The Legal System and Patent Damages Recent Developments Prof. Amy Landers University of the Pacific/McGeorge School of Law

Recent Cases Reasonable 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 fields Dependent 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 ($ 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 Rate Multi-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 Rule Reasonable 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 Rule Lucent v. Gateway Date picker feature- Microsoft Outlook Patentee bears burden to demonstrate a “basis for consumer demand”

Entire Market Value Rule Lucent 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 Rule Cornell v. Hewlett-Packard (N.D.N.Y. 2009)(Rader, C.J.) PA-8000 series processor Instruction recorder buffer CPU Module CPU Brick Cell board Server

Entire Market Value Rule Cornell 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 Rule Cornell 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 Rule OPTi 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