Infringement Archives - Foresight Valuation Group

Centripetal Networks v. Cisco Systems

Posted on October 9, 2020 9:44 pmModified on October 9, 2020 9:44 pmby Lynn Dudinsky

The 22-day bench trial in the District Court for the Eastern District of Virginia concluded last week with a verdict in favor of Centripetal Networks for $1.9 billion in past damages and a running royalty of 10% for three years followed by a 5% royalty for an additional three years. The Centripetal Networks, Inc. v. Cisco Systems, Inc. case involved the assertion of five patents that deal with complex computer networking security functions. Centripetal accused various Cisco network devices of infringing the asserted patents, including Cisco’s Switches, Routers, Digital Network Architecture, Cognitive Threat Analytics as well as other products. Of the five asserted patents, the Court found that each element of the asserted claims in four valid and infringed by one or more of Cisco’s products and that Centripetal had failed to meet its burden of proof on infringement of the asserted claims of the fifth patent.

An interesting aspect of this case was the use of a live video platform used by both parties to present their evidence and the selection, over objections by Cisco, of a platform other than Cisco’s. The reason for the need of a video platform was based on the technologies involved being “at the forefront in protecting intellectual property and confidential personal information” as well as their use in the national defense context. The court believe that it was in the public interest to move forward with the trial rather than waiting until an unknown time when courtrooms would be open for traditional civil trials. The use of this platform ended up being a success and at the end of the last day of trial, both parties “joined in congratulating the Court’s staff for their handling of the trial evidence by means of the video platform.”

Following the Court’s determination on validity and infringement, the issue of damages was discussed. As it related to past damages, Centripetal declined to present evidence of a causal relationship between suspected lost profits and Cisco’s sales of infringing technology and therefore the lost profit method of calculating past damages was not at issue in this case. Rather, the Court adopted the approach based on the reasonable royalty Centripetal would have received through arms-length bargaining. The determination of reasonable royalties can be based on the following methods: (1) the analytical method which focuses on the infringer’s projections of profit for the infringing product and (2) the hypothetical negotiation or the willing licensor-willing licensee approach. The Court stated that insufficient evidence was submitted for the first approach therefore the willing licensor-willing licensee approach as selected.

In accordance with the selected approach, the Court based its economic analysis on the factors laid out in Georgia-Pacific Corp. v. U.S. Plywood Corp. Factors one and two of Georgia-Pacific focus on the presence of existing license agreements for the patents-in-suit and the rates paid by licensees to license other patents comparable to the infringed patents. In this case, the Court had recently heard a case involving Centripetal and Keysight Technologies where an agreement was made related to a Confidential Binding Term Sheet. In this agreement, Centripetal licensed patents that the Court determined to be comparable for a $25 million upfront payment in addition to a 10% royalty on directly competing products and a 5% royalty on non-competing products. The Court determined that the 10% royalty on directly competing products provided “a comparable baseline license from which the Court can determine a reasonable royalty in this case.” Due to the fact that this agreement was the only comparable agreement, the Court was able to overcome the preference to exclude agreements that were obtained in the coercive environment of litigation as opposed to being the result of open negotiation.

The Court discussed the various other Georgia-Pacific factors and, while we will not elaborate on the specific discussion of each factor in this blog, it is important to note that the Court determined that the “weight of the factors as a whole strongly favors Centripetal.” This determination allows the Court to find that the Keysight royalty rate of 10% is a reasonable royalty rate to compensate Centripetal for Cisco’s past infringement. Another discussion (reserved for another blog) relates to the apportionment argument presented by both parties that led to the determination that the apportioned royalty base was $7,558,085,447.

Following the determination of the reasonable royalty rate and the apportioned royalty base, the Court was able to calculate the total past damages award of $755,808,545, before adjusting for enhanced damages. On the topic of enhanced damages, the Court noted that Centripetal and Cisco signed an NDA in 2016 as a result of meetings where Centripetal’s product offerings and the effectiveness of their solutions were demonstrated to Cisco. After additional meetings and further disclosures, Cisco released its “network of the future” products in June 2017, which incorporated Centripetal’s patented technology. The Court outlined enough evidence to support its belief that “this is an egregious case of willful misconduct beyond typical infringement” and determined that enhancing the damages by a factor or 2.5 was appropriate. Applying this factor increased the damages to $1,889,521,362. One of the reasons stated by the Court to use a factor of 2.5 instead of 3 was because Cisco prevailed as to one of the asserted patents, potentially saving the company over $375 million in additional damages.

The Court then turned its attention to future damages where it denied Centripetal’s request for injunctive relief and instead imposed an ongoing royalty obligation. Again, the Court used Georgia-Pacific to find that the Keysight license as a comparable license and selected a 10% royalty for the first three years and extended the three year term of Keysight to 6 years for Cisco with a 5% royalty set for the final three years. The Court also set minimum and maximum annual royalties of $167 million and $300 million, respectively, for the first three years and $83 million and $150 million for the final three years.

The final tally of damages related to this case resulted in Actual Damages of $755 million enhanced to $1.9 billion and Pre-judgement Interest of $13.7 million for a lump-sum award of $1,903239,287 “due on the judgment date.” Additionally, the future damages based on royalties over the next six years will range from $754 million to $1.3 billion. These combined damages awards rank among some of the highest patent damages awarded to date. Cisco has already announced its plan to appeal this decision to the U.S. Federal Circuit Court of Appeals, and we will update this blog as new information emerges.

Fourth Estate v. Wallstreet: Application is not Registration and the Interpretation of “has been made”

Posted on March 22, 2019 6:35 pmModified on March 22, 2019 6:36 pmby Lynn Dudinsky

On March 4, 2019 the Supreme Court of the United Stated issued its decision in the Fourth Estate v. Wall-Street.com copyright infringement case. The issue before the Court related to the interpretation of title 17 U.S.C. section 411(a) which states that “no civil action for infringement of the copyright in any United States work shall be instituted until … registration of the copyright claim has been made in accordance with this title.” Specifically, the Court was interpreting what “registration has been made” meant in the context of section 411(a). The Court took this case due to decisions in various Circuits which yielded inconsistent holdings related to whether a copyright action could be initiated upon filing of the copyright application (Fifth and Ninth Circuits) or only upon registration of the copyright by the U.S. Copyright Office (Tenth and Eleventh Circuits). The inconsistent holdings between Circuits is largely due to the unique nature of copyrights where the author gains exclusive rights in the work immediately upon creation, but this holding provides clarity to copyright holders on the process that must be taken to enforce those exclusive rights.

The parties involved in this case were Fourth Estate Public Benefit Corporation (Fourth Estate), a news organization producing online journalism which is then licensed to news organizations, including Wall-Street.com LLC (Wall-Street). The infringement of Fourth Estate’s copyrights that led to the Supreme Court’s decisions originated from a license agreement between Fourth Estate and Wall-Street which required all content produced by Fourth Estate to be removed from Wall-Street’s website before termination of the license agreement. Wall-Street terminated the agreement but continued to display Fourth Estate content after termination, prompting Fourth Estate to initiate the infringement suit.

Fourth Estate’s complaint which alleged infringement by Wall-Street stated that Fourth Estate had filed applications to register the infringed works with the Register of Copyrights but at the time of the complaint, the Register had not taken any action in regard to those applications. Fourth Estate’s complaint was subsequently dismissed by the District Court and that decision was affirmed by the Eleventh Circuit. Ultimately, Fourth Estate’s applications were refused registration by the Register of Copyrights.

Justice Ruth Bader Ginsburg delivered the unanimous opinion stating that the specific context of section 411(a) permits only one sensible reading: “The phrase ‘registration . . . has been made’ refers to the Copyright Office’s act granting registration, not to the copyright claimant’s request for registration.’” The fact that this was a unanimous decision suggests that this was a fairly straightforward case to resolve inconsistent holdings in lower courts. Common sense prevailed in this case which requires registration, by the Copyright Office, before initiating an infringement action. The Court discussed nuances in the code related to preregistration and the ability to initiate a suit once preregistration has been made. This nuance was utilized by Fourth Estate to argue that application, not registration, is the trigger enabling the holder of a copyright application to initiate a lawsuit. However, the Court emphasized that even in a suit based on the infringement of a preregistered work, registration is still required after publication of the preregistered work. Therefore, even in situations where loopholes or caveats exist in the code, the requirement for registration remains and a plaintiff who fails to register the work with the Copyright Office will see their complaint dismissed.

Fourth Estate’s best argument is that the vast majority of applications are granted and thus the need to delay initiating a suit until the Register of Copyrights completes it process and registers the work is unnecessary. This delay has resulted in an increasing burden on copyright owners as the delay has increased from a few weeks in the 1950s to many months today. However, the code also describes the steps an applicant must take before initiating a lawsuit based on the infringement of a work that was refuses registration by the Register of Copyrights. This section of the code would have no purpose if Congress intended a reading of section 411(a) that enables a copyright claiming to sue immediately upon application.

The final wrinkle argued by Fourth Estate relates to the unique nature of copyrights where registration is not a condition of copyright protection. Thus, as Fourth Estate argued, since registration is not a condition of protection, registration should similarly not be a condition on enforcing. This point highlights an oddity of copyrights, the creator of a work automatically has copyright protection on that work, but that protection is effectively useless without registration because registration is a requirement to initiate an infringement action. The Court addresses this by describing how the Copyright Act protects copyright owners, irrespective of registration, by vesting with them exclusive rights upon the creation of their works and prohibiting infringement from that point forward. The Court further explained that in order to exercise those rights, the holder of these exclusive rights “must simply apply for registration and receive the Copyright Office’s decision” before instituting suit. While one could easily argue that the exclusive rights vested upon the creator are meaningless due to the registration requirement, the Court made clear that registration by the Copyright Office, not simply filing an application, is a prerequisite for initiating a copyright infringement suit in federal court.

One Step Closer to Economic Justice: Commentary on WesternGeco LLC v. ION GeoPhysical

Posted on July 16, 2018 4:40 pmModified on February 13, 2019 8:16 pmby Efrat Kasznik

The United States Supreme Court issued a 7-2 decision in WesternGeco LLC v. ION Geophysical Corp., regarding a patent owner’s ability to recover lost foreign profits for US patent infringement damages. This ruling is a major blow to Parties seeking to evade US patent. It reinforces the strength of the US patent system by aligning foreign lost profit damages with the definition of infringement, which includes the act of supplying components of patented invention that were intended to be incorporated into a device in a manner than would trigger liability as an infringer, had the acts been committed in the US. As stated by the Court: “The damages themselves are merely the means by which the statute achieves its end of remedying infringements, and the overseas events giving rise to the lost-profit damages here were merely incidental to the infringement.”

The Court’s opinion that the overseas events were merely incidental to the infringement is a common-sense approach that will prevent future bad-faith actors from leveraging the US patent system to their benefit, while at the same time seeking to shield themselves from its reach through the intentional act of exporting the infringement. When infringement can be proven, there necessarily must be infringement within the territorial reach of the US patent laws. The damaged party is allowed to recover damages, including lost profits, that are adequate to compensate for infringement and the Court has determined that the recovery of lost profits is not limited to domestic lost profits. The expansion of lost profits to include foreign lost profits enhances the ability of a patent owner to recover the appropriate amount damages that would make them whole, without artificially excluding foreign lost profit damages from the pool of available damages. It’s economic justice.

** Foresight’s commentary to WesternGeco LLC v. ION Geophysical, along with the commentary of other industry leaders, was published by IPWatchdog.