Thursday, March 15, 2018

Federal Circuit Affirms Reasonable Royalty Based on 71% Profit Split

The case is Exergen Corp. v. Kaz USA, Inc., a nonprecedential opinion authored by Judge Moore and handed down last Thursday.  (I'm a little surprised it's a nonprecedential opinion, because it covers some important ground on a number of topics.)  The patents in suit relate to thermometers that can read a person's temperature by being swiped across the forehead.  Exergen sued Kaz for infringement, and the district court held that the claims at issue to be patent-eligible.  (Most of Judge Moore's opinion, as well as Judge Stoll's dissent, focuses on the patent eligibility question, and is probably the most significant aspect of the case.)  The jury then found the claims infringed, and on this issue the Federal Circuit affirms in part and reverses in part, holding that only one of the two patents in suit was infringed.  For that reason, the court also vacates the damages award and remands for reconsideration, although it concludes that the actual damages awarded were supported by substantial evidence, and that there was no error in the district court's finding of no willfulness.  What follows relates to these parts of the opinion. 

First, as to actual damages, the jury awarded $9,802,228 in reasonable royalties and $4,840,320 in lost profits.  The court rejects Kaz's arguments that these awards were unsupported by substantial evidence, despite the facts that (1) the royalty amounted to 71% of Kaz's profit on sales of infringing units, and (2) the lost profits were premised on Exergen's argument that CVS, which did not sell Exergen thermometers, would have done so but for the infringement:
Kaz argues both the reasonable royalty and lost profits portions of the jury’s damages award are unsupported by substantial evidence. It argues that the reasonable royalty part of the jury’s award translates into a per-unit rate of 32% of the projected sales price and 71% of Kaz’s projected per-unit net profit. It argues the hypothetical, nonexclusive, U.S.-only royalty agreement contemplated in this case should be set at a rate less than 5.7%, the rate for the worldwide and exclusive license agreement Kaz entered for a different thermometer. Kaz also argues the lost profits portion of the jury award improperly included lost profits for CVS stores, where Exergen did not sell any products.
While a royalty that would have given Exergen 71% of Kaz’s projected net profit is certainly steep, we do not review such fact findings de novo. There was substantial evidence presented at trial which supports the jury’s conclusion that in a hypothetical negotiation, Kaz would have been willing to pay such a price to enter the market. Exergen’s damages expert went through each of the factors in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), explaining why each relevant factor weighed in favor of a high royalty rate. For instance, Exergen’s expert explained that the parties were “fierce competitors” at the time of the hypothetical negotiation, and Exergen would have known that if it licensed the patents to Kaz, it would have lost sales. J.A. 16287. He testified that Exergen had no licenses with respect to the patents-in-suit, and would have needed to be “highly incentivized” to license the patents for a technology with “advantages that other products didn’t have, namely, the noninvasive, the gentle nature of the product.” J.A. 16294, 16297. He further testified that Kaz would have been incentivized to “pay a slightly higher royalty” because there were nine years left on the patents, which would have been a long time to sit out of a growing market. J.A. 16296. The jury was not required to give more weight to Kaz’s license, particularly in light of mitigating testimony that the agreement was for a different type of thermometer “of unknown appeal,” was based on patent applications, and was not between competitors. J.A. 16419–20. Kaz has not presented any evidence that the jury’s reasonable royalty would not have been feasible from a business perspective—indeed, Kaz would have still made 29% of its projected per-unit profit. The jury was entitled to credit Exergen’s evidence that Kaz would have been highly motivated to pay a premium to enter the market.
The jury’s lost profits award with respect to CVS, the only retailer disputed on appeal, is also supported by substantial evidence. Trial testimony established that CVS offers its own generic products alongside a single branded product. The jury was entitled to find that had Kaz’s thermometers not been on the market, CVS would have chosen Exergen’s competing product to be the branded product. While “the patentee needs to have been selling some item, the profits of which have been lost due to infringing sales, in order to claim damages consisting of lost profits,” Poly-America, L.P. v. GSE Lining Tech., Inc., 383 F.3d 1303, 1311 (Fed. Cir. 2004), our precedent does not require sales to have been lost in any particular way. Even though the inventor testified that CVS did not carry Exergen’s products because Exergen previously sued them for patent infringement, the jury was entitled to find that in the absence of a feasible alternative product, CVS would have turned to Exergen despite their history of litigation. Trial testimony demonstrated that another major retailer who Exergen had previously sued “got over it” and later carried Exergen’s product. J.A. 16411–13 (pp. 18-20).
On balance, and despite the rather skewed nature of the profit split (which, by the way, appears to be a split of the entire profit made from sales of infringing devices), the court's reasoning seems resasonably persuasive, assuming there is no double-counting here; though I'd note that this may be one of those situations in which (in principle) the plaintiff would have been entitled to lost profits on Kaz's sales if it had been able or willing to provide sufficient proof on the matter.  As Lemley and others noted, sometimes an award of reasonable royalties is really a substitute for an unproven or unprovable lost profits award, and this may be one such case.

As for willfulness/enhanced damages, the trial court granted summary judgment of no willfulness prior to the Supreme Court's decision in Halo, based on its conclusion that Kaz's invalidity arguments were not objectively unreasonable.  After Halo, the court reconsidered but concluded that there was still no basis for finding the infringement to have been willful:
We cannot conclude that the district court abused its discretion in applying the Read factors and declining to award enhanced damages. Because the Supreme Court held that Seagate’s requirement of “a finding of objective recklessness in every case before district courts may award enhanced damages” unduly restricted the discretion of the district court, Halo, 136 S. Ct. at 1932, we have vacated previous enhanced damages decisions premised only on Seagate’s objective prong. . . . But in this case the district court’s summary judgment of no willfulness based on the objective prong of Seagate was not the only rationale on the record. The district court did not clearly err in its later consideration of the Read factors. For example, the district court found that no evidence of copying existed, that no concealment or litigation misconduct had occurred, and that Exergen was able to “more than adequately vindicate its rights.” Halo, 136 S. Ct. at 1933, the district court took into account the particular circumstances of this case and concluded “on balance, this case is not of an exceptional nature warranting an award of multiple damages.” J.A. 54.
Exergen argues a jury must consider willfulness before the district court may exercise its discretion to enhance damages under § 284, but such a blanket rule is directly contrary to the Supreme Court’s mandate that courts exercise their discretion free from inelastic rules like the Seagate test. Halo, 136 S. Ct. at 1933–34; see Arctic Cat Inc. v. Bombardier Recreational Prod. Inc., 876 F.3d 1350, 1371–72 (Fed. Cir. 2017) (refusing to adopt a blanket rule that a district court abuses its discretion by deciding an issue without briefing by the parties). Even if the jury had found that Kaz’s infringement was willful, “an award of enhanced damages does not necessarily flow from a willfulness finding.” Presidio Components, Inc. v. Am. Tech. Ceramics Corp., 875 F.3d 1369, 1382 (Fed. Cir. 2017). Under the circumstances of this case, the district court did not abuse its discretion in analyzing the Read factors, taking into account the overall circumstances of the case, and denying enhanced damages. We affirm the district court’s denial of enhanced damages (pp. 21-22).
I don't see anything in particular to take issue with on this issue, and (unlike the award of actual damages) on this matter there will be nothing for the district court to reconsider on remand.

Tuesday, March 13, 2018

JFTC to Host Digital Economy and Competition Policy Symposium

Following on from Sunday's post, the Japan Fair Trade Commission and the Competition Policy Research Center are hosting an event titled "Osaka International Symposium: Digital Economy and Competition Policy–IoT, Data, Platforms and Laws" on Friday, March 30, 2018.  (Hat tip to Professor Jorge Contreras for alerting me to this.)  Here is a link, and here is the symposium description:
While innovation is being created one after another through utilization of big data, development and diffusion of artificial intelligence (AI) and IoT, there is concern that parties with a dominant position, such as having the fundamental technology for doing business, distort competition or impose unfair business conditions. In particular, behaviors of giant platformers, standard essential patents owners and “patent trolls” are attracting a lot of attention.
In this symposium, we discuss, in the course of the progress of digital economy, in what kind of competitive environment companies are placed, and what is the role of the competition law and competition policy, taking into consideration domestic and overseas movements.
1. Date: 30 March, 2018 (Fri) 13:00-17:30
2. Osaka Bar Association Building 2nd Floor Hall (
3. Agenda
Chair: Director Yosuke Okada, Professor, Hitotsubashi University/Director of CPRC
(1) Opening remarks (13:00 – 13:10)
Mr Masatoshi Ohara, President of Osaka Bar Association (OBA)
(2) Session I: IPRs and Competition Laws in the IoT/AI Era (13:10-14:15)
Session Chair: Fumio Sensui, Professor, Kobe University
Speaker: Jorge L. Contreras, Professor, the University of Utah
Commentators: Kazonori Shibata, KYOCERA Corporation
Noboru Kawahama, Professor, Kyoto University
Liyang Hou, Professor, Shanghai Jiao Tong University
(3) Session II: Data, Platforms and Laws- State of Play and the Way ahead (14:30-17:20)
Session Chair: Prof Thomas K. Cheng, Hong Kong Competition Commission Commissioner /
Associate Professor, University of Hong Kong
Reports from Public Antitrust Enforcers' and Advisors' View - Japan, Germany and the EU -
Speakers: Reiko Aoki, Commissioner, JFTC
Thomas Weck, Monopolies Commission, Germany
Simon Vande Walle, European Commission (DG Competition)
<Comments and Panel Discussion (15:50-17:20)>
Comments from: Noriko Fukuoka, Panasonic IP Management Co., Ltd
Takayuki Hamanaka, Attorney, Habataki Law Office/OBA
(4) Closing remarks (17:20-17:30)
Akira Negishi, Professor, Kobe University
[Host]: Competition Policy Research Center, Japan Fair Trade Commission
[Co-sponsor]: Osaka Bar Association, Kansai Economic Federation, Osaka Chamber of Commerce and Industry,
Japan Electronics and Information Technology Industries Association Kansai Branch, Kobe University*
[Note]: This symposium was supported by JSPS KAKENHI Scientific Research (A)"Rebuilding of a new competition policy for innovation and platform business"
[Application]: Please send your name and organization to CPRC address ( by e-mail.
[Fee]: Free
[Language]: Japanese-English Simultaneous interpretation

Sunday, March 11, 2018

JPO, RIETI to Host SEP Symposium on Tuesday, March 13

Professor Masabumi Suzuki has alerted me to the METI JPO-RIETI International Symposium, titled Toward Solving Disputes over Standard Essential Patents (SEPs): Licensing 5G SEPs, which takes place on Tuesday, March 13 in Tokyo.  (Presumably one of the topics of conversation will be the JPO's "Invitation for Public Comments on the Draft of 'Guide to Licensing Negotiations involving Standard Essential Patents,'” which Draft Guide I hope to have more to say about sometime later this week or next, after I've had a chance to review it.)  For now, here is the symposium agenda, from the symposium webpage


We are now in the era of the Internet of Things (IoT), in which various things that have not been connected via networks hitherto, such as home electronics and automobiles, can be done so. Also, we are moving toward the 5G era, i.e., the fifth generation mobile communication system, in which larger amounts of data can be exchanged in real time. Meanwhile, standard essential patents (SEPs) are being used for manufacturing products using advanced communication technologies, such as IoT. Licensing negotiations that were conducted among companies in the telecommunications industry also are now being conducted between and among different industries. As a result, new issues have arisen about licensing agreements in terms of, for example, differences in licensing rules and methods of determining royalties.

Under these circumstances, the Japan Patent Office (JPO) is working to formulate guidelines to be used to help prevent or smoothly resolve disputes over SEPs. At this symposium, experts from within and outside Japan, including researchers from RIETI, legal professionals, and intellectual property professionals, will collaborate to discuss and report on the current and future issues involving SEPs. Discussions will be held on international arbitrations that are expected to settle licensing negotiations and disputes involving SEPs immediately in an integrated manner.


  • Time and Date: 9:30-18:00, Tuesday, March 13, 2018 (Registration starts at 9:00)
  • Venue: Kioi Conference, Main RoomOpen a new window (Kioicho 1-4, Chiyoda-ku, Tokyo)
  • Languages: Japanese / English (with simultaneous interpretation)
  • Admission: Free
  • Host(s): Research Institute of Economy, Trade and Industry (RIETI) / Japan Patent Office (JPO)
  • Seating Capacity: 200 (Pre-registration required)
  • Contact: Ms. MARUTAKE at RIETI (E-mail
    Tel: 03-3501-8398

9:30-9:35 Opening Remarks

NAKAJIMA Atsushi (Chairman, RIETI)

9:35-9:55 Keynote Speech "Creating Guidelines for Negotiations on SEP Licensing and Utilization of International Arbitration"

MUNAKATA Naoko (Commissioner, Japan Patent Office)

9:55-10:25 Special Lecture 1 "Changes in the Environment Surrounding SEPs and Trends in Each Country in Recent Years"

David KAPPOS (Former Director, United States Patent and Trademark Office)

10:25-10:55 Special Lecture 2 "Current Situation and Issues of International Arbitration for Resolving Disputes Concerning SEPs"

Randall RADER (Former Chief Judge, Court of Appeals for the Federal Circuit)

10:55-11:05 Break

11:05-12:25 Panel Discussion 1 "Ideal Modality of Negotiations on SEP Licensing"

Session Chair
Heinz GODDAR (Senior Partner, Boehmert & Boehmert / German Patent Attorney and European Patent and Trademark Attorney)
Panelists (in alphabetical order)
Gustav BRISMARK (Chief Intellectual Property Officer, Ericsson)
Christian LOYAU (Legal Affairs Director, European Telecommunications Standards Institute (ETSI))
NAGASAWA Kenichi (Group Executive of Corporate Intellectual Property & Legal Headquarters, Canon)
SUZUKI Masabumi (Faculty Fellow, RIETI / Professor, Nagoya University Graduate School of Law)

12:25-13:40 Lunch Break

13:40-15:00 Panel Discussion 2 "Preventing Disputes over SEPs Involving Parties from Different Industries in the 5G Era"

Session Chair
David KAPPOS (Former Director, United States Patent and Trademark Office)
Panelists (in alphabetical order)
ENDO Yoshihiro (Manager, Intellectual Property and Standardization Division, Honda Motor Co., Ltd.)
Dan LANG (Vice President of Intellectual Property, CISCO)
Max OLOFSSON (Director of Licensing, AVANCI)
Ilkka RAHNASTO (Vice President and Head of Patent Business, Nokia)

15:00-15:10 Break

15:10-16:30 Panel Discussion 3 "Concept for Calculating FRAND Royalty Rates"

Session Chair
NAGAOKA Sadao (Faculty Fellow, RIETI / Professor, Tokyo Keizai University)
Panelists (in alphabetical order)
John HAN (Senior Vice President, Qualcomm Inc. and General Manager, Qualcomm Technology Licensing)
Dylan LEE (Deputy Director for IP Licensing and Transaction, Huawei)
TAKAHASHI Hiroshi (Manager, IP Development Section 1, Innovation IP Department, Panasonic Intellectual Property Management Corporation)
BJ WATROUS (Vice President & Chief IP Counsel, Apple Inc.)

16:30-16:40 Break

16:40-18:00 Panel Discussion 4 "Utilization of International Arbitrations as a Means for Resolving Disputes over SEPs"

Session Chair
TAMAI Katsuya (Professor, Research Center for Advanced Science and Technology, University of Tokyo)
Panelists (in alphabetical order)
Klaus GRABINSKI (Judge, Federal Court of Justice (Bundesgerichtshof), Germany)
Zhipei JIANG (Former Chief Judge, IP Supreme People's Court)
KATAYAMA Eiji (Attorney at Law, Patent Attorney, ABE, IKUBO & KATAYAMA)
Randall RADER (Former Chief Judge, Court of Appeals for the Federal Circuit)

Friday, March 9, 2018

Penn Law to Host SEP Workshop Next Friday

The University of Pennsylvania Law School will be hosting a workshop, titled The Future of Standard Essential Patents: Learning from Microsoft v. Motorola’s Legacy, next Friday afternoon, March 16.  It includes some heavy hitters, including Judge James Robart, DOJ Antitrust Chief Makan Delrahim, and the great antitrust scholar Herb Hovenkamp.  Here is a link, for those who would like to register.  From the conference webpage:
This workshop will bring together leading scholars, practitioners, and business leaders to re-examine the Microsoft v. Motorola framework and explore current and emerging developments in standard essential patents. It will coincide with the official launch of a new website of resources developed at the Penn Program on Regulation (PPR) on the interface between the voluntary codes and standards world and the legal system.

2:00 Welcoming Remarks

Cary Coglianese, Edward B. Shils Professor of Law and Director, Penn Program on Regulation, University of Pennsylvania Law School

Opening Keynote Address
The Honorable James L. Robart
U.S. District Court for the Western District of Washington
(Presiding judge in Microsoft v. Motorola)

Panel Discussion: Microsoft v. Motorola’s Legacy in Today’s High-Tech Business World
R. Polk Wagner, Deputy Dean and Professor of Law, University of Pennsylvania Law School (Moderator)
T. Andrew Culbert, Partner, Perkins Coie (formerly with Microsoft)
Cynthia Laury Dahl, Practice Professor of Law; Director of the Detkin Intellectual Property and Technology Legal Clinic, University of Pennsylvania Law School
Kirk Dailey, Senior Vice President Business Development, Marconi Group (formerly with Motorola)


Panel Discussion: Emerging Legal and Business Issues in Standard Essential Patents
Herbert Hovenkamp, James G. Dinan University Professor, The Wharton School and the University of Pennsylvania Law School (Moderator)
Kirti Gupta, Senior Director, Economic Strategy, Qualcomm, Inc.
Aviv Nevo, George A. Weiss and Lydia Bravo Weiss University Professor, Department of Economics and The Wharton School, University of Pennsylvania
Richard S. Taffet, Partner, Morgan Lewis and Bockius LLP
Henry Wixon, General Counsel, National Institute for Standards and Technology

Concluding Remarks and Introduction of Closing Keynote
Christopher Yoo, John H. Chestnut Professor of Law, Communication, and Computer & Information Science; Director, Center for Technology, Innovation & Competition, University of Pennsylvania Law School

Closing Keynote Address
The Honorable Makan Delrahim
Assistant Attorney General for the Antitrust Division
U.S. Department of Justice

6:00 pm Reception

PPR’s forthcoming website and its underlying materials, including a detailed case study on Microsoft v. Motorola written by Prof. Dahl, was supported from the National Institute of Standards and Technology (NIST) at the U.S. Department of Commerce. Any statements, findings, conclusions, and recommendations associated with the website, as well as the workshop coinciding with the website launch, are those of the individuals making them and not necessarily those of PPR or NIST.

To be sure to receive future announcements, please visit the Penn Program on Regulation’s website at and add your name to the PPR Mailing List via the sign-up field provided in the right column.

This program has been approved for 3.5 substantive CLE credits for Pennsylvania lawyers. CLE credit may be available in other jurisdictions as well. Attendees seeking CLE credit should bring separate payment in the amount of $140.00 ($70.00 public interest/non-profit attorneys) cash or check made payable to The Trustees of the University of Pennsylvania.

Thursday, March 8, 2018

NantKwest En Banc Oral Argument Today

This morning the en banc Federal Circuit will hear oral argument in NantKwest v. Matal.  I've blogged about this case a couple of times before, most recently in a post from last August:
The case is NantKwest Inc. v. Matal (available here).  As I explained in my blog post on the panel opinion from this past June:
The examiner and the PTAB rejected the inventor's patent application on nonobviousness grounds, and rather than immediately appealing to the Federal Circuit (which is one option under these circumstances) the applicant initiated a lawsuit against the director in the U.S. District Court for the Eastern District of Virginia (which is another, less commonly invoked, option).  The district court ruled in favor of the director, and in May the Federal Circuit affirmed (here).  The district court also awarded the director expert witness fees but denied a request for attorney's fees. On appeal of this matter, the Federal Circuit (in an opinion by Chief Judge Prost) concludes that the relevant statute--which in the present context is not 35 U.S.C. § 285, but rather 35 U.S.C. § 145--requires the court to award both expert and attorneys' fees--and, although it isn't at issue in this case, since the director won--the rule applies regardless of outcome.
The per curiam order issued this morning states:
This case was argued before a panel of three judges on February 9, 2017. A sua sponte request for a poll on whether to reconsider this case was made. A poll was conducted and a majority of the judges who are in regular active service voted for sua sponte en banc consideration.
(1) The panel opinion of June 23, 2017 is vacated, and the appeal is reinstated.
(2) This case will be heard en banc sua sponte under 28 U.S.C. § 46 and Federal Rule of Appellate Procedure 35(a). The court en banc shall consist of all circuit judges in regular active service who are not recused or disqualified.
(3) The parties are requested to file new briefs. The briefs should address the following issue:
Did the panel in NantKwest, Inc. v. Matal, 860 F.3d 1352 (Fed. Cir. 2017) correctly determine that 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees? . . .
I'll post the audio of the oral argument when it becomes available.  To be honest, though, I haven't gotten terribly excited about this case--though I'm sure its resolution is important to the parties, I suspect that the number of § 145 cases filed every year is quite small, so whatever the result is its systemic effect will be pretty limited.  For what it's worth, I'm inclined to think the en banc court will reverse the panel, though again I haven't read the briefs or otherwise immersed myself in considering the question presented.  For a discussion of the various briefs, see this January post from Patently-O.

UpdateHere's the audio of today's oral argument.

Wednesday, March 7, 2018

Pant and Jain on SEP Cases in India

Ameya Pant and Dipesh Jain have published an article titled Complexities Surrounding SEP Cases in India:  An Overview of Decisions by the High Court and Competition Commission of India, 13 JIPLP 132-42 (2018).  Here is a link to the paper, and here is the abstract:
This article aims to ascertain whether the decisions passed by the Delhi High Court and Competition Commission of India (CCI), pertaining to standard essential patents (SEPs) are in consonance with international fair, reasonable and nondiscriminatory (FRAND) jurisprudence.
It has been observed that the decisions do not take into consideration the facts of the precedents which are relied upon, and severely lack analysis, which leads to misapplication of the judicial precedents. The decisions by the judiciary and the market regulator display two divergent stands with respect to the ideal base for calculating royalties. As the tasks of both adjudicatory bodies vastly differ, the court would have to determine damages, whereas the market regulator shall ascertain whether the conduct of basing royalties on the product is abusive. The judiciary uses the method of comparable licenses for ascertaining interim damages, however fails to fully appreciate the methodology, which showcases misapplication of the damages model.
The article pits the rational of the adjudicatory bodies against decisions by courts in the USA, EU and China, alongside views expressed by market regulators and IPR policies of various standard-setting organizations (SSOs), thereby giving a holistic view while assessing the Indian judiciary’s take on FRAND.
For other recent takes on interim relief in India, from a variety of viewpoints, see this January 5, 2018 post by Punkhuri Chawla, this October 15, 2017 post by Prashant Reddy and this August 1, 2017 one by Prateek Surisetti, all on SpicyIP.  For further discussion of why interim orders are so important in India--very few cases are litigated all the way through to judgment--see this August 1, 2017 article in the Wall Street Journal.