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The Federal Circuit's opinion in Rex Medical, L.P. v. Intuitive Surgical, Inc. underscores the judiciary's strict insistence on reliable damages methodology and proper apportionment in patent cases. Although the jury initially awarded Rex Medical $10 million for infringement of U.S. Patent No. 9,439,650 ("the '650 Patent"), the district court reduced the award to nominal damages of $1, and the Federal Circuit affirmed that reduction.
The dispute centered on two related patents, the '650 Patent and U.S. Patent No. 10,136,892 ("the '892 Patent"), though the '892 patent was withdrawn before trial. To determine damages, Rex's counsel, Cooley, and Rex's expert, Mr. Kidder, employed the hypothetical negotiation approach under 35 U.S.C. § 284, concluding that a negotiation between Rex and Intuitive would have yielded a $20 million lump-sum license. Mr. Kidder's analysis relied on a prior settlement agreement between Rex and Covidien that licensed a broad portfolio of Rex's patents, including both the '650 and '892 patents. The district court, however, excluded Mr. Kidder's testimony, finding that he failed to apportion, i.e., to isolate the value attributable solely to the '650 Patent, and therefore deemed his reliance on the Covidien license methodologically unreliable.
The Federal Circuit, citing Apple v. Wi-LAN and Jiaxing Super Lighting v. CH Lighting, agreed that Kidder's apportionment methodology was "untethered to the facts." The court found that Mr. Kidder's assumption that most value stemmed from the two asserted patents lacked factual support, particularly since Rex had previously dropped the '650 Patent in its suit against Covidien. The court stressed that "expert testimony should be excluded when it fails to allocate license fees among licensed patents." The court stated that, like the flawed opinion in Apple, Mr. Kidder's assumption that "most value" resided in two patents was "untethered to the facts" because he had not analyzed whether other patents contributed value or whether any foreign patents covered relevant technology.
Rex's fallback, lay testimony from its president, did not cure the problem. The witness admitted he could not assign value to the '650 patent, and no evidence linked the $10 million Covidien settlement to that patent alone. The court concluded that any award beyond nominal damages would be pure speculation: "Damages must not be left to conjecture by the jury. They must be proved, and not guessed at." In short, the court found that the record contained no legally sufficient evidence from which a reasonable jury could infer a nonzero royalty.
This decision offers a cautionary tale for both patent holders and litigation counsel. What went wrong for Rex Medical was a failure to apportion and substantiate. Its damages expert relied on an unsegmented portfolio license and ignored the requirement that a patentee must isolate the economic value of the infringed patent from other intellectual property. Moreover, once its expert was excluded, Rex failed to present alternative, fact-based evidence to establish a reasonable royalty. Ultimately, Rex Medical reinforces why it is critical that damages analyses be factually grounded and economically defensible. For patent owners, it serves as an ominous reminder that even a clear finding of infringement can yield only nominal relief if their damages evidence fails to meet the requisite evidentiary requirements.
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