Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 1 of 27 PageID# 36875
`
`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF VIRGINIA
`ALEXANDRIA DIVISION
`
`
`PHILIP MORRIS PRODUCTS S.A.,
`
`
`Plaintiff,
`
`
`v.
`
`R.J. REYNOLDS VAPOR COMPANY,
`
`
`Defendant.
`
`Case No. 1:20-cv-00393-LMB-WEF
`
`ORAL ARGUMENT REQUESTED
`
`
`
`
`
`
`
`REPLY IN SUPPORT OF PHILIP MORRIS’ MOTION FOR A PERMANENT
`INJUNCTION OR, ALTERNATIVELY, AN ONGOING ROYALTY
`
`
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 2 of 27 PageID# 36876
`
`TABLE OF CONTENTS
`
`
`
`Page
`
`I.
`II.
`
`II.
`
`III.
`
`B.
`C.
`
`3.
`
`4.
`
`INTRODUCTION ...............................................................................................................1
`The Court Should Enjoin Reynolds’ Infringement ..............................................................1
`A.
`Philip Morris Will Continue To Suffer Irreparable Harm .......................................1
`1.
`Key Indisputable Facts Show Irreparable Harm To Philip Morris ..............1
`2.
`Even Prior To The (Re)Entry Of IQOS Products Into The U.S.
`Market, The Irreparable Harm To Philip Morris Is Concrete ......................3
`Irreparable Harm To Philip Morris Will Continue Upon (Re)Entry
`of IQOS Products Into The U.S. Market ......................................................5
`A Strong Nexus Exists Between The Patented Technology And
`Demand For Reynolds’ Infringing Products ................................................7
`Philip Morris Has No Adequate Remedy At Law ...................................................8
`B.
`The Balance Of Hardships Favors A Permanent Injunction ....................................8
`C.
`A Permanent Injunction Serves The Public Interest ................................................9
`D.
`Alternatively, The Court Should Order An Ongoing Royalty ...........................................11
`A.
`The Ongoing Royalty Rate For The ’265 Patent Should Be 33.5% ......................11
`1.
`The Circumstances Have Fundamentally Changed ...................................11
`2.
`A
` Baseline Royalty For The ’265 Patent Is Warranted ..................15
`3.
`A 2.5% Baseline Ongoing Royalty For The ’911 Patent Is
`Warranted ...................................................................................................17
`The Ongoing Royalty Rates Should Be Enhanced By 50% ..................................17
`The Pre-Verdict And Post-Verdict Rates Should Reflect Different
`Realities..................................................................................................................19
`CONCLUSION ..................................................................................................................20
`
`i
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 3 of 27 PageID# 36877
`
`TABLE OF AUTHORITIES
`
`CASES
`
`ABS Global, Inc. v. Inguran, LLC,
`No. 14-cv-503, 2020 WL 2405380 (W.D. Wis. May 12, 2020) ............................................... 19
`
`ActiveVideo Networks, Inc. v. Verizon Commc’ns, Inc.,
`694 F.3d 1312 (Fed. Cir. 2012) ..................................................................................... 13, 16, 20
`
`ActiveVideo Networks, Inc. v. Verizon Commc’ns, Inc.,
`827 F. Supp. 2d 641 (E.D. Va. 2011) ........................................................................................ 18
`
`Acumed LLC v. Stryker Corp,
`551 F.3d 1323 (Fed. Cir. 2008) ................................................................................................... 9
`
`Affinity Labs of Texas, LLC v. BMW N. Am., LLC,
`783 F. Supp. 2d 891 (E.D. Tex. 2011) ................................................................................ 17, 18
`
`Alfred E. Mann Found. for Sci. Rsch. v. Cochlear Corp.,
`No. 07-cv-8108, 2018 WL 6190604 (C.D. Cal. Nov. 4, 2018) ................................................. 18
`
`Amado v. Microsoft Corp.,
`517 F.3d 1353 (Fed. Cir. 2008) ........................................................................................... 18, 19
`
`Apple, Inc. v. Samsung Elecs. Co.,
`No. 12-cv-630, 2014 WL 6687122 (N.D. Cal. Nov. 25, 2014) ................................................. 11
`
`Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc.,
`670 F.3d 1171 (Fed. Cir. 2012) ................................................................................................. 12
`
`Cioffi v. Google, Inc.,
`No. 13-cv-103, 2017 WL 4011143 (E.D. Tex. Sept. 12, 2017) ................................................ 17
`
`Douglas Dynamics, LLC v. Buyers Prod. Co.,
`76 F. Supp. 3d 806 (W.D. Wis. 2014) ....................................................................................... 19
`
`Douglas Dynamics, LLC v. Buyers Prods. Co.,
`717 F.3d 1336 (Fed. Cir. 2013) ........................................................................................... 3, 5, 8
`
`Eko Brands, LLC v. Adrian Rivera Maynez Enters., Inc.,
`946 F.3d 1367 (Fed. Cir. 2020) ................................................................................................. 18
`
`ePlus, Inc. v. Lawson Sofware, Inc.,
`No. 09-cv-620, 2011 WL 2119410 (E.D. Va. May 23, 2011) ..................................................... 6
`
`Fresenius Med. Care Holdings Inc. v. Baxter Int’l, Inc.,
`No. 03-cv-1431, 2008 WL 928496 (N.D. Cal. Apr. 4, 2008) ..................................................... 9
`
`i
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 4 of 27 PageID# 36878
`
`I/P Engine, Inc. v. AOL Inc.,
`No. 11-cv-512, 2014 WL 309245 (E.D. Va. Jan. 28, 2014) .................................... 11, 16, 17, 18
`
`i4i Ltd. P’ship v. Microsoft Corp.,
`598 F.3d 831 (Fed. Cir. 2010) ................................................................................................. 3, 8
`
`i4i Ltd. P’ship v. Microsoft Corp.,
`670 F. Supp. 2d 568 (E.D. Tex. 2009) ........................................................................................ 6
`
`Inventio AG v. Otis Elevator Co.,
`No. 06-cv-5377, 2011 WL 3480946 (S.D.N.Y. Aug. 4, 2011) ................................................... 9
`
`Joyal Prods., Inc. v. Johnson Elec. N. Am., Inc.,
`No. 04-cv-5172, 2009 WL 512156 (D.N.J. Feb. 27, 2009) ........................................... 14, 16, 19
`
`Lucent Techs., Inc. v. Gateway, Inc.,
`580 F.3d 1301 (Fed. Cir. 2009) ................................................................................................. 13
`
`Matrixx Initiatives, Inc. v. Siracusano,
`563 U.S. 27 (2011) ...................................................................................................................... 4
`
`Mondis Tech. Ltd. v. Chimei InnoLux Corp.,
`822 F. Supp. 2d 639 (E.D. Tex. 2011) ................................................................................ 13, 18
`
`Mytee Prod., Inc. v. Harris Rsch., Inc.,
`439 F. App’x 882 (Fed. Cir. 2011) .............................................................................................. 6
`
`Presidio Components, Inc. v. Am. Tech. Ceramics Corp.,
`702 F.3d 1351 (Fed. Cir. 2012) ............................................................................................... 2, 6
`
`ResQNet.com, Inc. v. Lansa, Inc.,
`594 F.3d 860 (Fed. Cir. 2010) ................................................................................................... 16
`
`Robert Bosch LLC v. Pylon Mfg. Corp.,
`659 F.3d 1142 (Fed. Cir. 2011) ................................................................................................... 6
`
`S. States Rack & Fixture, Inc. v. Sherwin-Williams Co.,
`318 F.3d 592 (4th Cir. 2003) ..................................................................................................... 14
`
`XY, LLC v. Trans Ova Genetics, L.C.,
`890 F.3d 1282 (Fed. Cir. 2018) ............................................................................... 13, 14, 16, 20
`
`RULES
`
`Fed. R. Civ. P. 26(a) ..................................................................................................................... 14
`
`Fed. R. Civ. P. 37(c)(1) ................................................................................................................. 14
`
`
`
`ii
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 5 of 27 PageID# 36879
`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 5 of 27 PagelD# 36879
`
`TABLE OF ABBREVIATIONS
`
`The following abbreviationsare used in this reply brief.
`
`Parties
`
`Abbreviation
`Philip Morris
`
`Citations
`
`Plaintiff Philip Morris Products S.A. Defendant R.J. Reynolds Vapor Compan
`Permanent Injunction or, Alternatively, an Ongoing Royalty, Dkt. 1421
`
`Brief in Support of PMP’s Motion for a Permanent Injunctionor,
`Alternatively, an Ongoi
`, Dkt. 1411
`Defendant’s Memorandum in Opposition to Plaintiff's Motion for a
`
`Terms
`
`
`
`265 patent
`
`°911 patent
`Alto
`
`CC
`
`FDA
`
`HNB
`
`ITC
`
`LEO
`
`MRTP
`
`PMTA
`
`PRRP
`
`PTAB
`Solo G2
`
`Term
`
`US. Patent No. 9,814,265
`U.S. Patent No. 10,104,911
`VUSEAlto
`combustible cigarette
`
`U.S. Food and Drug Administration
`heat not burn
`U.S. International Trade Commission
`ITC Limited Exclusion Order
`Modified Risk Tobacco Product
`
`Premarket Tobacco Product Application
`potentially reduced risk product
`Patent Trial and Appeal Board
`VUSESolo G2
`
`
`
`All emphasis added, and internal quotation marks andcitations omitted, unless otherwise noted.
`
`ill
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 6 of 27 PageID# 36880
`
`I.
`
`INTRODUCTION
`
`For years, and certainly since Philip Morris filed its counterclaims, Reynolds knowingly
`
`disregarded the patent rights of its “fierce competitor,” Philip Morris, through the sale of its VUSE
`
`Alto and Solo G2. And even after having been found to infringe, Reynolds has doubled-down on
`
`its continued infringement, despite having three other e-cigarettes to which American smokers can
`
`turn—among “thousands” of other CC alternatives that Reynolds contends are available. After
`
`almost
`
`
`
`, Reynolds asks the Court to tender it the remaining 11 and 13 years of life on the
`
`asserted patents, which will cannibalize IQOS market share and brand prestige. Worse, Reynolds
`
`seeks to hijack Philip Morris’ exclusive rights and retain nearly
`
`of the infringing profits under
`
`pre-verdict rates. Under Reynolds’ calculations, it projects over
`
` of infringing post-
`
`verdict sales. Forcing Philip Morris to license its primary business rival’s willful infringement at
`
`pre-verdict rates would be error, cause the company irreparable harm, and stand equity on its head.
`
`The appropriate redress for Reynolds’ unlawful actions is to enforce Philip Morris’
`
`constitutional and statutory right to exclude the infringing products. If the Court denies this right,
`
`any post-verdict royalty must thwart a Reynolds infringement windfall and account for the willful
`
`nature of its post-verdict conduct. This requires royalty rates of 33.5% and 3.75% for the ’265 and
`
`’911 patents, respectively, comprised of baseline rates of
`
` and 2.5% enhanced by 50%
`
`II.
`
`THE COURT SHOULD ENJOIN REYNOLDS’ INFRINGEMENT
`
`A.
`
`Philip Morris Will Continue To Suffer Irreparable Harm
`
`1.
`
`Key Indisputable Facts Show Irreparable Harm To Philip Morris
`
`Three indisputable key facts establish that, absent injunctive relief, Philip Morris will suffer
`
`irreparable harm from Reynolds’ continued, post-verdict infringement.
`
`1
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 7 of 27 PageID# 36881
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`First, Reynolds admits that the parties are
`
` (Dkt. 1411-1 at 135:18-19),
`
`and that the infringing e-cigarettes will
`
`. Dkt.
`
`1411-6 at 128:23-129:5. Such direct competition confirms irreparable harm. See, e.g., Presidio
`
`Components, Inc. v. Am. Tech. Ceramics Corp., 702 F.3d 1351, 1363 (Fed. Cir. 2012).
`
`Reynolds attempts to unwind its admissions by redefining the “relevant market” as one
`
`only for “e-cigarettes,” rather than CC alternatives more broadly. Opp. at 8. This post-trial attempt
`
`belies Reynolds’ repeated representations that it sells infringing e-cigarettes to tobacco consumers
`
`seeking to switch from CCs to a non-combustible alternative—the same consumer base as IQOS.
`
`See id. at 28 (“[Sales] were motivated by the desire to sell reduced risk products to adult tobacco
`
`users”); Ex. 57 (Calderon Tr.) at 82:15-83:1
`
` Ex. 58 (9/17/20 ROG 7 Resp.) at 88
`
`Second, there is no dispute that Philip Morris has
`
`
`
`
`
`).1
`
`. Dkt.
`
`1411-1 at 147:12-20. That is important because, as a matter of law, an “unwillingness to license
`
`favor[s] finding irreparable injury.” Presidio, 702 F.3d at 1363. That is particularly true here
`
`because Reynolds acknowledges
`
` Dkt. 1411-1 at 135:18-19.
`
`Third, it is indisputable that Reynolds extensively used the ’265 patent for years, touting
`
`Philip Morris’ patented heater technology in the Alto cartridge as “innovative” (Dkt. 1406-2 at 2)
`
`and misleading consumers into believing that Alto is Reynolds’ innovation. Mot. at 9-10; Dkt.
`
`1411-2 ¶¶ 10-11. Indeed, third parties found that Alto provides “a revolutionary vaping experience
`
`by adopting” this patented heater, giving Reynolds “an increasingly prominent competitive edge.”
`
`
`1 Contrary to Reynolds’ claims, Philip Morris has long maintained that VUSE and IQOS compete,
`but recognizes that, as the only PMT-and MRTP-authorized inhalable CC alternative, IQOS HNB
`has no substitute. Dkt. 1406-10 ¶ 13; Opp. at 7-8. Substitutability is distinct from competition.
`
`2
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 8 of 27 PageID# 36882
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`Dkt. 1406-3 at 2-3; Mot. at 9-10. Thus, Philip Morris’ “reputation as an innovator will certainly
`
`be damaged if customers found the same ‘innovations’ appearing in [Reynolds’ products].”
`
`Douglas Dynamics, LLC v. Buyers Prods. Co., 717 F.3d 1336, 1344-45 (Fed. Cir. 2013).
`
`2.
`
`Even Prior To The (Re)Entry Of IQOS Products Into The U.S.
`Market, The Irreparable Harm To Philip Morris Is Concrete
`
`Reynolds argues that any irreparable harm to Philip Morris is speculative because IQOS
`
`products have not yet been (re)integrated into the U.S. market.2 This position, however, ignores
`
`past harms to IQOS HNB as well as future, concrete harms that will occur absent an injunction.
`
`See i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 861-62 (Fed. Cir. 2010) (“Past harm to a
`
`patentee’s market share, revenues, and brand recognition is relevant” to irreparable injury).
`
`IQOS HNB. Reynolds concedes its speculation argument
`
` if the
`
`Federal Circuit vacates the LEO, as it would allow IQOS HNB immediate re-entry to the U.S.
`
`market. Mot. at 10. That decision is imminent, with oral argument set for October 3, 2022. But
`
`the return of IQOS HNB is not dependent on that appeal. As Dr. Gilchrist’s unrebutted sworn
`
`statements reflect,
`
`. Dkt. 1411-2 ¶ 17. In fact, Philip Morris
`
`
`
`has reported for months in investor presentations, earnings calls, and interviews that it “has
`
`contingency plans underway, including domestic production,” to reintroduce IQOS HNB. Ex. 61
`
`(Q4 2021 Tr.) at 9-10; Ex. 60 (Q2 2022 Tr.) at 22-23; Ex. 62 (Bloomberg).
`
`Such representations to public securities markets are hardly unreliable or “self-serving.”3
`
`Opp. at 4. They can have important legal and business ramifications. See Matrixx Initiatives, Inc.
`
`
`2 If the Court agrees, it can issue an injunction that is stayed until (re)entry of IQOS HNB or VEEV
`into the U.S. market, and order Reynolds to pay a post-verdict royalty in the interim.
`3 By claiming otherwise, Reynolds in effect accuses Philip Morris of deliberately misleading its
`investors in regulated markets, and the public—a reckless and unsupported position.
`
`3
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 9 of 27 PageID# 36883
`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 9 of 27 PagelD# 36883
`
`v. Siracusano, 563 U.S. 27, 37 (2011) (teaching it is unlawful to “make any untrue statement of a
`
`material fact”). Thus, Philip Morris’ announcements involving its U.S. IQOS-related plans are
`
`manifestly reliable and, as currentactivities, are in no way “speculative.” Opp.at 4-5.
`
`Financial analysts also have reported their views on the imminence of IQOS HNB’s U.S.
`
`return and likely success. See Ex. 63 at 9 (“reset[ting] expectations for IQOS in the U.S.” due to
`
`moveof “manufacturing responsibilities ... to the U.S. to remedy IP litigation with BATS”), 14
`
`(“Capex already being directed at establishing U.S. manufacturing”); see also id. at 1, 2, 17, 19-
`
`20. Public health scholars, too, are offering policy suggestions based on the assumption that IQOS
`
`HNB will soon be available again in the U.S. market. Ex. 64 at 2 (“PMI is likely to expand IQOS
`
`distribution in the US followingthehiatus related to the patent dispute”); see also id. at 1.4
`
`1008 VEEV. Philip Morissa
`EES 3:0: Gist eines
`
`1:
`
`1411-2 § 14; Ex. 65 (Gilchrist Tr.) at 152:16-21, 157:3-20, 158:24-161:9. These actions are not
`
`“conjecture.” Opp. at 5. Philip Morris expects to file its PMTA in Spring 2023 (Ex. 59 at 20) and
`
`ee
`
`Keeping Reynolds’ infringing products on the marketwill also irreparably and immediately
`
`157.1. 65
`
`4 These same scholars observed that, although IQOS HNB washalted by the ITC, “PMI has faced
`similar patent suits in other countries and won (e.g., Greece and UK),andit is expected by industry
`observers ... [to] resume its US sales in the nearfuture.” Ex. 64 at 2.
`
` . Opp. at 22 n. 10.
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 10 of 27 PageID# 36884
`
`(Gilchrist Tr.) at 127:9-21, 179:10-180:16. As Dr. Gilchrist testified,
`
` Id. at 169:17-170:24; id. at 132:24-133:20 (
`
`
`
`
`
`
`
`
`
`). Such harm to brand and goodwill is not speculative
`
`and cannot be adequately redressed by a royalty. See, e.g., Douglas Dynamics, 717 F.3d at 1344.
`
`3.
`
`Irreparable Harm To Philip Morris Will Continue Upon (Re)Entry of
`IQOS Products Into The U.S. Market
`
`Reynolds argues that even with IQOS products on the U.S. market, Philip Morris would
`
`still not suffer any irreparable harm. Opp. at 6-10. That position is refuted by the evidence.
`
`First, Reynolds is wrong that Philip Morris has never had a U.S. presence. Opp. at 10.
`
`Reynolds admits that
`
`Philip Morris
`
`. Ex. 66 (Interr. 30 Resp.) at 6.
`
`. Dkt. 1411-2 ¶¶ 2-
`
`3; Mot. at 3-4. It has a 71,484 square-foot corporate headquarters for the Americas in Connecticut,
`
`with an economic impact of $50 million and 200 employees who work on smoke-free devices. Ex.
`
`67 at 1-2, 4. The “quick start guide” for the IQOS HNB sold in the United States identified Philip
`
`Morris as the designer and manufacturer of the device as well as referenced Philip Morris’
`
`registered U.S. trademarks for IQOS® and HeatSticks®. Ex. 68 at 11. Further, the “re-launch of
`
`IQOS” will be “supplied by domestic, PM-owned production.” Ex. 63 (Cowen) at 14. And, under
`
`the
`
`
`
` Dkt. 1411-2 ¶ 9. Unlike Reynolds’ cited cases—where there was no
`
`competition between the parties, Opp. at 7—Reynolds’ infringement directly injures Philip Morris.
`
`Second, Reynolds argues there is no evidence it takes away sales from IQOS HNB. Opp.
`
`at 7. But Philip Morris is “not required to prove that its specific customers stopped using [its]
`
`5
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 11 of 27 PageID# 36885
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`products because they switched to the infringing [Reynolds’] products.” i4i, 598 F.3d at 862. That
`
`the infringing e-cigarettes and IQOS HNB are
`
` is sufficient circumstantial
`
`evidence of lost sales and market share. Dkt. 1411-6 at 128:23-129:5; see also Dkt. 1411-11 at
`
`88. And Reynolds admits
`
`
`
`. Ex. 58 (9/17/20 ROG 8 Resp.) at 89-90.
`
`Third, Reynolds’ assertion that a two supplier market is required to show irreparable harm
`
`(Opp. at 9) is “legal error.” Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1151 (Fed.
`
`Cir. 2011). The Federal Circuit rejected this exact argument because it “would effectively establish
`
`a presumption against irreparable harm when[] the market contains a plurality of players.” Id.
`
`Fourth, Reynolds argues that the IQOS products must practice the asserted patents to show
`
`irreparable harm. Opp. at 9-10. That is not the law. See Presidio, 702 F.3d at 1363 (“Even without
`
`practicing the claimed invention, the patentee can suffer irreparable injury.”). Philip Morris need
`
`only sell a competing device, which the
`
` See id.; see Mot. at 6-7.
`
`Fifth, Reynolds’ assertion that Philip Morris delayed filing suit and seeking an injunction
`
`is wrong. Opp. at 11. The Court rejected this argument in granting Philip Morris leave to pursue
`
`injunctive relief. Dkt. 476 at 15-17; Dkt. 483; see i4i Ltd. P’ship v. Microsoft Corp., 670 F. Supp.
`
`2d 568, 573 (E.D. Tex. 2009) (finding five-year period before seeking injunctive relief request
`
`“not unreasonable”). Contrary to Reynolds’ argument, “there is no requirement that a party must
`
`seek a preliminary injunction as the predicate to securing a permanent one.” ePlus, Inc. v. Lawson
`
`Sofware, Inc., No. 09-cv-620, 2011 WL 2119410, at *13 (E.D. Va. May 23, 2011). In view of the
`
`“significant differences in [] requirements,” the Federal Circuit has “never held that failure to seek
`
`a preliminary injunction must be considered as a factor weighing against [] issuance of a permanent
`
`injunction.” Mytee Prod., Inc. v. Harris Rsch., Inc., 439 F. App’x 882, 888 (Fed. Cir. 2011).
`
`6
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 12 of 27 PageID# 36886
`
`4.
`
`A Strong Nexus Exists Between The Patented Technology And
`Demand For Reynolds’ Infringing Products
`
`Reynolds ignores significant evidence showing a strong demand for the patented features.
`
`Mot. at 11. For the ’265 patent, it ignores its documents
`
`
`
` Dkt. 1411-19. It ignores a Reynolds-sponsored article touting the “innovative alloy-
`
`heater and ceramic-wick assembly” as Alto’s “core,” what “sets [] Alto apart” and “deliver[s]
`
`what smokers want.” Dkt. 1406-53. It ignores Mr. Walbrink’s trial testimony (see Ex. 70 at
`
`293:14-296:13), and third-party evidence that Alto offers “a revolutionary vaping experience by
`
`adopting [the infringing heater],” yielding a “competitive edge.” Dkt. 1406-3 at 2-3; Mot. at 24.
`
`Instead, Reynolds picks at the corners. It claims “[t]he one survey that PMP cites … did
`
`not even use Alto’s name.” Opp. at 12. Misleading nonsense.
`
`
`
` Ex. 57 at 268:8-12.
`
`Reynolds claims Philip Morris “ignores” the ’265 patent “links any improved vapor consistency
`
`and efficiency to provid[ing] the largest possible contact area between the thermal resistor foil and
`
`the vaporizer member,” which it now argues the claims do not require. Opp. at 13 (no emphasis).
`
`Yet Reynolds’ documents and Mr. Walbrink’s testimony link those benefits to the claimed
`
`elements the jury found infringed. Ex. 70 at 293:14-296:13; Dkt. 1406-32. And Dr. Suhling’s
`
`post-trial claim that
`
` (Opp. at 13; Dkt. 1421-2 ¶ 19) is belied by
`
`the evidence that he showed the jury. Dkt. 1360 at RX-1399
`
`
`
`Reynolds’ arguments for Solo G2 fare no better. Reynolds admits that “consumers do not
`
`want an e-cigarette product that leaks.” Opp. at 13. Reynolds also admits it
`
`
`
`
`
` Mot. at 12; Dkt. 1411-23. Contrary to Reynolds’ assertion, Philip
`
`Morris’ cited documents refer to
`
` See, e.g., Dkt. 1411-18 at 1.
`
`7
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 13 of 27 PageID# 36887
`
`B.
`
`Philip Morris Has No Adequate Remedy At Law
`
`Reynolds does not seriously dispute that, if the Court finds that irreparable harm exists,
`
`money damages are inadequate because the two issues “are inextricably intertwined.” Opp. at 14.
`
`Reynolds also concedes that, after releasing the infringing e-cigarettes, its
`
` and
`
`“significantly change[d] the relevant market.” i4i, 598 F.3d at 862; 1411-27 ¶¶ 26-49. And it
`
`
`
` Mot. at 11. Yet Reynolds made no attempt to quantify the identified
`
`harms—including those that typically “defy attempts at valuation,” such as loss of goodwill, brand
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`recognition, and reputation—confirming they cannot be remedied by monetary damages. i4i, 598
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`F.3d at 862. That should be dispositive. See supra § II.A; Mot. § IV.A.1; Ex. 58 at 88-89.
`
`Reynolds attempts to distinguish Douglas Dynamics by arguing that Philip Morris “does
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`not practice the asserted patents” and did not lose market share because it currently has no product
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`in the United States. Opp. at 14-15. Not so. In Douglas Dynamics, the Federal Circuit “disagreed”
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`that the patentee “should suffer some penalty for managing through great effort to maintain market
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`share in the face of infringing competition.” 717 F.3d at 1345. Instead, it found “[m]ore relevant
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`is the rise in [defendant’s] market share from zero to about 5% in three years while infringing,”
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`because it “suggests that mere damages will not compensate for a competitor’s increasing share of
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`the market.” Id. That holding confirms monetary damages are inadequate here because Reynolds
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`concedes its
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` Mot. at 13.
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`C.
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`The Balance Of Hardships Favors A Permanent Injunction
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`Reynolds fails to identify any cognizable hardships, much less any that outweigh those
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`imposed on Philip Morris by Reynolds’ continuing infringement. Opp. at 15-16.
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`First, Reynolds’ unsupported assertion that enjoining Alto “would devastate a substantial
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`portion of its e-cigarette business” is legally irrelevant. Opp. at 15. “One who elects to build a
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`business on a product found to infringe cannot be heard to complain if an injunction against
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`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 14 of 27 PageID# 36888
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`continuing infringement destroys the business so elected.” Acumed LLC v. Stryker Corp, 551 F.3d
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`1323, 1330 (Fed. Cir. 2008). This claim is also disingenuous. Reynolds concedes it can pursue a
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`lawful market conduct by selling three
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` VUSE e-cigarettes. Dkt. 1411-7 at 25.
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`It simply chooses lucrative post-verdict willful infringement over marketing lesser products.
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`Second, Reynolds claims its other three PMT-authorized VUSE e-cigarettes are inadequate
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`alternatives to the more “dominant” Alto. Opp. at 16. Alto’s dominance is due to infringement.
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`This argument only confirms the reputational and economic harms to Philip Morris. Reynolds had
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`“year[s] to take commercially reasonable steps to redesign its [products],” but took “no action to
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`ease any hardship it may suffer as a result of an injunction.” Fresenius Med. Care Holdings Inc.
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`v. Baxter Int’l, Inc., No. 03-cv-1431, 2008 WL 928496, at *5 (N.D. Cal. Apr. 4, 2008).
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`Third, Reynolds argues that Philip Morris “would be financially better off from an ongoing
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`royalty.” Opp. at 15. But “[t]he right to keep someone from using a patented technology is what
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`the patent confers; allowing someone to use the patent if he pays some price (and not necessarily
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`a price set by the patentee) eviscerates that right.” Inventio AG v. Otis Elevator Co., No. 06-cv-
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`5377, 2011 WL 3480946, at *2 (S.D.N.Y. Aug. 4, 2011). Reynolds runs afoul of that principle
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`and does not account for the multiple competing products that Philip Morris will have on the U.S.
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`market in the near future. Mot. at 3-4. And if the Court adopts Reynolds’ post-verdict rates, which
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`would give it
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` of profits from future infringement, that argument is indisputably incorrect.
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`On these facts, Philip Morris should not be forced to relinquish its innovations to its rival.
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`D.
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`A Permanent Injunction Serves The Public Interest
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`Reynolds identifies no negative impact on the public interest from an injunction. None
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`exist. Reynolds admits that “enforcing the right to exclude serves the public interest.” Opp. at 16.
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`First, enjoining the sale of infringing Alto and Solo G2 cartridges would not “injure public
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`health.” Opp. at 16. Unlike IQOS HNB, the Alto and Solo G2 are not unique products. U.S.
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`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 15 of 27 PageID# 36889
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`consumers have access to multiple PMT-authorized e-cigarettes, including Logic devices and three
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`VUSE e-cigarettes from Reynolds. Dkt. 1406-10 ¶¶ 15-16; Ex. 72 at 1. Indeed,
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`Reynolds recently told the Federal Circuit that it agreed “[t]here are many e-cigarettes available to
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`consumers.” Ex. 71 at 61. Thus, removing Alto and Solo G2 cartridges from the U.S. market
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`would have no meaningful effect on the public’s welfare. Dkt. 1406-10 ¶¶ 14-16. That Alto is a
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`pod device (as opposed to a cig-a-like) does not change this. Opp. at 16-17. FDA granted PMT-
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`authorization to NJOY Ace, which is a pod-based e-cigarette comparable to the Alto (and JUUL,
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`another pod product, is currently on the U.S. market). See Ex. 72 at 1; Ex. 73 at 2-3. Accordingly,
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`American smokers can choose from both PMT-authorized cig-a-like and pod e-cigarettes.
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`Second, Reynolds speculates that “an injunction … would risk reversion to CCs, harming
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`public health.” Opp. at 17. That is unsupported and belied by Reynolds’ previous position that
`
`
`
`
`
`
`
` Ex. 74 (4/30/21 Reynolds’ Resp. to Interr. 30) at 18-19. Moreover,
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`Philip Morris will soon add the IQOS HNB and IQOS VEEV to those offerings. See Mot. at 3.
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`Third, Reynolds has repeatedly told courts that there are “thousands” of interchangeable
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`PRRPs available, such that removing one product “will not harm the public interest.” Mot. 17-18.
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`In fact, Reynolds told the ITC that the “many existing PRRPs in the market [] are more than
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`adequate to satisfy consumer demand.” Id. Those representations should be dispositive.
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`***
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`The Court should enforce Philip Morris’ constitutional and statutory right to exclude the
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`infringing products for the life of the patents, and enter the injunction set forth in Dkt. 1406-50.
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`II.
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`ALTERNATIVELY, THE COURT SHOULD ORDER AN ONGOING ROYALTY
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`If an injunction is not warranted, Reynolds “agrees that [Philip Morris] is entitled to an
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`ongoing royalty.” Opp. at 19. Yet Reynolds seeks to retain a windfall profit from its post-verdict
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`willful infringement by asking the Court to adopt the jury’s pre-verdict rates. Id. The Court should
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`decline. The appropriate post-verdict rates are based on an equitable allocation of profit from
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`Reynolds’ sales that are, post-verdict, willfully infringing Philip Morris’ exclusive patent rights.
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`A.
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`The Ongoing Royalty Rate For The ’265 Patent Should Be 33.5%
`1.
`
`The Circumstances Have Fundamentally Changed
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`Reynolds admits that there has been “a substantial shift in the parties’ bargaining positions
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`due to the verdict.” Opp. at 19, 22. It concedes this shift is even more substantial given the PTAB’s
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`denial of its IPR petition. Mot. at 20. Reynolds admits that it earned
`
`
`
` from infringing Alto sales in the first half of 2022 alone—reflected in July
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`2022 sales data that the jury could not consider. Dkt. 1411-27 ¶¶ 37-41. And Reynolds does not
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`dispute that the infringing sales are driven by the ’265 patented technology that Reynolds touts as
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`“innovative” and third parties found “rocketed” Reynolds’ sales. Dkt. 1406-2 at 2; Dkt. 1406-3 at
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`2. Yet Reynolds contends there should be no increase from the jury’s rates. Reynolds is wrong.
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`Increased Bargaining Power. Reynolds admits there is “a substantial shift” in bargaining
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`power but claims that a potential injunction does not impact the rates. Opp. at 22. Courts in this
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`District have noted: “In many ongoing royalty negotiations, the threat of a permanent injunction
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`serves as a big stick, essentially framing negotiation in terms of how much an adjudged infringer
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`would pay.” I/P Engine, Inc. v. AOL Inc., No. 11-cv-512, 2014 WL 309245 (E.D. Va. Jan. 28,
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`2014). “[I]n Bard, the Federal Circuit approved certain case-specific factors,” including that the
`
`infringer “faces stiffer losses that include a permanent injunction.” Apple, Inc. v. Samsung Elecs.
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`Co., No. 12-cv-630, 2014 WL 6687122, at *13 (N.D. Cal. Nov. 25, 2014). And Reynolds ignores
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`Case 1:20-cv-00393-LMB-WEF Document 1425 Filed 09/09/22 Page 17 of 27 PageID# 36891
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`that a post-verdict royalty is properly increased due to a potential injunction “in a second laws