Philip Morris Prods. S.A. v. R.J. Reynolds Vapor Co.

Decision Date30 March 2023
Docket Number1:20-cv-393 (LMB/WEF)
PartiesPHILIP MORRIS PRODUCTS S.A., Plaintiff, v. R.J. REYNOLDS VAPOR COMPANY, Defendant.
CourtU.S. District Court — Eastern District of Virginia
MEMORANDUM OPINION

Leonie M. Brinkema United States District Judge

On June 15, 2022, after a six-day trial, the jury returned a verdict in favor of counterclaim plaintiff Philip Morris Products S.A. ("Philip Morris") finding that counterclaim defendant R.J. Reynolds Vapor Company ("R.J Reynolds") infringed two of Philip Morris' patents for components of electronic cigarettes. Before the Court is Phillip Morris' Motion for a Permanent Injunction or Alternatively, an Ongoing Royalty ("Motion"). [Dkt. No. 1405]. For the reasons explained below, Philip Morris' Motion will be denied as to the request for a permanent injunction and granted in part as to the request for an ongoing royalty, which will be in the amount of 1.8% of net sales of infringing Alto cartridges and 2.2% of net sales of infringing Solo G2 cartridges.[1]

I. BACKGROUND

Philip Morris and Reynolds manufacture smoke-free, non-combustible alternatives to combustible cigarettes, including heat-not-burn devices and electronic cigarettes ("e-cigarettes") that vaporize a liquid containing nicotine. In this civil action, the jury found that Reynolds' VUSE Alto ("Alto"), a pod-style e-cigarette, infringed claims 1 and 4 of United States Patent No. 9,814,265 ("the '265 patent"), which covers technology for a compact heater. See [Dkt. No. 1361] at 1. The jury also found that Reynolds' VUSE Solo G2 ("Solo G2"), a cig-a-like-style e-cigarette, infringed claims 1,11, and 13 of United States Patent No. 10,104,911 ("the '911 patent"), which covers leakage-prevention technology, and also determined that the patent was not invalid. Id. at 2-3. Both the Alto and Solo G2 consist of two parts, a power-unit device with a battery and a disposable cartridge containing the e-liquid and heater. The cartridges were found to contain the infringing components.

The jury awarded Philip Morris damages representing a running royalty for past infringement through December 31,2021 in the amount of $8,000,000 for the Alto's infringement of the '265 patent and $2,759,755 for the Solo G2's infringement of the '911 patent. Id. at 2, 4. The parties agree that the jury's damages award corresponds with the reasonable royalty rates for a hypothetical negotiation in August 2018 that were presented at trial by Philip Morris' expert, Paul K. Meyer ("Meyer"): 0.6% of net sales of the Alto cartridges for use of the '265 patent and 2.0% of net sales of the Solo G2 cartridges for use of the '911 patent. See [Dkt. No. 1411-27] ¶15; [Dkt. No. 1421] at 20; [Dkt. No. 1421-3] ¶ 5.

At trial, Meyer testified that he derived baseline royalty rates for the patents from his analysis of a license agreement executed on September 24,2018 between Reynolds and Fontem Ventures B.V. and Fontem Holdings 1 B.V. (the "Fontem-Reynolds Agreement"). Under that agreement, Reynolds paid Fontem a lump sum of $79 million for a non-exclusive United States license to Fontem's patent portfolio, which Meyer testified reflected a 5.25% royalty rate. Trial Tr. at 444-49,452. Relying on other testimony by Philip Morris' experts which showed that the '265 and '911 patents corresponded with patents in the Fontem portfolio, Meyer apportioned 10% of the value of the Fontem-Reynolds Agreement to the '265 patent and 35% of the value of the Fontem-Reynolds Agreement to the '911 patent. Id. at 459-60. Meyer then explained that he took 10% and 35% of the 5.25% royalty rate of the Fontem-Reynolds Agreement, adjusted the resulting rates upwards based on the relevant Georgia-Pacific factors, and obtained reasonable royalty rates of 0.6% for the '265 patent and 2.0% for the '911 patent. Id. at 460-69. The jury's damages award for each patent equates to the respective rate presented by Meyer multiplied by the net sales of the relevant infringing cartridges.

After the jury returned its verdict, the Court concluded that the civil action was not exceptional and declined to entertain a petition for attorney's fees under 35 U.S.C. § 285. Id. at 1082-84. The Court subsequently heard and denied all post-trial motions. See [Dkt. No. 1400]. On August 17, 2022, an Amended Judgment was entered upon the parties stipulating to the inclusion of prejudgment interest and supplemental damages based on net sales of Alto and Solo G2 cartridges from January 1, 2022 through June 15, 2022, for a total judgment of $10,906,042 for the '265 patent and $3,156,700 for the '911 patent. See [Dkt. Nos. 1413, 1414, 1415].

The remaining issue in this civil action concerns Reynolds' ongoing infringement of the '265 and '911 patents. Philip Morris has moved for a permanent injunction or, in the alternative, for an ongoing royalty. [Dkt. No. 1405]. Both parties have conducted discovery as to the remedies requested by Philip Morris, the issues have been fully briefed, and oral argument has been held.

II. DISCUSSION

Philip Morris moves for a permanent injunction prohibiting Reynolds from selling in the United States the infringing Alto and Solo G2 cartridges and "cartridges that are not colorably different therefrom in the context of the infringed claims[.]" [Dkt. No. 1406-50] ¶¶ 1-2. In the alternative, Philip Morris seeks an ongoing royalty rate of 33.5% of net sales of Alto cartridges and 3.75% of net sales of Solo G2 cartridges for the remaining life of the patents.[2] Reynolds opposes entry of a permanent injunction and argues that the jury's royalty rates of 0.6% of net sales for the Alto and 2.0% of net sales for the Solo are an appropriate ongoing royalty.

A. Standard of Review

The Court has the power to grant an injunction for the "violation of any right secured by patent, on such terms as the court deems reasonable." 35 U.S.C. § 283. For a permanent injunction to be granted, the patentee "must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction." eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). The patentee bears the burden of "prov[ing] that it meets all four equitable factors" and "must satisfy the court that relief is needed." Nichia Corp. v. Everlight Ams., Inc.. 855 F.3d 1328 (Fed. Cir. 2017).

If the Court finds that an injunction is inappropriate, an ongoing royalty rate may be awarded to provide relief to the patentee for the ongoing infringement. See Whitserve. LLC v. Comput. Packages. Inc.. 694 F.3d 10, 35 (Fed. Cir. 2012); Paice LLC v. Tovota Motor Corp.. 504 F.3d 1293,1314-15 (Fed. Cir. 2007). An ongoing royalty rate "may be based on a post-judgment hypothetical negotiation using the Georgia-Pacific factors." Arctic Cat Inc. v. Bombardier Recreational Prods. Inc.. 876 F.3d 1350,1370 (Fed. Cir. 2017) (citing Fresenius USA. Inc. v. Baxter Int'L Inc.. 582 F.3d 1288,1303 (Fed. Cir. 2009V1: see Georgia-Pac. Corp. v. U.S. Plywood Corp.. 318 F.Supp. 1116,1120 (S.D.N.Y. 1970). The decision to grant a permanent injunction or impose an ongoing royalty is committed to the discretion of the Court. See Whitserve. 694 F.3d at 35; Presidio Components. Inc. v. Am. Tech. Ceramics Corp., 702 F.3d 1351,1363 (Fed. Cir. 2012).

B. Permanent Injunction

Philip Morris has not met its burden of establishing that a permanent injunction prohibiting Reynolds from selling infringing Alto and Solo G2 cartridges is warranted.

1. Irreparable Injury

First, Philip Morris has not established that it has suffered irreparable injury. "To satisfy the first eBay factor, the patentee must show that it is irreparably harmed by the infringement," which includes "proof that a 'causal nexus relates the alleged harm to the alleged infringement.'" Apple. Inc. v. Samsung Elecs. Co.. 809 F.3d 633, 639 (Fed. Cir. 2015) (quoting Apple. Inc. v. Samsung Elecs. Co.. 695 F.3d 1370,1374 (Fed. Cir. 2012)). "To determine whether the patentee will suffer irreparable harm absent an injunction, the court may consider factors such as the nature of competition between the patentee and the infringer, the willingness of a patentee to license, and any lost sales the patentee has proven." Presidio Components. Inc. v. Am. Tech. Ceramics Corp.. 875 F.3d 1369, 1383 (Fed. Cir. 2017).

Philip Morris argues that it has suffered irreparable harm because its IQOS heat-not-burn device ("IQOS") and IQOS VEEV e-cigarette ("VEEV") directly compete with Reynolds' e-cigarettes, and by infringing the '265 and '911 patents, Reynolds has "gained an unfair and invaluable stronghold in the U.S. non-combustible market[.]" [Dkt. No. 1411] at 6. Specifically, Philip Morris contends that Reynolds has caused "lost sales and market share" for IQOS and that the continued sale of the infringing products "will stymie the launch of IQOS VEEV in the United Statesf.]" Id. at 8. Philip Morris maintains that the infringing features of the Alto and Solo G2 drive consumer demand for the products, which satisfies the causal nexus requirement.

Reynolds counters that Philip Morris' asserted injury is too speculative to demonstrate irreparable injury because neither IQOS nor VEEV are currently sold in the United States. Reynolds further argues that even if these products were to be sold in the United States, Philip Morris has not presented evidence establishing that the Alto and Solo G2 would take away sales or market share and that any link between the commercial success of the infringing products and the patented technology is too...

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