DDEL addresses EMVR vs. smallest salable unit and comparability of portfolio licenses

The District of Delaware in AVM Tech., LLC v. Intel Corp., Civil Action No. 10-610-RGA (D. Del. January 4, 2013), ruled on Intel's Daubert motion to exclude the testimony of AVM's damages expert, Larry Evans. Judge Andrews considered two issues: 1) the intersection of the entire market value rule (EMVR) and smallest salable unit, and 2) comparability of portfolio license agreements.

On the first issue, the court was faced with AVM's argument that, once you find the smallest salable unit (SSU), the revenue from the SSU is the base for royalty purposes and no further apportionment is required. Intel made an argument like that raised by Microsoft concerning Outlook in the Lucent case that is, the SSU must still be apportioned if the patented feature is only a component of the SSU, unless EMVR applies to the patented feature vis-a-vis the SSU.

The court sided with Intel: "The use of a saleable unit that is greater than the patented feature is going to introduce Uniloc error when the patented feature is a 'date picker' whether the saleable unit is a computer loaded with 'Outlook' or simply 'Outlook.' The Uniloc error will be greater with the computer loaded with 'Outlook' than with 'Outlook' alone, but the difference in error is one of degree, not of kind. Further, as LaserDynamics holds, the difficulty in determining a royalty base in a situation such as this one with dynamic logic circuits is not a reason to accept an unreliable method." Slip op. at 5-6. The court found that Mr. Evans had failed to support his testimony that the royalty should be based on Intel's sales of microprocessors. The court was of the opinion that his testimony should be excluded, but believed the decision would be better informed by hearing live testimony from Evans prior to trial.

Second, the court addressed the allegedly comparable license agreements offered by Mr. Evans. The court noted that, first, the plaintiff must show the scope of prior license agreements are comparable to the hypothetical license and that, second, the plaintiff must show that the technology and value of the patents are comparable. (Notably, the court cited an older Federal Circuit case on the first "scope" point: Trell v. Marlee Elecs. Corp., 912 F.2d 1443, 1446-47 (Fed. Cir. 1990). The Trell case takes a narrow view of comparable scope and is a useful case for defendants.) The court reached a bright line decision on 3 of the 4 offered licenses, holding that they were per se not comparable because the case at bar was a single patent case while the 3 licensees were for an "entire patent portfolio that included dozens of patents." The court held: "No reasonable juror could consider these broad portfolio license agreements to be comparable in scope to a license for only the '547 patent." Slip op. at 7. Finally, the court noted that Evans had admitted that his report failed to compare the technology in the 4^th agreement. Again, the court was inclined to exclude Mr. Evans' testimony on the license agreements, but allowed for live testimony pretrial before reaching a final decision.