SCITECH CORNER MODEL JURY INSTRUCTIONS FOR REASONABLE ROYALTY PATENT DAMAGES. I. PATENTS, JURIES, AND REASONABLE ROYALTIES A. Instructing the Jury

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1 SCITECH CORNER MODEL JURY INSTRUCTIONS FOR REASONABLE ROYALTY PATENT DAMAGES Jorge L. Contreras * and Michael A. Eixenberger ** I. PATENTS, JURIES, AND REASONABLE ROYALTIES A. Instructing the Jury It is a fundamental and longstanding principle of U.S. civil litigation that questions of law are decided by judges, while questions of fact are decided by juries. 1 Thus, though the U.S. law of patent damages has been developed extensively by the federal courts, the calculation of damages in any given case has traditionally been a question of fact delegated to the jury. 2 Under Rule 51 of the Federal Rules of Civil Procedure (FRCP), the trial judge must instruct the jury regarding the substantive law governing the verdict. Though the jury s charge is delivered by the court, the written instructions provided to the jury are often prepared by counsel. 3 When opposing counsel disagree over the instructions pertaining to a particular point of law, the court must give them an opportunity to object on the record and, after hearing their * Associate Professor, University of Utah S.J. Quinney College of Law, Salt Lake City, UT, and Senior Policy Fellow, Program on Information Justice and Intellectual Property, American University Washington College of Law, Washington, DC. The preparation of this essay was supported, in part, by Arizona State University out of a fund resulting from a gift by Intel Corporation. The opinions expressed herein are exclusively those of the authors. ** J.D. Candidate 2017 and Quinney Fellow, Center for Law and Biomedical Sciences, University of Utah S.J. Quinney College of Law, Salt Lake City, UT. 1. As prescribed by the Seventh Amendment to the U.S. Constitution, no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law. See generally Stephen A. Weiner, The Civil Jury Trial and the Law-Fact Distinction, 54 CALIF. L. REV (1966) (discussing the history and origin of the law-fact distinction within civil law). 2. See THOMAS E. COTTER, COMPARATIVE PATENT REMEDIES: A LEGAL AND ECONOMIC ANALYSIS (2013) ( [I]n patent litigation in which compensatory damages are sought either party has a right to a jury determination of matters that are classified as questions of fact, including... the amount of compensatory damages. ); Mark A. Lemley, Why Do Juries Decide If Patents Are Valid?, 99 VA. L. REV. 1673, 1685 (2013) (tracing origin of jury determination of damages in patent cases at least to eighteenth-century England). 3. See FED. R. CIV. P. 51(a). FALL

2 Contreras & Eixenberger arguments, decide how to instruct the jury. 4 Despite the involvement of counsel, the trial judge enjoys significant latitude in fashioning instructions for the jury. 5 Both courts and practitioners have recognized the practical and historical significance of jury instructions. 6 As noted by one commentator, jury instructions are arguably the most important aspect of a trial because the recitation of the jury instructions is the best opportunity for the court to teach the jurors the law. 7 In patent cases, a detailed and accurate recitation of the law is particularly crucial because the subject matter is both complex and foreign to most jurors. But despite a general recognition of the importance of the jury charge, fashioning accurate, concise, and understandable instructions in complex legal and factual disputes has proven to be challenging. In many cases, jury instructions receive comparatively little attention from counsel and the court, leading to instructions that are poorly written and error prone. 8 In other cases, counsel attempt to load jury instructions with so many legal details that they become virtually incomprehensible to the lay members of the jury. 9 And in still other cases, counsel propose instructions that are slanted toward the merits of their own case without giving the jury an impartial or complete summary of the law See FED. R. CIV. P. 51(b)(2); see also Wang Labs., Inc. v. Mitsubishi Elecs. Am., Inc., 103 F.3d 1571, 1576 (Fed. Cir. 1997) ( Next, Wang and Mitsubishi fought over the formulation of the implied license instruction to the jury. Wang submitted legal estoppel language; Mitsubishi objected and offered equitable estoppel or estoppel by conduct as the basis of its license. The final instruction merged the parties competing proposals into one instruction.... ) JAMES WILLIAM MOORE ET. AL., MOORE S FEDERAL PRACTICE (3d ed. 1997) (A district court has great discretion over the jury instructions and is not required to use the exact words used in a litigant s proffered instructions... or adhere to the forum state s pattern instructions. ). 6. One federal judge has suggested that jurors have no less than a Constitutional right to have the law accurately taught by the judge. William Young, Review: The Missing American Jury, LAW360 (Nov. 23, 2016, 9:38 PM), [ 7. Rhonda Sadler, The Role of Jury Instructions in Patent Remedy Gatekeeping 2 (Jan. 2011) (unpublished manuscript), media/slspublic/rhonda%20sadler%20-%20the%20role%20of%20jury%20instructions%20in%20 Patent%20Remedy%20Gatekeeping.pdf [ 8. See Hon. Kathleen M. O Malley, Trial by Jury of Patent Cases, Keynote Address Given at NYU School of Law, YOUTUBE (Sept. 30, 2016), (starting at 13:59): As a District Judge, I was stunned by the lack of care that went into proposed jury instructions. I came to believe that the people that were actually trying the cases never even looked at them and they assigned them to some young associate because there never seemed to be a real correlation between what was going on at trial and what was showing up in the jury instructions. Counsel seemed more concerned with laying out complex legal principles in ways that would confuse even those learned in the patent law, than with conveying real, needed information to jurors. As an appellate judge, I m now stunned not only that the practice continues, but that trial judges will often accept such unhelpful offerings without aggressive editing, presumably because they figure that if the parties are going to agree to those stupid instructions they are less likely to get reversed based on an improper instruction. 9. For example, the infamous jury charge in Apple v. Samsung contained eighty-four separate instructions and ran to 109 pages in length. See Final Jury Instructions, Apple, Inc. v. Samsung Elecs. Co., Ltd., No. 5:11-cv LHK, 2011 WL (N.D. Cal. Aug. 21, 2012); see also JOHN J. COUND ET AL., CIVIL PROCEDURE: CASES AND MATERIALS 883 (4th ed. 1985) ( [M]any jurors do not even understand the basic aspects of the instructions, let alone the fine distinctions that often are drawn. ). 10. See COUND ET AL., supra note 9, at JURIMETRICS

3 SciTech Corner As one prescient commentator noted a half century earlier, No area of jury trial procedure has been more troublesome or perplexing to both the bench and the bar than that phase of the trial described as the instruction process. 11 B. The Evolution of Model Jury Instructions in Patent Cases To assist courts and counsel with the development of clear and accurate jury instructions, and to avoid significant duplication of effort, various judicial and private organizations have created template, pattern, or model jury instructions covering different aspects of trial procedure. These models are intended to assist counsel in developing proposed jury instructions in their own cases. In most cases, model jury instructions are intended to present simple, concise, accurate statements of the jury s responsibility and the law applicable to the case. 12 The genesis of model jury instructions in the United States can be traced back to the late nineteenth century when many states... began to require [a single set of] instructions on every material point in issue. 13 As a result, [t]rial judges, uncertain of what might be required by the appellate courts, adopted lengthier and more complex instructions in the hope that they would leave few grounds upon which to base a reversal. 14 Although these consolidated instructions were improvements over the prior practice of giving the jury numerous sets of instructions, these exhaustive and overly complex instructions were limited in their ability to clearly convey the law to the lay members of jury. Accordingly, there was a significant need for model instructions to state the law clearly, while also reducing the burden on the courts, counsel, and parties. In the late 1930 s, a committee of judges from the Los Angeles Superior Court made the first significant attempt at creating a set of model jury instructions. These initial instructions drew from appellate court decisions and were intended to be generally applicable across cases presenting similar issues of state law. 15 Many states followed California s lead and created their own model jury instructions. 16 In 1965, Judges William Mathes and Edward Devitt published the first model jury instructions aimed at summarizing federal law. 17 The resulting book was a collection of instructions derived from appellate decisions, and was 11. See Wylie A. Aitken, The Jury Instruction Process Apathy or Aggressive Reform?, 49 MARQ. L. REV. 137, 137 (1965). 12. MOORE ET AL., supra note 5, 51.20(1)(b), at n William W. Schwarzer, Communicating with Juries: Problems and Remedies, 63 CALIF. L. REV. 731, 732, (1981) (citing WILLIAM NELSON, AMERICANIZATION OF THE COMMON LAW (1975)). 14. Id. at Id. 16. Id. at 737; see, e.g., Florida Standard Jury Instructions, FLA. SUP. CT., supremecourt.org/jury_instructions.shtml (last visited Dec. 28, 2016); Pattern Jury Instructions, WASH. CTS. Instructions (last visited Dec. 28, 2016). 17. WILLIAM C. MATHES & EDWARD J. DEVITT, FEDERAL JURY PRACTICE AND INSTRUCTIONS (1965). FALL

4 Contreras & Eixenberger known as the Federal Jury Practice and Instructions. 18 These federal instructions included detailed criminal and civil cases. Among the civil cases... [were] a few that seem[ed] rather exotic for trial by jury: antitrust, bankruptcy, condemnation, and patent cases. 19 Thus, the first model patent jury instructions were born. Numerous courts and legal associations have built upon this foundation by developing extensive model jury instructions for patent cases. One of the best known is the Model Patent Jury Instructions published by the FCBA. 20 In addition to the FCBA, the American Intellectual Property Law Association (AIPLA), 21 Northern District of California (California), 22 District of Delaware (Delaware), 23 National Jury Instruction Project, 24 American Bar Association (ABA) 25 and Intellectual Property Owners Association (IPO) 26 have each published model patent jury instructions in one form or another. These model patent jury instructions generally serve as useful resources on which the parties can base their proposed instructions. 27 The FCBA, AIPLA, and California model jury instructions are regularly updated to reflect changes to underlying law. The FCBA model jury instructions were first introduced in These initial instructions were produced by a subcommittee of the FCBA, and were presented at the general FCBA Conference in May These initial instructions were subsequently revised in 18. Schwarzer, supra note 13, at Maurice Rosenberg, Book Review, 79 HARV. L. REV. 456, 458 (1965) (reviewing MATHES & DEVITT, supra note 17). 20. MODEL PATENT JURY INSTRUCTIONS (FED. CIRCUIT BAR ASS N 2016) [hereinafter FCBA 2016 INSTRUCTIONS], (follow the hyperlink provided to access a PDF). 21. See MODEL PATENT JURY INSTRUCTIONS (AM. INTELLECTUAL PROP. LAW ASS N 2014) [hereinafter AIPLA 2015 INSTRUCTIONS], Patent-Litigation/Committee%20Documents/Model%20Jury%20Instructions/AIPLA%20Model% 20Patent%20Jury%20Instructions% docx. 22. MODEL PATENT JURY INSTRUCTIONS (N. DIST. OF CAL. 2015) [hereinafter N. DIST. CAL INSTRUCTIONS], pdf. 23. See JURY INSTRUCTIONS FOR PATENT CASES (U.S. DIST. COURT OF DEL. 1993) [hereinafter DIST. DEL INSTRUCTIONS], patent%20jury%20instructions.pdf. 24. MODEL PATENT JURY INSTRUCTION 1 (NAT L JURY INSTRUCTION PROJECT 2009) [hereinafter NJIP 2009 INSTRUCTIONS], PatentJuryInstructions.pdf. 25. MODEL JURY INSTRUCTIONS: PATENT LITIGATION (ABA SECTION OF LITIGATION 2005) [hereinafter ABA INSTRUCTIONS]. 26. MODEL DESIGN PATENT JURY INSTRUCTIONS (INT L PROP. OWNER ASS N 2010) [hereinafter IPO 2010 INSTRUCTIONS], article.pdf. 27. PETER S. MENELL ET AL., PATENT CASE MANAGEMENT JUDICIAL GUIDE (3rd ed. 2016). 28. Model Patent Instructions, FED. CIRCUIT BAR ASS N, default.htm [ (last visited Dec. 28, 2016). 29. Id JURIMETRICS

5 SciTech Corner 2007, , , , , , 35 and most recently in January Similarly, the AIPLA model jury instructions were originally created in 1997 and have been subsequently updated in 2005, 2008, 2012, and The California model jury instructions were introduced in and revised in The amendments to these instructions were reportedly prompted by internal committee comments and changes to patent law by the Supreme Court and the Federal Circuit. 40 Conversely, the model patent jury instructions developed by the District of Delaware, National Jury Instruction Project, ABA, and IPO have not been revised or updated following their initial publication. The Delaware model jury instructions were prepared by a subcommittee of The Permanent Lawyers Advisory Committee for the United States District Court for the District of Delaware. 41 The Delaware Instructions were initially published in March 1993, and have never been updated. 42 The National Jury Instruction Project was established by Chief Judge Paul R. Michel of the Court of Appeals for the Federal Circuit to create a set of instructions to address patent infringement cases. 43 The instructions state that [t]he goal was to create a committee, national in scope, with members from both the bench and bar. 44 The instructions drafted by the National Jury Instruction Project were initially published in June 2009 and have not been updated See Model Patent Jury Instructions, FED. CIRCUIT BAR ASS N, [ (last visited Jan. 16, 2017). 31. FCBA Jury Instructions, FED. CIRCUIT BAR ASS N, [ archive.org/web/ / epage.jsp] (last visited Jan. 16, 2017). 32. FCBA Jury Instructions, FED. CIRCUIT BAR ASS N, [ archive.org/web/ / epage.jsp] (last visited Jan. 16, 2017). 33. FCBA Jury Instructions, FED. CIRCUIT BAR ASS N, [ archive.org/web/ / epage.jsp] (last visited Jan. 16, 2017). 34. FCBA Jury Instructions, FED. CIRCUIT BAR ASS N, [ archive.org/web/ / epage.jsp] (last visited Jan. 16, 2017). 35. FCBA Jury Instructions, FED. CIRCUIT BAR ASS N, [ archive.org/web/ / epage.jsp] (last visited Jan. 16, 2017). 36. FCBA 2016 INSTRUCTIONS, supra note AIPLA 2015 INSTRUCTIONS, supra note 21, at MODEL PATENT JURY INSTRUCTIONS (N. DIST. OF CAL. 2011), gov/filelibrary/5/model_patent_jury_instructions_ pdf [ 806/ 39. N. DIST. CAL INSTRUCTIONS, supra note See id. at i. 41. DIST. DEL INSTRUCTIONS, supra note Id. 43. NJIP 2009 INSTRUCTIONS, supra note Id. 45. Id. FALL

6 Contreras & Eixenberger In 2005, the ABA Section of Litigation published a volume entitled Model Jury Instructions: Patent Litigation as part of its Model Jury Instructions series. 46 The book has not been updated. Finally, the IPO s model jury instructions were published in 2010, 47 but they are limited to issues concerning design patents. 48 The IPO has yet to publish model jury instructions relating to cases involving utility patents. Although model patent jury instructions are generally received positively, they have their critics. Some have questioned whether model instructions are truly neutral. For example, in Apple v. Samsung, Samsung objected to Apple s extensive reliance on the IPO s model jury instructions for design patents, claiming that they were developed with significant Apple input and therefore biased. 49 Despite the availability of numerous model jury instructions and their differing descriptions of underlying law, the Federal Circuit has never endorsed a set of jury instructions for patent cases. 50 Some have speculated that the Federal Circuit has not been required to adopt a specific set of model instructions because parties typically do not object to or file appeals based on the jury instructions given by the district court. 51 But until a specific set of model jury instructions is endorsed by the Federal Circuit, the choice of which, if any, model to use is left to individual courts and attorneys. In some cases, attorneys are permitted to pick from available model instructions to tailor a set of proposed instructions for their specific case. Other courts may designate a preferred set of model instructions, but allow the parties to propose amendments based on the facts of the specific case ABA INSTRUCTIONS., supra note IPO 2010 Instructions, supra note See id. 49. (Disputed) Joint Proposed Jury Instructions at 153, Apple Inc. v. Samsung Electronics Co., LTD., No. 5:11-cv LHK, 2011 WL (N.D. Cal. July 13, 2012), ECF No. 1232; see also Florian Mueller, Proposed Jury Instructions Show that Apple Has Samsung on the Run, FOSS PATENTS (July 16, 2012), [ Mueller agreed with Samsung that Judge Koh should not view that source of model jury instructions as an impartial one. A group like that one is highly likely to propose extremely plaintiff-friendly jury instructions. Id. 50. ROBERT A. MATTHEWS, JR., 6 ANNOTATED PATENT DIGEST 39:164 (2016). 51. Sadler, supra note 7, at 5 n.19 (citing Gerald J. Mossinghoff & Donald R. Dunner, Increasing Certainty in Patent Litigation: The Need for Federal Circuit Approved Pattern Jury Instructions, 10 FED. CIR. B.J. 273, 276 (2000), reprinted in 83 J. PAT. & TRADEMARK OFF. SOC Y 431, 434 (2001)). 52. MENELL ET AL., supra note 27 ( This allows the court to become familiar with one set of instructions, while allowing the parties to propose changes based on changes in the law or the needs of the case. ) JURIMETRICS

7 SciTech Corner II. REASONABLE ROYALTY DAMAGES, GEORGIA-PACIFIC AND THE FCBA MODEL JURY INSTRUCTIONS A. Reasonable Royalty Damages in Patent Cases Section 284 of the Patent Act states, in pertinent part, that [u]pon 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. 53 Reasonable royalties thus form a basis and a floor for damages in patent cases. Throughout the twentieth century, federal courts have used a variety of methodologies and factors when calculating reasonable royalty damages including the nature of the invention, its utility and advantages, and the extent of the use involved. 54 In 1970, however, courts began to gravitate toward the damages framework developed by the federal district court for the District of Georgia in Georgia- Pacific Corp. v. U.S. Plywood. 55 In Georgia-Pacific, the court held that the reasonable royalty owed to a patent holder should be determined based on the consideration of fifteen different factors (see Appendix 1). 56 These factors represent a broad spectrum of considerations relating to the patent holder s and the infringer s potential gains from the patented technology. One of these factors, however, has come to dominate the reasonable royalty analysis: Factor 15, the so-called hypothetical negotiation test. 57 This test requires the court to assess the royalty that the parties would hypothetically have agreed upon if they had reasonably and voluntarily tried to reach an agreement when the infringement began. Over the years, the Georgia-Pacific framework has become the de facto standard for adjudicating patent royalty damages in the federal courts. 58 Yet the framework is deeply flawed and has been subject to intense criticism. The hypothetical negotiation test, in particular, has come under heavy fire. Some critics U.S.C. 284 (2016) (first enacted in 1952). 54. Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641, 648 (1915) F. Supp. 1116, 1120 (S.D.N.Y. 1970), modified and aff d, 446 F.2d 295 (2d Cir. 1971). 56. For a detailed discussion of the factual and procedural background of Georgia-Pacific, see John C. Jarosz & Michael J. Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages: The Tail Wagging the Dog, 16 STAN. TECH. L. REV. 769, (2013), and Christopher B. Seaman, Reconsidering the Georgia-Pacific Standard for Reasonable Royalty Patent Damages, 2010 BYU L. REV. 1661, (2010). 57. See, e.g., Studiengesellschaft Kohle m.b.h v. Dart Indus., Inc., 666 F. Supp. 674, 680 (D. Del. 1987) ( Despite the fact that this hypothetical negotiation factor is just one of the factors on the list, the hypothetical negotiation is a method for incorporating the other factors in order to arrive at a reasonable royalty rate. ); Daralyn J. Durie & Mark A. Lemley, A Structured Approach to Calculating Reasonable Royalties, 14 LEWIS & CLARK L. REV. 627, (2010); Jarosz & Chapman, supra note 56, at ; Seaman, supra note 56, at See Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1230 (Fed. Cir. 2014) ( [D]istrict courts regularly turn to this 15-factor list when fashioning their jury instructions. ); see also Durie & Lemley, supra note 57, at 628; Jarosz & Chapman, supra note 56, at 779; Seaman, supra note 56, at FALL

8 Contreras & Eixenberger question the notion that the litigants would ever have conducted the envisioned hypothetical negotiation, given their demonstrated failure to enter a license agreement and to litigate instead. 59 Others have argued that the hypothetical negotiation test is circular, as royalties negotiated by the parties will, to a significant degree, depend on court-determined royalty rates, which will in turn depend on the results of a hypothetical negotiation, and so forth. 60 From a practical standpoint, the Georgia-Pacific framework does not give courts or juries meaningful guidance concerning how the fifteen factors should be weighted or compared. 61 As observed by Daralyn Durie and Mark Lemley, the multifactor test overloads the jury with factors... that may be irrelevant, overlapping, or even contradictory. 62 As a result of these and other critiques, there have been widespread calls for reform in the area of reasonable royalty damages. 63 But while the Federal Circuit has reemphasized the nonbinding nature of the Georgia-Pacific factors and framework in patent damages cases, 64 litigants and courts have continued to turn to the fifteen Georgia-Pacific factors when calculating reasonable royalty damages. That trend may finally be reversing. 59. See, e.g., U.S. FED. TRADE COMM N, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES WITH COMPETITION (2011); Thomas F. Cotter, Four Principles for Calculating Reasonable Royalties in Patent Infringement Litigation, 27 SANTA CLARA COMPUTER & HIGH TECH. L.J. 725, 730 (2011); Jarosz & Chapman, supra note 56, at 792; Brian J. Love, The Misuse of Reasonable Royalty Damages as a Patent Infringement Deterrent, 74 MO. L. REV. 909, 914 (2009); Seaman, supra note 56, at Even the Federal Circuit has dismissed this scenario as absurd. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 n.13 (Fed. Cir. 1995) (en banc). 60. See, e.g., Jarosz & Chapman, supra note 56, at 823 n.251; Suzanne Michel, Bargaining for RAND Royalties in the Shadow of Patent Remedies Law, 77 ANTITRUST L.J. 889, 897 n.34 (2011); Mark Schankerman & Suzanne Scotchmer, Damages and Injunctions in Protecting Intellectual Property, 32 RAND J. ECON. 199, 200 (2001). 61. See Durie & Lemley, supra note 57, at 631; John W. Schlicher, Patent Damages, the Patent Reform Act, and Better Alternatives for the Courts and Congress, 91 J. PAT. & TRADEMARK OFF. SOC Y 19, 22 (2009); Seaman, supra note 56, at 1704; J. Gregory Sidak, Apportionment, FRAND Royalties, and Comparable Licenses after Ericsson v. D-Link, 2016 U. ILL. L. REV. 1809, 1855 (2016). 62. Durie & Lemley, supra note 57, at See, e.g., Jorge L. Contreras & Richard J. Gilbert, A Unified Framework for RAND and Other Reasonable Royalties, 30 BERKELEY TECH. L.J (2015); Durie & Lemley, supra note 57, at 644; Schlicher, supra note 61, at 46; Seaman, supra note 56, at 1726; Ted Sichelman, Innovation Factors for Reasonable Royalties, TEX. INTELL. PROP. L.J. (forthcoming 2017), papers.ssrn.com/sol3/papers.cfm?abstract_id= Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1230 (Fed. Cir. 2014) ( [W]e have never described the Georgia-Pacific factors as a talisman for royalty rate calculations. ) JURIMETRICS

9 B. Ericsson v. D-Link and the FCBA s 2016 Model Jury Instructions SciTech Corner Instruction B.6.7 of the FCBA s 2014 Model Jury Instructions (Appendix 2) relates to the calculation of reasonable royalty damages. It instructs jurors to consider all the facts known and available to the parties at the time the infringement began. 65 It goes on to recite all fifteen Georgia-Pacific factors as some of the kinds of factors that you may consider in making your determination. 66 In the Committee Comments that accompanied the 2014 FCBA instruction, it was noted that [a]lthough lengthy, the Committee believes it is necessary for all [Georgia-Pacific] factors to be shared with the jury, so as to not unfairly emphasize any one factor. 67 But in January 2016, the FCBA substantially amended Instruction B.6.7. In place of the fifteen Georgia-Pacific factors, the new Instruction lists only the following three simplified factors to be considered when calculating reasonable royalty damages: (1) The value that the claimed invention contributes to the accused product. (2) The value that factors other than the claimed invention contribute to [the accused product]. (3) Comparable license agreements, such as those covering the use of the claimed invention or similar technology. 68 The change to Instruction B.6.7 appears to have been precipitated by the Federal Circuit s decision in Ericsson v. D-Link. 69 In Ericsson, the Federal Circuit indicated not only that applying all fifteen Georgia-Pacific factors was not required in every case, but that the district court erred by instructing the jury on multiple Georgia-Pacific factors that [were] not relevant, or [were] misleading. 70 Accordingly, the FCBA Subcommittee, in its comments to the 2016 revisions, observed that the Federal Circuit has made it clear that the Georgia- Pacific factors are not mandatory. 71 The Subcommittee further noted that if the 65. MODEL PATENT JURY INSTRUCTIONS B.6.7 (FED. CIRCUIT BAR ASS N 2014), Id. 67. Id. 68. FCBA 2016 INSTRUCTIONS, supra note 20, at 72. The full list of fifteen Georgia-Pacific factors are listed in the Committee Comments and Authorities following Model Instruction B.6.7. Id. at F.3d 1201 (Fed. Cir. 2014). 70. Id at Ericsson involved the determination of royalties due with respect to patents subject to a reasonable and nondiscriminatory (RAND) licensing commitment. As such, the court held that several of the Georgia-Pacific factors were inapplicable to the relationship between the patent holder and the infringer. Id. See also Sidak, supra note 61, at (discussing reasons that the Georgia-Pacific framework is unsuitable for RAND royalty determinations, but also criticizing court for using a piecemeal approach to the framework). 71. FCBA 2016 INSTRUCTIONS, supra note 20, at 73 (Committee Comments and Authorities). FALL

10 Contreras & Eixenberger Georgia-Pacific factors are used, the jury should be instructed only on the factors that are relevant to the evidence before the jury. 72 This de-emphasis of Georgia-Pacific in Instruction B.6.7 was noted with approval by Peter Menell, who observes that the new instruction seeks to focus the jury on the core issues by highlighting just three considerations framed in language that is relatively easy to comprehend and apply (in place of the fifteen Georgia-Pacific factors, many of which are opaque). 73 Critics may argue that the FCBA s wholesale adoption of the principles set forth in Ericsson may not be appropriate, as Ericsson dealt with patents that were essential to an industry standard and encumbered by a commitment to license on reasonable and nondiscriminatory (RAND) terms. 74 As such, the Federal Circuit s analysis adjusts the Georgia-Pacific framework applied by the district court to take Ericsson s RAND commitment into account. 75 Nevertheless, some commentators have interpreted the court s ruling in Ericsson to apply both to RAND-encumbered patents and non-rand encumbered patents. 76 While the FCBA makes no distinction between RAND-encumbered and non-rand encumbered patents in the main portion of Instruction B.6.7, it does include a supplemental instruction relating to standards-essential patents shortly thereafter. This supplemental instruction notes that if a RAND-encumbered patent is at issue, the damages award should reflect only the value of the patented invention and not the additional value that resulted from the patent s inclusion in the standard. 77 This instruction is consistent with the holding in Ericsson and other recent cases involving standards-essential patents. 78 As described above, FCBA Instruction B.6.7 lists a reduced set of three factors to be considered by the jury in reasonable royalty determinations. These factors are clearly derived from, but do not strictly follow, the Georgia-Pacific factors. Factors 1 and 2 relate the value of the claimed invention to the overall product (both in a positive sense and in the complementary sense that the value of other, nonpatented elements may contribute value to the product). 79 This approach is consistent with the longstanding rule that royalty awards should be 72. Id. at MENELL ET AL., supra note 27, Ericsson, 773 F.3d at 1208, See id. at See, e.g., MENELL ET AL., supra note 27, at ; Contreras & Gilbert, supra note 63, at FCBA 2016 INSTRUCTIONS, supra note 20, at See Ericsson, 773 F.3d at 1232; Commonwealth Sci. & Indus. Research Org. v. Cisco Sys., Inc., 809 F.3d 1295, 1304 (Fed. Cir. 2015). Some commentators, however, have argued that some value attributable to the fact that a technology has been standardized should be included in the value of the patented technology for purposes of calculating a reasonable royalty. See, e.g., Sidak, supra note 61, at 1862 ( When the invention covered by the SEPs contributes to the standard s value, only a FRAND royalty that includes part of that value will properly compensate the SEP holder for the incremental value of its invention. ), Norman Siebrasse & Thomas F. Cotter, The Value of the Standard, 101 MINNESOTA L. REV. (forthcoming 2017). 79. These instructions embody the spirit of Georgia-Pacific Factor 13, infra Appendix 1 ( The portion of the realizable profit that should be credited to the invention as distinguished from any non-patented elements, manufacturing process, business risks or significant features or improvements added by the infringer. ) JURIMETRICS

11 SciTech Corner based on the incremental value of the patented invention. This focus on incremental value can be traced to the Supreme Court s seminal 1915 decision in Dowagiac Mfg. Co. v. Minn. Moline Plow Co. 80 and a half century of case law and statutory interpretation thereafter. 81 The Federal Circuit recently reaffirmed the importance of the incremental value test in Ericsson, noting that district courts must make clear to the jury that any royalty award must be based on the incremental value of the invention. 82 Accordingly, we support the FCBA s shift toward incremental value as the principal standard for measuring reasonable royalty damages. The FCBA instruction on reasonable royalties lists as its third factor [c]omparable license agreements, such as those covering the use of the claimed invention or similar technology. 83 The use of comparable license agreements as tools to aid fact finders when determining reasonable royalty rates is a longstanding practice in U.S. patent litigation. 84 While critics point out various weaknesses in the probative value of license agreements that are unrelated to the transaction and parties at hand, 85 trial courts appear to do a good job as an evidentiary matter of distinguishing agreements that are sufficiently comparable and those that are not. 86 As observed by the Federal Circuit in Ericsson, the fact that a license is not perfectly analogous generally goes to the weight of the evidence, not its admissibility. 87 Accordingly, it is appropriate that the FCBA s reasonable royalty instruction focuses on the consideration of comparable licenses to supplement other testimony relating to the deemed value of the patented technology to the overall product. While the three factors listed in the new FCBA instructions cover some of the Georgia-Pacific factors, they do not cover everything. One might reasonably ask why certain other factors enumerated by Georgia-Pacific were omitted, and whether those factors should be considered by juries making reasonable royalty determinations. 88 In answering this question, it is important to note that the FCBA instructions state that the jury should consider all the facts known and U.S. 641, 648 (1915). 81. See Contreras & Gilbert, supra note 63, at F.3d at 1235 (emphasis added). 83. FCBA 2016 INSTRUCTIONS, supra note 20, at 72. This instruction embodies the spirit of Georgia-Pacific Factors 1 and 2, infra Appendix 1 ( The royalties received by the patent holder for licensing the patent, proving or tending to prove an established royalty and [t]he rates paid by the licensee for the use of other similar patents ). 84. See Jonathan S. Masur, The Use and Misuse of Patent Licenses, 110 NW. U. L. REV. 115, 120 nn (2015) (citing cases and literature). 85. See id. at Masur argues that comparable license agreements are based on private information, are inherently circular, and can be manipulated by parties to increase their gains. Id. 86. See, e.g., Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024, (9th Cir. 2015) (affirming trial court s determination to accept and reject various license agreements presented as comparable based on their likely probative value to case) F.3d at Sidak, in particular, criticizes the Federal Circuit for holding that an incomplete complement of the fifteen Georgia-Pacific factors should be used in certain cases. Sidak, supra note 61, at 1862 ( There is... no valid economic justification to exclude specific Georgia-Pacific factors from jury instructions. ). FALL

12 Contreras & Eixenberger available to the parties at the time infringement began, and that the three enumerated factors are only some of the kinds of factors that should be considered. 89 As such, the three factors that the FCBA has chosen to present to the jury are not intended to be exclusive. Rather, they represent three significant, if not the three most significant, factors used by juries and courts in making reasonable royalty determinations. 90 C. The AIPLA and California Model Patent Jury Instructions Like the FCBA Model Jury Instructions, both the AIPLA and California model instructions were amended in the wake of the Federal Circuit s Ericsson decision, but neither has interpreted the case as broadly as the FCBA. The 2015 amendment to the AIPLA instructions makes no change to the instruction addressing the relevant factors for performing a hypothetical negotiation. Consequently, AIPLA Instruction (Appendix 3) still lists all of the Georgia- Pacific factors to aid the jury in assessing the results of a hypothetical negotiation between the patent owner and the infringer. However, the AIPLA instruction includes a sixteenth factor that allows the jury to broadly assess [a]ny other economic factor that a normally prudent business person would, under similar circumstances, take into consideration in negotiating the hypothetical license. 91 While the Georgia-Pacific factors are listed in the text of the AIPLA s 2015 instruction, the AIPLA acknowledges the Federal Circuit s holding in Ericsson in a new Practice Note (Appendix 5). This Note, which appears at the end of the model jury instructions relating to damages, reflects the AIPLA s view that Ericsson is limited to cases involving RAND-encumbered patents. Unlike the AIPLA model jury instructions, the California instructions (Appendices 6 and 7) do not include a recitation of the Georgia-Pacific factors. Rather, California Instruction 5.7 gives the jury significant flexibility, informing its members that [a] royalty can be calculated in several different ways and it is for you to determine which way is the most appropriate based on the evidence you have heard. 92 The California instructions go on to provide a sample running royalty calculation and plain language explanation to help the jury determine a reasonable royalty. Like the AIPLA, California added an additional instruction relating to Ericsson. Instruction 5.9 addresses the calculation of a reasonable royalty when a RAND commitment has been made. 89. FCBA 2016 INSTRUCTIONS, supra note 20, at See MENELL ET AL., supra note 27, (referring to the three selected factors as the core issues that juries should consider in making reasonable royalty determinations). 91. AIPLA 2015 INSTRUCTIONS, supra note 21, at N. DIST. CAL INSTRUCTIONS, supra note 22, at JURIMETRICS

13 III. ADOPTION AND USE OF MODEL PATENT JURY INSTRUCTIONS SciTech Corner As discussed above, the Federal Circuit has yet to endorse a set of model jury instructions 93 and some of the circuit courts merely provide a list of all the commonly available model patent jury instructions. 94 Without a blanket approval of an organization s model jury instructions, parties are free to draw from any source to create their own instructions. We sought to understand the sources and content of jury instructions being used in federal court following the release of the 2016 FCBA Instructions, as well as the adoption of this new set of jury instructions. We searched Bloomberg s docket database to identify jury instructions that were filed in patent cases between January 1, 2016 and September 19, 2016 and which also included the term reasonable royalty or reasonable royalties. The search yielded nineteen cases. We then reviewed the jury instructions filed in each case to determine which organization s model jury instructions had been used. We found that many filed jury instructions are based on a combination of the FCBA, AIPLA, California and other jury instructions. For example, in Samsung Electronics Co., Ltd. v. Nvidia Corp., the parties drew from the FCBA and AIPLA model jury instructions, two practice manuals, and the jury instructions used in several other cases. 95 We next focused on the specific jury instructions relating to the reasonable royalty calculation. This instruction in each case was compared to the FCBA, AIPLA, and California model instructions to determine which instruction set was used, if any. Table 1 lists the likely source of each reasonable royalty instruction reviewed. 93. MATTHEWS, supra note See Federal Jury Instructions, U.S. CT. APPEALS FOR FIFTH CIR., gov/juryinstructions/ (last visited Dec. 28, 2016). 95. Parties Joint Statement of Agreed and Disputed Jury Instructions, Samsung Electronics Co., Ltd. v. Nvidia Corp., No. 3:14CV757-REP (E.D. Va. Apr. 15, 2016), ECF No The sources include the 2015 AIPLA MODEL INSTRUCTIONS; 2014 FCBA MODEL INSTRUCTIONS; 2014 FCBA MODEL INSTRUCTIONS (edited in response to Ericsson); the Final Jury Instructions from eplus, Inc. v. Lawson Software, Inc., Civ. Action No. 3:09-cv-620 (REP) (E.D. Va. 2011); 3 KEVIN F. O MALLEY ET AL., FEDERAL JURY PRACTICE AND INSTRUCTIONS, (6th ed. 2015); 3 EDWARD J. DEVITT ET AL, FEDERAL JURY PRACTICE AND INSTRUCTIONS 74.01, 74.04, (4th ed. 1987); the Defendants Proposed Preliminary Jury Instructions from Halliburton Energy Servs., Inc. v. Weatherford Int l, Inc., Civ. Action No. 3:10-cv-2595-N, 2012 WL (N.D. Tex. Jan 13, 2012); and the Proposed Final Jury Instructions from Sky Techs. LLC v. IBM Corp., No. 2-03CV454, 2006 WL (E.D. Tex. Feb. 17, 2006). FALL

14 Contreras & Eixenberger Table 1. Analysis of Reasonable Royalty Patent Damages Jury Instructions (Jan. Oct. 2016) Case Court Instructions Filed Modeled After Magna Electronics Inc. v. TRW Automotive Holdings Corp. (Plaintiff) Western District of Michigan 1/25/16 AIPLA Presidio Components, Inc. v. American Technical Ceramics Corp. Southern District of California 4/4/16 AIPLA Motio, Inc. v. BSP Software, LLC. Eastern District of Texas 1/6/16 FCBA 2014 Genband US LLC v. Metaswitch Networks LTD Eastern District of Texas 1/14/16 FCBA 2014 Magna Electronics Inc. v. TRW Automotive Holdings Corp. (Defendant) Western District of Michigan 1/25/16 FCBA 2014 Emerson Electric Co. v. Suzhou Cleva Eastern District of Missouri 1/29/16 FCBA 2014 BMC Software, Inc. v. Servicenow, Inc. Eastern District of Texas 2/19/16 FCBA 2014 Enplas Display Device Corp. v. Seoul Semiconductor Company Northern District of California 3/22/16 FCBA 2014 Mobile Telecommunications Technologies v. LG Electronics Eastern District of Texas 3/29/16 FCBA 2014 Samsung Electronics Co., Ltd v. Nvidia Corporation Eastern District of Virginia 4/15/16 FCBA Rensselaer Polytechnic Institute v. Apple, Inc. Northern District of New York 4/16/16 FCBA Koninklijke KPN N.V. v. Samsung Electronics Co., Ltd. Eastern District of Texas 8/2/16 FCBA Core Wireless Licensing v. LG Electronics, Inc. Eastern District of Texas 9/9/16 FCBA Arctic Cat Inc. v. Bombardier Recreational Products Inc Southern District of Florida 5/27/16 FCBA 2016 Radware, Ltd. v. F5 Networks, Inc. Northern District of California 3/7/16 ND. Cal. Gilead Sciences, Inc. v. Merck & Co, Inc. Northern District of California 3/17/16 ND. Cal. Finjan, Inc. v. Sophos, Inc. Northern District of California 9/14/16 ND. Cal. Imperium IP Holdings v. Samsung Electronics Co. Eastern District of Texas 1/15/16 Other Virnetx Inc. v. Apple, Inc. Eastern District of Texas 2/3/16 Other Cellular Communications Equipment v. Apple, Inc. Eastern District of Texas 9/13/16 Other Of the 19 cases that we reviewed, only one proposed the text from the 2016 FCBA reasonable royalty model jury instruction. Four additional cases made use of the 2014 FCBA instruction, but removed supposedly irrelevant Georgia- Pacific factors in accordance with the 2016 FCBA reasonable royalty instruction and Ericsson. The designation FCBA identifies these four cases in Table 1. A brief summary of the instruction proposed for each of these five cases is provided below. 1. In Arctic Cat Inc. v. Bombardier Recreational Products Inc. the parties elected to use the 2016 FCBA model jury instruction. 96 However, the three broad factors given in the 2016 FCBA instruction were bolstered by the inclusion of an additional list of the relevant Georgia-Pacific factors cited in the 2014 FCBA model jury instruction. Presumably, this list of factors is relevant to the specific facts of the case, in accordance with Ericsson. 2. In Core Wireless Licensing v. LG Electronics, Inc. 97 and Koninklijke KPN N.V. v. Samsung Electronics Co., 98 the parties used the Georgia-Pacific factors from the 2014 FCBA model jury instruction, but redacted the list of factors in accordance with Ericsson and the 2016 FCBA instruction on reasonable royalties. In both cases, the parties disputed the exact Georgia-Pacific factors to be included in the reasonable royalty instruction. 3. In Rensselaer Polytechnic Institute v. Apple, Inc., Rensselaer Polytechnic Institute (RPI) proposed instructions modeled after the 2014 FCBA 96. Jury Instructions at 29 31, Arctic Cat Inc. v. Bombardier Recreational Products Inc., No. 0:14-cv (S.D Fla. Apr. 18, 2016), ECF No Amended Joint Proposed Final Jury Instructions at 35 39, Core Wireless Licensing v. LG Electronics, Inc., No. 2:14-cv (E.D. Tex. Sept. 9, 2016), ECF No Joint Proposed Jury Instructions at 75 80, Koninklijke KPN N.V. v. Samsung Electronics Co., No. 2:14-cv (E.D. Tex. Aug. 2, 2016), ECF No JURIMETRICS

15 SciTech Corner model jury instruction and included all the Georgia-Pacific factors. 99 Apple objected, explaining that RPI s proposed instruction [i]s inconsistent with the current version of the FCBA Model Patent Jury Instructions (Jan. 2016), which provide that the jury should be instructed only on the [Georgia-Pacific] factors that are relevant to the evidence before the jury. [RPI] would have the Court instruct on factors not at issue in the case or on which the jury has heard no evidence In Samsung Electronics Co., Ltd v. Nvidia Corp. the parties used the Georgia-Pacific factors from the 2014 FCBA model jury instruction, but redacted the list of factors in accordance with Ericsson and the 2016 FCBA instruction. 101 The parties were able to arrive at a consensus on which Georgia Pacific factors to include. The proposed instructions from seven of the cases reviewed draw from the FCBA jury instructions, but make no mention of limiting the Georgia-Pacific factors in accordance with Ericsson. These cases are identified in Table 1 by the FCBA 2014 or FCBA 2012 designation. However, this may not necessarily represent a disapproval of the 2016 FCBA Model Jury Instruction. Rather, some of the filed jury instructions may be internal law firm templates that have yet to be updated. For example, in Motio, Inc. v. BSP Software, LLC the parties simply agreed to adopt the model jury instructions prepared by the Federal Circuit Bar Association in 2012 despite the availability of several newer editions. 102 IV. DISCUSSION AND RECOMMENDATIONS Jury determinations of patent damages are remarkably durable; they may be overturned only if grossly excessive or monstrous, clearly not supported by the evidence, or based only on speculation or guesswork. 103 And despite some calls to take these legally and factually complex calculations away from the jury, 104 there appears to be little political or judicial motivation to do so in the near term. Thus, if these increasingly complex damages calculations are to remain in the hands of the jury, it is now more essential than ever that the instructions given to jurors be as clear, accurate, and understandable as possible. 99. Proposed Jury Instructions at 76 78, Rensselaer Polytechnic Institute v. Apple, Inc., No. 1:13-cv (N.D. N.Y. Apr. 16, 2016), ECF No Id. at Parties Joint Statement of Agreed and Disputed Jury Instructions at 48 50, Samsung Electronics Co. v. Nvidia Corp., No. 3:14-cv (E.D. Va. Apr. 15, 2016), ECF No Amended Proposed Jury Instructions at 2, Motio, Inc. v. BSP Software, LLC, No. 4:12- cv (E.D. Tex. Jan. 6, 2016), ECF No Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.2d 1555, 1580 (Fed. Cir. 1992) (quoting L.A. Mem l Coliseum Comm m v. Nat l Football League, 791 F.2d 1356, 1360 (9th Cir. 1986)). See COTTER, supra note 2, at 84. Cf. Seaman, supra note 56, at (discussing a handful of prominent examples of patent cases in which arguably excessive jury damage awards were reversed or reduced on post-judgment motion or appeal) See, e.g., Thomas F. Cotter, Reining in Remedies in Patent Litigation: Three (Increasingly Immodest) Proposals, 30 SANTA CLARA HIGH TECH. L.J. 1, (2013). An idea proposed for consideration was to eliminate the unique U.S. practice of trial by jury in a wide swath of U.S. patent cases by statutorily recasting awards of reasonable royalties as a form of equitable restitution rather than as compensation. Id. at 2. FALL