Royalty rate analysis suffers from indiscriminate use of data

Chico’s Fas, Inc. v. Clair, 2015 U.S. Dist. LEXIS 71716 (June 3, 2015)

Information is not knowledge. Damages experts working on intellectual property cases today have a wealth of sources from which to obtain royalty rate data , but it's what they do with it that makes or breaks their royalty rate analysis in court.

A recent patent dispute involving two businesses that sold camisole bras is a case in point. One party claimed the other party’s “Oh My Gorgeous” bras infringed its three patents. As a result, the opposing party (the plaintiff) sued to obtain a declaratory judgment that there was no infringement and that the patents were invalid and unenforceable.

The patent holder hired a damages expert who pulled data from a number of sources, including RoyaltySource, the Licensing Economic Review (LER), the Licensing Letter Royalty Trends Report, as well as a 2012 KPMG article on royalty rates, to determine what royalty rate the patent holder would have received through arm’s-length negotiation. Experts typically rely on the Georgia-Pacific framework to guide their analysis.

The opposing party filed a Daubert motion to exclude the entire testimony. The court did not go that far, but it agreed that all statements related to these sources were unreliable or irrelevant to the case at bar. One recurring problem was that the expert’s searches were too broad resulting in “generalities” of royalty rates for a wide range of goods.

For more about the case, click here.