Apportion This! The State of IP Damages · licensee —who desired, as a business proposition, to...

February 12, 2015

Apportion This!

The State of IP Damages

Overview: Monetary Awards in

Patent Litigation

Adam Kelly – Loeb & Loeb LLP

Damages

35 U.S.C. § 284: “the court shall award the claimant damages

adequate to compensate for the infringement, but in no event

less than a reasonable royalty”

Reasonable Royalty

Lost Profits

Combination of both

Typical subject of expert reports/testimony

35 U.S.C. § 284: “the court may increase the damages up to

three times the amount found or assessed.”

Enhanced damages, up to treble (often less)

Usually briefed post-verdict on a finding of willful infringement

Damages

Supplemental Damages

A way to account for the timeframe between when discovery

ends verdict/judgment/patent expiry/date injunction

begins/etc.

Sometimes needed post-verdict if no injunctive relief granted

and patent remains in effect

Sometimes determined on briefs, sometimes requires

supplemental trial with fact and expert testimony

Attorneys’ Fees

35 U.S.C. 285: “The court in exceptional cases may

award reasonable attorney fees to the prevailing party.”

Recent Supreme Court cases Octane Fitness & Highmark

arguably lower standard

Motions for fees can happen at all stages of litigation (following

frivolous motion practice, discovery abuses, litigation

misconduct, etc.)

Alleged infringers can request fees, too

Costs & Interest

Costs (not fees)

FRCP 54(d)(1)

Awarded to the “prevailing party” in litigation

Regional circuit law governs award of costs and timing of motion for costs

Costs include copying, necessary transcripts expenses

Alleged infringer gets costs if it prevails

Pre and Post Judgment Interest

Awarded in addition to damages

Typically topic of supplemental expert reports

Typically quite low (in comparison to damages award)

Provisional Rights

Adam Kelly – Loeb & Loeb LLP

7

Provisional Rights

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Under 35 U.S.C. § 154(d), provisional rights provide the patentee the right to obtain a reasonable royalty from any person who:

(i) makes, uses, sells, or offers for sale the invention claimed in the published application; and

(ii) had actual notice of the published application

Grants rights to obtain the reasonable royalty from the date of publication to the date the patent issued

But the published claims must be substantially identical to the issued claims

Reasonable Royalty

Robyn Bowland – Akerman LLP

Trevor Copeland – Brinks, Gilson & Lione

Karina Wong – Brinks, Gilson & Lione

Q: When must you address the Georgia-Pacific factors in

a reasonable royalty analysis?

(a) Always, the Federal Circuit requires it

(b) When the factor(s) are relevant to the facts of the case

(c) Never, the Federal Circuit ended the use of the Georgia-

Pacific factors

(d) When your case involves paper products

Reasonable Royalty: Quiz

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Q: When must you address the Georgia-Pacific factors in

a reasonable royalty analysis?

(a) Always, the Federal Circuit requires it

(b) When the factor(s) are relevant to the facts of the case

(c) Never, the Federal Circuit ended the use of the Georgia-

Pacific factors

(d) When your case involves paper products


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Q: When is use of the Nash Bargaining Solution

appropriate?

(a) Never

(b) Always, it best models all negotiation situations

(c) When your damages expert sufficiently shows it is relevant

to the facts at hand

(d) When Crosby and Stills are busy


12

Q: When is use of the Nash Bargaining Solution

appropriate?

(a) Never

(b) Always, it best models all negotiation situations

(c) When your damages expert sufficiently shows it is relevant

to the facts at hand

(d) When Crosby and Stills are busy


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Reasonable Royalty: Basic Principles

Reasonable royalty determined based on applying Georgia-Pacific

factors:

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1. The royalties received by the patentee for the licensing of the

patent in suit, proving or tending to prove an established royalty.

2. The rates paid by the licensee for the use of other patents

comparable to the patent in suit.

3. The nature and scope of the license, as exclusive or non-exclusive;

or as restricted or non-restricted in terms of territory or with

respect to whom the manufactured product may be sold.

4. The licensor's established policy and marketing program to

maintain his patent monopoly by not licensing others to use the

invention or by granting licenses under special conditions designed to

preserve that monopoly.

5. The commercial relationship between the licensor and licensee,

such as, whether they are competitors in the same territory in the

same line of business; or whether they are inventor and promotor.

6. The effect of selling the patented specialty in promoting sales of

other products of the licensee; the existing value of the invention to

the licensor as a generator of sales of his non-patented items; and

the extent of such derivative or convoyed sales.

7. The duration of the patent and the term of the license.

8. The established profitability of the product made under the patent;

its commercial success; and its current popularity.

9. The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results.

10. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention.

11. The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use.

12. The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions.

13. The portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer.

14. The opinion testimony of qualified experts.

15. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee —who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention—would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license.

Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp.

1116 (S.D.N.Y. 1970).


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Royalty may be running or lump sum

Running royalty determined by selecting appropriate royalty base and rate (Royalty Rate x Royalty Base = $ Damages)

Date of hypothetical negotiation is date infringement began – LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012).

There must be a basis in fact to associate royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011).

Issues related to expert analysis of comparability of licenses and factual assumptions and considerations go to weight of evidence, not admissibility of testimony – Activevideo Networks, Inc. v. Verizon Comms., Inc., 694 F.3d 1312 (Fed. Cir. 2012).


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Royalty Base Apportionment

Supreme Court precedent directing apportionment based upon patented features – Garretson v. Clark, 111 U.S. 120 (1884)

Even when apportioning, one can’t cure overly large base by using lower rate – Uniloc USA v. Microsoft, 632 F.3d 1292 (Fed. Cir. 2011)

May be able to start with the “smallest salable patent practicing unit” – LaserDynamics, Inc. v. Quanta Computer, 694 F.3d 51 (Fed. Cir. 2012) (still requiring apportionment of infringed patented value)

Court must limit damages testimony, including for apportionment, to “firm scientific or technical ground” – VirnetX v. Cisco Systems, 767 F.3d 1308 (Fed. Cir. 2014).

Reasonable Royalty: Recent Cases

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Ericsson, Inc. v. D-Link Sys., Inc., Case Nos. 2013-1625, -1631, -1633 (Fed. Cir. Dec. 4, 2014). District Court allowed expert opinion on reasonable royalty based on

previous licenses applying rate to value of entire electronic device rather than just infringing Wi-Fi chips

Federal Circuit held it was appropriate to use entire value of devices where the licenses evaluated by expert applied rate to entire value of electronic devices and some basis for determining the license rates reflected an apportionment of the value of the patented chips existed

Federal Circuit also held it was improper to instruct jury on all of the Georgia-Pacific factors when some were irrelevant or misleading based on the issues of the particular case Here, the Federal Circuit found GP factors 4, 5, 8, 9, and 10 were irrelevant or

misleading to Ericcson’s patents encumbered by a RAND commitment

Federal Circuit declined to outline new reasonable royalty factors for RAND cases

Reasonable Royalty: Recent Cases

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VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014).

Accused products:

Apple’s servers that run “FaceTime” on iPhone, iPod, iPad and Macs

Apple’s iPhone, iPad, and iPod Touch that include “VPN on Demand”

Federal Circuit rejected application of Nash Bargaining Solution where an expert has not sufficiently shown the Solution is applicable to the facts at hand.

Nash Bargaining Solution assumes that bargaining parties would agree to a solution where both bargaining parties would receive the same money profit (i.e. the parties would split the incremental profit evenly amongst themselves)

Reasonable Royalty: Apportionment

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Garretson v. Clark, 111 U.S. 120 (1884)

The patentee “must in every case give evidence tending to

separate or apportion the defendant’s profits and the

patentee’s damages between the patented feature and the

unpatented features and such evidence must be reliable and

tangible, and not conjectural or speculative; or he must show,

by equally reliable and satisfactory evidence, that the profits

and damages are to be calculated on the whole machine, for

the reason that the entire value of the whole machine, as a

marketable article, is properly and legally attributable to the

patented feature.”


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When is apportionment NOT required in determining a

reasonable royalty?

(a) The accused product is the smallest salable unit containing

the patented feature

(b) The patented feature allows you to use your phone to time

travel

(c) The accused infringer’s sales model does not allow an

accurate accounting for apportionment

(d) The patented feature creates the basis for demand for the

entire product

(e) The patented feature is valuable, important or essential to

the use of the overall product


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When is apportionment NOT required in determining a

reasonable royalty?

(a) The accused product is the smallest salable unit containing

the patented feature

(b) The patented feature allows you to use your phone to time

travel

(c) The accused infringer’s sales model does not allow an

accurate accounting for apportionment

(d) The patented feature creates the basis for demand for the

entire product

(e) The patented feature is valuable, important or essential to

the use of the overall product


22

VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014)

Patent owner’s expert erroneously relied on the entire market

value of accused products by:

Failing to subtract unpatented elements from the base, e.g.,

touchscreen, camera, processor, speaker, and microphone

Failing to separate software from hardware

Failing to separate accused software from other valuable software

components

Relying on accused infringer’s sales model to avoid the task of

apportionment


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The lower court’s jury instructions were legally erroneous:

“In determining a royalty base, you should not use the value of the entire apparatus or product unless either: (1) the patented feature creates the basis for the customers' demand for the product, or the patented feature substantially creates the value of the other component parts of the product; or (2) the product in question constitutes the smallest saleable unit containing the patented feature.”

The Federal Circuit found that “this instruction inappropriately created a second exception that would allow a patentee to rely on the entire market value of a multi-component product so long as that product is the smallest salable unit containing the patented feature.”


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“[W]hen claims are drawn to an individual component of a multi-component product, it is the exception, not the rule, that damages maybe based upon the value of the multi-component product.”

“Where the smallest salable unit is, in fact, a multicomponent product containing several non-infringing features with no relation to the patented feature . . . the patentee must do more to estimate what portion of the value of that product is attributable to the patented technology. To hold otherwise would permit the entire market value exception to swallow the rule of apportionment.”


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“It is not enough to merely show that the [patented feature] is viewed as valuable, important, or even essential to the use of the [overall product].” (citing LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012))

Instead, “[a] patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.” (citing Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255 (Fed. Cir. 2013) In the absence of such a showing, principles of apportionment apply.

No Apportionment:

Special Damages for Design Patents

Trevor K. Copeland – Brinks, Gilson & Lione

Design Patent Damages: 35 USC § 289

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Disgorgement of Infringer’s Total Profit Catalina Lighting, Inc. v. Lamps Plus, Inc., 295 F.3d 1277 (Fed. Cir. 2002) A patent

owner can’t double-dip for utility+design infringement, but disgorgement damages may exceed reasonable royalty damages;

For example: in Bernhardt L.L.C. v. Collezione Europa USA, Inc., 436 F. Supp. 2d 739 (M.D.N.C. 2006), the court used disgorgement damages the court, taking the infringer’s profits rather than imposing a burden on patentee to determine determining reasonable royalty under Georgia Pacific factors or lost profits;

No apportionment of profits to “patented features,” so design patents can be a useful tool for leverage Consider Pacific Coast Marine Windshields Limited v. Malibu Boats, LLC, (M.D. Fla.,

1/2012-10/2014), which settled on the eve of trial where an allegedly infringed windshield design patent could have resulted in disgorgement of profits on entire luxury boats retailing for $50k-100k, and Apple v. Samsung design patent appeals of an initial $1B jury verdict (basis not clearly provided/documented);

Lost Profits

Mark Feldman – DLA Piper

Don Rupert – Marshall, Gerstein & Borun LLP

Sara Horton – Jenner & Block

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Lost Profits: Definition

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Lost profits consists of the additional profits that a patent

owner would have made if there had been no infringement by

the defendant. 35 U.S.C. § 284 (2006); Rite-Hite Corp. v. Kelley

Co., 56 F.3d 1538, 1545-46 (Fed. Cir. 1995) (en banc). A patent

owner must prove:

A reasonable probability that, but for the defendant’s infringement,

the patent owner would have made additional profits through the

sales of all or some of the patented product or process that the

defendant made.

The amount of profit the patent owner would have made on those

additional sales.

The defendant reasonably should have foreseen that the patent

owner would have lost profits.

Approaches to Proving Lost Profits

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Panduit Factors (575 F.2d 1152 (6th Cir. 1978))

Two Supplier Market

Multiple Supplier Market/Market Share

Panduit Factors

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There was a demand for the patented product or process.

There was no acceptable, non-infringing substitute for the patented product or process.

The patent owner was capable of satisfying the demand.

The amount of profit the patent owner would have made.

Two Supplier Market

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The patent owner and defendant are the only suppliers

for the product or process in the market.

The patent owner was capable of making all of the sales

made by defendant.

If the patent owner proves these things, it is entitled to recover

its lost profits on all of the sales made by defendant unless the

defendant proves that the patent owner would not have made

some or all of the sales.

Multiple Supplier Market/Market Share

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When there are multiple suppliers in the market, if the patent owner proves that it is reasonably probable that it would have made additional sales of the patented product/process, the patent owner can obtain its lost profits relating to those sales. There are two proof requirements:

The patent owner would have made some portion of defendant’s infringing sales if defendant’s infringing product had not been available.

The patent owner was capable of making all of the sales made by defendant.

For the market share approach, the patent owner will need to prove its

market share and the market share of the defendant. The market share is then used in the calculation of the lost profits.

Other Types of Lost Profits Damages

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Damages flowing from the loss of collateral sales

The unpatented, collateral product and the patented product

are shown to be part of a complete machine or constitute a

single functional unit.

Damages flowing from the patent owner’s price erosion

Damages flowing from the patent owner’s increased costs

to meet defendant’s competition

Lost Profits: Apportionment

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Does apportionment have a role in lost profits?

(a) Yes

(b) No

(c) Maybe

(d) Only on Thursdays


36

Does apportionment have a role in lost profits?

(a) Yes

(b) No

(c) Maybe

(d) Only on Thursdays


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The Supreme Court’s decision in Garretson v. Clark (1884) appears to require apportionment in every case unless the entire market value rule applies:

The patentee “must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features . . .”

Versata Software, Inc. v. SAP America, Inc., 717 F.3 1255 (Fed. Cir. 2013)

“The Panduit factors do not require showing demand for a particular embodiment of the patented functionality . . . Nor does it require any allocation of consumer demand among the various limitations recited in a patent claim.”


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DePuy Spine Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d

1314, 1330 (Fed. Cir. 2009)

The Federal Circuit held that the requisite demand first Panduit

factor is not limited to demand for a patented feature. Instead,

the first Panduit factor requires only demand for the patented

product.

“[T]he focus on particular features corresponding to individual

claim limitations is unnecessary when considering whether

demand exists for a patented product under the

first Panduit factor. Rather, the elimination or substitution of

particular features corresponding to one or more claim

limitations goes to the availability of acceptable noninfringing

substitutes under the second Panduit factor . . .”


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Plantronics, Inc. v. Aliph, Inc., No. C 09-01714 WHA

(N.D. Cal. Feb. 21, 2014) (order denying motion to strike

expert damages studies)

The district court found that the patent owner’s lost profits

expert had no duty to apportion consumer demand for

allegedly infringing features, differentiating over reasonable

royalty cases cited by the accused infringer.

Enhanced Damages &

Attorney’s Fees

Michelle Marek – Kaye Scholer LLP

Shane Delsman – Godfrey & Kahn (Milwaukee)

Enhanced Damages & Attorney’s Fees

Question

Which of the answers below is a similarity between

enhanced damages and attorney’s fees in patent cases?

A. They require the same evidentiary standard.

B. They can be sought by an accused infringer or patentee.

C. The Federal Circuit test for each was determined by the

same underlying case.

D. You have to be a dorky patent litigator to have to deal with

either.


Question – Raise your hand for:








either.






B. They can be sought by an accused infringer or

patentee.




either.







C. The Federal Circuit test for each was determined by

the same underlying case.


either.









D. You have to be a dorky patent litigator to have to

deal with either.


Question – Correct answer is:







Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc.,

508 U.S. 49 (1993), See J. O’Malley dissent in Halo Electronics, Inc. v.

Pulse Electronics, Inc., 769 F.3d 1371(Fed. Cir. 2014).


either.


Question – Wrong Answers:




Entitlement to attorney’s fees need only be proven by a

preponderance of the evidence. Octane Fitness, LLC v. ICON Health &

Fitness, Inc., 134 S. CT. 1749, 1758 (2014).





either.







“[A]n award of enhanced damages requires a showing of willful

infringement.” In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir.

2007). Therefore, only a successful patentee can seek enhanced

damages.




either.










either.

At least one Court has found that the holdings in Octane Fitness apply

to § 35(a) of the Lanham act in trademark matters. Fair Wind Sailing,

Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014).

Enhanced Damages

“[T]he court may increase the damages up to three

times the amount found or assessed.” 35 U.S.C. § 284

Enhanced Damages



“[A]n award of enhanced damages requires a showing of

willful infringement.” In re Seagate Tech., LLC, 497 F.3d 1360,

1368 (Fed. Cir. 2007).

Enhanced Damages



“[A]n award of enhanced damages requires a showing of

willful infringement.” In re Seagate Tech., LLC, 497 F.3d 1360,

1368 (Fed. Cir. 2007).

To establish willful infringement, a patentee must satisfy,

by clear and convincing evidence, a two pronged test that

includes and objective and subjective test. Id. at 1371.

Enhanced Damages

Objective: The infringer acted despite “an objectively high

likelihood that its actions constituted infringement of a

valid patent.” Id. at 1371.

Enhanced Damages




Question of law, which the court must decide before sending

to the trier of fact (reviewed de novo). Bard Peripheral Vascular,

Inc. v. W.L. Gore & Assocs., Inc. 682 F. 3d 1003, 1006-07 (Fed. Circ.

2012); Powell v. Home Depot U.S.A., Inc., 663 F.3d 1221, 1236 (Fed.

Cir. 2011).

Enhanced Damages




Question of law, which the court must decide before sending

to the trier of fact (reviewed de novo). Bard Peripheral Vascular,

Inc. v. W.L. Gore & Assocs., Inc. 682 F. 3d 1003, 1006-07 (Fed. Circ.

2012); Powell v. Home Depot U.S.A., Inc., 663 F.3d 1221, 1236 (Fed.

Cir. 2011).

Subjective: The objectively high risk was “either known or

so obvious that it should have been known” to the

infringer. Seagate, 497 F. 3d at 1371.

Enhanced Damages

Notes


Enhanced Damages

Notes


Usually briefed post-verdict on a finding of willful infringement

Enhanced Damages

Interesting Cases

“[A] competent opinion of counsel concluding either that [the accused infringer] did not infringe the [asserted] patent or that it was invalid would provide a sufficient basis for [the accused infringer] to proceed without engaging in objectively reckless behavior with respect to the [asserted] patent.” Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008).

“[N]o affirmative obligation to obtain opinion of counsel.” In re Seagate at 1371.

In a concurrence, two circuit judges suggest that enhancement be revisited by the Federal Circuit in light of Octane Fitness and Highmark because the current test for enhancement is similar to the test that was overturned for attorney’s fees in those cases. Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371, 1383-86 (Fed. Cir. 2014).

Enhanced Damages

Interesting Cases

“[A] competent opinion of counsel concluding either that [the accused infringer” did not infringe the [asserted] patent or that it was invalid would provide a sufficient basis for [the accused infringer] to proceed without engaging in objectively reckless behavior with respect to the [asserted] patent.” Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008).

“[N]o affirmative obligation to obtain opinion of counsel.” In re Seagate at 1371.

In a concurrence, two Federal Circuit judges suggested that enhancement be revisited by the Federal Circuit in light of Octane Fitness and Highmark because the current test for enhancement is similar to the test that was overturned for attorney’s fees in those cases. Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371, 1383-86 (Fed. Cir. 2014) (O’Malley, J., concurring).

Attorney’s Fees

“The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. 285

An “‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. CT. 1749, 1756 (2014).

District Courts should determine whether a case is “exceptional” “in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Id.

“Entitlement to fees” need only be established by a preponderance of the evidence (not clear and convincing as previously required). Id. at 1758.

Attorney’s Fees

“The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. 285:



“Entitlement to fees” need only be established by a preponderance of the evidence (not clear and convincing as previously required). Id. at 1758.

Attorney’s Fees

“The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. 285:



“Entitlement to fees” need only be established by a preponderance of the evidence (not clear and convicting as previously required). Id. at 1758.

Attorney’s Fees

Notes

Motions for fees can happen at all stages of litigation (following

frivolous motion practice, discovery abuses, litigation misconduct,

etc.)


Interesting Cases

At least one Court has found that the holdings in Octane Fitness and

Highmark apply to § 35(a) of the Lanham act in trademark matters.

Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014).

There has been some discussion as to whether a fee award can be

entered against an attorney. One district court has answered the

question - no. Rates Technology Inc. v. Broadvox Holding Company, LLC, et

al., 13-CV-00152, Doc. No. 181 (S.D. N.Y. Oct. 7, 2014).

Attorney’s Fees

Notes

Motions for fees can happen at all stages of litigation (following frivolous motion practice, discovery abuses, litigation misconduct, etc.)


Interesting Cases

At least one Court has found that the holdings in Octane Fitness apply to § 35(a) of the Lanham act in trademark matters. Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014).

There has been some discussion as to whether a fee award can be entered against an attorney. One district court has answered the question - no. Rates Technology Inc. v. Broadvox Holding Company, LLC, et al., 13-CV-00152, Doc. No. 181 (S.D. N.Y. Oct. 7, 2014).

Offer of Judgment

Amy Ziegler – Greer, Burns & Crain

69

Rule 68. Offer of Judgment

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(a) Making an Offer; Judgment on an Accepted Offer. At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. If, within 14 days after being served, the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance, plus proof of service. The clerk must then enter judgment.

(b) Unaccepted Offer. An unaccepted offer is considered withdrawn, but it does not preclude a later offer. Evidence of an unaccepted offer is not admissible except in a proceeding to determine costs.

(c) Offer After Liability Is Determined. When one party's liability to another has been determined but the extent of liability remains to be determined by further proceedings, the party held liable may make an offer of judgment. It must be served within a reasonable time--but at least 14 days--before the date set for a hearing to determine the extent of liability.

(d) Paying Costs After an Unaccepted Offer. If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.

Question for Audience

71

In the context of a Rule 68 Offer of Judgment,

attorney’s fees are likely to be included as “costs” in

which type(s) of IP case?

A) Patent

B) Trademark

C) Copyright

D) All of the above


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In the case of patents, attorney’s fees are unlikely to be

included as “costs” for Rule 68 purposes since the

relevant statute does not designate fees as such and

reserves an award of fees for “exceptional cases.” 35

U.S.C. § 285.

Similarly with trademarks, an award of attorney’s fees is

reserved for “exceptional cases,” whereas a prevailing

plaintiff is normally entitled to recover costs. 15 U.S.C. §

1117(a).


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Offer of judgment in a copyright case may include attorney’s fees as “costs” since 17 U.S.C. § 505 defines costs to include attorney’s fees. Harbor Motor Co. v. Arnell Chevrolet-Geo, Inc., 265 F.3d 638 (7th Cir. 2001) (“... prevailing parties can receive attorney’s fees pursuant to Fed. R. Civ. P. 68.”).

However, in the majority of Circuits, including the 7th Circuit, defendants cannot recover attorney’s fees under Rule 68, regardless of what the relevant statute says about attorney’s fees as costs. Poteete v. Capital Eng’g, Inc., 185 F.3d 804, 807-08 (7th Cir. 1999) (explaining that “[Rule 68] applies only to a defendant who loses” and “the statutes and common law principles that sometimes entitle a party to recover his attorneys’ fees limit that entitlement to prevailing parties.”).

Trademarks

Amy Ziegler – Greer, Burns & Crain

74

Trademarks

75

The Lanham Act 15 U.S.C. § 1117(a) provides trademark

owners five different types of monetary relief as compensation

for infringement:

an accounting of an infringer’s profits (i.e., money the infringer

made from the infringement)

the actual damages the trademark owner sustained, which can

be increased by the court up to treble the amount (i.e., money

diverted from the mark owner to the infringer)

a reasonable royalty representing a measure of the trademark

owner’s damages

attorney’s fees in exceptional cases

costs

Trademark Quiz

76

Which party bears the burden of proving the infringer’s

profits and any applicable deductions?

A) Plaintiff bears the entire burden;

B) Defendant bears the entire burden; or

C) Plaintiff bears burden of proving Defendant’s sales

only; Defendant must prove all elements of cost or

deduction claimed.

Counterfeiting

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A plaintiff in a case involving the use of a counterfeit mark

may elect to receive statutory damages of “not less than

$1,000 or more than $200,000 per counterfeit mark per

type of goods or services sold, offered for sale, or

distributed, as the court considers just.” 15 U.S.C. §

1117(c)(1).

When the counterfeiting is found to be willful, the statute

provides for statutory damages of up to “$2,000,000 per

counterfeit mark per type of goods or services sold,

offered for sale, or distributed, as the court considers

just.” 15 U.S.C. § 1117(c)(2).

Copyright: Actual Damages,

Profits & Statutory Damages

Bill McGrath

Davis McGrath LLC

John Marshall Law School

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Copyright: Quiz #1

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Who wrote: “If General Motors were to steal your

copyright and put it in a sales brochure, you could not

just put a copy of General Motors’ corporate income tax

return in the record and rest your case for an award of

infringer’s profits.”

A) Honorable James Holderman

B) Honorable Richard Posner

C) Melville Nimmer, copyright guru

D) Michael Moore, creator of the film “Roger & Me”

Copyright: Answer #1

80

Who wrote: “If General Motors were to steal your

copyright and put it in a sales brochure, you could not

just put a copy of General Motors’ corprate income tax

return in the record and rest your case for an award of

infringer’s profits.”



Taylor v. Meirick, 712 F.2d 1112 (7th Cir. 1983)

C) Melville Nimmer, copyright guru

D) Michael Moore, creator of the film “Roger & Me”

Copyright: Quiz #2

81

Who wrote: “It is too much to ask the plaintiff who has

proved infringement also to do defendant’s cost

accounting.”



C) William Patry, copyright guru

D) Honorable Richard Linn

Copyright: Answer #2

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Who wrote: “It is too much to ask the plaintiff who has

proved infringement also to do defendant’s cost

accounting.”




C) William Patry, copyright guru

D) Honorable Richard Linn

Copyright: Quiz #3

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Who wrote: [In calculating profits of the infringer]

“Costs that would be incurred anyway should not be

subtracted, because by definition they cannot be avoided

by curtailing the profit-making activity.”

A) Honorable Richard Posner

B) Anyone else in the world

Copyright: Damages

84

§504 -- A copyright infringer is liable for:

Actual Damages

AND

Profits of the Infringer

OR

Statutory Damages

Copyright: Actual Damages

85

Actual Damages = The extent to which the market value

of a work has been diminished by the infringement.

Examples:

Reasonable license fee based on fair market value. On

Davis v. The Gap, Inc., 246 F.3d 152 (2d Cir. 2001) McRoberts

Software v. Media 100, 329 F.3d 557 (7th Cir. 2003)

Gaylord v. U.S., 2015 WL 449192 (Fed. Cir. 2015) (discussing

hypothetical negotiations)

Plaintiff ’s lost profits from lost sales as a result of the

infringement.


Copyright: Profits of the Infringer

86

§504(b) allows a copyright owner to recover profits of

the infringer:

The profits must be “attributable to the infringement” --

i.e., a causal nexus.

Taylor v. Meirick

Polar Bear Prod. v. Timex Corp., 384 F.3d 700 (9th Cir. 2004)

No double counting -- the profits must not be taken into account in

determining actual damages.

Bucklew v. Hawkins Ash Baptie & Co., 329 F. 3d 923 (7th Cir. 2003)

McRoberts Software v. Media 100, 329 F.3d 557 (7th Cir. 2003)

Copyright: Profits of the Infringer

87

§504(b) allocates the burden of proof

Plaintiff need only show the infringer’s gross revenues, but they

must be “reasonably related to the infringement.” On Davis v. The Gap, Inc., 246 F.3d 152 (2d Cir. 2001)

Defendant must prove deductible expenses

Can deduct direct costs of creating and selling the infringing product

(cost of goods sold)

Can deduct variable costs

Cannot deduct fixed costs (that would have been incurred even if

defendant had not infringed)

Copyright: Statutory Damages

88

Available only if plaintiff has complied with §412 (requiring

registration prior to infringement or within grace period for

published works).

Range is $750 - $30,000.

Innocent – as low as $200; willful – as high as $150,000

The award is “for all infringements, involved in the action, with

respect to any one work . . .” §504(c).

Make 10,000 posters and 1,000 T-shirts from plaintiff ’s photo = 1

award

Download 100 different songs = 100 awards

Plaintiff can make the election “at any time before final judgment

is rendered”

Trade Secrets

Deirdre A. Fox, Scharf Banks Marmor LLC

89

90

Trade Secrets: Potential for Large Damages

DuPont v. Kolon Indus. E.D. Va 2011

$919.M 4th Cir. vacated

Pacesetter, Inc. v. Nervicon Co. Cal. Sup. Ct. 2011

$2.3 B reduced to $947 M

Seagate Tech. LLC v. Western

Digital Corp. Minn. Ct. App. 2013

$630 M arbitration award

Lexar Media Inc. v. Toshiba Corp. Cal. Sup. Ct. 2005

$465.4M award settled for $288 M

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Trade Secrets: Damages Overview

Injunction

Damages

Actual Loss, e.g. Lost Profits

Unjust Enrichment

Reasonable Royalty (as an alternative)

Exemplary Damages (Discretionary)

Attorney Fees

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Trade Secrets: U.T.S.A.* Damages

Uniform Trade Secrets Act §3(a) § 3( “actual loss caused by the misappropriation”

“unjust enrichment caused by the misappropriation that is

not taken into account in computing actual loss”

OR

“in lieu of damages measured by any other methods … a

reasonable royalty for a misappropriator’s unauthorized

disclosure or use of a trade secret”

*MA and NY have not adopted the U.S.T.A.

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Trade Secrets: Unjust Enrichment

Measures?

Increased revenues and resulting profits

Reduced production costs and resulting profits

Avoided cost of development and head start

When accounting period starts?

filing of suit OR

a prior date

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Trade Secrets: “Head Start”

Limits duration of unjust enrichment damages to the time defendant saved in getting a product to market by virtue of its misappropriation

In some jurisdictions

Where misappropriation permitted defendant to develop a product sooner than it would have without the misappropriation.

See, e.g. Russo v. Ballard Med. Prods., 550 F.3d 1004, 1020 (10th Cir. 2008)

95

Trade Secrets: Reasonable Royalty

Evidence of royalties charged in an actual licensing

agreement => most persuasive measure

Hypothetical negotiation between the parties occurring at

the time infringement begins (like patent cases)

Georgia-Pacific factors

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Trade Secrets: Reasonable Royalty

State Variation

“in lieu of damages measured by any other methods” See, e.g., 6 Del. C. §2003 (2010) (Majority View)

Only if neither damages nor unjust enrichment are provable See, e.g. Cal. Civ. Code § 3426.3 (2010)

Only if neither damages nor unjust enrichment are proved by a

preponderance of the evidence See, e.g. 765 ILCS 1965/4 (2011).

Damages “shall not be less than a reasonable royalty.” See ORS §646.45 (2009)

If plaintiff is unable to prove an amount of damages that exceeds a

reasonable royalty by other methods” See, e.g., Wis. Stat. §134.90 (2010)

Silent on reasonable royalty. See, e.g., Rev. Code Wash, (ARCW) §19.108,030

97

Trade Secrets: Quiz

OnlyInsurance LLC misappropriates SellOnlyInsurance Co.’s proprietary computer

code for an automated system to deliver multiple insurance products on a high

volume basis through large employer relationships. Can SellOnlyInsurance Co recover

damages under an actual loss, unjust enrichment or reasonable royalty theory?

A) Under any or all theories. OnlyInsurance LLC is a thief!

B) Not under any theory. These companies sell insurance policies, not computer

software programs.

C) Only under a reasonable royalty theory. It’s just too hard to figure out direct

losses as a result of the use of the software.

D) Only under an actual loss or unjust enrichment theory because there’s just

nothing on which to base a royalty.

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Trade Secrets: Quiz

OnlyInsurance LLC misappropriates SellOnlyInsurance Co.’s proprietary computer

code for an automated system to deliver multiple insurance products on a high

volume basis through large employer relationships. Can SellOnlyInsurance Co recover

damages under an actual loss, unjust enrichment or reasonable royalty theory?

A) Under any or all theories. OnlyInsurance LLC is a thief!

B) Not under any theory. These companies sell insurance policies, not computer

software programs.

C) Only under a reasonable royalty theory. It’s just too hard to figure out direct

losses as a result of the use of the software.

D) Only under an actual loss or unjust enrichment theory because there’s just

nothing on which to base a royalty.

Member Services, Inc. et al. v. Security Mut. Life Ins. Co. of New York.

2011 U.S. Dist. LEXIS 56910, *11-12 (N.D.N.Y. 2011)

99

Trade Secrets: Quiz

After a falling out, DATACo, a data storage and recovery

software developer, fires a director, Joe. Ticked off, Joe shares

the source code, on which DataCo’s products, depend with a

rival. The rival does not hire or pay Joe. It does quickly come

out with a competing software surprisingly similar to DataCo’s.

A jury awards DataCo $2.92M based on estimate of what a

reasonable royalty would be for use of the misappropriated

trade secrets. On appeal, Joe argues the award is excessive

because DataCo did not offer proof that he profited or that the

rival made commercial use of the source code. Is his appeal

successful?

StorageCraft Tech Corp. v. Kirby, 744 F.3d 1183 (10th Cir. 2014)

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Trade Secrets: Other Damage Measures

Obligation to pay for what has been wrongfully obtained.

In re Cross Media Marketing Corp.

Defendants stole customer list and unsuccessfully attempted to

auction it.

Damages calculated by determining how much each lead on

the customer list cost plaintiff to develop, and multiplying that

cost by the amount of leads on the customer list to arrive at a

result that most closely approximated plaintiff ’s losses. 2006 U..S. Dist. LEXIS 56112, *15-16 (S.D.N.Y. 2006)

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Trade Secrets: Don’t forget other theories

Wayman Fire Protection, Inc. v Premium Fire & Security, LLC

Remedies available despite lack of a non-compete or

misappropriation of trade secret

Former employee used former employer’s information to

compete directly with employer by bringing employees to his firm

who had taken proprietary information, used it to win a bidding

war.

Court dismissed claims for tortious interference and

misappropriation but found violations of Delaware Misuse of

Computer System Information Act and breach of fiduciary duty

to employer. 2014 Del. Ch. LEXIS 33 (Del. Ch. 2014)

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Trade Secrets: U.T.S.A. Other Damages

Court may award exemplary damages for willful and

malicious misappropriation not exceeding twice §3(a)

damages. U.T.S.A. §3(b)

Court may award reasonable attorney fees if

Willful and malicious misappropriation

Claim of misappropriation made in bad faith

Motion to terminate an injunction made in or resisted in bad

faith

U.S.T.A. § 4

See., e.g., Tradesman Intl. Inc. v. Black, 724 F.3d 1004 (7th Cir. 2013)(IL Law).

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