1. CONCERNING THE "UTILITY" OF UTILITY PATENTS: RECENT TRENDS IN DAMAGES AWARDS AND LICENSE ROYALTIES IN THE UNITED STATES Gary R. Edwards Crowell & Moring Washington, DC _____________________________ Nikkei Intellectual Property Forum Tokyo, 08 September 2003 ____________________________

2. Infringement Damages and License Royalties in the United States 2 “The only thing that is keeping us alive is our brilliance. The only way to protect our brilliance is patents.” Edwin Land April 27, 1976

3. Infringement Damages and License Royalties in the United States 3 United States Constitution, Article I, Section 8, Clause 8: “The Congress shall have the power...To promote the progress of science and useful arts, by securing for limited times to...inventors the exclusive right to their respective...discoveries.”

4. Infringement Damages and License Royalties in the United States 4 Doyle v. Microsoft (2003) $520.6 million City of Hope Nat. Med. Center v. Genentech (2002) $500,000,000 IGEN International v. Roche Diagnostics (2002) $505,000,000 Haworth v. Steelcase (1996) $211,000,000 Polaroid v. Kodak (1991) $873,000,000

5. Infringement Damages and License Royalties in the United States 5 Intellectual Property Portfolio Management Philosophies Purely Defensive Patents held for Cross Licensing Entree to technology developed by others Patents not a profit center Aggressive Portfolio Acquisition and Licensing Competitive Tool Profit Center

6. Infringement Damages and License Royalties in the United States 6 U.S. Growth in Patent License Revenues in 1990’s $15 Billion --------> $115 Billion Estimated Current Volume $150 Billion

7. Infringement Damages and License Royalties in the United States 7 IBM Patent Portfolio Management Ranked first in U.S. Patent Acquisition for the past ten years Estimated Annual Income from Patent Licensing: $1.5 Billion Estimated Ten Year Income from Patent Licensing: $10.0 Billion

8. Infringement Damages and License Royalties in the United States 8 Texas Instruments Settlements Hyundai Electronics (1999) $1,000,000,000 Samsung Electronics (1996) $1,000,000,000

9. Infringement Damages and License Royalties in the United States 9

10. 10 In general, in the United States, a patent owner is entitled to be compensated for all economic losses that are reasonably attributable to an infringement. No fixed limit on the type of economic injury that can be compensated.

11. Infringement Damages and License Royalties in the United States 11 35 U.S.C. §284: “Upon finding for the claimaint the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty....”

12. Infringement Damages and License Royalties in the United States 12 Seymour v. McCormick: “[Because] of the immense variety of patents issued every day,...there cannot in the nature of things, be any rule of damages which will apply equally in all cases. The mode of ascertaining actual damages must necessarily depend on the peculiar nature of the monopoly granted.” U.S. Supreme Court, 1853.

13. Infringement Damages and License Royalties in the United States 13 Rite-Hite Corp. v. Kelley Co.: “The language of [§284] is expansive rather than limiting. It [provides] only a lower limit and no other limitation. U.S. Court of Appeals for the Federal Circuit (1995)

14. Infringement Damages and License Royalties in the United States 14 Damages Considerations to be Discussed: Lost Profit Reasonable Royalty Entire Market Value Rule Triple Damages Attorney Fees, Prejudgment Interest

15. Infringement Damages and License Royalties in the United States 15 Lost Profit Examples: Lost sales Price erosion Lost opportunity to raise prices diminution of sales growth Lost profit need be proven only “to a reasonable probability”.

16. Infringement Damages and License Royalties in the United States 16 Reasonable Royalty Hypothetical “arm’s length” negotiation Not an accounting exercise No need to show lost sales Fifteen Factors -- Georgia Pacific case Highly Subjective

17. Infringement Damages and License Royalties in the United States 17 Entire Market Value Rule Patented feature is the “basis for customer demand” for the entire article. Damages calculated based on value of the entire article, and not just patented feature.

18. Infringement Damages and License Royalties in the United States 18 Triple Damages -- wanton disregard, willful infringement Attorney Fees -- “exceptional cases” (usually, willful infringement, bad faith litigation, etc.) Prejudgment Interest -- ordinarily awarded where necessary “to afford the plaintiff full compensation for infringement”.

19. Infringement Damages and License Royalties in the United States 19 Hallmarks of U.S. Damages law: Full Compensation for all economic losses Flexible -- no rigid rules regarding types of loss that are compensable Very Subjective Courts generally receptive