Patent Damages After Lucent v. Gateway and Cornell v. HP Strategies for Establishing or Disproving Infringement Damages

Transcription

1 presents Patent Damages After Lucent v. Gateway and Cornell v. HP Strategies for Establishing or Disproving Infringement Damages A Live 90-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Richard Cauley, Partner, Wang Hartmann Gibbs & Cauley, Mountain View, CA John M. Skenyon, Principal, Fish & Richardson, Boston Elizabeth A. Alquist, Partner, Day Pitney, Hartford, CT Wednesday, February 3, 2010 The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions ed to registrations. CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS. If no column is present: click Bookmarks or Pages on the left side of the window. If no icons are present: Click View, select Navigational Panels, and chose either Bookmarks or Pages. If you need assistance or to register for the audio portion, please call Strafford customer service at ext. 10

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3 Patent Damages After Lucent v. Gateway and Cornell v. HP January 2010 By Richard F. Cauley

4 The Entire Market Value Rule The entire market value rule allows a plaintiff to recover damages based on the value of an entire apparatus containing tii several features Two ways to show it: Where the components are a functional unit, even though they are physically separate Where a larger apparatus has a number of components, but the patented component is the reason customers buy the product (i.e., the entire market value of the product for sale is the value of the patented feature

5 The Entire Market Value Rule The entire market value determines the royalty base the revenue figure which is multiplied by the royalty percentage to determine the overall damages award. If the jury finds that the patented feature is the basis for consumer demand for the defendant s entre product (i.e. that the entire value to the market is represented by the patent), it is reasonable to calculate the reasonable royalty rate as if the claimed invention was for the entire product. The problem is if the patented feature is not the basis for consumer demand how are damages to be allocated to that one minor component?

6 The Entire Market Value Rule Examples: Bose Corp v. JBL, Inc., 274 F3d1354 F.3d (Fed. Cir. 2001) Court allowed damages to be based on value of entire speaker systems because the patented feature (making the bass speakers sound better) was the reason consumers bought the product Golden Blount, Inc. v. Robert Peterson Co., 438 F.3d 1354 (Fed. Cir. 2006) Where patented ember burner was basis for customer demand for fireplace assembly, court permitted damages to be based on entire assembly Tec Air, Inc. v. Denso Manufacturing, 192 F3d 1353 (Fed. Cir. 1999) Permitted damages to be awarded based on value of motors where motors were required to be sold with patented radiator and condenser assemblies

7 Allocation of Damages to a Component Under and Despite the Entire Market Value Rule Historically, the courts have struggled with the inequities of awarding damages based on revenues for an entire product when only a small component infringed. Many have argued that the entire market value is misunderstood by courts and juries and results in overcompensation of patentees Others have argued that basing royalties on the revenues for the entire product is more economically rational because it reflects the way that parties actually license their patents and that attempting to allocate revenue to a minor component will inevitably lead to inaccurate, speculative results

8 Damages Allocation by Chief Judge Michel Lucent v. Gateway Dispute arose from Lucent patent on a date picker feature that Lucent claimed was used in Microsoft Outlook, Microsoft Money and Windows Mobile Microsoft sold around 110 million units of software packages capable of practicing the claims, with a total value of $8 billion. At trial, Lucent asked for 8% of sales revenue for the accused products it asked the jury to award $561.9 million. Microsoft countered that a lump sum payment of $6.5 million was the correct amount for licensing the protected technology. The jury awarded $357,693,056.18, applying the entire market value rule

9 Damages Allocation by Chief Judge Michel Lucent v. Gateway The Federal Circuit threw up its hands and told the parties to start over, saying that the evidence presented by both parties made no economic sense The Federal Circuit dealt with two issues: the use of licenses in determining a reasonable royalty the viability and proper use of the entire market value rule.

10 Damages Allocation by Chief Judge Michel Lucent v. Gateway The first question the court had to answer was whether Lucent should be awarded damages on the basis of a hypothetical lump sum royalty or a running royalty Lucent had asked the jury to award damages based on a running royalty, but the jury s award was based on a lump sum royalty

11 Damages Allocation by Chief Judge Michel Lucent v. Gateway The Court noted significant differences between the two types of licenses In a running royalty license, royalties are tied to how often the licensed invention is used. Licensing risks are shifted to the licensor, since he does not receive a guaranteed payment royalties depend on the level of sales made by the licensee, which the licensee can control.

12 Damages Allocation by Chief Judge Michel Lucent v. Gateway In a lump sum license, the risk shifts, as both parties have to estimate the probable future use of the invention. A lump sum license benefits the patentholder in that it enables the company to raise a substantial amount of cash quickly and benefits the target [i.e., the licensee] by capping its liability A lump sum license also removes the risk that the licensee will underreport and underpay and removes the administrative problems of monitoring the use of the invention. There is a substantial premium on each party guessing the actual future use of the patented invention in setting the lump sum amount. A licensee may overpay for an invention it barely uses or a licensor may undercharge for a wildly successful product

13 Damages Allocation by Chief Judge Michel Lucent v. Gateway Lucent s problem on appeal was that it had presented its damages case at trial based on the theory that the parties would have entered dinto a running royalty license, but tthe jury based its verdict on a lump sum license Thus, on appeal, Lucent had to justify the jury s verdict based on evidence it had presented for another theory The court found that Lucent s evidence would not support the jury s lump sum based award

14 Damages Allocation by Chief Judge Michel Lucent v. Gateway The court held that in order to use an existing license in the Georgia Pacific hypothetical negotiation, the license must be for a technology which h bears at least some relationship lti to the technology involved din the litigation. The real world licenses must be of the same type as the license on which hthe reasonable royalty will be based or the parties must provide some basis on which the two types of licenses can be compared. The court noted disapprovingly that the parties presented lump sum licenses toj justify running royalty rates and used running royalty licenses to justify lump sum verdicts without any explanation of how to convert from one to the other

15 Damages Allocation by Chief Judge Michel Lucent v. Gateway The much more important ruling, however, was on the entire market value rule and how it was applied in the trial court Initially, Lucent took the position that the proper royalty base for Outlook s date picking feature was the entire price of the computer in which it was installed $1000 on average employing a royalty rate of 1%. Once Judge Huff struck down that royalty base, Lucent s damages expert changed his focus, testifying that the proper royalty base was, instead, the market value of Outlook, but tincreased the royalty rate to 8%, unsurprisingly, reaching exactly the same total royalty amount he had come up with in the first place.

16 Damages Allocation by Chief Judge Michel Lucent v. Gateway Lucent s expert could not provide any economic justification for choosing the larger royalty base, the smaller royalty base or either royalty rate. He could not explain the importance of the date picking feature to Microsoft or its customers or its importance to the functioning of Outlook. The court observed that the infringing feature contained in Microsoft Outlook is but a tiny feature of one part of a much larger software program and the portion of the profit that can be credited to the infringing use of the date picker tool is exceedingly small. The court put the focus of the reasonable royalty analysis on the actual value of the patented feature to Microsoft and its customers and how often they use that feature. The court noted that the damages award ought to be correlated, in some respect, to the extent the infringing method is used by consumers.

17 Damages Allocation by Chief Judge Michel Lucent v. Gateway The Court then examined, in this context, the application of the entire market value rule Microsoft argued that the verdict showed that the jury must have been applying li the rule and, if so, was misapplying i it The court agreed that the jury probably had applied the rule and reiterated the requirement that for the entire market value rule to apply, the patentee must prove that the patent related feature is the basis for customer demand. The court also noted that Lucent s damages expert had improperly applied the rule by inflating his proposed damages rate to equal the diminution of the royalty base The court, in fact, held that, Lucent had not satisfied the requirements of the rule, since it had not shown that the patented feature was the reason that consumers purchased the software products.

18 Damages Allocation by Chief Judge Michel Lucent v. Gateway However, the Federal Circuit observed that, even if the entire market value does not technically apply there may still be good reasons that the parties may want to use the revenues foran overall product to compute royalties under a license for a patent on a component such as ease of obtaining revenue figures and ease of auditing. i The Court firmly rejected the positions of commentators and amici who urged the court to abandon the entire market value rule altogether

19 Damages Allocation by Chief Judge Michel Lucent v. Gateway Instead, Chief Judge Michel came up with an easy to apply solution adjusting the royalty percentage instead of the base to reflect the value of the patent t For example, if the value of the Outlook date picking function was 1% of the value of Windows and the right royalty rate would be 2%, to figure out the royalty, you could take revenues from the sale of computers and multiply it by 1% x 2% (.02%) to get the right royalty percentage for the small component

20 Patent Damages After Lucent v. Gateway and Cornell v. HP Strategies for Establishing and Disproving Damages Elizabeth A. Alquist 18

21 Entire Market Value Rule Rule: Patentee may recover damages based on the value of the entire apparatus containing the patented feature, where the patented feature is the basis for customer demand. State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989). Statutory basis: 35 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 tless than a reasonable royalty for the use made of the invention by the infringer. 19

22 Entire Market Value Rule Basic requirements: 1. The patented and non-patented features must be analogous to components of a single assembly or be parts of a complete machine, or they must constitute t a functional unit (not merely sold together th for business advantages); and 2. The patented component must be the basis for consumer demand for the entire product. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, (Fed. Cir. 1995). Burden of proof: on the patentee. Factors considered: 1. Whether the unpatented items were routinely purchased in conjunction with the patented product; 2. Whether the sale of the unpatented items was financially dependent on the sale of the patented product; and 3. Whether the patentee would normally anticipate sales of unpatented components with the patented ones. Paper Converting Mach. v. Magna-Graphics, 745 F.2d 11, 23 (Fed. Cir. 1984). 20

23 Evolution of the Rule Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11, 23 (Fed. Cir. 1984) The court held that if it is reasonably probable that non-patented, separate components would be sold with the product with the patented component, the non-patented components should be included in determining measure of loss. There was sufficient evidence showing that units auxiliary to a toilet paper rewinder would have been sold if the defendant had not offered the infringing rewinder. State Industries, Inc. v. Mor-Flo Industries, Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989) The court determined that recovery is permitted when the patented feature is the basis for customer demand, and that it is the financial and marketing dependence that determines whether unpatented parts should be included. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1550, 1557 (Fed. Cir. 1995) Formulated the current standard of recovery under the entire market value theory. Recovery of damages based on an entire apparatus is permissible when the patented feature is (1) the basis for customer demand and (2) part of a functional unit and not just sold with patented component for convenience/business advantage. Micro Chem., Inc. v. Lextron, Inc., 318 F.3d 1119, (Fed. Cir. 2003) The court held that the damage calculation could be based on sales of the unpatented, separate product because it was reasonably foreseeable that the patentee would have made profits on the patented product by virtue of the sale of the unpatented product. The court ruled it appropriate to include lost sales in microingredients, even though the patented product was a microingredient feeder that patentee supplied to customers free of charge. 21

24 Cornell University v. Hewlett-Packard Co. 609 F. Supp. 2d 279 (N.D.N.Y. 2009) Opinion by: Judge Rader of the Court of Appeals for the Federal Circuit sitting by designation in the Northern District of New York. Technology at issue: Patent-in-suit: USP 4,807,115 claims technology that issues multiple and out-of-order computer processor instructions in a single machine clock cycle, which enhances the throughput of processors with multiple functional units. Accused product: one component of the instruction reorder buffer (IRB) used in HP s servers and work stations. Procedural History: 8-day jury trial conducted on May 19-30, Jury determined that the patent-in-suit was valid and infringed, and awarded damages of $184 million to Cornell (0.8% royalty of $23 billion sales revenues from components beyond the patented technology). HP moved for Judgment as Matter of Law (JMOL) seeking to reduce the royalty base to include only those revenues attributable to the patented invention. 22

25 Cornell University v. Hewlett-Packard Co. 609F F. Supp. 2d279(NDNY 279 (N.D.N.Y. 2009) Discussion by Judge Rader: HP made no a la carte sale of the IRB, but did make a la carte sales of the processors during the damages period The smallest salable patent-practicing p unit is the processor, not the CPU brick or the server / work station. Servers / Work Stations CPU Bricks CPU Module Processor IRB 115 Patented Component 23

26 Cornell University v. Hewlett-Packard Co. 609F F. Supp. 2d279(NDNY 279 (N.D.N.Y. 2009) Damages sought - reasonable royalty (royalty base * royalty rate) Prior to trial: Cornell sought damages using EMVR based on the entire server and work station market, relying on expert testimony Court conducted a Daubert hearing and determined that Cornell did not provide any evidence that the patented feature was the basis for consumer demand of the entire server or work station sold by HP, and excluded Cornell s expert s testimony that the entire server / work station should be the royalty base 24

27 Cornell University v. Hewlett-Packard Co. During trial: 609F F. Supp. 2d279(NDNY 279 (N.D.N.Y. 2009) Cornell continued to attempt to enlarge the royalty base beyond the scope of the patented technology and argued that the base should be the hypothetical sales of the CPU bricks Cornell failed to show any connection between consumer demand d for the CPU bricks and the patented component contained in the IRB Judge Rader s conclusion: the proper royalty base should be HP s processor, which is the smallest salable patent practice unit that contains the claimed invention 25

28 Cornell University v. Hewlett-Packard Co. 609F F. Supp. 2d279(NDNY 279 (N.D.N.Y. 2009) Reasons for rejecting the CPU bricks as the royalty base There was never a market for HP s CPU bricks Cornell did not offer any demand curve or market evidence that indicated that the patented component drove demand for the bricks Cornell failed to offer any consumer survey or other data to support its predictive claims that incorporating the patented technology would be a competitive requirement All of Cornell s evidence of the superiority of the claimed invention compares the performance of different computer processors, not the CPU bricks Reasons for adopting revenues sales of the HP processors as the royalty base The logical and readily available alternative was the smallest salable infringing unit with close relation to the claimed invention the processor HP sold more than 31,000 processors a la carte The processor was the functional salable unit one level above the IRB that contained the patented component 26

29 Cornell University v. Hewlett-Packard Co. 609F F. Supp. 2d279(NDNY 279 (N.D.N.Y. 2009) Final damages calculation: $8 billion (royalty base = processor revenues) * 0.8% (royalty y rate) - $1.3 million (deduction for implied license for Intel-made processors) $53 million 27

30 i4i Limited Partnership et al v Microsoft John M. Skenyon Fish & Richardson 28

31 i4i Limited Partnership et al v. Microsoft Corporation Eastern District of Texas 6:07cv113 Judge Davis Sales of certain versions of WORD enjoined $200,000,000 in damages CAFC Appeal Decided d December 22, 2009 Judges Prost, Moore and Schall Affirmed (except for date of injunction) 29

32 Basic Facts Word processing programs text and tags Patent relates to tags Claims cover an improved method of storing tags so they can be edited by the user The tag editor is not used by someone just typing textt 30

33 Basic Facts Accused WORD products have a tag editor as one feature Infringement depends upon direct infringement by a customer use of fthat t t tag editor Damages depend on the number of customers who use the tag editor 31

34 Patentee sgeorgia-pacific Pacific Methodology Royalty base ($) x percentage = per unit royalty y($) The royalty base is usually the sale price of the infringing gproduct Some EMV problems here with sale price of WORD Percentage is agreed royalty rate 32

35 Royalty Base Defendant does not sell just a tag editor Defendant charges $50 more for WORD with tag editor Patentee s expert Royalty base is benchmark 3 rd party product $499 per unit Many features 33

36 The Calculation $499 (price of 3 rd party non-infringing product) Multiply $499 by Microsoft s profit margin Result: Microsoft s pretend per unit dollar profit on a product it never sold Divide using the 25% rule Result: a per unit royalty of $96 Adjust upward by other GP factors to $98 34

37 The Survey 13 million U.S. companies Survey sent to responses 19 use in an infringing i i manner 19/988 (1.9%) multiplied by all sales of WORD sold to businesses $98 x 1,800,000, = damages 35

38 CAFC Decision Reasonable award/underlying evidence Unlike Lucent, cannot review evidence New trial motion only; not JMOL on damages Difficult 5 th Circuit new trial standard Survey Greatly underestimated t dinfringing i i use No unfair prejudice to allow in 36

39 Patent Damages After Lucent v. Gateway and Cornell v. HP January 2010 By Richard F. Cauley

40 Congress Efforts to Fix Patent Damages Under Patent Reform and Its Failure to Do So Congress has been attempting since 2004 to revise the damages provisions of the patent laws This Session provided the most dramatic proposals These damages provisions attempted to force the court to limit i the patentholder s recovery to the real economic worth of an invention for example, to a company who might want to license that invention to use in another product or to a consumer who might purchase a product because of that very invention.

41 Congress Efforts to Fix Patent Damages Under Patent Reform and Its Failure to Do So Thus, the proposed section limiting the application of the entire market value rule to situations in which the actual invention the advance over the prior art forms the basis of consumer demand compensates the inventor only to the extent his invention produces something that people actually want to buy. This section would have ensured that patents on relatively minor components were not given a value in excess of their real economic worth. Where the patent did not cover something critically important to the consumer, the provision would have limited the patentholder s recovery to the value of that component to the customer and precluded a recovery based on the entire product, which may include many other patented components. This was an explicit attempt to restrict the scope of the entire market value rule.

42 Congress Efforts to Fix Patent Damages Under Patent Reform and Its Failure to Do So Another section, requiring the court to determine whether there is already a market price for licensing the patent in the form of pre existing licenses for similar il patent trights simply would have codified d the established license measures to determine reasonable royalty under existing law The purpose of these provisions ii was to limit it the ability of patentholders, th primarily patent trolls, to recover damages in patent litigation far in excess of the actual economic value of those patents and to reduce the threat of such inflated damages awards. The problem with these proposed statutes was not their objective to give patents the value they actually deserve but the implementation. Theyrequired thecourt toconduct a kind of damages Markman.

43 Patent Damages After Lucent v. Gateway and Cornell v. HP Strategies for Establishing and Disproving Damages Elizabeth A. Alquist 41

44 Evidence for Establishing EMVR Plaintiff s and defendant s sales information of device containing the patented component, including sales of peripherals Plaintiff s and defendant s product or marketing materials that emphasize the patented component Defendant s selling patterns or customers buying patterns (i.e., whether the patent component is always sold with a particular set of non-patented components) Customer feedback on the patented component (i.e., it is a requirement for use or making a sale) 42

45 Evidence for Establishing EMVR Retailers or distributors report regarding basis for consumer demand Customers testimony regarding the use of the accused product containing the patented component (i.e., always use the patented component with the non-patented pieces) Experts opinion i regarding lost sales, non-infringing i i substitutes, and proper reasonable royalty base and rate 43

46 Evidence for Establishing EMVR Sample Case Law Example 1: GSI Group, Inc. v. Sukup Mfg. Co., 2008 U.S. Dist. LEXIS (C.D.Ill. Sept. 17, 2008) Technology at issue: Patent-in-suit: USP 5,135,271 covers a mechanism for latching and unlatching grain bin doors and an improved design for pins used to integrate the door into the wall of the grain bin. Accused product: Grain bins with the patented latching mechanism and pin design sold by defendant. Procedural History: Defendant filed a Motion for Summary Judgment Barring Plaintiff from the Recovery of Lost Profits, and Alternatively Under the Entire Market Value Rule. Validity and infringement presumed for purposes of determining the motion. Decision: Summary judgment motion to bar recovery under EMVR denied. 44

47 Evidence for Establishing EMVR Sample Case Law Example 1: GSI Group, Inc. v. Sukup Mfg. Co., 2008 U.S. Dist. LEXIS (C.D.Ill. Sept. 17, 2008) Evidence presented Expert opinion that third party competitors grain bins did not infringe the patent-in-suit and were not acceptable substitutes. Plaintiff s VP of Sales testified that the third party competitors grain bins were not acceptable substitutes. Plaintiff sold over $260 million worth of its bins from 1999 to 2007 and defendant sold over $79 million worth of the infringing bins from 2000 to Evidence of defendant s sales was telling because defendant experienced rapid increases in sales every year, which may indicate that the success is attributable to the infringement on the claimed invention. 45

48 Evidence for Establishing EMVR Sample Case Law Example 1: GSI Group, Inc. v. Sukup Mfg. Co., 2008 U.S. Dist. LEXIS (C.D.Ill. Sept. 17, 2008) Evidence presented (cont d) Retailers report that defendant was able to compete not because it offered better prices, but because its bins had the claimed invention covered by the patent-in-suit. Both plaintiff and defendant only sold the claimed invention as part of a grain bin the accused device is a functional unit containing the patented invention. Customers who want the claimed invention can only ypurchase it as part of the accused product the basis for demand of the accused product is the claimed invention. Decision: Issue of fact exists as to whether plaintiff is entitled to lost profits under EMVR Summary judgment denied. 46

49 Evidence for Establishing EMVR Sample Case Law Example 2: Quickie, LLC v. Medtronic, Inc., 2004 U.S. Dist. LEXIS 489 (S.D.N.Y. Jan. 15, 2004) Technology at issue Patent-in-suit USP 6,066,160 claims invention related to knotless sutures for use in minimally invasive surgery. Accused product device for retaining sutures (i.e., suture guide or insert) intended for use with other cardiac surgical instruments made by Medtronic. Procedural history Plaintiff sought royalties on defendant s sales of various peripheral instruments sold with the accused suture guide. Defendant moved for partial summary judgment on damages claims for non-accused and non-infringing products. Decision: summary judgment denied. 47

50 Evidence for Establishing EMVR Sample Case Law Example 2: Quickie, LLC v. Medtronic, Inc., 2004 U.S. Dist. LEXIS 489 (S.D.N.Y. Jan. 15, 2004) The accused product: suture guide Designed to work with OctoBase, a sternal retractor, t sold by Medtronic, for use during cardiac surgeries. The OctoBase can be used with Medtronic s Octopus System, which is designed to stabilize and hold in position portions of the heart during surgery; the Octopus System is mounted on the OctoBase for use during a heart surgery. The suture guide cannot be used with a non-medtronic sternal retractor, but the Octopus and other related instruments can be mounted on a non-medtronic tractor. Defendant s argument that the accused product does not form a functional unit with the non-patented components The suture guide is sold separately and designed to be inserted into the OctoBase to replace parts that are sold as part of that instrument. OctoBase can be used to open a patient s chest with or without the suture guide. The various instruments in the Octopus System work separately, and are marketed together to allow surgeons to choose the various components in the system. 48

51 Evidence for Establishing EMVR Sample Case Law Example 2: Quickie, LLC v. Medtronic, Inc., 2004 U.S. Dist. LEXIS 489 (S.D.N.Y. Jan. 15, 2004) Plaintiff s rebuttal argument and evidence Components of the entire Octopus System have been designed to work together th and sold as a system. The OctoBase was introduced along with the accused suture guide. The suture guide is described in Medtronic s own literature as a disposable insert for the OctoBase, specifically designed to be used with that instrument as a single unit. Jury could find that the OctoBase and the accused suture guide act as a single unit, with the accused product sold separately because of its disposable single use quality. 49

52 Evidence for Establishing EMVR Sample Case Law Example 2: Quickie, LLC v. Medtronic, Inc., 2004 U.S. Dist. LEXIS 489 (S.D.N.Y. Jan. 15, 2004) Plaintiff s rebuttal argument and evidence Medtronic designed and markets the Octopus system as an integrated unit, such that only by using the entire device can a heart surgeon achieve the desired optimal performance. Expert testimony from surgeons who testified that they would never use Medtronic's other products without the OctoBase and the accused suture guide, that t they have never seen the OctoBase used without t the accused suture guide, and that there is no good way of performing certain surgeries without the complete system. Evidence that the vast majority of sales of all of the instruments in question (particularly the OctoBase) were made to customers who also purchased the accused suture guide. Decision: Plaintiff may ypresent its evidence to the factfinder in a full trial. 50

53 Evidence for Establishing EMVR Sample Case Law Example 3: Tec Air, Inc. v. Denso Mfg. Mich. Inc., 192 F.3d 1353 (Fed. Cir. 1999) Technology at issue Patent-in-suit USP 4,047,692 and USP 4,107,257 claim a method of and a device for making gproperly p balanced, injected-molded fans. The accused product Fans sold by Denso that incorporated the patented invention. Procedural History A jury awarded damages of $25.2 million (6.5% royalty of the infringing sales of Denso s entire radiator and condenser assemblies). District Court for the Northern District of Illinois denied defendant s motion for judgment as matter of law, or alternatively, for a new trial on the issues of patent validity and damages. Defendant appeals the district court s decision. Decision: District court s decision is affirmed. 51

54 Evidence for Establishing EMVR Sample Case Law Example 3: Tec Air, Inc. v. Denso Mfg. Mich. Inc., 192 F.3d 1353 (Fed. Cir. 1999) Discussion Defendant s expert testified that the motors used with the radiator and condenser assemblies required fans. Defendant did not sell its condenser assemblies without t the accused fans. Defendant s internal documents stress that the performance and price of the entire system were paramount to its customers. The accused fans functioned as a single unit with the radiators and condensers. Customers wanted fans that were balanced to a certain specification and once defendant abandoned the patented method, it could not meet the balancing specification. One of defendant s d customers complained, after defendant d changed its balancing specification and design, and required defendant to rebalance the fans. The patented balancing technology was the basis for the defendant s customer demand for its radiators and condensers. Decision: Jury properly applied the entire market value rule. 52

55 Impact of Decisions Solidified the importance of the judiciary s gate-keeping role in damages determination. Retraction of the historical expansion of the entire market value rule; closer to a rule of apportionment. Reasonable royalties paid to patent trolls curtailed by apportioning only those values attributable to the patented component. In reasonable royalty cases applying EMVR, courts will likely look closer at the functional relationship between the unpatented and the patented components to determine a proper royalty base. Business should evaluate its decision to bundle components for design unless the case can be established that the components do not function together as a single unit. 53

56 Defendant s Damages Response John M. Skenyon Fish & Richardson 54

57 Defendant s Damages Response Reality check Absent bifurcation, it is not a level playing field re damages at trial A lowball number may drive the jury to the patentee s number Absurd assumptions by patentee s expert may not seem absurd to the jury A great cross probably won t carry the day 55

58 Daubert Challenge? Damages expert opinion based facts/data In i4i, the patentee s expert relied on: Athird third-party benchmark stand-alone alone product to set the defendant s projected profit on a feature of WORD A survey with 46 responses The 25% rule The CAFC says opinion i was based on sufficient facts or data 56

59 Daubert Challenge Damages expert opinion must apply reliable principles and methods to facts In i4i, the CAFC says that the patentee s damages expert did so by relying on Georgia- Pacific But in i4i, the expert really sets the $96 per unit royalty y outside Georgia-Pacific He adjusts it upward by $2 using Georgia-Pacific 57

60 Daubert Challenge Judicial mindset that such challenges are: Attacks on weight of evidence Attacks on conclusions Not prejudicial because subject to cross It s really a jury question Not likely to succeed at the district court; not likely l to succeed on appeal 58

61 Summary Judgment? No genuine issue of material fact In most damages cases, it is an issue of: The selection of certain facts The dismissal of certain facts Assumptions that are made Subjective application of factors (Georgia-Pacific) Not well suited to summary judgment But don t ignore the surgical strike 59

62 JMOL and New Trial The CAFC will review the sufficiency of the damages evidence and whether the award is reasonable But only if properly preserved Contrast Lucent with i4i JMOL re damages in Lucent allows this review New trial motion in i4i does not The law of the Circuit controls the extent of the CAFC s review. 60