As a principal at Hoffman Alvary & Company, what have you found to be the most successful approach to performing damages analyses in highly complex cases?
Since our founding 25 years ago, Hoffman Alvary has developed a distinctive approach towards evaluating damages. We have found that, in complex cases, it is critical to focus on the issues that are likely to affect the end result and develop answers that can be persuasively presented to triers of fact. This approach streamlines our workflow, provides greater efficiencies to our clients and results in meaningful insights.
In patent infringement matters, I focus on gaining a thorough understanding of the technologies at issue in order to evaluate them in the context of both the products into which they are incorporated, and their value in the market. I am also critically aware of the evolving case law that governs the analysis of patent damages.
What recent issues have arisen in US courts that have affected your damages analyses in patent infringement cases?
A recent issue involves what details of a patent damages claim can be left for expert discovery, and what should be disclosed by a party during fact discovery. Typically, in US courts the details of a party’s position on damages in a patent case are reserved for the expert report phase. However, a recent decision by the US Court of Appeals for the Federal Circuit (MLC Intellectual Property LLC v. Micron Technology, No. 2020-1413 (Fed. Cir. Aug. 26, 2021)) found that certain key damages theories were not adequately disclosed prior to the patent owner submitting its expert report on damages. As a result, the Court limited the damages theories that the patent owner could raise at trial.
How are you advising that clients deal with these potentially more rigorous early damages disclosure requirements?
Since courts recognise that damages theories and positions will evolve over time as new information comes to light, I emphasise to clients the importance of supplementing their damages disclosures as fact discovery progresses, to ensure that all relevant facts, documents and damages theories are included.
I also advise clients to coordinate with their damages expert early on in a case to evaluate key issues. This can help to identify relevant documents and ensure that damages positions are formulated in a timely manner so that the necessary disclosures can be made. Early coordination with a damages expert is an investment that can ultimately lead to stronger damages analyses that are - importantly - both independent and admissible.
Your practice also focuses on IP disputes at the International Trade Commission (ITC). What developments do you anticipate occurring in your analysis of economic issues in future ITC investigations?
I expect that there will continue to be developments in the “domestic industry” requirement in ITC investigations. As background, to have jurisdiction at the ITC, a patent owner must prove that there is a domestic industry, which generally involves showing that it has made significant investments and expenditures in products that practise the patented technologies. This can include investments in plant and equipment, labour or research and development. Given that a company’s accounting records may not include this information on a granular, product-by-product basis, a patent owner often must allocate its overall investments and expenses to a particular patent-practising product.
The ITC has not offered specific guidance on what types of allocations are reasonable in different circumstances. A sales-based allocation is one approach that is often used. This approach allocates expenses during a period in proportion with relative product sales during that period. This allocation method can work well for certain expenditures, such as manufacturing labour, as these activities are often correlated with the sales of products.
However, other types of investments and expenditures, such as research and development labour expenses, are often not correlated with sales occurring in a given year. By their very nature, research and development activities frequently relate to technologies that are not yet on the market and are not yet generating revenues. As a result, in certain situations sales-based allocation approaches may not be appropriate for evaluating certain expenses, like research and development.
The ITC has recently started to look closer at the merits of specific allocation approaches, including sales-based allocations, and whether they are appropriate for each given type of expense. Going forward, I anticipate that the ITC will continue to apply greater scrutiny to the allocation approaches used by experts in evaluating the domestic industry requirement.
Joel Wacek serves as a principal at Hoffman Alvary and is an expert in providing financial and economic analyses in IP disputes. He has testified as an expert witness in trials on damages in IP infringement matters, and provides financial analysis related to commercial disputes, licensing campaigns and matters before the International Trade Commission. Mr Wacek is a Certified Licensing Professional and member of the Licensing Executives Society and the International Trademark Association.