Holding: Expert damages testimony based on a comparable license must reliably apportion value to the asserted patent to be admissible in a hypothetical negotiation analysis. If the patent owner fails to present sufficient evidence to support a damages award, an award of nominal damages is justified.
Rex sued Intuitive for infringement of US Patent No. 9,439,650 and US Patent No. 10,136,892, both of which are directed to a surgical stapler. After Intuitive filed an IPR petition challenging the claims of the ‘892 patent, Rex agreed to dismiss the claims of infringement of the ‘892 Patent. However, at trial, a jury found Intuitive to have infringed claim 6 of the ‘650 Patent and awarded Rex $10 million in damages. After post-trial motions, the district court reduced the damages award to a nominal amount of $1 for Intuitive’s infringement.
Rex’s damages expert, Mr. Kidder, used a hypothetical negotiation to come to the conclusion that Intuitive would have paid a lump sum payment of $20 million for a license to the ‘650 Patent. Mr. Kidder based his analysis on what he considered to be a comparable license between Rex and Covidien in which Covidien agreed to pay $10 million. This license resulted from an unrelated litigation in which Rex alleged that Covidien infringed the ‘650 Patent and the ‘892 Patent. In that case, Rex dropped the allegations of infringement of the ‘650 Patent before the settlement was reached. The licensing agreement with Covidien covered Rex’s entire portfolio of surgical stapling patents, including 10 United States patents, 7 United States patent applications, and 19 foreign patents and patent applications.
A few days before trial, the district court granted Intuitive’s motion to preclude Mr. Kidder’s testimony. The district court found that Mr. Kidder failed to adequately apportion the value of the ‘650 Patent in the $10 million license with Covidien, and therefore, his testimony was unreliable. Instead, Rex’s president, Mr. Carter testified at trial. The jury found infringement and awarded Rex $10 million in damages. After trial, the district court granted Intuitive’s motion for judgment as a matter of law finding that Rex failed to prove its damages case and reduced the damages award to nominal damages of $1.
The Federal Circuit upheld the district court’s decision to exclude the expert testimony of Mr. Kidder and the reduction of damages to $1. The Federal Circuit cited from the recent Ecofactor case, stating that the trial judge must play a gatekeeping role to ensure that scientific testimony or evidence is both relevant and reliable. The hypothetical negotiation approach allows for the use of comparable license to prove a reasonable royalty. However, when using this approach, the expert must account for differences in technology and economic circumstances of the parties entering the license. When a comparable license includes a whole patent portfolio, expert testimony should be excluded if it does not allocate the licensing fees between the patents included in the comparable license.
In this case, Mr. Kidder failed to appropriately address the extent to which the patents and applications other than ’650 Patent contributed to the lump sum payment made by Covidien in the comparable license. Instead, Mr. Kidder opined that the fact that Rex only asserted the ‘650 Patent and the ‘892 Patent against both Covidien and Intuitive suggests that those two patents were most valuable to the parties. Therefore, the additional value of the other patents and applications likely amounted to little or no value to Covidien. The Federal Circuit found this analysis to be insufficient. Mr. Kidder did not allocate value between the ‘650 Patent and the ‘892 Patent and did not provide any analysis of the 19 foreign patent properties included in the Covidien license. This failure to allocate licensing fees from the comparable license makes Mr. Kidder’s testimony unreliable.
As for the reduction of the damages award, the Federal Circuit interpreted the reduction to $1 as a grant of JMOL of no damages and not a remittitur. If the district court had merely reduced the damages by remittitur, Rex would have the option of a new trial on damages. However, by treating the nominal $1 award as a grant of JMOL of no damages, Rex is not entitled to a new trial.
Rex argued that a license to the ‘650 Patent would have some value, so the district court’s grant of JMOL of no damages does not constitute a reasonable royalty. However, 35 U.S.C. § 284 does not require an award of damages if damages are not adequately proven. There must be at least enough evidence to allow the jury to decide on a reasonable royalty. Rex’s damages testimony at trial did not meet this standard. The trial testimony of Mr. Carter did not allocate value between the ‘650 Patent and the ‘892 Patent, which had already been dismissed from the case. Mr. Carter also testified that he was unsure of a reasonable royalty rate for the ‘650 Patent and could not assign an actual value to the ‘650 Patent. Damages cannot rest on speculation, and Rex failed to present sufficient evidence for the jury to determine a reasonable royalty without resorting to guesswork.
Federal Circuit Precedential 
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