Patent infringement analysis may be 'plausible' but still insufficient for lost profits award

AU Optronics Corp. v. LG Display Co., Ltd., 2010 WL 2720816 (D. Del.)(July 8, 2010)

The U.S. District Court (Delaware) first found that the defendant infringed four of the plaintiff’s patents related to liquid crystal display (LCD) technology. It next turned to the appropriate amount of reasonable royalty and lost profits damages.

Damages estimate range from $300,000 to $7.8 million. In calculating a reasonable royalty for the established infringement, the plaintiff’s expert considered the fifteen Georgia-Pacific factors Georgia-Pacific v. U.S. Plywood Corp., 318 F. Supp. 1116 (.D.N.Y. 1980). In particular, he accounted for the practice of cross-licensing patent portfolios in the industry (factors1-4 and 7). He also looked to the parties’ past practices in licensing LCD-type patents and examined more than 70 industry licenses, with a particular emphasis on 8 cross-licenses between competitors. He then used a regression analysis to summarize the data and derive the terms on which the parties would reach a licensing agreement after a hypothetical negotiation, assuming they would cross-license portfolios with an additional balancing payment unique to these parties.

Finally, after assessing an aggregate amount, the plaintiff’s expert used a “count, rank, and divide” method to allocate the portion of the claim attributable to each of the four infringed patents. (This takes into account Georgia-Pacific factors 9-11.) Based on each patent’s value share and the assumption that the four patents comprise the top 5% of the subject portfolio, the expert determined that damages for actual infringement equaled $305,399. He checked this amount against amounts paid for licensing separate patents rather than a portfolio, and found they were consistent with his aggregate damages estimate (Georgia-Pacific factor 2).

To determine future lost profits, the expert considered what a potential buyer would be willing to pay for a share of the profits from using the infringed patents. (Georgia-Pacific factors 6, 8, 12, and 13). He started with the defendant’s worldwide profits and then reduced them to its U.S. profits based on an accused sales calculation similar to the one in his reasonable royalty calculations. Taking into account brand name, advertising, and good faith sales efforts—which all contribute to patent profitability—the expert attributed half (50%) of the defendant’s profits to the infringed patents. He then performed the “count, rank, and divide” method to allocate these profits among the four asserted patents, assuming that each fell within the top 5% of the ranked portfolio. Based on this approach, the plaintiff’s expert concluded $7.8 million in lost profits damages.

Defendant offers no expert opinion. The defendant’s expert sat through the liability phase of trial but did not present a separate opinion during the damages phase. To the extent the defendant’s expert challenged the methodology used by the plaintiff’s expert during phase II, the court was “not persuaded” by his testimony, it said, and summarily dismissed any rebuttal expert evidence offered by the defendant.

As to the plaintiff’s evidence, the court acknowledged the expert’s “plausible though wide range of damages.” In determining where on the spectrum to place the defendant’s infringement, the court settled on the lower end, representing calculations related to the parties’ past licensing practices. In the court’s view, “this analysis is more reflective of the hypothetical negotiations that a willing licensor and licensee would engage in.” The court was not persuaded the plaintiff established a “commercial value beyond the top 5% assumption used by [its expert] in the first instance.” Accordingly, it awarded the plaintiff a lump sum award of $305,399 as reasonable royalty damages.