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Seton Hall University

School of Law
Legal Studies Research Paper Series
Patent Damages Reform and the Shape of Patent Law

David W. Opderbeck

Associate Professor of Law

Seton Hall School of Law

One Newark Center

Newark, NJ 07102

http://law.shu.edu

opderbda@shu.edu

Direct: 973.642.8496

Patent Damages Reform and the Shape of Patent Law

by David W. Opderbeck


Abstract
The shape of patent law is changing. Surprisingly, one of the most significant of these changes is rooted in the arcana of how damages are calculated for patent infringement. Current reform proposals before Congress, which are hotly contested by major technology-rich industries, would radically alter the shape of the patent grant by requiring courts to tease out the “economic value” of the claimed invention as compared with previously existing technology. This paper responds empirically and theoretically to this attempt to reshape patent law through the back door of damages.
Advocates of the damages reform proposals cite empirical evidence that patent verdicts are growing excessively large. This paper reviews the existing empirical literature and presents an original study of patent verdict data obtained from the Administrative Office of the Courts. The literature review and original study presented in this paper suggest that the empirical arguments made by reform advocates are largely misplaced.

This paper also examines the theoretical underpinnings of the remedial structure for patent infringement. It discusses a string of recent Supreme Court opinions in which patent law appears to be moving from a property rule towards a liability rule of remedies.

Finally, the paper examines two key factors that have been ignored in the existing patent reform debate: price elasticity of demand and risk. Theoretical models are presented that demonstrate why attempts at reform should focus on shifting towards a restitutionary model of patent damages, with a possible premium for risk.

Patent Damages Reform and the Shape of Patent Law



by David W. Opderbeck
I. Introduction 1
II. Patent Damages and Reform Proposals 4


  1. Lost Profits and Reasonable Royalty

Under Existing Law 4
B. Reform Proposals Before Congress 6
III. Empirical Review of Past Damage Apportionment Cases 8


  1. Previous Empirical Studies 9




    1. Kimberly Moore 1983-1999 AOC Data 9




    1. PriceWaterHouseCoopers 10




    1. Lemley and Shaprio 13




  1. A New Study of Administrative Office

of the Courts Data 15


  1. Descriptive Statistics 16


2. Statistical Comparisons 18

  1. Property or Liability Rules: Judicial Remedies


Reform and the Nature of Patents 20
A. Convoyed Sales and the Contours of Patent Damages 20


  1. Recent Judicial Limitations on Patent Remedies 22




    1. Injunctions 22




    1. Declaratory Relief 24




    1. Willful Infringement 25




    1. Exhaustion of Remedies 27


V. What Shape Patent Law? 29
A. Property or Liability Rules? 29


  1. Popping the Balloon: Moving Towards a

Liability Rule by Restricting Damages

to the “Economic Value of the Invention”

as Against the Prior Art 34


  1. Utility 35




  1. Novelty and Non-Obviousness 37



VI. Price Elasticity and Risk as the Missing Factors 39

  1. Squeezing Too Hard, Too Soft, or Just


Right: Assessing Foreseeability-Based Approaches 39
B. Elasticity and Risk 43


  1. Profits, Royalties, and Price Elasticity of Demand 43




  1. Price Elasticity, Entire Market Value, and

Convoyed Goods 51
C. Royalties and Risk 52
VII. Conclusion 56

Patent Damages Reform and the Shape of Patent Law



by David W. Opderbeck


  1. Introduction

The shape of patent law is changing. Throughout the 1980’s and 1990’s, as patent-rich industries such as pharmaceuticals and biotechnology expanded, the Federal Circuit and the Supreme Court pushed the boundaries of patentable subject matter and tied off exceptions to infringement liability.1 Now, under the pressure of patent-poor incumbents in the computer industry, Congress is being lobbied to squeeze the law into a smaller shape.

Some of this pressure falls on expected places, such as efforts to ensure a more rigorous examination of patentability in the Patent and Trademark Office.2 Surprisingly, however, a key pressure point, which threatens to explode Congressional reform efforts, is found deep in the arcana of how damages are calculated for infringement. Damage rules are set to determine the shape of the patent grant for years to come.

Patent reform advocates argue that damage awards in patent cases have grown excessive because reasonable royalty damages are not necessarily limited to the incremental economic value of the invention claimed in the patent.3 They argue that the threat of a large damage award gives undue leverage to patentees in license negotiations and allows owners of patents on minor components to hold up production of finished products.4 They seek legislation that would require trial courts to apportion patent damages among the invention identified in the claims of the patent in suit, the commercial device, process or method in which the patented invention is embodied, and the prior art.5 The patent reform bill recently passed by the U.S. House of Representatives, and the bill currently under consideration by the Senate, each contain extensive apportionment requirements.6

Opponents of apportionment argue that an apportionment requirement is unnecessary and unworkable.7 Existing case law gives trial courts discretion to consider a broad range of factors when determining a reasonable royalty.8 This discretion, apportionment opponents argue, properly recognizes the trial court’s role in crafting remedies tailored to individual cases.9

Supporters of damages reform often position their arguments as fundamentally empirical. Reformers cite a growing trend towards large verdicts. This trend, they suggest, is particularly problematic when the patentee is a non-practicing entity or “patent troll,” which has no business model except to collect and license patents.10

There have, in fact, been some enormous patent verdicts in recent years, topped off by a $1.5 billion verdict against Microsoft relating to MP3 technology.11 On careful analysis, however, the data do not seem to support a statistically significant trend towards larger verdicts. A literature review of existing empirical studies, together with an original study of data gleaned from the Administrative Office of the Courts, shows that damage awards are widely and stochastically distributed, which suggests that most cases are being adjudicated according to their facts rather than according to some predisposition towards large awards. The very large verdicts are outliers that must be analyzed individually on their own merits. This suggests that any reform should target rogue verdicts. Given that several layers of safeguards against rogue awards already exist, including procedures for judgment notwithstanding the verdict, remittitur, and appeal, it is unclear what else is required.

Underneath these empirical claims, however, a bigger debate is bubbling to the surface. Arguments about changing the shape of patent damages calculations, at a deeper level, are arguments about changing the shape of patent law itself. Some reformers fear that the scope of the patent franchise has expanded too rapidly. They seek to constrain the patent grant by transitioning from a property rule of patents towards a liability rule. The Congressional damage reform proposals, which on their face involve technical details about damages rules, in fact represent a massive and historic shift towards a liability rule.

Recent judicial decisions, however, have in many ways weakened the case for broader legislative reform. In a string of recent decisions involving injunctions, non-obviousness, declaratory relief, and other issues, the Supreme Court has constrained the power of patents. Given these developments, the Congressional damage reform proposals seem particularly unwise. A requirement that the “economic value” of a patent be apportioned against the prior art would create irreconcilable tensions with the way in which we now think of the patent grant.12 The conservative-sounding Congressional reform proposals are in truth quite radical against the background of recent changes in the case law.

Notwithstanding these concerns, the remedial scheme for patent infringement should change. There are two factors of great economic importance that the existing remedial scheme for patents overlooks: price elasticity of demand and risk.13 Price elasticity of demand is an important driver of the patent engine because elasticity is what allows a patentee to obtain rents. An analysis of patent remedies that accounts for price elasticity of demand suggests a surprising result: the “reasonable royalty” requirement could be eliminated if the patentee were entitled to disgorge the infringer’s profits, and in most cases, the appropriate measure of damages would equal restitution of the infringer’s profits. This would promote results that are both economically efficient and socially desirable, as it would help skew innovation incentives towards “necessary” goods for which there is relatively inelastic demand. There is currently no restitutionary remedy under the Patent Act, but this is an historical lacuna that Congress should fill.

Risk is likewise an important component in the patent system. It is often impossible to calculate the economic value of an invention over the prior art ex ante invention. Some inventions offer no meaningful economic returns until they are combined with other unforeseen inventions and market developments.14 To the extent the prospect of economic returns drives innovation, the inventor incurs risk by devoting resources to a particular area of research and development.15

Risk also is an important factor in licensing transactions ex post invention. Some technologies are well-established and well-understood, giving them a clear market value. Many technologies, however, have no proven track record either technologically (will it work) or marketing-wise (will anyone buy it). A license for this kind of technology involves a forward-looking assessment of risk.

It makes no sense to look backward from the time of a patent grant in an effort to determine the economic contribution of the patent over the prior art. Such an exercise has nothing to do with either the static efficiency problems that patents can cause or the dynamic efficiency problems they are supposed to solve. But it makes perfect sense to consider the risk a patentee assumed, measured by research and development costs and other factors, at the time of invention. An inventor who assumes greater risk generally should be entitled to a greater reward. An infringer who free rides on risk taken by a patentee should expect to pay damages proportionate to the risk avoided.

Part II of this paper summarizes existing patent damage rules and contrasts them to the current reform proposals. Part III provides a literature review of existing empirical studies on patent damages, together with an original empirical analysis of damage awards in patent cases decided from 2002 to 2007. Part IV reviews the significant jurisprudential shifts that have occurred in patent law over the past few years. Part V synthesizes the current state of the jurisprudence and the Congressional reform proposals, and suggests that the apportionment requirement is unwise. Part VI analyzes the implications of price elasticity of demand and risk for patent damage awards, and suggests that Congress amend the Patent Act to include restitution as a component of patent damages.


II. Patent Damages and Reform Proposals


  1. Lost Profits and Reasonable Royalty Under Existing Law

Section 284 of the U.S. Patent Act provides that damages for patent infringement must be “adequate to compensate for the infringement, but in no event less than a reasonable royalty.”16 Courts have understood section 284 to authorize damages under either of two broad theories: lost profits or a reasonable royalty.17

Recovery under a lost profits theory generally requires the patentee to show that the infringing and patented products actually compete in relevant markets.18 Under some circumstances, the patentee can recover lost profits when the infringement facilitates competition in a market for an unpatented product manufactured or sold by the patentee.19 This is called the “entire market value rule.” In all cases, the patentee must prove causation connecting the infringement and the lost profits.20

A “reasonable” royalty is the minimum amount of damages that can be awarded.21 The “reasonable royalty” used in this minimalist sense is a type of actual damages. The minimal “reasonable royalty” is what the patent owner and a licensee would have freely negotiated, when there is evidence of such prior transactions.22

“Reasonable royalty” is also the term for an alternative measure of damages available when there is no competitive nexus between the patented and infringing product or method, or where the measure of lost profits is speculative.23 The purpose of this kind of “reasonable royalty” calculation is not to approximate actual market transactions that might occur absent infringement.24 Rather, this calculation is meant to provide “adequate compensation” for infringement.25

Reasonable royalty damages can be calculated under either of two methods. The first is the “analytical approach,” under which the infringer’s profit projections relating to the infringing product or process are apportioned between the patentee and infringer.26 The second is the willing licensee-willing licensor approach.27 This approach imagines a hypothetical negotiation between the patentee as a willing licensor and a willing licensee.28 Damages under this approach may be substantially higher than the minimum “reasonably royalty” damages required under the statute.29 Courts may consider a variety of factors when attempting to construct this hypothetical negotiation, in particular the factors outlined in Georgia-Pacific v. U.S. Plywood.30 Among those factors are “[t]he utility and advantages of the patent property over any old modes or devices that had been used” and “[t]he portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer.”31


B. Reform Proposals Before Congress
The patent reform bills currently pending before the House and Senate each include provisions designed to limit patent damage awards. These focus on the “entire market value” rule and the apportionment of damages between the claimed invention and the prior art.32

Under the House bill, the court must first determine whether reasonable royalty damages should be apportioned from the value of the prior art, whether the entire market value rule is appropriate, or whether damages should be apportioned according to some other “relevant factors.”33 If the court determines that damages should be apportioned, it would be required to conduct an “analysis” to ensure that the royalty rate “is applied only to that economic value properly attributable to the patent’s specific contribution over the prior art.”34 The court must exclude “economic value properly attributable to the prior art, and other features or improvements, whether or not themselves patented, that contribute economic value to the infringing product or process.”35 If the court determines that “the patent’s specific contribution over the prior art is the predominant basis for market demand for an infringing product or process,” then damages may be based on “the entire market value of the products or processes involved that satisfy that demand.”36 If the court determines that neither apportionment nor an entire market value award is appropriate, it may direct the jury to consider evidence of prior nonexclusive licensing or of “any other relevant factors under applicable law.”37

The Senate’s version is similar to the House’s. Under the Senate version, the court would determine whether the jury should calculate the reasonable royalty according to the entire market value rule, existing non-exclusive license terms for the same or substitute products or methods, or apportionment against the prior art.38 If the court determines apportionment is appropriate, the jury would be required to apply the royalty “only to the portion of the economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art.”39

The damages reform proposals are supported by many large manufacturing, computer and information technology, and financial services companies.40 These industries are concerned about the negotiating leverage afforded to patentees by the potential for large patent infringement damage awards.41 For example, Palm, Inc.’s Senior Vice President and General Counsel Mary Doyle testified before the Senate Judiciary Committee that “patent aggregators” increase the cost and complexity of evaluating patent claims by demanding settlements based on the “’thwack factor”: “the sound a large stack of patents makes when it hits the negotiating table.”42 According to Doyle, the threat of damages based on the full value of a product, such as a Palm personal digital assistant, in which a relatively minor patented component is included, results in unnecessary transaction costs and over-valued licenses.43

The damages reform proposals are opposed by many small and mid-size technology companies, particularly those that manufacture and sell components that are incorporated into end-user products by other manufacturers, as well as by academic research institutions, labor unions, the pharmaceutical and biotechnology industries, and the American Bar Association’s Section on Intellectual Property Law.44 These groups believe mandatory damages apportionment would improperly limit the flexibility of trial courts to craft appropriate remedies, “would often make infringement cheaper,” and would “encourage free-riders and even existing licensees to risk litigation rather than pay, or continue paying, a market-negotiated licensing fee.”45 The Bush Administration agrees with these groups that the damages reform proposals “may have the unintended consequences of reducing the rewards of innovation and encouraging patent infringement.”46



  1. Empirical Review of Past Damage Apportionment Cases

The patent damages reform debate has been positioned as fundamentally empirical.47 Reform advocates argue that runaway verdicts have increasingly tilted the balance of power in favor of patent holders. This section presents an empirical review of damage awards in adjudicated patent cases. The first subpart of this section presents a survey of several important existing empirical studies on patent damage awards. The second subpart presents an original analysis of Administrative Office of the Courts (“AOC”) data.

The literature review and independent empirical study presented below suggest that patent damages reform question is empirically underdetermined. The studies that have been conducted to date, as well as the original study presented in this paper, are inconclusive concerning whether damages in patent cases are becoming systematically excessive or whether, instead, a few highly unusual awards have skewed the data and the public debate. Moreover, our study, which is the first to examine statistical correlations between the size of damage awards, whether the award was for lost profits or a reasonable royalty, and apportionment, found no statistically significant correlations – in other words, the distribution of awards appears to be stochastic, as we might expect if cases are being decided individually on the merits. Following this section on the empirical literature, we will argue that the patent damages debate is really one of the front lines in a broader ideological and theoretical debate about the fundamental nature of the patent grant.


    1. Previous Empirical Studies

This section describes existing empirical studies of damages in patent cases. Such studies can help frame the debate over whether patent damage reform is necessary and what sorts of reform might be appropriate. As discussed below, however, each of the existing studies is limited in data, scope, and methodology. Following the discussion of the strengths and weaknesses of existing studies, we present an original empirical study that provides additional context to the discussion.



      1. Kimberly Moore 1983-1999 AOC Data

In a 2000 study, Kimberly Moore analyzed the Administrative Office of the Courts (AOC) data on patent cases that were tried from 1983 to 1999.48 The primary purpose of her study was to assess differences between judge and jury verdicts.49 Of particular relevance to this paper, Moore found that damages were awarded in 501 of the cases – approximately 41% of all the cases tried to verdict, which represent only about 2% of all the roughly 23,000 patent cases terminated during the study period.50 The mean award was approximately $6.5 Million in cases tried to juries and $4.4 Million in cases tried by the court; the medians were approximately $10 Million and $500,000, respectively.51 A large standard deviation suggested the presence of outliers, and in fact most of the awards in both judge and jury trials were in the range of $350,000 to $500,000.52 Moore did not address whether the awards were based on lost profits or reasonable royalties.




      1. PriceWaterHouseCoopers

The consulting firm PriceWaterhouseCoopers (“PWC”) conducted a study of patent damage awards from 1980 through 2007 and success rates from 1995 through 2007.53 Data for the PWC study were drawn from Westlaw intellectual property and jury verdict databases.54 The PWC report concludes that “[w]ith trial success rates at their highest level in history, patent holders appear to be winning with considerable awards of damages.”55

It is interesting to break down the data PWC uses to support this statement. According to the PWC report, patent holders succeeded in proving liability, either through summary judgment or at trial, in 37% of all cases.56 The average success rate from 1995 to 2000 was 32%.57 The average rate from 2001 to 2007 was 40%.58 This is a minor difference given that the total sample included only 1282 patent holder success cases over the entire period.59

Success rates at trial appear to have grown significantly, with an average success rate of 47% from 1995 to 2000 and a 63% average from 2001 to 2007.60 The study suggests that this increase is related to an increase in the total number of jury trials compared to the total number of bench trials.61 However, the study offers no regression or other analysis to demonstrate statistical correlation.

The PWC study also notes that “[t]rial success rates show stark contrasts” because patent owners are more likely to succeed in jury trials.62 Again, however, the study offers no context for the percentages given. For example, in 1997 the PWC study shows a 100% success rate for jury trials compared to less than 50% for bench trials. But, according to PWC’s data, only about 15% of the patent cases tried in 1997 were jury trials.63 This represents only a handful of jury trials during that year. One jury trial loss would have changed the relative percentages dramatically.

Similar problems plague the PWC study’s analysis of damage awards. The PWC report states that “[r]ecent awards by juries have been running several multiples of the amounts awarded by judges.”64 It appears, however, that the small number of jury verdicts may have produced some outlier numbers. For example, the PWC Report lists nine high-profile patent damage verdicts of $100 million or more from 2005 to 2007.65 These awards far exceed average median damage award of approximately 3.8 million for the 1995 to 2007 period.66

These “landmark” awards, as the PWC Report calls them, are offered as cause for serious concern about the patent system.67 Certainly even a remote probability of a $100 million-plus verdict will make anyone think carefully about intellectual property. Drilling down into the details of the nine cases listed in the PWC report, however, reveals a much more complex picture than usually surfaces in debates over patent damages reform.

None of these nine cases involved non-practicing entities (colloquially called “patent trolls”). In fact, most of them were extraordinarily complex, long running disputes by fierce market competitors involving multiple patents and other claims.

For example, the $133 million patent verdict in favor of Rambus, Inc. against rival memory and chip maker Hynix, Inc. was part of a corporate war that involves 59 claims from 14 Rambus patents as well as antitrust and other claims.68 Similarly, the Alcon v. Advanced Medical Optics $121 million verdict was awarded in one of four patent infringement cases brought by Advanced Medical against Alcon, leading competitors in the medical device and pharmaceutical products industry relating to eye care.69 Notably, the Federal Circuit upheld the damage award against Alcon’s argument that the award violated the entire market value rule.70 The federal circuit found that the patents covered “elements found throughout the [infringing] devices,” such that the value of the patents could not be functionally separated from the value of the finished devices.71 In addition, the federal circuit upheld the jury’s finding of willful infringement, based on evidence that Alcon directly copied its design from examples of machines manufactured by Advanced Medical – in other words, that Alcon reverse engineered the machine without regard for Advanced Medical’s patent rights.72 The dispute eventually was settled in a package deal for a lump-sum payment by Alcon of $121 million.73

In some of the cases, the post-trial and appellate processes changed the result. The largest and most discussed award, a $1.5 million jury verdict against Microsoft in favor of Alcatel-Lucent on a patent relating to MP3 audio technology, was overturned by the trial court on post-trial motions.74 The court found that the entire market value rule was improperly applied to permit royalties on the sale of entire computers rather than only on the patented software, and that the royalty rate assessed by the jury lacked an adequate evidentiary foundation.75

Likewise, in Verizon v. Vonage, the federal circuit vacated the judgment of infringement with respect to one of the three patents in suit based on an erroneous claim construction, and vacated the damage award entirely, because the jury did not allocate the award among the three different patents.76 The Federal Circuit also vacated the finding of infringement, and therefore the $115 million damage award, in Finisar v. Directv.77 Thus, three out of the six $100 million-plus damage awards from 2005 to 2007 involving the computer and telecommunications industries were overturned.78 This additional information is missing from the PWC Report, which raises serious questions about the Report’s value for policy analysis.


      1. Lemley and Shaprio

Mark Lemley and Carl Shapiro analyzed cases reported in Westlaw from 1982 through mid-2005 in which a reasonable royalty was awarded to the patentee.79 They identified only fifty-eight such cases over that twenty-three year period.80 Curiously, they noted that cases in which lost profits are awarded are more prevalent than reasonable royalty cases, while the PWC study concluded the opposite.81

The core empirical finding of the Lemley-Shapiro study is that the mean reasonable royalty rate for their sample was just over 13%.82 As the authors note, “[t]his number will strike many patent lawyers as surprisingly high” because market royalty rates, and even rates negotiated as part of settlement agreements, typically are much lower.83

One important reason they offer for this disparity is the “probabilistic” nature of patent rights.84 The boundaries of a patent right are fuzzy prior to a court determination of issues such as claim construction, non-obviousness, and the range of equivalents.85 The parties to a license negotiation must take this uncertainty into account when valuing the royalty rate. In addition, cases litigated to verdict might involve a greater monetary stake than a garden-variety license.86 The authors suggest that the most significant contribution to this disparity is the problems of holdup and royalty stacking.87

The holdup problem results from the threat of injunctive relief when a complex product requires rights to many different upstream patents.88 Under these circumstances, a single upstream patent owner can hold up the process of clearing all the necessary rights by demanding a high royalty.89 The downstream firm is faced with a dilemma: either pay the extortionate royalty, undertake the expense of redesigning the product to eliminate the holdout’s component, or run the risk of an injunction barring the sale of the entire product that incorporates the patented component.90 In addition to a game theoretic model of this dynamic, the authors provide some anecdotal examples of how this happens in practice, particularly “in the industries in which so-called patent trolls predominate,” including computers and telecommunications.91

Royalty stacking refers to the circumstance where “multiple patents read on a single product, so that the downstream firm must deal with the stacking of royalties paid to two or more patent holders.”92 This problem leads to the “patent thicket” or “anticommons” problems sometimes associated with industries in which downstream products depend on many small upstream components or bits of basic research, such as semiconductors and biotechnology.93 Among other distortions, royalty stacking can produce a Cournot-complements effect, in which the above marginal cost pricing of each patent holder in the upstream chain produces downstream externalities that increase the price and reduce the output of the finished product.94 The aggregate deadweight loss in this circumstance can be greater than that imposed by a vertically integrated monopolist.95 Lemley and Shapiro acknowledge that cross licenses, patent pools, and reciprocal infringement threats can mitigate stacking problems, but they suggest that “nonpracticing patent holders” -- patent trolls – will not engage in these strategies.96

Lemley and Shapiro cautiously conclude from their empirical and theoretical analysis that existing rules about injunctions and reasonable royalties in patent cases do not sufficiently mitigate the effects of holdups and royalty stacking, particularly in the electronics industry.97 They suggest that trial courts should be reluctant to grant injunctions when the patent in suit is only one component of a complex product.98 They further suggest that in holdup cases, courts should hesitate to grant injunctions when the cost to design around the patented component is high or to stay enforcement of injunctive relief in order to give the defendant time to design around the patent.99 Finally, they argue that in assessing reasonable royalties, courts should consider the cost of acquiring design-around alternatives as a proxy for royalties rather than the price and margin on the entire product, and they endorse the Congressional damages reform proposals, which would make this sort of analysis an explicit requirement.100

B. A New Study of Administrative Office of the Courts Data


In this section we report the results of a new empirical study of patent damages. We obtained the Administrative Office of the Courts (“AOC”) data files for all civil cases decided from 2002-2007.101 We extracted from these files all cases listed as “Patent” actions. From this set, we extracted all cases that were terminated by a judgment in favor of the plaintiff after trial. Finally, we generated a random sample of cases from this set using statistical analysis software.102

We supplemented the AOC data by reviewing court documents obtained via the PACER system and, in some instances, by contacting lawyers involved in the cases.103 Some cases were removed from our sample because we could not locate complete data, the cause of action on which judgment was rendered was something other than a patent claim, or the judgment was one of non-infringement and/or invalidity in favor of a potential infringer seeking declaratory relief.

We believe this study provides a useful supplement to existing studies because the AOC data appears to be more comprehensive than what is available through commercial services such as Westlaw. In addition, as discussed below, we tested for correlations with different variables.

One possible weakness in our data is that we extracted only cases that were tried to a verdict, and not cases that were decided on dispositive motions or settled before trial. Concerning dispositive motions, our intent here is to study the claim that runaway verdicts in patent cases are tipping the balance too far in favor of patentees. Concerning settlements, the AOC data does not permit any meaningful evaluation of the amount of or basis for most settlements. Moreover, our purpose is to evaluate the claims being made about the nature of verdicts in cases that go to trial.104



        1. Descriptive Statistics

The mean and median damage awards in our sample is set forth in Table 1 below:


Table 1

Summary Statistics: Amount of Total Damage Award


Mean 2,634,025

Median 221,750

Std. Dev. 5,055,588
Percentiles

1% 3,000

5% 5,500

10% 6,480

25% 20,125

50% 456,104

75% 2,068,980

90% 9,546,787

95% 15,000,000

99% 19,185,199


Skewness 2.27
As the percentile figures, very large standard deviation, and skewness coefficient make clear, the range of awards varied widely. This alone suggests a lack of any pattern in the awards.

The basis for the award was a reasonable royalty alone in 24% of the cases. In 20% of the cases, the verdict included both reasonable royalties and lost profits, usually because more than one patent was infringed.105 None of the cases involved convoyed sales.

It is interesting to juxtapose the type of award against the lowest and highest percentile statistics for the amount of award. Awards in the lowest percentiles were mechanical products; those in the highest percentiles were computer related:

Table 2

Percentiles Compared to Amount, Art and Type



Percentile

Amount

Art

Type

1

3,000

Mechanics

Lost Profits and Reas. Royalty

5

5,500

Mechanics

Unclear

10

6,480

Optics

Reas. Royalty

90

9,546,787

Computer Related

Lost Profits

95

15,000,000

Computer Related

Reasonable Royalty

99

19,185,199

Computer Related

Lost Profits




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