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Examples of Recent Rulings on Intellectual Property Damages Presentation to Colorado Patent Bar September 20, 2000

Examples of Recent Rulings on Intellectual Property Damages Presentation to Colorado Patent Bar September 20, 2000. Aron Levko IAM Practice Leader, Partner - Chicago Office. “ A Golden Age”.

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Examples of Recent Rulings on Intellectual Property Damages Presentation to Colorado Patent Bar September 20, 2000

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  1. Examples of Recent Rulings on Intellectual Property DamagesPresentation to Colorado Patent Bar September 20, 2000 Aron Levko IAM Practice Leader, Partner - Chicago Office

  2. “ A Golden Age” “Companies increasingly leverage, license and otherwise capitalize on intellectual property such as trade secrets, client lists, even sales-training programs….(this could be) a ‘golden age’ for emerging businesses with proven know-how that can help other companies bring products to market.” Aron Levko Page One, Wall Street Journal September 12, 1996

  3. Business Method Patents Issued 713 490 244

  4. $9,000 $8,000 ($ Billions) $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1992 1993 1994 1995 1996 1997 1998 Book Value IA Value Book Value v. IA Value

  5. Patent Damage Awards 1980’s 1990’s Lost Profits Royalty 28% 72% 39% 61% *Not including special damages and excluding Polaroid v. Kodak Source: Treatise by Julie Davis and Kathleen Kedrowski, 1997.

  6. Summary • Royalties • Date of hypothetical negotiation • Panduit royalty “kicker” • “Bootstrapping” • Lost profits • Acceptable non-infringing substitutes • Adequate documentary proof • Disqualification of an Expert

  7. DISCLAIMER The Following Case Highlights are based upon the interpretation of the trier of fact and NOT the opinion of PricewaterhouseCoopers.

  8. Date of Hypothetical Negotiation Wang v. Toshiba & NEC (1993) • Date of hypothetical negotiation is at commencement of infringement • Damages may not be incurred until the date of notice (if that’s an issue) • District court “confused limitation on damages due to lack of notice with determination of … when damages … began to accrue … it is the latter which is controlling in a hypothetical royalty negotiation”

  9. Hypothetical Negotiation date = Date of Infringement Date of Hypothetical Negotiation Patent Issue date: April 1987 Royalty Rate of 4% Date of Notice: January 1990 Royalty Rate of 2.75% Fromson v. Western Litho (1988) : “The key element in setting a reasonable royalty… is the necessity for return to the date when the infringement began.” Wang v. Toshiba & NEC (1993)

  10. Royalty Rate = 4.00% 2.75% Date of Hypothetical Negotiation Reasonable Royalty Damages Wang v. Toshiba & NEC (1993)

  11. Date of Hypothetical Negotiation Total Difference Reasonable Royalty Damages $1,490,354 Wang v. Toshiba & NEC (1993)

  12. Panduit Kicker Mahurkar v. Bard (1996) • Trial court 35% royalty included a 9% “Panduit kicker” • CAFC ruled kicker was abuse of discretion - Panduit did not suggest enhancement of compensatory award in lieu of statutory provisions for enhanced damages and costs

  13. Judgment vacated, case remanded for re-calculation of reasonable royalty Panduit Kicker Mahurkar v. Bard (1996) Bard’s Actual Net Profit 29.16% Less: Profit Factor - 10.00% Add: R&D cost savings + 6.72% Initial Royalty 25.88% Panduit 9.00% Total Royalty34.88%

  14. “Bootstrapping” • Attempt to use consequential damages to “bootstrap” lost profits into the case • Rodime elected to forego lost profits in favor of a reasonable royalty • Rodime attempted to recover “consequential business damages” of $58 to $107 million based on Seagate’s refusal to take a license • Equivalent to theory of lost profits when already elected to seek reasonable royalty Rodime v. Seagate (1999)

  15. Acceptable Non-Infringing Substitute Pall v. Micron Separations (1995) • Non party alleged infringer is not acceptable non-infringing substitute before settlement of litigation with the patent holder • Can support Lost Profits analysis before that settlement • After settlement, mix of Lost Profits and Reasonable Royalties are basis of damages.

  16. Lost Profits on 25% of sales Reasonable Royalty on 75% of sales Acceptable Non-Infringing Substitute Pall Damage Award MSI’s Infringing Sales Pall v. Micron Separations (1995)

  17. Acceptable Non-Infringing Substitute Grain Processing v. American Maize (1999) • Defeated lost profits: acceptable non-infringing substitute not on the market during the period of infringement although market placement was possible • Court requires sound economic proof to support the “but for” scenario • Sole reason alternative not used earlier was cost. Capability, salability and customer acceptance were proven • “But for” market should consider what would have developed absent infringement - alternatives available to both patent holder and infringer • Opinion compares this case to prior rulings on substitutes, e.g. Slimfold v. Kinkead 1991, Zygo v. Wyko 1996

  18. Acceptable Non-Infringing Substitute Court Ruled: • Grain Processing could not establish causation for lost profits • Non-infringing substitute available - although not on market or for sale • Materials were available but not manufactured because: • more expensive • Defendant believed product was not infringing • Royalty awarded based on difference in production cost Grain Processing v. American Maize (1999)

  19. Adequate Documentary Proof Oiness v. Walgreen (1996) • Failure to prove amount of infringer’s sales: “This evidence adds vague estimation and gross extrapolation to unsupported presumption.” • Remanded past lost profits to district court or remittitur of 20% of district court amount • Rejected future lost profits based on “bald speculation by Oiness’ expert”

  20. 1.5 to 2 sq. feet x $379 avg. sales per sq. foot x 1600 stores Adequate Documentary Proof 3.6 to 4.8 million headrests sold (over a 5 year period) [$1,101,240] Lost Profits Award $4,840,000 to $6,450,000 sales Oiness v. Walgreen (1996)

  21. Units Sold 142,230 Avg. Net Profit x $1.33 Total Avg. Profits $189,000 Units Delivered 165,840 Avg. Net Profit x $1.33 Total Avg. Profits $220,567 Judgment Awarded Adequate Documentary Proof Based on Walgreen’s Records Oiness v. Walgreen (1996)

  22. Disqualification of an Expert Daubert v. Merrill Dow (1993) • The “Frye General Acceptance” test is no longer the controlling test for the admission of expert witness testimony (702 Standards) • The trial judge is now considered “the Gatekeeper” and determines when expert testimony based on scientific tests and methods would be allowed at trial

  23. Disqualification of an Expert General Electric v. Joiner (1997) • “Abuse of Discretion”is proper standard on appeal to review a trial judge’s ruling admitting or excluding expert scientific evidence • Testimony does not get admitted solely on the expert’s bare assertion • Judge can exclude testimony if the analytical gap between the data and the opinion is too great

  24. Disqualification of an Expert Kumho Tire v. Carmichael (1999) • “Gatekeeper” function of the trial judge applies to ALL expert testimony • Trial judge has “considerable leeway” in determining if an expert’s testimony is reliable and relevant. • “Expert must employ in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in that particular field.”

  25. What Does the Future Hold?

  26. Unlimited Potential “I think the jury is still out on whether Internet and e-commerce patents will bring financial windfalls. The potential is there for global licensing and royalty revenue to explode, because of the U.S. lead in Internet and e-commerce innovation. I think we not only have the lead, but at least for the short term the lead will grow.” Aron Levko Page One, Wall Street Journal April 10, 2000

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