Patent Law Practice Center

Court Finds 25 Percent “Rule Of Thumb” To Be A Fundamentally Flawed Patent Damages Tool

Today’s guest post was written by our friends at Foley Lardner, Cynthia J. Franecki and Rebecca J. Pirozzolo-Mellowes.

In Uniloc USA, Inc. v. Microsoft Corp., ___ F.3d ___ (Fed. Cir. Jan. 4, 2011), the Federal Circuit addressed arguments relating to a number of damages issues. Most notably, the Federal Circuit held that the 25 percent rule of thumb often used by damages experts in patent infringement cases “is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation” and “inadmissible under Daubert and the Federal Rules of Evidence.”

Background

United States Patent No. 5,490,216, assigned to Uniloc, relates to “a software registration system to deter copying of software.” Uniloc accused Microsoft of infringing the ‘216 patent. In 2007, the district court granted summary judgment of non-infringement. Specifically, the district court concluded that the algorithm used in Microsoft’s technology was different from that claimed in the ‘216 patent. On appeal, the Federal Circuit reversed and remanded the case. Thereafter, a jury found: (1) the ‘216 patent valid and infringed, and that (2) Microsoft’s infringement was willful. The jury then awarded Uniloc $388 million in damages. Microsoft filed a number of post-trial motions, including a motion for a new trial on damages based on its assertion that Uniloc’s expert improperly relied on the 25 percent rule of thumb and the entire market value rule. The district court granted Microsoft a new trial on damages based on the improper use of the entire market value rule, but rejected Microsoft’s arguments regarding the 25 percent rule. (more…)