WDPA relies on Lucent to allow royalty base of entire product revenue where rate is sufficiently small

On November 13, 2013, Judge Caldwell of the Western District of Pennsylvania issued an order in Kimberly-Clark Worldwide, Inc. v. First Quality Baby Products, LLC, Civil No. 1:09-CV-1685, addressing motions in limine. Defendant First Quality (FQ) sought to prevent Kimberly-Clark's expert, Julie L. Davis, from offering opinions or otherwise testifying on damages. FQ attacked two parts of Ms. Davis' opinions: (1) her computation of reasonable royalty using the entire revenue of the accused diapers as the base; and (2) her use of allegedly comparable licenses. The court denied both motions. The decision on issue (1) is interesting because the court cited the well-known language from Lucent where the court indicated that the base "can always be the value of the entire commercial embodiment, as long as the magnitude of the rate is within an acceptable range (as determined by the evidence)." Lucent, 580 F.3d at 1338-39.

The accused products were FQ's disposable diapers and incontinence products, and the patents were directed to a variety of components or features of these products, including the configuration of elastics, absorbency technology, and graphics. Slip op. at 5. FQ moved to exclude Davis' opinions because "she used FQ's 'total revenue' from sales of the allegedly infringing products as the royalty base for her running royalty calculation." Id. FQ argued that Davis' opinions were improper because she failed to demonstrate that the patented features "created the demand for the products as a whole." Id.

The court rejected this argument without directly discussing the entire market value rule, other than the quote directly above on the ground that her methodology was consistent with the language from Lucent: "multiplying the value of the finished product (the royalty) base by a single-digit rate (the royalty rate) to account for the infringing component's proportional value of the finished product." Slip op. at 6. The court also may have been swayed by the "single-digit" rate used by Davis, coupled with the fact that Lucent had observed: "There is nothing inherently wrong with using the market value of the entire product [as the royalty base], especially when there is no established market value for the infringing component or feature, so long as the multiplier accounts for the proportion of the base represented by the infringing component or feature." 580 F.3d at 1339.

The court also rested its opinion on another factor prior licenses on which Davis relied employed this same methodology. Slip op. at 6 (indicating that Lucent had noted "that prior licenses admitted into evidence 'highlight[ed] how sophisticated parties routinely enter into license agreements that base the value of the patented inventions as a percentage of the commercial products' sales price'"). The court did not elaborate on the licenses, but did cite the following diaper case in the paragraph just above its mention of the licenses: P & G Co. V. Paragon Trade Brands, Inc., 989 F. Supp. 547, 613 (D. Del. 1997) (awarding a "royalty rate of 2% of the net sales price" of infringing disposable diaper that incorporated patented advancements in the barrier leg cuff feature).

This case is a good example of how plaintiffs can capitalize on these statements from Lucent. Given the right circumstances and the right court, the plaintiff can skirt the entire market value rule by setting, e.g., a "single-digit" (or even fractional) rate and arguing that the rate compensates for use of the entire product value as the base, dispensing with the need to prove the patented feature drives demand for the entire product.