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Patent Damages

Brandon BaumJames Pistorino March 26, 2015

Teva vs. Nautilus • Nautilus, Inc. v. Biosig Instruments

“we read §112, ¶2 to require that a patent’s claims, viewed in light of the specification and prosecution history, inform those skilled in the art about the scope of the invention with reasonable certainty. The definiteness requirement, so understood, mandates clarity, while recognizing that absolute precision is unattainable.”

• Teva Pharma. USA, Inc. v. Sandoz, Inc. “where the district court needs to consult extrinsic evidence in order to understand, for example, the background science or the meaning of a term in the relevant art during the relevant time period, and where those subsidiary facts are in dispute, courts will need to make subsidiary factual findings about the extrinsic evidence. The district judge, after deciding the factual dispute, will then interpret the patent claim in light of the facts as he has found them.

35 USC 284

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• 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. . . .

Potential Damage Remedies

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• For each act of infringement the patent holder can recover as damages either:— A reasonable royalty; or, where greater,— Lost profits

Profits on lost sales Profits on lost convoyed sales Price erosion

Potential Damage Remedies

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Lost Profits (Actual Damages)

Reasonable Royalty

Lost Profits Reasonable Royalty

Combination

35 USC 286

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• 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.

Calculating Damages: When does the clock begin?

May-02 2003 2004 2005 2006 2007 2009 Suit Filed

$0

$20

$40

$60

$80

$100

$120

Look Back Damages

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Patent issues

Infringement begins

Calculating Damages: When does the clock begin?

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• Notice of Infringement— Compare to: Notice/knowledge of the patent (relevant to

indirect infringement and willfulness)— Forms of notice:

Actual Constructive

No notice required

Actual Notice of Infringement

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• “Notice of Infringement” (Quick review) — Requires:

(1) a charge of infringement (2) of specific patent(s) (3) against a specific accused device or activity (4) by the patentee (Hakan Lans).

• Licensing of the patent (Medimmune)• Filing of the complaint or counterclaim for infringement

Calculating Damages: When does the clock begin?

May-02 2003 2004 2005 2006 2007 2009 Suit Filed

$0

$20

$40

$60

$80

$100

$120

Look Back Damages

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Patent issues

Notice letter sent

Constructive Notice of Infringement (Marking)

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• Original patent statute required every patented article to be marked, enforced by a $100 penalty (around $3000 today)

Constructive Notice of Infringement (Marking)

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• 35 USC 287: 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 can not be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice.

Constructive Notice of Infringement (Marking)

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• 35 USC 287 cont’d: 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.

Calculating Damages: When does the clock begin?

May-02 2003 2004 2005 2006 2007 2009 Suit Filed

$0

$20

$40

$60

$80

$100

$120

Look Back Damages

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Patent issues

Marking begins

No Notice Required: 3 Situations

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1. Patent contains only method claims American Medical Systems, 6 F.3d 1523 (Fed. Cir. 1993)

(“The law is clear that the notice provisions of section 287 do not apply where the patent is directed to a process or method.”)

2. Patent contains both method and apparatus claims, but patentee only asserts method claims. Crown Packaging v. Rexam Beverage Can (Fed Cir. 2009).

3. Patent has not been lawfully practiced— Patentee has not practiced— Patentee has not licensed others to practice

When does the damages clock stop?

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• Typically calculate damages up to trial (and even verdict)

• What to do in situation in which discovery has closed prior to trial, yet damages are continuing to mount?

• Sometimes, court will ask jury to determine a “going forward” royalty

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Patent Damages – Lost Profits

Lost Profits – The “But For” Test

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• To recover lost profits for some or all of the infringing sales, the Plaintiff must show that but for the infringement, the Plaintiff would have made those sales or a portion of them that the Defendant made of the allegedly infringing product. You must determine what the customers who purchased the allegedly infringing product would have done if the infringement had not occurred. That is, you must determine which profits derive from the patented invention that the Defendant sells, and not from other features of the allegedly infringing product.

- AIPLA Model Instruction

The Panduit Test – Four Factor Analysis

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Remedy: Lost

Profits

Remedy: Reasonable

Royalty

1. Demand For Patented Product

2. No AcceptableNon-infringing

Alternatives

3. Available Capacity

4. Quantifiable Lost Profits

No

No

No

No

Yes

Yes

Yes

Yes

Panduit Corp. v. Stalin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978)

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Patent Damages – Reasonable Royalty

Damages No Less Than A Reasonable Royalty

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A reasonable royalty is the royalty that would have resulted from a willing, hypothetical negotiation between the Plaintiff and the Defendant taking place just before the infringement began. You should also assume that both parties to that negotiation understood the patent to be valid and infringed and that the Defendant would respect the patent.

- AIPLA Model Instruction

Georgia-Pacific Factors

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1) Royalties Received By Patentee For Licensing Of The Patent In Suit, Tending To Show An Established Royalty Rate

2) Rates Paid By The Licensee For The Use Of Comparable Patents

3) Nature And Scope Of The License

4) Licensor’s Established Policy And Marketing Program To Maintain Patent Monopoly

7) Duration Of The Patent And Term Of License

5) Commercial Relationship Between Licensor And Licensee

6) Effect Or Value As A Generator Of Sales Of Non-Patented Items

8) Profitability, Commercial Success And Popularity Of Products Made Under Patent

12) Portion Of Profit Customary To Allow For Use Of The Patented Invention

13) Portion Of Realizable Profit That Should Be Credited To Patented Invention As Distinguished From Business Risks Or Features Added By Infringer

9) Utility And Advantages Of The Patent Over Old Modes Or Devices

10) Nature, Character, And Benefits Of The Patented Invention To Users

11) Extent Of Use By Infringer And Evidence Probative Of The Value Of That Use

14) Opinion Testimony Of Qualified Experts

15) Hypothetical Negotiation Between Licensor And Licensee

License Scope Profitability / Business

Technical / Benefits

Overall

Reasonable Royalty Determination (cont.)

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Factors

Exclusive Scope Of License Not Exclusive

Competitors Commercial Relationship Not Competitors

HighPatented Product

AdvantagesLow

HighBenefits To Those Using The Patented Product

Low

Extensive Infringer’s Use & Value Limited

Higher Royalty Rate Lower Royalty Rate

Reasonable Royalty Determination (cont.)

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Factors

HighProfit Attributable To

InventionLow

Long TermPatent Expiration / Product Obsolescence

Short Term

Maintain Exclusivity

Established License Policy Of Patent

Holder

License toOthers

HighConvoyed Sales

(Functional Relationship)Low

Higher Royalty Rate Lower Royalty Rate

Open Text v. Box

Open Text v. Box

• A “superficial recitation of the Georgia-Pacific factors, followed by conclusory remarks” is not enough.

• Exclusion is required because the link, if any, between those inputs and Holt’s final royalty is written in invisible ink.

• The Court also suggests that the parties consider stipulating to the fully paid-up lump sum of $250,000 that [Box’s expert] opines to be a reasonable royalty for the File Synchronization patents, obviating the need for his testimony. That might solve the damages issues here in a reasonable way.

Open Text v. Box

Profit Split Approach

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Portion To Patent Owner

Portion Retained By Infringer

Split based on qualitative considerations

Profit From Feature

Entire Market Value Rule• The entire market value rule holds that where the patented technology,

although comprising only part of an integrated product, forms the "basis for customer demand" for the entire integrated product, the royalty can be assessed on the entire product. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995).

• This measure of damages arises “where both the patented and unpatented components together are ‘analogous to components of a single assembly,’ ‘parts of a complete machine,’ or ‘constitute a functional unit’ but not where the unpatented components ‘have essentially no functional relationship to the patented invention and ··· may have been sold with an infringing device only as a matter of convenience or business advantage.’ ” Id.

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