Is expert evidence required to prove a reasonable royalty damages award?
A New Jersey federal court delivered a cautionary ruling for the patent infringement practitioner, perhaps underscoring the following: Although expert evidence is not specifically required for a reasonable royalty damage claim, don’t underestimate the value of utilizing expert evidence to establish reasonable royalty damages or the importance of otherwise presenting evidence sufficient to prove such damages.
Why? Failure to present sufficient proof of damages can be fatal to obtaining relief, despite a successful finding of infringement.
The Story – Seven Years in the Making
That’s just what occurred in this ruling out of the District Court for the District of New Jersey, in an unpublished Memorandum Opinion issued April 19, 2013 which granted defendant’s motion for summary judgment on plaintiff’s claims for damages and a permanent injunction.
In the case, Unicom Monitoring, LLC v. Cencom, Inc., ongoing since 2006, plaintiff brought an action for patent infringement, claiming that defendant, a company which provides wholesale monitoring services to alarm dealers, infringed its patent.
On the issue of liability the court ruled in the plaintiff’s favor, finding infringement on one of the claims of the patent at issue. But a finding of infringement didn’t mean that a damage award in the case was a slam dunk for the plaintiff.
Following the finding of liability on the issue of infringement, defendant brought a motion for summary judgment to defeat plaintiff’s claim for both monetary damages and equitable relief.
The court considered the sufficiency of the damages evidence on the record. According to the court, the plaintiff never identified a damages expert or submitted a damages report. Plaintiff allegedly did not produce licenses for the patent at issue or for a comparable technology, and intended to rely on statements from one of the defendant’s attorneys, together with two fact witnesses’ testimony as to ownership of the patent.
The court was left to consider the following: Is an expert necessary to sustain a reasonable royalty damages award, and, further, can an injunction issue in the absence of an award of damages?
Defendant’s Claim for Reasonable Royalty Damages
Reasonable royalty damages in a patent case and the use of experts is covered by 35 U.S.C. § 284. The statute reads:
“Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court (emphasis added).”
With regard to experts, the statute continues, “The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances (emphasis added).”
What the Parties Argued
Defendant argued that, despite the fact that the plaintiff had prevailed on obtaining a finding of infringement, reasonable royalty damages required under the statute simply cannot exist where there is no evidence from which a court could derive them. Further, argued the defendant, determination of patent litigation damages requires expert witness testimony.
Meanwhile, plaintiff argued that the language of the statute requires reasonable royalty damages upon a finding of infringement, and that case law and the Georgia-Pacific factors allow consideration of factors other than expert testimony.
What the Court Determined
The court here agreed with the defendant, at least in part. Quoting a case from the Third Circuit, Devex Corp. v. Gen. Motors Corp., 667 F.2d 347, 363 (3d Cir. 1981), the court stated, “Although the statute requires an award of a reasonable royalty when there is infringement because such infringement establishes the fact of damages, ‘to argue that this requirement exists even in the absence of any evidence from which a court may derive a reasonable royalty goes beyond the possible meaning of the statute.’”
Thus, the court recognized that the fact of reasonable royalty damages under the patent statute and proving an amount of damages to be awarded are separate issues.
Is an Expert Required to Prove Reasonable Royalty Damages?
As to whether an expert is required, the court stated, “Competent evidence of damages for a reasonable royalty rate does not necessarily require expert testimony…”. Rather, quoting a Federal Circuit decision, the court noted, “[S]ection 284 is clear that expert testimony is not necessary to the award of damages, but rather may be received as an aid.”
However, in this instance failure to provide evidence from a damages expert quite possibly cost plaintiff a bundle.
The court turned to Judge Posner’s decision in Apple v. Samsung, 869 F.Supp.2d 901 (N.D. Ill. June 22, 2012). Citing Apple as persuasive, the court noted that evidence presented by a damages witness “must eliminate guesswork or speculation in the damages award.” Additionally, the court noted that the Apple court determined that even nominal damages are unavailable if there is an absence of evidence for determining them.
Putting the issue to rest, the court stated, “[T]he court has reviewed the dearth of evidence in the record on which plaintiff intends to present its reasonable royalty theory of damages to the factfinder. Without providing either factual or legal authority or economic or factual predicates, [plaintiff] has demanded a royalty rate of ‘30% of the total revenue derived by [defendant] from the sale, leasing, monitoring, or other transfer of the [device]’ … In the seven years over which this litigation has unfolded, [plaintiff] never established a reasonable royalty calculation, nor named a specific amount that it demanded in damages, until the Pretrial Management Conference with the Court, held a mere two weeks before trial was set to commence.”
As to the fact witnesses, the court found their proposed testimony insufficient to establishing reasonable royalty damages, citing AVM Techs., LLC v. Intel Corp., No.10-610 (D.Del. Feb, 21, 2013), (on which we recently wrote), which excluded a co-inventor’s testimony as improper expert testimony.
The court concluded that “the failure to present competent evidence regarding how the factfinder should perform the reasonable royalty calculation is fatal to [plaintiff’s] claim for reasonable royalty damages. A factfinder cannot be asked to speculate from numbers unsupported by law and divorced from expert guidance, but rather the factfinder needs either clear guidance from an expert about how to apply complex calculations or simple factual proofs about what this patentee has previously accepted in factually analogous licensing situations.”
Defendant’s Claim for Equitable Relief
The court then turned to examine the next remedy question – whether the plaintiff was entitled to a preliminary injunction. Here the court also found against the plaintiff, finding that a failure to establish damages due to inadequate proof does not demonstrate that damages are an inadequate remedy – one of the eBay requirements for issuance of a permanent injunction.
The Moral of the Story – Don’t Win the Battle but Lose the War
Being entitled to damages under the statute and proving them are two different issues.
Reasonably royalty damages in an infringement case is not an area you want to give cursory treatment. Despite language of the statute that seemingly requires reasonable royalty damages upon a finding of infringement, make certain your damages claim is supported on the record with sufficient evidence, which may best be elicited from a damages expert. Relying on owner testimony or vague assertions could mean going home empty handed at the remedy juncture despite a finding of infringement – much akin to winning the battle but losing the war.
The Memorandum Opinion is Unicom Monitoring, LLC v. Cencom, Inc., Case No. 3:06-cv-01166 (D.N.J. Apr. 19, 2013).
Do you agree with the court’s ruling granting summary judgment for defendant on the damages issue, despite a finding of infringement for plaintiff?