Entire Market Value Rule

Today, a Northern District of California jury in a trial before Magistrate Judge Nathanael M. Cousins entered a Verdict finding that Apple infringed two patents alleged essential to ETSI and 3GPP cellular standards, that the patents were not invalid and awarding a reasonable royalty in the amount of $3.4 Million and $3.9 Million for each patent, respectively, as single lump sum payments for past and future infringement.  It is not clear from the public record how the jury reached this damages verdict or whether it favors more the patent owner Core Wireless or the adjudged infringer Apple.  We may follow-up this post if more insight is provided by post-trial briefings or the trial transcripts become public.

Below is a discussion of some of the pre-trial rulings and jury instructions that would have shaped the jury’s reasonable royalty determination here.  These rulings touch-on the issues of royalty stacking, the smallest salable patent practicing unit, the form of a reasonable royalty, relevant Georgia-Pacific factors and apportionment to the value of the patented technology. Continue Reading Jury awards Core Wireless $7.3 Million lump sum for Apple’s infringement of two SEPs (Core Wireless v. Apple)

Judge Payne recently denied  defendant LG’s motion to exclude damages expert testimony on alleged standard essential patents (SEPs) where LG challenged the experts opinion (1) because he did not start with a royalty-rate that is then adjusted  by applying Georgia-Pacific factors and (2) because he failed to apportion value to the patented feature given his reliance on the end product price.  The patents-in-suit are alleged to be essential to the GSM, UMTS/HSPA and LTE cellular standards, but the parties disagreed whether the patents are SEPs and other patents-in-suit are not alleged to be SEPs.

The decision sheds some incremental insight on the entire market value rule (EMVR) that concerns when one can use the end product as the royalty base.  The court considered it a rule of evidence for U.S. jury trials to avoid jury confusion and found that the expert properly considered the end product price to assess profitability of the accused device, but otherwise did not rely on the end product as a royalty base.  He ruled that the expert may rely on that end product price in his analysis, but he cannot “publish” (i.e., disclose) that end product price to the jury given the EMVR’s “important evidentiary principle” that “care must be taken to avoid misleading the jury by placing undue emphasis on the value of the entire product” and concern that “diclosure of the end product’s total revenue cannot help but skew the damages horizon for the jury, regardless of the contribution of the patented component to this revenue.” Continue Reading Judge Payne applies “important evidentiary principle” to preclude telling jury about end product price (Core Wireless v. LG)

Over the past few years, courts have begun cracking down on improper damages theories.  The Federal Circuit’s 2012 opinion in LaserDynamics v. Quanta is instructive on this point, noting that in the absence of evidence that the patented functionality is the source of the demand for the entire product, then damages must be based on the “smallest salable patent-practicing unit.”  This is an issue that has particular relevance to standard-essential patent litigation, as the functionality that allows for standards compliance is often implemented on a smaller chip within a larger consumer product device — think of a baseband chip within a smartphone, for instance.

In fact, this very issue just arose in a pending litigation (set to go to trial later this month in E.D. Tex.) brought by non-practicing entity Wi-LAN against Alcatel-Lucent, Ericsson, Sony Mobile Communications, and HTC, in which Wi-LAN accused the defendants of infringing several Wi-LAN patents by manufacturing and selling base stations and handsets that are compliant with the 3GPP High-Speed Packet data Access cellular standard (HSPA).  This past Friday, presiding Judge Leonard Davis granted in part a Daubert motion brought by Alcatel-Lucent, HTC, and Sony to exclude certain Wi-LAN expert testimony on damages.

[13.06.28 Wi-LAN v. Alcatel Lucent Daubert Order]

Wi-LAN’s expert, John C. Jarosz, had analyzed several existing Wi-LAN license agreements involving the patents-in-suit, and calculated a damages figure in the amount of a lump-sum royalty that was based on a reasonable royalty and a hypothetical negotiation between the parties.  But the court found that Mr. Jarosz did not tie the calculation of damages to the smallest saleable patent-practicing unit, instead using the price of the entire HSPA-compliant base station as a base without offering evidence that the patented features drove demand for the entire product.  The court noted that in fact, the base stations needed only an optional software upgrade and modem card to comply with the HSPA standard — and the patents-in-suit represent only a small portion of the overall HSPA standard.  As such, the court excluded Mr. Jarosz’s reasonable royalty calculations as being a violation of the Entire Market Value rule.  The court also rejected a “catch-all” statement by Mr. Jarosz that he had taken all the evidence into consideration in arriving at a final lump-sum royalty (based in part on a reasonably royalty), calling this “a poor substitute for the required analysis” that distinguishes between patented and unpatented features of an accused device.

The court did, however, allow for Wi-LAN to present an amended report by July 3, with subsequent (and expedited) depositions and rebuttal reports to follow if necessary.  Having expert damages testimony excluded can be crippling or even fatal to a patent owner’s case (as Apple and Motorola learned before Judge Posner last year), so you can bet that Wi-LAN’s expert is currently preparing a supplemental report.  We’ll keep you posted on any interesting trial and post-trial happenings in this case over the next few weeks.

CAFCEarlier this week, both Nokia and BlackBerry (formerly Research In Motion) were both granted leave to file amicus briefs with the Federal Circuit in the Apple v. Motorola appeal of Judge Posner’s June 2012 decision to dismiss the parties’ respective infringement claims.  BlackBerry’s brief is still confidential, but Nokia’s is now publicly available.

[2013.05.06 Nokia Amicus Brief]

While Nokia’s amicus brief is styled as being “in support of neither party,” it’s clear that Motorola should be the one happy here — Nokia asks the Federal Circuit to reverse Judge Posner’s decisions relating to Motorola’s standard-essential patents at issue, both with respect to damages and injunctive relief.  Nokia claims that Judge Posner’s ruling (1) creates a bright line rule against injunctions that violates Supreme Court precedent, and (2) unnecessarily devalues standard-essential patents by mandating that any damages be based on the smallest salable unit, which runs contrary to industry practices in SEP licensing.  A summary is after the jump.

Continue Reading Nokia amicus brief urges Federal Circuit to reverse Judge Posner’s standard-essential patent rulings

On Thu., Aug. 30, 2012, in LaserDynamics v. Quanta, No. 2011-1440, the Federal Circuit (Dyk, Clevenger and Reyna) clarified and limited applying the entire market value damages rule where the patent is directed to a component of a multi-component system – e.g., a patented method for determining the type of disc in an optical drive that is a component of a laptop computer.  This is a significant case to review in determining evidence required to establish damages under the entire market value rule as well as other damages theory, including issues such as using prior licenses, litigation settlements and the proper date for the Georgia-Pacific hypothetical negotiation.

Continue Reading Patent Alert: Federal Circuit limits reliance on entire market value damages (LaserDynamics v. Quanta)