No. 19-832
`
`
`
`Petitioner,
`
`IN THE
`Supreme Court of the United
`States
`___________
`APPLE INC.,
`v.
`VIRNETX, INC., LEIDOS INC.,
`Respondents.
`___________
`On Petition for Writ of Certiorari to the United
`States Court of Appeals for the Federal Circuit
`___________
`BRIEF OF ACT | THE APP ASSOCIATION AS
`AMICUS CURIAE IN SUPPORT OF
`PETITIONER
`___________
`BRIAN E. SCARPELLI*
`ALEXANDRA MCLEOD
`ACT | THE APP ASSOCIATION
`1401 K Street NW, Suite 501
` Washington, DC 20005
`(202) 420-7487
`bscarpelli@actonline.org
`
`Counsel for Amicus Curiae
`February 4, 2020
`
`
` * Counsel of Record
`
`
`LEGAL PRINTERS LLC ! Washington, DC ! 202-747-2400 ! legalprinters.com
`
`
`
`
`
`Petitioner,
`
`IN THE
`Supreme Court of the United
`States
`___________
`APPLE INC.,
`v.
`VIRNETX, INC., LEIDOS INC.,
`Respondents.
`___________
`On Petition for Writ of Certiorari to the United
`States Court of Appeals for the Federal Circuit
`___________
`BRIEF OF ACT | THE APP ASSOCIATION AS
`AMICUS CURIAE IN SUPPORT OF
`PETITIONER
`___________
`BRIAN E. SCARPELLI*
`ALEXANDRA MCLEOD
`ACT | THE APP ASSOCIATION
`1401 K Street NW, Suite 501
` Washington, DC 20005
`(202) 420-7487
`bscarpelli@actonline.org
`
`Counsel for Amicus Curiae
`February 4, 2020
`
`
` * Counsel of Record
`
`
`LEGAL PRINTERS LLC ! Washington, DC ! 202-747-2400 ! legalprinters.com
`
`
`
`
`
`i
`
`TABLE OF CONTENTS
`
`Contents
`
`Page
`
`
`TABLE OF AUTHORITIES .................................. iii
`INTEREST OF THE AMICUS CURIAE ................ 1
`SUMMARY OF THE ARGUMENT ........................ 2
`ARGUMENT .............................................................. 4
`I. SMALL BUSINESSES DEPEND ON A
`FAIR AND PREDICTABLE PATENT
`SYSTEM TO ENABLE CONTINUED
`GROWTH AND INNOVATION WITHIN
`THE APP ECONOMY4 ................................. 4
`II. THE PETITION FOR WRIT OF
`CERTIORARI SHOULD BE GRANTED
`TO ADDRESS THE FEDERAL CIRCUIT’S
`APPROACH TO APPORTIONMENT
`DAMAGES ..................................................... 10
`A. This Court Must Address the Federal
`Circuit’s Departure from the
`Apportionment Principle with Respect
`to Prior Licenses .................................. 10
`B. An Apportionment Analysis is critical to
`accurately calculate the proper royalty
`rate for damages, particularly with
`respect to the “prior licenses” approach
`to calculating damages ........................ 13
`III. THE COURT SHOULD ALSO ADDRESS
`QUESTIONS RAISED THE BY THE U.S.
`PATENT AND TRADEMARK OFFICE’S
`
`
`
`
`
`
`ii
`
`
`
`INVALIDATION OF THE PATENT AT
`ISSUE15 ........................................................ 15
`CONCLUSION ........................................................ 18
`
`
`
`
`
`
`
`
`
`
`iii
`
`TABLE OF AUTHORITIES
`
`
`Page(s)
`
`CASES
`
`Blake v. Robertson, 94 U.S. 728 (1877) ................... 10
`
`Carafas v. LaVallee, 391 U.S. 234 (1968) ................ 17
`
`Commonwealth Science & Industrial Research
`Organisation v. Cisco Systems, Inc., 809 F.3d 1295
`(Fed. Cir. 2015) ..................................................... 12
`
`
`Elbit Sys. Land & C4I Ltd. v. Hughes Network Sys.,
`LLC, 927 F.3d 1292 (Fed. Cir. 2019) ................... 13
`
`
`Ericsson, Inc. v. D-Link Systems Inc., 773 F.3d 1201
`(Fed. Cir. 2014) ..................................................... 11
`
`
`Fresenius USA, Inc., 721 F.3d 1330
`
`(Fed. Cir. 2019) ..................................................... 17
`
`Garretson v. Clark, 111 U.S. 120 (1884) ................. 10
`
`Moffitt v. Garr, 66 U.S. (1 Black) 273 (1862) .......... 17
`
`Oil States Energy Servs. v. Greene’s Energy Grp, 138
`S. Ct. 1365 (2018) ................................................... 9
`
`
`Papst Licensing GMBH & Co. KG v. Samsung Elecs.
`Am., Inc., 924 F.3d 1243 (Fed. Cir. 2019) ............ 17
`
`
`
`
`
`
`
`
`
`
`iv
`
`
`Seymour v. McCormick, 57 U.S. (16 How.) 480
`
`(1854) .................................................................... 10
`
`Sprint Communications Co. v. Time Warner Cable
`Inc., 760 F. App’x 977 (Fed. Cir. 2019) ................ 12
`
`
`TC Heartland v. Kraft Foods Brand, 137 S. Ct. 1514
`(2017) ...................................................................... 9
`
`
`Westinghouse Elec. & Mfg Co. v. Wagner Elec. &
`Mfg. Co., 225 U.S. 604 (1912) ............................... 10
`
`
`XY, LLC v. Trans Ova Genetics, 890 F.3d 1282 (Fed.
`Cir. 2018) .............................................................. 17
`
`
`
`STATUTES
`
`35 U.S.C. § 284 ......................................................... 10
`
`35 U.S.C. § 321 ......................................................... 16
`
`
`OTHER AUTHORITIES
`
`4 Matthews, Annotated Patent Digest § 30:84,
`WESTLAW (data base updated Dec. 2019) ............ 11
`
`
`American Intellectual Property Law Association,
`2015 Report on the Economic Survey, available at
`https://www.aipla.org/detail/journal-issue/2019-
`report-of-the-economic-survey ............................. 17
`
`
`
`
`
`
`
`
`
`v
`
`
`Annie, State of the App Economy 2020 (Jan. 2020),
`https://www.appannie.com/en/go/state-of-mobile-
`2019/ ........................................................................ 6
`
`
`Application for Extension of Time to File a Petition
`for Writ of Certiorari, No. 19A564 (U.S. Nov. 14,
`2019) ...................................................................... 13
`
`
`Bernard Chao, Implementing Apportionment, 2019,
`Patently-O Pat. L. J. 20 (2019) ............................ 13
`
`
`C.J. Isom & David R. Jarczyk, Innovation in Small
`Businesses: Drivers of Change and Value Use,
`SMALL BUSINESS ADMINISTRATION, (March 2009)
`available at
`https://www.sba.gov/sites/default/files/rs
` 342tot_0.pdf ............................................................. 4
`
`Christopher B. Seaman, Reconsidering the Georgia
`Pacific Standard For Reasonable Royalty Patent
`Damages, B.Y.U. L. Rev. 1661 (2010) .................. 11
`
`
`EVE-USA, Inc. v. Mentor Graphics Corp., No. 17-804
`(Apr. 23, 2018). ..................................................... 13
`
`
`Joint Motion for Entry of Stipulated Dismissal, Elbit
`Systems Land & C41 Ltd. v. Hughes Network Sys.,
`No. 15-00037 (E.D. Tex. Dec. 18, 2019), Doc. 591 . 13
`
`
`Kenie Ho, Internet of Things: Another Industry
`Patent War, A.B.A LANDSLIDE, Vol. 8 No. 2,
`(Nov./Dec. 2015) ...................................................... 9
`
`
`
`
`
`
`
`
`
`vi
`
`
`Mark Lemley & Carl Shapiro, Patent Hold Up and
`Royalty Stacking, 85 Tex. L. Rev. 1991 (2007) ...... 8
`
`
`Morgan Reed, Comments of ACT | The App
`Association to the National Telecommunications
`and Information Administration regarding the
`Benefits, Challenges and Potential Roles for the
`Government in Fostering the Advancement of the
`Internet of Things (June 2, 2016),
`http://actonline.org/wp-content/uploads/NTIA-
`Comments-on-IoT-Regulations.pdf ........................ 6
`
`
`Online Platforms and Market Power, Part 2:
`Innovation and Entrepreneurship: Hearing Before
`the H. Subcomm. on Antritrust, Commercial, and
`Administrative Law, 116th Cong. 2 (2019)
`(statement of Morgan Reed, President, ACT | The
`App Association) available at
`https://actonline.org/wp-content/uploads/Online-
`Platforms-and-Market-Power-Part-2-Innovation-
`and-Entrepreneurship-1.pdf .................................. 4
`
`
`Steven Ranger, What is the IoT? Everything you need
`to know about the Internet of Things right now,
`ZDNET (February 3, 2020), available at
`https://www.zdnet.com/article/what-is-the-
`internet-of-things-everything-you-need-to-know-
`about-the-iot-right-now/. ......................................... 5
`
`
`Terrell McSweeny, Former Commissioner, Fed.
`Trade Comm’n, Holding the Line on Patent
`Holdup: Why Antitrust Enforcement Matters
`(March 21, 2018) ..................................................... 8
`
`
`
`
`
`
`
`
`
`vii
`
`
`The Role of Patents in Scientific Competition: A
`Closer Look at the Phenomenon of Royalty
`Stacking (Max Albert et al. eds., 2008) ................. 8
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`INTEREST OF THE AMICUS CURIAE1
`
`
`ACT | The App Association (App Association) is an
`international not-for-profit grassroots advocacy and
`education organization representing more than 5,000
`small business software application developers and
`technology firms. Today, the ecosystem the App
`Association represents – which we call the “app
`economy” – is valued at approximately $1.7 trillion
`and is responsible for 5.9 million American jobs. Our
`members lead in developing innovative applications
`and products across consumer and enterprise use
`cases, driving the adoption of the internet of things
`(IoT).
`
`The App Association has a keen interest in the
`proper functioning of the U.S. patent system. Our
`members include companies who own patents as well
`as those who license patents, all of which are directly
`impacted by the courts’ approaches to patent
`valuation and damage calculations. The potential
`that courts may presume apportionment of prior
`licenses when determining damages in patent cases
`represents a departure from the patent laws and this
`
`1 Pursuant to Supreme Court Rule 37.2(a), all parties either
`provided blanket consent for amicus filings or received
`appropriate notice of and consented to the filing of this brief.
`Pursuant to Rule 37.6, amicus affirms that no counsel for a
`party authored this brief in whole or in part and that no person
`other than amicus and its counsel made a monetary
`contribution to its preparation or submission. No person or
`entity, other than amicus, its members, or its counsel, made a
`monetary contribution to the preparation or submission of this
`brief.
`
`
`
`
`
`2
`
`
`Court’s precedent. The App Association is deeply
`invested in ensuring that its members and the app
`economy can rely on the American patent system to
`grow and innovate.
`
`
`SUMMARY OF THE ARGUMENT
`
`
`The App Association represents over 5,000 small
`business software application development
`companies and technology firms located across the
`mobile economy, developing innovative applications
`and products meet the demands for rapid adoption of
`mobile technology, improve workplace productivity,
`accelerate academic achievement, monitor health,
`and support the global digital economy. Our
`members play a critical role in developing new
`products across consumer and enterprise use cases,
`enabling the rise of the IoT. Today, the App
`Association represents an ecosystem valued at
`approximately $1.7 trillion that is responsible for 5.9
`million American jobs.
`
`The small business software and hardware
`technology industry is a driving force behind the
`growth in the IoT revolution. Underlying the growth
`and ingenuity of this sector are intellectual property
`rights, including patents, and the need for a
`coherent and well-reasoned framework for patent
`infringement disputes. Garretson v. Clark and over
`100 years of precedent have established that every
`patent infringement case’s damage analysis must
`consider apportionment in order to determine the
`proper damages. The Federal Circuit Court of
`Appeals has clearly departed from this requirement.
`
`
`
`
`
`
`3
`
`
`The App Association agrees with Petitioner that
`certiorari should be granted so that this Court can
`address the Federal Circuit’s approach to patent
`damage apportionment in light of statute and this
`Court’s precedent. Otherwise, the Federal Circuit’s
`departure will enjoy the endorsement of this Court,
`putting the small business community that relies on
`a consistent and fair patent system in jeopardy.
`
`The App Association also agrees with the Petitioner
`that the invalidation of the patents at issue through
`the United States Patent and Trademark Office’s
`(USPTO’s) inter partes review (IPR) process, and the
`Federal Circuit’s decision to subsequently uphold a
`judgement on which those same patents are the
`subject, offers a unique scenario requiring this
`Court’s attention. The USPTO’s IPR process is one
`that provides our members with a much needed
`alternative to expensive federal litigation,
`representing a key efficiency. The decisions of the
`USPTO, as a specialized agency with expert
`knowledge, are intended to carry weight within the
`judicial system and ensure that patent holders can
`appropriately enforce their intellectual property
`rights. This Court’s guidance is needed to address
`the Federal Circuit’s apparent choice to disregard a
`IPR invalidation.
`
`We urge this Court to grant the Petitioner’s request
`for a writ of certiorari.
`
`
`
`
`
`
`
`4
`
`ARGUMENT
`
`SMALL BUSINESSES DEPEND ON A
`FAIR AND PREDICTABLE PATENT
`SYSTEM TO ENABLE CONTINUED
`GROWTH AND INNOVATION WITHIN
`THE APP ECONOMY
`
`
`The App Association represents over 5,000 small
`business software application development
`companies and technology firms located across the
`mobile economy. Our members develop innovative
`applications and products to meet the demands for
`rapid adoption of mobile technology, improve
`workplace productivity, accelerate academic
`achievement, monitor health, and support the global
`digital economy. Our members play a critical role in
`developing new products across consumer and
`enterprise use cases, enabling the rise of the internet
`of things (IoT). Today, the App Association
`represents an ecosystem valued at approximately
`$1.7 trillion that is responsible for 5.9 million
`American jobs. Online Platforms and Market Power,
`Part 2: Innovation and Entrepreneurship: Hearing
`Before the H. Subcomm. on Antritrust, Commercial,
`and Administrative Law, 116th Cong. 2 (2019)
`(statement of Morgan Reed, President, ACT | The
`App Association) available at
`https://actonline.org/wp-content/uploads/Online-
`Platforms-and-Market-Power-Part-2-Innovation-
`and-Entrepreneurship-1.pdf.
`
`The IoT is an encompassing concept capturing how
`everyday consumer and enterprise products begin to
`
`
`
`
`I.
`
`
`
`
`
`5
`
`
`use the internet to communicate data collected
`through sensors, and act on that data in a timely
`and effective way. IoT is expected to enable improved
`efficiencies in processes, products, and services
`across every sector. In key segments of the U.S.
`economy, from agriculture to retail to healthcare and
`beyond, the rise of IoT is demonstrating efficiencies
`unheard of even a few years ago. “What is the IoT?
`Everything you need to know about the Internet of
`Things right now,” ZDNet, February 3, 2020,
`available at https://www.zdnet.com/article/what-is-
`the-internet-of-things-everything-you-need-to-know-
`about-the-iot-right-now/.
`
`Ultimately, the largest value add of the IoT is in how
`new data points become part of what is now
`commonly referred to as the “big data” ecosystem
`(which we define to mean structured or unstructured
`data sets so large or complex that traditional data
`processing applications are not sufficient for
`analysis). As sensors become smaller, cheaper, and
`more accurate, big data analytics enable more
`efficiencies across consumer and enterprise use
`cases. IoT deployment will be highly use case-
`dependent. The technology industry, to date, has
`done well through open application programming
`interfaces (APIs) and other widely-adopted
`standards (e.g., TCP/IP) to enable interoperability.
`For example, in healthcare, a miniaturized and
`embedded connected medical device must be able to
`automatically communicate bi-directionally in real-
`time. This capability enables a healthcare
`practitioner to monitor a patient’s biometric data as
`well as for the patient to be able to communicate
`
`
`
`
`
`
`6
`
`
`with a caregiver in the event of a medical
`emergency. Other uses, such as sensors deployed to
`alert security of an unauthorized presence, may only
`require the ability to send data to security
`professionals with minimal (or even no) capability to
`receive communications. It is predicted that by 2025,
`there will be 25.2 billion connected devices in a
`variety of sectors including gaming, financial, and
`health across the global digital ecosystem. App
`Annie, State of the App Economy 2020 (Jan. 2020),
`https://www.appannie.com/en/go/state-of-mobile-
`2019/.
`
`The app economy’s success – and the growth of the
`IoT – relies on continuous innovation and
`investment in connected devices, requiring legal
`frameworks that are consistent and strong. Morgan
`Reed, Comments of ACT | The App Association to
`the National Telecommunications and Information
`Administration regarding the Benefits, Challenges
`and Potential Roles for the Government in Fostering
`the Advancement of the Internet of Things (June 2,
`2016), http://actonline.org/wp-content/uploads/NTIA-
`Comments-on-IoT-Regulations.pdf. Patents allow
`small business developers to protect their
`investments, help attract venture capital, establish
`and maintain competitive position in the
`marketplace, and level the playing field dealing with
`established companies and competitors. Small
`businesses produce 16 times more patents per
`employee than large patenting firms. Innovation in
`Small Businesses’ Drivers of Change and Value Use,
`Small Business Administration, available at
`https://www.sba.gov/sites/default/files/rs342tot_0.pdf.
`
`
`
`
`
`
`7
`
`
`In the growing IoT space, small businesses need to
`be reassured that U.S. patent law is applied in a
`clear, reliable, and predictable manner, particularly
`when courts are evaluating damages in patent
`infringement suits. Any departure in the courts from
`established precedent with respect to patent
`damages calculations creates uncertainty in the
`outcome of court cases, and further upends norms in
`negotiations where court methodologies are relied
`upon, or influence, negotiations.
`
`Further, a healthy patent system must avoid
`“royalty stacking,” when the cumulative demands on
`licensees for patent licenses cascade to make
`accepting them unreasonable and economically
`unviable. Traditionally, devices have been developed
`to provide a single solution (e.g., a dedicated device
`to measure blood glucose levels). More recently,
`however, a multi-functional technology product can
`easily have hundreds, and sometimes thousands, of
`pieces of patented technologies contained in it (such
`as a smartphone), requiring many licenses to be
`negotiated before production, sale and use. Cutting-
`edge healthcare devices that utilize internet
`connectivity and sensors (the capabilities of a
`smartphone) to enable real-time analytics for
`improved treatment decisions, for example, will
`include numerous patented technologies to enable
`the medical functionality (e.g., blood glucose reading
`technology), along with a high number of patented
`technologies that enable internet connectivity
`(antennae, processing, etc.). Developers of these new
`multi-function devices face the very real possibility
`of the demands for licenses to so many patented
`
`
`
`
`
`
`8
`
`
`technologies “stacking” up to exceed the cost of
`developing and getting a product to market. In this
`way, royalty stacking can tax innovation and
`prevent technology progress.
`
`Royalty stacking and its negative effects are well-
`documented and widely acknowledged. Royalty
`stacking effectively consumes a commercial product
`developer’s profit margins, significantly diminishing
`the incentives to research and develop. E.g., Mark
`Lemley & Carl Shapiro, Patent Hold Up and Royalty
`Stacking, 85 Tex. L. Rev. 1991, 1993 (2007) (Lemley
`& Shapiro). Royalty stacking can also constrain
`technology transfers from universities and research
`institutes to industry. Christine Godt, Scientific
`Competition: The Role of Patents in Scientific
`Competition: A Closer Look at the Phenomenon of
`Royalty Stacking 151-172 (Max Albert et al. eds.,
`2008). Further, royalty stacking exacerbates patent
`hold-up, when the bargaining position of a patent-
`holder increases considerably after a patent is
`included in a technical standard, enabling the patent
`holder to act unreasonably in leveraging its position.
`Commissioner Terrell McSweeny, Holding the Line
`on Patent Holdup: Why Antitrust Enforcement
`Matters, Mar.21, 2018.
`
`App Association members are both licensors and
`licensees in these scenarios. Generally, market
`forces play a key role in ensuring that a fair royalty
`is reached and that royalty stacking is mitigated.
`However, separately, courts are uniquely positioned
`to prevent royalty stacking. The courts’ appropriate
`application of apportionment in patent damage
`
`
`
`
`
`
`9
`
`
`calculations prevents detrimental royalty stacking,
`particularly when more patents read into a single
`product as IoT innovations converge connectivity
`and multiple functionalities. Kenie Ho, Internet of
`Things: Another Industry Patent War, A.B.A
`LANDSLIDE, Vol. 8 No. 2, (Nov./Dec. 2015).
`
`Both the law and public policy interests demand that
`courts avoid royalty stacking in patent valuations
`and infringement damages calculations. In recent
`years, the Supreme Court has demonstrated its
`commitment to creating a more reliable patent
`litigation system. For example, in TC Heartland v.
`Kraft Foods Brand, 137 S. Ct. 1514, 1520 (2017), this
`Court ruled that good-faith innovators can avoid
`distant patent suits in jurisdictions where they have
`only minimal contacts. Furthermore, this Court in
`Oil States Energy Servs. v. Greene’s Energy Grp, 138
`S. Ct. 1365, 1373 (2018), affirmed the United States
`Patent and Trademark Office’s authority to
`determine patentability of existing patents using the
`inter partes review process was valid under the
`Constitution. These decisions, among others,
`demonstrate this Court’s commitment to ensuring
`the U.S. patent system’s fairness and reliability. As
`discussed below, the App Association agrees that
`this Court’s guidance is again needed to ensure that
`the patent laws are implemented in the public
`interest, and that Petitioner’s request for certiorari
`should be granted.
`
`
`
`
`
`
`
`
`
`
`
`II.
`
`10
`
`THE PETITION FOR WRIT OF
`CERTIORARI SHOULD BE GRANTED
`TO ADDRESS THE FEDERAL CIRCUIT’S
`APPROACH TO APPORTIONMENT
`DAMAGES
`
`A. This Court Must Address the Federal
`Circuit’s
`Departure
`from
`the
`Apportionment Principle with Respect
`to Prior Licenses
`
`
`Both the law and this Court’s precedent, along with
`public policy interest, support the universal
`application of apportionment to patent damage
`cases. According to the Patent Act, 35 U.S.C. § 284,
`“the court shall award the claimant damages
`adequate to compensate for infringement.”
`Furthermore, the Act states that, in the event of
`infringement, compensation shall be determined
`based on “the use made of the invention by the
`infringer.” Id. Through many decisions over a
`century and a half, this Court has reinforced the
`Garretson/Apportionment rule that patent damages
`must be shown through evidence and apportioned
`based upon the patentee’s invention and the other
`features of a product in every case. Garretson v.
`Clark, 111 U.S. 120, 121 (1884); Seymour v.
`McCormick, 57 U.S. (16 How.) 480, 491 (1854); Blake
`v. Robertson, 94 U.S. 728, 734 (1877); Westinghouse
`Elec. & Mfg Co. v. Wagner Elec. & Mfg. Co., 225 U.S.
`604, 615 (1912). When appropriately applied,
`apportionment limits the damages for the patent
`holder by only accounting for the losses associated
`
`
`
`
`
`
`
`11
`
`
`with the patented invention, by eliminating
`peripheral factors such as marketing of the product,
`other inventions, or the value of the product as a
`whole. Christopher B. Seaman, Reconsidering the
`Georgia Pacific Standard For Reasonable Royalty
`Patent Damages, B.Y.U. L. Rev. 1661, 1697-98
`(2010).
`
`In recent years, however, the Federal Circuit has
`shifted away from this established approach with
`respect to prior licenses, allowing patentees to use
`prior licenses and assuming apportionment
`requirements have been satisfied for such licenses.
`First, in Ericsson, Inc. v. D-Link Systems Inc., 773
`F.3d 1201 (Fed. Cir. 2014) the Federal Circuit
`allowed the patentee to introduce evidence of other
`licensing agreements for its patent as a suggestion
`for where the “reasonable royalty rate” should be set.
`While the Federal Circuit in this case still
`acknowledged that when using the “prior licenses”
`method there is still a “need to apportion the
`ultimate royalty award to the incremental value of
`the patented feature from the overall product”, the
`court never actually required the apportionment
`analysis to be performed. 773 F.3d 1228. In the
`following year, the Federal Circuit heard
`Commonwealth Science & Industrial Research
`Organisation v. Cisco Systems, Inc., 809 F.3d 1295,
`1302 (Fed. Cir. 2015) (CSIRO) and held that “a prior
`license negotiated between the same parties to use
`the same patent in the same type of end-product
`already had built in apportionment.” 809 F.3d at
`1303. In Elbit and Sprint Communications Co. v.
`Time Warner Cable Inc., 760 F. App’x 977 (Fed. Cir.
`
`
`
`
`
`
`12
`
`
`2019) (Time Warner), the Federal Circuit again
`deviated from the Garretson rule. In Elbit, the
`Federal Circuit ruled that evidence of a prior license
`for the same patent, but different end-products was
`not required to perform an apportionment analysis
`to be a valid royalty rate. Elbit Sys. Land & C4I Ltd.
`v. Hughes Network Sys., LLC, 927 F.3d 1292 (Fed.
`Cir. 2019); Application for Extension of Time to File
`a Petition for Writ of Certiorari, No. 19A564 (U.S.
`Nov. 14, 2019); Joint Motion for Entry of Stipulated
`Dismissal, Elbit Systems Land & C41 Ltd. v. Hughes
`Network Sys., No. 15-00037 (E.D. Tex. Dec. 18,
`2019), Doc. 591. The Federal Circuit again not
`requiring the value of the patent in terms of its
`contribution to the product, and instead assuming
`based on prior licenses between varying parties was
`enough information to ensure proper patent
`damages. In Time Warner the Federal Circuit made
`a similar ruling to Elbit, but decided that no
`evidence was needed to affirm previously negotiated
`licenses, nor was there any recognition of the lack of
`apportionment analysis.
`
`In this case, this Court has a ripe opportunity to
`address the Federal Circuit’s apparent departure
`from the apportionment principle. The Federal
`Circuit’s decisions with respect to apportionment
`noted above clearly contradict Garretson, lending to
`systemic abuse and royalty stacking, and presenting
`uncertainty for the App Association’s members
`working across consumer and enterprise use cases.
`Whether this Court upholds Garretson or intends to
`create a new norm with respect to prior licenses and
`apportionment in patent damage calculations, the
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`13
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`Federal Circuit’s disregard of the apportionment
`principle must be addressed.
`
`
`B. An Apportionment Analysis is Critical to
`Accurately Calculate
`the Proper
`Royalty Rate for Damages, Particularly
`with Respect to the “Prior Licenses”
`Approach to Calculating Damages
`
`
`Apportionment is critical to fairness in damage
`calculations, particularly with respect to the “prior
`licenses” approach to calculating damages. Bernard
`Chao, Implementing Apportionment, 2019, Patently-
`O Pat. L. J. 20 (2019). Negotiated licenses depend on
`a diverse range of factors and circumstances and are
`very often fundamentally different, making use of
`prior licenses in damage calculations something that
`should not be taken lightly. Negotiated licenses’
`terms vary widely from negotiation to negotiation,
`with rates that fluctuate based on broader
`circumstances such as wider business dealings with
`the same party and the need to avoid expensive
`litigation, among others. While prior licenses may
`indeed provide useful information for value and
`damage calculations, it is crucial that prior licenses
`are used appropriately and in ways that respect
`differing circumstances. There are numerous factors
`to consider before using a prior license as a baseline
`for a valuation or damage calculation, and
`assumptions (with no evidence) cannot satisfy the
`apportionment requirement when utilizing prior
`licenses. Without safeguards (namely, evidence of
`apportionment), a court could easily utilize a prior
`
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`14
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`
`license with an improper value, accidentally
`calculating damages that do not reflect the value of
`the patent itself. Such a result is not in the public
`interest.
`
`No group needs certainty on this aspect of patent
`law more than small businesses, including those that
`the App Association represents. Further, we note
`that in private patent license negotiations that occur
`frequently, courts’ approaches to valuation and
`damages are often relied upon. With continued
`uncertainty due to the Federal Circuit’s unchecked
`approach to apportionment, small businesses would
`be forced to deal with methodologies that foster
`royalty stacking (validated by the Federal Circuit’s
`approach), resulting in the potential of having to
`accept unfavorable licensing terms that would not
`align with apportionment principles (and then
`having those same terms used as a baseline for a
`court’s damage calculation).
`
`Additionally, should the Federal Circuit’s approach
`continue without this Court’s review, patent owners
`may recognize the financial opportunities that arise
`due to a lack of apportioned damages in a patent
`infringement case. Such a situation would further
`embolden suits by abusive patent holders who seek
`to weaponize the threat of unapportioned and
`inflated patent judgements as a negotiating tool.
`Such a negative effect would particularly impact
`small businesses like the App Associations’ members
`due to the inability to compete in the marketplace as
`a result of the inflated royalty rates.
`
`
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`15
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`
`The case at hand represents the Federal Circuit
`effective abandonment of the apportionment
`requirement in patent infringement damage
`calculations. Without the safeguards that
`apportionment provides, App Association members
`face a patent system where prior licenses, even those
`that may be clearly dissimilar to the patent
`infringement at hand, can be weaponized to
`inappropriately valuate infringed patents. The App
`Association believes that such an approach
`contradicts American patent law and disregards
`well-established precedent, requiring correction. At
`minimum, this Court should address the Federal
`Circuit’s apparent new approach to apportionment to
`provide a normalized approach to the entire court
`system.
`
`III. THE COURT SHOULD ALSO ADDRESS
`QUESTIONS RAISED THE BY THE U.S.
`PATENT AND TRADEMARK OFFICE’S
`INVALIDATION OF THE PATENT AT
`ISSUE
`
`
`In patent disputes, litigation is not the only option.
`Parties can look to alternative and more efficient
`venues such as the USPTO IPR process, an
`alternative and more expeditious route for the
`patent owner to resolve their claim. The USPTO’s
`IPR process provides a much-needed resource for
`small businesses the App Association represents,
`which do not have the ability to withstand years of
`expensive federal court litigation. By enacting the
`America Invents Act (AIA), Congress recognized “a
`growing sense that questionable patents [were] too
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`16
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`easily obtained [but] too difficult to challenge.” 35
`U.S.C. § 321(2012) . Congress sought to “provid[e] a
`more efficient system for challenging patents that
`should not have issued” and to “establish a more
`efficient and streamlined patent system that [would]
`improve patent quality and limit unnecessary and
`counterproductive litigation costs.” See id. Small
`businesses, the main drivers of the U.S. economy,
`were at the core of Congress’s decision to enact the
`AIA. As a result, the IPR process provides a more
`affordable and efficient recourse for small businesses
`to exercise their rights – whether defending the
`validity of their granted patent or challenging a
`granted patent. IPR has proven cost and time saving
`measures to resolve patent disputes. In its 2015
`study, AIPLA found that IPR saves litigants an
`average of $250,000 when disputing patent claims.
`See American Intellectual Property Law Association,
`2015 Report on the Economic Survey, available at
`https://www.aipla.org/detail/journal-issue/2019-
`report-of-the-economic-survey.
`
`The case at hand offers this Court the opportunity to
`address the effect of a USPTO judgement on
`invalidated patents that has been confirmed by the
`Federal Circuit on an infringement case on the same
`patents being heard by the same court. According to
`Moffitt v. Garr, 66 U.S. (1 Black) 273, 283 (1862),
`USPTO actions such as reissuing a patent with an
`amended claim require that the patentee surrender
`the prior patent, including any right to enforce
`“pending suits.” Furthermore, the Federal Circuit
`has always followed this Court’s rule that in an
`intervening PTO patent invalidation applies in
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`17
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`pending infringement cases, at least once those
`invalidations are affirmed or appealed. Fresenius
`USA, Inc., 721 F.3d 1330, 1332 (Fed. Cir. 2019); see
`also, e.g., XY, LLC v. Trans Ova Genetics, 890 F.3d
`1282, 1294 (Fed. Cir. 2018); Papst Licensing GMBH
`& Co. KG v. Samsung Elecs. Am., Inc., 924 F.3d
`1243, 1249 (Fed. Cir. 2019). Finally, this Court has
`long recognized that a case is still pending when its
`status is filing a petition for certiorari. Carafas v.
`LaVallee, 391 U.S. 234, 241 (1968). Therefore, the
`current law and precedent seem to make clear that
`an invalidation of a pat
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