This recent opinion is a lesson in, “If at first you don’t succeed, try, try again,” and for defendant Fairchild, the third time proved the charm.
You see, when plaintiff’s damages expert, Dr. Putnam, first offered his opinion that the parties at the hypothetical negotiation would anticipate “lost sales, reduction in price due to competition, and lost licensing fees,” A2C doubted Judge Chesney would approve such methodology. When she did (on two occasions), we figured that the Federal Circuit would finally disapprove of the reduction-in-price analysis.
Alas, the Federal Circuit remanded this matter for a new damages trial… but not on the reduction-in-price analysis issue of interest to us. Rather, the remand was based on misapplication of the entire market value rule.
This litigation began years ago. At the first trial, the jury found that all but one patent was infringed and awarded Power Integrations $105 million. Less than a week after Judge Chesney’s denial of the JMOL on that verdict, the Federal Circuit issued its opinion in VirnetX. Accordingly, Fairchild requested – and was granted – a new damages trial based on violation of the entire market value rule. That ensuing trial, as the Federal Circuit observes in this recent opinion, resulted in a verdict of $139.8 million “based on damages testimony that relied solely on the entire market value rule.” An additional question on the verdict form asked whether the patented feature created the basis for consumer demand, to which the jury marked, “Yes.” After that trial and subsequent denial on JMOL, Fairchild appealed to the Federal Circuit which ruled in favor of Fairchild and remanded for further proceedings.
While much of this Federal Circuit opinion constitutes a summary of past entire market value rule matters, the court did provide the following valuable and pointed guidance for attorneys & damages experts alike:
With regard to the case at hand, Fairchild reaps the reward of determination:
Plaintiff damages expert Robert Mills had his analysis excluded in part by Judge Love of the Eastern District of Texas. The part that was not excluded formed Mr. Mills’ testimony in trial which resulted in a damages award of $324,558 for ALE’s patent infringement.
ALE challenged the damages award at the Federal Circuit stating that, “Mr. Mills, in calculating a reasonable royalty, (1) relied on licenses not comparable to the hypothetical negotiation for the present case; (2) did not adequately separate the value of patented features from the value of standardization and the value of nonpatented features; and (3) prejudicially referred to ALE’s total net revenue and profit.” The Federal Circuit sided with Chrimar and found ALE’s arguments wanting.
With regard to the first issue, the court noted that there was not sufficient basis to exclude Mr. Mills in the Daubert motion nor in the JMOL phase of the matter, and that his license analysis satisfied the standard of “reasonable adjustments for differences in contexts.”
Regarding the second issue, the court said that Mr. Mills relied upon a standards expert, and a damages expert has right to do so for their own opinion.
Finally, for the third issue, the court explained that it was ALE itself which had first “opened the door” to introduction of defendant’s net revenue.
As in Exmark v. Briggs, the court appears perhaps to afford EMV somewhat greater latitude as part of a comparable license approach, especially where licenses make reference to a unit larger than what might otherwise be considered “the smallest saleable unit” under other analytic approaches to damages.
Eastern District of Texas Judge Gilstrap denied TST’s motion for Judgment as a Matter of Law in this patent infringement case. The jury award of $7.6 million stands.
Mr. Bruce McFarlene, Whirpool’s damages expert, offered the opinion that damages for infringement of the ‘894 patent should be $8.7 million. TST sought to exclude Mr. McFarlene for violation of the entire market value rule; however, prior to the ruling, the parties had stipulated that a filter at issue was the smallest saleable unit.
When TST moved for judgment as a matter of law based upon for Mr. McFarlene’s failure to apportion, Judge Gilstrap reminded the parties of their stipulation and concluded that Mr. McFarlene “did engage in the proper apportionment required by the law, beginning with an appropriate rate.”
This case went to trial in December 2016 and Judge Stark issued his second opinion on JMOL on February 16, 2018. Relevant for damages is Judge Stark’s opinion that comparability of licenses should go to the weight, and not the admissibility of a damages opinions:
Courts appear to disagree about comparable license analysis. In some cases, courts have determined that licenses are not comparable and opinions should be stricken. In others, the comparability goes to the weight, and not the admissibility of the evidence. Given the lack of a clear road map to determine comparability, this issue will continue to be difficult for damages experts to navigate.
Additionally, Judge Stark makes the following patent-portfolio observation in a footnote:
This footnote is interesting for two reasons. First, as a matter of law, an expert may aggregate patents into an assumed portfolio for the purposes of a hypothetical negotiation. Second, as a matter of fact, Judge Stark appears persuaded that Mr. Carter tied his aggregation to the facts of the case. It is unclear whether Mr. Carter would have been precluded from testifying about his portfolio approach had it been the subject of a Daubert motion, like the one found here in the Oracle v. Google matter. Referencing general “real-world negotiations” is not necessarily a strong tie to specifics of a contemplated negotiation. The hypothetical negotiation is not a real-world negotiation. Arguing patent aggregation under this guise appears potentially fraught.
Also relevant is Judge Stark’s opinion that the entire market value rule did not apply in this case and that Plaintiffs were entitled to get damages on a royalty base consisting of the entire pharmaceutical.
A jury just awarded Illumina damages of $15.7 million for the infringement of the ‘794 patent and $11 million for infringement of the ‘430 patent.
Prior to the jury verdict, defendant Ariosa submitted a Daubert motion on plaintiff damages expert that was denied; and also submitted a JMOL on damages (in part) that was not granted. One critical issue is that the JMOL alleges Mr. Malackowski violated the law of demand when he asserted that accused products sold by the defendant at a lower price would have been sold, in his but-for world, at a higher price. The motion states:
The final judgment will be an interesting read. Ariosa’s JMOL on lost profits damages is compelling. Interestingly, the jury verdict form did not allow for a breakdown of a damages award between lost profits and reasonable royalty amounts. There was only one line for the jury to write in its damages award (in words and in numbers), but there was no area to specify the type of royalty or the amount of lost profits. It is unclear whether such an ambiguous form will impact Judge Illston’s post-trial rulings.
The CAFC issued a precedential opinion today which seems to offer a different interpretation of the entire market value rule. In this matter, Briggs appealed the damages award of $24,280,330, claiming that Exmark’s damages expert both violated the entire market value rule and failed to relate her 5% royalty rate to the facts of the case. The Nebraska District Court denied a new trial on damages.
The CAFC found that the expert did not violate the entire market value rule when employing as a royalty base the entire mower, as opposed to the flow control baffles in the mower.
While the CAFC agreed that the patent in suit “related to the mower’s flow control baffle” which serves to direct the cut grass to discharge through the side of the mower, the court cites to Astrazeneca and concludes that it was acceptable to employ the entire mower sales, rather than the smaller baffle component:
The court also notes that in a real-world negotiation, the parties would base a royalty rate on the lawn mower sales, not the baffle component.
The CAFC did find that the expert failed to tie the royalty rate to the facts of the case. The expert failed to guide the trier of fact to the rate, and instead just offered a “superficial recitation of the Georgia Pacific factors, followed by conclusory remarks,” as was done in the Whitserve case.
Damages experts in recent years have been understandably wary of running afoul of the court’s guidance on the entire market value rule when quantifying a royalty base. This decision, among others, appears to afford experts some leeway to make such recourse… when the facts of the case permit.
Today, the CAFC offered an opinion on Finjan v. Blue Coat Systems. In August 2015, a jury determined that Blue Coat owed approximately $39.5 million for its infringement of several of Finjan’s patents. For one patent, the CAFC found that Finjan’s expert failed to apportion, and failed to demonstrate the technological and economic comparability of the license on which she relied.
Regarding the failure to apportion, the CAFC cites to VirnetX and Ericsson stating,
Regarding the failure to establish comparability, the CAFC states:
With regard to damages concerning two other patents, Finjan’s expert was found to have properly apportioned revenue using the equal-apportionment methodology described below:
The CAFC explains that her quantification was supported by: 1) a document which suggested that there were 24 functions of the accused product, and 2) conversations with experts and witnesses who told her that the 24 functions were of equal value. Despite evidence that Blue Coat provided contradicting this equal division by 24, the CAFC concludes that the jury heard conflicting testimony and was entitled to make up its own mind.
For damages experts, however, it remains unclear precisely where the evidentiary threshold supporting “function analysis” lies; and thus, when one might pursue equal-apportionment to derive a royalty base.
We note that Finjan and Blue Coat are currently back in court. Attached is Judge Freeman’s most recent order on motions in limine.
Anchoring is the concept of tying one’s ship to a mooring to keep it from drifting into the open seas. In the late 1970’s Kahneman and Tversky determined that people can unconsciously tie opinions to unrelated moorings which keep them within a constrained area.
Anchoring may be found in all aspects of decision making. And many academics have determined that juries anchor their opinions to potentially unrelated aspects of a matter. For example, in Uniloc USA v. Microsoft, the court notes that “the ‘$19 billion cat was never put back into the bag,'” suggesting that once a jury hears a large number, its opinion regarding damages can be anchored to that number. This appears to be the number one reason why the entire market value rule (EMV) and the smallest saleable practicing unit (SSPU) have become so important in damages.
In his recent opinion, Judge Alsup appears to conclude that the trade secret’s damages expert in the Waymo matter was in danger of anchoring the jury with a large value:
In short, anchoring issues appear to have reached the trade secret realm.
Judge Bryson in the District of Delaware excluded an expert opinion not once, but twice, over violation of the entire market value rule. Heavily citing to LaserDynamics and Uniloc, Judge Bryson notes that no matter what apportionment is performed, if the royalty base includes more than the SSPU, then the analysis is fatally flawed.