The New Fed Circuit Chief's Approach to Patent Damages

The New Fed Circuit Chief's Approach to Patent Damages VIPDesignUSA

On May 30th, Judge Randall Rader stepped down as chief judge of the U.S. Court of Appeals for the Federal Circuit and was replaced by Judge Sharon Prost. With Prost’s appointment, one of the major questions is whether she will continue her predecessor’s emphasis on reforming the damages analysis used by experts (and practitioners) in patent litigation.

Under Rader, the Federal Circuit issued a number of rulings limiting various mechanisms used by plaintiffs to bolster their patent damages calculations. For example, during Rader’s tenure, the Federal Circuit limited the application of the entire market value rule (see e.g., Lucent v. Gateway), limited the applicability of prior licenses in the reasonable royalty analysis (see e.g., ResQNet.com v. Kaplan & Gilman) and abolished the 25 percent rule (Uniloc v. Microsoft). Also during this time, Rader issued several opinions at the district court level rejecting various damages theories offered by plaintiffs. Accordingly, the pressing question for damages experts and practitioners alike is: Will the Federal Circuit continue these trends in the area of damages now that Prost is taking over?

Prost’s recent opinion in the highly anticipated Apple v. Motorola ruling suggests that she may be even more critical on this issue. In April, the Federal Circuit overturned several aspects of Judge Richard Posner’s summary judgment ruling in which he excluded both parties’ damages experts and dismissed the case. Notably, both Prost and Rader sat on this panel and wrote separate opinions. Contrary to the majority, Prost found that the plaintiff’s expert’s use of a certain allegedly comparable functionality to calculate the value of the accused functionality was improper, and that it should have been excluded from the damages analysis. What was important was that on a subjective issue such as the comparability of a related functionality, Prost viewed the evidence as too speculative to go to a jury as a matter of law. The implication is that she may take an even more expansive view of a judge’s “gatekeeper” role in the damages context than her predecessor.

When viewed in the context of her other damages opinions, however, Prost’s dissent in that case may not provide the full picture of her stance. For example, she also authored the Federal Circuit’s panel opinion in i4i v. Microsoft, which is notable because it is one of the few significant rulings in recent Federal Circuit jurisprudence in which the damages award survived unscathed. In i4i the plaintiff (and its expert) argued that the proper royalty rate was $98 per unit, despite evidence showing that certain infringing products sold for only $97 per unit. Even though the plaintiff’s theory resulted in a revenue loss for these products, the panel found that this evidence was sufficient to sustain the jury’s verdict awarding $200 million in damages.

The i4i opinion, however, relies heavily on which standard of review governed the appeal. The defendant in that case failed to seek judgment as a matter of law (JMOL) after trial, and instead was forced to appeal the trial court’s refusal to grant a new trial. As Prost noted in the panel’s opinion, the standard of review on appeal for a party seeking a new trial is “highly deferential” to the findings of the trial court. The panel further noted that “[h]ad Microsoft filed a pre-verdict JMOL, it is true the outcome might have been different.”

The i4i opinion indicates a high level of deference to lower courts, which may well be the most common theme to Prost’s damages jurisprudence. Indeed, the common element in her decision in i4i and her dissent in Apple v. Motorola is that in both instances she sided with the stance taken by the lower court. This trend is further substantiated by several other opinions she authored. For example, in ePlus v. Lawson Software the district court excluded the plaintiff’s damage experts and prevented the plaintiff from presenting evidence relating to damages at trial—facts similar to Posner’s decision in Apple v. Motorola. On appeal, Prost wrote a panel decision which held that the district court’s ruling was not an abuse of discretion, and noted that a district court is given “wide latitude” when deciding trial management issues. Similarly, the panel opinions she wrote in Glenayre v. Jackson and Golight v. Wal-Mart also sided with the stance taken by the lower courts.

The instances in which she overturned a district court ruling typically resulted in lower damages awards for plaintiffs. For example, in Wechsler v. Macke she wrote for a panel that reversed the district court’s denial of JMOL and ruled that the plaintiff was not entitled to lost profits as a matter of law. In Harris v. Ericson, the court held that on remand the plaintiff was not entitled to present evidence associated with an inflated royalty rate. And in Catalina Lighting v. Lamps Plus, she wrote for a panel that settled the ambiguity between two conflicting damages statutes to find that a plaintiff was not entitled to double recovery for sales that infringed both a design patent and a utility patent. Thus, there may be a slight lean toward limiting monetary damages for patent holders.

Except for the general trends noted above, there are not many other insights into Prost’s view on damages to be gleaned from her rulings. Significantly, none of the opinions she has written have dramatically changed the damages analysis; and perhaps that, in and of itself, is a trend worth considering.

Overall, when comparing Prost’s opinions with those issued by the Federal Circuit as a whole over the last few years, it is difficult to make a case that she is adopting an activist role on patent damages. She does appear to be inclined towards some reform, and generally leans towards limiting damages awards. But her opinions thus far have not evidenced a strong inclination towards dramatic change. In short, it is unlikely that we will see Prost leading the charge on this issue in the same manner as her predecessor.

Nevertheless, practitioners should expect patent damages to continue to be an evolving area of law. Despite the increased activity in recent years, there continues to be strong demand from industry for further clarity and reform in this area. In addition, with the passage of the America Invents Act, Congress clearly made limiting damages awards an area of emphasis. Thus, expect to see the Federal Circuit continue to issue a number of opinions in the damages context, and expect these opinions to continue refining the acceptable methodologies utilized to calculate damages.

Bruce J. Rose is partner in charge of Alston & Bird’s Charlotte office IP litigation group. He concentrates his practice on prosecuting and defending complex patent, trade secret, trademark and copyright infringement litigation. He also counsels clients on obtaining, protecting, licensing and enforcing intellectual property rights. Travis J. Iams is a senior associate in the firm’s IP litigation group. He received his J.D. from the University of Georgia School of Law, where he served as a notes editor on the Journal of Intellectual Property Law. His practice focuses on resolving complex intellectual property disputes, particularly in the field of patent litigation and licensing.

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