Surveys in Patent Infringement Litigation: The Next Frontier

Most experienced intellectual property attorneys understand the significant role surveys play in trademark infringement and other Lanham Act cases, but relatively few are likely to have considered the use of such research in patent infringement matters. That could soon change in light of the recent admission of a survey into evidence in Applera Corporation, et al. v. MJ Research, Inc., et al., No. 3:98cv1201 (D. Conn. Aug. 26, 2005). The survey evidence, which showed that 96% of the defendant's customers used its products to perform a patented process, was admitted as evidence in support of a claim of inducement to infringe. The court admitted the survey into evidence over various objections by the defendant, who had argued that the inducement claim could not be proven without the survey.

Although the survey evidence in Applera v. MJ Research was admitted as relevant to a determination of liability, the potential exists for surveys to provide evidence relevant to the determination of damages as well. Surveys could potentially provide relevant evidence on numerous aspects of patent damages assessment. For example, market demand, user preferences for the patented features, and the attractiveness of alternatives are all areas in which surveys could provide useful information in the formation of an expert opinion on patent damages.

Courts have already begun to consider the potential role of such surveys in patent infringement cases. In Advanced Medical Optics, Inc. v. Alcon, Inc. et al., C.A. No. 03-1095 (D. Del. Dec. 16, 2005), the court refused to allow testimony from a medical expert about the preferences of other surgeons because the expert had not conducted a survey about those preferences. In that same matter, the court precluded survey-related testimony because the survey did not ask respondents sufficiently precise questions about the patented feature. The fact that the court both supported the need for a survey to support certain testimony and articulated standards for what would constitute an appropriate or adequate survey indicates that the potential exists for the use of well-constructed surveys to assess damages in patent infringement litigation.

General Admissibility Standards for Surveys

Surveys used in litigation must be conducted in accordance with the case law set forth by the federal circuit of the court in which the case is being tried. Although minor differences exist between the individual circuit courts, the basic standards for the admissibility of surveys are stated in the Reference Manual on Scientific Evidence within the Manual for Complex Litigation, published by the Federal Judicial Center. Although these basic standards have primarily been applied to surveys used in the context of trademark infringement actions, the same or similar standards might arguably be appropriate for the design and execution of surveys applied to matters involving claims of patent infringement. The criteria are as follows:

• The population must be properly chosen and defined;
• The sample chosen must be representative of that population;
• The methodology for gathering data must be established to create accuracy and objectivity, and the appropriate control groups must be instituted;
• The questions must be clear and developed so as to be result neutral, not leading, and not suggestive of any answer;
• The respondents must be allowed to explain the reasons for their answers;
• The survey must be conducted by qualified persons following proper interview procedures;
• The process must be conducted so as to ensure objectivity; and
• The data must be analyzed in accordance with accepted statistical standards.

Key Damages Aspects for Patent Cases

Within the judicial system, patent case law is more 'evolved' than trademark law in that there are more published cases and more decisions setting general standards for assessing damages. However, the use of surveys is more 'evolved' in trademark law than in patent law. Trademark law has recognized the value of surveys for decades, yet patent law is just beginning to accept such surveys as a tool for assisting the trier of fact in determining liability and monetary damages. It appears that surveys may be an overlooked tool in patent litigation.

According to Title 35, '284 of the U.S. Code, a patent holder is entitled to collect 'damages adequate to compensate for an infringement,' but in no event less than a reasonable royalty. When determining the adequate damages, it is necessary to conduct an analysis of what would have occurred within the relevant market had the infringement not occurred. Such an analysis is commonly referred to as a 'but for' test.

In conducting a 'but for' test, a plaintiff typically attempts to determine the level of sales it would have achieved had the defendant not infringed its patents. If the plaintiff is able to meet its burden of proof in that regard, it may be entitled to an award of 'lost profits' equal to the amount of additional profit it would have earned had the defendant not infringed its patents. If the plaintiff is not able to establish a claim for lost profits, then consistent with '284, it is entitled to a reasonable royalty. Typically (although not always) reasonable royalty damages are less than lost profit damages for a given level of infringing sales.

Specific case law exists to guide an expert's analysis and the formation of his or her opinion with respect to either lost profits or reasonable royalty claims. A review of the case law reveals specific considerations for which surveys might be used to provide additional support. The sections that follow discuss the potential role of surveys in assessing lost profit and reasonable royalty damages based on the existing case law.

Surveys to Establish Lost Profits

One of the most common methods for establishing but-for causation of lost profits is to satisfy the elements set forth in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978) ('Panduit'). To prove causation under Panduit, a patentee must prove there was demand for the patented product, there were no suitable non-infringing alternatives, the patentee had the manufacturing and marketing capacity to sell the number of patented products for which it claims lost profits, and the amount of lost profits can be quantified with a reasonable degree of certainty.

Typically, in patent infringement litigation, each of the Panduit criteria are evaluated by experts based on a review of the documents produced by both parties, an evaluation of external third-party research sources, a review of fact and expert testimony provided by supporting witnesses, and/or discussions with other independent experts. In many cases, survey evidence may provide a useful addition to these more common bases. More specifically, based on the facts and circumstances of the particular case, surveys could be used to provide evidence in support of one or more of the Panduit criteria as the examples in Table 1, on show.

[IMGCAP(1)]

Surveys for Reasonable Royalty Determination

In the event that the plaintiff is unable to pass the 'Panduit Test' (either as stated or as modified by subsequent case law) to recover lost profits on all or some portion of the defendant's sales, damages will be determined based on a reasonable royalty. In such an event, it is necessary for a damages expert to determine the reasonable royalty that would be appropriate to compensate the plaintiff for the defendant's infringement of the patent. In the absence of an established royalty, royalty rates in patent infringement matters are often based on the concept of a hypothetical negotiation between a willing licensee and a willing licensor at the time infringement began.

Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), provides a 15-factor framework that experts rely upon to perform such an analysis and to determine a reasonable royalty. The Georgia-Pacific framework is broadly recognized by the courts, and patent damages experts almost invariably give it consideration when forming a reasonable royalty opinion. Although the Georgia Pacific framework outlines 15 factors, Table 2, below, provides examples of four in which surveys might be used. However, the use of surveys is not necessarily limited to these examples.

[IMGCAP(2)]

Conclusion

Although the standards for determining damages in patent infringement cases are reasonably well-established, the specific means of meeting those standards can vary considerably from case to case. In many cases, the use of surveys may provide additional, objective evidence to be considered in combination with sources of evidence historically more-commonly relied on by damages experts. Whether surveys are used to demonstrate or rebut claims of demand based on the patent, user preferences, the presence and influence of non-patented factors, or a host of other aspects of market and consumer behavior, the information they generate could be used to help provide a more robust picture of what would have happened in the relevant market had the infringement not occurred. Because well-constructed surveys may provide such useful information and because the courts have already recognized this utility, it is possible that we will see an expanded use of surveys in patent infringement litigation.

The authors are affiliated with Ocean Tomo, an Intellectual Property Merchant Bank specializing in the monetization of intellectual property assets. Krista Holt is a director heading the firm's Survey practice and leads the firm's Washington, DC, Metro Expert Services practice. Michael Milani is a director in the firm's Chicago Expert Services practice. John Mallonee is an associate who works in the Washington, DC, Metro office.

Most experienced intellectual property attorneys understand the significant role surveys play in trademark infringement and other Lanham Act cases, but relatively few are likely to have considered the use of such research in patent infringement matters. That could soon change in light of the recent admission of a survey into evidence in Applera Corporation, et al. v. MJ Research, Inc., et al., No. 3:98cv1201 (D. Conn. Aug. 26, 2005). The survey evidence, which showed that 96% of the defendant's customers used its products to perform a patented process, was admitted as evidence in support of a claim of inducement to infringe. The court admitted the survey into evidence over various objections by the defendant, who had argued that the inducement claim could not be proven without the survey.

Although the survey evidence in Applera v. MJ Research was admitted as relevant to a determination of liability, the potential exists for surveys to provide evidence relevant to the determination of damages as well. Surveys could potentially provide relevant evidence on numerous aspects of patent damages assessment. For example, market demand, user preferences for the patented features, and the attractiveness of alternatives are all areas in which surveys could provide useful information in the formation of an expert opinion on patent damages.

Courts have already begun to consider the potential role of such surveys in patent infringement cases. In Advanced Medical Optics, Inc. v. Alcon, Inc. et al., C.A. No. 03-1095 (D. Del. Dec. 16, 2005), the court refused to allow testimony from a medical expert about the preferences of other surgeons because the expert had not conducted a survey about those preferences. In that same matter, the court precluded survey-related testimony because the survey did not ask respondents sufficiently precise questions about the patented feature. The fact that the court both supported the need for a survey to support certain testimony and articulated standards for what would constitute an appropriate or adequate survey indicates that the potential exists for the use of well-constructed surveys to assess damages in patent infringement litigation.

General Admissibility Standards for Surveys

Surveys used in litigation must be conducted in accordance with the case law set forth by the federal circuit of the court in which the case is being tried. Although minor differences exist between the individual circuit courts, the basic standards for the admissibility of surveys are stated in the Reference Manual on Scientific Evidence within the Manual for Complex Litigation, published by the Federal Judicial Center. Although these basic standards have primarily been applied to surveys used in the context of trademark infringement actions, the same or similar standards might arguably be appropriate for the design and execution of surveys applied to matters involving claims of patent infringement. The criteria are as follows:

• The population must be properly chosen and defined;
• The sample chosen must be representative of that population;
• The methodology for gathering data must be established to create accuracy and objectivity, and the appropriate control groups must be instituted;
• The questions must be clear and developed so as to be result neutral, not leading, and not suggestive of any answer;
• The respondents must be allowed to explain the reasons for their answers;
• The survey must be conducted by qualified persons following proper interview procedures;
• The process must be conducted so as to ensure objectivity; and
• The data must be analyzed in accordance with accepted statistical standards.

Key Damages Aspects for Patent Cases

Within the judicial system, patent case law is more 'evolved' than trademark law in that there are more published cases and more decisions setting general standards for assessing damages. However, the use of surveys is more 'evolved' in trademark law than in patent law. Trademark law has recognized the value of surveys for decades, yet patent law is just beginning to accept such surveys as a tool for assisting the trier of fact in determining liability and monetary damages. It appears that surveys may be an overlooked tool in patent litigation.

According to Title 35, '284 of the U.S. Code, a patent holder is entitled to collect 'damages adequate to compensate for an infringement,' but in no event less than a reasonable royalty. When determining the adequate damages, it is necessary to conduct an analysis of what would have occurred within the relevant market had the infringement not occurred. Such an analysis is commonly referred to as a 'but for' test.

In conducting a 'but for' test, a plaintiff typically attempts to determine the level of sales it would have achieved had the defendant not infringed its patents. If the plaintiff is able to meet its burden of proof in that regard, it may be entitled to an award of 'lost profits' equal to the amount of additional profit it would have earned had the defendant not infringed its patents. If the plaintiff is not able to establish a claim for lost profits, then consistent with '284, it is entitled to a reasonable royalty. Typically (although not always) reasonable royalty damages are less than lost profit damages for a given level of infringing sales.

Specific case law exists to guide an expert's analysis and the formation of his or her opinion with respect to either lost profits or reasonable royalty claims. A review of the case law reveals specific considerations for which surveys might be used to provide additional support. The sections that follow discuss the potential role of surveys in assessing lost profit and reasonable royalty damages based on the existing case law.

Surveys to Establish Lost Profits

One of the most common methods for establishing but-for causation of lost profits is to satisfy the elements set forth in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc. , 575 F.2d 1152 (6th Cir. 1978) (' Panduit '). To prove causation under Panduit, a patentee must prove there was demand for the patented product, there were no suitable non-infringing alternatives, the patentee had the manufacturing and marketing capacity to sell the number of patented products for which it claims lost profits, and the amount of lost profits can be quantified with a reasonable degree of certainty.

Typically, in patent infringement litigation, each of the Panduit criteria are evaluated by experts based on a review of the documents produced by both parties, an evaluation of external third-party research sources, a review of fact and expert testimony provided by supporting witnesses, and/or discussions with other independent experts. In many cases, survey evidence may provide a useful addition to these more common bases. More specifically, based on the facts and circumstances of the particular case, surveys could be used to provide evidence in support of one or more of the Panduit criteria as the examples in Table 1, on show.

[IMGCAP(1)]

Surveys for Reasonable Royalty Determination

In the event that the plaintiff is unable to pass the 'Panduit Test' (either as stated or as modified by subsequent case law) to recover lost profits on all or some portion of the defendant's sales, damages will be determined based on a reasonable royalty. In such an event, it is necessary for a damages expert to determine the reasonable royalty that would be appropriate to compensate the plaintiff for the defendant's infringement of the patent. In the absence of an established royalty, royalty rates in patent infringement matters are often based on the concept of a hypothetical negotiation between a willing licensee and a willing licensor at the time infringement began.

Georgia-Pacific Corp. v. United States Plywood Corp. , 318 F. Supp. 1116 (S.D.N.Y. 1970), provides a 15-factor framework that experts rely upon to perform such an analysis and to determine a reasonable royalty. The Georgia-Pacific framework is broadly recognized by the courts, and patent damages experts almost invariably give it consideration when forming a reasonable royalty opinion. Although the Georgia Pacific framework outlines 15 factors, Table 2, below, provides examples of four in which surveys might be used. However, the use of surveys is not necessarily limited to these examples.

[IMGCAP(2)]

Conclusion

Although the standards for determining damages in patent infringement cases are reasonably well-established, the specific means of meeting those standards can vary considerably from case to case. In many cases, the use of surveys may provide additional, objective evidence to be considered in combination with sources of evidence historically more-commonly relied on by damages experts. Whether surveys are used to demonstrate or rebut claims of demand based on the patent, user preferences, the presence and influence of non-patented factors, or a host of other aspects of market and consumer behavior, the information they generate could be used to help provide a more robust picture of what would have happened in the relevant market had the infringement not occurred. Because well-constructed surveys may provide such useful information and because the courts have already recognized this utility, it is possible that we will see an expanded use of surveys in patent infringement litigation.

The authors are affiliated with Ocean Tomo, an Intellectual Property Merchant Bank specializing in the monetization of intellectual property assets. Krista Holt is a director heading the firm's Survey practice and leads the firm's Washington, DC, Metro Expert Services practice. Michael Milani is a director in the firm's Chicago Expert Services practice. John Mallonee is an associate who works in the Washington, DC, Metro office.