United States: Federal Circuit To Judge Posner: eBay Analysis Is A Must

The U.S. Court of Appeals for the Federal Circuit (in a case that attracted a dozen amici briefs) affirmed a district court ruling by Circuit Judge Posner (sitting by designation) that the holder of the FRAND-encumbered SEP patent in this case was not entitled to injunctive relief, but insisted that there is no per se rule covering such patents and that an eBay analysis is nevertheless required.

In a closely watched case involving a high profile circuit court judge sitting (by designation) at trial and raising the hot button issue of whether the holder of a fair, reasonable and non-discriminatory terms, or FRAND-encumbered standard essential patent (SEP) was in essence barred from seeking injunctive relief, the U.S. Court of Appeals for the Federal Circuit (in a case that attracted a dozen amici briefs) affirmed Judge Posner's ruling that the holder of the FRAND-encumbered patent in this case was not entitled to injunctive relief, but insisted that an eBay analysis is nevertheless required.  Apple, Inc. et al. v. Motorola, Inc., et al., Case No. 12-1548; -1549 (Fed. Cir. April 25, 2014) (Reyna, J.) (Rader, C. J., dissenting in part) (Prost, J., concurring in part; dissenting in part).

Apple and Next Software (Apple) sued Motorola and Motorola Mobility (Motorola), asserting infringement of 15 patents.  Motorola counterclaimed, asserting six of its own patents.  Judge Posner, sitting by designation, short-circuited a jury trial by granting summary judgment as to all claims on grounds of non-infringement (in view of his construction of certain claim terms) and on grounds of insufficient evidence to show damages or the right to injunctive relief (the latter in view of his earlier decision to exclude the vast majority of both parties' damages expert evidence).  Judge Posner also suggested that Motorola was precluded from injunctive relief on its FRAND-encumbered SEP ( IP Update, Vol. 15, No. 7).

Both parties appealed.  On appeal, the Federal Circuit considered the issues of claim construction, the sufficiency of expert damage reports to show entitlement to a statutory "reasonable royalty" and whether the parties' claims for injunctive relief were properly denied under eBay.

Means-Plus-Function Claim Element and "Inherent" Structure

With regard to one of the Apple patents in suit, the Federal Circuit explained that Judge Posner committed error as to certain means-plus-function claim limitations.  The patent is directed to controlling a touchscreen device with finger gestures.  The claims recited reading a user's finger gestures using "heuristics" (rules) to determine commands for the device:

a vertical screen scrolling heuristic for determining that the one or more finger contacts correspond to a one-dimensional vertical screen scrolling command rather than a two-dimensional screen translation command based on an angle of initial movement of a finger contact with respect to the touch screen display.

Judge Posner determined that notwithstanding the absence of the term "means," the claim limitation was nonetheless a "means-plus-function" claim element, the function of the heuristic being the "determining" term.

Writing for the majority, Judge Reyna disagreed, finding that Motorola had failed to rebut the "strong presumption" that, as here, claims are not means-plus-function claims when the term "means" is not used.  Rather, Reyna explained that the term "heuristic" has an inherent structure and meaning to one of ordinary skill in the art that prevents its treatment as a means-plus-function claim term.

On this issue, Judge Prost, in dissent, argued that the majority wrongly conflated the two-step means-plus-function claim analysis into a single step.  Rather than first determining whether the claimed "heuristic" term was a means-plus-function claim element, then determining whether there was sufficient corresponding structure for the claimed function, Prost argued that the majority simply looked for sufficient corresponding structure.  In Prost's opinion, the term "heuristic" is a "vague concept that does not connote known, physical structure."  Prost did however, disagree with Judge Posner's identified corresponding structure to the claimed function, finding it too limiting given the abundance of disclosure in the specification regarding finger gestures and related "heuristics." 

The Bar for Admissibility of Damages Testimony

The Federal Circuit next addressed whether the parties' damages experts' testimony was sufficient to show a reasonable royalty.  Judge Posner had excluded each parties' expert on damages, and granted summary judgment against most of the parties' claims, concluding that neither was entitled to receive any damages.

The Federal Circuit reversed, finding that insofar as certain Apple patents were concerned, Judge Posner's erroneous claim construction "alone, would require reversal and remand because the erroneous claim construction tainted the district court's damages analysis."

The court also concluded that Judge Posner failed to consider the full scope of the expert opinions, explaining that rather than focusing on the reliability of the principles and methods used or the sufficiency of the facts and data relied upon, the district court substituted its own opinion.  As an example, one of Apple's experts isolated the value of finger gestures used in an Apple "Trackpad" product to estimate the value of the figure gesture heuristics, an analysis that the district court found inadequate: "The fact that many consumers will pay more for a Magic Trackpad than for a mouse tells one nothing about what they will pay to avoid occasionally swiping unsuccessfully because their swiping finger wasn't actually vertical to the screen."

The Federal Circuit explained that the district court erred when it focused on just the heuristic limitation because the "proper inquiry evaluates the expert's methodology in view of the full scope of the infringed claims."  Here, the court found that the methodology used by Apple's damages expert was "the product of reliable principles and methods."  The expert had attempted to isolate the value of the claimed features in an existing commercial product; relied on technical expert testimony; compared the computed reasonable royalty to related licenses; and addressed the possibility of removing the asserted features from the accused devices.  The court concluded that such methodology and testimony was admissible.  The Federal Circuit faulted Judge Posner for acting as both the gate-keeper and the fact-finder, when he should be only the gate-keeper:

Whether [Apple's expert's] testimony was the product of reliable principles and methods is the focus of admissibility; whether the testimony produced a correct degree of estimation of the value of the ... patent is a factual consideration reserved for the fact finder.  Here, the district court resolved admissibility based upon its own view on the correct estimate of value for the ... patent, a question that should have been reserved for the jury.

While Judge Prost concurred with the majority's reversal of the exclusion of Apple's expert's testimony, she agreed with the district court that use of the Magic Trackpad to calculate the value of the claimed functionality was unreliable because that product was not a sufficiently comparable benchmark, "as even Apple concedes, the Trackpad contains none of the function asserted from the ... patent."  According to Prost, this established a "highly questionable" starting point for a damages analysis—one that was properly excluded.

In connection with a different Apple patent, the district court excluded Apple's damages expert's testimony because that expert had relied on the testimony of Apple's technical expert in forming his opinions.  The district court's concern was that one Apple expert relying on another Apple expert created unfair bias.  The Federal Circuit reversed, finding that, "[e]xperts routinely rely upon other experts hired by the party they represent for expertise outside of their field."  Any bias in the damages calculations should be addressed by the jury, i.e., deciding what weight should be given to such testimony and the testimony of the other expert relied on.  "To the extent bias exists, cross-examination and the testimony of an opposing expert may be used to expose it. ... The issue is one of evidentiary weight and not admissibility."

For another of Apple's patents, the district court excluded Apple's damages testimony, and granted summary judgment that Apple was not entitled to any damages (not even a nominal reasonable royalty) for lack of evidence—even though Motorola had conceded infringement.

The Federal Circuit reversed, explaining that under 35 U.S. C. § 284, unless the evidence shows otherwise, the damages amount cannot be zero: "Finding that a royalty estimate may suffer from factual flaws does not, by itself, support the legal conclusion that zero is a reasonable royalty."  Rather, a court must award damages "in no event less than a reasonable royalty."  Thus, where infringement is found, the jury is required to determine what royalty is supported by the record, even if the amount is nominal.  As the court explained, an award of zero damages is appropriate only when the record in fact supports a zero royalty award.  But here, the court explained, Apple had presented evidence that the patent features held value because it showed consumer demand for the claimed features that would have taken Motorola months to design around.

As for Motorola's patent damage position, after the district court excluded all of Motorola's proposed damages testimony, it granted Apple's motion for summary judgment that Motorola was entitled to no damages.  While the Federal Circuit affirmed the exclusion of one of Motorola's experts, a licensing expert who admitted he "knew nothing" about the patent and that he had chosen an arbitrary licensing rate not tied to the claimed invention, it reversed as to the remainder of Motorola's damages testimony.

That remaining testimony included a reasonable royalty analysis of license agreements between Motorola and "all of the major" cellular phone makers in the United States, except for Apple.  All of the license agreements treated the patent as an SEP—one of many such patents in Motorola's standard-essential patent portfolio.  The expert's approach was to separate the value of the patent in issue from the total value of the portfolio and then analyze the design around value for not using certain cellular network types covered by the patent.  This methodology was found sufficiently reliable to be admitted.  The Federal Circuit explained that the district court "failed to recognize that [Motorola's expert] did construct a cost estimate typically relied upon when calculating patent damages—the cost to license the technology."  Whether the "licenses are sufficiently comparable such that Motorola's calculation is a reasonable royalty goes to the weight of the evidence, not its admissibility."

Injunctions: It's All About eBay

The court next addressed whether Apple was entitled to an injunction for any of its patents, and whether Motorola was entitled to an injunction for its patent, even though it was standard essential.

The Federal Circuit first vacated the district court's grant of summary judgment against Apple's request for an injunction on the basis of its reversal of the claim constructions for those patents.

On this issue Judge Prost dissented, arguing that the first eBay injunction factor—irreparable harm—was sufficiently dispositive, and so, would have affirmed the district court's grant of summary judgment, denying Apple an injunction.  In Prost's opinion, Apple failed to show sufficient evidence to establish a causal nexus between consumer demand and infringement of the claimed features, which was required to meet the "irreparable harm" prong of the eBay test.

Turning to Motorola's request for injunction, the Federal Circuit affirmed the district court's grant of summary judgment against Motorola.  However, the court noted that the district court erred to the extent it applied a per se rule finding no injunction would lie for any FRAND-encumbered SEP.  As the court explained, such a rule ignores the analysis mandated by eBay ( IP Update, Vol. 9, No. 5), explaining that even a FRAND-encumbered SEP may possibly be the basis for an injunction under eBay, such as where the "infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect."  However, the court recognized that such occurrences would likely be rare.

Judge Rader, dissenting on this issue, argued that there was enough evidence in the record to support the conclusion that Apple was unwilling to license Motorola's SEP patents and that Motorola should have been afforded an opportunity to prove that at trial.

Judge Prost, while concurring in the judgment, dissented as to the circumstances under which an injunction might be appropriate when a FRAND-encumbered SEP is at issue.  Rather than look to when an "infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect," in Prost's view "an injunction might be appropriate where, although monetary damages could compensate for the patentee's injuries, the patentee is unable to collect the damages to which it is entitled."

Practice Note: eBay remains the test for injunctive relief and any request for an injunction must include an eBay analysis, even for FRAND-encumbered SEPs.  In other words, there is no per se rule.  But to prevail in a request for injunctive relief, an SEP owner will be required to prove that the alleged "infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect."  It may be possible to address the issue as suggested by Judge Prost, i.e., by establishing that "although monetary damages could compensate for the patentee's injuries, the patentee is unable to collect the damages to which it is entitled," but whether that will ultimately attract a panel majority is an issue for another day.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.