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Why Apple's Damages Dodge Matters for Patent Values...

Gaston Kroub

Patent damages are complicated. They presuppose that the accused infringer actually infringes a valid patent. Once infringement and validity are confirmed, the issue of what damages amount (whether in the form of lost profits, or more commonly, a reasonable royalty) is appropriate is decided by the jury. That decision is typically based on a weighing of the often wildly disparate expert opinions on damages offered by each party. Once the jury issues its verdict, the appeals process begins. First, each side gets to express their dissatisfaction with the damages amount to the trial judge post-trial. Then, the entire issue of damages goes up to appeal before the Federal Circuit if a dispute remains.

Things become even more complicated when the accused product incorporates both infringing and non-infringing features. When that is true, there must be apportionment of the damages commensurate with the value of the infringing functionality of the accused device. As a practical matter, therefore, when you sue Apple’s iPhone for patent infringement, you would have to prove what the value of the contribution is of your patented technology to the device is — while also accounting for the relative value of your technology in light of all the other patented technologies embodied in an iPhone. Complicated, even for a sophisticated patent assertion entity.

In fact, one of the most experienced and successful patent licensors — Wi-Lan — recently learned the difficulty of securing damages versus Apple. At trial, Wi-Lan won a verdict of $140+mm based on Apple’s infringement of two patents related to voice over LTE (VOLTE) capability. Apple challenged the verdict before the trial judge in post-trial briefing, arguing that Wi-Lan’s damages analysis was flawed for failure to properly apportion. Critically, Apple attacked Wi-Lan’s apparent overreach in using VOLTE as a whole, rather than the specific improvements claimed in Wi-Lan’s patents, as the starting point for its valuation of damages. Put another way, Apple argued that Wi-Lan’s valuation of the benefits of the patented technology was erroneous for failure to focus on the contribution of the patents — and not VOLTE itself — to the iPhone. The judge agreed, and effectively threw out the verdict. In its place, the Court offered Wi-Lan a choice: either accept $10mm in full satisfaction of its claims, or risk a new trial on damages. Considering Wi-Lan’s almost complete dependence on patent licensing for revenue, it is probably a good bet that they will elect for the latter route, despite the additional time and cost of pursuing a new damages trial.

Ultimately, this case illustrates the supreme importance of apportionment to properly valuing patents that represent incremental improvements in complex technologies. It also shows why Apple’s strategy of taking cases that present damages risk above a certain threshold to the mat is a good one, if only because even runaway jury verdicts on patent damages face two levels of scrutiny, first by the trial judge and then by the Federal Circuit. Sophisticated defendants like Apple have three chances (jury, judge, appeals court) to “win” on damages, or to at least allow the litigation process to set the appropriate settlement range for any patent claim. It is a gauntlet for a patent owner to run, but it also confirms that any patent valuation that is not conducted through a litigation lens is likely as worthless as a big-ticket jury verdict based on erroneous expert testimony.

Markman Advisors