brian buss - iipla presentation on patent damages and expert testimony
TRANSCRIPT
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The Economics of Patent Litigation & Damages
October 2017
Brian Buss, CFANevium Intellectual Property Solutions
www.nevium.com
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TrendsDamages
Challenges
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How IP Creates Economic Benefit
Monopoly Barrier to entry, exclude others from using
Pricing powerMore volumeGreater profit margins
Permission Ability to be compensatedwhen others use
Value of license (PV of royalties+fees – costs)
Value if sold
PromotionSignals innovation,uniqueness, source of origin to consumers
Additional salesReduced marketingIncremental margin
Litigation Seek damages if others use
Litigation award (PV of award less costs)
Threat of litigation (force “Monopoly” or “Permission”)
Four Possible Avenues for Economic Benefit
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The “Value” of Patents & IP
Price Sell at a higher price point, increase revenues
Volume Sell additional units, increase revenues
Cost Reduction
Lower expenses, increase profit margins
License / Royalty
Additional income, net of expenses
Promotion
Monopoly
Litigation
Permission
Four Ways Patents Can Impact Financial Performance & Value
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Returns from Litigation• Net present value of
litigation can be less than expected
• Expenses still paid if unsuccessful
Patent Trends & Economics2017 PWC Study: • Decline in # of case filings• Median jury damages decreasing• Almost 2.5 years time-to-trial
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Trends
DamagesChallenges
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IP StatutesGuidance in Calculating Damages
Utility Patent
Trademark
Copyright
35 USC Section 284 Damages to compensate for the infringement, but in no event less than a reasonable royalty
Lanham Act Plaintiff entitled to recover: 1) defendant’s profits; 2) any damages sustained by the plaintiff
Design Patent 35 USC Section 289 Liable to the extent of infringers’ total profit (until Apple v. Samsung???)
Copyright ActOwner entitled to recover actual damages suffered, and any profits of the infringer attributable to the infringement
Trade Secrets State by State and DTSA
Owner entitled to recover its actual loss, also any unjust enrichment not compensated by its actual loss; alternatively recover a reasonable royalty
Utility Patents v. Design Patents: difference is apportionmentFor Patents, emphasis on royalty-based damages
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No IP is Identical & Most Licenses are Unique
Reasonable RoyaltiesAdjusting Comparable Agreements Using Georgia Pacific in 2 Diagrams
Sharing Responsibilities Sharing Benefits
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Tie the Forecast to the FactsTest for Reasonableness
• Market outlook & economic trends• Peer group analysis• Competitive product analysis• Pricing and discounting history• Product life cycle stage
Building Benefit Forecasts
Lost Profits
• Demand for the product exists• Absence of acceptable non-infringing
substitutes• Capability to exploit the demand• Amount of profit that would have
been made
Its all about the Forecasting
Test: Panduit Factors
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ApportionmentIP depends on other assets and resources in order to generate economic benefits
Apportionment: Identify the portion of future economic benefits derived from use of the IP Assets
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Trends
Damages
Challenges
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Those license agreements that are publicly available are a small % of the universe of patent and technology licenses
Thorough can be expensive and burdensome to the Plaintiff
Reasonable Royalty Analysis“Noisy” and “Indiscriminate”
Economic Terms in License Agreements What’s the Royalty Base?
• Upfront payments• Minimum and maximum royalties• Variable royalty rates• Marketing & advertising commitments• Start-up, launch and market entry costs • Inclusion of other assets (trademarks, copyrights,
trade secrets, technology, etc.)
• Equity rights
• Gross or net sales• Performance measure other
than revenue• Entire product or service v.
smallest salable unit• Impact of competition and
substitutes
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“Reasonable” depends on perspective
Patent Valuation & Lost ProfitsThe Challenges in Forecasting
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The Economics of Patent Litigation & DamagesIn Summary
For Patent Owners For Litigators
• Value is derived from use• Most patents contribute to financial
performance through increased revenue and/or reduced costs
• IP creates value in association with other assets and resources
• A reasonable royalty calculation is mechanically simple, but often challenging to thoroughly support
• Damages calculations involve forecasting and forecasting is inherently uncertain
• Don’t underestimate the time and investment required to support a damages calculation
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