Thinking Economically about Nexus in Commercial Success

While case law regarding nexus originated with relatively simple products (e.g., plow shanks, paving stones, and bicycles), more recent applications of nexus involve complex products with many patents and patent applications (e.g., pharmaceutical drug products). Accordingly, recent Federal Circuit cases have placed further emphasis on nexus, asking, for example: To what degree does the patented invention drive sales for the product as opposed to other patents and non-patented factors?

Despite the increased scrutiny of nexus analysis, experts frequently engage in simplistic approaches to evaluating nexus for products that involve multiple patents or complex demand. Evaluations of commercial success with insufficient nexus analysis can be unhelpful to the obviousness inquiry in patent litigation.

This article is the third installment in a series on the economic foundations of commercial success, following “Thinking Economically about Commercial Success” in 2017 and “Thinking Economically about Blocking Patents” in 2020. This article summarizes challenges and shortcomings associated with common approaches to evaluating nexus and offers guidance for providing an appropriate and fulsome nexus analysis.

The Role of Nexus

Commercial success can support the nonobviousness of a patent when it is attributable to the patented invention—i.e., when there exists a nexus between a product’s commercial success and the claimed invention. The logic of commercial success assumes that other innovators would have developed the claimed subject matter sooner, had it been obvious, given the market incentives for a successful invention. The failure of that development by others is then interpreted as support of the invention’s alleged novelty.

Even with a commercially successful product, however, the absence of nexus or an insufficient nexus analysis can render commercial success uninformative as a secondary consideration if the alleged success is due to factors that are not claimed or novel.

The increased number of patent filings in recent years has made nexus analysis more interesting and complex. For example, the average number of patents per pharmaceutical drug product has been steadily increasing over the past few decades, with top-selling pharmaceutical products sometimes protected by hundreds of patents. This complex landscape—in which products are increasingly covered by multiple patents—places new weight on the importance of effective nexus analysis. Simplistic analyses that may have been sufficient for simpler products and fewer patents may not be adequate for more complex products with many patents. Experts are faced with a challenge: How might one conduct sufficient nexus analysis in today’s patent landscape?

Simplistic Nexus Analysis

A common shortcoming of simplistic nexus analyses is the failure to provide sufficient evidence for how a patented invention generated demand for a given product. Experts often fail to demonstrate a “sufficient relationship between the commercial success and the patented invention” and “the degree to which” a product’s alleged commercial success is attributable to the patented invention. While experts often provide evidence of some demand, the analysis often falls short of connecting that demand to the relevant question of whether others would have developed the alleged invention sooner, had it been obvious.

Unexamined Presumption of Nexus

Experts frequently rely solely on a presumption of nexus between the patented invention and alleged commercial success if the patented invention is “coextensive” with the alleged commercial success of the product. However, these presumptions can be contrary to the evidence of other factors that contribute to demand.

The Federal Circuit has recently been critical of unexamined presumptions of nexus. In Fox Factory v. SRAM (2019), the Federal Circuit stated: “‘[w]hen the thing that is commercially successful is not coextensive with the patented invention—for example, if the patented invention is only a component of a commercially successful machine or process,’ the patentee is not entitled to a presumption of nexus.” Similarly, in Teva v. Eli Lilly (2021), the Federal Circuit stated:

We rejected attempts “to reduce the coextensiveness requirement to an inquiry into whether the patent claims broadly cover the product that is the subject of the evidence of secondary considerations.” Rather, we explained, “the degree of correspondence between a product and a patent claim falls along a spectrum.” At one end of the spectrum lies “perfect or near perfect correspondence,” and at the other end lies “no or very little correspondence.” “Although we do not require the patentee to prove perfect correspondence to meet the coextensiveness requirement, what we do require is that the patentee demonstrate that the product is essentially the claimed invention.” “Whether a product is coextensive with the patented invention, and therefore whether a presumption of nexus is appropriate in a given case, is a question of fact.”

In other words, even if there is a legal presumption of nexus, the presumption can be contrary to the evidence of other factors contributing to demand. In those cases, experts may benefit from evaluating the strength of the presumption based on actual case-specific circumstances.

Weak Connection to Demand

Another consideration in a nexus analysis is the potential role of other factors besides the alleged invention in a product’s commercial success. Especially with the complex patent landscape, the mere fact of some demand for a patented invention is insufficient to support the invention not being obvious. The Federal Circuit has applied this scrutiny to nexus analyses in recent cases, arguing that the mere existence of demand is usually insufficient for nexus unless it is assessed relative to other demand factors.

Consider a pharmaceutical product with a patent covering a dosage attribute. An expert may present a marketing brochure highlighting the dosage; however, the same marketing brochure may also highlight other attributes such as safety, formulation, administration, and other factors. The mere existence of the dosage attribute is not enough to conclude a nexus. Rather, the expert must evaluate the degree to which the claimed attribute generated demand for the drug in comparison to its other attributes and/or the product performance overall.

No Basis for Nexus to Multiple Patents

Finally, in the case of multiple patents, experts often claim nexus to all of the patents in the case without providing an analysis of how the patents or patent groups individually or collectively contribute to demand. In this circumstance, experts will often use the same evidence to support a nexus to multiple patents. However, the Federal Circuit has stated that “[t]he same evidence of secondary considerations cannot be presumed to be attributable to two different combinations of features.” Even when patents or patent families cover different attributes, experts often fail to evaluate “the degree to which evidence of secondary considerations tied to a product is attributable to a particular claimed invention.” Depending on the circumstances, concluding a nexus for every patent in a case may not make economic sense.

Effective Nexus Analysis

Given the challenges outlined here, how should an expert proceed with effective nexus analysis? As discussed, a sufficient nexus should be based on evidence of a patent’s contribution to a product’s commercial performance. While the best approach may vary from case to case, methodologies experts can consider include: (1) identifying demand factors, (2) examining relevant patents, (3) evaluating the novel attributes of a claimed invention, and (4) connecting back to the purpose of commercial success.

It is worth noting that these factors are evaluated in patent cases already in other contexts, such as principles of economic damages. In a reasonable royalty analysis, for example, economic experts determine a reasonable royalty in the context of other patents and factors contributing to demand, known as apportionment. As a foundational principle, the Federal Circuit has stated that “[n]o matter what the form of the royalty, a patentee must take care to seek only those damages attributable to the infringing features.” While the quantification of other factors may not be needed in commercial success analysis, a similar principle of evaluating those factors applies.

Demand Factors

To assess a patent’s relative contribution, experts may find it helpful to undertake a more fulsome evaluation of factors that contribute to demand for the product. Typical sources of such information include market research, internal documents, third-party commentary, and deposition testimony. In doing so, experts can assess the degree to which a claimed invention contributes to demand compared to other factors. Such an approach is consistent with the apportionment principle from patent damages described above.

Relevant Patents

A second factor that is often helpful is identifying which other patents, if any, are relevant for the success of a given product. For example, with pharmaceutical products, experts can evaluate other patents based on those listed in the Food and Drug Administration Orange Book, a publication identifying drug products and patents covering those products. After identifying other relevant patents, experts can evaluate the role of the claimed subject matter in comparison to those patents. While there is no universal threshold at which to conclude nexus, identifying alternative hypotheses like other patents can help the evaluation.

Novel Attributes

A third factor that can be helpful is evaluating the alleged novel characteristics of the patented invention compared to what was already known in the prior art. The Federal Circuit stated in Campbell Soup v. Gamon (2021), quoting previous cases: “A patentee may establish nexus absent the presumption by showing that the objective indicia are the ‘direct result of the unique characteristics of the claimed invention,’ rather than a feature that was ‘known in the prior art.’” The court further stated: “[T]o establish nexus, [the patent owner] needed to present evidence that the commercial success and praise of the [product] derived from [specific] ‘unique characteristics.’ [The patent owner] failed to do so. Instead, it presented evidence that merely ties commercial success and praise to aspects of the label area that were already present in the prior art.” Using similar approaches, experts can avoid misattributing market performance to non-novel aspects of demand in a commercial success analysis.

Purpose of Commercial Success

Finally, a nexus analysis can call upon elements of the alleged commercial success itself to show the economic and commercial role of the claimed subject matter. Experts may analyze a timeline or other development history in order to assess whether others would have been incentivized to develop the alleged invention sooner, had it been obvious, in light of other patents and factors contributing to demand.

Conclusion

Nexus can be an important aspect of commercial success analysis, and increasingly so with today’s complex patent landscape. Simplistic approaches to nexus that have worked with prior paradigms may no longer be adequate. Ultimately, whether a nexus exists should inform on whether others would likely have developed the claimed subject matter sooner, in response to market forces, had it been obvious.