Virginia IP Law : Virginia Intellectual Property Lawyer & Attorney : Troutman Sanders Law Firm : Technology & Patent Litigation

Magistrate Judge Stillman Disqualifies Defense Counsel in Trademark Case

In a case that is an object lesson for any litigator, Magistrate Judge Stillman disqualified the trial counsel for a defendant in a trademark infringement suit because the counsel’s concurrent representation of the defendant’s trademark attorney created an unwaivable conflict of interest. Wink, Inc. v. Wink Threading Studio, Inc., Case No. 2:10CV450, 2011 U.S. Dist. LEXIS 82379 (E.D.Va. July 26, 2011) (found here). In defense of a willful trademark infringement claim, the defendant relied on the advice of its trademark counsel. The defendant’s trial counsel represented the trademark attorney in the litigation for purposes of responding to a document subpoena and defending the trademark attorney's deposition. Problems arose when the trademark counsel gave deposition testimony which directly contradicted the defendant’s testimony. As the Court pointed out, the trial counsel could not fulfill his duty of loyalty to both clients without undermining the interests of the other. Further, the trial counsel had failed to have any meaningful consultation with either client regarding the conflict.

Judge Smith Declines Jurisdiction Over Counterclaim for Invalidity After Entering Summary Judgment of Non-Infringement

In The Fox Group, Inc. v. Cree, Inc., Case No. 2:10CV314, 2011 U.S. Dist. LEXIS 79019 (E.D.Va. July 20, 2011) (Smith, J.), found here, Fox conceded that it could not prove infringement under the Court’s claim construction and agreed to entry of summary judgment of non-infringement in order to pursue an appeal. Cree, however, refused to dismiss its counterclaims of invalidity and unenforceability, arguing that the possibility of reversal was enough to create a “definite and concrete dispute” which gave the Court declaratory judgment jurisdiction. Judge Smith disagreed, holding that to accept Cree’s position would require it “to find that its claim construction is likely erroneous, and, therefore, tacitly abandon that ruling” and that “a justiciable dispute cannot be predicated on the hypothetical results of a hypothetical appeal.”

Judge Brinkema Awards Damages for Willful Copyright Infringement

In Seoul Broadcasting Sys. Int’l., Inc. v. Ro, Case No. 1:09CV433, 2011 U.S. District LEXIS 82377 (E.D.Va. July 27, 2011) (found here), Judge Brinkema entered summary judgment of liability for copyright infringement for the unauthorized reproduction of Korean television shows by several Korean video rental stores in Northern Virginia. Judge Brinkema issued a permanent injunction against all of the defendants and awarded statutory damages for willful infringement against one defendant who had been found civilly liable for copyright infringement in the past and had been convicted of criminal copyright infringement. The Court found that it could have awarded a range of statutory damages between $750 and $150,000 per act of infringement but ultimately settled on an award of $15,000 per infringement.

Other license agreements are comparable to the parties’ hypothetical license negotiation only if they have a logical connection to the claimed invention.

• A license agreement covering multiple patents to broad technologies is not comparable to a hypothetical negotiation involving one patent on a narrow method claim. (Lucent)
   
• Licenses to finished software products, source code and services such as training and maintenance with no discernible link to the claimed technology are suspect, especially when the rates for those licenses differ greatly from other licenses for the claimed technology. (ResQNet)
   
• Licenses offered by a party must have some “discernible link” to the claimed technology; otherwise “a prevailing plaintiff would be free to inflate the reasonable royalty analysis with conveniently selected licenses without an economic or other link to the technology in question.” (ResQNet)
   
• An expert cannot arbitrarily pick an average royalty rate for a broad industry without some evidence that such industry-wide data is in some way comparable to the patents-in-suit. (Red Hat)

Licenses that result from litigation may be considered as evidence of a reasonable royalty. (ResQNet)

• One district court recently cited ResQNet to hold that litigation-related licenses were admissible to show a reasonable royalty and that concerns about reliability of the licenses go to weight, not admissibility. DataTreasury Corp. v. Wells Fargo & Co., Civil Action No. 2:06-CV-72 (E.D. Tex. March 4, 2010) (Folsom, J.).

Parties must present particularized evidence and analysis of licenses they claim are comparable. (Lucent)

• Testimony about comparable licenses must go beyond superficial recitations of the royalty rates and amounts paid in the agreements.
   
• Parties should introduce evidence about the subject matter of the patents covered in comparable licenses, how valuable or essential those patent rights are and how the technology in those patents is similar or dissimilar to the claimed invention.
   
• When offering cross-licenses, licenses of multiple patents or other complex agreements, a party must explain the value of the patent rights being cross-licensed and how a license to multiple patents is probative of the hypothetical license at issue.

When an accused product includes features other than the claimed invention, parties should offer evidence of the importance of the claimed invention to the accused product.

• A glaring imbalance between infringing and non-infringing features must impact the analysis of how much profit can be attributed to the claimed invention. (Lucent)
   
• Conversely, evidence that the claimed invention is an important feature of an accused product will greatly bolster an expert’s reasonable royalty opinion. (i4i)
   
• Application of the entire market value rule requires an “accurate economic measurement” of the demand for the claimed invention and its contribution to the demand for the entire product asserted as the royalty base. (Red Hat)

Post-infringement evidence of usage of the claimed invention must be focused on the infringed claim and not include non-infringing features of the accused products.

• “The damages award ought to be correlated, in some respect, to the extent the infringing method is used by consumers.” (Lucent)

There are significant distinctions between lump sum and running royalty agreements. (Lucent)

• When arguing for a lump sum award, a party should offer evidence of the expected or estimated usage of an invention.
   
• While running royalty agreements may be relevant to a lump sum award, parties must offer some basis for comparison between a running royalty and a lump sum.
   
• Evidence of per-unit licenses should include an explanation of how a per unit rate corresponds to a percentage of the cost of the products covered under the license.

The plaintiff always bears the burden of proving a reasonable royalty.

• A court should not sustain a royalty award based on inapposite licenses simply because a defendant did not proffer a rebuttal expert. (ResQNet)
   
• A plaintiff cannot shift the burden to the defendant to produce sufficient evidence to determine the value of the claimed technology relative to other features of the accused products. (Red Hat).

The first opinion granted PBM’s motion for judgment as a matter of law on Mead Johnson’s Lanham Act counterclaim, which challenged PBM’s comparative advertising label on its formula (“Compare to Enfamil Lipil”).  Mead Johnson contended that “PBM’s ‘compare to’ ad impliedly communicates the false message that the performance of PBM’s products has been tested and verified and is equivalent to Mead Johnson’s counterpart formulas and that the parties’ formulas are ‘identical in composition.’” 

Applying by analogy Virginia’s two-year limitations period for fraud, Judge Spencer first ruled that the statute of limitations and laches barred Mead Johnson’s claim with respect to certain PBM formulas. 

Next, Judge Spencer ruled that Mead Johnson’s evidence that the “compare to” language was impliedly false failed as a matter of law.  Mead Johnson had relied on an expert witness and consumer survey evidence.  But the survey failed to define what a key term (“the same”) meant, leading Judge Spencer to conclude that it didn’t answer “the critical question … whether consumers understand the ‘compare to’ language to make the claim that the formulas are indeed ‘identical,’ not whether the ingredients are nearly the same, substantially the same, or any other gradation one could create.”  And “[b]y failing to account for the specific allegations in this case and consider obvious alternative explanations for the results, the surveys cannot provide the required evidence needed to prove implied falsity.  And without that evidence, Mead Johnson cannot prevail on its Lanham Act claim.”

Finally, Judge Spencer held that Mead Johnson could not prove damages because its economist offered no proof of causation.  Instead, the economist “assumed that every PBM sale made was attributable to the ‘compare to’ ad on the products and that PBM would not have made any other sales but for the ad.”

In the second opinion, Judge Spencer denied both Mead Johnson’s motion for a new damages trial or for remittitur and also PBM’s motion for enhanced damages and attorney’s fees. 

In its motion, Mead Johnson found several flaws with the expert witness PBM offered on damages.  Mead Johnson also argued that the verdict was excessive when compared with similar Lanham Act claims.  Judge Spencer found that Mead Johnson “failed to carry its heavy burden of proving that the verdict in this case was against the clear weight of the evidence or based on evidence that is false” and held the size of the verdict was not a miscarriage of justice, citing other Lanham Act cases and noting that PBM did not get the full amount of damages it sought.  In particular, Judge Spencer complimented PBM’s expert on having “used a reliable regression analysis that was based on relevant and appropriate data” and “explained why certain variables were included and why others were excluded.”  Acknowledging the criticism of PBM’s expert, Judge Spencer held that criticisms of an expert witness were not enough to undermine the verdict.  “That Mead Johnson and Dr. Gering would have done it differently does not place this verdict against the weight of the evidence or show that it was based on false evidence.”

PBM’s Motion argued that enhanced damages were needed for deterrence – pointing to what it described as Mead Johnson’s recalcitrant corporate culture, untenable positions at trial, and a high public interest in truth, particularly regarding baby formula – and to fully compensate PBM.  

Judge Spencer found no reason to award enhanced damages, concluding that PBM was not undercompensated and did not show intent to distribute false advertising.  Awarding enhanced damages, according to the Court, would tip the scale from compensation to an impermissible penalty.

Finally, Judge Spencer declined to award attorney’s fees.  The Court noted that the Fourth Circuit applies a somewhat higher standard than other circuits for the award of attorney’s fees – requiring proof of “bad faith” for a prevailing plaintiff (citing Scotch Whisky Ass’n v. Majestic Distilling Co., 958 F.2d 594, 599 (4th Cir. 1991), cert. denied, 506 U.S. 862 (1992)) and “something less than bad faith” for a prevailing defendant.  The Court concluded that PBM had not shown bad faith by clear and convincing evidence and that Mead Johnson had acted aggressively, but not egregiously.