1 / 17

Overview of Significant Recent Cases On Patent Damages

Overview of Significant Recent Cases On Patent Damages. February 18, 2011 M. Andrew Woodmansee Partner, San Diego Office Morrison & Foerster LLP. Damages: Background 25 U.S.C. § 284.

hadassah
Download Presentation

Overview of Significant Recent Cases On Patent Damages

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Overview of Significant Recent Cases On Patent Damages February 18, 2011 M. Andrew Woodmansee Partner, San Diego Office Morrison & Foerster LLP

  2. Damages: Background 25 U.S.C. § 284 • “Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” • But how does one determine appropriate royalty level? • Usually done by reconstructing a “hypothetical negotiation" based on the Georgia-Pacific factors

  3. 1. The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty. 2. The rates paid by the licensee for the use of other patents comparable to the patent in suit. 3. The nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold. 4. The licensor's established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly. 5. The commercial, relationship between the licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or whether they are inventor and promoter. 6. The effective selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales. 7. The duration of the patent and the term of the license. 8. The established profitability of the product made under the patent; its commercial success; and its current popularity. 9. The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results. 10. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention. 11. The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use. 12. The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions. 13. The portion of the realizable profit that should be credited to the invention as distinguished from nonpatented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer. 14. The opinion testimony of qualified experts. 15. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringer began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee - who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention - would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license. The Georgia-Pacific Factors

  4. Prevalent Issues in Patent Damages • What is the starting point? • Extensive use and acceptance of the “25% Rule” • What should the “royalty base” be? • Entire Market Value Rule? • If the patentee shows that the patented feature serves as the predominant basis for customer demand, courts allow damages to be based on the “entire market value” of the product • Consideration of other license agreements • Proper role of Damages Experts/Economists at trial

  5. Recent Trends 2009-2011 • Increased emphasis on “Judge as Gatekeeper” under Daubert and FRE 702 • Close scrutiny given to expert’s reliance on other “relevant” license agreements • More difficult to apply the “Entire Market Value Rule” • The “death” of the “25% Rule”

  6. Lucent v. Microsoft (Fed. Cir. 2009) • Facts • Patent was directed at one small feature of Microsoft’s Outlook—”date picker feature” in the calendar • Lucent sought $561 million based on an 8% royalty of the entire revenue of the accused products while Microsoft’s model arrived at a $6.5 million lump-sum payment • Jury awarded a lump sum of $358 million • Holding • The jury’s award was not supported by the evidence Lucent failed its burden to prove that even a $358 million award was justified because its damage expert based his conclusion on irrelevant and inflated data • Damage award “cannot stand solely on evidence which amounts to little more than a recitation of royalty numbers, one of which is arguably in the ball-park of the jury’s award, particularly when it is doubtful that the technology of those license agreements is in any way similar to the technology being litigated here.” • Entire Market Value Rule • Nothing showed that the one small feature found to have infringed drove sales for the entire outlook product • But, Court notes, using the full product value may be okay where the royalty percentage is adjusted accordingly

  7. Federal Circuit Rejects Reliance on EMV Rule • “The evidence can support only a finding that the infringing feature contained in Microsoft Outlook is but a tiny feature of one part of a much larger software program…Outlook is an enormously complex software program comprising hundreds, if not thousands or even more, features. We find it inconceivable to conclude, based on the present record, that the use of one small feature, the datepicker, constitutes a substantial portion of the value of Outlook.” (emphasis added) • “The only reasonable conclusion that can be drawn from this evidence is that the infringing use of Outlook’s datepicker feature is a minor aspect of a much larger software program and that the portion of the profits that can be credited to the infringing use of the datepicker too is exceedingly small.” • The Federal Circuit concluded that “Lucent did not carry its evidentiary burden of proving that anyone purchased Outlook because of the patented method” and that Lucent, therefore, did not satisfy its burden to recover damages under the entire market value rule.

  8. Properly Making and Preserving Objections to Damages Evidence • Compare Lucent v. Microsoft and i4i v. Microsoft • Motions for New Trial on Damages • JMOL Motions on Damages Judge Moore, i4i v. Microsoft oral argument

  9. Patentee Must Prove that Patented Feature is the “Basis for Customer Demand” • Reaffirmed by CAFC in Uniloc • Chief Judge Rader sitting by designation: • Cornell v. Hewlett-Packard (N.D.N.Y. March 30, 2009) • Cornell failed to offer “any evidence to show a connection between consumer demand for [the CPU brick] and the patented invention.” • “Cornell chose this [CPU brick] royalty base in favor of another alternative more clearly relevant to the value of the patented invention – the revenue Hewlett Packard would have earned had it sold each infringing processor as just that, a processor, without any additional noninfringing components…[this] logical and readily available alternative was the smallest salable unit with close relation to the claimed invention – namely the processor itself.” • IP Innovation v. Red Hat (E.D. Tex. March 2, 2010) • Excluding expert’s opinion and notingthat his “methodology…[did] not show a sound economic connection between the claimed invention and this broad proffered royalty base” • “Expert testimony on the topic of damages will not be allowed absent a firm basis in accepted economic principles with an eye to the facts of [the] record.”

  10. ResQNet.com v. Lansa (Fed. Cir. 2010) • Facts • District court awarded $506,305 in damages based on a hypothetical royalty of 12.5% • Patentee’s expert relied on various licenses covering wide varying technology fields, some of which included payments for continued services and maintenance • Note: The infringer did not proffer a damages expert • Holding • “This court has long required district courts performing reasonable royalty calculations to exercise vigilance when considering past licenses to technologies other than the patent in suit.” • District court here “relied on speculative and unreliable evidence divorced from proof of economic harm linked to the claimed invention.” • Patentee’s expert “used licenses with no relationship to the claimed invention to drive the royalty rate up to unjustified double-digit levels.”

  11. Which Licenses Can a Patentee Use? • Bottom line: patentee cannot rely on license agreements that are “radically different from the hypothetical agreement under consideration” to determine a reasonable royalty. • See also Worldtech v. Integrated Network Solutions, 609 F.3d 1308 (Fed. Cir. 2010) • Builds upon pronouncements from Lucent that “licenses relied on by the patentee in proving damages [must be] sufficiently comparable to the hypothetical license at issue in suit,” Lucent, 580 F.3d at 1325. • Trial courts “should not rely on unrelated licenses to increase the reasonable royalty rate above rates more clearly linked to the economic demand for the claimed technology.” ResQNet, 594 F.3d at 872-73. • Battles as to whether courts should permit expert to rely on litigation settlements or licenses entered into following a threat of litigation

  12. Uniloc v. Microsoft (Fed. Cir. Jan. 4, 2011) • Uniloc sues Microsoft in District of Rhode Island on 9/26/03 alleging infringement of ’216 patent • Judge Smith grants SJ of noninfringement (claims 1, 12, 17, 19 & 20) • Uniloc appeals on claims 12 & 19 • Federal Circuit reverses and remands on claims 12 & 19 • Uniloc withdraws claim 12 on eve of trial • Jury verdict of infringement, validity, willfulness for claim 19 • Jury awards damages of $388 million to Uniloc • Judge Smith grants JMOL of noninfringement, no willfulness, and new trial on damages, but denies JMOL of invalidity • Federal Circuit reverses JMOL of noninfringement, but affirms JMOL of no willfulness, new trial on damages, and denial of JMOL of invalidity

  13. Damages Calculations Flawed • Uniloc’s expert Joseph Gemini opined that the damages should be $564,946,803 • Gemini used a pre-litigation Microsoft document that stated “Product Keys” were “worth anywhere from $10 to $10,000” and used $10 as the “isolated value of Product Activation.” (2011 U.S. App. LEXIS at *44.) • “Gemini then applied the so-called ’25 percent rule of thumb,’ hypothesizing that 75% of the value would remain with Microsoft, resulting in a baseline royalty rate of $2.50 per license issued.” Id. • He “then ‘did a kind of check to determine whether [$564,946,803] was reasonable. It’s obviously, you know, a significant amount of money.” Id. at *45. • The “check” was performed against the estimated gross revenues of the accused products, calculated at $19.28 billion, making the calculated royalty “only” 2.9% of this amount.

  14. Affirmance of New Trial on Damages • “25 Percent Rule” • Court held the 25 percent rule is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation • Evidence relying on this rule is inadmissible under Daubert and FREs because it fails to tie a reasonable royalty rate to facts of the case at issue • Proper factors are those set forth in Georgia Pacific • Entire Market Value Rule • Uniloc’s use of the EMV rule as a “check” to its damages calculation was improper because there was no showing that the patented component created the basis for customer demand (i.e., that entire market value of the accused products was derived from the patented contribution) • Court also stated new damages trial was appropriate as the EMV of $19billion “tainted the jury’s damages award” and “the $19billion cat was never put back in the bag even by Microsoft’s cross-examination of Mr. Gemini . . . .” 2011 U.S. App. LEXIS 11 at *68.

  15. Damages: State of the Law in 2011 • Higher bar set for proving damages • High hurdle to using “entire market value rule” • Damage experts required to show sound economic proof connecting their damage award to the benefits added by the claimed invention • Need to “hypothesize, not speculate” • If relying on previous licenses, need to specifically show how those licenses relate to the patents at issue • Gatekeeper role of judge elevated • Parties must make and preserve objections (motions in limine, Daubert challenges, jury instructions, JMOL, motions for new trial) • Licenses entered under the threat of litigation • Federal Circuit law blows hot and cold on relevancy • The “25% rule” • No longer considered an accepted methodology by the Federal Circuit

  16. Questions

  17. Contact information M. Andrew Woodmansee PartnerSan Diego, CAMAWoodmansee@mofo.com(858) 720-5167

More Related