Patent Damages After Lucent v. Gateway and Cornell v. HP Strategies for Establishing or Disproving Strategies for Establishing or Disproving presents presents 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 p 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 emailed 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 800-926-7926 ext. 10
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Patent Damages After Lucent v. Gateway and Cornell v. HP y January 2010 January 2010 By Ri h Richard F. Cauley d F C l
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 several features t i i l f t • 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 award 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 l h k i d b h ) i i bl 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 • Tec Air, Inc. v. Denso Manufacturing, 192 F3d 1353 (Fed. Cir. 1999) T Ai I D M f t i 192 F3d 1353 (F d Ci 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 Rule 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 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 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 parties 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. Gateway 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 M bil 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
Damages Allocation by Chief Judge Michel – Lucent v. Gateway 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.”
Damages Allocation by Chief Judge Michel – Lucent v. Gateway 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 a running royalty, but the jury s award was based on a lump sum royalty
Damages Allocation by Chief Judge Michel – Lucent v. Gateway 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 l l l d h f h 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 on the level of sales made by the licensee, which the licensee can control.
Damages Allocation by Chief Judge Michel – Lucent v. Gateway 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 l l b f h h ld h bl h 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 l l l h k h h l ll 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 h i b i l i h “ i ” h l 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 undercharge for a wildly successful product
Damages Allocation by Chief Judge Michel – Lucent v. Gateway 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 into a running royalty license, but the ld h t d i t i lt li b t th 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 y on evidence it had presented for another theory • The court found that Lucent’s evidence would not support the j jury’s lump ‐ sum ‐ based award ’ l b d d
Damages Allocation by Chief Judge Michel – Lucent v. Gateway 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 bears at least some relationship to the technology involved in the hi h b t l t l ti hi t th t h l i l d i th litigation. • The “real world” licenses must be of the same type as the license on which the reasonable royalty will be based or the parties must provide hi h th bl lt ill b b d th ti t id 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 licenses licenses 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
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