Intellectual Property Damages:Defendant has sold 10,000 refrigerators with the accused storage system (Polar X). What are the expected reasonable royalties in this case?

Intellectual Property Damages
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IP Damages

Based on the following situations, determine whether or not lost profits is an appropriate measure of patent infringement damages based on the information provided (e.g., “Lost Profits are appropriate because …”). Provide support for your answers (this means using Excel for calculations).

Plaintiff has a patent related to the material used in smart phone display screens. The patent claims that screens using the patented material are less susceptible to breakage and provide superior clarity. There are survey data indicating that screen clarity and breakage resistance are important to consumers. Both Plaintiff’s and Defendant’s smart phones are superior to competitors’ smart phones as it relates to these features.

Plaintiff has a patent on a method for video compression that claims to allow for faster streaming on smart phones. There are numerous video compression methods, and while these alternative methods are not as fast, the difference in streaming speed is unrecognizable to consumers (i.e., alternative methods provide sufficient speeds for customers). While Defendant is accused of using Plaintiff’s patented method, Defendant could have adopted an alternative method.

Plaintiff has a patent on a method used by banks to process checks. There is no alternative to this method – all banks use this process. Plaintiff is a non-practicing entity that obtains patents in order to license or enforce patent rights.

Plaintiff has a patent on the design of a fuel injection system for automobiles. Plaintiff has won a large supply contract to provide fuel injection systems for a very successful car model. Plaintiff has had trouble meeting orders and has no other customers. Defendant is accused of using Plaintiff’s patented design and has won a different supply contract, which is even larger than the supply contract won by Plaintiff. Defendant has provided no evidence that it had an alternative to the patented design.

Plaintiff has a patent on the design of a wireless mouse. Defendant is accused of marketing a wireless mouse that competes with Plaintiff’s wireless mouse. While Defendant does not appear to have any alternative designs that it could have used, there are numerous competitors in the marketplace with wireless mouse products that customers could choose from.

As a patent infringement attorney, you retain damages experts who provide drafts of their expert reports before they are submitted to the other side. One of your roles is to review their expert reports and provide feedback. Based on the descriptions below, what feedback would you provide to your damages expert? Focus on problems with the methodology.

After establishing that Plaintiff is entitled to lost profits, the damages expert establishes that Plaintiff would have made 1,000 unit sales at a price equal to Plaintiff’s actual average sales price of $100. Defendant’s average selling price was $75.
After properly establishing that Plaintiff is entitled to lost profits, the damages expert calculated Plaintiff’s lost sales by multiplying its market share of 25% by Defendant’s unit sales. Market shares are as follows:
Plaintiff’s market share = 25%
Defendant’s market share = 50%
All other competitors’ combined market shares = 25%

The damages expert determined royalties of $20,000,000 on Defendant’s sales of infringing products. The patent relates to the design of a minor feature. There is testimony from Defendant and Defendant’s technical expert that Defendant could have designed around the patented invention. Plaintiff’s technical expert testified that designing around the patented invention would take substantial time and effort, but could be accomplished.

The damages expert used 15% as the incremental margin in determining Plaintiff’s lost profits based on the following profit and loss statement. The damages expert used Plaintiff’s operating profit margin.
$ Millions % of Revenue
Revenue $2,000 100%
Material and Labor Expenses 1,200 60%
Fixed Overhead Expenses 300 15%
Gross Profit $500 25%
General and Administrative Expenses 200 10%
Operating Profit $300 15%

The damages expert computed royalties for a patent related to one specific feature of a cell phone. The damages expert cited consumer surveys that indicated that the patented feature was one of many features considered important to consumers when making their purchasing decisions. The damages expert applied a 5% royalty rate to Defendant’s total cell phone revenue of $10,000,000,000, resulting in reasonable royalties of $500,000,000.

You have been asked to provide your client with a rough estimate of damages based on the following situations. Come up with a rough estimate for your client. Show your work.

Plaintiff has accused your client, Defendant, of infringing a patent on a storage system for refrigerators (i.e., shelves and drawers), which allows for more efficient storage. Defendant represents to you that Plaintiff sells refrigerators priced at more than $5,000, while Defendant’s refrigerators are priced between $800 and $1,500. As a result, Defendant claims that the companies do not compete for the same sales, which means that lost profits are not appropriate. Below are per unit profit summaries for both Plaintiff’s and Defendant’s refrigerators.
Plaintiff’s refrigerators (both with the patented shelf and drawer system)

Plaintiff’s Arctic Plaintiff’s Glacial
Price $5,000 Price $7,000
Cost: Cost:
Shelves and drawers 400 Shelves and drawers 400
All other components 3,600 All other components 5,000
Profit $1,000 Profit $1,600

Defendant’s Polar X (with patented shelf and drawer system) and Polar (without patented shelf and drawer system)

Defendant’s Polar X Defendant’s Polar
Price $1,450 Price $1,350
Cost: Cost:
Shelves and drawers 100 Shelves and drawers 75
All other components 1,000 All other components 1,000
Profit $350 Profit $275

Defendant has sold 10,000 refrigerators with the accused storage system (Polar X). What are the expected reasonable royalties in this case?

Your client, Plaintiff, has accused Defendant of infringing its patent related to the design of a coffee maker that makes single cups of coffee using disposable pods. Your client informs you that it has licensed other patents related to coffee maker designs at royalty rates of 4% (hint: use this as your reasonable royalty rate). Both Plaintiff and Defendant have market shares of 20%. Plaintiff has an incremental margin of 50%. Defendant has sold $2,000,000 of accused coffee makers at prices that are similar to prices of Plaintiff’s coffee makers. What should your client expect in terms of damages?

 

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