Bloomberg News

Patent Trial Awards Soar With Some Big Ones Cut by Judges

January 18, 2013

Research in Motion Ltd., the Canadian maker of the BlackBerry, lost a $147 million jury verdict in July in a patent-infringement lawsuit brought by closely held Mformation Technologies Inc. over mobile-device management software.

The verdict, even for a patent jury award, was short-lived. The trial judge threw out the jury’s decision the next month, finding Edison, New Jersey-based Mformation didn’t provide enough evidence to support its claim against RIM. (RIM)

Patent awards kept rising in 2012, with seven topping $100 million, including three of $1 billion or more. Those verdicts remain the most volatile, with courts reversing almost half of the 25 largest patent awards in U.S. history, according to data compiled by Bloomberg.

Verdicts have risen because “the value of technology has gone up as a driver of the economy,” said Amar L. Thakur, a lawyer with Quinn Emanuel Urquhart & Sullivan LLP in Los Angeles who represented Mformation in the RIM case, which is now on appeal. “People have paid more attention to monetizing intellectual property and looking at it as an asset.”

The three largest U.S. jury verdicts of 2012 and 11 of the top 50 were in patent-infringement cases, both for the first time, according to the Bloomberg data. The verdicts included three billion-dollar patent awards. There were a total of three patents verdicts of that size in all previous years combined.

Verdicts Targeted

Two of the 10 largest patent verdicts of 2012 have already been reversed, and almost all the rest are either targets of post-trial motions to set them aside or are already on appeal.

Patent litigation is a “cauldron of reversals” by trial judges and appeals courts because intellectual-property law is “being developed right before our very eyes,” said Douglas A. Cawley, an attorney who won a $368 million verdict in November for VirnetX Inc. (VHC:US) in an infringement claim against Apple Inc. (AAPL:US) over virtual-private-network technology.

Verdicts against corporations in other kinds of cases, such as antitrust or contracts, are less volatile because “these areas of the law are pretty well-formed,” Cawley, of McKool Smith PC in Dallas, said in a phone interview.

The U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit in Washington, which hears all patent appeals, continue to decide pivotal cases, “sometimes several a year, that affect intellectual property,” he said.

Biggest Award

The largest award last year, for $1.17 billion, was made in December by a jury in Pittsburgh federal court to Carnegie Mellon University, which sued claiming Marvell Technology Group Ltd. (MRVL:US) infringed integrated-circuit patents. Marvell denied infringing and said it will ask that the verdict be set aside.

Apple won the second-largest in August when a jury in San Jose, California, federal court awarded $1.05 billion for alleged infringement of smartphone technology patents by Samsung Electronics Co. (005930) Samsung denied infringement and said it would appeal.

Monsanto Co. (MON:US) won a $1 billion verdict in August from a jury in St. Louis federal court in a suit against DuPont Co. (DD:US) over a patent for genetically modified soybeans. DuPont motions to set aside or reduce the verdict are pending.

For all types of lawsuits in 2012, the number of jury awards of $100 million or more jumped to 31 from 19, or 63 percent, over the previous year.

The verdicts included four medical malpractice and two nursing home negligence awards of $100 million or more. Three of the top 10 malpractice awards ever occurred in 2012, as did the largest-ever in a nursing home case -- $900 million against a Florida facility.

Trial Data

Most of the largest verdicts may be reduced or reversed on post-trial motions or through appeals-court decisions, based on the history of such litigation, according to Bloomberg data. Some have already been revised.

The patent cases face the greatest risk of reversal.

In 11 of the 25 largest jury verdicts ever in U.S. patent cases, the amount of damages or the entire judgments were set aside. The reversals included all three pre-2012 billion-dollar patent verdicts. New trials were ordered or judgments for the defendants replaced jury findings.

Four of the remaining 14 cases, all from 2012, haven’t reached post-verdict decisions by trial or appellate courts.

Companies pursuing reversals of big patent awards have succeeded 56 percent of the time, a review of decisions in the biggest 25 such cases found. This compares with reversals in seven, or 28 percent, of the top 25 top awards in nonpatent cases involving corporations.

Federal Courts

Patent cases are decided in federal courts, where judges have been more likely to reverse the largest verdicts than their state-court counterparts, 36 percent versus 28 percent, according to the data.

With patent trials, “if the defense loses, they say it’s only halftime, and there’s truth to that,” said Richard Sayles, a Dallas lawyer who won a $1.67 billion verdict in Johnson & Johnson (JNJ:US)’s suit against Abbott Laboratories (ABT:US) in 2009 that was later erased. The Federal Circuit threw out the award to J&J, the largest ever in a patent case. The U.S. Supreme Court let stand its decision last year.

The Federal Circuit has reversed about half of the cases before it, largely because of reviews of so-called claims construction, Sayles said. The appeals court in those cases found the trial judges were wrong in how they defined key terms.

Trial judges hold pretrial hearings to determine exactly what the language of a patent covers. Then the Federal Circuit reviews the claims construction independently.

‘No Weight’

“The district court opinion carries no weight,” Sayles said. “It’s a peculiar aspect of patent law.”

In some cases, damages were set aside as improperly calculated and new trials ordered. The Federal Circuit has issued rulings limiting the amount that can be collected when the infringing element is a small feature or component of a product.

The reversal rate is also connected to the willingness to fight over large markets, said William Lee of Wilmer Cutler Pickering Hale & Dorr LLP in Boston, who was on Apple’s team that won last year’s $1 billion verdict against Samsung.

“Patent litigation is being used to sort out a competitive marketplace,” Lee said in an interview.

This is particularly true in areas where technologies converge, such as smartphones and computers, he said.

High Stakes

“These cases have high revenues, high damages,” Lee said, and cases may be less likely to be resolved before appeals are completed. “Plaintiffs and defendants are more willing to go to final determination to establish the rules of the game.”

Judgments are rising because courts have changed how they deal with requests for injunctions and because more money is at issue than previously, said Michael A. Carrier, a professor at Rutgers School of Law in Newark, New Jersey.

“There are more patent lawsuits in areas of technology where there is a lot at stake,” Carrier said in a phone interview. “Patents are more frequently being enforced.”

A Supreme Court decision in 2006 in a case involving EBay Inc. (EBAY:US) allowed judges greater discretion to reject requests to stop the use of infringing products. Defendants claimed patent owners were able to extract high settlement dollars because of the threat they could be shut down if they lost at trial.

With fewer such orders granted, more defendants are willing to fight at a trial, while more patent owners are looking to juries to give them high damage awards.

EBay Decision

“The Supreme Court’s EBay decision has made it more difficult to get injunctions,” said Cawley, of McKool Smith. “If you can’t get that relief, you need to get damages.”

Following the billion-dollar verdict in the Apple-Samsung smartphone patent dispute, U.S. District Judge Lucy H. Koh last month cited the EBay decision in rejecting Apple’s bid for a permanent sales ban on 26 Samsung devices.

“Though injunctions were once issued in patent cases as a matter of course,” the U.S. Supreme Court changed the rules, requiring patent-holders to show an irreparable injury, that other remedies such as monetary damages weren’t sufficient, and “that the public interest would not be disserved by a permanent injunction,” she wrote.

Apple didn’t meet these requirements, she ruled.

Patent verdict reversals may not mean a final victory for the defendant. Of the five patent verdicts of $500 million or more that were tossed out, in three cases the defendants that won the reversals nevertheless chose to settle.

Fleeting Victories

When a reversal involves setting aside damages or only part of a judgment, requiring a new trial, the patent-holder may still prevail and obtain an even bigger verdict the second time around.

SAP AG (SAP) won a new trial in a patent case that first resulted in a $138.6 million verdict against it. The retrial in 2011 resulted in another loss to Versata Software Inc., this time with a $345 million award. The second judgment is now on appeal.

“Reversals are often by the Federal Circuit because of a mistake by a district judge and the trial has to be redone,” Cawley said.

Settlements before retrials are common because the appellate decision has provided a road map of what might happen in a new trial, he said. “Often the parties can see the handwriting on the wall,” he said.

In most kinds of cases, the jury’s award is the high-water mark. A settlement or final judgment is typically less -- often far less -- than the jury’s assessment.

Patent Exception

Patent-infringement cases are an exception.

The judgments can grow with the addition of interest, enhanced damages for findings of willful infringement, or for continuing infringement after the trial.

Cawley in 2010 won a $105.8 million jury verdict against Microsoft Corp. (MSFT:US), again for VirnetX and over VPN technology. The case was settled before appeal for $200 million, he said.

Patent trials almost always are over the cost of the infringement up to the date of trial, Cawley said.

“The settlements may be greater than the verdict because the future may be greater than the past,” he said.

To contact the reporter on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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