United States: 2015 Patent Damages Year In Review

INTRODUCTION

In last year's issue of our Patent Damages Year in Review, we highlighted three important decisions from the Federal Circuit: VirnetX v. Cisco Systems, Inc.,¹ Ericsson, Inc. v. D-Link Systems, Inc.² and Apple, Inc. v. Motorola, Inc.³ In particular, we focused on how these decisions might impact the courts' rapidly changing application of apportionment and the entire market value rule with respect to the determination of a reasonable royalty. While we noted that these decisions provided clarity in some respects, we raised concerns that the Federal Circuit failed to address key issues regarding the proper methodology for an apportionment analysis and primarily left this issue to the district courts to sort out. Not surprisingly, district courts in 2015 were inconsistent in determining whether or not the entire market value rule applied, and if not, how a patent owner could satisfy the apportionment requirement.

In several decisions this year, the Federal Circuit attempted to provide additional guidance on the entire market value rule and apportionment, and in this issue we analyze four decisions from the Federal Circuit that we believe may impact how district courts analyze patent damages for years to come: 1) AstraZeneca LP v. Apotex, Inc.⁴; 2) Info-Hold, Inc. v. Muzak LLC⁵; 3) Summit 6, LLC v. Samsung Electronics Co., Ltd.⁶; and 4) Commonwealth Scientific and Industrial Research Organisation ("CSIRO") v. Cisco Systems, Inc.⁷

The Federal Circuit in its AstraZeneca decision addressed the entire market value rule and apportionment with respect to AstraZeneca's formulation patents for the drug Prilosec. The court rejected the argument that the entire market value rule ("EMVR") could never apply in the pharmaceutical context, but held that the EMVR was not applicable in this particular case because the patents at issue covered the infringing product as a whole, rather than a single component of a multicomponent product. Nevertheless, the Federal Circuit held, citing Ericsson, that when a patent covers the infringing product as a whole, and the claims recite both conventional elements and unconventional elements, the court must determine how to account for the relative value of the patentee's invention in comparison to the value of the conventional elements recited in the claim, standing alone. Stated another way, the court indicated that "the question is how much new value is created by the novel combination, beyond the value conferred by the conventional elements alone."⁸

In Info-Hold, the patent owner's expert conceded that the EMVR applied, but he failed to address whether the patented features drove customer demand, relied on a litigation-induced license and applied the now-discredited 25 percent rule of thumb. The district court struck his report based on these shortcomings, and granted summary judgment of no damages. The Federal Circuit affirmed the decision to strike the damages expert report but, relying upon last year's Apple v. Motorola decision, reiterated that even without testimony from a damages expert, an award of zero damages is appropriate only if the evidence demonstrates that zero is the only appropriate royalty. Thus, the Federal Circuit reversed and remanded the case to the district court, with instructions that the district court consider the Georgia-Pacific factors and award whatever reasonable royalties were supported by the record.

In Summit 6, the Federal Circuit's decision provided more of a roadmap for future apportionment analyses. After a finding that Samsung infringed Summit's patent related to digital data processing, Summit's damages expert calculated damages through an apportionment methodology that was based on surveys of customers' usage of various smartphone functions. The court awarded Summit $15 million in damages and Samsung appealed. The Federal Circuit held that the district court had not abused its discretion in allowing testimony based on Summit's apportionment methodology, and that the expert need not be a survey expert to rely upon surveys compiled by third parties, so long as the information is of a type reasonably relied upon by experts in the field to form opinions upon the subject. Moreover, the Federal Circuit found that the fact that the expert's methodology was novel did not mean that it must be excluded, because "[w]here an expert otherwise reliably utilizes scientific methods to reach a conclusion, lack of textual support may go to the weight, not the admissibility of the expert's testimony."⁹

Finally, the Federal Circuit in CSIRO addressed apportionment in the context of a standard essential patent, in this case a patent related to wireless networking that was incorporated into the 802.11 standard. The district court held a bench trial on damages, after which the judge rejected both parties' damages analyses and instead adopted a model using the parties' prior negotiations as a starting point and then adjusting the rate based on his analysis of the Georgia-Pacific factors. On appeal, the Federal Circuit rejected Cisco's argument that all damages analyses must start with the smallest saleable patent practicing unit, and approved of the district court's use of the prior negotiations as the starting point. However, citing last year's Ericsson decision, the Federal Circuit found that the district court erred by overvaluing the fact that the patented technology was incorporated into the standard, and reiterated that the royalty analysis "must be premised on methodologies that attempt to capture the asserted patent's value resulting not from the value added by the standard's widespread adoption, but only from the technology's superiority."¹⁰

Perhaps because of the recent uncertainty regarding apportionment and the reasonable royalty method of computing damages, this past year saw many decisions in cases in which patent owners instead sought lost profits and other means of expanding the potential revenue base to obtain more significant damages. Thus, in addition to apportionment and the entire market value rule, we also address notable Federal Circuit and district court decisions related to three patent damages topics that garnered significant attention this year: 1) lost profits; 2) design patent damages; and 3) damages for activities that take place, in whole or in part, outside the United States.

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Footnotes

1. 767 F.3d 1308 (Fed. Cir. 2014).

2. 773 F.3d 1201 (Fed. Cir. 2014).

3. 757 F.3d 1286 (Fed. Cir. 2014).

4. 782 F. 3d 1324 (Fed. Cir. 2015).

5. 783 F. 3d 1365 (Fed. Cir. 2015).

6. 802 F. 3d 1283 (Fed. Cir. 2015).

7. __ F. 3d __, 2015 WL 7783669 (Fed. Cir. Dec. 3, 2015).

8. AstraZeneca, 782 F. 3d at 1339.

9. Summit 6, 802 F. 3d at 1298.

10. CSIRO, 2015 WL 7783669, at *8.

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