Partner Bill Lee and Stanford Law Professor Mark Lemley co-authored an article published in Volume 37 of the Harvard Journal of Law & Technology’s in its Spring 2024 edition. The article examines the trend of excessive damages awards in patent cases—the reasons for unreasonable damages awards and how to address this trend. The authors explain that the longstanding principle of apportionment was designed to ensure that patentees recover only the value of what they invented, but courts have been backsliding from apportionment by allowing plaintiffs to rely on “built-in apportionment” and by failing to properly apply Daubert to exclude unreliable apportionment theories. The authors propose to address this by, among other things, recognizing that built-in apportionment is only the beginning of a damages analysis, not an exception that eliminates the need to apportion, and by more reliability enforcing Daubert to exclude unreliable apportionment methodologies.
Excerpt: “The United States patent system is designed to be a balance: in exchange for the inventor disclosing their invention to the public, patentees are granted exclusive rights to that invention for a period of time. This ensures that patentees are adequately compensated for their innovation and society at large benefits from the patent’s disclosure. This balance is now broken. Over recent years, patentees — particularly non-practicing entities — have been permitted to seek and re-cover unreasonable damages that stretch far beyond the value of the technology they invented. This has had serious and negative consequences: excessive patent damages discourage innovation, increase risk and cost of production, and, in turn, increase the cost of products to consumers. Patent law has a solution to this broken balance: apportionment. This principle, which dates back to the nineteenth century, holds that damages must be limited to the value of just the patented invention and cannot capture the value of other features or technology. When applied as intended, apportionment ensures the patent balance — patentees recover the value of what they invented but no more. But therein lies the problem: in recent years, many courts have been back-sliding from the principle of apportionment. First, some courts have permitted plaintiffs to rely on “built-in apportionment” to bypass apportionment entirely. Second, some courts have failed to properly ap-ply Daubert and Federal Rule of Evidence 702 to exclude unreliable apportionment theories, particularly where experts purport to use regressions or conjoint survey analysis. The Federal Circuit and district courts should take action to correct the skewed balance caused by improper application of apportionment law. The Federal Circuit should end the “built-in apportionment” exception to apportionment and district courts should do the hard work at the Daubert stage of ensuring that apportionment is effective and reliable. Inventors, businesses, and the balance upon which the patent system was built depend on it.”
Many thanks to Jordan Hirsch, Harry Hanson, Asher McGuffin, Hannah Santasawatkul, Mark Selwyn, Tim Syrett, and Todd Zubler for contributing to this article.
