27 Feb 2017 in Newsletter
Influential U.S. Federal Court Revises Patent Local Rules
By: Monica Katthage
An influential U.S. federal court has revised its Patent Local Rules. The revised rules in the Northern District of California (covering courts in San Francisco, San Jose, Oakland, and Eureka) require early disclosure of financial information and contentions relating to damages by both the patent owner and the accused infringer. The revised rules apply to all currently pending patent cases. Both parties, and particularly the plaintiff-patentee, need to analyze and consider the potential value of a case at its earliest stages, even before any complaint is filed, as certain damages-related disclosures are required nearly at the outset of the lawsuit.
Patent Local Rule 2-1(b)(5) requires the parties to now “provide the court with a non-binding, good-faith estimate of the damages range expected for the case along with an explanation for the estimates. If either party is unable to provide such information, that party shall explain why it cannot and what specific information is needed before it can do so. Such party shall also state the time by which it should be in a position to provide that estimate and explanation.” These statements must be included in the Case Management Statement filed several weeks in advance of the Initial Case Management Conference, soon after the case has been filed.
Patent Local Rules 3-1 and 3-2 have also been expanded to require certain information and documents relating to damages be produced by the patentee at the time of Infringement Contentions, including “the timing of the point of first infringement, the start of claimed damages, and the end of claimed damages.” The plaintiff must also produce all license agreements that it contends are “comparable to a license that would result from a hypothetical reasonable royalty negotiation,” all licenses and agreements transferring any interest in any patent-in-suit, documents reflecting FRAND commitments, and “agreements that otherwise may be used to support the party asserting infringement’s damages case.” All of this information must be provided within fourteen days of the Initial Case Management Conference, that is, at the very earliest stages of the litigation.
Correspondingly, Patent Local Rule 3-4 requires the accused infringer to produce, with their Invalidity Contentions within forty-five days of receiving the patentee’s Infringement Contentions, various documents relating to damages, including “agreements that the party opposing infringement contends are comparable to a license that would result from a hypothetical reasonable royalty negotiation, “[d]ocuments sufficient to show the sales, revenue, cost, and profits for accused instrumentalities identified pursuant to Patent L.R. 3-1(b) for any period of alleged infringement,” and “agreements that may be used to support the party denying infringement’s damages case.”
Patent Local Rules 3-8 and 3-9 now further require “Damages Contentions” no later than 50 days after service of Invalidity Contentions, followed by “Responsive Damages Contentions” 30 days later. The Damages Contentions should “[i]dentify each of the category(-ies) of damages [the patentee seeks] for the asserted infringement, as well as its theories of recovery, factual support for those theories, and computations of damages within each category, including: 1. lost profits; 2. price erosion; 3. convoyed or collateral sales; 4. reasonable royalty; and 5. any other form of damages.” For both the Damages Contentions and the Responsive Damages Contentions, reciprocal exceptions in both Rules 3-8(b) and 3-9 provide that to the extent either party “contends it is unable to provide a fulsome response to the disclosures required by this rule, it shall identify the information it requires”
By enacting these rules, the Northern District of California wishes to identify the potential damages early in a litigation, so that the district courts and the parties can allocate a proportional amount of resources to the case. However, a few unintended results may result from these rules changes. First, there is a possibility that the new rules will require (or maybe just encourage) the early engagement of damages experts by the parties, adding significant early expense to the litigation. Second, the exception provided by Patent Local Rule 3-8(b) and 3-9 may be enough to make an already reluctant party continue to keep close guard of their financial information. In a situation where both parties are reluctant to disclose their finances early on, there seems to be little incentive to do so. Finally, patentees may choose to bypass these detailed financial disclosure rules altogether at the moment by choosing to file suit in a venue other than the Northern District of California.
Osha Liang will continue to monitor the impact that these rule changes have on financial discovery and damages experts in the Northern District and elsewhere, and will provide updates as required.
The full text of the new rules are available on the Northern District’s website at: http://www.cand.uscourts.gov/localrules/patent.