89982
`September 27, 2008
`CONGRESSIONAL RECORD-SENATE
`turm. Reputable econo(cid:173)
`guts of their doctors and nurses. I can
`I don't think tbc Fetiel' 1 Govern(cid:173)
`dJum-Lo-long
`menL should p!ck up 100 p~ruent of the
`mi~:~ts estimal.e that histo!'loally, be(cid:173)
`still see them in my mind, struggllnK
`to keep those hospitals open with Lhe
`expense ol' mandatory evt~-cuatlons, but
`t.wuon 35 a.nd 40 put·cent of U.S. produc(cid:173)
`tivtt.v growth has heen the result of in(cid:173)
`I do think, for some period In some par·
`city completely underwatol' and a par(cid:173)
`lshes, particularly
`those that have
`nuva.t.lun.
`ish underwater. This Is for Orleans and
`My blll makes substantial changes to
`been vory hard htt, thaL the Govern(cid:173)
`Jefferson They still have not been re(cid:173)
`thoso sections of S. 1145 that address
`ment, the Pflderal Government. if they
`imbursed for the work that they did
`d::tmllg"'s, poet S'l'llnt review, venue and
`uan do lt for 1:10me of tho counties ln
`during Katrina.
`For soma rea:>on. we can't get this
`tntorlocutory a[lprmhl, applicant qual(cid:173)
`'l'exas, must ct:~rtainly :'lhould consld!'l
`ity <lubmissJons, and inequitable con(cid:173)
`Congress to understand the Importance
`the parishes in Lou1siana. So I a.m
`dtJct •. This bill will 110L be conatderod in
`g·oing to submit Lhat. as my last plea
`of what Lhose hospHals did during this
`for t.he Rmconn.
`t.hts Cong1•ees. l nevertheless tlloug·ht
`great t.lmo of neeu. So I wlsb to soml
`t.hflt it, would be llseful to propose al(cid:173)
`I know lt. has ueen a long day, but. 1
`this In f01 the .H.ECORn.
`feel s lf wu got some things accom(cid:173)
`ternntlve approaehes to these Issues
`now, to allow Senators and Interested
`plished, I don't, know whtl.t the schedule
`JJHrt;les the time to consider these aJ(cid:173)
`wm be as the ltnulers decldo on bow we
`tet·Jnttives as we prepare for tho patent
`bring this rmrtlcnlar Congress
`to a
`J'OfOl'tn !lobate ln the next Congress. T
`close, bu~ I have Lo sa.v th~ wu1·k of the
`Jwpe that my colleagues will work wlt.h
`recovery 1s still gotng 011. It wUl g·o on
`!'or many yr<AI'S, My lleo.rt. got.'~> out U)
`me lu a bip< rtisu.n and ctellberatlve
`IOttnner to construct a blll that will be
`my neighbors from 'l'exas who are just
`cousiuerad in the nuxt Congress. With
`now ntscoverlufi with awe and shook ,
`thnse lhoughts In rnind, allow me to
`shook and f\We, what
`hurricane oi\.II
`rlas~rli.Jo the sh.mlficant changes that
`mean. Tht:Y haven't. had one in 50
`thlc> bill makes t.o S. 1145.
`years, 8\ICh at:l the 011a in G!l..lvP.st.on,
`I boliove that 8. 1145 goes too fa1· in
`and they had one lA.st. woult. So 1 know
`l)ft tent ownor'a right to
`ret!tdcting 11.
`what they Rro •1Xperlenoln~Jr bocause we
`rncovu1· reason~thlfl royalty damagoa.
`have bct!n th1·ough that.. I wJll <~tund
`On the other h!\ncl, I also believe that
`ready t.o worit wit11 tht'm 1n 1uy com(cid:173)
`t.here l~ room .or lmprovenwnt In ClU'(cid:173)
`mHt.ee, a,. ('h 11 of tho Hllbcommlttl'O
`rcot law. Some nn!iound practices have
`on Dlsastor·, wh~n wo retun1. Wllot.her
`ct•epl luto tJ.S. J1~ttent damages lltiga(cid:173)
`1t is t1ootle m the Midwt•st or hul1i (cid:173)
`t.tnn . My starr nnrt
`I spent several
`uanes In t.Jw g·u1f, we wtll ..:.ontlnno to.
`monLIHl e.t tlle end of last year R.nd the
`l'Jrst., tt'V to Drot.act ou.rsalvoa lly better•
`ber.lnnmg or tbi::! .veur discussing the
`levees llnrl l'lnocl rontrol; and Lilon ht\Va
`UlUTI!fiL lltato or p \.60L darnaget~ Jitiga(cid:173)
`a hotter Sl''tP.m of aid 11.nd help tht\l ~~
`lh•ll -.ith 11 11\lmb€'1 ' )f seasoned practl(cid:173)
`reliable n.nd J~p€-ndablt> for theso poo(cid:173)
`ttnn ·r"' and evnn Rome professional
`plt~-for Olll' people, OUI' ~·onst.ituontd ,
`<I mng-es uxpert.s
`I ~ought out people
`and Oll!' clt.IZ>li1S in nt;Jetl
`wll.h doop experlt•nce In the field who
`lmd not boen l'tltltlned to lobby on pend(cid:173)
`lilt: I t<Aiala t.1 rm.
`A tmbsttlntla.J uuml>er of the experts
`witJJ whom I spolce s.11d that there Is
`nothing wrong with current damages
`llt If ti.on and that Congress shouhl not
`uhange tho htw. Other·s, however, ldon(cid:173)
`tll'tud a llllml.".'1' ur unsound practices
`t.lltrt. t.lley bel1evo have Jed to Inflated
`r!FtmtHl'OS awards In a significant num(cid:173)
`ber ol cases. Dlfferunt attorneys and
`expens repeat.tJdl,\' ltll;lntlfiod Lhe same
`1/ 1 ~~tjon methods
`nd criteria aa
`Mlng unsound
`tltlhjoct. to ma.nipula(cid:173)
`tlnn, n.nd loading to damages awards
`thA.L ru·o fat' ou L of prOIJOrtion to an ln(cid:173)
`vontlun's eoonornlc ooutrlbntlon to the
`1nl'!hrging pr·odutt. Exfl.mples of prob(cid:173)
`IRm tic Jrtethodnlogles that were lden(cid:173)
`tltlt•tJ t.o ~o lll\.:lude the so-called rnle
`of thumb, 11nder which an Infringed
`pat~nt Is prmmmptlvely entitled to 40
`prli'USllt or somH other etandal'd portlon
`Of 1111 Of the )il'OJ'itS 011 a. product, the
`use or tbe average llconse paid for pat(cid:173)
`ont.s In an !ndustr·y as a starting point
`COl' caiuulat.illl!
`the value of a par(cid:173)
`t.I~HI"'r pa,tPnt, ~tnd a formuJa attrib(cid:173)
`uted to TRM whereb.V every high-tech(cid:173)
`lll,logy pacent. Is ent.lLJed to 1 percent
`of lJ1e l'evennt:lt:i un a p1·oduct. A number
`ul' "'xJ,Jerts all!o Ul'1tlcl.zed tbe use of
`CC\JtlTIM!tbles, Wt>f>J'eby the VAlue Ot' a
`patent is catc•.llat.ed l1y reference to the
`lict•nsc: paid for a supposedly com(cid:173)
`Piinble patent.
`'rhe views or tllose experts who were
`~,;r•ttica! of Clll'l'l:lllt damages law find
`
`DISAS'l'ER DFJCLARA'.riON
`Ms. LANDRIEU. Mr. President, fi (cid:173)
`nally, I wish to urg·o this admlnistrl\(cid:173)
`tion to provide a 100-percent d1sf\ster
`declaration for at least these pal'lshes.
`Our Governor has A.sked for 100 percent
`for all the parishes-and I am golng Lo
`put. up that chiU't in a mlnut.~but thu
`Oovemor beHaves the entire Stato de
`serves to have a 100-perc:unt relmbm·se(cid:173)
`ment lJem~use Gu~t.fw went through our
`wholl:! f::>tat.e, a.ncl t.hen Iko came up r\
`few weeks later Rnd 11ooded n.nd djd a
`tremondous amount of wind damage.
`We are not tleoignatcd as a lOO-per(cid:173)
`cent cost. sharo yut, which means the
`l"elloral Government would step in and
`plck up 100 percent of some of tbese
`parishes tba.t n.rc oo t.heir last leg.
`They have been through fOUl' st.01ms in
`the last. ~.:ouple years. Unfortunately,
`and I am not sure why, but severn!
`counties In Texas havu been gl'anted
`the first 0 to 14 day.; at lOU percent. Yet.
`our po.l'lshes, which were blt equnlly as
`llfl.rd, hAve not yet. received tllA.t ttos(cid:173)
`ignat.lon.
`So 1 am asking, on their behalJ and
`with the full support of uu1' ~vornor.
`out• Lu~ut<mant Governol'. and others
`who aro:> leadlng Ollr effort in t.lle recov(cid:173)
`ery, H thl:l adm1nlstra.Lioo would please
`oonslde l' u.t leasL !l'lvlng equal treaL(cid:173)
`ment-100 percent, 0 to 14-for the par(cid:173)
`Ishes that wore as hard hlt· as WJe Texas
`counties were i.n this aurlt.l.
`But do not for"et, as I close, that
`when HtuTlcane Gustav was in the gulf.
`our Governor called for 11 mandatory
`evacuation, and 2 million people, tho
`largol:it evauuaticn in Lhe oountl·y's hls(cid:173)
`tory, left tllelr homos to move tempo(cid:173)
`rarily. for a couple days, and then
`came back , The damage was very bart.
`It wasn't catastrophic such as Katrina,
`but it. was as bad as Hul'!·icane Rita.
`13ut when Lhey came home, tho Federal
`Govemment said: Well, thanlt you for
`evacuating, but thoro is virtually no
`help lor you Ol' your counL!es.
`lt Is expansive to evacuate. 1 know
`people don't understand.
`those who
`have never had to go through it. but It
`costs bundl.'eda of dollars to fill your
`tank with gas, If you have a oar; It
`cost~ humlreds of dollal'S to stay at a
`hotel, even if1L ls just for a clay or t.wo;
`it COI:itS hundreds Of dollars to dl'iVO
`down the r·oad to pick up your elderly
`aunt or your grandmother, who lives In
`A.nothcr tmTish, to got her Lo evacuate.
`I can't tell you tho expense that people
`Ill CUr.
`
`PAT!JJNT REFOH.M
`Ml·. RYL. Mr. ProsidtHlC, I lise todav
`to uomm nt on 8. 3600. lh PutenL H.e(cid:173)
`form Act. or 2ll06, '.Phi.:. bill ls hasod un,
`but mal<tJs u number of changes tu , S ,
`1145, a p.._tl'nt l'tlform bi 11 t.ha.L was re(cid:173)
`ported out uf tho Judiciat'.Y Cl•mulltLee
`In 2007 but tllr\t was nevnr oousidereti
`by tbe full :;{~nl\loe ,
`S. 1115 pr·nposed sovoral se.Jnta.ry Wld
`uncontruverl!lal reforms o the patent
`system, but also moluded proviB'lona
`that would rewr·ite ttl~ !vr·m<lh\
`fc.r
`R.warrUng rlnmagos in patent cases And
`that wouJd •Wente now A.dmlnlstra,tive
`pi'ooeecllngs fm• cJtallenging patents.
`Thl'se and other provi~;ions of that bill
`would hav"' madu it rnucJJ mote expen(cid:173)
`sive Lo hold 1\nd tlef~Jld a ]"laWnt, would
`have exr,enelad the tirn~ tor recoVOI'lng
`damaA'eS ror 1nlrJngomcnt, anti would
`have suust<~.ntially roduc:eu the amotlfll.
`thai LlH.l pttLunt lloldel' WLlUlrl ulti(cid:173)
`mately J·oeoVQJ' for ini)·in~onunent 'rhn
`change~ proposort by .s. 1145 went so fnr
`that ~nder that blll's regirne, 1t may
`ha.ve pruvetl chllllpe.r In lrll\IIY
`'tlses t.o
`infringe a Jl~!Ant and surrcor the at.tenti ·
`ated and reduced consequences ot dolng
`so, rather than to pay a lloense to the
`holder of th~ patent. One"' suuh a line
`ls c.rossod, t11e incentive tu invt:osL illl'v(cid:173)
`sear<:b and oevelopm~::nt. 1\n(t th(l com (cid:173)
`mercia.llzaLion of new tee;hnoJogy In
`this country woultl be gre&Lly rotlucod
`Such ~ olumge woultl do eno!'mOUt:i
`harm to Lllo U.S. economy lu the mo-
`
`

`

`89983
`CONGRESSIONAL RECORD-SENATE
`S eptember 27, 2008
`some support in the macro evidence.
`cessive damages awards.
`If overly
`gation the same damages calculation
`Data
`collected
`by
`broad claim constructions were a
`methods that they routinely employ in
`PricewaterhouseCoopers and FTI Con(cid:173)
`major source of problems with damages
`arm's length licensing negotiations.
`sulting indicate that the majority of
`The bill that I have introduced today
`litigation, I undoubtedly would have
`uses what I call an enhanced gate(cid:173)
`the largest patent-damages awards and
`come across at least one neutral expert
`settlements of all time have been en(cid:173)
`keeper to address problems with dam(cid:173)
`who expressed that view.
`ages awards. The bill strengthens judi(cid:173)
`tered only since 2002. Also, the infla(cid:173)
`Discussions that I have had with sev(cid:173)
`cial review of expert witness testi(cid:173)
`tion adjusted value of awards entered
`eral proponents of S. 1145 indicated
`mony, provides greater guidance to ju(cid:173)
`since 2000 is more than 50 percent high(cid:173)
`that they understand the principal evil
`ries, and allows for sequencing of the
`er than it was during the early 1990s.
`of current damages litigation to be the
`damages
`and
`validi tylinfringemen t
`And it also appears that jury awards
`award of damages as a percentage or
`tend to be about ten times higher than
`portion of the full price of the infring(cid:173)
`phases of a trial. The bill also codifies
`ing product. It also appears that some
`the average damages award entered by
`the principle that all relevant factors
`a judge, and that results vary mark(cid:173)
`proponents of S. 1145 believe that a
`can be considered when assessing rea(cid:173)
`edly by jurisdiction. These facts sug(cid:173)
`statutory instruction to define the in(cid:173)
`sonable royalty damages, while adopt(cid:173)
`gest that the problems that sometimes
`vention more narrowly and clearly
`ing guidelines and rules that favor the
`lead to inflated damages awards are to
`would prevent parties from seeking
`use of an economic analysis of the
`some extent systemic.
`damages based on the entire value of
`value of an invention over rough or
`The task of reforming substantive
`the infringing product. The linkage be(cid:173)
`subjective methodologies such as the
`damages standards presents a very dif(cid:173)
`tween claim construction and the dam(cid:173)
`rule of thumb, industry averages, or
`ficult
`legislative question. Damages
`ages base is not clear to me. Even a
`the use of comparables. Allow me to
`calculation is an inherently fact-inten(cid:173)
`concededly limited invention could be
`provide
`a
`subsection-by-subsection
`sive inquiry and requires legal flexi(cid:173)
`fairly valued by using the full prod(cid:173)
`summary of the bill's revisions to sec(cid:173)
`bility so that the best evidence of a
`uct's price as the damages base, so long
`tion 284, the basic patent damages stat(cid:173)
`patent's value may always be consid(cid:173)
`as the rate applied to that base was ap(cid:173)
`ute.
`ered. Any proposed changes to the law
`Subsection (a) of the bill's proposed
`propriately small.
`excessive
`and
`must be evaluated in light of the kalei(cid:173)
`Many unjustified
`section 284 copies and recodifies all of
`doscope of factual scenarios presented
`awards certainly do use the full value
`current section 284, including its au(cid:173)
`by the calculation of damages for dif(cid:173)
`of the infringing product as the dam(cid:173)
`thorization of treble damag·es and its
`ferent types of patents.
`ages base. Indeed, awards that are de(cid:173)
`admonition that compensatory dam(cid:173)
`I have largely given up on the idea of
`rived from the rule of thumb almost al(cid:173)
`ages shall "in no event be less than a
`developing a unified field theory of
`ways are based on the entire value of
`reasonable royalty for the use made of
`damages law that solves all problems
`the infringing product, as is the typical
`the invention."
`at once. I also oppose proposals to re(cid:173)
`Subsection (b) codifies current Fed(cid:173)
`industry averages award. Precluding or
`quire a prior-art subtraction in every
`eral circuit precedent defining a rea(cid:173)
`sharply limiting the use of net sales
`case. Most measures of a reasonable
`sonable royalty as the amount that the
`price as a damages base certainly
`royalty, such as established royalties,
`infringer and patent owner would have
`would block the path to many of the
`costs of design-arounds, comparisons to
`agreed to in a hypothetical negotiation
`bad outcomes that are produced by the
`noninfringing alternatives, or cost sav(cid:173)
`at the time infringement began. It
`use of these methodologies.
`ings produced by use of the patented
`The problem with a rule that bars
`tracks the language of the Rite-Hite
`invention, already effectively deduct
`case, 56 F.3d 1538 (Fed. Cir. 1995), and
`the use of net sales price as the dam(cid:173)
`the value of prior art out of their esti(cid:173)
`ages base when calculating a reason(cid:173)
`follow-on decisions. Some supporters of
`mate of the patented invention's value.
`able royalty is that in many industrial
`S. 1145 are critical of the hypothetical
`To mandate prior-art subtraction when
`sectors, net sales price is routinely
`negotiation construct and believe that
`using such measures would be to dou(cid:173)
`used as the damages base in voluntary
`it leads to bad results. Not only is this
`ble count that deduction, effectively
`licensing negotiations. It is favored as
`test established law, however, but it is
`subtracting the prior art twice and
`a damages base because it is an objec(cid:173)
`also inherent in the concept of a "rea(cid:173)
`undervaluing the invention.
`tive and readily verifiable datum. The
`sonable royalty." That standard re(cid:173)
`And for reasons mostly explained in
`parties to a licensing negotiation do
`quires the trier of fact to determine
`my minority views to the committee
`not even argue about its use. Instead,
`what would have been-i.e., what the
`report for S. 1145, S. Rep. 110-259 at
`they fight over the rate that will be ap(cid:173)
`parties would have agreed to. As long
`pages 64-65, I also disagree with the ar(cid:173)
`plied to that base. Even if the net sales
`as the patent code requires a "reason(cid:173)
`gument that defendants should be al(cid:173)
`price of the product is very large and
`able royalty," courts and juries will
`lowed
`to revisit validity questions,
`the economic contribution made by the
`need to engage in a hypothetical in(cid:173)
`such as a patent's novelty or non(cid:173)
`patented invention is small, net sales
`quiry as to how the invention reason(cid:173)
`obviousness, during the damages phase
`price can still serve as the denominator
`ably would have been valued at the
`of litigation. To
`those comments I
`of an appropriate royalty if the numer(cid:173)
`time of infringement. Indeed, it is not
`would simply add that, if Congress
`ator is made small.
`apparent by what other means the
`were to desire that patents be defined
`Thus in these industries, the initials,
`factfinder might approach the calcula(cid:173)
`more specifically and narrowly, then it
`NSF, appear frequently and repeatedly
`tion of a reasonable royalty. And in
`would need to provide express guidance
`in licensing contracts. A legal rule that
`any event, the source of occasional bad
`as to how to do so. Simply using adjec(cid:173)
`precluded use of net sales price as the
`results in damages trials is not the
`tival phrases such as "specific con(cid:173)
`damages base would effectively prevent
`mental framework used for approach(cid:173)
`tribution" or "inventive features" will
`participants in these industries from
`ing the question of a reasonable roy(cid:173)
`not suffice. These terms merely express
`making the same royalty calculations
`alty, but rather the particular evidence
`a hope or objective. But legislation
`in litigation that they would make in
`and methods used to value some inven(cid:173)
`needs to be about means, not ends, par(cid:173)
`an arm's length transaction. Such an
`tions. It would be a noteworthy omis(cid:173)
`ticularly if it is intended to achieve its
`outcome would be deeply disruptive to
`sion to avoid mention of the hypo(cid:173)
`results by altering the practices and
`the valuation of patents in these fields.
`thetical negotiation concept in a bill
`outcomes of litigation. I should also
`Evidence and techniques whose use is
`that regulates damages analysis to the
`add that although I have consulted
`endorsed by the market via their reg(cid:173)
`degree that this one does. This sub(cid:173)
`with many neutral experts in the field
`ular use in voluntary negotiations are
`section thus codifies the Federal cir(cid:173)
`of patent damages, and many of those
`likely to offer the best means of val(cid:173)
`cuit's
`jurisprudence on
`the hypo(cid:173)
`experts described to me what they be(cid:173)
`uing a patent in litigation. After all,
`thetical negotiation.
`lieved to be serious problems with pat(cid:173)
`what is an object in commerce worth,
`Subsection (c) simply makes clear
`ent damages litigation, none of those
`other than what the market is willing
`that, despite subsection (d), (e), and
`experts told me that insufficiently spe(cid:173)
`to pay? We simply cannot enact a law
`(f)'s codification and modification of
`cific claim construction is causing ex-
`that bars patentees from using in liti-
`several of the Georgia-Pacific factors,
`
`

`

`S9984
`CONGRESSIONAL RECORD-SENATE
`September 27, 2008
`the rest of the Georgia-Pacific fac(cid:173)
`not uncommon
`for high-technology
`found the bill ambiguous on this point,
`products to be covered by thousands of
`and in any event the lack of an excep(cid:173)
`tors-as well as any other appropriate
`different patents, which are of greatly
`factor-may be used as appropriate to
`tion would have forced parties to liti(cid:173)
`differing value. Not every one of those
`gate the question whether an estab(cid:173)
`calculate the amount of a reasonable
`patents can be worth 1 percent of reve(cid:173)
`lished royalty was, in fact, based on
`royalty.
`Subsection (d) is probably the most
`nues. Some patents inevitably will be
`the benefits and advantages of the use
`important subsection in the bill's re(cid:173)
`for features that are trivial, that are
`of the patent. Since established royal(cid:173)
`vised section 284. It bars the use of in(cid:173)
`irrelevant to consumers, or that could
`ties are widely considered to be the
`dustry averages, rule-of-thumb profit
`be reproduced by unpatented, off-the(cid:173)
`gold standard for valuing a patent, we
`splits, and other standardized measures
`shelf noninfringing substitutes. One
`should avoid making it harder to use
`this method. It is thus expressly placed
`to value a patent except under par(cid:173)
`percent of the sales revenue from, for
`outside the scope of subsection (d)'s re(cid:173)
`ticular circumstances. Standardized
`example, a laptop computer is an enor(cid:173)
`strictions by paragraph (2).
`measures are defined as those methods
`mous sum of money. Many patents are
`Paragraph (3) of subsection (d) allows
`that, like rule of thumb and industry
`worth nothing near that, and any
`industry averages to continue to be
`averages, do not gauge the particular
`methodology that starts at that num(cid:173)
`used to confirm that results produced
`ber is likely to produce a grossly in(cid:173)
`benefits and advantages of the use of a
`by other,
`independently allowable
`patent. Instead,
`they are relatively
`flated result in a large number of cases.
`methods fall within a reasonable range.
`It bears also mentioning some of
`crude, cookie-cutter measures
`that
`The paragraph speaks of "independ(cid:173)
`those common methodologies
`that
`purport to value all patent&-or at
`ently" allowable methods in order to
`clearly are not standardized measures.
`least all patents in a clas&-in the same
`make clear that an industry average
`In addition to established royalties,
`way, without regard to a particular
`cannot be used to confirm an estimate
`which are afforded an express exemp(cid:173)
`patent's economic value. These back(cid:173)
`produced solely by reference
`to a
`tion from this subsection by paragraph
`of-the envelope methods are occasion(cid:173)
`"comparable" patent. Subsection (e)
`(2), there are the methods of calcu(cid:173)
`ally used in arm's-length, voluntary li(cid:173)
`requires that comparables only be used
`lating the costs of designing around a
`censing negotiations, as are
`things
`in conjunction with or to confirm other
`patent, drawing comparisons to the ex(cid:173)
`such as gut instinct and intuition. But
`methods, and
`thus under
`this bill
`perience of noninfringing alternatives,
`they are
`rough methods
`that can
`comparables are not a method whose
`or calculating the costs savings pro(cid:173)
`produce wildly inaccurate results. Sub(cid:173)
`use is allowed "independently" of other
`duced by use of the invention. All of
`section (d) disfavors their use.
`methods.
`these factors gauge the benefits and ad(cid:173)
`This subsection restricts the use of
`A brief explanation is in order as to
`Georgia-Pacific factor 12, which largely
`vantages of the use of the invention
`why this bill regards industry averages
`describes the rule of thumb. Subsection
`and therefore are outside the scope of
`as a potentially unreliable metric and
`(d)'s general rule cites the rule of
`subsection (d).
`restricts their use. An industry average
`Paragraph (1) of subsection (d) allows
`thumb and industry averages as impor(cid:173)
`often will reflect a broad range of li(cid:173)
`parties to use a standardized measure,
`tant and
`illustrative examples of
`censing rates within a technological
`such as a rule-of-thumb profit split, if
`standardized measures. But it also ex(cid:173)
`sector. Even a licensed patent whose
`that party can show that the patented
`pressly applies to other methods that
`value is included in the calculation of
`invention is the primary reason why
`are "not based on the particular bene(cid:173)
`such a range may fall at a far end of
`consumers buy the infringing product.
`fits and advantages" of an invention,
`that range, producing highly
`inac(cid:173)
`If the patented invention is the pri(cid:173)
`to ensure that variations on these ex(cid:173)
`curate results if that average is used as
`mary reason why people buy the prod(cid:173)
`amples and other methods that consist
`a starting point for calculating the
`uct, then the patent effectively is the
`of the same evil also are brought with(cid:173)
`value of that patent. Moreover, many
`reason for the commercial success of
`in the scope of subsection (d)'s main
`existing patents, though valid and in(cid:173)
`the product, and its owner is entitled
`rule.
`fringed by a product, disclose trivial
`An example of a standardized meas(cid:173)
`to a substantial share of the profits,
`inventions that add little to the value
`minus business risk, marketing. and
`ure other than profit splits and indus(cid:173)
`of the product. But the types of patents
`other contributions made by the in(cid:173)
`try averages that is also currently in
`that typically are licensed-and that
`fringer.
`use and that also falls within sub(cid:173)
`Some have advocated a lower stand(cid:173)
`therefore would be a source of avail(cid:173)
`section (d)'s scope is the so-called IBM
`ard than "primary reason" for allowing
`able data for calculating an industry
`1-percent-up-to-5
`formula. This
`for(cid:173)
`use of profit splits and other standard(cid:173)
`average-are the ones that are substan(cid:173)
`mula apparently was used by IBM in
`tial and valuable. Trivial patents don't
`ized measure&-for example, using a
`the past to license its own portfolio of
`"substantial basis" standard. I rejected
`get licensed, and their value does not
`patents. Under this methodology, each
`the use of a lower standard because a
`enter into industry average calcula(cid:173)
`patent receives 1 percent of the reve(cid:173)
`profit split should basically award to
`tions. Thus particularly in the case of
`nues on a product until a 5 percent
`the patent owner all of the profits on
`a minor patent that has never been and
`ceiling is reached, at which point the
`likely never would be licensed, an in(cid:173)
`the product minus those attributable
`whole portfolio of patents is made
`dustry average would provide an in(cid:173)
`to business risk. Thus the test for al(cid:173)
`available to the licensee.
`I have heard more than one rep(cid:173)
`lowing such profit splits must be one
`flated estimate of the patent's value.
`resentative of a high-technology com(cid:173)
`that only one patent will meet per
`This is because the industry average is
`pany describe the use of this formula in
`product, since the bulk of the profits
`not the average licensing rate of all
`litigation against his company. Appar(cid:173)
`can only be awarded once. If the test
`patents in a field, but merely the aver(cid:173)
`ently, there exists a stable of plaintiff(cid:173)
`were "substantial basis," for example,
`age of those that have been licensed
`side damages expert witnesses who will
`multiple patents could meet the stand(cid:173)
`and for which data is publicly avail(cid:173)
`testify that this formula is appropriate
`ard and multiple patent owners could
`able.
`Paragraph (4) of subsection (d) cre(cid:173)
`for and is customarily used to cal(cid:173)
`demand all of the profits minus busi(cid:173)
`ates a safety valve that allows parties
`culate the value of any patent in the
`ness risk on the product.
`Paragraph (2) of subsection (d) makes
`to use standardized measures if no
`computer or information-technologies
`established royalties an express excep(cid:173)
`other method is reasonably available
`sectors. These experts start at 1 per(cid:173)
`tion to the bar on standardized meas(cid:173)
`to calculate a reasonable royalty, and
`cent and
`then adjust that number
`ures. In earlier drafts, I did not include
`the standardized method is otherwise
`based on the other Georgia-Pacific fac(cid:173)
`this exception in the bill because I
`shown to be appropriate for the patent.
`tors, supposedly to account for the par(cid:173)
`thought it obvious that an established
`Over the course of drafting this bill, I
`ticular aspects of the patent in suit,
`royalty is based on the benefits and ad(cid:173)
`have consulted with a number of ex(cid:173)
`though these adjustments almost al(cid:173)
`vantages of the use of the invention
`perts with broad experience in patent
`ways seem to push the number higher.
`Obviously, 1 percent of revenues or
`and is thus outside the scope of the
`damages calculation. Only a few be(cid:173)
`even profits is a grossly inflated value
`subsection (d) rule. Some parties who
`lieved that they had ever seen a case
`for many high-technology patents. It is
`reviewed those earlier drafts, however,
`where use of a standardized measure
`
`

`

`89985
`CONGRESSIONAL RECORD-SENATE
`September 27, 2008
`was necessary-that is, where a more
`back-of-the-envelope calculation that
`too broad. Parties might define "indus(cid:173)
`precise economic analysis was not fea(cid:173)
`requires only one expert to give you
`try" so expansively that every patent
`sible. I thus anticipate that this safety
`the industry average licensing rate and
`in the universe would fall into one of
`another to calculate the gross revenues
`valve may almost never need to be
`only two or three "industries."
`on the product. When a complex eco(cid:173)
`used, but I nevertheless include it in
`Paragraph (2) of subsection (e) sets
`nomic analysis that focuses on non(cid:173)
`the bill, because it is impossible to say
`out guideposts for determining whether
`infringing alternatives to the patented
`with certainty that no situation will
`a patent is economically comparable to
`invention or the costs of a design(cid:173)
`ever arise in the future where parties
`another patent. It suggests requiring a
`around is forced to compete for the
`will be unable to calculate a reasonable
`showing that the supposed comparable
`jury's favor with a simple average-rate(cid:173)
`royalty without use of the rule of
`is of similar significance to the li(cid:173)
`times-sales calculation, many jurors
`thumb or other standardized measures.
`censed product as the patent in suit is
`may find the simpler and readily un(cid:173)
`Suffice to say that if one party to a
`to the infringing product, and that the
`derstandable method more intuitively
`suit presents appropriate evidence of a
`licensed and infringing products have a
`appealing, even if it is less accurate.
`patent's value and that evidence falls
`similar profit margin. Obviously, a pat(cid:173)
`And of course, when two different and
`outside the scope of subsection (d) or
`ent that makes only a trivial contribu(cid:173)
`even slightly complex damages calcula(cid:173)
`within one of the other exceptions,
`tion to a product cannot accurately be
`tions are presented to a jury, there al(cid:173)
`then that method is "reasonably avail(cid:173)
`valued by reference to a comparable
`ways exists a risk that the jury will re(cid:173)
`able" and paragraph (4) could not be in(cid:173)
`that makes a critical and valuable con(cid:173)
`solve the dispute by splitting the dif(cid:173)
`voked.
`tribution to its licensed product, or
`ference between the two methods. In a
`A word about the need for sub(cid:173)
`vice versa. And similarity in the profit(cid:173)
`high-value case where the patent owner
`stantive standards: some critics of S .
`ability of the licensed and infringing
`uses an unsound method that produces
`1145 have made the argument to me
`products will also generally be impor(cid:173)
`a wildly inflated number, the risk that
`that any problems with damages litiga(cid:173)
`tant to establishing the economic com(cid:173)
`the jury will pick the wrong method or
`tion can be cured through procedural
`parability of two patents. As an eco(cid:173)
`even split the difference may easily be
`reforms, and that changes
`to sub(cid:173)
`nomic reality, when the profits on a
`unacceptable from a business perspec(cid:173)
`stantive legal standards such as those
`product are high, the manufacturer
`in subsections (d) through (f) are un(cid:173)
`tive.
`will be more generous with the royal(cid:173)
`In the end, it is the premise of the
`necessary. These parties also have
`ties that he pays for the patented in(cid:173)
`rules of evidence that some types of
`made the related, though different ar(cid:173)
`ventions that are used by the product.
`evidence are so unsound, so prejudicial,
`gument that to the extent that liti(cid:173)
`This economic reality is undergirded
`or so likely to produce an unjust result
`gants are using unreliable evidence or
`by the fact that it will typically be the
`that we do not require the other side's
`methodologies, this problem should be
`patented inventions used by a product
`lawyer to debunl{ this evidence, but
`addressed through cross examination
`that make that prod