The “marketplace” for intellectual property, and patents in particular, is represented in commercial licensing and sale transactions as well as by an award of reasonable royalties in the courts. Since the passing of the American Invents Act (AIA), there has been significant change in both segments as patent owners and counterparties seek to digest changing conditions. The rigors of the legal process make it even more difficult for the judicial market to adjust as the process for assessing value follows a process which is not easily amenable to change.
I have recently been asked to share my views and recommendations on how the judicial setting of royalty damages can accommodate such market evolution as well as better inform the trier-of-fact on reasons for the disparity in value expectations between patent holders and accused infringers.
GEORGIA-PACIFIC HEARING / RULING
Thirty (30) days following the court’s Markman ruling, parties seeking damages for patent infringement may submit briefing to the court no longer than ten (10) pages outlining with specificity the methods that they reasonably anticipate using to calculate damages that they would like the court to address in advance of the submission of expert reports and related Daubert challenges. Parties are not limited to or bound by the methods submitted for review. Twenty-one (21) days following such briefing the opposing party may reply in no more than ten (10) pages addressing any proposed method that they believe should be excluded. A short reply may be permitted. The court would then rule on which methods are admissible given the factual record at the time. Examples of methods which may be helpful to submit include:
- Definition of the Smallest Saleable Patent Practicing Unit (SSPPU)
- Method to be used to apportion the SSPPU – Survey questions and methodology – License agreements deemed comparable (admissible) or not comparable (not admissible)
- Georgia-Pacific factors relevant or not relevant to the facts of the case
- Non-infringement of identified alternatives
- Method to be used to apportion any claimed lost profit units or price erosion
INDEPENDENT THIRD PARTY EXPERT REVIEW
The court may designate a qualified damages expert as a special master under Rule 53, Fed.R.Civ.P. who is independent of the parties and their counsel to review the damages expert reports of all parties, interview the damages experts and provide an advisory report to the court and the parties detailing:
- Perceived errors in the reports or conclusions of both parties – Unsupported material assumptions of the parties
- Business based definition of the SSPPU for purposes of assessing damages
- Opinion on the comparability of various licenses used by both parties
- Georgia-Pacific factors relevant and not relevant to the facts at hand
- Which expert report, as presented, more fairly reflects the damages sustained by the patent holder (i.e. the recommended result if proceeding in a “baseball” arbitration)
- Recommended revisions which should be made to any or all reports to provide the court with likely more relevant alternative damages analyses
The independent expert may be compensated as determined by the court, generally a predetermined fixed fix shared equally by the parties.
Outlined above are two specific suggestions that may be worthy of consideration as special rules for litigating patent cases. These suggestions have been submitted to the Local Patent Rules Committee in the Northern District of Illinois. I welcome your comments and suggestions at JimMalackowskiBlogs@OceanTomo.com.