Transcript Patent Damages, New Law, New Strategies, Spring 2010

Damages in Patent Cases
New Law – New Checklist
August 1, 2010
David Healey
Fish & Richardson
Confidential - Attorney Client Privileged
Statutory Bases for Damages
For Actual Damages, 35 U.S.C. Section 284:
35 U.S.C. 284 Damages.
Upon finding for the claimant the court shall award the claimant damages
adequate to compensate for the infringement but in no event less than a
reasonable royalty for the use made of the invention by the infringer, together
with interest and costs as fixed by the court.
When the damages are not found by a jury, the court shall assess them. In
either event the court may increase the damages up to three times the amount
found or assessed. Increased damages under this paragraph shall not apply to
provisional rights under section 154(d) of this title.
The court may receive expert testimony as an aid to the determination of
damages or of what royalty would be reasonable under the circumstances.
(Amended Nov. 29, 1999, Public Law 106-113, sec. 1000(a)(9), 113 Stat. 1501A566 (S. 1948 sec. 4507(9)).)
2
Confidential – Attorney Client Privileged
Statutory Bases for Damages
35 U.S.C. 285 Attorney fees.
The court in exceptional cases may award
reasonable attorney fees to the prevailing
party.
3
Confidential – Attorney Client Privileged
Statutory Bases for Damages
35 U.S.C. 286 Time limitation on damages.
Except as otherwise provided by law, no
recovery shall be had for any infringement
committed more than six years prior to the
filing of the complaint or counterclaim for
infringement in the action.
4
Confidential – Attorney Client Privileged
Statutory Bases for Damages
35 U.S.C. 287 Limitation on damages and other
remedies; marking and notice.
Patentees, and persons making, offering for sale, or selling
within the United States any patented article for or under
them, or importing any patented article into the United
States, may give notice to the public that the same is
patented, either by fixing thereon the word "patent" or the
abbreviation "pat.", together with the number of the
patent, or when, from the character of the article, this
cannot be done, by fixing to it, or to the package wherein
one or more of them is contained, a label containing a like
5
notice….
Confidential – Attorney Client Privileged
Statutory Bases for Damages
35 U.S.C. 287 Limitation on damages and other
remedies; marking and notice.
….In the event of failure so to mark, no damages shall be
recovered by the patentee in any action for infringement,
except on proof that the infringer was notified of the
infringement and continued to infringe thereafter, in which
event damages may be recovered only for infringement
occurring after such notice. Filing of an action for
infringement shall constitute such notice. (additional
requirements for 271(g) omitted).
6
Confidential – Attorney Client Privileged
Big Changes In last 6 Months
Damages law has CHANGED in the last six
months
• Lucent v Gateway, September 11, 2009
• ResQNet.com v Lansa, February 5, 2010
• Innovation IP v Red Hat, March 2, 2010
• Datatreasury v Wells Fargo, March 4, 2010
• Fenner v HP, April 16, 2010
• New Handbook on Compensatory Patent Damages
for Federal Judges January 10, 2010.
7
Confidential – Attorney Client Privileged
Trial And Appellate Rulings
Pretrial Rulings
Federal Circuit
Exclusion of Expert Opinion
(Daubert):
– Innovation IP v Red Hat
– Fenner v HP
– Cornell v HP (pre-Lucent)
Evidence of Past Settlements
Allowed at Trial:
– Datatreasury v Wells Fargo
Reversal and remands:
– Lucent v. Gateway
– ResQNet.com v. Lansa
8
Confidential – Attorney Client Privileged
Changes In Law
OLD Law
Georgia-Pacific factors could
be based on industry
evidence not specific to the
dispute
Settlements not admissible
Opinions ok instead of facts
on Georgia-Pacific factors
Damages could be based on
factors unrelated to the
infringement
NEW Law
Georgia-Pacific factors can
only be based on facts of
the case
Settlements of cases over
the same patents in suit are
admissible
No opinions or general
industry data must be used
in factors
Damages must be
apportioned to
infringement only
9
Confidential – Attorney Client Privileged
Lucent—New Case on Damages
Lucent sued computer makers and Microsoft over features in
Microsoft software as installed and used on PCs.
Lucent’s damages expert based his royalty for the “date
picker” feature on Outlook on the entire PC, 1-1.5%
This was based on a set of Lucent licenses and a single
Microsoft license
District Court disallowed the PC as the base –expert relied
on alternative royalty of 8% on software
10
Lucent on Reasonable Royalties
2 types of damages in patent cases:
– lost profits; and
– reasonable royalties
Several ways to calculate reasonable royalties:
–
–
–
–
1) Analytical Method;
2) Hypothetical Negotiation
3) Established Royalty
4) Valuation Method
11
Lucent on Reasonable Royalties:
“Same song, second verse”
Lucent re-affirms the Georgia-Pacific case by confirming that :
– Reasonable royalty is imprecise, flexible remedy
– GP factors are designed to put patentee in approximately the same position it
would have been through an ex ante negotiation (negotiation prior to
infringement.)
– A hypothetical negotiation might be different in some ways than real world
negotiations…
12
ResQNet.com v. Lansa
Plaintiff’s damages expert relied on licenses for software not
patents
No evidence the software practiced the patents
Defendant did not put on any expert testimony of damages
Court held:
– 1) Plaintiff has sole burden of proof on damages, defendant has no
obligation to put on proof of damages
– 2) Use of product licenses where no proof of product practicing the
patent was insufficient proof of damages as a matter of law
– 3) Speculated in dicta that best evidence might be litigation
settlements
13
District Court Cases Since ResQNet.com
Innovation IP v. Red Hat: Struck Plaintiff’s damages expert
for using unrelated licenses and industry data.
Datatreasury v Wells Fargo: Permitted discovery of
settlement licenses and admission of settlement licenses at
trial.
Fenner v HP: Struck parts of expert report that relied on
unrelated licenses.
14
New Check List For Damages
Defendant’s investment in R&D,
manufacturing, distribution, etc?
Defendant’s innovations to the product (e.g.,
its own patents?)
Contribution of the patent to the technical
field of the product?
What accused feature in the product requires
the patented technology?
15
Confidential – Attorney Client Privileged
New Check List For Damages
What licenses are admissible: Same patents?
Technology? Products? Contractual scope and
structure? Litigation Settlements?
What declarations or other evidence are needed
from technical expert to show the contribution of
the invention to the accused feature?
What evidence is needed to show licenses are
comparable?
Does consumer testing for the accused feature to
16
show its contribution to the selling price?
Confidential – Attorney Client Privileged
Evidence
Checklist Item
Types of Evidence
What is the defendant’s actual
investment in the product?
R&D cost? Cost of building
plants? Labor? Equipment?
Distribution network?
What are the defendant’s own
innovations that add value to the
product (e.g., its own patents)?
What patents does the defendant
have on the accused feature or
device?
What is the contribution of the
patent to the technology relevant
to the product (to “the art”)?
What is cost of alternatives,
design around?
What is in the accused feature in
the product that would not
otherwise be present but for use
of the patented technology?
How does accused feature
function in product? Essential?
Important? Optional?
Confidential – Attorney Client Privileged
17
Evidence
Checklist Item
What licenses are
admissible: Same patents?
Technology? Products?
Contractual scope and
structure? Litigation
Settlements
What evidence is needed to
show licenses are
comparable?
Types of Evidence
Key evidence is patent
license on same patents in
suit:
– Must be same structure
(lump sum v running royalty)
– Must be same scope
– Otherwise facts must explain
differences for admissibility
Declarations tying other
licenses to facts of case
from damages and technical
experts, e.g. same feature.
18
Confidential – Attorney Client Privileged
Evidence
Checklist Item
Types of Evidence
What declarations or other
evidence are needed from
technical expert to show the
contribution of the invention
to the accused feature?
Does consumer testing for the
accused feature to show its
contribution to the selling
price?
Declarations will be needed
from technical experts and
witnesses to show what
contribution is to the product
by patent, and to show how it
compares to other features
Consumer testing if it exists
can be powerful evidence of
value of feature; but very
difficult to do useful survey
after feature is in the market
19
Confidential – Attorney Client Privileged
Looking For Alternatives
Analytical Model – Dura
– Lucent specifically “blesses” analytical model as a
basis for reasonable royalty.
– This might be much better for plaintiff:
• Managers projecting big sales and profits
• Business plans with inflated promises
• Technology is before its time and is commercial failure
(e.g., netbook computers in dial-up age).
20
Confidential – Attorney Client Privileged
Looking For Alternatives
Valuation Theory
– Valuation theory is familiar to everyone: Compare
price of one car to another car to get value;
compare one house to another house to get
value; projected profit discounted to present
value.
– This might be much better for plaintiff where
feature is successful for other manufacturers but
unsuccessful for defendant.
21
Confidential – Attorney Client Privileged
Cost Of Alternatives
Cost of alternatives are a potential limit on
damages or royalties
But depends on total cost: Manufacturing,
distribution, market acceptance.
Depends on whether cost will increase price:
Price and sales generally are “see-saw”
– Higher price lower sales
22
Confidential – Attorney Client Privileged
Apportionment v EMV
Lucent makes strong points of apportionment of
value of the feature to the device, and of the patent
to the feature, relies on Georgia-Pacific factors 10
and 13
Lucent permits royalty rate to be on entire sales price
so long as rate is adjusted to apportion the damages
to the value of the invention.
23
Confidential – Attorney Client Privileged
Apportionment v EMV
EMV – Entire Market Rule
– Requires showing that the patented feature drives sales of
the product.
– But EMV likely requires a unique feature based on the
patent
• All cars must have wheels
• No one will buy a car without wheels
• Patent on specific feature of wheel or type of wheel that can
be replaced with another component is not EMV
• But if car requires special wheel (e.g., race car) it may be
EMV (e.g., the race car is replaceable but wheel is not)
24
Confidential – Attorney Client Privileged
Apportionment v EMV
Consumer surveys before product launch are
very useful to determine value add of
invention
– Because often new feature needed to avoid price
drop (adding features does not always increase
price)
– But consumer surveys are very hard to replicate
value after product launch because survey is too
easy to manipulate. All cars must have wheels
25
Confidential – Attorney Client Privileged
Why Focus On Damages?
No more injunctions for most plaintiffs since
eBay
Most plaintiffs cannot show prior notice of
patent (e.g., willfulness)
Actual loss of licensing revenue is true test:
this loss maybe very small depending on
licensing history of plaintiff.
Where damages are low: Early Mediation
26
Confidential – Attorney Client Privileged
Impact Of Change In Law
Cases can be valued more accurately
Cases can be evaluated early for infringement,
invalidity, unenforceability, and damages
Bad cases can be settled early before “throw
good money after bad”
Budgets can be calibrated to case:
• Low exposure pick and choose your moves
• High exposure consider fall back strategies
27
Confidential – Attorney Client Privileged
Impact Of Change In Law
When you are plaintiff ask about how you can
get an injunction?
– ITC?
– Germany or other EU country?
– Injunction will drive settlement above damages
How does change in law impact patent
application process?
– Claims in injunction countries are important
28
Confidential – Attorney Client Privileged
Preservation Of Error
As Plaintiff, must put on legally proper
damages case even if Defendant does not,
ResQNet.com
As Defendant, must move to limit discovery:
Once a big number is out, it may come in…
Both parties, must make Daubert motion to
limit or strike improper expert report
29
Confidential – Attorney Client Privileged
Preservation Of Error
Both parties, must make motions in limine to
exclude improper evidence of damages
Both parties must make JMOL on issue of
damages at end of opponent’s case raising all
grounds
Loser must make JMOL post-trial and for new
trial after verdict on damages.
30
Confidential – Attorney Client Privileged