PATENT CASE OF THE WEEK 

Enplas Display Device Corp. v. Seoul Semiconductor Co., Ltd., Appeal No. 2106-2599 (Fed. Cir. Nov. 19, 2018)

In an appeal from a jury verdict and JMOLs in a patent infringement case, the Federal Circuit set new precedent concerning lump sum royalties and induced infringement.

The patents in the case concern “light bars” used to backlight flat-screen televisions.  Enplas and SSC worked collaboratively to manufacture light bars that were covered by SSC’s patents.  In 2012, SSC suspected that Enplas was selling the light bars to SSC’s competitors.  SSC sent Enplas a letter asserting infringement, and Enplas filed a declaratory judgment action.

One of the key issues was whether Enplas had induced infringement of SSC’s patents.  The jury found Enplas liable for induced infringement—selling the infringing light displays to companies that would then sell them into the United States.  Enplas, a Japanese company that sold the light bars to companies like Samsung, argued that it could not be held liable for induced infringement because SSC could not prove that Enplas both knew of the existence of the patents and also knew that Enplas’s customers would sell the products in the United States.  It was not disputed that Enplas knew of the patents.  But with respect to knowledge of the infringement, Enplas argued that it did not know that any infringing acts would take place in the United States.

The Federal Circuit held that it was a “close case,” but affirmed that “the trial record demonstrates that the jury received substantial evidence whereby both Enplas’s knowledge and intent to induce infringement could be reasonably found.”  The Court relied on the fact that Enplas knew of its 50% worldwide market share, “supporting an inference that Enplas knew of the likelihood that its lenses would end up in the United States.”  Although the Court confirmed that “mere knowledge of possible infringement is not enough” to find induced infringement, it nonetheless held that there was “at least circumstantial evidence that would allow a jury to reasonably find that Enplas had knowledge of the patents and of its customers’ infringing activity and that it intended to induce their infringement.”

With respect to damages, SSC’s expert relied on a lump sum license fee structure for the reasonable royalty.  Although she testified that the reasonably royalty for one of the patents in suit would have been $500,000, she testified that the parties would have negotiated a lump sum of $2 million to $4 million for that patent, which would have covered not only the accused products but also “additional or future potentially infringing lenses that Enplas might sell.”  This would have provided Enplas with a “freedom to operate license.”  The jury awarded SSC $4 million for that patent.  The district court denied JMOL, and Enplas appealed.

The Federal Circuit reversed, holding that the evidence submitted did not support a $4 million damages award.  The Court relied on AstraZeneca AB v. Apotex Corp., 782 F.3d 1324 (Fed. Cir. 2015) and Gjerlov v. Schulyer Labs., Inc., 131 F.3d 1016 (Fed. Cir. 1997) for the proposition that “acts that do not constitute patent infringement cannot provide a proper basis for the recovery of damages under section 284.”  Since “potentially infringing lenses” were not accused, the lump sum royalty could not be based on those products.

Judge Newman dissented.  In Judge Newman’s view, the evidence submitted at trial was sufficient to support a $4 million damages award, and was amply supported by testimony asserting that, in the real world, the parties would likely have considered a broad, lump sum license on more than just the accused products, to avoid repeated litigation.  In Judge Newman’s view, a royalty limited to the accused products is the result of a “hypothetical negotiation far-removed from what parties regularly do during real-world licensing negotiations.”

Thus, Enplas limits the extent to which parties can use hypothetical lump sum licenses as a reasonable royalty structure to capture damages beyond the infringing acts.

The opinion can be found here.