Transcript CONCERNING THE 'UTILITY' OF UTILITY PATENTS: RECENT …

CONCERNING THE "UTILITY" OF UTILITY
PATENTS: RECENT TRENDS IN DAMAGES
AWARDS AND LICENSE ROYALTIES IN THE
UNITED STATES
Gary R. Edwards
Crowell & Moring
Washington, DC
_____________________________
Nikkei Intellectual Property Forum
Tokyo, 08 September 2003
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Infringement Damages and License
Royalties in the United States
“The only thing that is keeping us alive is
our brilliance. The only way to protect
our brilliance is patents.”
Edwin Land
April 27, 1976
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Infringement Damages and License
Royalties in the United States
United States Constitution, Article I, Section 8,
Clause 8:
“The Congress shall have the power
...To promote the progress of science
and useful arts, by securing for limited
times to...inventors the exclusive right
to their respective...discoveries.”
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Infringement Damages and License
Royalties in the United States
Doyle v. Microsoft (2003)
$520.6 million
City of Hope Nat. Med. Center v. Genentech (2002)
$500,000,000
IGEN International v. Roche Diagnostics (2002)
$505,000,000
Haworth v. Steelcase (1996)
$211,000,000
Polaroid v. Kodak (1991)
$873,000,000
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Infringement Damages and License
Royalties in the United States
Intellectual Property Portfolio Management
Philosophies
Purely Defensive
• Patents held for Cross Licensing
• Entree to technology developed by others
• Patents not a profit center
Aggressive Portfolio Acquisition and Licensing
• Competitive Tool
• Profit Center
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Infringement Damages and License
Royalties in the United States
U.S. Growth in Patent License
Revenues in 1990’s
$15 Billion --------> $115 Billion
Estimated Current Volume
$150 Billion
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Infringement Damages and License
Royalties in the United States
IBM Patent Portfolio Management
• Ranked first in U.S. Patent Acquisition for
the past ten years
• Estimated Annual Income from Patent
Licensing: $1.5 Billion
• Estimated Ten Year Income from Patent
Licensing: $10.0 Billion
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Infringement Damages and License
Royalties in the United States
Texas Instruments Settlements
Hyundai Electronics (1999)
$1,000,000,000
Samsung Electronics (1996)
$1,000,000,000
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Infringement Damages and License
Royalties in the United States
Source: Analysis Group|Economics
(reproduced by permission)
Industry Royalty Rates
9.0%
RoyaltySource Database
8.0%
Median Royalty Rate (% of Sales)
8.0%
7.5%
6.8%
7.0%
6.0%
5.1%
5.0%
5.0%
5.0%
4.8%
4.7%
4.5%
4.0%
4.0%
4.0%
4.0%
3.6%
3.2%
2.8%
3.0%
2.0%
1.0%
0.0%
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Infringement Damages and License
Royalties in the United States
• In general, in the United States, a patent
owner is entitled to be compensated for
all economic losses that are reasonably
attributable to an infringement.
• No fixed limit on the type of economic
injury that can be compensated.
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Infringement Damages and License
Royalties in the United States
35 U.S.C. §284:
“Upon finding for the claimaint the court
shall award the claimant damages
adequate to compensate for the
infringement, but in no event less than a
reasonable royalty....”
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Infringement Damages and License
Royalties in the United States
Seymour v. McCormick:
“[Because] of the immense variety of
patents issued every day,...there cannot
in the nature of things, be any rule of
damages which will apply equally in all
cases. The mode of ascertaining actual
damages must necessarily depend on
the peculiar nature of the monopoly
granted.”
U.S. Supreme Court, 1853.12
Infringement Damages and License
Royalties in the United States
• Rite-Hite Corp. v. Kelley Co.:
“The language of [§284] is expansive rather
than limiting. It [provides] only a lower limit
and no other limitation.
U.S. Court of Appeals
for the Federal Circuit (1995)
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Infringement Damages and License
Royalties in the United States
Damages Considerations to be Discussed:
• Lost Profit
• Reasonable Royalty
• Entire Market Value Rule
• Triple Damages
• Attorney Fees, Prejudgment Interest
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Infringement Damages and License
Royalties in the United States
Lost Profit Examples:
• Lost sales
• Price erosion
• Lost opportunity to raise prices
• diminution of sales growth
Lost profit need be proven only “to a
reasonable probability”.
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Infringement Damages and License
Royalties in the United States
Reasonable Royalty
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Hypothetical “arm’s length” negotiation
Not an accounting exercise
No need to show lost sales
Fifteen Factors -- Georgia Pacific case
Highly Subjective
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Infringement Damages and License
Royalties in the United States
Entire Market Value Rule
• Patented feature is the “basis for customer
demand” for the entire article.
• Damages calculated based on value of the
entire article, and not just patented feature.
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Infringement Damages and License
Royalties in the United States
Triple Damages -- wanton disregard, willful
infringement
Attorney Fees -- “exceptional cases” (usually,
willful infringement, bad faith litigation, etc.)
Prejudgment Interest -- ordinarily awarded
where necessary “to afford the plaintiff full
compensation for infringement”.
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Infringement Damages and License
Royalties in the United States
Hallmarks of U.S. Damages law:
• Full Compensation for all economic losses
• Flexible -- no rigid rules regarding types of
loss that are compensable
• Very Subjective
• Courts generally receptive
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