Patent Damages law is rapidly evolving with the recent Federal Circuit decisions on the issue and the statutory changes under serious consideration.

In an informative two hour program entitled “Patent Damages in Flux?:  Harmonizing Recent Federal Circuit Decisions With The Georgia-Pacific Factors 2010“,  Jennifer A. Sklenar of Howrey LLP, Jeffrey D. Sullivan of Baker Botts LLP and John M.  Griem, Jr. of Milbank delved into the Patent Damages issues including a review of the recent judicial developments and put them in context of the familiar Georgia-Pacific factors.  They also discussed the current state of potential statutory changes and how they might change patent damages litigation practices.

Jennifer A. Sklenar gave a very informative and detailed presentation of the recent Federal Circuit decisions on patent damages.  Specifically, she discussed Lucent Tech., Inc. v. Gateway, Inc., 580 F.3d 1301, i4i Ltd. Partnership v. Microsoft Corp., 598 F.3d 831, ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, and Wordtech Sys., Inc. v. Integrated Network Sol’n, Inc., 2010 WL 2384958 cases.   Slenar has been kind enough to share her slides, entitled “Recent Federal  Circuit Decisions on Patent Damages” with you here.

Jeffrey Sullivan then summarized what the trends seem to be in the damages cases.  He says that in recent years we’ve seen the Federal Circuit take up damages issues more frequently.  That the court has done so in two primary areas related to reasonable royalty calculations:

1. First, the court has taken a harder look at the determination of the royalty base – particularly regarding the application of the Entire Market Value Rule.
2. Second, the court has also taken a greater hand in the application of the Georgia-pacific factors – particularly the factors regarding the use of comparable licenses.

Sullivan highlighted three key factors of the Entire Market Value Rule (“EMVR):

1. Patent owner may capture the entire value of a larger infringing product that incorporates the invention.
2. Patentee’s recovery for infringement of an “improvement patent limited to the value of the patented improvement, unless the entire value of the larger product incorporating the improvement was “properly and legally attributable” to the patent feature. Rite-Hite Corp. v. Kelley Col, 56 F.3d 1538 (1995) (en banc) (citing Garretson v. Clark, 111 U.s. 120 (1884)).
3. Base is the value of the entire apparatus, if the patented feature forms the “basis for consumer demand” in the entire apparatus or substantially creates the value for the entire apparatus. Rite-Hite,56 F.3d at 1538.

Sullivan explained that the key to applying EMVR (or defending against its application) is to compare the invention to the product it is incorporated in.  Two main considerations in applying EMVR are:

1. Does the inventive feature drive demand?
2. Is the invention an integral or separable component of the product sold?

The question then is how does one determine the importance of the patented invention to the whole product.  Sullivan explains that often patents are granted covering software/hardware features that are inseparable from the final product but do not form the basis for customer demand for the product.  He says the easiest way of dealing with the issue is in the royalty rate determination, rather than as an adjustment to the base.  The Courts have determined royalty rates by using the 15 Georgia Pacific factors.  One clear example is in the Lucent Technologies, Inc. v. Gateway, Inc. 580 F. 3d 1301 (Fed. Cir. 2009).  Sullivan discussed the Georgia Pacific factors the Court examined when deciding the Lucent case.

Sullivan concluded by saying there is a clear trend in the Federal Circuit to tighten the rules regarding the use of comparable licenses. For example, Lucent, ResQNet and Wordtech were all sent back to the district court at least partially because of the use of to comparable licenses evidence.  He says that, generally, if a lump-sum award is sought, comparable lump-sum licenses must be in evidence, and if a running-royalty award is sought, comparable running-royalty licenses must be in evidence.

More generally, Sullivan believes the Federal Circuit has shown a recent desire to clamp down on what it must clearly perceive to be excessive damages awards.  Lucent is probably the best example of this where the court found it “inconceivable to conclude… that the use of one small feature, the date-picker, constitutes a substantial portion of the value of Outlook.  The Federal Circuit will not credit a massive award for a such a minor feature of a complicated program without compelling evidence that the feature is driving consumer demand.

During John Griem’s presentation, he discussed the key provisions relating to damages in the Patent Reform Act of 2010, The Manager’s Amendment (March 4, 2010).  Griem has agreed to share his slides entitled “Patent Reform Act of 2010, The Manager’s Amendment (March 4, 2010)” with you here.

If you are interested in listening to the full briefing, you can find it here on demand.

Tags: baker botts LLP, Entire Market Value Rule, Federal Circuit Decisions, Georgia-Pacific Factors, Howrey LLP, i4i Ltd. Parternership, Inc v. Gateway, Inc. v. Lansa, Lucent Tech., Milbank, Patent Damages, Patent Reform Act, Reasonable Royalty, ResQNet.com

This entry was posted on Friday, July 30th, 2010 at 16:17 and is filed under Federal Circuit Cases, Patent Issues, Patent Litigation, Patent Reform, posts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.