The Federal Circuit's VirnetX Ruling Continues Focus on Requirements for Proving Patent Damages

Discussion of practical implications of Federal Circuit decision in VirnetX, Inc. v. Cisco Systems, Inc. (2014) on analysis of reasonable royalty damages in patent infringment cases.The U.S. Court of Appeals for the Federal Circuit historically has afforded litigants substantial leeway in applying economic theory to establish damages in patent infringement cases, as long as the theories are based on reliable economic evidence and establish direct causation of loss. In recent years, the Federal Circuit has issued a number of decisions addressing the issue of “apportionment,” i.e., apportioning value between patented and unpatented features in an accused product. In a recent decision, VirnetX, Inc. v. Cisco Systems, Inc., the Federal Circuit addressed the issue again and further explained how apportionment can limit acceptable damages testimony. Although apportionment has roots in 19th century cases, it likely will cause parties to reevaluate their approaches to proving damages, particularly in cases involving technologies embodied in components for today’s complex products.