The Federal Circuit Court of Appeals has taken aim at sky-high patent infringement damages. In Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., 2018 U.S. App. LEXIS 18177 (July 3, 2018), the court limited the use of the rule that allowed patent owners to recover damages based on the total sales of the infringing product, even if the patent covered only a part of the product.

Power Integrations owned two patents covering switching regulators in power supply controller chips. Power Integrations sued Fairchild for patent infringement in the Northern District of California. At trail in 2014, the jury found for Power Integrations and awarded it damages of $105 million for a reasonable royalty. Fairchild moved for judgement as a matter of law or for a new trial. The district court denied the motions.

After the Federal Circuit, decided another case involving damages for a product that contained both patented and unpatented features, the district court ordered a second trial on damages. After that trail, the jury awarded Power Integrations $140 million in damages as a reasonable royalty, based on the entire market value rule. Under that rule, a patent owner can recover damages for the sales of the entire infringing product, even though the product has unpatented features in addition to patented features.

Again, Fairchild moved for judgement as a matter of law or a new trail, and the district court denied the motions. On appeal, the Federal Circuit vacated the damages award and remanded the case. The court held, at *22:

“A patentee is only entitled to a reasonable royalty attributable to the infringing features. 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.”

The reasonable royalty must be based on the “value of what was taken,” which is only the value of the patented features, not the value of the whole product. Id. at *23.

The court explained that the determination of a reasonable royalty must start with a royalty base. The royalty base “should not be larger than the smallest salable unit embodying the patented invention.”  Id.

The court cautioned against the application of the entire market value rule, finding that its application could result in an improper damage award because it is likely to overstate the amount that is attributable to the patented features of an infringing product. Id. at *24. The court said that the entire market value rule is only appropriate when the patented feature is the basis for the defendant’s sales. Id. at *25.

The court found that Fairchild’s products contained unpatented features of significance, as well as the patented features. Because Power Integrations has not met its burden of proof to show that the patented features were the “sole driver of customer demand,” the application of the entire market value rule was improper and the damages award had to be vacated. Id. at *28.     

In Saint Regis Mohawk Tribe et al. v. Mylan Pharmaceuticals Inc. et al., the U.S. Court of Appeals for the Federal Circuit held that Native American tribal sovereign immunity does not apply in Inter Partes Review (“IPR”) proceedings at the Patent Trial and Appeal Board (“PTAB”) arm of the USPTO.  In do so, the Federal Circuit affirmed the PTAB’s ruling that it has the authority to decide the validity of patents transferred to the St. Regis Mohawk tribe, and rejected an attempt from Allergan to shield its patents covering dry-eye medication Restasis by transferring the patents to a Native American tribe.

In 2015, Allergan sued various generic drug manufactures in the Eastern District of Texas alleging infringement of its Restasis patents.  Mylan, one of the generic manufactures sued by Allergan, petitioned the PTAB for IPRs of the Restasis patents.  The PTAB instituted the IPRs, which were later joined by other defendants.  However, before the IPR hearings, Allergan and the tribe entered into an agreement to transfer ownership of the Restasis patents to the tribe, and license them back to Allergan.  The tribe moved to terminate the IPRs, arguing it is entitled to assert tribal sovereign immunity, and Allergan moved to withdraw.  The PTAB denied the motions, which Allergan and the tribe now appeal.

In considering the issue of tribal immunity in an IPR proceeding before the PTAB, the Federal Circuit first noted that as “domestic dependent nations,” Indian tribes possess “inherent sovereign immunity,” and suits against them are generally barred “absent a clear waiver by the tribe or congressional abrogation.”  However, that immunity generally does not apply where the federal government acting through an agency engages in an investigative action or pursues an adjudicatory agency action.  But, there is not a blanket rule that immunity does not apply in federal agency proceedings.

Ultimately, four factors convinced the Federal Circuit that an IPR is more like an agency enforcement action than a civil suit brought by a private party, and that tribal immunity is not implicated.  First, the Federal Circuit reasoned the PTAB possesses broad discretion in deciding whether to institute review.  If the PTAB decides to institute, review occurs. If the PTAB decides not to institute, for whatever reason, there is no review. In making this decision, the PTAB has complete discretion to decide whether or not to institute review.  Therefore, if IPRs proceed on patents owned by a tribe, it is because a politically accountable, federal official has authorized the institution of that proceeding.  In this way, an IPR is more like cases in which an agency chooses whether to institute a proceeding on information supplied by a private party.

Second, the role of the parties in an IPR suggests immunity does not apply in these proceedings.  Once IPR has been initiated, the PTAB may choose to continue review even if the petitioner chooses not to participate.  The PTAB has construed its rules to allow it to continue review even in the absence of patent owner participation, and to participate in appeals “even if the private challengers drop out.”  This reinforces the view that IPR is an act by the agency in reconsidering its own grant of a public franchise.

Third, the USPTO procedures in an IPR do not mirror the Federal Rules of Civil Procedure.  Although there are certain similarities, the differences are substantial.  The Federal Circuit noted the differences and breadth of discovery in civil litigation, ability to amend pleadings in civil litigation, ability to amend patent claims during an IPR, and the length and scope of a civil court trial versus an IPR hearing.  In short, in an IPR, the agency proceedings are both functionally and procedurally different from district court litigation.

Finally, while the USPTO has the authority to conduct reexamination proceedings that are more inquisitorial and less adjudicatory than IPR, this does not mean that an IPR is thus necessarily a proceeding in which Congress contemplated tribal immunity to apply.  The tribe acknowledged that sovereign immunity would not apply in ex parte reexamination proceedings because of their inquisitorial nature.  The mere existence of more inquisitorial proceedings in which immunity does not apply does not mean that immunity applies in a different type of proceeding before the same agency.  While IPR presents a closer case for the application of tribal immunity than ex parte reexamination, the Federal Circuit nonetheless concluded that tribal immunity does not extend to these administrative agency reconsideration decisions.

Thus, the Federal Circuit held that tribal sovereign immunity cannot be asserted in IPR, and affirmed the underlying decision of the PTAB.  However, the Federal Circuit was careful to note that it was not deciding the issue of state sovereign immunity.  The Federal Circuit specifically pointed out it was only deciding whether tribal immunity applies in IPR.  It left for another day the question of whether there is any reason to treat state sovereign immunity differently.

Conor McGregor doesn’t back down to anyone. He knocked out the once unbeatable Jose Aldo in 13 seconds. He was the first UFC fighter to simultaneously hold titles in two different weight divisions. He crossed over to boxing to fight the greatest boxer of all time, Floyd “Money” Mayweather. You get the point: Conor McGregor takes on all competitors—anywhere, anytime.

Although McGregor’s fights usually occur inside the octagon, or most recently, the boxing ring, McGregor will now be forced to take on new opponents in a new arena: the intellectual property arena. Specifically, as a result of McGregor’s attempt to register the mark THE CHAMP CHAMP through a European Union trademark application, McGregor will have to take on sporting apparel giant, Champion, which has filed an opposition to McGregor’s application. The opposition covers McGregor’s word marks and his design marks.

Although I am not familiar with this process as it relates to European Union registrations, my research indicates that the process can last approximately one year, which is not all that different from opposition proceedings in the United States. In the interim, McGregor may choose to forego use of the mark in commerce as it could open him up to damages for trademark infringement if Champion succeeds in its opposition proceedings. However, if McGregor’s actions outside of the business and intellectual property arenas are any indication of his actions inside those arenas, he may choose to move forward with use of the mark in commerce, in the absence of a preliminary injunction, just assuming he will prevail in the opposition proceeding.

In addition to this dispute with Champion, McGregor is also entangled in opposition proceedings relating to applications to register MYSTIC MAC and I AM BOXING. The MYSTIC MAC mark was opposed by cosmetic giant, Make Up Cosmetics, commonly known as MAC, as well as Mac Jeans. I AM BOXING was opposed by Switzerland’s largest retail company Migros. Although the merit of these oppositions remain in dispute, one thing is clear: McGregor’s presence in the business world is just as polarizing as his presence in the sports and entertainment world.

While a U.S. patent provides the patent owner with a monopoly to prevent others from “making, using, offering for sale, or selling the invention throughout the United States,” there are significant limits to the extraterritorial application of U.S. Patent law.  The U.S. Supreme Court, however, just found that damages for one form of patent infringement extend not only to lost U.S. profits, but also to lost foreign profits.  In what is seen as a big win for patent owners, the Court, in a 7-2 decision in WesternGeco v. Ion Geophysical, ruled patent owners may recover lost foreign profits for patent infringement under 35 U.S.C. §271(f)(2).

Section 271(f) addresses U.S. patent infringement resulting from exporting components of an invention for assembly abroad.   The subsection at issue in WesternGeco, 35 U.S.C. §271(f)(2), specifically “addresses the act of exporting components that are specially adapted for an invention,” stating “[w]hoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.”

When patent infringement is proven, 35 U.S.C. §284 provides for damages “adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer.”   The question in WesternGeco was whether those damages for infringement of a U.S. patent (not a foreign patent) extend to lost foreign profits arising from assembled foreign products that are used abroad when the infringement claim arises merely from exporting specially-adapted components of the invention.  Even though the foreign uses of the invention cannot infringe a U.S. patent, the Supreme Court found that lost foreign profits are recoverable for infringement under §271(f)(2).

In reaching its decision, the Court looked to whether extraterritorial application of the relevant statutes is permissible.  While there is a presumption against extraterritorial application of U.S. statutes, there is a two-step framework for deciding whether extraterritorial application is permissible.  “The first step asks ‘whether the presumption against extraterritoriality has been rebutted,’” which requires a “clear indication of an extraterritorial application.”  The second step asks “whether the case involves a domestic application of the statute,” which requires courts to identify the statute’s focus and whether “the conduct relevant to that focus occurred in the United States territory.”  Further, when “the statutory provision works in tandem with other provisions, it must be assessed in concert with those other provisions.  Otherwise, it would be impossible to accurately determine whether the application of the statue in the case is a ‘domestic application.’”

The court exercised its discretion to begin with step two of this framework, and in this case, that required assessment of both 35 U.S.C. §284 and §271(f)(2) because they work in tandem.  The Court found the focus of the damages statute, 35 U.S.C. §284, is “the infringement” and the “overriding purpose” of the statute is to “affor[d] patent owners complete compensation for infringements.”  The Court then turned to §271(f)(2) and found it “focuses on domestic conduct”—“the domestic act of ‘suppl[ying] in or from the United States.”  Therefore, the Court determined the relevant conduct in this case was domestic, and  that awarding lost foreign profits as damages was a permissible domestic application of §284.

In dissent, Justice Gorsuch, joined by Justice Breyer, raised the point that the majority “does not explain why ‘damages adequate to compensate for the infringement should include damages for harm from noninfringing [foreign] uses.’”  Justice Gorsuch also warns that by permitting damages of this sort, it effectively allows U.S. patent owners to extend their monopolies to foreign markets, which “in turn, would invite other countries to use their own patent laws and courts to assert control over our economy.” Finally, he pointed out that WesternGeco was seeking lost profits for uses of its invention beyond the U.S. borders, which rather than just completely compensating for infringement “puts the patent owner in a better position than it was before by allowing it to demand monopoly rents outside the United States as well as within.”

While the Court indicated it was limiting its holding to damages under 35 U.S.C. §271(f)(2), it remains to be seen how far it will ultimately reach.  In a footnote, the Court did note it was not addressing “the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.”

Often writers base characters on complete fiction, drawing from their imagination to build a character’s various facets.  However, on certain occasions a writer may base a character on a living person.  Sometimes such a portrayal is factual and other times it may be a combination of fact and fiction.  Such was the case, claimed legendary actress Olivia de Havilland, in her lawsuit against FX Networks over her portrayal in the FX docudrama Feud: Bette and Joan.

Feud told the tale of the infamous silver screen ongoing battle between Bette Davis and Joan Crawford.  De Havilland claimed that Catherine Zeta-Jones’s portrayal of her in the show (which lasted all of 17 minutes) violated her right of publicity because she did not give the creators of Feud permission to use her name or identity.  Additionally, de Havilland also claimed that FX portrayed her in a false light by taking certain creative liberties with the story (namely, the inclusion of a fictitious interview and the de Havilland character’s reference to her sister as a “bitch” when in fact the term she actually used was “dragon lady”).

At the trial court, FX filed a motion to strike the complaint based on California’s anti-SLAPP statute.  The trial court denied FX’s motion.  The trial court’s ruling presented a Catch-22 for those choosing to portray real persons in creative works.  If the portrayal is done accurately and realistically (and without permission) this is grounds for a right of publicity lawsuit; if the portrayal is more creative or entirely fictitious, this could be grounds for a false light claim if the person portrayed doesn’t like the portrayal.

FX appealed to the California Court of Appeals.  In a lengthy opinion, the court reverses the trial court’s decision and dismissed de Havilland’s case.  By all means, the opinion is a clear endorsement of the First Amendment rights of television producers (and other creatives).

The First Amendment Trumps de Havilland’s Right of Publicity.

The court doesn’t answer the question whether a docudrama is a product or merchandise within the meaning of Civil Code section 3344.  Rather, the court assumes “for argument’s sake that a television program is a ‘product, merchandise, or good’ and that Zeta-Jones’s portrayal of de Havilland constitutes a ‘use’ of de Havilland’s name or likeness within the scope of both the right of publicity statute and the misappropriation tort.”  Feud, the court notes, “is speech that is fully protected by the First Amendment, which safeguards the storytellers and artists who take the raw materials of life — including the stories of real individuals, ordinary or extraordinary — and transform them into art, be it articles, books, movies, or plays.”  The fact that FX did not purchase or otherwise procure de Havilland’s “rights” to her name or likeness did not change the court’s analysis.  The court stated that film and television producers may enter into rights agreements with individuals for a variety of reasons, however, “the First Amendment simply does not require such acquisition agreements.”

De Havilland Did Not Show That She Would Likely Prevail on Her False Light Claim.

A false light claim is a type of invasion of privacy, based on publicity that places a person in the public eye in a false light that would be highly offensive to a reasonable person, and where the defendant knew or acted in reckless disregard as to the falsity of the publicized matter and the false light in which the aggrieved person would be placed.  A false light claim is equivalent to a libel claim, and its requirements are the same as a libel claim, including proof of malice.  In order to prevail on her claim, de Havilland had to demonstrate that FX broadcast statements that were (1) assertions of fact, (2) actually false or create a false impression about her, (3) highly offensive to a reasonable person or defamatory, and (4) made with actual malice.

First, the court questioned whether a reasonable viewer would interpret Feud as entirely factual. The court noted that “[v]iewers are generally familiar with dramatized, fact-based movies and miniseries in which scenes, conversations, and even characters are fictionalized and imagined.”  Next, the court concluded that Feud’s depiction of de Havilland is not defamatory nor would it highly offend a reasonable person.  Granting an interview at the Academy Awards, the court noted, is not conduct that would cause offense to reasonable persons.  Further, the court found the producer’s substitution of the word “bitch” for “dragon lady” in a statement actually made by de Havilland was an un-actionable substantial truth – a statement that would not have a different effect on the mind of the reader from that which the truth would have produced.

Lastly, because de Havilland is a public figure, she had to show that the statements made by FX were made with actual malice.  This means more than showing that the statements were not true.  Fiction is by definition untrue and “[p]ublishing a fictitious work about a real person cannot mean the author, by virtue of writing fiction, has acted with actual malice.”  Rather, the court said, “de Havilland must demonstrate that FX either deliberately cast her statements in an equivocal fashion in the hope of insinuating a defamatory import to the [viewer], or that [FX] knew or acted in reckless disregard of whether its words would be interpreted by the average [viewer] as defamatory statements of fact.”  The court concluded that de Havilland would be unable to meet this burden.

In dismissing de Havilland’s case, the Appeals court acknowledged the Catch-22 the trial court’s decision created for producers and other creatives and found it inconsistent with the First Amendment.  The right of publicity does not give celebrities the “right to control the [their] image by censoring disagreeable portrayals.”

But the show isn’t over yet.  De Havilland filed a petition with the California Supreme Court to reverse the decision by the Appeals Court and allow her case to proceed to trial.  De Havilland claimed that the Court of Appeals misapplied the balancing test between the First Amendment and the right of publicity formulated by the Supreme Court in the 2001 case of Comedy III Prods., Inc. v. Gary Saderup, Inc.  While it’s uncertain whether the Supreme Court will agree to hear the matter, if it does, a ruling in de Havilland’s favor could be very disruptive for producers who wish to create a work of fiction based on true events and portraying real persons.