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Litigating Claim Construction and itsImpact on Liability and Damages:A Case Study

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A. John P. ManciniCo-Leader, Intellectual Property Practice

[email protected]

I. Background To The Case

II. Key Issue: Value of the Invention

III. Claim Construction

IV. Plaintiffs’ Theory of Damages

V. Defendants’ Theory of DamagesV. Defendants’ Theory of Damages

VI. Court Appointed Expert

VII. Related Developments and Open Issues

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I. Background to the CaseI. Background to the Case

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The Plaintiffs

• Brandeis University

– Two named inventors on the faculty

– Third inventor was a researcher for a palm oil trade associationthat funded the work

• GFA Brands

– Maker of Smart Balance buttery spread

– “Patented blend to help improve cholesterol ratio”

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The Defendants

• First-named defendant was a 7-person vegan bakery inMadison, Wisconsin, East Side Ovens

• The other defendants were regional, national andinternational food companies, including:

• Nestlé

• Kellogg Company

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• Kellogg Company

• Unilever

• Bremner Food Group

The Patents

• Two patents directed to a fat blend and a “margarine”

• Fat blends like these are used in various food products,including cookies

• Claims required that the fat be “suitable for” the reduction ofspecified cholesterol ratios

• Alleged cholesterol-lowering effect was the focus of the

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• Alleged cholesterol-lowering effect was the focus of theacademic study that formed the basis for the products

• Same effect was the focus of the commercial embodimentof the patents, namely the Smart Balance buttery spread

• Fat blends were also trans-fat free

’497 Patent

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’192 Patent

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Plaintiff’s Product

GFA advertises its products as naturally free of trans fat and capable of enhancing good-to-bad cholesterol ratios.GFA marks its products with the ’497 Patent.

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The Defendants’ Products

• One spread (from Unilever) and cookies and cookie doughsfrom the other defendants

• Our client, Kellogg Company sold “Chips Deluxe ChocolateChip Cookies” through its Keebler subsidiary

• Our additional client, Nestlé, sold Toll House Chocolate ChipCookie Dough (for baking)

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Cookie Dough (for baking)

• Cookies were labeled “cholesterol-free”, but there were noother product claims made, including no claims were madethat either the Keebler cookies or the Toll House Cookie Douglowered cholesterol

• In addition, neither Nestlé nor Keebler made any otherhealth claims about its cookies – rather, they marketed asindulgent treats

Scientific Background

• Patents claimed that higher levels of saturated fat higherlowered overall cholesterol levels

• A counter-intuitive finding, as saturated fat was previouslycited as a health concern

• Defense position was that it was counter-intuitivebecause it was wrong

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because it was wrong

• The scientific finding was based on one study of Malaysiansoldiers funded by a Malaysian palm oil trade associationthat wanted to promote the use of palm oil, which is high insaturated fat

• The conclusions of the study (calling for a diet higher insaturated fat) are at odds with the current consensus on thehealthiest diet

Scientific Background (cont.)

• FDA regulations required trans-fats to be disclosed on thelabel.

• Labeling requirements permitted less than 0.5 grams perserving to be labeled as 0 grams or as “trans-fat free.”

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Procedural History

• Case was filed in W.D. Wisconsin, a patent-savvy venue notedfor its speed

• Same plaintiff previously filed and lost Markman in D.N.J.

• Markman ruling could be dispositive, but WD Wisc. assignedjudge would not hold a Markman hearing

• Assigned judge’s individual practice was to resolv claim

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• Assigned judge’s individual practice was to resolv claimconstruction as part of summary judgment

• Defendants moved to transfer to several more convenientvenues

• Sua sponte Judge Crabb transferred all the cases for resolutionto one court, namely, N.D. Ill., Judge Richard Posner, sitting bydesignation

Transferee Court Case Schedule

Action Date

Exchange of Terms and ProposedConstructions

June 8, 2012

Markman Hearing August 20, 2012

Initial Expert Reports (Liability andDamages)

September 24, 2012

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Rebuttal Expert Witness Reports(Liability and Damages)

October 26, 2012

Close of Expert Depositions November 30, 2012

Motions for Summary Judgment December 21, 2012

Trial March 4, 2012

Judge Richard Posner

• Noted interest in intellectual property matters

• Authored The Economic Structure of Intellectual Property Law

• Takes patent cases on a regular basis

• Dislikes the uniformity imposed by the creation of the FederalCircuit, and has advocated for the return to circuit-basedpatent law

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patent law

• Particular interest in patent damages:

• “But I have been struck … by how the law relating todamages relief in patent cases seems to be in disarray.”

• Hostile to patent protection except in special circumstances:’

• "It's not clear that we really need patents in mostindustries."

II. Key Issue: Value of

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II. Key Issue: Value ofthe Invention

Early Focus on Damages

• From the start, we focused one pillar of the defense ondamages

• How could a cookie company be liable for anything otherthan de minimis damages, if it never advertised any

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than de minimis damages, if it never advertised anybenefits from the alleged cholesterol-benefiting fat blend?

Early Focus on Damages (contd.)

• Judge Posner picked up on this issue and issued a suasponte order early on asking for briefing on this issue:

• “I am concerned whether the plaintiffs if successful inestablishing liability will be entitled to nontrivialdamages awards. Suppose the defendants infringedthe asserted patents but that none of the defendantsmarketed its products as [lowering cholesterol] andsuppose further that the defendants obtained nocost savings by infringing the patents rather thanusing some non‐infringing recipe and that neither

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using some non‐infringing recipe and that neither Brandeis nor its licensee GFA Brands lost any businessas a result of the infringement. On thoseassumptions, would the plaintiffs have any claim fordamages, whether compensatory or punitive, orrestitution.”

Patent Act

• “Upon finding for the claimant the court shall award theclaimant damages adequate to compensate for theinfringement, but in no event less than a reasonable royaltyfor the use made of the invention by the infringer, togetherwith interest and costs as fixed by the court.”

• 35 U.S.C. § 284 (emphasis added)

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• What is “adequate to compensate” the patentee if the allegedinfringer gains no benefit from using the technology?

• Seemingly, Section 284 of the Patent Act was at odds withJudge Posner’s views

Reasonable Royalty

• Reasonable-royalty damages are based on the notion that, hadthe transaction between the patent holder and the infringerbeen voluntary, the infringer would have paid the patentholder a royalty for the use of the patent.

• Calculating reasonable-royalty damages entails estimating theroyalty that the patent holder would have collected from the

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royalty that the patent holder would have collected from theinfringer, starting at the time of first infringement – assuming ahypothetical license negotiation occurred.

Reasonable Royalty (contd.)

• An economic approach to analyzing the hypothetical negotiation is todetermine the bounds of the bargaining range.

• Those bounds are:• (i) the minimum royalty that the patent holder would accept -- whilestill being better off than without issuing a license; and

• (ii) the maximum royalty the infringer would be willing to pay -- while

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• (ii) the maximum royalty the infringer would be willing to pay -- whilestill being better off than without obtaining a license.


• An economic approach to analyzing the hypothetical negotiation is to determinethe bounds of the bargaining range.

• Figure 1: Those bounds are the minimum royalty that the patent holder wouldaccept (while still being better off than without issuing a license) and themaximum royalty the infringer would be willing to pay (while still being better offthan without obtaining a license).

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Reasonable Royalty (cont.)

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(excerpted from Court-appointed expert report)


• Figure 2: The outcome of a voluntary negotiation before infringement wouldbe that no exchange occurs. In this scenario, the court should require theinfringer to pay an amount equal to the patent holder’s minimum willingnessto accept in the hypothetical negotiation.

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Reasonable Royalty (cont.)

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(excerpted from Court-appointed expert report)

III. Claim Construction

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Brief Introduction

• Markman v. Westview Instruments, 517 U.S. 370(1996)

– The Federal Circuit held that judges, rather than juries,should determine as a matter of law the meaning of claimterms.terms.

– The Court reasoned that judges by their training andpractice are best suited to construe written instruments,like patents.

– Jury cannot decide invalidity or infringement until theCourt construes claims.

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Brief Introduction (cont’d)

• Claim construction after Markman

– Since then, courts have formalized the process ofconstruing claims by scheduling Markman hearings oftenwell in advance of trials.

– At the Markman hearing, the parties argue the– At the Markman hearing, the parties argue theappropriate claim constructions, which can be effectivelycase dispositive.

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Brief Introduction (cont’d)

• Importance of Markman

– Markman hearing is perhaps the most important hearingin patent litigation.

• It is at this hearing that the parties can decisively impact their caseand potentially avoid trial.and potentially avoid trial.

– Patentees prefer vague patents because it allows themgreater flexibility in assertion against third parties.

• This is especially true in technology cases, where technology isever-evolving and the patentee hopes to capture the "nextgeneration" of a product.

• Today’s Case Study is “less sexy,” in that it discusses a foodcomposition, but it illustrates this tension well

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Timing of Markman

• The Federal Circuit does not prescribe any particulartiming for the claim construction process.

• The Federal Circuit’s directive is that trial courts“exercise [their] discretion to interpret the claims at atime when the parties have presented a full picture oftime when the parties have presented a full picture ofthe claimed invention and prior art.” Sofamor DanekGroup, Inc. v. DePuy-Motech, Inc., 74 F.3d 1216, 1221(Fed. Cir. 1996).

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Timing of Markman (cont’d)

• When are most Markman hearings held?

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• Patentee’s perspective

– As a general rule, patent holders tend to favor having theMarkman hearing late in the case near the end of or afterthe close of discovery.

– A late Markman is preferred because the later the claims– A late Markman is preferred because the later the claimsare construed, the less time the defendant has to adjust tothe claim construction ruling.

– It is also preferred because it makes summary judgmentmore difficult.

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• Accused infringer’s perspective

– Accused infringers normally push to have the claimsconstrued as early in the case as possible.

– An early Markman is preferred because once the courtconstrues the claims, the defendant can focus its prior-artconstrues the claims, the defendant can focus its prior-artsearch, refine its non-infringement defenses, and possiblylimit the amount of discovery obtainable by the plaintiff.

– It is also preferred because a favorable ruling may allowthe defendant to obtain summary judgment or get theplaintiff to stipulate to non-infringement for the purposeof appealing the claim construction.

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Preparing for Markman

• Early analysis

– Courts have limited time to devote to claim construction.

– To make the best use of the court’s time, a party shouldperform a thorough and complete patent analysis early inthe litigation to identify terms likely to become the mostthe litigation to identify terms likely to become the mostimportant claim construction issues.

– This analysis should include examining the accusedproducts and the prior art, as well as the intrinsic andextrinsic evidence relevant to claim construction.

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Preparing for Markman (cont’d)

• Limit claim terms

– Some parties prefer construction of many terms for fear ofomitting a potentially important term.

– However, because of time constraints, the court may beable to deal only superficially with the many claim termsable to deal only superficially with the many claim termspresented for construction.

– Consequently, the court will be less likely to rule decisivelyon any single term, thereby causing the party to miss thechance to advance the litigation on the merits.

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• Understand what your judge wants, expects, andrequires

– Does the judge permit or require a tutorial on the science?

– Does the judge permit experts to testify at the Markman?

– How much time will the judge allow for the Markman?

• To gain this understanding, visit your judge’s website,review the local patent rules, and consult with localcounsel

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• Determine best ways to educate the judge

– If the judge allows expert testimony at the Markman,consider bringing an expert to explain the technical issues.

– Another important way to educate the judge is to havedemonstrative exhibits that can explain complexdemonstrative exhibits that can explain complextechnology.

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• Don’t forget about the law

– Care must also be taken to teach the judge about theapplicable law.

– This is especially important in those districts where thejudged are not frequently exposed to patent litigation.judged are not frequently exposed to patent litigation.

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• Choosing claim construction arguments

– A patentee will occasionally focus almost entirely oninfringement and argue for the broadest possible scope,all the while overlooking the fact that a broaderconstruction may lead to the claim “reading on”construction may lead to the claim “reading on”invalidating prior art.

– An accused infringer may develop similar “tunnel vision”and argue such a narrow construction as to deprivethemselves of an otherwise compelling invalidity defense.

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Claim Construction – A Case Study

• GFA Brands v. Nestle & Keebler, et al. (N.D. Ill.)

– Maker of Smart Balance buttery spread sued national cookiemanufacturers for infringement of U.S. Patent Nos. 5,843,497and 6,630,192.

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Representative Claim – US Patent No. 5,843,497

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Case Study: Brandeis Univ. v. East Side Ovens

• Three key terms from the patent selected for Markman:

– Term 1: “cholesterol-free”

– Term 2: “% by weight fatty acid”

– Term 3: “suitable for increasing HDL and HDL/LDL ratio”

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Case Study: Brandeis Univ. v. East Side OvensTerm 1: “cholesterol-free”

• The parties’ opposing proposed constructions:

– Patent owner: “less than 5 mg cholesterol per serving”

– Accused infringers: “containing no cholesterol from anyingredient (such as cholesterol-containing milk solids or beeffat) other than naturally occurring trace amounts fromfat) other than naturally occurring trace amounts fromvegetable oils”

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• Intrinsic Evidence to Support Proposed Construction:

– From the Patent Specification:

• “Applicant has determined that in the consumption of dietary fiber (asnatural triglycerides) it is important to maintain a specific ratio ofsaturated fatty acids to polyunsaturated fatty acids (at least 0.5:1 but lessthan 2:1) in the absence of cholesterol.” ’497 patent at 2:65-3:2.

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– From the Prosecution History – To overcome rejections overthe prior art, the patentee argued:

• “Claim 1 is drawn to a cholesterol-free margarine requiring ‘a cholesterol-free blended fat composition.’ Because beef fat contains cholesterol, theuse of any beef fat to ‘adjust’ the formula of Blend #5 would bring theuse of any beef fat to ‘adjust’ the formula of Blend #5 would bring theresultant margarine outside the scope of the claims, with regard to therequirement that it be cholesterol-free.”

• “Owners respectfully submit that milk solids, even those that are from‘nonfat’ milk, usually contain cholesterol. Thus a margarine made fromblend #5 that includes milk solids would not anticipate the instant claimswhich recited a ‘cholesterol-free’ margarine.”

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– Prosecution History: During reexamination, an inventor statedthat vegetable oils, such as those contemplated by the assertedpatents, contain some small amount of cholesterol, unlike milksolids, which generally contain substantially greater amounts ofcholesterol.cholesterol.

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• Extrinsic Evidence to Support Proposed Construction:

– FDA Food Labelling Regulations – 21 C.F.R. § 101.62(d)(1)(i)(A)-(C):

• A food product can be labelled “cholesterol-free” if it contains:

• Less than 2 mg cholesterol per serving;• Less than 2 mg cholesterol per serving;

• 2 g or less of saturated fatty acids per serving; and

• No ingredient generally understood by consumers to contain cholesterol.

• NOTE: Patent Owner’s proposed construction permittedmore cholesterol per serving than even the FDAregulations.

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• Judge Posner’s Construction:

– Judge Posner rejected both parties’ constructions and adoptedthe following construction:

• “containing less than 2 mg cholesterol per serving, and containing noingredient generally understood by consumers to contain cholesterol(such as cholesterol-containing milk solids or beef fat)”(such as cholesterol-containing milk solids or beef fat)”

– This construction is a hybrid construction based on a portion ofthe FDA regulations and the intrinsic arguments.

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• Posner’s construction was contrary to several canons ofclaim construction:

– It was contradicted by the specifications description of theinvention as being “in the absence of cholesterol”.

– It was not from the perspective of a POSITA. A general– It was not from the perspective of a POSITA. A generalconsumer is not a POSITA.

– Posner only relied on portions of the “cholesterol-free” labelingregulation. Posner’s construction did not limit the amount ofsaturated fatty acids, as is required by the labeling regulation.

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• Given that Patent Owner’s proposed construction wascontradicted by both the intrinsic and extrinsic evidence,why did Patent Owner argue that “cholesterol-free”means “less than 5 mg of cholesterol per serving”?

– Because all of Nestle’s accused cookie dough products were– Because all of Nestle’s accused cookie dough products werelabelled as containing 5 mg of cholesterol per serving.

– Patent Owner’s construction was a litigation-inspiredconstruction designed to ensnare otherwise non-infringingproducts into the infringement case.

– Patent Owner’s construction was properly rejected.

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Case Study: Brandeis Univ. v. East Side OvensTerm 2: “% by weight fatty acid”

• During Daubert, it became clear that the court needed toconstrue the % by weight limitations.

• Background: In food, fatty acids exist as triglycerides, notfree fatty acids. When triglycerides form, the fatty acidslose a hydroxide group.lose a hydroxide group.

• The parties’ dispute:

– Patent Owner – the weight of hydroxide should be excludedwhen calculating the claimed % by weight

– Accused infringers – the weight of hydroxide should beincluded when calculating the claimed % by weight

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• Intrinsic Evidence

– Tables I and II of the specification describe the fat compositionof various vegetable oils (i.e., amounts of saturated,monounsaturated, and polyunsaturated fats).

– Posner noted that inclusion of the hydroxide in the calculation– Posner noted that inclusion of the hydroxide in the calculationof % by weight would result in a combined amount of fat ofabout 95%, whereas exclusion of the hydroxide would result ina combined amount of fat of about 90%.

– The total fat reported in these tables added up to about 95%,indicating they included the hydroxide in the calculation.

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– % by weight “mean[s] the ratio of the weight of that fatty acidin the fat composition, including the hydroxide group, to thetotal weight of the triglycerides in the fat composition”

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Case Study: Brandeis Univ. v. East Side OvensTerm 3:“suitable for increasing….”

• The parties’ proposed constructions:

– Patent Owner – the claimed subject matter is merely designedto increase HDL and the HDL/LDL ratio upon ingestion (i.e., anactual increase in HDL and the HDL/LDL ratio is not required solong as the design criterion is met)

– Accused infringers – two alternative constructions:

• the language is indefinite under 35 U.S.C. § 112; or

• the claims require that upon ingestion of the claimed food product, asubject must exhibit an increase in HDL and the HDL/LDL ratio

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Case Study: Brandeis Univ. v. East Side OvensTerm 3:“suitable for increasing...” (Indefiniteness)

“The primary purpose of the definiteness requirement is to ensure that theclaims are written in such a way that they give notice to the public of theextent of the legal protection afforded by the patent, so that interestedmembers of the public . . . can determine whether or not they infringe.”Oakley, Inc. v. Sunglass Hut Int’l, 316 F.3d 1331, 1340 (Fed. Cir. 2003).

• Accordingly, a patent claim is indefinite if it is “not amenable toconstruction” or “insolubly ambiguous.” Datamize, LLC v. Plumtreeconstruction” or “insolubly ambiguous.” Datamize, LLC v. PlumtreeSoftware, Inc., 417 F.3d 1342, 1347 (Fed. Cir. 2005).

• But “[e]ven if a claim term’s definition can be reduced to words, the claimis still indefinite if a person of ordinary skill in the art cannot translate thedefinition into meaningfully precise claim scope.” Halliburton EnergyServs., Inc. v. M-I LLC, 514 F.3d 1244, 1251 (Fed. Cir. 2008).

• Accordingly, claim construction does not preclude an accused infringerfrom later asserting invalidity based on indefiniteness.

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Case Study: Brandeis Univ. v. East Side OvensTerm 3:“suitable for increasing...” (Indefiniteness)

• Accused infringers argued that this term is indefinitebecause neither the claims nor the specifications informsa person of ordinary skill in the art (“POSITA”) how todetermine whether a food product causes the allegedcholesterol effects

– Accused infringers put in expert testimony of a leading foodscientist (Dr. Alice Lichtenstein) who explained that a POSITAwould determine whether or not a food product causes aparticular cholesterol change by comparison to the cholesterollevels from a baseline diet, such as the person’s usual diet

• Without knowing what to substitute in the diet, a POSITA could notreach any conclusion about the cholesterol-enhancing effects

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Existing FoodRemoved from Diet

Test Food ProductAdded to Diet

Effect on Fatty Acidsin Diet

Expected Effect OnHDL Concentration

A

Food high in saturatedfatty acids

Examples includebutter and lard

Saturated fatty acidsdecrease

Polyunsaturated fattyacids increase

Decrease in HDLconcentration

Test Food Productmeeting fatty acidcompositionrequirements of patentclaims

B

Food high inpolyunsaturated fattyacids

Examples include nuts,sunflower oil-basedvinaigrettes and canolaoil-based margarines

Saturated fatty acidsincrease

Polyunsaturated fattyacids decrease

Increase in HDLconcentration

CFood having same fattyacid composition astest food product

No change inpolyunsaturated fattyacids or saturated fattyacids

No change to HDLconcentration

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Case Study: Brandeis Univ. v. East Side OvensTerm 3:“suitable for increasing.” (Indefiniteness)

• The intrinsic evidence failed to provide criticalinformation, such as the “comparator foods for which thetest product is to be substituted,” which is necessary todetermine whether or not an individual food productcauses an increase in HDL concentration and HDL/LDLconcentration ratio.concentration ratio.

– Remember we are talking about a fat composition that is areplacement for butter.

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Case Study: Brandeis Univ. v. East Side OvensTerm 3:“suitable for increasing….” (Constructions)

• Inrinsince Evidence from Patent Specification:

– “Such a composition will increase HDL cholesterol and increasethe HDL/LDL ratio (or decrease the LDL/HDL ratio) in the serumof mammals including humans and other primates.” ’497patent at 3:37-40.

– “[T]his fat blend will increase the level of HDL cholesterol inhuman serum and the HDL/LDL ratio.” ’192 patent at 13:53-54.

– The specification incorporates by reference a clinical studyshowing that the claimed fat blend, when made the source of2/3 of the fat in the subjects’ diet, increased the mean HDL andHDL/LDL ratio in a certain population.

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• (1) the Court determined that it was too early to rule onindefiniteness; and

• (2) “the fat composition or cholesterol-free margarinemust cause the stated effect on the HDL concentrationmust cause the stated effect on the HDL concentrationand the HDL/LDL ratio” in a clinical study

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• Why did the Patent Owner propose the losingconstruction?

– Because it had not conducted any clinical trials showing thatwhen ingested as 2/3 of an overall diet, the accused cookiesand cookie dough would actually increase the HDL and theHDL/LDL ratioHDL/LDL ratio

– Imagine conducting a trial where the subject must each cookiesor cookie dough as 2/3 of their dietary intake!!!

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• Why did the Accused Infringers argue indefiniteness atthe Markman stage:

– Because if found, it would have rendered the patent invalid; and

– Because it was an opportunity to educate the Court on thelimited value of the patent – in advance of a trial or Daubertlimited value of the patent – in advance of a trial or Daubertmotions – which worked, as you will note

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IV. Plaintiffs’ Theory of Damages

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Plaintiffs’ Theory

• Two primary positions:

• “Entire Market Value” – Damages should be calculatedfrom a reasonable royalty based on the sale price of theaccused cookies, not the cost of the fat blend used tomake the cookies

• Reasonable royalty should be determined based on a

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• Reasonable royalty should be determined based on asingle litigation settlement with East Side Ovens, not amarketplace settlement with a company similarly situatedas Keebler

• These were high risk strategies, as plaintiffs ran the risk ofdamaging credibility with Judge Posner


• Plaintiffs’ expert acknowledged that it was counterintuitive tothink about cookies when considering heart-healthy foods butargued that regulations requiring the labeling of trans-fats(i.e., not heart-healthy fats) drove their removal from snackfoods

• Using fat blends meeting the limitations of the claims was theonly way to make a trans-fat-free cookie having an acceptable

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only way to make a trans-fat-free cookie having an acceptabletexture and taste

• i.e., there are no non-infringing alternatives

• The value of the cookie to consumers was governed by theproperties (i.e., taste and texture) and health benefits causedby the accused fat blend

• Ignored the value added by chocolate, sugar, etc.


• Having determined that damages should be based on the salesprice of the cookies, Plaintiffs’ expert then determined areasonable royalty based on a hypothetical negotiation

• Three license agreements considered:

• Two license agreements between Plaintiffs and othernational food wholesalers

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national food wholesalers

• One license agreement between Plaintiffs and East SideOvens, a vegan bakery limited to a few retail stores inMilwaukee and Madison, WI as well as “three farmers’markets”

• This license resulted from the settlement of litigation


• Discounted the relevance of the license between Plaintiffs andthe two national food wholesalers:

• The first license was negotiated when GFA was allegedlyunsophisticated as a company, which created anundervaluing of the patent portfolio during negotiations

• The second license involved another co-defendant and a

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• The second license involved another co-defendant and acontinuing joint venture between GFA and the co-defendant

• Based the reasonable royalty model entirely on the East SideOvens license

V. Defendants’ Theory of Damages

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Defendants’ Positions

• Damages “adequate to compensate” under Section 284 equalthe amount necessary “to return the patent owner to thefinancial position he would have occupied but for theinfringement.” Carborundum Co. v. Molten Metal Equip.Innovations, Inc., 72 F.3d 872, 881 (Fed. Cir. 1995).

• “[T]he market value of the patent owner’s exclusive right, andtherefore his expected profit or reward,” can be calculated“only by comparing the patented invention to its next-best

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“only by comparing the patented invention to its next-bestavailable alternative(s).” Grain Processing Corp. v. Am. Maize-Prods. Co., 185 F.3d 1341, 1350 (Fed. Cir. 1999)(emphasisadded)

Defendants’ Positions (cont.)

• “The entire market value rule allows a patentee to assessdamages based on the entire market value of the accusedproduct only where the patented feature creates the basis forcustomer demand or substantially create[s] the value of the

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customer demand or substantially create[s] the value of thecomponent parts.” Uniloc USA, Inc. v. Microsoft Corp., 632F.3d 1292, 1318 (Fed. Cir. 2011)(emphasis added)

Key Factual Arguments

• Plaintiffs could not show lost profits – cookie sales were notstealing sales of margarines

• Defendants had non-infringing alternatives

• Adding small amounts of cholesterol

• Use butter

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• Add small amounts of trans-fat

• Alternatives were commercial viable

• Taste

• Consumer acceptance

• Alternatives were no more expensive than patented blend

• The patented blend was not a driver of sales of cookies

Defendants’ Expert Opinion onDamages

• Plaintiffs’ damages theory improperly relied on a marketevaluation of removal of trans-fats from food products; yet,none of the asserted claims were directed to trans-fat-freeproducts

• Plaintiffs’ damages theory completely ignored the presence of

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• Plaintiffs’ damages theory completely ignored the presence ofseveral non-infringing alternatives to the patented fat blend

• Plaintiffs’ expert based her damages calculation on a royaltyrate obtained from a non-comparable license agreement

Defendants’ Expert Opinion onDamages

• East Side Ovens had little bargaining power and incentive tonegotiate for a lower royalty rate

• Small operations regionally located

• Allegedly nfringing sales amount to roughly $2,000

• Settlement negotiation was not balanced as damagesdwarfed the cost of continued defense

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dwarfed the cost of continued defense

• Keebler is a national food wholesaler with substantial risk interms of allegedly infringing sales and every incentive todefend itself from accused infringement

• Accordingly, the East Side Ovens license was not relevant tothe hypothetical negotiation between Keebler and GFA

V. Court- Appointed Expert on Damages

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Neutral Damages Report

• Plaintiffs failed to estimate value of use of patents to theproduct

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Neutral Damages Report (cont.)

• Plaintiffs’ damages estimates are sensitive to the size of theU.S. cookie market

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• Plaintiffs’ damages estimates are sensitive to presumptions onlost market share

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• Plaintiffs’ damages estimates are sensitive to presumptions onlost sales

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Motion to Exclude

• Plaintiffs’ expert cherry picked a recent litigation settlementwith a seven-employee vegan bakery in Milwaukee—East SideOvens—as her sole precedent to calculate damages againsttwo national retail cookie manufacturers.

• Future royalty payments under that license—if East Side Ovenscontinues to use the implicated fat blend at all—are trivial.

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• East Side Ovens sells vegan products in a localized area inWisconsin (as opposed to retail stores nationwide) and enjoysinsignificant sales compared to Defendants.

• Plaintiffs’ expert utilizes the entire market value approach forvaluing applicable damages, despite the fact that thecontinued applicability of this doctrine has been routinelycriticized by courts and commentators

Daubert Decision

• “Keebler would not have paid a royalty higher than the cost toit of switching to a noninfringing substitute for the plaintiffs’margarine in its cookies or otherwise reworking itsmanufacturing process to avoid making the infringingmargarine.”

• “Besides the decline in market share, she relied on the royaltythat East-Side Ovens (ESO) agreed to pay GFA in settlement of

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that East-Side Ovens (ESO) agreed to pay GFA in settlement ofthe patent infringement suit brought against it. ESO is a tiny,local Wisconsin bakery, wholly dissimilar to Keebler, andprobably unable to litigate against GFA.”

• Judge Posner did permit plaintiffs’ expert to opine on areasonable royalty based on one prior marketplace precedent,namely the very license defendants put forward.

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Litigating Claim Construction and its Impact on Liability ... · Litigating Claim Construction and its Impact on Liability and Damages: A Case Study ... • Fat blends like these