Patent Damages After Lucent v. Gateway and Cornell v....

Patent Damages After Lucent v. Gateway and Cornell v. HP

Strategies for Establishing or Disprovingpresents Strategies for Establishing or Disproving Infringement Damages

presents

A Live 90-Minute Teleconference/Webinar with Interactive Q&AToday's panel features:

Richard Cauley, Partner, Wang Hartmann Gibbs & Cauley, Mountain View, CAJohn M. Skenyon, Principal, Fish & Richardson, Boston

Elizabeth A. Alquist, Partner, Day Pitney, Hartford, CT

Wednesday, February 3, 2010

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Patent Damages After Lucent v. Gateway and Cornell v. HPy

January 2010January 2010

ByRi h d F C lRichard F. Cauley

The Entire Market Value Rule • The entire market value rule allows a plaintiff to recover

damages based on the value of an entire apparatus t i i l f tcontaining several features

• Two ways to show it:– Where the components are a functional unit, even though they are p , g y

physically separate

– Where a larger apparatus has a number of components, but the patented component is the reason customers buy the product (i.e., p p y p ( ,the “entire market value” of the product for sale is the value of the patented feature

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 awardthe 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 l h k i d b h ) i i blvalue 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?

The Entire Market Value Rule • Examples:

• Bose Corp v JBL Inc 274 F 3d 1354 (Fed Cir 2001)Bose Corp v. JBL, Inc., 274 F.3d 1354 (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

T Ai I D M f t i 192 F3d 1353 (F d Ci 1999)• 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

Allocation of Damages to a Component Under –and Despite – the Entire Market Value Ruleand 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 smalldamages 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 patenteescourts 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 allocateparties actually license their patents and that attempting to allocate revenue to a minor component will inevitably lead to inaccurate, speculative results

Damages Allocation by Chief Judge Michel –Lucent v. GatewayLucent v. Gateway

• Dispute arose from Lucent patent on a “date picker” feature that Lucent claimed was used in Microsoft Outlook, Microsoft Money and Windows M bilMobile

• 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


• 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.”


• 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 aa running royalty, but the jury s award was based on a lump sum royalty


• The Court noted significant differences between the two types of licenses

l l l d h f h– 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 canon the level of sales made by the licensee, which the licensee can control.


• In a lump sum license, the risk shifts, as both parties have to estimate the probable future use of the invention.

l l b f h h ld h bl h– 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

l l l h k h h l ll– 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.

h i b i l i h “ i ” h l– 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 productundercharge for a wildly successful product


• Lucent’s problem on appeal was that it had presented its damages case at trial based on the theory that the parties

ld h t d i t i lt li b t thwould have entered into a running royalty license, but the jury based its verdict on a lump sum license

• Thus, on appeal, Lucent had to justify the jury’s verdict based , pp , j y j yon evidence it had presented for another theory

• The court found that Lucent’s evidence would not support the j ’ l b d djury’s lump‐sum‐based award


• The court held that in order to use an existing license in the Georgia‐Pacific “hypothetical negotiation,” the license must be for a technology hi h b t l t l ti hi t th t h l i l d i thwhich bears at least some relationship to the technology involved in the

litigation.

• The “real world” licenses must be of the same type as the license on hi h th bl lt ill b b d th ti t idwhich the 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 to j stif r nning ro alt rates and sed r nning ro alt licenseslicenses to 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


• 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%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 al e of O tlook b t increased the ro alt rate to 8%market value of Outlook, but increased the royalty rate to 8%, unsurprisingly, reaching exactly the same total royalty amount he had come up with in the first place.


• 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 p p p gcustomers 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 exceedinglyprofit 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 poften 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.”

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 l i th l d if i l i itapplying the rule and, if so, was misapplying 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 customermust 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 therule 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 pconsumers purchased the software products.


• 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 for anreasons that the parties may want to use the revenues for an overall product to compute royalties under a license for a patent on a component – such as ease of obtaining revenue figures and

f di iease of auditing.

• The Court firmly rejected the positions of commentators and amici who urged the court to abandon the entire market value grule altogether


• Instead, Chief Judge Michel came up with an easy‐to apply solution – adjusting the royalty percentage instead of the b t fl t th l f th t tbase to reflect the value of the patent

• 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 the1% x 2% (.02%) to get the right royalty percentage for the small component

Patent Damages After Lucent vPatent Damages After Lucent v. Gateway and Cornell v. HP

Strategies for Establishing and Disproving Damages

Elizabeth A. Alquist

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Entire Market Value RuleEntire Market Value Rule• Rule: Patentee may recover damages based on the

value of the entire apparatus containing the patentedvalue 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 theStatutory 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

t l th bl lt f th devent less than a reasonable royalty for the use made of the invention by the infringer.”

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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,

th t tit t f ti l it ( t l ld t th for they must constitute a functional unit (not merely sold together for business advantages); and

2. The patented component must be the basis for consumer demand for the entire product.

Rit Hit C K ll C 56 F 3d 1538 1549 50 (F d Ci 1995)Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1549-50 (Fed. Cir. 1995).• Burden of proof: on the patentee.• Factors considered:

1 Whether the unpatented items were routinely purchased in conjunction1. 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 unpatented3. 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).

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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 haveThere 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 determinescustomer 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– 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, 1125-26 (Fed. Cir. 2003)The court held that the damage calculation could be based on sales of the unpatented separate– 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.

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Cornell University v. Hewlett-Packard Co.S ( )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 y , g p p punits.

– Accused product: one component of the instruction reorder buffer (IRB) used in HP’s servers and work stations.

• Procedural History:Procedural History:– 8-day jury trial conducted on May 19-30, 2008.– 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)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.

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Cornell University v. Hewlett-Packard Co.609 F S 2d 279 (N D N Y 2009)609 F. Supp. 2d 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 unit is p p p gthe processor, not the CPU brick or the server / work station. Servers / Work Stations

Processor

CPU Module

CPU Bricks

‘115 Patented Component

IRB

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• 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 expertentire 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 y ,excluded Cornell’s expert’s testimony that the entire server / work station should be the royalty base

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• During trial: – 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 salesargued that the base should be the hypothetical sales of the CPU bricks

– Cornell failed to show any connection between d d f h CPU b i k d h dconsumer demand for the CPU bricks and the patented

component contained in the IRB• Judge Rader’s conclusion: the proper royalty base shouldJudge 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

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• Reasons for rejecting the CPU bricks as the royalty base –– There was never a market for HP’s CPU bricks– 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 p p p p ,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

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The processor was the functional salable unit one level above the IRB that contained the patented component


• Final damages calculation:g$8 billion (royalty base = processor revenues)

* 0.8% (royalty rate) ( y y )- $1.3 million (deduction for implied license for

Intel-made processors)p )≈ $53 million

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i4i Limited Partnership et al v pMicrosoft

J h M SkJohn M. SkenyonFish & Richardson

28

i4i Limited Partnership et al vi4i 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$200,000,000 in damages

• CAFC Appeal 2009-1504D id d D b 22 2009– Decided December 22, 2009

– Judges Prost, Moore and Schall– Affirmed (except for date of injunction)( p j )

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Basic Facts

• Word processing programs – text and “tags”• Patent relates to “tags”Patent relates to tags

– Claims cover an improved method of storing “tags” so they can be edited by the usertags so they can be edited by the user

– The “tag” editor is not used by someone just typing texttyp g te t

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Basic Facts

• Accused WORD products have a “tag” dit f teditor as one feature– Infringement depends upon direct infringement

b t f th t “t ” ditby a customer – use of that “tag” editor– Damages depend on the number of customers

who use the “tag” editorwho use the tag editor

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Patentee’s Georgia-PacificPatentee s Georgia Pacific Methodology

• Royalty base ($) x percentage = per unit royalty ($)y y ($)– The royalty base is usually the sale price of the

infringing productg g p– Some EMV problems here with sale price of

WORD– Percentage is “agreed” royalty rate

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Royalty Base

• Defendant does not sell just a “tag” editor• Defendant charges $50 more for WORDDefendant charges $50 more for WORD

with “tag” editor• Patentee’s expert• Patentee s expert

– Royalty base is “benchmark” 3rd party product$499 i– $499 per unit

– Many features

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The Calculation

• $499 (price of 3rd 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 j p y

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The Survey

• 13 million U.S. companies • Survey sent to 988Survey sent to 988• 46 responses

19 i i f i i• 19 use in an infringing manner• 19/988 (1.9%) multiplied by all sales of

WORD sold to businesses• $98 x 1,800,000 = damages, , g

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CAFC Decision

• Reasonable award/underlying evidence– Unlike Lucent, cannot review evidenceUnlike Lucent, cannot review evidence– New trial motion only; not JMOL on damages– Difficult 5th Circuit new trial standardDifficult 5 Circuit new trial standard

• SurveyG tl d ti t d i f i i– Greatly underestimated infringing use

– No unfair prejudice to allow in

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Patent Damages After Lucent v. Gateway and Cornell v. HPy

January 2010January 2010

ByRi h d F C lRichard F. Cauley

Congress’ Efforts to “Fix” Patent Damages Under Patent Reform and Its Failure to Do SoPatent 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 li i h h ld ’ h l i hlimit the patentholder’s recovery to the real economic worth of an invention

– for example, to a company who might want to license thatfor 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.


• 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 p pinventor only to the extent his invention produces something that people actually want to buy.

• This section would have ensured that patents on relatively minor p ycomponents 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.


• Another section, requiring the court to determine whether there is already a “market price” for licensing the patent – in the form of pre‐i ti li f i il t t i ht i l ld h difi d thexisting licenses for similar patent rights – simply would have codified the

“established license” measures to determine reasonable royalty under existing law

Th f th i i t li it th bilit f t th ld• The purpose of these provisions was to limit the ability of patentholders, 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 awardsthreat 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. They required the court to conduct a kind of “damages Markman ”They required the court to conduct a kind of damages Markman.

Patent Damages After Lucent vPatent Damages After Lucent v. Gateway and Cornell v. HP

Strategies for Establishing and Disproving Damages

Elizabeth A. Alquist

41

Evidence for Establishing EMVRg• Plaintiff’s and defendant’s sales information of device

containing the patented component including sales ofcontaining the patented component, including sales of peripherals

• Plaintiff’s and defendant’s product or marketing materials• Plaintiff s and defendant s product or marketing materials that emphasize the patented component

• Defendant’s selling patterns or customers’ buying patterns• 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)

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Evidence for Establishing EMVRg

• Retailers’ or distributors’ report regarding basis for consumer demandconsumer demand

• Customers’ testimony regarding the use of the accused product containing the patented component (i e alwaysproduct containing the patented component (i.e., always use the patented component with the non-patented pieces)

E t ’ i i di l t l i f i i• Experts’ opinion regarding lost sales, non-infringing substitutes, and proper reasonable royalty base and rate

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Evidence for Establishing EMVRS l C LSample Case Law

• Example 1: GSI Group, Inc. v. Sukup Mfg. Co., 2008 U.S. Dist LEXIS 83765 (C D Ill Sept 17 2008)Dist. LEXIS 83765 (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 tounlatching 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.Market Value Rule.

• Validity and infringement presumed for purposes of determining the motion.

– Decision: Summary judgment motion to bar recovery under EMVR

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denied.


• Example 1: GSI Group, Inc. v. Sukup Mfg. Co., 2008 U.S. Di t LEXIS 83765 (C D Ill S t 17 2008)Dist. LEXIS 83765 (C.D.Ill. Sept. 17, 2008)

– Evidence presented –• Expert opinion that third party competitors’ grain bins did not p p p y p g

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.g p• 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 2007.

– 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 l i d i ti

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claimed invention.


• Example 1: GSI Group, Inc. v. Sukup Mfg. Co., 2008 U.S. Di t LEXIS 83765 (C D Ill S t 17 2008)Dist. LEXIS 83765 (C.D.Ill. Sept. 17, 2008)

– Evidence presented (cont’d) –• Retailers’ report that defendant was able to compete not p p

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 p ypart of a grain bin the accused device is a functional unit containing the patented invention.

• Customers who want the claimed invention can only purchase it y pas 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

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pprofits under EMVR Summary judgment denied.


• Example 2: Quickie, LLC v. Medtronic, Inc., 2004 U.S. Di t LEXIS 489 (S D N Y J 15 2004)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 Medtronicby Medtronic.

– Procedural history –• Plaintiff sought royalties on defendant’s sales of various peripheral

instruments sold with the accused suture guideinstruments 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

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– Decision: summary judgment denied.

Evidence for Establishing EMVRSample 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 –D i d t k ith O t B t l t t ld b M dt i• Designed to work with OctoBase, a sternal retractor, 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 usesurgery; 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 tractornon 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 instrumentOctoBase 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

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are marketed together to allow surgeons to choose the various components in the system.


• Example 2: Quickie, LLC v. Medtronic, Inc., 2004 U.S. Dist. LEXIS 489 (S D N Y Jan 15 2004)(S.D.N.Y. Jan. 15, 2004)

– Plaintiff’s rebuttal argument and evidence • Components of the entire Octopus System have been designed

t k t th d ld tto work together 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.

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• Example 2: Quickie, LLC v. Medtronic, Inc., 2004 U.S. Dist. LEXIS 489 (S D N Y Jan 15 2004)(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 , y y g gachieve 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

t id th t th h th O t B d ith t thsuture guide, that they have never seen the OctoBase used without 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• 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 present its evidence to the factfinder in a full

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y ptrial.


• Example 3: Tec Air, Inc. v. Denso Mfg. Mich. Inc., 192 F.3d 1353 (Fed. Cir 1999)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 properly balanced, injected-molded fans.g p p y , j• 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 j g ypatent validity and damages.

• Defendant appeals the district court’s decision.– Decision: District court’s decision is affirmed.

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• Example 3: Tec Air, Inc. v. Denso Mfg. Mich. Inc., 192 F.3d 1353 (Fed. Cir 1999)Cir. 1999)

– Discussion –• Defendant’s expert testified that the motors used with the radiator and

condenser assemblies required fans.D f d t did t ll it d bli ith t th d f• Defendant did not sell its condenser assemblies without 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 dcondensers.

• Customers wanted fans that were balanced to a certain specification and once defendant abandoned the patented method, it could not meet the balancing specification.O f d f d t’ t l i d ft d f d t h d it• One of defendant’s customers complained, after defendant 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

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demand for its radiators and condensers.– Decision: Jury properly applied the entire market value rule.

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• 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 f d i l h bcomponents for design – unless the case can be

established that the components do not function together as a single unit.

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Defendant’s Damages gResponse

J h M SkJohn M. SkenyonFish & Richardson

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Defendant’s Damages ResponseDefendant’s Damages ResponseDefendant s Damages ResponseDefendant s Damages Response

Reality checkReality checkReality checkReality check–– Absent bifurcation, it is not a level playing field Absent bifurcation, it is not a level playing field

re damages at trialre damages at trialre damages at trialre damages at trial–– A lowball number may drive the jury to the A lowball number may drive the jury to the

patentee’s numberpatentee’s numberpatentee s numberpatentee s number–– Absurd assumptions by patentee’s expert Absurd assumptions by patentee’s expert

may not seem absurd to the jurymay not seem absurd to the juryy j yy j y–– A great cross probably won’t carry the dayA great cross probably won’t carry the day

5555

DaubertDaubert Challenge?Challenge?DaubertDaubert Challenge?Challenge?

Damages expert opinion based facts/dataDamages expert opinion based facts/dataDamages expert opinion based facts/dataDamages expert opinion based facts/data–– In In i4i, i4i, the patentee’s expert relied on:the patentee’s expert relied on:

A thirdA third--party “benchmark”party “benchmark” standstand--alonealone product toproduct toA thirdA third--party benchmark party benchmark standstand--alonealone product to product to set the set the defendant’sdefendant’s projected profit on a projected profit on a featurefeature of of WORD WORD A survey with 46 responsesA survey with 46 responsesThe “25% rule”The “25% rule”

Th CAFC i i b dTh CAFC i i b d–– The CAFC says opinion was based on The CAFC says opinion was based on sufficient facts or datasufficient facts or data

5656

DaubertDaubert ChallengeChallengeDaubert Daubert ChallengeChallenge

Damages expert opinion must applyDamages expert opinion must applyDamages expert opinion must apply Damages expert opinion must apply reliable principles and methods to factsreliable principles and methods to facts

InIn i4ii4i the CAFC says that the patentee’sthe CAFC says that the patentee’s–– In In i4i, i4i, the CAFC says that the patentee s the CAFC says that the patentee s damages expert did so by relying on damages expert did so by relying on GeorgiaGeorgia--PacificPacific

–– But in But in i4i, i4i, the expert really sets the $96 per the expert really sets the $96 per unit royalty outside unit royalty outside GeorgiaGeorgia--PacificPacificy yy y gg

He adjusts it upward by $2 using GeorgiaHe adjusts it upward by $2 using Georgia--PacificPacific

5757

DaubertDaubert ChallengeChallengeDaubert Daubert ChallengeChallenge

Judicial mindset that such challenges are:Judicial mindset that such challenges are:Judicial mindset that such challenges are:Judicial mindset that such challenges are:–– Attacks on weight of evidenceAttacks on weight of evidence

Attacks on conclusionsAttacks on conclusions–– Attacks on conclusionsAttacks on conclusions–– Not prejudicial because subject to crossNot prejudicial because subject to cross

It’s reall a j r q estionIt’s reall a j r q estion–– It’s really a jury questionIt’s really a jury questionNot likely to succeed at the district court; Not likely to succeed at the district court;

t lik l t d lt lik l t d lnot likely to succeed on appeal not likely to succeed on appeal

5858

Summary Judgment?Summary Judgment?Summary Judgment?Summary Judgment?

No genuine issue of material factNo genuine issue of material factNo genuine issue of material factNo genuine issue of material fact–– In most damages cases, it is an issue of:In most damages cases, it is an issue of:

The selection of certain factsThe selection of certain factsThe selection of certain facts The selection of certain facts The dismissal of certain facts The dismissal of certain facts Assumptions that are madeAssumptions that are madeppSubjective application of factors (Subjective application of factors (GeorgiaGeorgia--PacificPacific))

Not well suited to summary judgmentNot well suited to summary judgmentot e su ted to su a y judg e tot e su ted to su a y judg e t–– But don’t ignore the “surgical strike”But don’t ignore the “surgical strike”

5959

JMOL and New TrialJMOL and New TrialJMOL and New TrialJMOL and New Trial

The CAFC will review the sufficiency of theThe CAFC will review the sufficiency of theThe CAFC will review the sufficiency of the The CAFC will review the sufficiency of the damages evidence and whether the award damages evidence and whether the award is reasonableis reasonableis reasonableis reasonable–– But But only only if properly preservedif properly preserved

ContrastContrast LucentLucent withwith i4ii4i–– Contrast Contrast LucentLucent with with i4ii4iJMOL re damages in Lucent allows this reviewJMOL re damages in Lucent allows this reviewNew trial motion in i4i does notNew trial motion in i4i does notNew trial motion in i4i does notNew trial motion in i4i does notThe law of the Circuit controls the extent of the The law of the Circuit controls the extent of the CAFC’s review.CAFC’s review.

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