The 2012 District Court rulings in the Apple v. Motorola patent dispute likely caused unease and trepidation among litigators and damages experts. Judge Posner’s opinions made many wonder if the landscape was changing with regard to what was required to admit a damages claim into evidence and how certain remedies could be affected in summary judgment. In April 2014, the Federal Circuit clarified many of the issues that were raised by the District Court. This article provides a brief background of the dispute and details the guidance provided by the Federal Circuit regarding the admissibility of expert testimony, the appropriateness of summary judgment based on zero damages, and the availability of permanent injunctions as a remedy for standard essential patents.
The Initial District Court Rulings
Apple, Inc., and Next Software, Inc. (“Apple”), and Motorola, Inc., and Motorola Mobility, Inc. (“Motorola”), have been involved in an ongoing patent dispute since October 2010. Apple initially filed suit in the U.S. District Court for the Western District of Wisconsin, but the case was eventually transferred to the Northern District of Illinois, with Judge Richard Posner presiding. In the matter, Apple asserted that Motorola infringed three of its patents. Motorola subsequently countered, claiming that Apple was infringing six of its patents.
As a result of its claim construction rulings, the District Court granted summary judgment of non-infringement with regard to certain patents. Additionally, Judge Posner excluded nearly all of the damages experts’ opinions regarding the remaining claims. After virtually no admissible damages opinions remained, Judge Posner granted summary judgment that neither Apple nor Motorola were entitled to any damages or injunctions, and the case was dismissed with prejudice.
On appeal, Apple and Motorola disputed certain rulings regarding claim construction, admissibility, summary judgment of damages, and injunctions. The patents involved in the appeal were Apple’s U.S. Patent Nos. 7,479,949, 6,343,263, and 5,946,647 and Motorola’s U.S. Patent Nos. 6,359,898, 6,175,559, and 5,319,712. The Federal Circuit:
The following sections relate to the final three points listed on the previous page, summarizing the rulings made by the District Court and the Federal Circuit’s clarification of the law as it relates to those rulings.
Issues Related to the Admissibility of Expert Testimony
Admissibility When Other Reliable Methods for Estimating Damages Exist
In assessing damages related to Motorola’s alleged infringement of Apple’s ‘949 patent, Apple’s damages expert based his damages calculation on an analysis of Apple’s Magic Trackpad product (“Trackpad”). His decision to use the Trackpad as a comparable product was supported by Apple’s technical expert, who had concluded that the touch gestures of the Trackpad were “comparable or similar to those claimed in the ‘949 patent.”1 Apple’s expert also took steps in his analysis to isolate the value of the Trackpad’s touch features and then accounted for touch features outside the scope of the asserted claims.
The District Court excluded Apple’s damages expert in large part because of its conclusions regarding claim construction, which the Federal Circuit ultimately found to be incorrect. This alone would have required reversal and remand by the Court. However, the District Court also questioned whether the Trackpad was an accurate benchmark and found that there was a more preferable method for valuing the asserted claims, which likely would be have been used in a non-litigation context.
The Federal Circuit disagreed with the District Court, indicating, “if the Trackpad is not an accurate benchmark, Motorola is free to challenge the benchmark or argue for a more accurate benchmark. But such an argument goes to evidentiary weight, not admissibility, especially when, as here, an expert has applied reliable methods to demonstrate a relationship between the benchmark and the infringed claims.”2 Furthermore, the Federal Circuit reasoned that “[s]imply because other reliable methods of estimating a reasonable royalty may exist does not, by itself, render [a damages expert’s] approach inadmissible.”3
Admissibility when Relying on Other Experts Hired by the Same Client
In evaluating the damages resulting from Motorola’s alleged infringement of Apple’s ‘263 patent, Apple’s damages expert contemplated the cost of an alternative that would have been available to Motorola. The alternative would have involved Motorola replacing or adding an additional chip in its phones. Apple’s damages expert determined the cost to Motorola of implementing this alternative from facts and data provided by the principal technical expert hired by Apple. Using this information, Apple’s damages expert arrived at an amount that he concluded Motorola would have been willing to pay as a reasonable royalty.
The District Court excluded the proposed testimony of Apple’s damages expert based solely on the fact that he relied upon essential information provided by “an agent of the party [Apple’s technical expert] rather than from a disinterested source.”4
The Federal Circuit disagreed with Judge Posner’s reasoning that Apple cannot support its damages calculation with information from a technical expert hired by Apple, indicating that Judge Posner “states a rule that neither exists nor is correct.”5 The Federal Circuit specifically cited Rule of Evidence 703, explaining that the “Rule does not predicate admissibility on the source of the facts or data or, in particular, on whether the source is employed by either of the parties.”6 Moreover, while the potential for bias may be a concern, that concern is addressed by the weight of the evidence, not its admissibility.
Admissibility When the Expert Fails to Consider All Non-Infringing Alternatives
In assessing damages related to Motorola’s ‘898 patent, a standard essential patent (“SEP”), Motorola’s damages expert principally relied upon a market approach in which she considered comparable agreements produced by the parties in which SEP portfolios were being licensed. She offered two damages opinions, one in which the ‘898 patent was worth 40%-50% of Motorola’s SEP portfolio rate and another, more conservative estimate, in which the ‘898 patent represented only 5% of the Motorola’s SEP portfolio rate. In her opinion, she also recognized that a non-infringing alternative available to Apple would have been to utilize Verizon’s wireless network rather than AT&T’s network. However, she outlined the impracticalities of this option and did not specifically determine the cost Apple would have incurred to utilize it.
The District Court found, and the Federal Circuit agreed, that the less conservative opinion proffered by Motorola’s expert was inadmissible because the 40%-50% apportionment was not adequately tied to the facts of the case. However, the District Court also excluded her more conservative damages opinion “because she ‘failed to consider the range of plausible alternatives … facing Apple.’ Specifically, [that her] ‘failure to analyze’ the possibility of Apple contracting with Verizon made her method unreliable.”7
The Federal Circuit reversed the District Court’s exclusion of her more conservative opinion, indicating that because “a party may choose to pursue one course of proving damages over another does not render its expert’s damages testimony inadmissible. Nor is there a requirement that a patentee value every potential non-infringing alternative in order for its damages testimony to be admissible.”8
Issues Related to Summary Judgment
Awarding Zero Damages
With the testimony of Apple’s damages expert having been excluded, Motorola moved for summary judgment suggesting that even if Motorola was found to have infringed the ‘647 Patent, Apple was not entitled to any damages. Motorola argued that there was “no evidence upon which Apple may rely to reliably establish or measure any amount of damages.”9 The District Court agreed and granted summary judgment of no damages for the ‘647 patent.
The Federal Circuit disagreed with the District Court, holding that “a finding that a royalty estimate may suffer from factual flaws does not, by itself, support the legal conclusion that zero is a reasonable royalty”10 and “with infringement assumed, the statute requires the court to award damages ‘in no event less than a reasonable royalty.’”11 In essence, regardless of whether the testimony of a damages expert is found to be admissible or if even if no expert testimony regarding damages is offered, the fact finder is still required to determine a royalty, supported by the evidence remaining in the record. If the evidence is weak, the determined royalty may be nominal, but unless the record supports a zero royalty award, a damages award must be determined. Consequently, on summary judgment, the court may only award zero damages if there is “no genuine issue of material fact that zero is the only reasonable royalty.”12 Furthermore, if a patentee raises a factual issue regarding whether it is due a nonzero royalty, summary judgment must be denied.
The Availability of Injunctions for SEPs
The District Court also granted Apple’s motion that Motorola was not entitled to an injunction for infringement of the ‘898 patent, reasoning that injunctive relief is not allowable, since the ‘898 patent is a SEP and, as such, Motorola is required to license it on a fair, reasonable, and non-discriminatory (“FRAND”) basis.
While the majority’s opinion affirmed the District Court’s grant of summary judgment, the opinion indicated that the District Court might have erred in its reasoning. Citing his opinion, the Federal Circuit was concerned that Judge Posner was concluding that injunctive relief was a remedy generally unavailable to SEPs. The Court stated “we see no reason to create, as some amici urge, a separate rule or analytical framework for addressing injunctions for FRAND-committed patents.”13 In other words, the established framework utilizing the four eBay factors is still applicable when the patent at issue is an SEP.
The majority opinion noted, however, that a patentee subject to a FRAND commitment may have difficulty proving the irreparable harm required for an injunction, unless an accused infringer “unilaterally refuses a FRAND royalty or unreasonable delays negotiations.”14 The majority cited that since Motorola had previously entered into many license agreements for the ‘898 patent, it “strongly suggest[s] that money damages are adequate to fully compensate Motorola for any infringement”15 and that Motorola did not meet its burden of proving that Apple’s infringement caused it irreparable harm.
Judge Prost concurred with the majority’s opinion that Motorola was not entitled to an injunction, but disagreed with the suggestion that an infringer’s refusal to negotiate a license may be adequate rational for issuing an injunction. She reasoned that since 1) alleged infringers are entitled to challenge the validity of FRAND-committed patents and 2) trial courts can increase damages if it believes an infringer acted in bad faith during negotiations, refusing to license a FRAND-committed patent is not adequate consideration for awarding an injunction against an infringer. However, she later admitted in her dissent that “monetary damages are likely adequate to compensate for a FRAND patentee’s injuries.”16
Chief Judge Rader dissented, believing that the District Court improperly granted summary judgment to Motorola. In his dissent, he stated, “the record contains sufficient evidence to create a genuine dispute of material fact on Apple’s posture as an unwilling licensee whose continued infringement of the ‘898 patent caused irreparable harm.”17 Consequently, Motorola should have been allowed “to prove that Apple was an unwilling licensee, which would strongly support its injunction request.”18 In his opinion, this issue of the case should have been remanded to develop the record further.
Key Points to Take Away from Apple v. Motorola
The Federal Circuit’s opinion in Apple v. Motorola clarified a number of issues that were raised in the rulings made earlier by the District Court. The following are among the key insights that attorneys and damages experts should take away from this significant case: