Deferring judgment until after he hears testimony prior to trial, U.S. District Judge Richard G. Andrews of the District of Delaware nonetheless indicated in a recent Memorandum Opinion that he was inclined to exclude plaintiff’s patent damages expert.

In AVM Techs., LLC v. Intel Corp., C.A. No. 10-610-RGA, plaintiff AVM sued Intel for patent infringement relating to U.S. Patent No. 5,859,547, which claims improved dynamic logic circuits used in microprocessors. Intel filed a Daubert motion seeking to exclude AVM’s damages expert, who had opined that AVM was entitled to reasonable royalty damages of over $150 – $300 million.

Judge Andrews agreed with Intel that AVM misapplied the entire market value (“EMV”) rule. This rule, an exception to the general rule that royalty damages must be based on the “smallest salable patent-practicing unit,” allows recovery of reasonable royalty damages based on the value of an entire apparatus containing a patented feature, where that “patented feature alone causes customers to purchase” the apparatus. Judge Andrews found that AVM’s expert erred by failing to account for the many other important features besides the dynamic logic circuits and failing then to show that this patented feature drives demand for the entire microprocessor. As IP practitioners are aware, the Federal Circuit has established tight boundaries on the EMV rule, as set forth in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1320 (Fed. Cir. 2010) (EMV is inapplicable “for minor patent improvements”), and more recently in LaserDynamics v. Quanta Comp., Inc., 694 F.3d 51, 67 (Fed. Cir. 2012) (royalties must be based “not on the entire product, but instead on the smallest salable patent-practicing unit.”)

Judge Andrews also found fault with AVM’s expert’s comparison of other AVM licenses to opine on what a reasonable royalty should be. In particular, the Court took exception to the expert’s reliance on prior licenses to entire patent portfolios, since only a single patent was before him in this case. The Court also discredited the expert’s reliance on an agreement involving a single patent, because the expert failed to compare the benefits and value of the technology covered there.

The Court’s “gate keeper” role under Federal Rule of Evidence 702, Daubert and its progeny is well-settled. Parties on either side of the “v.” must be cognizant of the standards governing expert testimony admissibility, particularly when it comes to patent damages. Additionally, the patentee, in seeking to maximize its claimed damages under the EMV rule, may have to conduct more discovery of non-party customers than in the past to support a claim that its patented feature drives the demand, given the possible significant difference in royalty damages based on the entire product as opposed to the apportioned, patented feature alone.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Christopher Viceconte, a Director in the Gibbons Business & Commercial Litigation Department, and Andrew P. MacArthur, an Associate in the Gibbons Intellectual Property Department, co-authored this post.