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The "entire market value rule" (EMVR) is a way of limiting damages on patent infringement. It requires the prevailing party in a patent infringement case to base its damages only on the value of the infringing component in a device, not the value of the entire device itself.
Ericsson sued big-name makers of network technology like D-Link and Netgear, and computer manufacturers like Toshiba and Dell, claiming they made devices with 802.11n-compliant wireless chips and therefore needed a license.
Ericsson won at trial, but the real question on appeal is whether its damage award broke the EMVR.
The technology at issue in this case is the 802.11n wireless standard (often called "Wi-Fi," but not by me, because I think it's an incredibly silly and meaningless term). Ericsson claimed patents on technology related to 802.11n and promised to grant reasonable licenses to people who wanted to incorporate that technology in devices.
The Federal Circuit found that the jury's verdict of patent infringement was supported by substantial evidence in two of three instances, but the real meat in this appeal is the damage award calculation. The jury awarded Ericsson $10 million, which comes out to about 15 cents per infringing device.
The Entire Market Value Rule
The defendants claimed that this valuation violated the EMVR because it took into account "the entire value of the licensed products, even though the technology being licensed related to only a component of those products." An expert was permitted to testify not only to the value of the components, but to the value of laptops generally.
The Federal Circuit said this wasn't a problem. Using the entire market value as a base for calculating damages risks misleading a jury into overvaluing the damages caused by a multi-component product. But the expert testimony in this case wasn't inappropriate or prejudicial, the court said, because it was introduced to discount reliance on the value of the license as compared to the value of the final product in determining damages. It cautioned, though, that such testimony should come with a limiting instructions telling the jury that entire market value evidence shouldn't be factored in when determining the actual damage award.
While this error wasn't itself enough to reverse the jury's verdict, the Federal Circuit found other errors that, collectively, merited remanding the case to the trial court for a reassessment of damages.
Judge Richard Taranto dissented, but only as to one of the patent infringement claims; contrary to the jury's determination, he would have found no infringement.