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.
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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.”
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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

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.


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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.
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