December 9, 2014
Patent Strategies:
Developing a Thorough Plan
PRESENTED BY:
2014: A Patent Infringement Odyssey
2014: A Patent Infringement Odyssey
Patent Infringement Complaints down 40% from October, 2013
NPE/PAE actions still account for over 60% of total filings.
Large number of cases initiated in 2012-2013 remain active.
2014: The Usual Suspects
2014: The Usual Suspects*
eDekka, LLC
Olivistar, LLC
Simon Nicholas Richmond
Penovia, LLC
Hawk Tech. Systems, LLC
Uniloc USA Inc.
Presqriber, LLC
QualQode, LLC
Orlando Comm’ns, LLC
PanTaurus, LLC
*Ranked by number of defendants, Jan. 1-Nov. 30, 2014
130
61
57
49
48
45
44
43
42
40
Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347
(2014)
In Alice, the Supreme Court confirms that the Mayo test should be used
to determine if abstract ideas are ineligible under § 101. Id. at 7.
Building on Mayo, the Supreme Court reiterated that abstract ideas are
not patentable, because monopolies over abstract ideas threaten
innovation.
To be patentable, a claim that recites an abstract idea must include
"additional features" to ensure "that the [claim] is more than a drafting
effort designed to monopolize the [abstract idea]." Id. at 11
Recall, the Supreme Court already held the § 101 inquiry is a “threshold”
inquiry, and the 12(b)(6) stage is where courts address threshold issues.
Skinner v. Switzer, 131 S. Ct. 1289 (2011).
Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347
(2014)
‘Inventive Feature’ Distinguished:
The Supreme Court in Alice held that claims to a banking-related function
were patent ineligible as abstract ideas, with no “inventive concept” from
other limitations in the claims or in any claim as a whole.
“The addition of a conventional element like a generic computer to an
abstract idea does not add an ‘inventive feature' to the abstract idea, and
thus the claim is unpatentable under §101,” the district court said,
characterizing the high court's view of Alice's patent claims.
Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347
(2014)
Alice’s two-step analysis:
First, the court said that the patent was directed to an abstract idea,
one of three judicially created exceptions to patentable subject
matter.
The second step is to see if the claims “contain an inventive concept
sufficient to transform the claimed abstract idea into a patent-eligible
application.”
The Fallout
Ultramercial, Inc. v. Hulu, LLC, No. 2010-1544, 2013 WL
3111303, at *1-2 (Fed. Cir. June 21, 2013)
“This court has never set forth a bright line rule requiring district
courts to construe claims before determining subject matter
eligibility. Indeed… claim construction may not always be necessary
for a § 101 analysis.”
Ultramercial, 2013 WL 3111303, at *3–4
Dismissal at the 12(b)(6) stage under § 101 may be rare because of
the presumption of validity. Dismissal is nevertheless proper when
“the only plausible reading of the patent” demonstrates “clear and
convincing evidence of ineligibility.”
Ultramercial, 2013 WL 3111303 at *2
Ultramercial, Inc. v. Hulu, LLC, No. 2010-1544, 2013 WL
3111303, at *1-2 (Fed. Cir. June 21, 2013)
Judge Mayer, in a concurring opinion, emphasized three key points:
First, section 101 is a threshold question to be determined at the outset of
the case, similarly to a jurisdictional inquiry. This conserves scarce judicial
resources, protects against vexatious infringement suits, and protects the
public by providing an efficient tool for weeding out bad patents.
Second, no presumption of validity applies to section 101 because the PTO
has for years applied “an insufficiently rigorous subject matter eligibility
standard.”
Third, Alice effectively adopted a “technological arts” test for patenteligibility, and the claims here were invalid because the “innovative aspect
of the claimed invention is an entrepreneurial rather than a technical one.”
Loyalty Conversion Systems v. American Airlines (E.D.
Texas 2014)
In this case, Federal Circuit Judge Bryson, sitting by designation in the
Eastern District of Texas, determined on the pleadings that Loyalty’s rewardprogram patent is ineligible based on Alice and Mayo
Judge Bryson concluded that the inventions claimed in the ′023 and ′550
patents were not fundamentally different from the commonplace financial
transactions that were the subjects of Bilski and Alice.
Tuxis Tech v. Amazon, 2014 WL 4382446 (D. Del. Sept.
2014)
Entering judgment on the pleadings because the claim lacks eligibility under
35 U.S.C. 101.
Tuxis agreed that the mere notion of “upselling” is an abstract idea.
With that admission in-hand, the court moved forward with the question of
whether the claims offer an inventive concept that goes beyond upselling.
“This type of marketing strategy is at the heart of claim 1 and has been
practiced as long as markets have been in operation. Conducting this
transaction on “an electronic communications device” instead of in a
physical store would be an infringing sales practice if claim 1 were valid.
This cannot be permitted, as it would ‘tend to impede innovation more than
it would tend to promote it.’” (citing Mayo).
2014: Through the Looking Glass
Post-Alice, the Federal Circuit and at least seven different district courts hold that it is
proper to find patents invalid under § 101 at the 12(b)(6) stage without first
satisfying any formal claim construction procedures.
•
Content Extraction & Transmission LLC v. Wells Fargo Bank, Nat’l Assoc., No. 122501 (MAS) (TJB), Dkt. Nos. 64, 65 (D.N.J. July 31, 2013);
•
CardPool v. Plastic Jungle, Inc., No. C 12-04182 WHA, 2013 WL 245026, at *3–4
(N.D. Cal. Jan. 22, 2013);
•
Uniloc USA, Inc. v. RackSpace Hosting, Inc., No. 6:12-cv-375, ECF Dkt. No. 38 (E.D.
Tex. Jan. 3, 2013);
•
Sinclair-Allison, Inc. v. Fifth Ave. Physician Servs., LLC, No. Civ-12-360-M, 2012 WL
6629561 (W.D. Okla. Dec. 19, 2012);
2014: Through the Looking Glass
•
Graff/Ross Holdings LLP v. Fed. Home Loan Mort. Corp., 892 F. Supp. 120 (D.D.C.
2012) (converting 12(b)(6) motion into a summary judgment motion and granting it);
•
Vacation Exch., LLC v. Wyndham Exch. & Rentals, Inc., No. 12-04229, Dkt. 27, at 2–
6 (C.D. Cal. Sep. 18, 2012) ;
•
OIP Tech., Inc. v. Amazon.com, Inc., No. C-12-1233 EMC, 2012 WL 3985118, at *5
(N.D. Cal. Sept. 11, 2012);
•
Glory Licensing LLC v. Toys “R” Us, Inc., No. 09-4252 (FSH), 2011 WL 1870591, at
*1–4 (D.N.J. May 16, 2011), appeal dismissed by 459 F. App’x 916 (Fed. Cir. Aug. 25,
2011);
•
Buysafe, Inc. v. Google Inc., No. 1:11-cv-01282-LPS, Dkt. 69 (D. Del. July 29, 2013)
(finding claims invalid under § 101 when applying 12(b)(6) standards in response to
Rule 12(c) motion)
Summit Data Sys., LLC v. EMC Corp., D.
Del., 1:10-cv-00749-GMS, 9/25/14
Acacia subsidiary Summit Data Systems, LLC hit with $1.4 million in attorneys' fees
incurred by NetApp, Inc. for vexatious patent infringement litigation.
The U.S. District Court for the District of Delaware slammed Summit for the perceived
business model of extracting settlements from companies who want to avoid hefty
litigation fees.
The Court indicated that there was more to the award than just the offending business
model. Specifically, Summit had licensed the patents at issue such that NetApp could
not have infringed, yet pursued litigation for more than two years before finally
agreeing to dismiss the complaint with prejudice.
Summit Data Sys.: An Exceptional Case
The Supreme Court decided two cases on Section 285 standards in April, 2014:
Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 2014 BL 118430,
110 U.S.P.Q.2d 1343 (2014)(83 PTD, 4/30/14), and Octane Fitness, LLC v. ICON
Health & Fitness, Inc., 134 S. Ct. 1749, 2014 BL 118431, 110 U.S.P.Q.2d 1337
(2014)(83 PTD, 4/30/14).
Judge Sleet acknowledged that these cases had “loosened the preexisting standard
for what makes a case ‘exceptional,' ”but that “NetApp likely would have succeeded in
its motion under the more restrictive approach as well.”
The court's review of the “totality of the circumstances” under Octane was
overwhelmingly against Summit.
Nautilus, Inc. v. Biosig Instruments, Inc., No. 13369 (2014)
New standard for indefiniteness under 35 U.S.C. § 112:
“we read §112, ¶2 to require that a patent’s claims, viewed in light of the
specification and prosecution history, inform those skilled in the art about the
scope of the invention with reasonable certainty. The definiteness requirement,
so understood, mandates clarity, while recognizing that absolute precision is
unattainable.”
Applying the reasonableness test, look for terms that are unbounded by the patent
specification or are facially subjective (such as claim term "aesthetically pleasing")
Even limited examples may not be enough depending on claim term (such as term
"unobtrusive manner")
Framed from perspective of a skilled artisan at the time the patent was applied for.
Nautilus, Inc. v. Biosig Instruments, Inc., No. 13369 (2014)
Ultimate question when challenging patent claims is whether the terms, in light of the
specification and prosecution history, inform those of skill in the art about the scope of
the claims with "reasonable certainty.“
If the answer is no, declaration from PHOSITA accompanying a timely Rule 12 motion
provides another basis for challenging patent claims.
Particularly troubling for NPEs who have acquired patents that are inherently
ambiguous with the goal of extracting early settlements based on claim construction
uncertainty.
Indefiniteness Post-Nautilus
"The question here is whether the absence of identified boundaries in terms of
proximity, distance, or location renders the claims indefinite under a new and more
rigorous standard imposed by the Supreme Court
There is no question that the relationship terms lack any quantitative parameters or a
range of distance between the mount or anchor and a target or disc space. . . . The
accurate targeting of the surgical site and positioning the mount, anchor, or fixation
member to limit movement provide 'some standard for measuring the scope of the
phrase[s],' but something more, short of absolute or mathematical precision, is
required.
The lack of clarity in these claims leaves the next inventor in the 'zone of uncertainty,'
not knowing what is claimed and what is still open."
Abdou v. Alphatec Spine, Inc., 3-12-cv-01804 (CASD November 19, 2014, Order)
(Benitez, J.) (granting motion for summary judgment that plaintiff's medical device
patents were invalid as indefinite.)
Limelight Networks, Inc. v. Akamai Techs, Inc., 134 S. Ct.
2111 (2014)
No liability for inducing infringement under 271(b) where no single party directly
infringes under 271(a), relying on Fed. Circuit decision in Muniauction v. Thompson
Corp., decision, 532 F.3d 1318 (Fed. Cir. 2008).
Supreme Court directs the Federal Circuit to "revisit the § 271(a) question" and
remands the case.
Limelight Networks, Inc. v. Akamai Techs, Inc., 134 S. Ct.
2111 (2014)
3 steps become clear for reducing exposure following Akamai
1. Opinion should be obtained as soon as you learn of alleged infringement.
2. Once obtained, need to rely on the opinion and document that actual reliance.
3. If applicable, include in opinion a basis for invalidating patent and rely on it as
well for subsequent challenges.
See Bose Corp. v. SDI Techs, Inc., (Fed. Cir. Mar. 14, 2014).
So, if you run into one of these guys…
Stays in the District Court
Section 18(b) of the AIA sets out a four-factor analysis for whether to grant a stay
pending resolution of a CBM review, which are viewed as heavily in favor of granting a
stay.
The Federal Circuit indicated as much in two recent opinions worth citing if you are
seeking a stay of litigation pending PTO proceedings.2
2VirtualAgility
Inc. v. Salesforce.com, Inc., 2014 BL 191228, 111 U.S.P.Q.2d 1763 (Fed.
Cir. July 10, 2014) (133 PTD, 7/11/14), and Benefit Funding Sys. LLC v. Advance Am.
Cash Advance Ctrs. Inc., 2014-1122, 2014 BL 266984 (Fed. Cir. Sept. 25, 2014) (187
PTD, 9/26/14).
Finality of PTAB or Court Decisions
Another issue: Denial of stay may result in parallel proceedings at the board and in
court, which prolong decision making and have inconsistent rules for issue preclusion.
Extreme results include the PTAB continuing a trial despite a district court decision,
settlement and patent expiration,3 and the Federal Circuit denying a stay of a patent
infringement award despite a PTAB ruling against the patent owner.4
3
Interthinx, Inc. v. CoreLogic Solutions, LLC, No. CBM2012-00007 (P.T.A.B., Jan. 30,
2014) (23 PTD, 2/4/14).
4Versata Computer Indus. Solutions, Inc. v. SAP AG, 564 Fed. Appx. 600, 2014 BL
170171 (Fed. Cir. 2014) (120 PTD, 6/23/14).
Beware Of Estoppel Issues & PTAB Decisions
The district court is operating under a different set of standards than the PTAB and is
not necessarily going to feel bound by its findings and decisions.
Claims in the PTAB are more vulnerable to validity challenge because of the PTAB’s
use of a different claim construction methodology (broadest reasonable interpretation)
and a laxer standard for proving invalidity (preponderance of the evidence as opposed
to clear and convincing evidence).
December 9, 2014
Patent Strategies:
Developing a Thorough Plan
PRESENTED BY:
Entire Market Value Rule
•
The entire market value rule is a narrow exception to the general rule that
royalties are awarded based on the smallest salable patent-practicing unit.
•
A patentee may assess damages based on the entire market value of the
accused product only where the patented feature creates the basis for
customer demand or substantially creates the value of the component
parts.
Versata Software, Inc. v. SAP America, Inc.,
717 F.3d 1255, 1268 (Fed. Cir. 2013)
The Basis for Consumer Demand
• It must be shown that the accused functionality
motivates a consumer to buy the complete product
“in the first place.”
• Not sufficient:
– Patented functionality is valuable, important, or essential to
the complete product.
– Complete product would be commercially unviable without
the patented functionality.
– Consumers would choose a product with the patented
functionality over one without.
LaserDynamics, Inc. v. Quanta Computer, Inc.,
694 F.3d 51, 68 (Fed. Cir. 2012)
Virnetx
Virnetx, Inc. v. Cisco Systems, Inc., 767 F.3d 1308 (Fed. Cir. 2014)
•
Reiterated LaserDynamics smallest salable unit rule and the fact that it is not enough to
show patent essential to use of the product
•
EMVR only appropriate when necessary to fully compensate for infringement
•
[S]mallest salable unit approach was intended to produce a royalty base much more
closely tied to the claimed invention than the entire market value of the accused
products…Where the smallest salable unit is, in fact, a multi-component product
containing several non-infringing features with no relation to the patented feature…the
patentee must do more to estimate what portion of the value of that product is
attributable to the patented technology…
Virnetx Continued
•
•
•
[W]e are cognizant of the difficulty that patentees may face in assigning value to a feature
that may not have ever been individually sold. However, we note that we have never
required absolute precision in this task; on the contrary, it is well-understood that this
process may involve some degree of approximation and uncertainty…
According to CAFC, expert used the base price for each product sold as the royalty base
and called it the smallest salable unit and did not attempt to subtract unpatented elements
from the base
According to CAFC, expert should have apportioned significant unpatented features from
royalty base to identify a patent practicing feature with sufficient close relation to the
claimed functionality
Virnetx Continued
•
•
•
•
•
According to CAFC, expert did not try to link demand for the accused device to the
patented feature
According to CAFC, expert could have used the cost of a software upgrade as a proxy for
the smallest salable unit
$368 million damages award was vacated and the case was remanded
VirnetX Inc. asked the full Federal Circuit on October 16, 2014 to review the decision that
vacated the damages award, saying the panel's finding that its damages expert relied on
flawed theories will make it too difficult for patent owners to win damages.
Nokia also filed an amicus brief on November 10, 2016 supporting VirnetX Inc.'s petition
for en banc review saying the ruling could "depress the value of many U.S. patents.”
Impact of Virnetx
Power Integrations Inc.. v. Fairchild Semiconductor International Inc., et al. No. C 09-5235
MMC (N.D.CA.)
• Jury awarded damages of $105 million
• Fairchild filed a motion for JMOL, new trial, and/or remittur, which was denied by District
Court on Sept. 9, 2014
• Fairchild filed a renewed motion citing Virnetx
• District Court granted renewed motion for a new trial based on the Federal Circuit’s recent
clarification of the law with respect to the calculation of a reasonable royalty…
• District Court stated Power Integrations’ expert was obligated to apportion the royalty
solely to the patented features, but failed to do so.
• In granting motion for a new trial, the District Court stated [w]ithout the requisite
apportionment, the jury lacked sufficient evidence on which to base its damages award…
EMVR: Analysis of Demand
•
Complexity of the infringing product (i.e., patented vs. unpatented components/features)
•
Are multiple components required under the claims to constitute the patented feature?
•
Importance of benefits/features provided by patent(s) in the end products to customers vs.
other benefits/features and their significance for market demand. [Marine Polymer
Technologies, Inc. v. HemCon, Inc., 672 F.3d 1350 (Fed. Cir. 2012) (en banc)]
•
Testimony from fact or expert witnesses regarding features and benefits sought by
customers and their dependence on the claimed invention of the patent(s)-in-suit and/or
whether the patented functionality is critical to the core function of the accused products
[Marine Polymer , 672 F.3d 1350 (Fed. Cir. 2012) (en banc)]
EMVR: Analysis of Demand
•
•
•
Benefits or features provided by patent(s) vs. other benefits/features and role of claimed
invention of patent(s) in providing features, benefits, or advantages and impact when
added or eliminated [Bose Corp. v. JBL, Inc., 274 F.3d 1354, 1361 (Fed. Cir. 2001)]
Focus of Product Marketing [Fonar Corp. v. General Elec. Co., 107 F.3d 1543, 1552 (Fed.
Cir. 1997)]
Customer Requirements, Comments, Complaints, Surveys, Behavior When Patented
Invention Introduced or Eliminated
− Tec Air Inc. v Denso Mfg., 192 F.3d 1353, 1362 (Fed. Cir. 1999)
 [C]ustomers wanted fans that were balanced to a certain specification and
once Denso abandoned the patented method, it could not meet
the…specification
 [A]fter Denso changed its specification, one customer complained and required
Denso to rebalance the fans
EMVR: Analysis of Demand
•
Non-infringing alternatives that provide similar benefits/ features
•
Prior Product Versions without Patented Features
•
Impact on product (prior and new) sales, prices, profits when patented feature(s) were
added (or eliminated) [Bose Corp. v. JBL, Inc., 274 F.3d 1354 (Fed. Cir. 2001)]
•
Changes in Market Shares after Introduction of Patented/Infringing Products or Removal of
Patented Feature
•
Industry/Trade Publications Reviews and Discussions of Products
•
Surveys (as part of case strategy or in normal course of business). Need to make sure
survey focuses on patented feature/benefits attributable to patented feature [Volovik v.
Bayer Corporation, 01cv1426 (D.Minn. January 7, 2004)]
EMVR: Analysis of Demand
•
Importance of Patented Features/Components to Ability to Compete
− Funai Elec. Co., Ltd. v. Daewoo Electronics Corp., 616 F.3d 1357, 1375 (Fed.
Cir. 2010)
 Industry demand for smaller, cheaper, faster, and more reliable VCRs
 Evidence that the patented technology met the demand
 Products without reduction in size were not considered by retailers due to
limited shelf space
 Customers requested higher speed rewind capability
 High competition in the market demanded lower cost VCRs, which the
patented invention enabled
EMVR: Analysis of Demand
•
Importance of Patented Features/Components to Ability to Compete
− DataQuill Ltd. v. High Tech Computer Corp., 887 F.Supp.2d 999, 1028 (S.D.Cal.
2011)
 HTC documents, showed that the features of the patented technology were
vital to HTC’s competitive position in the smart-phone market
 Court differentiated from the wheels v. automobile argument
− SSL Services, LLC v. Citrix Systems, Inc., 2:08cv158
(E.D.Tex. April 17, 2013, affirmed)
 Several Citrix internal documents specifically stated that the patented
feature (1) was vital to the success of the accused products; and (2) drove
sales of the accused products
 Citrix documents attributed accused product revenue to the patented
feature
EMVR: Analysis of Demand
•
Distinguish between demand for specific patented feature and demand for general
product features of which the patented feature is but one
− Carefusion 303, Inc v. Sigma International, 10cv0442 DMS (S.D.Cal. January
3, 2012)
 Plaintiff asserted that the patented sensor technology contributed to the
overall safety of the infusion pump, which drove customer demand
 Evidence demonstrated that sensors generally, not the particular sensor
described in the '553 Patent, contribute to the safety of the pump and that
other components also contributed to the safety of the pump
EMVR: Sources of Information
 Business plans, product development plans, sales analyses, etc.
 Product technical literature, brochures, advertising, or webpages
 Documents regarding how claimed invention contributes to product features and
benefits, including specific patents and/or claims
 Customer specifications, correspondence, surveys re: demand
 Documents relating to alternative non-infringing product designs/configuration, reasons
why rejected, and acceptance or lack of customer acceptance
 Product sales and pricing (i.e., disk drive v. computer)
 Industry reports
 Internal documents, emails, etc. regarding accused products, patented features, and
their relative importance
 Expert/fact testimony regarding factors driving demand
EMVR: Apportionment
•
EMVR is a narrow exception – consider an apportionment alternative to the smallest
salable patent practicing unit
•
May not get a second bite at the apple
•
Difficulty in determining an apportioned royalty base may not be sufficient
•
Each case is specific and what is applicable in one case may not be applicable in another
case
•
Per unit royalty based on economic contribution of patent(s)-in-suit to the accused
products or other factors as an alternative, when possible
•
Independent sales of the patented component and unpatented components [Cornell
University, et al. v. Hewlett-Packard Company, 609 F. Supp. 2d 279, 283-290 (N.D.N.Y.
2009)]
EMVR: Apportionment
•
Prices for similar products without patented components/features to determine portion of
accused products potentially attributable to patented components/features
•
If using a benchmark, need to exercise care in evaluating comparability
•
May need separate technical fact or expert testimony as support [Apple Inc. v. Motorola,
Inc., 757 F.3d 1286, 1316 (Fed. Cir. 2014)]
•
May need to factor out value associated with non-patented features in the benchmark
•
May be able to estimate based on cost estimates (e.g., bill of materials) for product that
incorporates the patented feature and gross-up to portion of selling price based on product
gross profit margin with adjustments based on technical information, or
patentee/infringer/third-party documents regarding the relative importance of the various
product components
EMVR: Apportionment
•
Purchases/sales/prices of components similar to patented components
− Prices for stand-alone disk drives [LaserDynamics, Inc. v. Quanta Computer, Inc., 694
F.3d 51 (Fed. Cir. 2012)]
− Prices for SAP’s comparable bolt-on software product [Versata Software, Inc. v. SAP
America, Inc., 717 F.3d 1255 (Fed. Cir. 2013)]
− Prices for third-party software as a benchmark [i4i Ltd. Partnership v. Microsoft Corp.,
598 F.3d 831 (Fed. Cir. 2010)]
− Prices for Apple’s Magic Trackpad as a proxy for the value of the asserted claims of
the ‘949 Patent (disclosing the use of finger contacts to control a touchscreen) [Apple
Inc. v. Motorola, Inc., 757 F.3d 1286, 1316 (Fed. Cir. 2014)]
EMVR: Apportionment
•
Information regarding value added by patented vs. unpatented components
•
Component cost estimates/allocation of product prices to components
− Lucent Technologies, Inc. v. Microsoft Corp., 837 F.Supp.2d 1107, 1121 (S.D.Cal.
2011)
 Allocation of 25 percent of average price of Microsoft Office to Outlook
CAFC Opinions Re: Comparable Licenses
Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed.Cir.2009)
• [L]icenses relied upon by the patentee in proving damages [be] sufficiently comparable to
the hypothetical license at issue in suit…
Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1211 (Fed. Cir. 2010)
• [U]se of past patent licenses…must account for differences in the technologies and
economic circumstances of the contracting parties… [Citing ResQNet.com, Inc. v. Lansa,
Inc., 594 F.3d 860, 870 (Fed.Cir.2010) and Wordtech Sys. v. Integrated Networks
Solutions, Inc., 609 F.3d 1308, 1319 (Fed.Cir.2010)]
Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10, 30 (Fed. Cir. 2012)
• [L]ump sum payments similarly should not support running royalty rates without testimony
explaining how they apply to the facts of the case
CAFC Opinions Re: Comparable Licenses
LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 79 (Fed. Cir. 2012)
•
When relying on licenses to prove a reasonable royalty, alleging a loose or vague
comparability between different technologies or licenses does not suffice.…
•
The patentee relied on unrelated licensing programs and license surveys, to the exclusion
of past licenses to the patent-in-suit.
•
New trial ordered based on improper reliance on unrelated licenses.
Virnetx, Inc. v. Cisco Systems, Inc., 2013-1489 (Fed. Cir. Sept. 16, 2014)
•
[W]e have never required identity of circumstances; on the contrary, we have long
acknowledged that any reasonable royalty analysis 'necessarily involves an element of
approximation and uncertainty…
CAFC Opinions Re: Comparable Licenses
SSL Services, LLC v. Citrix Systems, Inc., 2013-1419, 2013-1420 (Fed.Cir. October 14, 2014)
• District Court allowed SSL’s damages expert to rely on software distribution agreements
that were not patent licenses but referenced the ‘011 Patent as relevant IP to the licensed
technology because the agreements were sufficiently comparable to be probative of the
hypothetical negotiation as they involve actual parties, relevant technology, and were close
to the hypothetical negotiation date
• SSL’s expert addressed differences between the agreements and the hypothetical
negotiation
• The CAFC affirmed the admittance of testimony about the agreements and stated [w]e do
not discount all agreements regarding the technology at issue other than licenses
addressing the price terms and circumstances at issue in the case at bar...
Comparable Licenses
Factors to consider and quantify economic impact, if possible:
 Date (compared to hypothetical negotiation date)
 Form of royalty (e.g., lump sum, per unit, % of sales, etc.)
 No. of patents and cross-licenses
 Upfront payments, minimum/maximum royalties
 Product/technology similarity
 Stage of product development
 Importance of licensed technology to licensed product
 Relationship and other transactions between parties
 Non-cash consideration
 Other consideration such as reimbursement for research
 Contingent royalty rates
 Exclusivity and territory restrictions
 Settlement of litigation
Comparable Licenses
Lump Sum Licenses v. Running Royalty Licenses:
 Fundamental differences, including assumption of risk
 Must provide a basis for comparing running royalties to lump-sum royalties or viceversa such as revenue, units, etc.
[Wordtech Systems, Inc v. Integrated Networks Solutions, Inc., 609 F.3d 1308, 1319
(Fed. Cir. 2010)]
Per Unit v. Percentage Royalties:
 Per unit royalties may be able to be converted to percentage royalties if prices of
licensed products are known
 May be necessary to convert royalty to a per unit royalty if the requirements of the
entire market value rule are not satisfied
Comparable Licenses

May need to account for passage of time and changes in product or industry profitability
if licenses are several years removed from the hypothetical negotiation date

Infringement expert or other experts to opine on comparability of patented technology
and other technology included in licenses

If no separate expert, may require collaboration between counsel, damages expert, and
other technical professionals

If licenses contain other bundled rights or patents in addition to the patent(s)-in-suit, an
adjustment may be necessary or it may be difficult to establish comparability

Comparability may be implied if the infringer alleges that the patent(s)-in-suit is/are
anticipated by previous patents for which licenses are being evaluated [Syntrix
Biosystems, Inc. v. Illumina, Inc. 10cv5870 (W.D.WA November 4, 2013)]

Each license needs to be analyzed for both technological and economic comparability

Adjustments may need to be made for different fields of use, different products, etc.
based on different profitability
Comparable Licenses

May be able to account for different fields of use or products by determining the royalty
rate’s percentage of the licensed product profitability at the time of the license and
applying that percentage to the hypothetical license

Also need to account for changes in bargaining position from the date of the license in
question and the date of the hypothetical negotiation

May need discovery (including depositions) on how royalty rates, including those in
settlement agreements, were determined and factors that were considered in the
negotiation, especially if multiple patents and cross-licenses are involved

Also may need information regarding royalties paid under agreements if royalties can be
tied to specific patents

While licenses entered into as a result of settlement of litigation have been admitted, the
propriety of using prior settlement agreements to prove a reasonable royalty is
questionable, especially if the settlement agreement was not a license for the patent(s)at-issue [LaserDynamics v. Quanta Comp., Inc., 694 F.3d 51, 77 (Fed. Cir. 2012)]
Looking Beyond 2014
Claim construction review standard. Lighting Ballast Control LLC v. Philips Elecs. N.
Amer. Corp., No. 13-1536, filed June 24, 2014. This petition is likely to join another
being held pending Teva v. Sandoz. That is, the high court will hear oral argument in
Teva on the same question presented by this petition—challenging the Federal
Circuit's de novo review of a lower court's claim construction judgments.
Design patent obviousness. MRC Innovations, Inc. v. Hunter Mfg., LLP, No. 14-5, filed
July 1, 2014 (129 PTD, 7/7/14). This petition questions the differences in the Federal
Circuit's standards for design patent obviousness, compared to precedents on utility
patent obviousness following the high court's 2007 KSR decision.
Looking Beyond 2014
Public use. Pronova BioPharma Norge AS v. Par Pharm. USA, Inc., No. 13-1251, filed
April 16, 2014 (76 PTD, 4/21/14). In this case on the cardiovascular disease drug
Lovaza, the Federal Circuit held that an invalidating Section 102 public “use” of a drug
composition does not necessarily have to be for treatment.
Co-inventorship. Wilkins v. Gen. Elec. Co., No. 14-157, filed Aug. 6, 2014 (158 PTD,
8/15/14). The evidence requirement for corroborating a claim of contribution to an
invention is at issue
Questions?
Ian R. Walsworth
iwalsworth@sheridanross.com
(303) 863-2976
Mark W. Pedigo
mpedigo@ghphorwath.com
(303) 831-5044