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  • Patent Damages: The Success and Failure of a Theory

    December 2, 2015

    Litigation Webinar Series: INSIGHTSOur take on litigation and trial developments across the U.S.

    Chris MarchesePrincipal, Southern California

  • Overview

    INSIGHTS Litigation Webinar Series

    2

    INSIGHTS Series

    Key Developments & Trends

    Housekeeping

    CLE Contact: Jane Lundberg

    lundberg@fr.com

    #fishwebinar

    Upcoming Webinars

    Watch for our 2016 webinar

    schedule at

    fishlitigationblog.com/webinars

    mailto:stocks@fr.com

  • Agenda

    3

    1. Background research

    2. Apportionment

    3. Comparable licenses

    4. Extraterritorial issues

    5. Book of wisdom

  • Background Research

    4

    What weve done

    Reviewed 100s of district court cases from the past 3+ years

    Identified cases involving todays topics

    Tried to distill themes, trends, and successful approaches

  • 5

    Apportionment

  • Apportionment

    6

    Themes

    Apportionment is hotbut unsettled

    No silver bullets

    Depth of apportionment

    Few bright line rulesexcept:

    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 inventions footprint

  • Apportionment

    7

    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

  • Apportionment

    8

    Trends

    Creative approaches

    Multiple theories, backstops

    Do-overs

  • Apportionment

    9

    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

  • Apportionment

    10

    Trends: synergistic claims

    Astrazeneca v. Apotex, 782 F.3d 1324, 1338-39

    (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

  • Apportionment

    11

    Trends: synergistic claims

    Univ. of Pittsburgh v. Varian, 2:08-cv-01307-AJS (W.D. Pa.

    Feb. 10, 2012), affd in relevant part, 561 Fed. Appx 934

    (Fed. Cir. 2014) (non-precedential)

    Linear

    Accelerator

    RPM system

  • Apportionment

    12

    Trends: synergistic claims

    Varian cont:

    Federal Circuitnon-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)

    Linear

    Accelerator

    RPM system

  • Apportionment

    13

    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 inventions footprint in the market place.

    However

  • Apportionment

    14

    Trends: district courts and expansive claims

    Cave Consulting Group v. Optuminsight, Inc., Case No. 5:11-

    cv-00469- EFD (N.D. Cal. 2/20/15) (Davila, J.) (allowing

    defendants expert to apportion only for claimed novel

    limitations)

    Labyrinth Optical Tech. v. Alcatel-Lucent USA, Case No.

    SACV 12-0759 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.

  • Apportionment

    15

    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

  • Apportionment

    16

    Success/failure in apportioning

    Reviewed many cases involving apportionment

    Many do not provide visibility into the methodology

    Following slides address cases that did

  • Apportionment

    17

    Success/failure in apportioning

    Method #1: Feature counting & isolation

    Mixed bag worked in 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

    Defendants documents

    Third party market research

    Combination/triangulate

    Apportion out non-patent attributes (e.g., brand, reputation)?

  • Apportionment

    18

    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

  • Apportionment

    19

    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

    Defendants documents may help

  • Apportionment

    20

    Success/failure in apportioning

    Method #4: Blaming the defendant

    Failed 2 out of 2

    Courts: burden of proof on patentee

  • 21

    Comparable Licenses

  • Comparable Licenses

    22

    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

  • Comparable Licenses

    23

    Trends

    Lets give it a go

    Concerns are left to cross examination

    Multiple theories, even among the licenses

    Do-overs

  • Comparable Licenses

    24

    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).

  • Comparable Licenses

    25

    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

  • Comparable Licenses

    26

    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 plaintiffs expert report

    Both sides used licenses to calculate effective royalty rates

    Declined Courts 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.

  • Comparable Licenses

    27

    Trends: concerns left to cross examination

    CMU v. Marvell, Case No. 09-290 (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 CMUs 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 experts 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.

  • Comparable Licenses

    28

    Trends: concerns left to cross examination

    TVIIM, LLC v. McAfee, Inc., Case No. 13-cv-04545-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

  • Comparable Licenses

    29

    Trends: concerns left to cross examination

    TVIIM, LLC v. McAfee, Inc., Case No. 13-cv-04545-HSG

    (N.D. Cal. 7/9/15) (Gilliam, J.)

    Plaintiffs 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

  • Comparable Licenses

    30

    Success/failure

    Exclusive v. Non-exclusive

    Court excluded plaintiffs 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. 1-12-cv-11935 (D. Mass. 10/23/15)

    [D]efendants contend that [plaintiffs expert] contradicts basic principles of patent law and economics in opining that the non-exclusive 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.

  • Comparable Licenses

    31

    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)

  • Comparable Licenses

    32

    Success/failure

    Different patents- technical comparability

    Damages expert relies on technical expert

    Freeny v. Murphy Oil Corp., Case No. 2-13-cv-00791 (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.

    8-13-cv-02240 (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

  • Comparable Licenses

    33

    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.

  • Comparable Licenses

    34

    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 experts] 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

  • 35

    Extraterritorial Factors

  • Extraterritorial Factors

    36

    The Accused Products

    Where do they go

    Where dont they go

    How do they get there

    Who sends them

    Who doesnt 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

  • Extraterritorial Factors

    37

    Locus of the transaction

    Where was the price negotiated

    Where was the final price approved

    Where were invoices delivered

    Who sent the invoices

    Wher...