Dismissal of smartphone patent suit raises the bar for damages experts, finds injunctions unavailable for standard essential patent infringement claims

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In a decision with major implications for intellectual property owners, Judge Richard Posner, sitting by designation on the U.S. District Court for the Northern District of Illinois, this week dismissed (without permission to refile) a smartphone-related patent dispute between Apple, Inc. and Motorola, Inc. The decision raises the standard for expert witness testimony on the question of patent infringement damages. Perhaps more important, the decision also suggests that injunctive relief may be unavailable for standard essential patent infringement claims.

Damages Experts Held To A More Rigorous Standard

The inadmissibility of expert damages reports lies at the heart of the dismissal order on damages. Judge Posner previously ruled that three of the parties' expert reports on damages where inadmissible (two by Apple and one by Motorola). What remained, then, was the parties' efforts to establish their respective damages claims based on expert testimony that had not been excluded through the Daubert process. As to Apple, Judge Posner concluded that its substitute damages expert, offered to establish feasible and economic substitutes for its '263 patent, "failed to identify the [substitute], let alone price it, let alone suggest that he has searched across all (or at least many, or some, or even a few) of the chips that Motorola might have bought, or of alternative ways in which it might have invented around Apple's patent." See Apple, Inc. and NeXT Software Inc., (f/k/a NeXT Computer, Inc.) v. Motorola, Inc. and Motorola Mobility, Inc., No. 1:11-cv-08540 (N.D. Ill. June 22, 2012), slip. op. at 3-4. The "mere existence" of an available substitute "is not enough to establish damages." Id. at 4. Judge Posner also faulted Apple's expert for his failure to estimate the value to Motorola of the allegedly infringing patent, and rejected Apple's claim that to establish a prima facie case of infringement it merely need to show the "inventing around" cost of the allegedly infringing Motorola chip. In sum, Apple's expert testimony, "invite[d] guesswork. That won't do." Id. at 7.

Judge Posner was equally critical of Motorola's proffered testimony on damages. Motorola's expert contended that if Apple had wanted to license any of the patent's in Motorola's standards-essential patents portfolio, the license fee would have exceeded the product of the percentage of the portfolio represented by the patent and the value of the entire portfolio of patents of which they are part. If licensed on its own rather than as part of a package deal that comprised the entire portfolio, the expert concluded, the license fee would be either "up to" or "at least" 40 to 50 percent of the royalty for the entire portfolio. Judge Posner criticized the expert for providing "no estimate of the shape of the nonlinear royalty function, no basis, in short, for his estimate of 'at least 40 to 50 percent' of a reasonable royalty for the entire portfolio." Id. at 16. Moreover, Judge Posner characterized the Motorola witness as "going for broke" by offering only the upper bounds of potential damages without a more conservative possibility. Id. at 17.

Injunctive Relief Substantially Limited In Standard Essential Patent Cases

As to Motorola's claim for injunction, Judge Posner questioned whether injunctive relief would ever be appropriate in a standard essential patent case unless the alleged infringer refused to pay a royalty that meets the FRAND requirement. "By committing to license its patents on FRAND (fair, reasonable, and non-discriminatory) terms, Motorola committed to license the '898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent." Id. at 18-19. In support of that conclusion, Posner cited the Federal Trade Commission's recently issued policy statement, submitted to the U.S. International Trade Commission in a Section 337 investigation involving Certain Wireless Communication Devices, Portable Music & Data Processing Devices, Computers & Components Thereof, Inv. No. 337-TA-745, which suggests that injunctive relief may be unavailable for infringement of a patent governed by FRAND. Among other things, that policy statement notes that "a royalty negotiation that occurs under the threat of an exclusion order may be weighed heavily in favor of a patentee in a way that it in tension with the RAND commitment." Id. at 19. More broadly, because inadequacy of damages is normally a prerequisite to awarding injunctive relief, the fact that a FRAND royalty would provide all the relief to which Motorola would be entitled if it proved infringement, it was not entitled to an injunction.

Judge Posner dismissed Apple's injunction claims on similar grounds, holding that Apple failed to show that damages were an inadequate remedy for the alleged infringement: "[A] patentee cannot base a claim to an injunction on self-inflicted wound, such as sponsoring a damages expert who prepares a demonstrably inadequate report." Id. at 29. There was no evidence in the record to show a loss of market share or customer goodwill by Apple, and no basis for expecting such losses in the future. Posner also noted that injunctive relief was likely to impose costs on Motorola that were disproportionate both to the benefits of having infringed and to the harm to the victim of the infringement.

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Given the stakes of the individual litigation, and the underlying legal principles at issue, the decision is likely to be appealed to the Federal Circuit. The case is Apple, Inc. and NeXT Software Inc., (f/k/a NeXT Computer, Inc.) v. Motorola, Inc. and Motorola Mobility, Inc., No. 1:11-cv-08540 (N.D. Ill. June 22, 2012).