After the amusing skirmish between the Judge and attorneys on late-filing motions and a quick five-minute testimony from a survey expert, we get a bigger fish to fry in Samsung royalty analyst Vincent O’Brien. He is testifying about similar but separate findings than the earlier witnesses.
11:18AM: O’Brien talks about his experience testifying in U.S Court for royalty rates. He has worked for the U.S. Justice department in “matters to do with economic analysis.”
11:20AM: He goes over a few slides of the royalty rates, product by product (iPhone, iPad, iPod). He says that he determined the royalty of the potential infringement penalties by looking at the records offered by Apple. He said the 15 factors he used were determined by a previous case.
11:30AM: A slide is brought up showing each of those factors. Monetary payment compensation for patent infringement was set in the case of Georgia-Pacific Corp. v. United States Plywood Corp., 318 FSupp 1116, 6 USPQ 235 (SD NY 1970). The factors are:
1. The royalties received by Georgia-Pacific [Apple] for licensing the patent, proving or tending to prove an established royalty.
2. The rates paid by the licensee for the use of other similar patents.
3. The nature and scope of the license, such as whether it is exclusive or nonexclusive, restricted or nonrestricted in terms of territory or customers.
4.Georgia-Pacific’s [Apple's] policy of maintaining its patent monopoly by licensing the use of the invention only under special conditions designed to preserve the monopoly.
5. The commercial relationship between Georgia-Pacific [Apple] and licensees, such as whether they are competitors in the same territory in the same line of business or whether they are inventor and promoter.
6. The effect of selling the patented specialty in promoting sales of other Georgia-Pacific [Apple] products; the existing value of the invention to Georgia-Pacific [Apple] as a generator of sales of nonpatented sitems; and the extent of such derivative or “convoyed” sales.
7. The duration of the patent and the term of the license.
8. The established profitability of the patented product, its commercial success and its current popularity.
9. The utility and advantages of the patent property over any old modes or devices that had been used.
10. The nature of the patented invention, its character in the commercial embodiment owned and produced by the licensor, and the benefits to those who used it.
11. The extent to which the infringer used the invention and any evidence probative of the value of that use.
12. The portion of the profit or selling price that is customary in the particular business or in comparable businesses.
13. The portion of the realizable profit that should be credited to the invention as distinguished from any nonpatented elements, manufacturing process, business risks or significant features or improvements added by the infringer.
14. The opinion testimony of qualified experts.
15. The amount that Georgia-Pacific [Apple] and a licensee would have agreed upon at the time the infringement began if they had reasonably and voluntarily tried to reach an agreement.
11:35 AM: O’Brien says Apple has paid $1.4 Billion in royalties over the years for other patents in order to put them in their products. He says the number the consumer is willing to pay for a feature is one of the best barometers of royalty base.
And then he looks at the sales of applications in the iPhone, since it was a new revenue stream. He notes the average application in iTunes sell at $1.40 but the witness and his team of economists used the $.99 price to determine the most conservative estimate for a possible damage ruling.
11: 40AM: He testifies that his team found that the $.99 cent value that consumers put on an iPhone application is a good value to determine the damages. He gave 70% of the available possible profit to Apple and 30% to Samsung. Thirty percent of the profit of most app sales usually goes to an app developer.
In the cross examination, Apple attorneys point out O’Brien’s team made a small (!) million dollar estimate error in possible damages in the report but O’Brien says it was a mistake by the Excel program they used, but that it was ultimately fixed. That a Microsoft product is put down in an Apple court proceeding is shocking.
11:50AM: Witness is excused.
Photo: Slightly Everything/Flickr (CC 2.0)