California Dreaming and the Preposterous Posner Decision

By the time you are reading this I will already be off on a cross country voyage in search of some rest and relaxation.  Renee and I are vacation bound, and off to our usual favorite vacation spot — Southern California. Newport Beach, California to be more specific.

We will be away from the crack of dawn on August 14 through the stroke of midnight on August 28.  Business will seem to go on as usual though.  I have written a number of articles in advance, which I will post over this two-week span.  I have a number of excellent guest contributions, although I’m always looking for more if you want to contribute.  I also have several interviews I’ve conducted over the past several weeks, which will publish over the course of the next several weeks. I will also inevitably author some contemporaneous original articles while away, particularly relating to the avalanche of final rules due out for the next wave of implementation of the America Invents Act.  So stay tuned!  I’ll be gone, but will have laptop and Internet access at the ready.

As I prepare to head out of the office I thought in this relaxing state of mind I might take the opportunity to offer my comments and analysis of the garbage passed off as Judge Posner’s opinion in Apple v. Motorola (June 22, 2012).  I have so far successfully avoided writing anything, trying to distance myself in time and emotional state from the moment this ridiculous decision stream of wholly irrelevant dicta was handed down.  But there is no way I am going to let the delusional anti-patent ramblings of Judge Posner ruin my vacation!  I feel compelled to comment, so this cathartic expression of incredulity will hopefully wash away the bad and bring with it a sense of calming peace that will lead me into much needed rest and relaxation.

For someone who acts like he knows everything about everything, Judge Posner has an alarming lack of understanding of patents, and seemingly absolutely no understand of the economic reality of patents.  Based on this decision it is also apparent that he lacks even the most basic understanding of statutory construction.  But, of course, he is the one who when sitting by designation in Ritchie v. Vast Resources, Inc., 563 F.3d 1334 (Fed. Cir. 2009) grossly misrepresented what the Supreme Court in KSR v. Teleflex said relative to combining references.  In Ritchie, Posner failed to reach or even mention the critical question.  The Supreme Court itself said in KSR: “a court must ask whether the improvement is more than the predictable use of prior art elements according to their established functions.”  Oddly, that question, which was stated in the mandatory form (i.e., “a court must“) was left out of Posner’s analysis.  Thus, nothing Posner says or does relative to patents should be at all surprising.  He either doesn’t understand patents or doesn’t care to understand them.

The bone I wish to pick with Judge Posner today is regarding what he says about patent damages, which is utterly and completely nonsensical.  How someone with such a giant intellect could so gleefully make erroneous statement after erroneous statement on an issue that is supposedly within his expertise is baffling.

Essentially, Judge Posner is of the misguided and clearly erroneous view that there is no monetary remedy available in patent infringement actions without palpable, tangible injury.  It would be one thing if he simply ignored the clear and unambiguous language of 35 U.S.C. § 284, which concludes otherwise.  Instead he pretends that § 284 doesn’t mean what is it clearly says and then raises a Constitutional question about the propriety of awarding reasonably royalty damages when there is no proven actual damage.  It is clear that Judge Posner doesn’t personally think some patents are worth much, so he chooses to ignore the minimum mandatory statutorily defined harm defined by Congress and pretend that the historic interpretations of § 284 violate the Constitution.

How anyone with even the most fundamental understand of property rights and economics could say that infringing a patent does not result in a tangible injury is beyond me. Is he unfamiliar with the concept and real world practice of licensing patents?  With all due respect to Judge Posner, a right without the ability to obtain recourse for its trampling is no right at all.  His analysis is wrong and frankly rather amateurish.  It carries the stench of a anti-patent ideologue who doesn’t understand the most fundamental principles associated with legitimate, arms-length negotiations that result in a transfer of rights.  Judge Posner’s damage analysis has to be a dream come true for those who use the bullying tactic of efficient infringement to make the business decision to trample rights rather than legitimately acquire them.

What is most alarming about Judge Posner’s decision is that practically the entire opinion as it relates to damages is dicta.  He didn’t have to say ANY of this because he ruled that neither Apple nor Motorola had presented admissible evidence on the issue of damages.  As ridiculous as that ruling is — that not a single shred of admissible evidence on the issue of damages was presented by either party — what the determination does is render everything he wrote meaningless.  It is if the parties merely provided an opportunity to lecture the Federal Circuit and patent community on how over 70 years of patent damages jurisprudence is wrong and how he is the only one who really understands the issue.  This type of meaningless pontification has long been a hallmark of decisions by Judge Posner, who takes every opportunity he can to express his views.  It is also why many in the legal community have a difficult time taking his decisions seriously.  In fact, this decision and its numerous errors would be laugh-out-loud funny if it didn’t come at the expense of two parties who are hotly contesting important issues relating to an important technology.

Posner’s “finger on the chalkboard” diatribe on damages begins to crystalize when he says:

Apple argues last-minute that any act of infringement, even if it gives rise to no measurable damages, is an injury entitling it to a judgment… a tort does not come into existence until there is an injury, without which negligence or recklessness or other tortious behavior, in the sense of behavior that if it causes an injury gives rise to a tort, is not a basis for relief.

First, what difference does it make that Apple raises this argument last minute?  I can only imagine that Apple raised the argument last minute because it was deemed self evident based on damages jurisprudence and the actual language of the statute.

§ 284 explains: “[U]pon 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 inven- tion by the infringer, together with interest and costs as fixed by the court.”

(emphasis added).

Thus, despite what Judge Posner would later write, patent infringement does create a cause of action with a statutorily proscribed minimum damage.  How or why Judge Posner would seek to pretend that a statutorily defined minimum mandatory injury is not an injury is beyond perplexing.  It is flat wrong.  There are hundreds, if not thousands, of statutes at the Federal and State level in the United States that define a minimum mandatory injury.  To suggest, as he does, that there is no recognizable injury in these cases is beyond absurd.  It is the type of ridiculous argument one would expect from some sect of individuals walled up in a remote part of the United States, cut off from proper civilization owing to their radical ideas.

Judge Posner then goes on:

I strongly doubt (despite a contrary intimation in Morrow v. Microsoft Corp., 499 F.3d 1332, 1339 (Fed. Cir. 2007)) that a patentee can sue for nominal damages, at least not in a federal court given the meaning that the Supreme Court has given to the terms “Cases” and “Controversies” in Article III of the Constitution. Without an actual or prospective tangible injury, a federal court has no subject-matter jurisdiction.

Now if that is not the most ridiculous statement I have ever read in a judicial opinion I don’t know what is.  Exactly which part of § 284 is confusing to Judge Posner? There is a case or controversy where there is an infringement of patent rights.  After all, the Constitution itself authorizes Congress to grant to inventors exclusive rights.  The provision is Article I, Section 8, Clause 8, which says Congress has the power: ” To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries…”  It is, therefore, a mystery how Judge Posner could in any intellectually honest way pretend that Congress could not create a right and mandatory minimum penalty relative to patents that would invoke Federal jurisdiction in the Article III courts.

Notwithstanding the fact that Congress clearly has the power to provide exclusive rights to inventors, Judge Posner persists.  He writes:

You can’t go into federal court and say you had a contract with X and X broke it and you’re really annoyed even though you sustained no injury of any sort (in fact you made money because you rec-ontracted at a higher price) so please give me a judgment for $1 that I can pin on my wall. No more can Apple be permitted to force a trial in federal court the sole outcome of which would be an award of $1.

If Judge Posner is incapable of understand the issues he should recuse himself or step down from the Federal Judiciary.  Seriously!  Equating “I have no right to recover but I’m just annoyed” with a mandatory minimum defined amount of damages in a statute passed by Congress is beneath contemptible.  If he really thinks they are one and the same then I’ll suggest Judge Posner and  his economic ideology have “jumped the shark.”

But the most incredulous thing that Judge Posner writes relative to damages is the nonsense that allows him to ignore § 284.  He writes:

But I must consider the possible bearing of 35 U.S.C. § 284, a provision of the Patent Act that provides in relevant part that “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” (emphasis added). This conceivably could be read to entitle a patentee to a royalty if it proves infringement even if it presents no evidence at all of harm; and presumably the royalty that the court would award wouldn’t be a nominal royalty. Neither party is seeking such relief here — a substantial royalty predicated on no showing of harm. But for completeness I want to dispel any impression that such relief — substantial “compensatory” damages for no tangible injury — would be proper even apart from constitutional limitations on the jurisdiction of the federal courts.

It is almost impossible to know where to begin with a critique.  How can any jurist, or first year law student for that matter, in an intellectual honest way read § 284 and say that it “conceivably could be read to entitle a patent to a royalty… if it presents no evidence at all of harm”?  The plain meaning is clear.  Patentees are entitled to at least a reasonable royalty even if they cannot provide evidence of damages.  This has always been understood.  There are two types of monetary damages.  Lost profits and a reasonable royalty.  Lost profits are predicated on actual harm and are difficult to demonstrate.  If the successful patent plaintiff cannot demonstrate actual harm in the form of lost profits they are entitled to at least a reasonable royalty.  This is how it has always been interpreted.  Judge Posner provides no citation for his opinion to the contrary that clearly conflicts with the plain meaning of the statute and well established and completely unified precedent on the issue.

But the part that takes the cake is Posner saying that he just wants to “dispel any impression” that a reasonable royalty is constitutional without tangible evidence of harm.  For goodness sakes.  Again, no support whatsoever for this radical and erroneous determination.  Again, this determination flies in the face of the statute and generations of precedent on the issue of damages.  A reasonable royalty is the default that every successful patent plaintiff is entitled to even if they are unable to prove actual damage.  Judge Posner knows that is true.  He knows that is the law.  Nevertheless, he pontificates and wishes as if his ramblings, which are completely inconsistent with the entire body of patent damages law will somehow be adequate and sufficient. Can you imagine the arrogance.  No support whatsoever, completely contrary to the statute and relating to an area where the Constitution clearly and unambiguously grants Congress power. He might as well simply cite himself and explain that obviously he is the only one to truly understand what is going on given his superior Chicago training.  Stare decisis be damned!

Finally, I cannot conclude without pointing out that Judge Posner shows his personal and ideological bias against the patent system as a whole when he discusses “essential patents.”  These are patents that relate to technologies that are the basis for standardization.  The patent system is set up to encourage and foster innovation, and we tolerate incremental innovation because that is how it most often happens, but we long for paradigm shifting innovation.  So when such paradigm shifting innovation occurs and an entire industry recognizes the genius and wants to standardize Judge Posner is of the believe that these patents should be valued at some time and place before it was appreciated just how important the technology was.  To call this view half-baked would be to unreasonably malign half-baked ideas by clumping them together with this nonsense.

Judge Posner writes:

The proper method of computing a FRAND royalty starts with what the cost to the licensee would have been of obtaining, just before the patented invention was declared essential to compliance with the industry standard, a license for the function performed by the patent. That cost would be a measure of the value of the patent qua patent. But once a patent becomes essential to a standard, the patentee’s bargaining power surges because a prospective licensee has no alternative to licensing the patent; he is at the patentee’s mercy. The purpose of the FRAND requirements, the validity of which Motorola doesn’t question, is to confine the patentee’s royalty demand to the value conferred by the patent itself as distinct from the additional value — the hold-up value —conferred by the patent’s being designated as standard-essential. Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 313–14 (3d Cir. 2007);  Daniel G. Swanson & William J. Baumol, “Reasonable and Nondiscriminatory (RAND) Royalties, Standards Selection, and Control of Market Power,” 73 Antitrust L.J. 1, 7–11 (2005).

Again, this entire thought is dicta and completely unnecessary since Judge Posner determined that there was no admissible evidence on the issue.  Nevertheless, it is important to understand that Judge Posner is taking things completely out of context.

First, notice that Judge Posner cites the Third Circuit for his position on essential patents, not the Federal Circuit.  This is because there is no Federal Circuit precedent on “essential patents.”  Notice also that the only additional support for the proposition is a law review article.  Thus, there is no binding precedent to support Judge Posner.  A dicta statement without binding precedent?  Talk about going out on a limb!

In addition to the fact that Posner’s radical views on essential patents are unsupported by binding precedent, the citation to Broadcom is misleading to the point that it would qualify as an actionable false misrepresentation if related to a commercial transaction.  Why? In Broadcom a the Court starts the opinion by saying:

President Abraham Lincoln is often quoted as having said: “Better to remain silent and be thought a fool than to speak out and remove all doubt.”  It seems Judge Posner could learn a lot from President Lincoln.  His views on patents, patent damages and the Constitutionality of § 284 are radical and extreme.  How he or anyone else can characterize Judge Posner as “conservative” is beyond me.  Judge Posner is no conservative.  He seeks to impose his views on others and ignores precedent when necessary to achieve the outcome he desires. That is by definition the actions of a judicial activist, not a conservative.

Hakuna Matada! I’m on vacation! Hakuna Matada! Judge Posner’s decision will never stand on appeal.