The new role of surveys in assessing damages in patent infringement cases
July 28th, 2011The New Role of Surveys in Assessing Damages in Patent Infringement Cases
By: Gabriel Gelb
Background: Federal courts are moving toward assessing damages in patent infringement cases with the (newer) key criterion of consumer demand generated by the patents at issue rather than the traditional Entire Market Value Rule (EMVR).
Damages based on EMVR have been set aside in such cases as Cornell Univ. v. Hewlett-Packard Co. and Lucent Technologies Inc. v. Gateway Inc. Numerous legal authorities have discussed how decisions by Circuit Judge Randall Rader, among others, are modifying the entire market value rule toward considerations of consumer demand.
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In Cornell University, for example, the trial judge excluded an economist’s testimony because “despite the court’s repeated exhortations to supply economic proof linking any proposed entire market value royalty base to the market and consumer demand, [the expert] simply could not identify any reliable evidence to support his position.”
This emerging trend suggests integrating the expertise of economists with that of survey experts in supporting or defending a damage claim in a patent infringement case.
Based on my work in helping to rebut damage claims against such technology clients as Apple, Amazon and Dell, I suggest several guidelines for the use of surveys in damage claims based on patent infringement.
The first is: Accurately define the place of the patent-in-suit in the final product. I’ve rebutted where surveys claiming damages for software patents that have presented concepts to consumers that “over-reach” what the patent actually contributes.
Every survey requires asking unbiased questions of a relevant population but that’s just the basics. A very recent decision (April 2011) in the E.D. of Texas illustrates my first point where in Fractus, S. A., v. Samsung Electronics, two consumer surveys were excluded because they over-reached, that is, measured reaction to the product, an antenna, as a whole instead of focusing the survey on the specific technology in the patent-at-issue.
Second: Any survey on consumer demand will be subject to searching scrutiny by a rebuttal expert. This is important for patent attorneys to appreciate as they may not be as well versed in the “battle of the survey experts” as are trademark attorneys. Working toward a “bullet-proof” survey calls for a researcher who is highly experienced in litigation surveys.
Third: As in all surveys for litigation, the patent infringement survey is most open to criticism if it fails to accurately determine the relevant population. Survey experts need to be careful about defining the relevant population. For example, in a recent patent case I participated in for the defendants, the plaintiff’s expert queried retail consumers but failed to appreciate that the defendant’s principal customers were businesses: the purchasers were chief information or chief technology officers.
The survey experts in patent infringement litigation should be well versed in advanced statistical analysis, especially conjoint analysis, which examines how purchasers or decision-makers “trade off” various product attributes.
Step One
Experts should also be prepared to address the possibility that a given attribute or feature should not be assumed a priori to be a decision driver. In cases where the opposing attorney’s expert may challenge the very inclusion of a given feature in a survey, it may be advisable to utilize “heuristic methods” as a first step.
Heuristic methods, a decision shortcut: particularly suited to conservative models
A decision-centered approach yields a conservative estimate of patent value because only respondents who identify a given attribute as important and measure it in a way material to the patent will contribute to the calculated value. Heuristic methods ask about actual behavior, as opposed to hypothetical choices. Thus, if respondents qualified for the survey based on their reported purchases or interest in a particular product category, this approach may have more face validity.
Step Two
Conjoint analysis, a 30-year-old statistical technique which results in hard data and has been used successfully in damages cases, including
- Tivo v. EchoStar, in Eastern District of Texas
- Barbara Schwab et al. v. Philip Morris USA, in Eastern District of N.Y.
- U-Haul Int’l v. Jartran Inc., in District of Arizona
- Robert Kearns v. Ford Motor Co, in Eastern District of Michigan
- Continental Airlines v. American Airlines, in Central District of California
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What is so useful about it?
- Conjoint Analysis forces people to make trade-offs
‒ This gives much better data than simply asking people the importance of each component of the product
The results are better in that they predict future outcomes more accurately, and there are greater (and more believable) differences between features in their importance to buyers
From a recent patent infringement damages survey that I rebutted: “… on average virtually all of the features studied for the various ____ devices were rated as important based on the monadic rating scales.”
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In this presentation, I’ve outlined three general guidelines for the new world of surveys in patent litigation, especially those involving technology, and shown what I consider to be the best path to measuring consumer demand for the patent-at-issue. Naturally, in any specific case, the requirements may vary to some degree from these concepts.
How EMVR, a Legal Concept, is Changing to Recognize Consumers
January 14th, 2011By Gabriel M. Gelb and Betsy D. Gelb, Ph.D.
A quick summary of what’s happening in the very active patent infringement arena is that the “entire market value rule” [EMVR] is being modified by a much stronger emphasis on the concept of “consumer demand.” And Circuit Court Judge Randall Rader is partially responsible for this sea change in damages assessment.
This shift is most evident in the field of consumer and industrial electronics products, where one source has estimated that over 200 patent lawsuits are underway at any one time.
In recent lawsuits that are familiar to every patent attorney—Lucent Technology v. Gateway, Cornell University v. Hewlett Packard Company, and IP Innovation v. Red Hat Inc.—patent holders who allege infringement are finding it more difficult to claim royalties applied to the entire value of a product that contains the patent.
In Lucent Technologies v. Gateway, (and indirectly Microsoft), the jury in 2008 had awarded $357 million in damages to Lucent for a patent that allowed entering data without use of a keyboard, in the principal application a “date picker” function employed by Microsoft in its very popular Outlook software. This “mega award” was vacated by the Federal Circuit Court of Appeals, which said that the jury had improperly used the EMVR, concluding that “…numerous features other than the date-picker appear to account for the overwhelming majority of the consumer demand and therefore significant profit.” A new damages trial was ordered.
A similar finding was the conclusion of Judge Rader in Cornell University. In this case, the jury had found infringement of a part of what’s called a CPU brick and awarded $184 million to the university based on an 8% royalty of the CPU brick that contained the patented item. In effect, Judge Rader said “no way.” He reduced the award to $53 million because no evidence was offered to show “a connection between consumer demand for that product and the patented invention.”
And in the Red Hat case, Judge Rader said that EMVR may be in play only when the patented feature forms “the basis for consumer demand” for the larger product in which it is contained.
Thus, the courts are increasingly moving to an emphasis on to what extent, if any, the alleged infringing patent provides the basis for consumer demand.
In our opinion, there are two valid ways to estimate this “consumer demand” concept.
- Ask consumers how important are the benefits/features of the patented item in the product they purchased (stated demand), or
- Study how consumers make trade-offs in the purchaser decision, typically a process employing conjoint analysis (mathematically deriving the demand).
As experts involved in both methods in damage assessment, we discuss in the remainder of this blog why the trade-off measurement approach is superior to the direct questioning approach.
Asking consumers in a survey why they purchased a particular product is useful but typically results in a distorted picture. Consumers, upon reflection, usually respond that the majority of a product’s features are “very important.” This response is not useful when, in a legal case of alleged patent infringement, you are trying to determine the impact of a patented item on sales or market share.
In a recent damages case in which the senior author rebutted the plaintiff’s survey that involved asking which features of a product were important, saying, “…on average virtually all of the features studied for the [product named] were rated as important on the monadic rating scales.”
As noted in the textbook, Consumer Behavior, 3rd, edition [Hoyer and MacInnis), “…Our memory of details decreases over time. Thus, the attribute information we recall tends to be in summary or simplified form rather than in its original detail.”
Thus, the reason why consumers are likely to say that every feature or benefit is somewhat or very important is that they have, over time, discarded many of the original motivations and summarized what is left in memory.
Basically, another problem is that asking consumers to evaluate features one at a time does not take into account the multiple trade-offs that consumers are simultaneously making, for example, quality versus price, famous brand name against a lesser brand, and so on.
A 30-year-old mathematical concept that measures the trade-offs that people make in decision-making is now being applied to damages assessment. It’s called conjoint analysis and it’s used in a variety of fields, including government procurement, healthcare and operations research.
What conjoint analysis does is to learn how consumers value and choose among products that consist of multiple attributes and when trade-offs are involved across attributes.
Our firm has been using conjoint analysis since the 1980s and a firm in Boston, Applied Marketing Science, has successfully employed conjoint methods in two damage assessment cases, Barbara Schwab et al. v. Philip Morris et al. and in the Eastern District of Texas, TiVo v. EchoStar.
A product or service consists of a bundle of attributes. When conjoint analysis is employed. consumers view a set or “package “of features at the same time and are asked to choose from a series of multiple sets. Then, through computer analysis, the valuation of the individual attributes can be determined.
Today there are several forms of conjoint analysis such as discrete choice modeling, and care must be taken in organizing the design of the research. But the results are quite clear in formulating how consumers value each particular attribute or variations of that attribute.
Thus, for the purposes of assessing how a particular patented item contributes to consumer demand, conjoint analysis offers the best solution, especially when the courts require that consumer input be considered a crucial part of damages assessment.
Caution: A trademark can’t be valued as a brand.
July 12th, 2010By Gabriel Gelb
One of the most vexing issues facing intellectual property attorneys is establishing a value after a trademark has been infringed or diluted or sold, or when an organization wishes to arrange a licensing fee. Yes, a brand may be the most valuable asset of a company. But what is the trademark worth?
The central point to be made is that, contrary to widespread use of both terms as synonyms, a trademark is an identifier or “face” of the brand, not the brand itself. The American Heritage Dictionary, Second College Edition, made this mistake when it gave as the first definition of the term brand, the following: “A trademark or distinctive name identifying a product or a manufacturer.”
Many use the terms brand and trademark interchangeably. As a writer on trademark valuation notes in an e-mail to me, “I find both businesspeople and attorneys conflate the terms brand and trademarks” (Michael J. Freno, Kenyon and Kenyon LLP, author of “Trademark Valuation: Preserving Brand Equity,” The Trademark Reporter, September-October 2007. However, they should not make that mistake. The value of a trademark is a fraction of the value of a brand, and both the total brand value and the trademark’s proportional value must be estimated when legal issues arise.
Skeptics may ask, what is the brand if not its trademark? The answer is, the product itself and its entire range of attendant attributes. Without the product, there is no brand — and no enterprise, one might add.
In today’s world almost everything is branded, starting from the original use as a simple branding iron to much more expansive applications, such as the following: “The Olympics are branding Canada to the world, but they are also branding Canada to the Canadians,” said Michael Ignatieff, leader of the Liberal Party of Canada, quoted in The New York Times.
What might a brand be worth? The president of Coca-Cola, the most valuable brand in the world (valued at $68.7 billion) once famously said that that if all their buildings and equipment burned down, he could get a loan to rebuild based on the value on the brand alone. But if the brand was taken away, the company couldn’t recover. On the negative side of brand value, the estimated value of Citi’s brand went from $20.1 billion in 2008 to $10.2 billion, according to an article in Business Week, “100 Best Global Brands.”
But how much is the trademark of Coca-Cola or Citi worth? Certainly not as much as the brand because the trademark can be changed without necessarily diminishing the value of the brand. It is not rare for marketers to tweak the product name and even more common for them to change some facet of their trade dress, a brand signal that can be a logo, color, sound, or “look and feel” of a tangible product.
Perhaps here it is worthwhile to define the meaning of these two intangibles, recognizing because they are intangible, honest folks may differ. But it is important to offer a starting point because of a nascent movement to require companies to value their brands on their balance sheets. Today relatively new accounting standards require brand evaluation only when a company is merged, bought, or sold (Financial Accounting Standards Board rules 157 and 159.) However, given this precedent, new rules may be promulgated to value a company’s brands routinely.
Basically, a brand can be defined as the sum of its product’s or service’s attributes, its history, reputation and all the ways it’s been experienced by whatever buyers it targets. So of course that includes its trademark, whether expressed as a corporate or product name or logo, as a component of the brand. Whether it is 15% component or a 50% component or something in between depends on its specific situation.
The balance of this article points to ways the trademark itself can comprise a smaller or larger component of the value of the brand.
For example, consider the longevity of the Coca-Cola brand and its worldwide distribution. But distinguish that coverage from a 3-year-old restaurant famous for its menu in a certain part of a city. In addition to geographic reach, the value of a brand is modified by its uniqueness and/or distinctiveness vis a vis its competition, its trade dress, how it is promoted, whether its business model is business-to-consumer or business-to-business, and many other factors. For example, for an industrial product, the quality of its sales force is consequential; for a consumer product, the quantity and quality of its advertising matters greatly, and for a service, a major issue is the quality of personnel.
Following are three broad factors to consider in valuing a trademark.
1. Valuing the trademark
If, in valuing a brand, one removes the concept of its trademark, what is left? As stated above, what remains is the product, which may be distinctive in and of itself—the McDonald French fries come to mind—or it may not be distinctive vis a vis its competitors –milk in a carton comes to mind.
So if one is valuing the trademark of a brand of milk, and if the milk itself has no perceived distinctiveness compared to competing brands of milk, then the value of the trademark and the value of the brand are equal. However, if one is valuing the first toothpaste brand that contains a whitening agent, then that distinctive brand attribute justifies a higher price point against its competitors. Once that difference based on a product characteristic is calculated, it can be subtracted from the total brand value, with the remainder the value attributed to the trademark.
In short, trademark value can be calculated by measuring the value of the product itself against like competing products and subtracting its incremental value from the total value of the brand, leaving the remainder for the trademark.
2. Consumer or business product or service
As a general rule, a trademark of a consumer product comprises a higher proportion of a brand’s value than does the trademark of an industrial product. The major reason for this is that consumers are likely to be introduced to a branded product by advertising, which is not the case with a business-to-business product. In the latter case, the price points are higher and the introduction is accomplished through a sales force. Thus, name recognition is most important as a consumer breezes by supermarket shelves.
In the much higher ticket price of a business-to-business product, the buyer is heavily influenced by previous experience with the brand and possibly with other brands from the same company. Obviously, the decision in a business-purchasing situation may involve a committee on the customer side and the depth of technical expertise on the seller’s side. Here, advertising is less consequential.
3. A simple trademark valuation research design
Given the increasing attention to placing intangibles on a company’s balance sheet, a number of consulting firms are available, many of which offer their own approach—often somewhat complicated—to valuing a brand, thereby providing a ceiling for the value of its trademark. For those not in a Coca-Cola or Intel financial realm, one relatively inexpensive way to measure the value of a trademark is by placing your product in a lineup with competing products and asking consumers how much they would reasonable pay to buy your product if a standard product sold for X.
This is known as a price premium approach to valuing a brand, as compared to more highly technical accounting methods, or those that value brand as a proportion of market capitalization.
An actual, although somewhat disguised, assignment by the author was to calculate the trademark value of an automobile tire. The design called for showing a lineup of four tires where the Goodyear tire was priced as the price anchor at $125 and the consumer was asked what he or she might pay for the test tire and the two others included as controls. One interesting finding was that the test tire’s perceived value was different depending on geographic location: it was higher where it maintained a higher market share. In the New York metropolitan area, where the test tire had a 9% market share, its expected retail price averaged $109, as was the case in other geographic areas with similar market shares. By contrast, in most Western states, where the test tire’s market share was only 5%, the price consumers expected to pay was $94. Presumably, then the value of the trademark would vary as the brand value varied.
The same test could be employed for toothpaste, packaged bread, branded clothing or any other widely available standardized consumer products. Because many industrial products may not be standardized, it is not clear if such a test would be worthwhile. However, it might be employed for services such as hospital stays, eye examinations, oil changes, or package delivery.
About Gelb
Felling pressure to increase volume and grow revenues? Gelb Consulting Group, Inc. is a strategic marketing firm that merges analysis, strategy and technology to help clients build and sustain revenue growth.
Gelb is here to help you understand the complexities of your market to develop and implement the right strategies. We use advanced research techniques to understand your market, strategic decision frameworks to determine the best deployment of your resources, and technology to monitor your successes.
For over 40 years, we have worked with marketing leaders on:
- Strategic Marketing
- Brand Building
- Customer Experience Management
- Go to Market
- Product Innovation
- Trademark/Trade Dress Protection
Betsy Gelb Shares Insight with Houston Chronicle
August 20th, 2009We’d like to take a quick departure from our usual subject matter and congratulate our colleague Betsy Gelb on great insight in a local article. Read the Houston Chronicle piece Betsy contributed to here:
Keeping Up with Adwords and the Internet By Gabriel Gelb
July 6th, 2009The advent of the Internet as a potent marketing tool poses many new challenges, not only for marketers but also for their trademark attorneys.
Case in point: Geico vs. Google, a federal lawsuit heard in Alexandra, VA., that pitted trademark owners against search engines. Google won the first round in 2004 when a federal judge said Google could continue to sell ads triggered by searches using trademarked company names. And the issues continue: do pop-up ads that use trademarked names violate trademark law?
As an expert witness in trademark and trade dress cases, I know that the basic source for these issues is, “McCarthy on Trademarks and Unfair Competition.” My point today is that trademark attorneys would never know about Geico vs. Google if the only McCarthy text in their library was its 2006 edition.
But this seminal case does appear in McCarthy’s publication in the section on Survey Evidence in its December 2008 Release 48 (the publisher sends out updated sections). So my theme here is that keeping up to date requires accessing updated information.
Of course, I have a vested interest in the latest McCarthy update, because he introduces a brand new discussion of ‘Internet Surveys,’ in which he liberally quotes Gelb (Gabriel) and Gelb (Betsy) based on our article in the September-October 2007 issue of The Trademark Reporter, the law journal of the International Trademark Association.
By the way, Geico did offer a survey that purported to show confusion when Google allowed Geico’s name in sponsored ads. However, weaknesses in the survey method led the judge to rule that the source of the confusion was not effectively established. The judge spent considerable time criticizing the survey’s “demand effects,” its “order effects” and the sub par construction of its control group.
And thus, another plug for the McCarthy text, since his section on Survey Evidence is the complete explanation of the various survey methods to support a finding that a product or service has or has not been infringed or caused confusion by use of its trademark, as in the Geico case.
For more information, visit www.gelbconsulting.com or contact Gabe Gelb at 281.759.3600 x1014.
Meet Gelb: Gabriel Gelb (Gabe)
June 29th, 2009
We would love to introduce our team by sharing a little bit about each of us!
Title
Senior Consultant
Origin
New York City
What did you want to do for a living when you were 10 years old?
I have no idea
Favorite thing about the city you live in now?
Houston is a great cosmopolitan city with lots of things to do, places to go.
Best way to spend a sunny Saturday?
Riding my bike in Memorial Park
What restaurant do you keep going back to?
McCormick and Schmick’s
I never go without…
Lots of strong coffee and sometimes, chocolate!
Online Surveys: The View from Nova Scotia by Gabriel Gelb
June 23rd, 2009As a firm committed to online, a.k.a. Internet, research, we constantly track and add our own writings about this “new” survey method.
Most of our quantitative surveys are now conducted online and we employ an IT staff to program online surveys, as well as to conduct other techniques such as dashboards, interactive web sites, and online reporting of research results.
One of my favorite articles is this field was written by a teacher-librarian in Nova Scotia and published in 2002 by First Monday, a peer-reviewed journal on the Internet sponsored by the University of Illinois at Chicago.
The author is Holly Gunn, and when I asked her how she selected this topic for her sabbatical paper, she told me it was part of her research to teach high school students about “web searching techniques,” which she then submitted as her thesis for a master’s degree in education.
Her paper is largely based on academic papers written between 1996 to 2001 about the rewards and challenges of conducting online and in the seven years since that was published, many of these issues have been addressed. Today, as noted in my own article (see below), the field has advanced to the point where major consumer packaged goods companies such as Procter & Gamble are using online as their primary research method.
For a view of the early days of online, Ms. Gunn’s article is quite thorough in its presentation of the pluses and minuses of online surveys and her writing style is clear and straightforward. She points out that computer programming expertise is important (and that’s why we at Gelb maintain an IT staff of four professionals.)
It’s fascinating to observe the birth and growth of a new research technique. The few holdouts in using this method need to remember that when telephone interviewing was first introduced in the 1960s, it was attacked as inferior to the then established method, door-to-door interviewing!
For a more recent review of online surveys, see Gabriel and Betsy Gelb’s article in The Trademark Reporter, law journal of the International Trademark Association, September-October 2007.
For more information, visit www.gelbconsulting.com or contact Gabe Gelb at 281.759.3600 x1014.
How Attorneys Can Help Clients Increase their Sales by Gabriel Gelb
April 27th, 2009Many product and service marketers are missing out on how they can gain a competitive advantage. Alert attorneys can counsel their clients on the value of creating intellectual property [IP].
As an expert witness in trademark and trade dress litigation, I constantly see how a relatively small number of companies create value by creating protectable trademarks and trade dress (the look and appearance of a product or its packaging).
So I’ve always wondered why more marketers don’t create value by distinguishing their products, either through their brand name, or through the use of trade dress. Perhaps it’s because advertising agencies lack knowledge about intellectual property.
So attorneys, especially IP attorneys, have an open door to counsel their clients about how to create value in new or existing products. The opportunities cross all industries, as shown by:
Outback Steakhouse’s ‘Bloomin Onion” or IHOP’s blue roof, or Coke’s famous hourglass bottle, or industrial products like indoor or outdoor machinery. On the latter point, Honda Power Equipment recently successfully sued a Chinese-made copy of its GX series engine used on construction sites.
Trade dress can even more effectively help to boost sales if the design is highlighted in promotion and advertising. Or its packaging can be found to be inherently distinctive, as the U.S. Supreme Court ruled in a famous case in which I was a witness about the decor of a casual Mexican Restaurant, Two Pesos v. Taco Cabana.
For more information, visit www.gelbconsulting.com or contact Gabe Gelb at ggelb@gelbconsulting.com, 281.759.3600 x1014.
Sources: See Betsy and Gabriel Gelb’s article on trade dress in the Wall Street Journal, Dec. 1, 2007, “When Appearances Are Deceiving.”