Apportionment Must Reflect No More than Invention’s Incremental Value
The US Court of Appeals for the Federal Circuit reinforced its guidance on infringement damages, remanding in part a jury’s award for further consideration of the proper apportionment. Finjan, Inc. v. Blue Coat Systems, Inc., Case No. 16-2520 (Fed. Cir., Jan. 10, 2018) (Dyk, J).
Finjan sued Blue Coat Systems for infringing four malware identification and protection patents. A jury found that Blue Coat infringed the patents, and awarded $39.5 million in reasonable royalty damages. Blue Coat appealed.
The Federal Circuit affirmed the jury’s infringement finding for two of the three patents appealed, but concluded that Blue Coat was entitled to judgment as a matter of law of non-infringement for the third patent.
As for the damages award, Blue Coat argued that Finjan failed to appropriately apportion damages to the infringing functionality in the accused products when calculating the royalty base for the damages award for one of the asserted patents. Apportionment is required when the accused technology makes up only part of the accused product, since the ultimate combination of royalty base and royalty rate must reflect the value attributable to the infringing features of the product, and no more.
The Federal Circuit agreed with Blue Coat, finding that Finjan did not satisfy its burden of proving damages by a preponderance of the evidence for one of the patents. The Court found that despite establishing a royalty base from the “smallest, identifiable technical component,” Finjan missed the essential requirement that the ultimate reasonable royalty award must be based on the incremental value that the patented invention adds to the end product. The Court remanded to the district court for consideration of apportionment, whether Finjan waived the right to establish reasonable royalty damages under a new theory, and whether to order a new trial on damages as appropriate.