Apple v. Motorola: Analyzing Judge Posner’s Decision

The recent decision by Judge Richard Posner in Apple v. Motorola (No. 1:11-cv-08540 )(N.D. IL., June 22, 2012) will likely be instructive for the parties in the Apple v. Samsung litigation in San Jose, California. See Apple, Samsung patent trial starts with jury selection.  Judge Posner of the U.S. Court of Appeals for the Seventh Circuit (and a law professor at the University of Chicago) issued this ruling after deciding to take a stint as a trial judge so he could preside over this case.  His Honor’s decision places a huge burden on patent owners to support the pedigree of their asserted patents.

J. Posner highlights that the complexity of private and public sector patent events limits an “objective” assessment of patent value by judges or juries.  What J. Posner demands is clarity derived from objective evidence. Parties must identify objective comprehensive damages evidence and provide a clear syllogism to arrive at a damages position.  Where attained, he also suggests that the sophistication of worldwide brands as litigants can enable negotiated resolution.

While this is just one circuit court opinion, J. Posner is a well-respected jurist.  He is in part reacting to an industry in need of clarity and quality in order to support innovation.  He also is a founder of a school of thought that views an understanding of legal problems ideally through the lens of economics.

One clear message is that damages evidence must derive from objective sources and one example is not enough.  In this case, the damages cases involved evaluating computer hardware chips for smartphones that would have avoided infringing the asserted patents.  J. Posner objected to damages evidence, for example, where one expert, “…obtained the essential information… from an agent of the party rather than from a disinterested source,” while another expert “…did not identify the chip, let alone price it, let alone suggest that he had searched across all (or at least many, or some or even a few) of the chips…”  J. Posner suggests that an expert must be “someone who is involved more in a financial part of the company or the selling part, the marketing, the procurement [part].” J. Posner found that the evidentiary base of identification of chips and cost data needed to be more extensive and therefore found that a base damages case was not presented.  As a result, the case was dismissed with prejudice for both sides.

Even though the court did not reach an analysis of reasonable royalties, J. Posner provided commentary on the “Georgia-Pacific factors” in a case commonly cited for this issue – Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970).  After a recitation of the 15 factors, J. Posner provides: “This is a formidable list.  The ‘some’ in the second sentence [the following are some of the factors…] is particularly rich – how many additional factors may be lurking somewhere?  And could a judge or a jury really balance 15 or more factors and come up with anything resembling an objective assessment?”  J. Posner in dicta reached beyond the evidentiary base at issue and questions this historic foundation of damages analysis.

J. Posner also brought the value of the patents declared to be essential under standards bodies to bear on the damages question.  Essential patents must be evaluated for absolute value and relative value to the full-declared portfolio.  These values are needed where a non-linear function is proposed for a royalty determination based on infringement of a subset of the declared patents.  The difficulty presented by an assertion of a single essential patent from a much larger portfolio is “that if [the potential licensee] had wanted to license any of the patents in [the standard’s essential portfolio], the license fee would have exceeded the product of the percentage of the portfolio represented by the patent and the value of the entire portfolio.”  Objective data to present a non-linear function was needed, and even where presented, the notion of a FRAND royalty applied to “confine the patentee’s royalty demand to the value conferred by the patent itself as distinct from the additional value – the hold-up value – conferred by the patent’s being designated as standards essential.”

J. Posner does not contend that damages cannot be proven, but rather that the evidentiary base in this case was insufficient to create a triable issue. This article focuses on the damages evidence sufficiency in J. Posner’s opinion.  The opinion is rich in other areas as well, including injunctive relief, FTC input on FRAND activities including that no injunctive relief should be allowed for patents covered by FRAND, a rejection of market share and good will arguments, loss of goodwill, as well as reasonable royalties being an insufficient damages basis, as the case for a reasonable royalty did not present a triable issue.  Nevertheless, J. Posner interpreted the market share and goodwill positions as a “popularity contest” about which he declined to entertain legal argument.

With access across objective data sources, Article One can be an excellent resource for identifying comprehensive data on each of these issues.  The Community traditionally is tapped for publications that bear on validity, and this data is applicable to the absolute and relative values for essential patents.  Increasingly, our clients also are reaching out to us on the question of damages.

For example, the Community can be tapped for objective data on declared patents in the LTE standards to provide evidence including market and product data and publications about the absolute and relative strength of the patented technology. This evidence will enable the client to assess the royalty position for the patents.  Examples to present to the Community for research are requests for publications, which bear on the following:

(a)   use of the technology in the current market,

(b)   where the technology is not in current use, historic development and use, and the contribution to the current technology,

(c)   market or product data or analysis, including specifications or reviews of the technology,

(d)   data or analysis of key commercial features of products in which the technology is used,

(e)   the value of use of the technology, products or technology area, and

(f)   publicly available licenses related to the technology descriptions.

Identifying objective and comprehensive data as J. Posner demands in the Apple v. Motorola litigation now is available by tapping the public.  Article One can support these efforts for parties as the basis for negotiations or in litigation.

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Editor’s Note: This article was originally published on July 31, 2012, on the Article One Partners Blog.  See Judge Posner’s Decision in the Apple v. Motorola Litigation. It is republished here with the permission of Article One Partners and Cheryl Milone.