Page 100 - Intellectual Property Disputes

empty LFFP to the consumer with his or her pictures. Jack C. Benun and Jazz Products bought the used
LFFPs, refurbished them in China, and sold them as new. A jury trial was held, and the jury awarded a
running royalty of $2.00 per infringing LFFP, totaling $16,191,406, including interest, and an additional
$2.5 million lump-sum royalty. Fuji’s expert testified that the parties would have agreed to a royalty of
$2.00 per infringing LFFP but that the royalty would decrease to a $0.40 per unit running royalty if both
infringing and non-infringing LFFPs (all-product royalty base) were included in the royalty base.

Fuji's expert testified that the parties would have agreed to a $0.40 royalty rate. Based on defendants'
inability to separate the LFFPs, the expert testified at length about Georgia-Pacific Factor 6 (collateral
sales) and included both infringing and non-infringing LFFPs in the royalty base. To that end, Fuji's
expert provided the jury with sufficient information to reach Fuji's proposed royalty amount, whether the
royalty base included all LFFPs (a larger royalty base, driving the royalty rate down to reach Fuji's
proposed royalty amount) or infringing LFFPs only (a smaller royalty base, driving the royalty rate up to
reach Fuji's proposed royalty amount). By increasing the royalty rate in an amount proportionate to any
reduction in the size of the royalty base, (*1373) the jury could have reached a $2.21 royalty rate for
application to a royalty base, including only infringing LFFPs.

Fuji’s expert presented the all-product royalty base as "an accepted technique to avoid repeated disputes
over what percentage of LFFPs infringe, a point of contention between Fuji and defendants." fn 152 In
advocating this technique, the expert testified that the larger the amount of infringing product, the lower
the royalty rate and vice versa; to avoid the varying of the royalty rate, a consistent royalty amount
would be negotiated. The Federal Circuit found that the jury could rely on evidence of convoyed sales
and bundling and "the fact that bundling and convoyed sales affected [Fuji’s] estimate of both the
royalty base and royalty rate is thus not sufficient reason to nullify the jury’s award." fn 153

These cases highlight the point that factors other than the entire market value rule have affected the
selection of the appropriate royalty rate and royalty base. However, the practitioner should be careful to
properly support any arguments that may appear to extend the royalty base beyond the value attributable
to the patent as discussed previously with regard to the smallest salable patent-practicing unit and entire
market value rule doctrines.

Other Methods of Measurement

The 25 Percent Rule

Although the 25 percent rule has been deemed "fundamentally flawed" by the Federal Circuit for
purposes of determining reasonable royalty damages in patent litigation, it may have real-world
application in negotiations of licenses outside of litigation. Accordingly, this approach still warrants
discussion, albeit with a word of caution to damages experts. Under this methodology, the royalty rate is
set between 25% and 33% of operating profit, depending on a number of factors and considerations
between the patent holder and the infringer. fn 154 The rationale for leaving between 67% and 75% of the
profits to the licensee is the assumption of greater financial risk in commercializing the technology.

fn 152 Id.
fn 153 Id. (citing Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1385 (Fed. Cir. 2001)).

fn 154 M.A. Glick, Intellectual Property: The Law and Economics of Patent Infringement Damages. See, for example, Robert
Goldscheider, The Licensing Law Handbook (1993–94). Reference to this rule can be found in Tektronix, Inc. v. United States, 552
F.2d 343, 350 (Ct. Cl. 1977); Paper Converting Mach. Co. v. Magna-Graphics Corp., 745 F.2d 11, 22 (Fed. Cir. 1984); Syntex Inc. v.

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