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CLIENT ALERT: Fish & Richardson Patent Damages Update

September 22, 2010

Legal Alerts

CLIENT ALERT: Fish & Richardson Patent Damages Update

September 22, 2010

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CLIENT ALERT: Fish & Richardson Patent Damages Update
Fish & Richardson’s Patent Damages team has summarized four recent district court and Federal Circuit patent cases where damages issues have been notable.

Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., — F.3d —-, 2010 WL 2384958, Fed. Cir. (Cal.) 2010., June 16, 2010
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The Federal Circuit reversed the damages award, finding it to be against the clear weight of the evidence. The court found that defendants had waived their JMOL argument on damages, but had properly preserved a new trial argument. The plaintiff had requested “at least 12 percent” for a royalty, which came out to $114,000, but the jury awarded $250,000. Wordtech did not present expert testimony, but instead used its president to discuss previous licenses it had entered into.

The Federal Circuit held that, similar to Lucent and ResQNet, the licenses were not sufficiently comparable to the hypothetical negotiation license. Although there were two previous lump-sum agreements in evidence, one for $175,000 and one for $350,000, the court noted that these licenses were not discussed in the trial, and thus “provide no basis for comparison with INSI’s infringing sales. Neither license describes how the parties calculated each lump sum, the licensees’ intended products, or how many products each licensee expected to produce.”

The running royalty licenses similarly could not support the jury verdict, because there was little if any explanation of how the rates in those licenses (around 5%) could support what amounted to a 26.3% license for the hypothetical negotiation. Additionally, the royalty base was admittedly speculative, and the court found that the means to calculate both the sales volume and profit margin constituted impermissible “speculation and guesswork.”

ReedHycalog UK, Ltd. et al. v. Diamond Innovations Inc., 6:08-cv-00325, E.D. Tex., August 2, 2010
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The district court allowed five settlement agreements to be admitted at trial along with other license agreements – holding that any risk of confusion or prejudice was outweighed by relevance – with the caveat that the settlement agreements not be called out as settlement agreements at trial. The court found that the five settlement agreements were for the same license structure (running royalty) and roughly the same financial terms, and thus lent credence to plaintiff’s proposed damages model.

The court noted that, in its opinion, ResQNet had not created a bright-line rule allowing settlement agreements as proper trial evidence, but that it was a case-specific inquiry, and that in this case any Rule 403 concerns were outweighed by relevance: “In, the Federal Circuit commented that ‘the most reliable license in th[e] record arose out of litigation.’…Thus, the Federal Circuit’s observation was not the adoption of a bright-line rule regarding the reliability of litigation licenses nor even a ruling on their admissibility. It was merely a reflection on the evidence before it.”

Marine Polymer Technologies, Inc. v. HemCon, Inc., 1:06-cv-00100, D. NH, August 3, 2010
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The district court upheld a jury verdict that was based on an application of the entire market value rule. According to the court, there was substantial evidence to support the jury’s use of the entire value of the accused bandage as the royalty base. The plaintiff presented evidence showing that the patented p-GlcNAc component in the product drove sales of the product, and the defendant did not effectively undermine this evidence, and thus the jury’s use of the entire product as the royalty base was appropriate.

Additionally, the district court upheld a royalty rate of 34%, which was allegedly higher than the defendant’s profit margin, stating that “the law does not require that an infringer be permitted to make a profit.”

LaserDynamics, Inc. v. Quanta Storage America, Inc. et al., 2:06-cv-00348, E.D. Tex., June 9, 2010
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The district court granted a new trial on damages, erasing the jury’s verdict of $52M, finding that award to be clearly excessive and against the great weight of the evidence. The defendant had entered into numerous lump-sum licenses that bore no relationship to the damages amount, varying from $57,750 to $266,000, and the plaintiff’s prior licenses were also nowhere near $52M. The jury awarded a 6% royalty on stand-alone drives (which sold for $28), and a 2% royalty on finished computers incorporating the drives (which sold for $860).

The court held that there was no basis for the jury to use the entire market value rule, citing to the Federal Circuit’s 2009 Lucent decision. The court stated that, at best, the plaintiff’s expert “testified that almost all computers sold in the retail market include optical disc drives and that customers would be hesitant to purchase computers without an optical disc drive. This evidence notwithstanding, there was no evidence from which the jury could conclude that the patented features of the invention formed the basis for the customer’s demand for the entire computer.”

The court did uphold the royalty rate for the disk drives, however, finding them not to be “clearly excessive,” which the court believed to be the standard based in the 5th Circuit based on i4i. Applying the royalty rate to the disk drives only, the court remitted the damage award to $6.2M.

© Copyright 2010 Fish & Richardson P.C. These materials may be considered advertising for legal services under the laws and rules of professional conduct of the jurisdictions in which we practice. The material contained in this newsletter has been gathered by the lawyers at Fish & Richardson P.C. for informational purposes only and is not intended to be legal advice. Transmission is not intended to create and receipt does not establish an attorney-client relationship. Legal advice of any nature should be sought from legal counsel. For more information about Fish & Richardson P.C. and our practices, please visit

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