In a recent decision from the United States District Court for the Southern District of New York, the district court granted defendant's motion in limine to exclude plaintiff's damage expert's testimony based on the entire market value rule. The district court held that the plaintiff's expert's testimony ran afoul of the Federal Circuit's decision in Lucent Technologies v. Gateway, Inc., 580 F.3d 1301, 1336 (Fed. Cir. 2009).

The district court began its analysis by noting in Lucent that "the Federal Circuit announced that its jurisprudence on the entire market value rule--pursuant to which a patentee assesses damages based on the entire market value of the accused product--was quite clear. For the entire market value rule to apply, the patentee must prove that, 'the patent related feature is the basis for customer demand.'" The district court also noted that in a more recent decision, Uniloc USA, Inc. v. Microsoft, 632 F.3d 1292 (Fed. Cir. 2011), the Federal Circuit "warned against the danger of admitting consideration of the entire market value of the accused product where the patented component does not create the basis for customer demand."

As a result, the district court concluded that its role was "to see if the patentee had proffered some credible evidence that customer demand for an entire elevator system was based on some aspect of that system . . . rather than on other factors including the vendor's history, reliability, price or ability to get the job done in a timely fashion." The district court then questioned whether the plaintiff or its expert had made any use of econometric studies, customer surveys, regression analysis or other marketplace-wide evidence of demand sensitivities to satisfy this requirement.

Although the district court agreed that the purported patented feature was a desirable feature and that the defendant would have been at a competitive disadvantage if it had not incorporated this feature into its elevator system, the district court found that this was insufficient to provide a sound economic connection between the product's desirability and the basis for the public demand for the elevator system. The district court therefore concluded that it could not permit the plaintiff's expert to base his damage analysis on the entire market value of the elevator system.

Of particular significance, the district court stated that "[n]one of the evidence provided to the court includes any sort of statistical or regression analysis. None of it consists of customer surveys or even interviews asking [defendant's] customers why they selected [defendant] to provide their elevator installations." This absence of evidence alone proved fatal to the plaintiff's expert.

In addition, the district court found that plaintiff's expert used the wrong standard, stating that "[h]e opines that the patented feature was a 'substantial basis for demand' . . . But the test, as articulated by Chief Judge Rader, is whether the patented component was of such paramount importance that it substantially created the value of the component parts--thereby making it 'the basis for customer demand.'" The use of the wrong test was a second and independent reason for excluding the expert's testimony.

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The district court's decision to preclude plaintiff's expert from testifying on the entire market value rule highlights the important of obtaining--or developing--evidence to show that the customer demand for a product is due to the patented features. After the Federal Circuit's recent decisions on damages, it is becoming more and more clear that the district courts will insist on much more evidence than in the past and it will likely be difficult to make use of the entire market value rule absent strong evidence of a sound economic and evidentiary basis linking the demand for the product to the patented feature.

Inventio AG v. Otis Elevator Co., Case No. 06 Civ. 5377 (CM) (S.D.N.Y. June 23, 2011).