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J.S. Held Strengthens Forensic Accounting and Financial Investigations Expertise and Expands Suite of Services in Canada with Acquisition of ADS Forensics
Read MoreTechnology related litigation, e.g., patent infringement and trade secret misappropriation matters, requires an explanation of complex concepts to the judge and jury. The responsibility for such explanations often falls to experts. Technical experts in patent infringement matters describe how elements of the asserted patent claims are (or are not) embodied in the accused product, to prove (or disprove) infringement. Technical experts may also describe how the asserted patent claims are (or are not) novel, nonobvious, and useful to prove (or disprove) validity. In trade secret matters, technical experts may explain how the claimed trade secret information is not (or is) generally known or readily ascertainable, to prove (or disprove) the existence of a valid trade secret. Financial experts opine on the question of value. In other words, what financial benefits flow from the technology-at-issue? What was the value lost by the plaintiff or gained by the defendant because of the infringement or misappropriation? A proper technical analysis should also help lay the groundwork for the analysis of value.
Indeed, the question of value is often related to underlying technical questions that are not the primary focus of the technical expert. Far too often, in the industry broadly, the development of technical expert opinions and financial expert opinions are siloed, and these questions are a secondary consideration for the technical expert (or ignored all together). For example:
As reflected in the cases cited above, there is often a need for better and closer collaboration amongst technical and financial experts in complex technology litigation to provide a more accurate and comprehensive analysis of value to the trier of fact. While these analyses are fact and circumstance specific, Ocean Tomo, a part of J.S. Held, understands the need for, and employs, this collaborative approach in connection with its work, as generally described below.
A collaborative team of technical and financial experts can identify the benefits of the technology-at-issue. In patent infringement matters, this involves understanding the prior art approaches, and the benefits the patented technology-at-issue adds, beyond the prior art. In trade secret misappropriation matters, this may involve an understanding of what was in the public domain versus what was proprietary information and not publicly known. These analyses inform the value question, which is typically analyzed using the three fundamental valuation approaches: the Income Approach, the Market Approach, and the Cost Approach. Frequently, this involves the evaluation of three major issues: apportionment, license comparability, and the availability of acceptable alternatives:
The Income Approach focuses on the net benefit (i.e., profit) expected to be generated by an asset. In complex technology litigation, this often takes the form of isolating the incremental profit attributable to the technology-at-issue within the accused product and is generally referred to as apportionment. [5] A robust technical analysis can provide evidence surrounding the use of the technology-at-issue within the accused product, and how that use translates into the product’s features and benefits, to support the apportionment analysis. For example, certain technical analyses, such as reverse engineering, testing, lab services, and product “teardowns” can provide specific evidence regarding the contribution of the technology-at-issue relative to all other technical benefits of the accused product. In collaboration with the financial expert, this leads to a more thoughtful analysis of apportioned value, grounded in scientific evidence. Generally, the Market Approach relies upon comparable marketplace transactions to draw indications of value for the subject asset. In intellectual property litigation, a “comparable” transaction has come to mean a transaction that involves sufficiently similar economic and technological circumstances to the hypothetical license. [6] While exactly matching transactions are not required, to the extent differences exist between the hypothetical license and the potentially comparable license, such differences should be accounted for.
Establishing technological comparability falls within the purview of the technical expert and is a critical component of the comparability analysis. Technological comparability is fact and circumstance specific, but such an analysis evaluates the comparability of the market-licensed technology and the technology-at- issue in the litigation, and may include (but is not limited to) an analysis of the following factors:
The comparison of the market-licensed technology to the technology-at-issue is not performed in a vacuum. Consideration is given to differences in the industry and product in which the technologies are utilized. For example:
Further, certain aspects of this analysis are similar to the factors described in the apportionment analysis:
The Cost Approach evaluates the cost to develop or obtain an asset that provides similar utility to the subject asset. In complex technology litigation, this may involve, for example, the assessment of how the components that implement the technology-at-issue in the accused product may be modified to avoid infringement, yet still provide a product that offers similar features and benefits. [7] The financial expert, working in partnership with the technical expert, can help to cost out these modifications. Additionally, in trade secret misappropriation matters, the question of value may be related to the expense incurred to develop the trade secret. A robust technical analysis can help separate expenses specific to the trade secret at issue versus other unrelated expenses.
The analyses described above require technical experts to go beyond their traditional role regarding liability related issues such as infringement, validity, and the existence (or non-existence) of a valid trade secret. A more comprehensive technical analysis is often critical to defining the value of the technology- at-issue in patent infringement and trade secret misappropriation matters. Better collaboration between technical experts and financial experts leads to a more accurate and supportable value conclusion. Utilizing technical experts that have deep technical knowledge of the specific technology area, as well as technical knowledge of the industry and products into which the technology is incorporated (and can support this expertise with scientific evidence regarding the use of the technology) provides a more effective way to communicate these complex issues to the trier of fact.
We would like to thank our colleagues Eric Carnick, James Malackowski, and Chris Wichser for providing insight and expertise that greatly assisted this research.
Eric T. Carnick is an experienced expert who has testified in federal court and arbitration matters. He is a Senior Director in the Intellectual Property Disputes Financial Expert Testimony practice with Ocean Tomo, a part of J.S. Held. Mr. Carnick’s over 15 years of consulting experience includes the analysis and quantification of economic damages arising from patent, trademark, trade secrets, copyright infringement, and breach of contract in over one hundred matters. He has a vast knowledge base of financial issues and theories related to intellectual property and breach of contract litigation from discovery to trial.
Eric can be reached at [email protected] or +1 312 377 4860.
James E. Malackowski is a Senior Managing Director of Ocean Tomo, a part of J.S. Held. Ocean Tomo provides Financial Expert, Management Consulting, and Advisory services related to intellectual property (IP) and other intangible assets; corporate accounting investigations; regulatory and reporting obligations; solvency and restructuring; and contractual or competition disputes. Practice offerings address economic damage calculations and testimony; accounting investigations and financial forensics; technology and intangible asset valuation; strategy and risk management consulting; mergers and acquisitions; debt and equity private placement; and IP brokerage. Subsidiaries of Ocean Tomo include Ocean Tomo Investments Group, LLC, a registered broker dealer. With more than 100 offices globally, J.S. Held assists clients – corporations, insurers, law firms, governments, and institutional investors – on complex technical, scientific, and financial matters across all assets and value at risk.
James can be reached at [email protected] or +1 312 327 4410.
[1] Biedermann Technologies v. K2M, Inc., U.S. Dist. Court, E.D.Va. (Dec. 2, 2021)
[2] Koninklijke Philips v. Zoll Lifecor, 2017 WL 9509938 (W.D. Pa. 2017)
[3] Opticurrent v. Power Integrations, 2018 WL 6727826 (N.D. Cal. 2018)
[4] Apple Inc. v. Wi-LAN Inc., 25 F.4th 960 (Fed. Cir. 2022)
[5] See, Garretson v. Clark, 111 U.S. 120 (1884); Virnetx, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1327 (Fed. Cir. 2014)
[6] See, Lucent Technologies, Inc. v. Gateway, Inc., 580 F. 3d 1301, 1329 (Fed. Cir. 2009). Apple Inc. v. Motorola, Inc., 757 F. 3d 1286, 1325- 26 (Fed. Cir. 2014); Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1228 (Fed. Cir. 2014); LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F. 3d 51, 79 (Fed. Cir. 2012); ResQNet. com, Inc. v. Lansa, Inc., 594 F. 3d 860, 871 (Fed. Cir. 2010).
[7] See, e.g., Grain Processing Corp. v. American Maize-Products Co., 185 F.3d 1341, 1351 (Fed. Cir. 1999); Abbott Labs. v. Sandoz, Inc., 743 F. Supp. 2d 762, 773 (N.D. Ill. 2010); Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766, 770–71 (Fed. Cir. 2014).
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