Stricter standards for IP evidence signaled by Federal Courts

Patent plaintiffs once considered the U.S. District court in the Eastern District of Texas one of the more favorable forums for winning damages—see, e.g., the recent $200 million jury award in i4i Ltd. Partnership v. Microsoft Corp, 2009 WL 2449024 (2009) (as digested in BVLaw). But perhaps no longer: A new case may signal a much stricter damages standard among federal circuit courts and an increased need for plaintiffs to provide more detailed (and more expensive) expert evidence concerning customer use and demand for patented products.

The case is IP Innovation LLC v. Red Hat, Inc., 2010 WL 986620 (E.D. Tex.)(March 2, 2010), and in another turn of events, Judge Rader from the U.S. Court of Appeals for the Federal Circuit was brought in to preside over the Texas proceedings. The plaintiffs claimed their patented workspace switching feature was sold in the defendant’s operating systems, and after applying the “entire market value rule,” their expert included 100% of the defendant’s sales in calculating reasonable royalty damages. His methodology failed to consider, however, that the patented item was but one of a thousand components in the accused products, and evidence showed users did not consider the patented feature essential. Further, the majority of the defendants’ revenues came from sales of servers—which didn’t even include the patented item. In sum, these “stunning methodological oversight[s]” prevented the court from giving the expert any credibility, and it dismissed his evidence under Rule 702 and Daubert.

Next time, use KtMine. The court also discredited the expert for failing to use existing licensing agreements in his reasonable royalty calculations (relying instead on broad, non-comparable industry studies). Perhaps the expert would have fared better by looking at ktMINE™, the only interactive IP database that provides direct access to royalty rates, source licensing agreements, and detailed agreement summaries. For more information on ktMINE’s direct access to royalty rates, source licensing agreements, and detailed agreement summaries from over 13,000 public royalty rate, licensing, and lump sum agreements—contact Randy Cochran.