As any student of military history can attest, the element of surprise is, to a greater or lesser extent, the key to success in battle. So too with respect to litigation. Therefore, one can only wonder at the motivation of an attorney who chooses to publish his trial strategy for all to see. That being said, it clearly behooves all who may, in the future, cross swords with this attorney to study his writing and pay due heed.
The subject attorney, who shall remain nameless, is in-house counsel for a major electronics manufacturer. He must contend with lawsuits brought by the dreaded non-practicing entities (“NPEs”) who allege that their patents are being infringed by his employer. In his view, “in virtually all such cases, the NPE asserts a patent claiming an improvement to one feature of one component of a complex, multicomponent product or service…these improvements over prior art are by definition minute in the extreme. Where the sale of an IT device such as a computer or smartphone generates a few dollars of profit, the profit reasonably attributable to any single patent or handful of patents is a tiny fraction of a penny per device.”
His goal, of course, is to reduce, if he cannot eliminate, the damages awarded by juries to prevailing patentees. He notes that he has advised NPEs to stop suing IT companies that sell end-user products, in favor of suing the providers of the components that include the patented inventions. This, of course, has not endeared him to the component suppliers. Moreover, to his dismay “NPEs have not taken up my advice.” He therefore proposes a damages-minimization strategy which is based on “the Federal Circuit's new (or, more accurately, resurrected) approach to calculating a reasonable royalty [which] requires plaintiffs to prove, with sound economic evidence, the incremental profit attributable to the one claimed improvement to the one feature at issue, versus all of the other improvements to that feature and all of the other features.” In his view, “this requirement of apportionment in reasonable royalty calculations would generate minimal damages in most NPE cases against IT companies.” Moreover, requiring the plaintiff to produce evidence sufficient to thus apportion the profits “imposes a tremendous evidentiary challenge to plaintiffs.” Indeed, he states that, “counsel representing NPEs appear to believe that a requirement to identify profits attributable to the claimed invention is so difficult, and so likely to result in a trivial number, that it cannot be the law. But…it is.”
Our candid corporate counsel has been so obliging as to disclose the specific trial tactics he proposes to implement this strategy. He opines that “NPEs typically will not produce evidence sufficient to make a prima facie case on calculation of a reasonable royalty,” and, therefore, he recommends the filing of a motion for partial summary judgment that the plaintiff may not recover a reasonable royalty. This, he believes, “is procedurally proper and will be welcomed by the bench." He formed this opinion because “judges are not interested in putting a jury through a complex patent trial where there will be no evidence from which the jury can properly calculate damages.” He further advocates that defendants propound narrow damages - focused interrogatories and requests for admissions in preparation for this partial summary judgment motion.
So, all you NPEs, there it is. No longer can you simply demand 5% of the sale price of a complete electronic gizmo when your patent covers a minor improvement or trivial feature; nor can you simply seek 25% of the profit on the sale of the gizmo. If our unnamed in-house counsel has his way – and the courts do seem increasingly willing to support his views – you’re going to be required to invest in the preparation of a realistic damages model and, more importantly, settle for much less than you would have expected in the good old days.
The Lesson to Be Learned: As we have said before, all good things – at least for the plaintiffs – apparently come to an end.
Candor is certainly a virtue, and this attorney's strategy could indeed prove to be of benefit to patent infringement defendants. Obviously, however, it could also simply spur NPEs suing his company to adapt their strategies accordingly. Perhaps he's making the ultimate sacrifice for the public good...?