Academic journal article Santa Clara High Technology Law Journal

Arriving at Simplicity amid Increasing Complexity: How the Federal Circuit Has Systemically Defined the Pursuit of Reasonable Royalties

Academic journal article Santa Clara High Technology Law Journal

Arriving at Simplicity amid Increasing Complexity: How the Federal Circuit Has Systemically Defined the Pursuit of Reasonable Royalties

Article excerpt

INTRODUCTION I.  AN OVERVIEW OF REASONABLE ROYALTIES    A. Running Royalties versus Lump-Sum Awards    B. Calculating Reasonable Royalties: Georgia-Pacific      and Comparability II.  2009 To 2013: ANCHORING REASONABLE ROYALTIES    A. Lucent Technologies, Inc. v. Gateway, Inc.-Basis      for Demand    B. Uniloc USA, Inc. v. Microsoft Corp.-Entire Market      Value Is Not a Reference Point by Itself C. LaserDynamics, Inc. v. Quanta Computer, Inc.--Smallest   Salable Patent-Practicing Unit Reaffirmed      for Multi-Component Products    D. Versata Software, Inc. v. SAP Am., Inc.--Comparable      Units Can Substitute as the Royalty Base    E. Evidentiary Burdens and Other Considerations III. 2014: A BROADER VIEW OF REASONABLE ROYALTIES    A. VirnetX, Inc. v. Cisco Systems, Inc.-Patentees      Must Do More    B. Ericsson, Inc. v. D-Link Systems, Inc.--It's All      About that Base, Rate, or Any Combination Thereof CONCLUSION 

INTRODUCTION

At the end of the often long road of litigation, when one side is found liable for the other's damages, only one prejudgment question remains that truly matters: how much recovery should the victor receive? In the context of patent law, Federal Circuit opinions over the past five years suggest a distinct trend toward limiting the discretion afforded to patent damages experts when opining on recovery. In response, both patentees and accused infringers should prepare to muster more detailed and concrete damages models. Those models must fit and candidly address the facts of each case. As for using historical licensing activity to calculate royalties, a threshold showing of factual comparability appears to be the new norm before experts can rely on prior agreements on the asserted patent or comparable technology. Likewise, the circumstances in which patentees can successfully invoke the entire-market-value rule have shrunk progressively. And while those litigation trends are apparent to practitioners, other trends are just now coming into focus.

Until recently, the Federal Circuit emphasized apportionment of the royalty base--as opposed to the royalty rate--when calculating reasonable royalties. To many practitioners, it was "All About That Bas[e]" when crafting damages arguments. (1) In a series of opinions issued in late 2014, the Federal Circuit dispelled that notion by clarifying that apportionment through a royalty base and a royalty rate is permissible so long as "the ultimate combination of royalty base and royalty rate reflects] the value attributable to the infringing features of the product, and no more." (2)

While some commentators have questioned the difficulty that these opinions place on patentees when trying to prove damages, (3) the beauty of this caselaw lies in an advocate's ability to tame the chaos and reach a palatable argument. In Getting to Maybe, a classic law school primer, Professors Richard Michael Fischl and Jeremy Paul teach that students should strive to become comfortable with uncertainty when confronting law school exams because the very nature of legal analysis is not about reaching the correct answer as much as it is about recognizing that ambiguous situations necessarily demand a nuanced approach. (4) Perhaps lessons learned long ago can galvanize effective advocacy moving forward.

This paper argues that, by broadening the concept of how to apportion royalties, the Federal Circuit's recent jurisprudence strengthens the patent system by providing advocates with greater latitude to advance damages theories within the confines of the claimed invention. In three parts, this paper introduces the concept of reasonable royalties in patent litigation, (5) highlights the evolution of caselaw in this area, (6) and explains why the Federal Circuit's most recent holistic approach toward calculating royalties provides parties with greater certainty when litigating damages. (7) At bottom, as each appellate opinion clarified upon release, reasonable royalties must be, quite simply, reasonable and realistic in light of the facts and circumstances of each case--and nothing more. …

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