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`Case 1:20-cv-00393-LMB-WEF Document 1471 Filed 03/30/23 Page 1 of 31 PageID# 41424
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`IN THE UNITED STATES DISTRICT COURT FOR THE
`EASTERN DISTRICT OF VIRGINIA
`Alexandria Division
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`1:20-cv-393 (LMB/WEF)
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`PHILIP MORRIS PRODUCTSS.A.,
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`Plaintiff,
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`v.
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`R.J. REYNOLDS VAPOR COMPANY,
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`Defendant.
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`MEMORANDUMOPINION
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`On June 15, 2022, after a six-daytrial, the jury returned a verdict in favor of counterclaim
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`plaintiff Philip Morris Products S.A. (“Philip Morris”) finding that counterclaim defendant R.J.
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`Reynolds Vapor Company (“R.J. Reynolds”) infringed two of Philip Morris’ patents for
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`componentsofelectronic cigarettes. Before the Court is Phillip Morris’ Motion for a Permanent
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`Injunction or, Alternatively, an Ongoing Royalty (“Motion”).
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`[Dkt. No. 1405]. For the reasons
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`explained below, Philip Morris’ Motion will be denied as to the request for a permanent
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`injunction and granted in part as to the request for an ongoing royalty, which will be in the
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`amountof 1.8% ofnet sales of infringing Alto cartridges and 2.2% ofnetsales ofinfringing Solo
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`G2cartridges.'
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`' Because this Memorandum Opinioncites from sealed material for which the parties have been
`directed to file, but have not yet filed, revised motionsto seal pursuant to the Court’s March 22,
`2023 Order [Dkt. No. 1454], the Memorandum Opinion will be temporarily issued underseal.
`Theparties will be directed to jointly review the Memorandum Opinion and propose redactions
`so that a public version of the Memorandum Opinion can beissued oncethe sealing issues have
`been resolved.
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`

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`I. BACKGROUND
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`Philip Morris and Reynolds manufacture smoke-free, non-combustible alternatives to
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`combustible cigarettes, including heat-not-burn devices and electronic cigarettes (“e-cigarettes”)
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`that vaporize a liquid containing nicotine. In this civil action, the jury found that Reynolds’
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`VUSEAlto (“Alto”), a pod-style e-cigarette, infringed claims 1 and 4 of United States Patent No.
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`9,814,265 (“the ’265 patent”), which covers technology for a compact heater. See [Dkt. No.
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`1361] at 1. The jury also found that Reynolds’ VUSE Solo G2 (“Solo G2”), a cig-a-like-style
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`e-cigarette, infringed claims 1, 11, and 13 of United States Patent No. 10,104,911 (“the ’911
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`patent”), which covers leakage-prevention technology, and also determined that the patent was
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`not invalid. Id. at 2-3. Both the Alto and Solo G2 consist of two parts, a power-unit device with
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`a battery and a disposable cartridge containing the e-liquid and heater. The cartridges were
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`found to contain the infringing components.
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`The jury awarded Philip Morris damages representing a running royalty for past
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`infringement through December 31, 2021 in the amount of $8,000,000 for the Alto’s
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`infringementof the ’265 patent and $2,759,755 for the Solo G2’s infringementof the °911
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`patent. Id. at 2,4. The parties agree that the jury’s damages award corresponds with the
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`reasonable royalty rates for a hypothetical negotiation in August 2018 that were presentedattrial
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`by Philip Morris’ expert, Paul K. Meyer (“Meyer”): 0.6% ofnet sales of the Alto cartridges for
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`use of the ’265 patent and 2.0% ofnet sales of the Solo G2 cartridges for use of the °911 patent.
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`See [Dkt. No, 1411-27] 4 15; [Dkt. No. 1421] at 20; [Dkt. No. 1421-3]
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`5.
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`Attrial, Meyertestified that he derived baseline royalty rates for the patents from his
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`analysis of a license agreement executed on September 24, 2018 between Reynolds and Fontem
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`Ventures B.V. and Fontem Holdings | B.V. (the “Fontem-Reynolds Agreement”). Under that
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`

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`agreement, Reynolds paid Fontem a lump sum of $79 million for a non-exclusive United States
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`license to Fontem’s patent portfolio, which Meyertestified reflected a 5.25% royalty rate. Trial
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`Tr. at 444-49, 452. Relying on other testimony by Philip Morris’ experts which showedthat the
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`°265 and ’911 patents corresponded with patents in the Fontem portfolio, Meyer apportioned
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`10% ofthe value of the Fontem-Reynolds Agreementto the ’265 patent and 35% ofthe value of
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`the Fontem-Reynolds Agreementto the 7911 patent. Id. at 459-60. Meyer then explained that he
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`took 10% and 35% of the 5.25% royalty rate of the Fontem-Reynolds Agreement, adjusted the
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`resulting rates upwards based on the relevant Georgia-Pacific factors, and obtained reasonable
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`royalty rates of 0.6% for the °265 patent and 2.0% for the °911 patent. Id. at 460-69. The jury’s
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`damages award for each patent equates to the respective rate presented by Meyer multiplied by
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`the net sales of the relevant infringing cartridges.
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`After the jury returned its verdict, the Court concludedthat the civil action was not
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`exceptional and declined to entertain a petition for attorney’s fees under 35 U.S.C.§ 285. Id. at
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`1082-84. The Court subsequently heard and deniedall post-trial motions. See [Dkt. No. 1400].
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`On August 17, 2022, an Amended Judgment wasentered upontheparties stipulating to the
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`inclusion of prejudgmentinterest and supplemental damages based on net sales of Alto and Solo
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`G2 cartridges from January 1, 2022 through June 15, 2022,for a total judgment of $10,906,042
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`for the ’265 patent and $3,156,700 for the °911 patent. See [Dkt. Nos. 1413, 1414, 1415].
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`The remaining issue in this civil action concerns Reynolds’ ongoing infringement ofthe
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`*265 and °911 patents. Philip Morris has moved for a permanentinjunction or, in the alternative,
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`for an ongoing royalty. [Dkt. No. 1405]. Both parties have conducted discovery as to the
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`remedies requested by Philip Morris, the issues have been fully briefed, and oral argument has
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`been held.
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`

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`II. DISCUSSION
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`Philip Morris moves for a permanentinjunction prohibiting Reynolds from selling in the
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`United States the infringing Alto and Solo G2 cartridges and “cartridges that are not colorably
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`different therefrom in the context of the infringed claims[.]” [Dkt. No. 1406-50] 4] 1-2. In the
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`alternative, Philip Morris seeks an ongoing royalty rate of 33.5% of net sales of Alto cartridges
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`and 3.75% of net sales of Solo G2 cartridges for the remaininglife of the patents.? Reynolds
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`opposes entry of a permanentinjunction and arguesthat the jury’s royalty rates of 0.6% of net
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`sales for the Alto and 2.0% ofnet sales for the Solo are an appropriate ongoingroyalty.
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`A. Standard of Review
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`The Court has the powerto grant an injunction for the “violation of any right secured by
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`patent, on such terms as the court deems reasonable.” 35 U.S.C. § 283. For a permanent
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`injunction to be granted, the patentee “must demonstrate: (1) that it has suffered an irreparable
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`injury; (2) that remedies available at law, such as monetary damages, are inadequate to
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`compensate for that injury; (3) that, considering the balance of hardships betweenthe plaintiff
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`and defendant, a remedy in equity is warranted; and (4) that the public interest would not be
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`disserved by a permanentinjunction.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391
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`(2006). The patentee bears the burden of “prov[ing] that it meets all four equitable factors” and
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`“must satisfy the court that relief is needed.” Nichia Corp. v. Everlight Ams., Inc., 855 F.3d
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`1328 (Fed. Cir. 2017).
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`If the Court finds that an injunction is inappropriate, an ongoing royalty rate may be
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`awarded to providerelief to the patentee for the ongoing infringement. See Whitserve, LLC v.
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`2 The ’265 patent will expire on January 29, 2035, and the ’911 patent will expire on July 6,
`2033.
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`Comput. Packages,Inc., 694 F.3d 10, 35 (Fed. Cir. 2012); Paice LLC v. Toyota Motor Corp.,
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`504 F.3d 1293, 1314-15 (Fed. Cir. 2007). An ongoing royalty rate “may be based on a post-
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`judgment hypothetical negotiation using the Georgia-Pacific factors.” Arctic Cat Inc. v.
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`Bombardier Recreational Prods. Inc., 876 F.3d 1350, 1370 (Fed. Cir. 2017) (citing Fresenius
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`USA, Inc. v. Baxter Int’], Inc., 582 F.3d 1288, 1303 (Fed. Cir. 2009)); see Georgia-Pac. Corp. v.
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`U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970). The decision to grant a
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`permanentinjunction or impose an ongoing royalty is committed to the discretion of the Court.
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`See Whitserve, 694 F.3d at 35; Presidio Components,Inc. v. Am. Tech. Ceramics Corp., 702
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`F.3d 1351, 1363 (Fed. Cir. 2012).
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`B. Permanent Injunction
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`Philip Morris has not metits burden ofestablishing that a permanentinjunction
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`prohibiting Reynolds from selling infringing Alto and Solo G2 cartridges is warranted.
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`1.
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`Irreparable Injury
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`First, Philip Morris has not established that it has suffered irreparable injury. “Tosatisfy
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`the first eBay factor, the patentee must showthatit is irreparably harmed by the infringement,”
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`which includes “proof that a ‘causal nexusrelates the alleged harm to the alleged infringement.
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`395
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`Apple, Inc. v. Samsung Elecs. Co., 809 F.3d 633, 639 (Fed. Cir. 2015) (quoting Apple,Inc.v.
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`SamsungElecs. Co., 695 F.3d 1370, 1374 (Fed. Cir. 2012)). “To determine whether the patentee
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`will suffer irreparable harm absentan injunction,the court may consider factors such as the
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`nature of competition between thepatentee andtheinfringer, the willingness of a patentee to
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`license, and any lost sales the patentee has proven.” Presidio Components, Inc. v. Am. Tech.
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`Ceramics Corp., 875 F.3d 1369, 1383 (Fed. Cir. 2017).
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`Philip Morris arguesthat it has suffered irreparable harm because its IQOSheat-not-burn
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`device (“IQOS”) and IQOS VEEV e-cigarette (“VEEV”) directly compete with Reynolds’
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`5
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`e-cigarettes, and by infringing the °265 and °911 patents, Reynolds has “gained an unfair and
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`invaluable stronghold in the U.S. non-combustible market[.]” [Dkt. No. 1411] at 6. Specifically,
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`Philip Morris contends that Reynolds has caused “lost sales and market share” for IQOS and that
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`the continued sale of the infringing products “will stymie the launch of IQOS VEEVin the
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`United States[.]” Id. at 8. Philip Morris maintains that the infringing features of the Alto and
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`Solo G2 drive consumer demandfor the products, which satisfies the causal nexus requirement.
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`Reynolds counters that Philip Morris’ asserted injury is too speculative to demonstrate
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`irreparable injury because neither IQOS nor VEEVare currently sold in the United States.
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`Reynolds further argues that even if these products were to be sold in the United States, Philip
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`Morris has not presented evidence establishing that the Alto and Solo G2 would take away sales
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`or market share and that any link between the commercial success of the infringing products and
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`the patented technology is too tenuousto establish a causal nexus between infringement and any
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`purported harm to Philip Morris.
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`Evidence produced duringthe trial showed that although Philip Morris and Reynoldsare
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`direct competitors internationally in the e-cigarette market, they are not direct competitors in the
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`United States because it is undisputed that VEEV has neverbeen sold in the United States. As
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`for IQOS,it is not currently being sold in the United States because imports of the devices are
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`prohibited under a Limited Exclusion Order issued by the United States International Trade
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`Commission (“ITC”) on September 29, 2021 after the IQOS was found to have infringed two of
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`Reynolds’ patents. See Limited Exclusion Order, Certain Tobacco Heating Articles and
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`Components Thereof, Inv. No. 337-TA-1199 (Sept. 29, 2021). When the Limited Exclusion
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`Order was issued, the IQOS was“in the midstof .
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`.
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`. [an] initial rollout,” [Dkt. No. 1406-25] at 3,
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`had only been “released in just a handful of stores,” [Dkt. No. 1411] at 8, and its sales and users
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`

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`were limited. See [Dkt. No. 1411-14] at 3. The absence of VEEV and IQOSfrom the domestic
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`market presents a uniquesituation in that Philip Morris is not presently directly competing with
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`Reynolds in the United States but nonetheless seeks to exclude the infringing products from that
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`market.
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`Philip Morris instead emphasizesits plans to compete with Reynolds in the United States
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`market in the future; however, Reynolds correctly points out that Philip Morris’ claim of future
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`domestic sales of IQOS and VEEVis speculative and uncertain. Philip Morris argues that it has
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`appealed the ITC’s decision to the Federal Circuit and “has presented compelling grounds for
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`reversal,” [Dkt. No. 1411] at 10, and the Federal Circuit could vacate the Limited Exclusion
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`Order and allow IQOS “immediate re-entry to the U.S. market.” [Dkt. No. 1429] at 3. The
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`Federal Circuit heard oral argument on October 3, 2022 and hasyetto issue a decision, see
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`Philip Morris Products S.A.v. Int’] Trade Comm’n, No. 22-1227 (Oct. 3, 2022); regardless, the
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`Court cannotbase a finding ofirreparable injury on speculation about the Federal Circuit’s
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`decision and will not weigh in on the strength of Philip Morris’ appeal. Philip Morris also points
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`out that it plans to begin domestic manufacturing of IQOS which will permit sales of the product
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`in the United States unaffected by the Limited Exclusion Order; however, the only evidence
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`Philip Morris has produced to support these plansis a declaration and investor statements by its
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`employees and executives that Philip Morrisis “taking steps to begin manufacturing IQOS
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`HNBs. .. [and] expects such production to begin by the first half of 2023.” [Dkt. No. 1411-2]
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`{ 17; see [Dkt. No. 1425-4] at 24 (“We expectto be in a position to introduce IQOSin H1 of
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`2023.
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`I cannot be moreprecise at this stage. We continue to work on the plan to be able to do
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`that.”); [Dkt. No. 1425-5] at 9 (“We continue to work on contingency plans, including domestic
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`manufacturing, and hope to be able to resume US. supply in thefirst half of 2023’); [Dkt. No.
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`1425-6] at 3. Even if the Court considers these statementsreliable, they show only that Philip
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`Morrishasan intention to begin domestic manufacturing and donotestablish that the return of
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`IQOSto the United States market is impending or evencertain.
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`As for the VEEVproduct, Philip Morris maintains thatit has “definite plansto bring
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`IQOS VEEVto the U.S.and is engaged in ongoing activities and expenditures to do so.” [Dkt.
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`No. 1429] at 4. Although Philip Morris may have such plans, Reynoldsis correct that future
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`domestic sales of VEEV are uncertain. The Vice President of Strategic and Scientific
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`Communications of Philip Morris International averred that Philip Morris “will begin sales of the
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`product in the United States” after the Food and Drug Administration (“FDA”) grants premarket
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`tobacco product authorization. [Dkt. No. 1411-2] 16. Philip Morris has engagedin studies to
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`support its premarketauthorization request, and as of August 12, 2022,its plan was to submit the
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`application to the FDA in “Spring 2023,”id. {{ 13-16; however, as of March 29, 2023, thereis
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`no indication that Philip Morris has filed a premarket authorization application with the FDA,
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`andas the parties are both aware,the processis “difficult and time-consuming[.]” [Dkt. No.
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`1421-9] at 21. Moreover, Philip Morris’ employees have acknowledged [AE
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`ee See [Dkt. No.
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`1421-10] at 178; [Dkt. No. 1429-3] at 156-57. Since oral argument was held on November4,
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`2022, Philip Morris has not apprised the Court of any othersteps it has taken to introduce VEEV
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`into the United States or to begin domestic manufacturing of IQOS.
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`Thus, given the complicated regulatory framework which governs the market for tobacco
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`products in the United States, there is no certainty that Philip Morris can or will participate in the
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`relevant domestic market. Philip Morris is correct that “[w]here two companiesare in
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`competition against one another, the patentee suffers the harm—often irreparable—ofbeing
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`forced to compete against products that incorporate and infringe its own patented inventions.”
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`Douglas Dynamics, LLC v. Buyers Prods. Co., 717 F.3d 1336, 1345 (Fed. Cir. 2013). The
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`problem for Philip Morris is that evidence of current or future “[d]irect competition in the same
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`market”is lacking and uncertain. Presidio, 702 F.3d at 1363; compare Robert Bosch LLC v.
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`Pylon Mfg. Corp., 659 F.3d 1142, 1152-54 (Fed. Cir. 2011) (finding direct competition in the
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`same market and irreparable harm due to loss of market share and access to potential customers);
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`and Broadcom Corp. v. Emulex Corp., 732 F.3d 1325, 1338 (Fed. Cir. 2013) (finding irreparable
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`harm from direct competition where “Broadcom lost market share while Emulex gainedit”). On
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`this record, Philip Morris’ assertions of harm from anticipated direct competition in the United
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`States in the form of lost sales, market share, or harm to goodwill and reputation, remain too
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`inchoate and contingent to support a finding of irreparable harm in the absence of an injunction.
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`Cf. BASFPlant Sci., LP v. Commonwealth Sci. & Indus. Rsch. Organisation, 28 F.4th 1247,
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`1276 (Fed. Cir. 2022) (affirming denial of a permanent injunction where Commonwealth
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`Scientific and Industrial Research Organisation andits partners “had not yet entered the
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`commercial market and had not established that entry was coming soon”). Although Reynolds
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`disputes the extent to which IQOS would even compete with the Alto and Solo G2 were it to be
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`successfully reintroduced into the United States market, as well as whether there is a sufficient
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`causal nexus between the patented technology and any harm suffered by Philip Morris, the
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`evidenceattrial established the benefits of the patented technologies and their importance to
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`consumers. Even though Philip Morris did not conclusively establish the reasons why
`eee
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`consumers purchasedthe infringing devices, only
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`““some connection’ between the patented
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`features and the demandforthe infringing products”is neededto satisfy the causal nexus
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`requirement. Apple, 809 F.3d at 641-42.
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`

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`Philip Morris also points to past competition between the infringing products and IQOS
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`to establish irreparable harm. See i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 861-62 (Fed.
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`Cir. 2010) (observing that “[p]ast harm to a patentee’s market share, revenues, and brand
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`recognition is relevant” to the irreparable injury inquiry). Although IQOSwassold in the United
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`States for a short period of time, given the limited rollout of IQOSin a few cities and the lack of
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`evidenceoflost revenues, profits, or market share, other than speculation by Philip Morris
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`employees, see [Dkt. No. 1411-13] at 102-04, these sales are insufficient to show past irreparable
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`injury justifying the prospective remedy of an injunction. Philip Morris also argues that the harm
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`to its “brand, consumer goodwill, and reputation as an innovator” warrants a permanent
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`injunction. [Dkt. No. 1411] at 9-10. Although Philip Morris may have suffered someintangible
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`injury based onthe association of its patented technology with Reynolds’ infringing products,
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`many ofthe allegations of harm are vague and conclusory, and given the absenceofPhilip
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`Morris’ products in the domestic market and the uncertainty as to its future presence, the Court
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`cannotfind that any brandorreputationalinjury is significant, let alone irreparable.
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`Finally, Philip Morris points to its “unwillingness to license” as evidence ofirreparable
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`harm from theloss ofits right to exclusivity. [Dkt. No. 1411] at 7. Althoughit is true that the
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`right to exclusivity is related to the “fundamentalnature of patents as property rights” and “is an
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`intangible asset that is part of a company’s reputation,” Douglas Dynamics, 717 F.3d at 1345,
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`the loss of which supports a finding of irreparable injury, Presidio, 702 F.3d at 1363, a patentee’s
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`right to exclude cannot byitself support a finding ofirreparable harm and the issuance of a
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`permanentinjunction. See Robert Bosch, 659 F.3d at 1149; eBay, 547 U.S.at 393(rejecting
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`similar “broad classifications” and “categorical rule[s]” as inconsistent with “traditional
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`10
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`equitable principles”); Nichia, 855 F.3d at 1341 (observing that an injunction “is not a remedy
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`whichissues as of course” and “mustbe justified”).
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`In sum, Philip Morris has not shown thatit has or will suffer an irreparable injury in the
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`absence of a permanentinjunction, and this factor strongly weighs against granting an injunction.
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`2. Adequacy of a Legal Remedy
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`The adequacy of remediesat law is “inextricably intertwined” with the inquiry into
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`irreparable harm, ActiveVideo Networks, Inc. v. Verizon Comme’ns, Inc., 694 F.3d 1312, 1337
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`(Fed, Cir. 2012), and for many of the same reasons discussed above, a monetary remedy would
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`be sufficient to compensate Philip Morris for its injury. The cases on which Philip Morrisrelies
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`to argue otherwise are based on harm to market share, brand recognition, and goodwill, such as
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`i4i, and are therefore inapposite. Philip Morris did not have a significant market before
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`Reynoldsinfringed its patents, has not demonstrated that it has brand recognition in the United
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`States for its products, and has not provided compelling evidence that showsthe loss of goodwill
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`in the domestic market, again because, at best, such damageis inchoate:it could arise this year or
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`next year (if its efforts to bring IQOS and VEEV to market are successful) or not at all. Philip
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`Morris also argues that damages cannot compensate it for “downstream sales of IQOS
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`consumables and accessorieslost due to the infringement,” [Dkt. No. 1411] at 13, but it has
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`provided no more than conclusory allegations about such lost sales. Philip Morris further argues
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`that its statutory right to exclude, its policy of notlicensing out the asserted patents, andits
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`“engagementin lengthy litigation to protect that business decision .
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`.
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`. weigh[] in favoroffinding
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`the remedy at law inadequate.” Id. at 14 (quoting Sanofi-Aventis Deutschland GmbHv.
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`Glenmark Pharms.Inc., USA, 821 F. Supp. 2d 681, 694 (D.N.J. 2011)). Although those rights
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`are unquantifiable, a sufficient ongoing royalty would take into accountthe loss of those rights
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`and Philip Morris’ license-out policy.
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`11
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`The Court also finds that an ongoing royalty would be adequate to compensate Philip
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`Morris for Reynolds’ infringementin lightof its distribution model for the IQOSin the United
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`States. To bring IQOSto the United States, Philip Morris contracted with Altria Client Services
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`LLC (“Altria”) to sell and distribute IQOS products in the domestic market, and under that
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`distribution agreement, Philip Morris received a royalty and “per unit revenue from the sales of
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`IQOS HNB-related products.” [Dkt. No. 1411-2] 49. As Reynolds pointsout, to the extent
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`Philip Morris’ exclusive licensee for IQOSlost any sales to Reynolds, Philip Morris itself lost
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`only a licensing fee or a similar royalty paymentthat varied with revenue. See [Dkt. No. 1421]
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`at 14 (quoting ActiveVideo, 694 F.3d at 1338). Philip Morris does notassert that its future
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`United States business model for IQOS or VEEV,should it be realized, would differ from its
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`past distribution arrangement for IQOS. Accordingly, the lost royalties and revenue share that
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`Philip Morris might suffer should IQOS and VEEV compete with the infringing products are the
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`kind of “[s]traight-forward monetary harm”thatis not irreparable and can be remedied through
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`an ongoing royalty. ActiveVideo, 694 F.3d at 1338.
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`3. Balance of Hardships
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`The balance of hardship factor involves “assess[ing] the relative effect of granting or
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`denying an injunction on the parties.” Apple, 809 F.3d at 645. Philip Morris has not shown that
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`the balance of hardship weighsin its favor. Philip Morris argues that the equities favorit
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`becauseit will “suffer irreparable harms,” “be deprived ofits statutory right to exclude,” and “be
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`forced to compete against its own innovations usurped by an adjudicated infringer[.]” [Dkt. No.
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`1411] at 14-15. As explained above, Philip Morris has not established that it has suffered, oris
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`likely to suffer, irreparable harms. Moreover, although being forced to compete with infringing
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`products would imposea “substantial hardship” on Philip Morris, Apple, 809 F.3d at 645, the
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`harm that Philip Morris anticipates from competition is inconcrete and speculative at this point.
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`12
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`Onthe other hand, Reynolds points out that an injunction would “devastate a substantial
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`portion of its e-cigarette business[.]” [Dkt. No. 1421] at 16. The Court recognizes that the Alto
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`accounts for the vast majority of VUSE productsales and an injunction would significantly
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`impact Reynolds’ e-cigarette business. See [Dkt. No. 1421-1] {ff 15-16. Nevertheless, Philip
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`Morris is correct that hardship to Reynolds is discounted because neither commercial success nor
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`the “successful exploitation of infringing technology” can “shield[] a party from injunctive
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`relief.” Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 704 (Fed. Cir. 2008); see i4i, 598
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`F.3d at 863.3
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`For these reasons, the Court finds that the balance of hardships is neutral and neither
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`favors Philip Morris nor Reynolds.
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`4. Public Interest
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`“{T]he touchstone of the public interest factor is whether an injunction, both in scope and
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`effect, strikes a workable balance between protecting the patentee’s rights and protecting the
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`public from the injunction’s adverse effects.” i41, 598 F.3d at 863. A prohibition on the sale of
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`Alto and Solo G2 cartridges in the United States would notstrike such a balance. To besure,
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`Philip Morris identifies an important public interest “in ‘maintaining the integrity of the patent
`399
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`system,”
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`given that “the ‘encouragementof investment-basedrisk is the fundamental purpose of
`299
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`the patent grant, and is based directly on the right to exclude.’”
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`ePlus, Inc. v. Lawson Software
`
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`Inc., No. 3:09-cv-620, 2011 WL 2119410, at *17 (E.D. Va. May 23, 2011), modified, 946 F.
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`3 Reynoldsalso assets that Philip Morris would be“financially better off from an ongoing
`royalty, rather than an injunction”in light of the Alto’s significant sales in the United States,
`which causesthe balance to favor Reynolds. [Dkt. No. 1421] at 15. Although that might be true
`as a practical matter given that Philip Morris currently has no sales in the United States of IQOS
`or VEEVandit is unclear when these competing products will enter the domestic market, the
`Court declinesto find that this consideration weighs in favor of Reynolds because Philip Morris
`is entitled to its own business judgmentabout obtaining value from its intellectual property.
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`13
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`Case 1:20-cv-00393-LMB-WEF Document 1471 Filed 03/30/23 Page 14 of 31 PagelD# 41437
`Case 1:20-cv-00393-LMB-WEF Document 1471 Filed 03/30/23 Page 14 of 31 PageID# 41437
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`Supp. 2d 459 (E.D. Va. 2013) (first quoting MercExchange, LLC v. eBay, Inc., 500 F. Supp. 2d
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`556, 586 (E.D. Va. 2007), then quoting Sanofi-Synthelabo v. Apotex, Inc., 470 F.3d 1368, 1383
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`(Fed. Cir. 2006)).
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`Nevertheless, there is a countervailing public interest in the availability of combustible-
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`alternatives for adult tobacco users, which is a heightened concern given the undisputed
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`popularity of Reynolds’ VUSEproducts. Both parties have taken the position that smoke-free
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`alternatives like e-cigarettes and vapes are a harm-reducing alternative for adult cigarette users,
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`and for that reason they may provide a public health benefit to these users. See [Dkt. No. 1421-
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`32] at 249-50; [Dkt. No. 1421-34] at 1296; Trial Tr. at 145-46. In granting premarket
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`authorization for e-cigarettes, the FDA has acknowledgedthe “potential benefit to smokers who
`
`switch completely [to these products] or significantly reduce their cigarette use,” which it
`determined “outweigh|s] the risk to youth,” provided that post-marketing requirements to reduce
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`youth exposure and access are followed. FDA Permits Marketing of E-Cigarette Products,
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`Marking First Authorization of Its Kind by the Agency, U.S. Food & Drug Admin, (Oct. 12,
`
`2021), https://www.fda.gov/news-events/press-announcements/fda-permits-marketing-e-
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`cigarette-products-marking-first-authorization-its-kind-agency; see also Vaping Devices
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`(Electronic Cigarettes) DrugFacts, Nat’] Inst. on Drug Abuse (Jan. 2020),
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`https://nida.nih.gov/publications/drugfacts/vaping-devices-electronic-cigarettes (“Research so far
`
`suggests that vaping devices might be less harmful than combustible cigarettes when people who
`
`regularly smoke switch to them as a complete replacement.”). As of 2022, VUSEis the leading
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`productline in the domestic e-cigarette market with over a one-third share of the market,
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`surpassing JUULlast year. See [Dkt. No. 1421-1] § 14; [Dkt. No. 1421-3] at 101. Over 90% of
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`VUSEsales areattributable to the Alto, which is used by more than 4.5 million customers.
`
`[Dkt.
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`14
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`Case 1:20-cv-00393-LMB-WEF Document 1471 Filed 03/30/23 Page 15 of 31 PagelD# 41438
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`No. 1421-1] ff 15-16; [Dkt. No. 1421-3] at 102. Accordingly, the permanentinjunction sought
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`by Philip Morris would remove a popular and widely used combustible-alternative from the
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`United States market, which could posea risk of reversion to combustible cigarettes and
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`consequently harm public health. See [Dkt. No. 1421-32] at 189-90; [Dkt. No. 1421-13] at 77-
`8 (agreeing that reversion to combustible cigarettes is a possibility). Both parties also
`
`acknowledgethe potential for JUUL to be removed from the market because of the FDA’s
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`marketing denial order, which has been stayed pending ongoing administrative review. See Juul
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`Labs, Inc. v. FDA, No. 22-1123 (D.C. Cir. Mar. 7, 2023). Because VUSE and JUUL make up
`
`
`over twothirds of the e-cigarette market in the United States, Reynolds correctly points out that
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`the public health ramifications could be “amplified.” See [Dkt. No. 1421] at 17.
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`Philip Morris counters that removal of Alto and Solo G2cartridges from the United
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`States market “would have no meaningful effect on the public” because multiple premarket
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`tobacco authorized e-cigarettes are available to adult smokers, such as Reynolds’ VUSE Solo
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`G1, Vibe, and Ciro, and consumersusing the Alto or Solo G2 would instead switch to a different
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`vaping product or non-combustible device.
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`[Dkt. No. 1411] at 17. Reynolds contends that these
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`other products are not alternatives insofar as consumers have shown a strong preference for pod-
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`style e-cigarettes like the Alto and JUUL,as opposedto “cig-a-like” designs(e.g., the VUSE
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`Solo, Ciro, and Vibe products), [Dkt. No. 1421] at 15, but Philip Morris responds that the NJOY
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`Ace, a pod-based e-cigarette, is available to consumers and has obtained premarket tobacco
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`authorization, [Dkt. No. 1429] at 10. The Court agreesthatit is certainly possi