Apportionment Archives

Apportionment

Message Received: Trade Secret Law Damages Available for Sales Outside US

by Amol Parikh | Jul 18, 2024 | Copyrights, Trade Secrets

The US Court of Appeals for the Seventh Circuit affirmed, in a matter of first impression, a district court’s decision to apply trade secret law extraterritorially and award trade secret damages for foreign sales while also finding that the copyright damages award needed to be reduced to eliminate foreign sales. Motorola Solutions, Inc. v. Hytera Communications Ltd., Case Nos. 22-2370; -2413 (7th Cir. July 2, 2024) (Hamilton, Brennan, St. Eve., JJ.)

Motorola Solutions and Hytera compete globally in the market for two-way radio systems. Motorola spent years and tens of millions of dollars developing trade secrets embodied in its line of high-end digital mobile radio (DMR) products. Hytera struggled to overcome technical challenges to develop its own competing DMR products. After failing for years, Hytera hatched a plan to “leap-frog Motorola” by stealing its trade secrets. Hytera, headquartered in China, hired three engineers from Motorola in Malaysia, offering them high-paying jobs in exchange for Motorola’s proprietary information. Before the engineers left Motorola, acting at Hytera’s direction, they downloaded thousands of documents and computer files containing Motorola’s trade secrets and copyrighted source code. Hytera relied on the stolen material to develop and launch a line of DMR radios that were functionally indistinguishable from Motorola’s DMR radios. Hytera sold these DMR radios in the United States and abroad.

Motorola sued Hytera for copyright infringement and trade secret misappropriation. The jury found that Hytera had violated both the Defend Trade Secrets Act of 2016 (DTSA) and the Copyright Act. The jury awarded compensatory damages under the Copyright Act and both compensatory and punitive damages under the DTSA for a total award of $765 million. The district court later reduced the award to $544 million, which included $136 million in copyright damages and $408 million in trade secrets damages. Hytera appealed.

Hytera conceded liability and instead challenged the damages award under both the Copyright Act and the DTSA. Among other things, Hytera argued that copyright and trade secret damages should not have been awarded for its sales outside the US. With respect to the copyright award, the Seventh Circuit agreed that Motorola failed to show a domestic violation of the Copyright Act and therefore was not entitled to recover damages for any of Hytera’s foreign sales of infringing products as unjust enrichment. Specifically, to show a domestic violation of the Copyright Act, Motorola had asserted that its code was copied from servers based in Chicago. While the district court accepted Motorola’s argument, the Seventh Circuit found that this factual finding lacked adequate support in the record, citing Motorola’s expert’s admission that there was no evidence of downloads from the Chicago servers. The Court instead found that given the location of the employees in Malaysia, it was likelier that the code was downloaded from Motorola’s Malaysia server. The Court therefore reversed the $136 million copyright award and remanded with instructions to limit the copyright award to Hytera’s domestic sales of infringing products.

The Seventh Circuit affirmed with respect to the trade secret award. Like the [...]

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Can’t Hide Behind Minor Clerical Error to Escape Willful Infringement Verdict

by Cecilia Choy, Ph.D. | Jun 9, 2022 | Patents

The US Court of Appeals for the Federal Circuit affirmed a district court decision correcting a clerical error in a claim. Pavo Solutions LLC v. Kingston Technology Company, Inc., Case Nos. 21-1834 (Fed. Cir. June 3, 2022) (Lourie, Prost, Chen, JJ.)

The Pavo patent is generally directed to a “flash memory apparatus having a single body type rotary cover.” CATR Co., later substituted by Pavo, sued Kingston for infringing the Pavo patent. Supported by the patent specification and prosecution, the district court judicially corrected the claim language in its claim construction order to read “pivoting the cover with respect to the flash memory main body,” not “pivoting the case with respect to the flash memory main body” (change emphasized). Pavo’s damages expert, Bergman, presented a profit-based model of reasonable royalty damages, relying on an earlier settlement agreement between CATR and IPMedia to arrive at a profit split of 18.75%, amounting to 40 cents/unit for Kingston. The jury returned a verdict of willful infringement and awarded Pavo a 20% reasonable royalty.

Judicial Correction

The Federal Circuit addressed and affirmed three issues on appeal, the first being that the district court approximately corrected an obvious minor clerical error in the claims. Correction is appropriate “only if (1) the correction is not subject to reasonable debate based on consideration of the claim language and the specification and (2) the prosecution history does not suggest a different interpretation of the claims.” In deciding whether a particular correction is appropriate, a court “must consider how a potential correction would impact the scope of a claim and if the inventor is entitled to the resulting claim scope based on the written description of the patent.”

The Federal Circuit decided that the error was clear from the full context of the claim language, supported by the specification, and did not broaden the claim scope. Additionally, the correction was not subject to reasonable debate. Judicial correction “is merely giving to it the meaning which was intended by the applicant and understood by the examiner.” Kingston’s alternative correction would just reverse the order in which the structural components appear in the claim.

The prosecution history also did not suggest a different interpretation of the claim. The applicant and the examiner consistently characterized the claims as describing pivoting the case within the cover, which both the Patent Trial & Appeal Board (Board) and the court recognized. Each reviewing body understood the nature and scope of the invention consistent with correcting “case” to “cover.” Kingston argued that the Board denied the applicant’s request to correct the language, but the denial was on procedural grounds.

Willfulness

Second, the Federal Circuit determined that Kingston could form requisite intent to support a willful infringement verdict despite its arguments that it reasonably relied on not infringing the claims as originally written, and it could not anticipate that a court would later correct the claims. However, “reliance on an obvious minor clerical error in the claim language is not a defense to willful infringement.” By definition, [...]

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One for All, and All for One . . . Except When It Comes to Patent License Comparability

by Christopher M. Bruno | Sep 30, 2021 | Patents

Examining whether portfolio patent licenses can be sufficiently comparable to a single-patent license for the purposes of supporting a patent damages verdict, a split panel of the US Court of Appeals for the Federal Circuit concluded that, at least without accounting for distinguishing features, the answer is no. Omega Patents, LLC v. CalAmp Corp., Case No. 20-1793 (Fed. Cir., Sept. 14, 2021) (Prost, J.)

The most recent decision was the result of a second jury trial, after the Federal Circuit previously ordered a new trial. At issue in this appeal were certain direct-infringement findings, admission of technical expert testimony and the underlying damages determination. Multiple errors were raised regarding the latter, the most significant of which was the court’s apportionment analysis.

At trial, the jury awarded a royalty of $5 per unit to Omega for CalAmp’s infringement of a single patent that covered multi-vehicle tracking units. On appeal, CalAmp contended that patent damages law required apportionment, and that the evidence was insufficient to support apportionment. Judge Prost, joined by Judge Dyk, agreed, while Judge Hughes dissented in part.

First, the Federal Circuit rejected Omega’s argument that apportionment was unnecessary because all parts of the infringing units were covered by the claims. According to the Court, even where all elements of the infringing unit are claimed, a patentee still must approximate the value of the patented features as compared to the conventional, pre-existing elements. Thus, the jury could not, as a matter of law, merely value the entire unit.

Next, the Federal Circuit held that Omega could not rely on the entire-market-value rule to support its damages verdict. That rule permits a patentee to value the infringement where the patented feature drove demand for the entire product. But on the record here, it was undisputed that other conventional elements contributed to sales of the underlying product. At most, the record indicated that the patent technology was important or helpful—which was insufficient to show that it actually drove sales.

Lastly, Omega contended that its royalty was supported by licensing evidence, which included (1) Omega’s president’s testimony that its policy was to license its entire portfolio for a certain amount regardless of the number of patents included at the time of licensing, and (2) 18 license agreements consummated by Omega, some of which included the patent at issue. For both items, the Federal Circuit found evidence of apportionment lacking. To the first claim (i.e., that Omega would not have hypothetically licensed on a patent-by-patent basis), the Court concluded that crediting such testimony would serve as an end-run around the apportionment requirement because it did not approximate the value of the specific patent at issue. So too with the 18 license agreements, many of which identified a portfolio that included almost 50 additional patents. And although the damages expert identified the portfolio feature as distinguishing, the expert’s failure to explain how to separate out the value of the individually asserted patent was fatal.

In dissent, Judge Hughes would have permitted the conventional, more [...]

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Damage Expert Testimony Excluded for Failure to Disclose Evidence and to Apportion

by Jodi Benassi | Sep 9, 2021 | Patents

The US Court of Appeals for the Federal Circuit affirmed a district court’s decision to preclude a damage expert from characterizing license agreements and opining on a reasonable royalty rate where the sponsoring party failed to produce key documents and to apportion for non-patented features. MLC Intellectual Property, LLC v. Micron Technology, Inc., Case No. 20-1413 (Fed. Cir. Aug. 26, 2021) (Stoll, J.)

MLC sued Micron for infringing claims of a patent relating to programing multi-level memory cells. In his expert report, MLC’s damage expert, Michael Milani, attempted to reconstruct the hypothetical negotiation. Milani opined on two separate approaches to determining the royalty base: A comparable license and the smallest saleable patent practicing unit.

Milani considered each of the Georgia-Pacific factors to determine a reasonable royalty rate. He determined that a Hynix Semiconductor license agreement was relevant, notwithstanding that it required a lump sum payment for a non-exclusive license to a patent portfolio containing the asserted patent rather than a royalty rate. Milani relied on a most favored customer provision that contemplated Hynix paying less for the patents if the licensor granted a license at a royalty rate of less than 0.25% to any new licensee to arrive at his royalty rate. Milani applied this rate to another lump sum agreement MLC had with Toshiba Corporation. To support his opinion, Milani relied on extrinsic evidence, including summaries of negotiations involving the asserted patent and another alleged infringer and letters and memorandums with other licensees—all contemplating a 0.25% royalty rate. Micron moved to exclude Milani’s testimony.

Micron filed a motion in limine to preclude Milani from mischaracterizing the license agreements as reflecting a 0.25% royalty rate. Micron moved to strike portions of Milani’s expert report under Fed. R. Civ. Pro. 37 as based on facts, evidence and theories that MLC disclosed for the first time in its damage expert report. Micron further filed a Daubert motion, seeking to exclude Milani’s reasonable royalty opinion for failure to apportion out the value of non-patented features. The district court granted all three motions.

The district court rejected Milani’s reliance on the most favored customer provision in the Hynix agreement for the 0.25% royalty rate, finding that the provision did not apply the rate to the lump sum nor did it provide any insight into how the lump sum was calculated. The district court also determined that Milani did not base his testimony on sufficient facts or data, and his opinion was not the product of reliable principles and methods. Finally, the district court found that MLC did not disclose the extrinsic evidence relied on by Milani to reflect the 0.25% rate, and therefore MLC could not rely on that evidence. Lastly, the district court determined that there was no evidence supporting Milani’s opinion that the 0.25% rate apportioned non-patented features of the accused products. MLC filed an interlocutory appeal.

The Federal Circuit found that Milani’s testimony relating to the 0.25% royalty rate rested on an inference from the most favored customer clause that went [...]

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Apportionment Unnecessary When Royalty Is Based on Comparable License

by April E. Weisbruch | Dec 3, 2020 | Patents

Rejecting a defendant’s request for a new trial on a variety of grounds, the US Court of Appeals for the Federal Circuit affirmed a damages award and explained that apportionment was unnecessary because a sufficiently comparable license was used to determine the appropriate royalty. Vectura Ltd. v. GlaxoSmithKline LLC et al., Case No. 20-1054 (Fed. Cir. Nov. 19, 2020) (Prost, C.J.)

Vectura owns a patent directed to the production of composite active particles for use in pulmonary administration, such as in dry-powder inhalers. Vectura filed a lawsuit against GlaxoSmithKline (GSK) alleging infringement of the patent by GSK’s Ellipta-brand inhalers. At trial, a jury found the patent valid and infringed, and awarded $90 million in damages. After GSK’s motion for judgment as a matter of law (JMOL) on infringement was denied, GSK appealed.

The Federal Circuit affirmed, rejecting all of GSK’s arguments. The Court rejected GSK’s argument that, based on a claim construction issue, it was entitled to JMOL of non-infringement. The asserted claims of the patent related to “composite active particles” made up of particulate additive material (magnesium stearate) on the surface of a particle of active material, used to promote the dispersion of these particles (in, e.g., inhalers). GSK argued that there was no substantial evidence of improved dispersion because Vectura’s scientific test was technically defective. The Court concluded that this test “generally supported” Vectura’s view and that, in any event, Vectura had provided other evidence—including GSK’s own documents—that the accused inhalers demonstrated improved dispersion.

The Federal Circuit also rejected GSK’s argument that the district court had erroneously construed the claim term “composite active particles” to mean “[a] single particulate entit[y/ies] made up of a particle of active material to which one or more particles of additive material are fixed such that the active and additive particles do not separate in the airstream.” GSK argued that this term required use of the “high energy milling” process referred to in the specification of the patent, but the Federal Circuit disagreed, stating that “[a]lthough the [asserted] patent contains a few statements suggesting that its high-energy milling is required . . . those statements are outweighed by the numerous statements indicating that high-energy milling is merely a preferred process.”

The Federal Circuit further rejected GSK’s argument that Vectura’s damages theory was deficient. Vectura’s damages theory was based on a 2010 license between the parties relating to highly comparable technology. GSK argued that Vectura’s damages theory simply adopted the royalty rate from this prior license wholesale and failed to “show that the patented . . . mixtures drove consumer demand for the accused inhalers before presenting a damages theory based on the entire market value of the accused inhalers.” The Court noted that the case presented a “rather unusual circumstance” in that, while apportionment is ordinarily required where an entire-market-value royalty base is inappropriate, “when a sufficiently comparable license is used as the basis for determining the appropriate royalty, further apportionment may not necessarily be required.” The Court concluded that this was “one [...]

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