Chief Justice Paul Michel of the U.S. Court of Appeals for the Federal Circuit wrote late last week to Shanna Winter, Howard Berman’s staff in charge of patent reform. Michel expressed concerns regarding determining damages in patent infringement cases under the reasonable royalty language of the Patent Act.

Michel references an article by patent litigator William Rooklidge regarding how such damage theories are actually litigated in court. Rooklidge argues that “the proposed legislation would not codify existing law, and in fact would make substantial changes destructive to the patent system.”

Currently, damages in patent cases are governed by section 284, which states in relevant part:

Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.

The law addresses calculating such royalty based on The “entire market value rule,” which recognizes that the economic value added to a product or process by a patented feature may be greater than the value of the feature alone.

The other method is by “apportionment” such that courts should consider “[t]he portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer” when apportioning damages. But, the burden is on the accused infringer to establish that damages should be apportioned.

The Patent Reform Act of 2007 (S. 1145) would add the following provisions to 35 U.S.C. §284:

(2) RELATIONSHIP OF DAMAGES TO CONTRIBUTIONS OVER PRIOR ART. -The court shall conduct an analysis to ensure that a reasonable royalty under paragraph (1) is applied only to that economic value properly attributable to the patent’s specific contribution over the prior art.  …  The court shall exclude from the analysis the economic value properly attributable to the prior art, and other features or improvements, whether or not themselves patented, that contribute economic value to the infringing product or process.

Michel writes:

If the House Judiciary Committee intends to continue the damages law as currently practiced, after decades of refinement in individual court decisions, it need do nothing. This body of law is highly stable and well understood by litigators as well as judges. If, on the other hand, the Congress wishes to radically change the law, I suggest that a far more carefully-crafted and lengthy provision would be required. Like the body of caselaw, such a provision would need to account for many different types of circumstances, which the present provision does not.

In my opinion, plucking limited language out of the long list of factors summarized in the Georgia Pacific case that may be relevant in various cases is unsatisfactory, particularly when cast as a rigid requirement imposed on the court, and required in every case, rather than an assignment of a burden of proof under a clear standard of proof imposed on the party that should bear that particular burden, and that would only arise in a rare case. As I said, under current caselaw, the burden of apportioning the base for reasonable royalties falls on the infringer, while the burden for application of the Entire Market Value Rule falls on the patentee. In most cases, apportionment is not an issue requiring analysis.

Further, as I also attempted to explain, the present bills require a new, kind of macroeconomic analysis that would be extremely costly and time consuming, far more so than current application of the well-settled apportionment law. Resulting additional court delays would be severe, as would additional attorneys’ fees and costs. Many view current delays and costs as intolerable.

See the Michel Letter here:  Michel Letter on Damages

See the Rooklidge report here:  Michel Letter on Damages

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