Jury trial on reasonable royalty? Courtesy Google Images
Right to jury trial on reasonable royalty damages differs depending on whether suit brought under DTSA or California version of UTSA

The new Defend Trade Secrets Act (DTSA) became law on May 11, 2016 and applies to any misappropriation that occurs on or after that date.

Although the DTSA creates a federal, civil remedy for trade secret misappropriation, it does not preempt state law.  This is going to encourage serious forum shopping, including, among other things, over the right to jury trial.

The federal law cedes to the jury the determination of all possible monetary damages claims.  In comparison, the version of the Uniform Trade Secrets Act (UTSA) adopted by California (CUTSA), while giving the jury the issues of lost profits and unjust enrichment, reserves for the trial judge the determination whether and to what extent to award reasonable royalty damages.
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While the pendulum has clearly swung in favor of limiting recovery of patent infringement damages, most notably in patent cases where non-practicing entities seek reasonable royalty damages, lost profits damages are not among the casualties.

Photo of Judge Alsup in Chambers
Hon. William Alsup: courtesy Google Images

United States District Court Judge William Alsup (ND Cal) is a notoriously hard grader when it comes to determining whether to allow patent infringement damage studies to go to the jury.  He nonetheless allowed expert studies calculating lost profits on the infringer’s sales to go to the jury in his Order in Plantronics v. Aliph, 3:09-cv-1714 (ND Cal).  His analysis confirms that, notwithstanding current trends favoring aggressive judicial gatekeeping over expert damage studies in patent cases, lost profits are recoverable so long as they are supported by an appropriate market reconstruction theory.

Quick note: this post focuses on patent cases between competing operating companies separate and apart from patent cases brought by non-practicing entities (NPEs) sometimes called “trolls.”  While in NPE cases there are compelling policies favoring aggressive use of the entire market value rule and related apportionment rules to limit reasonable royalty damages, these same policies are nowhere near as strong in competitor patent litigation.

At least three highlights of the lost profit rulings in Plantronics:

  • Reasonable royalty apportionment rules don’t apply to lost profits
  • You can use the patent owner’s market share in the reconstructed market to calculate lost profits
  • You can recover lost profits under a market share theory even if there are acceptable, non-infringing substitutes

So let’s break this down.


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Vringo bought Lycos patents on search technology that keys ads to user search queries, then sued Google.  At the recently completed trial, Vringo convinced a Virgina jury to award, see page 11 of its Nov. 6 verdict, a reasonable royalty of 3.5% of that portion of Google’s revenue purportedly connected to the stolen technology, which the jury calculated as $15.8 million.

While the verdict (which to-date has not been entered as the court’s final judgment) might look like it satisfies the increasingly strict limitations against using unduly large revenue bases to calculate reasonable royalty damages, this may not be the case.

Vringo’s damage theory is effectively captured in the following trial exhibit:

Vringo introduced Google documents that supported Vringo’s theory that it’s search technology provided a quantifiable increase in revenue:

This approach appears to comply with the rule that patent royalty damages may be assessed against only the smallest portion of overall revenue attributable to the patented technology.  Vringo assessed what might be considered a small royalty percentage against only a “smaller” portion ($14 billion) of Google’s overall ad revenue.  Yet Vringo was nonetheless able to introduce the OVERALL revenue ($70 billion) to the jury, effectively bringing in entire market value through the back door.  See why after the jump.


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