Friday, April 14, 2017

Layne-Farrar on the Entire Market Value Rule/SSPPU

Anne Layne-Farrar has posted a paper on ssrn titled The Patent Damages Gap: An Economist's Review of U.S. Patent Damages Apportionment RulesHere is a link to the article, and here is the abstract:
As an economist, I find the current state of the law regarding damages for patent infringement – most particularly that relating to apportionment – frustrating at best and woefully incomplete at worst. Namely, damages case law for utility patent infringement provides two very different, but insufficient, guidance frameworks for calculating damages: the entire market value rule (EMVR) versus the smallest salable patent practicing unit (SSPPU) principle. The modern pair of EMVR and SSPPU options is far narrower than the approaches afforded by the original 1884 Supreme Court ruling establishing apportionment for damages, Garretson. In this paper, I present the economic case for expanding the allowable damages frameworks beyond EMVR or SSPPU, to fill in the gap in reasonable damages approaches created by an EMVR and SSPPU dichotomy. 
Dr. Layne-Farrar presented this paper at the University of Texas Patent Damages Conference 2 in February, and I found her analysis quite persuasive.  Dr. Layne-Farrar recommends that courts focus on valuing the use of a technology to the implementer, not on trying to pinpoint its location in a particular component; and that courts should permit experts to use as the royalty base the implementer's properly apportioned revenue, without disclosing to the jury the defendant's overall revenues or profits.  As she writes, "The royalty rate would then capture the value of the footprint of the asserted patents as applied to this base, but would not run the risk of capturing any value from the portion of end product revenues not covered by the asserted patents . . . ."  Highly recommended.

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