Northern District of California revises local patent rules, requires damages disclosures early and often

Gavel with dollar signDamages discovery in patent cases is usually contentious, expensive, and non-uniform in application by the courts.  The patent owner, on one hand, wants to discover all possible revenue streams for settlement and resource allocation.  The accused infringer, on the other hand, wants to minimize disclosure, because of the sensitivity of financial information and the belief that the suit is meritless.  And the courts are caught in the middle.  Compounding these issues, fulsome damages contentions typically are not defined until expert reports are presented, meaning the parties (and the court through a Daubert motion) will not know whether there is sufficient basis for the damages sought until late in a case.

The Northern District of California’s recently revised local patent rules reduce much of this uncertainty by requiring damages disclosures early and often.  You can also see the redlined rules where the changes made are more readily apparent.

Initial Case Management Conference.

At an early stage of the litigation (Rule 26), the parties are to submit a “non-binding, good-faith estimate of the damages range.” Patent L.R. 2-1 (b)(5). If a party cannot provide an estimate, it “shall explain why it cannot and what specific information is needed before it can do so.”   This rule will likely engender motion practice over whether an accused infringer’s damages of zero (meritless case) is a “good-faith estimate.” Parties may also litigate whether this “good-faith” requirement is violated (and the appropriate remedy for such a violation) if the damages disclosed early in the case differ significantly from the range provided later in the damages contentions.

Infringement Contentions.

The patentee in its infringement contentions must now identify the time period of damages and will likely be held to this period unless an amendment is permitted. Patent L.R. 3-1(h); Patent L.R. 3-7.  This is an important disclosure because that period could meaningfully affect the total damages.  The new rule does not specifically require the patentee to identify the event that starts the damages period. But an accused infringer will likely request such information (e.g., filing of complaint, marking, notice letter) to properly scrutinize the period.

Automatic Document Production.

Both the patentee and accused infringer have document production obligations relating to damages when providing infringement and invalidity contentions, respectively.  Generally, they are to produce agreements (licenses, agreements transferring an interest in the patent), patented product financials if claiming lost profits (sales, revenues, and profits), and accused infringer’s financials (“[d]ocuments sufficient to show the sales, revenue, cost, and profits for accused instrumentalities . . . for any period of alleged infringement”).  Patent L.R. 3-2 (f)-(j); Patent L.R. 3-4 (c)-(e).  This rule provides both parties with relevant damages documents, allowing the accused infringer to challenge patent owner’s standing early in the litigation.  Disputes will likely persist over whether the production is “sufficient to show” and whether the accused infringer should have produced all license agreements – not just the ones it contends are comparable (if any).

Damages Contentions (and Responses Thereto).

Most importantly, a patentee is to provide damages contentions 50 days after invalidity contentions (that is, the patentee must provide a fairly definite position on damages early in the case).  Patent L.R. 3-8. This includes its damages theories (such as reasonable royalty, lost profits, or otherwise) and “factual support” for each theory.  Patent L.R. 3-8(a).  But the patentee can state that “a fulsome response” cannot be provided until the accused infringer (or third party) provides certain information.  Patent L.R. 3-8(b).  Thirty days later, the accused infringer is to provide a response (“affirmative position”) on the damages contentions or state what specific information is necessary for “a fulsome response.”  Patent L.R. 3-9(a)-(b).  This rule is silent on whether the parties will be pinned to the contentions and responses (much like with infringement and invalidity contentions) and whether these can be amended.  As written, the rule for amending contentions (Patent L.R. 3-6) was not revised to reference damages contentions.  Also, it is likely both patentee and accused infringer will attempt to reserve all rights by providing a long list of the documents, deposition testimony, and third-party discovery each requires before “a fulsome response” can be provided – but whether such a tactic will be permitted by the courts is another story.

Practical Impact.

The new damages rules will change how parties litigate patent cases in the NDCA, including the following:

  • Bring uniformity, especially once NDCA courts interpret the rules, in damages disclosures.
  • Require a patentee to prepare its damages case well before filing, and if the case is transferred to the NDCA, the patentee will have to devote significant resources early to developing and disclosing a fulsome damages case.
  • Force a patentee to disclose a realistic damages amount early (see “good-faith”) rather than an exorbitant number, thereby promoting early settlement.
  • Decrease the ability to bifurcate liability and damages discovery.
  • Create Daubert-type motion scenarios, i.e., motion to strike damages contentions as insufficient.
  • Suggest that a party should consider filing an expert declaration with its contentions (and responses) to preserve all rights for a future expert report.
  • Provide another ground for parties to strike an expert, i.e., the report is outside of the damages contentions disclosed.
  • Increase early fees and costs for the parties by requiring work that otherwise might have been spread across a longer period of time, or might not have been required at all.

The NDCA continues to be a leader in developing procedures for patent litigation by adopting new local patent rules that move damages to the beginning of the case.  Time will tell whether other patent-centric jurisdictions adopt similar damages-related provisions.

The Author

Bill Hector

Bill Hector is an Associate with Venable's Intellectual Property Litigation Practice Group. Bill focuses his practice on complex patent litigation, patent prosecution, intellectual property licensing, and trademark prosecution. As a litigator, Bill's experience spans all phases of patent litigation including pre-trial diligence, motion practice, discovery, claim construction, and trial. Bill has litigated patents related to a diverse set of technologies including telecommunications, networking hardware, business methods, and internet advertising. Bill also has substantial experience preparing and prosecuting patent applications in the software, electrical, and mechanical arts. He has prepared and prosecuted hundreds of patent applications filed with the U.S. Patent and Trademark Office as well as various foreign patent offices.

Bill Hector

Andrew MacArthur is a Counsel with Venable's Intellectual Property Litigation Practice Group. He has litigated all aspects of patent cases, from inception through trial, in U.S. district courts and before the U.S. International Trade Commission. This has included trying a patent case to jury verdict, including conducting direct, cross-examination, and redirect of technical expert witnesses, as well as arguing motions for judgment as a matter of law and admission of evidence. Mr. MacArthur has further argued claim construction and discovery hearings; taken and defended depositions; drafted dispositive motions and claim construction briefs; and analyzed C++ and Java source code to enforce and defend intellectual property rights. The patent cases have involved technologies, such as computer telephony, computer switches, LEDs, unified messaging, and paper manufacturing and coating. Mr. MacArthur also has experience in litigations involving Lanham Act and trademark matters and intellectual property due diligence for corporate transactions.

Bill Hector

Ralph Dengler is a Partner with Venable's Intellectual Property Litigation Practice Group and co-chair of the firm's Post-Grant Practice Group. Mr. Dengler has spent nearly 20 years in practice in the private and public sectors. He has significant experience litigating and counseling patent, trademark, trade secret, unfair competition, and copyright matters in federal courts across the country. Mr. Dengler represents clients across diverse technologies involving telecommunications, streaming media, gun products, food containers and packaging, marine dredging, publishing, electronics, business methods, and pharmaceuticals and chemical compounds. Mr. Dengler began his legal career as an Assistant District Attorney in the Bronx, New York prosecuting criminal cases. Prior to joining Venable, he practiced at a boutique IP litigation firm in New York City.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 3 Comments comments.

  1. brent February 15, 2017 9:24 am

    Any insight into how this is going to impact current litigation? Will these new rules only apply to new lawsuits?

  2. angry dude February 15, 2017 10:36 am

    Who would doubt courts in SV district – US capital of efficient infringement ?

    Now a poor patent holder (“patent troll” in SV definition) must know in advance complete product lines and their timing, manufacturing costs and retail prices etc etc etc – which of course he has no way of knowing without court-sanctioned discovery

    Nice

    Might as well let those infringers go free

    Under these doctrines the only way to collect all that info is to promise a bounty to current and former infringer’s employees for disclosing confidential info about their employer – but that would be illegal in SV where courts so deeply care about infringer’s well-being

    Travesty and shame

  3. You Know Who I Am February 15, 2017 3:26 pm

    Better that 10 innocent firms be forced under, lest one infringer go free.