IP Expert On The Push For Market-Based Evidence In High-End Patent Litigation

Thursday, October 23, 2014 - 14:06

The Editor interviews Shankar Iyer, Vice President and Cohead of the Intellectual Property practice at Cornerstone Research. 

Editor: Please tell us about Cornerstone Research.

Iyer: Cornerstone Research is a leading firm consulting to attorneys involved in complex litigation or regulatory proceedings. We have more than five hundred consultants working from offices in Boston, Chicago, Los Angeles, Menlo Park, New York, San Francisco, Washington, DC, and our recently opened London office.

Editor: What about you? Tell us a bit about yourself.

Iyer: I am a vice president at Cornerstone Research and work primarily in our applied economics practices – intellectual property, antitrust and competition, life sciences, and consumer fraud and product liability. I cohead the firm’s intellectual property practice, and much of my recent focus has been on high-end patent litigation. Several large cases that I have managed have gone to trial. I have authored articles for the ABA and have spoken before legal audiences on topics related to intellectual property and competition.

Editor: Please describe Cornerstone Research’s IP practice, and tell us about its key differentiating features.

Iyer: Our capabilities and experience cover the full spectrum of economic issues that arise in intellectual property litigation. We have worked on dozens of cases that have gone to trial. In recent years, we have been front and center in the global disputes relating to mobile technology and have worked on numerous high-profile matters that have made news.

An important differentiating feature is our deep network of experts: we work with valuation and damages experts, economists, consumer behavior and marketing experts, and industry and licensing experts. So, in a textbook bet-the-company case, we can help the client by providing not only a damages expert but also a consumer survey expert or marketing expert who knows the industry inside out, or perhaps a technology licensing expert. That gives clients many options, which helps us brainstorm about possible approaches. Another differentiating feature is our human capital: we have an incredibly strong pool of PhD consultants who do cutting-edge work, be it in advanced survey methods, in data analytics of consumer product reviews, or in working with big data.   

Editor: You mentioned that high-end patent litigation is an area of focus. Why is that?

Iyer: We are in a very interesting period in patent litigation, especially with respect to the issue of damages. First, courts have tightened the standards used in entitlement to damages, so there’s quite a bit of incremental risk involved in putting together a damages claim. Second, with some notable exceptions relating to proscriptions, there don’t appear to be clear lines drawn by the courts with respect to what will work. That means there’s a considerable amount of uncertainty with respect to methods; but what is not in doubt is that courts are asking for more rigorous, market-based methods.

Editor: Is this just old wine in new bottles?

Iyer: Not at all. The call from the courts for rigor and for empirical work based on marketplace realities has led to an intellectually animated environment because we are seeing a lot of new approaches. We are in a climate where our work has to be more careful than ever, but we also need to innovate. So we are definitely seeing new kinds of experts and methods that are responsive to the call for market-based evidence, methods that are interesting and more grounded in marketplace realities.  

Editor: Would you tell us what you mean by market-based evidence?

Iyer: At its heart, what this means is that the economic value ascribed to a patented feature is determined using market-level data. The simplest illustration is the textbook example of an established royalty for a patent based on extant licenses that cover a single patent; these are arm’s length licenses with a range of royalties attached to a specific patent. The damages expert starts his analysis with those rates. That’s market-level data. But it’s the kind of evidence that is increasingly rare; an actual license, unlike a textbook license, involves a portfolio of patents that may be dozens of patents thick and may involve cross-licenses and other economic parameters that make it hard to zero in on the value of a particular feature covered by a specific patent. So, we need to come up with different ways to figure out what a feature is worth.

One way to do this is to analyze so-called revealed preference data: by making actual choices in the marketplace, consumers “reveal” their preferences. So, an expert can use statistical methods to analyze the economic data and tease out the economic importance of a product feature. Another example is analyzing product reviews to try to determine what consumers care about. Nowadays there are sophisticated data analytic methods that enable an expert to very precisely figure out consumer sentiment with respect to product features. Because many products have tens of thousands of reviews, the expert is able to work with a very rich dataset. And remember, product reviews are outside of a litigation context. So, this can be pretty powerful evidence.

Another approach is the so-called stated preference approach where an expert may use a consumer survey to figure out the importance or non-importance of a product feature. Surveys are getting quite a bit of attention these days.

Editor: Why are consumer surveys becoming increasingly important in patent damages?

Iyer: For two primary reasons. First, a carefully done survey can be very useful in supporting or rebutting a damages claim. A survey is, by definition, market-based evidence as long as the researcher studies the proper market. A properly done survey can help the finder of fact with respect to the question of consumer demand. Second, a survey as a general methodology tool has a lot of credibility in the context of product feature importance and valuation. Consumer surveys have a long history in product design and marketing. They are ubiquitous in business. Also, the techniques underlying surveys have been studied, critiqued, and developed for a long time by academics and market researchers. Accordingly, if an expert wants to put together a credible survey, she has a pretty rich and deep methodology well from which to draw. And, of course, surveys have been successfully used in litigation. So, a carefully designed survey can be a powerful tool both as an affirmative club or a defensive shield.

Editor: Are consumer surveys finding successful use in high-end patent litigation?

Iyer: Yes, they are. An example is the recent globe-spanning dispute between Apple and Samsung. MIT professor John Hauser conducted a number of market studies using conjoint analysis. His conjoint studies repeatedly passed the Daubert standard and he testified at trial on behalf of Apple. Professor Hauser happens to be one of the foremost scholars of conjoint analysis in the world, so this was a case where cutting-edge survey methods and a powerhouse expert came together to meet the evidentiary needs. I expect there will be more and more survey evidence going forward, certainly in litigation where the stakes are high. 

Editor: But surveys also come under attack, don’t they?

Iyer: Yes, they do. There are all kinds of cognitive biases at play when it comes to surveys. A classic example is the so-called focusing illusion. By drawing the survey respondents’ attention to the tested feature, a survey may artificially inflate the ubiquity or importance of the feature. It is a bit like buying a flame-red Mazda and seeing a plethora of flame-red Mazdas on the drive home from the dealership. You end up believing there are a lot more flame-red Mazdas then there really are because you are focused on the particular car that you just bought. A careful expert designs a survey to minimize such biases because these biases are what make a poorly designed survey subject to Daubert scrutiny and possible exclusion. So, it is important to select a survey expert (or more generally an expert who will examine the evidence from the marketplace) carefully.

Editor: Stepping back and looking at the big picture, what is the most exciting development in intellectual property that you see in the next five years?

Iyer: I will have to say that it is digital ubiquity – the explosion of connections, sensors, and data. Digital ubiquity is changing the competitive landscape, and really fast. In the early 2000s, we had the connected PC; today we have smartphones, tablets, the Internet of Things, smart TVs, and wearables. So, we are probably going to see some pretty interesting litigation that comes out of how value is captured in this changing landscape. We’ll see many more “ecosystem” cases. And we will definitely need to do a lot more number crunching to analyze the vast amounts of data that will be thrown at us!

 Please email the interviewee at siyer@cornerstone.com or call him at 202-912-8924 with questions about this interview. The views expressed in this interview are solely those of Mr. Iyer, who is responsible for the content, and do not necessarily represent the views of Cornerstone Research or its clients.