Patent litigation is on the rise, and the number of patent infringement suits before the courts is at an all-time high. See “2012 Patent Litigation Study,” PriceWaterhouseCoopers (PWC), 2012. However, many attorneys and litigants are unaware of what the current trends are with respect to damages, if a party prevails in patent litigation. Patent infringement experts are critical to this process, so it is important to understand recent changes in judicial findings, regarding expert testimony and measuring damages.
According to The U.S. Patent Statute, “Upon finding for the claimant the court shall award … 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.” 35. U.S.C. § 284. Further, the Code itself provides : “The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable.” What the Statute neglected to say was that experts are now critical at assessing damages, as neither jurors nor judges are experts themselves, and neither can accurately assess what patent infringement should actually cost a defendant.
Interestingly, the measure of damages is currently being hotly-disputed among the federal district courts, a 25% guideline for measuring damages with respect to “reasonable royalties,” being a thing of the past. What we do know is that, “A reasonable royalty is derived by “envision[ing] the terms of a licensing agreement reached as the result of a supposed [bargain] between the patentee and the infringer at the time infringement began.” Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 (Fed.Cir.2008).
One recent patent-litigation case from California has been often cited and has yet to be ruled on in an appellate tribunal. In assessing the damages for patent infringement, one set of litigants relied upon mathematician John Nash’s theory (also the subject of the movie, “A Beautiful Mind”). Nash, who relied upon game theory for his formula, eventually won the Nobel Prize in 1994. (To learn more about the Nash “Bargaining Solution,” See John F. Nash, Jr., The Bargaining Problem, Econometrica, Apr. 1950, at 155).
The District Court in California recently permitted the use of Nash’s “bargaining solution” in assessing damages for “reasonable royalties.” In a recent mobile phone patent litigation, the court allowed expert testimony that referenced the Nash Bargaining Solution (hereinafter “Nash”), stating that the expert witness was only utilizing it as a reasonableness check against royalty rates (N.D. Cal. 2011). This is a notable case because it is widely-cited and stands for the proposition that, while the trial court is the gatekeeper, expert testimony in evaluating damages is critical and well-received.
In contrast, there is another patent litigation in 2011 between two technology giants on Java Application Programming Interface (APIs). In this case, the Nash Bargaining Solution was offered through the plaintiff’s expert witness, to assess damages for patent infringement. The court rejected “Nash,” on the grounds that the expert for the plaintiff “glossed over the axioms underlying the Nash solution without citing any evidence to show that those assumptions were warranted.” Id. However, what the plaintiffdid not do was reject the Nash theory expressly; instead, it gave experts an important admonition: In fixing damages for patent cases, expert witnesses must adequately explain the application of a theory to a case at hand.
Furthermore, since no appellate tribunal has yet assessed any potential conflicts between the two cases, the key seems be in getting experts to explain their damages theories in a comprehensible and clear manner. For California, at least, “Nash” isn’t out of the question, in assessing damages. The plaintiff in the mobile phone patent litigation indicates that expert testimony will be given considerable latitude and if a theory can be properly explained, it will be accepted in measuring damages.
The increase in patent litigation is likely to continue, particularly with most patent infringement cases dealing with the telecommunications industry, a field which often clashes over whose technology is whose. Therefore, to be adequately prepared, it is advisable to use patent expert witnesses who can explain whatever theory they are relying upon, synthesize it, and apply it to the case at hand, when it comes to fixing damages. In California, the average juror award for a patent infringement case is approximately $6,000,000. See PWC, supra. To measure these amounts properly or defend against such suits adequately, experts provide a critical component of the solution.
By: Kat Hatziavramidis, Attorney-at-Law