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Entire Market Value Rule Strikes Again in WDTX

On January 3, 2022, Magistrate Judge Susan Hightower granted a defendant’s motion to exclude an expert’s damages theory for violating the entire market value rule, reminding plaintiffs everywhere to use caution when applying the sales of an entire product as a royalty base.

In Via Vadis, LLC et al. v. Amazon.com, Inc., 1:14-cv-813, Dkt. No. 230 (W.D. Tex. Jan. 3, 2022), Via Vadis, LLC (“Via”) alleged that Amazon.com, Inc. (“Amazon”) directly and indirectly infringed Via’s patent for data access and management systems based on Amazon’s use of the BitTorrent protocol in its S3 cloud storage product. Amazon argued that the correct royalty base is the revenue generated by the BitTorrent interface alone, totaling $250,000. While the Court stated that the excerpts in the record do not indicate what Via’s royalty base was, Via’s damages expert began the royalty calculation with the total revenue generated by Amazon’s S3 cloud storage product, $22 billion, and then apportioned the value of the BitTorrent protocol to S3, concluding that the value was in excess of $30 million.

Judge Hightower granted Amazon’s motion to exclude Via’s expert’s damages calculations despite Via’s absence of a stated royalty base, stating that “the entire market rule is implicated by starting the royalty calculation with total S3 revenues – notwithstanding subsequent apportionment – rather than the market value for the BitTorrent service.”

In any patent infringement case, successful plaintiffs are entitled to at least reasonable royalty damages attributable to the infringing use of an invention. A patentee seeking such a royalty must only pursue damages attributable to the infringing features of the accused product, and not the entire value of the product. When multi-component products are at issue, such as Amazon’s S3 platform, the entire market value rule requires that the combination of royalty base and royalty rate reflect only the value attributable to the infringing feature of the product and no more, unless it can be proven that the patented feature creates the basis for customer demand or substantially creates the value of the component parts. In granting the motion to exclude Via’s royalty calculation, Judge Hightower concluded that Via’s “single sentence concerning ‘the importance of price’ to Amazon’s S3 customers falls far short of meeting its burden to establish that BitTorrent ‘was the sole driver of consumer demand’ for Amazon’s entire cloud storage service.” According to the Court, without such evidence it was improper for Via to use S3’s entire revenue as a royalty base.

Relying on the Federal Circuit’s holding in LaserDynamics, Inc. v Quanta Computing, Inc., Judge Hightower found that such a starting point violated the entire market value rule because “disclosure of . . . complete product [revenue] rather than the patented component only,” without demonstrating a correlation to the value of the patented feature alone, can “artificially inflate the jury’s damages calculation,” and result in a damages award that exceeds the amount adequate to compensate Via for infringement. The Court therefore ruled that the damages theory was unreliable and irrelevant since the accused feature, the BitTorrent interface, generated less than $250,000 of the $22 billion in revenue attributable to S3.

This ruling provides an important reminder to patentees seeking to recover reasonable royalty damages, namely in the absence of revenue data specifically attributable to the infringing feature of a product, patentees must provide strong evidence to prove the infringing feature drives consumer demand to the larger product and, when apportioning total revenue of a component product, state and provide evidence for the royalty base.  Without such evidence, patentees may be left with a favorable judgment but a wanting damages figure.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XII, Number 19
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About this Author

Brad Scheller Patent Litigation Attorney Mintz Law Firm
Member

Brad Scheller is a trial attorney who focuses his patent litigation practice on representing clients in the automotive devices, thermoplastics, electronic components and consumer products industries in federal district court, before the Patent Trial and Appeal Board and at the International Trade Commission. With a background in mechanical engineering and over 14 years of experience practicing law, Brad has successfully represented patent owners in enforcing their rights against infringers and protecting those rights from challenges of invalidity, and has also successfully defended and...

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Marguerite McConihe Intellectual Property & Litigation Attorney Mintz Law Firm
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Marguerite is a seasoned litigator and intellectual property transactional attorney who counsels clients in maximizing the value of their intellectual property and technology assets, including trade secrets, patents, copyrights, and trademarks.  She has an emphasis on representing technology companies, particularly in the hardware, software, internet, semiconductor, biotechnology, and medical device industries. Representative matters include: licensing transactions, acquisitions and divestitures, collaborations, joint ventures, strategic alliances and arrangements in...

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Associate

Robert is a patent litigator with experience handling cases before the International Trade Commission (ITC), federal district courts, and the Patent Trial and Appeal Board (PTAB). He has been a key member of litigation teams in cases involving semiconductors, software, and other high technology innovations, and also has experience working in the life sciences industry. Robert drafts pleadings, motions, and other court filings, and conducts legal research and reviews patent claim sets and claim enforceability. He also assists with US and international patent due diligence.

While...

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