Litigating Claim Construction and its Impact on Liability and Damages: A Case Study A. John P. Mancini Co-Leader, Intellectual Property Practice 212-506-2295 jmancini@mayerbrown.com Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
I. Background To The Case II. Key Issue: Value of the Invention III. Claim Construction IV. Plaintiffs’ Theory of Damages V. Defendants’ Theory of Damages V. Defendants’ Theory of Damages VI. Court Appointed Expert VII. Related Developments and Open Issues 2
I. Background to the Case I. Background to the Case 3
The Plaintiffs • Brandeis University – Two named inventors on the faculty – Third inventor was a researcher for a palm oil trade association that funded the work • GFA Brands – Maker of Smart Balance buttery spread – “Patented blend to help improve cholesterol ratio” 4
The Defendants • First-named defendant was a 7-person vegan bakery in Madison, Wisconsin, East Side Ovens • The other defendants were regional, national and international food companies, including: • Nestlé • Kellogg Company • Kellogg Company • Unilever • Bremner Food Group 5
The Patents • Two patents directed to a fat blend and a “margarine” • Fat blends like these are used in various food products, including cookies • Claims required that the fat be “suitable for” the reduction of specified cholesterol ratios • Alleged cholesterol-lowering effect was the focus of the • Alleged cholesterol-lowering effect was the focus of the academic study that formed the basis for the products • Same effect was the focus of the commercial embodiment of the patents, namely the Smart Balance buttery spread • Fat blends were also trans-fat free 6
’497 Patent 7
’192 Patent 8
Plaintiff’s Product GFA advertises its products as naturally free of trans fat and capable of enhancing good-to-bad cholesterol ratios. GFA marks its products with the ’497 Patent. 9
The Defendants’ Products • One spread (from Unilever) and cookies and cookie doughs from the other defendants • Our client, Kellogg Company sold “Chips Deluxe Chocolate Chip Cookies” through its Keebler subsidiary • Our additional client, Nestlé, sold Toll House Chocolate Chip Cookie Dough (for baking) Cookie Dough (for baking) • Cookies were labeled “cholesterol-free”, but there were no other product claims made, including no claims were made that either the Keebler cookies or the Toll House Cookie Doug lowered cholesterol • In addition, neither Nestlé nor Keebler made any other health claims about its cookies – rather, they marketed as indulgent treats 10
Scientific Background • Patents claimed that higher levels of saturated fat higher lowered overall cholesterol levels • A counter-intuitive finding, as saturated fat was previously cited as a health concern • Defense position was that it was counter-intuitive because it was wrong because it was wrong • The scientific finding was based on one study of Malaysian soldiers funded by a Malaysian palm oil trade association that wanted to promote the use of palm oil, which is high in saturated fat • The conclusions of the study (calling for a diet higher in saturated fat) are at odds with the current consensus on the healthiest diet 11
Scientific Background (cont.) • FDA regulations required trans-fats to be disclosed on the label. • Labeling requirements permitted less than 0.5 grams per serving to be labeled as 0 grams or as “trans-fat free.” 12
Procedural History • Case was filed in W.D. Wisconsin, a patent-savvy venue noted for its speed • Same plaintiff previously filed and lost Markman in D.N.J. • Markman ruling could be dispositive, but WD Wisc. assigned judge would not hold a Markman hearing • Assigned judge’s individual practice was to resolv claim • Assigned judge’s individual practice was to resolv claim construction as part of summary judgment • Defendants moved to transfer to several more convenient venues • Sua sponte Judge Crabb transferred all the cases for resolution to one court, namely, N.D. Ill., Judge Richard Posner, sitting by designation 13
Transferee Court Case Schedule Action Date Exchange of Terms and Proposed June 8, 2012 Constructions Markman Hearing August 20, 2012 Initial Expert Reports (Liability and September 24, 2012 Damages) Rebuttal Expert Witness Reports October 26, 2012 (Liability and Damages) Close of Expert Depositions November 30, 2012 Motions for Summary Judgment December 21, 2012 Trial March 4, 2012 14
Judge Richard Posner • Noted interest in intellectual property matters • Authored The Economic Structure of Intellectual Property Law • Takes patent cases on a regular basis • Dislikes the uniformity imposed by the creation of the Federal Circuit, and has advocated for the return to circuit-based patent law patent law • Particular interest in patent damages: • “But I have been struck … by how the law relating to damages relief in patent cases seems to be in disarray.” • Hostile to patent protection except in special circumstances:’ • "It's not clear that we really need patents in most industries." 15
II. Key Issue: Value of II. Key Issue: Value of the Invention 16
Early Focus on Damages • From the start, we focused one pillar of the defense on damages • How could a cookie company be liable for anything other than de minimis damages, if it never advertised any than de minimis damages, if it never advertised any benefits from the alleged cholesterol-benefiting fat blend? 17
Early Focus on Damages (contd.) • Judge Posner picked up on this issue and issued a sua sponte order early on asking for briefing on this issue: • “I am concerned whether the plaintiffs if successful in establishing liability will be entitled to nontrivial damages awards. Suppose the defendants infringed the asserted patents but that none of the defendants marketed its products as [lowering cholesterol] and suppose further that the defendants obtained no cost savings by infringing the patents rather than using some non‐infringing recipe and that neither using some non‐infringing recipe and that neither Brandeis nor its licensee GFA Brands lost any business as a result of the infringement. On those assumptions, would the plaintiffs have any claim for damages, whether compensatory or punitive, or restitution.” 18
Patent Act • “Upon finding for the claimant the court shall award the claimant 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, together with interest and costs as fixed by the court.” • 35 U.S.C. § 284 (emphasis added) • What is “adequate to compensate” the patentee if the alleged infringer gains no benefit from using the technology? • Seemingly, Section 284 of the Patent Act was at odds with Judge Posner’s views 19
Reasonable Royalty • Reasonable-royalty damages are based on the notion that, had the transaction between the patent holder and the infringer been voluntary, the infringer would have paid the patent holder a royalty for the use of the patent. • Calculating reasonable-royalty damages entails estimating the royalty that the patent holder would have collected from the royalty that the patent holder would have collected from the infringer, starting at the time of first infringement – assuming a hypothetical license negotiation occurred. 20
Reasonable Royalty (contd.) • An economic approach to analyzing the hypothetical negotiation is to determine the bounds of the bargaining range. • Those bounds are: • (i) the minimum royalty that the patent holder would accept -- while still being better off than without issuing a license; and • (ii) the maximum royalty the infringer would be willing to pay -- while • (ii) the maximum royalty the infringer would be willing to pay -- while still being better off than without obtaining a license. 21
Reasonable Royalty (contd.) • An economic approach to analyzing the hypothetical negotiation is to determine the bounds of the bargaining range. • Figure 1: Those bounds are the minimum royalty that the patent holder would accept (while still being better off than without issuing a license) and the maximum royalty the infringer would be willing to pay (while still being better off than without obtaining a license). 22
Reasonable Royalty (cont.) (excerpted from Court-appointed expert report) 23
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