The Implications of Patent Rulings With Limited Remedies

Recent court decisions will require companies to refocus patent litigation case strategies to ensure that potential remedies for infringement are worth the risk and expense of litigation. Patent litigators typically focus on whether a patent is valid and infringed, and proving entitlement to a remedy for infringement is often an afterthought. But a favorable verdict may be largely meaningless without an effective remedy. In a recent pair of cases — LaserDynamics, Inc. v. Quanta Computer, Inc.1 and Apple, Inc. v. Samsung Elecs. Co., Ltd.2 — the U.S. Court of Appeals for the Federal Circuit drastically limited the scope of infringement remedies, particularly where the patent covers a small feature of a complex, multicomponent device (e.g., a laptop computer or smartphone). Litigants would be wise to incorporate the Federal Circuit’s guidance into strategies early in the case to ensure they can obtain a remedy that will outweigh the hassle and expense of litigation.

In many cases, discovery relating to damages and injunctive relief is given short shrift. Companies may balk at the cost of market studies or surveys that analyze the value that the patented invention provides to the accused products, deeming them unnecessary. But the Federal Circuit’s rulings show that remedy-related discovery will become increasingly important — especially where the patented invention may drive demand for the accused products. If this link cannot be clearly shown, damages may be reduced and injunctive relief forfeited. Settlement amounts may be driven down, and cases may be resolved more quickly. These decisions have likely cost the holders of relatively insignificant or unimportant patents considerable leverage in future licensing negotiations and litigation.

Both LaserDynamics and Apple-Samsung are linked by a common theme — the high burden being placed by the Federal Circuit on patent holders to demonstrate that the remedies they seek are commensurate with the value of their inventions. This is especially true in litigation involving high-technology, multi-component products such as mobile devices. The Court’s rulings may begin to assuage the concerns of regulators, commentators, and industry participants about excessive jury verdicts, increased costs due to royalty stacking, patent hold-up and the potential improper enforcement of standard-essential patents in litigation. The Federal Circuit will likely continue to develop this area of case law further in the next year.

LaserDynamics v. Quanta — “Damages Control”

The LaserDynamics case involved a non-practicing entity that owned a patent covering a method of automatically recognizing discs in optical disc drives. Quanta sold laptop computers containing drives alleged to use the patented method. Even though the patent covered only a portion of the disc drives, LaserDynamics sought damages based on a percentage of the selling price of each Quanta laptop. The jury awarded LaserDynamics damages of $52M, based on a two percent royalty on each laptop. But the district court overturned the jury’s verdict, finding that using the entire laptop sale price as a royalty base was improper. LaserDynamics appealed to the Federal Circuit.

The Federal Circuit agreed with the district court, explaining that royalties should typically be based on the “smallest salable patent-practicing unit” — in this case, the optical disc drives. The Court expressed concern that juries not overcompensate the patent holder by awarding damages based on features that are not covered by the patent. By basing damages on the smallest salable patent-practicing unit, that risk is reduced — because the amount and value of unpatented features will be relatively small. Limiting the royalty base to the smallest salable unit thus provides some “damage control” to damages.

According to the Court, the only way the entire product could be used as the royalty base for damages was if the patented feature created the demand for the entire product itself. Simply because the patent might cover a feature that consumers expect or would like a product to have does not mean that damages may be based on the entire product’s price — even if the patented feature is valuable, important, or essential to the use of the product.

The LaserDynamics decision’s damage control may significantly decrease uncertainty in patent damages, especially for cases involving mobile devices and similar multicomponent products. With the many features found in devices like smartphones, no single feature may actually form the basis for demand for the smartphone itself. In the future, significant damages awards may be limited to those truly valuable patents that actually drive demand for products.

Apple v. Samsung — Limiting Injunctive Relief for Multi-component Devices

The issue in Apple v. Samsung involved not money damages, but injunctive relief — the ability to force an infringer to cease infringement. Apple claimed that the Quick Search Box (QSB) feature in Samsung’s Android Galaxy Nexus smartphone infringed its patent covering a “unified search” function. Apple moved for a preliminary injunction, asking the court to ban sales of the Galaxy Nexus phone. The district court granted Apple’s preliminary injunction motion and barred sales of the Galaxy Nexus phones. Samsung appealed to the Federal Circuit.

The Federal Circuit reversed the district court, ruling that Apple was not entitled to a preliminary injunction. The Federal Circuit focused on whether Apple had shown that Samsung’s use of the QSB search feature irreparably harmed Apple — a prerequisite for injunctive relief. The Court held that a patentee must show a “causal nexus” between irreparable harm and infringement — that it will be irreparably harmed unless it receives an injunction, and that the harm is caused by the infringement.

Here, although Apple showed that its Siri functionality was important to its own iPhones, Apple failed to show that the accused QSB feature drove customer demand for the Samsung Galaxy Nexus. Therefore, the harm was not caused by the alleged infringement, and the requested remedy did not match the relative importance of the patented feature. Echoing its opinion in LaserDynamics, the Court explained that an injunction is not warranted even where a device without the infringing feature would be less valuable or even inoperable — the feature must be a core component that drives demand for the entire device. The QSB did not drive demand for the Galaxy Nexus, so Apple was not entitled to an injunction.

A Renewed Focus on Remedies

The reasons why remedies for infringement may be overshadowed by the focus on liability are simple. Historically, injunctions were automatically entered upon a finding of patent infringement. Faced (or armed) with an injunction, the parties would often settle, with any damages award being considered as a factor in that settlement amount. Further, damages awards themselves have been unpredictable, with large jury verdicts often getting overturned on appeal. In contrast to the uncertainty of damages, infringement is a more predictable determination that may be resolved even before a jury trial — so litigants typically focus on this more certain target.

But patent law has evolved. Injunctions are no longer automatically entered — patent owners must now show specific harm requiring an injunction and why that harm could not be addressed by damages alone. And the Federal Circuit has recently provided more guidance on damages in patent cases, making these awards more predictable and tied to the value of the patented invention. LaserDynamics and Apple-Samsung warn litigants to place a renewed focus on patent infringement remedies.

Recent Developments

In fact, their effects are already being felt in a variety of pending cases. For example, in the high-profile district court litigation between Apple and Samsung, the jury found that Samsung infringed several of Apple’s user interface and design patents — yet Judge Lucy Koh held that because Apple failed to link Samsung’s infringement of Apple’s patents to the customer demand for Samsung’s accused products, Apple was not entitled to a permanent injunction.

Apple has now asked the full cohort of Federal Circuit judges to review Judge Koh’s decision, as well as reconsider its denial of the preliminary injunction in Apple v. Samsung. If the Federal Circuit takes these cases up in an en banc hearing, the focus will likely be on the “causal nexus” requirement. This appeal warrants watching, as it will have wide implications for future patent cases.

694 F.3d 51 (Fed. Cir. 2012).

695 F.3d 1370 (Fed. Cir. 2012).

David Long is a Member in the Intellectual Property and Litigation practice groups at Dow Lohnes with over twenty-five years experience in telecommunications. Matt Rizzolo is an Associate in Dow Lohnes’s Litigation practice group and concentrates his practice on intellectual property matters, with a specific focus on patent litigation.