Presentation on theme: "For Discussion and Academnic Purposes Only1 Exploring the New World David Healey, Fish & Richardson, a/k/a Patentmath.com & For the plaintiffs perspective,"— Presentation transcript:
For Discussion and Academnic Purposes Only1 Exploring the New World David Healey, Fish & Richardson, a/k/a Patentmath.com & For the plaintiffs perspective, Wendy Boone, Goldstein and Lipski
For Columbus Day, we embark to the New World of Patent Damages For Discussion and Academnic Purposes Only2
These slides and this presentation are not legal advice. These slides and this presentation are not the opinions of the authors-speakers, not the opinions of their firms, and not the opinions of any client. These slides are only for academic discussion. For Discussion and Academnic Purposes Only3
Damages Statute – 35 U.S.C. § 284: …in no event less than a reasonable royalty…. Lost profits (patented product would be economic monopoly and patentee can meet demand) Established royalty (royalty established by market acceptance, e.g. SSO) Reasonable royalty (Fictional royalty) Enhanced damages (up to 3x for willful infringement) Prejudgment interest (discretionary in amount, but presumed, typically prime compounded quarterly) Damages in lieu of injunction for future infringement. 35 U.S.C. §283 as applied in Paice v. Toyota, 504 F.3d 1293 (Fed. Cir. 2007). Exceptional Case – 35 U.S.C. § 285 – attorneys fees Marking/Notice – 35 U.S.C. § 287 For Discussion and Academnic Purposes Only 4
5 Big Changes In last 2 Years Lucent v Gateway, 580 F.3d 1301 (Fed. Cir. 2009) Licenses must be comparable in economic form, and for same patents or similar technology. Damages must be apportioned to the infringing part and only compensate for economic harm from infringement. ResQNet.com v Lansa, 594 F.3d 860 (Fed. Cir. 2010) Comparable licenses only, maybe settlements. See also Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., 609 F.3d 1308 (Fed. Cir. 2010)(Comparable licenses).
For Discussion and Academnic Purposes Only 6 Big Changes In last 2 Years Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1210-11 (Fed.Cir.2010) Method claims were reversed because no evidence code could be accessed or was used, but damages upheld based on presence of inaccessible code on media. Uniloc v Microsoft, 632 F.3d 1292 (2011) No 25% Rule (or other arbitrary rules): Royalties must be based on facts specific to its case. Tougher EMV: Cannot be mentioned for any purpose or comparison unless test met for EMV.
Spectralytics, Inc. v. Cordis Corp., ___ F.3d ___, Nos. 2009-1564 & 2010-1004, 2011 WL 2307402 (Fed. Cir. June 13, 2011) Upheld argument that hypothetical royalties could be based on a rate that is a multiple of actual licenses since the findings of infringement and validity are established in the verdict, while contested in an earlier license (there, 3x). GP factors specifically applied to the case, illustrating how they might be applied post- Lucent. For Discussion and Academnic Purposes Only 7
Affinity Labs of Texas LLC v. BMW Motor Cars of North America, Civil Action No. 9:08CV164 (Clark, J.), appeal pending. Lump sum paid up license for all products for all time for one defendant (Volkswagen). Where defendant opted for per unit royalty: calculation of damages for future infringement applying Paice; Application of GP factors to damages for future infringement. Willfulness enhancement for future damages. For Discussion and Academnic Purposes Only 8
Damages provisions from proposed legislation in past Congressional Sessions were dropped as moot. Virtual Marking, listing patent numbers on website established as notice, H.R. 1249, Section 16(a), amending 35 U.S.C. § 287(a). Private false marking claims require proof of competitive injury and actual damages, and marking with a patent that covered the product but has expired is no longer false marking, H.R. 1249, Section 16(b), amending 35 U.S.C. § 292(a). For Discussion and Academnic Purposes Only9
What is a reasonable royalty? Analytical method: TMW v. Dura, TWM Mfg. Co., Inc. v. Dura Corp., 789 F. 2d 895 (Fed. Cir. 1986), damages based on business plan and projections at time by the infringer for use of the invention. Hypothetical negotiation: G-P, Lucent, Spectralytics Requires apportionment of the infringement from the whole. Requires licenses be directly relevant Same patents Comparable patents Same economic terms (lump sum/running royalty) Comparable terms or conversion of terms Limited to economic harm – estimate of patentees actual injury Can use whole as royalty base if amount of royalty is first calculated and then converted to its portion of selling price of the whole. For Discussion and Academnic Purposes Only10
Apportionment – Separating the value of the infringing piece from the whole Surveys Mixed results: The closer to the infringing piece the more likely to be admitted Smallest salable unit where infringement found Cornell v. HP (Judge Rader), Uniloc ( Chief Judge Rader)(EMV cannot be used as a check nor can royalty be amortized over the whole, compare Lucent ) Technical expert testimony on infringing functionality to operation of the whole. Difference in selling price between products with/without feature. Valuation model: Is it a form of apportionment? Developing value from business valuation principles applied to the infringing feature and/or comparable patents or technology. For Discussion and Academnic Purposes Only 11
Economically Comparable : Hypothetical license must be in same form or comparable form to past licenses of the parties. Lump sum and running royalty licenses are distinct because they are typically based on different economic considerations and risks. Scope of licenses must be compared to infringing technology Economics of hypothetical licenses must be grounded in evidence from actual licenses, directly or through fact based extrapolation. Bottom line is that economics of reasonably royalty must be limited to the economic harm or loss from the infringement. For Discussion and Academnic Purposes Only 12
Plaintiffs damages expert relied on licenses for software not patents. No evidence the software practiced the patents. Defendant did not put on any expert testimony of damages Court held: 1) Plaintiff has sole burden of proof on damages, defendant has no obligation to put on proof of damages 2) Use of product licenses where no proof of product practicing the patent was insufficient proof of damages as a matter of law 3) Speculated in dicta that best evidence might be litigation settlements For Discussion and Academnic Purposes Only 13
Establishing that a license is comparable: For plaintiffs licenses, same patent (or similar patents?) Settlement licenses (dicta) Traditionally excluded under F.R.E. 408 Violate rule that patent is presumed infringed and enforceable (settlements premise is liability and damages are disputed) Datatreasury v Wells Fargo : Settlement licenses admitted, impact is tremendous on liability, but minimize damages because jury took settlements as established price. Appears to be a dying trend… In like a lion out like a lamb? For Discussion and Academnic Purposes Only14
Where no distinction between method claims and apparatus claims made in the damages question to the jury, presence of inaccessible code on a media will support the damages awarded. Does Finjan require a defendant to object to testimony and to a jury charge for unitary damages? Is Finjan fact specific? No Daubert motion or other objection to entire market value rule, 25% rule, or unitary damages testimony or verdict form. Evidence that presence of code on media permitted advertisement of complete solution from a single source. Evidence of replicating function, look and feel of patentees product. For Discussion and Academnic Purposes Only15
[T]here must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. Where does the hypothetical negotiation start? For Discussion and Academnic Purposes Only16
Nash Bargaining Solution Economic model based on mathematician John Nashs theories Has been studied and applied in some economic scholarship Meant to model behavior of actors in a negotiation not provide an arbitrary royalty as a start for negotiation (25%) But without evidence it becomes a 50% rule… Rejected in at least one district court case, pending in others… Survey of industry specific licenses for comparable technology. Requires evidence on economic and technical comparability. Probably the ideal, but unattainable in most cases. For Discussion and Academnic Purposes Only17
The Supreme Court and this court's precedents do not allow consideration of the entire market value of accused products for minor patent improvements simply by asserting a low enough royalty rate. See Garretson, 111 U.S. at 121, 4 S.Ct. 291; Lucent Techs., 580 F.3d at 1336 Uniloc bars any mention or test or amortization of royalty over entire product sales or revenues. For Discussion and Academnic Purposes Only18
How are per infringement royalties aggregated? For example, if before you could say: apportionment is 1/10 th of the whole, and royalty is X, then multiply 1/10 * X * (revenue) = total royalty But under Uniloc is this permissible? Semantics may make the difference: Royalty for infringement of the piece within the whole is X. Multiply X * (unit sales) = total royalty. No mention of total price of whole or revenue of whole. For Discussion and Academnic Purposes Only19
June 2011 Federal Circuit Decision affirmed jury charge on damages that put the 15 GP factors into 11 factors grounded in the case: The jury was given a non-exhaustive list of eleven factors to consider, as follows: (1) What royalties did Cordis, Norman Noble, or others pay for licenses to patents comparable to the '277 Patent? (2) Did Spectralytics have a policy of licensing or not licensing the '277 Patent? What were the terms of those licenses? (3) Was Spectralytics in competition with Cordis and/or Norman Noble? For Discussion and Academnic Purposes Only20
(4) Does the ability to use the patented invention help in selling other products or services? (5) How profitable was the patented device? Was it commercially successful or popular? (6) What advantages and benefits did the patented invention provide over devices not claimed in the '277 Patent? (7) Was an acceptable, non-infringing alternative available to Cordis and Norman Noble in December 1998, when the alleged infringement began? (8) How extensively did Cordis and Norman Noble use the patented invention, and what was the value of that use to them ? For Discussion and Academnic Purposes Only21
(9) Is there a customary portion or percentage of the profit or selling price that is customarily paid in the field as a royalty for the use of patented inventions comparable to the invention claimed in the '277 Patent? (10) What portion of profit is attributable to the patented invention versus other factors such as unpatented elements or unpatented manufacturing processes, or features or improvements developed by Cordis or Norman Noble? (11) What opinions do experts have as to what would be a reasonable royalty? Trial Tr. 3056-58. For Discussion and Academnic Purposes Only22
Whether the Nash Bargaining Solution is an acceptable model for use in a reasonable royalty analysis? Whether a judgment for damages can be both past and future, in effect a paid up license, where the evidence supports this result of a hypothetical negotiation? For Discussion and Academnic Purposes Only23
For Discussion and Academnic Purposes Only 24 For the Plaintiff – Alternatives? Analytical Model – TMW v. Dura –Lucent specifically blesses analytical model as a basis for reasonable royalty. –This might be much better for plaintiff: Managers projecting big sales and profits Business plans with inflated promises Technology is before its time and is commercial failure (e.g., netbook computers in dial-up age flopped, but are huge in broadband age).
For Discussion and Academnic Purposes Only 25 For the Plaintiff – Alternatives? Valuation Theory –Valuation theory is familiar to everyone: Compare price of one car to another car to get value; compare one house to another house to get value; projected profit based on established revenue stream discounted to present value. –This might be much better for plaintiff where feature is successful for other manufacturers but unsuccessful for defendant.
For Discussion and Academnic Purposes Only 26 For the Plaintiff – Alternatives? Costs and disadvantages of alternatives are both a potential theory and possible argument to limit damages or royalties But depends on total cost and impact of disadvantages: Manufacturing, distribution, market acceptance. Depends on whether cost will increase price: Price and sales generally are see-saw
For Discussion and Academnic Purposes Only 27 Why Focus On Damages? No more injunctions for most plaintiffs since eBay Most plaintiffs cannot show prior notice of patent (e.g., willfulness) Actual loss of licensing revenue is true test: this loss maybe very small depending on licensing history of plaintiff. Where low damages: other procedures?
For Discussion and Academnic Purposes Only 28 Preservation Of Error As Plaintiff, must put on legally proper damages case even if Defendant does not, ResQNet.com As Defendant, must move to limit discovery: Once a big number is out, it may come in… Both parties, must make Daubert motion to limit or strike improper expert report
For Discussion and Academnic Purposes Only 29 Preservation Of Error Both parties, must make motions in limine to exclude improper evidence of damages Both parties must make JMOL on issue of damages at end of opponents case raising all grounds Loser must make JMOL post-trial and for new trial after verdict on damages.
For Discussion and Academnic Purposes Only 30 What to do? In recent speech at Joint Federal Bar Association – Eastern District of Texas Bar Association, Chief Judge Rader urged early evaluation of damages. EDTEX Judges already do this: Judge Clark addresses damage range at CMC Judge Davis in Parallel Networks to eliminate the Hobsons Choice of low dollar cases.