Calculating damages

Problem

If a patent owner wins a lawsuit, it may be able to recover a “reasonable royalty.”  Under present law, calculations of such a royalty can get out of hand and reach well into the millions of dollars, even if the patent only covers a small fraction of the defendant’s product.  Many defendants choose to settle instead of fighting bad patents out of fear of paying these high damages.

Solution

The law should be clear that damages may not be based upon the entire market value unless the patent’s specific contribution is the predominant basis for the demand of a defendant’s product or process.

Mike Boucher
Dakota Legal Software, Inc.
Lafayette
CO
United States
Posted Sep 5, 2012 1:13 pm
  • Patent owner
  • Software developer / engineer
  • Internet user
  • Victim of patent troll
As you say on your home page, "Civil liberties groups, academics, innovators, and Internet users team up to address the broken patent system." Notably missing from this list are lawyers, who could tell you what the law actually says about this proposal about damages and other proposals elsewhere in this site.

I don't have anything to add to J Doe's contributions except still more citations to current law that give additional support to his position, which is that the law already works this way. If after you understand what the law actually says then you still want something to change then you have to clarify what that change should be. Right now, it looks like you are demanding that the law be what it already is.
up
444 thumbs up.
J Doe
United States
Posted Jun 20, 2012 9:45 am
  • Academic
  • Internet user
It is pretty well established that the entire market value rule doesn't apply when the infringing component is a small fraction of the product. In fact, case law says pretty much exactly what your solution does. See the below summary of this rule from Laserdynamics v. Quanta Computer, Inc.:

"Damages are recoverable under the entire market value rule only “if the patented
apparatus was of such paramount importance that it substantially created the value of the
component parts.” Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1549 (Fed. Cir. 1995)
(citations omitted); see IP Innovation L.L.C. v. Red Hat, Inc., --- F. Supp. 2d ----, 2010 WL
986620, *1-2 (E.D. Tex. 2010). Therefore, “the patentee must prove that the patent-related
feature is the basis for customer demand.” Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301,
1336 (Fed. Cir. 2009) (citations omitted); see Rite-Hite, 56 F.3d at 1549; Bose Corp. v. JBL, Inc.,
274 F.3d 1354, 1361 (Fed. Cir. 2001); TWM Mfg. Co., Inc. v. Dura Corp., 789 F.2d 895, 901
(Fed. Cir. 1986); Imonex Services, Inc. v. W.H. Munzprufer Dietmar Trenner GMBH, 408 F.3d
1374, 1379 (Fed. Cir. 2005). Further, it is not appropriate in cases where the unpatented
components “have essentially no functional relationship to the patented invention and . . . may
have been sold with an infringing device only as a matter of convenience or business advantage.”
Rite-Hite, 56 F.3d at 1550; Imonex, 408 F.3d at 1379; see Cornell Univ. v. Hewlett-Packard Co.,
609 F. Supp. 2d 279, 286-87 (N.D.N.Y. 2009)."

link to decision: http://www.fr.com/files/uploads/attachments/patentdamages/LaserDynamics_Inc_Quanta_Storage_America.pdf
up
443 thumbs up.
Ricky de Laveaga
United States
Posted Jun 22, 2012 11:28 am
  • Software developer / engineer
  • Internet user
I would like to see this one rewritten for the main page to reflect J Doe’s comment and the much better language of the Soultion section on this page.
up
433 thumbs up.
Al L
Thailand
Posted Jun 22, 2012 11:57 pm
  • Software developer / engineer
  • Venture capitalist / investor
I completely disagree with the awards. If anything, awards for infringement should be larger, not smaller. Intellectual Property is not respected adequately currently and smaller awards will not improve that.
up
427 thumbs up.
Austin D
CA
United States
Posted Jun 22, 2012 11:47 pm
  • Software developer / engineer
What is a tiny fraction? A tiny fraction may be very important to the patent.
up
424 thumbs up.
Steve F
United States
Posted Jun 27, 2012 7:09 am
  • Academic
  • Internet user
"Tiny Fraction" refers to how important the technology in the patent is to the infringing item, not whether the infringement is only of a tiny fraction of the patent. To use the recently dismissed Apple v. Motorolla as an example, the 6493002 patent on 'unblockable taskbar' is arguably a "tiny fraction" of the overall smartphone when compared to the 7479949 patent on touchscreen gestures. Thus, it would be inappropriate for Apple to receive the entire market value for alleged infringing Motorolla phones. Additionally, the '002 patent claims "An interactive computer-controlled display system," while '949 claims "A computing device." The '002 claim is a component claim, or a smaller part of an overall device. The '949 patent is a system claim, claiming essentially the entire device, "comprising" a touch screen and other components.
up
422 thumbs up.
Brian Love
Santa Clara University School of Law
Santa Clara
CA
United States
Posted Sep 25, 2012 2:30 pm
  • Lawyer
  • Academic
There is quite a bit of room for improvement of patent damages jurisprudence, but directing your solution specifically at the "entire market value rule" might not be the highest, best use of your resources.

Traditionally, when the EMVR was applied, there was *no* apportionment of damages between infringing and non-infringing components. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=991429. However, since 2009 at least, the Federal Circuit has sub silencio redefined the doctrine so that it *does* incorporate apportionment and now essentially means "sometimes it's ok to use a large royalty base and a small royalty rate instead of a small base and larger rate."

Rather than focus on the EMVR per se, I would focus your efforts on buttressing the requirement that damages *always* be *strictly* apportioned between infringing and non-infringing components. Jurors have a hard time understanding just how thick the "patent thicket" really is, and it is hard to sell them on a royalty that actually takes into account the sheer number of patents covering a complex high-tech product.

A great, recent example is the Apple v. Samsung damages verdict, which breaks down to $48 per accused phone, even though each phone is covered by hundreds of thousands of other patents. I wrote a recent LA Times op-ed on this topic, available here: http://articles.latimes.com/2012/aug/30/opinion/la-oe-love-apple-patent-damages-20120830.

Another closely-related concept is emphasizing the fact that reasonable royalty damages are intended to be compensatory, not punitive. Juries and courts have been know to issue reasonable royalty damages award that are pretty clearly intended to punish the infringer, even though patent law has other doctrines to handle deterrrence. In addition to recent public statements from the Apple v. Samsung jury foreman, see the examples described in this paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1359049
up
409 thumbs up.
Brian Love
Santa Clara University School of Law
Santa Clara
CA
United States
Posted Sep 25, 2012 2:30 pm
  • Lawyer
  • Academic
There is quite a bit of room for improvement of patent damages jurisprudence, but directing your solution specifically at the "entire market value rule" might not be the highest, best use of your resources.

Traditionally, when the EMVR was applied, there was *no* apportionment of damages between infringing and non-infringing components. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=991429. However, since 2009 at least, the Federal Circuit has sub silencio redefined the doctrine so that it *does* incorporate apportionment and now essentially means "sometimes it's ok to use a large royalty base and a small royalty rate instead of a small base and larger rate."

Rather than focus on the EMVR per se, I would focus your efforts on buttressing the requirement that damages *always* be *strictly* apportioned between infringing and non-infringing components. Jurors have a hard time understanding just how thick the "patent thicket" really is, and it is hard to sell them on a royalty that actually takes into account the sheer number of patents covering a complex high-tech product.

A great, recent example is the Apple v. Samsung damages verdict, which breaks down to $48 per accused phone, even though each phone is covered by hundreds of thousands of other patents. I wrote a recent LA Times op-ed on this topic, available here: http://articles.latimes.com/2012/aug/30/opinion/la-oe-love-apple-patent-damages-20120830.

Another closely-related concept is emphasizing the fact that reasonable royalty damages are intended to be compensatory, not punitive. Juries and courts have been know to issue reasonable royalty damages award that are pretty clearly intended to punish the infringer, even though patent law has other doctrines to handle deterrrence. In addition to recent public statements from the Apple v. Samsung jury foreman, see the examples described in this paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1359049
up
409 thumbs up.
Mike Boucher
Dakota Legal Software, Inc.
Lafayette
CO
United States
Posted Sep 5, 2012 1:13 pm
  • Patent owner
  • Software developer / engineer
  • Internet user
  • Victim of patent troll
As you say on your home page, "Civil liberties groups, academics, innovators, and Internet users team up to address the broken patent system." Notably missing from this list are lawyers, who could tell you what the law actually says about this proposal about damages and other proposals elsewhere in this site.

I don't have anything to add to J Doe's contributions except still more citations to current law that give additional support to his position, which is that the law already works this way. If after you understand what the law actually says then you still want something to change then you have to clarify what that change should be. Right now, it looks like you are demanding that the law be what it already is.
up
444 thumbs up.
Steve F
United States
Posted Jun 27, 2012 7:09 am
  • Academic
  • Internet user
"Tiny Fraction" refers to how important the technology in the patent is to the infringing item, not whether the infringement is only of a tiny fraction of the patent. To use the recently dismissed Apple v. Motorolla as an example, the 6493002 patent on 'unblockable taskbar' is arguably a "tiny fraction" of the overall smartphone when compared to the 7479949 patent on touchscreen gestures. Thus, it would be inappropriate for Apple to receive the entire market value for alleged infringing Motorolla phones. Additionally, the '002 patent claims "An interactive computer-controlled display system," while '949 claims "A computing device." The '002 claim is a component claim, or a smaller part of an overall device. The '949 patent is a system claim, claiming essentially the entire device, "comprising" a touch screen and other components.
up
422 thumbs up.
Al L
Thailand
Posted Jun 22, 2012 11:57 pm
  • Software developer / engineer
  • Venture capitalist / investor
I completely disagree with the awards. If anything, awards for infringement should be larger, not smaller. Intellectual Property is not respected adequately currently and smaller awards will not improve that.
up
427 thumbs up.
Austin D
CA
United States
Posted Jun 22, 2012 11:47 pm
  • Software developer / engineer
What is a tiny fraction? A tiny fraction may be very important to the patent.
up
424 thumbs up.
Ricky de Laveaga
United States
Posted Jun 22, 2012 11:28 am
  • Software developer / engineer
  • Internet user
I would like to see this one rewritten for the main page to reflect J Doe’s comment and the much better language of the Soultion section on this page.
up
433 thumbs up.
J Doe
United States
Posted Jun 20, 2012 9:45 am
  • Academic
  • Internet user
It is pretty well established that the entire market value rule doesn't apply when the infringing component is a small fraction of the product. In fact, case law says pretty much exactly what your solution does. See the below summary of this rule from Laserdynamics v. Quanta Computer, Inc.:

"Damages are recoverable under the entire market value rule only “if the patented
apparatus was of such paramount importance that it substantially created the value of the
component parts.” Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1549 (Fed. Cir. 1995)
(citations omitted); see IP Innovation L.L.C. v. Red Hat, Inc., --- F. Supp. 2d ----, 2010 WL
986620, *1-2 (E.D. Tex. 2010). Therefore, “the patentee must prove that the patent-related
feature is the basis for customer demand.” Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301,
1336 (Fed. Cir. 2009) (citations omitted); see Rite-Hite, 56 F.3d at 1549; Bose Corp. v. JBL, Inc.,
274 F.3d 1354, 1361 (Fed. Cir. 2001); TWM Mfg. Co., Inc. v. Dura Corp., 789 F.2d 895, 901
(Fed. Cir. 1986); Imonex Services, Inc. v. W.H. Munzprufer Dietmar Trenner GMBH, 408 F.3d
1374, 1379 (Fed. Cir. 2005). Further, it is not appropriate in cases where the unpatented
components “have essentially no functional relationship to the patented invention and . . . may
have been sold with an infringing device only as a matter of convenience or business advantage.”
Rite-Hite, 56 F.3d at 1550; Imonex, 408 F.3d at 1379; see Cornell Univ. v. Hewlett-Packard Co.,
609 F. Supp. 2d 279, 286-87 (N.D.N.Y. 2009)."

link to decision: http://www.fr.com/files/uploads/attachments/patentdamages/LaserDynamics_Inc_Quanta_Storage_America.pdf
up
443 thumbs up.
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