported semiconductor chip packages – and the ITC found both direct and contributory infringement on the part of various respondents. However, the key ITC-specific holding by the CAFC indicates that respondents will not get the «benefit» of the eBay test for the appropriateness of injunctive relief. Rather, by statute, the ITC is required to issue an exclusion order baring importation of the accused items upon the finding of a Section 337 violation – absent a finding that the effects of one of the statutorily-enumerated public interest factors counsel otherwise. See 19 U.S.C. § 1337(d)(1).
According to the CAFC:
«Given the different statutory underpinnings for relief before the Commission in Section 337 actions and before the district courts in suits for patent infringement, this court holds that eBay does not apply to Commission remedy determinations under Section 337. The Commission is not required to apply the traditional four-factor test for injunctive relief used by district courts when deciding whether to issue the equitable remedy of a permanent injunction. Unlike the equitable concerns at issue in eBay, the Commission’s issuance of an exclusion order is based on the statutory criteria set forth in Section 337. [Respondent] Spansion’s argument that the term «public welfare» is so «broad and inclusive» that Congress must have intended it to include the traditional equitable principles reflected in the eBay standard is unpersuasive when viewed in the context of Section 337«.
The respondent Spansion unsuccessfully argued that the ITC, in keeping with eBay, should have considered the following equitable factors: (1) the US Patent & Trademark Office rejected some of the asserted claims as unpatentable in a reexamination; and (2) Tessera, the patentee, could be made whole by damages because Tessera is simply a licensor and does not actually practice the invention. However, as the CAFC pointed out, in addition to providing that an aggrieved patentee need not show irreparable harm to support issuance of an Exclusion Order, Section 337 provides that the ITC need only consider the following enumerated public interest factors in determining whether issuance of an Exclusion Order is appropriate: (1) the public health and welfare; (2) competitive conditions in the United States economy; (3) the production of like or directly competitive articles in the United States; and (4) United States consumers.
In this case, the respondents did not show that the patentee’s licensees were unable to supply the US demand for the subject product. In addition, although it noted that it was not clear that the ITC was required to consider the reexamination determination(s), the CAFC agreed with the ITC that, «although a final rejection has been issued against the asserted claims of . . .[one of the patents] . . .and prosecution has been closed in that reexamination proceeding, it would be premature to give undue weight to the reexamination proceedings until or unless . . . [the patentee] . . . has exhausted its appeals.»
PRACTICE NOTE: During my service as a Senior Investigative Attorney at the ITC, a core consideration in assessing public interest factors that might weigh against issuance of an Exclusion Order was, as the CAFC noted in the Spansion case, whether an Exclusion Order would deprive the public of products necessary for some important health or welfare need. For example, in the three decisions that denied relief on the basis of public interest factors , the concerns were that the proposed Exclusion Orders would deprive US consumers of energy efficient automobiles, basic scientific research, or hospital equipment. See, e.g., In the Matter of Certain Fluidized Supporting Apparatus and Components, Inv. No. 337-TA-182/188, USITC Pub. 1667 Therefore, a particularly noteworthy and effective strategic decision on the part of the patentee in Spansion was that it did not seek exclusion of infringing two-way radios imported for use by «first responders» who provided health care services. This was noted by both the ITC and the CAFC in discussing the absence of any public interest factors that would weigh against issuance of the Exclusion Order.