In Aqua Shield v. Inter Pool, the Federal Circuit explains in a bit more detail why an infringer’s profitability really, for sure, we-mean-it-this-time, definitely does not represent the ceiling on a reasonable royalty. It made the same point in its past decisions in Douglas Dynamics v. Buyers (Fed. Cir. 2013), Golight v. WalMart (Fed. Cir. 2004) and even back in the 1989 decision in State v. Mor-Flo (“There is no rule that a royalty be no higher than the infringer’s net profit margin.”).
The court first notes that an infringer’s actual profits are only relevant “in an indirect and limited way—as some evidence bearing on a directly relevant inquiry into anticipated profits.”
The court explains that “an especially inefficient infringer—e.g., one operating with needlessly high costs, wasteful practices, or poor management—is not entitled to an especially low royalty rate simply because that is all it can afford to pay without forfeiting or unduly limiting its profit if it uses the patented technology rather than alternatives.”
The court finds that “the district court did not err in considering [defendant’s] profits. But it did err in treating the profits [defendant] actually earned during the period of infringement as a royalty cap.” By incorrectly focusing on ... Read More
The CAFC has ruled in the past that an infringer’s net profit margin is not the ceiling capping a reasonable royalty (Golight v. WalMart, 2004) and here it again finds a lower court erred by doing just that in Douglas Dynamics v. Buyers Products.
Following a jury verdict that found two patents valid and infringed, the district court in 2011 denied plaintiff Douglas Dynamics a permanent injunction and assigned an ongoing royalty to Buyers. In a post describing that opinion, we explained how the lower court applied the discredited 25% Rule to determine the ongoing royalty rate. The lower court also wrote: “the royalty should realistically leave some room for profit, either on the initial sale or on ancillary ones; otherwise it makes little sense to enter into an ongoing royalty at all. In light of all of these considerations, Douglas’s suggested royalty rates are simply too high.”
Here, the CAFC first finds that “the district court abused its discretion by applying the infamous 25% rule of thumb, which this court held in Uniloc was fundamentally flawed. [citing Uniloc] Second, the district court clearly erred by limiting the ongoing royalty rate based on [defendant’s] profit margins. This court has held that an ... Read More
In a case regarding mobile phone picture uploading, the Federal Circuit affirmed a $15 million jury verdict against Samsung despite its kitchen-sink appeals on claim construction, verdicts, and damages. Regarding damages, the appeals court concluded that Summit 6’s damages expert’s methodology was acceptable despite his admission that it was not previously used or published in peer-reviewed journals. It also ruled that the lower court properly denied Plaintiff’s request for an ongoing royalty because the jury awarded a lump-sum after hearing testimony that it would compensate Summit for the life of the patent.
The technology involves taking a picture with a smart phone, pre-processing (e.g. resizing) the picture, then transmitting the picture to a server over a wireless network. Samsung’s damages expert testified that because infringement takes place at the software level, no company would agree to pay a running royalty on a phone, and that a proper royalty would be $1.5 million lump sum, based on two comparable license agreements. Plaintiff’s damages expert opined that the reasonable royalty would amount to $0.28 per phone over the life of the patent. To arrive at this royalty rate, the expert first apportioned the selling price based on camera cost, finding that the camera ... Read More
On Friday night, a jury in Chicago’s federal courthouse awarded Michael Jordan $8.9 million (of his $10 million claim) for Dominick’s use of his likeness in a magazine ad. The case involved the Illinois Right of Publicity Act and focused on a one-page ad and coupon that appeared in a special commemorative issue of Sports Illustrated sold at Dominick’s grocery stores. Safeway (who owns Dominick’s) reports that only two coupons were redeemed, and its expert opined that damages of, at most, $126,900 would suffice in light of their minimal use.
The award is somewhat curious because Jordan’s damages expert based his $10 million damages claim only on what Jordan would seek, instead of what the parties might agree to in a hypothetical negotiation for Safeway’s actual use. In a Daubert ruling last month, Judge Blakey considered this damages claim, ultimately allowing it. The court explained that Plaintiff argued against the hypothetical negotiation test, claiming that damages should be defined by “fair market value” and that “the fair market value of a property right should not reflect the subjective value placed on that right by a particular buyer.” As such, Jordan’s expert “reviewed Jordan’s actual endorsements (regardless of the context or the ... Read More
A California district court excluded opinions of a damages expert that attempted to apportion the reasonable royalty based on forward citations; i.e. the number of times each patent-in-suit has been cited as prior art by future patents.
First, the Court finds that Plaintiff’s expert, Dr. Anne Layne-Farrar, “offers no explanation as to why the forward citation methodology is an appropriate measure of the value of the patents at issue in this case.” Since the analysis was not tied to the facts of this case, the methodology “has little more probative value than the ‘25 percent rule of thumb’ and Nash Bargaining Solution analyses that the Federal Circuit rejected in Uniloc and VirnetX.”
Second, the Court explains that the expert only analyzed the six patents-in-suit, and hence “this methodology does not account for the value of the accused features as a portion of the accused products, but rather demonstrates only the value of each patent-in-suit relative to each other.” The Court finds that the expert “compares the forward citations of the patents-in-suit to one another as a method of apportioning a royalty base that quizzically does not take into account the infringing and non-infringing features in the accused products.” If this explanation is ... Read More