On September 10, 2013, Judge Jones of the Western District of Virginia issued an opinion in Electro-Mechanical Corp. v. Power Distribution Products, Inc., Case No. 1:11CV00071 (Doc. No. 292), addressing post-trial motions concerning lost profits and the entire market value rule (EMVR). The number of cases addressing EMVR in the lost profits context are relatively rare, in comparison to the frequency in reasonable royalty cases, making this case an interesting read. The court rejected defendant’s JMOL motion on procedural grounds, but granted defendant’s new trial motion on lost profits, agreeing with defendant that the jury’s damages award based on EMVR was not supported by the evidence.
The court discussed the law of lost profits and EMVR. For the latter, the court quoted Judge Rader’s district court opinion in the Cornell case, in which Judge Rader set forth a three-part test for satisfaction of EMVR. Cornell, 609 F. Supp. 2d at 286-87. The court also discussed the Federal Circuit’s decision in LaserDynamics: “[I]n any case involving multi-component products, patentees may not calculate damages based on sales of the entire product, as opposed to the smallest salable patent-practicing unit, without showing that the demand for the entire product is attributable to the patented feature.” LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67-68 (Fed. Cir. 2012). The court concluded that LaserDynamics “made clear that it is insufficient for a plaintiff seeking to invoke the entire market value rule merely to show that a customer already in the market for the larger product would choose a version containing the patented component over a version not containing the patented component. Instead, the plaintiff must prove that the customer’s decision to buy the larger product in the first place is motivated by the presence of the patented component. See id. at 68.” Slip op. at 13.
The court granted a new trial because the plaintiff failed to satisfy this requirement from LaserDynamics. The plaintiff’s damages expert (Graham Rogers) testified he was unaware of any customer that already owned the system without the patented (i.e., infringing) component that chose to replace it with a system including the infringing component. Instead, the evidence showed that a customer would first decide to purchase the system, and then decide whether to include the infringing component. The evidence also established that the infringing component could be purchased individually and added to a system without the component. The court reasoned that such evidence does not justify invocation of EMVR. Slip op. at 14 (citing LaserDynamics (“[I]f given a choice between two otherwise equivalent laptop computers, only one of which [contains the patented component], proof that consumers would choose the laptop computer having the [patented component] says nothing as to whether the presence of that [component] is what motivates consumers to buy a laptop computer in the first place. It is this latter and higher degree of proof that must exist to support an entire market value rule theory.”).
The defendant’s expert failed to provide any calculation of lost profits based on sales of the infringing components alone. The court therefore granted defendant’s motion and gave plaintiff the option to accept a reasonable royalty award based on the price of the infringing components, or a new trial on damages.