How to Prove Reasonable Royalty Damages after Uniloc

March 3 2011

Statutory Basis for Reasonable Royalty Damages

and How to Prove Them

bull 35 USC sect 284ldquo[T]he court shall award 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 infringerrdquo

ldquoThe court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstancesrdquo

Two kinds of recognized patent damages

(1) Lost profits for sales the patenteewould have made (eg as a competitor)

(2) Reasonable royalty for sales thepatentee would not have made

Reasonable Royalty Methodologiesbull Three basic types of methodologies have been accepted

by CAFC(1) ldquoEstablishedrdquo royalty (forget this one)(2) Analytical method (TWM v Dura)(3) Hypothetical royalty negotiation using Georgia Pacific factors (with patent assumed

valid and infringed)

Recent CAFC Reasonable RoyaltyDecisions

bull Lucent Tech Inc v Gateway Inc 580 F3d 1301 (Sept 2009)

bull i4i Ltd Partnership v Microsoft Corp 598F3d 831 (Dec 2009)

bull ResQNetcom Inc v Lansa Inc 594 F3d860 (Feb 2010)

bull Wordtech Sys Inc v Integrated NetworkSolrsquon Inc 2010 WL 2384958 (June 2010)

bull Microsoft v Uniloc __ F3d ___ (Jan 2011)

Lucent Tech v Gateway Incbull Lucent accused Gateway and others of infringing a

number of patents including the Day lsquo356 patentbull 1048707 Microsoft intervened and its products including

ldquodate pickerrdquo feature of Outlook were accusedbull 1048707 Lucent prevailed against Microsoft at trial

and obtained a jury award of ~$360 millionbull 1048707 Validity and infringement decisions upheld on

appeal but damages award remanded as lacking sufficient evidentiary support

Lucent Tech contReasonable Royalty Analysis

bull The Federal Circuit considered whether the lump sum jury award of ~$360 million was a ldquoreasonable royaltyrdquo

bull 1048707 Lucent had argued for a running royalty basedaward (8 of accused products including Microsoft Outlook) totaling ~$562 million

bull 1048707 Microsoft had argued for a lump-sum royaltypayment of $65 million

bull 1048707 The juryrsquos lump sum award was much closer to Lucentrsquos number but NOT based upon Lucentrsquos expertrsquos running royalty theory

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 2 -- ldquo[t]he rates paid by the licensee forthe use of other patents comparable to the patent in suitrdquo --weighed against jury award

bull 1048707 There was no evidence in the record to support jurydetermination that the parties would have agreed to a lump sum payment The lump sum and running royalty approachesto a license agreement necessarily involve differentconsiderations

bull 1048707 The 4 ldquocomparablerdquo lump-sum agreements were either ldquovastly differentrdquo or were presented with no explanation as to subject matter

bull 1048707 For the 4 running-royalty agreements presented there was no evidence in the record about why they would have beenprobative of the amount of a lump-sum payment

bull 1048707 Jury award was 3-4 times average amount of lump-sumagreements in evidence

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factors 10 and 13 ndash ldquo[t]he nature of thepatented invention the character of the commercialembodiment of it as owned and produced by the licensor and the benefits to those who have used the inventionrdquo ldquo[t]he portion of the realized 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 infringersrdquo -- did not support jury award

bull 1048707 These factors concern how the parties would have valued the patented feature during the hypothetical negotiation

bull 1048707 The record evidence showed that the infringing date pickerfeature was ldquobut a tiny featurerdquo in the larger Outlook softwareprogram

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Statutory Basis for Reasonable Royalty Damages

and How to Prove Them

bull 35 USC sect 284ldquo[T]he court shall award 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 infringerrdquo

ldquoThe court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstancesrdquo

Two kinds of recognized patent damages

(1) Lost profits for sales the patenteewould have made (eg as a competitor)

(2) Reasonable royalty for sales thepatentee would not have made

Reasonable Royalty Methodologiesbull Three basic types of methodologies have been accepted

by CAFC(1) ldquoEstablishedrdquo royalty (forget this one)(2) Analytical method (TWM v Dura)(3) Hypothetical royalty negotiation using Georgia Pacific factors (with patent assumed

valid and infringed)

Recent CAFC Reasonable RoyaltyDecisions

bull Lucent Tech Inc v Gateway Inc 580 F3d 1301 (Sept 2009)

bull i4i Ltd Partnership v Microsoft Corp 598F3d 831 (Dec 2009)

bull ResQNetcom Inc v Lansa Inc 594 F3d860 (Feb 2010)

bull Wordtech Sys Inc v Integrated NetworkSolrsquon Inc 2010 WL 2384958 (June 2010)

bull Microsoft v Uniloc __ F3d ___ (Jan 2011)

Lucent Tech v Gateway Incbull Lucent accused Gateway and others of infringing a

number of patents including the Day lsquo356 patentbull 1048707 Microsoft intervened and its products including

ldquodate pickerrdquo feature of Outlook were accusedbull 1048707 Lucent prevailed against Microsoft at trial

and obtained a jury award of ~$360 millionbull 1048707 Validity and infringement decisions upheld on

appeal but damages award remanded as lacking sufficient evidentiary support

Lucent Tech contReasonable Royalty Analysis

bull The Federal Circuit considered whether the lump sum jury award of ~$360 million was a ldquoreasonable royaltyrdquo

bull 1048707 Lucent had argued for a running royalty basedaward (8 of accused products including Microsoft Outlook) totaling ~$562 million

bull 1048707 Microsoft had argued for a lump-sum royaltypayment of $65 million

bull 1048707 The juryrsquos lump sum award was much closer to Lucentrsquos number but NOT based upon Lucentrsquos expertrsquos running royalty theory

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 2 -- ldquo[t]he rates paid by the licensee forthe use of other patents comparable to the patent in suitrdquo --weighed against jury award

bull 1048707 There was no evidence in the record to support jurydetermination that the parties would have agreed to a lump sum payment The lump sum and running royalty approachesto a license agreement necessarily involve differentconsiderations

bull 1048707 The 4 ldquocomparablerdquo lump-sum agreements were either ldquovastly differentrdquo or were presented with no explanation as to subject matter

bull 1048707 For the 4 running-royalty agreements presented there was no evidence in the record about why they would have beenprobative of the amount of a lump-sum payment

bull 1048707 Jury award was 3-4 times average amount of lump-sumagreements in evidence

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factors 10 and 13 ndash ldquo[t]he nature of thepatented invention the character of the commercialembodiment of it as owned and produced by the licensor and the benefits to those who have used the inventionrdquo ldquo[t]he portion of the realized 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 infringersrdquo -- did not support jury award

bull 1048707 These factors concern how the parties would have valued the patented feature during the hypothetical negotiation

bull 1048707 The record evidence showed that the infringing date pickerfeature was ldquobut a tiny featurerdquo in the larger Outlook softwareprogram

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Two kinds of recognized patent damages

(1) Lost profits for sales the patenteewould have made (eg as a competitor)

(2) Reasonable royalty for sales thepatentee would not have made

Reasonable Royalty Methodologiesbull Three basic types of methodologies have been accepted

by CAFC(1) ldquoEstablishedrdquo royalty (forget this one)(2) Analytical method (TWM v Dura)(3) Hypothetical royalty negotiation using Georgia Pacific factors (with patent assumed

valid and infringed)

Recent CAFC Reasonable RoyaltyDecisions

bull Lucent Tech Inc v Gateway Inc 580 F3d 1301 (Sept 2009)

bull i4i Ltd Partnership v Microsoft Corp 598F3d 831 (Dec 2009)

bull ResQNetcom Inc v Lansa Inc 594 F3d860 (Feb 2010)

bull Wordtech Sys Inc v Integrated NetworkSolrsquon Inc 2010 WL 2384958 (June 2010)

bull Microsoft v Uniloc __ F3d ___ (Jan 2011)

Lucent Tech v Gateway Incbull Lucent accused Gateway and others of infringing a

number of patents including the Day lsquo356 patentbull 1048707 Microsoft intervened and its products including

ldquodate pickerrdquo feature of Outlook were accusedbull 1048707 Lucent prevailed against Microsoft at trial

and obtained a jury award of ~$360 millionbull 1048707 Validity and infringement decisions upheld on

appeal but damages award remanded as lacking sufficient evidentiary support

Lucent Tech contReasonable Royalty Analysis

bull The Federal Circuit considered whether the lump sum jury award of ~$360 million was a ldquoreasonable royaltyrdquo

bull 1048707 Lucent had argued for a running royalty basedaward (8 of accused products including Microsoft Outlook) totaling ~$562 million

bull 1048707 Microsoft had argued for a lump-sum royaltypayment of $65 million

bull 1048707 The juryrsquos lump sum award was much closer to Lucentrsquos number but NOT based upon Lucentrsquos expertrsquos running royalty theory

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 2 -- ldquo[t]he rates paid by the licensee forthe use of other patents comparable to the patent in suitrdquo --weighed against jury award

bull 1048707 There was no evidence in the record to support jurydetermination that the parties would have agreed to a lump sum payment The lump sum and running royalty approachesto a license agreement necessarily involve differentconsiderations

bull 1048707 The 4 ldquocomparablerdquo lump-sum agreements were either ldquovastly differentrdquo or were presented with no explanation as to subject matter

bull 1048707 For the 4 running-royalty agreements presented there was no evidence in the record about why they would have beenprobative of the amount of a lump-sum payment

bull 1048707 Jury award was 3-4 times average amount of lump-sumagreements in evidence

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factors 10 and 13 ndash ldquo[t]he nature of thepatented invention the character of the commercialembodiment of it as owned and produced by the licensor and the benefits to those who have used the inventionrdquo ldquo[t]he portion of the realized 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 infringersrdquo -- did not support jury award

bull 1048707 These factors concern how the parties would have valued the patented feature during the hypothetical negotiation

bull 1048707 The record evidence showed that the infringing date pickerfeature was ldquobut a tiny featurerdquo in the larger Outlook softwareprogram

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Reasonable Royalty Methodologiesbull Three basic types of methodologies have been accepted

by CAFC(1) ldquoEstablishedrdquo royalty (forget this one)(2) Analytical method (TWM v Dura)(3) Hypothetical royalty negotiation using Georgia Pacific factors (with patent assumed

valid and infringed)

Recent CAFC Reasonable RoyaltyDecisions

bull Lucent Tech Inc v Gateway Inc 580 F3d 1301 (Sept 2009)

bull i4i Ltd Partnership v Microsoft Corp 598F3d 831 (Dec 2009)

bull ResQNetcom Inc v Lansa Inc 594 F3d860 (Feb 2010)

bull Wordtech Sys Inc v Integrated NetworkSolrsquon Inc 2010 WL 2384958 (June 2010)

bull Microsoft v Uniloc __ F3d ___ (Jan 2011)

Lucent Tech v Gateway Incbull Lucent accused Gateway and others of infringing a

number of patents including the Day lsquo356 patentbull 1048707 Microsoft intervened and its products including

ldquodate pickerrdquo feature of Outlook were accusedbull 1048707 Lucent prevailed against Microsoft at trial

and obtained a jury award of ~$360 millionbull 1048707 Validity and infringement decisions upheld on

appeal but damages award remanded as lacking sufficient evidentiary support

Lucent Tech contReasonable Royalty Analysis

bull The Federal Circuit considered whether the lump sum jury award of ~$360 million was a ldquoreasonable royaltyrdquo

bull 1048707 Lucent had argued for a running royalty basedaward (8 of accused products including Microsoft Outlook) totaling ~$562 million

bull 1048707 Microsoft had argued for a lump-sum royaltypayment of $65 million

bull 1048707 The juryrsquos lump sum award was much closer to Lucentrsquos number but NOT based upon Lucentrsquos expertrsquos running royalty theory

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 2 -- ldquo[t]he rates paid by the licensee forthe use of other patents comparable to the patent in suitrdquo --weighed against jury award

bull 1048707 There was no evidence in the record to support jurydetermination that the parties would have agreed to a lump sum payment The lump sum and running royalty approachesto a license agreement necessarily involve differentconsiderations

bull 1048707 The 4 ldquocomparablerdquo lump-sum agreements were either ldquovastly differentrdquo or were presented with no explanation as to subject matter

bull 1048707 For the 4 running-royalty agreements presented there was no evidence in the record about why they would have beenprobative of the amount of a lump-sum payment

bull 1048707 Jury award was 3-4 times average amount of lump-sumagreements in evidence

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factors 10 and 13 ndash ldquo[t]he nature of thepatented invention the character of the commercialembodiment of it as owned and produced by the licensor and the benefits to those who have used the inventionrdquo ldquo[t]he portion of the realized 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 infringersrdquo -- did not support jury award

bull 1048707 These factors concern how the parties would have valued the patented feature during the hypothetical negotiation

bull 1048707 The record evidence showed that the infringing date pickerfeature was ldquobut a tiny featurerdquo in the larger Outlook softwareprogram

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Recent CAFC Reasonable RoyaltyDecisions

bull Lucent Tech Inc v Gateway Inc 580 F3d 1301 (Sept 2009)

bull i4i Ltd Partnership v Microsoft Corp 598F3d 831 (Dec 2009)

bull ResQNetcom Inc v Lansa Inc 594 F3d860 (Feb 2010)

bull Wordtech Sys Inc v Integrated NetworkSolrsquon Inc 2010 WL 2384958 (June 2010)

bull Microsoft v Uniloc __ F3d ___ (Jan 2011)

Lucent Tech v Gateway Incbull Lucent accused Gateway and others of infringing a

number of patents including the Day lsquo356 patentbull 1048707 Microsoft intervened and its products including

ldquodate pickerrdquo feature of Outlook were accusedbull 1048707 Lucent prevailed against Microsoft at trial

and obtained a jury award of ~$360 millionbull 1048707 Validity and infringement decisions upheld on

appeal but damages award remanded as lacking sufficient evidentiary support

Lucent Tech contReasonable Royalty Analysis

bull The Federal Circuit considered whether the lump sum jury award of ~$360 million was a ldquoreasonable royaltyrdquo

bull 1048707 Lucent had argued for a running royalty basedaward (8 of accused products including Microsoft Outlook) totaling ~$562 million

bull 1048707 Microsoft had argued for a lump-sum royaltypayment of $65 million

bull 1048707 The juryrsquos lump sum award was much closer to Lucentrsquos number but NOT based upon Lucentrsquos expertrsquos running royalty theory

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 2 -- ldquo[t]he rates paid by the licensee forthe use of other patents comparable to the patent in suitrdquo --weighed against jury award

bull 1048707 There was no evidence in the record to support jurydetermination that the parties would have agreed to a lump sum payment The lump sum and running royalty approachesto a license agreement necessarily involve differentconsiderations

bull 1048707 The 4 ldquocomparablerdquo lump-sum agreements were either ldquovastly differentrdquo or were presented with no explanation as to subject matter

bull 1048707 For the 4 running-royalty agreements presented there was no evidence in the record about why they would have beenprobative of the amount of a lump-sum payment

bull 1048707 Jury award was 3-4 times average amount of lump-sumagreements in evidence

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factors 10 and 13 ndash ldquo[t]he nature of thepatented invention the character of the commercialembodiment of it as owned and produced by the licensor and the benefits to those who have used the inventionrdquo ldquo[t]he portion of the realized 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 infringersrdquo -- did not support jury award

bull 1048707 These factors concern how the parties would have valued the patented feature during the hypothetical negotiation

bull 1048707 The record evidence showed that the infringing date pickerfeature was ldquobut a tiny featurerdquo in the larger Outlook softwareprogram

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Lucent Tech v Gateway Incbull Lucent accused Gateway and others of infringing a

number of patents including the Day lsquo356 patentbull 1048707 Microsoft intervened and its products including

ldquodate pickerrdquo feature of Outlook were accusedbull 1048707 Lucent prevailed against Microsoft at trial

and obtained a jury award of ~$360 millionbull 1048707 Validity and infringement decisions upheld on

appeal but damages award remanded as lacking sufficient evidentiary support

Lucent Tech contReasonable Royalty Analysis

bull The Federal Circuit considered whether the lump sum jury award of ~$360 million was a ldquoreasonable royaltyrdquo

bull 1048707 Lucent had argued for a running royalty basedaward (8 of accused products including Microsoft Outlook) totaling ~$562 million

bull 1048707 Microsoft had argued for a lump-sum royaltypayment of $65 million

bull 1048707 The juryrsquos lump sum award was much closer to Lucentrsquos number but NOT based upon Lucentrsquos expertrsquos running royalty theory

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 2 -- ldquo[t]he rates paid by the licensee forthe use of other patents comparable to the patent in suitrdquo --weighed against jury award

bull 1048707 There was no evidence in the record to support jurydetermination that the parties would have agreed to a lump sum payment The lump sum and running royalty approachesto a license agreement necessarily involve differentconsiderations

bull 1048707 The 4 ldquocomparablerdquo lump-sum agreements were either ldquovastly differentrdquo or were presented with no explanation as to subject matter

bull 1048707 For the 4 running-royalty agreements presented there was no evidence in the record about why they would have beenprobative of the amount of a lump-sum payment

bull 1048707 Jury award was 3-4 times average amount of lump-sumagreements in evidence

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factors 10 and 13 ndash ldquo[t]he nature of thepatented invention the character of the commercialembodiment of it as owned and produced by the licensor and the benefits to those who have used the inventionrdquo ldquo[t]he portion of the realized 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 infringersrdquo -- did not support jury award

bull 1048707 These factors concern how the parties would have valued the patented feature during the hypothetical negotiation

bull 1048707 The record evidence showed that the infringing date pickerfeature was ldquobut a tiny featurerdquo in the larger Outlook softwareprogram

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Lucent Tech contReasonable Royalty Analysis

bull The Federal Circuit considered whether the lump sum jury award of ~$360 million was a ldquoreasonable royaltyrdquo

bull 1048707 Lucent had argued for a running royalty basedaward (8 of accused products including Microsoft Outlook) totaling ~$562 million

bull 1048707 Microsoft had argued for a lump-sum royaltypayment of $65 million

bull 1048707 The juryrsquos lump sum award was much closer to Lucentrsquos number but NOT based upon Lucentrsquos expertrsquos running royalty theory

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 2 -- ldquo[t]he rates paid by the licensee forthe use of other patents comparable to the patent in suitrdquo --weighed against jury award

bull 1048707 There was no evidence in the record to support jurydetermination that the parties would have agreed to a lump sum payment The lump sum and running royalty approachesto a license agreement necessarily involve differentconsiderations

bull 1048707 The 4 ldquocomparablerdquo lump-sum agreements were either ldquovastly differentrdquo or were presented with no explanation as to subject matter

bull 1048707 For the 4 running-royalty agreements presented there was no evidence in the record about why they would have beenprobative of the amount of a lump-sum payment

bull 1048707 Jury award was 3-4 times average amount of lump-sumagreements in evidence

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factors 10 and 13 ndash ldquo[t]he nature of thepatented invention the character of the commercialembodiment of it as owned and produced by the licensor and the benefits to those who have used the inventionrdquo ldquo[t]he portion of the realized 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 infringersrdquo -- did not support jury award

bull 1048707 These factors concern how the parties would have valued the patented feature during the hypothetical negotiation

bull 1048707 The record evidence showed that the infringing date pickerfeature was ldquobut a tiny featurerdquo in the larger Outlook softwareprogram

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 2 -- ldquo[t]he rates paid by the licensee forthe use of other patents comparable to the patent in suitrdquo --weighed against jury award

bull 1048707 There was no evidence in the record to support jurydetermination that the parties would have agreed to a lump sum payment The lump sum and running royalty approachesto a license agreement necessarily involve differentconsiderations

bull 1048707 The 4 ldquocomparablerdquo lump-sum agreements were either ldquovastly differentrdquo or were presented with no explanation as to subject matter

bull 1048707 For the 4 running-royalty agreements presented there was no evidence in the record about why they would have beenprobative of the amount of a lump-sum payment

bull 1048707 Jury award was 3-4 times average amount of lump-sumagreements in evidence

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factors 10 and 13 ndash ldquo[t]he nature of thepatented invention the character of the commercialembodiment of it as owned and produced by the licensor and the benefits to those who have used the inventionrdquo ldquo[t]he portion of the realized 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 infringersrdquo -- did not support jury award

bull 1048707 These factors concern how the parties would have valued the patented feature during the hypothetical negotiation

bull 1048707 The record evidence showed that the infringing date pickerfeature was ldquobut a tiny featurerdquo in the larger Outlook softwareprogram

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factors 10 and 13 ndash ldquo[t]he nature of thepatented invention the character of the commercialembodiment of it as owned and produced by the licensor and the benefits to those who have used the inventionrdquo ldquo[t]he portion of the realized 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 infringersrdquo -- did not support jury award

bull 1048707 These factors concern how the parties would have valued the patented feature during the hypothetical negotiation

bull 1048707 The record evidence showed that the infringing date pickerfeature was ldquobut a tiny featurerdquo in the larger Outlook softwareprogram

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Lucent Tech contReasonable Royalty Analysis

bull Georgia Pacific Factor 11 ndash ldquo[t]he extent to which the infringer has made use of the invention and any evidence probative of the value of that userdquo ndash weighed against jury award

bull Lucent failed to prove how many Outlook users used the patented method or how often

bull Factor 11 cannot be satisfied by use of accused product generally without regard to infringing feature

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

i4i v Microsoft

bull i4i accused Microsoftrsquos custom XML editor in Microsoft Word software of infringement

bull i4irsquos damages expert (Mike Wagner) opined that i4irsquos damages were in the range of $200-207 million based upon a hypothetical reasonable royalty analysis Microsoftrsquos expert opined that Microsoft paid royalties ranging from $1-5 million for comparable licenses

bull i4i prevailed against Microsoft on liability at trial andobtained a jury award of $200 million with an additional $40 million of enhanced damages for willful infringement

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement

bull He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96)

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

i4i Reasonable Royalty Analysis

bull Mike Wagner overcame EMVR problems by a novel approach He applied Microsoftrsquos overall profit margin of 766 to a ldquobenchmark XML editor productrdquo Microsoft bought for $499unit before the infringement He applied the 25 Rule of Thumb to determine the baseline royalty rate ($96) He then adjusted the rate upward by $2 using the GP factors and applied the $98 rate to 21 million infringing uses (businesses only) as ascertained thru a market survey that determined what portion of Microsoft business customers were using the editor feature

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

i4i contReasonable Royalty Analysis

The CAFC viewed Microsofts disagreement with i4is damages expert as an issue with conclusion not methodology Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions not guarantees of correctnessldquo

bull Unfortunately for Microsoft it did not file a pre-verdict JMOL on damages so the CAFC refused to review whether there was a sufficient evidentiary basis in Wagnerrsquos analysis to support the jurys award

bull To add insult to injury the CAFC observed that had Microsoft filed a pre-verdict JMOL it is true that the outcome might have been differentldquo (Oh boy here is the template for Microsoftrsquos strategy in Uniloc)

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

ResQNetCom v Lansabull ResQNet accused Lansarsquos terminal emulator

program of infringementbull ResQNet prevailed at trial on one of the patents

and obtained a jury award of ~$500000 based upon a hypothetical royalty of 125

bull Validity and infringement decisions upheld onappeal

bull The CAFC vacated and remanded the damagesaward

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

ResQNetcom contReasonable Royalty Analysis

bull ResQNetrsquos expert relied upon 7 licenses ndash 5 rebrandingre-bundling licenses with no relation to claimed invention and 2 licenses that arose out of litigation relating to patents-in-suit

bull CAFC rejected reliance on rebrandingre-bundling licenses because they didnot cover the asserted claims and includedirrelevant services and other items such as code

bull CAFC criticized lower courtrsquos refusal to rely onlitigation settlement agreements coveringasserted claims stating the district court ldquomust consider licenses that are commensurate with what the defendant has appropriatedrdquo

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Wordtech v Integrated Networksbull Wordtech accused Integrated Networks and 2 officers of

infringing patent for automated duplication of CDrsquosbull Wordtech asked jury for 12 royalty on $950000 in sales

($114000) through non-expert testimony of its presidentbull Integrated Networks calculated damages at $17114bull Wordtechrsquos President relied on 13 patent licenses (2 lump sum

and 11 running royalty) granting rights to some or all of its patents (including the patent found infringed)

bull Jury awarded $250000 in damagesbull CAFC determined that Wordtech licenses suffered similar flaw

as in Lucent and ResQNet and was ldquolittle more than a recitation of royalty numbersrdquo and remanded case for a new trial on damages (CAFC couldnrsquot figure out how jury came up with $250K verdict)

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

Microsoft v Unilocbull Uniloc alleged Microsoft (ironically) copied its patented product activation

(ldquoPArdquo) key invention used to deter ldquocasual copyingrdquo of software and used it in Microsoftrsquos Windows XP and Office XP products

bull Uniloc sought damages of $565 million based on a reasonable royaltybull Unilocrsquos expert calculated the damages using the low end appraisal

amount ($10) for product activation keys contained in a Microsoft document and applying the ldquo25 Rule of Thumbrdquo to derive a $250 unit royalty This royalty was applied against 225978803 Microsoft Windows and Office products

bull Microsoftrsquos expert calculated damages based on a lump sum royalty to derive a royalty of $3-7 million

bull The jury found Microsoft willfully infringed and awarded damages of $388 million

bull The trial court granted JMOL of no willful infringement bull The CAFC affirmed the trial courtrsquos finding of no willful infringement and

vacated the juryrsquos damages award CAFC concluded as a matter of law that the ldquo25 Rule of Thumbrdquo is a ldquofundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiationrdquo and is inadmissable under Daubert standards ldquobecause it fails to tie a reasonable royalty to the facts of the case in issuerdquo

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

The Remand ndash Whatrsquos the Strategy Now

What Uniloc should consider doingbull Dump its discredited damages expert and hire a new onebull Unilocrsquos new expert should hopefully not come up with the same number as

the prior expert (like happened in Lucent)bull Continue to use the Microsoft appraisal but support it with other evidence if

possiblebull Consider avoiding EMVR problems by not relying on a royalty base in the

damages calculation (use ldquoanalytical approachrdquo) Alternatively use the Microsoft appraisal to value the ldquoProduct Keyrdquo and make the Product Key (as opposed to the entire software product) the royalty base

bull Donrsquot rely upon a ldquohypothetical negotiationrdquo methodology as the only approach Instead determine the incremental revenue received by Microsoft due to installation of PA software resulting in reduction in ldquocasual copyingrdquo piracy by legitimate software purchasers (thru survey or other market study)

bull Use 100 of the incremental revenues (Microsoft estimated this at $5 billion) to derive incremental anticipated net profits under the ldquoanalytical approachrdquo approved by the CAFC in TWM Manufacturing Co v Dura Corp 789 F2d 895 899 (1986) as the high number in a damages range (could use the ldquohypothetical negotiationrdquo number as the low number in the range)

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont

The Uniloc Remand ndash cont

What Microsoft should consider doingbull Dump its discredited damages expert and hire a new one (preferably credible

if possible)bull Settle ndash if possible A new trial doesnrsquot benefit Microsoft because this time

around the jury will be instructed that Microsoft has already been found to infringe so no opportunity to mix in any liability defenses

bull Interpose Daubert challenges to Unilocrsquos new damages expert on ldquojunk sciencerdquo methodology grounds

bull If a ldquohypotheticalrdquo lump sum license cannot be supported by comparable lump sum licenses seek a running royalty damages award based on EMVR rule to establish a really small royalty base linked to the PA (ldquoproduct activationrdquo) component of the overall product and apply a hypothetical negotiation scenario to derive a royalty percentage to be applied against that royalty base

bull Apportion the royalty between Unilocrsquos patented invention and Microsoftrsquos patented PA invention (a survey might be used here)

• How to Prove Reasonable Royalty Damages after Uniloc
• Statutory Basis for Reasonable Royalty Damages and How to Prove Them
• Two kinds of recognized patent damages
• Reasonable Royalty Methodologies
• Recent CAFC Reasonable Royalty Decisions
• Lucent Tech v Gateway Inc
• Lucent Tech cont Reasonable Royalty Analysis
• Slide 8
• Slide 9
• Slide 10
• i4i v Microsoft
• i4i Reasonable Royalty Analysis
• i4i cont Reasonable Royalty Analysis
• ResQNetCom v Lansa
• ResQNetcom cont Reasonable Royalty Analysis
• Wordtech v Integrated Networks
• Microsoft v Uniloc
• The Remand ndash Whatrsquos the Strategy Now
• The Uniloc Remand ndash cont