Day 2, Panel 3 (Litigation): Damages Awards
December 5, 2025
B-CLE Recording (CLE: $100) | Agenda | Event Resources | Speaker Biographies
Download Panel Transcript Here
Speakers
Mike Hendershot, Jones Day
Brian Napper, Ocean Tomo
Matthew Powers, Tensegrity Law Group
Patricia Young, Latham & Watkins
Panel Resources
Panel Summary
Karen Boyd opened by framing the session as a continuation of the plaintiff versus defense damages debate from the prior day, introducing a panel with deep collective experience spanning decades of patent litigation. Brian Napper and Matthew Powers walked through the Federal Circuit’s en banc decision in EcoFactor v. Google, with Napper summarizing that the plaintiff’s expert had relied on prior license agreements without adequate foundation to support a per-unit royalty rate — leading first to a district court reduction of the jury’s $10 million verdict to $1, and ultimately to Federal Circuit reversal — while Powers characterized the en banc holding as a “nothing burger” that would have very limited precedential impact because the facts were so narrow that virtually no future expert would replicate the same error. Mike Hendershot agreed that Daubert motions are already filed in 100% of cases and EcoFactor would not change that calculus, while expressing cautious optimism that the court’s willingness to take the case en banc might have a modest signaling effect on district judges to take their gatekeeping role more seriously. The panel found Rex Computing v. Intuitive Surgical more practically significant, with Hendershot explaining that the Federal Circuit there affirmed a JMOL of zero damages — rather than merely a remittitur — because the plaintiff’s expert failed to apportion among the multiple patents covered by a comparable settlement license, and the court made clear that Section 284’s “in no event less than a reasonable royalty” requirement does not exist independent of a plaintiff’s burden of proof, meaning a complete absence of reliable damages evidence can support a JMOL of no damages rather than just a new trial.
The panel then shifted to practical guidance on damages strategy, apportionment methodology, and expert preparation. Brian Napper emphasized that the single biggest failure in patent damages cases is engaging the damages expert too late — often with technical and damages experts communicating for the first time the night before expert reports are due — and urged counsel to commission an early damages roadmap at a relatively modest cost to identify which evidentiary paths are available before discovery closes. Matthew Powers pushed back on the idea that the Federal Circuit has provided adequate guidance on what level of apportionment is sufficient, arguing that the court has repeatedly criticized specific methodologies in fact-specific holdings without giving practitioners clear rules of the road, leaving experts and counsel in a perpetual state of uncertainty about what will pass Daubert muster. Patricia Young noted that the most successful damages theories tend to use multiple converging approaches — comparables, income approach, cost approach, analytical approach, and consumer surveys — so that even if one methodology is excluded or criticized, others support the same general range, while Brian Napper highlighted the growing use of cost-of-components approaches and market share adjustments to lump sum licenses as alternatives to contested per-unit royalty calculations. Mike Hendershot closed the defense strategy portion by emphasizing that non-infringing alternatives need to be identified and developed early through percipient witnesses and fact discovery — not theorized by experts the night before trial — and that a design-around costing $50,000 in a $50 million case will destroy a defendant’s credibility in front of a jury unless it has actually been implemented or seriously evaluated.
Key Learning Points:
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EcoFactor Is Narrow; Rex Computing v. Intuitive Surgical Is the More Important Damages Case: While the EcoFactor en banc decision had minimal practical impact — confirming only that a per-unit royalty rate cannot be imputed from a license that expressly disclaimed being royalty-based — Rex Computing firmly established that Section 284’s “no event less than a reasonable royalty” floor does not relieve plaintiffs of their burden of proof, meaning a complete failure of apportionment evidence can support a JMOL of zero damages rather than merely a remittitur with right to retrial, a significantly harsher consequence that practitioners must prepare against from the outset of a case (Mike Hendershot; Matthew Powers; Brian Napper).
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Engage Damages Experts Early and Build Multiple Apportionment Paths: The panel unanimously agreed that the most common and avoidable damages failure is waiting until expert report deadlines to involve damages experts in case strategy — leaving insufficient time to develop the fact witness testimony, technical expert input, and discovery record needed to support reliable apportionment — and that the best-positioned cases feature multiple methodological approaches including comparable licenses, the analytical approach, cost-of-components, income approach, and consumer surveys that converge on a similar range and provide fallback positions if any single methodology is excluded (Brian Napper; Patricia Young; Mike Hendershot).
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Non-Infringing Alternatives Must Be Developed Through Fact Discovery, Not Expert Theory: Defendants who advance design-around cost arguments — particularly implausibly low figures like $50,000 in a $50 million case — without having actually implemented or seriously evaluated those alternatives will lose credibility with juries and fail to establish the necessary factual predicate for the argument; effective NIA strategy requires early identification of the alternative, involvement of company engineers as percipient witnesses, actual testing or measurement of market impact where possible, and a complete discovery record before expert reports are ever drafted (Mike Hendershot; Brian Napper; Patricia Young).
Program Transcript
Key Terms: EcoFactor v. Google, Rex Computing v. Intuitive Surgical, Mentor Graphics, eBay v. MercExchange, Sunoco Case, Covidien Settlement, BSH Decision, 25% Rule Cases, Section 284, Reasonable Royalty Floor, JMOL of No Damages, Remittitur, Daubert Standard, Gatekeeping Function, Burden of Proof, Hypothetical Negotiation, Georgia-Pacific Factors, Comparable License Standard, Apportionment Requirement, Lost Profits, Panduit Factors, Market Share Theory, Apportionment, Portfolio Apportionment, Patent Bundle Apportionment, SEP Essentiality Analysis, Declared Essential vs. Actually Essential, Core Patent Identification, Throwaway Patents, Contributory Patent Assessment, Technology Carve-Out, License Matching, Asserted Patent Alignment, Comparable License Approach, Analytical Approach, Income Approach, Cost Approach, Cost of Components Approach, Bill of Materials Approach, Consumer Survey Approach, Regression Analysis, Market Share Adjustment, Lump Sum License Adjustment, Per Unit Royalty Rate, Gross Margin Differential, Profit Differential Analysis, Damages Expert Engagement, Early Damages Roadmap, Technical Expert Coordination, Expert Report Timing, Percipient Witness Preparation, Fact Witness Development, Expert Testimony Reliability, Expert Foundation Requirement, Damages Expert Sequencing, Defense Expert Testimony Order, Lost Profits Expert, Plaintiff Damages Expert, Non-Infringing Alternative (NIA), Design-Around Cost, Design-Around Implementation, Design-Around Credibility, Engineer Percipient Witness, Market Impact Measurement, Monthly Active Users Metric, Software Design-Around, Hardware Design-Around, Alternative Technology Identification, Portfolio License, Settlement License, Comparable License, Lump Sum License, Per Unit License, License Fee Apportionment, License Matching Requirement, License Agreement Provisions, Royalty Rate Imputation, License Self-Serving Recitation, SEP License, FRAND License, Cross-License, Daubert Motion, Motion to Exclude Expert, Expert Reliability Standard, Expert Foundation Requirement, Fact-Specific Holding, Gatekeeping Role, Summary Judgment on Damages, Pre-Trial Exclusion, Rule 11, Damages Contentions, NDCA Damages Contentions, Early Damages Disclosure, Damages Verdict, Jury Credibility, Jury Award, General Verdict, Special Verdict, Defendant Credibility, Trial Structure, Expert Testimony Order, Closing Argument Damages, Demonstratives, Plaintiff Damages Closing, Defense Damages Opening, Damages Discovery, 30(b)(6) Deposition, License Discovery, Foreign License Discovery, Counterclaim Discovery, Fact Discovery Record, Early Case Strategy, International Sales Theory, Notice Issues, Indirect Infringement Damages, Marking Defense, Summary Judgment Strategy, Karen Boyd, Mike Hendershot, Brian Napper, Matthew Powers, Patricia Young, Shelly Irvine, Turner Boyd Seraphine, Jones Day, Ocean Tomo, Tensegrity Law, Latham & Watkins, Judge Sharon Prost, Judge Stark, Federal Circuit, Northern District of California, Delaware District Court
Moderator
Karen Boyd, Turner Boyd
Speakers
Mike Hendershot, Jones Day
Brian Napper, Ocean Tomo
Matthew Powers, Tensegrity Law Group
Patricia Young, Latham & Watkins
[KAREN BOYD]
All right, good. Quickly hand it off here to Karen Boyd from Turner Boyd Seraphine to pick up where the plaintiff side versus defense side panels left off on the– the damages debate yesterday. So, I’m sure it’ll be spirited. All right, thank you.
So before I introduce the panelists just a in-house counsel can we see by a show of hands? And outside counsel by show of hands?
And do who likes money? All right. Right, that’s why we’re all here. And we’re gonna spend a little time talking about money.
So with me today on our panel about damages is Mike Hendershot, patent litigator at Jones Day. Mike represented eBay in eBay versus Merck Exchange. And those of you who were here yesterday heard the panel on patent enforcement strategies say that case was the demarcation between the heyday of patent litigation and whatever it is we’re in now, which I guess is the opposite of the heyday. We have– And Mike just figured out with his, with the help of his wife who has a better memory than he does or that I do, that we crossed paths at Applied Materials sometime in the late 1990s we think, or possibly early 2000s.
[MIKE HENDERSHOT]
Probably 1992.
[KAREN BOYD]
Next we have Brian Napper who is a senior managing director at Ocean Tomo, and has been a damages expert for forever as far as I know. Brian’s deposition was the very first deposition that I defended and that was some time before the turn of the millennium.
Again, I can’t quite pin it down. Matt Powers has been a mainstay in patent litigation for decades.
Founded Tensegrity Law 15 years ago. He, you interviewed me, Matt, in 1997 when I was finishing my clerkship, and I’m sure I was much less memorable than you were at that point.
Patricia Young is the global vice-chair of intellectual property at Latham, and she reminded me yesterday that we had represented co-defendants back in the days when MPEs just sued everybody all in one case. And I tracked it down, Patricia, and I think that was in, in Henidor or in Genidor? Something like that. It was a case, it was in the District of Puerto Rico at the same time I had a case in the District of Hawaii.
I was like, “I’m gonna become a tropical patent litigator. That’s gonna be my thing.” It didn’t work out for me, but it was a nice dream for a little while. So before we jump into damages, I just wanted to acknowledge, and one of the reasons that I did introductions like that, this is such an interconnected community.
And we are, they’re, our careers and our lives intersect with each other so much. And I’d like to see by raise of hands again if there is somebody at this conference that you have either mentored or been mentored by. Can I see hands raised?
That’s a lot of hands. And that’s really, that’s awesome to see, and awesome to acknowledge.
And now that you know how to raise your hands, we would really like a lot of conversation and everyone in the room to participate in this. So please feel free to raise your hands. I will try to keep my eye out for raised hands. I’ll ask the panelists to do the same if I don’t catch somebody.
But let’s jump in. So we’re gonna talk about a couple of cases, EcoFactor, and by the way, I– I listened to one of their videos on YouTube to confirm that it is EcoFactor and not EchoFactor. I’ve heard both.
And Rex versus Intuitive Surgical, sort of Daubert issues and some case law around that. We’re gonna try and hit some questions about apportionment, some questions about non-infringing alternatives strategies for either protecting or preventing large verdicts depending on where you are. And a lot, and this is gonna be kind of a through line and we’re gonna rely really heavily on Brian, about practical uh, advice for working with damages experts.
So let’s jump in. Brian, you are not a lawyer. So can you summarize for us the Federal Circuit en banc decision in Ecofactor versus Google?
[BRIAN NAPPER]
Yes. Thank you for the opportunity to speak as always. It’s a very vibrant community we have here in the Bay Area from a legal standpoint. So EcoFactor was a seminal case.
Actually, David Kennedy, one of our colleagues at Ocean Tomo, was the plaintiff’s damages expert on EcoFactor. And in the en banc decision, he essentially– well, at the court level basically there was an award of $20 million in damages I think is what? 10, sorry.
I think he asked for 20, and the jury split the baby and went with 10. And so that was the ruling.
And the primary if not only basis for Mr. Kennedy, the plaintiff’s damages expert’s testimony and opinion was two, three prior license agreements for the asserted patent and other patents, but one of the agreements did not have the asserted patent. So that comes into play later with respect to the en banc decision. And so that was, went up to the Federal Circuit. And essentially the Federal Circuit disavowed the–, I’m sorry.
You know this too, Matt. Matt studied it more than I did, but I’m winging it.
But the basically the district court basically said it’s not 10 million, it’s one million, correct?
[MATTHEW POWERS]
One dollar.
[BRIAN NAPPER]
One dollar. Okay, there you go. So I’m missing zeros. I’m a damages expert But I don’t even know numbers. That’s bad.
[MATTHEW POWERS]
But you’re doing a hell of a job, Brian.
(laughs)
[BRIAN NAPPER]
Yeah. That’s right. So ultimately the Federal Circuit, to cut to the chase the Federal Circuit disavowed or threw out the verdict and the case on the basis of the fact that Mr. Kennedy, the damages expert did not, for EcoFactor, did not have appropriate foundation for basically being able to say, “Well, the patent that was asserted in these three agreements was the primary driver for the amount that was in those agreements, and what the damages expert had done was basically taken a unit rate based upon the units of Google applied against dividing the amounts in the other settlement agreements by the number of units that he believed were appropriate in those other factors. So essentially, that was thrown out. There was another opinion, a minority opinion, I guess, that we should talk about too, but that’s the extent of it.
Sorry about that.
[KAREN BOYD]
Thank you. And a couple of times yesterday, we heard and how many people in this room were here for yesterday or most of yesterday?
Okay. So a couple of times yesterday, EcoFactor was referred to and a little bit dismissed like, oh, it does, you know, we were hoping for some big en banc case that was gonna change our lives, and it turned out, it, like, The sense from the panels yesterday was again definitely change our lives.
um, Matt, do you think it changed our lives? Do you think it shifted our lives in some minor way?
[MATTHEW POWERS]
I don’t think it changed anything, and I don’t think it ever could have changed anything. It was a weird case for them to take en banc.
It and the proof of the pudding is in the eating. They, it’s been cited, I think, a total of six times since.
Uh, you know, the, I think Judge Stark’s dis– opinion got it exactly right. He said, you know, basically, “The majority has painted itself into a corner by basically saying when an expert is contradicting undisputed facts, then it’s unreliable.
Well, that never happens. Uh, so therefore this holding is irrelevant.”
And I think that’s spot on. Uh, nobody’s– I mean, the– the concern was that this was going to embolden district judges to go beyond what a proper gatekeeping role is and intrude into the role of the jury, and that appears not to have happened, so everybody seems to be reading it just the way Judge Stark read it then. And I think most people read it.
So I don’t think it changes a thing. It– the only thing it could have changed, and it would have been wrong to do so, but the only thing it could have changed, and the concern people had when they were waiting for the en banc decision was, well, are they gonna say you can never impute a reasonable royalty rate from a lump sum license?
And ’cause that’s what was done, and they were concerned about that issue, and if they’d done that, that would have been crazy. But if they’d done that, that would have changed things, and it turns out it was, in fact, a nothing burger.
[KAREN BOYD]
Okay. Um, Mike and Patricia, you, are you any more or less likely to bring a Daubert motion with EcoFactor?
[MATTHEW POWERS]
They’re brought 100% of the time. How could it be any more likely?
[KAREN BOYD]
Right. Yeah, that
[MIKE HENDERSHOT]
How do you get any lower? I’m pegged at the top of the speedometer on those at 100, so it’s not gonna alter my percentage, but I do think that I have some optimism that the signaling effect of the court taking it up en banc and encouraging district judges to really take seriously their gatekeeping function will have some signaling effect.
The facts were narrow. Judge Stark did say, “Look, these are narrow facts.”
And, I mean, the, what the expert relied upon were sort of one-sided self-serving recitations in at the start of the agreement saying, “EcoFactor believes this reflects a percent royal, a tenth, whatever the royal, the per unit royalty of this.” Two of the agreements said, “None, this is a lump sum.
It’s not based on sales or anything like that.” So it’s pretty narrow facts.
I’ve seen some plaintiffs try to include provisions like that in settlement agreements recently but in terms of taking a holding directly from EcoFactor and applying it to fact, a fact pattern in another case, I’m less likely to do that. I’m perhaps a little more optimistic that courts will take that seriously.
But I do have a sense that in the bench in the bar Matt’s take on it is probably in line with how a lot of people are viewing it.
[PATRICIA YOUNG]
Yeah, and I think ultimately, it just, you just have to kind of look at the facts to figure out if it even applies in your case, right? And I think that’s really gonna be the practical effect of it.
And frankly, if you’re a plaintiff, just, you know, don’t do that. And so then it shouldn’t really come up. But ultimately, I mean, to Mike’s point, I think we tend to often always bring Dauberts anyway, so that’s not gonna change the calculus on that end.
[KAREN BOYD]
Are you any more optimistic about winning those Dauberts?
[PATRICIA YOUNG]
You mean, if EcoFactor’s in the case or not? I don’t know. I mean, I think it’s just really different ’cause it’s all, that case itself is very fact-specific.
[MATTHEW POWERS]
Yeah. I think judges who took Daubert seriously are gonna continue to do so, and judges who didn’t take, don’t take Daubert seriously are not gonna take it more seriously because of EcoFactor.
[MIKE HENDERSHOT]
I think that’s fair.
[BRIAN NAPPER]
I think that’s fine. And just if I could add to Mike’s point, this royalty per unit issue was the one that got everybody, and in fact, there was those specific agreements that this is not a per unit royalty or anything like that, it’s just a dollar amount in the agreement. But what we’ve done on a lot of cases, quite honestly, and this is would be a question for the, sorry, Karen, for the whole group. But we take agreements for the actual asserted patents, and we basically do market share.
So we basically say, okay, if Google has, in this case, Google had a 60% market share in the Nest Thermo, you know, home thermostat business, then these other two or three licensees had 10, 20, or 15. Is it okay now to adjust that lump sum amount to basically reflect the market share of the various defendants and licensees as opposed to a per unit, which is specifically called out? That’s what I find interesting.
[KAREN BOYD]
All right, so you’re all judges now. Do you think that flies? Who thinks that seems like a pretty good way to think about it?
[MATTHEW POWERS]
Yeah, the case doesn’t preclude that, for sure.
[BRIAN NAPPER]
I don’t think it does either, ’cause it’s so specific to the per unit and ’cause that’s what I thought of when I looked at this is like, “Let’s do market share.”
[MATTHEW POWERS]
I mean, the interesting thing about the case to me was the extent to which the court was basically willing to call BS on something that’s a factual question for the jury. I mean, there was evidence which a reasonable jury could have used to decide that, in fact, that was the basis for those agreements, ’cause there’s testimony from the CEO. It wasn’t perfect, but the reality is Sharon Prost thought it was BS, called BS, convinced enough people on the court to say it was BS.
And that’s not the District Court’s role and it’s certainly not the Federal Circuit’s role to resolve credibility issues and that, the jury really should be doing. But that’s, I think, the real politic of what happened in that case.
[KAREN BOYD]
So Gatekeeper, how do you square judges shouldn’t be calling BS with the court’s role as the gatekeeper?
[MATTHEW POWERS]
It’s they overstepped their role. There’s no, I don’t think there’s any question about that. Now, was it BS? Yeah. But that’s not their job.
[KAREN BOYD]
All right. Well, another big case or to me, interesting case that has, has come out from the Federal Circuit is Rex Computing versus Intuitive Surgical. You wanna give us a little overview on that one, mike?
[MIKE HENDERSHOT]
Yeah. And this is a case I can see myself citing Daubert motions quite a bit with some of the statements in it. It’s got narrow facts when you get down to the holding. I think it actually says it’s relatively fact-specific. But the statements of law about apportionment and the work that you need to do to have a reliable opinion, I think is more broadly applicable.
At the highest level, Rex had a portfolio of patents on applications on, I think, surgical staples. In two litigations, they’d asserted two of those patents. I’ll call them A and B. In the case against Intuitive, they asserted both, ended up dropping patent B and dismissed it with prejudice before trial so they’re only going on patent A. For their damages case, they relied on almost exclusively on a prior settlement agreement from litigation with Covidien, where they had initially asserted A and B against Covidien, but they dropped A pre-trial, so they’re only asserting B. So you had a disconnect between the two asserted patents in the cases. The settlement agreement was a $10 million lump sum, also included, get my numbers right here, eight additional US patents to A and B, seven US applications and 19 foreign patents and applications.
Yeah, actually better. The plaintiff’s expert said all of the value in the Covidien license was in the asserted patents, ’cause those are the important ones, A or B. Again, A or B. And remember the disconnect between the two cases. And like many patent portfolios, there’s little to no value in the rest of the stuff that’s not asserted, so we can kind of dismiss that.
You should award a royalty based on this being a comparable license based on the $10 million figure from the Covidien license. I think he doubled it due to volume, but the basis for it was just the Covidien license without much more analysis than what I just gave you. Trial court excluded plaintiff’s expert for failure to apportion shortly before trial. Neither expert testified at trial.
Intuitive as a defendant didn’t call theirs. The plaintiff had the CEO testify basically saying what the expert had said before, saying all the value is in either A or B these two patents that have been asserted, and, “I’ve been told that the other patents have expired and aren’t really valuable,” but that latter bit got struck as hearsay. I don’t know how you don’t sit down with them at a computer and make them know that they’ve expired, but where they really fell apart, I think, is on the A or B piece.
Jury awarded $10 million after finding infringement and validity. Judge in Delaware said she was remitting damages to $1 but there was also a JMOL motion on damages filed.
So really, effectively, what the defendant and the Federal Circuit ultimately said was, “Look, this is really a JMOL of damages. It’s not a remittitur,” because she denied the request for new trial on damages, which is a necessary component if you’re gonna remit a damages award. On appeal, the Federal Circuit affirmed the exclusion of the expert’s testimony and affirmed JMOL of no damages.
A few statements from the court that jumped out at me, “When relying on comparable licenses, we require a party to account for differences in the technologies and and economic circumstances.” “Expert testimony should be excluded when it fails to allocate license fees among the licensed patents covered by an agreement.”
And again, another imperative verb, “Damages theories relying on comparable licenses must account for distinguishing facts, such as covering more patents than are at issue in the action and covering for intellectual property rights.” So you have to apportion if you’re relying on a comparable license that has more than the asserted patents in suit. That’s the statement of law in the case. The court affirmed JMOL, and in what to me was just procedurally a little more interesting, they said, “Look, 284 says, a court shall award damages to a claimant if they prevail adequate to compensate for infringement, but in no event less than a reasonable royalty.”
The Federal Circuit cited some older authority including some stuff back to the Third Circuit saying, “Look, that requirement doesn’t exist independent of a plaintiff’s burden of proof. If you don’t have evidence in the record tying your infringement, reliably to a dollar figure, JMOL of no damages can be appropriate,” and they affirmed it here. They did note that the outcome was fact-specific because the record was somewhat unique.
I think the plaintiff probably could have done a better job in terms of trying to re-package what they were doing through their fact witness. But the statements of law were pretty clear and categorical in terms of the need to apportion.
And for that reason, it’s something I would see myself citing more than Ecofactor, given how narrow the facts were there.
[KAREN BOYD]
So, Brian, how could they have, what should they have done? How could they have supported their damages expert better? I’m gonna give you the floor for just, well, until I make you stop talking. That’s how long you–
(laughing)
[BRIAN NAPPER]
Well, this will be, I talk fast, and this will be cut to the chase, ’cause it’s one of, after, God, decades of doing this work, you have to do the right amount of work. And I understand in-house counsel, all the in-house counsel here, you don’t want to bother your business people, your fact witnesses, your inventors, if you you don’t want to bother them with litigation, but that’s not an excuse.
You have to give damages experts the ability to apportion with some reliable basis, because there’s a clearly a trend towards that’s not reliable. And then you have the whole nother pivot, which is the tech expert.
So the tech expert gets wrapped up in the asserted patents. They don’t even want to talk about what other functionality is in the other patents that are in the bundle. They, I don’t think we’ve ever had. Shelly Irvine and I have worked together for 25 years, I don’t think we’ve ever had an ability to go to the tech expert and say, five patents in this agreement, one of which is asserted in this case.
Can you tell us what the other four are and how immaterial they are? We’ve tried to do it, but they’re uncomfortable with that.
So, the whole point is get ahead of the issues and try to go to in-house counsel. The people who are going to be their fact witnesses, both on the business side and the contribution side, as well as maybe the tech side.
And actually, we literally have a diagram of what we want early on. And I have to tell you, 9 times out of 10, counsel goes, ‘Yeah, thanks for that. We’ll get back to you.’ And they don’t. So I’m frustrated, you can tell, but if you want a good case and you want a supportable case, this helps to increase the probability of that.
[MATTHEW POWERS]
Nice thinly designed covered up request for higher budgets for damages experts.
(laughing)
[BRIAN NAPPER]
No, because I’m outsourcing to the in-house people. So actually, that’s a fair point, Matt. But I think it’s gonna actually be cheaper because they’re doing the work than you. But thank you, I’ll take the uplift as well.
(laughing)
[PATRICIA YOUNG]
Maybe I’ll make my pitch for a free lunch from Brian here. All, everything he said applies from the defense side as well. You need to get on these issues early, and we can touch on that in a little bit.
But it’s you don’t want to have a call between your technical expert and your damages expert the night before reports are due saying, ‘Hey, what’s the value of this?’
[MATTHEW POWERS]
And it’s shocking how often that happens.
[SHELLY IRVINE]
All right. I’m gonna make you all stop talking. Shelly, you had your hand up. Yeah. I just wanted to add to what Brian was saying. If you only have one approach to get to your damages.
(indistinct conversation)
(indistinct conversation)
[MATTHEW POWERS]
The interesting thing about these cases to me is not so much the issues of law, ’cause those are, I think, pretty well established. To me, it’s the lack of guidance on what is sufficient, because it’s not reasonable for the court to say, “We’re gonna demand perfection in apportionment.”
That is not a possible thing. And what the court has been doing is saying, “Well, I’m gonna nitpick that.
That’s not enough. Oh, that’s not enough.”
And in many cases, it wasn’t. But what the court needs to do is give people guidance on what is enough so that we stop this nonsense, and people will have clear rules of the road and understand what they need to do and what they don’t need to do, and that’ll, that’s what the court has not given.
It’s criticized this, it’s criticized that, all on fact-specific stuff, so no one really knows what the hell they need to do in order to pass muster. And that’s where we’re lacking so far, I think.
[PATRICIA YOUNG]
Yeah, and I agree with Matt on that. I mean, I’ve been doing this, and every single time you kind of, every single time I approach the issue again with the, my damages expert, you always see people say, “Well, we could apportion this way. We could talk about how these patents are more valuable.
We could talk about this, that. We could have the technical expert do this.”
At the end of the day, it seems like what passes muster is if you have, to Shara’s point, you know, seven different approaches that somewhat gets you to the same answer, even if there’s no numbers attached to any of it. But that’s part of it, is that, like, you’ve actually had to do the consideration and done the different approaches to get somewhere. And that’s usually, those are the better ways to get to a number on both defense, you know, to Mike’s point, defense and plaintiff side.
[BRIAN NAPPER]
Yeah, we probably split 50/50 on plaintiff and not at the same time. That’d be, but at the end of the day, it is one of these two. All your points really, is just one, get ahead of I mean, and Matt teasing me on fees, but you could do that for, I’ll just throw out a number, 10, $15,000.
Get your damages expert early. Here’s the roadmap of what we think is going to be necessary, and I will guarantee we’ll only get 50% of it, but we’ll have some early thoughts on what it’s gonna look like, which roads we can go down, so that you, outside counsel helping in-house counsel to move forward, can do so on an efficient basis. And I would almost argue that we would come in less on our fees.
Although, the tech expert fees are gonna go out through the roof if we can even get them to comment, which they’re always uncomfortable with.
[PATRICIA YOUNG]
I mean, at this point, it’s absolutely standard to have an expert, a technical expert giving input, hopefully not at midnight the night before then. But two of the damages experts on all of those apportionment issues.
[MIKE HENDERSHOT]
Well, and if you’re dealing with non-infringing alternatives, you’re trying to identify.
[KAREN BOYD]
Thank you, I was just gonna ask that.
[MIKE HENDERSHOT]
Try to identify. Getting to your engineers at the company and your percipient witnesses are gonna be testifying and laying the predicate for that is something you can’t do once you get the expert reports. And you don’t wanna be doing the day before a 30B6 deposition when they’re gonna be like, we’re saying, “Yeah, We want you to say this.” It’s something where getting on the issue early, both from the plaintiff side and the defense side, is, and framing your case and pursuing it in discovery and framing your record that way throughout will uh, perhaps lead to a slightly bigger budget but will serve you better in the end.
[BRIAN NAPPER]
And, and at the end, sorry, I mean, I know we’re dominating, and I’ll I’ll shut up after this, but and just different approaches. So we’re, damages experts can be really good at, there’s only three ways to value a patent: income, market, and cost. So market is the comparables.
Income is how much money you’re generating from the patented technology. And cost. We’re now pivoting a little more, even on the plaintiff’s side. In fact, I’m headed out tomorrow for Wilmington, Delaware on Monday to put forth a cost approach based upon the bill of materials and how much did that particular bill of materials for the product at issue relates to the patented functionality.
Daubert’s came and went, and you know, they said no problem because you have a basis for doing that. And that’s easy stuff to get.
[MIKE HENDERSHOT]
So it’s a cost of a witness theory?
[BRIAN NAPPER]
Yes.
[MIKE HENDERSHOT]
Yeah.
[BRIAN NAPPER]
Yeah.
[MIKE HENDERSHOT]
Which is, in theory, apportioned already.
[BRIAN NAPPER]
Correct, correct. Absolutely.
[KAREN BOYD]
We have a comment in the white sweater. One more Question?
That’s you. Yes.
More of a question related to some of the issues that you have been bringing up. What has been your experience with the damages contentions that are, or disclosures required by the Northern District of California?
Has that helped address some of these issues or just create others?
[BRIAN NAPPER]
It’s funny because we, what has it been three years.
[KAREN BOYD]
Did everybody hear that question?
[BRIAN NAPPER]
Yeah.
[KAREN BOYD]
Okay, go ahead.
[BRIAN NAPPER]
It’s been three years since those early damages contentions, or four, yeah. I remember being at a conference, maybe it was this one, with Susan Van Culent, who’d just become a magistrate judge.
And so I asked her that question “Is this gonna help it be more efficient?” And then secondly, and this is an interesting question for the testifying experts, “Is that information and analysis discoverable?” In other words, do we have to produce that over to the other side once you get into full litigation? And that’s a problem because you’re so early on, you haven’t gotten all the facts put together.
But yes, it has changed a little bit. I think in the NDCA cases, you’ve definitely seen people get on top of damages earlier and being able to scout those out and be able to chart a path forward.
At least it’ll be a winding path, but at least it’ll be a path as opposed to walking through a meadow.
(laughter)
[MATTHEW POWERS]
They’re helpful, but I think the factual predicate for someone’s damages theories, you can get at through fact discovery. You’ll get the natural objection that, look, this is subject matter for expert testimony, it should come later in the case. But the underlying facts as are things you can get at in the case. So it’s helpful in that it gets people thinking about those issues earlier in the case by rule, but it’s stuff that if, I think if you’re approaching things right, you’re trying to get at those things anyway.
[BRIAN NAPPER]
Yeah. Patricia, do you–
[PATRICIA YOUNG]
I mean, I was just gonna add that like everybody knows what you need to get for damages for the most part, right? You know what you need to do for the licenses. You know what you need to do for the comparables. You know what you need to do for the non-infringing alternatives.
It’s just the issue of like doing it, and I think that’s what we’ve been like talking about on this panel this whole time is that everyone just has to do it. And so those rules might help a little bit, but ultimately if you don’t do it, you’re gonna find yourself, as Matt keep on, keeps commenting, the night before asking for reports like trying to cram this all in. And so it’s just trying to like prevent that, right? At the end of the day.
[MATTHEW POWERS]
Is the thing, the issue I have with the damages contentions is the idea that it should be used to force plaintiffs to have a semi-binding theory before they have the evidence that they need to create a useful thing. And if it’s not accomplishing that, and I don’t think it can, then the most that you’re doing is maybe identifying that it’s a really low-cost case that could be settled, but people are gonna know that instantly anyway.
So, to me, it’s almost more make work at the beginning of a case. Maybe it reverses the tendency of people to put damages issues off way too late, and if it does that, then I guess it’s mildly useful. But I think it’s an attempt to legislate or regulate something that lawyers are able to do on their own.
[KAREN BOYD]
I’m gonna ask for Shelly’s comment in just one minute, but a show of hands, have people seen fights over damages contentions in the Northern District of California or otherwise about, are they sufficient, are they insufficient? A few people have seen fights about that. All right. Shelly?
[SHELLY IRVINE]
So I was gonna ask about design alternatives. What do you think about, so sometimes when I’m on the defense side people say, ‘Oh, it’s just, it will take an engineer, you know, a day to, you know, it’d be a $2,000 design alternative.’ So, you know, that’s a good number.
What do you guys think about the believability of those kinds of numbers to a jury?
[MATTHEW POWERS]
My answer is, why haven’t you done it then?
(all laughing)
And I think the credibility of that argument is based on, you know, that, that’s less than an hour of trial time. Really?
[MIKE HENDERSHOT]
One of the best lines I’ve heard at a trial was at my first trial, and counsel said to another counsel, ‘You spent more money on your closing demonstratives than your design around would’ve cost.’
(all laughing)
Where someone’s advancing, like, a $50,000 design around for a case where someone was seeking $50 million. That just you lose credibility in front of a jury, because it, Matt hit the nail on the head. Why didn’t you do it?
[BRIAN NAPPER]
Why didn’t you do it? Yeah
[MIKE HENDERSHOT]
Uh-huh.
[BRIAN NAPPER]
Well, and if I could jump in as well, we have worked with a couple of different defendants and, in their NIA, and basically, we’ve gotten them convinced. It wasn’t us necessarily pushing it, but we got them to basically, this is on maybe social media, let’s call it, a social media platform and those kinds of things, change this thing to this. And they would do it, and then we’d measure, okay, does that make any impact on the monthly active users that come. Or the level of participation, those kinds of things.
That seems to me to be a pretty good basis. It won’t work for everything. It won’t probably work for a chip, but if you could actually do it in certain settings, it was pretty impactful, and I think it helped settle the case pretty early on.
[MATTHEW POWERS]
Absolutely, yeah.
[PATRICIA YOUNG]
I was gonna say, I mean, I think often when you see those instances, it’s ’cause people say, ‘Oh, okay, you can just change the software and it takes, you know, somebody five minutes to program it.’ But I think to Brian’s point, when there are actual more physical changes and whatever, that’s actually, those are the instances where you really do need to think ahead and actually figure out what it would cost to do it because that theoretical hypothetical of, well, how to go actually change this takes a lot of time to work up and. Discovery. And so that’s something that you need to get ahead of in those types of cases.
[KAREN BOYD]
A question back there, Bethany.
[BETHANY]
Yeah, so one of the things that I’ve been thinking about a lot lately, because damages issues become really difficult to kind of figure out what you need to show, what you need to prove, right? And I think for a long time things started shifting towards comparable licenses, because those are the easiest things to ask for in discovery to sort of frame your damages analysis around, but given that’s becoming more and more difficult, and even in cases, I’ve got a lot of cases where there aren’t any licenses at all, or that you can really find. So like, what more creative things can you think of to do in order to set yourself up the best for a damages argument? And one thing just off the top of my head is like, can you do, maybe if you’re a patent owner, like, consumer surveys?
How much would you pay for this feature, this technology? Or something like that, just to have the, you know, as many alternatives as you can. And, you know, as Patricia, I think, was saying just to see, I guess, what creative strategies can you use?
[KAREN BOYD]
The Ron Popeil method of damages. Does anybody–
[MATTHEW POWERS]
Yes.
[KAREN BOYD]
Okay–
[MATTHEW POWERS]
Surveys Have been done forever. I mean, that’s been a useful tool for a long time, depending on the technology, obviously.
[BETHANY]
You don’t see them a lot though in patent damages cases.
[MATTHEW POWERS]
You should see them more.
(all laughing)
[BRIAN NAPPER]
Well, there’s also something called the analytical approach. It doesn’t work for every fact set. But the prior product that wasn’t accused, now the product is accused, what’s the difference in the gross margin and profit associated with that?
Did they both have some success in the marketplace? That’s at least a starting point, then you can chip away at that profit differential. Or if you’re plaintiff, you just take the whole thing. But no, that’s what you, that’s essentially another way, the analytical approach is very well accepted.
And a lot of this surviving Daubert is form over substance. We did this.
We followed this method. You know, you may argue that we didn’t apportion that differential enough or put too much emphasis on that differential, but that’s a fact set for the–
[MIKE HENDERSHOT]
That’s jury–
[BRIAN NAPPER]
Right?
[MIKE HENDERSHOT]
That’s a fact question if you’re debating the scope of what something should, of course, you know. but you’ve got to account for it.
[BRIAN NAPPER]
Yes.
[MIKE HENDERSHOT]
You can’t just wave your hands at it, and account for it in a way that’s tethered to the facts of that case.
[BRIAN NAPPER]
Yeah, exactly.
[PATRICIA YOUNG]
I also think when you do things like regressions and surveys and whatnot, that as long as it follows some sort of methodology, that I think judges will tend to just, you know, let it go to the jury, because it looks analytical.
(all laughing)
[MIKE HENDERSHOT]
It’s right there in the name,
(all laughing)
[PATRICIA YOUNG]
But you know, those are actually all, those are also, like, harder issues for juries to understand. I mean, I get surveys not so much, depending on what’s at issue, ’cause people will just say, “Oh, like, customers like this or don’t like this.”
But some of the analytical approach issues get really in the weeds for juries, and their eyes just glaze over.
[KAREN BOYD]
So, with the focus in some of these cases that have, you know, gone all the way through appeal on, like, the match in the license agreement between the asserted patents that are going to trial, that went to trial, and the licenses that they’re trying to use as comparables. You know, most licenses are, especially if they come out of a settlement license, it’s a portfolio license. There’s a lot more than because of case narrowing, whether judicially enforced case narrowing or the practicalities of you don’t go to trial on an entire portfolio. How do you deal with that tension?
And I will, I’m tempted to ask Brian first, but no, you don’t wanna, you know, no. Okay.
(laughing)
[BRIAN NAPPER]
No, I can. Yeah. But I’m talking, I feel like I’m talking too much, so.
[KAREN BOYD]
I think you’re okay. You’re way more interesting than all these lawyers.
[MIKE HENDERSHOT]
I’m mildly offended, but–
(all laughing)
[KAREN BOYD]
You can talk next, Mike.
(crosstalk)
Yeah.
(laughing)
[BRIAN NAPPER]
No, at the end of the day, it comes back to what we’ve already said, and I think we’re all in agreement. Get ahead of it.
Spell out what those patents are. And some of them are going to be, I’ll call them throwaway patents, that are in those agreements.
And if we could get somebody to, and we have had, done this on a few cases, to basically say that, “This is the core. This is really what’s the contribution.” Not only that, give an example of one of the patents that’s in there. That really has no value added.
But you know what? Guess what? The tech expert may not want to say that, or if it’s your own client, the in-house counsel may want to say, “Wait a minute, you’re saying one of our patents is worthless and has no value whatsoever?
We paid a bunch of money to get a patent.” So it’s all this dynamic between totally in-house counsel looking ahead, saying, “If I say this on this case, is that gonna come back to bite me on this case and down the road?” So, but yes, the short answer is yes.
[KAREN BOYD]
Yeah.
[BRIAN NAPPER]
It would be good to get early on an assessment of what is the contributory patents and what is not. And the same thing happens in SEP.
We do a lot of SEP work. Oh my God, you can’t even imagine what, what’s– what’s this area versus this area versus this area, and which ones are essen– declared essential, which ones are actually essential. It’s a huge amount of work.
[MATTHEW POWERS]
And which ones are really essential?
[BRIAN NAPPER]
And really essential. And there is a third bucket. Thank you, Matt. I’ve, I’ve actually said that.
(laughing)
[PATRICIA YOUNG]
I think one of the things I found actually related to this issue is like nowadays, you know, you have few licenses with such huge portfolios, it’s like, where is the line? Like, at some point, they’re just too big, and you can’t even deal with it, and it’s just not comparable at that point.
‘Cause no one can carve it. No technical expert, no economic expert can sit there and say, “Well, these 6,000 licenses or, you know, agreements or whatever.” And that’s, I think, one of the issues with a lot of the licenses you see these days.
[KAREN BOYD]
All right.
[BRIAN NAPPER]
Well, if I could– I don’t know if you–
[KAREN BOYD]
Okay.
[BRIAN NAPPER]
saw a recent verdict decision. God forbid, I can’t believe this is happening, but that it was okay to basically double the damages or double the amount in the license agreement for the assumption of validity and infringement that’s made at the hypothetical negotiation.
It’s literally a factor of two. And that blows my mind.
They relied upon a so-called, you know, academic article or something like that. I mean, are you kidding? Are we really going back to the 25% rule? I mean, my God, I, I, I just, I, I can’t believe that just happened.
[MATTHEW POWERS]
If that were a stock, I’d short it on appeal.
(all laughing)
[BRIAN NAPPER]
I hope it doesn’t go formulaic, and that’s the problem. There’s nothing really formulaic about this court.
[KAREN BOYD]
But you got to make it look formulaic so that as to Patricia’s point, so that the judge says, “Looks quite analytical.” And you can then put it in front of the jury and you’ve created these facts.
[BRIAN NAPPER]
That’s very true.
[KAREN BOYD]
Created this fact.
[MATTHEW POWERS]
And the reality is, there’s a very large body of economic literature that says how you do this stuff. And as long as you dress yourself up in that and do it right as opposed to, “Well, factor number one sort of goes this direction. Factor number two sort of goes that direction.” Yeah.
Then you should pass Daubert and that– after that, it’s for the jury. It’s a question of doing it in an economically sound way. Yes.
And there’s a lot of ways to do that.
[KAREN BOYD]
So Mike, when, we got uh, a few minutes left, and I had in my, in my notes strategies for avoiding large verdicts. You’re generally speaking, a defense side person. I want to give you a couple minutes to talk about that.
[PATRICIA YOUNG]
Sure. You get rid of the plaintiff’s experts. I guess that’s one of the ways, right?
[MIKE HENDERSHOT]
Yeah. That’s ideal.
[PATRICIA YOUNG]
Yeah.
[MIKE HENDERSHOT]
Um, And there’s not a one recipe for this case ’cause the theories and the technology are so fact-specific. The overarching message I would apply to all of them is get on it early, which I think we’ve sort of beat that horse a fair bit.
Yeah. And identify early in the case what proof are you gonna need. How are you going to get that into evidence? Do I need a percipient witness to testify about a non-infringing alternative?
And do this in conjunction with your damages expert. What do they need? Put the plaintiff to their proof on basic things.
Notice. Are they doing indirect infringement? Marking basic things. You’d be surprised how many cases you can really carve up before you even get to Daubert and the expert.
Um we had a case in Texas where we got 90% of the plaintiff’s damages knocked out, pretrial in summary judgment based on sort of a international sales theory. And that didn’t have anything to do with Daubert or economics or anything or gatekeeping. That was just putting the plaintiff to their proof throughout the case and making a record that made a judge in Texas comfortable granting summary judgment. What evidence do you need?
We had another case where it was an MPE asserting patents that had been licensed from an operating entity, and that operating entity had licensed the patents a number of different times. They happened to be a Korean company. They didn’t provide the license, the a key license that was kind of a centerpiece in the case that really ended up driving settlement when we got it. The MP didn’t have it.
If we didn’t have counterclaims against the original entity, we wouldn’t have got discovery of them to get it. So think about what sources do I, what sources of evidence are out there? Think about that early. Apportionment, I will try not to get up on my soapbox too much here.
Apportionment’s been part of the US patent system for 150 years. It really is a necessary component in how we try as a system to make sure a remedy is and damages awarded are tethered to the value of the patent and the invention. In one case you can say, “Okay, yeah, they got too much here or too much that, too much for that.” That’s debatable within one case, but when you have 20, 50, 100 cases brought against a company’s product asserting patents, you’re beginning to overtax innovators that bring things to market and the patent system isn’t serving its purpose.
So apportionment isn’t some formalistic thing that the Federal Circuit’s come up with recently to try to make people jump through hoops. It is a fundamental component of our system to try to make sure it works for its intended purpose.
And to a point you made on apportionment, I’m not gonna cross you on apportionment. You’re typically gonna rely on something pretty reliable from an economic standpoint.
Your technical expert who doesn’t wanna make comments on things like that. That’s the guy I’m gonna cross. That’s a fun cross.
[BRIAN NAPPER]
Yeah.
[MIKE HENDERSHOT]
‘Cause he’s outside of his comfort zone a little bit. They’re getting more comfortable.
(laughs)
[BRIAN NAPPER]
They are.
(laughs)
They better make it up.
[MIKE HENDERSHOT]
And make your case with both the District Court audience and the appellate audience in mind. Oftentimes you’re gonna have to, given the reasons we’ve discussed, be really raising your damages arguments at the Federal Circuit level.
And then be reasonable. The jury is going to hear a lot of stuff in terms of technology, in terms of economics, surveys, a bunch of stuff that I have trouble understanding some days. If you come in with a number that is, may feel really good to you and you may think that’s just as a defendant, but it’s kind of laughable in the context of the case, you’re gonna lose credibility in front of the jury. You wanna give them a reasonable number that’s principled, that you believe in and can live with.
The a $50,000 design around is not that in most cases we handle these days. And that’s really it.
[KAREN BOYD]
All right. That’s it. That’s all you have to do if you’re on the defense side.
[BRIAN NAPPER]
Easy peasy.
[KAREN BOYD]
I’m gonna, we’re gonna go like 30 seconds over because I wanna give Brian a minute to talk about a trial structure thing that you and I talked, you and Mike And I talked about on the phone. Like when, if you’re a damages expert on the defense side, when do you testify and how do you structure that testimony?
I want you to talk about it for a minute.
[BRIAN NAPPER]
I tried to get this trial next week to do it. I truly believe that if you’re a defendant damages expert, you should be the first witness on the defense side ’cause the last witness on the plaintiff’s side was the plaintiff’s damages expert. So it’s fresh in the minds of the jury.
The jury, I honestly believe understands the economics in damages more than the technical stuff. Which beats my educational level ’cause I do too. So at the end of the day, if you have your defendant damages expert testify first, then you don’t have to, at the end of the case where defendant counsel says, “We don’t infringe. We don’t do anything wrong.”
You know this patent’s a piece of crap.
[KAREN BOYD]
Yeah, yeah, yeah.
[BRIAN NAPPER]
Sorry. Piece of crap is my technical term. But ultimately at the end of the day, you’re not recreating but that plaintiff’s damages expert said this and here’s what they did and here’s why it’s wrong And then here’s our number. No, do it right after they just heard the plaintiff’s damages expert.
Then you’re ending on the case of patent is invalid, it’s not infringed. You’re ending on your strong stuff and I’ve done it twice and both times they dropped the lost profits portion, plaintiff dropped the lost profits portion of their claim.
So I’ve only gotten success twice, but it really is something to consider, and with announcements.
[KAREN BOYD]
I think it’s really interesting defense tactic idea. So I thank you for sharing that and thank you for sharing that with the group. And Shelly, you had one–Yeah?
[SHELLY IRVINE]
Well, I don’t think we have time to talk about it. But apportionment and lost profits. So for me that is a huge issue. ’cause as of right now, you can just get lost profits on the entire product. Even if the patent’s just a small piece. Probably a subject for another day, but–
[BRIAN NAPPER]
Mentor Graphics is the case for that.
[KAREN BOYD]
Mentor Graphics and, and what was it’s a Sunoco or something like that.
[PATRICIA YOUNG]
But you have to properly apply PAN to it for it to get baked in and that doesn’t get done enough. And particularly if you’re going under a market share theory of lost profits where you don’t need to show no acceptable non-infringing alternatives. But that is a topic for another day.
[KAREN BOYD]
Yeah.
[MATTHEW POWERS]
It’s a big one.
[KAREN BOYD]
So headline is, you know, think about damages early and often. It’s complicated fact stuff that you have to develop and you have to use your damages experts from the beginning.
So do that and then everything will be hunky dory And then you can nerd out on all of your non-infringement and invalidity stuff as well. Or infringement and validity stuff, depending on which side of the V you’re usually on And I guess I just told you where I usually am.
Thank you so much to the panel. Thank you to the conference and I think we have a 15-minute break now. Or maybe 14 minute.
(applause)