Here, the district court precludes the proposed expert testimony of Dr. Russell Mangum, who intended to opine that the reasonable royalty base should consist of infringing Otis elevator installations because the patented featureis a “substantial basis for demand” for the elevator installations. The court concludes that such a royalty base runs afoul of Lucent v. Gateway and Uniloc, which allows a patentee to assess damages based on the entire market value of the accused product only where the patented feature “creates the basis for customer demand” or “substantially create[s] the value of the component parts” (see Rite-Hite, which cites to Marconi).
The court finds that the patented “seamless entry” destination dispatching was indeed a desirable feature, and that lacking such feature would be a competitive disadvantage for Otis, however, it was not the basis for public demand for an Otis (or any other manufacturer’s) elevator system. Thus, Dr. Mangum used the incorrect standard (“a” basis instead of “the” basis).
Instead, the court suggests Dr. Mangum should have taken into account other factors, including the vendor’s history, reliability, price or ability to get the job done in a timely fashion. Demonstrating a “sound economic connection” could be done with “econometric studies, customer surveys, regression analysis or other marketplace-wide evidence of demand sensitivities to satisfy this requirement.”
This decision contrast somewhat to the August 2011 decision by a VA court in Activevideo v. Verizon(dated 8/3/11 – Judge Jackson) that an expert was ok to use the entire product as the royalty where the patented invention is a substantial basis for demand, as long as the evidence demonstrates that, in a hypothetical negotiation, it would be appropriate to do so.
Case: Schindler Elevator Corporation, et. al. v. Otis Elevator Company, 1-06-cv-05377 (S.D. NY, June 23, 2011, Order) (McMahon)