On Feb 12, 2009, I published “Orion and Taurus: NPE’s at the Federal Circuit” in which I discussed Erich Spangenberg’s cases now pending at the Federal Circuit. In the note, I referred to the $34 million verdict that his company won against Hyundai and noted that the patent may well serve as the “poster child for damages reform.” Erich Spangenberg recently sent me a note regarding his appeals now pending at the Federal Circuit. He makes several important points:
On apportionment: As to being a “patent reformer’s poster child for damage reform,” I take it that this statement by you has two elements: (i) you put some credence in the musings of anonymous comment posters about the state of the art and (ii) the apportionment provisions set forth in the proposed patent reform legislation. In various ways, both of these were put to test at trial. . . . As to the apportionment point, I believe the problem with this point is that a similar non-infringing substitute system [did] not exist at the critical date and on the date of the hypothetical negotiation a similar system would be an enterprise system with a double digit million price tag.
On Obviousness: Every major auto manufacturer produced mountains of prior art (including Mercedes) and not a one of them claimed to have a computerized sales system in operation on the critical date as described by your poster. The art relied on turned on a system known as the IDB 2000—which was developed by Bell+Howell in the late 1980’s at the request of GM. The co-inventor of the IDB 2000 was Dr. Donald Frey. Dr. Frey was the CEO at Bell+Howell during the time the IDB 2000 was initially developed and implemented—a BA, MA and PhD in metallurgic engineering out of Michigan and a long-term employee of GM and Ford, whose credits include being one of the “fathers” of the Mustang while at Ford and a National Medal of Technology recipient. Dr. Frey was not paid for any of the information he provided. In an affidavit he provided that was discussed at trial (Dr. Frey did not testify)—he stated “I have reviewed United States Patent Number 5,283,865 entitled “Computer-Assisted Parts Sales System” (the ‘865 patent) and United States Patent Number 5,367,627 entitled “Computer-Assisted Parts Sales Method (the ‘627 patent) along with the file history for each of these patents.” While there are several points in his affidavit that are important, the most critical is the concluding paragraph in his affidavit that states, “The’627 and the ‘865 patent differ from the IDB2000 in that, among other things, they describe novel parts systems that were not contemplated, designed or implemented as part of the IDB2000.”
I am fascinated by the reverse prognosticators that claim it is “obvious to me” as they sit in their chairs today reflecting on the state of the art in 1989—most of whom posses even less experience at the critical date than the anonymous comment poster who had a summer job in a Mercedes parts bay. In this golden age of modern cynicism is it really so hard to believe that the examiner got it right?
On Anonymous Comments: I am not a fan of—and heavily discount views expressed in—anonymous commentaries. The discipline of providing your verified name gives one pause before you hit the “send” button. One idea you may wish to consider to raise the level of the discourse on your blog is to have an “anonymous” comment section (sometimes this is the only way to get valuable information) and a verified name comment section.
Erich’s points on apportionment are well taken. Apportionment does not make sense when at the time of the infringement there were no suitable substitutes. As has been discussed on the blog, even if you believe that damages should be apportioned according to the incremental value of the claimed innovation, the apportionment method proposed in the Patent Reform Act of 2009 is clearly problematic based upon its proposed procedures.