[This is the fifth in a series of postings regarding the various proposals in the Patent Act of 2005.]

Apportionment of Damages for Infringement in the Case of a Combination

If 35 U.S.C. 271(f) remains unchanged, there may be some relief offered to defendants by the proposal that damages should be assessed according to the inventive contribution of the patent rather than the product taken as a whole. In determining a reasonable royalty, the court shall consider the portion of the realizable profit or value that should be credited to the inventive contributions arising from the claimed invention as distinguished from contributions arising from features, manufacturing processes or improvements added by the infringer and from the business risks the infringer undertook in commercialization.

Emery Simon, giving testimony for the Business Software Alliance, (Before the United States House of Representatives Committee on the Judiciary Subcommittee on Courts, the Internet, and Intellectual Property Hearing on: An Amendment in the Nature of a Substitute to H.R. 2795 the “Patent Reform Act of 2005” (September 15, 2005)) objects to codifying a modified version of factor #13 of the Georgia Pacific case.

That case actually directs the court to look at the contribution from the “claimed invention” instead of the “inventive contribution.” Georgia-Pacific Corp. v. United States Plywood Corp., 318 F.Supp 1116, 1120 (SDNY 1970), modified and aff’d sub nom., Georgia-Pacific Corp. v. United States Plywood-Champion Papers, 446 F2d 295 (2d Cir. 1971), cert. denied, 404 US 870 (1971). Mr. Simon is concerned that “the damage claim often seeks some portion of the product as a whole, … such as a computer, rather than being limited to only the value of the infringing feature. This often leads to unduly inflated verdicts or settlement demands, and is unworkable when thousands of patents can apply to a single product.” (Before the United States House of Representatives Committee on the Judiciary Subcommittee on Courts, the Internet, and Intellectual Property Hearing on: An Amendment in the Nature of a Substitute to H.R. 2795 the “Patent Reform Act of 2005” (September 15, 2005).

But Philip S. Johnson, on behalf of the Pharmaceutical Research and Manufacturers of America (PhRMA), (Before the United States House of Representatives Committee on the Judiciary Subcommittee on Courts, the Internet, and Intellectual Property Hearing on: An Amendment in the Nature of a Substitute to H.R. 2795 the “Patent Reform Act of 2005” (September 15, 2005)) offers the counterpoint that this kind of analysis would undermine the reasonable royalty determination because “A patented invention should not be dissected into its subparts … and then evaluated piecemeal … the true value of the invention will likely be lost.”

The problem is that a reasonable royalty is a difficult thing to determine no matter how many factors you throw into the framework. Even if an inventive contribution is small, it may be the lynchpin which sells the entire product. On the other hand, the inventive contribution may be the thinnest differentiation against the known prior art.

The proposed legislation, however, overlooks some additional “wiggle” factors, cited in Georgia-Pacific, to consider in a damages assessment, including the opinion testimony of qualified experts and the nature of the patented invention, its character in the commercial embodiment owned and produced by the licensor, and the benefits to those who used it.

It may be better to rely on these as the means for assessing the inventive contribution rather than codifying a rigid formula.

Previous: Part 4. Willful Infringement and Repeal of §271(f) for Software.
Next Up: Part 6. Injunctions.

Today’s post comes from Guest Barista Ria Schalnat, a registered patent attorney in Frost Brown Todd’s Cincinnati office.

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