IP Law Daily Federal Circuit will not rehear panel decision affirming lost profits award
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Tuesday, September 5, 2017

Federal Circuit will not rehear panel decision affirming lost profits award

By Cheryl Beise, J.D.

The U.S. Court of Appeals for the Federal Circuit has denied a petition by Synopsys, Inc., and its affiliates requesting a panel rehearing or rehearing en banc of a panel decision affirming an Oregon jury’s $36 million damages award to Mentor Graphics for Synopsys’s infringement of simulation/emulation technology patent. Circuit Judge Timothy Dyk, joined by Circuit Judge Todd Hughes, dissented from the court’s decision not to rehear the case en banc. According to Judge Dyk, rehearing was needed to correct the panel’s application of an erroneous standard in awarding lost profit damages without proper consideration of apportionment. Circuit Judge Kara Stoll, joined by five of her colleagues, filed a concurring opinion to address Judge Dyk’s dissent. Circuit Judge Kimberly Moore, joined by Circuit Judge Chen, also concurred in the decision to deny panel rehearing, but wrote separately to express disagreement with Synopsys’s argument that the doctrine of assignor estoppel should be abolished (Mentor Graphics Corp. v. EVE-USA, Inc., September 9, 2017, per curiam).

Mentor Graphics Corp. sued Synopsys Inc., Synopsys Emulation and Verification S.A.S., and EVE-USA Inc. (collectively, "Synopsys") for the infringement of six patents involving simulation/emulation technology. Synopsys acquired EVE-USA from Mentor in 2012. Mentor’s ’376 patent was the only patent to survive summary judgement challenges and be tried by a jury. Prior to trial, the district court granted summary judgment barring Synopsys from challenging the ’376 patent’s validity due to assignor estoppel. The jury found in favor of Mentor on liability and awarded damages of approximately $36,000,000. Following trial, the district court denied Synopsys’ motion for judgment as a matter of law (JMOL).

On March 16, 2017, the Federal Circuit affirmed-in-part, reversed-in-part, and remanded the case for further proceedings. The panel affirmed the district court’s denial of judgment as a matter of law, concluding that substantial evidence supported the jury’s infringement verdict regarding the ’376 patent and its award of damages. The panel agreed that the doctrine of assignor estoppel barred Synopsys from challenging the validity of the ’376 patent. The panel vacated an order precluding Mentor from presenting evidence of willful infringement and remanded for a trial on willful infringement and enhanced damages. The panel also reversed several of the district court’s summary judgment rulings, clearing the way for Mentor to pursue claims for the infringement of three additional patents and for Sysopsys to pursue a counterclaim for the infringement of one patent.

Appeal of damage award. The jury awarded Mentor $36,417,661 in lost profits and another $242,110 in reasonable royalties for Synopsys’ infringement of the ’376 patent. Synopsys argued that the damage award should be vacated because the district court failed to apportion the lost profits according to the infringed patented features.

The appellate panel noted that the goal of lost profit damages is to place the patentee in the same position it would have occupied had there been no infringement. In this case, the relevant market (suppliers of emulators to Intel) was made up of only two parties: Synopsys and Mentor. Thus, for each infringing sale it made to Intel, Mentor lost that sale and the associated profits. In this case, the apportionment was properly incorporated into the lost profits analysis, in particular through application of the Panduit factors, first articulated by the Sixth Circuit for determining lost profits. Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978). In other words, Mentor’s damages were tied to the worth of its patented features. "We leave for another day whether a different theory of ‘but for’ damages adequately incorporates apportionment principles," the panel said.

Dissenting opinion—rehearing on lost profits damages. Circuit Judge Timothy Dyk, joined by Circuit Judge Todd Hughes, dissented from the court’s decision not to rehear the case en banc. According to Judge Dyk, rehearing was necessary to correct the panel’s application of an erroneous standard in awarding lost profit damages. "In my view, the panel decision here improperly holds that when lost profits are awarded for patent infringement, there is no requirement for apportionment between patented and unpatented features, contrary to longstanding Supreme Court authority," Judge Dyk said. Although the panel said it was requiring apportionment in the lost profits award, in fact the panel did not do so, according to Judge Dyk. Instead, the panel erroneously equated "consumer demand and but-for causation with apportionment, contrary to the clear holding of the Supreme Court that the apportionment must be between patented and unpatented features."

Concurring opinion—lost profits damages. Circuit Judge Kara Stoll—joined by Circuit Judges Pauline Newman, Kimberly Moore, Kathleen O’Malley, Jimmie Reyna, and Evan Wallach—filed a separate concurring opinion to counter Judge Dyk’s dissenting opinion. According to Judge Stoll, the panel made clear that apportionment is typically necessary in both reasonable royalty and lost profits analyses and properly determined that the Panduit factors were satisfied in this case. "[B]ased on the jury’s undisputed fact findings on the Panduit factors in this case, I agree with the panel that Mentor properly accounted for apportionment of lost profits between the patented and unpatented features of the infringing emulator system," Judge Stoll said.

Concurring opinion—assignor estoppel. Circuit Judge Kimberly Moore, joined by Circuit Judge Chen, concurred in the decision to deny panel rehearing, but wrote separately to express disagreement with Synopsys’s argument that the doctrine of assignor estoppel should be abolished. Assignor estoppel prohibits an inventor and assignor from challenging the validity of the patent. Judge Moore explained that, unlike a licensee, an inventor/assignor may make an implicit representation regarding patent validity when assigning his or her patent rights to someone else for value. In an amicus brief, law professors argued that the Federal Circuit has expanded assignor estoppel beyond the appropriate bounds of privity, in ways that undermine important public policy goals and interfere with employee mobility. However, because neither the professors nor Synopsys argued that any such expansion had occurred in this case, rehearing was not appropriate.

The case is No. 2015-1470, 2015-1554, 2015-1556.

Attorneys: Mark E. Miller (O’Melveny & Myers LLP) for Mentor Graphics Corp. Robert M. Loeb (Orrick, Herrington & Sutcliffe LLP) and Indra Neel Chatterjee (Goodwin Procter LLP) for EVE-USA Inc. and Synopsys Emulation and Verification S.A.S.

Companies: Mentor Graphics Corp.; EVE-USA, Inc.; Synopsys Emulation and Verification S.A.S.; Synopsys Emulation and Verification S.A.

MainStory: TopStory Patent TechnologyInternet FedCirNews

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