The damage caused by a patent infringement is usually difficult to prove. It is therefore also accepted in the USA to assume a hypothetical license negotiation (license analogy). This raises two important questions: How is the added value caused by the invention to be determined? To what is the license rate related? The CAFC ruling in Exmark v. Briggs & Stratton provides answers.

Exmark manufacturing Company was the owner of Patents US 5,987,863 “Lawn Mower having Flow Control Baffles and removable Mulching Baffles”. Claim 1 related to a “multiblade lawn mower” which differed from the prior art by a particular shape of the flow control baffle of the lateral discharge channel.

Based on this patent, Exmark filed a lawsuit against Briggs & Stratton Power Products Group LLC for patent infringement. The Nebraska Disctrict Court ordered Briggs to pay over 48 million dollars in damages. In doing so, it relied on an expert opinion that applied a license rate of 5% to the lawn mowers sold and arrived at an analogous license amount of around 24 million US dollars. Due to “willful infringement”, the court doubled the amount to 48 million US dollars.

Briggs appealed against this judgment and demanded, among other things, a new trial to determine the amount of damages. First, it was improper to use the entire lawn mower as the basis of the license area because the improvement was only in one part, namely the flow baffle of the discharge. Secondly, the expert had not justified the license rate of 5%. And thirdly, certain patent specifications were excluded as evidence when assessing the value of the improvement.

The Court of Appeals for the Federal Circuit (CAFC) upholds the appeal in part. It says the following about Briggs’ three objections:

To the first objection:

In principle, an appropriate License must be based on the additional value that the invention adds to the product sold. However, this does not mean that the value share can only be allocated via the license basis. It is established jurisprudence that the proportionate Value Enhancement can also be taken into account via an adjusted license rate.

In the present case, it makes perfect sense to use the lawn mower as a whole as the license basis. For one thing, the claim is directed to a lawn mower and not just the flow baffle. Secondly, in real licensing negotiations, the royalty rate is typically based on the commercialized product and not just a component, especially if the improved component has no recognized commercial value.

The second objection:

With regard to the 5% license rate, the CAFC notes that although the expert uses various criteria from jurisprudence (the so-called Georgia Pacific Factors), he has not created a direct link between the criteria used and the 5%. The 5% seems to have been “pulled out of thin air”. It is not enough to discuss which Georgia Pacific factors could be applied. One must also justify what effect they have in the specific case and how they influence the calculated license rate. However, mathematical precision is not required.

The third objection:

Briggs sought to use patent specifications for which there was no commercial product to show that Exmark’s claimed advantages of the invention over the prior art were not as great as Exmark claimed. The District Court, however, did not admit these patent specifications into evidence because they were not within the meaning of Georgia Pacific Factor No. 9, which states that “prior embodiments that have been used to achieve similar results” must be considered.

The CAFC disagrees with the District Court. The Georgia Pacific factor No. 9 in question is not to be interpreted to mean that only commercialized products can serve as a comparison. Moreover, there are ways other than the Georgia Pacific factors to determine the value of the inventive improvement. It is therefore incorrect to reject a principled exclusion of certain evidence from the Georgia Pacific factors.

A new process must therefore be carried out to determine the amount of damage.

Note: This judgment shows that when formulating the claims, care should be taken not only to claim individual parts central to the invention, but also the end product in which the individual parts according to the invention are used. This ensures that, in the event of a dispute, at least the formal basis has been created so that the end product can be used as the basis for the license calculation.

Source: www.cafc.uscourts.gov/node/22840