Page 98 - Intellectual Property Disputes

The district court applied the entire market value rule and determined that the patentee was entitled to
lost profits on diverted sales of entire burner assemblies, including ember burner components, as well as
diverted sales of accompanying grates and artificial logs. The burner assembly, supporting grates and
artificial logs, constituted a functional unit. The standard of practice in the industry was to sell the entire
burner assembly along with accompanying grates and artificial logs together as a unit. The Federal
Circuit affirmed the district court, noting favorably its findings that the entire burner assembly, including
ember burner components, as well as diverted sales of accompanying grates and artificial logs, operated
as a functional unit, and that the practice in the industry was to sell both the patented and unpatented
articles together.

In Fujifilm Corp. v. Benun, fn 142 the Federal Circuit explained that the owner’s expert provided a
reasonable basis for determining the royalty by increasing the royalty rate in an amount proportionate to
any reduction in the size of the royalty base, and the jury was entitled to rely on evidence of bundling
and convoyed sales in determining the proper scope of the royalty base. Fuji’s expert testified that in a
hypothetical negotiation, the royalty rate would have changed inversely to royalty-base changes,
resulting in a consistent royalty amount. Specifically, if 50% of LFFPs (lens-fitted film packages)
infringed, and the royalty base included infringing LFFPs only (a reduction by one-half in the size of the
potential royalty base of all LFFPs), then the royalty rate would double from 40 cents to 80 cents per
infringing LFFP. In short, Fuji advocated a consistent royalty amount that would not vary with changes
in the royalty-base size. fn 143

The Federal Circuit held that "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 only infringing LFFPs (a smaller royalty
base, driving the royalty rate up to reach Fuji’s proposed royalty amount)." The Federal Circuit
disagreed with the defendants’ position that "the royalty base for the proposed royalty rate can only
include infringing LFFPs, thereby making the jury’s $2.00 royalty rate excessive." fn 144

In Uniloc, the Federal Circuit further confirmed, citing Rite-Hite, that in order "[f]or the entire market
value rule to apply, the patentee must prove that the patent-related feature is the basis for customer
demand." Uniloc’s expert performed "a check to determine whether" his royalty figure was reasonable
by comparing it to his calculation of Microsoft’s total revenue for Microsoft Office and Windows
products. He concluded that his royalty was reasonable as it amounted to only 2.9% of the $19.28 billion
in total revenue Microsoft received from sales of Microsoft’s Office and Windows products, which
incorporated the patented technology related to product activation, because, in his experience, royalty
rates for software are "‘generally above—on average, above 10% or 11%.’" fn 145

"Microsoft argue[d] that Uniloc’s use of the entire market value rule as not proper because it is
undisputed that Product Activation did not create the basis for customer demand or substantially create
the value of the component parts. Microsoft continue[d] that [Uniloc’s experts] testimony tainted the
jury’s damages deliberations, regardless of its categorization as a ‘check.’" The Federal Circuit agreed.

fn 142 Fujifilm Corp. v. Benun, 605 F.3d 1366 (Fed. Cir. 2010).

fn 143 Id.

fn 144 Id.

fn 145 Id.

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