Published: 8/30/12
LaserDynamics accused Quanta, a laptop computer manufacturer, of infringing a patent that read on a method for identifying the type of disc inserted into an optical drive. A jury found for LaserDynamics, who claimed that a reasonable royalty should be 2% of the price of the entire notebook computer containing the drive, and awarded $52.1 million in damages. After a new trial, a subsequent jury awarded LaserDynamics $8.5 million in damages, and LaserDynamics appealed to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit affirmed the grant of a new trial, concluding that “[w]here small elements of multi-component products are accused of infringement, calculating a royalty on the entire product carries a considerable risk that the patentee will be improperly compensated for non-infringing components of that product.” It held that “in any case involving multi-component products, patentees may not calculate damages based on sales of the entire product, as opposed to the smallest salable patent-practicing unit, without showing that the demand for the entire product is attributable to the patented feature.” The court clarified that the “entire market value” bar is a high one, stating that “[i]t is not enough to merely show that the disc discrimination method is viewed as valuable, important, or even essential to the use of the laptop computer. Nor is it enough to show that a laptop computer without an [optical disc drive] practicing the disc discrimination method would be commercially unviable. Were this sufficient, a plethora of features of a laptop computer could be deemed to drive demand for the entire product. To name a few, a high resolution screen, responsive keyboard, fast wireless network receiver, and extended-life battery are all in a sense important or essential features to a laptop computer; take away one of these features and consumers are unlikely to select such a laptop computer in the marketplace. But proof that consumers would not want a laptop computer without such features is not tantamount to proof that any one of those features alone drives the market for laptop computers. Put another way, if given a choice between two otherwise equivalent laptop computers, only one of which practices optical disc discrimination, proof that consumers would choose the laptop computer having the disc discrimination functionality says nothing as to whether the presence of that functionality is what motivates consumers to buy a laptop computer in the first place. It is this latter and higher degree of proof that must exist to support an entire market value rule theory.” Although the case did not deal with standard essential patents (SEPs), the royalty apportionment principles established by the appellate decision apply to SEPs and non-SEPs alike.