Non-Accused Products Are Not a Measure of Patent Damages
Addressing anticipation, inducement and reasonable royalty damages, the US Court of Appeals for the Federal Circuit upheld denials of the accused infringer’s motions for judgment as a matter of law (JMOL) of anticipation and no inducement, but vacated the damages award because the patentee’s damages theory considered non-accused products in the royalty base. Enplas Display Device Corp. v. Seoul Semiconductor Co., Ltd., Case. No. 16-2599 (Fed. Cir., Nov. 19, 2018) (Stoll, J) (Newman, J, concurring-in-part and dissenting-in-part).
Seoul Semiconductor Company (SSC) owns two patents directed to providing uniform backlighting for display panels. SSC and Enplas Display Device (EDD) collaborated to make lenses for SSC’s backlighting devices (light bars). SSC informed EDD that light bars including the lenses were covered by SSC’s patents. Nonetheless, EDD sold the lenses to other light bar manufacturers, and some of the resulting light bars were incorporated in products that were sold in the United States. After SSC sent EDD a cease and desist letter, EDD filed an action for declaratory judgment that the SSC patents were invalid and not infringed. SCC counterclaimed for infringement and sought damages.
The first SSC patent claims a backlighting method involving, among other things, mounting plural light sources on the internal bottom wall of the device. The district court granted summary judgment that the first patent was not anticipated by prior art that disclosed a backlighting method involving light sources disposed around the periphery of the cavity.
The parties tried the issue of anticipation of the second patent. At trial, SSC’s technical expert presented testimony that the alleged prior art did not disclose certain limitations of SSC’s second patent. The jury subsequently returned a verdict that the second patent was not anticipated. EDD moved for JMOL of anticipation, which the district court denied. EDD appealed the summary judgment as to the first patent and the denial of JMOL as to the second.
The Federal Circuit unanimously affirmed both judgments. Regarding the first patent, EDD argued that the prior art permitted the light sources to be disposed around the periphery of the internal bottom wall as opposed to the side walls of the cavity, but the Court characterized this as a modification of the prior art that might support an obviousness theory but could not support anticipation. As to the second patent, the Court determined that SSC’s expert testimony constituted substantial evidence supporting the jury verdict.
At trial, SSC presented evidence that, among other things, EDD was aware of SSC’s patents and aware that it had a 50 percent global market share, including substantial sales in the United States. The jury found that EDD had induced infringement of SSC’s patents. EDD moved for JMOL, which the district court denied. On appeal, EDD argued that its foreign sales of lenses could not evince a specific intent to infringe SSC’s patents in the United States. Unpersuaded, the Federal Circuit unanimously found that EDD’s awareness of its US market share, combined with the other evidence presented, was sufficient evidence—even if circumstantial—for the jury to find that EDD had the requisite specific intent to create direct infringement in the United States. Accordingly, the Court affirmed the denial of JMOL as to inducement.
SSC’s lump-sum reasonably royalties theory was based on the argument that, because EDD sold or might sell potentially infringing (but non-accused) devices, EDD would have sought a freedom-to-operate license for all actually and potentially infringing devices in order to avoid future uncertainty and potential further litigation. According to SSC’s damages expert, the reasonable royalty for the accused devices alone would have amounted to a lump sum of $570 million, but SCC would have paid a premium to secure a freedom-to-operate license, bringing the total sum to between $2 million and $4 million, depending on the volume of potentially infringing devices. EDD brought a Daubertchallenge on which the district court deferred judgment, instructing EDD to instead file a motion in limine. EDD moved in limine, but the district court denied the motion. SSC’s expert presented her theory at trial, and the jury returned a damages award of $4 million. EDD moved for JMOL that the award was excessive, which the district court denied. EDD appealed the issue.
On appeal, the majority of the Federal Circuit panel held that SSC’s damages theory was impermissible because it included non-accused products in the royalty base. Thus, the Court held that substantial evidence did not support the jury’s damages award, which the Court vacated.
In dissent, Judge Newman characterized EDD’s appeal of the denial of JMOL (reviewed de novo) as a disguised appeal of the district court’s evidentiary rulings (reviewed for abuse of discretion) and therefore improper. In dicta, Judge Newman further described SSC’s damages theory as a proper reflection of real-world business considerations, which may be considered in the hypothetical negotiation.
Practice Note: It is unclear whether Enplas signals the Court’s willingness to consider the propriety of damages theories under the de novo standard. Counsel deciding whether to appeal a district court’s evidentiary rulings or denial of JMOL should balance the risk of being seen to improperly challenge the wrong issue with the reward of appellate review under a more favorable standard.