Court Excludes Defense Damage Expert's Royalty Base Where Expert Based Royalty Base Solely on "Inventive Aspects" of Patent and Not on All Claimed Elements

by Jeffer Mangels Butler & Mitchell LLP

ThinkOptics, Inc. ("ThinkOptics") filed a patent infringement action accusing several Defendants of infringing three patents: U.S. Patent Nos. 7,796,116; 7,852,317; and 7,864,159. As explained by the district court, "[t]he three patents share a common specification and are directed to systems and methods for displaying and moving a cursor on a screen using a handheld pointing device. All defendants other than Nintendo have since been dismissed. The accused products encompass Nintendo Wii consoles that operate with the Wii Remote, Wii Remote Plus, and the Wii Sensor Bar."

As the case progressed closer to trial, ThinkOptics moved to exclude the expert report of Nintendo's damage expert, which was based on a reasonable royalty calculation. In his report, the damage expert noted that during "prosecution, all elements of ThinkOptics' asserted invention except for three image-processing steps were found obvious in view of the prior art." From that, the expert deemed the three image-processing steps to be the "inventive aspect" of the asserted patents. As explained by the court, "[t]he Wii Remote's direct pointing device ("DPD") is accused of practicing the three image-processing steps in combination with a Bluetooth microcontroller. Docket No. 363 at 3. However, Nintendo asserts, the Bluetooth microcontroller existed in the prior art when the invention resulting in the asserted patents occurred. Id. at 4. Therefore, Professor Slottje concludes, the proper royalty base is the DPD alone, and does not include the accused Bluetooth microcontroller or any other portion of an accused device. Id. at 5; see Docket No. 363, Ex. 7 at 32. Additionally, Professor Slottje proposes an alternative royalty base consisting of the DPD in combination with the sensor bar. Docket No. 363, Ex. 7 at 35."

ThinkOptics moved to exclude the royalty base because it did not include the value of every claimed element. It also argued that even Professor Slottje's alternative royalty base, comprised of the DPD and sensor bar, is inappropriate because it did not include the accused Bluetooth microcontroller and Wii console.

In response, Nintendo argued that the royalty base should only include the "inventive" aspects of the asserted patents. "Thus, it maintains that Professor Slottje's report properly excludes revenue associated with components alleged to infringe claimed elements that the patentee did not invent."

The district court found that Nintendo's position had no support. "While it is sometimes necessary to apportion the smallest salable patent practicing unit to remove the value of unclaimed elements, Nintendo has not cited any precedent permitting the complete removal of the value of claimed elements. Nintendo cites language from Cornell Univ. v. Hewlett-Packard Co. stating that the proper royalty base is the 'smallest salable infringing unit with close relation to the claimed invention.' 609 F. Supp. 2d 279, 288 (N.D.N.Y. 2009), amended by No. 1-cv-1974, 2009 WL 1405208 (N.D.N.Y. May 15, 2009) (emphasis added). However, the "close relation" language in Cornell reflects that the royalty in that case was based on a product that also practiced unclaimed elements, in addition to the elements claimed. Nintendo also cites the U.S. Court of Appeals for the Federal Circuit's decision in Lucent Technologies, Inc. v. Gateway, Inc., which excluded the value of computers and displays from the royalty base where the asserted claims merely recited a method for using a computer with a display. 580 F.3d 1301, 1310-11 (Fed. Cir. 2009). But since the asserted patents in that case did not claim computers or displays, the removal of their value from the royalty base did not remove value of any claimed element."

The district court then concluded that the royalty base should be excluded. "Since the royalty base in Professor Slottje's report excludes the value of claimed elements, it does not 'carefully tie proof of damages to the claimed invention's footprint in the market place.' See LaserDynamics, 694 F.3d at 67. Nor does it attempt to 'award the claimant damages adequate to compensate for infringement . . . for the use made of the invention by infringer . . . .' See 35 U.S.C. ยง 284. In order to do so, Professor Slottje's royalty base must include the value of all claimed elements."

Thinkoptics, Inc. v. Nintendo of America, Inc., et al., Case No. 6:11-cv-455 (E.D. Tex. June 21, 2014)

Written by:

Jeffer Mangels Butler & Mitchell LLP

Jeffer Mangels Butler & Mitchell LLP on:

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