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ARTICLES
IL Court Rejects Damages Expert’s Arbitrary Royalty Conclusions
In a patent case regarding infant play yard arches, an Illinois district court this week excluded the royalty opinion of plaintiff’s damages expert because his royalty rate “might have been picked out of a hat.” In Kolcraft v. Chicco, plaintiff’s expert first estimated a baseline royalty of 7.7% of sales, then adjusted it upward to 8% based on the Georgia-Pacific factors, resulting in total damages of $3.73 million. The starting point of 7.7% was based on the expert’s decision to apportion one-third of the incremental profit from the accused devices to their patented features. The court rejects the expert’s analysis, explaining: “There is no justification for the one-third figure anywhere in the report or attached exhibits. Although [the expert] discusses the value added by the patented features in abstract terms, … he does not explain how those advantages translate to the one-third apportionment number. Nor is there any other evidence that would support the apportionment figure … As far as the record shows, the one-third number might have been picked out of a hat.” Just as the 25% rule-of-thumb apportionment methodology was rejected for good in Uniloc v. Microsoft (Fed. Cir. 2011), the judge explains: “[Expert’s] number was 33%, not 25%, but the principle ... Read MoreEvaluating Lost Profits Damages During Early Stages of Litigation
For clients and counsel (either plaintiffs or defendants) that are considering possible lost profits claims in their IP litigation, we’ve put together a short primer to get you started. The download link is below. As we cover in this paper, both plaintiffs and defendants are increasingly focusing more attention to damages nearer the outset of litigation. This paper covers the legal framework and key cases, as well as the basics of quantifying the damages. As always, contact us for more information or to see how we might assist your case.Federal Circuit Addresses Royalty Apportionment and Royalty Rates in Exmark
In Exmark v. Briggs & Stratton, the Federal Circuit added to the pool of cases dealing with royalty apportionment, ruling that even though apportionment was required in the reasonable royalty determination, the apportionment could be done on the royalty rate, instead of the base, mainly because the patent claims refer to the broader product. Let’s start with the case facts. A trial court jury awarded $24 million in compensatory damages at a 5% royalty rate for Briggs’ infringement of Exmark’s ‘863 patent. The patent is directed to a lawn mower having improved flow control baffles (metal parts under mower deck that direct air flow and grass clippings). The Federal Circuit vacates the award primarily because Exmark’s damages expert failed to justify the 5% royalty rate. Issues Briggs had raised three arguments: (1) the district court erred by permitting Exmark to use the sales price of the accused mowers as the royalty base instead of the sales price of the flow control baffles; (2) Exmark’s damages expert failed to justify the 5% royalty rate, and (3) the district court improperly excluded evidence relevant to damages. Royalty Base The court explains that “the parties do not dispute that apportionment is required in this case.” But the court ... Read MoreExpert’s Royalty Excluded due to License Comparability and Methodology
In Acantha v. DePuy, a patent case dealing with spinal implant orthopedic devices, a Wisconsin district court judge excluded what seems to be the bulk of the reasonable royalty opinions of Plaintiff’s damages expert. The court ruled that (1) the main basis for the expert’s proposed royalty rate improperly includes royalties paid to a licensee that is not a party to this litigation; (2) the expert failed to show that a litigation settlement was sufficiently comparable (beyond just technical aspects) to be a useful data point; and (3) the expert’s Georgia-Pacific analysis was not sufficiently tied to his royalty rate conclusion to demonstrate proper apportionment. Plaintiff’s expert relied upon Acantha’s exclusive license of the patent-in-suit to Stryker (not a party to this litigation) calling for royalties of 4.25% of sales (later revised to a non-exclusive license at 3.25%) plus 40% of any sublicensing royalties. Rather than adopt the rate of 4.25%, the expert concluded that the hypothetical negotiation would include Stryker (not plaintiff) and the resulting rate would be 10.6% to 21.2% in order to remit 4.25% to Acantha. The court explains that licensees are normally included as parties to a hypothetical negotiation when they are parties to the patent infringement ... Read More
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