Recent Article Analyzes Data and Concludes Patent Damages Awards Are Not Excessive; Rejects Need for Damages Law Reform
Michael J. Mazzeo (Northwestern University, Kellogg School of Management), Jonathan Hillel (Skadden, Arps), Samantha Zyontz (Searle Civil Justice Institute) published an article on February 24, 2011 entitled: “Are Patent Infringement Awards Excessive? The Data Behind the Patent Reform Debate.” The abstract to the article (which can be found at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1765891) states:
In their arguments for patent reform, proponents have cited cases with very large damage award amounts as evidence of pervasive “excessive” damages. This paper uses economic value of patents as a benchmark for comparison to conduct a systematic empirical analysis of patent damage awards to get a more complete understanding of the scope of the potential problem of “excessive” damage awards. We build a dataset consisting of information about damage awards in a comprehensive list of 340 cases decided in US federal courts between 1995 and 2008, supplemented with information about the litigants, their lawsuits and the economic value of the patents-at-issue. Our findings demonstrate that the largest awards dominating the conversation come from isolated cases: damage awards in the largest eight cases represent over 47% of total damages in our database. We build an econometric model based on our supplementary data that explains nearly 75% of the variation in observed damage award amounts, suggesting the awards are highly predictable and correlated with economic value of patents. We argue that the empirical results do not establish an argument for substantial patent reform based on a pervasive problem with “excessive” damages.
The article can be downloaded at the URL provided above.
Take a look at the "Patent Damages Handbook" — a procedural handbook for district court judges prepared at the request of CAFC Judge Paul R. Michel
Here's a link to the Handbook: http://www.nationaljuryinstructions.org/documents/DamagesHandbookFinal.pdf. The Handbook instructs federal trial judge on procedures for handling damages claims and provides an overview of substantive damages law. This web page (http://www.nationaljuryinstructions.org/damages) describes the Handbook as follows:
"Following completion of the National Patent Jury Instructions, Chief Judge Paul R. Michel of the United States Court of Appeals for the Federal Circuit asked the members of this Project to come together to develop a handbook for trial courts to consult when deciding issues of compensatory damages in patent infringement cases. The goal was to create a handbook drafted by a committee, national in scope, with members from the bench, bar and academia, including in-house counsel from a variety of industries, and patent damages experts. The underlying idea was to benefit from the collective experience of judges, attorneys, academics and economists in how best to achieve the “just, speedy and inexpensive determination” of patent damages. Recognizing that patent damages law is an area that continues to evolve, this handbook is not an attempt to restate substantive damages law or predict its future evolution but is instead focused on procedural practices that may be helpful in the adjudication of patent damages.
"The following procedural practices have not been reviewed or endorsed by the United States Court of Appeals for the Federal Circuit, or by any judge of that court. The Chief Judge did not participate in the drafting, although two district judges did actively participate. These practices are not intended to be “official” in any sense. Nor does any particular member of this Committee, or the company, law firm, law school, or client that employs that member, or the court on which that member serves, or organization with which that member is affiliated, endorse the application of any particular practice in any particular case. Nor is this handbook intended to suggest that current law needs or does not need judicial or legislative revision. Rather, this benchbook is intended to be a helpful resource for judges and lawyers under current law."
We'd be interested in hearing any feedback on the Handbook. Does it adequately prepare judges on the procedures for handling patent damages? Are there changes or additional you would suggest?
Craig Countryman is an attorney at Fish & Richardson, San Diego, who practices patent litigation. He is a prolific writer, and his most recent article addresses ongoing royalties. He published the article in the LA Daily Journal on September 2, 2010 (see http://www.fr.com/patentroyalties ), and he was kind enough to generate a post for us on this same topic. Enjoy!
Ongoing Royalties: How and When Should They Be Calculated, by Craig Countryman
Now that eBay has made it more difficult for some patent infringement plaintiffs to obtain a permanent injunction after winning at trial, district courts have been grappling with how to handle post-verdict sales of the infringing product. The Federal Circuit held in Paice v. Toyota, 504 F.3d 1293 (Fed. Cir. 2007) that district courts have the power, but not the obligation, to force the patentee to allow the defendant to continue selling the infringing products if it pays an ongoing royalty to compensate the patentee for those sales. The soundness of this holding is questionable because it based the court’s power to impose such a royalty on the vague pronouncement in 35 U.S.C. § 283 that district courts “may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent.” Imposition of an ongoing royalty would seem to abet, rather than prevent, continued violation of the patentee’s rights. But Paice held that this provision gives district courts the equitable power to impose an ongoing royalty. So the only questions now are whether, when, and how district courts should exercise that authority.
Most district courts have chosen to impose an ongoing royalty rather than simply leave the parties to their own devices after denying a permanent injunction. Judge Ward has been a notable exception, however: he requires the plaintiff to file a new lawsuit to address infringement that occurs after the plaintiff wins its initial case. Courts that tackle the ongoing royalty issue as part of the initial case have further split on when they address it. Most have dealt with it in a post-trial proceeding but others have had the parties present both their proposed pre- and post-verdict royalty rates at trial and have gotten an advisory jury verdict on the ongoing royalty issue. These options present interesting strategic considerations for the parties. Plaintiffs may want to present evidence on the post-verdict royalty to the jury because it puts the defendant in the awkward position of discussing the fact it wants to keep selling its infringing product even if the jury finds the patent valid and infringed. But a defendant could benefit from having the issue vetted at trial if it thinks it can convince the jury to apply the same rate to pre- and post-verdict infringement, thereby discouraging the judge from jacking up the post-verdict rate after trial. On the other hand, the parties may both want to defer the question until after trial to give themselves a better chance to fully vet the issue, rather than trying to cram it into an already limited about of trial time. Deciding the issue as part of the initial lawsuit in a post-trial proceeding seems like best solution for the court because it allows it to efficiently resolve all the issues in a single proceeding while avoiding the need to divert trial time to an equitable issue the court will ultimately have to resolve itself anyway.
See the recent article on Legislative patent damages reform published in the Los Angeles Daily Journal
One of our bloggers, Chris Marchese, published an article on August 11, 2010 that he co-wrote with Olga May (an associate in Fish's San Diego office). The article is entitled: "Runaway Patent Damages Awards: Is Statutory Reform on the Way?" (See the article here: Marchese-May Daily Journal Article on Patent Damages Reform.) The article is reprinted and/posted with the permission of the Daily Journal Corp. The article talks about the huge damages verdicts being handed down by juries across the country, and offers an opinion -- of course, the two authors' opinion -- that Congress should intervene and issue amendments to the patent damages statute that have teeth....particularly, legislation that codifies the key principles of the entire market value rule and apportionment.