Posner’s dismissals of the patent infringement suits in Apple versus Motorola cites eBay and compulsory licensing

Judge Posner On 22 June 2012, Judge Richard Posner, dismissed with prejudice the patent infringement suits filed in Apple Inc. and NEXT Software, Inc. v Motorola, Inc. and Motorola Mobility, Inc. in the United States District Court for the Northern District of Illinois (Eastern Division). In this case, the judge cited the eBay decision noting that neither party was entitled to injunctive relief as neither party demonstrated that “damages would not be an adequate remedy”. In fact, the judge specifically noted that a “compulsory license with ongoing royalty is likely to be a superior remedy in a case like this because of the frequent disproportion between harm to the patentee from infringement and harm to the infringer and to the public from an injunction”.

According to Posner’s opinion and order of 22 June 2012, the

trials on relief would have involved five patents—four Apple patents (‘002, ‘263, ‘647, and ‘949) and one Motorola patent (‘898)—if all were found to have been infringed. Apple concedes that my exclusion of proposed testimony by its damages expert witness Brian W. Napper dooms its claims for damages for infringement of the ‘002 and ‘949 patents, and that leaves only the ‘263 and ‘647 patents for me to consider in evaluating Motorola’s motion for summary judgment on damages.

The judge granted Apple’s request for a hearing in which the parties could endeavor to satisfy the eBay factors and seek injunctive relief as to their patent or patents “were the other party found to have infringed”. The judge gave the following instructions to the parties.

The parties should be prepared to address the possibility of substitution for an injunction of an equitable decree for a reasonable royalty going forward. They should indicate any evidence in the existing record (for it is too late to supplement the record) bearing on the question of injunctive or other equitable relief. And if Motorola means to argue for injunctive relief it should be prepared to address the bearing of FRAND on the injunction analysis.

With respect to Apple’s request for injunctive relief, the judge wrote that,

Apple could have sought, in lieu of an injunction against the sale of Motorola’s devices, an order that Motorola pay a reasonable royalty for continued use of the inventions covered by the Apple patents. Such an order would impose a compulsory license on Apple in exchange for its receiving a perpetual royalty. (The Federal Circuit prefers the term “ongoing royalty,” PaiceLLC v. Toyota Motor Corp., 504 F.3d 1293, 1313 n. 13 (Fed. Cir.2007).) It would be an equitable remedy imposed as a substitute for an injunction against infringement. Bard Peripheral Vascular,Inc. v. W.L. Gore & Associates, Inc., 670 F.3d 1171, 1192 (Fed. Cir.2012), vacated in part on other grounds, 2012 WL 2149764 (Fed.Cir. June 14, 2012). (Equitable remedies, contrary to the familiar dichotomy between monetary and equitable relief, are often monetary. E.g., McReynolds v. Merrill Lynch, 672 F.3d 482, 483(7th Cir. 2012); Hoelzer v. City of Stamford, 972 F.2d 495, 498 (2dCir. 1992).)

A compulsory license with ongoing royalty is likely to be a superior remedy in a case like this because of the frequent disproportion between harm to the patentee from infringement and harm to the infringer and to the public from an injunction, a factor emphasized in Justice Kennedy’s concurring opinion in eBay Inc. v. MercExchange, L.L.C., supra, 547 U.S. at 396–97, in which he pointed out that “when the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.” He could have been describing this case. Three Justices joined his opinion, and no Justice expressed disagreement with it.

Apple’s patent,6,343,263, which the judge described as the “realtime patent” is described in its USPTO patent filing as a “real-time signal processing system for serially transmitted data”. Apple’s patent, 5,946,647, which the judge described as “structure detection and linking” is described in its USPTO patent filing as a “system and method for performing an action on a structure in computer-generated data”. In evaluating Apple’s claims for damages, the judge posted that “Apple has not presented admissible evidence that the Georgia-Pacific factors support its damages claim.”

Motorola’s patent, 6,359,898, described in its USTPO patent filing as a “method for performing a countdown function during a mobile-originated transfer for a packet radio system” was described by Motorola as a “standard essential” patents. The judge noted that this patent was required by mobile phone makers to “communicate over specified telecommunications networks”. The judge noted that Motorola committed to licensing its patent on FRAND terms “as required by the standards-setting organizations as a condition of the patented technology’s being deemed essential to compliance with the standard”.

With respect to FRAND, the judge wrote,

[t]he proper method of computing a FRAND royalty starts with what the cost to the licensee would have been of obtaining, just before the patented invention was declared essential to compliance with the industry standard, a license for the function performed by the patent. That cost would be a measure of the value of the patent qua patent. But once a patent becomes essential to a standard, the patentee’s bargaining power surges because a prospective licensee has no alternative to licensing the patent; he is at the patentee’s mercy. The purpose of the FRAND requirements, the validity of which Motorola doesn’t question,is to confine the patentee’s royalty demand to the value conferred by the patent itself as distinct from the additional value—the hold-up value—conferred by the patent’s being designated as standard-essential….Motorola has provided no evidence for calculating a reasonable royalty that would be consistent with this point.

On damages, the court declared that

neither party is entitled to an injunction. Neither has shown that damages would not be an adequate remedy. True, neither has presented sufficient evidence of damages to with stand summary judgment—but that is not because damages are impossible to calculate with reasonable certainty and are therefore an inadequate remedy; it’s because the parties have failed to present enough evidence to create a triable issue. They had an adequate legal remedy but failed to make a prima facie case of how much money, by way of such remedy, they are entitled to.That was a simple failure of proof.