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Speaking volumes
Reviewed by Howard J. Susser
Changing the focus of the patent damages case
Winning the Patent Damages Case: A Litigator's Guide to Economic Models and Other Damage Strategies
By Richard F. Cauley
Oxford University Press
2008, 184 pages, $185.00
ISBN13: 9780195366938

In most patent infringement cases, far too little attention is paid to the esoteric damages issues, and their economic theory underpinnings, according to veteran litigator Richard F. Cauley, Esq. He contends that patent owners, and especially accused infringers, should develop and put forward more rigorous presentations in order to win the patent damages case.

In general, from a defendant's perspective, a damages "win" can mean liability was found, but damages were low. However, in patent cases, successful patent owners ordinarily obtain injunctive relief against a liable infringer, potentially putting the defendant out of business, or out of a product line, and monetary damages such as lost profits can be devastating notwithstanding a strong damages defense. Thus, for many alleged infringers, fighting liability may be viewed as the overriding issue. In such cases, spending more resources and time on damages may fly in the face of conventional wisdom that downplays damages issues for fear of dignifying the potential for liability in the eyes of one's adversary and the jury; a corollary of which holds that juries finding for plaintiffs on liability tend to go with plaintiffs on damages, too. There are, however, increasingly more cases where injunctive relief is not an issue in view of the Supreme Court's decision in eBay v. MercExchange. Prior to eBay, injunctions were nearly automatic in all cases. Now, a court will award a prospective compulsory license where, for example, plaintiff is not practicing under the patent or does not compete with the defendant. In such cases, a defendant winning the patent damages case could mean obtaining a low royalty rate for past and future sales, which would justify putting more emphasis on the damages issues, as Mr. Cauley advises.

Not to suggest that Winning the Patent Damages Case is a guide for defendant counsel alone; hardly. It provides at every step analysis and advice in equal measure for both sides to advance the damages case. Plaintiff's counsel wishing to maximize recovery will surely benefit from Mr. Cauley's clear and concise guidance. He proficiently delivers sound advice on obtaining appropriate discovery, working with experts, and a thoughtful explanation of the rationales and theories behind patent damages proofs, which, he thematically posits, an effective advocate must grasp.

The brass ring for a patent plaintiff is to prove lost profits, which first requires proof of lost sales (i.e., "but for" the defendant's infringing sales, the patent owner would have made such sales, or some market share thereof). However, what customers would have done can be hard to prove in crowded fields, and disgorgement of the infringer's profits is not a remedy available to patent owners. What is left for patent plaintiffs as to infringements for which it cannot prove lost profits is the statutory floor alternative measure of damages known as the "reasonable royalty."

The reasonable royalty inquiry requires the trier of fact to imagine a hypothetical arm's-length transaction between a willing plaintiff licensor and a willing defendant licensee, at the time infringement began. For at least the last several decades, nearly every single patent damages case involves application of the 15 enumerated Georgia-Pacific factors, which bear on the issue of what would have been a reasonable royalty coming out of that fictional meeting. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970).

The book is presented in two halves; the first treats the Georgia-Pacific factors, honing in on the key issues to be proven and how their applications tend to raise or lower that royalty rate figure. This is the most useful part of the book, as Mr. Cauley provides not just the how, but the why, underlying each of the key factors, explaining for each how to use discovery and experts to press each factor in one's favor. Mr. Cauley smoothly mixes in fictional simplified cases, as well as actual reported patent cases, to exemplify the application of the principles he explains.

The second half addresses the lost profits case, including the related topic of price erosion (i.e., in the but-for world sans infringers the patent owners' prices, and profits, would have been higher). Here, Mr. Cauley quite aptly focuses on the causation issues that often occupy the most attention: whether there were noninfringing alternatives for the customer, assuming the infringer was not in the market (if so, this dashes the causation inference that the patent owner would have made such sales), and whether these alternatives were available and acceptable to the customer in lieu of the infringing article. Again, he does so with informative fictional and actual case examples.

Advice about handling experts plays a big part in the book, and rightly so as it is practically a requirement to use experts to opine on the hypothetical but-for world contemplated in a patent damages case. Owing to this, there is a rich industry of experts (in both senses) familiar with the federal rules of engagement, the patent law issues and precedent, and the types of discovery needed. Indeed, veteran patent damages experts are often well versed in the economic modeling and tactical options discussed in this book.

The 100-plus-year-old age of boutique-only patent litigation is over. Now, litigators with wide experience in antitrust, products liability, and other complex torts regularly conduct patent litigation with great success. The book acknowledges that the patent damages paradigm may be somewhat unique, however, and even counterintuitive in some ways. Accordingly, for a litigator without a significant number of patent damages cases under his/her belt, this short book really packs a punch—far more than a mere introduction to the field. It efficiently treats most of the issues arising in a patent damages case, the underlying theories behind the proofs, and how to establish such proofs. Armed with this book, familiarity with the precedent discussed in it, and an experienced expert, a litigator is well equipped to win a patent damages case.
Susser is a partner at Burns & Levinson LLP in Boston. His e-mail is hsusser@burnslev.com.

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