ACI v. Google: District Court Guidance on Smallest Salable Unit and Revenue from Inter-related Product Offerings
By Ryan Penkowski and Philip Kline
In an April 28, 2016 opinion in the matter of ART+COM Innovationpool GmbH (“ACI”) v. Google, Inc. (“Google”), No. 14-cv-00217, the U.S. District Court for the District of Delaware ruled that it is appropriate in certain circumstances to determine the royalty base starting with the total revenue for an inter-related product offering (of which the accused product is one component), so long as it is subsequently properly apportioned to the allegedly infringing elements.
Previously, Courts had found that the appropriate royalty base is the “smallest salable unit” absent a showing that the patented technology drove demand for a broader set of products and services (e.g., LaserDynamics, Inc. v. Quanta Computer, Inc., et al.). However, for accused products that are only sold bundled with non-accused products – or which are given away as “loss-leaders” or to drive advertising revenue – the determination of revenue attributable to the “smallest salable unit” can be difficult.
In the ACI v. Google matter, ACI alleged that Google’s “Google Earth” service – including the “Google Earth Free” portion of the service – infringed U.S. Patent No. RE44,550, which “describes a software-implemented method for providing a ‘pictorial representation of space-related data, particularly geographical data of flat or physical objects.’”
As Google does not charge customers to use Google Earth Free, it could not produce documents that identified either “the direct [or] indirect revenues that were attributed to” that portion of the service. Accordingly, ACI’s damages expert began his determination of the royalty base with Google’s internal revenue projections for its Geo product segment – which included revenue from Google Earth Free as well as several other “inter-related product offerings.” ACI’s damages expert then used data from Google business plans to apportion the segment revenues down to those attributable to Google Earth. The District Court found that the use of these business plans to derive an apportionment figure was appropriate, given that they each made “similar assessments” of the portion of segment revenue attributable to Google Earth.
Google argued that ACI’s damages expert violated the Entire Market Value Rule by beginning with the total revenue for the Google Geo segment and implicitly including revenue related to non-accused features in the royalty base. However, Google could not provide an alternative suggestion for a starting point that it considered the “smallest salable unit.”
The District Court found that the approach taken by ACI’s damages expert “does not violate the entire market value rule, and is methodologically sound,” stating that it was unclear whether a “smallest salable unit” existed at all given that customers are not charged to use Google Earth Free and Google instead “generates revenue through various monetization methods.” The District Court found that these monetization methods resulted in “intermingled and interrelated sources of revenue” attributable to various products in the overall segment that “do not break down nicely for purposes of proving damages in patent litigation.”
Ultimately, the District Court opined that “to the extent that various revenue sources rely upon an accused product… like Google Earth Free in their implementation, they are properly included in a damages analysis, so long as a proper apportionment is undertaken [citations omitted].” Professionals in the field may wish to consider this guidance when assessing damages in future cases involving similar inter-related product offerings.
Authors: Ryan Penkowski is a Senior Associate at 284 Partners, LLC. Philip Kline is a Managing Director at 284 Partners, LLC.