The Federal Circuit offered its view on the perennial topic of comparable licenses. An earlier post provides background on this matter pending in the Southern District of California. To make a short post shorter, Judge Sabraw granted a JMOL on damages after trial, noting that Mr. Kennedy’s damages analysis was based on Dr. Madisetti’s unapportioned technical analysis. The court concluded that, “Dr. Madisetti’s testimony conflated the patented technology with VoLTE generally,” and offered a remittitur on damages of $10 million or a new trial. Wi-Lan chose a second trial. At that second trial, the jury agreed with Mr. Kennedy’s new damages analysis relying on comparable licenses and awarded Wi Lan $85.23 million. Apple’s JMOL was denied and appealed to the Federal Circuit. Which brings us to today.
Mr. David Kennedy, Wi Lan’s damages expert, relied on several licenses to the patents-in-suit for his royalty analysis. Those licenses were to a portfolio of patents, among which were the patents in suit. Mr. Kennedy testified that generally a portfolio license revolves around “key patents,” and that other patents included in a portfolio license tend not to constitute the basis of value, but rather involve a licensor “throwing in the chaff with the wheat.”
Mr. Kennedy also asserted that the patents-in-suit constituted the “key patents” in those comparable portfolio licenses, allowing him to make modest adjustments to the royalty rates found in those licenses. The jury agreed with his approach.
The Federal Circuit, however, disagreed with his approach, finding instead that Mr. Kennedy provided insufficient basis for his opinion that the patents-in-suit constitute the basis of value in his choice of comparable licenses. In doing so, it reversed Mr. Kennedy’s “wheat/chaff” metaphor on its head:
This opinion interests us for several reasons. First, the Federal Circuit appears not to challenge directly Mr. Kennedy’s general observation that portfolio licenses revolve around “key patents”; and that a “wheat/chaff” metaphor captures the economic substance of such agreements. Ultimately, that is an empirical question. From our purview, Mr. Kennedy’s licensing experience – however rich – is anecdotal, necessarily limited, and cannot buttress a sweeping claim. Second, this opinion reemphasizes that empiricism is the bedrock of damages analysis. That is, Mr. Kennedy appears to have approached damages from a presumption both that “key patents” drive portfolio licensing, and that the patents-in-suit constitute “key patents.” It is the latter claim that created analytic vulnerability, because it was not empirically established. While the court reversed the “wheat/chaff” metaphor as a result, we would also suggest that the route Mr. Kennedy derides – namely, “dividing the patents by numbers and multiplying it by, you know, a thousand patents” – may indeed capture “the way portfolio negotiations sometimes work.”
Don’t believe us? Consider this 2011 reporting from The Economist:
