Panelists advise that Rader is "new sheriff in town" when it comes to patent damages

The National Law Journal
Sheri Qualters
May 20, 2010

At a recent patent damages seminar, Fish & Richardson lawyers advised plaintiffs’ counsel to develop fact-based damages arguments in light of recent rulings from judges on the U.S. Court of Appeals for the Federal Circuit.

The firm’s May 20 seminar in Boston, “Taming the Wild West of Patent Damages: Is There a New Sheriff in Town?,” concluded that Randall Rader, the incoming chief judge, is leading the charge for new damages standards. Rader will helm the court when current Chief Judge Paul Michel retires on May 31.

The seminar addressed several rulings on the so-called “entire market value rule” that Rader issued while overseeing trials at various district courts. The rule refers to damages calculations based on a percentage of total product sales even if the infringing feature is a minor component.

In Cornell University v. Hewlett-Packard Co., Rader, sitting in at the Northern District of New York, cut the jury’s $184 million damages award to Cornell to $53.5 million. In that March 30, 2009, ruling, he determined that Cornell did not prove entitlement to the entire market value of” the Hewlett-Packard computer processor at issue.

On March 2 of this year, while sitting in at the Eastern District of Texas, Rader precluded a plaintiff’s damages expert from testifying in IP Innovation v. Red Hat on the ground that the entire-market-value rule wasn’t a sound basis for setting damages.

At the seminar, Michael Florey, a principal in Fish & Richardson’s Minneapolis office, said that Rader brushed aside internal documents the plaintiff in the Cornell case obtained from defendant Hewlett-Packard that were the “gold standard” for determining damages a few years ago. “[He] viewed the defendants’ marketing materials as predictive and said you need actual customer evidence from the market,” Florey said.

The presentation also delved into the different damages-cutting approach taken by the Federal Circuit’s September 2009 panel decision in Lucent Technologies Inc. v. Gateway Inc. The ruling, written by Michel, vacated a jury’s lump-sum payment of $358 million because the evidence didn’t support that amount. Rader wasn’t on the Lucent panel.

Lucent differs from Rader’s rulings because it concluded that there’s “nothing inherently wrong with using the market value of the entire product” to set a reasonable royalty. The decision went on to say that the multiplier i.e., the royalty rate should represent “the proportion of the base represented by the infringing product or feature.

The Federal Circuit is attempting to rein in damages, but “you have two competing strains in the judiciary,” Florey said, referring to Rader’s approach and the Lucent approach. “When you’re thinking about the [damages] evidence, you have to keep both of these in mind,” he said.