What is the Particular ‘Value’ of FaceTime?: Thoughts Provoked by Discussion of VirnetX v. Cisco and Apple

Guest Post by Jacob Jacoby, Merchants Council Professor of Consumer Behavior, New York University and President, JacobyIP Research (jj@jjri.com)

When claiming patent infringement due to an individual component of a multi-component product, patent attorneys confront a fundamental problem, namely, determining with a reasonable degree of precision the extent to which the patented feature creates the basis for customer demand.  The purpose of this post is to apprise patent attorneys of a research-based approach capable of doing so with precision, while being able to pass Daubert requirements.

Jason Rantanen’s September 16, 2014 post described the kind of evidence considered (and rejected) by the Federal Circuit in arriving at its VirnetX, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2014)  Virnetx v Cisco opinion.  As Jason pointed out:

A key issue in calculating the infringement damages for complex technological products is whether it is appropriate to use the value of the entire device in the damages calculation.  Generally speaking it is not appropriate to do so: “when claims are drawn to an individual component of a multi-component product, it is the exception, not the rule, that damages may be based upon the value of the multi-component product.”  Slip Op. at 27.  Rather, “‘[a] patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.’” Id., quoting Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1268 (Fed. Cir. 2013) (emphasis added by court).  This is due to the general requirement that damages must be actually attributable to the infringing features within a reasonable degree of precision.

The Federal Circuit rejected use of the Nash Bargaining Solution as a model for determining reasonable royalty damages.  This was not surprising, given that a key premise (namely, “where two person bargain over a matter, there is a ‘solution’…in which ‘each bargainer get[s] the same money profit”) could not possibly apply.  Customers purchasing smart phones, computers, TVs, etc. in the real-world marketplace typically are not “bargainers,” nor do they realize “the same money profit” from their purchases as do the sellers.

Subsequent discussion of Jason’s post yielded interesting perspective, especially the exchange between iwasthere and Curmudgeon.  When the former asked “So how would you propose breaking out the ‘value’ of FaceTime?…. What do you think [of] consumer survey data?”, the latter replied “Yes, I think customer surveys, akin to those used in trademark litigation, could make sense.”  As a proponent of surveys and author of the ABA’s 1000-plus page treatise, Trademark Surveys (2013), it might be surprising to see me assert: In my professional opinion, traditional survey research is not capable of providing a scientifically reliable and valid basis to be used when assessing damages. Consider some of the problems.

Suppose one asked past purchasers questions regarding the factors led them to make their purchase.  Considerable research shows that asking questions a point in time after the item has been purchased — especially for surveys conducted weeks, months or years after the purchase — is likely to generate answers subject to faulty memory.  Another problem is that the answers are likely to be colored by post-purchase experiences. Although a product feature may not have played a role in their pre-purchase deliberations and decision, positive post-purchase experiences can cause them to overestimate the value of the feature, to the point where they believe they must have considered it prior to purchase.  The reverse effect due to experiencing a disappointing feature is also possible.

Asking prospective purchasers to indicate the factors they think will influence their purchase decision can generate other problems.  Most importantly, prospective customers may not be aware of some product features until they begin seriously considering whether to purchase the product; hence, they could not possibly report on the materiality of these features to their purchase decision.

Consider iwasthere’s critical question “So how would you propose breaking out the ‘value’ of FaceTime?”  The answer is by using behavioral simulations such as those I developed and used for defendants in two matters, Polaroid Corporation v. Hewlett-Packard Company, U.S.D.C.  D. Delaware, C.A. No 06-738 (SLR) (2007) and John Taylor, et al. v. JVC Americas Corporation. U.S.D.C.  D. New Jersey, Civ. No. 2:07 Civ. 4059 (FSH/PS).  Such simulations measure actual information acquisition behavior not before or after the fact, but as it occurs, identifying the specific features potential purchasers of the goods at issue actually do consider and consider important (and those they ignore and obviously not consider important) while reaching a purchase decision.  In part based upon the research findings, both matters quickly settled out of court.  To illustrate, consider the following findings from one of the above mentioned cases which breaks out consumer demand for the contested feature, Feature P, as well as all the other features associated with this product. (Note: The names of the features have been redacted, which is why the features only have letters.)

RelativeImportanceEvidence

Many contemporary products have numerous features and components.  The Federal Circuit has called for evidence quantifying the extent to which allegedly infringing components or features drive customer demand.  The output from such simulations are capable of doing so better than are any other extant procedures, thereby making it easier for damages to be attributable to the infringing feature(s) within a reasonable degree of precision.  Moreover, given their realistic nature and clear-cut findings, such simulations are likely to be more readily understood and accepted by triers of fact, especially juries, than are intricate damages theories, especially those involving questionable premises or arcane mathematical formulas.

Unfortunately, we cannot go back in time to determine to determine how the parties would react to each other under a hypothetical negotiation at the time of the infringement, a Georgia Pacific factor.  We can only test consumers who are in the process of reaching a purchase decision now.  That said, plaintiffs, defendants and triers of fact may find being able to identify the extent to which a feature or component drives current customer demand is preferable to relying on hypothetical negotiations that would have taken place at the time of the infringement.

42 thoughts on “What is the Particular ‘Value’ of FaceTime?: Thoughts Provoked by Discussion of VirnetX v. Cisco and Apple

  1. 9

    Does the 7% related to the patented product would correspond to 7% of total price for the computation of damages? How is the % value computed? Would the value change if potential buyers were to choose 3 features in the survey instead of 2?

    1. 9.1

      To answer your first question, absolutely not. 7% found it valuable, but many other features were more valuable. Also, I would expect brand and marketing to reduce technical contributions further.

      1. 9.1.1

        Lionel – not sure I understand what you mean by brand and marketing reducing technical contributions further.

        Can you elucidate?

      2. 9.1.2

        It has been interesting reading a week’s worth of reactions to my 12 October Guest post, What is the Particular ‘Value’ of FaceTime?: Thoughts Provoked by Discussion of VirnetX v. Cisco and Apple. Now it’s time to clarify some things and respond to others.

        A. Determining customer demand for a feature is not the same as arriving at a damages estimate. A number of posted comments focused on damages. For example:
        Comment 9: PiKa asks: “Does the 7% related to the patented product would correspond to 7% of total price for the computation of damages? How is the % value computed? Would the value change if potential buyers were to choose 3 features in the survey instead of 2?”
        My Response: As stated in the passage cited from Jason Rantanen’s September 16th post, there is a “general requirement that damages must be actually attributable to the infringing features within a reasonable degree of precision.” This requirement surfaces in several recent decisions, including: “For the ‘entire market value’ rule to apply as the measure of damages for patent infringement, the patentee must prove that the patent-related feature is the basis for customer demand of the accused product.” [Lucent Technologies, Inc., et al. v. Gateway, Inc., et al. 580 F.3d 1301 (Federal Cir. 2009) (emphasis supplied here); “[a] patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.” VirnetX, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2014; Slip Op. at 27), quoting Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1268 (Fed. Cir. 2013) (emphasis added by the court).
        The approach I devised does not directly arrive at an estimate of damages. Rather, more so than any other extant procedure, it directly addresses proving customer demand for a feature, which can then be used by a damages expert to arrive at a damages estimate.

        B. Professors can have real-world experience.

        Comment 4: cmauro writes: “Surely, our learned professor cannot ignore the fact that an opposing expert can and well dismantle his methodology is short order. There are many assumptions related to validity of scaling methods, question construction, decision structure and subject sampling which he knows full-well cannot be supported based on rigorous professional review. This is another example of an academic approach to a complex real-world problem. Sorry, not buying any of it.”

        My Response: While MM ‘s comment 4.2 on October 13th nicely addressed some problems with this argument, permit me to take a different, evidence-based tack. Over the past 35 years, I’ve participated in approximately 1,000 litigated trademark and deceptive advertising matters. In the majority of instances, I’ve designed, conducted and reported on consumer surveys. For the remainder, I’ve critiqued consumer surveys. While most of these matters have settled before going to trial (sometimes based upon my surveys or survey critiques), my track record in the more than 100 cases where I’ve actually testified has been quite good. While no survey is perfect and there always are opposing experts, cmauro might be interested to learn that, try as they may, opposing experts have rarely been able to dismantle my methodology. That may be a reason why the ABA invited me to write its 1000-page plus tome, Trademark Surveys, which covers in detail such topics as he identifies, including subject sampling and question construction. And while he may consider “academic approaches to complex real world-problems” as necessarily having little or no merit, history fails to support his view.
        In keeping with Jason Rantanen’s October 17th post, “How is Patent Litigation like Baseball?,” though not 1.000, my batting average in court is probably in the order of .800 to .850 – not bad when you consider that, on appeal, district courts have their decisions overturned by circuit courts approximately 25% of the time and circuit courts have their decisions overturned by the Supreme Court more than 50% of the time. So much for the vacuous assertion that well conducted survey research “cannot be supported based upon rigorous professional review.”

        C. And what would Judge Posner say?
        In an October 13 post (1.1.2.1.1), Ned Heller asks “Where is Judge Posner?” to which anon replies “Compare Posner with the esteemed Judge Jacob.” Since my name is Jacob Jacoby, is the latter supposed to be a reference to me? Regardless…
        My Response: Over the years, Judge Posner has opined on only one of my surveys. First commenting about the other side’s survey, he wrote:
        “Both parties presented studies. The defendant’s was prepared by [one expert] and is summarized in a perfunctory affidavit by [that expert] to which the district court gave little weight. That was a kindness.” Indianapolis Colts, Inc. et al. v. Metropolitan Baltimore Football Club Limited Partnership et al. 34 F.3d 410, 415 (Seventh Cir. 1994).
        Commenting about my survey, he then wrote:
        “The plaintiff’s study, conducted by Jacob Jacoby, was far more substantial and the district judge found it on the whole credible.” “Jacoby’s survey was not perfect, and this is not news. Trials would be very short if only perfect evidence were admissible.” He then concurred with the district judge “in crediting the major findings of the Jacoby study and inferring from it…that the defendant’s use of the name ‘Baltimore CFL Colts’…was likely to confuse a substantial number of consumers.” (Id.)
        More recently, in Kraft Foods v. Cracker Barrel Old Country Store (2013 WL 6687220) Judge Posner was kind enough to cite my article, “Experimental Design and the Selection of Controls in Trademark and Deceptive Advertising Surveys,” 92 Trademark Rep. 890 – 956 (2002), as something meriting researcher and attorney attention. On the other hand, another article of mine (“Is it Rational to Assume Consumer Rationality? Some consumer psychological perspectives on Rational Choice Theory.” Roger Williams University Law Review. 2000, 6 (1), 81-161) was critical of some of Judge Posner’s economic views. In a personal reply, Judge Posner let me know his views had changed and he no longer subscribed to all of his previously published views regarding Rational Choice Theory.

        D. Clarifying what the behavioral simulation approach is and is not?

        In Comment 2 posted on October 12, MM asks:
        Just so I’m clear, your “simulation” is simply a survey listing various features and asking “potential purchasers” (Q: are these “simulated” “potential purchasers” or actual potential purchasers) to rank the importance of those features. Correct? You don’t ask the purchasers how much they’d pay for the features.
        My Response: Both matters noted in my Patently-O post involved nationwide studies using actual potential purchasers of the products being tested (printers and TV sets, respectively). Each study had two components, a behavioral component in which the participants were asked NO questions at all, followed by a traditional survey component. In the first component, participants were exposed to the authentic feature information the manufacturer made available for the product and, as in the real-world, were then able to acquire how much and just which of this information they desired prior to reaching their purchase/no purchase decision. Thus, their actual information accessing behavior indicated which features they considered (and which features they did not consider) when reaching their decision. Research indicates most consumers cannot accurately recall details of their purchase decisions, including what information they did and did not consider. The ability to accurately report such details begins to degrade immediately after the decision and worsens over time. Hence, the procedures used first rely on the participant’s actual information accessing behavior during decision-making – not verbal reports of such behavior — to inform me of these details. As to the second component, because not all information one acquires when reaching a decision is equally important (or even used), subsequent to reaching their decision, the participants were asked to indicate how important they thought each type of feature/information they had acquired was in reaching their decision. Used together, better than any other methodology currently available, these two components identify customer demand for a feature, which can then be used by a damages expert to arrive at a damages estimate.
        Because consumers generally have no qualifications, training or expertise for arriving at such judgments, as I think their answers would represent guesses more than anything else, I would be reluctant to ask them how much they would pay for a technical feature, especially those that are part of a multi-featured product. Opposing expert in Polaroid v. Hewlett-Packard, however, did ask a “How much are you willing to pay for such a feature?” type of question regarding a 5-cent feature incorporated into two multi-function color printers that printed, scanned and faxed, but that was used less than 10% of the time, and then only when printing. With respect to a printer that cost $299.99, approximately 55% guessed that the feature was worth at least $50; more than 20% guessed it was worth at least $100. With respect to a printer that cost $109.99, approximately 15% of the respondents guessed that the feature was worth at least $50; approximately 7% guessed it was worth at least $60. Given everything else these printers did, it seems unreasonable for anyone to think that this one infrequently used feature would be worth approximately half of the printer’s entire value.

  2. 8

    Suppose a company sells its product with an infringing part by selling the product without the part but then giving the part away for free. The product will work without the part but will not be anywhere near as useful.

    The accountants will say that market value of the part is zero.

    This works really well where the infringing part is a software module.

    (Assume for the purposes of discussion that the software patent is valid.)

    1. 8.1

      Mr. Nihil est, there was a case like that recently were the patentee gave away a machine that tested some medical property and they wanted to make money by selling test strips that worked with the machine. Their plan came a cropper when the court held the test strips to be “old.”

      The combination was patented but the component being given away contained invention.

      Consider the programmed c0mputer where the novelty is in the program. The patentee gives the programming away for free and charges for the computer. What then?

      Isn’t this the case with many smartphones?

  3. 7

    Remember pre-1946 when a patentee could use (the equitable remedy of) accounting to disgorge the entire profit from an infringer, even when the infringing product was only a small improvement to the entire invention? Wasn’t that some s@%!?

    If you guys ever have time, read the legislative history of amending the damages section of the statute in 1946. What you would see is that the entire point of using reasonable royalty was to shorten and simplify the damages proceedings. It seems to me it was a, “make whatever argument to the jury for a reasonable royalty (if no established royalty or lost profits) and the judge can increase the damages if he wants.”

  4. 6

    I feel like Sally Fields winning an Oscar. Anyways, thanks for the shout out. And its about time someone figured out how to get past the Daubert threshold. Of course, its all subject to cross examination and alternative theory – but that is what the 7th amendment commands. To be sure, if you had an post trial injunction – that would shift the value proposition determination to the infringer – and force an actual market negotiation. What a world.

    1. 6.1

      Of course a license negotiation after a post-trial injunction [where the defendant is over a barrel – having already spent large amounts of money for tooling, testing, manufacturing and marketing the product for several years and would have to make further expeditures for a design-around – inherently gives a very different patent infringement damages value than the standard test of what royalty would have been arrived at in a negotiation before launching the product unaware of the patent [or the very broad claim scope asserted by the current patent owner. [E.g., the MPEG patent that was widely asserted years later again JPEG users.] The Sup. Ct. eBay decision apparently still allows that against many competitor patent owners, but not PAEs who have no competitive injury to protect.

    2. 6.2

      To be sure, if you had an post trial injunction – that would shift the value proposition determination to the infringer – and force an actual market negotiation.

      As PM notes, the “actual” “market negotiation” that takes place under those circumstances is very different from the sort of negotiation that takes place between a potential licensee and the owner of a potentially invalid patent.

        1. 6.2.1.1

          Anon: ‘Is there any patent that is not “potentially invalid?”

          How about the patent that caused the post-trial injunction to issue?

          It’s pretty obvious that MM is using the phrase “potentially invalid” to describe a patent that has not yet been vetted by litigation.

          Such a patent still enjoys presumed validity, of course, but it does not have the leverage of its injunction-spawning counterpart in licensing negotiations. (Which, as my layperson reading has it, is MM’s point.)

          1. 6.2.1.1.1

            Dobu,

            See 35 USC 282.

            Being vetted by litigation is quite immaterial – a non sequitor. The point being that even AFTER litigation, a patent is still in the EXACT same spot – given that it remains “potentially invalid.”

            Further – in the immediate discussion (damages) such CANNOT be.

            Is it really that difficult to see through Malcolm’s games? To admit the bias that permeates ALL of his posts?

            Why is this level of critical thinking being actively dissuaded?

            1. 6.2.1.1.1.1

              Any comment seeking to look at the man behind the curtain (in a Wizard of Oz sense) is being automatically deemed “offensive.”

              Why?

            2. 6.2.1.1.1.2

              Yes, I already mentioned the presumed validity.

              You seem to be asserting that ownership of a patent that has spawned post-trial injunctions confers no licensing negotiation benefits over a patent that has not yet been before a court. I think you are mistaken. If I were an accused infringer, I would likely be considerably more cautious of the “proven” patent.

              Regarding Malcolm’s bias: Umm . . . yeah. Okay. Pot, meet Kettle. ;^)

              1. 6.2.1.1.1.2.1

                Dobu,

                Please read a bit more closely – you are buying into the fallacy of litigation gold-plating, wherein the truth of the matter is that the status of “potentially invalid” never goes away – not even for patents that have survived multiple litigations. Litigation does NOT in fact enhance the legal standing of a patent. There is NO increased presumption under the law.

                I would also point out that my “bias” simply accords with the law, while others, with fully volunteered admissions as to knowing critical parts of the law, still hew to philosophical positions not in accord with that law. So, no, there is no pot and kettle comparison.

  5. 5

    Re: ” ‘[a] patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.’ ”

    This “entire market value” rule is not new, it was well established in the case law for many years. The Fed. Cir. started seriously enforcing it again in recent years, especially where the patent in suit was on only a small portion of the features, hardware or software of the marketed device.
    Yes, a customer survey must be well-run to get an accurate measure of how important the claimed invention is to purchasing the product. But is not that far closer to a measure of what a willing party would have reasonably paid for a license [the requisite “reasonable royalty” minimum for infringment damages calcuations], than, for example, a mere % comparison of infringing lines of code with total lines of code in the product, or a component cost as a % of total hardware cost? The latter are clearly not reasonable for calculation of the value of the patent to the product’s sales.

    1. 5.1

      In response to a comment below, yes it would be nice to get a more direct measure of what a willing licensee would have paid for a license for particular patented feature for their product in the same circumstances. But as numerous patent cases have demonstrated, what more typically occurs is widely conflicting testimony of highly paid witnesses which can be obtained to make whatever wildly varying damages calculations on whatever legal theories the attorneys on their side of the case think they can get away with. Furthermore, in many cases these days the defendant was not even aware of the patent before launching the product, and there were no actual pre-launch licensing negotiations. Nor are valid comparisons other licences to others often available in many cases.

    2. 5.2

      Paul, if there was a default royalty of 25%, the requirement that the patented invention provide the reason the public bought/used the invention would actually make sense.

  6. 4

    Surely, our learned professor cannot ignore the fact that an opposing expert can and well dismantle his methodology is short order. There are many assumptions related to validity of scaling methods, question construction, decision structure and subject sampling which he knows full-well cannot be supported based on rigorous professional review. This is another example of an academic approach to a complex real-world problem. Sorry, not buying any of it.

      1. 4.1.1

        …and my dear fellow anon, camauro’s comment was a guest comment taking apart the guest post (said guest post being written by an academic).

        1. 4.1.1.1

          taking apart the guest post

          “[T]rying to take apart the guest post” would be a more accurate description of the brief rant in question.

          1. 4.1.1.1.1

            Malcolm,

            It appears that anything that you do not like is considered “a rant,” even when your posts contain less substance.

              1. 4.1.1.1.1.1.1

                Not sure what the point of your reply here is, Malcolm.

                The appearances of your posts as deleterious are of not only my opinion.

    1. 4.2

      There are many assumptions related to validity of scaling methods, question construction, decision structure and subject sampling=

      There are many assumptions related to every expert “theory” on the question of damages and/or the question of the value a consumer places on a patented component of a larger device.

      which he knows full-well cannot be supported based on rigorous professional review.

      Really? How did you come by this information?

      This is another example of an academic approach to a complex real-world problem.

      What’s your point?

  7. 3

    The idea that the value to the consumer is the correct damages basis is fundamentally flawed.

    Consider a drug that is sold for $100 a pill so that a company can recover the costs of development, testing, and certification. The cost of materials in the pill may be $0.05 and a generic competitor may be selling it in combination with a multivitamin for $1. We could then discover that the drug is 99% of the value (the multivitamin is 1%) and attribute $0.99 of value to the patented drug.

    That’s ludicrous, of course. If the generic licensor had negotiated a fair license, the price would have been about $100. There is no substitute for a fair negotiation and courts will always have to imagine how one would have gone to determine the basis of a fair damages award.

    Now dividing a much larger product into features may provide some insight to the overall question in some cases. That’s not a reason to lose sight of the larger picture. FaceTime could have been incredibly expensive to develop and only viable at a much higher price while Apple simply undercut the market. Facetime could have been a trivial feature that is nothing more than a toy decorating a smartphone but that shows up well in advertising. A well informed but subjective judgement is necessary.

    The purpose of patents as monopolies was to prevent forcing judges to determine the value of everything by letting the licensing market decide. Today, only pharmaceuticals really work that way, with the FDA rather than courts simply blocking competition that infringes patents without licensing.

    On the bright side, VirnetX and Apple (and Cisco) don’t really need to worry about it. VirnetX and its ‘inventors’ never invented anything. FaceTime is a trivial and obvious but easy to use implementation of technology that existed for decades before it was introduced. The EPO denied VX’s applications and the PTO has acknowledged its error in allowing them to issue as patents. The IPRs have resulted in final findings of invalidity and will eventually hold as all appeals exhaust themselves.

  8. 2

    Mr. Jacoby: The answer is by using behavioral simulations such as those I developed and used for defendants in two matters, Polaroid Corporation v. Hewlett-Packard Company, U.S.D.C. D. Delaware, C.A. No 06-738 (SLR) (2007) and John Taylor, et al. v. JVC Americas Corporation. U.S.D.C. D. New Jersey, Civ. No. 2:07 Civ. 4059 (FSH/PS). Such simulations measure actual information acquisition behavior not before or after the fact, but as it occurs, identifying the specific features potential purchasers of the goods at issue actually do consider and consider important (and those they ignore and obviously not consider important) while reaching a purchase decision.

    It sounds like you are on the right track here, Prof. Jacoby.

    Just so I’m clear, your “simulation” is simply a survey listing various features and asking “potential purchasers” (Q: are these “simulated” “potential purchasers” or actual potential purchasers) to rank the importance of those features. Correct? You don’t ask the purchasers how much they’d pay for the features.

    One reason I ask is because, speaking for myself and many of my friends, it’s often the case that I’d pay to have certain features omitted from products, e.g., silly “functionalities” that I know that I will never use but which eat up my device’s memory, processing time, create an unnecessary risk of invasion of privacy, or just strike me as a pointless waste of time (Facetime, in fact, is one such “feature”). Do your “simulations” take this fact (i.e., that certain functionalities can have a negative value for consumers of products comprising multiple “functionalities”) into account?

    1. 2.1

      Malcolm would you consider the likes of Night or anon to be a positive or a negative for this blog?

      1. 2.1.1

        Ned, would you consider the likes of those same people judging whether your posts have been a positive or a negative for this blog?

        You are doing that “anything goes if it aligns with my viewpoint”-“enjoy that swagger”-“6 is a genius when he agrees with me” type of thing yet again.

        1. 2.1.1.1

          Anon, there is a big difference between you and Night and MM, me, 6, MaxDrei and virtually everybody else that posts here. Night spends all his time bashing people he disagrees with while almost never engaging in substantive conversation with anyone. You are not as consistently bad as Night, but most of your posts consist in telling people they are wrong, without ever explaining your position and/or why they are wrong. We are left to figure that out for ourselves.

          In contrast, MM, I, 6, Max and virtually everyone else but you and Night take time to explain our positions and our thinking, referring to case law where appropriate. There is little doubt that virtually everyone here are generally interested conversing, that is, exchanging ideas, not insults. But not you and Night.

  9. 1

    What drive demand for the product? Pretty good.

    Compare a component is sold at $1 per unit. But the particular infringement is us in a larger apparatus or system as here. The proper measure is of damages is not the price of the component, but the value of component to the consumer of the infringing product, the larger system.

    1. 1.1

      I read what you wrote five times, Ned, and still can’t figure it out. Did you write that while running to catch a train? ;)

      1. 1.1.1

        He’s saying that if you offered an ipod without wireless or cellular capability, and you offer an iphone with a patented component that costs $100 which provides wireless and cellular capability, the correct measure of infringement is not $100 (even though that is the value of the structural difference), but what the consumer would find the value to be of all you can do with wireless and cellular. Having cellular lets you use google maps while on the road, etc, and those functionalities have value. If the overriding value of the iphone is in its ability to access remote data on the go (as opposed to having to sync your ipod) then the value of that infringement is well over $100 per unit.

        Not to put words in Ned’s mouth, but I would assume it would be obvious that this value is mitigated by the costs of alternatives. If one had access to a competitors’ component which cost $110 but provided the same functionality both for the machine and the end user, then the value of the infringement now is only $10 per unit.

        1. 1.1.1.1

          Random, if that competitive alternative is infringing, then the value remains the value of the use of the component in the larger system.

          Also consider something like race tires. A patented race tire may be able to win the race while the unpatented tire may not.

      2. 1.1.2

        Sorry for the typos, Malcolm, but the point I was trying to make was that when the infringement is the use of a patented item in a larger system, the measure damages is not the cost of the patented item, but the value of the patented item in the system which may be measured according to the value the user of the system places on that item in the context of the system. This helps explain the result of General Pictures Co. v. Electric Co., 305 U.S. 124, 59 S. Ct. 116, 83 L. Ed. 81 (1938). link to scholar.google.com

        Of course another measure is increase in efficiency one obtains by using the invention and the larger system in the case of a machine that produces things.

          1. 1.1.2.1.1

            No doubt anon.

            If FaceTime drives the sales of the iPhone, then it should be worth some percent of the value of an iPhone.

            Assume people were willing upgrade from an iPhone that did not have FaceTime simply to get it. I recall a lot of people in my firm doing exactly that.

            Assume the trade-in value of their old phone was Y and the cost of the new was X. If 50% of the people paying X-Y to get FaceTime, then I would say the RR would be a fair share of 50% of X-Y.

            Agreed?

            But then, how does one value FaceTime on an ongoing basis? It does seem to me that if FaceTime is one reason people get an iPhone vs. any other phone, then it would seem that there should be some way to calculate what the incremental demand is for the FaceTime feature. Why not the Jacoby approach?

            All in all, a complicated mess.

            Where is Posner? He would shoot FaceTime down as a few lines of code, not worthy of a trial, let alone his attention. After all, the statute really doesn’t say what it says about “no less that a RR” does it?

            1. 1.1.2.1.1.1

              Compare Posner with the esteemed Judge Jacob.

              Intelligence – without regard to the proper role of the position – is extremely dangerous.

              The ends do not justify the means.

              Ever.

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