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.

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.

5Apr/16Off

DDE rules on settlement agreements, foreign sales, and non-infringing alternatives

Posted by Chris Marchese

The District of Delaware, in M2M Sols. LLC v. Enfora, Inc., Case No. 12-32-RGA (Judge Andrews) (March 9, 2016), considered, in part, plaintiff's Daubert motion and defendants' summary judgment motion (MSJ) on damages issues.  The court granted plaintiff's Daubert motion, and granted in-part and denied in part defendants' MSJ.

3Jun/13Off

NDIL grants Daubert motion on non-infringing alternatives and license agreements

Posted by Justin Barnes

On January 18, 2013 Judge Posner in the Northern District of Illinois issued a lengthy opinion in Brandeis Univ. v. Keebler Co., Case No. 1:12-cv-01508 (Doc. No. 474), covering both claim construction and a whole host of Daubert challenges.  One of those challenges related to plaintiff’s damages expert, whose testimony related to how difficult it would be to implement a non-infringing alternative, and thus the benefits of the patented invention relating to damages.  Judge Posner held, however, that the damages expert was not an expert on consumer demand (i.e. whether customers would prefer the patented cookies or some alternative), and moreover that the damages expert had not relied on anyone who was an expert in that field either.  While such an expert was employed by the plaintiff, the damages expert had not relied on the “industrial baker” expert, but rather a biochemist.  Accordingly, Judge Posner held that the damages expert could not testify to the absence of non-infringing alternatives, or costs thereof.

17Aug/12Off

Judge Bryson sitting by designation in EDTX denies summary judgment motion and motion to exclude defendants’ expert’s testimony on noninfringing alternatives for reasonable royalty

Posted by Chris Marchese

On August 10, 2012, in TQP Development, LLC v. Merrill Lynch & Co., Inc., Case No. 2:08-CV-471-WCB (E.D. Tex.), Judge William C. Bryson of the Federal Circuit, sitting by designation, considered plaintiff’s motion for partial summary judgment and motion to exclude opinions by the defendants’ damages expert on noninfringing alternatives.  The twist here is that the noninfringing alternatives were being offered on the issue of reasonable royalty damages; this was not a lost profits case.  Judge Bryson denied both motions and ruled that defendants’ expert could testify regarding the noninfringing alternatives, which the defendants’ expert contended would impact any hypothetical negotiation.  The technology at issue was cipher algorithms.

1Aug/12Off

DConn denies defendant’s MILs on EMVR and comparable licenses

Posted by Chris Marchese

On July 27, 2012, in Sargent Mf’g Co. v. Cal-Royal Prods., Inc. , Civil Action No. 3:08-cv-408 (VLB) (D. Conn.), the court considered defendant’s motions in limine (MILs) concerning lost profits and reasonable royalties.  The lost profits issue involved the non-infringing alternatives prong of the Panduit four-part test.  The reasonable royalty issues were EMVR and comparable licenses.  (The court also provides a reasonably in-depth analysis of a willfulness MIL, which is worthy reading for those interested.)

2Jan/12Off

NDCA denies Daubert motion for Defendant’s damages expert

Posted by Justin Barnes

In yet another damages opinion in a case where “the damages aspect [ ] has been controversial,” Judge Alsup in the NDCA denied Oracle’s motion to exclude Defendant Google’s damages experts.  Oracle argued that Google’s damages experts had offered improper technical opinions (such as on the viability of non-infringing alternatives), but the Court found that the damages experts were merely relying on underlying technical information from engineers, which Google planned to offer at trial.  Oracle also argued that many of the opinions offered were without evidentiary support or “spoon-fed” by Google engineers, but the Court largely disagreed and held that these issues went to credibility – rather than admissibility – in any event.  The Court did grant, however, one Oracle position – that non-infringing alternatives could not be used to decrease damages in the copyright context, as non-infringing alternatives, while potentially relevant to disgorgement, are not relevant to wrongful profits.