The Northern District of California Seeks to Bring More Clarity to Damages with its Latest Revised Patent Local Rules
On January 17, the Northern District of California approved the latest amendments to its Patent Local Rules, which became effective immediately. Traditionally seen as a thought leader on organizing and structuring patent cases, the Northern District has once again taken the lead among federal district courts by enacting a series of changes intended to bring clarity and transparency to the issue of patent damages earlier in the life cycle of a case. The following changes require both plaintiffs and defendants to address damages discovery up front and to articulate damages positions early:
- At the initial Case Management Conference, all parties must be prepared to discuss the scope and timing of any damages discovery and are also required to “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.” P.L.R. 2-1(b)(2) & (5).
- The patent holder must now include in its Infringement Contentions the “timing of the point of first infringement, the start of claimed damages, and the end of claimed damages.” P.L.R. 3-1(h).
- The patent holder is now required to disclose in its Infringement Contentions any licensee’s product it intends to rely on as an embodying product. P.L.R. 3-1(g).
- The patent holder’s initial document production must now include all agreements transferring interest in the patents, licenses to the patents-in-suit, any other licenses that the patent holder contends is “comparable” for purposes of calculating a reasonable royalty, documents sufficient to show marking; revenues, sales, and profits for any practicing products, and documents reflecting FRAND commitments (if appropriate). P.L.R. 3-2.
- An accused infringer’s initial document production must now include any “comparable” licenses from the perspective of the accused infringer; revenue, sales, and profits for any accused products for the time period specified in the Infringement Contentions; and any other agreements that may be used to support the accused infringer’s damages case. P.L.R. 3-4.
- Patent holders are now required for the first time to serve “Damages Contentions” no later than 50 days after Invalidity Contentions are served. The Damages Contentions must identify each category of damages a plaintiff is seeking, its theories of recovery, factual support for these theories, and a computation of damages within each category. These categories include lost profits, price erosion, convoyed sales, reasonable royalty, and any other form of damages. P.L.R. 3-8.
- Accused infringers are required for the first time to serve “Responsive Damages Contentions” no later than 30 days after Damages Contentions are served. The Responsive Damages Contentions must specify how and why the accused infringer disagrees with the Damages Contentions and include the accused infringer’s affirmative position on each issue. P.L.R. 3-9.
How Does This Affect Parties Litigating Patent Cases in This District?
These new damages-related amendments to the Patent Local Rules substantially increase the preparation and potential burden for parties litigating in the Northern District of California. Patent holders may no longer be able to wait until expert discovery to articulate a damages position as they have in the past. As a result of the new rules, patent holders should begin developing their damages theories as part of their pre-filing investigation given that they will now be required to provide a good faith estimate of the damages range at the initial Case Management Conference and then provide Damages Contentions within 50 days of service of the alleged infringer’s Invalidity Contentions. Although the Patent Local Rules do permit both patent holder and defendants to claim they cannot make fulsome disclosures on damages absent additional discovery, the rules require parties to specifically identify the information that is needed. By enacting these rules, the Northern District has announced its expectation that parties will provide its damages positions earlier in the case and that they cannot withhold these positions merely by arguing that discovery is ongoing.
The new rules also require accused infringers to develop their damages positions much earlier than in the past by imposing document production requirements for damages-related materials and with the new damages contentions requirement. Both patent holders and accused infringers likely will have to engage damages experts earlier in cases to help develop their damages contentions. One potentially interesting development to monitor is whether the new damages contentions will lead to an increase in the use of Rule 68 Offers of Judgment in patent cases. Another strategic issue to track is whether a party can forego articulating fulsome damages disclosures by stating that the amount of damages depends on the outcome of claim construction. Finally, the questions of how lenient courts will be in allowing parties to amend their damages contentions, and what standard will apply, will likely be the subject of much litigation.
Overall, these changes to the Patent Local Rules are intended to bring greater clarity to damages in patent cases, and we would not be surprised to see other districts around the country adopting similar requirements in the coming years.
 The Northern District also enacted a change to the claim construction procedure to require parties to identify in the P.L.R. 4-3 Joint Claim Construction and Prehearing Statement any factual findings that are related to claim construction. P.L.R. 4-3(f).
 P.L.R. 3-6’s “good cause” requirement for amendment to contentions on its face only applies to Infringement Contentions and Invalidity Contentions. No similar provision was enacted with respect to parties' Damages Contentions.