In response to my May 8, 2008 post, Debra Resnick, Global Product Director, Intellectual Property - Forensic and Litigation Consulting of FTI Consulting, provided me with the 2007 version of her firm's Intellectual Property Statistics.
Each year the Intellectual Property Group at FTI researches and compiles statistics on intellectual property prosecution and litigation. They recently completed updating their statistics charts to include data for 2006.
The charts include:
- Top Patent Damage Awards: 1980 - 2006 (The Polaroid v. Eastman Kodak case that I worked on for three years still remains at #1 at over $800 million.)
Top five from the list are:
- Top Patent Damage Awards: 2006
- Significant Patent Damage Settlements: 1980 - 2006
- Significant Awards and Settlements - Copyrights/Trademarks/Trade Secrets: 1990 - 2006
- Patent Cases Commenced in U.S. District Courts: FY1997 - FY2006
See the complete set of statistics here.
Lee Thomason writes today, March 18, 2008, at his blog, ISinIP (Innovative Strategies in IP):
Two points of interest about patent suit experts come out of the pretrial ruling in Seitz v. Envirotech Sys., 4:02CV4782 (S.D. Tex. 3/6/2008). The named plaintiff, apparently, had years of experience running his tankless water-heater company, and also, “twenty years of experience in corporate finance and mortgage banking.” On that basis, plaintiff-patentee Seitz sought to act as an expert, and he issued a damages report that quantified lost market share, lost profits and reasonable royalty rates. The district judge disallowed Seitz testifying as an expert on those topics, but did allow him to “provide a lay opinion on lost profits and reasonable royalty rates.” His “financial underwriting work did not involve calculating lost profits from patent infringement.” Yeah, but, courts routinely allow CPA’s and economists to do that for the first time in patent cases. The interesting commentary comes when the judge compares and contrasts the evidence rules on lay and expert opinion. He quotes from Judge Whyte’s recent ruling in Hynix v. Rambus, that the two rules try to provide an “unflinching” separation between what comes in as expert and lay opinion, but then notes that the “advisory committee note …blinks.” Judge Rosenthal blinks and, while refusing to let Seitz speak as an expert, allows his “opinion on damages, based on his personal knowledge of the company’s sales and the [entire] market” to come in. That recalls the old saw, ‘Judge I don’t know what rule this evidence comes in under, but it’s OK as long as it comes in.’
Read the full post here.
I was organizing some old files and came across a copy of Frank Fisher's and Craig Romaine's article from the Winter/Spring 1990 issue of the Journal of Accounting, Auditing & Finance titled, "Janis Joplin's Yearbook and the Theory of Damages." The following are some excerpts:
Most of the analysis so far given has begged an important question. How should one estimate the stream of lost profits to be discounted? In particular, should one use hindsight, estimating what would have happened had there been no violation, or should one instead use only such information as was available when the violation took place? Where there are few carry-over effects from a particular violation, this issue does not matter. Where carry-over effects are large and long lasting, it can matter very much. Since, as discussed in the preceding section, ongoing violations are likely best to be treated without much adjustment for carry-over effects, the hindsight problem is most likely to be important in practice in the case of a single violation destroying an asset.
...our position is that hindsight should not be used. Rather, the stream of returns should be estimated using the information available as of the time of violation. Indeed, as we shall see, expectations as of that time are particularly relevant.
Some simple examples will illustrate what is involved. The first -- and the one to which we shall return -- is a somewhat simplified version of a hypothetical posed to one of us (Fisher) in a deposition in the ETSI case [this was a case I was involved with for several years working on behalf of the defendants]. The case was to be tried in Beaumont, Texas, adjacent to the town of Port Arthur.
Janis Joplin, the rock star, went to high school in Port Arthur, Texas. Suppose that when she graduated she signed one copy of her high-school yearbook. Suppose further that nobody had any idea that Ms. Joplin would one day be famous. Assume that signed high-school yearbooks were being bought and sold for $5.00 in Port Arthur, regardless of whose signatures they contained.
Assume that a thief stole and destroyed the copy of the yearbook with Janis Joplin's signature. The legal proceedings that followed took considerable time, and, by the time a damage award is to be made, Janis Joplin is known to have been a star, with her autograph selling for $1,000. Ignoring punitive issues (and assuming that the yearbook has no sentimental value), what damage award will make the plaintiff (the book's owner) whole?
The temptation, of course, is to use hindsight and award $1,000. The other answer -- $5.00 plus interest at the risk-free rate -- seems somehow very unfair. That perception is incorrect, however, and the temptation ought to be resisted.
The book's owner was not deprived of a yearbook containing the autograph of a rock star. He or she was deprived of a yearbook plainly worth $5.00 that contained one or more signatures. Associated with that yearbook was uncertainty as to whether any of the autographs it contained would ever be worth anything. The $5.00 price of the yearbook included the value of the small probability that they would. It also included the value of the rather more likely outcome that they would not. A book equally valued by the owner at the time could have been purchased for $5.00, and the owner could have, in effect, mitigated the damage by purchasing a replacement and acquiring an essentially identical asset.
Read the full article here.
This article by Laura B. Pincus (Hartman) appeared in Harvard Journal of Law & Technology in 1991. She is currently a Professor of Business Ethics at DePaul University. In her introduction she writes:
Patent infringement damages have been defined by the United States Supreme Court as "compensation for the pecuniary loss [that the patentee] has suffered from the infringement, without regard to the question of whether the defendant has gained or lost by his unlawful acts." The computation of damages in patent infringement actions involves a complex analysis of the facts and figures presented by each case. So intricate is this determination that many infringement actions are bifurcated in order to avoid complicated damages analyses if the defendant is found not liable. If the defendant is found liable, he may appeal the court's decision before damages are assessed; otherwise, the lower court immediately proceeds to determine the appropriate damage award: "In patent law, the fact of infringement establishes the fact of damage because the patentee's right to exclude has been violated."
Read the full 50-page article here.
A case study on calculating patent infringement damages is provided by Connexions. "Connexions is an environment for collaboratively developing, freely sharing, and rapidly publishing scholarly content on the Web. Our Content Commons contains educational materials for everyone — from children to college students to professionals — organized in small modules that are easily connected into larger collections or courses. All content is free to use and reuse under the Creative Commons "attribution" license."
The case study by Dr. Les Livingstone, Professor and Program Director for Economics, Finance, and Accounting, University of Maryland University College online MBA Program, is based on a patent for a wall designed to abate highway noise. You are asked to prepare a damage study for the plaintiff's lawyers using the facts and financial data provided.
Assignment
- Estimate damages for lost operating profit 2003-2005 from lost sales due to infringement.
- Estimate damages for lost operating profit 2003-2005 from margin erosion.
- Should there be damages for lost profits on "convoyed" sales in this case? This is a complex legal issue, and we are not asking you for a professional legal analysis. We simply want you to apply critical thinking as best you can. Explain your answer clearly and completely, with reasoning to support your points.
- You should calculate lost profit damages on convoyed sales, so that the court can consider them, if it wishes.
- Calculate the total value of all the damages as of June 30, 2006, which is the estimated date of the completion of the patent infringement trial.
See the full case study here.
In a follow-up to Friday's post, Patty Tascarella writes for the Pittsburgh Business Times:
Investors in young technology and medical device companies are concerned that proposed legislation to reform the U.S. patent system will wear down startups in lengthy and costly litigation.
Many young companies cite patents as their only asset, said Emily Mendell, vice president of strategic affairs for the National Venture Capital Association, a Vienna, Va.-based industry group. Bill 1145, currently before the U.S. Senate, provides lengthy opportunities to challenge already-granted patents and limits the remuneration awarded to patent-holders.
"Both of these measures are harmful to small, innovative companies that are often venture-backed," Mendell said. "It's important that they have protection from larger companies who can burden them with challenges and infringement."
NVCA also wants to change how damages are calculated. The legislation limits payment to the value of the specific patent.
"Say a small company has a patent on a valve that's part of a larger medical device," Mendell said. "Say this device becomes the industry standard. We think the value of the larger system should be considered when calculating damages."
Kline said it's especially difficult to anticipate the longer-term value of a patent in the life sciences arena. "That ruling could have a negative effect on that industry," Kline said.
NVCA's concerns hit home with David Palmer, CEO of ClearCount Medical Solutions Inc., a North Side-based medical device manufacturer that expects to launch its first product this spring.
ClearCount has had four patents granted and several pending, and does not yet have sales. Being dragged into lengthy litigation could be disastrous at this stage of the young company's life.
"Our patents, we feel, are a very valuable asset to our company, and if they were to be infringed on, we would certainly fight," Palmer said. "We all know the litigation process is very expensive, and larger companies typically have teams of lawyers, and smaller companies typically don't."
Read the full article here.
John Dahlem of Fulcrum Inquiry made me aware of a recent article by his firm:
In September, the House of Representatives approved the most sweeping changes to the United States patent law in over 50 years. If ultimately passed into law, patents will be harder to obtain, and easier to challenge. Supporters claim that litigation will be curtailed by (i) limiting the jurisdiction in which lawsuits can be filed (to avoid filing in pro-plaintiff jurisdictions) and (ii) limiting damages.
The focus of this article is damages. The House (HR 1908) and Senate (S 1145) versions regarding damages are quite similar. Assuming Senate passage occurs, the changes described in this article are likely.
The existing patent damages statute is brief. Under the current law, a patentee is entitled to lost profits damages if the patentee can show that it would be able to make the defendant’s sales, but in no event can damages be less than a reasonable royalty. Case law provides specific guidance as to both damages measures.
The reasonable royalty remedy is the area of perceived abuse. The most important reasonably royalty guidance is contained in a landmark case, Georgia-Pacific Corp. v. United States Plywood Corp., 318 FSupp 1116, 6 USPQ 235 (SD NY 1970). The Georgia-Pacific case provides fifteen factors necessary to provide a sound economic evaluation. From the defense perspective, these fifteen factors are sufficiently broad to allow incorrect assessments. Consequently, the defense side of patent cases prefers more narrowly defined statutory guidance.
The new bill specifies three possible royalty evaluation methods:
- Relationship of damages to contributions over prior art;
- Entire market value; and
- Other factors.
Surprisingly, an established royalty rate based on past licensing is now relegated to an “Other Factor”. Such “Other Factors” are considered only if the court determines that possibilities (1) and (2) are not applicable. Currently, an established royalty is afforded the greatest weight when determining a royalty rate. However, under the legislation, the royalty is instead based on prior art (possibility #1), rather than the current perspective that focuses on the market immediately before the infringement.
Read the full article here.
Matthew Buchanan writes at fedcirc.us:
In DSU Medical Corporation v. JMS Co., Ltd., the Court of Appeals for the Federal Circuit refused to entertain an appeal of a district court's denial of a motion for a new trial based on damages. The patentee sought a new trial because the jury did not award its requested price erosion damages. The jury verdict did, however, grant both lost profits and reasonable royalty damages.
The Court noted that "the jury had before it evidence of price erosion" and that "the verdict form does not segregate the damages award into categories beyond lost profits and reasonable royalties." Accordingly, the Court dissmissed the argument for a new trial out of hand: "[T]his court has no basis to speculate that the jury did not award price erosion damages as part of its lost profits or reasonable royalty analysis." (citation omitted).
DSU Medical underscores the importance of clarity in a damages verdict: all damages categories being awarded should be specifically delineated in order to facilitate any appellate review that may be sought.
Research and Markets in Dublin, Ireland on July 12, 2007 announced the release of a new book titled, "Intellectual Property Law: Damages and Remedies." The book is authored by Terence P. Ross, a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher LLP. The book "addresses two crucial concerns of intellectual property owners - how to recover monetary compensation when an infringement has occurred and how to prevent further infringement" and "is updated as needed, generally two times each year."
The book outline is as follows:
PART 1 RECOVERY OF MONEY DAMAGES
CHAPTER 1
Introduction to Monetary Damages
CHAPTER 2
Copyright Infringement Damages
CHAPTER 3
Patent Infringement Damages
CHAPTER 4
Trademark Infringement Damages
CHAPTER 5
Damages for the Misappropriation of Trade Secrets
CHAPTER 6
Remedies for Internet Infringement
CHAPTER 7
Augmented Damages
CHAPTER 8
Recovery of Attorneys' Fees and Costs
CHAPTER 9
Interest on Monetary Awards
PART 2 STOPPING FURTHER INFRINGEMENT
CHAPTER 10
Introduction to Nonmonetary Remedies
CHAPTER 11
Injunctive Relief in Intellectual Property Cases
CHAPTER 12
Exclusion of Infringing Products from Importation and Other International Trade Remedies
CHAPTER 13
Civil Raids and Seizures
Ordering information is available here.
