`S9982
`
`CONGRESSIONAL RECORD — SENATE
`I don’t
`think the Federal Govern-
`guts of their doctors and nurses. I can
`still see them in my mind, struggling
`ment should pick up 100 percent of the
`expense of mandatory evacuations, but
`to keep those hospitals open with the
`city completely underwater and a par—
`I do think, for some period in some par-
`ish underwater. This is for Orleans and
`ishes. particularly those that have
`Jefferson. They still have not been re-
`been very hard hit, that the Govern—
`ment, the Federal Government. if they
`imbursed for the work that they did
`can do it for some of the counties in
`during Katrina.
`Texas, most certainly should consider
`For some reason, we can't get this
`the parishes in Louisiana. So I am
`Congress to understand the importance
`going to submit that as my last plea
`of what those hospitals did during this
`for the RECORD.
`great time of need. So I wish to send
`this in for the RECORD.
`I know it has been a long day, but I
`————-—
`feel as if we got some things accom-
`plished. I don’t know what the schedule
`will be as the leaders decide on how we
`bring this particular Congress
`to a
`close. but I have to say the work of the
`recovery is still going on. It will go on
`for many years. My heart goes out to
`my neighbors from Texas who are just
`now discovering with awe and shock,
`shock and awe, what a hurricane can
`mean. They haven't had one in 50
`years, such as the one in Galveston.
`and they had one last week. So I know
`what they are experiencing because we
`have been through that. I will stand
`ready to work with them in my com-
`mittee, as chair of the Subcommittee
`on Disaster, when we return. Whether
`it is floods in the Midwest or hurri-
`canes in the gulf. we will continue to,
`first, try to protect ourselves by better
`levees and flood control; and then have
`a better system of aid and help that is
`reliable and dependable for these peo-
`ple—for our people. our constituents,
`and our citizens in need.
`——-————
`
`September 27, 2008
`dium—to-long term. Reputable econo-
`mists estimate that historically. be-
`tween 35 and 40 percent of U.S. produc-
`tivity growth has been the result of in-
`novation.
`My bill makes substantial changes to
`those sections of S. 1145 that address
`damages, post grant review, venue and
`interlocutory appeals, applicant qual-
`ity submissions. and inequitable con-
`duct. This bill will not be considered in
`this Congress. I nevertheless thought
`that it would be useful to propose al-
`ternative approaches to these issues
`now. to allow Senators and interested
`parties the time to consider these al—
`ternatives as we prepare for the patent
`reform debate in the next Congress. I
`hope that my colleagues will work with
`me in a bipartisan and deliberative
`manner to construct a bill that will be
`considered in the next Congress. With
`those thoughts in mind, allow me to
`describe the significant changes that
`this bill makes to S. 1145.
`I believe that S. 1145 goes too far in
`restricting a patent owner’s right to
`recover
`reasonable royalty damages.
`On the other hand. I also believe that
`there is room for improvement in cur-
`rent law. Some unsound practices have
`crept into U.S. patent damages litiga—
`tion. My staff and I spent
`several
`months at the end of last year and the
`beginning of this year discussing the
`current state of patent damages litiga-
`tion with a number of seasoned practi—
`tioners and even some professional
`damages experts.
`I sought out people
`with deep experience in the field who
`had not been retained to lobby on pend-
`ing legislation.
`A substantial number of the experts
`with whom I spoke said that there is
`nothing wrong with current damages
`litigation and that Congress should not
`change the law. Others, however, iden-
`tified a number of unsound practices
`that they believe have led to inflated
`damages awards in a significant num—
`ber of cases. Different attorneys and
`experts repeatedly identified the same
`valuation methods
`and criteria as
`being unsound, subject
`to manipula-
`tion, and leading to damages awards
`that are far out of proportion to an in-
`vention’s economic contribution to the
`infringing product. Examples of prob-
`lematic methodologies that were iden-
`tified to me include the so-called rule
`of thumb, under which an infringed
`patent is presumptively entitled to 40
`percent or some other standard portion
`of all of the profits on a product, the
`use of the average license paid for pat-
`ents in an industry as a starting point
`for calculating the value of a par-
`ticular patent. and a formula attrib-
`uted to IBM whereby every high-tech-
`nology patent is entitled to 1 percent
`of the revenues on a product. A number
`of experts also criticized the use of
`comparables. whereby the value of a
`patent is calculated by reference to the
`license paid for a supposedly com—
`parable patent.
`The views of these experts who were
`critical of current damages law find
`
`DISASTER DECLARATION
`fi-
`Ms. LANDRIEU. Mr. President.
`nally, I wish to urge this administra-
`tion to provide a loo-percent disaster
`declaration for at least these parishes.
`Our Governor has asked for 100 percent
`for all the parishes—and I am going to
`put up that chart in a minute—but the
`Governor believes the entire State de-
`serves to have a loo-percent reimburse-
`ment because Gustav went through our
`whole State. and then Ike came up a
`few weeks later and flooded and did a
`tremendous amount of wind damage.
`We are not designated as a loo-per-
`cent cost share yet, which means the
`Federal Government would step in and
`pick up 100 percent of some of these
`parishes that are on their last
`leg.
`They have been through four storms in
`the last couple years. Unfortunately,
`and I am not sure why, but several
`counties in Texas have been granted
`the first 0 to 14 days at 100 percent. Yet
`our parishes. which were hit equally as
`hard. have not yet received that des-
`ignation.
`So I am asking, on their behalf and
`with the full support of our Governor,
`our Lieutenant Governor, and others
`who are leading our effort in the recov-
`ery. if the administration would please
`consider at least giving equal
`treat-
`ment—100 percent. 0 to 14—for the par-
`ishes that were as hard hit as the Texas
`counties were in this aerial.
`But do not forget, as I close, that
`when Hurricane Gustav was in the gulf.
`our Governor called for a mandatory
`evacuation, and 2 million people, the
`largest evacuation in the country’s his-
`tory, left their homes to move tempo-
`rarily.
`for a couple days. and then
`came back. The damage was very bad.
`It wasn’t catastrophic such as Katrina,
`but it was as bad as Hurricane Rita.
`But when they came home, the Federal
`Government said: Well, thank you for
`evacuating, but there is virtually no
`help for you or your counties.
`It is expensive to evacuate. I know
`people don‘t understand,
`those who
`have never had to go through it. but it
`costs hundreds of dollars to fill your
`tank with gas,
`if you have a car;
`it
`costs hundreds of dollars to stay at a
`hotel. even if it is just for a day or two:
`it costs hundreds of dollars to drive
`down the road to pick up your elderly
`aunt or your grandmother, who lives in
`another parish, to get her to evacuate.
`I can’t tell you the expense that people
`incur.
`
`PATENT REFORM
`Mr. KYL. Mr. President. I rise today
`to comment on S. 3600, the Patent Re-
`form Act of 2008. This bill is based on,
`but makes a number of changes to, S.
`1145. a patent reform bill that was re—
`ported out of the Judiciary Committee
`in 2007 but that was never considered
`by the full Senate.
`S. 1145 proposed several salutary and
`uncontroversial reforms to the patent
`system, but also included provisions
`that would rewrite the formula for
`awarding damages in patent cases and
`that would create new administrative
`proceedings
`for challenging patents.
`These and other provisions of that bill
`would have made it much more expen-
`sive to hold and defend a patent, would
`have extended the time for recovering
`damages for infringement. and would
`have substantially reduced the amount
`that
`the patent holder would ulti-
`mately recover for infringement. The
`changes proposed by S. 1145 went so far
`that under that bill’s regime, it may
`have proved cheaper in many cases to
`infringe a patent and suffer the attenu-
`ated and reduced consequences of doing
`so, rather than to pay a license to the
`holder of the patent. Once such a line
`is crossed, the incentive to invest in re-
`search and development and the com-
`mercialization of new technology in
`this country would be greatly reduced.
`Such a change would do enormous
`harm to the U.S. economy in the me-
`
`Page 1 of 12
`
`Philips Exhibit 2023
`
`Zoll Lifecor V. Philips
`IPR2013-00609
`
`Philips Exhibit 2023
`Zoll Lifecor v. Philips
`IPR2013-00609
`
`Page 1 of 12
`
`

`

`CONGRESSIONAL RECORD — SENATE
`
`S9983
`
`If overly
`awards.
`cessive damages
`broad claim constructions were
`a
`major source of problems with damages
`litigation,
`I undoubtedly would have
`come across at least one neutral expert
`who expressed that View.
`Discussions that I have had with sev-
`eral proponents of S.
`1145 indicated
`that they understand the principal evil
`of current damages litigation to be the
`award of damages as a percentage or
`portion of the full price of the infring-
`ing product. It also appears that some
`proponents of S. 1145 believe that a
`statutory instruction to define the in-
`vention more narrowly and clearly
`would prevent parties from seeking
`damages based on the entire value of
`the infringing product. The linkage be—
`tween claim construction and the dam-
`ages base is not clear to me. Even a
`concededly limited invention could be
`fairly valued by using the full prod—
`uct’s price as the damages base, so long
`as the rate applied to that base was ap—
`propriately small.
`excessive
`and
`Many
`unjustified
`awards certainly do use the full value
`of the infringing product as the dam-
`ages base. Indeed, awards that are de-
`rived from the rule of thumb almost al-
`ways are based on the entire value of
`the infringing product, as is the typical
`industry averages award. Precluding or
`sharply limiting the use of net sales
`price as a damages base certainly
`would block the path to many of the
`bad outcomes that are produced by the
`use of these methodologies.
`The problem with a rule that bars
`the use of net sales price as the dam-
`ages base when calculating a reason-
`able royalty is that in many industrial
`sectors, net sales price is routinely
`used as the damages base in voluntary
`licensing negotiations. It is favored as
`a damages base because it is an objec-
`tive and readily verifiable datum. The
`parties to a licensing negotiation do
`not even argue about its use. Instead,
`they fight over the rate that will be ap-
`plied to that base. Even if the net sales
`price of the product is very large and
`the economic contribution made by the
`patented invention is small, net sales
`price can still serve as the denominator
`of an appropriate royalty if the numer—
`ator is made small.
`Thus in these industries, the initials,
`NSP, appear frequently and repeatedly
`in licensing contracts. A legal rule that
`precluded use of net sales price as the
`damages base would effectively prevent
`participants in these industries from
`making the same royalty calculations
`in litigation that they would make in
`an arm’s length transaction. Such an
`outcome would be deeply disruptive to
`the valuation of patents in these fields.
`Evidence and techniques whose use is
`endorsed by the market via their reg-
`ular use in voluntary negotiations are
`likely to offer the best means of val—
`uing a patent in litigation. After all,
`what is an object in commerce worth,
`other than what the market is willing
`to pay? We simply cannot enact a law
`that bars patentees from using in liti-
`
`gation the same damages calculation
`methods that they routinely employ in
`arm’s length licensing negotiations.
`The bill that I have introduced today
`uses what
`I call an enhanced gate-
`keeper to address problems with dam-
`ages awards. The bill strengthens judi-
`cial
`review of expert witness testi-
`mony, provides greater guidance to ju-
`ries, and allows for sequencing of the
`damages
`and
`validity/infringement
`phases of a trial. The bill also codifies
`the principle that all relevant factors
`can be considered when assessing rea—
`sonable royalty damages, while adopt-
`ing guidelines and rules that favor the
`use of an economic analysis of
`the
`value of an invention over rough or
`subjective methodologies such as the
`rule of thumb,
`industry averages, or
`the use of comparables. Allow me to
`provide
`a
`subsection-by-subsection
`summary of the bill’s revisions to sec-
`tion 284, the basic patent damages stat-
`ute.
`Subsection (a) of the bill’s proposed
`section 284 copies and recodifies all of
`current section 284,
`including its au-
`thorization of treble damages and its
`admonition that compensatory dam-
`ages shall “in no event be less than a
`reasonable royalty for the use made of
`the invention.”
`Subsection (b) codifies current Fed-
`eral circuit precedent defining a rea-
`sonable royalty as the amount that the
`infringer and patent owner would have
`agreed to in a hypothetical negotiation
`at
`the time infringement began. It
`tracks the language of the Rite-Hite
`case, 56 F.3d 1538 (Fed. Cir. 1995), and
`follow-on decisions. Some supporters of
`S. 1145 are critical of the hypothetical
`negotiation construct and believe that
`it leads to bad results. Not only is this
`test established law, however, but it is
`also inherent in the concept of a “rea-
`sonable royalty.” That standard re—
`quires the trier of fact to determine
`what would have been—i.e., what the
`parties would have agreed to. As long
`as the patent code requires a “reason-
`able royalty,” courts and juries will
`need to engage in a hypothetical
`in-
`quiry as to how the invention reason-
`ably would have been valued at the
`time of infringement. Indeed, it is not
`apparent by what other means
`the
`factfinder might approach the calcula-
`tion of a reasonable royalty. And in
`any event, the source of occasional bad
`results in damages trials is not
`the
`mental framework used for approach-
`ing the question of a reasonable roy-
`alty, but rather the particular evidence
`and methods used to value some inven-
`tions. It would be a noteworthy omis-
`sion to avoid mention of the hypo-
`thetical negotiation concept in a bill
`that regulates damages analysis to the
`degree that this one does. This sub-
`section thus codifies the Federal cir-
`cuit’s
`jurisprudence
`on
`the
`hypo-
`thetical negotiation.
`Subsection (0) simply makes clear
`that, despite subsection ((1),
`(e), and
`(f)’s codification and modification of
`several of the Georgia-Pacific factors,
`
`September 27, 2008
`some support in the macro evidence.
`Data
`collected
`by
`PricewaterhouseCoopers and FTI Con-
`sulting indicate that the majority of
`the largest patent-damages awards and
`settlements of all time have been en-
`tered only since 2002. Also, the infla-
`tion adjusted value of awards entered
`since 2000 is more than 50 percent high-
`er than it was during the early 1990s.
`And it also appears that jury awards
`tend to be about ten times higher than
`the average damages award entered by
`a judge, and that results vary mark-
`edly by jurisdiction. These facts sug-
`gest that the problems that sometimes
`lead to inflated damages awards are to
`some extent systemic.
`The task of reforming substantive
`damages standards presents a very dif—
`ficult
`legislative question. Damages
`calculation is an inherently fact-inten-
`sive inquiry and requires legal flexi-
`bility so that the best evidence of a
`patent’s value may always be consid-
`ered. Any proposed changes to the law
`must be evaluated in light of the kalei-
`doscope of factual scenarios presented
`by the calculation of damages for dif-
`ferent types of patents.
`I have largely given up on the idea of
`developing a unified field theory of
`damages law that solves all problems
`at once. I also oppose proposals to re—
`quire a prior—art subtraction in every
`case. Most measures of a reasonable
`royalty, such as established royalties,
`costs of design-arounds, comparisons to
`noninfringing alternatives, or cost sav-
`ings produced by use of the patented
`invention, already effectively deduct
`the value of prior art out of their esti—
`mate of the patented invention’s value.
`To mandate prior-art subtraction when
`using such measures would be to dou-
`ble count that deduction, effectively
`subtracting the prior art
`twice and
`undervaluing the invention.
`And for reasons mostly explained in
`my minority Views to the committee
`report for S. 1145, S. Rep. 110—259 at
`pages 64—65, I also disagree with the ar-
`gument that defendants should be al-
`lowed to revisit validity questions,
`such as a patent’s novelty or non-
`obviousness, during the damages phase
`of
`litigation. To those comments I
`would simply add that,
`if Congress
`were to desire that patents be defined
`more specifically and narrowly, then it
`would need to provide express guidance
`as to how to do so. Simply using adjec-
`tival phrases such as “specific con-
`tribution” or “inventive features” will
`not suffice. These terms merely express
`a hope or objective. But
`legislation
`needs to be about means, not ends, par-
`ticularly if it is intended to achieve its
`results by altering the practices and
`outcomes of litigation.
`I should also
`add that although I have consulted
`with many neutral experts in the field
`of patent damages, and many of those
`experts described to me what they be-
`lieved to be serious problems with pat-
`ent damages litigation, none of those
`experts told me that insufficiently spe-
`cific claim construction is causing ex-
`
`Page 2 of 12
`
`Page 2 of 12
`
`

`

`S9984
`
`the Georgia-Pacific fac—
`the rest of
`tors—as well as any other appropriate
`factor—may be used as appropriate to
`calculate the amount of a reasonable
`royalty.
`Subsection (d) is probably the most
`important subsection in the bill’s re—
`vised section 284. It bars the use of in-
`dustry averages,
`rule-of—thumb profit
`splits, and other standardized measures
`to value a patent except under par-
`ticular
`circumstances. Standardized
`measures are defined as those methods
`that, like rule of thumb and industry
`averages, do not gauge the particular
`benefits and advantages of the use of a
`patent.
`Instead,
`they are relatively
`crude,
`cookie-cutter measures
`that
`purport
`to value all patents—or at
`least all patents in a class—in the same
`way, without regard to a particular
`patent’s economic value. These back—
`of—the envelope methods are occasion-
`ally used in arm‘s-length, voluntary li—
`censing negotiations, as are things
`such as gut instinct and intuition. But
`they are rough methods
`that
`can
`produce wildly inaccurate results. Sub-
`section (d) disfavors their use.
`This subsection restricts the use of
`Georgia-Pacific factor 12, which largely
`describes the rule of thumb. Subsection
`(d)’s general
`rule cites the rule of
`thumb and industry averages as impor-
`tant
`and illustrative
`examples
`of
`standardized measures. But it also ex-
`pressly applies to other methods that
`are “not based on the particular bene—
`fits and advantages” of an invention,
`to ensure that variations on these ex-
`amples and other methods that consist
`of the same evil also are brought with—
`in the scope of subsection (d)’s main
`rule.
`An example of a standardized meas-
`ure other than profit splits and indus-
`try averages that is also currently in
`use and that also falls within sub-
`section (d)’s scope is the so-called IBM
`1-percent—up-to-5
`formula. This
`for-
`mula apparently was used by IBM in
`the past to license its own portfolio of
`patents. Under this methodology, each
`patent receives 1 percent of the reve-
`nues on a product until a 5 percent
`ceiling is reached, at which point the
`whole portfolio of patents is made
`available to the licensee.
`I have heard more than one rep-
`resentative of a high-technology com-
`pany describe the use of this formula in
`litigation against his company. Appar-
`ently, there exists a stable of plaintiff-
`side damages expert witnesses who will
`testify that this formula is appropriate
`for and is customarily used to cal-
`culate the value of any patent in the
`computer or information-technologies
`sectors. These experts start at 1 per-
`cent and then adjust
`that number
`based on the other Georgia—Pacific fac-
`tors, supposedly to account for the par—
`ticular aspects of the patent in suit,
`though these adjustments almost al-
`ways seem to push the number higher.
`Obviously, 1 percent of revenues or
`even profits is a grossly inflated value
`for many high-technology patents. It is
`
`CONGRESSIONAL RECORD — SENATE
`September 27, 2008
`found the bill ambiguous on this point,
`not uncommon for high-technology
`and in any event the lack of an excep-
`products to be covered by thousands of
`tion would have forced parties to liti-
`different patents, which are of greatly
`gate the question whether an estab-
`differing value. Not every one of those
`lished royalty was,
`in fact, based on
`patents can be worth 1 percent of reve-
`the benefits and advantages of the use
`nues. Some patents inevitably will be
`for features that are trivial, that are
`of the patent. Since established royal-
`irrelevant to consumers, or that could
`ties are widely considered to be the
`gold standard for valuing a patent, We
`be reproduced by unpatented, off-the-
`should avoid making it harder to use
`shelf noninfringing substitutes. One
`this method. It is thus expressly placed
`percent of the sales revenue from, for
`outside the scope of subsection (d)’s re—
`example, a laptop computer is an enor-
`strictions by paragraph (2).
`mous sum of money. Many patents are
`Paragraph (3) of subsection (d) allows
`worth nothing near
`that, and any
`industry averages to continue to be
`methodology that starts at that num-
`used to confirm that results produced
`ber is likely to produce a grossly in—
`by
`other,
`independently
`allowable
`flated result in a large number of cases.
`methods fall within a reasonable range.
`It bears also mentioning some of
`The paragraph speaks of “independ-
`those
`common methodologies
`that
`ently” allowable methods in order to
`clearly are not standardized measures.
`make clear that an industry average
`In addition to established royalties,
`cannot be used to confirm an estimate
`which are afforded an express exemp-
`produced solely by reference
`to a
`tion from this subsection by paragraph
`“comparable” patent. Subsection (e)
`(2),
`there are the methods of calcu-
`requires that comparables only be used
`lating the costs of designing around a
`in conjunction with or to confirm other
`patent, drawing comparisons to the ex—
`methods,
`and thus under
`this bill
`perience of noninfringing alternatives,
`comparables are not a method whose
`or calculating the costs savings pro—
`use is allowed “independently” of other
`duced by use of the invention. All of
`methods.
`these factors gauge the benefits and ad-
`A brief explanation is in order as to
`vantages of the use of the invention
`why this bill regards industry averages
`and therefore are outside the scope of
`as a potentially unreliable metric and
`subsection ((1).
`restricts their use. An industry average
`Paragraph (1) of subsection ((1) allows
`often will reflect a broad range of li-
`parties to use a standardized measure,
`censing rates within a technological
`such as a rule-of—thumb profit split, if
`sector. Even a licensed patent whose
`that party can show that the patented
`value is included in the calculation of
`invention is the primary reason why
`such a range may fall at a far end of
`consumers buy the infringing product.
`that
`range, producing highly inac—
`If the patented invention is the pri-
`curate results if that average is used as
`mary reason why people buy the prod—
`a starting point
`for calculating the
`uct, then the patent effectively is the
`reason for the commercial success of
`value of that patent. Moreover, many
`existing patents, though valid and in-
`the product, and its owner is entitled
`fringed by a product, disclose trivial
`to a substantial share of the profits,
`inventions that add little to the value
`minus business risk, marketing, and
`of the product. But the types of patents
`other contributions made by the in-
`that typically are licensed—and that
`fringer.
`therefore would be a source of avail—
`Some have advocated a lower stand-
`able data for calculating an industry
`ard than “primary reason” for allowing
`average—are the ones that are substan-
`use of profit splits and other standard-
`tial and valuable. Trivial patents don’t
`ized measures—for example, using a
`“substantial basis” standard. I rejected
`get licensed, and their value does not
`the use of a lower standard because a
`enter into industry average calcula-
`tions. Thus particularly in the case of
`profit split should basically award to
`a minor patent that has never been and
`the patent owner all of the profits on
`likely never would be licensed, an in-
`the product minus those attributable
`to business risk. Thus the test for al-
`dustry average would provide an in-
`flated estimate of the patent’s value.
`lowing such profit splits must be one
`This is because the industry average is
`that only one patent will meet per
`not the average licensing rate of all
`product, since the bulk of the profits
`patents in a field, but merely the aver—
`can only be awarded once. If the test
`were “substantial basis,” for example,
`age of those that have been licensed
`and for which data is publicly avail-
`multiple patents could meet the stand-
`able.
`ard and multiple patent owners could
`Paragraph (4) of subsection (d) cre-
`demand all of the profits minus busi-
`ates a safety valve that allows parties
`ness risk on the product.
`to use standardized measures if no
`Paragraph (2) of subsection (d) makes
`other method is reasonably available
`established royalties an express excep-
`tion to the bar on standardized meas-
`to calculate a reasonable royalty, and
`the standardized method is otherwise
`ures. In earlier drafts, I did not include
`shown to be appropriate for the patent.
`this exception in the bill because I
`Over the course of drafting this bill, I
`thought it obvious that an established
`have consulted with a number of ex-
`royalty is based on the benefits and ad—
`vantages of the use of the invention
`perts with broad experience in patent
`and is thus outside the scope of the
`damages calculation. Only a few be-
`lieved that they had ever seen a case
`subsection (d) rule. Some parties who
`where use of a standardized measure
`reviewed those earlier drafts, however,
`
`Page 3 of 12
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`Page 3 of 12
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`S9985
`
`CONGRESSIONAL RECORD — SENATE
`too broad. Parties might define “indus-
`try” so expansively that every patent
`in the universe would fall into one of
`only two or three “industries.”
`Paragraph (2) of subsection (e) sets
`out guideposts for determining whether
`a patent is economically comparable to
`another patent. It suggests requiring a
`showing that the supposed comparable
`is of similar significance to the li-
`censed product as the patent in suit is
`to the infringing product, and that the
`licensed and infringing products have a
`similar profit margin. Obviously, a pat-
`ent that makes only a trivial contribu-
`tion to a product cannot accurately be
`valued by reference to a comparable
`that makes a critical and valuable con-
`tribution to its licensed product, or
`vice versa. And similarity in the profit-
`ability of the licensed and infringing
`products will also generally be impor-
`tant to establishing the economic com-
`parability of two patents. As an eco-
`nomic reality, when the profits on a
`product are high,
`the manufacturer
`will be more generous with the royal-
`ties that he pays for the patented in-
`ventions that are used by the product.
`This economic reality is undergirded
`by the fact that it will typically be the
`patented inventions used by a product
`that make that product unique in the
`marketplace and allow it to earn high-
`er profits. Even if two patents are the
`principal patent on products in the
`same field, if one patent’s product has
`a 2—percent profit margin and the oth—
`er’s has a 20-percent profit margin,
`that first patent evidently is doing less
`to distinguish that product in its mar-
`ket and to generate consumer de-
`mand—and thus has a lower economic
`value.
`com-
`of
`analysis
`thorough
`A
`parability, of course. likely will depend
`in a given case on many factors beyond
`those listed here. Subparagraphs (A)
`and (B) are simply guideposts that de-
`scribe two factors that are likely to be
`relevant
`to comparability. The bill
`only provides that these two factors
`may be considered. It does not preclude
`consideration of other factors, nor does
`it require that these two factors be
`considered in every case. A party as-
`serting the propriety of a comparable
`may be able to show that one or even
`both of these factors are not appro-
`priate to establishing economic com—
`parability in a given case.
`Subsection (f) bars parties from argu-
`ing that damages should be based on
`the wealth or profitability of the de-
`fendant as of the time of trial. Some
`lawyers have been known, after mak-
`ing their case for an inflated royalty
`calculation,
`to emphasize how insig-
`nificant even that inflated request is in
`light of the total revenues of the de-
`fendant infringer. Such arguments do
`not assist the jury in gauging a reason-
`able royalty. Rather, they serve to re-
`duce the jury’s sense of responsibility
`to limit a reasonable royalty to the ac-
`tual value of the use made of the inven-
`tion. This subsection does not bar all
`
`back—of—the-envelope calculation that
`requires only one expert
`to give you
`the industry average licensing rate and
`another to calculate the gross revenues
`on the product. When a complex eco-
`nomic analysis that focuses on non-
`infringing alternatives to the patented
`invention or
`the costs of a design—
`around is forced to compete for the
`jury’s favor with a simple average-rate—
`times-sales calculation, many jurors
`may find the simpler and readily un-
`derstandable method more intuitively
`appealing, even if it is less accurate.
`And of course, when two different and
`even slightly complex damages calcula-
`tions are presented to a jury, there al-
`ways exists a risk that the jury will re-
`solve the dispute by splitting the dif-
`ference between the two methods. In a
`high-value case where the patent owner
`uses an unsound method that produces
`a wildly inflated number, the risk that
`the jury will pick the wrong method or
`even split the difference may easily be
`unacceptable from a business perspec-
`tive.
`In the end, it is the premise of the
`rules of evidence that some types of
`evidence are so unsound, so prejudicial,
`or so likely to produce an unjust result
`that we do not require the other side’s
`lawyer to debunk this evidence, but
`rather we require the judge to bar it
`from the courtroom altogether. If we
`find that particular methodologies rou-
`tinely produce inaccurate and unjust
`results,
`it
`is
`appropriate
`that we
`amend the law to directly restrict the
`use of those methodologies.
`Subsection (e) restricts and regulates
`the use of licenses paid for supposedly
`comparable patents as a means of cal-
`culating the value of the patent in suit.
`The use of comparables is authorized
`by Georgia-Pacific factor two and can
`generate probative evidence of a pat-
`ent’s value. Nevertheless, such use is
`regulated and restricted by this sub—
`section. Comparables are a valuation
`method that is often abused, both to
`overvalue and to undervalue patents.
`When an infringer is sued for infringing
`an important patent, he often will cite
`as evidence of a reasonable royalty the
`license paid for a patent that is in the
`same field but that is much less valu—
`able than the patent in suit. Similarly,
`a plaintiff patent owner asserting a
`trivial patent may cite
`as
`“com-
`parable” other patents in the same
`field that are much more valuable than
`the plaintiff’s patent. The fact that an-
`other patent is licensed in the same in-
`dustry should not alone be enough to
`allow its use as a comparable in litiga-
`tion.
`Comparability is a subjective test.
`By definition, every patent is unique
`and no two patents are truly com-
`parable. Subsection (e)
`thus requires
`that comparables be used only in con-
`junction with or to confirm the results
`of other evidence, and that they only
`be drawn from the same or an analo—
`gous technological
`field.
`I chose the
`latter term rather than “same indus-
`try” because the term “industry” is
`
`September 27, 2008
`was necessary—that is, where a more
`precise economic analysis was not fea-
`sible. I thus anticipate that this safety
`valve may almost never need to be
`used, but I nevertheless include it in
`the bill, because it is impossible to say
`with certainty that no situation will
`ever arise in the future where parties
`will be unable to calculate a reasonable
`royalty without use of
`the rule of
`thumb or other standardized measures.
`Suffice to say that if one party to a
`suit presents appropriate evidence of a
`patent’s value and that evidence falls
`outsi