The “entire market value” rule in patent damages allows for the recovery of patent infringement damages based on the value of the entire product that contains an infringing component (when the patent-related feature is the basis for consumer demand).
The recent Court of Appeals for the Federal Circuit (“CAFC”) ruling dealt with this rule in relation to a new trial ordered on infringement damages , among other issues, in the Uniloc v. Microsoft case.
Uniloc’s damages expert applied the rule as a “reality check” for his crude application of the 25% rule (see our previous post regarding this error). To do this, he related his conclusion of nearly$565 million in royalties to his estimate of $19.28 billion of MS Office and Windows sales, finding a ratio of 2.9% and claiming it as a reasonable royalty for the Plaintiff’s software registration patent (US 5,490,216).
As the ruling notes, it is undisputed that the algorithm that enables the product activation process is in any way a basis for consumer demand. This rule, without support related to evidence or analysis of consumer-driven demand for Word, Office or Windows products in this case is ‘patently’ inapplicable. Its use as a purported “reasonableness check” on damages was improper and the appeals court will not allow it in the new trial it has ordered.
This increased scrutiny of the application of the Entire Market Value Rule clearly indicates that rigorous, fact-based analyses are required to adequately support patent infringement damages expert witness testimony. As intellectual property consultants, we are gratified to see the bar for expert witness work raised by the CAFC.
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