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Patent Infringement Damages Experts Assess Statutory Reform Need After Lucent, Uniloc

Publication Date: 
January 18, 2011
Source: 
BNA - Patent Trademark & Copyright Journal
Author: 
Tony Dutra

Following the Federal Circuit decision in Uniloc v. Microsoft, Professor Mark A. Lemley spoke about the positive impact the case might have as well as the aspects of patent reform that the case did not resolve. Tony Dutra reports:

After Congress focused on compensatory damages in its patent reform debate in the 111th Congress, the U.S. Court of Appeals for the Federal Circuit addressed its jurisprudence on the topic in four cases that each appeared to chip away at the motivation behind the reform provision.

With the court's Jan. 4 decision in Uniloc v. Microsoft fresh in their minds, experts on the issue told BNA that the concern over district courts' misapplication of the “entire market value” rule—a key element of the congressional debate—was greatly minimized. Some further questioned the need for Congress to codify the “gatekeeper” role of the district court judge either.

If Congress takes their advice and further limits or eliminates compensatory damages from patent reform measures expected to be introduced in the 112th Congress, it will be the third straight session where a key reform issue was resolved by either the Federal Circuit of the U.S. Supreme Court while the bills were stalled in the legislature.

...

“We're seeing changes in Lucent, ResQnet, and Uniloc, the same as happened in other areas of patent reform in the last six years,” said Mark A. Lemley, a noted patent law professor at Stanford University, Stanford, Calif. “While Congress stalled, the courts stepped in."

Consequently, with this collection of decisions as a backdrop, BNA asked former Chief Judge Michel, Lemley, and experienced damages litigators to address whether the Federal Circuit has reined in the problem in damages sufficiently so as to negate the need for reform.

...

Even Lemley, a pro-reform witness at the Senate Judiciary Committee hearing on S. 515 (45 PTD, 3/11/09), questioned whether the EMV-related language was still necessary in the next legislative attempt. “The gatekeeper provision, coupled with the bifurcation of damages in trials, may well be sufficient, assuming the courts step up,” he told BNA.

“The Federal Circuit has done some encouraging things,” he said. Though he conceded that the appeals court's decisions got rid of a number of the largest problems, he said that the patent community still needs more affirmative guidance. For one, Lemley argued, the court has yet to deal with examples of instances where the patented component is found, in fact, to be the reason for consumer demand. We do not yet have guidance on how to determine the appropriate royalty rate when a court finds that the EMV rule would thus be applied, he said.

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As noted above, Lemley still argued in favor of keeping the gatekeeper language in the patent reform bill. “[Federal Circuit judges] are not accepting damages decisions no matter how crazy the underlying theory,” he conceded. “They are not accepting implausible theories.” But that does not necessarily mean that district courts are now prepared to do the same, he said.

For example, while Nemec argued that courts can keep prejudicial evidence away from the jury with properly filed motions in limine, Lemley countered that not all courts treat such motions with the same level of importance. The gatekeeper language in the S. 515 Manager's Amendment “creates an affirmative obligation on the district court judge,” he said. In fact, Nemec conceded that point. “Perhaps not all courts are vigilant in enforcing [Federal Rules of Civil Procedure and Evidence] when it comes to damages,” he said, “and in that sense the proposed legislation could prove beneficial by shining a light on the importance of the gatekeeping role in the patent damages context.”

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But Lemley and Nemec pressed the issue of giving more guidance to courts, whether legislatively or through the courts. Each pointed specifically to the problem of presenting to the jury all 15 factors for determining a reasonable royalty as defined in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 166 USPQ 235 (S.D.N.Y. 1970). Precedents to date “don't do a lot to help draw lines on relevance” of individual factors, Nemec said. The problem is that experienced litigators can “argue that virtually anything is at least ‘relevant' to patent damages” under one of the factors, he said.

“Yes, we want the district courts to limit the number of factors that the jury should consider,” Lemley said. “And it needs to be determined on a case-by-case basis, but it would help to know more about what factors tend to apply to what situations.”

Lemley pointed to a paper he co-authored with Daralyn J. Durie of Durie Tangri, San Francisco. The authors suggested, “Most of the factors in the Georgia-Pacific test, in fact, boil down to three fundamental questions: (1) what is the marginal contribution of the patented invention over the prior art?; (2) how many other inputs were necessary to achieve that contribution, and what is their relative value?; and (3) is there some concrete evidence suggesting that the market has chosen a number different than the calculus that results from (1) and (2)?

“By structuring the inquiry in this way, courts (or Congress) will not only simplify the question for the jury, but also enable district courts and the Federal Circuit to easily review the factual basis for a jury award,” Lemley and Durie contended. Though Rooklidge did not comment specifically on Lemley's approach, he undoubtedly preferred that courts—not Congress—eliminate any confusion resulting from the multi-factor test.

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In fact, Lemley noted that he may well have the opportunity to advance his approach to district courts' analyses in another manner without necessarily requiring legislation. Lemley serves on the committee responsible for the model jury instructions for the U.S. District Court for the Northern District of California. Along with upcoming Supreme Court decisions on unrelated aspects of patent law, he said, the Federal Circuit's recent damages jurisprudence may give the committee a reason to reconvene.

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Explaining his support for the provision, Lemley cited a further structural issue with case presentation when liability and damages arguments are decided together. “A lot of problems arise from the fact that the parties don't spend much time on damages,” he said. “The defendants in particular don't want to undercut their story that they don't have to pay anything.” As for the plaintiffs and their disincentive to be rigorous in the damages analysis in some cases, he said, “They probably don't want to know the answer.”

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Lemley, whose university sits in the heart of Silicon Valley, assumed the high technology firms were “more or less happy with what's been going on in the courts” as to damages. He believed that their negative reaction to the S. 515 Manager's Amendment was a result of multiple instances of their patent reform expectations being “whittled away” in the congressional negotiations. “They felt like they were losing the political battle even though the [full bill] was generally positive to them.” But, he suggested, “The Manager's Amendment is better than nothing.”