The language of the patent damages statute, 35 U.S.C. § 284, appears straightforward – “[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer” (emphasis added). The common reasonable royalty calculation multiplies a royalty base by a royalty rate to yield a damages award. While the math seems simple, determination of a reasonable royalty in the context of devices that have hundreds, perhaps thousands, of components and functionalities is an endeavor ripe for chicanery. See Grain Processing Corp. v. Am. Maize–Products Co., 185 F.3d 1341, 1350 (Fed. Cir. 1999) (“To prevent the hypothetical from lapsing into pure speculation, [the] court requires sound economic proof of the nature of the market and likely outcomes with infringement factored out of the economic picture.”).
The principle of apportionment is supposed to corral flimflam economic analysis from stampeding past a justified damages award. Garretson v. Clark, 111 U.S. 120 (1884) (requiring the patentee to provide “evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features”).
In many decisions this decade, the Federal Circuit has cautioned that due to the danger of misleading the jury, apportionment usually should be done when calculating the royalty base rather than the royalty rate. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1320 (Fed. Cir. 2011) (“The disclosure that a company has made $19 billion dollars in revenue from an infringing product cannot help but skew the damages horizon for the jury, regardless of the contribution of the patented component to this revenue.”); LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012) (“Admission of such overall revenues, which have no demonstrated correlation to the value of the patented feature alone, only serve to make a patentee’s proffered damages amount appear modest by comparison, and to artificially inflate the jury’s damages calculation beyond that which is ‘adequate to compensate for the infringement.’”); see also Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 904 F.3d 965, 979 (Fed. Cir. 2018).
But recently the Federal Circuit found that apportionment through the royalty rate can be appropriate, even with a multicomponent device. Exmark Mfg. Co. v. Briggs & Stratton Power Prods. Grp., LLC, 879 F.3d 1332, 1348 (Fed. Cir. 2018) (“adequate and reliabl[e] apportion[ment] between the improved and conventional features of the accused [product], using the accused [product] as a royalty base and apportioning through the royalty rate is an acceptable methodology”). In support of allowing apportionment to be done on the royalty rate rather than the base, the Federal Circuit in Exmark noted that (1) the preamble of the asserted claim covered the entire multicomponent device, not a single component, (2) “the standard Georgia–Pacific reasonable royalty analysis takes account of the importance of the inventive contribution in determining the royalty rate that would have emerged from the hypothetical negotiation,” and (3) use of sales of the multicomponent device “as the royalty base is consistent with the realities of a hypothetical negotiation and accurately reflects the real-world bargaining that occurs, particularly in licensing.” Id. at 1348-49 (citing AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1338 (Fed. Cir. 2015) and Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed. Cir. 2009)).
While the ruling in Exmark gives patentees a potential roadmap for obtaining admission of expert testimony with apportionment analysis focused on the royalty rate rather than the royalty base, other decisions by the Federal Circuit provide accused infringers with ample legal ammunition to attempt to have such an apportionment analysis excluded from trial.