A Case Against the Entire Market Value Rule

(ProQuest: ... denotes formulae omitted.)Table of ContentsI. Introduction 2233II. Present State of Patent Damages Law 2234III. Enter the Entire Market Value Rule 2243IV. Recent Cases Applying the Rule 2248V. District Courts and the EMVR 2254VI. Remedies in Copyright Law 2257VII. An Attempt to Impart Clarity 2259VIII. Support from the Federal Rules of Evidence 2264IX. Harmonizing Patent Damages with the Goals of Patent Law 2267X. Conclusion 2269I. IntroductionThroughout the history of patent law, courts and juries have struggled to determine the value of a single component in a multifaceted device or process when that single component alone is found to have infringed a valid patent.1 Given the intricacies inherent in electronic devices today, a large number of patents often cover a single product.2 The difficulties in placing a value on a single infringed patent incorporated in such a device have become apparent in several recent cases before the United States Court of Appeals for the Federal Circuit.3 These cases have muddled the rules applied in determining patent-infringement damages. This Note intends to challenge the logic of applying what has become a court-adopted evidentiary exclusion rule, known as the entire market value rule (EMVR), to reasonable royalty determinations. This Note concludes that courts have transformed what was originally a sword for plaintiffs into a shield for defendants without clearly justifying the change under remedies law principles.4II. Present State of Patent Damages LawPursuant to constitutional authority, Congress has authorized limited-term monopolies, in the form of patents, to be granted to inventors for their inventions.5 The limited monopoly seeks to give adequate incentive for undertaking financial risks associated with invention, while still providing competition in the market over the long term.6 The United States Patent and Trademark Office decides whether to grant or deny a patent after application for one, but when a patent holder alleges infringement, federal courts typically decide on the patent's ultimate validity.7 A valid patent is infringed if another party makes, uses, or sells the patented invention without the patentee's consent.8 The United States Court of Appeals for the Federal Circuit has exclusive jurisdiction over appeals from final decisions of a federal district court when the underlying civil action arises under the patent statute.9Section 284 of Title 35 of the United States Code10 provides that [u]pon finding for the claimant [a] court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.11 The statute, based on the Patent Act of 1946, has been interpreted since 1964 as precluding the remedy of disgorgement of the infringer's profits related to a utility patent.12 In the event of a conscious and willful infringement, the court may decide to increase the [total damages award] up to three times the amount [of compensation damages] assessed.13 Thus, punitive damages are available under the statute. Furthermore, courts may grant injunctions prohibiting an infringer from further infringement subject to the traditional four-factor framework that governs the award of injunctive relief.14In court, a patentee has two options when seeking compensation from an infringer. First, the patentee may seek profits that it lost due to the existence of the infringer's product in the marketplace.15 In seeking lost profits, a patentee must show that but for infringement, it would have made additional sales or could have charged a higher price for its own product. …