Issue #23-1 | April 11, 2013

Plaintiffs’ expert’s lack of market inquiry and analysis doesn’t impress crusading Judge Posner

In a recent Daubert decision (N.D. Ill.), Judge Richard Posner (7th Circuit) continues his judicial quest to tighten the gatekeeper role in patent cases. Although the plaintiffs’ expert was “highly qualified” and competent to estimate damages in the case—which involved a patented formula for creating cookies free of trans fats—she made several critical errors in her opinions and calculations.

First, after speaking with the plaintiffs’ scientific expert, she concluded there was no acceptable, noninfringing substitute for the patented formula, a factor that substantially boosted her royalty rate. Her reliance was allowable, the judge ruled, but her inquiry failed to establish whether cookies made with a substitute would actually sell. For that information, she could have talked (but didn’t) to the plaintiffs’ industrial baking expert as well as its marketing and consumer experts. “I don’t understand why” she didn’t talk to these experts, Posner said, and thus struck her conclusion that there was no noninfringing alternative that would have cost the defendant something less than a “hefty royalty” to implement.

Even if there were no “perfect” substitute for the patented formula, any royalty for infringement “would depend on the cost, in higher production costs and loss of business to competitors, of the best imperfect substitute,” the judge observed, “and [the plaintiffs’ expert] offered no evidence about either cost.”

Instead, plaintiffs’ expert relied on three comparable licenses to project the maximum amount of profits the defendant put at risk by failing to secure a license. However, one of the agreements involved a lump-sum payment and a licensee “wholly dissimilar” to the defendant (reinforcing the need for analysts to have access to the full-text of license agreements); another concerned a complex litigation settlement that the expert simply failed to analyze. The third license “possibly” supported a reasonable royalty, the judge held, limiting the expert’s testimony to this basis but dismissing her market share calculations as unreliable. Read the complete digest of Brandeis University v. Keebler, Nos. 1:12-cv-1508 et seq. (E.D. Ill., Jan. 18, 2013), in the April Business Valuation Update; the district court’s decision is posted at BVLaw, subscription required.

Expect courts to continue to criticize valuation experts and their methodologies

In an article in the April/May issue of World Trademark ReviewWes AnsonJeff Noble, and David Anderson of CONSOR discuss the state of IP valuation in litigation today, the reasons for the wide disparity in experts’ conclusions, and the scrutiny courts are directing to valuation analysts’ efforts to develop unbiased conclusions.

There is a distinct disparity between royalty rates used in litigation and those negotiated in arm’s-length transactions, wholly attributable to the context of the analysis.

In arm’s-length transactions, valuations are conducted by each party with its own respective interests in mind. However, the parties share the joint interest of reaching a mutual agreement. In the context of litigation, valuations are conducted by adversarial parties with distinctly different goals—an incentive for greater levels of speculation.… [A] calculation of damages is the valuation of an enforced transaction conducted at a single point in time…. [A]dversaries often conduct all-or-nothing analysis, seeking extremes rather than mid-points.

In his crusade to “fix” the U.S. patent system, Judge Richard Posner (7th Circuit) wants federal courts to use the two most ready tools at their disposal: the appointment of neutral damages experts and the application of a more precise calculus of damages.

The article concludes with the inevitability of increased scrutiny that courts will impose on valuation experts and their methodologies in IP litigation, ultimately “leading to damages awards that more closely reflect the value of the infringed asset.”

Apple’s leverage revealed in royalty rate negotiations with major labels

CNET reports Apple is close to an Internet music streaming deal. As BVR’s IP blog has suggested, Apple’s desire to get into the business has been slowed by the same royalty rate issues that plague Pandora and others in that space: The streaming margins are too small, and the royalty rates are too high for volume to make up for losses. There is no break-even point in sight for Pandora at current rates, a fact that propelled the CEO to announce his resignation.

Apple is not Pandora. It has leverage few companies have, and though there is no agreement yet, unnamed sources say it is close to one with Warner and Universal, and, if so, can Sony be far behind? As IP Value Wire has reported, the current royalty rate for Internet radio is a nonstarter, so Apple needs to negotiate a lower rate but bring other sweeteners to the table.

It is being suggested that “Apple’s planned music service would offer new revenue streams” to augment the lower royalty rates. Music labels will get paid much more by Apple than by Pandora, Spotify, and RDIO because they will also share in the proceeds for downloads from iTunes, facilitated through Apple streaming, and from “new audio ads Apple is planning on adding to the free service.”

This summer is an important target for Apple’s service, as still more competition reportedly is coming from Google’s YouTube. Key point: Pandora and others are lobbying Congress to make the royalty rate they pay more in line with that paid by satellite radio. So far, artists and the major labels have been successful in fighting that. If the royalty rate part of the Apple arrangement is, indeed, half that currently paid by Pandora, which is being suggested, would that not give Pandora (and Spotify, RDIO, etc.) more fuel for a fairness claim (see “What Is the Internet Radio Fairness Act?”)?

Details of the lawsuit-settling DuPont and Monsanto cross-license agreement released

On March 26, DuPont and Monsanto announced financial terms of the technology cross-licensing agreements that also settled their patent and antitrust lawsuits relating to Monsanto’s control of the technology that makes soybeans resistant to the weed-killer Roundup.

Under these agreements, DuPont Pioneer will make a series of upfront and variable royalty payments subject to future delivery of enabling soybean genetic material. It will make four annual fixed royalty payments from 2014 to 2017 totaling $802 million, and beginning in 2018, DuPont Pioneer will pay royalties on a per-unit basis for continued technology access to Monsanto’s Genuity Roundup Ready 2 Yield and Genuity Roundup Ready 2 Xtend seeds, with annual minimum payments through 2023 totaling $950 million. DuPont is providing more information in its 8-K, available at

Microsoft reveals its patent holdings

Microsoft has developed a patent tracker that facilitates a search of all Microsoft’s patent holdings. Why would Microsoft make it easier for competitors to search its patents? The company claims that it is a move of good faith to foster transparency. Perhaps there is more enlightened self-interest here.

First, as discussed in prior articles, Microsoft’s strategy is to develop significant licensing revenue from its patent holdings. Publicizing the extent of those holdings likely would call their attention to companies that should be licensing. Might a complete list of current licensees be forthcoming?

In addition, as pointed out by others, publishing the patents makes it more difficult for competitors to claim they didn’t know about them, presumably making it easier to prove willful infringement, if it came to that.

USPTO bizarre denial of Apple’s attempt to register iPad Mini as a trademark is reversed … by USPTO

If someone owns the rights to the “iPod Nano” trademark, you would think registering for iPad Mini would be a no-brainer.

One USPTO examiner felt thus:

  1. “The term ‘IPAD’ is descriptive when applied to applicant’s goods because the prefix ‘I’ denotes ‘internet;’”
  2. There is “evidence that the term ‘pad’ would be perceived by consumers as descriptive of ‘pad computers’ with internet and interactive capability;”
  3. “The term ‘MINI’ in the applied for mark is also descriptive of a feature of applicant’s product. Specifically, the … evidence shows this wording means ‘something that is distinctively smaller than other members of its type or class.’”

Apple’s attempt to get iPad Mini registered as a trademark was denied:

[A]pplicant’s mark comprises a combination of descriptive terms. Generally, if the individual components of a mark retain their descriptive meaning in relation to the goods and/or services, the combination results in a composite mark that is itself descriptive and not registrable.

But then, one week later, cooler heads at USPTO prevailed, and the examiner issued this apology:

Upon further review of the application, the examining attorney has determined that the following refusals issued in the initial Office action should be withdrawn.

The examining attorney apologizes for any inconvenience caused.


The Trademark Act Section 2(e)(1) descriptiveness refusal and the Sections 1 and 45 specimen refusal are both withdrawn.

USPTO was careful to note that it still has to research whether others have filed a similar trademark request that predated Apple. There is also a request for clarification that Apple is only looking to secure the word “mini” as it relates to the iPad Mini and not in a way that would prohibit others from using it. Good news for Apple; embarrassing news for USPTO.

Trademark Clearinghouse launched to help protect brand rights holders

The Trademark Clearinghouse (TMCH) has been activated, designed to help companies protect their trademarks (through registration only) from infringers trying to use another’s mark to the left of the dot in URLs. ICANN’s new gTLD program, which allows for unlimited opportunities to create domain names to the right of the dot (for a substantial fee), has created a need for help in protecting brands from cybersquatters. Here’s how rights holders can register their marks.

New updates to complete guide on fair value measurements published

The second edition of Fair Value Measurement: Practical Guidance and Implementation,by Mark Zyla (Acuitas), is now available from BVR. This comprehensive new update discusses the entire evolution of fair value accounting, including the impact of the recent economic crisis and the status of convergence with international standards. New and/or expanded chapters discuss:

  • Updated disclosure requirements for ASC 820, Fair Value Measurements;
  • New impairment testing for goodwill, long-lived, and indefinite-lived assets, plus a case study of a “qualitative” impairment analysis;
  • Using the guideline transaction method to measure the fair value of a privately held debt security;
  • Advanced methods for measuring the fair value of intangible assets—from Monte Carlo simulations to a decision tree analysis;
  • Fair value measurement for alternative investments, featuring the AICPA’s most recent guidance and practice aid; and
  • The latest regulatory guidance (SEC, PCAOB, AICPA) on auditing fair value.

For more information and to review the detailed table of contents, click here now.


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