Expert’s apportionment is not enough to save patent damages—but it saves copyright claims

After a jury awarded the plaintiff $60 million for copyright infringement and just over $51 million for patent infringement, the defendant appealed both verdicts, claiming they lacked sufficient evidence.

In particular, the defendant argued that the standard of copyright damages mirrors that of patent law, i.e., that the plaintiff had to prove its copyrighted features drove consumer demand for the infringing product. But that overstated the standard, the court held. The plaintiff must only establish causation, i.e., that “but for” the infringement, the defendant wouldn’t have made its gross sales. “The burden then shifts to [the defendant] to apportion that gross revenue between profit and expenses and among infringing and non-infringing features of the product.”

Rather than apportion the profits, however, the defendant’s expert said it was only obligated to pay the amount saved by copying the plaintiff’s copyrighted information, instead of generating it on its own, which amounted to no more than $6,000. In response, the court found the plaintiff didn’t have to offer an expert to apportion damages—but it was a good thing it did, because his rebuttal testimony showed the defendant made $93 million in net profits, sufficient to support the jury’s $60 million award.

Entire market value is exception rather than rule. The expert’s apportionment analysis for patent damages did not fare so well. The current standard requires experts to calculate a reasonable royalty using the “smallest saleable unit,” the court said. “That is the rule.” If they don’t, then they can only use the entire market value of the infringing product if the patented feature drives consumer demand. In this case, the expert relied on gross sales of the defendant’s infringing product, which he believed was the “smallest saleable unit.” The court disagreed, finding the product consisted of many patented and unpatented parts.

Even so, the plaintiff argued, its expert appropriately apportioned damages between the product’s patented and unpatented features. Not good enough, the court said: “The Federal Circuit has rejected [this] methodology. Absent evidence that the patented feature drives demand, [the plaintiff’s expert] should not have used the entire market value … to establish its royalty base.” The court found the same flaws undermined his lost profits calculus, and reversed the $51 million patent award. Read the complete digest of Brocade Communication Systems, Inc. v. A10 Networks, Inc., 2013 U.S. Dist. LEXIS 8113 (Jan. 10, 2013) in the March 2013 Business Valuation Update; the district court’s decision will be posted soon at BVLaw.