Published: 9/27/14
Plaintiff VirnetX claimed that both the FaceTime and VPN on Demand features of Apple’s phones, tablets, and computers infringed four of its patents. At trial, VirnetX cited three possible damages theories, including one based on 1% of the lowest sale price of each of Apple’s allegedly infringing devices. The jury awarded $368 million in damages to VirnetX, and Apple appealed to the U.S. Court of Appeals for the Federal Circuit, which has exclusive appellate jurisdiction over patent litigation. The Federal Circuit held that, for complex products with multiple components, identifying the smallest saleable unit may not be the end of the royalty base analysis. Rather, a reasonable royalty may have to be further apportioned into subcomponents when a component itself incorporates multiple valuable features that are unrelated to the patent in suit. The court held that “[w]here the smallest salable unit is, in fact, a multi-component product containing several non-infringing features with no relation to the patented feature . . ., the patentee must do more to estimate what portion of the value of that product is attributable to the patented technology.” In other words, the royalty base may need to be smaller than the smallest salable unit to ensure that the patent owner does not receive compensation for unpatented features. 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.