In this Western District of Washington patent case, the court ruled that Plaintiff’s damages expert could not present a royalty rate calculated as 3x the rate found in a settlement, as an attempt to account for litigation uncertainty that could depress the royalty rate agreed upon in the settlement. The expert tried to argue that litigation succeeds on average one-third of the time, hence the 3x multiple.
Courts in the past have recognized that the litigation uncertainty involved in settlement agreements might depress the agreed-upon royalty rates as compared to the hypothetical negotiation where infringement and validity are assumed. See Mondis Technology, Ltd. v. LG Electronics, Inc., 2:07-CV-565-TJW-CE (Order, June 14, 2011). In Mondis, the damages expert was permitted to present a larger royalty rate that was supported by pre-litigation documents.
In this case, Plaintiff’s expert, William Kerr, multiplied the settlement agreement rate by 3, citing data showing that patent holders lose infringement suits in federal courts two-thirds of the time. The court soundly rejects this, stating that the adjustment is no “more than an arbitrary multiplier based on factors and statistics having nothing to do with the patents or parties in this case.” Further, “Dr. Kerr’s one-size-fits-all multiplier would treat all litigation settlements in the same way, regardless of the underlying facts. The Federal Circuit has found that such shortcuts are ‘arbitrary, unreliable, and irrelevant’ and their use ‘fails to pass muster under Daubert . . . .’ Uniloc, 632 F.3d at 1318.” The court notes the similarities to the so-called “25% Rule” that the Federal Circuit found unreliable in Uniloc.
Avocent Redmond Corp. v. Rose Electric Inc., et. al., 2-06-cv-01711 (W.D. WA, March 11, 2013, Order)(Lasnik)