Although the Supreme Court's decision on allocation in cases involving design patents is not likely to be made for some time, the courts have repeatedly stressed the need to for allocation in cases involving utility patents. Recently, in BMC Software v. Servicenow, Inc., a case filed in the Eastern District of Texas, Judge Gilstrap once again reemphasized this point in a Daubert decision. In that decision he ruled that the expert's testimony had failed to properly apportion BMC's patented features from the unpatented features of ServiceNow's "Click for Enhanced Coverage Linking Searches" products. The court stated that the 50 percent revenue reduction applied by BMC's expert did not properly apportion the incremental revenue associated with the patents in suit and, therefore, the expert had not rendered a reliable opinion on the incremental value that the patented invention provided to the final product.
The court allowed BMC's expert to supplement his opinion and stated that it would reevaluate the issue of whether the expert properly apportioned the patented features from the unpatented features after that supplementation. Following Ericsson (Ericsson, 773 F.3d at 1226), the court ordered that the expert's supplementation must be presented in such a way that the jury would not be able to calculate the total revenues associated with ServiceNow's Click for Enhanced Coverage Linking Searches. The court stated that the 50 percent reduction of total revenues, for instance, must be generically presented as the amount identified as the amount at issue in the case and not as half of total revenues from ServiceNow's Click for Enhanced Coverage Linking Searches.
In its decision, the court referred repeatedly to the appellate decision in Ericsson v. D-Link. In that December 2015 decision, the Ericsson court vacated the jury's damages award. In Ericsson the court admitted that "logically" an economist could apportion the patented features from the unpatented features in a number of ways—by adjusting the royalty base, by adjusting the royalty rate, or a combination thereof. However, while the court did state that an appropriately apportioned royalty award could be fashioned by starting with the entire value of a multi-component product, a jury may not be equipped to understand the role that the royalty rate would then have to take on in the apportionment equation. The concern is that the jury would be misled into overcompensating the patent owner, a concern that Judge Gilstrap has underscored in his decision in BMC.
Jennifer Vanderhart is with FTI Consulting in Washington, D.C.
Keywords: expert witnesses, litigation, utility patent, royalty, expert, allocation