The Fractus v. Samsung case poses an interesting question: Where Fractus seeks a reasonable royalty on patented antennas, which it had actually sold in the past to Samsung, should the royalty base simply be that actual price, or can other techniques be used to account for the value of the antenna within the cell phone? Fractus had sold antennas to Samsung for $1.44 each, yet now argues that 10% of Samsung’s phone price ($140) is attributable to the antenna, i.e. $14. Judge Davis allowed the 10% apportionment, ruling that plaintiff presented ample evidence to support it.
The parties apparently agreed that the patented antennas were not the basis for customer demand for Samsung’s infringing phones, and as such, an apportionment of the phone value was called for under the Entire Market Value Rule to isolate the value of the patented antenna. Fractus’s damages expert claimed that 10% of the average market value of the Samsung phones is attributable to the internal antenna, citing technical information, documents from Samsung and third-parties describing the relative importance of small, multiband internal cell phone antennas, and customer and service provider data regarding the relative importance of internal cell phone antennas. Samsung, on the other hand, argued that the prices it had actually paid Fractus for antennas was the appropriate royalty base. The jury awarded damages pretty close to Fractus’s claim, and in this post-trial order, Judge Davis rules that sufficient evidence supported the 10% apportionment, based upon the above support as well as two other factors: (1) Samsung’s royalty base may not have accounted for Fractus’s status as a small, start-up like company, and the effect that would have had on Fractus’s ability to demand higher prices for its antennas, and (2) Samsung’s royalty base also did not account for the effect wide spread infringement had on Fractus’s ability to derive the full value of its patents.
VLF Consulting is officially glad we were not asked to predict the outcome of this argument. We plan to watch out for this issue, to see if other courts take consistent positions.
As a side issue, Samsung also argued that Fractus used the number of infringing units as its royalty base to disguise its reliance on the entire market value rule. Samsung argues that the royalty base must be the revenue implicated by the infringement; therefore, the number of infringing units cannot be that revenue pool. The court rejected this argument, citing several factors to support the methodology. Judge Davis also ruled that references at trial to the average Samsung phone price was not intended to, and did not, “skew the damages horizon for the jury” under Uniloc.
It should be noted that plaintiff’s damages claim was for a portion of the $14 value of the antenna; specifically 3.5% to 10% of the antenna value, which led to a royalty claim of $0.40 to $0.60 per unit, multiplied by 65 million units for a claim of $26 million to $39 million. Samsung argued for a royalty of $0.011. The jury awarded $0.355 per unit.
Fractus, S.A. v. Samsung Electronics Co., Ltd., et. al., 6-09-cv-00203 (E.D. TX, June 28, 2012, Order) (Davis)