Eric E. Bensen384 Euston Road SouthGarden City, New York(516) 486-2250ericbensen@gmail.com

February 19, 2010Nassau County Bar AssociationIntellectual Property Law Committee

Lucent Techs., Inc. v. Gateway, Inc. and the State of Reasonable Royalty Awards for Patent Infringement

Although not offering bright-line holdings, the Federal Circuit’s much anticipated decision in Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009), may well portend a shift in the court’s patent damages jurisprudence. Such a shift, which is of a piece with the larger trend in recent patent law developments, could prove favorable to patent defendants. In a palpable departure from historic practice, the court showed a willingness both to closely scrutinize an application of the hypothetical negotiation approach used to determine reasonable royalty awards and to imbue that approach with more concrete standards found in real-life licensing practices. It also, against the grain of its jurisprudence, rejected the apparent application of the entire market value rule (“EMVR”) below, analyzing several of the Supreme Court’s most significant apportionment decisions to underscore the limited reach of the rule. Hamstrung by the record, however, the court clearly felt constrained to limit the reach of its holding in certain respects.

I. The Pre-Lucent State of Damages Law

A. In June of 2009, Chief Judge Michel of the Federal Circuit was reported to have made a statement during oral arguments in Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1336 (Fed. Cir. 2009), to the effect that the Federal Circuit’s decisions “are apparently lacking in clarity and unhelpful to reasonable royalty calculations.” Patent Damages Reform Debate Evident in Arguments for Microsoft Infringement Case, BNA PATENT, TRADEMARK & COPYRIGHT J. (June 5, 2009).

B. He also stated:

It’s just astounding. … In the intervening years [since Rite-Hite], we’ve had very few cases that really plumbed the expanse of … the entire market value rule, apportionment, how you do the calculation, who has what burden. It’s kind of amazing, that since patent cases are heavily about damages, that at this late date, … there still seems to be massive unclarity about how reasonable royalty damages are to be calculated. (Id.)

C. With respect to the EMVR, Chief Judge Michel stated:

Maybe the function [of EMVR] is, where the predicate is met again, to start with the sales price of the product and then shift the burden to the infringer to start subtracting, by his having to carry a burden [to subtract] manufacturing costs, distribution costs, etc. … Whereas in the absence of the EMV rule, the burden is entirely on the patentee to start with zero and go up. … [That is,] Is the EMV rule a short cut that allows the patentee to vault from zero to 100 percent of the sales price and thereby put the burden on the infringer to reduce that? … Is the EMV an exception that lets him not have to build from the ground up? (Id.)

II. Summary of the Lucent Case Below

A. Patent-in-Suit (the “Day Patent”): A Method for entering information into fields on a computer screen without using the computer’s keyboard.

1. Specifically, as pertinent to the case, it claimed the method of a user’s filling in a field by using a concurrently displayed tool that permits the user to select the information to be entered.

B. Accused Product: Primarily, Microsoft Corp.’s well-known Outlook program.

1. Lucent alleged that Microsoft contributorily infringed the Day Patent by including in several of Outlook’s features a tool that permits users to enter dates in a form by selecting them from a displayed calendar.

C. Damages Evidence:

1. Microsoft (and co-defendant Dell, Inc.) sold 110 million units of Outlook (and two other software programs that were not the focus of the court’s opinion).

2. The dollar value of those sales was approximately $8 billion.

a. Lucent asked the jury for $561.9 million in damages for infringement while Microsoft urged an award of $6.5 million.

b. The jury awarded approximately $357.9 million.

3. Notably, the jury form, which gave the jury the choice of awarding a “lump sum” or an amount based on a running royalty, indicated that the amount awarded was a “lump sum.”

a. As the Federal Circuit would later note, however, the precision of the lump sum award, which was calculated to the penny, suggests the jury reached it using a running royalty calculation.

D. Issue on Appeal: Microsoft moved unsuccessfully below for a judgment as a matter of law. On appeal, it challenged the jury verdict, as pertinent here, on the

2

grounds that it was not supported by substantial evidence and that the jury should not have applied the EMVR.

III. Background: Key Supreme Court Cases

A. Reasonable Royalties

1. Suffolk Co. v. Hayden, 70 U.S. 315, 320 (1866)

a. Suffolk was the first Supreme Court case to recognize reasonable royalties as a form of recovery for patent infringement.

b. Key passage: “There being no established patent or license fee in the case, in order to get at a fair measure of damages, or even an approximation to it, general evidence must necessarily be resorted to. And what evidence could be more appropriate and pertinent than that of the utility and advantage of the invention over the old modes or devices that had been used for working out similar results?” Id. at 320.

2. Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641, 648 (1915)

a. Dowagiac Mfg. affirmed that a reasonable royalty was an available form of relief for patent infringement (there had been some doubt at the time).

b. Key passage: “But, as the patent had been kept a close monopoly, there was no established royalty. In that situation it was permissible to show the value by proving what would have been a reasonable royalty, considering the nature of the invention, its utility and advantages, and the extent of the use involved. Not improbably such proof was more difficult to produce, but it was quite as admissible as that of an established royalty.” Id. at 648 (cites to Suffolk).

3. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970).

a. Established the “hypothetical negotiation” approach to determining reasonable royalties.

b. Ground Rules for the hypothetical negotiation:

i. The patent is assumed to be valid and infringed, e.g., Schneider (Eur.) AG v. Scimed Life Sys., Inc., 852 F. Supp. 813, 847 (D. Minn. 1994);

3

ii. the hypothetical negotiation is deemed to take place just before the infringement began, e.g., Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1158 (6th Cir. 1978);

iii. the hypothetical negotiation must result in a royalty that is reasonable under the circumstances, i.e., adequate to compensate the patentee for the use made of the invention, e.g., Fromson v. W. Litho Plate & Supply Co., 853 F.2d 1568, 1575 (Fed. Cir. 1988);

iv. the licensee should be left with a profit, though that profit could come from convoyed or derivative sales rather than the licensed products, e.g., Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 1568 (Fed. Cir. 1984); but see Monsanto Co. v. Ralph, 383 F.3d 1374, 1384 (Fed. Cir. 2004) (rejecting defendant’s argument that the royalty awarded was unreasonable because no party would ever agree to royalty that exceeded its profits).

c. Within that framework, courts, in determining the reasonable royalty that would result from a hypothetical negotiation, typically consider some or all of the fifteen factors set forth in Georgia-Pacific Corp.

i. See Appendix A for a complete recitation of the Georgia-Pacific factors.

B. The Entire Market Value Rule

1. Seymour v. McCormick, 57 U.S. 480 (1853)

a. First Supreme Court case to require apportionment.

b. Key passage: The Court held that it was “grave error to instruct a jury ‘that as to the measure of damages the same rule is to govern, whether the patent covers an entire machine or an improvement on a machine.’” Id. at 491.

2. Manufacturing Co. v. Cowing, 105 U.S. 253 (1882).

a. Establishes the entire market value rule.

b. Key passage: “If the improvement is required to adapt the machine to a particular use, and there is no other way open to the public of supplying the demand for that use, then it is clear the infringer has by his infringement secured the advantage of a market he would not otherwise have had, and that the fruits of this advantage are the entire profits he has made in that market.” Id. at 255-56.

3. Garretson v. Clark, 111 U.S. 120 (1884)

4

a. Makes clear that apportionment is required in all cases and that the EMVR was one way for the patentee to meets its burden of apportionment.

b. Key passage: “The patentee ... must in every case give evidence tending to separate or apportion the defendant's profits and the patentee's damages between the patented feature and the unpatented features ... or they must show ... that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature.” Id. at 121.

4. Westinghouse Elec. & Mfr. Co. v. Wagner Elec. & Mfg. Co., 225 U.S. 604 (1912)

a. Clarifies that the burden of apportionment is on the patentee.

b. Key passage: “[I]f it be assumed . . . that the spaces [added by the defendant] were non-infringing and valuable improvements, it may then have prima facie appeared that these changes had contributed to the profits. If so, the burden of apportionment was then logically on the plaintiff, since it was only entitled to recover such part of the commingled profits as was attributable to the use of its invention.” Id. at 617.

IV. Background: Recent Trends in Patent Law

A. Supreme Court

1. Since 2006, the Supreme Court has addressed and made significant changes to then exiting patent law regarding:

a. the exclusionary power of patents for the purpose of antitrust claims, Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28, 126 S. Ct. 1281, 1290 (2006) (tying arrangements involving patented products are not subject to a per se rule of illegality);

b. permanent injunctive relief for infringement, eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837, 1841 (2006) (the grant of an injunction in patent cases, like other cases, is subject to traditional principles of equity);

c. the standing of licensees to challenge validity, MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764, 777 (2007) (justiciable controversy existed where a patent licensee challenged the validity of the licensed patent even though continuing to make royalty payments, and hence not being in breach of the license agreement);

d. the standard for obviousness, KSR Intern. Co. v. Teleflex Inc., 127 S. Ct. 1727, 1739-41 (2007) (a “teaching, suggestion or motivation” to combine prior art references is not necessary to establish obviousness; rather, a

5

flexible approach permitting a finding of obviousness where, e.g., a combination of familiar elements according to known methods did nothing more than yield predictable results, is proper);

e. the exhaustion doctrine, Quanta Computer, Inc. v. LG Elect., Inc., 128 S. Ct. 2109, 2118-19 (2008) (method patents are subject to the exhaustion doctrine).

2. In re Bilski, of course, is currently before the Court.

B. Federal Circuit

1. Since 2007, the Federal Circuit has, sitting en banc, overturned or significantly clarified its precedent respecting:

a. willfulness, In re Seagate Tech. LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc) (patentee must show that the infringer acted with “objective unreasonableness” to establish willfulness);

b. infringement of design patents, Egyptian Goddess, Inc. v. Torkiya, 543 F.3d 665, 668, 670, 678 (Fed. Cir. 2008) (en banc) (the proper test for infringement of a design patent is: “[I]f, in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same, if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other.”);

c. patent eligibility, In re Bilski, 545 F.3d 943, 954 (Fed. Cir. 2008) (en banc) (the “definitive” test for patent eligibility of a process is whether “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing”), cert. granted, 77 U.S.L.W. 3557 (U.S. Jun. 1, 2009) (08-964);

d. infringement of product-by-process claims, Abbott Labs. v. Sandoz, Inc., 566 F.3d 1282, 1291-1295, 90 U.S.P.Q.2d 1769 (Fed. Cir. 2009) (addressing issue en banc) (product-by-process claim is limited by the claimed process); and

e. the infringement of method patents under 35 U.S.C. § 271(f), Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 576 F.3d 1348 (Fed. Cir. 2009) (en banc) (since the “components” of a method patent are the steps of the claimed invention, which cannot be provided or furnished from the United States, method patents are not within the reach of § 271(f)).

C. Congress

1. Since 2001, Congress has made a number of attempts to amend the patent laws, most notably through the Patent Reform Act of 2007, which would

6

have, as pertinent to litigation matters, limited venue for patent suits, expanded the prior use defense, made it easier to bring interlocutory appeals of claim construction decisions and made it more difficult to prove willfulness.

a. Also, it would have addressed widely held concerns about large damages awards, driven in part by cases such as:

i. Monsanto Co. v. Ralph, 383 F.3d 1374, 1384 (Fed. Cir. 2004) (plaintiff awarded a reasonably royalty of more than $50 per bag of replanted seed for infringement of its patents on genetically modified soybean even though plaintiff’s “technology fee,” the royalty plaintiff incorporated in the price of each bag of seed for the use of the patented technology, was only $ 5.00; the court rejected defendant’s argument that the award was unreasonable because no party would ever agree to royalty that exceeded its profits).

ii. Golight, Inc. v. Wal-Mart Stores, Inc., 355 F.3d 1327, 1338 (Fed. Cir. 2004) (plaintiff awarded a royalty of $31.80 per light for infringement of its patent on a remote-controlled, portable search light even though defendant’s anticipated profit on the light was only $8.00 and defendant was actually selling the lights at a loss).

2. Some months prior to the Lucent decision, the Patent Reform of Act of 2009 (“PRA”) was introduced in Congress.

a. Among other things, its proposed revisions to 35 U.S.C. § 284, depending on the particular version of the bill, would codify to some extent the rules governing reasonable royalty determinations.

i. H.R 1260. The House bill would preserve the exist language of the damages statute and add a requirement that where reasonable royalties are sought, the court must select for the jury to use in determining the reasonable royalty one of three methods:

(a) The entire market value rule, if the patentee shows that “the claimed invention’s specific contribution over the prior art is the predominant basis for market demand for an infringing product or process”;

(b) an established royalty, if the patentee can show that an established royalty for the invention exists under traditional rules or that an established royalty exists for a “sufficiently similar noninfringing substitute[] in the relevant market”; or

(c) a valuation calculation, under which the jury would apply the reasonable royalty rate only to “the claimed invention’s specific contribution over the prior art,” if the necessary showing for the

7

Entire Market Value Rule and Establish Royalty options have not been made.

ii. S. 515. The Senate’s reported bill, like the House version, would preserve the existing damages statute, but adds only that:

(a) The court must identify the methodologies and factors relevant to the determination of damages and the court or jury must apply them;

(b) prior to the entry of a final pretrial order, the parties must propose in writing the methodologies and factors to use for jury instructions and specify the underlying factual and legal bases for their assertions; and

(c) the court shall only permit the introduction of evidence relating to the methodologies and factors that the court or jury is to consider.

iii. S. 610. The unreported Senate bill takes yet another approach to the determination of a reasonable royalties. Among other things, it would codify the hypothetical negotiation to reasonable royalty calculations, limit the use of comparable patents, preclude the use of the infringer’s financial condition at time of trial, and specify the factors that should be considered by the court in determining the admissibility of an expert’s testimony. S. 610, § 2.

b. The damages provisions were among the most hotly debated of the PRA.

V. Lucent v. Gateway

A. The Lucent decision was, of course, handed down in the above-described context: concerns arising from the ambiguity in the standards underlying the hypothetical negotiation and EMVR and a patent reform movement that has come to be focused in large part on reforming patent damages law.

B. While Lucent should have been a vehicle for the Federal Circuit to bring some clarity to damages in law, the court’s decision, although notable for the close scrutiny it gave to the evidence purportedly supporting the award and its rejection of the entire market value rule, was lacking in bright line holdings.

1. This appears to be due to the fact that the court clearly felt hamstrung by the lack of a better-developed record.

2. The court observed: “A complicated case this was, and the damages evidence of record was neither very powerful, nor presented very well by either party.” (Emphasis added.)

8

3. At other points, the court made the following commented about the record or arguments:

a. “In the present appeal, the parties, in offering the damages evidence, each adopted the hypothetical negotiation approach, without objection.”

b. “Microsoft does not argue on appeal that any of the evidence relevant to the damages award was improperly before the jury.”

c. “Additionally, in its brief before us, Lucent appears to misunderstand the nature of a per-unit royalty.”

d. “The parties presented little evidence relating to Factor 13.”

e. “The license agreements admitted into evidence (without objection from Microsoft, we note) highlight how sophisticated parties routinely enter into license agreements that base the value of the patented inventions as a percentage of the commercial products sales price.”

f. “[W]e need not address [amici’s] assertion regarding jury instructions given or not given, for the simple reason that neither party at trial challenged any damages instruction that was given nor proposed an instruction and objected when it was not given.”

4. Nonetheless the Lucent case likely portends a significant shift in patent damages law.

C. Not surprisingly, the court’s damages discussion was organized around the hypothetical negotiation and the EMVR.

1. The Hypothetical Negotiation.

a. The gist of the Federal Circuit’s holding was that the jury verdict was not supported by substantial evidence.

i. Contrary to its usual practice of giving such matters summary treatment in deference to the lower court, however, the court undertook an unusually close analysis of the evidence offered in connection with a number of Georgia-Pacific factors.

ii. In doing so, it distilled a number of principles that will likely provide guidance in future cases.

b. Factor 2 (Licensee’s other licenses): The court focused much of its attention on Georgia-Pacific Factor 2.

i. Lucent relied on eight licenses entered into by it, Microsoft or Dell that it argued supported the lump sum awarded.

9

ii. The Federal Circuit rejected the relevance of the agreements for overlapping reasons.

(a) It rejected the relevance of several of the agreements on the grounds that they provided for a running royalty rather than a lump sum payment.

(1).As the Court explained, in reaching a lump sum amount, the parties’ estimates regarding the anticipated usage of the patented method would be highly relevant, yet Lucent offered no evidence of what Lucent and Microsoft would have anticipated with respect to usage at the time of the hypothetical negotiation.

(2).Although the running royalty agreements could have been relevant to a lump sum royalty awarded by the jury, Lucent provided no evidence upon which the jury could make a meaningful comparison between the running royalties provided for in those agreements and the lump sum it awarded.

(b) With respect to the licenses providing for a lump sum payment, it rejected Lucent’s contention that the agreements were pertinent because they concerned technology relating to personal computers.

(c) It rejected one agreement, between Dell and IBM, on the grounds that it was for IBM’s entire portfolio of patents relating to personal computers, and therefore, had no relevance to the Day Patent.

(d) It rejected the relevance of the other lump sum agreements because Lucent’s expert failed to explain the subject matter those agreements.

iii. The court concluded that Lucent failed to meets its burden of showing that the licenses were sufficiently comparable to the hypothetical license to support the jury’s award.

c. Factor 13 (Portion of the profit attributable to the invention): The court observed that the “glaring imbalance” between Outlook’s noninfringing features and the infringing feature “must impact the analysis of how much profit can properly be attributed to” the infringing feature.

i. Factor 13 provided little support for the jury’s award, therefore, because the portion of the profit that could be credited to patent feature was “exceedingly small.”

d. Factor 11 (Use of the invention): The court noted that there is no requirement that a royalty award be strictly limited to specific instances of infringement that can be proven with direct evidence, which would be

10

inconsistent with real world licensing practices where a royalty is not necessarily limited to the number of times a patented feature is used.

i. However, for Factor 11 to support an award, there must be evidence of how often the patented feature is used.

ii. The only evidence Lucent offered on this point concerned the use of forms generally in Outlook, but, as evidence that customers used noninfringing features was not relevant to Factor 11, Lucent failed to meet its burden of proof on this issue.

e. Other Factors: The court addressed the other Georgia-Pacific factors in summary fashion and concluded that the jury’s award was not supported by substantial evidence and was therefore subject to vacatur.

f. Interestingly, it stressed that it was not holding that the licenses or other evidence relied on by Lucent could not as a matter of law support the verdict.

i. It thus crystallized the central theme of its discussion: vacatur was warranted because of Lucent’s failure to introduce sufficient evidence to support the jury’s award, not because of a failure of the lower court to apply the proper legal standard.

2. The Entire Market Value Rule.

a. Although the jury did not expressly apply the EMVR in reaching the award, the Federal Circuit appears to have been persuaded by Microsoft’s argument that the jury in effect applied it by applying a running royalty rate to the total sales figures for Outlook.

i. The court introduced its discussion of the EMVR with this curious statement: “In the distant past, before a contemporary appreciation of the economics of infringement damages, the Supreme Court seemingly set forth rigid rules concerning the entire market value rule.” (Emphasis added.)

(a) The court never explains, however, how “contemporary appreciation of the economics of the infringement damages” would impact the rules laid down by the Supreme Court, which, if not “rigid,” are fairly strict.

ii. It then goes on to quote the Seymour, Garretson and Westinghouse Elec. & Mfr. Co. cases discussed above even though each is better viewed as an apportionment case.

iii. It does not mention Cowing, the Supreme Court’s landmark EMVR case.

11

b. After noting its difficulty in trying to translate the Court’s holdings into “a precise, contemporary, economic paradigm,” the Federal Circuit makes a statement that deserves the practitioner’s careful attention:

Notwithstanding this obstacle, the objective of the Court's concern has been two-fold: determining the correct (or at least approximately correct) value of the patented invention, when it is but one part or feature among many, and ascertaining what the parties would have agreed to in the context of a patent license negotiation.

i. Although a somewhat imprecise summary of Supreme Court jurisprudence, this statement is significant because it recognizes that under Supreme Court precedent, apportionment, i.e., the identification of the utility and advantages of the claimed invention over older modes and devices for achieving the same result, is to be the first step of every reasonable royalty analysis rather than merely a factor to be considered.

(a) As noted above, the Court made it clear in Garretson that apportionment is required in all damages calculations (with the understanding that the patentee could meet its burden of apportionment by showing that the entire market value of the pertinent product is attributable to the patented feature).

(b) At the time of that decision, the Court had already recognized a reasonable royalty as a form of damages in the Suffolk case.

(c) This point is underscored by the Suffolk decision itself, which makes it clear that a reasonable royalty should be based on “the utility and advantages, or value of the use of the improvement over the old mode of cleaning cotton; not the value of the patent itself. …” 70 U.S. at 320 (emphasis added). This is apportionment.

(d) Thus, under the Court’s precedents, apportionment is required in all reasonable royalty analyses.

c. The Federal Circuit’s statement is necessarily imprecise inasmuch as the Court itself has never expressly stated what is to be done once the portion of the profit on the pertinent product attributable to the patented feature is identified.

i. However, the Court was clear in its reasonable royalty decisions, i.e., Suffolk and Dowagiac, cited above, that a reasonable royalty is, properly, an approximation of what an established or market royalty would have been had the patentee sufficiently licensed the patent.

12

(a) That point is reinforced by subsequent appellate decisions such as Frumentum, also cited above.

ii. In real world licensing negotiations that would produce an established royalty, the anticipated profit attributable to the patented improvement would be split between the parties, with the patentee getting a share as compensation for use of its invention and the licensee getting a share as compensation for its business risk, investment and labor associated with exploiting the invention.

iii. In other words, the market would not support a price for a patent that would result in the licensee’s receiving no benefit from its use.

d. Thus, what the Federal Circuit statement suggests is that in a proper royalty determination, the profit attributable to the patent must first be determined and then the portion of that profit due to the patentee as a royalty must be determined.

e. Unfortunately, the Federal Circuit does not fully expound on the meaning of its statement, although it does, uncommonly, reject the lower court’s apparent application of the EMVR. The court identifies two flaws in the application of the EMVR (assuming it was applied).

i. The first was that given the importance of the Outlook’s noninfringing features, it was unmistakable that the invention claimed by the Day Patent was not the basis for the demand for Outlook.

ii. While the first flaw was clear and more than sufficient to reject any application of the EMVR, the court also identified a second flaw, which merits some clarification.

(a) Lucent’s expert originally opined that a royalty of 1% on the selling price of a computer loaded with Outlook would be a reasonable royalty.

(b) After being precluded from offering that testimony, he opined that a reasonable royalty would be 8% of selling price of the Outlook software, which, not surprisingly, resulted in the approximately the same damages number as he had reached with the 1% royalty on the computer.

(c) The Federal Circuit had little trouble seeing through the expert’s ill-concealed attempt to end run the trial court’s order precluding his original testimony.

(d) However, in explaining its conclusion, the Federal Circuit discerned a “fundamental relationship” between the EMVR and the

13

fact that a royalty can always be stated in terms of sales of the entire product.

(1).Practioners should be cautious, however, not to read too much into the court’s statement in this regard.  

(2).In real world licensing transactions, the use of product sales as the royalty base does not mean that the parties to the license attributed the entire market value of the product to the patent.  

(3).Typically, it means only that for accounting and reporting purposes, they concluded that product sales would be the most convenient base.  

(4).Such would be the case, for example, where the licensed patent disclosed an optional component to a product, but the component was not sold separately.

(5).Similarly, in litigation, if the selling price of the infringing product was $200 and the jury concluded that a fair price for license was $2 per unit, the jury could render an award stated as 1% of sales.

(6).In doing so, however, it would not be applying the EMVR, but engaging in a simple mathematical exercise.

f. The court also correctly rejected the assertion by some commentators that the EMVR has no role in a reasonable royalty analysis.

i. It may well be true that in some industries, most notably the information technology field, the factual predicate for application of the EMVR will rarely if ever be present.

ii. However, as explained above, apportionment is required in the reasonable royalty determination and where apportionment is required, potentially the EMVR may play a role.

3. (Microsoft moved for a rehearing en banc on the issue of the proper standard of proof for establishing invalidity where the examiner did not consider the asserted prior art.)

D. Post Lucent decisions

1. i4i Ltd. P’ship v. Microsoft, Corp., 2009 U.S. App. LEXIS 28131, **42-43, 48, 57-58 (Fed. Cir. Dec. 22, 2009)

a. Jury awarded a reasonable royalty of $96 per unit of Microsoft Word even though some infringing units sold for as little as $97, Microsoft paid

14

between $1-5 million dollars for other patents relating to Word and at least with one version of Word, and the difference in price between Word with the infringing feature and Word without it was only $50.

b. The Federal Circuit affirmed in large part because Microsoft did not file a pre-verdict JMOL and, therefore, the verdict was subject to the highly deferential abuse of discretion standard of review.

2. ResQNet.com, Inc. v. Lansa, Inc., 2010 U.S. App. LEXIS 2453, *23 (Fed. Cir. Feb. 5, 2010)

a. Patentee’s Burden of Proof

i. Patentee has the burden of proof on the issue of a reasonable royalty.

ii. Defendant has no obligation to rebut patentee’s damages case unless the patentee has met its burden with reliable and sufficient evidence.

b. Evidence Relevant to a Reasonable Royalty

i. Federal Circuit vacated and remanded royalty award because it was based on licenses for subject matter other than the patent in suit.

(a) “By its terms, … factor 1 considers only past and present licenses to the actual patent and the actual claims in litigation.”

(b) “This court has long required district courts performing reasonable royalty calculations to exercise vigilance when considering past licenses to technologies other than the patent in suit.” (citing Lucent)

ii. The Federal Circuit recognized that patentee’s expert “used unrelated licenses on marketing and other services--licenses that had a rate nearly eight times greater than the straight license on the claimed technology in some cases--to push the royalty up into double figures.”

VI. What to expect going forward

A. Closer scrutiny of the evidence offered in support of the reasonable royalty award, especially licenses for patents other than the patent is suit.

B. A higher standard for application of EMVR rule, in particular, movement towards the traditional standard that the patentee has the burden of showing that the patented features is the sole basis for consumer demand.

C. Movement towards an apportionment requirement for reasonable royalty awards meaning that patentee will be required to identify the value attributable to the

15

patented feature where the patented feature is one of many features of the infringing product.

16

Biography

Eric Bensen is a coauthor of Milgrim on Trade Secrets (Matthew Bender) and Milgrim on Licensing (Matthew Bender), two leading intellectual property treatises, and Bensen & Myers on Litigation Management (LexisNexis 2009), a groundbreaking new book that sets forth a sophisticated, but easy to implement methodology for effective and efficient management of even the most complex litigations. He advises clients on complex intellectual property and litigation management issues.

Mr. Bensen has taught patent, copyright, and intellectual property licensing classes as a Visiting Assistant Professor of Law at Hofstra University School of Law. He was selected to represent the Intellectual Property Owners Association in amicus briefs in the In re Bilksi appeal in both the Federal Circuit and Supreme Court. Earlier in his career, Mr. Bensen was in practice for more than 12 years with Paul, Hastings, Janofsky & Walker LLP and Dewey Ballantine LLP. During that time, he led attorney teams in successful litigations of highly complex patent and trade secret cases before the International Trade Commission and a wide range of intellectual property cases in federal and state courts throughout the country. He also negotiated sophisticated copyright, patent and trademark licenses both here and abroad and advised clients on intellectual property licensing issues arising in large transactional matters. His clients included technology, pharmaceutical, medical device, agricultural, entertainment and consumer product companies. In his last full year of firm practice, he was nominated by corporate counsel as one of the leading lawyers in the United States in both intellectual property and litigation in Legal500’s 2007 surveys.

In addition to other writing, Mr. Bensen has authored or co-authored of a number of scholarly articles on intellectual patent law, including, Eric E. Bensen & Danielle M. White, Using Apportionment to Rein in the Georgia-Pacific Factors, 9 COLUMBIA SCI. & TECH. L. REV. 1 (Fall 2007), Eric E. Bensen, Apportionment of Lost Profits in Contemporary Patent Damages Cases, 10 VA. J.L. & TECH 8 (2005), and other articles appearing in the Hofstra Law Review, the Federal Circuit Bar Journal and the Los Angeles Daily Journal. He regularly writes Emerging Issue Commentaries for LexisNexis on significant intellectual property decisions and emerging issues in intellectual property law such as, “Eric E. Bensen on the Federal Circuit’s Landmark Decision Regarding the Patent Eligibility of Process Claims Under 35 U.S.C. § 101: In re Bilski, 2007-1130 (Fed. Cir. Oct. 30, 2008).”

Mr. Bensen regularly speaks on intellectual property issues. Among other engagements, he spoke at the European Patent Lawyers Association’s (“EPLAW”) Congress in Brussels in 2007 to provide expertise on U.S. patent damages law in connection with EPLAW’s consideration of Article 13 (Damages) of the Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the Enforcement of Intellectual Property Rights. He has also spoken on intellectual property matters before the New York State Bar Association Intellectual Property Section, the Patents Committee of the Bar Association of the City of New York, the Suffolk County Bar Association Intellectual Property Committee. In early 2009, he was a featured speaker for the LexisNexis Webinar, “Software Patents after Bilski.”

He is admitted to the bar of the State of New York, the United States Supreme Court, the United States Court of Appeals for Federal Circuit and the District Courts for the

17

Southern and Eastern Districts of New York. He received his J.D. in 1996 from Hofstra University School of Law where he was an associate editor of the Hofstra Law Review.

18

Eric E. Bensen’s Articles Concerning Patent Damages

Eric E. Bensen, Eric E. Bensen on the Patent Reform Act of 2009, 2009 Emerging Issues 3888 (LexisNexis 2009).

Eric E. Bensen & Danielle M. White, Using Apportionment to Rein in the Georgia-Pacific Factors, 9 COLUMBIA SCI. & TECH. L. REV. 1 (Fall 2007).

Eric E. Bensen, Apportionment of Lost Profits in Contemporary Patent Damages Cases, 10 VA. J.L. & TECH. 8 (2005).

Eric E. Bensen, Understanding the Federal Circuit on Patent Damages for Unpatented Spare Parts, 12 FED. CIR. B.J. 57 (2002).

19

Appendix A:The Georgia Pacific Factors1

1. The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty.

2. The rates paid by the licensee for the use of other patents comparable to the patent in suit.

3. The nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold.

4. The licensor’s established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.

5. The commercial relationship between the licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or whether they are inventor and promoter.

6. The effect of selling the patented specialty in promoting sales of other products of the licensee; that existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales.

7. The duration of the patent and the term of the license.

8. The established profitability of the product made under the patent; its commercial success; and its current popularity.

9. The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results.

10. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention.

11. The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use.

12. The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions.

1 Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1121 (S.D.N.Y. 1970)

20

13. The portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer.

14. The opinion testimony of qualified experts.

15. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee—who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention—would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license.

21