Dallas Bar Association

Early Damages Assessment in Patent Case

by Carmen Bremer

 

Increasingly, federal courts are focusing on the damages aspects of patent cases as a means of narrowing or disposing of high-dollar disputes.

In 2011, Federal Circuit Chief Judge Rader emphasized to district court judges at the Eastern District of Texas Bench Bar Conference that all patents, and all patent cases, are not created equal and beseeched them to ascertain an approximate dollar value early in the case so that “a billion-dollar case gets a ‘billion-dollars’ worth’ of process…and a thousand-dollar case gets…well, less.”

Judge Rader recommended that district court judges use their authority during case-management conferences to conduct a “searching inquiry” into the parties’ damages models to better understand the worth of the contested technology and its implications in the marketplace. This not only provides an opportunity to tailor standard procedures to fit the case and its significance, he explained, but it can also provide “a realistic evaluation of both Defendant’s exposure and Plaintiff’s damages calculation and further promote early and effective mediation.”

Further signaling the importance of early damages assessment in patent cases, Seventh Circuit Judge Richard Posner, sitting by designation in the Northern District of Illinois, recently dismissed Apple’s and Motorola’s infringement claims against each other in one of the high-profile “smart phone wars” after finding that both side’s damages experts applied flawed methodologies that did not comport with economic realities. Because the ruling came well after the close of discovery and just days before trial was set to begin, it was too late for either party to offer an alternative damages theory.

In light of these developments, parties to patent litigation may consider motion practice relating to damages issues early in their cases to educate the court about the value of the case and any key damages issues. This approach also offers an opportunity for litigants to obtain early guidance as to which damages theories the court is likely to allow before expending significant resources pursuing a particular theory or, worse, locking themselves into a theory they may not ultimately be permitted to present to the jury.

Consistent with Judge Rader’s guidance, litigants who desire early consideration of damages issues in their cases can signal this approach as part of their first case management conference statement, where the parties typically inform the court of their respective views of the case and issues they believe the court will need to decide.

If the parties expect to dispute, for example, whether the patentee’s damages expert can appropriately include the entire market value of a software application in the royalty base when only one feature is accused of infringement, one or both parties may include application of the entire market value rule as an issue in the case management conference statement and request the opportunity to file an early summary judgment motion addressed to that issue. The court in such a case may be willing to make an early dispositive ruling to bring the parties’ respective valuations of the case closer together and thereby encourage settlement.

Another common damages issue in patent cases that may lend itself to early dispositive resolution is the availability of acceptable noninfringing alternatives.

For instance, in the Apple v. Motorola case mentioned above, Judge Posner did not allow Apple to present one of its damages theories to the jury because its expert failed to consider that, rather than paying millions to license Apple’s patent covering the “tap for next item” heuristic used by Amazon’s Kindle Reader application, Motorola might simply drop the feature from its devices or ship them without the Kindle Reader application pre-loaded. Judge Posner’s ruling illustrates how litigants might benefit from testing the viability of a theory that assumes the presence or absence of non-infringing alternatives sooner in the case rather than later if the court is willing to entertain early motion practice on the issue.

Whether and how aggressively district courts will engage on the merits of damages issues before discovery closes remains to be seen. However, there is clearly a trend towards evaluating damages in some capacity early in a patent case, and savvy litigants may be able to take advantage of the trend to streamline their cases and refine their damages theories to maximize settlement opportunities and avoid wasting valuable resources pursuing disfavored theories.

 

Carmen Bremer is an associate at Weil, Gotshal & Manges LLP. She can be reached at carmen.bremer@weil.com.

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