Does Conjoint Analysis Reliably Value Patents?

Abstract

Modern complex products are literally covered by tens or even hundreds of thousands of different patents. But patent lawsuits typically only involve one patent, or in more complex cases a handful of patents. Given these numbers, one might expect damages in patent cases to be a small fraction of product’s price. This turns out to be far from reality. A 2007 study found that reasonable royalty awards for a single component in a complex multicomponent product averaged 9.98% of the price of the infringing product. In response to these kind of disproportionately high damage awards, the Federal Circuit has repeatedly insisted that courts somehow “apportion” damages so that that awards only reflect the contribution made by the patent.

In an effort to satisfy the apportionment requirement, attorneys have offered a variety of crude estimates to calculate the value a specific patent contributes. One technique that appears to promise more rigor is conjoint analysis - a type of survey commonly used in the marketing world. However, in the legal context, there has been very little scrutiny of conjoint analysis. This article explores the validity of this technique by running two conjoint analysis surveys. Unfortunately, we found serious problems with the approach. First, the results of our surveys yielded irrationally high numbers. Most features suffered from bizarrely high valuations while one features did not. Second, we demonstrate how experts can manipulate the results of conjoint analysis by selecting among a number of different ostensibly reasonable statistical choices and picking the one that yields the most desirable outcome.

Based on these findings, we provide several recommendations. First, we argue that courts should not allow evidence of conjoint analysis to show the specific monetary value of specific features. We recognize that there is support for using conjoint analysis to provide relative valuations (i.e. feature A is worth significantly more than feature B), but even then, we urge caution and suggest ways to ensure that experts used the best “science” available. These recommendations include assuring that experts accurately depict variability in their results and requiring experts to “pre-register” the approach they intend to use by filing a description with the court.

Keywords: Conjoint Analysis, Survey, Patent, Damages, Remedies