March 14, 2022
On February 4, in California Institute of Technology v. Broadcom and Apple, the Federal Circuit issued two notable holdings, one affecting IPR estoppel and one relating to damages. First, the court held that IPR estoppel applies to prior art that could have been included in an IPR petition where the petitioner was aware of, but did not assert, the prior art when the IPR petition was filed. The court upheld a district court summary judgment order, which had found no invalidity based on IPR estoppel. The Federal Circuit’s estoppel holding expressly overruled its earlier decision in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., which some district courts had relied upon to hold that art not addressed in the PTAB’s final written decision (e.g., because it was not asserted in an IPR petition) could later be asserted in district court. The Federal Circuit panel overruled Shaw based on the intervening decision in SAS Institute, Inc. v. Iancu, in which the Supreme Court held that the PTAB must address all grounds asserted in an IPR and has no partial institution authority.
Second, the Federal Circuit further held that different royalty rates may not be applied to the same accused product at different points in a supply chain. The court therefore threw out a damage award exceeding $1 billion. In vacating the damage award, the Federal Circuit rejected Caltech damages experts’ two-tier damage model. The experts had opined that Caltech would have engaged in two hypothetical negotiations, one with Broadcom at the “chip level” and one with Apple at the “device level.” The experts’ two-tier model excluded from Broadcom’s hypothetical chip license any Broadcom chips incorporated into Apple products sold in the United States and treated those identical chips as being subject to Apple’s separate hypothetical device license with a different royalty rate. The Federal Circuit rejected this approach, concluding that established precedent required that a higher royalty rate “is not available for the same device at a different point in the supply chain,” in the absence of a compelling showing otherwise. Although the experts’ damage model steered clear of double recovery concerns, the Federal Circuit relied solely on two cases addressing concerns regarding double recovery against two different infringers. The court further justified its ruling by stating that “there is nothing in the record 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.”
This case clarifies that a petitioner may not avoid IPR estoppel by choosing not to assert known prior art in their IPR petition. Instead, under the Federal Circuit’s holding, if the petitioner is aware of prior art that could have been, but was not, asserted in the petition, then the PTAB’s adverse IPR ruling will estop the petitioner from later asserting such prior art in district court litigation. Further, this case makes clear that, in the absence of compelling circumstances, the Federal Circuit will prevent damages experts from asserting different royalty rates against different infringers in the same supply chain for the same infringing product.
For more information on this ruling, please contact Fitch Even partner Karl R. Fink, author of this alert.
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