In Exmark Manufacturing Company v. Briggs & Stratton Power Products, 2018 U.S. App. LEXIS 783 (Fed. Cir. 2018), the Federal Court of Appeals addressed patent infringement damages based on a reasonable royalty. Exmark Manufacturing Company owned a patent for a lawn mower with an improved flow control baffle (the part that controls the flow of air and cut grass underneath the mower). Exmark sued Briggs & Stratton Power Products for patent infringement. The jury returned a verdict of infringement against Briggs and found the infringement willful. The jury awarded Exmark $24 million in damages. The district court doubled the amount of damages for willfulness. 

Briggs appealled to the Federal Circuit on multiple grounds, including the district court’s denial of Briggs’ motion for a new trial on damages.

Damages for patent infringement can be determined in several ways. At a minimum, a successful plaintiff is entitled to a reasonable royalty for the defendant’s sale of the invention. The royalty is calculated by multiplying a royalty rate by the royalty base (the defendant’s sales of the infringing invention). However, if the patent only covers a component of the product that the defendant has sold, the plaintiff must apportion damages between the patented component and the whole product. The plaintiff is only entitled to a reasonable royalty on the patented component, not on the whole product.

On appeal, Briggs contended that Exmark’s expert should have determined damages by apportioning the royalty base, not the royalty rate. The appellate court rejected Briggs’ argument and held that damages can be apportioned by apportioning the royalty rate, apportioning the royalty base, or a combination of the two.
The court stated, at *29:

“So long as Exmark adequately and reliably apportions between the improved in conventional features of the accused mower, using the accused mower as a royalty base and apportioning through the royalty rate is an acceptable methodology….The essential requirement is that the ultimate reasonable royalty award must be based on the incremental value that the patented invention adds to the end product.”

The court explained that apportioning damages using the sales revenue from the lawn mower was proper for two reasons. First, Exmark’s patent included claims to the mower as a whole, not just the component baffle. Second, parties who negotiate licenses often use sales revenue for the whole product as the royalty base for a patented component. Id. at *29-31.

Briggs also argued on appeal that Exmark’s damage number was not admissible because its expert did not connect the royalty rate to the facts of the case. The Federal Circuit agreed with Briggs and held the district court’s denial of Briggs’ motion for a new trial on damages was an abuse of discretion. Id. at *31.

The court found that Exmark’s expert’s use of 5% as the royalty rate was not connected to the evidence in the case. Under Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), several specific factors may be considered in determining damages for patent infringement based on a reasonable royalty. These factors are referred to as the “Georgia-Pacific factors.” Exmark’s expert had analyzed certain of the Georgia-Pacific factors (including the advantages of the patented baffle to customers) and had determined that, in a hypothetical licensing negotiation, the parties would have agreed to a 5% royalty rate on the sales of the lawn mower. The expert did not tie the Georgia-Pacific factors to the 5% rate. Because the court held that Exmark’s expert had not connected the 5% rate to the Georgia-Pacific factors or the facts of the case, the expert’s opinion was inadmissible. The court remanded the case for a new trial on damages.

Some commentators believe that the Exmark court’s decision may increase plaintiffs’ ability to argue that a reasonable royalty should be based on the sales revenue from the whole product, not just the patented component. The court clearly held that apportioning damages between the whole product and the patented component can be accomplished by using the sales revenue for the whole product and apportioning the royalty rate. However, because the court rejected Exmark’s 5% royalty rate as not connected to the facts of the case, the court’s decision is also a warning that if a plaintiff chooses to use the sales revenue from the whole product and apportion with the royalty rate, they must clearly tie the royalty rate to the facts of the case.

Given this decision, it is likely that in the future, plaintiffs will use the sales revenue from the whole product, as it will be a larger amount than the sales revenue from the patented component, and apportion with the royalty rate.

The Court of Appeals for the Federal Circuit just highlighted another approach plaintiffs can use to overcome early challenges to the validity of patent claims under 35 U.S.C. §101.   What is that approach?  It is a classic one:  show there is a genuine issue of fact.  That approach saved a subset of claims from summary judgment in Berkheimer v. HP. 

Berkheimer sued HP for infringement of its patent “relat[ing] to digitally processing and archiving files in a digital asset management system.”  The system parses files into objects and “tags objects to create relationships between them.”  “The objects are analyzed and compared … to archived objects” to find variations.  “The system then eliminates redundant storage of common text and graphical elements” improving efficiency and reducing storage costs.

In an Alice challenge, HP moved for summary judgment that certain claims are not patentable under 35 U.S.C. §101.  In Alice v. CLS Bank, the Supreme Court recognized that “laws of nature, natural phenomena, and abstract ideas” are not patent-eligible subject matter under §101. To determine whether claims are patent eligible the Supreme Court set forth a two-part test in Mayo v. Prometheus as further explained in Alice.  This test consists of the following steps:

Step 1:  The court determines whether the claims are directed to an abstract idea.

Step 2:  If the claims are directed to an abstract idea, then the court determines whether the claims include elements showing an inventive concept that transforms the idea into a patent-eligible invention.  Step 2 is satisfied when the claim limitations “involve more than performance of ‘well-understood, routine, [and] conventional activities previously known to the industry.’”

“[W[hether a claim recites patent eligible subject matter is a question of law which may contain underlying facts.”  Any fact, however, “that is pertinent to the invalidity conclusion must be proven by clear and convincing evidence.”

The district court granted summary judgment that a number of claims of Berkheimer’s patent were invalid under §101.  On appeal, the Federal Court found the patent is directed to an abstract idea (Step 1) and then focused on Step 2 of the two-part test.  While the patent-at-issue relates to a technique for archiving files, Berkheimer argued that “portions of the specification referring to reducing redundancy and enabling one-to-many editing contradict the district court’s finding that the claims describe well-understood, routine, and conventional activities.” Berkheimer thus argued there was a fact question to which HP had offered no evidence.  The Federal Circuit agreed the validity of some of the claims turned on whether they cover “well-understood, routine and conventional” technology.  “Whether something is well-understood, routine, and conventional to a skilled artisan at the time of the patent is a factual determination.” Therefore, the Court found there was a genuine issue of fact as to whether the disclosed system archives files in an inventive manner that transforms the abstract idea into a patent-eligible invention.

Given the genuine issue of material fact, the Federal Circuit found that it was inappropriate to invalidate the claims at the summary judgment stage.  Note the Federal Circuit did not find the claims are directed to patent-eligible subject matter, but rather the district court judge should not have granted summary judgment given to the factual issue.

Therefore, a plaintiff’s patent can survive an Alice challenge in a motion to dismiss or motion for  summary judgment if the plaintiff can show a genuine issue of fact as to whether the invention is well-understood, routine, and conventional to a skilled artisan at the time of the patent.  Importantly, the Federal Circuit indicated not all cases involving Alice implicate questions of fact stating “not every §101 determination contains genuine disputes over the underlying facts…”  Thus “[p]atent eligibility has in many cases been resolved on motions to dismiss or summary judgment.”

In light of Berkheimer, it will be interesting to see whether district courts are now more hesitant to invalidate claims as patent-ineligible in early stages of litigation.

 

The fight between craft brewers and Big Beer (i.e. MillerCoors & Budweiser) has been ongoing for years. Ever since craft beer came to prominence in the late ‘90s, it has been stealing Big Beer’s share of the marketplace. In fact, craft beer has celebrated double-digit growth each year since then. In response, Big Beer has embarked on a course of action to recapture its share of the market.

In order to do so, certain members of Big Beer have acquired certain independent craft breweries, seemingly adopting the old adage, “if you can’t beat ‘em, join ‘em,” or in this case, “buy ‘em.” Now, by all means, mergers and acquisitions are part of business, and that’s fair play. But MillerCoors may have crossed the line when it decided to rebrand its Keystone brand as STONE, quickly catching the attention of craft brew powerhouse Stone Brewing, prompting Stone to file a complaint against MillerCoors in the United States District Court for the Southern District of California.

The complaint, which alleges trademark infringement, false designation of origin, trademark dilution, unfair competition, and declaratory relief, asserts that Stone Brewing has the exclusive right to utilize STONE in the brewing space. In fact, Stone has been utilizing STONE in conjunction with beer since as early as 1996, and subsequently registered the mark with the United States Patent and Trademark Office in 1998. Stone is one of the most well-known craft breweries in the industry and the ninth-largest independent craft brewer in the United States. It has even been recognized as the “All-Time Top Brewery on Planet Earth.”

MillerCoors, on the other hand, is a multinational beer conglomerate formed after a series of mergers involving Miller, Coors, and Canadian brewing conglomerate Molson. Keystone and Keystone Light is just one of many brands in MillerCoors portfolio. In general, the Keystone brand is regarded as sub-premium beer, which was formerly marketed in conjunction with the mark KEYSTONE and generally featuring imagery of the Colorado Rocky Mountains in the background. However, after Keystone’s sales dropped by approximately 25% from 2011 to 2016, and was named by USA Today as one of the “Beers Americans No Longer Drink,” MillerCoors opted to rebrand Keystone as STONE. Stone refers to the rebranding as an “aggressive second phase of the company’s pincer move against craft beer and Stone in particular.”

According to Stone, since the rebranding, which includes new cans, boxes, and logos emphasizing STONE as its primary mark, MillerCoors has launched a “viral marketing campaign that touts Keystone’s self-proclaimed new name,” and which “strategically plac[es] Keystone beer cans so that only ‘STONE’ is prominently displayed to viewers.” And if those allegations aren’t bad enough, Stone points out that MillerCoors encountered these same issues over a decade ago when it attempted to register STONES as a trademark and the USPTO refused the application because the examining attorney concluded the mark was confusingly similar to STONE. Still, MillerCoors has revived its attempt to rebrand Keystone with complete disregard of the USPTO’s prior conclusion. Although it’s almost certain that MillerCoors will have an explanation, whether believable or not, regarding the foregoing matters, this is highly favorable evidence for Stone. 

Stone has not hidden behind its attorneys regarding this lawsuit. Just the other day Stone co-founder, Greg Koch, released a video on the internet expressing Stone’s frustration with the conduct of MillerCoors and indicating that Stone intends to vindicate its rights. Stone’s counsel also indicated that unless an immediate resolution is reached between the parties, Stone intends to pursue a preliminary injunction that would preclude MillerCoors from utilizing any of its new STONE branding until the case has concluded. Frankly, for all intents and purposes, that motion could be dispositive of the case, as the Court will be forced to make a determination regarding whether the Keystone rebranding is likely to cause consumer confusion. Regardless of which direction the Court comes out on that issue, it seems unlikely that the losing party will be able to sway the Court the other direction at trial, which would likely result in the parties negotiating a resolution.

We will be keeping a close eye on this matter as it progresses and will provide periodic updates. In the meantime, check out Greg Koch’s YouTube video where Koch represents that MillerCoors can “end all of this right here and now” if it just puts “the KEY back in KEYSTONE.” In my opinion, MillerCoors should probably listen to Koch as it seems they have a heavy burden to bear.

A recent case out of the Ninth Circuit, Oracle USA, Inc. v. Rimini Street, Inc. (July 13, 2017), illustrates some of the risks third party software vendors run concerning copyright issues.  Oracle develops and licenses proprietary “enterprise software” for business around the world.  A business using Oracle’s enterprise software would pay a one-time licensing fee to download the software and then can elect to buy a license maintenance contract that provides for periodic software updates. 

Rimini provides third party support for Oracle’s enterprise software in lawful competition with Oracle’s own maintenance services. In the course of providing third party services, Rimini also is required to provide software updates to its customers.  It appears that between 2006 and 2007, Rimini obtained software and/or updates from Oracle’s website with automated downloading tools on behalf of several of its customers.

Oracle sued Rimini in 2010 and obtained partial summary judgment on parts of its copyright infringement claim.  After trial, the jury found in favor of Oracle on other claims (including computer abuse claims which are not discussed in this article) and awarded Oracle damages that totaled more than $120 million after interest, attorney’s fees and costs were added.  Rimini appealed the Court’s decision to the Ninth Circuit.

One of the primary issues addressed by the Ninth Circuit was whether Rimini copied Oracle software in a manner that gave rise to copyright infringement.  The evidence was undisputed that Rimini used Oracle’s enterprise software to help develop and test updates that it would then push out to its customers.  It appears that Rimini, while using the license for one of its customers to obtain the Oracle download, would then use the software to provide updates to other customers who either had Oracle licenses or were considering obtaining them.

Rimini argued that it should have prevailed on the copyright infringement claims by asserting two affirmative defenses, express license and copyright misuse.  As to the express license defense, the U.S. Supreme Court has long recognized that “anyone who is authorized by the copyright owner to use the copyrighted work in a way specified in the statute … is not an infringer of the copyright with respect to such use.”  However, a person could be liable for copyright infringement to the extent they exceed the scope of the license granted by the copyright holder.  Thus, the Ninth Circuit’s inquiry focused on whether Rimini was acting in excess of the scope of the licenses held by its customers.

The District Court had instructed the jury that it would not necessarily be copyright infringement by Rimini if it had used a customer’s license to develop updates for that particular customer.  However, it would be unlawful if Rimini was to use the license from one particular customer to develop updates to be used by others.    The Ninth Circuit reasoned that Rimini’s use of one customer’s license to develop updates for other of its customers amounted to “cross use” and rejected Rimini’s claims that “cross use” is not infringement.  The Court found it significant that Rimini acknowledged that “cross use“ allows it to reduce expense to its customers by essentially “reusing work” performed for one customer.  The Ninth Circuit rejected this argument and agreed with Oracle by focusing on the language of the licenses that limited the scope of any authorized use to be done on behalf of that particular licensee.  By performing work for other customers, Rimini was exceeding the scope of any license and therefore was liable for copyright infringement.

Next, the Ninth Circuit turned to Rimini’s claim that Oracle was guilty of “copyright misuse.”  The copyright misuse doctrine prohibits copyright holders “from leveraging their limited monopoly to allow them control of areas outside the monopoly.”  In essence, the doctrine is intended to prevent copyright holders from stifling competition; however, it is not intended to prohibit the copyright holder from using conditions “to control use of copyrighted material.”  As a result, the copyright misuse defense should only be used “sparingly.”

Rimini argued that in essence, Oracle was “misusing” its copyright to prevent competition in the “aftermarket for third party maintenance.”  The Ninth Circuit rejected this argument finding that there was nothing wrong with requiring third party maintenance vendors to respect and comply with Oracle’s copyrights.

The Ninth Circuit’s decision in Oracle is a reminder that third party software vendors relying on their customer’s licensing of software or other computer programs need to be careful of running afoul of copyright laws.  Such vendors should obtain legal advice as to whether any of their proposed services run afoul of the software owners’/developers’ copyright interests.

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com. 

The U.S. District Court for the Central District of California recently issued its opinion in TCL Communications v. Ericsson (SACV 14-341 JVS(DFMx) and CV 15-2370 JVS (DFMx)) on standard-essential patents and whether a commit to license them was on terms that are fair, reasonable and nondiscriminatory, or FRAND.  The Court determined Ericsson did not offer to license its standard essential patents on reasonable terms, and instead become only the fourth U.S. Court to determine a royalty rate for essential patents.

Patent holders that own patents essential to industry standards often offer (or are required by the standard setting body to offer) to license their patents on FRAND terms when a patent is, or may become, essential to practice a technical standard, such as the wireless communications standards.  A patent becomes standard-essential when a standard-setting organization sets a standard that adopts the patented technology.  The acceptance of a patent holder’s patent into a standard is of great value to the patent holder, and enhances the monopoly which the patent holder has by virtue of the patent.  The accepted patents are often referred to as standard essential patents, or “SEPs.”  Anyone who wishes to manufacture products or provide services in accordance with the standard must now secure a license from the patent holder.  However, in exchange for acceptance of the patent as part of a standard, the patent holder must agree to license that technology on FRAND terms, which is typically a lower license rate than a standard (or non-FRAND) patent license in a comparable setting and with little ability to refuse to license.

Here, this case focused on the licensing of patents in the telecommunications field affecting 2G, 3G, and 4G1 cellular technologies.  Potential licensees TCL Communication Technology Holdings, Ltd. TCT Mobile Limited, and TCT Mobile (US) Inc. ( collectively “TCL”) manufacture and distribute cell phones on a world-wide scale.  Patent holders Telefonaktiebolaget LM Ericsson and Ericsson Inc. ( collectively “Ericsson”) hold an extensive portfolio of telecommunications patents.  TCL sought to license Ericsson’s patents, but the parties could not agree on terms.  The relevant standard setting organization at issue in this dispute is the European Telecommunications Standards Institute, or “ETSI.”

In beginning its analysis, the Court laid out the three tasks it needed to undertake.  The Court had to first “determine whether Ericsson met its FRAND obligation, and then whether Ericsson’s final offers before litigation, Offer A and Offer B, satisfy FRAND.  If they are not, the Court must determine what terms are material to a FRAND license, and then supply the FRAND terms.”

There were two principal schemes presented to the Court to consider in determining the proper FRAND rate, and if Ericcson offered to license at that FRAND rate.  One approach, offered by TCL, is a “top-down” approach which begins with an aggregate royalty for all patents encompassed in a standard, then determines a firm’s portion of that aggregate.  There other, offered by Ericcson, is an “ex ante,” or ex-Standard, approach which seeks to measure in absolute terms the value which Ericsson’s patents add to a product.  However, instead of just using one approach or another, the Court combined the two approaches.  Essentially, the Court undertook a non-discrimination analysis based principally on the review of comparable licenses.

At the end of the day, after conducting its analysis based on the combined hybrid non-discrimination approach, the Court reached the following conclusions:  “Ericsson negotiated in good faith and its conduct during the course of negotiations did not violate its FRAND obligation.  It is unnecessary for the Court to determine whether the failure to arrive at an agreed FRAND rate violated Ericsson’s FRAND obligation. Regardless of the answer to that question, the Court is required to assess whether FRAND rates have been offered in light of the declaratory relief which both sides seek.”

The Court then determined that Ericsson’s Offer A and Offer B were not FRAND rates and proceed to determine its own FRAND rates.  The court prescribed that the parties enter into a 5-year license agreement reflecting the FRAND rates, and TCL must pay Ericsson approximately $16.5 million for past unlicensed sales.  The FRAND rates determined by the Court were as follows:

In sum, if it stands, this case will likely make it easier for lower end product vendors like TCL to negotiate lower FRAND rates, and in turn more competitively offer their products in major markers.  It will also set a precedential approach to be used in future FRAND license negotiations and determinations.  However, Ericcson has already appealed this ruling to the Federal Circuit, so the final outcome is still far from over.