Patent Damages: The Success and Failure of a Theory

Transcription

1 December 2, 2015 Litigation Webinar Series: INSIGHTS Our take on litigation and trial developments across the U.S. Patent Damages: The Success and Failure of a Theory Chris Marchese Principal, Southern California

2 Overview INSIGHTS Series Key Developments & Trends Housekeeping CLE Contact: Jane Lundberg #fishwebinar INSIGHTS Litigation Webinar Series Upcoming Webinars Watch for our 2016 webinar schedule at fishlitigationblog.com/webinars 2

3 Agenda 1. Background research 2. Apportionment 3. Comparable licenses 4. Extraterritorial issues 5. Book of wisdom 3

4 Background Research What we ve done Reviewed 100s of district court cases from the past 3+ years Identified cases involving today s topics Tried to distill themes, trends, and successful approaches 4

5 Apportionment 5

6 Apportionment Themes Apportionment is hot but unsettled No silver bullets Depth of apportionment Few bright line rules except: Apportionment required without proving EMVR SSPPU no longer the end point of apportionment Rate decreases do not justify an expanded base Base must be tied to the invention s footprint 6

7 Apportionment Themes Evidence, evidence, evidence Damages expert Technical expert Subsidiary experts (e.g., survey) Fact testimony (plaintiff and defense witnesses) Documents (especially from the opponent) Third parties Piggybacking experts 7

8 Apportionment Trends Creative approaches Multiple theories, backstops Do-overs 8

9 Apportionment Trends Synergistic claims Astrazeneca/Varian Big claims with novel & conventional features Show synergy between the novel & conventional features Similar to convoyed sales functional unit test Allows damages on patented and unpatented items Avoid apportionment? Maybe 9

10 Apportionment Trends: synergistic claims Astrazeneca v. Apotex, 782 F.3d 1324, (Fed. Cir. 2015) Claims covered omeprazole pill No EMVR Inquiry shifts to conventional claim elements: Account for the patented feature relative to the value of the conventional elements recited in the claim, standing alone. BUT: It is not the case that the value of all conventional elements must be subtracted from the value of the patented invention as a whole when assessing damages. Novel subcoating sufficiently important not to exclude conventional drug core from royalty base Claim: -Drug core -Inert water soluble subcoating -Enteric coating 10

11 Apportionment Trends: synergistic claims Univ. of Pittsburgh v. Varian, 2:08-cv AJS (W.D. Pa. Feb. 10, 2012), aff d in relevant part, 561 Fed. App x 934 (Fed. Cir. 2014) (non-precedential) RPM system Linear Accelerator 11

12 Apportionment Trends: synergistic claims Varian con t: Federal Circuit non-precedential Even with conventional dependent element, if inventive feature adds value to that conventional element, damages may reflect that value. Astrazeneca, 782 F.3d at 1339 n.5: In Varian, we declined the defendant's invitation to remove the conventional elements from the overall value of the combination apparatus; we noted that guarding against compensation for more than the added value attributable to the invention is precisely what the Georgia-Pacific factors purport to do. (quoting Varian) RPM system Linear Accelerator 12

13 Apportionment Trends: district courts and expansive claims SimpleAir, Inc. v. Google Inc., Case No. 2:14-CV-11 (E.D. Tex. 10/5/15) (Gilstrap, J.) Dispute over use of phones vs. app in damages computation Court: claims included phone plus central broadcast server, information gateway, and transmission gateway Court: Whether some other unit would provide a more perfect estimation of value goes to the weight of the evidence, not its admissibility. ThinkOptics v. Nintendo, Case No. 6:11-cv-455 (E.D. Tex. 6/21/2015) (Davis, J.) Patent prosecution: all but 3 claim elements conventional Defense expert: excluded conventional elements from base Court: exclusion of claim elements does not carefully tie the proof of damages to the claimed invention s footprint in the market place. However 13

14 Apportionment Trends: district courts and expansive claims Cave Consulting Group v. Optuminsight, Inc., Case No. 5:11- cv EFD (N.D. Cal. 2/20/15) (Davila, J.) (allowing defendant s expert to apportion only for claimed novel limitations ) Labyrinth Optical Tech. v. Alcatel-Lucent USA, Case No. SACV AG (MLGx) (C.D. Cal. 3/10/15) (Guilford, J.) Denying attempt to use larger product ( line card ) as royalty base where claim recited steps performed at the front end of the line card It is often the case that patent claims will be written to require the presence of, or an input from, a portion of a device that is not the focus of the claim. 14

15 Apportionment Trends: synergistic claims What does this mean going forward? Premium on claim/spec drafting in prosecution Broad array of claims Different types Different scope (narrow to expansive) Deep dependent claims Premium on patent/claim selection in litigation 15

16 Apportionment Success/failure in apportioning Reviewed many cases involving apportionment Many do not provide visibility into the methodology Following slides address cases that did 16

17 Apportionment Success/failure in apportioning Method #1: Feature counting & isolation Mixed bag worked in ½ the cases reviewed 5 failures 2 provisional failures (do-over allowed) 7 successes Common themes Straight up division is problematic (without justification) Need relative importance Survey (scaled to importance of feature; binary problematic) Technical expert Defendant s documents Third party market research Combination/triangulate Apportion out non-patent attributes (e.g., brand, reputation)? 17

18 Apportionment Success/failure in apportioning Method #2: Related product comparison Worked 4 out of 4 Including Apple Inc. v. Motorola, Inc., 757 F.3d 1286 (Fed. Cir. 2014) Limited availability Find comparable product without patented feature Determine delta to patented product Isolate the patented feature If multiple features in delta, account for the relative value of each such feature and patented feature Again, straight division may be problematic 18

19 Apportionment Success/failure in apportioning Method #3: Real estate approach E.g.: lines of code, chip coverage Worked 3 out of 3 (one was trade secret) Highlights Mere add up is dangerous Account for relative value of the patented real estate Technical expert can help Defendant s documents may help 19

20 Apportionment Success/failure in apportioning Method #4: Blaming the defendant Failed 2 out of 2 Courts: burden of proof on patentee 20

21 Comparable Licenses 21

22 Comparable Licenses Themes Comparability is a threshold question Extent of comparability goes to weight Some guidance Technical experts must establish technical comparability if the licenses cover different patents Litigation settlements are not always excluded Timing of the comparable license has not been a factor Converting lump sum licenses into an effective royalty rate requires more than simple division When accounting for differences, show your work Comparable licenses must be disclosed 22

23 Comparable Licenses Trends Let s give it a go Concerns are left to cross examination Multiple theories, even among the licenses Do-overs 23

24 Comparable Licenses Trends Accounting for differences The Federal Circuit has never required identity of circumstances. Virnetx, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1330 (Fed. Cir. 2014). Reasonable royalty calculations must account for differences in the technologies and economic circumstances of the contracting parties. Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1211 (Fed. Cir. 2010). The fact that a license is not perfectly analogous generally goes to the weight of the evidence, not its admissibility. Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1227 (Fed. Cir. 2014). 24

25 Comparable Licenses Trends Accounting for differences Same or different patent(s) Scope of the license World-wide v. US only Use of patented methods v. More benefits Exclusive v. Non-exclusive Payment terms Lump sum v. Running royalty Market approach Patent acquisition agreements Joint venture agreements 25

26 Comparable Licenses Trends: concerns left to cross examination CSIRO v. Mediatek Inc., Case no. 6:12-CV-578 (E.D. Tex. 6/29/15) (Schroeder, J.) The Court has serious concerns with plaintiff s expert report Both sides used licenses to calculate effective royalty rates Declined Court s proposal to exclude effective royalty rates from all reports Though a close call, the issues with [the] calculation are better addressed by cross exam rather than exclusion. 26

27 Comparable Licenses Trends: concerns left to cross examination CMU v. Marvell, Case No (W.D. Pa. 8/24/2012) (Fischer) [T]he Agreements arguably show a discernable link to the claimed technology, hence they may be relevant to determining a reasonable royalty in the instant case. Defense expert relied on 3 agreements between CMU and various corporations to participate in CMU s Data Systems Storage Center (DSSC) Agreements included rights to make use of the asserted patents. The licenses were a worldwide, irrevocable right to make, have made for their own use or sell the product of the inventions created at the DSSC during the term of membership. Asserted patents did not exist at the time the Agreements were executed, but the Agreements conveyed rights in the patents. The expert s failure to address the obvious distinctions between these agreements at his projected license in this matter is more appropriately addressed by way of cross-examination than through exclusion. 27

28 Comparable Licenses Trends: concerns left to cross examination TVIIM, LLC v. McAfee, Inc., Case No. 13-cv HSG (N.D. Cal. 7/9/15) (Gilliam, J.) Patent acquisition agreement Security software program (never commercialized) and the pending patent application for $100k and $25k credit Ownership transfers of a patent may be indicative of the reasonable royalty or payment that would have been agreed to by the parties for a license to the patent at issue. Court found the transaction involved acquisition of all rights to the patent and therefore sheds light on the hypothetical negotiation Degree of comparability should be left to the jury 28

29 Comparable Licenses Trends: concerns left to cross examination TVIIM, LLC v. McAfee, Inc., Case No. 13-cv HSG (N.D. Cal. 7/9/15) (Gilliam, J.) Plaintiff s joint venture agreements Included 3 patents and 3 applications Patent-in-suit included Stated that fair market value of IP contributed was $10,000 Court found the joint venture agreements sufficiently comparable and relevant to the hypothetical negotiation Degree of comparability should be left to the jury 29

30 Comparable Licenses Success/failure Exclusive v. Non-exclusive Court excluded plaintiff s expert from testifying that non-exclusive hypothetical license would command a higher royalty rate than an actual exclusive license Trustees of Boston Univ. v. Everlight Elecs. Co., Case No cv (D. Mass. 10/23/15) [D]efendants contend that [plaintiff s expert] contradicts basic principles of patent law and economics in opining that the nonexclusive hypothetical [party] license could command a higher royalty rate than the [plaintiff-nonparty's] exclusive license because an exclusive license provides the licensee with more rights and benefits than a non-exclusive license.... [Plaintiff] bears the burden of showing that [its expert's] testimony is reliable. The Court will not allow [plaintiff's expert] to testify that the non-exclusive hypothetical [party] license would command a higher royalty rate based on surveys he has reviewed because he has not provided citations to any such surveys or demonstrated how they are related to the specific facts of this case. 30

31 Comparable Licenses Success/failure Settlement Agreement / Cross-license Court excluded a settlement agreement resolving prior patent litigation with one of the asserted patents because it was arrived at by an effort to value [non-exclusive] cross-licenses on the Curtis and the 700 patents. The mere fact that it appears to be the only such license available does not justify its admission under LaserDynamics. Douglas Dynamics v. Buyers Products, Case No. 3:09-cv-261 (W.D. Wis. 4/4/2014)(Conley) 31

32 Comparable Licenses Success/failure Different patents- technical comparability Damages expert relies on technical expert Freeny v. Murphy Oil Corp., Case No cv (E.D. Tex. 6/4/15) (Payne, J.) [Plaintiffs' damages expert] is entitled to rely on his discussions with [plaintiff's technical expert] even if such discussions would be otherwise inadmissible." Damages expert allowed to testify on technical comparability Stoneeagle Services, Inc. v. Pay-Plus Solutions, Inc., Case No cv (M.D.Fla. 6/19/15) (Hernandez, J.) Damages expert admitted he was not hired as a technical expert and lacked specialized knowledge or training in the patented technology. He had extensive licensing experience Court said defendant can challenge qualifications on cross 32

33 Comparable Licenses Success/failure Different patents- technical comparability Damages expert not allowed to testify on technical comparability TracBeam v. Google, Case No. 6:13-cv-93 (LED) (E.D. Tex. 5/9/2015) Court excluded a license agreement which on its face did not cover comparable technology and the damages expert was not qualified to opine as a technical expert. 33

34 Comparable Licenses Success/failure Different patents- accounting for differences Radio Sys. v. Tom Lalor, Case No. C10-828RSL (W.D. Wash. 9/12/2014) Patented technology was a pet training collar. Defendants expert relied on 7 licenses plaintiff executed to license technology in the pet products industry. 5 of the agreements were not related to training, but to things like litter boxes and ingestible animal temperature sensor. Expert acknowledged the differences, but did not say how he accounted for the differences in reaching his royalty rate. The Court said: Without more, [the expert s] consideration of the 5 unrelated license agreements renders his opinion insufficiently reliable and not helpful to the jury. The Court allowed a do-over report removing the 5 unrelated agreements and re-calculating the royalty rate 34

35 Extraterritorial Factors 35

36 Extraterritorial Factors The Accused Products Where do they go Where don t they go How do they get there Who sends them Who doesn t send them What happens to them in the US What happens to them outside the US What can they do in the US What can they do outside the US 36

37 Extraterritorial Factors Locus of the transaction Where was the price negotiated Where was the final price approved Where were invoices delivered Who sent the invoices Where were payments made Who received the payments Is there a contract Where was the contract formed/executed Who executed the contract 37

38 Extraterritorial Factors Locus of the transaction Where were the marketing meetings Were samples provided Who provided the samples Where were the sales meetings Where were the design meetings 38

39 Extraterritorial Factors Estimating imports into the US Third party discovery Manufacturer of end products Retailers of end products Import agencies Component maker Records from at least some of their customers as to where their components end up (or at least estimates) Estimates from customer contact Returns, service requests, software updates, etc. Estimates from third party market research Estimates from a market research consultant hired specially for the case 39

40 Extraterritorial Factors Estimating imports into the US Halo Elect. v. Pulse Elect., Case No. 2:07-cv-331 (D. Nev. 10/25/2012)(Pro) Plaintiff s expert estimated royalty base, which included US sales of accused products and accused products imported into the US No dispute Accused products were incorporated into end products and then imported back into the US Defendants and its customers did not have import numbers Methodology End products with the accused product Estimated the percentage of worldwide sales in the US Sellers of those end products Estimated the percentage of worldwide sales in the US The Court said that the expert based his royalty base on sufficient facts considering the evidence available in this case. An estimation was necessary given the lack of specific data showing how much of Pulse s sales of the accused products outside the US were eventually imported back into the US. (citing Lucent). The proper avenue for Pulse to challenge the evidence Halo relied on and the conclusions drawn from that evidence is on cross-examination or otherwise at trial, not at the exclusion of Hansen s royalty base opinion all together. 40

41 Book of Wisdom 41

42 Book of Wisdom Origins Exception to Georgia-Pacific hypothetical negotiation (HN), which focuses on conditions when infringement began Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 698 (1933) (Cardozo, J.) [I]f years have gone by before the evidence is offered[, e]xperience is then available to correct uncertain prophecy. Here is a book of wisdom that courts may not neglect. HN methodology permits and often requires a court to look to events and facts that occurred [after the hypothetical negotiation] that could not have been known to or predicted by the hypothesized negotiators. Fromson v. Western Litho-Plate & Supply Co., 853 F.2d 1568, 1575 (Fed. Cir. 1988) 42

43 Book of Wisdom Themes The words rarely appear in opinions But the principle is applied frequently Accepted evidence is pretty open Little guidance from Federal Circuit on nature and extent of allowable future acts Post-hypo evidence is rarely excluded on that ground 43

44 Book of Wisdom Effective evidence Explicit in GP factor #11: The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use Implied in GP factor #8: The established profitability of the product made under the patent; its commercial success; and its current popularity License and settlement agreements Cost savings 44

45 Book of Wisdom Effective evidence Risky to rely solely on BOW evidence Couple with evidence at or before the HN date 45

46 Questions? 46

47 Thank you! Chris Marchese Principal, San Diego Please send your NY CLE forms or questions about the webinar to Jane Lundberg at A replay of the webinar will be available for viewing at 47

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