CONCERNING THE "UTILITY" OF UTILITY PATENTS: RECENT TRENDS IN DAMAGES AWARDS AND LICENSE ROYALTIES...

CONCERNING THE "UTILITY" OF UTILITY PATENTS: RECENT TRENDS IN DAMAGES AWARDS AND LICENSE ROYALTIES IN THE

UNITED STATES

Gary R. Edwards

Crowell & MoringWashington, DC

_____________________________

Nikkei Intellectual Property Forum

Tokyo, 08 September 2003____________________________

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Infringement Damages and License Royalties in the United States

“The only thing that is keeping us alive is our brilliance. The only way to protect

our brilliance is patents.”

Edwin LandApril 27, 1976

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United States Constitution, Article I, Section 8, Clause 8:

“The Congress shall have the power ...To promote the progress of science and useful arts, by securing for limited times to...inventors the exclusive right to their respective...discoveries.”

4


Doyle v. Microsoft (2003)

$520.6 million

City of Hope Nat. Med. Center v. Genentech (2002)

$500,000,000

IGEN International v. Roche Diagnostics (2002)

$505,000,000

Haworth v. Steelcase (1996)

$211,000,000

Polaroid v. Kodak (1991)

$873,000,000

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Intellectual Property Portfolio Management Philosophies

Purely Defensive• Patents held for Cross Licensing

• Entree to technology developed by others

• Patents not a profit center

Aggressive Portfolio Acquisition and Licensing

• Competitive Tool

• Profit Center

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U.S. Growth in Patent License Revenues in 1990’s

$15 Billion --------> $115 Billion

Estimated Current Volume$150 Billion

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IBM Patent Portfolio Management

• Ranked first in U.S. Patent Acquisition for the past ten years

• Estimated Annual Income from Patent Licensing: $1.5 Billion

• Estimated Ten Year Income from Patent Licensing: $10.0 Billion

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Texas Instruments Settlements

Hyundai Electronics (1999) $1,000,000,000

Samsung Electronics (1996) $1,000,000,000

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Industry Royalty Rates

8.0%

7.5%

6.8%

5.1% 5.0% 5.0%4.8% 4.7%

4.5%

4.0% 4.0% 4.0%3.6%

3.2%2.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Med

ian

Ro

yalt

y R

ate

(%

of

Sale

s)

RoyaltySource Database

Source: Analysis Group|Economics(reproduced by permission)

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• In general, in the United States, a patent owner is entitled to be compensated for all economic losses that are reasonably attributable to an infringement.

• No fixed limit on the type of economic injury that can be compensated.

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35 U.S.C. §284:

“Upon finding for the claimaint the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty....”

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Seymour v. McCormick:“[Because] of the immense variety of patents

issued every day,...there cannot in the nature of things, be any rule of damages which will apply equally in all cases. The mode of ascertaining actual damages must necessarily depend on the peculiar nature of the monopoly granted.”

U.S. Supreme Court, 1853.

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• Rite-Hite Corp. v. Kelley Co.:

“The language of [§284] is expansive rather than limiting. It [provides] only a lower limit and no other limitation.

U.S. Court of Appeals

for the Federal Circuit (1995)

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Damages Considerations to be Discussed:

• Lost Profit

• Reasonable Royalty

• Entire Market Value Rule

• Triple Damages

• Attorney Fees, Prejudgment Interest

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Lost Profit Examples:

• Lost sales

• Price erosion

• Lost opportunity to raise prices

• diminution of sales growth

Lost profit need be proven only “to a reasonable probability”.

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Reasonable Royalty

• Hypothetical “arm’s length” negotiation

• Not an accounting exercise

• No need to show lost sales

• Fifteen Factors -- Georgia Pacific case

• Highly Subjective

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Entire Market Value Rule

• Patented feature is the “basis for customer demand” for the entire article.

• Damages calculated based on value of the entire article, and not just patented feature.

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Triple Damages -- wanton disregard, willful infringement

Attorney Fees -- “exceptional cases” (usually, willful infringement, bad faith litigation, etc.)

Prejudgment Interest -- ordinarily awarded where necessary “to afford the plaintiff full compensation for infringement”.

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Hallmarks of U.S. Damages law:

• Full Compensation for all economic losses

• Flexible -- no rigid rules regarding types of loss that are compensable

• Very Subjective

• Courts generally receptive

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