No, this is not a Black Friday column. My only feeling on this front is that we should all support local businesses as much as we can. With that shopping suggestion aside, I want to focus this week on an interesting decision by the Federal Circuit on one of my favorite subjects, namely patent damage. I am always looking for Federal Circuit treatment of compensation issues, if only because compensation remains an underdeveloped area of patent law in terms of its relevance to most litigating disputes. One reason for this, of course, is that so few patent cases are actually brought to court and convicted, which makes compensation decisions unusual.
Fortunately, however, at least some compensation disputes are reaching the Federal Circuit. And when they do, they tend to be interesting. In our case of the week, Vectura Limited v GlaxoSmithKline LLC (opinion here), the parties had a prior licensing history that turned out to be great in resolving the appeal. The case came to the Federal Circuit in the Delaware District, where Vectura won a jury verdict of nearly $ 90 million based on a 3% royalty for GSK’s sales of inhalers containing magnesium stearate-coated lactose particles . The active ingredient particles are deposited on these coated particles in accordance with the asserted Vectura patent. The presence of the magnesium stearate helps distribute the drug in the patient’s lungs, making the technology a key component in GSK’s inhalers, which even during the period of damage through trials, generated nearly $ 3 billion. Overall, a $ 90 million in damages is a significant judgment, both in terms of the case value and the importance of the patented technology to the products in question.
On appeal, the Federal Circuit upheld the finding of a violation before addressing the two questions raised. Initially, GSK argued that a new damages litigation was warranted because Vectura’s theory of damages was legally flawed. This theory was based on an alleged “comparable license” that Vectura and GSK had already concluded in 2010 for a similar use of magnesium stearate in inhalers. At the trial, Vectura’s damages expert was of the opinion that GSK would have agreed to a 3% license fee on total sales of GSK inhalers based on this 2010 license. The existence of the 2010 license as a comparable license was of crucial importance because without it the use of GSK’s total sales as a license basis would have been inappropriate without an accompanying breakdown analysis. In view of the “rather unusual circumstance” in this case, however, the Federal Circuit has credited the testimony of Vectura’s compensation expert about the comparability of the licenses and thus nullified the need for a breakdown.
In addition, the Federal Circuit credited Vectura’s compensation expert with asking whether the license fee should be capped, stating that “the suspected inhalers had been very successful by 2016, which would have increased Vectura’s leverage in the hypothetical negotiations “. Although the 2010 license had a license fee cap between the parties (excluding royalties on GSK sales over £ 500 million), the over-the-top success of the accused products confirmed the jury’s decision not to apply a royalty cap to Vectura’s attributed damages.
Next, the Federal Circuit addressed a common problem in large-ticket patent cases, namely the alleged adverse effect of hearing evidence of an infringer’s enormous total revenue before the jury. While this issue is typically the subject of court action, in this case GSK only requested the exclusion of its overseas sales. However, at the trial, she objected to the mention of Vectura’s $ 3 billion US sales in question. These arguments resonated with the trial judge, who expressed his displeasure with the use of the total sales of $ 3 billion, particularly in connection with a “pennies on the dollar” argument as the basis for Vectura’s damage. However, since “the total receipts provided a reasonable basis for the jury to hear in order to understand the plaintiff’s damage expert analysis,” the trial judge said there was no reason to overturn the jury’s judgment. And the Federal Circuit found no “basis on which to reconsider the senior trial judge’s judgment in this regard.” The verdict was upheld in full, although the Federal Circuit had agreed in principle that pennies on the dollar claims for damages were inappropriate, as were references to a defendant’s total revenue when the “total sales of the accused products” were of no value was a reasonable license base.
Ultimately, the Vectura case provides an important context for assessing the comparability of licenses as part of the apportionment analysis. It is at least suggested that previous licenses in which the parties are themselves involved can help establish comparability, even if there are differences in the scope of the license or in the patents to be licensed. With the increasing number of well-capitalized NPEs targeting the same pool of deep pocket defendants over and over again, the likelihood that previous inter-party licenses will come into play in a later trial for different patents increases day by day. Here, that momentum worked against GSK, despite successfully negotiating a favorable license cap in the previous license that both the court and the Federal Circuit deemed otherwise “comparable”. Basically, the defendants should probably assume that a settlement purchase with previous licenses in the process will not result in lower claims for damages. In such cases, therefore, it could be a pre-trial settlement that would be the real deal.
Please send me comments or questions at [email protected] or via Twitter: @gkroub. Suggestions or thoughts on topics are very welcome.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading patent consultancy to the investment community. Gaston’s practice focuses on intellectual property litigation and related advice, with an emphasis on patent issues. You can reach him at [email protected] or follow him on Twitter: @gkroub.