Estimating Damages Without the Benefit of Expert Testimony

This post is prompted by Bonnie Eslinger's Law360 article, which I came across this morning, titled Sonos’$90M Damages Ask Tossed as Google Jury Gets Case.  The article states that Judge Alsup submitted Sonos’ case against Google to a jury on Friday, but told them “to disregard a $90 million damages estimate from a Sonos expert witness, sending them into deliberations with instructions to calculate any damages themselves based on other evidence in the record.”  I have no basis at this stage for evaluating whether the judge was correct in ruling that Sonos’ expert testimony was inadmissible, much less any prediction as to what the jury will do if it finds for Sonos on liability.  I will note, however, that this is hardly the first time that a U.S. court has concluded that, because expert testimony on damages was inadmissible, a jury may have to use whatever other evidence is in the record to determine the amount of damages.  As I wrote a few years ago in my paper Patent Damages Heuristics, 25 Tex. Intell. Prop. L.J. 159, 180-81 (2017):

Section 284 of the U.S. Patent Act, for example, states that “[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer” (emphasis added).  In Apple, Inc. v. Motorola, Inc.,⁷⁴ the Federal Circuit interpreted the italicized language to mean that, even when the patent owner fails to introduce admissible evidence quantifying the amount of its loss, the court still has an obligation to “determine what constitutes a reasonable royalty from the record evidence”--in effect, creating a rebuttable presumption that the patent owner is entitled to something as a consequence of the infringement.  The rule is consistent with practice in some other countries,⁷⁶ but it provides no guidance on how to calculate the royalty due when the parties' evidence is deficient.  One might imagine, though, that in such cases courts will have to take it upon themselves to apply methodology heuristics akin to those I discuss in a subsequent section below, based on whatever record evidence there may be concerning the amount of the use, comparable license rates, and the advantages of the technology over alternatives. For now, however, this appears to be an area in which U.S. patent damages law remains largely underdeveloped. . . .

 

^/74  757 F.3d 1286 (Fed. Cir. 2014).

 

^/75  Id. at 1328.  Further:

 

. . . if the patentee's proof is weak, the court is free to award a low, perhaps nominal, royalty, as long as that royalty is supported by the record . . . .

 

Thus, a fact finder may award no damages only when the record supports a zero royalty award. For example, in a case completely lacking any evidence on which to base a damages award, the record may well support a zero royalty award. Also, a record could demonstrate that, at the time of infringement, the defendant considered the patent valueless and the patentee would have accepted no payment for the defendant's infringement. Of course, it seems unlikely that a willing licensor and willing licensee would agree to a zero royalty payment in a hypothetical negotiation, where both infringement and validity are assumed.

 

At summary judgment, as is the case here, a judge may only award a zero royalty for infringement if there is no genuine issue of material fact that zero is the only reasonable royalty. Thus, if a patentee raises a factual issue regarding whether it is due any non-zero royalty, summary judgment must be denied. In any event, simply because a patentee fails to show that its royalty estimate is correct does not, by itself, justify awarding a royalty of zero at summary judgment, as the district court did here . . . .

 

Id.

 

^/76  See, e.g., Markus Schönknecht, Determination of Patent Damages in Germany, 43 IIC 309, 311-13 (2012) (discussing the German courts' “free discretion” (nach freier Überzeugung) to estimate patent damages under § 287 of the Code of Civil Procedure); see also Charlotte Scott, Damages Inquiries and Accounts of Profits in the IPEC, 38 E.I.P.R. 273, 273 (2016) (asserting that the procedural rules employed in the Intellectual Property Enterprise Court of England and Wales--a sort of smallish-claims court in which damages are capped at £500,000--“enable a rough and ready determination with more limited disclosure”). According to Schönknecht, in Germany “[t]he injured party is not required to prove the exact amount of its damage; rather, it is sufficient if it presents a factual basis on which the court can establish ‘at least a rough estimate’ of the damage.” Schönknecht, supra, at 312 (citing Federal Supreme Court (Tolbutamid), 1980 GRUR 841, 842, translated in 11 IIC 763, 764 (1980)). Statutory damages, which are (by far) the dominant form of damages award for IP infringement in China, arguably are intended to play a similar role of allowing the court to provide compensation when the evidence on lost profits, royalties, and defendant's profits is lacking, though critics argue that awards of statutory damages are not closely correlated with actual losses or gains. For discussion, see Jingjing Hu, Determining Damages for Patent Infringement in China, 47 IIC 5 (2016).

I also noted in my more recent paper Standing, Nominal Damages, and Nominal Damages “Workarounds” in Intellectual Property Law After TransUnion, 56 UC Davis L. Rev. 1085, 1144_ (2023), that the Federal Circuit has cited Apple v. Motorola

as standing for the proposition that a patentee who puts on no admissible evidence of damages may receive zero damages. In TecSec, Inc. v. Adobe Inc.,²⁴³ the patent owner sued (among other parties) Adobe, for (among other things) direct infringement of certain patents relating to cryptography. . . .  A jury returned a verdict for the plaintiff and awarded $1.75 million in damages, an award the district judge vacated for lack of sufficient evidence. . . .  Rejecting the argument that the statute “require[s] an award of damages greater than zero in all cases where the jury finds infringement” . . . the Federal Circuit affirmed this aspect of the judgment, stating that “The statute does not require an award of damages if none are proven that adequately tie a dollar amount to the infringing acts” . . . and that “there can be an award of no damages where ‘none were proven”’ . .  . .

 

^/243  978 F.3d 1278 (Fed. Cir. 2020).

Again, I’ll state that I have no idea at this point what the correct result is in the Sonos v. Google case, but I will make two observations.  The first is that allowing the trier of fact, whether jury or judge, to assess damages in a complicated patent infringement case without the benefit of expert testimony is far from ideal.  If courts were willing to employ neutral damages experts, that might help (see recent discussion on this blog here), but I don’t see that happening anytime soon in the U.S.  The second, related, observation is that no matter how conscientious a given jury may be, having lay jurors decide matters like this, typically with no explanation as to how they come to any specific amount, is also hardly ideal, though again I don’t see any practical solution to the problem.  In the U.S.,  the practice of employing juries in complex patent cases (a practice that, to my knowledge, even other common-law systems have long since abandoned) is attributable to the Seventh Amendment to the U.S. Constitution (“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law”). And constitutional norms are a prime example of what William MacAskill, in his very interesting book What We Owe the Future (Basic Books 2022), refers to as “value lock-in,” or “early plasticity, later rigidity”--that is, “that it can be much easier to influence the norms, standards and laws surrounding a technology, idea or country when they are still new than later on, when things have settled.”  (There may be plenty of other constitutional-law examples one could cite, including the obstacles the Constitution itself imposes on amending it, as I believe con law scholars Jack Balkin and Sanford Levinson have argued, but I won’t go into those here.)  The best we can do is to tinker at the margins, perhaps in some of the ways I suggest in the above articles (see the Standing article footnotes 165 and 166 in particular), though sometimes I think it’s a bit like trying to fix a leaky boat with adhesive tape.