Sales Projections And A "Litigation Risk Multiplier" Are Fair Game When Assessing Reasonable Royalty Damages

• Published date: 02 May 2022
• Subject Matter: Intellectual Property, Patent
• Law Firm: Mintz
• Author: Mr Peter Snell and Meena Seralathan

A recent decision from Judge Stark, now presiding at the Federal Circuit, endorses the use, by a patent owner's damages expert, of sales projections and a "litigation risk multiplier" in determining reasonably royalty damages. In Arendi S.A.R.L. v. LG Electronics, Inc. et al., C.A. No. 12-1595-LPS, D.I. 358 (D. Del. Apr. 8, 2022), Judge Stark confirmed that a damages expert may rely on such evidence notwithstanding defendants' Daubert challenges to the contrary.

Plaintiff Arendi S.A.R.L. ("Arendi") filed patent infringement cases against numerous defendants in 2012 and 2013. Almost a decade later, and after defendants including Microsoft had settled, the remaining defendants sought to exclude certain opinions and testimony of Arendi's damages expert.

First, defendants argued that Arendi's damages expert improperly relied on Arendi's settlement with Microsoft and an estimate of Microsoft's future sales, rather than on actual sales. Id. at 11. To calculate a per-unit royalty for the Microsoft settlement, Arendi's expert divided the settlement amount by the number of units sold or expected to be sold. C.A. 12-1602, D.I. 284 at 2. As Patent Owner showed in its opposition to Defendant's Daubert motion, Federal Circuit precedent permits experts to rely on sales projections to estimate a future royalty base. See, e.g., Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1384 (Fed. Cir. 2001). "The fact that a negotiating party did not subsequently meet those projections is irrelevant to that party's state of mind at the time of the hypothetical negotiation." See C.A. 12-1602, D.I. 358. Patent Owner also argued that any disagreement regarding the accuracy of the sales projections goes to the weight that should be afforded to the damages expert's opinion, not its admissibility. See C.A. 12-1602, D.I. 307 at 1; C.A. 12-1602, D.I. 358 at 12. Considering the evidence and arguments presented, the court denied defendants' request to exclude the opinion.

Second, defendants argued that Arendi's expert improperly considered, as part of the hypothetical negotiation related to...