by Dennis Crouch
The Federal Circuit’s December 19, 2024 decision in Altria (Philip Morris) v. R.J. Reynolds offers important guidance on patent damages methodology while potentially previewing issues soon to be addressed en banc in EcoFactor v. Google. The case centered on Reynolds’ VUSE Alto e-cigarette product and its infringement of three Altria patents. U.S. Patent Nos. 10,299,517, 10,485,269, and 10,492,541. While the court addressed multiple issues, I want to focus here on the damages analysis – particularly regarding comparable licenses and apportionment. Although the case is non-precedential, it includes both a majority opinion (authored by Judge Prost and joined by Judge Reyna) and a dissent (by Judge Bryson). Like Judge Reyna’s decision in EcoFactor, the case involves the use of lump-sum licenses to create a running royalty calculation, as well as the proper approach to apportioning damages so that the award is for the use of the patented invention.
The damages dispute focused primarily on how Altria’s expert derived a 5.25% royalty rate from comparable license agreements, particularly a license between Fontem and Nu Mark. Under this agreement, Nu Mark paid Fontem a $43 million lump sum for rights to practice Fontem’s patents through 2030. Following established precedent from Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009), Altria’s expert analyzed Nu Mark’s sales projections to convert this lump-sum payment into an effective royalty rate. The expert identified projections showing that a 5.25% royalty applied to sales from 2017 to 2023 would yield approximately $44 million in payments – close to the actual $43 million lump sum paid.
The Federal Circuit’s analysis emphasized that challenges to comparable license analysis typically raise factual questions for the jury rather than admissibility concerns. Citing i4i Ltd. Partnership v. Microsoft Corp., 598 F.3d 831 (Fed. Cir. 2010), the majority noted that “[t]he jury was entitled to hear the expert testimony and decide for itself what to accept or reject.” This deferential approach contrasts with recent decisions like MLC Intellectual Property, LLC v. Micron Technology, Inc., 10 F.4th 1358 (Fed. Cir. 2021), suggesting some tension in the court’s jurisprudence regarding the gatekeeping role of district courts in damages testimony.
I do want to note that the posture of this appeal is different from EcoFactor. Here, the appeal questions the sufficiency of the evidence via JMOL while in EcoFactor, the question is whether the testimony should have been excluded under Daubert. However, both cases largely boil down to whether the steps required to use a lump-sum license as a comparable against the a requested running royalty.
Altria’s systematic approach to apportionment received detailed attention from the court. The technical expert divided the licensed technology into thirteen patent groups, providing zero value to abandoned applications, nominal value to minor components and design patents, and full value to five patent families deemed essential to e-cigarette functionality. This granular analysis supported the damages expert’s conclusion that the importance of the licensed patents was comparable to Altria’s patents, justifying similar royalty treatment. The court’s approval of this methodology provides a useful framework for future cases.
Judge Bryson’s dissent raises questions about “temporal matching” in analyzing lump-sum licenses. He noted that while the $44 million projected royalty payment covered only 2017-2023, the actual $43 million license payment extended through 2030. This seven-year mismatch suggested the effective royalty rate should have been approximately half of 5.25%. The dissent’s analysis echoes concerns raised in cases like Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10 (Fed. Cir. 2012). In Whitserve, the Federal Circuit reversed a damages award in part because the patentee’s expert converted a lump-sum license payment into a running royalty rate by dividing the total payment by sales projections that only covered part of the license term. In Altria, where Judge Bryson’s dissent specifically criticized the majority for allowing a temporally mismatched analysis that could have similarly inflated the royalty rate by failing to properly account for the full duration of the comparable license.
When Altria’s expert testified about adjusting the 5.25% royalty rate from the Fontem-Nu Mark license based on technological and economic factors, Reynolds argued for different specific adjustments but did not contend the expert’s general approach of starting with comparable licenses and making adjustments was unreliable. The court characterized these as disagreements with specific adjustments rather than fundamental methodological failures — and thus creating a higher burden to overcome on appeal. The court’s reasoning suggests to me that to mount a successful challenge to comparable license damages testimony, defendants should focus on demonstrating fundamental methodological flaws rather than simply arguing for different adjustment factors within an accepted framework.
Although not referenced, the pending en banc review in EcoFactor must have certainly been in the minds of the Judges, particularly regarding the conversion of lump-sum payments to running royalties. The Federal Circuit has granted review specifically on the admissibility of expert testimony deriving royalty rates from prior licenses under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The Altria decision’s relatively permissive approach to this conversion process may be revisited — although the case may well be seen as a statement that once expert testimony is properly admitted, resolving conflicts between competing theories falls squarely within the jury’s province and is unlikely to be overturned on appeal.
= = =
The case was heard by Federal Circuit Judges Prost, Bryson, and Reyna. Judge Prost authored the majority opinion with Judge Reyna joining, while Judge Bryson wrote a separate opinion concurring in part and dissenting in part. At the district court level, Senior Judge Tilley presided over the case in the Middle District of North Carolina.
I want to note that this was an incredibly fast opinion. Oral arguments were held on December 2, and the opinion (including dissent) issued just over two weeks later.
The legal teams included several prominent attorneys. Representing Altria (the plaintiff-appellee) was Mark Perry from Weil, Gotshal & Manges LLP in Washington, DC, along with William Ansley, Priyata Patel, Anish Desai, Daniel Lifton, Robert Niles-Weed, and Elizabeth Weiswasser. On Reynolds’s side (the defendant-appellant), Jason Burnette from Jones Day in Atlanta led the legal team, supported by Laura Kanouse, Amelia Degory, John Marlott and Alexis Smith along with John Morrow from Womble Bond Dickinson LLP. Damages expert: James Malackowski (for Altria); Dr. Nisha Mody (for RJR)