Category: Reasonable Royalty

Idenix Pharmaceuticals LLC, et al. v. Gilead Sciences, Inc. (JMOL decided February 16, 2018)

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.

Lawrence E. Tannas v. Multichip Display, Inc., et al. (Decided February 21, 2018)

Judge Guilford of the Central District of California issued an opinion regarding damages, fees and prejudgment interest in this patent infringement case.

Neither plaintiff nor defendants used damages experts, and the court decided that, “Plaintiff essentially relies on attorney argument with minimal analysis” which renders its proffered damages award unsupported.  The court specifically notes that even if attorneys want to argue that an established royalty rate exists, they must provide sufficient proof for that rate.  In this case, the court held that the plaintiff failed to do that.

A second opinion, regarding legal fees, quotes both former Justice O’Connor and current Justice Kagan when concluding that the fixed sum of $250,000 is reasonable considering “what is happening in the legal profession as hourly billing has become increasingly unpopular and clients prefer to look at aggregate, global numbers”:

Finally, the plaintiff requested statutory prejudgment interest of 7%, compounded quarterly. After finding apparent fault with plaintiff’s lack of basis for its preferred quarterly-compounded 7% rate, the court instead decided that 5% without compounding was the appropriate rate.

Limelight Networks, Inc. v. XO Communications and Akamai Tech. (Opinion February 2, 2018)

On February 2, 2018, Judge Gibney re-struck the expert opinions of Stephen Prowse and Paul Meyer.

Dr. Prowse had applied the Rubenstein Bargaining Model to the hypothetical negotiation.  The judge decided that such a model was properly tied neither to the facts of the case, nor to the patents in suit.  Judge Gibney found Mr. Meyer’s reasonable royalty analysis based upon comparable licenses no more relevant than Dr. Prowse’s.  Judge Gibney found Mr. Meyer’s comparable license analysis failed to establish that the agreements compare economically to the hypothetical license at issue.

Dr. Prowse’s analysis was excluded because it was deemed to be similar to the Nash Bargaining Model and the 25% rule of thumb, both of which have been excluded in the past.  The concept of a Rubenstein Bargaining Model is that where two parties engage in a negotiation, the party with the most patience and least concern receives the benefit of that patience.  In his effort to apply the model, Dr. Prowse used each company’s weighted average cost of capital as a proxy for patience.

This game theoretic model is much like other game theory models which mathematically conclude that the party with the most bargaining power or least concern enjoys the better outcome.  The problem with such models is that they are irrelevant as a guide for damages experts seeking to determine the outcome of a hypothetical negotiation.  In a hypothetical negotiation, there is no assessment for patience: only consideration for the value of the patented technology to those using the technology.  Unlike the Rubenstein Model (and the Nash Model), the hypothetical negotiation is not iterative and the parties do not have endless time to complete the negotiation.  While Judge Gibney did not delve into such specifics, he notes that:

Mr. Meyer’s exclusion based upon the use of comparables is possibly the more interesting of the two damages exclusions.  Mr. Meyer had attempted to assess economic and technical comparability.  In the end, however, the judge found the expert did not apportion the comparable licenses on a patent-specific basis; and when using a company acquisition price as another comparable, the expert failed to determine what portion of that acquisition was specifically for the comparable patent.

Verinata Health, Inc. & Illumina vs. Ariosa Diagnostics (Verdict January 25, 2018)

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.

Dowagiac Manufacturing v. Minnesota Moline Plow Co. (Supreme Court Decided January 1915)

Approximately 103 years ago (almost to the day), the Supreme court issued an opinion which we believe remains relevant.  The opinion will likely be cited frequently this year in light of the Supreme Court’s future Westerngeco opinion (which we will hopefully read in June 2018), as well as in light of recent opinions regarding patent damages and apportionment.

This case has it all.  Consider the following quotations by topic:

On foreign sales:  Some of the drills, about 261, sold by the defendants, were sold in Canada, no part of the transaction occurring within the United States, and as to them there could be no recovery of either profits or damages. The right conferred by a patent under our law is confined to the United States and its territories (Rev. Stat. § 4884, Comp. Stat. 1913, § 9428), and infringement of this right cannot be predicated of acts wholly done in a foreign country.

Georgia Pacific Factor #1: So, had the plaintiff pursued a course of granting licenses to others to deal in articles embodying the invention, the established royalty could have been proved as indicative of the value of what was taken, and therefore as affording a basis for measuring the damages.

Georgia Pacific Factor #13: We think the evidence, although showing that the invention was meritorious and materially contributed to the value of the infringing drills as marketable machines, made it clear that their value was not entirely attributable to the invention, but was due in a substantial degree to the unpatented parts or features.

Apportionment: But as the drills were sold in completed and operative form, the profits resulting from the several parts were necessarily commingled. It was essential, therefore, that they be separated or apportioned between what was covered by the patent and what was not covered by it; for, as was said in Westinghouse Electric & Mfg. Co. v. Wagner Electric & Mfg. Co. supra (p. 615): ‘In such case, if plaintiff’s patent only created a part of the profits, he is only entitled to recover that part of the net gains.’

Georgia-Pacific Factor #15 or Profits for reasonable royalty damages: Of course, the result to be accomplished is a rational separation of the net profits so that neither party may have what rightfully belongs to the other, and it is important that the accounting be so conducted as to secure this result, if it be reasonably possible. As was said in Tilghman v. Proctor, 125 U. S. 136, 145, 31 L. ed. 664, 667, 8 Sup. Ct. Rep. 894: ‘It is inconsistent with the ordinary principles and practice of courts of chancery, either, on the one hand, to permit the wrongdoer to profit by his own wrong, or, on the other hand, to make no allowance for the cost and expense of conducting his business, or to undertake to punish him by obliging him to pay more than a fair compensation to the person wronged.’

Early Panduit or Lost profits proof: While the number of drills sold by the defendants was shown, there was no proof that the plaintiff thereby lost the sale of a like number of drills or of any definite or even approximate number. During the period of infringement several other manufacturers were selling drills in large numbers in the same localities in direct competition with the plaintiff’s drill, and under the evidence it could not be said that, if the sales in question had not been made, the defendants’ customers would have bought from the plaintiff rather than from the other manufacturers. Besides, it did not satisfactorily appear that the plaintiff possessed the means and facilities requisite for supplying the demands of its own customers and of those who purchased the infringing drills. There was therefore no adequate basis for an assessment of damages upon the ground of lost sales.

It is fun to see that a case over 100 years old may be so relevant.

 

Exmark Mfg. v. Briggs & Stratton Power Prods. Grp. LLC (CAFC Opinion January 12, 2018)

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.

 

Part 2: Finjan v. Blue Coat (Mistrial January 10, 2018)

Judge Freeman declared a mistrial on the second Finjan v. Blue Coat matter (“Blue Coat II”).

In her order, Judge Freeman bifurcates the case and sets the infringement trial for February, and sets the damages trial for December.

It is unclear whether she will allow new reports on damages. The CAFC opinion appears to disagree with the use of the $8 figure (which is used as a “reasonableness” check in Blue Coat II).  And the CAFC opinion also appears to disagree with the use of prior verdict royalty rates (which is relied on in Blue Coat II, as well).

 

Finjan, Inc. v. Blue Coat Systems, Inc. Decided January 10, 2018

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.

Cox Communications v. Sprint Communications (terminated December 2017)

Judge Bataillon, Senior District Judge in Delaware, issued a ruling on summary judgment on the eve of trial.  Shortly thereafter, the case settled.  Prior to this ruling, the judge issued an opinion on several Daubert motions which were filed.  The one motion of particular interest involves untimely disclosure, SSPU issues, and use of irrelevant profit information from unrelated, non-practicing, third parties.

The judge granted portions of the motion involving untimely disclosure and failure to tie the profit margin used to infringement.  Judge Bataillon seems to be advising that if an infringer wishes to proffer any affirmative opinions (for which it bears the burden of proof) through its experts, those must be timely disclosed.