U.S. Patent Damages

1. U.S. Patent Damages Presentation by Seung Woo Ben Hur September 2019

2. Outline • Introduction to U.S. patent damages law • Reasonable royalty • Lost profit • Willful infringement • Discovery • Importance of expert opinion • Appeal of patent damages • Notable developments in U.S. patent damages law

3. U.S. Statute on Patent Damage “Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed.” 35 U.S.C. § 284 “Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.” 35 U.S.C. § 286

4. Reasonable Royalty • Damages “in no event less than areasonable royalty” (35 U.S.C. § 284) • In most cases, damages are calculated based on 15 Georgia-Pacific factors. Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1121 (S.D.N.Y. 1970). • Commonly-referenced factors: • Factor 1: Established royalties for the patent • Factor 2: Royalties paid for comparable licenses • Factor 8: Profitability of the accused product • Profit typically should be apportioned between the patented feature and non-patented features • Factor 15: “Hypothetical Negotiation”: Determine the royalty that the patent owner and the defendant would have agreed to had they negotiated a license at the time of Defendant’s first infringement, assuming infringement and validity of the patent

5. Lost Profits • The patent owner must proves that it would have made additional profit but forthe defendant’s infringement. • Most patent cases do not lead to awards of lost profits • “But for”—hard to prove, even if the parties are competitors • E.g., typically, the patent owner must prove that no non-infringing commercially viable alternatives existed • Examples of supporting evidence: price erosion, lost business contracts, etc. • An award can be a mix of lost profits (for some sales) and reasonable royalty (for the rest of the sales)

6. Willful Infringement • The court may increase the damages awarded by jury by up to three times the amount if the jury finds that the infringement was willful • “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.” Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1932-33 (2016) • Statistically, when evidence of wilfulness is presented to the jury, the jury is more likely to find infringement

7. Discovery for Damages • For complex, large cases, damages-related discovery can be expansive and expensive. • E.g., infringement discovery tends to be more focused—e.g., source code and technical documents how specific aspects operate or are structured • Damages discovery is typically broader • E.g., sales, profits, marketing, market studies, benefits gained from the invention, internal and external emails regarding the technology, cost of developing the accused features, similar technologies, competitors’ technologies • Finding needles in haystacks: In many cases, just a few documents (picked out of hundreds of thousands of documents) could sway the jury • E.g., an email where an engineer says “this technology is really valuable to our company”

8. Importance of Expert Opinion • Expert opinion on damages can turn cases • Complex issues often spanning hundreds of pages in expert reports, e.g.: • Apportionment • Comparable licenses • Market/industry effects • Economic projections • Damages expert opinions are often challenged under Daubert • A common challenge: Is the expert’s conclusion supported by sound economic analysis? • Outcomes often uncertain: Typically up to the Judge’s discretion

9. Jury Verdicts on Damages • Juries typically choose a number between the patent owner’s asking number and the defendant’s number • The reasoning jury uses to come to the damages amount is usually not disclosed • In some cases, the jury “splits the baby”—picking a number in the middle

10. Damages Awards 2008-2017 PWC 2018 Patent Litigation Study, https://www.ipwatchdog.com/wp-content/uploads/2018/09/2018-pwc-patent-litigation-study.pdf

11. Appeal • The Court of Appeals for the Federal Circuit has exclusive jurisdiction for patent cases • Standard: Damage award must be supported by substantial evidence • “A damages award must be set aside if the verdict is against the clear or great weight of the evidence.” Shockley v. Arcan, Inc., 248 F.3d 1349, 1362 (Fed. Cir. 2001) • The Federal Circuit rarely increases awarded patent damages

12. Notable Development in U.S. Patent Law • WesternGeco LLC v. ION Geophysical Corp., 138 S. Ct. 2129 (2018) • Holding: A patent owner can recover lost foreign profits for infringing supplying of components from the U.S. under 35 U.S.C. § 271(f) • Does this mean that a patent owner can recover in a U.S. court lost worldwideprofits for any infringement that occurs in the U.S.? • The Federal Circuit will likely decide this year in Power Integrations v. Fairchild Semicond. (Fed. Cir. 2019) • Big implications to multi-national corporations that compete worldwide