MARCH 2013 2013 SEMINAR SERIES lesles NouvellesNouvelles JOURNALJOURNAL OF OF THE THE LICENSING LICENSING EXECUTIVES EXECUTIVES SOCIETY SOCIETY INTERNATIONAL INTERNATIONAL L L U.S. Trademark L Summer Patent Advanced Patent Practice Seminar Seminar & Licensing Seminar Volume XLVIII No. 1 March 2013 April 8 - 12, 2013 June 5 - 28, 2013 September 23 - October 4, 2013 A one week seminar which addresses all aspects This three and a half week seminar A two week seminar focusing on advanced of trademark practice before the United States covers all major areas of U.S. patent topics in U.S. patent law which includes LES NOUVELLES Patent and Trademark Office (“USPTO”) and the law, beginning with an overview of the workshops and problem solving in order to courts, including the preparation of trademark U.S. patent system and moving on to illustrate the more advanced concepts with applications, practice before the Trademark Trial more complex subjects such as patent regard to prosecution, claim interpretation, and Advancing the Business of Intellectual Property Globally and Appeal Board, licensing, inter partes matters prosecution, infringement litigation, validity and infringement issues. Participants including opposition and cancellation and interference practice. Includes learn how to modify and determine the scope proceedings, and the enforcement of trademark practical problems and discussion of of a granted U.S. patent, as well as how to Recent Rulings On The Entire Market Value Rule And Impacts On rights in the federal and state courts. recent cases where applicable. address significant licensing issues. Patent Litigation And Valuation ERIC PHILLIPS AND DAVID BOAg — Page 1 Visit www.bskb.comfo r further seminar details. All seminars are held at BSKB’s offices in Metropolitan Washington DC. JOURNAL OF THE LICENSING EXECUTIVES SOCIETY INTERNATIONAL The Exhaustion Theory Is Not Yet Exhausted: Part 2 8110 Gatehouse Road, Suite 100 East • Falls Church, VA 22042 USA p: +1-703-205-8000 • f: +1-703-205-8050 • e: [email protected] ERIK VERBRAEKEN — Page 7 © 2013 Birch, Stewart, Kolasch & Birch, LLP. All Rights Reserved. Patent Licensing And Assignment With An Eye Toward Enforcement: Tips For University Patent Owners C HRISTOPHER LARUS, JOHN K. HARTING AND SHARON ROBERG-PEREz — Page 13 Cystic Fibrosis Patents: A Case Study of Successful Licensing MOLLIE A. MINEAR, CRISTINA KAPUSTIJ, KAELEEN BODEN, SUBHASHINI CHANDRASEKHARAN AND ROBERT COOK-DEEGan — Page 21 The Clear Decision In Uniloc Needs Clarification D REW E. VOTH AND KATHLeeN PETRICh — Page 31 Achieving Breakthrough Innovation And Adjacent Space Growth Through Collaborative Innovation Ge NE SLOWINSKI AND MATTHEW W. SAGal — Page 37 Technology Transfer’s Twenty Five Percent Rule A SHLEY J. STEVENS AND KOSUKE KATo — Page 44 Boom Or Bust - How To Structure Technology Transfer For Success BRIAN CUMMINGS AND ROSEMARIE TRUMAN — Page 52 Innovation For Growth: The Challenge Of Sustained Growth And The Increasingly Important Role Of Innovation Enablers N ITIN CHAUDHARY AND NeeRAJ KATHURIa — Page 60 If the Sky Were the Limit What Would You Do In Technology Transfer? G ARY KELLER, FIZIE HALeem, STEVEN FERGUSON, AL JORDAN AND CHERYL Cejka — Page 66 Decompose And Adjust Patent Sales Prices For Patent Portfolio Valuation JIAQINg “JACK” Lu — Page 71 Recent U.S. Court Decisions And Developments Affecting Licensing JOHN PAUL AND BRIAN KACEDOn — Page 80 We developed a notably www.e-mergeglobal.com reliable and easy procedure to undertake your IP recordals with the utmost diligence. JOURNAL OF THE LICENSING EXECUTIVES SOCIETY INTERNATIONAL Discover more: Offensive www.dennemeyer.com/legal-services/ or Defensive Strategy? TM DENNEMEYER & ASSOCIATES We are the patent research company For a summary of LES participation in 2012, see the article in the March 2013 issue of LES Global News. Find it on our Patent Search Services Alert/Tracking Services website, www.lesi.org. Reach us White Space Analysis Claim Charting/Infringement Analysis USA: 1-888-247-1618 Portfolio Analysis Patent Licensing Support Services India: +91-44-2252 2223 Portfolio Management Patent Due Diligence Landscaping Studies Patent Drafting [email protected] Patent Litigation And Valuation Recent Rulings On The Entire Market Value Rule And Impacts On Patent Litigation And Valuation By Eric Phillips and David Boag he Federal Circuit’s 2009 decision in Cornell It is easy to see how the total royalties can be more University v. Hewlett-Packard Co., 609 F. Supp. sensitive to the royalty base than the royalty rate. T2d 279 (N.D.N.Y. 2009) ushered in substantial Assume that our imaging module makes up roughly changes to the computation of reasonable royalty 20 percent of the value of the system, yet the roy- damages in intellectual property litigation. Following alty rate is expected to fall between 2 percent and Cornell and several other cases, the courts increas- 4 percent. In that case, selection of different royalty ingly focus on whether or not the patented feature bases could have a 5x forms the basis of customer demand for a product impact on total royalties before allowing the entire product to be used as paid, while the royalty ■ Eric Phillips, AVA, CFFA, the royalty base. As a result, identifying the royalty rate only has a 2x impact VLF Consulting, Inc., base has now become just as important (or more on potential royalties. President, so) as identifying the royalty rate. Determining the This has not tradition- Chicago, IL , USA royalty base customarily consisted of asking which ally been a major area E-mail: ephillips@ products use the invention and what would be most of concern until the vlfconsulting.com common and feasible commercially. But now if the recent Entire Market patented features are not shown to be the basis of Value Rule (“EMVR”) ■ David Boag, customer demand, the royalty base may need to be decisions. Amster Rothstein & pared down to a portion of the entire product, even Cornell1 was the first Ebenstein LLP, if that smaller base is not independently saleable. of the recent cases Senior Counsel, This article presents a background of the issues, of- where the EMVR was New York, NY, USA fers a framework for evaluating the royalty base, and applied in order to re- identifies some outstanding areas of disagreement duce the royalty base E-mail: [email protected] amongst the courts. within an assembly. To help frame the question, let’s take the example of Here, Cornell sought reasonable royalty damages on a patent covering digital imaging technology used for infringing computer servers, although the patented eye exams. The system consists of three components: technology related only to instruction issuance within the eye imaging module, computer, and automated a computer processor (a component of the server). examination chair. In a non-litigation context, an The Federal Circuit ruled that the Entire Market Value expert may seek to determine a reasonable royalty Rule must be met in order to use the entire apparatus to compensate for the use of the invention, in the (here, the server) as the royalty base. This requires context of licensing negotiations or patent valuation. three conditions:2 Alternatively, a litigation expert may seek to deter- 1. [T]he infringing components must be the mine a reasonable royalty under 35 U.S.C. 284, which basis for customer demand for the entire provides that a prevailing plaintiff in a patent action machine including the parts beyond the shall be awarded damages to compensate for the claimed invention,…;3 infringement, but in no event less than a reasonable royalty. This reasonable royalty is often expressed as a 1. Cornell Univ. v. Hewlett Packard Co., 609 F. Supp. 2d 279 reasonable royalty rate multiplied by a royalty base (or (N.D.N.Y. 2009) (Rader by designation). alternatively as a lump sum). Both the valuation and 2. Further, the court noted that “it is not enough that the litigation expert are then faced with the question of infringing and non-infringing parts are sold together for mere which components to use as the royalty base. Perhaps business advantage.” Id. at 286-287. the entire system (imaging module, computer, and 3. The Court tweaked this requirement in its 2011 Uniloc case, stating that the EMVR can be used only “where the patented chair) should be included, or at the other extreme, feature creates the ‘basis for customer demand’ or ‘substantially only a portion of the value of the imaging module create[s] the value of the component parts.’” Uniloc USA, Inc. v. should be included. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011). March 2013 1 Patent Litigation And Valuation 2. [T]he individual infringing and non- system), then the infringing components must be sold entire system may together so that they constitute a functional be properly used Patent claims provide unit or are parts of a complete machine or as the royalty base. a starting point, but single assembly of parts,…; and On the other do not always dictate 3. [T]he individual infringing and non- hand, if the claims what to include in infringing components must be analogous of our patent do the royalty base. to a single functioning unit . include the com- (Internal citations omitted). puter and chair, The court then rejected the use of the server as yet the patented the royalty base, finding that the patented invention technology does not create the demand for the sys- did not drive demand for the server. tem, then things get murky. The plaintiff’s argument here (for a larger royalty base) is that (a) the entire Cornell and other EMVR cases leave us with four apparatus is in fact the patented device, and (b) the key questions to consider when determining a royalty EMVR criteria only applies where unpatented prod- base: (1) what is covered by the patent, (2) what is ucts are combined with patented products.