Case 1:20-cv-00393-LMB-WEF Document 1468 Filed 04/05/23 Page 1 of 38 PageID# 40723
`
`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-TCB
`
`ORAL ARGUMENT REQUESTED
`
`
`
`
`
`
`
`BRIEF IN SUPPORT OF PHILIP MORRIS’ MOTION FOR A PERMANENT
`INJUNCTION OR, ALTERNATIVELY, AN ONGOING ROYALTY
`
`
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1468 Filed 04/05/23 Page 2 of 38 PageID# 40724
`
`TABLE OF CONTENTS
`
`
`
`Page
`
`INTRODUCTION ...............................................................................................................1
`FACTUAL BACKGROUND ..............................................................................................3
`A.
`Philip Morris’ Smoke-Free Transformation ............................................................3
`B.
`Reynolds’ Failed HNBs And Successful But Infringing E-Cigarettes ....................4
`LEGAL STANDARD ..........................................................................................................5
`A.
`Permanent Injunctive Relief ....................................................................................5
`B.
`Ongoing Royalty ......................................................................................................5
`ARGUMENT .......................................................................................................................6
`A.
`The Court Should Permanently Enjoin Reynolds’ Infringement .............................6
`1.
`Philip Morris Will Continue To Suffer Irreparable Harm Absent
`Enjoining Reynolds’ Infringement ..............................................................6
`a.
`Past And Future Irreparable Harm Exists ........................................6
`b.
`A Strong Nexus Exists Between The Patented Technology
`And Demand For Reynolds’ Infringing Products ..........................11
`Philip Morris Has No Adequate Remedy At Law .....................................12
`2.
`The Balance of Hardships Favors A Permanent Injunction .......................14
`3.
`A Permanent Injunction Would Serve, Not Harm, Public Interest ............16
`4.
`Alternatively, The Court Should Order An Enhanced Ongoing Royalty ..............18
`1.
`An Ongoing Royalty Is Warranted ............................................................18
`2.
`The Ongoing Royalty Rate For The ’265 Patent Should Be 33.5% ..........19
`a.
`The Circumstances Have Fundamentally Changed Since
`The August 2018 Hypothetical Negotiation ..................................19
`A 22.3% Baseline Royalty For The ’265 Patent Is
`Warranted .......................................................................................21
`A 2.5% Baseline Ongoing Royalty For The ’911 Patent Is
`Warranted ...................................................................................................25
`The Ongoing Royalty Rates Should Be Enhanced By 50% ......................25
`4.
`CONCLUSION ..................................................................................................................30
`
`b.
`
`3.
`
`I.
`II.
`
`III.
`
`IV.
`
`V.
`
`
`
`B.
`
`i
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1468 Filed 04/05/23 Page 3 of 38 PageID# 40725
`
`TABLE OF AUTHORITIES
`
`CASES
`
`ActiveVideo Networks, Inc. v. Verizon Commcn’s, Inc.,
`694 F.3d 1312 (Fed. Cir. 2012) ..................................................................................... 20, 22, 23
`
`ActiveVideo Networks, Inc. v. Verizon Communications, Inc.,
`827 F. Supp. 2d 641 (E.D. Va. 2011) .................................................................................. 22, 23
`
`Acumed LLC v. Stryker Corp.,
`551 F.3d 1323 (Fed. Cir. 2008) ........................................................................................... 13, 15
`
`Adasa, Inc. v. Avery Dennison Corp.,
`No. 17-cv-1685, 2021 WL 5921374 (D. Or. Dec. 15, 2021) .................................................... 20
`
`Affinity Labs of Texas, LLC v. BMW N. Am., LLC,
`783 F. Supp. 2d 891 (E.D. Tex. 2011) ............................................................................... passim
`
`Apple Inc. v. Samsung Elecs. Co.,
`809 F.3d 633 (Fed. Cir. 2015) ............................................................................................. 13, 17
`
`Arctic Cat Inc. v. Bombardier Rec. Prods. Inc.,
`876 F.3d 1360 (Fed. Cir. 2017) ..................................................................................... 22, 24, 30
`
`Arctic Cat Inc. v. Bombardier Recreational Prod., Inc.,
`No. 14-cv-62369, 2017 WL 7732873 (S.D. Fla. Jan. 3, 2017) ................................................. 25
`
`Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc.,
`670 F.3d 1171 (Fed. Cir. 2012) ........................................................................................... 20, 24
`
`Canon Inc. v. UniNet Imaging, Inc.,
`No. 11-cv-989, 2012 WL 13024015 (E.D. Va. May 18, 2012) ................................................. 13
`
`Covidien Sales LLC v. Ethicon Endo-Surgery, Inc.,
`No. 14-cv-917, 2014 WL 5242872 (D. Conn. Oct. 15, 2014) ................................................... 10
`
`Douglas Dynamics, LLC v. Buyers Prods. Co.,
`717 F.3d 1336 (Fed. Cir. 2013) .......................................................................................... passim
`
`eBay Inc. v. MercExchange, L.L.C.,
`547 U.S. 388 (2006) .................................................................................................................... 5
`
`ePlus, Inc. v. Lawson Software, Inc.,
`No. 09-cv-620, 2011 WL 2119410 (E.D. Va. May 23, 2011),
`modified, 946 F. Supp. 2d 459 (E.D. Va. 2013) ...................................................... 14, 16, 17, 18
`
`ii
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1468 Filed 04/05/23 Page 4 of 38 PageID# 40726
`
`Ez-XBRL Sols., Inc. v. Chapke,
`No. 17-cv-LMB-TCB, 2018 WL 5808724 (E.D. Va. Sept. 25, 2018),
`report and recommendation adopted, 2018 WL 5809406 (E.D. Va. Oct. 22, 2018) ................ 16
`
`Fresenius Med. Care Holdings Inc. v. Baxter Int’l, Inc.,
`No. 03-cv-1431, 2008 WL 928496 (N.D. Cal. Apr. 4, 2008) ............................................... 9, 14
`
`Hybritech, Inc. v. Abbott Labs.,
`849 F.2d 1446 (Fed. Cir. 1988) ................................................................................................... 8
`
`I/P Engine, Inc. v. AOL Inc.,
`No. 11-cv-512, 2014 WL 309245 (E.D. Va. 2014) ............................................................ passim
`
`i4i Ltd. P’ship v. Microsoft Corp.,
`598 F.3d 831 (Fed. Cir. 2010) ......................................................................................... 8, 13, 15
`
`Imperium IP Holdings (Cayman), Ltd. v. Samsung Elecs. Co.,
`203 F. Supp. 3d 755 (E.D. Tex. 2016) ...................................................................................... 27
`
`Johnstech Int’l Corp. v. JF Microtechnology SDN BHD,
`No. 14-cv-2864, 2018 WL 3036759 (N.D. Cal. 2018) ........................................................ 14, 15
`
`Joyal Products, Inc. v. Johnson Electrical North America, Inc.,
`No. 04-cv-5172, 2009 WL 512156 (D.N.J. Feb. 27, 2009) ........................................... 23, 28, 29
`
`King v. Herbert J. Thomas Mem’l Hosp.,
`159 F.3d 192 (4th Cir. 1998) ..................................................................................................... 18
`
`Kolcraft Enter., Inc. v. Chicco USA, Inc.,
`No. 09-cv-3339, 2019 WL 4242482 (N.D. Ill. 2019) ................................................................ 16
`
`Lowe v. Wells Fargo Bank, N.A.,
`No. 18-cv-126, 2018 WL 3748418 (E.D. Va. July 9, 2018) ..................................................... 18
`
`Martek Biosciences Corp. v. Nutrinova Inc.,
`520 F. Supp. 2d 537 (D. Del. 2007) .......................................................................................... 14
`
`Milwaukee Elec. Tool Corp. v. Snap-On Inc.,
`288 F. Supp. 3d 872 (E.D. Wis. 2017) ...................................................................................... 26
`
`Mondis Tech., Ltd. V. Chimei Innolux Corp.,
`822 F. Supp. 2d 639 (E.D. Tex. 2011) .......................................................................... 21, 26, 30
`
`Monsanto Co. v. Scruggs,
`249 F. Supp. 2d 746 (N.D. Miss. 2001) .................................................................................... 16
`
`Nevro Corp. v. Stimwave Techs., Inc.,
`No. 19-cv-325, 2019 WL 3322368 (D. Del. July 24, 2019) ...................................................... 11
`
`iii
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`

`

`Case 1:20-cv-00393-LMB-WEF Document 1468 Filed 04/05/23 Page 5 of 38 PageID# 40727
`
`Novozymes A/S v. Genencor Int’l, Inc.,
`474 F. Supp. 2d 592 (D. Del. 2007) ............................................................................................ 7
`
`Presidio Components, Inc. v. Am. Technical Ceramics Corp.,
`702 F.3d 1351 (Fed. Cir. 2012) ........................................................................................... 1, 7, 8
`
`Read Corp. v. Portec, Inc.,
`970 F.2d 816 (Fed. Cir. 1992) ................................................................................................... 26
`
`Robert Bosch LLC v. Pylon Mfg. Corp.,
`659 F.3d 1142 (Fed. Cir. 2011) ................................................................................................. 15
`
`Sanofi-Aventis Deutschland GmbH v. Glenmark Pharms. Inc., USA,
`821 F. Supp. 2d 681 (D.N.J. 2011) ............................................................................................ 14
`
`Smith & Nephew, Inc. v. Synthes (U.S.A.),
`466 F. Supp. 2d 978 (W.D. Tenn. 2006) ..................................................................................... 8
`
`Soverain Software LLC v. J.C. Penney Corp., Inc.,
`No. 09-cv-274, 2012 WL 4903268 (E.D. Tex. Aug. 9, 2012) .................................................. 26
`
`Stryker Corp. v. Zimmer, Inc.,
`No. 10-cv-1223, 2017 WL 4286412 (W.D. Mich. July 12, 2017) ............................................ 27
`
`TEK Glob., S.R.L. v. Sealant Sys. Int’l, Inc.,
`920 F.3d 777 (Fed. Cir. 2019) ....................................................................................... 11, 12, 16
`
`Telcordia Tech., Inc. v. Cisco Sys., Inc.,
`612 F.3d 1365 (Fed. Cir. 2010) ................................................................................................. 19
`
`Trebro Mfg., Inc. v. Firefly Equip., LLC,
`748 F.3d 1159 (Fed. Cir. 2014) ................................................................................................... 7
`
`XY, LLC v. Trans Ova Genetics,
`890 F.3d 1282 (Fed. Cir. 2018) ................................................................................... 5, 6, 19, 25
`
`STATUTES
`
`35 U.S.C. § 154(a)(1) .................................................................................................................. 1, 5
`
`35 U.S.C. § 283 ......................................................................................................................... 5, 19
`
`35 U.S.C. § 298 ............................................................................................................................. 27
`
`OTHER AUTHORITIES
`
`Family Smoking Prevention and Tobacco Control Act,
`Pub. L. 111–31, § 910(c)(1)(A) (2009) ................................................................................... 8, 9
`
`iv
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`

`

`Case 1:20-cv-00393-LMB-WEF Document 1468 Filed 04/05/23 Page 6 of 38 PageID# 40728
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`U.S. Const., art. I § 8, cl. 8 .............................................................................................................. 1
`
`v
`
`

`

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`I.
`
`INTRODUCTION
`
`Money damages cannot adequately compensate Philip Morris for the irreparable harm
`
`imposed by Reynolds’ post-verdict willful infringement of the ’265 and ’911 patents. Reynolds
`
`disregarded the patent rights of Philip Morris, its “fierce competitor,” when it chose to market the
`
`infringing Alto and Solo G2 cartridges with knowledge of those patents. Had Reynolds not acted
`
`unlawfully, the U.S. market would look very different, and Philip Morris would be in a stronger
`
`competitive position. Instead, Reynolds is the U.S. e-cigarette market leader and, having made
`
`almost
`
` in infringing sales, is well-positioned to profit from its ongoing infringement.
`
`While it cannot return the exclusivity that Reynolds unlawfully misappropriated over the
`
`past four years, the Court can enforce Philip Morris’ constitutional and statutory right to exclude
`
`the infringing products for the life of the patents. U.S. Const., art. I § 8, cl. 8; 35 U.S.C. § 154(a)(1).
`
`Issuing an injunction is the only way to safeguard the exclusive right that the U.S. government
`
`conferred to Philip Morris. It is consistent with the directive that the Court “proceed[] with an eye
`
`toward the long tradition of equity practice granting injunctive relief upon a finding of
`
`infringement in the vast majority of patent cases.”1 Presidio Components, Inc. v. Am. Technical
`
`Ceramics Corp., 702 F.3d 1351, 1362 (Fed. Cir. 2012). And it is the equitable and just result. To
`
`be sure, just last year, Reynolds sought and obtained effectively the same remedy against Philip
`
`Morris’ IQOS heat-not-burn device (“HNB”).
`
`Here, each eBay factor is readily met. Given the competition between the parties, enforcing
`
`Philip Morris’ exclusive rights is the only way to prevent the irreparable harm that ongoing
`
`infringement will cause. It will also serve the public interest, as Reynolds effectively conceded by
`
`repeatedly representing to the U.S. International Trade Commission (“ITC”) that there are
`
`
`1 All emphasis is added, and all internal citations and quotation marks are omitted, unless noted.
`
`1
`
`

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`“thousands” of potentially reduced risk products (“PRRPs”) on the U.S. market such that “removal
`
`of one will not harm the public interest” and “will not have a meaningful impact on the public
`
`health.” Ex. 1 (Op. Post-Hr’g Br.) at 106, 127. These representations are dispositive of the public
`
`interest factor. Regardless, FDA has granted premarket tobacco product (“PMT”) authorization
`
`to multiple e-cigarettes, including three “very successful” Reynolds’ VUSE e-cigarettes that would
`
`be unaffected by the requested injunction. Ex. 16 at 25.
`
`If the public interest does not support injunctive relief, Phillip Morris remains entitled to
`
`an ongoing royalty that “reasonably compensate[s] [it] for giving up [its] right to exclude yet allow
`
`an ongoing willful infringer [Reynolds] to make a reasonable profit.” I/P Engine, Inc. v. AOL
`
`Inc., No. 11-cv-512, 2014 WL 309245, at *2 (E.D. Va. 2014). “[T]he court should consider how
`
`much the reasonable market royalty should be enhanced to substantially reduce, or even eliminate,
`
`marginal profit from the infringing activity.” Affinity Labs of Texas, LLC v. BMW N. Am., LLC,
`
`783 F. Supp. 2d 891, 899 (E.D. Tex. 2011). The ongoing royalty must consider the drastically
`
`changed circumstances, including that Reynolds is reaping
`
` from its infringement—to
`
`the tune of over
`
`,
`
`, and a
`
` from infringing Alto sales in the first half of 2022 alone. These
`
`
`
`
`
`will, according to Reynolds, grow exponentially over the life of the ’265 patent. And they
`
`are driven by the ’265 patented technology that Reynolds touts as “innovative” and third parties
`
`have found “provides a revolutionary vaping experience” that “has rocketed” Reynolds’ sales and
`
`“become[] an increasingly prominent competitive edge.” Ex. 2 at -575; Ex. 3 at 2-3.
`
`With the only alternative being a permanent injunction, the appropriate ongoing royalty for
`
`the ’265 patent is 33.5%—
`
` from infringing Alto sales
`
`in the first half of 2022 enhanced by 50% to account for the willful post-verdict infringement. That
`
`2
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`

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`is reasonable. Indeed, the Court would be justified in granting Philip Morris, who is being forced
`
`to grant a compulsory license to its “fierce competitor,”
`
` that Reynolds yields
`
`from infringement. Philip Morris’ request still allows Reynolds to keep a
`
`. In stark contrast, under Reynolds’ position,
`
`
`
`
`
` from its infringement. That is not a just result. And, for the ’911
`
`patent, the Court should award a 3.75% ongoing royalty—a 2.5% royalty enhanced by 50% for
`
`willfulness. While such payments cannot cure the irreparable harm, they represent the minimum
`
`amounts that can begin to compensate Philip Morris and create a more level future playing field.
`
`II.
`
`FACTUAL BACKGROUND
`
`A.
`
`Philip Morris’ Smoke-Free Transformation
`
`Historically, affiliates of Philip Morris and Reynolds directly competed in the combustible
`
`cigarette (“CC”) market. But Philip Morris has committed to a “smoke-free transformation” that
`
`will fully transition the company away from CCs to smoke-free alternatives. Ex. 5 (Gilchrist Decl.)
`
`¶ 2. Other entities may sell some non-CC options, but Philip Morris is the only tobacco company
`
`going entirely smoke-free. Id. Putting its reputation and business future at stake, since 2008,
`
`Philip Morris has invested billions of dollars in the development, scientific substantiation,
`
`manufacturing, commercialization, and continuous innovation of products commensurate with that
`
`transformation. Id. ¶ 3. By 2025, the company is on track to derive a majority of its revenue from
`
`sales of smoke-free products. Id.; see also, e.g., Ex. 4 at 146:10-147:1, 148:6-18; Ex. 6 at -41.
`
`One of Philip Morris’ smoke-free products is its IQOS HNB. It has helped nearly 15
`
`million adult smokers around the world quit CCs completely. Ex. 7 (July 2020 Investor Info.) at
`
`-443. IQOS significantly reduces or eliminates exposure to certain harmful chemicals by
`
`heating—but not burning—real tobacco. Ex. 8 at -616-17; Ex. 9 at -607-08. In fact, it is the only
`
`3
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`

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`inhalable smoke-free product (HNB or e-cigarette) to earn PMT and modified risk tobacco product
`
`(“MRTP”) authorizations from FDA. See Ex. 10 (Ehrlich Decl.) ¶¶ 9-13.
`
`Philip Morris also has developed and commercialized its IQOS VEEV e-cigarette. IQOS
`
`VEEV is recognized as a significant improvement over other e-cigarettes by, for example,
`
`“deliver[ing] nicotine consistently with each puff which is very different from the inconsistent
`
`nature of the current E-vapor technology.” Ex. 11 at -352. It is on sale in several countries and
`
`making significant commercial strides. Ex. 5 (Gilchrist Decl.) ¶¶ 7, 10. For example,
`
`
`
`Morris recently confirmed its plans to bring it to the United States. Id.
`
`
`
` See id. ¶ 10. Philip
`
`Philip Morris intends to
`
` Id. ¶¶ 13-15.
`
`. Id. ¶ 15.
`
`B.
`
`Reynolds’ Failed HNBs And Successful But Infringing E-Cigarettes
`
`
`
`Reynolds’ early HNB efforts failed. It spent over a billion dollars to develop two HNBs
`
`for the U.S. market—Premier and Eclipse. Ex. 13 (6/9 p.m. Tr.) at 542:2-10, 543:14-24, 573:14-
`
`18. Both were undisputed failures. See id. at 571:13-573:13. Smokers so disliked Premier that it
`
`was discontinued after five months (Ex. 54) and, while Reynolds still offers Eclipse, it has “never
`
`been a big seller” and its de minimus sales have declined since 2004. Ex. 13 at 572:23-573:13.
`
`
`
`Having failed with HNBs, Reynolds needed to “catch up to competitors,” particularly PMI.
`
`Ex. 14 (PX-369) at -897-98; Ex. 15 (Gilley Dep.) at 166:12-169:8. To do so, Reynolds switched
`
`its focus to e-cigarettes. Its e-cigarettes “have been very successful in the marketplace,” making
`
`Reynolds the current U.S. e-cigarette market leader. Ex. 16 (Reynolds’ Interr. 30 Resp.) at 25.
`
`But, as the jury found, Reynolds did so by using Philip Morris’ patented technology. Dkt. 1361.
`
`4
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`

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`In June 2020, Philip Morris sued Reynolds to stop this unauthorized use. Dkt. 40. On June
`
`15, 2022, after a five-day trial, the jury found that: (i) the Solo G2 cartridges infringed the ’911
`
`patent; (ii) the Alto cartridges infringed the ’265 patent; and (iii) Reynolds had not shown the ’911
`
`patent to be invalid (Reynolds did not challenge the validity of the ’265 patent). Dkt. 1361 at 1-4.
`
`III. LEGAL STANDARD
`
`Congress afforded Philip Morris with “the right to exclude others from making, using,
`
`offering for sale, or selling the invention[s]” in the ’265 and ’911 patents. 35 U.S.C. § 154(a)(1).
`
`Under 35 U.S.C. § 283, the Court “may grant injunctions in accordance with the principles of
`
`equity to prevent the violation of [these rights], on such terms as the court deems reasonable.”
`
`A.
`
`Permanent Injunctive Relief
`
`To obtain a permanent injunction, Philip Morris must establish that: (1) irreparable harm
`
`exists; (2) remedies available at law are inadequate to compensate for that injury; (3) considering
`
`the balance of hardships between the parties, an injunction is warranted; and (4) an injunction does
`
`not disserve the public interest. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
`
`B.
`
`Ongoing Royalty
`
`“[A]bsent egregious circumstances, when injunctive relief is inappropriate, the patentee
`
`remains entitled to an ongoing royalty.” XY, LLC v. Trans Ova Genetics, 890 F.3d 1282, 1298
`
`(Fed. Cir. 2018). The Federal Circuit has held that “there is a fundamental difference between a
`
`reasonable royalty for pre-verdict infringement and damages for post-verdict infringement”:
`
`[W]hen calculating an ongoing royalty rate, the district court should consider the
`change in the parties’ bargaining positions, and the resulting change in economic
`circumstances, resulting from the determination of liability. When patent claims
`are held to be not invalid and infringed, this amounts to a substantial shift in the
`bargaining position of the parties. We have also instructed district courts to
`consider changed economic circumstances, such as changes related to the market.
`
`5
`
`

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`Id. “[T]he key question is what amount of money would reasonably compensate [the patentee] for
`
`giving up [its] right to exclude yet allow an ongoing willful infringer to make a reasonable profit.”
`
`I/P Engine, 2014 WL 309245, at *2.
`
`IV. ARGUMENT
`
`A.
`
`The Court Should Permanently Enjoin Reynolds’ Infringement
`
`Although Philip Morris cannot recover the exclusivity taken by Reynolds unlawful sales,
`
`each eBay factor supports enforcing Philip Morris’ right to exclude for the terms of the ’265 and
`
`’911 patents (2033 and 2035, respectively) and the entry of the proposed permanent injunction.
`
`1.
`
`Philip Morris Will Continue To Suffer Irreparable Harm Absent
`Enjoining Reynolds’ Infringement
`a.
`
`Past And Future Irreparable Harm Exists
`
`
`
`As discussed below, harm caused by Reynolds’ past, present, and future use of Philip
`
`Morris’ patented technology is both irreparable and acute. Through such use, Philip Morris’s
`
`primary competitor has gained an unfair and invaluable stronghold in the U.S. non-combustible
`
`market, forcing Philip Morris to compete against its own innovations, creating barriers to entry for
`
`the IQOS products, and diluting Philip Morris’ brand and reputation. See Ex. 5 ¶¶ 8-13.
`
`
`
`First, the harm is inflicted on Philip Morris by its “fierce competitor[].” Ex. 4 (6/8 a.m.
`
`Tr.) at 135:18-19. Reynolds’ 30(b)(6) witness, Nicholas Gilley, testified that “the Vuse products
`
`are directly competitive with iQOS in the United States.” Ex. 15 (Gilley Dep.) at 128:23-129:5;
`
`see also Ex. 4 (6/8 a.m. Tr.) at 147:18-20; Ex. 13 (6/9 p.m. Tr.) at 439:12-440:1. And there can
`
`be no credible dispute that the infringing Alto and Solo G2 e-cigarettes will directly compete with
`
`IQOS VEEV. Ex. 5 (Gilchrist Decl.) ¶ 12. In fact, Reynolds has been evaluating IQOS VEEV
`
`for years. See, e.g., Ex. 17 at -478; Ex. 18 at -618 (comparing IQOS VEEV to VUSE).
`
`6
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`

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`
`
`Considering Reynolds’ admissions, “the record strongly shows a probability for irreparable
`
`harm.” Trebro Mfg., Inc. v. Firefly Equip., LLC, 748 F.3d 1159, 1171 (Fed. Cir. 2014); Presidio,
`
`702 F.3d at 1363 (“Direct competition in the same market … suggest[s] strongly the potential for
`
`irreparable harm[.]”). Where such competition exists, “the patentee suffers the harm—often
`
`irreparable—of being forced to compete against products that … infringe its own patented
`
`inventions.” Douglas Dynamics, LLC v. Buyers Prods. Co., 717 F.3d 1336, 1345 (Fed. Cir. 2013).
`
`Philip Morris “has a right, granted by Congress, not to assist its rival with the use of proprietary
`
`technology.” Novozymes A/S v. Genencor Int’l, Inc., 474 F. Supp. 2d 592, 613 (D. Del. 2007).
`
`In an about-face, Reynolds recently told the Court that its infringing e-cigarettes and Philip
`
`Morris’ IQOS devices “are not competing products.” Ex. 19 (7/21 Hr’g Tr.) at 17:18-21. That
`
`contradicts Mr. Gilley’s sworn 30(b)(6) testimony and Reynolds’ representations in this case and
`
`the ITC. See Ex. 15 (Gilley Dep.) at 128:23-129:5; Ex. 20 (9/17/20 Reynolds’ Interr. 7 Resp.) at
`
`88; Ex. 21 (Pub. Interest Statement) at 4. It also cannot be reconciled with Dr. Sullivan’s opinion
`
`that “IQOS competes with e-cigarettes within the U.S.” Ex. 22 (Sullivan Rbt.) ¶¶ 31, 202.
`
`
`
`Second, the harm from Reynolds’ infringement is more severe because Philip Morris chose
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`to maintain its right to exclusivity by not licensing the asserted patents, particularly to competitors.
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`See Ex. 4 at 147:12-20. Such exclusivity is vital to protecting Philip Morris’ R&D, enabling Philip
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`Morris not only to obtain first-mover status in a product category, technology, or market, but also
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`to control the timing of a technological release. See Ex. 5 (Gilchrist Decl.) ¶ 5.
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`A patentee’s unwillingness to license shows irreparable harm because “[e]xclusivity is
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`closely related to the fundamental nature of patents as property rights.” Douglas Dynamics, 717
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`F.3d at 1345. The ’265 and ’911 patents are “intangible asset[s] that [are] part of [Philip Morris’]
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`reputation,” but they are “under attack by [Reynolds’] infringement.” Id. Absent an injunction,
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`7
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`Case 1:20-cv-00393-LMB-WEF Document 1468 Filed 04/05/23 Page 14 of 38 PageID# 40736
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`Philip Morris will lose its right to exclusivity, a result that “favor[s] finding irreparable injury.”
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`Presidio, 702 F.3d at 1363.
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`Third, Reynold’s infringement has caused significant but unquantifiable harm through lost
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`sales and market share. Ex. 5 (Gilchrist Decl.) ¶¶ 10-12; Ex. 23 (Gilchrist Dep.) at 102:2-103:5;
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`i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 861-62 (Fed. Cir. 2010); Smith & Nephew, Inc.
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`v. Synthes (U.S.A.), 466 F. Supp. 2d 978, 983 (W.D. Tenn. 2006) (finding lost profits and market
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`share are “incalculable and irreparable” injuries). IQOS enjoys success in many countries, and the
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`initial U.S. roll-out was primed for similar success. Ex. 7 at -443. Despite being released in just
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`a handful of stores and during a pandemic, IQOS achieved
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`. Ex. 24 at -757; Ex. 25 (ITC Hr’g Tr.) at 1183:15-84:2; Ex. 56. Those sales would have
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`been even stronger had Reynolds not flooded the market with infringing products. See, e.g., Ex.
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`5 ¶ 9. The irreparable nature of such harms is underscored by the fact that Reynolds forced Philip
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`Morris to compete with those infringing products during the business critical time of the IQOS
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`HNB U.S. launch (id.), negating any chance to “establish a market position and create business
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`relationships.” Hybritech, Inc. v. Abbott Labs., 849 F.2d 1446, 1456 (Fed. Cir. 1988).
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`Reynolds’ actions took away IQOS HNB device sales but also sales of the consumables
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`and accessories related thereto.
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` Ex. 5 (Gilchrist Decl.) ¶ 9.
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`Fourth, Reynolds’ continued sales of infringing products will stymie the launch of IQOS
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`VEEV in the United States, causing further irreparable harm. Philip Morris intends to submit its
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`IQOS VEEV PMTA in Spring 2023 and will launch the product in the U.S. market as soon as it is
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`8
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`Case 1:20-cv-00393-LMB-WEF Document 1468 Filed 04/05/23 Page 15 of 38 PageID# 40737
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`authorized—well before the ’911 and ’265 patents expire in 2033 and 2035, respectively. Ex. 5
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`(Gilchrist Decl.) ¶¶ 15-16; Ex. 26 (Meyer Rpt.) ¶ 387; Family Smoking Prevention and Tobacco
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`Control Act, Pub. L. 111-31, § 910(c)(1)(A) (2009) (requiring FDA determination within 180 days
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`of PMTA receipt). Once introduced, IQOS VEEV will directly compete with the Alto and Solo
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`G2, and each infringing sale will make it more difficult for IQOS VEEV to succeed in the United
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`States. See Ex. 5 (Gilchrist Decl.) ¶¶ 10-13; Ex. 27 (Prod. Assessment Rpt.) at -41-59. As they
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`did with the IQOS HNB, continuing sales of the infringing products will impede IQOS VEEV’s
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`growth and inhibit downstream sales of consumables and accessories. See Ex. 5 (Gilchrist Decl.)
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`¶¶ 7-8, 10-13; Ex. 23 (Gilchrist Dep.) at 128:6-129:22, 132:24-133:20.
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`Fifth, Reynolds’ infringement caused irreparable harm to Philip Morris’ brand, consumer
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`goodwill, and reputation as an innovator. Ex. 5 (Gilchrist Decl.) ¶¶ 7-8, 11-12. “Irreparable injury
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`encompasses different types of losses that are often difficult to quantify,” such as “erosion in
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`reputation and brand distinction.” Douglas Dynamics, 717 F.3d at 1344. “It is well-established
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`that harm to reputation as an innovator is an injury not compensable by damages.” Fresenius Med.
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`Care Holdings Inc. v. Baxter Int’l, Inc., No. 03-cv-1431, 2008 WL 928496, at *3 (N.D. Cal. Apr.
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`4, 2008), aff’d in relevant part, 582 F.3d 1288, 1303 (Fed. Cir. 2009). Philip Morris spent billions
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`of dollars to develop IQOS smoke-free alternatives and establish itself “in the consumer’s mind as
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`being the company that brings the best technology.” Ex. 4 at 147:2-148:18; Ex. 5 (Gilchrist Decl.)
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`¶¶ 2-3. Its “reputation as an innovator will certainly be damaged if customers found the same
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`innovations appearing in [the Alto and Solo G2].” Douglas Dynamics, 717 F.3d at 1344; Ex. 5
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`(Gilchrist Decl.) ¶¶ 8, 11. And any damage done to the IQOS brand overall damages existing and
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`planned IQOS products. Ex. 5 (Gilchrist Decl.) ¶ 7.
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`9
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`Case 1:20-cv-00393-LMB-WEF Document 1468 Filed 04/05/23 Page 16 of 38 PageID# 40738
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`For example, Reynolds’ years use of Philip Morris’ technology, and its explicit promotion
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`of that technology as “innovative,” teaches the U.S. market to associate those innovations with
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`Reynolds, not Philip Morris. Id. ¶¶ 7-8, 11-12; Ex. 23 (Gilchrist Dep.) at 125:13-127:13; Ex. 2 at
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`-576. And by the time Philip Morris introduces IQOS VEEV in the United States, the market will
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`no longer view the technology as innovative at all. Ex. 5 (Gilchrist Decl.) ¶ 11. Allowing further
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`infringement reinforces the fiction that the patented technology is commonplace, or worse, that
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`Reynolds is the innovator—as it falsely told consumers, investors, and the jury. Ex. 4 (6/8 a.m.
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`Tr.) at 131:19-20; Covidien Sales LLC v. Ethicon Endo-Surgery, Inc., No. 14-cv-917, 2014 WL
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`5242872, at *11 (D. Conn. Oct. 15, 2014) (finding reputation damaged as marketing “infringing
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`curved blade falsely gives consumers the impression that [infringer] was the innovator”).
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`Notwithstanding this overwhelming evidence, Reynolds contends that the ITC’s limited
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`exclusion order (“LEO”) undercuts irreparable harm. Dkt. 647 at 1-2. But Reynolds admits its
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`argument “would be far weakened” if the Federal Circuit vacates the ITC decision. Ex. 19 (7/21
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`Hr’g Tr.) at 17:6-16. That decision is not final. The PTAB already invalidated one of the two
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`patents on which the LEO is based. That LEO now hangs by a few claims from a single patent,
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`which will be subject to the Federal Circuit’s scrutiny, including de novo review of several legal
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`issues on which Philip Morris has presented compelling grounds for reversal.2 Ex. 33. Regardless
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`of the Federal Circuit’s decis