Fordham 2016: Remedies - is the value of a patent always equal to the value of its injunction?

After attendees devoured a well-earned lunch at Columbus Circle on Thursday, the delegation reconvened for one of the afternoon's concurrent sessions.  The Amerikat opted for an afternoon of remedies, trade secrets and patents.  First up, remedies, moderated by Patricia Martone, who opened the session with a brief trot through US legal considerations for the granting of injunctions in eBay v MercExchange and the factors to consider for the award of damages in Georgia-Pacific.

Carey Ramos

Carey Ramos (Quinn Emanuel) explained that eBay changed the landscape for granting injunctions in the US by looking at four factors - irreparable injury, damages not an adequate remedy, balancing of hardships and public interest.  A major question arises as to whether an injunction should be granted when a patent involves a component of a product.   This issue had already been identified in eBay v MercExchange by Justice Kennedy who stated that:

"When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest."

This issue would ultimately be addressed in Apple v Samsung.  Armed with some statistics, Carey explained that prior to eBay permanent injunctions were granted in 95% of cases.  After eBay the number went down to 72%.  Although this was not a dramatic change, it was still a significant reduction.   By industry, the statistics are also illuminating.  In the biotechnology fields permanent injunctions were issued in 100% cases, whereas the numbers decrease to 75% and 67% for mechanical and electronics, respectively.  For non-practising entities, they obtained a permanent injunction in 16% of cases as opposed to other patentees who obtained injunctions in 80% of cases.

Carey explained that the Federal Circuit court consisting of Judge Prost, O'Malley and Bryson in Apple v Samsung (Apple I) held that the district court was correct to require a showing of some casual nexus between Samsung's infringement and the alleged harm to Apple as part of the showing of irreparable harm. The Federal Circuit stated that:

"Sales lost to an infringing product cannot irreparably harm a patentee if consumers buy that product for reasons other than the patented feature.  If the patented feature does not drive the demand for the product, sales would be lost even if the offending feature were absent from the accused product."  

Apple II amplified this and held that the patentee must show that but for a preliminary injunction being granted it will suffer irreparable harm.  The patentee must also demonstrate a sufficiently strong causal nexus between the alleged harm and the infringement.  In Apple III, the Federal Circuit toned down the requirement in Apple II holding that the patent does not have to be the exclusive driver, only a significant and substantial driver.  Apple IV creates more uncertainty (should it remain good authority).  Carey's view is that a few judges on the Federal Circuit are not happy with eBay; their view being that if you are granted a patent and are practising that patent, you should be able to use your exclusionary rights.   

Robert Goldman

Robert Goldman (Ropes & Gray) stated that the issues at trial are more equitable than economic.  In particular after 2002, the Federal Circuit became concerned about large damages awards on small inventions (i.e., inventions on improvements or inventions that make up a huge product).  The Federal Circuit has sought to limit large awards on small inventions by putting evidentiary limits on permissible arguments "using the entire market value".  The touchstone became economic evidence (see Lucent v Gateway, ResQnet v Lansa, Uniloc v Microsoft).   In Apple v Motorola in 2014, Judge Posner threw out both side's damages expert reports which he considered were flawed.  With no expert evidence on damages he granted summary judgment.  On appeal, the Federal Circuit said that there are many ways to calculate damages, including by way of comparable licences.  However, the touchstone of value is real-world comparability and apportionment is always required.  As to real world comparability, you can use non-identical technology or licences, but you must account for the differences.  How close is close enough to your subject matter and market dynamics will still, unfortunately, be a blurry line.  Robert emphasized that the Georgia-Pacific catalogue of evidentiary possibilities has its place.  It is not a required framework (indeed some of the factors have been ruled as irrelevant in some cases).

Tina Chappell

Tina Chappell (Associate General Counsel, Intel Corporation) was next up.  Taking a step back Tina examined the origins of patent law as a system to incentivize invention, inventions which were historically contained in one product (for example, Edison's lightbulb).  Today's high tech products contain numerous inventions.  Inventions are less about two individuals working together in a garage to invent a new product than it is about cross-border teams working together to innovate a product.  Advances and invention are much faster.  With the pace of invention speeding up, the fundamental nature of invention has changed.  Our patent law needs to react to this new environment.  The concept of proportionality is a critical aspect of modern patent systems when dealing with remedies.  Tina explained that the business value of a patented technology may only be a small proportion, but the potential value of an injunction based on the patent is 100%.  Business, especially in the high tech sector, can face this risk thousands of times for a single product.  We need to rethink remedies and and consider when is it inappropriate to award injunctions.  Tina emphasized that she was not at all suggesting that an injunction is not an appropriate remedy, especially where the patentee has a history of not licensing the patent or where the patent is a very valuable to its business.  In these circumstances an injunction may be merited.  An injunction is not merited if it is used to extract an "unwarranted share of a product's value by threatening full market exclusion."  In this case, Tina continued, you are not talking about the actual value of the patent but of litigation risk and market exclusion (i.e. the issues you are thinking about in settlement which was an issue echoed in Friday's competition panel - more on that later).  Proportionality is also a key issue when it comes to damages.  Courts must carefully separate the value contributed by the infringed patent from the value of the other products, otherwise it enables a patentee to capture value from innovation or subject matter that they did not create.  Tina called for the need to step away from the Georgia-Pacific factors as an accurate measure of damages.  That does not mean that these issues are thrown to the jury.  Tina raised the recent new model patent jury instructions from the Federal Circuit as a step in the right direction by reducing the 15 Georgia-Pacific factors down to three as follows:

(1) The value that the claimed invention contributes to the accused product.
(2) The value that factors other than the claimed invention contribute to [the accused product].
(3) Comparable license agreements, such as those covering the use of the claimed invention or similar technology

In the UPC, the risk of a pan-European injunction increases these considerations.  Tina suggested that a concept of an automatic one-size fits all injunction can distort how companies do business.  Indeed, a concept of an automatic injunction may prioritize litigation over licensing.

Annabelle Bennett, in the audience, commented that the patent is the right to exclude:  "Previously, in the ordinary patent sense, people would come to court and almost automatically be granted an injunction.  But, an injunction is a discretionary remedy which means you do not get an injunction in all cases.  Standard essential patents (SEPs) are a classic example or where a device has 1000 patents in it.  Judges are not automatons - they will fashion the remedy to the case."  This will hopefully also ring true in the UPC, says Merpel.  

Nicholas Groombridge

Nicholas Groombridge (Paul Weiss) does not think the standard is particularly well articulated in the Apple v Samsung progeny of cases.  At the end of the day, it will be driven by how much the invention brings to the party.  The flip side to this is that if a patentee does not get an injunction what remedy should they qualify for?  Is it a reasonable royalty?  If it is, when assessing a royalty you presuppose validity and infringement (as otherwise there would be no royalty).  A settlement agreement presuppose there was a dispute on validity and infringement. Nicholas stated that he had "never seen anyone in our field take a systematic effort to identify the multiplier that we should use to adjust an ordinary course of business agreement with that of a litigation settlement to account for the rate that should be assessed for validity and infringement issues being at play."  Nicholas also raised Astrazeneca v Apotex where the Federal Circuit relied in part on a settlement agreement entered into after the patent had been found valid an infringed to calculate damages.

Brian Pandya

Brian Pandya (Wiley Rein) commented that in determining value you can look to the incremental value of the invention and the value of designing around the patent.  Brian argued that a settlement agreement should be used:   "It is the most applicable real world indicator of the value of the patent, as the parties take into account the validity and infringement of the patent. He records the market value of the patent."  

The AmeriKat notes that this session saw some of the most passionate arguments from the panel and the audience.  Irrespective case law, jurisdiction and principles, the fundamental question seems to boil down to this  "What should be done when the value of the patent is not the same as the value of an injunction?"  But, of course, before you get to that question you have to ask - "What is the value of the patent?"  Should the value be in references to the patent's exclusionary power (its inherent nature as a right and thus its value equating a grant of an injunction) or what value it actually brings to the table (i.e. its value to the defendant's product)?