The Legal System and Patent DamagesRecent Developments

Prof. Amy LandersUniversity of the Pacific/McGeorge School of Law

Recent CasesReasonable Royalty

• Evidence supporting rate– Licenses– Non-infringing features– Hypothetical/actual sales of accused product– Reference product as comparator

• Entire market value rule• Relation between royalty base and rate

Comparable licenses: Lucent v. Gateway

Predetermined, named fieldsDependent claim 21: “Bit-mapped graphics field”

Comparable licenses: Lucent v. Gateway

• Microsoft Outlook, Money and Windows Mobile• 110 million units - $ 8 billion in sales• Lucent sought 8 % royalty ($ 561.9 million)• Jury award $ 358 million lump sum

Comparable licenses: Lucent v. Gateway

• What is a “comparable license”?– Negotiated under comparable circumstances– Comparable technology– Comparable scope– Comparable terms

• Proponent bears the burden of linking licenses and the invention’s footprint in the market

Comparable licenses: ResQNet v. Lansa

• Technology: graphical user interface for a remote mainframe computer

• Award: 12.5% royalty - $506,000• Held: Reversed, amount was based on

“speculative and unreliable evidence”• Licenses must provide insight into the market

value of the patent in suit

Comparable licenses:

Lucent and ResQNet

Fed. Cir.: The “trial court must carefully tie proof of damages to the claimed invention’s footprint in the marketplace”

• Bundled licenses to products and services– No license to patent in suit– Licenses did not embody the claimed technology

• Licenses arising from litigation

Summary: Comparable Licenses• Licenses supporting royalty must be

comparable– Scope– Technology– Legal right conferred– Negotiating circumstances– Terms

• Proponent bears burden of demonstrating relevance to hypothetical negotiation

Royalty RateMulti-function Product/ Uses

• Mix of patented and unpatented features may affect royalty % rate– Lucent v. Gateway- Award reversed, where an

infringing feature is a minor component of larger product

• Rate: Both hypothetical and actual uses– Anticipated sales– Actual sales

i4i v. Microsoft

• Accused product: MS Word ($97)• Patentee sought $98 royalty per infringing

product• Used “reference product” as comparator,

combined with 25% rule of thumb• Affirmed

Entire Market Value RuleReasonable Royalty

• EMVR permits recovery of damages based on the value of the entire apparatus

• Allows non-infringing features to be included in the royalty base if necessary for full compensation

Entire Market Value RuleLucent v. Gateway

• Date picker feature- Microsoft Outlook• Patentee bears burden to demonstrate a

“basis for consumer demand”

Entire Market Value RuleLucent v. Gateway

• Patentee bears burden to demonstrate that the patented technology is the basis for consumer demand

• Date-picker– Small % of code– Large % of non-infringing features– Comparative importance of non-infringing

features– Patentee showed no sales attributable to

patented method

Entire Market Value RuleCornell v. Hewlett-Packard (N.D.N.Y. 2009)(Rader, C.J.)

PA-8000 series processor

Instruction recorder buffer

CPU Module

CPUBrick

Cell board

Server

Entire Market Value RuleCornell v. Hewlett-Packard (N.D.N.Y. 2009)(Rader, C.J.)

• “Entire market value”– what is the proper “market” for the royalty base? – Proper base must be linked to a market with a

consumer demand– Based on real-world transactions – Invention must drive demand in the market

Entire Market Value RuleCornell v. Hewlett-Packard (N.D.N.Y. 2009)(Rader, C.J.)

• The infringing components must be the basis for consumer demand for the entire machine;

• The individual infringing and non-infringing components must be sold together; and

• Individual infringing and non-infringing units components must be analogous to a single functioning unit

“Notably, these requirements are additive, not alternative[s]”

Entire Market Value RuleOPTi v. Apple

Relationship between

Royalty Rate and Base: Comparison

• Lucent v. Gateway: – Entire value can be used where the rate is within

an “acceptable range”– Nothing inherently wrong with relying on price of

entire product where there is no market value for the invention, so long as the rate accounts for the proportion

– Here, expert was not justified in raising rate from 1% - 8%

Relationship between

Royalty Rate and Base/ Comparison

• Cornell v. Hewlett-Packard: – An over-inclusive royalty base including revenues

from the sale of non-infringing components is not permissible simply because the royalty rate is adjustable.

– Base and rate are conceptually separate