Patentee cannot bypass marking statute by disclaiming the unmarked feature

Rembrandt v. Samsung was decided on April 17, 2017 on appeal from the Eastern District of Texas. The patents related to Bluetooth technology. There, the jury found that defendant Samsung infringed plaintiff Rembrandt’s patents, and awarded $15.7 million in damages. After trial, the district court denied Samsung’s motion for JMOL on obviousness and on the reasonable royalty, and denied Samsung’s motion to limit Rembrandt’s damages for alleged failure to mark patented articles. Samsung appealed.

The Federal Circuit affirmed the district court’s claim construction, affirmed the denial of JMOL that the claims are obvious, affirmed the reasonable royalty award relating to Samsung’s infringing sales, and vacated the district court’s denial to limit Rembrandt’s damages based on the marking statute.

The district court did not err in allowing the testimony of Rembrandt’s damages expert, Mr. Weinstein. Weinstein determined the incremental value associated with implementing the infringing feature by comparing the prices of two products Samsung purchased from a third party—one with the claimed feature, and the other without. After calculating the price premium Samsung paid for the Bluetooth chips with the claimed feature, Weinstein concluded that the reasonable royalty rate would be between 5 and 11 cents per infringing unit, resulting in a total damages range of $14.5-$31.9 million.

Because Samsung purchased many more chips without the feature than chips with the feature, Samsung argued that the relative cost of chips with the feature was artificially high due to “mismatched economies of scale.” The Federal Circuit rejected this argument. Weinstein’s royalty calculations were “properly based on the incremental value that the patented invention adds to the end product;” Samsung was free to cross-examine Weinstein on the issue; and the $15.7 million jury award fell within the low end of Weinstein’s $14.5-$31.9 million suggested damages range.

Samsung also argued that the claimed functionality was not the only technological difference between the two set of chips. But this criticism goes to the weight of the evidence, not its admissibility. And it was not an abuse of discretion for the district court to allow Weinstein’s methodology.

It was not error for Weinstein to rely on a settlement agreement between Rembrandt and BlackBerry—a defendant in this suit before settling. The BlackBerry settlement was relevant because it “contained a license of the very patents Samsung was found to infringe.” Although BlackBerry would not agree to a “particular per-sale allocation clause Rembrandt wanted,” Weinstein explained his understanding of the agreement to be that BlackBerry effectively paid Rembrandt a per-sale amount consistent with his proposed royalty rate. And Weinstein was cross-examined on this point, and the jury was free to consider the testimony.

Although substantial evidence supported the jury award, the Federal Circuit remanded the case for the district court to consider “whether Samsung is liable for pre-notice damages due to Rembrandt’s purported failure to mark certain licensed products.” If Samsung is not liable for pre-notice sales, the jury award should be adjusted to strip out the royalties from pre-notice sales.

Section 287(a) of the Patent Act provides that patentees “making… or selling within the United States any patented article… may give notice to the public that the same is patented” by marking the article. Marking under the statute is permissive, not mandatory. If the patentee fails to mark, the patentee cannot recover damages “in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.” A licensee who makes or sell a patented article does so “for and under the patentee,” thereby limiting the patentee’s damage recovery when the patented article is not marked.

The Federal Circuit vacated the district court’s decision on marking. Rembrandt had licensed a patent-in-suit to another company (Zhone), and Zhone sold unmarked products embodying an asserted claim of the patent (claim 40). The license did not require Zhone to mark its product with the patent number. Before trial, Samsung sought to limit Rembrandt’s damages to those incurred after Samsung received notice of the patents, which, according to Samsung, occurred when Rembrandt filed its complaint. Eight days later, Rembrandt withdrew claim 40 from its infringement allegations, and filed a statutory disclaimer in the USPTO, disclaiming claim 40. The district court erred by accepting Rembrandt’s argument that “any prior obligation to mark products embodying claim 40 vanished once [Rembrandt] disclaimed claim 40.”

“The marking statute protects the public’s ability to exploit an unmarked product’s features without liability for damages until a patentee provides either constructive notice through marking or actual notice.” While a disclaimer relinquishes the rights of the patent owner, it does not “relinquish[] the rights of the public.” Thus the Federal Circuit held that “disclaimer cannot serve to retroactively dissolve the § 287(a) marking requirement for a patentee to collect pre-notice damages.”

Rembrandt argued that the marking statute should attach on a claim-by-claim basis. This would permit Rembrandt “to recover pre-notice damages for Samsung’s infringement of claims other than claim 40, which is the only claim that Samsung alleges the unmarked Zhone product embodied.” Samsung argued that the marking statute attaches on a patent-by-patent basis. Because Rembrandt’s licensee sold an unmarked product embodying claim 40, Samsung argued Rembrandt cannot recover pre-notice damages for any infringed claim of the entire patent. Because this issue was not properly briefed and argued on appeal, the Federal Circuit “remand[ed] to the district court to address in the first instance whether the patent marking statute should attach on a patent-by-patent or claim-by-claim basis.”