EFF's Defend Innovation Project: Analysis (Part 6)

The law should limit damages so that a patent owner can't collect millions if the patent represented only a tiny fraction of a defendant's product

The Problem:  "If a patent owner wins a lawsuit, it may be able to recover a “reasonable royalty.”  Under present law, calculations of such a royalty can get out of hand and reach well into the millions of dollars, even if the patent only covers a small fraction of the defendant’s product.  Many defendants choose to settle instead of fighting bad patents out of fear of paying these high damages."

The Solution:  "The law should be clear that damages may not be based upon the entire market value unless the patent’s specific contribution is the predominant basis for the demand of a defendant’s product or process."

(source)

  There definitely needs to be a legally-codified statute requiring reasonable proportionality between the patent's impact on a product and the damages sought.  However, as written, this proposition does not seem to accomplish what it ostensibly aims to accomplish.

  How do you define a tiny fraction, in terms of lines of code, or relevance of the feature to the product's marketability?  A small bit of code can have a giant impact on a product.  Likewise, a large chunk of source code may merely be overhead necessities and initializations, with little import in terms of innovation.  For example, many low-level physics simulations contain mostly rendering code and other overhead functionality, with maybe 15 lines of true physics calculations.  Obviously this is all just for the sake of argument, as I'm sure there will be detailed clarification on this matter when the proposal reaches final form.
 
  As was pointed out by a J Doe on the Defend Innovation website, a ruling from Laserdynamics v. Quanta Computer, Inc. has already set a fairly good precedence for solving both the EFF's initial stated problem and the issues defined above:

"Damages are recoverable under the entire market value rule only if the patented apparatus was of such paramount importance that it substantially created the value of the component parts ... Therefore, the patentee must prove that the patent-related feature is the basis for customer demand .... Further, it is not appropriate in cases where the unpatented components have essentially no functional relationship to the patented invention and . . . may have been sold with an infringing device only as a matter of convenience or business advantage.”

  This precedent could be expanded to include a statute which details the guidelines for reasonable proportionality between the patent's impact on a product and the damages sought, rather than trying to rewrite a whole new law.

Next: Congress should commission a study and hold hearings to examine whether software patents actually benefit our economy at all.