Page 88 - Intellectual Property Disputes

In connection with assessing the ability to design around the asserted claims of the patent in suit, the
damages analysis often considers the cost savings associated with a license versus implementing an
alternative, non-infringing design. In Prism Technologies LLC v. Sprint Spectrum LP, the Federal
Circuit highlighted that a hypothetical license may be based on consideration of the defendant’s
potential cost savings. fn 104 The court ultimately concluded that Prism’s damages expert had testified
that the parties would have valued the subject patents based on Sprint’s ability to avoid the costs
associated with building its own network. "Because those costs savings consisted, in large part, of
Sprint’s initial capital costs, the jury could have reasonably found that the parties would have structured
the agreement as a fully paid license." fn 105

Date of Hypothetical Negotiation and the Use of Subsequent Information

For measuring reasonable royalty rates, the courts have looked to the date when infringement first
began. The hypothetical licensor and licensee are assumed to voluntarily meet on that date with
information that addresses the first 14 Georgia-Pacific factors and agree upon a reasonable royalty
resulting from a hypothetical negotiation. Given a hypothetical negotiation prior to the start of
infringement, this form of analysis limits the information available for the hypothetical negotiation to
that available (a) before the full commercial success of the patent could be determined, (b) before the
full extent of actual profitability could be determined, and (c) even before customer acceptance could be
determined. The estimation of a reasonable royalty, therefore, would appear to logically be limited to
budget, forecast, plan pricing, and project operating costs and, therefore, projections of profits.
However, as mentioned previously, the courts have sometimes considered information subsequent to the
hypothetical negotiation date. fn 106 This subsequent information is typically referred to as the "Book of
Wisdom" and, although there is no bright-line test regarding what will be allowed, is often allowed into
evidence by courts. However, the practitioner should proceed with caution when relying upon evidence
not available at the time of the hypothetical negotiation.

It should be noted that statutory limitations on damages (for example, recovery of past damages limited
to six years prior to filing an infringement lawsuit) do not preclude the setting of a hypothetical
negotiation date prior to the start of the damages period. In Laser Dynamics, Inc. v. Quanta Computer,
Inc., the Federal Circuit stated the following:

We have also been careful to distinguish the hypothetical negotiation date from other dates that
trigger infringement liability. For example, the six-year limitation on recovery of past damages
under 35 U.S.C. § 286 does not preclude the hypothetical negotiation date from taking place on
the date infringement began, even if damages cannot be collected until some time later. See
Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 870 (Fed. Cir.1993). Similarly, the failure to
mark a patented product or prove actual notice of the patent pursuant to 35 U.S.C. § 287
precludes the recovery of damages prior to the marking or notice date, but the hypothetical
negotiation date may nevertheless be properly set before marking or notice occurs. Id.

Notably, it may be years after infringement starts before the patent holder becomes aware of the
infringement, brings suit against the defendant, and litigates the issues. In addition, trials often are held

fn 104 Prism Techs. LLC v. Sprint Spectrum L.P., No. 16-1456 (Fed. Cir. Mar. 6, 2017).

fn 105 Id.

fn 106 Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568 (Fed. Cir. 1988).

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