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Patent cases take a long time to resolve, especially where there is no easy pathway to settlement for nonmonetary considerations and a lot of damages in play. There is at least one prominent example we can look at, the long-running (since 2016!) dispute between Caltech and Broadcom/Apple. I first wrote about the case on these pages way back in February 2020, where I reported on the “huge verdict in Caltech’s favor of over $1 billion, based on Apple and Broadcom’s infringement of five claims from three Caltech patents.” In that column, I focused on the outsized impact that large verdicts have on the entire patent ecosystem, particularly now, where many big-ticket patent litigations are being supported by third-party funding in some form. In fact, I predicted that Caltech’s verdict would “serve to increase the appetite for funders and firms to get behind university enforcement campaigns.” While there has definitely been an uptick on that front since I made that prediction, developments in the Caltech case itself are what I would like to focus on for purposes of this column.
In the immediate aftermath of Caltech’s verdict, there was little doubt that the Federal Circuit, absent a post-trial settlement, would have its say on some of the damages approaches adopted by the jury. In fact, I, and others, flagged the fact that the jury’s awarding of damages “against both Apple and Broadcom” could be considered “inconsistent with the hypothetical negotiation construct for patent cases and is incompatible with the idea of patent exhaustion.” I also pointed to the robust $1.40/unit royalty rate that Caltech had convinced the jury to award as ripe for reconsideration on appeal. An appeal that was decided earlier this year, as was well-covered in the IP media. Billion-dollar patent verdicts are rare, but rarer still are billion-dollar patent verdicts that stand up on appeal.
While the Federal Circuit’s decision was a wide-ranging one that hit on a number of important patent litigation issues — while also featuring a heavyweight oral argument between two of the leading IP appellate lawyers in Quinn’s Kathleen Sullivan and Wilmer’s Bill Lee — the key decision point for my purposes was the panel’s vacatur of the jury’s damages award. In particular, the panel found that the jury’s damages award was fatally flawed, since it rested on “Caltech’s two-tier damages theory” whereby “Broadcom and Apple would have been willing to engage in separate negotiations leading to vastly different royalty rates for the same chips.” That approach was deemed by the panel as “legally unsupportable” where there was no evidence “to suggest that Broadcom and Apple would have been willing to negotiate in this artificial way rather than to more conventionally negotiate a single license at a single rate for the same chips.” Put another way, patent owners must pick their (hypothetical) licensing counterparty and live with that choice — with no double-dipping up and down the supply chain, even if certain downstream sales are carved out, which Caltech did with respect to Broadcom’s sales to Apple as a Broadcom customer. Despite that effort, the Federal Circuit deemed it time for a do-over on damages.
The Federal Circuit’s mandate to the district court was issued in May of this year. Since then, the parties and the trial judge have had a series of scheduling conferences regarding the scope of expert discovery that will be allowed under remand, as well as with respect to the contours of the damages retrial called for by the Federal Circuit. As can be expected in a hotly contested case, there has also been some motion practice for the trial judge to sort through post-remand. In the latest decision, released late last week, Judge Wu of the Central District of California denied Apple and Broadcom’s pending motion to reopen discovery leading up to the damages retrial — even though the defendants contended that such discovery “might eliminate all pre-suit damages” at issue in the case. At bottom, Wu concluded that the defendants had not been diligent about pursuing discovery on the issue raised in the motion pretrial, which precluded them from pursuing their suggested post-trial discovery.
As the basis of their request, defendants sought discovery into sublicense rights granted to Intellectual Ventures, followed by a sublicense grant to Microsoft therefrom, based on an earlier license between Caltech and an entity called Cellular Elements. There was no dispute that Caltech had disclosed the license during the pretrial discovery phase. What defendants claimed, however, is that Caltech’s later licensing approach to Microsoft “tipped them off to a new potential marking defense” that would let them off the hook for presuit damages. Wu was not receptive to that suggestion, finding fault with the level of diligence shown by the defendants on the issue during the regular fact discovery period. As such, he denied the motion and ordered the parties to file a joint scheduling report this week setting forward how the case would progress to the damages retrial that he is charged with overseeing.
Ultimately, this case is a good reminder of just how complicated big-ticket patent litigation can be — and how even the biggest of cases morph over time. Even for parties with unlimited resources, it can be impossible to twist every discovery thread that presents itself, even as it relates to an issue as critical as damages. Part of the reason for that is structural, to the extent that damages issues in patent cases often develop more slowly than disputes on the merits with respect to infringement and validity. In practice, parties are often very reliant on their damages experts in terms of weighing how to approach damages discovery, which can make it difficult to weigh in real-time what fact discovery is most worthy of attention with respect to damages issues. Moreover, you can have a situation like the one here, where it was post-discovery behavior by Caltech, namely, raising infringement allegations against Microsoft, that gave rise to the need for more discovery into a previously disclosed license. As the defendants here learned, while damages discovery and raising winning damages discovery at trial can be tough, getting a full shot at a do-over can be even tougher. In even the biggest patent cases, demonstrating diligence is paramount, even when the case is on its second go-around for trial.
Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most 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 consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.
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