Litigating Claim Construction and its Impact on Liability and - - PowerPoint PPT Presentation

Litigating Claim Construction and its Impact on Liability and Damages: A Case Study

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• A. John P. Mancini

Co-Leader, Intellectual Property Practice 212-506-2295

jmancini@mayerbrown.com

I. Background To The Case II. Key Issue: Value of the Invention

• III. Claim Construction
• IV. Plaintiffs’ Theory of Damages
• V. Defendants’ Theory of Damages
• V. Defendants’ Theory of Damages
• VI. Court Appointed Expert
• VII. Related Developments and Open Issues

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• I. Background to the Case
• I. Background to the Case

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The Plaintiffs

• Brandeis University

– Two named inventors on the faculty – Third inventor was a researcher for a palm oil trade association that funded the work

• GFA Brands

– Maker of Smart Balance buttery spread – “Patented blend to help improve cholesterol ratio”

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The Defendants

• First-named defendant was a 7-person vegan bakery in

Madison, Wisconsin, East Side Ovens

• The other defendants were regional, national and

international food companies, including:

• Nestlé
• Kellogg Company

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• Kellogg Company
• Unilever
• Bremner Food Group

The Patents

• Two patents directed to a fat blend and a “margarine”
• Fat blends like these are used in various food products,

including cookies

• Claims required that the fat be “suitable for” the reduction of

specified cholesterol ratios

• Alleged cholesterol-lowering effect was the focus of the

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• Alleged cholesterol-lowering effect was the focus of the

academic study that formed the basis for the products

• Same effect was the focus of the commercial embodiment
• f the patents, namely the Smart Balance buttery spread
• Fat blends were also trans-fat free

’497 Patent

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’192 Patent

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Plaintiff’s Product

GFA advertises its products as naturally free of trans fat and capable of enhancing good-to-bad cholesterol ratios. GFA marks its products with the ’497 Patent.

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The Defendants’ Products

• One spread (from Unilever) and cookies and cookie doughs

from the other defendants

• Our client, Kellogg Company sold “Chips Deluxe Chocolate

Chip Cookies” through its Keebler subsidiary

• Our additional client, Nestlé, sold Toll House Chocolate Chip

Cookie Dough (for baking)

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Cookie Dough (for baking)

• Cookies were labeled “cholesterol-free”, but there were no
• ther product claims made, including no claims were made

that either the Keebler cookies or the Toll House Cookie Doug lowered cholesterol

• In addition, neither Nestlé nor Keebler made any other

health claims about its cookies – rather, they marketed as indulgent treats

Scientific Background

• Patents claimed that higher levels of saturated fat higher

lowered overall cholesterol levels

• A counter-intuitive finding, as saturated fat was previously

cited as a health concern

• Defense position was that it was counter-intuitive

because it was wrong

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because it was wrong

• The scientific finding was based on one study of Malaysian

soldiers funded by a Malaysian palm oil trade association that wanted to promote the use of palm oil, which is high in saturated fat

• The conclusions of the study (calling for a diet higher in

saturated fat) are at odds with the current consensus on the healthiest diet

Scientific Background (cont.)

• FDA regulations required trans-fats to be disclosed on the

label.

• Labeling requirements permitted less than 0.5 grams per

serving to be labeled as 0 grams or as “trans-fat free.”

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Procedural History

• Case was filed in W.D. Wisconsin, a patent-savvy venue noted

for its speed

• Same plaintiff previously filed and lost Markman in D.N.J.
• Markman ruling could be dispositive, but WD Wisc. assigned

judge would not hold a Markman hearing

• Assigned judge’s individual practice was to resolv claim

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• Assigned judge’s individual practice was to resolv claim

construction as part of summary judgment

• Defendants moved to transfer to several more convenient

venues

• Sua sponte Judge Crabb transferred all the cases for resolution

to one court, namely, N.D. Ill., Judge Richard Posner, sitting by designation

Transferee Court Case Schedule

Action Date Exchange of Terms and Proposed Constructions June 8, 2012 Markman Hearing August 20, 2012 Initial Expert Reports (Liability and Damages) September 24, 2012

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Rebuttal Expert Witness Reports (Liability and Damages) October 26, 2012 Close of Expert Depositions November 30, 2012 Motions for Summary Judgment December 21, 2012 Trial March 4, 2012

Judge Richard Posner

• Noted interest in intellectual property matters
• Authored The Economic Structure of Intellectual Property Law
• Takes patent cases on a regular basis
• Dislikes the uniformity imposed by the creation of the Federal

Circuit, and has advocated for the return to circuit-based patent law

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patent law

• Particular interest in patent damages:
• “But I have been struck … by how the law relating to

damages relief in patent cases seems to be in disarray.”

• Hostile to patent protection except in special circumstances:’
• "It's not clear that we really need patents in most

industries."

• II. Key Issue: Value of

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• II. Key Issue: Value of

the Invention

Early Focus on Damages

• From the start, we focused one pillar of the defense on

damages

• How could a cookie company be liable for anything other

than de minimis damages, if it never advertised any

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than de minimis damages, if it never advertised any benefits from the alleged cholesterol-benefiting fat blend?

Early Focus on Damages (contd.)

• Judge Posner picked up on this issue and issued a sua

sponte order early on asking for briefing on this issue:

• “I am concerned whether the plaintiffs if successful in

establishing liability will be entitled to nontrivial damages awards. Suppose the defendants infringed the asserted patents but that none of the defendants marketed its products as [lowering cholesterol] and suppose further that the defendants obtained no cost savings by infringing the patents rather than using some non‐infringing recipe and that neither

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using some non‐infringing recipe and that neither Brandeis nor its licensee GFA Brands lost any business as a result of the infringement. On those assumptions, would the plaintiffs have any claim for damages, whether compensatory or punitive, or restitution.”

Patent Act

• “Upon finding for the claimant the court shall award the

claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.”

• 35 U.S.C. § 284 (emphasis added)

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• What is “adequate to compensate” the patentee if the alleged

infringer gains no benefit from using the technology?

• Seemingly, Section 284 of the Patent Act was at odds with

Judge Posner’s views

Reasonable Royalty

• Reasonable-royalty damages are based on the notion that, had

the transaction between the patent holder and the infringer been voluntary, the infringer would have paid the patent holder a royalty for the use of the patent.

• Calculating reasonable-royalty damages entails estimating the

royalty that the patent holder would have collected from the

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royalty that the patent holder would have collected from the infringer, starting at the time of first infringement – assuming a hypothetical license negotiation occurred.

Reasonable Royalty (contd.)

• An economic approach to analyzing the hypothetical negotiation is to

determine the bounds of the bargaining range.

• Those bounds are:
• (i) the minimum royalty that the patent holder would accept -- while

still being better off than without issuing a license; and

• (ii) the maximum royalty the infringer would be willing to pay -- while

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• (ii) the maximum royalty the infringer would be willing to pay -- while

still being better off than without obtaining a license.

Reasonable Royalty (contd.)

• An economic approach to analyzing the hypothetical negotiation is to determine

the bounds of the bargaining range.

• Figure 1: Those bounds are the minimum royalty that the patent holder would

accept (while still being better off than without issuing a license) and the maximum royalty the infringer would be willing to pay (while still being better off than without obtaining a license).

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Reasonable Royalty (cont.)

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(excerpted from Court-appointed expert report)

Reasonable Royalty (contd.)

• Figure 2: The outcome of a voluntary negotiation before infringement would

be that no exchange occurs. In this scenario, the court should require the infringer to pay an amount equal to the patent holder’s minimum willingness to accept in the hypothetical negotiation.

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Reasonable Royalty (cont.)

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(excerpted from Court-appointed expert report)

• III. Claim Construction

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Brief Introduction

• Markman v. Westview Instruments, 517 U.S. 370

(1996)

– The Federal Circuit held that judges, rather than juries, should determine as a matter of law the meaning of claim terms. terms. – The Court reasoned that judges by their training and practice are best suited to construe written instruments, like patents. – Jury cannot decide invalidity or infringement until the Court construes claims.

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Brief Introduction (cont’d)

• Claim construction after Markman

– Since then, courts have formalized the process of construing claims by scheduling Markman hearings often well in advance of trials. – At the Markman hearing, the parties argue the – At the Markman hearing, the parties argue the appropriate claim constructions, which can be effectively case dispositive.

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Brief Introduction (cont’d)

• Importance of Markman

– Markman hearing is perhaps the most important hearing in patent litigation.

• It is at this hearing that the parties can decisively impact their case

and potentially avoid trial. and potentially avoid trial.

– Patentees prefer vague patents because it allows them greater flexibility in assertion against third parties.

• This is especially true in technology cases, where technology is

ever-evolving and the patentee hopes to capture the "next generation" of a product.

• Today’s Case Study is “less sexy,” in that it discusses a food

composition, but it illustrates this tension well

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Timing of Markman

• The Federal Circuit does not prescribe any particular

timing for the claim construction process.

• The Federal Circuit’s directive is that trial courts

“exercise [their] discretion to interpret the claims at a time when the parties have presented a full picture of time when the parties have presented a full picture of the claimed invention and prior art.” Sofamor Danek Group, Inc. v. DePuy-Motech, Inc., 74 F.3d 1216, 1221 (Fed. Cir. 1996).

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Timing of Markman (cont’d)

• When are most Markman hearings held?

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Timing of Markman (cont’d)

• Patentee’s perspective

– As a general rule, patent holders tend to favor having the Markman hearing late in the case near the end of or after the close of discovery. – A late Markman is preferred because the later the claims – A late Markman is preferred because the later the claims are construed, the less time the defendant has to adjust to the claim construction ruling. – It is also preferred because it makes summary judgment more difficult.

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Timing of Markman (cont’d)

• Accused infringer’s perspective

– Accused infringers normally push to have the claims construed as early in the case as possible. – An early Markman is preferred because once the court construes the claims, the defendant can focus its prior-art construes the claims, the defendant can focus its prior-art search, refine its non-infringement defenses, and possibly limit the amount of discovery obtainable by the plaintiff. – It is also preferred because a favorable ruling may allow the defendant to obtain summary judgment or get the plaintiff to stipulate to non-infringement for the purpose

• f appealing the claim construction.

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Preparing for Markman

• Early analysis

– Courts have limited time to devote to claim construction. – To make the best use of the court’s time, a party should perform a thorough and complete patent analysis early in the litigation to identify terms likely to become the most the litigation to identify terms likely to become the most important claim construction issues. – This analysis should include examining the accused products and the prior art, as well as the intrinsic and extrinsic evidence relevant to claim construction.

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Preparing for Markman (cont’d)

• Limit claim terms

– Some parties prefer construction of many terms for fear of

• mitting a potentially important term.

– However, because of time constraints, the court may be able to deal only superficially with the many claim terms able to deal only superficially with the many claim terms presented for construction. – Consequently, the court will be less likely to rule decisively

• n any single term, thereby causing the party to miss the

chance to advance the litigation on the merits.

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Preparing for Markman (cont’d)

• Understand what your judge wants, expects, and

requires

– Does the judge permit or require a tutorial on the science? – Does the judge permit experts to testify at the Markman? – How much time will the judge allow for the Markman?

• To gain this understanding, visit your judge’s website,

review the local patent rules, and consult with local counsel

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Preparing for Markman (cont’d)

• Determine best ways to educate the judge

– If the judge allows expert testimony at the Markman, consider bringing an expert to explain the technical issues. – Another important way to educate the judge is to have demonstrative exhibits that can explain complex demonstrative exhibits that can explain complex technology.

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Preparing for Markman (cont’d)

• Don’t forget about the law

– Care must also be taken to teach the judge about the applicable law. – This is especially important in those districts where the judged are not frequently exposed to patent litigation. judged are not frequently exposed to patent litigation.

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Preparing for Markman (cont’d)

• Choosing claim construction arguments

– A patentee will occasionally focus almost entirely on infringement and argue for the broadest possible scope, all the while overlooking the fact that a broader construction may lead to the claim “reading on” construction may lead to the claim “reading on” invalidating prior art. – An accused infringer may develop similar “tunnel vision” and argue such a narrow construction as to deprive themselves of an otherwise compelling invalidity defense.

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Claim Construction – A Case Study

• GFA Brands v. Nestle & Keebler, et al. (N.D. Ill.)

– Maker of Smart Balance buttery spread sued national cookie manufacturers for infringement of U.S. Patent Nos. 5,843,497 and 6,630,192.

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Representative Claim – US Patent No. 5,843,497

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Case Study: Brandeis Univ. v. East Side Ovens

• Three key terms from the patent selected for Markman:

– Term 1: “cholesterol-free” – Term 2: “% by weight fatty acid” – Term 3: “suitable for increasing HDL and HDL/LDL ratio”

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Case Study: Brandeis Univ. v. East Side Ovens Term 1: “cholesterol-free”

• The parties’ opposing proposed constructions:

– Patent owner: “less than 5 mg cholesterol per serving” – Accused infringers: “containing no cholesterol from any ingredient (such as cholesterol-containing milk solids or beef fat) other than naturally occurring trace amounts from fat) other than naturally occurring trace amounts from vegetable oils”

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Case Study: Brandeis Univ. v. East Side Ovens Term 1: “cholesterol-free”

• Intrinsic Evidence to Support Proposed Construction:

– From the Patent Specification:

• “Applicant has determined that in the consumption of dietary fiber (as

natural triglycerides) it is important to maintain a specific ratio of saturated fatty acids to polyunsaturated fatty acids (at least 0.5:1 but less than 2:1) in the absence of cholesterol.” ’497 patent at 2:65-3:2.

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Case Study: Brandeis Univ. v. East Side Ovens Term 1: “cholesterol-free”

• Intrinsic Evidence to Support Proposed Construction:

– From the Prosecution History – To overcome rejections over the prior art, the patentee argued:

• “Claim 1 is drawn to a cholesterol-free margarine requiring ‘a cholesterol-

free blended fat composition.’ Because beef fat contains cholesterol, the use of any beef fat to ‘adjust’ the formula of Blend #5 would bring the use of any beef fat to ‘adjust’ the formula of Blend #5 would bring the resultant margarine outside the scope of the claims, with regard to the requirement that it be cholesterol-free.”

• “Owners respectfully submit that milk solids, even those that are from

‘nonfat’ milk, usually contain cholesterol. Thus a margarine made from blend #5 that includes milk solids would not anticipate the instant claims which recited a ‘cholesterol-free’ margarine.”

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Case Study: Brandeis Univ. v. East Side Ovens Term 1: “cholesterol-free”

• Intrinsic Evidence to Support Proposed Construction:

– Prosecution History: During reexamination, an inventor stated that vegetable oils, such as those contemplated by the asserted patents, contain some small amount of cholesterol, unlike milk solids, which generally contain substantially greater amounts of cholesterol. cholesterol.

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Case Study: Brandeis Univ. v. East Side Ovens Term 1: “cholesterol-free”

• Extrinsic Evidence to Support Proposed Construction:

– FDA Food Labelling Regulations – 21 C.F.R. § 101.62(d)(1)(i)(A)- (C):

• A food product can be labelled “cholesterol-free” if it contains:
• Less than 2 mg cholesterol per serving;
• Less than 2 mg cholesterol per serving;
• 2 g or less of saturated fatty acids per serving; and
• No ingredient generally understood by consumers to contain cholesterol.
• NOTE: Patent Owner’s proposed construction permitted

more cholesterol per serving than even the FDA regulations.

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Case Study: Brandeis Univ. v. East Side Ovens Term 1: “cholesterol-free”

• Judge Posner’s Construction:

– Judge Posner rejected both parties’ constructions and adopted the following construction:

• “containing less than 2 mg cholesterol per serving, and containing no

ingredient generally understood by consumers to contain cholesterol (such as cholesterol-containing milk solids or beef fat)” (such as cholesterol-containing milk solids or beef fat)”

– This construction is a hybrid construction based on a portion of the FDA regulations and the intrinsic arguments.

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Case Study: Brandeis Univ. v. East Side Ovens Term 1: “cholesterol-free”

• Posner’s construction was contrary to several canons of

claim construction:

– It was contradicted by the specifications description of the invention as being “in the absence of cholesterol”. – It was not from the perspective of a POSITA. A general – It was not from the perspective of a POSITA. A general consumer is not a POSITA. – Posner only relied on portions of the “cholesterol-free” labeling

• regulation. Posner’s construction did not limit the amount of

saturated fatty acids, as is required by the labeling regulation.

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Case Study: Brandeis Univ. v. East Side Ovens Term 1: “cholesterol-free”

• Given that Patent Owner’s proposed construction was

contradicted by both the intrinsic and extrinsic evidence, why did Patent Owner argue that “cholesterol-free” means “less than 5 mg of cholesterol per serving”?

– Because all of Nestle’s accused cookie dough products were – Because all of Nestle’s accused cookie dough products were labelled as containing 5 mg of cholesterol per serving. – Patent Owner’s construction was a litigation-inspired construction designed to ensnare otherwise non-infringing products into the infringement case. – Patent Owner’s construction was properly rejected.

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Representative Claim – US Patent No. 5,843,497

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Case Study: Brandeis Univ. v. East Side Ovens Term 2: “% by weight fatty acid”

• During Daubert, it became clear that the court needed to

construe the % by weight limitations.

• Background: In food, fatty acids exist as triglycerides, not

free fatty acids. When triglycerides form, the fatty acids lose a hydroxide group. lose a hydroxide group.

• The parties’ dispute:

– Patent Owner – the weight of hydroxide should be excluded when calculating the claimed % by weight – Accused infringers – the weight of hydroxide should be included when calculating the claimed % by weight

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Case Study: Brandeis Univ. v. East Side Ovens Term 2: “% by weight fatty acid”

• Intrinsic Evidence

– Tables I and II of the specification describe the fat composition

• f various vegetable oils (i.e., amounts of saturated,

monounsaturated, and polyunsaturated fats). – Posner noted that inclusion of the hydroxide in the calculation – Posner noted that inclusion of the hydroxide in the calculation

• f % by weight would result in a combined amount of fat of

about 95%, whereas exclusion of the hydroxide would result in a combined amount of fat of about 90%. – The total fat reported in these tables added up to about 95%, indicating they included the hydroxide in the calculation.

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Case Study: Brandeis Univ. v. East Side Ovens Term 2: “% by weight fatty acid”

• Judge Posner’s Construction:

– % by weight “mean[s] the ratio of the weight of that fatty acid in the fat composition, including the hydroxide group, to the total weight of the triglycerides in the fat composition”

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Representative Claim – US Patent No. 5,843,497

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Case Study: Brandeis Univ. v. East Side Ovens Term 3:“suitable for increasing….”

• The parties’ proposed constructions:

– Patent Owner – the claimed subject matter is merely designed to increase HDL and the HDL/LDL ratio upon ingestion (i.e., an actual increase in HDL and the HDL/LDL ratio is not required so long as the design criterion is met) – Accused infringers – two alternative constructions:

• the language is indefinite under 35 U.S.C. § 112; or
• the claims require that upon ingestion of the claimed food product, a

subject must exhibit an increase in HDL and the HDL/LDL ratio

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Case Study: Brandeis Univ. v. East Side Ovens Term 3:“suitable for increasing...” (Indefiniteness)

“The primary purpose of the definiteness requirement is to ensure that the claims are written in such a way that they give notice to the public of the extent of the legal protection afforded by the patent, so that interested members of the public . . . can determine whether or not they infringe.” Oakley, Inc. v. Sunglass Hut Int’l, 316 F.3d 1331, 1340 (Fed. Cir. 2003).

• Accordingly, a patent claim is indefinite if it is “not amenable to

construction” or “insolubly ambiguous.” Datamize, LLC v. Plumtree construction” or “insolubly ambiguous.” Datamize, LLC v. Plumtree Software, Inc., 417 F.3d 1342, 1347 (Fed. Cir. 2005).

• But “[e]ven if a claim term’s definition can be reduced to words, the claim

is still indefinite if a person of ordinary skill in the art cannot translate the definition into meaningfully precise claim scope.” Halliburton Energy Servs., Inc. v. M-I LLC, 514 F.3d 1244, 1251 (Fed. Cir. 2008).

• Accordingly, claim construction does not preclude an accused infringer

from later asserting invalidity based on indefiniteness.

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Case Study: Brandeis Univ. v. East Side Ovens Term 3:“suitable for increasing...” (Indefiniteness)

• Accused infringers argued that this term is indefinite

because neither the claims nor the specifications informs a person of ordinary skill in the art (“POSITA”) how to determine whether a food product causes the alleged cholesterol effects

– Accused infringers put in expert testimony of a leading food scientist (Dr. Alice Lichtenstein) who explained that a POSITA would determine whether or not a food product causes a particular cholesterol change by comparison to the cholesterol levels from a baseline diet, such as the person’s usual diet

• Without knowing what to substitute in the diet, a POSITA could not

reach any conclusion about the cholesterol-enhancing effects

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Existing Food Removed from Diet Test Food Product Added to Diet Effect on Fatty Acids in Diet Expected Effect On HDL Concentration A Food high in saturated fatty acids Examples include butter and lard Saturated fatty acids decrease Polyunsaturated fatty acids increase Decrease in HDL concentration Test Food Product meeting fatty acid composition requirements of patent claims B Food high in polyunsaturated fatty acids Examples include nuts, sunflower oil-based vinaigrettes and canola

• il-based margarines

Saturated fatty acids increase Polyunsaturated fatty acids decrease Increase in HDL concentration C Food having same fatty acid composition as test food product No change in polyunsaturated fatty acids or saturated fatty acids No change to HDL concentration

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Case Study: Brandeis Univ. v. East Side Ovens Term 3:“suitable for increasing.” (Indefiniteness)

• The intrinsic evidence failed to provide critical

information, such as the “comparator foods for which the test product is to be substituted,” which is necessary to determine whether or not an individual food product causes an increase in HDL concentration and HDL/LDL concentration ratio. concentration ratio.

– Remember we are talking about a fat composition that is a replacement for butter.

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Case Study: Brandeis Univ. v. East Side Ovens Term 3:“suitable for increasing….” (Constructions)

• Inrinsince Evidence from Patent Specification:

– “Such a composition will increase HDL cholesterol and increase the HDL/LDL ratio (or decrease the LDL/HDL ratio) in the serum

• f mammals including humans and other primates.” ’497

patent at 3:37-40. – “[T]his fat blend will increase the level of HDL cholesterol in human serum and the HDL/LDL ratio.” ’192 patent at 13:53-54. – The specification incorporates by reference a clinical study showing that the claimed fat blend, when made the source of 2/3 of the fat in the subjects’ diet, increased the mean HDL and HDL/LDL ratio in a certain population.

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Case Study: Brandeis Univ. v. East Side Ovens Term 3:“suitable for increasing….”

• Judge Posner’s Construction:
• (1) the Court determined that it was too early to rule on

indefiniteness; and

• (2) “the fat composition or cholesterol-free margarine

must cause the stated effect on the HDL concentration must cause the stated effect on the HDL concentration and the HDL/LDL ratio” in a clinical study

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Case Study: Brandeis Univ. v. East Side Ovens Term 3:“suitable for increasing….”

• Why did the Patent Owner propose the losing

construction?

– Because it had not conducted any clinical trials showing that when ingested as 2/3 of an overall diet, the accused cookies and cookie dough would actually increase the HDL and the HDL/LDL ratio HDL/LDL ratio – Imagine conducting a trial where the subject must each cookies

• r cookie dough as 2/3 of their dietary intake!!!

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Case Study: Brandeis Univ. v. East Side Ovens Term 3:“suitable for increasing….”

• Why did the Accused Infringers argue indefiniteness at

the Markman stage:

– Because if found, it would have rendered the patent invalid; and – Because it was an opportunity to educate the Court on the limited value of the patent – in advance of a trial or Daubert limited value of the patent – in advance of a trial or Daubert motions – which worked, as you will note

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• IV. Plaintiffs’ Theory of Damages

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Plaintiffs’ Theory

• Two primary positions:
• “Entire Market Value” – Damages should be calculated

from a reasonable royalty based on the sale price of the accused cookies, not the cost of the fat blend used to make the cookies

• Reasonable royalty should be determined based on a

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• Reasonable royalty should be determined based on a

single litigation settlement with East Side Ovens, not a marketplace settlement with a company similarly situated as Keebler

• These were high risk strategies, as plaintiffs ran the risk of

damaging credibility with Judge Posner

Plaintiffs’ Theory

• Plaintiffs’ expert acknowledged that it was counterintuitive to

think about cookies when considering heart-healthy foods but argued that regulations requiring the labeling of trans-fats (i.e., not heart-healthy fats) drove their removal from snack foods

• Using fat blends meeting the limitations of the claims was the
• nly way to make a trans-fat-free cookie having an acceptable

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• nly way to make a trans-fat-free cookie having an acceptable

texture and taste

• i.e., there are no non-infringing alternatives
• The value of the cookie to consumers was governed by the

properties (i.e., taste and texture) and health benefits caused by the accused fat blend

• Ignored the value added by chocolate, sugar, etc.

Plaintiffs’ Theory

• Having determined that damages should be based on the sales

price of the cookies, Plaintiffs’ expert then determined a reasonable royalty based on a hypothetical negotiation

• Three license agreements considered:
• Two license agreements between Plaintiffs and other

national food wholesalers

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national food wholesalers

• One license agreement between Plaintiffs and East Side

Ovens, a vegan bakery limited to a few retail stores in Milwaukee and Madison, WI as well as “three farmers’ markets”

• This license resulted from the settlement of litigation

Plaintiffs’ Theory

• Discounted the relevance of the license between Plaintiffs and

the two national food wholesalers:

• The first license was negotiated when GFA was allegedly

unsophisticated as a company, which created an undervaluing of the patent portfolio during negotiations

• The second license involved another co-defendant and a

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• The second license involved another co-defendant and a

continuing joint venture between GFA and the co- defendant

• Based the reasonable royalty model entirely on the East Side

Ovens license

• V. Defendants’ Theory of Damages

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Defendants’ Positions

• Damages “adequate to compensate” under Section 284 equal

the amount necessary “to return the patent owner to the financial position he would have occupied but for the infringement.” Carborundum Co. v. Molten Metal Equip. Innovations, Inc., 72 F.3d 872, 881 (Fed. Cir. 1995).

• “[T]he market value of the patent owner’s exclusive right, and

therefore his expected profit or reward,” can be calculated “only by comparing the patented invention to its next-best

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“only by comparing the patented invention to its next-best available alternative(s).” Grain Processing Corp. v. Am. Maize-

• Prods. Co., 185 F.3d 1341, 1350 (Fed. Cir. 1999)(emphasis

added)

Defendants’ Positions (cont.)

• “The entire market value rule allows a patentee to assess

damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially create[s] the value of the

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customer demand or substantially create[s] the value of the component parts.” Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011)(emphasis added)

Key Factual Arguments

• Plaintiffs could not show lost profits – cookie sales were not

stealing sales of margarines

• Defendants had non-infringing alternatives
• Adding small amounts of cholesterol
• Use butter

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• Add small amounts of trans-fat
• Alternatives were commercial viable
• Taste
• Consumer acceptance
• Alternatives were no more expensive than patented blend
• The patented blend was not a driver of sales of cookies

Defendants’ Expert Opinion on Damages

• Plaintiffs’ damages theory improperly relied on a market

evaluation of removal of trans-fats from food products; yet, none of the asserted claims were directed to trans-fat-free products

• Plaintiffs’ damages theory completely ignored the presence of

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• Plaintiffs’ damages theory completely ignored the presence of

several non-infringing alternatives to the patented fat blend

• Plaintiffs’ expert based her damages calculation on a royalty

rate obtained from a non-comparable license agreement

Defendants’ Expert Opinion on Damages

• East Side Ovens had little bargaining power and incentive to

negotiate for a lower royalty rate

• Small operations regionally located
• Allegedly nfringing sales amount to roughly $2,000
• Settlement negotiation was not balanced as damages

dwarfed the cost of continued defense

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dwarfed the cost of continued defense

• Keebler is a national food wholesaler with substantial risk in

terms of allegedly infringing sales and every incentive to defend itself from accused infringement

• Accordingly, the East Side Ovens license was not relevant to

the hypothetical negotiation between Keebler and GFA

• V. Court- Appointed Expert on Damages

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Neutral Damages Report

• Plaintiffs failed to estimate value of use of patents to the

product

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Neutral Damages Report (cont.)

• Plaintiffs’ damages estimates are sensitive to the size of the

U.S. cookie market

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Neutral Damages Report (cont.)

• Plaintiffs’ damages estimates are sensitive to presumptions on

lost market share

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Neutral Damages Report (cont.)

• Plaintiffs’ damages estimates are sensitive to presumptions on

lost sales

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Motion to Exclude

• Plaintiffs’ expert cherry picked a recent litigation settlement

with a seven-employee vegan bakery in Milwaukee—East Side Ovens—as her sole precedent to calculate damages against two national retail cookie manufacturers.

• Future royalty payments under that license—if East Side Ovens

continues to use the implicated fat blend at all—are trivial.

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• East Side Ovens sells vegan products in a localized area in

Wisconsin (as opposed to retail stores nationwide) and enjoys insignificant sales compared to Defendants.

• Plaintiffs’ expert utilizes the entire market value approach for

valuing applicable damages, despite the fact that the continued applicability of this doctrine has been routinely criticized by courts and commentators

Daubert Decision

• “Keebler would not have paid a royalty higher than the cost to

it of switching to a noninfringing substitute for the plaintiffs’ margarine in its cookies or otherwise reworking its manufacturing process to avoid making the infringing margarine.”

• “Besides the decline in market share, she relied on the royalty

that East-Side Ovens (ESO) agreed to pay GFA in settlement of

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that East-Side Ovens (ESO) agreed to pay GFA in settlement of the patent infringement suit brought against it. ESO is a tiny, local Wisconsin bakery, wholly dissimilar to Keebler, and probably unable to litigate against GFA.”

• Judge Posner did permit plaintiffs’ expert to opine on a

reasonable royalty based on one prior marketplace precedent, namely the very license defendants put forward.