1. Confidential - Attorney Client Privileged
Damages in Patent Cases
New Law – New Checklist
August 1, 2010
David Healey
Fish & Richardson
Confidential - Attorney Client Privileged

2. Statutory Bases for Damages
For Actual Damages, 35 U.S.C. Section 284:
35 U.S.C. 284 Damages.
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.
When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154(d) of this title.
The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.
(Amended Nov. 29, 1999, Public Law , sec. 1000(a)(9), 113 Stat. 1501A-566 (S sec. 4507(9)).)
Jason add slides with statutes; no more than one for each; number slides. Put confidential and privileged.
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3. Statutory Bases for Damages
 35 U.S.C. 285 Attorney fees.
The court in exceptional cases may award reasonable attorney fees to the prevailing party.
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4. Statutory Bases for Damages
35 U.S.C. 286 Time limitation on damages.
Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.
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5. Statutory Bases for Damages
35 U.S.C. 287 Limitation on damages and other remedies; marking and notice.
Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word "patent" or the abbreviation "pat.", together with the number of the patent, or when, from the character of the article, this cannot be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice….
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6. Statutory Bases for Damages
35 U.S.C. 287 Limitation on damages and other remedies; marking and notice.
….In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice. (additional requirements for 271(g) omitted).
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7. Big Changes In last 6 Months
Damages law has CHANGED in the last six months
Lucent v Gateway, September 11, 2009
ResQNet.com v Lansa, February 5, 2010
Innovation IP v Red Hat, March 2, 2010
Datatreasury v Wells Fargo, March 4, 2010
Fenner v HP, April 16, 2010
New Handbook on Compensatory Patent Damages for Federal Judges January 10, 2010.
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8. Trial And Appellate Rulings
Pretrial Rulings
Federal Circuit
Exclusion of Expert Opinion (Daubert):
Innovation IP v Red Hat
Fenner v HP
Cornell v HP (pre-Lucent)
Evidence of Past Settlements Allowed at Trial:
Datatreasury v Wells Fargo
Reversal and remands:
Lucent v. Gateway
ResQNet.com v. Lansa
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9. Changes In Law OLD Law NEW Law
Georgia-Pacific factors could be based on industry evidence not specific to the dispute
Settlements not admissible
Opinions ok instead of facts on Georgia-Pacific factors
Damages could be based on factors unrelated to the infringement
Georgia-Pacific factors can only be based on facts of the case
Settlements of cases over the same patents in suit are admissible
No opinions or general industry data must be used in factors
Damages must be apportioned to infringement only
Confidential – Attorney Client Privileged

10. Lucent—New Case on Damages
Lucent sued computer makers and Microsoft over features in Microsoft software as installed and used on PCs.
Lucent’s damages expert based his royalty for the “date picker” feature on Outlook on the entire PC, 1-1.5%
This was based on a set of Lucent licenses and a single Microsoft license
District Court disallowed the PC as the base –expert relied on alternative royalty of 8% on software

11. Lucent on Reasonable Royalties
2 types of damages in patent cases:
lost profits; and
reasonable royalties
Several ways to calculate reasonable royalties:
1) Analytical Method;
2) Hypothetical Negotiation
3) Established Royalty
4) Valuation Method

12. Lucent on Reasonable Royalties: “Same song, second verse”
Lucent re-affirms the Georgia-Pacific case by confirming that :
Reasonable royalty is imprecise, flexible remedy
GP factors are designed to put patentee in approximately the same position it would have been through an ex ante negotiation (negotiation prior to infringement.)
A hypothetical negotiation might be different in some ways than real world negotiations…

13. ResQNet.com v. Lansa
Plaintiff’s 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

14. District Court Cases Since ResQNet.com
Innovation IP v. Red Hat: Struck Plaintiff’s damages expert for using unrelated licenses and industry data.
Datatreasury v Wells Fargo: Permitted discovery of settlement licenses and admission of settlement licenses at trial.
Fenner v HP: Struck parts of expert report that relied on unrelated licenses.

15. New Check List For Damages
Defendant’s investment in R&D, manufacturing, distribution, etc?
Defendant’s innovations to the product (e.g., its own patents?)
Contribution of the patent to the technical field of the product?
What accused feature in the product requires the patented technology?
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16. New Check List For Damages
What licenses are admissible: Same patents? Technology? Products? Contractual scope and structure? Litigation Settlements?
What declarations or other evidence are needed from technical expert to show the contribution of the invention to the accused feature?
What evidence is needed to show licenses are comparable?
Does consumer testing for the accused feature to show its contribution to the selling price?
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17. Evidence Checklist Item Types of Evidence
What is the defendant’s actual investment in the product?
What are the defendant’s own innovations that add value to the product (e.g., its own patents)?
What is the contribution of the patent to the technology relevant to the product (to “the art”)?
What is in the accused feature in the product that would not otherwise be present but for use of the patented technology?
R&D cost? Cost of building plants? Labor? Equipment? Distribution network?
What patents does the defendant have on the accused feature or device?
What is cost of alternatives, design around?
How does accused feature function in product? Essential? Important? Optional?
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18. Evidence Checklist Item Types of Evidence
Key evidence is patent license on same patents in suit:
Must be same structure (lump sum v running royalty)
Must be same scope
Otherwise facts must explain differences for admissibility
Declarations tying other licenses to facts of case from damages and technical experts, e.g. same feature.
What licenses are admissible: Same patents? Technology? Products? Contractual scope and structure? Litigation Settlements
What evidence is needed to show licenses are comparable?
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19. Evidence Checklist Item Types of Evidence
Declarations will be needed from technical experts and witnesses to show what contribution is to the product by patent, and to show how it compares to other features
Consumer testing if it exists can be powerful evidence of value of feature; but very difficult to do useful survey after feature is in the market
What declarations or other evidence are needed from technical expert to show the contribution of the invention to the accused feature?
Does consumer testing for the accused feature to show its contribution to the selling price?
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20. Looking For Alternatives
Analytical Model – 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).
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21. Looking For 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 discounted to present value.
This might be much better for plaintiff where feature is successful for other manufacturers but unsuccessful for defendant.
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22. Cost Of Alternatives
Cost of alternatives are a potential limit on damages or royalties
But depends on total cost: Manufacturing, distribution, market acceptance.
Depends on whether cost will increase price: Price and sales generally are “see-saw”
Higher price lower sales
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23. Apportionment v EMV
Lucent makes strong points of apportionment of value of the feature to the device, and of the patent to the feature, relies on Georgia-Pacific factors 10 and 13
Lucent permits royalty rate to be on entire sales price so long as rate is adjusted to apportion the damages to the value of the invention.
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24. Apportionment v EMV EMV – Entire Market Rule
Requires showing that the patented feature drives sales of the product.
But EMV likely requires a unique feature based on the patent
All cars must have wheels
No one will buy a car without wheels
Patent on specific feature of wheel or type of wheel that can be replaced with another component is not EMV
But if car requires special wheel (e.g., race car) it may be EMV (e.g., the race car is replaceable but wheel is not)
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25. Apportionment v EMV
Consumer surveys before product launch are very useful to determine value add of invention
Because often new feature needed to avoid price drop (adding features does not always increase price)
But consumer surveys are very hard to replicate value after product launch because survey is too easy to manipulate. All cars must have wheels
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26. 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 damages are low: Early Mediation
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27. Impact Of Change In Law Cases can be valued more accurately
Cases can be evaluated early for infringement, invalidity, unenforceability, and damages
Bad cases can be settled early before “throw good money after bad”
Budgets can be calibrated to case:
Low exposure pick and choose your moves
High exposure consider fall back strategies
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28. Impact Of Change In Law
When you are plaintiff ask about how you can get an injunction?
ITC?
Germany or other EU country?
Injunction will drive settlement above damages
How does change in law impact patent application process?
Claims in injunction countries are important
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29. 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
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30. 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 opponent’s case raising all grounds
Loser must make JMOL post-trial and for new trial after verdict on damages.
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