We will release our damages estimates (what we believe will be sought by Worlds against Activision and why) early next week. These estimates will only be useful if (and as we expect) Worlds prevails in its upcoming Markman “claim construction” hearing on June 27th in Boston. Other than this final report we will have little more to add (unless there is something wildly unusual that we think merits comment) until the hearing itself. You can see our summaries, with links to more detailed content on both the claim construction proceedings and the prior art that, importantly, is tied closely to the way the terms at issue are hoped by each side to be construed, at seeking alpha.
We don’t by any means purport to have all the answers and no one should rely solely on our interpretations for their stock purchases. What we do attempt to do is get in the head of the team at Susman Godfrey and divine, given all of the information available to us, how we think they might proceed. No one should doubt, however, that they have information to which we are not privy (such as source code). For example, we find real and suitable cause for Worlds Inc. to argue for the Entire Market Value Rule (EMVR). We think that they will but it is also certain that they will have a Plan B (apportionment) if they do. To that end we too will offer an apportionment range supported by documentation we deem relevant.
EMVR excerpt from Fish & Richardson article follows:
“The entire market value rule in the context of royalties requires adequate proof of three conditions: (1) the infringing components must be the basis for customer demand for the entire machine including the parts beyond the claimed invention, Fonar Corp. v. General Elec. Co., 107 F.3d 1543, 1552 (Fed. Cir. 1997); State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989); (2) the individual infringing and non-infringing components must be sold together so that they constitute a functional unit or are parts of a complete machine or single assembly of parts, Paper Converting Mach. Co., 745 F.2d at 23; and (3) the individual infringing and non-infringing components must be analogous to a single functioning unit, Kalman v. Berlyn Corp., 914 F.2d 1473, 1485, 16 USPQ2d 1093, 1102 (Fed. Cir. 1992). It is not enough that the infringing and non-infringing parts are sold together for mere business advantage. See Rite-Hite, 56 F.3d at 1549-50. Notably, these requirements are additive, not alternative ways to demonstrate eligibility for application of the entire market value rule. See id.”
In an article from December 2011 in Law Journal Newsletters (LJN) titled “Using Consumer Surveys to Prove Patent Infringement Damages at Trial” Christopher Larus and Brian Mechell make a good case not only for why these surveys are necessary but how they hold the power to sway the court and affect the ultimate award. An excerpt from that article is printed below: (to see the entire article go here)
Consumer Surveys And The Entire Market Value Rule
“In cases where a patent covers only one feature of an accused product, consumer survey evidence can also demonstrate whether an appropriate reasonable royalty base includes revenue earned through the sale of the accused product as a whole. In Uniloc USA, Inc. v. Microsoft Corp., the Federal Circuit explained that “the entire market value rule allows a patentee to assess damages based on the entire market value of the accused product only where the patented feature creates the ‘basis for consumer demand’ or ‘substantially creates the value of the component parts.’” Under this rule, a patent holder seeking to apply the entire market value rule must show both the existence of consumer demand for an accused product as well as an evidentiary link between such demand and the patented feature. A properly conducted consumer survey can persuasively demonstrate or refute this evidentiary link.”
Now lets look again at the oldest patent in suit, U.S. Patent number 7181690, the ’690 Patent. It is titled as follows:
System And Method For Allowing Users To Interact In A Virtual Space
Abstract: “The present invention provides a highly scalable architecture for a three-dimensional graphical, multi-user, interactive virtual world system. In a preferred embodiment a plurality of users interact in the three-dimensional, computer-generated graphical space where each user executes a client process to view a virtual world from the perspective of that user. The virtual world shows avatars representing the other users who are neighbors of the user viewing the virtual word. In order that the view can be updated to reflect the motion of the remote user’s avatars, motion, information is transmitted to a central server process which provides positions updates to client processes for neighbors of the user at that client process. The client process also uses an environment database to determine which background objects to render as well as to limit the movement of the user’s avatar.”
Interpretation: Forget for a minute the claims, which are of course what matter and lay out specifically what is described in the abstract, lets just look for a minute at the title and the abstract. What is apparent at the outset is that what Worlds is claiming as their invention is no small part of a larger whole. Even though in this case there is no way to separate Worlds’ invention out it would be hard upon inspection NOT to consider it the basis for the games (and other MMORPG games as well) just as much as it would be hard to ride a bike without wheels or make a movie without a camera or recordable device. If I were advising Worlds (which I am not) and I were in the process of drafting a survey with questions designed to back up an EMVR argument, I think I would design them in the negative. I might ask, for example:
1. Would you be willing to play World of Warcraft or Call of Duty if the “world” itself and its various components were not three dimensional?
2. Would you be willing to play World of Warcraft or Call of Duty if those games did not provide a filtering method to manage game traffic in order to make the game more player friendly or playable?
There may be numerous other questions that could work but I would submit that the number of “no” answers in a yes, no, maybe scenario given the two questions above, would be astronomically high thus showing that without the invention no one would play the game.
We do estimate, utilizing Activision’s own disclosures, that the Call of Duty and World of Warcraft Franchises will have generated $18 billion through 2013 (2013 being an estimate based upon trend). While any EMVR determination is important for Worlds we also believe that a “Plan B” apportionment could well approach 50% based upon documentation we have seen (I’m sure Worlds has as well and they are likely to have much more) which would further any damages argument for Worlds.