No. 19-832
`
`In the
`Supreme Court of the United States
`
`Apple, Inc.,
`
`Petitioner,
`
`v.
`
`VirnetX Inc., et al.,
`
`Respondents.
`
`On Petition for Writ of Certiorari
`to the United States Court of Appeals
`for the Federal Circuit
`
`BRIEF OF THE R STREET INSTITUTE, THE
`ELECTRONIC FRONTIER FOUNDATION, AND
`ENGINE ADVOCACY AS AMICI CURIAE IN
`SUPPORT OF THE PETITION
`
`Charles Duan
`Counsel of Record
`R Street Institute
`1212 New York Ave NW Ste 900
`Washington DC 20005
`(202) 525-5717
`cduan@rstreet.org
`
`Counsel for amici curiae
`
`
`
`In the
`Supreme Court of the United States
`
`Apple, Inc.,
`
`Petitioner,
`
`v.
`
`VirnetX Inc., et al.,
`
`Respondents.
`
`On Petition for Writ of Certiorari
`to the United States Court of Appeals
`for the Federal Circuit
`
`BRIEF OF THE R STREET INSTITUTE, THE
`ELECTRONIC FRONTIER FOUNDATION, AND
`ENGINE ADVOCACY AS AMICI CURIAE IN
`SUPPORT OF THE PETITION
`
`Charles Duan
`Counsel of Record
`R Street Institute
`1212 New York Ave NW Ste 900
`Washington DC 20005
`(202) 525-5717
`cduan@rstreet.org
`
`Counsel for amici curiae
`
`
`
`TABLE OF CONTENTS
`
`TABLE OF AUTHORITIES .
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`INTEREST OF AMICI CURIAE .
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`SUMMARY OF ARGUMENT .
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`ARGUMENT .
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`I. Certiorari Should Be Granted on the First Question
`Presented .
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`ii
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`. 1
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`. 2
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`. 4
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`. 4
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`A. For Decades, the Federal Circuit Has Failed to
`Articulate Rules on How to Apportion Reason-
`able Royalties Based on Past Licenses .
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`. 4
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`B. Numerous Industries Involve Complex Multi-
`function Products and Services Incompatible
`with Nonapportionment of Patent Royalties .
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`. 8
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`. 9
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`1. Computer Devices .
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`2.
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`Software .
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`3. Automotive Industry .
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`4. Genetic Testing .
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`5. Pharmaceuticals and Biomedical Re-
`search .
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`. 10
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`. 12
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`C. The Federal Circuit’s Decision Exacerbates On-
`going Problems with Abusive Gamesmanship in
`Patent Licensing .
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`. 15
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`D. Excessive Royalties Resulting from Overre-
`liance on Past Licenses Will Deter Innovation .
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`. 19
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`II. Certiorari Should Be Granted on the Second Ques-
`tion Presented Because the Question Is Likely to
`Recur Frequently .
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`CONCLUSION .
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`. 21
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`. 24
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`(i)
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`TABLE OF AUTHORITIES
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`Cases
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`ActiveVideo Networks, Inc.
`v. Verizon Communications, Inc.,
`694 F.3d 1312 (Fed. Cir. 2012)
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`. 6
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`Apple Inc. v. Motorola, Inc.,
`757 F.3d 1286 (Fed. Cir. 2014)
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`Ass’n for Molecular Pathology v. Myriad Genetics, Inc.,
`569 U.S. 576 (2013) .
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`. 12
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`AstraZeneca AB v. Apotex Corp.,
`782 F.3d 1324 (Fed. Circ. 2015) .
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`. 13–14
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`Commonwealth Scientific & Industrial Research
`Organisation v. Cisco Systems, Inc.,
`809 F.3d 1295 (Fed. Cir. 2015)
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`. 6, 9
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`Cornell University v. Hewlett-Packard Co.,
`609 F. Supp. 2d 279 (N.D.N.Y. 2009) .
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`. 9
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`. 17
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`Deere & Co. v. International Harvester Co.,
`710 F.2d 1551 (Fed. Cir. 1983)
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`eBay Inc. v. MercExchange, LLC,
`547 U.S. 388 (2006) .
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`. 22
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`Elbit Systems Land & C4I Ltd.
`v. Hughes Network Systems, LLC,
`927 F.3d 1292 (Fed. Cir. 2019)
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`. 6
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`Ericsson, Inc. v. D-Link Systems, Inc.,
`773 F.3d 1201 (Fed. Cir. 2014)
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`. 5–6
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`Ericsson, Inc. v. InterDigital Communications Corp.,
`418 F.3d 1217 (Fed. Cir. 2005)
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`. 17–18
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`Evans v. Jeff D.,
`475 U.S. 717 (1986) .
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`. 16
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`(ii)
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`(iii)
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`Federal Trade Commission v. Qualcomm Inc.,
`No. 19-16122 (9th Cir. to be argued Feb. 13, 2020) .
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`. 11
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`Finjan, Inc. v. Secure Computing Corp.,
`626 F.3d 1197 (Fed. Cir. 2010)
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`. 5–6
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`Garretson v. Clark,
`111 U.S. 120 (1884) .
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`. 6, 13, 21
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`Georgia-Pacific Corp. v. U.S. Plywood Corp.,
`318 F. Supp. 1116 (S.D.N.Y. 1970)
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`. 5, 7
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`Impression Products, Inc.
`v. Lexmark International, Inc.,
`137 S. Ct. 1523 (2017) .
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`. 11
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`LaserDynamics, Inc. v. Quanta Computer, Inc.,
`694 F.3d 51 (Fed. Cir. 2012) .
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`Lucent Technologies, Inc. v. Gateway, Inc.,
`580 F.3d 1301 (2009) .
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`Microsoft Corp. v. Motorola, Inc.,
`795 F.3d 1024 (9th Cir. 2015)
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`. 17
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`Microsoft Corp. v. Motorola, Inc.,
`No. 10-cv-1823 (W.D. Wash. Apr. 25, 2013) (findings
`of fact and conclusions of law)
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`. 17
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`Precision Instrument Manufacturing Co.
`v. Automotive Maintenance Machinery Co.,
`324 U.S. 806 (1945) .
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`. 21
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`Quanta Computer, Inc. v. LG Electronics, Inc.,
`553 U.S. 617 (2008) .
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`. 9
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`ResQNet.com, Inc. v. Lansa, Inc.,
`594 F.3d 860 (Fed. Cir. 2010) (per curiam)
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`. 17
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`Rude v. Westcott,
`130 U.S. 152 (1889) .
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`. 16
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`
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`(iv)
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`Slimfold Manufacturing Co., Inc.
`v. Kinkead Industries, Inc.,
`932 F.2d 1453 (Fed. Cir. 1991)
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`. 20
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`Spansion, Inc. v. International Trade Commission,
`629 F.3d 1331 (Fed. Cir. 2010)
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`. 22
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`State Industries, Inc. v. A.O. Smith Corp.,
`751 F.2d 1226 (Fed. Cir. 1985)
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`. 20
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`Transocean Offshore Deepwater Drilling, Inc.
`v. Maersk Drilling USA, Inc.,
`699 F.3d 1340 (Fed. Cir. 2012)
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`. 18
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`Uniloc USA, Inc. v. Microsoft Corp.,
`632 F.3d 1292 (Fed. Cir. 2011)
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`. 7
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`VirnetX, Inc. v. Cisco Systems, Inc.,
`767 F.3d 1308 (Fed. Cir. 2014)
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`. 7–8
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`Whitserve, LLC v. Computer Packages, Inc.,
`694 F.3d 10 (Fed. Cir. 2012) .
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`. 17
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`. 6
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`Wordtech Systems, Inc.
`v. Integrated Networks Solutions, Inc.,
`609 F.3d 1308 (Fed. Cir. 2010)
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`Constitutional Provision
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`U.S. Const. art. I, § 8, cl. 8 .
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`. 21
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`Statutes
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`35 U.S.C. § 316(a)(11)
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`Tariff Act of 1930 § 337(a)(1)(B),
`19 U.S.C. § 1337 (2012)
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`——— § 337(a)(2), (c) (2012)
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`. 22
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`. 22
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`
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`(v)
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`Other Sources
`
`Jonathan Bach & Mike Colias, Is It a Car or a Computer?,
`Wall St. J. (Sept. 19, 2016), https://www.wsj.com/
`articles/is-it-a-car-or-a-computer-1474251122 .
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`. 11
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`Brief of Association of Global Automakers et al., Fed.
`Trade Comm’n v. Qualcomm Inc., No. 19-16122 (9th
`Cir. Nov. 29, 2019) .
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`. 11
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`Subhashini Chandrasekharan & Robert Cook-Deegan,
`Gene Patents and Personalized Medicine—What
`Lies Ahead?, 1 Genome Med. 92 (2009) .
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`. 12
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`Bernard Chao, Implementing Apportionment, 2019
`Patently-O Pat. L.J. 20 (2019)
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`. 4, 8
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`Colleen Chien, Patently Protectionist? An Empirical
`Analysis of Patent Cases at the International Trade
`Commission, 50 Wm. and Mary L. Rev. 63 (2008) .
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`. 22
`
`Thomas F. Cotter, Four Principles for Calculating
`Reasonable Royalties in Patent Infringement
`Litigation, 72 Santa Clara Computer & High Tech.
`L.J. 725 (2011) .
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`. 20
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`Paige Winfield Cunningham, The Supreme Court
`Banned Patenting Genes. But Congress Might
`Change That, Wash. Post (June 3, 2019), https://www.
`washingtonpost.com/news/powerpost/paloma/the-
`health-202/2019/06/03/the-health-202-the-supreme-
`court-banned-patenting-genes-but-congress-might-
`change-that/5cf1987f1ad2e52231e8e91b/
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`. 12
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`Roy J. Epstein & Alan J. Marcus, Economic Analysis
`of the Reasonable Royalty: Simplification and
`Extension of the Georgia-Pacific Factors, 85 J. Pat.
`& Trademark Off. Soc’y 555 (2003)
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`. 7
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`
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`(vi)
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`Fed. Trade Comm’n, The Evolving IP Marketplace:
`Aligning Patent Notice and Remedies with Compe-
`tition (2011), http://www.ftc.gov/os/2011/03/110307
`patentreport.pdf .
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`. 5, 20
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`Eric J. Fues, The Interplay Between the ITC and the
`PTAB—More Progress Needed, Bloomberg L. (Jan.
`22, 2019), https://news.bloomberglaw.com/ip-law/
`insight-the-interplay-between-the-itc-and-the-ptab-
`more-progress-needed .
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`. 23
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`Michael A. Heller & Rebecca S. Eisenberg, Can Patents
`Deter Innovation? The Anticommons in Biomedical
`Research, 280 Science 698 (1998)
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`. 14
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`Erik Hovenkamp & Jonathan Masur, How Patent
`Damages Skew Licensing Markets, 36 Rev. Litig.
`379 (2017) .
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`Innovation Policy and the Economy (Adam B. Jaffe et
`al. eds., 2007) .
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`. 20
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`Inter Partes Review and the ITC: The Benefits and
`Risks of Filing IPR on Patents Asserted in an ITC
`Investigation, Quinn Emanuel Bus. Litig. Rep., Mar.
`2015, at 1, https://www.quinnemanuel.com/media/
`1124972/march-2015-newsletter.pdf .
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`. 23
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`John C. Jarosz & Michael J. Chapman, The Hypothetical
`Negotiation and Reasonable Royalty Damages: The
`Tail Wagging the Dog, 16 Stan. Tech. L. Rev. 769
`(2013) .
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`. 16
`
`Shefali Kapadia, Moving Parts: How the Automotive
`Industry Is Transforming, Supply Chain Dive
`(Feb. 20, 2018), https://www.supplychaindive.com/
`news/moving-parts-how-the-automotive-industry-is-
`transforming/516459/
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`. 11
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`
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`(vii)
`
`Layne S. Keele, Res“Q”ing Patent Infringement
`Damages After Resqnet: The Dangers of Litigation
`Licenses as Evidence of a Reasonable Royalty, 20
`Tex. Intell. Prop. L.J. 181 (2012) .
`.
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`. 15–16
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`Brian J. Love, Patentee Overcompensation and the
`Entire Market Value Rule, 60 Stan. L. Rev. 263
`(2007) .
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`. 19–20
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`Suzanne Michel, Bargaining for RAND Royalties in the
`Shadow of Patent Remedies Law, 77 Antitrust L.J.
`889 (2011) .
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`. 20
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`Brian Pandya, Why Pay More? Using Patent Settle-
`ments to Calculate Reasonable Royalty Rates,
`Corp. Couns. (May 31, 2010), https://www.law.com/
`corpcounsel/almID/1202458974224/
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`. 16
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`Christopher B. Seaman, Reconsidering the Georgia-
`Pacific Standard for Reasonable Royalty Patent
`Damages, 2010 BYU L. Rev. 1661 (2010) .
`.
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`. 7
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`Carl Shapiro, Patent Reform: Aligning Reward and
`Contribution, in 8 Innovation Policy and the
`Economy 111 (Adam B. Jaffe et al. eds., 2007) .
`
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`. 20
`
`U.S. Int’l Trade Comm’n, Annual Performance Plan,
`FY 2019–2020 and Annual Performance Report, FY
`2018 (2019), https://www.usitc.gov/documents/usitc_
`fy_2019-2020_app_fy_2018_apr.pdf .
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`. 22
`
`Dan Vorhaus & John Conley, Whole-Genome Sequencing
`and Gene Patents Coexist (For Now), Genomics L.
`Rep. (renamed Privacy Rep.) (Aug. 11, 2009), https://
`theprivacyreport.com/2009/08/11/whole-genome-
`sequencing-and-gene-patents-coexist-for-now/
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`. 12
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`
`
`INTEREST OF AMICI CURIAE
`
`The R Street Institute1 is a nonprofit, nonpartisan
`public-policy research organization. R Street’s mission
`is to engage in policy research and educational outreach
`that promotes free markets as well as limited yet effec-
`tive government, including properly calibrated legal and
`regulatory frameworks that support economic growth
`and individual liberty.
`The Electronic Frontier Foundation is a nonprofit
`civil liberties organization that has worked for more than
`25 years to protect innovation, free expression, and civil
`liberties in the digital world. EFF and its more than
`34,000 active donors have a powerful interest in ensuring
`that intellectual property laws serve the general public
`by promoting more creativity and innovation than they
`deter.
`Engine Advocacy is a nonprofit technology policy, re-
`search, and advocacy organization that bridges the gap
`between policymakers and startups, working with gov-
`ernment and a community of high-technology, growth-
`oriented startups across the nation to support the devel-
`opment of technology entrepreneurship. Part of ampli-
`fying startup concerns includes highlighting the unique
`challenges small startups face when confronted with abu-
`sive, and typically opaque, patent litigation.
`
`1Pursuant to Supreme Court Rule 37.2(a), all parties received ap-
`propriate notice of and consented to the filing of this brief. Pursuant
`to Rule 37.6, no counsel for a party authored this brief in whole or
`in part, and no counsel or party made a monetary contribution in-
`tended to fund the preparation or submission of the brief. No person
`or entity, other than amici, their members, or their counsel, made a
`monetary contribution to the preparation or submission of this brief.
`
`1
`
`
`
`SUMMARY OF ARGUMENT
`
`Certiorari is warranted on both questions presented,
`because they are questions of law that the Federal Circuit
`has consistently failed to answer, because lack of clarity
`impacts a wide range of important domestic industries,
`and because the lack of clarity is ripe for abusive exploita-
`tion.
`I. Certiorari should be granted to settle the Federal
`Circuit’s decades-long failure to articulate how to appor-
`tion damages when the patent owner seeks to prove a
`reasonable royalty based on prior licenses. The appel-
`late court currently permits a broad range of dissimilar
`licenses as admissible evidence. Though it has occasion-
`ally said that the dissimilarities must be considered in
`some fashion, the court has never given guidance to en-
`force that principle, leaving it to juries to fashion legal
`rules for apportionment.
`This lack of guidance has widespread and troubling
`consequences. Like the smartphones at issue here, there
`are numerous complex, multifunction products and ser-
`vices in diverse industries today. Computers, software,
`cars, genetic tests, pharmaceuticals, and biomedical re-
`search all feature technologies with numerous compo-
`nents, putting them at risk for liability to numerous
`patents and heightening the effects of a failure of appor-
`tionment. Furthermore, overreliance on prior licensing
`is ripe for abusive exploitation by enterprising patent as-
`serters, since one can easily procure high royalty rates
`through carefully constructed contracts, and then use
`those artificially high rates to inflate damages computa-
`tions in litigation. This abuse across multiple industries
`likely diminishes valuable innovation; besides being eco-
`
`2
`
`
`
`3
`
`nomically harmful, that is a backward result for a patent
`system meant to promote innovation.
`II. Certiorari should also be granted on the second
`question of whether an intervening unpatentability de-
`termination requires reconsideration of a copending in-
`fringement determination, among other reasons because
`the question is likely to recur in view of an alternate path-
`way for patent adjudication. Patent owners can seek re-
`lief for infringement from an administrative agency called
`the U.S. International Trade Commission, and the time-
`line for disposition of that administrative investigation is
`remarkably close to the timeline for an unpatentability
`proceeding before the U.S. Patent and Trademark Office.
`This confluence of timelines means that races between
`infringement and unpatentability proceedings are likely
`to occur. Indeed, patent owners can effectively circum-
`vent the congressional scheme for patent reconsideration
`by taking advantage of an administrative-agency patent
`litigation forum. The unfairness and gamesmanship of
`that state of affairs warrants review on certiorari to avoid
`it.
`
`
`
`ARGUMENT
`
`I. Certiorari Should Be Granted on the
`First Question Presented
`
`This Court’s review is warranted on the question of
`apportionment of reasonable royalty analyses based on
`prior licenses for at least the following four reasons. First,
`the Federal Circuit has consistently failed to articulate
`rules on how prior license royalty rates are to be used
`at all, let alone are to be apportioned. Second, the ques-
`tion has broad economic importance on a national scale
`because it is not confined to the smartphone industry:
`Diverse industries also involve complex, multifunction
`devices that could become victim to the same problem.
`Third, indeterminacy of prior license analysis encourages
`patent lawyers to manipulate negotiations in troubling
`ways. Finally, the sum total of these problematic conse-
`quences of the Federal Circuit’s failure to guide the lower
`courts is a concerning disincentive for innovation.
`
`A. For Decades, the Federal Circuit Has
`Failed to Articulate Rules on How to
`Apportion Reasonable Royalties Based
`on Past Licenses
`
`The problem that the petition identifies in its first
`question presented is a long-running one: The Federal
`Circuit has repeatedly declined to state a methodology
`for applying apportionment in the context of past licenses.
`See Bernard Chao, Implementing Apportionment, 2019
`Patently-O Pat. L.J. 20, 20 (2019). Without this Court’s
`intervention, this lacuna in patent damages law is likely
`to persist and plague the district courts for years to come.
`
`4
`
`
`
`5
`
`In assessing a reasonable royalty, courts generally
`rely on the fifteen factors identified in Georgia-Pacific
`Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y.
`1970). Of those, several relate to any “established roy-
`alty” for licensing of the patent in suit or “comparable”
`patents; another factor relates to apportionment of the
`value of the patented invention “distinguished from non-
`patented elements.” Id. at 1120 (factors 1–2, 13). Yet
`Georgia-Pacific provides no guidance on how the factors
`are applied or even how they interrelate; experts and
`practitioners complain that the factors are a “grab bag”
`that “provides little or no guidance to juries.” Fed. Trade
`Comm’n, The Evolving IP Marketplace: Aligning Patent
`Notice and Remedies with Competition 182 (2011), avail-
`able online.2
`When considering prior licenses, the Federal Circuit
`repeatedly pays lip service to the notion that “use of past
`licenses” for computing reasonable royalties “must ac-
`count for differences in the technologies and economic cir-
`cumstances of the contracting parties.” Finjan, Inc. v.
`Secure Computing Corp., 626 F.3d 1197, 1211 (Fed. Cir.
`2010). Yet it provides no guidance on how to account for
`those differences, leading to contradictory outcomes. In
`2014, the court opined that apportionment “calculated as
`some percentage of the value of a multi-component prod-
`uct” was warranted in assessing a reasonable royalty in
`cases where prior “licenses based on the value of a multi-
`component product are admitted.” Ericsson, Inc. v. D-
`Link Sys., Inc., 773 F.3d 1201, 1227–28 (Fed. Cir. 2014).
`Yet in 2015, the same court held apportionment incom-
`patible with prior-license analysis, stating that separat-
`
`2Locations of authorities available online are shown in the Table
`of Authorities.
`
`
`
`6
`
`ing out unpatented components from patented ones “con-
`flicts with our prior approvals of a methodology that val-
`ues the asserted patent based on comparable licenses.”
`Commonwealth Sci. & Indus. Research Org. v. Cisco Sys.,
`Inc. (“CSIRO”), 809 F.3d 1295, 1303 (Fed. Cir. 2015).
`Nor has the Federal Circuit explained what any ap-
`portionment based on prior licenses must look like. In
`many cases, the Federal Circuit finds nothing more nec-
`essary than for an expert to lay out the past royalty rates
`and the differences, leaving the jury to figure out how
`to use that information for apportionment or otherwise.
`See, e.g., Finjan, 626 F.3d at 1212; ActiveVideo Networks,
`Inc. v. Verizon Commc’ns, Inc., 694 F.3d 1312, 1333 (Fed.
`Cir. 2012). To be sure, the court has frequently deemed
`prior licenses wholly irrelevant or inadmissible3 but gen-
`erally sets a low bar for similarity sufficient to deem a li-
`cense admissible. See, e.g., ActiveVideo, 694 F.3d at 1333;
`Elbit Sys. Land & C4I Ltd. v. Hughes Network Sys., LLC,
`927 F.3d 1292, 1300 (Fed. Cir. 2019); Apple Inc. v. Mo-
`torola, Inc., 757 F.3d 1286, 1326 (Fed. Cir. 2014).
`The Federal Circuit is not unaware of this lack of
`guidance. Ericsson remarked that “a separate instruc-
`tion culled from Garretson would be preferable in future
`cases” but neither required this “preferable” instruction
`nor stated what it should look like or how it would apply.
`See 773 F.3d at 1228 n.5. And in other contexts, the ap-
`peals court has recognized that laying out numbers with-
`out sufficient guidance “cannot help but skew the dam-
`ages horizon for the jury, regardless of the contribution
`
`3See, e.g., Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1325–
`32 (2009); LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51,
`77–78 (Fed. Cir. 2012); Wordtech Sys., Inc. v. Integrated Networks
`Sols., Inc., 609 F.3d 1308, 1320 (Fed. Cir. 2010).
`
`
`
`7
`
`of the patented component to this revenue.” Uniloc USA,
`Inc. v. Microsoft Corp., 632 F.3d 1292, 1320 (Fed. Cir.
`2011). Yet despite this recognition of the need for clar-
`ity in application of apportionment to prior licenses, the
`Federal Circuit offers nothing but platitudes.
`Commentators similarly agree that prior license roy-
`alty rates “are likely to require extensive adjustment be-
`fore they can be considered fairly comparable” but that
`the Georgia-Pacific factors “do not prescribe any par-
`ticular method for quantifying the appropriate royalty.”
`Roy J. Epstein & Alan J. Marcus, Economic Analysis of
`the Reasonable Royalty: Simplification and Extension
`of the Georgia-Pacific Factors, 85 J. Pat. & Trademark
`Off. Soc’y 555, 572 (2003); see Christopher B. Seaman, Re-
`considering the Georgia-Pacific Standard for Reasonable
`Royalty Patent Damages, 2010 BYU L. Rev. 1661, 1694
`(2010) (“[E]mphasis on royalty rates for comparable li-
`censes may conflict with economic reality . . . .”).
`The VirnetX, Inc. v. Cisco Systems, Inc. Federal Cir-
`cuit opinion that preceded the one presently on petition
`illustrates all the failures of the Federal Circuit’s indeter-
`minate jurisprudence. Contrary to the brief in opposition
`(at 18), the Federal Circuit did not reverse the district
`court’s reliance on prior licenses based on apportionment;
`instead, the appeals court expressly approved the district
`court’s admission of testimony relating prior licenses to
`the reasonable royalty rate, with no requirement of ap-
`portionment.4 See 767 F.3d 1308, 1330–31 (Fed. Cir. 2014)
`(Pet. App. 117–19a). The court first deemed the prior li-
`censes admissible because they did not pertain to “vastly
`
`4The brief in opposition cites to page 1326 of the opinion
`(Pet. App. 108a), which discusses a different legal argument.
`
`
`
`8
`
`different situations,” suggesting a wide berth for admis-
`sible prior licenses. Id. at 1330 (Pet. App. 118a). The
`court then recited that the reasonable royalty determi-
`nation “must account for differences” between the prior
`licenses and the instant case, but again offered no expla-
`nation for how to do that accounting. Id. (Pet. App. 117a).
`To be sure, the district court then had relied on a dif-
`ferent methodology such that apportionment of prior li-
`cense analysis was not directly at issue in VirnetX, but
`the Federal Circuit’s hazy treatment nonetheless reveals
`the paucity of clarity in this area of the law.
`The brief in opposition (at 17) contends that the Fed-
`eral Circuit “expressly recognizes the need for appor-
`tionment, even where the patentee uses comparable li-
`censes.” Putting aside the case law’s own internal incon-
`sistencies on whether apportionment is required, the ap-
`pellate court has nevertheless “not identified any kind of
`concrete analysis that apportionment requires.” Chao,
`supra, at 21. The ambiguity left by that failure is tanta-
`mount to ignoring apportionment entirely, since expert
`witnesses are free to acknowledge differences but then
`summarily wave them away. Certiorari is warranted at
`least to resolve this question, which the Federal Circuit
`has left unresolved for decades.
`
`B. Numerous Industries Involve Complex
`Multifunction Products and Services
`Incompatible with Nonapportionment of
`Patent Royalties
`
`Resolving apportionment with respect to prior-
`license royalty analysis is important to a wide range of
`industries that deal with products and services that ag-
`gregate multiple functions and that are thus potentially
`
`
`
`9
`
`exposed to numerous unrelated patents. Failure to appor-
`tion royalties adequately imposes costs not just on smart-
`phone manufacturers like the petitioner, but on all these
`diverse industries.
`
`1. Computer Devices
`
`Computer devices other than smartphones are often
`complex, multifunction devices that could trigger the
`same apportionment problems present in this case.
`In Cornell University v. Hewlett-Packard Co., the
`patent owner sought damages on “entire server and
`workstation systems.” 609 F. Supp. 2d 279, 283 (N.D.N.Y.
`2009). Yet the patent claimed just “a small part of the [In-
`struction Reorder Buffer], which is a part of a processor,
`which is part of a CPU module, which is part of a ‘brick,’
`which is itself only part of the larger server.” Id. Rec-
`ognizing that the accused systems “include vast amounts
`of technology beyond the infringing part of the proces-
`sors,” Judge Rader of the Federal Circuit (sitting by des-
`ignation) faulted the lack of apportionment, reducing the
`royalty “to account only for the value of the processors
`incorporating the patented technology.” Id. at 283, 285;
`see also Quanta Comput., Inc. v. LG Elecs., Inc., 553 U.S.
`617, 635 (2008) (“[E]ach Intel microprocessor and chipset
`practices thousands of individual patents . . . .”).
`Cornell does not rely on prior licensing royalties, leav-
`ing one to wonder whether the court would have required
`apportionment had the patent owner relied on prior li-
`censing information. Cf. CSIRO, 809 F.3d at 1302–03.
`By leaving the rules of prior-license apportionment un-
`known, the Federal Circuit thus invites inflated argu-
`ments for reasonable royalties on the entire class of com-
`puter devices and systems, such as that in Cornell.
`
`
`
`10
`
`2. Software
`
`Computer software also exhibits the multifunctional-
`ity phenomenon. In Lucent Technologies, Inc. v. Gate-
`way, Inc., the patent related to a graphical element for
`choosing dates on a calendar; the allegedly infringing soft-
`ware was Microsoft Outlook, “an integrated suite of abil-
`ities to do email, to set up contacts, to arrange meetings,
`to maintain your personal calendar, et cetera.” 580 F.3d
`1301, 1332 (2009). The jury awarded over $357 million
`for infringement of this single-feature patent. Given the
`“hundreds, if not thousands,” of features in the software,
`the Federal Circuit found it “inconceivable” that “the use
`of one small feature, the date picker, constitutes a sub-
`stantial portion of the value of Outlook.” Id. at 1333.
`Undeterred by this disproportionality, the patent
`owner in Lucent alleged that the lump sum was reason-
`able in view of supposedly comparable industry licenses.
`See id. at 1325–27. The Federal Circuit rejected those
`comparable licenses, largely on the technicality that they
`were for running royalties rather than lump-sum pay-
`ments, see id. at 1327,5 but made no suggestion that
`it would have considered apportionment had the patent
`owner overcome that technical error. Without guidance
`on apportionment based on prior licenses, an “inconceiv-
`able” award could very well have stood for complex soft-
`ware such as Microsoft Outlook.
`
`3. Automotive Industry
`
`Many, including this Court, have acknowledged the
`multifunctional nature of modern cars. “Automotive sup-
`
`5The Federal Circuit rejected other comparable licenses as too far
`afield from the patent at issue. See id. at 1328–33.
`
`
`
`11
`
`ply chains are among the most complex in the world, with
`each vehicle containing more than 20,000 parts originat-
`ing from thousands of different suppliers.” Shefali Ka-
`padia, Moving Parts: How the Automotive Industry Is
`Transforming, Supply Chain Dive (Feb. 20, 2018), avail-
`able online. Cars today include even software compo-
`nents to perform functions from accessories control to
`safety alerts. See Jonathan Bach & Mike Colias, Is It a
`Car or a Computer?, Wall St. J. (Sept. 19, 2016), avail-
`able online. Each of these thousands of components is a
`potential subject of patent litigation.
`This complexity has driven the automotive industry’s
`concerns for cabining the consequences of patent law with
`respect to multifunctional technologies. In an amicus cu-
`riae brief, two associations noted that “the automobile in-
`dustry is particularly susceptible to patentees’ extraction
`of royalties based on innovations wholly unattributable to
`the patentable invention,” wondering whether owners of
`mobile phone chip patents “could demand a cut of the prof-
`its attributable to even a car’s leather seats.” Brief of As-
`sociation of Global Automakers et al. at 21–22, Fed. Trade
`Comm’n v. Qualcomm Inc., No. 19-16122 (9th Cir. Nov.
`29, 2019). And in Impression Products, Inc. v. Lexmark
`International, Inc., this Court observed that the “smooth
`flow of commerce would sputter if companies that make
`the thousands of parts that go into a vehicle could keep
`their patent rights after the first sale.” 137 S. Ct. 1523,
`1532 (2017).
`The automotive industry, like the mobile phone, com-
`puter, and software industries, thus has a strong interest
`in ensuring that reasonable royalties are properly appor-
`tioned.
`
`
`
`12
`
`4. Genetic Testing
`
`The genetic testing industry provides a striking ex-
`ample of how complex, multifunction technologies are not
`just the domain of computers and electronics.
`Advances in gene sequencing technologies have made
`genetic testing an increasingly important and cost-
`effective element of diagnostic health care, by virtue
`of testing for multiple genes. A single round of test-
`ing might include a panel of hundreds of genes, provid-
`ing patients with a wealth of potentially lifesaving in-
`formation all at once. See Dan Vorhaus & John Con-
`ley, Whole-Genome Sequencing and Gene Patents Coex-
`ist (For Now), Genomics L. Rep. (renamed Privacy Rep.)
`(Aug. 11, 2009), available online.
`Multi-gene panels make genetic testing a multifunc-
`tion technology potentially subject to dozens of patents.
`Indeed, genetic testing services have repeatedly ob-
`served how patenting of individual genes created a
`“thicket” that could potentially have stifled the develop-
`ment of the genetic testing industry, since negotiating a
`license for each of those many patents would have been
`an intractable challenge. Subhashini Chandrasekharan
`& Robert Cook-Deegan, Gene Patents and Personalized
`Medicine—What Lies Ahead?, 1 Genome Med. 92, 93
`(2009).
`Gene patent thickets have largely been avoided in
`view of Ass’n for Molecular Pathology v. Myriad Genet-
`ics, Inc., 569 U.S. 576 (2013). But given technological
`changes and recent legislative interest in revisiting this
`aspect of patent law,6 it is worth considering how genetic
`
`6See Paige Winfield Cunningham, The Supreme Court Banned
`Patenting Genes. But Congress Might Change That, Wash. Post
`(June 3, 2019), available online.
`
`
`
`13
`
`testing service royalties might play out in the face of
`renewed assertion of patents on genes or similar mate-
`rial. The holder of a patent on a particular gene might
`first license the patent to a service offering a 5-gene test-
`ing panel, basing its royalty on 20% of the service’s prof-
`its. In litigation against a 100-gene panel, that patent
`holder might then contend that its prior 20%-based roy-
`alty rate should control the reasonable royalty determi-
`nation. Without rules for apportionment, the court would
`have no legal mechanism to avoid this analysis despite the
`patented gene constituting only 1% of the 100-gene panel.
`The Federal Circuit may thus exaggerate the value of
`patents in the genetic testing industry due to the multi-
`function nature of modern genetic tests.
`
`5. Pharmaceuticals and Biomedical
`Research
`
`Drugs and medical treatments are also frequently
`complex, multifunction products potentially subject
`to patents on only small components thereof.
`In
`AstraZeneca AB v. Apotex Corp., the holder of a patent
`to omeprazole (Prilosec) sued a generic manufacturer for
`infringement damages. See 782 F.3d 1324, 1328 (Fed. Circ.
`2015
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