Led by a decisive $1.9 billion win in Centripetal Networks v. Cisco and $1.1 billion in CalTech v. Apple/Broadcom, U.S. patent damages awards are on a record-setting pace for 2020. Unfortunately for some plaintiffs, the good news is fleeting because many large patent awards reported in the media are never paid.
A big dollar determination in court does not necessarily translate into a financial win. In fact, many awards are severely reduced or thrown out on appeal, and that is after years of time and millions of dollars invested enforcing the patent.
The top 2020 decisions (listed in the image above) are a sign that patent valuations are likely increasing. They suggest that after a decade of relatively modest high tech wins and difficulty licensing because of “efficient infringement,” things are looking somewhat better for certain patent holders.
But as a recent IAM story states, you cannot always take as fact what you read in the headlines about patent damages awards. Decisions that are the result of jury or bench trials are not the final word.
“Of course, as many patent observers will appreciate – and as we have made clear in the past – there’s still a long way to travel from a district court verdict like this to actually getting Cisco to hand over the cash.
“There’s a CAFC appeal to get past, for starters, plus potential actions at the PTAB. All that can very easily result in a scrubbed out or vastly reduced award. Precisely that has happened to plaintiffs plenty of times before, of course.”
Largest U.S. Patent Damages Awards Since 2000 (only some paid)
The previous largest high tech award, $1.5 billion, involving a Lucent infringement case brought against Microsoft, was vacated. In Apple v. Samsung the final payout six years later was about half of the initial award. Smartflash v. Apple was tossed on appeal.
Quality v. Quantity
CalTech v. Apple/Broadcom damages expert, David J. Teece, an award-winning economist and Professor at UC Berkeley’s Haas School of Business, published an article last week in The Criterion Journal of Innovation that challenged the accuracy of using patent counts for determining damages.
“The ‘top-down’ approach as applied begins with little more than a declaration (the ‘maximum cumulative royalty’) as to the total amount implementers should pay for use of the individual patents and portfolios of patents implicated by a standard,” Dr. Teece wrote in Patent Counting and the “Top-Down” Approach to Patent Valuations: An Economic and Public Policy Appraisal of Reasonable Royalties.
“Patent counts are an imperfect and unreliable metric,” Dr. Teece continues. “Using them may create an aura of accuracy, but it is false (scientific) accuracy for the reasons discussed in this article. In particular, the “top-down” approach to the valuation of standard-essential patents (SEPs), which relies heavily on patent counting, is a poor surrogate for the determination of the value of patented technologies.”
Dr. Teece, chairman of the Berkeley Research Group, suggests that the top-down” approach – setting a maximum cumulative royalty across patent holders – “is flawed just as the ‘25% rule’ was flawed.” The top-down approach is seemingly more scientific, but as implemented to date it “is riddled with scores of (usually hidden) problematic assumptions.”
Where are the Inventors?
All of the really big 2020 patent wins have been achieved by businesses, none by an independent inventor. In 2005, for example, Dr. Gary Michelson, an orthopedic spinal surgeon who invented fundamental devices, was paid $1.35 billion by Medtronic to settle patent infringement. Many other smaller but substantial awards and settlements, as well as running royalties, were paid to independent inventors in the 1990s and 2000s.
The cost, risk and protracted timeline of patent litigation are among the factors that make it difficult for inventors to prevent theft or to receive fair compensation. The result is that the source and ownership of many significant innovations are never properly acknowledged, nor investment dollars returned. Litigation funding businesses have helped to mitigate the imbalance. It would be useful to see data about their impact.
While large damages awards are up, a good sign for valuations, a broad range of domestic and foreign companies continue to engage in patent infringement, only some of it unintentional.
Image source: IAM with Lex Machina data; PwC/IAM