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EXHIBIT 1

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Exhibit 2 AFFYMETRIX'S STATEMENT OF THE ISSUES OF FACT THAT REMAIN TO BE LITIGATED Affymetrix contends that the issues of fact that remain to be litigated at trial are as follows1: I. INFRINGEMENT 1. Whether Illumina's BeadArray nucleic acid arrays infringe claims [asserted

claims] of the `432 patent. 2. Whether Illumina's BeadArray nucleic acid arrays, together with the associated

scanner, infringe claims [asserted claims] of the `243 patent. 3. Whether the methods employed by Illumina and its customers to use Illumina's

BeadArray nucleic acid arrays infringe (directly and indirectly) claims [asserted claims] of the `243 patent. 4. Whether the apparatus and methods employed by Illumina during its BeadArray

nucleic acid array decoding process infringe claims [asserted claims] of the `243 patent. 5. Whether the methods employed by Illumina and its customers to make the

BeadArray nucleic acid arrays infringe (directly and indirectly) claims [asserted claims] of the `531 patent. 6. Whether Illumina's BeadArray nucleic acid arrays and associated equipment

infringe claims [asserted claims] of the `365 patent. 7. Whether the methods Illumina and its customers employ to use the BeadArray

nucleic acid arrays infringe (directly and indirectly) claims [asserted claims] of the `365 patent.
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To the extent that any issues of law set forth in Exhibit 4 of the Proposed Joint Pre-Trial Order may be considered issues of fact, Affymetrix incorporates those portions of Exhibit 4 herein by reference. To the extent any of the issues of fact set forth in this Exhibit 2 may be considered issues of law, Affymetrix incorporates those portions of this Exhibit 2 in Exhibit 4.

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8.

Whether Illumina's GenCall software and related products and systems infringe

claims [asserted claims] of the `716 patent. II. WILLFULNESS 1. Whether Illumina infringed the `432 patent while having knowledge of that patent

and without having a reasonable good faith belief for concluding that it did not infringe or that the `432 patent was invalid. 2. Whether Illumina infringed the `243 patent while having knowledge of that patent

and without having a reasonable good faith belief for concluding that it did not infringe or that the `243 patent was invalid. 3. Whether Illumina infringed the `531 patent while having knowledge of that patent

and without having a reasonable good faith belief for concluding that it did not infringe or that the `531 patent was invalid. 4. Whether Illumina infringed the `365 patent while having knowledge of that patent

and without having a reasonable good faith belief for concluding that it did not infringe or that the `365 patent was invalid. 5. Whether Illumina infringed the `716 patent while having knowledge of that patent

and without having a reasonable good faith belief for concluding that it did not infringe or that the `716 patent was invalid. III. DAMAGES 1. Whether Affymetrix has proved that it is entitled to its lost profits on certain lost

sales and price erosion resulting from Illumina's infringement of any of the patents-in-suit and, if so, in what amount.

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2.

What reasonable royalty damages is Affymetrix entitled to for any infringement

of the patents-in-suit by Illumina for which lost profits damages are not awarded. 3. The amount of prejudgment interest to which Affymetrix is entitled on the

damages award. 4. Whether Affymetrix should be awarded increased damages, attorneys' fees, and

costs due to Illumina's willful infringement of any of the patents-in-suit. 5. Whether Affymetrix should be awarded its reasonable attorneys' fees, expenses,

and costs due to this case being exceptional under 35 U.S.C. § 285. 6. IV. The nature and scope of the injunction to which Affymetrix is entitled.

VALIDITY 1. Whether Illumina has proved by clear and convincing evidence that any or all of

the asserted claims of the `432 patent are invalid. 2. Whether Illumina has proved by clear and convincing evidence that any or all of

the asserted claims of the `243 patent are invalid. 3. Whether Illumina has proved by clear and convincing evidence that any or all of

the asserted claims of the `531 patent are invalid. 4. Whether Illumina has proved by clear and convincing evidence that any or all of

the asserted claims of the `365 patent are invalid. 5. Whether Illumina has proved by clear and convincing evidence that any or all of

the asserted claims of the `716 patent are invalid. 6. Whether Illumina has proved by clear and convincing evidence that any of its

alleged prior art qualifies as prior art to the patents-in-suit.

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7.

Whether Illumina has proved by clear and convincing evidence that any of its

alleged prior art discloses all of the elements of any of the asserted claims of the patents-in-suit. 8. Whether Illumina has proved by clear and convincing evidence that the inventions

described and claimed in any of the asserted claims of the patents-in-suit would have been obvious to a person of ordinary skill in the art at the time the claimed invention was made, in light of the scope and content of the prior art, the differences between each asserted claim of the patents-in-suit and the prior art, the level of ordinary skill in the art at that time, and objective indicia of non-obviousness. 9. Whether Illumina has proved by clear and convincing evidence that the alleged

prior art would have suggested to one of ordinary skill in the art that the methods claimed in the patents-in-suit should be carried out. 10. Whether Illumina has proved by clear and convincing evidence that one of

ordinary skill in the art would have been motivated to combine the prior art references relied upon by Illumina. 11. Whether Illumina has proved by clear and convincing evidence that its alleged

prior art enables one of ordinary skill in the art to make and use the asserted claims of the patents-in-suit without undue experimentation. 12. Whether the commercial success of Affymetrix's claimed inventions, other

entities' willingness to take a license to one or more of the patents-in-suit, and the praise of the inventions in the field, inter alia, establish the non-obviousness of the invention. 13. Whether Illumina has proved by clear and convincing evidence that any of the

claims of the patents-in-suit are not supported by a written description such that one of ordinary skill in the art would understand that the inventor had possession of the claimed invention.

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14.

Whether Illumina has proved by clear and convincing evidence that any of the

patents-in-suit do not enable one of ordinary skill in the art to make and use the asserted claims of the patents-in-suit without undue experimentation. 15. Whether Affymetrix has proved an invention date of the `432 patent prior to

December 6, 1990. 16. Whether Affymetrix has proved an invention date of the `716 patent prior to

October 21, 1994. 17. 7, 1995. V. INEQUITABLE CONDUCT 1. Whether Illumina has proved by clear and convincing evidence that Affymetrix Whether Affymetrix has proved an invention date of the `531 patent prior to June

withheld material information from the U.S. Patent and Trademark Office with the intent to deceive the PTO. VI. ILLUMINA'S COUNTERCLAIMS The Court has previously stayed Illumina's claim for a violation of Section 2 of the Sherman Act. Affymetrix has filed a motion seeking to dismiss, stay, or bifurcate Illumina's remaining competition/business tort counterclaims ­ that is, its claim under Section 17200 of the California Business & Professions Code and the common law tort of Intentional Interference with Actual and Prospective Business Advantage. These remaining competition/business tort counterclaims are premised on alleged anticompetitive conduct by Affymetrix and depend on Illumina's antitrust allegations. Affymetrix submits that Illumina's competition/business tort counterclaims should either be dismissed or stayed. The issues of fact that remain to be litigated with respect to Illumina's competition/business tort counterclaims are:

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1.

Whether Illumina has proved that Affymetrix engaged in any conduct that

threatens an "incipient violation" of an antitrust law or otherwise engaged in any unlawful business practice that harmed competition. 2. Whether Illumina has standing to assert a claim that Affymetrix made false or

misleading statements that were likely to deceive members of the public and, if so, whether Illumina has proved that Affymetrix made any such false or misleading statement. 3. Whether Illumina has proved that it has sustained and is entitled to restitution-

type damages as a result of Affymetrix's alleged anticompetitive acts, i.e., whether Illumina has proved that it has an "ownership" or "vested interest" in any money or property that Affymetrix took from Illumina. 4. Whether Illumina has proved that it had an existing relationship with any

identifiable third party and, with respect to each such third party, whether Illumina has proved that Affymetrix committed intentionally wrongful acts that were designed to and did disrupt that relationship and that such acts were independently unlawful, separate and apart from the interference, in that such acts constituted monopolization or attempted monopolization under Section 2 of the Sherman Act. 5. Whether Illumina has proved the "relevant market" and that Affymetrix has

"market power," such that Affymetrix has the power to control market output and exclude competitors, including Illumina, from that market. 6. Whether Illumina has proved that it suffered any antitrust or other cognizable

injury as a result of the complained of interference. 7. Whether, as an affirmative defense, Affymetrix has proved that the alleged

wrongful acts were permissible in view of the privileges of competition and free competition.

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8.

Illumina did not plead the tort of "interference with contract," which is a separate

tort from intentional interference with actual and prospective business advantage, yet Illumina's proposed jury instructions and statement of facts that remain to be litigated include this nonalleged tort. Illumina should not be permitted to pursue this non-alleged tort claim. If allowed, Illumina would have to prove the existence of a valid and enforceable contract, not revocable at will, between Illumina and a third party and, as to each such contract, that Affymetrix actually and wrongfully interfered with the contract to the detriment of Illumina.

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EXHIBIT 3

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EXHIBIT 4

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EXHIBIT 4 PLAINTIFF'S STATEMENT OF ISSUES OF LAW I. ISSUES ON WHICH PLAINTIFF BEARS THE BURDEN OF PROOF A. INFRINGEMENT 35 U.S.C. § 271(a) states: Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent. "The patent document [] grants the patentee a right to exclude others. . . . The Supreme Court has likened patent claims to the description of real property in a deed which sets the bounds to the grant which it contains." General Foods Corp. v. Studiengesellschaft Kohle,

972 F.2d 1272, 1273 (Fed. Cir. 1992) (citation omitted). "With respect to . . . infringement . . . the claims define the patent owner's property rights whereas infringement is the act of trespassing upon those rights." Hoechst-Roussel Pharms. Inc. v. Lehman, 109 F.3d 756, 759 (Fed. Cir. 1997). "A patent is infringed if any claim is infringed . . . for each claim is a separate statement of the patented invention." Pall Corp. v. Micron Separations Inc., 66 F.3d 1211, 1220 (Fed. Cir. 1995), cert. denied, 520 U.S. 1115 (1997). "Determination of infringement, whether literal or under the doctrine of equivalents, is a question of fact." Hilgraeve Corp. v. Symantec Corp., 265 F.3d 1336, 1341 (Fed. Cir. 2001) (citing Bai v. L&L Wings, Inc., 160 F.3d 1350, 1353 (Fed. Cir. 1998)). "Infringement requires

proof by a preponderance of the evidence." Seal-Flex Inc. v. Athletic Track & Court Constr., 172 F.3d 836, 842 (Fed. Cir. 1999). "To show infringement of a patent, a patentee must supply sufficient evidence to prove that the accused product or process contains, either literally or under the doctrine of equivalents, every limitation of the properly construed claim." Id. -1-

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1.

Literal Infringement a. Claim Construction

"A patent infringement analysis requires two steps. First, the claim must be properly construed to determine its scope and meaning. Second, the claim as properly construed must be compared to the accused device or process." Hilgraeve Corp., 265 F.3d at 1341 (citing Gentry Gallery, Inc. v. Berkline Corp., 134 F.3d 1473, 1476 (Fed. Cir. 1998)). The first step of the infringement analysis, claim construction, is a question of law. Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1451, 1454 (Fed. Cir. 1998) (en banc). On August 16, 2006, this Court issued a memorandum opinion (D.I. 324) which provided the Court's construction of the claims at issue. The construction of the disputed claims is as follows: `432 Patent 1. The phrase "said beads being coded with an encoding system" means "said beads

having a property associated with each bead (separate from the binding polymer) that can be used to distinguish one bead from another." 2. The term "target specific sequence" means "a known polymer sequence that has

affinity for another sequence." `243 Patent 3. 4. The term "substrate" means "a material having a rigid or semi-rigid surface." The term "target nucleic acids" means "nucleic acids that are deliberately exposed to

the nucleic acids attached to the substrate." `531 Patent 5. The term "probe array" means "a collection of probes, at least two of which are

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6.

The phrase "arranged in a spacially defined and physically addressable manner"

means "located in a particular location and capable of being addressed." `365 Patent 7. The phrase "biological polymers immobilized on a surface" means "two or more

surface-immobilized biological polymers that are recognized by a particular target." 8. array." `716 Patent 9. The term "probe" means "a nucleic acid of known sequence that is capable of The term "housing" means "a structure that covers, protects, and supports the probe

hybridizing to its complementary sequence." 10. The term "probe intensity" means "intensity from a labeled sample nucleic acid

hybridized to a probe location." 11. The phrase "corresponding to probe intensities for a plurality of nucleic acid probes"

does not require further construction. 12. The phrase "indicating an extent of hybridization" means "indicating the relative

strength of binding." 13. The phrase "comparison of said plurality of probe intensities to each other" means

"an examination of the probe intensities of two or more probes in relation to each other." 14. The phrase "generates a base call identifying said unknown base" means

"determines which nucleotide is most likely to be present at a particular position in a nucleic acid sequence." 15. The phrase "generates a base call ... according to results of said comparison and said

sequences of said nucleic acid probes" does not require further construction.

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b.

Comparing the Properly Construed Claims to the Accused Product

"After claim construction, the next step in an infringement analysis is comparing the properly construed claims with the allegedly infringing devices. This comparison is a question of fact." Ecolab, Inc. v. Envirochem, Inc., 264 F.3d 1358, 1364 (Fed. Cir. 2001). "Infringement . . . is determined by comparing an accused product not with a preferred embodiment described in the specifications . . . but with the properly and previously construed claims in suit." SRI Int'l v. Matsushita Elec. Corp. of Am., 775 F.2d 1107, 1121 (Fed. Cir. 1985). "[C]laims are infringed, not specifications." Id. "[L]imitations cannot be read into the claims from the specification or the prosecution history." Burke Inc. v. Bruno Independent Living Aids, Inc, 183 F.3d 1334, 1340 (Fed Cir. 1999). The Federal Circuit "has consistently adhered to the proposition that courts cannot alter what the patentee has chosen to claim as his invention, that limitations appearing in the specification will not be read into the claims, and that interpreting what is meant by a word in a claim is not to be confused with adding an extraneous limitation appearing in the specification, which is improper." Id. (quoting Intervet Am., Inc. v. Kee-Vet Labs., Inc., 887 F.2d 1050, 1053 (Fed. Cir. 1989) (citations omitted)). See also Renishaw PLC v. Marposs Societa' Per Azioni, 158 F.3d 1243, 1248 (Fed. Cir. 1998). "An accused device cannot escape infringement by merely adding features, if it otherwise has adopted the basic features of the patent." Amstar Corp. v. Envirotech Corp., 730 F.2d 1476, 1482 (Fed. Cir. 1984) (citation omitted). Likewise, an accused method "does not avoid literally infringing a method claim . . . simply because it employs additional steps." Dow Chem. Co. v. Sumitomo Chem. Co., 257 F.3d 1364, 1380 (Fed. Cir. July 25, 2001) (quoting Moleculon Research Corp. v. CBS, Inc., 793 F.2d 1261, 1271 (Fed. Cir. 1986), cert. denied, 479 U.S. 1030 (1987)). -4-

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Many of the asserted claims use the phrase "comprising" or "comprises" which is open-ended. See Genentech Inc. v. Chiron Corp., 112 F.3d 495, 501 (Fed. Cir. 1997)

("`Comprising' is a term of art used in claim language which means that the named elements are essential, but other elements may be added and still form a construct within the scope of the claim."). c. One Cannot Avoid Infringement by Having Another Perform One Step of the Process or Method

"Infringement of a patented process or method cannot be avoided by having another perform one step of the process or method." Shields v. Halliburton Co., 493 F. Supp. 1376, 1389 (W.D. La. 1980), aff'd, 667 F.2d 1232 (5th Cir. 1982), quoted in E. I. DuPont de Nemours and Co. v. Monsanto Co., 903 F. Supp. 680, 734 (D. Del. 1995), aff'd w/o op., 92 F.3d 1208 (Fed. Cir. 1996). "It is well settled that a party cannot avoid infringement merely by having a third party practice one or more of the required steps." Ralston Purina Co. v. Far-Mar-Co., Inc., 586 F. Supp. 1176, 1226 (D. Kan. 1984), aff'd in relevant part, 772 F.2d 1570 (Fed. Cir. 1985). d. A Company Is Liable For The Infringement Of Others If It Aids Or Abets Their Direct Infringement (i) A Party Is Liable For Inducing Infringement By Others

Section 271(b) states that "[w]hoever actively induces infringement of a patent shall be liable as an infringer." 35 U.S.C. § 271(b). If a company knowingly induces the direct infringement of its customers, it is liable for that infringement. See Moba, B.V. v. Diamond Automation, Inc., 325 F.3d 1306, 1318 (Fed. Cir. 2003). Proof of induced infringement requires evidence of an intent to cause the infringing acts. See id. Evidence of infringing acts and of intent may be circumstantial, however. See Golden Blount, Inc. v. Robert H. Peterson Co., 438 F.3d 1354, 1362-64 (Fed. Cir. 2006) (affirming infringement liability based on packaging of instruction -5-

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manual with product); see also Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 370 F.3d 1354, 1365 (Fed. Cir. 2004) (finding intent based on articles espousing use of product for infringing purpose). (ii) A Party Is Liable For Contributory Infringement If It Knowingly Supplies Components For Others' Direct Infringement

Under § 271(c): (c) Whoever offers to sell or sells within the United States or imports into the United States a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer. 35 U.S.C. § 271(c). According to the Federal Circuit, contributory infringement requires proof of underlying direct infringement and knowledge of infringing capability of a non-staple component. See Golden Blount, 438 F.3d at 1363 (affirming judgment of infringement and holding that patentee had adequately demonstrated underlying infringement, non-staple character of defendant's products, and knowledge of their use). The patentee must prove knowledge of the defendant "that the combination for which its components were especially made was both patented and infringing." Id. (quoting Preemption Devices, Inc. v. Minn. Min. & Mfg. Co., 803 F. 2d 1170, 1174 (Fed. Cir. 1986). Although a patentee has the burden of persuasion regarding whether an article is a nonstaple article of commerce, once it makes a prima facie case that an article has no substantial noninfringing use, the burden of production shifts to the defendant to show such a use. Id. at 136364. Whether a component has a substantial noninfringing use is a question of fact. See Mentor H/S, Inc. v. Med. Device Alliance, Inc., 244 F.3d 1365, 1379 (Fed. Cir. 2001).

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2.

Infringement Under the Doctrine of Equivalents

As the Supreme Court has stated: The language in the patent claims may not capture every nuance of the invention or describe with complete precision the range of its novelty. If patents were always interpreted by their literal terms, their value would be greatly diminished. Unimportant and insubstantial substitutes for certain elements could defeat the patent, and its value to inventors could be destroyed by simple acts of copying. Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 731 (2002). Accordingly, "[t]he scope of a patent is not limited to its literal terms but instead embraces all equivalents to the claims described." Id.; see also Warner-Jenkinson Co., Inc. v. Hilton Davis Chem. Co., 520 U.S. 17, 21 (1997) (holding that "a product or process that does not literally infringe upon the express terms of a patent claim may nonetheless be found to infringe if there is `equivalence' between the elements of the accused product or process and the claimed elements of the patented invention"). The Federal Circuit has stated that technology developed after the date of invention is "the `quintessential example of an enforceable equivalent.'" Varco, L.P. v. Pason Systems USA Corp., 436 F.3d 1368, 1376 (Fed Cir. 2006) (quoting Smithkline Beecham Corp. v. Excel Pharm., Inc., 356 F.3d 1357, 1364 (Fed.Cir.2004)). Plainly, "[t]he law does not require the impossible. Hence, it does not require that an applicant describe in his specification every conceivable and possible future embodiment of his invention." SRI Int'l v. Matsushita Elec. Corp. of Am., 775 F.2d 1107, 1121 (Fed.Cir.1985) (en banc). "[T]here is no basis for treating an infringing equivalent any differently than a device that infringes the express terms of the patent. Application of the doctrine of equivalents, therefore, is akin to determining literal infringement, and neither requires proof of intent." WarnerJenkinson, 520 U.S. at 35. "Infringement under the doctrine of equivalents is an equitable doctrine devised for `situations where there is no literal infringement but [where] liability is nevertheless -7-

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appropriate to prevent what is in essence a pirating of the patentee's invention.'" Insta-Foam Prods. Inc. v. Universal Foam Sys. Inc., 906 F.2d 698, 702 (Fed. Cir. 1990) (quoting Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861, 870 (Fed. Cir. 1985)). "The doctrine of equivalents is an equitable doctrine designed to prevent parties from realizing the benefits of another's patent by designing around the patent's literal language." BOC Health Care, Inc. v. Nellcor Inc., 892 F. Supp. 598, 604 (D. Del. 1995). "Infringement under the doctrine of equivalents may be found where those

limitations of a claim not found exactly in the accused device are met equivalently." Zygo Corp. v. Wyko Corp., 79 F.3d 1563, 1568 (Fed. Cir. 1996). The "essential inquiry" in determining infringement under the doctrine of equivalents is: "Does the accused product or process contain elements identical or equivalent to each claimed element of the patented invention?" Warner-Jenkinson, 520 U.S. at 40. The doctrine of equivalents involves an element-by-element comparison of the accused method or product and the claim. Id. One test for whether a step of an accused method is equivalent to a claim element is whether that step performs substantially the same function in substantially the same way, to obtain substantially the same result. Graver Tank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605, 608 (1950); see also Abraxis Bioscience, Inc. v. Mayne Pharma (USA), Inc., 467 F.3d 1370, 1379 (Fed. Cir. 2006). "Each element contained in a patent claim is deemed material to defining the scope of the patented invention, and thus the doctrine of equivalents must be applied to individual elements of the claim, not to the invention as a whole." Depuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 469 F.3d 1005, 1016-17 (Fed. Cir. 2006) (quoting Warner-Jenkinson, 520 U.S. at 29). In applying the "all elements rule" to determine infringement under the doctrine of equivalents, it is appropriate to identify "the role played by each element in the context of the specific patent claim." Warner-Jenkinson, 520 U.S. at 40. "This analysis . . . will thus inform the inquiry as to whether a -8-

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substitute element matches the function, way, and result of the claimed element, or whether the substitute element plays a role substantially different from the claimed element." Id. The accused method must contain every claim element, but "not necessarily in a corresponding component." Corning Glass Works v. Sumitomo Elec. U.S.A., Inc., 868 F.2d 1251, 1259 (Fed. Cir. 1989). "A patentee is, for example, free to frame the issue of equivalency, if it chooses, as equivalency to a combination of limitations." Id. at 1259 n. 6 (citation omitted). Courts have held that "`[o]ne-to-one correspondence of components is not required, and elements or steps may be combined without ipso facto loss of equivalency.'" Ethicon Endo-Surgery Inc. v. U.S. Surgical Corp., 149 F.3d 1309, 1320 (Fed. Cir. 1998) (quoting Sun Studs, Inc. v. ATA Equip. Leasing Inc., 872 F.2d 978, 989 (Fed. Cir. 1989), overruled on other grounds, A.C. Aukerman Co. v. R.L. Chaides Const. Co., 960 F.2d 1020 (Fed. Cir.1992)). A finding of infringement under the doctrine of equivalents is permissible unless "no reasonable jury could conclude that an element of an accused device is equivalent to an element called for in the claim, or that the theory of equivalence to support the conclusion of infringement otherwise lacks legal sufficiency." Depuy Spine, 469 F.3d at 1018-19 (reversing for legal error District Court's holding precluding application of doctrine of equivalents as a matter of law). B. WILLFULNESS "Actual notice of another's patent rights triggers an affirmative duty of due care to avoid infringement." nCube Corp. v. Seachange Int'l, Inc., 436 F.3d 1317, 1324 (Fed. Cir. 2006). A breach of such a duty can render an infringer liable for willfulness. Willfulness "is quintessentially a question of fact . . .." Biotec Biologische

Naturverpackungen Gmbh & Co. KG v. Biocorp. Inc., 249 F.3d 1341, 1356 (Fed. Cir. 2001). "Whether infringement is willful is a question of fact, and must be established by clear and convincing evidence." Comark Communications Inc. v. Harris Corp., 156 F.3d 1182, 1190 (Fed. -9-

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Cir. 1998). Because of the factual nature of the willfulness inquiry the Federal Circuit has held that determining willfulness is a question for the jury. Richardson v. Suzuki Motor Co. Ltd., 868 F.2d 1226, 1250 (Fed. Cir.), cert. denied, 493 U.S. 853 (1989) ("Willfulness of behavior is a classical jury question of intent. . . . When trial is had to a jury, the issue should be decided by the jury.") "The test [for willful infringement] is whether, under all the circumstances, a reasonable person would prudently conduct himself with any confidence that a court might hold the patent invalid or not infringed." Ryco, Inc. v. Ag-Bag Corp., 857 F.2d 1418, 1428 (Fed. Cir. 1988); Procter & Gamble Co., v. Paragon Trade Brands, Inc., 989 F. Supp. 547, 615 (D. Del. 1997). In SRI Int'l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1464 (Fed. Cir. 1997), the Federal Circuit held: Although various criteria have been stated for determining "willful infringement," which is the term designating behavior for which enhanced damages may be assessed, the primary consideration is whether the infringer, acting in good faith and upon due inquiry, had sound reason to believe that it had the right to act in the manner that was found to be infringing. The law of willful infringement does not search for minimally tolerable behavior, but requires prudent, and ethical, legal and commercial actions. See also nCube Corp. v. Seachange Int'l, Inc., 313 F. Supp. 2d 361, 379 (D. Del. 2004) (quoting above language from SRI Int'l and upholding jury verdict of willfulness). "Willfulness requires a showing that the totality of the circumstances evince the egregious conduct that constitutes willful infringement." nCube, 436 F.3d at 1323-24 (quoting Imonex Servs., 408 F.3d at 1377). "In determining whether willfulness has been shown, [the court looks] to the totality of the circumstances, understanding that willfulness, `as in life, is not an all-ornothing trait, but one of degree. It recognizes that infringement may range from unknowing, or accidental, to deliberate, or reckless, disregard of the patentee's legal rights.'" Comark, 156 F.3d at 1190 (quoting Rite-Hite Corp. v. Kelley Co., Inc., 819 F.2d 1120, 1125-26 (Fed. Cir. 1987)). "The - 10 -

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extent to which the infringer disregarded the property rights of the patentee, the deliberateness of the tortious acts, or other manifestations of unethical or injurious commercial conduct, may provide grounds for a finding of willful infringement." Golden Blount, 483 F. 3d at 438 F.3d at 1367-68 (quoting Hoechst Celanese Corp. v. BP Chems. Ltd., 78 F.3d 1575, 1583 (Fed.Cir.1996)). To establish willful infringement, a patentee must prove by clear and convincing evidence: 1. 2. That the infringer was aware of the patent; That the infringer had no reasonable basis for believing it had a right to engage in the

infringing acts either because it had formed a good faith belief that the claim of the patent at issue was invalid or not infringed or both. Johns Hopkins Univ. v. Cellpro, 894 F. Supp. 819, 843 (D. Del. 1995). This "affirmative duty of care . . . usually requires the potential infringer to obtain competent legal advice before engaging in any activity that could infringe another's patent rights." Comark, 156 F.3d at 1190. When an alleged infringer with notice of a patent does not obtain competent opinion of counsel, the failure to obtain such an opinion can be considered evidence of a violation of the duty of care. Golden Blount, 438 F.3d at 1369. In Jurgens v. CBK, Ltd.,, 80 F.3d 1566, 1571 (Fed. Cir. 1996), the Federal Circuit stated: When one continues his infringing activity, and fails to investigate and determine, in good faith that he possesses reasonable defenses to an accusation of patent infringement, the infringement is in bad faith. Such conduct occurs when an infringer . . . obtains incompetent, conclusory opinions of counsel only to use as a shield against a later charge of willful infringement, rather than in a good faith attempt to avoid infringing another's patent. "The proper time to assess willfulness is at the time the infringer received notice." Odetics, Inc. v. Storage Tech. Corp., 185 F.3d 1259, 1276 (Fed. Cir. 1999) (citation omitted); 7 Donald S. Chisum, Chisum on Patents § 20.03 [4][b][v][F] (2001) ("Court decisions focus the - 11 -

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willfulness inquiry primarily on the date the infringer began its infringing activities or became aware of the patent, whichever is later."); Johns Hopkins Univ. v. Cellpro, 152 F.3d 1342, 1362 (Fed. Cir. 1998) (dates on which Cellpro received notice of the patents were the proper times for assessing its willfulness). Because the proper time to assess willfulness is at the time the infringer received notice of the patent rights, later developments have little or no relevance. Odetics, 185 F.3d at 1276; Johns Hopkins, 152 F.3d at 1362. Other issues that are "very relevant to the issue of willfulness" are "market pressure" and "commercial sales urgency" faced by the infringer. Stryker Corp. v. Intermedics Orthopedics, Inc., 891 F. Supp. 751, 817 (E.D.N.Y. 1995), aff'd, 96 F.3d 1409 (Fed. Cir. 1996); Datascope Corp. v. SMEC, Inc., 879 F.2d 820, 828 (Fed. Cir. 1989), cert. denied, 493 U.S. 1024 (1990); Spindelfabrik Suessen-Schurr v. Schubert & Salzer, 829 F.2d 1075, 1083 (Fed. Cir. 1987), cert. denied, 484 U.S. 1063 (1988). A party that continues its accused infringing activity after a patentee files suit can be guilty of willful infringement even if that party presents a non-frivolous defense to infringement. Crystal Semiconductor, 246 F.3d at 1351. C. ASSIGNOR ESTOPPEL Under the doctrine of assignor estoppel, one who assigns a patent to another party for valuable consideration is barred from contesting the validity of that patent when sued for infringement. See Pandrol USA, LP v. Airboss Ry. Prods., Inc., 424 F.3d 1161, 1166 (Fed. Cir. 2005) (quoting Diamond Scientific Co. v. Ambico, Inc., 848 F.2d 1220, 1224 (Fed. Cir. 1988)) ("Assignor estoppel is an equitable doctrine that prevents one who has assigned the rights to a patent (or patent application) from later contending that what was assigned is a nullity."). Courts invoke the doctrine "(1) to prevent unfairness and injustice; (2) to prevent one [from] benefiting from his own wrong; (3) [to adopt the] analogy [of]. . . estoppel by deed in real estate; and (4) [to - 12 -

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adopt the] analogy of a landlord-tenant relationship." Pandrol USA, 424 F.3d at 166 (quoting Diamond Scientific, 848 F.2d at 1224). Holding a former employee barred from challenging the validity of a patent assigned to his employer, the Federal Circuit stated: When the inventor-assignor has signed the Oath, Power of Attorney and Petition, which attests to his belief in the validity of the patents, and has assigned the patent rights to another for valuable consideration, he should be estopped from defending patent infringement claims by proving that what he assigned was worthless. . . . The inventor's active participation in the prosecution and preparation of the patent applications . . . would tilt the equities even more heavily in favor of the assignee, but consideration of this factor is not necessary to the result. Diamond Scientific, 848 F.2d at 1226. Assignor estoppel may also apply to those in privity with the assignor. Privity, for the purposes of the estoppel analysis, depends on the nature and extent of the relationship between the assignor and the other party. See Shamrock Techs., Inc. v. Med. Sterilization, Inc., 903 F.2d 789, 193 (Fed. Cir. 1990). For example, If an inventor assigns his invention to his employer company A and leaves to join company B, whether company B is in privity and thus bound by the doctrine will depend on the equities dictated by the relationship between the inventor and company B in light of the act of infringement. The closer that relationship, the more the equities will favor applying the doctrine to company B. Id. D. REMEDIES 1. Injunction

Under Section 283, "[t]he several courts having jurisdiction of cases under th[e patent] title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable." 35 U.S.C. § 283 (2006). "[T]he decision whether to grant or deny injunctive relief rests within the equitable - 13 -

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discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity. . . ." eBay, Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837, 1841 (2006). Further, "the Patent Act also declares that `patents shall have the attributes of personal property,' § 261, including `the right to exclude others from making, using, offering for sale, or selling the invention,' § 154(a)(1)." Id. at 1840. According to well-established principles of equity, a plaintiff seeking a permanent injunction "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." Id. at 1839. In one recent case, when applying this four-factor test in a case in which the infringer competed directly with the patent holder, the court observed: Justice Kennedy [concurring in eBay] recognized that "[t]o the extent earlier cases establish a pattern of granting an injunction against patent infringers almost as a matter of course, this pattern simply illustrates the result of the four-factor test in the contexts then prevalent." . . . Since a patent grants the right to exclude others from practicing the invention . . . the right to exclude remains a relevant issue for courts to consider when weighing the equities for and against an application for permanent injunction. Although GSF argues that it is not using Transocean's invention to influence common customers, GSF admits that "Transocean and GlobalSantaFe have the same customers in the deepwater rig market." GSF has not cited any case in which a continuing infringer in direct competition with a patent holder has not been permanently enjoined from using the patented invention to compete against the patent holder. Transocean Offshore Deepwater Drilling, Inc. v. GlobalSantaFe Corp., No. H-03-2910, 2006 WL 3813778, *3 (S.D. Tex., Dec. 27, 2006) (granting injunction to patentee) (citations omitted).

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2.

Damages

35 U.S.C. § 284 states: Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. "The measurement of patent damages is a question of fact." Crystal Semiconductor, 246 F.3d at 1345. The patent statute "imposes no limitation on the types of harm resulting from infringement that the statute will redress. The section's broad language awards damages for any injury as long as it resulted from the infringement." King Instruments Corp. v. Perego, 65 F.3d 941, 947 (Fed. Cir. 1995), cert. denied, 517 U.S. 1188 (1996). "The phrase `damages adequate to compensate' means full compensation for `any damages' [the patent owner] suffered as a result of the infringement." Grain Processing Corp. v. American Maize-Prods. Co., 185 F.3d 1341, 1349 (Fed. Cir. 1999) (citing General Motors Corp. v. Devex Corp., 461 U.S. 648 (1983)). "Full compensation includes any foreseeable lost profits the patent owner can prove." Id. A damage award shall be "in no event less than a reasonable royalty," which sets the floor below which a damage award may not fall. See Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1544 (Fed. Cir.), cert. denied, 516 U.S. 867 (1995). "[T]he Supreme Court has interpreted [35 U.S.C. § 284] to mean that `adequate' damages should approximate those damages that will fully compensate the patentee for infringement." Id. at 1545. The patent owner must prove the amount of its damages by a preponderance of the evidence. See SmithKline Diagnostics, Inc. v. Helena Lab. Corp., 926 F.2d 1161, 1164 (Fed. Cir. 1991). The patentee, however, need not prove its damages with absolute certainty. See W.R. Grace & Co.-Conn. v. Intercat, Inc., 60 F. Supp. 2d 316, 321 (D. Del. 1999). "[I]t will be enough if the - 15 -

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evidence show [sic] the extent of the damages as a matter of just and reasonable inference, although the result be only approximate." Story v. Parchment Paper Co., 282 U.S. 555, 563 (1931). Moreover, "any doubt about the correctness [of damages] is resolved against the infringer." State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1576 (Fed. Cir. 1989), cert. denied, 493 U.S. 1022 (1990); W.R. Grace, 60 F. Supp. 2d at 321. "[F]undamental principles of justice require us to throw the risk of any uncertainty upon the wrongdoer instead of upon the injured party." Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11, 22 (Fed. Cir. 1984). a. Lost Profits

"To recover lost profits damages . . . , the patent owner must show that it would have received the additional profits `but for' the infringement. The patent owner bears the burden to present evidence sufficient to show a reasonable probability that it would have made the asserted profits absent infringement." King Instruments, 65 F.3d at 952. The Federal Circuit "has

prescribed no one particular method by which the patent owner must meet this burden; `the methodology of assessing and computing damages is committed to the sound direction of the district court.'" Id. (citation omitted). "[T]he statutory measure of `damages' is `the difference between [the patent owner's] pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred.'" Grain Processing, 185 F.3d at 1350 (citing Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 507 (1964) (plurality opinion)). To prove lost profits, a patentee must reconstruct the market to show "likely outcomes with infringement factored out of the economic picture." Id. As the Federal Circuit explained: Within this framework, trial courts, with this [C]ourt's approval, consistently permit patentees to present market reconstruction theories showing all of the ways in which they would have been better off in the "but for world," and accordingly, to recover lost profits in a wide variety of forms . . .. In sum, courts have given - 16 -

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patentees significant latitude to prove and recover lost profits for a wide variety of foreseeable economic effects of the infringement. Id. (citations omitted). To recover lost profits based on lost sales, the patent owner has an initial burden to show a reasonable probability that, but for the infringement, it would have made the infringer's sales. See Crystal Semiconductor, 246 F.3d at 1336; State Indus., 883 F.2d at 1577. The patent owner is not required, however, to negate all possibilities that a purchaser might have bought a different product or might have foregone the purchase altogether. State Indus., 883 F.2d at 1577. Once the patent owner has met its initial burden, "[t]he burden then shifts to the infringer to show that the [`but for' claim] is unreasonable for some or all of the lost sales." Rite-Hite, 56 F.3d at 1545. The patentee need not use the patented invention as a prerequisite to recovery of lost profits. King Instruments, 65 F.3d at 947. Lost profits are available on collateral or derivative product sales if "[a]ll the components together . . . are analogous to components of a single assembly or [are] parts of a complete machine or they . . . . constitute a functional unit . . . ." Rite Hite 56 F.3d at 1144. See also Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11, 23 (Fed. Cir. 1984) (holding that "if in all reasonable probability the patent owner would have made the sales which the infringer has made, what the patent owner in reasonable probability would have netted from the sales denied to him is the measure of his loss, and the infringer is liable for that.") One recognized method for proving lost sales ­ often called the Panduit test ­ is for the patent owner to prove: (1) demand for the patented product; (2) absence of acceptable noninfringing substitutes; (3) manufacturing and marketing capacity to exploit the demand; and (4) the amount of the profit that it would have made. Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978). The Panduit test is an acceptable, though not exclusive, test - 17 -

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for determining the availability of lost profits. See Tate Access Floors, Inc., v. Maxcess Techs., Inc., 222 F.3d 958, 971 (Fed. Cir. 2000) (noting that a patent owner may establish lost profits using the Panduit approach); BIC Leisure Prods., Inc. v. Windsurfing Int'l, 1 F.3d 1214, 1218 (Fed. Cir. 1993). "The substantial number of sales . . . of infringing products containing the patented features itself is compelling evidence of demand for the patented product." See Gyromat Corp. v. Champion Spark Plug Co., 735 F.2d 549, 552 (Fed. Cir. 1984). As the Grain Processing court held: When an alleged alternative is not on the market during the accounting period, a trial court may reasonably infer that it was not available as a noninfringing substitute at that time. . . . The accused infringer then has the burden to overcome this inference by showing that the substitute was available during the accounting period. . . . Mere speculation or conclusory assertions will not suffice to overcome the inference. After all, the infringer chose to produce the infringing, rather than noninfringing, product. Thus, the trial court must proceed with caution in assessing proof of the availability of substitutes not actually sold during the period of infringement. Acceptable substitutes that the infringer proves were available during the accounting period can preclude or limit lost profits; substitutes only theoretically possible will not. 185 F.3d at 1353. "Consumer demand defines the relevant market and relative substitutability among products therein. . . . Important factors shaping demand may include consumers' intended use for the patentee's product, similarity of physical and functional attributes of the patentee's product to alleged competing products, and price." Id. at 1355. "While there may be competing devices available in the marketplace, the `mere existence of a competing device does not make that device an acceptable substitute.'" Kalman v. The Berlyn Corp., 914 F.2d 1473, 1484 (Fed. Cir. 1990) (citation omitted). "It is clear that `[a] product lacking the advantages of [the] patented [device] can hardly be termed a substitute `acceptable' to the customer who wants those advantages.'" Id. (citing Panduit, 575 F.2d at 1162). - 18 -

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Another way to establish lost profits from lost sales is the market share approach that the Federal Circuit adopted in State Industries. Under this approach, even in the presence of acceptable noninfringing alternatives, a patent owner can recover lost profits based on its market share of the infringing sales, if the patent owner meets the other Panduit factors and shows an established market share in the relevant product market. State Indus., 883 F.2d at 1576. In other words, proof of market share can be substituted for the second factor of the Panduit factor test, the absence of acceptable noninfringing substitutes. explained its rationale as follows: To the extent infringing competitors got credit for sales that should have gone to State, the share of the market against which MorFlo's damages might be assessed is reduced. So we think that in these circumstances the presence or absence of acceptable noninfringing alternatives does not matter. The question then becomes whether an established market share combined with the other Panduit factors is sufficient to show State's loss to a reasonable probability. Id. at 1578. Courts frequently employ the "market share" approach to determine lost profits based on the patentee's market share in the presence of acceptable noninfringing alternatives. See, e.g., Pall Corp. v. Micron Separations, Inc., 66 F.3d 1211, 1222-23 (Fed. Cir. 1995), cert. denied, 520 U.S. 1115 (1997) (holding that patentee was entitled to lost profits on 25% of infringer's sales in a three party market and reasonable royalties on the remaining sales of infringing products); King Instruments, 65 F.2d at 953 (applying market share analysis where patentee possessed 70% of the market); Atlantic Thermoplastics Co. v. Faytex Corp., 970 F.2d 834, 847 (Fed. Cir. 1992) (remanding to district court with direction to apply market share analysis to account for noninfringing sales by third party); Procter & Gamble, 989 F. Supp. at 601-02 (applying market share analysis to the second prong of the Panduit analysis); Schneider (Europe) AG v. SciMed Life - 19 The Federal Circuit

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Sys., Inc., 852 F. Supp. 813, 858-59 (D. Minn. 1994), aff'd, 60 F. 3d 839 (Fed. Cir.), cert. denied, 516 U.S. 990 (1995) (applying market share analysis to sales made after an acceptable noninfringing alternative entered the market); Ziggity Sys., Inc. v. Val Watering Sys., 769 F. Supp. 752, 823 (E.D. Pa. 1990) (applying market share analysis). The patent owner may prove the third factor -- capacity -- by showing that it had the ability to meet the demand for the quantity of sales that it claims to have lost. See Bio-Rad Lab., Inc. v. Nicolet Instr. Corp., 739 F.2d 604, 616 (Fed. Cir.), cert. denied, 469 U.S. 1038 (1984). Finally, the patent owner may prove the fourth factor -- the amount of profits it lost -- by reasonably quantifying the incremental profits it would have made from the sales it lost. See Paper Converting Mach. Co. v. Magna-Graphics Corp., 745 F.2d 11, 22 (Fed. Cir. 1984). A portion of fixed or overhead costs is not allocated to the hypothetically increased sales. Id. See also Stryker, 891 F. Supp. at 825-26 ("[A]n incremental profits calculation is the proper measure of profit loss . . . . Incremental profits are the difference between gross revenues resulting from regaining the sales lost due to infringement and the incremental cost of making those sales. This measure of profit loss is appropriate when the patentee's fixed costs do not rise, or only slightly increase, relative to increases in production."). b. Reasonable Royalty

"A patentee is entitled to no less than a reasonable royalty on an infringer's sales for which the patentee has not established entitlement to lost profits." Rite-Hite, 56 F.3d at 1554. "A patentee receives a reasonable royalty for any of the infringer's sales not included in the lost profit calculation." Crystal Semiconductor, 246 F.3d at 1354 "Thus, a patentee may obtain lost profit damages for that portion of the infringer's sales for which the patentee can demonstrate `but for' causation and reasonable royalties for any remaining infring[ement]." Id.

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"A reasonable royalty is the amount of money that would be agreed to in a hypothetical arms length negotiation between the owners of the patent rights and the infringer, with both operating under the assumption that the negotiated patent is not invalid and is infringed." Johns Hopkins, 894 F. Supp. at 838. "[W]hat an infringer would prefer to pay is not the test for damages." Rite-Hite, 56 F.3d at 1555. "[T]hat the parties might have agreed to a lesser royalty is of little relevance, for to look only at that question would be to pretend that the infringement never happened; it would also make an election to infringe a handy means for competitors to impose a compulsory license policy upon every patent owner." Id. "There is no rule that a royalty be no higher than the infringer's net profit margin." State Indus., 883 F.2d at 1580. The hypothetical negotiation is presumed to take place on the eve of first infringement. Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1079 (Fed. Cir. 1983). "The Court also must assume, for purposes of the hypothetical negotiation, that all parties would have known all relevant information." Mobil Oil Corp. v. Amoco Chem. Co., 915 F. Supp. 1333, 1353 (D. Del. 1995). The hypothetical negotiation speaks of negotiations as of the time infringement began, yet a court may look to events and facts that occurred thereafter and that could not have been known to or predicted by the hypothetical negotiators. Studiengesellschaft Kohle GmbH v. Start Indus. Inc., 862 F.2d 1564, 1571-72 (Fed. Cir. 1988). A jury may "rely on evidence of bundling and convoyed sales in determining the scope of the royalty base." Interactive Pictures Corp. v. Infinite Pictures, Inc. 274 F.3d 1371, 1385 (Fed. Cir. 2001). A jury may consider industry royalty rates in determining an applicable royalty rate, but these "do not necessarily establish a ceiling for the royalty that may be assessed after an infringement trial. Bio-Rad Laboratories v. Nicolet Instrument Corp., 739 F.2d 604, 617 (Fed. Cir. 1984). In determining a reasonable royalty, courts often apply the fifteen factors first enunciated in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 - 21 -

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(S.D.N.Y. 1970), modified and aff'd, 446 F.2d 295 (2d Cir.), cert. denied, 404 U.S. 870 (1971). See Unisplay, S.A. v. American Elec. Sign Co., 69 F.3d 512, 517, n.7 (Fed. Cir. 1995) (citing to Georgia-Pacific factors). These factors are: 1. The royalties received by the patentee for the licensing of the patent in suit, proving

or tending to prove an established royalty. 2. The rates paid by the patentee, the licensee, or others for the use of other patents

comparable to the patent in suit. 3. The nature and scope of the license, as exclusive or non-exclusive; or as restricted or

nonrestricted in terms of territory or with respect to whom the manufactured product may be sold. 4. The licensor's established policy and marketing program to maintain his patent

monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly. 5. The commercial relationship between the licensor and licensee, such as, whether

they are competitors in the same territory in the same line of business; or whether they are inventor and promotor [sic]. 6. The effect of selling the patented specialty in promoting sales of other products of

the licensee; the existing value of the invention to the licensor as a generator of sales of his nonpatented items; and the extent of such derivative or convoyed sales. 7. 8. The duration of the patent and the term of the license. The established profitability of the product made under the patent; its commercial

success; and its current popularity. 9. The utility and advantages of the patent property over the old modes or devices, if

any, that had been used for working out similar results.

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10.

The nature of the patented invention; the character of the commercial embodiment of

it as owned and produced by the licensor; and the benefits to those who have used the invention. 11. The extent to which the infringer has made use of the invention; and any evidence

probative of the value of that use. 12. The portion of the profit or of the selling price that may be customary in the

particular business or in comparable businesses to allow for the use of the invention or analogous inventions. 13. The portion of the realizable profit that should be credited to the invention as

distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer. 14. 15. The opinion testimony of qualified experts. The amount that a licensor (such as the patentee) and a licensee (such as the

infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee ­ who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention ­ would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license. Georgia Pacific, 318 F. Supp. at 1120. 3. Enhanced Damages

35 U.S.C. § 284 states in pertinent part that "the court may increase the damages up to three times the amount found or assessed." The Court may enhance damages, up to trebling the actual damages, upon a finding of willful infringement. Johns Hopkins, 152 F.3d at 1364. In

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exercising its discretion to enhance damages, the Court should consider the weight of the evidence of the infringer's culpability in light of the following factors: 1. 2. whether the infringer copied the ideas or design of another, whether the infringer, when he knew of the other's patent protection, investigated the

scope of the patent and formed a good faith belief that it was invalid or that it was not infringed, 3. 4. 5. 6. 7. 8. 9. the infringer's behavior as a party to the litigation, the infringer's size and financial condition, the closeness of the case, the duration of the infringer's misconduct, any remedial action of the infringer, the infringer's motivation for harm, and whether the infringer attempted to conceal its misconduct.

Id. at 1352 n.16 and 1364-65. See also Imonex Servs., Inc. v. W.H. Munzprufer Dietmar Trenner GMBH, 408 F.3d 1374, 1377 (Fed. Cir. 2005) ("[The Federal Circuit] has identified several criteria for assessing damages, including, inter alia, whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed, and the duration of defendant's misconduct"). 4. Attorneys' Fees

35 U.S.C. § 285 provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." Determining whether a case is exceptional and whether attorneys' fees should be granted under 35 U.S.C. § 285 is a two-step process. Tate Access Floors, 222 F.3d at 964. The first step is a factual determination whether the case is exceptional, and the second step, the Court exercises its discretion to determine whether attorneys' fees should be awarded. Id. - 24 -

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The types of conduct that can form the basis for finding a case to be exceptional include willful infringement, misconduct during litigation and vexatious litigation. Beckman

Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989). Such conduct must be supported by clear and convincing evidence. Id. 5. Prejudgment Interest

The patent statute authorizes awards of prejudgment interest. 35 U.S.C. § 284. The Supreme Court has held that "prejudgment interest should ordinarily be awarded." General

Motors, 461 U.S. at 655. "An award of prejudgment interest serves to make the patentee whole because the patentee also lost the use of its money due to infringement." Crystal Semiconductor, 246 F.3d at 1361. In General Motors, the Supreme Court held that prejudgment interest is the rule, not the exception. Id. "The rate of prejudgment interest and whether it should be compounded or uncompounded are matters left largely to the discretion of the district court. . . . In exercising that discretion, however, the district court must be guided by the purpose of prejudgment interest, which is `to ensure that the patent owner is placed in as good a position as he would have been had the infringer entered into a reasonable royalty agreement.'" omitted). II. ISSUES ON WHICH DEFENDANTS BEAR THE BURDEN OF PROOF A. VALIDITY 35 U.S.C. § 282 states in pertinent part: A patent shall be presumed valid. Each claim of a patent (whether in independent, dependent or multiple dependent form) shall be presumed valid independently of the validity of other claims; dependent or multiple dependent claims shall be presumed valid even though dependent upon an invalid claim. The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such in validity. - 25 Bio-Rad, 807 F.2d at 969 (citation

Case 1:04-cv-00901-JJF

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"A party seeking to establish that particular claims are invalid must overcome the presumption of validity in 35 U.S.C. § 282 by clear and convincing evidence." Nystrom v. TREX Co., Inc. 424 F.3d 1136, 1149 (Fed. Cir. 2005) (quoting State Contracting & Eng'g Corp. v. Condotte Am., Inc., 346 F.3d 1057, 1067 (Fed.Cir.2003)). "Clear and convincing evidence has been described as evidence which proves in the mind of the trier of fact `an abiding conviction that the truth of [the] factual contentions are highly probable.'" Intel Corp. v. U.S. Int'l Trade Comm'n, 946 F.2d 821, 830 (Fed. Cir. 1991) (quoting Colorado v. New Mexico, 467 U.S. 310, 316 (1984)). The presumption of validity "exists at every stage of the litigation." Canon

Computer Sys., Inc. v. Nu-Kote Int'l, Inc., 134 F.3d 1085, 1088 (Fed. Cir. 1998). "[T]he burden of persuasion is and remains always upon the party asserting invalidity." American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1358 (Fed. Cir.), cert. denied, 469 U.S. 821 (1984) (emphasis in original). "The presumption is never annihilated, destroyed or even weakened,

regardless of what facts are of record." ACS Hosp. Sys., Inc. v. Montefiore Hosp., 732 F.2d 1572, 1574-75 (Fed. Cir. 1984) (emphasis in original). "[T]he burden of proving invalidity never shifts from the party asserting invalidity." Imperial Chem. Indus., PLC v. Danbury Pharmacal, Inc., 777 F. Supp. 330, 368 (D. Del. 1991), aff'd w/o op., 972 F.2d 1354 (Fed. Cir. 1992). "The burden of proof arises from the presumption that the Patent Office properly carried out its administrative functions." BOC Health Care, 892 F. Supp. at 602. "It is not necessary that the court hold a patent valid; it is only necessary that it hold that the patent challenger has failed to carry its burden." Ajinomoto Co., Inc. v. Archer-Daniels-Midland Co., 1996 WL 621830 at