A recent case reported in the Docket Navigator underscores the principle that the “Entire Market Value Rule” can only be used to establish reasonable royalty payments when the patented feature generated the entire market demand for the product.

The case, Schindler Elevator Corporation et. al. vs. Otis Elevator Co., was heard by the U.S. District Court for the Southern District of NY. In that case, the defendant sought to exclude testimony from the plaintiff’s witness regarding the establishment of a reasonable royalty fee because the witness came to his conclusion using the “Entire Market Rule.”

The Court ruled for the defendant. In explaining its decision, the Court cited the Federal Circuit’s Decision in Lucent Technologies vs. Gateway, Inc. which stated that in order for the entire market value rule to apply, the patent holder must show that “the patent-related feature” is “the basis for customer demand.” Otherwise the correct procedure is to attempt to determine the amount of profit that can be directly attributed to the patented-feature alone. [The Lucent case, in turn, was based on the Civil War era Supreme Court Case, Seymour vs. McCormick.] 

As the NY Court stated:

It is not enough to present evidence that the patented feature was desirable, or that it played some role – even a substantial role – in the customers decision to purchase a system containing the infringing product. … But as long as other features of a product contributed to the customer’s decision, Supreme Court precedent (which the Federal Circuit is powerless to overrule) demands that there be an apportionment of the defendant’s profits and the patentee’s damages between the patented feature and the various unpatented features of the “whole machine” (in this case, the entire elevator installation).

Protecting your intellectual property rights is a complex business. If you suspect that your product might have been infringed, it may be advisable to rely on the expertise of an experienced IP rights lawyer to protect your rights. The Intellectual Property team at the Law Offices of James Scott Farrin is headed by Attorney Tara J. Williams, a patent attorney with more than 20 years of legal experience. The firm also has a unique contingency based Intellectual Property Department for certain infringement matters. The department’s goal is to assist small-business owners, artists and inventors to protect their creative endeavors when they may not otherwise have the resources necessary to do so. Call 1-866-760-4047, for a free, confidential review of your potential claim – or simply complete the contact form on the side of this page.

SOURCE: Schindler Elevator Corp. et. al. vs. Otis Elevator Company, 1-10-cv-05377-CM (S.D. NY June 23, 2011)