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Brian Buss - IIPLA Presentation on Patent Damages and Expert Testimony

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Discussion of Patent Damages - The economics of patents and IP including profit apportionment and reasonable royalty analysis.

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Brian Buss - IIPLA Presentation on Patent Damages and Expert Testimony

  1. 1. The Economics of Patent Litigation & Damages October 2017 Brian Buss, CFA Nevium Intellectual Property Solutions www.nevium.com
  2. 2. Trends Damages Challenges
  3. 3. How IP Creates Economic Benefit Monopoly Barrier to entry, exclude others from using Pricing power More volume Greater profit margins Permission Ability to be compensated when others use Value of license (PV of royalties+fees – costs) Value if sold Promotion Signals innovation, uniqueness, source of origin to consumers Additional sales Reduced marketing Incremental margin Litigation Seek damages if others use Litigation award (PV of award less costs) Threat of litigation (force “Monopoly” or “Permission”) Four Possible Avenues for Economic Benefit
  4. 4. The “Value” of Patents & IP Price Sell at a higher price point, increase revenues Volume Sell additional units, increase revenues Cost Reduction Lower expenses, increase profit margins License / Royalty Additional income, net of expenses Promotion Monopoly Litigation Permission Four Ways Patents Can Impact Financial Performance & Value
  5. 5. Returns from Litigation • Net present value of litigation can be less than expected • Expenses still paid if unsuccessful Patent Trends & Economics 2017 PWC Study: • Decline in # of case filings • Median jury damages decreasing • Almost 2.5 years time-to-trial
  6. 6. Trends Damages Challenges
  7. 7. IP Statutes Guidance in Calculating Damages Utility Patent Trademark Copyright 35 USC Section 284 Damages to compensate for the infringement, but in no event less than a reasonable royalty Lanham Act Plaintiff entitled to recover: 1) defendant’s profits; 2) any damages sustained by the plaintiff Design Patent 35 USC Section 289 Liable to the extent of infringers’ total profit (until Apple v. Samsung???) Copyright Act Owner entitled to recover actual damages suffered, and any profits of the infringer attributable to the infringement Trade Secrets State by State and DTSA Owner entitled to recover its actual loss, also any unjust enrichment not compensated by its actual loss; alternatively recover a reasonable royalty Utility Patents v. Design Patents: difference is apportionment For Patents, emphasis on royalty-based damages
  8. 8. No IP is Identical & Most Licenses are Unique Reasonable Royalties Adjusting Comparable Agreements Using Georgia Pacific in 2 Diagrams Sharing Responsibilities Sharing Benefits
  9. 9. Tie the Forecast to the Facts Test for Reasonableness • Market outlook & economic trends • Peer group analysis • Competitive product analysis • Pricing and discounting history • Product life cycle stage Building Benefit Forecasts Lost Profits • Demand for the product exists • Absence of acceptable non-infringing substitutes • Capability to exploit the demand • Amount of profit that would have been made Its all about the Forecasting Test: Panduit Factors
  10. 10. Apportionment IP depends on other assets and resources in order to generate economic benefits Apportionment: Identify the portion of future economic benefits derived from use of the IP Assets
  11. 11. Trends Damages Challenges
  12. 12. Those license agreements that are publicly available are a small % of the universe of patent and technology licenses Thorough can be expensive and burdensome to the Plaintiff Reasonable Royalty Analysis “Noisy” and “Indiscriminate” Economic Terms in License Agreements What’s the Royalty Base? • Upfront payments • Minimum and maximum royalties • Variable royalty rates • Marketing & advertising commitments • Start-up, launch and market entry costs • Inclusion of other assets (trademarks, copyrights, trade secrets, technology, etc.) • Equity rights • Gross or net sales • Performance measure other than revenue • Entire product or service v. smallest salable unit • Impact of competition and substitutes
  13. 13. “Reasonable” depends on perspective Patent Valuation & Lost Profits The Challenges in Forecasting
  14. 14. The Economics of Patent Litigation & Damages In Summary For Patent Owners For Litigators • Value is derived from use • Most patents contribute to financial performance through increased revenue and/or reduced costs • IP creates value in association with other assets and resources • A reasonable royalty calculation is mechanically simple, but often challenging to thoroughly support • Damages calculations involve forecasting and forecasting is inherently uncertain • Don’t underestimate the time and investment required to support a damages calculation
  15. 15. 15 Expert Witness & IP Litigation Support Strategy, Valuation & Monetization Trial Tested Experts whose opinions are accepted in Federal & State courts, US Tax Court, Arbitration and Mediation proceedings Published thought leaders in IP Analysis Damages Calculations and opinions for cases involving: patent infringement, Lanham Act, Copyright Act, trade secret infringement, defamation, tax, business partnership and start-up financing disputes Valuation of IP, proprietary assets and businesses for tax and transfer pricing, financial reporting and strategic planning Strategic IP Advice for boards, executives and investors on IP monetization, optimal pricing, and marketing and branding strategies Due Diligence supporting asset transfer, licensing and brand extension transactions for buyers, sellers, licensors and licensees www.nevium.com 858 255 4361

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