Patent Damages
18Oct/170

D Minn addresses inexorable flow, non-infringing alternatives, EMVR, apportionment

Posted by patentda

The District of Minnesota, Judge Ericksen presiding, in Select Comfort Corp. v. Tempur Sealy Int’l, Inc., Civil Action 14-cv-245 JNE/TNL (D. Minn. June 23, 2017), issued an order concerning lost profits and reasonably royalty related to a patented air mattress valve.   Judge Ericksen excluded Select Comfort’s expert’s testimony on lost profits and reasonably royalty, but allowed Tempur Sealy’s expert’s testimony on noninfringing alternatives.  Judge Ericksen also granted Tempur Sealy’s motion for summary judgement on lost profits, but denied summary judgment on reasonably royalty.

Lost Profits

Tempur Sealy argued that Select Comfort’s expert, Schwartz, proffered no evidence that “the patented features form the basis of consumer demand, which is required to prove the absence of a non-infringing alternative under the second Panduit factor,” citing Mentor.  Slip Op. at 9.  “To prove that there are no acceptable noninfringing substitutes, the patent owner must show either that ( 1) the purchasers in the marketplace generally were willing to buy the patented product for its advantages, or (2) the specific purchasers of the infringing product purchased on that basis,” id. at 10 (quoting Standard Havens Prods.).  Ultimately the Court found an absence of such evidence, and concluded that “Schwartz's opinion on lost profits must be excluded.”  Id. at 12.

Select Comfort, the patent owner and plaintiff, was pursuing lost profits under the theory of “inexorable flow,” a theory of lost profits that arises when the patent owner is not the company who directly suffered the lost sales but argues that the lost profits inexorably flowed to it.  In this case, the issue centered on Select Comfort’s subsidiary, which was the company that had purportedly suffered lost profits.  Select Comfort argued that it was entitled to the subsidiary’s lost profits because those losses inexorably flowed to Select Comfort and thus were recoverable to Select Comfort.  The court noted that the Federal Circuit has not adopted the inexorable flow theory—noting that “lost profits must come from the lost sales of a product or service the patentee itself was selling.”  Id. at 24-25 (quoting Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359, 1367 (Fed. Cir. 2008)).  In addition to arguing that Select Comfort did not show lack of noninfringing alternatives, Tempur Sealy argued that Schwartz did not distinguish whether the lost profits were those of Select Comfort itself or those of a wholly owned subsidiary, a fact Schwartz admitted during deposition.  Id. at 26.  Indeed, Schwartz testified that “[h]e calculated what he characterized as ‘the rolled-up profits’” from Select Comfort.  The court observed that just because Select Comfort consolidates its financial statements does not demonstrate inexorable flow of profits from the subsidiary to Select Comfort, even assuming the viability of the inexorable flow doctrine.  Ultimately, “the Court conclude[d] that Select Comfort did not demonstrate the absence of acceptable noninfringing alternatives,” granting Tempur Sealy’s summary judgment motion of no lost profit damages.    

Select Comfort moved to exclude Tempur Sealy’s expert’s opinion that a Funai pump is a non-infringing alternative.  Id. at 19.  The Court rejected Select Comfort’s argument that the expert’s opinions about the Funai pump should be excluded because they are based on unreliable evidence, although the Court did limit his opinions to those identified in his report.  Id. at 19-20.

Reasonably Royalties

Regarding reasonable royalties, Tempur Sealy argued Schwartz’s opinion violated the entire market rule and should be excluded.  Id. at 13.  “The entire market value rule is a narrow exception to this general rule [that royalties be based not on the entire product, but instead on the smallest salable patent-practicing unit].  If it can be shown that the patented feature drives the demand for an entire multi-component product, a patentee may be awarded damages as a percentage of revenues or profits attributable to the entire product.”  Id. (quoting Laser Dynamics).  But driving demand is a high bar, requiring the feature to be more than just “valuable, important, or even essential.”  Id. at 13-14.  Because there was “no evidence that the patented valve enclosure assembly drove consumer demand,” the Court excluded Schwartz’s opinion.  Id. at 14.

In the alternative, Schwartz opined on the smallest salable unit.  Tempur Sealy argued that Schwartz failed to apportion between the patented features and the unpatented features of the air mattress pump, which includes power supply, hand controls, and the pump itself.  Id.  Because Schwartz “did not apportion between the patented and unpatented features in his reasonabl[e] royalty analysis,” the Court excluded his opinion.  Id. at 14-15. 

Neither of these rulings, however, cut off Select Comfort’s claim for damages based on a reasonable royalty.  Id. at 27.  Quoting Info-Hold Inc. v. Muzak LLC, 783 F.3d 1365, 1372 (Fed. Cir. 2015), the Court noted that “a patentee’s failure to show that its royalty estimate is correct is insufficient grounds for awarding a royalty of zero.”  In Info-Hold, the Federal Circuit also stated that, “[b]y extension, the exclusion of the patentee’s damages evidence is not sufficient to justify granting summary judgment.”  Id.

18Oct/170

EDTX excludes evidence party’s actual behavior at hypothetical negotiation

Posted by patentda

The Eastern District of Texas, Sherman Division, in Evicam Int’l, Inc. v. Enforcement Video, LLC d/b/a Watchguard Video, Civil Action 4:16-CV-105, Judge Mazzant ruled on a motion in limine related to the hypothetical negotiation (along with other issues).  Evicam moved to “exclude any argument, evidence, or testimony regarding how WatchGuard would have behaved at a hypothetical negotiation.”  Slip Op. at 1.  The court noted that a “reasonable royalty can be calculated from an established royalty, profit projections, or a hypothetical negotiation based on the factors in Georgia-Pacific.”  Id. (citing Wordtech Sys. V. Integrated Networks, 609 F.3d 1308, 1319 (Fed. Cir. 2010)).

The court pointed out that Evicam’s expert used the Georgia-Pacific factors to determine a reasonable royalty rate.  Id.  WatchGuard was free to file an expert report to challenge the underlying facts relied on by Evicam’s expert regarding how WatchGuard would have behaved.  Id. at 1-2.  In the absence of a rebuttal report, Evicam’s motion was granted.  “Since the Georgia–Pacific factors rely on underlying facts to make reasonable inferences about a party’s behavior during a hypothetical negotiation, evidence of how WatchGuard would have actually behaved is irrelevant.”  Id. at 1.

18Oct/170

CAFC denies rehearing en banc in Mentor Graphics lost profits case

Posted by patentda

The Federal Circuit, in Mentor Graphics Corp. v. EVE-USA, Inc. (also including Synopsys, Inc. as a defendant), Nos. 2015-1470, 2015-1554, 2015-1556 (Fed. Cir. September 1, 2017) (per curiam), denied EVE-USA’s petition for a rehearing en banc on issues of apportionment and lost profits damages.  Judge Stoll, with whom Judges Newman, Moore (who issued the underlying opinion), O’Malley, Neyna, and Wallach joined, denied the rehearing.  Judge Dyk, with whom Judge Hughes joined, dissented from the denial.  2017 WL 3806141 at *1.

In support of the rehearing, Judge Dyk made four points: 1) EVE-USA sought to present evidence of apportionment at trial but evidence was excluded; 2) the District Court erred by “satisfying the but-for test of the Panduit factors… [but] not determin[ing] whether the entire value of the product is attributable to the patented feature”; 3) even the patentee argued that the “but for” analysis was different than apportionment; and 4) “apportionment is an important issue that will likely arise in every future lost profits case.”  Id. at 3-4.

“Awards of lost profits … must be apportioned between patented and unpatented features” and “lost profits is not necessary unless the patentee established that it would have sold the item but for the infringement.”  Id. at 1 (citing cases from the middle of the 19th century, as well as Ericksson, Inc. v. D-Link Sys., Inc. in 2014).  Judge Dyk noted that “the panel here holds that applying the first [demand for patented product] and second [absence of acceptable noninfringing substitutes] Panduit factors results in the required apportionment,” but “the panel opinion simply does not apportion.”  Id. at *3.   Judge Dyk disagreed with the panel who “found that application of the Panduit factors to be the same as the entire market value rule.”  Id. at *4.  “Consumer demand for the patented feature and but-for causation may exist (and satisfy the Panduit factors), but this does not mean that other features do not contribute to consumer demand.”  Id.

Judge Stoll defended the rehearing denial, as well as the holding in Mentor, as being “consistent with longstanding patent law damages principles.”  Id. at 1 (citing Garretson from 1884).  Judge Stoll also noted that she did “not agree with the dissent that there should be a special rule for damages in patent cases which is at odds with mainstream damages principles.”  Id. at 1 n.1.  In the Court’s opinion, the jury properly considered the Panduit factors, including demand and absence of acceptable noninfringing substitutes.  Id.  In light of the undisputed evidence that there was demand for the patented product and there were no noninfringing alternatives, “further apportionment is unnecessary.”  Id. at 2.   Judge Stoll further clarified, “apportionment is typically necessary in both reasonable royalty and lost profits analysis,” but in light of the undisputed facts here, “the damages award properly accounted for apportionment.”  Id.   

30Mar/17Off

DDE cites need for numerical calculation for apportionment, and cites non-technology factors and use patterns as contributing to value

Posted by Chris Marchese

The District of Delaware, Judge Andrews presiding, in Comcast IP Holdings I LLC v. Sprint Communications Co., Civil Action No. 12-205-RGA (D. Del. Sept. 29, 2014), issued a brief order concerning apportionment.  Judge Andrews was faced with a motion in limine seeking to exclude profits and and/or revenues relating to the accused products as violating the entire market value rule (EMVR).  The court decided that the briefing was not “enough for a good decision, and asked for further submissions including a proffer of the Comcast expert’s testimony.”  Slip op. at 1.  A proffer was thus requested.

24Mar/17Off

CAFC issues detailed opinion on apportionment and lost profits; apportionment not required when Panduit test is met

Posted by Chris Marchese

The Federal Circuit, in Mentor Graphics Corp. v. Eve-USA, Inc. (also including Synopsys, Inc. as a defendant), Nos. 2015-1470, 2015-1554, 2015-1556 (Fed. Cir. March 16, 2017) (Judge Moore authoring), issued an opinion addressing apportionment and lost profits damages.  The case addressed an open question that has gone both ways in district courts:  whether lost profits requires further apportionment on top of the Panduit test.  In other words, if a patentee is able to prove-up lost profits under Panduit, must the patentee apportion those lost profits to determine the incremental value of the patented feature vis-à-vis any unpatented features?  The court answered the question in the negative, but reserved judgment on whether the same outcome would attach in all lost profits cases, particularly where the patentee relied on a theory other than Panduit to prove lost profits.  Because the case is replete with meaningful language, the following summary consists mainly of direct quotes.

23Mar/17Off

DDE holds that pleading compliance with the marking statute is not required

Posted by Chris Marchese

The District of Delaware in Mobile Telecommunications Tech., LLC v. Ruckus Wireless, Inc., Case No. 16-md-02722-LPS-CJB (Judge Stark), addressed a motion to dismiss under Rule 12(b)(6).  Defendants moved to dismiss on the ground that plaintiff’s complaint failed to plead compliance with the marking statute, 35 U.S.C. Section 287.  More specifically, the defendant argued that plaintiff’s complaint should be dismissed with respect to one of the patents because it failed to plead compliance with Section 287 and the patent had expired before the complaint was filed.

Filed under: Marking Continue reading
14Mar/17Off

CAFC issues detailed opinion on comparable licenses, addresses cost savings approach

Posted by Chris Marchese

The Federal Circuit, in Prism Tech. LLC v. Sprint Spectrum L.P., Nos. 2016-1456, 2016-1457 (Fed. Cir. March 6, 2017) (Judge Taranto authoring), issued an opinion addressing comparable license agreements and the cost savings approach for reasonable royalties.  We summarize the opinion here.  The section on comparable license agreements is lengthy and worth reading in full.

6Feb/17Off

NDCA allows evidence of capped royalty/book of wisdom and monetarily unquantified noninfringing alternatives

Posted by Chris Marchese

The Northern District of California, in France Telecom S.A. v. Marvell Semiconductor Inc., (Judge William H. Orrick) (August 28, 2014), addressed motions in limine concerning a variety of issues, including damages issues.  We address a couple damages issues here.

10Jan/17Off

Southern District of Florida Awards Ongoing Royalty and Pre-Judgment Interest

The Southern District of Florida, in Arctic Cat Inc. v. Bombardier Recreational Products, Inc., Case No. 14-cv-62369 (Judge Bloom) (Jan. 3, 2017), awarded Plaintiff an ongoing royalty and pre-judgment interest.

In an earlier order, the Court determined that Plaintiff was entitled to an ongoing royalty based on Defendant’s concession that it is continuing to sell the infringing personal watercrafts and that the jury’s royalty rate of $102.54 per unit set the “floor” for the ongoing royalty rate.  The Court ordered the parties to negotiate an ongoing royalty rate, but mediation was unsuccessful.

30Dec/16Off

EDTX denies exclusion of settlement license and “real estate” apportionment

Posted by Chris Marchese

The Eastern District of Texas, in ZiiLabs, Inc. v. Samsung Electronics Co., (Judge Roy S. Payne) (December 4, 2015), granted in part and denied in part defendant’s motion to exclude various opinions from plaintiff’s damages expert, Robert Mills.

Grounds:

  • Defendant sought to exclude expert’s reliance on litigation settlement license covering 100 patents as not economically comparable and not the most reliable license in the record.
  • Defendants sought to exclude expert’s reliance on licensing negotiations that never resulted in executed licenses, and were not technically comparable.
  • Defendant sought to exclude apportionment based on surface area of accused element on the chip.
  • Defendants sought to exclude expert’s testimony on several economic theories

Outcome: Defendant’s motion was granted-in-part as to all references to unconsummated license agreements and denied as to the remainder

Analysis:

  • Litigation settlement license (Denied)

The court declined to exclude the Plaintiff’s expert’s (damages expert) opinion based on a license between the Samsung and a third party (MicroUnity) that covered 100 U.S. and foreign patents, and arose out of a litigation settlement. Slip op. at 3. The expert calculated his effective royalty rate based on the value of 10 of the patents in the license, justifying this by stating that in certain patent groups, 10% of the patents account for 81% to 93% of the value of the portfolio. Id. at 3–4. The expert also selected a license period based on the expiration dates of most of the patents, and a second license period based on the expiration of the last patent in the portfolio. Id. at 4. The court allowed these opinions because they were testable and supported by publications, or, in the case of the licensing periods could be challenged on cross-examination. Id. at 5.

The court rejected defendant’s arguments that the MicroUnity license was not economically or technically comparable. Regarding economic comparability, the court stated that, while LaserDyanmics, Inc. v. Quanta Comput., Inc., discouraged relying on litigation settlements, if there were no more reliable licenses in the record, they could be used. 694 F.3d 51, 77 (Fed. Cir. 2012); Slip op. at 5. The court found the license agreement proposed by defendants was not “more reliable” because it was also a settlement agreement, and thus declined to exclude the expert’s testimony on the MicroUnity agreement. Slip op. at 6–7.  Regarding technical comparability, the court found the damages expert’s reliance on the technical expert’s opinion was proper and sufficient to establish technical comparability. Id. at 7.

  • Unconsummated license negotiations (Granted)

The court granted Samsung’s motion with regard to four licensing negotiations between Apple and Samsung that were never executed. Slip op. at 8. The court agreed that Plaintiff had not shown how the negotiations were factually analogous to the hypothetical negotiation, because Apple and Samsung were direct competitors, whereas Plaintiff and Defendant were not. Id. at 8–9.

  • Surface area apportionment (Denied)

The expert analyzed the surface area that the Graphics Processing Unit (GPU) covered of the System-on-Chip (Soc), stating that the area of an SoC will be budgeted to various components based on the value of the component. Id. at 9–10. He used this value to qualitatively analyze the profit that should be credited to the invention, and then used it to adjust the royalty rate for the asserted patent upward. Id. at 10. He did not appear to use the surface area analysis as the royalty base. Id. at 10.  The court declined to exclude the expert’s opinion because he explained his method, and the defendant could challenge it on cross-examination. Id.

  • Various economic theories (Denied)

The expert also used 3 economic theories in his hypothetical negotiation analysis: 1) “settlement discounts” based on litigation uncertainty; 2) that a significant majority of the value of a patent portfolio is concentrated in a small subset of the patents in the portfolio; and 3) a survey discussion of running and lump-sum royalties. Id. at 11. The court allowed each of these because the expert tied the discussion of each theory to the facts and evidence of the case. See id. at 11.

 

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Fields to the side (on the right):

 

Date:     12/04/2015

Court: E.D. Tex.

Judge:  Roy S. Payne

Area of Law:  Patent Law, reasonable royalty, apportionment, hypothetical negotiation, real estate apportionment, surface area apportionment

Expert’s name: Robert Mills

Area of Expertise, Technology or Science: Economics Expert, Damages Expert