JUST OR UNJUST COMPENSATION? EFFECTIVE STRATEGIES TO MAXIMIZE RECOVERY IN THE INTELLECTUAL PROPERTY TRIAL
ORIGINALLY PUBLISHED DECEMBER 2007 IN INTELLECTUAL PROPERTY TODAY
In today’s world of music “sharing,” “open source” software, and YouTube, intellectual property owners face increasing challenges when they endeavor to persuade a jury that a defendant’s misappropriation or infringement warrants a large damages award:
- Why does this large company that is already earning millions deserve or need more money just because a smaller competitor has a copy of its software or customer list?
- Why should this company merely selling products outside of a manufacturer’s normal distribution channel be liable for trademark infringement?
- Is this another example of a large company using the “justice” system to bully its smaller competition?
These are the questions many jurors ask themselves as they hear the statement of the case prior to voir dire. Especially when the plaintiff is a recognizable name suing a smaller unrecognizable defendant, suspicions of underlying motivations and merits exist.
There are two possible explanations, among others, for such juror preconception. First, personal experience; omnipresent in the digital age is the ability to download software, music, and video without payment or consequence. Such downloads are sometimes illegal, sometimes not. The attendant result is a sense of entitlement with respect to the acquisition of intellectual property. As a result, jurors are less likely to impugn culpability on a defendant when they can empathize with the defendant’s conduct – albeit on a smaller scale.
A second explanation is the intangible nature of intellectual property. When someone steals or destroys real or personal property, jurors have little hesitation when asked to quantify the property’s value. By looking at comparable properties or products, jurors deliberate by going through a relatively familiar process and examine a relatively familiar set of factors. When asked to quantify the value a source code, customer list, or song, however, jurors are left to consider a multitude of unfamiliar and often esoteric factors to a deliberated conclusion.
As explained in greater detail below, there are strategies available that intellectual property owners and their counsel should be mindful of at trial in order to surmount these challenges and obtain adequate relief.
STEP ONE: INTRODUCE THE VICTIM.
Common in wrongful death or personal injury trials is time devoted to introducing the victim to the jury. Before even addressing issues of liability or damages, the jury learns about the victim’s personality, family, interests, and hobbies. Such evidence is admissible because, as a matter of law, it may be relevant to the measure of emotional harm suffered by the victim or the victim’s loved ones. The motivation behind introducing such evidence is, however, only partially legal. Pragmatism is equally motivating: showing the appeal of the victim increases the likelihood that the jury will actually like him or her.
When the plaintiff is a corporate entity, presenting these likeability factors is equally important. To avoid the perception that a faceless entity is seeking monetary damages, it is imperative to introduce facts that will provide a positive impression to the jury. Examples of such facts are: (1) the number of years a company has been in business and, if applicable, a company’s humble beginnings; (2) the number of jobs a company provides in the jurisdiction where the case is being tried; and (3) examples of charitable donations or activities in which a company participates. Just like an individual plaintiff, it is important that the jury like the corporate plaintiff.
STEP TWO: INTRODUCE THE INTELLECTUAL PROPERTY AND ITS VALUE.
When an invention, trademark, or copyright product is illegally duplicated or distributed, the enjoyment of the product by the duplicator does not necessarily impair the enjoyment of the inventor or owner. Unlike conversion of tangible property like a car, crop, or computer hardware, duplication of computer software or fabric designs does not deprive the creator of possession or use. Instead, the harm is purely economical. This results in two principal dangers:
First, there is the danger that the inventor will not recoup its “cost of expression,” the time and effort devoted to creating and marketing the product, because the inventor is undercut by an infringer only needing to recoup his “cost of production.” The second danger pertains to the inventor or creator’s reputation. Especially in the context of trademark infringement, consumers mistakenly associating an imitation product with that of the creator’s product can cause injury to a business reputation; while a business reputation takes years to earn, it can be lost in an instant.
When trying to prove infringement of various intellectual property rights, it is not uncommon for the mundane facts such as trademark validity or copyright registration to be among the case’s “stipulated facts.” In a time saving endeavor, most courts require the parties to identify various “stipulated facts” prior to trial that need not be disputed. Defendants will typically freely stipulate to the registration of a copyright or the validity of a trademark.
While it is good practice to have such stipulated facts memorialized, it is unwise for a plaintiff to give short attention to these seemingly banal facts in order to fast track its presentation. The jury is well served learning about the time, effort, and money that was spent creating the protected property. In addition, because opening statements will already have foreshadowed the assertion that the defendant infringed or misappropriated the property, spending time proving the value of the product will heighten the jury’s anticipation of learning how and what the defendant did to warrant the lawsuit.
When discussing the efforts to create the property at issue, the plaintiff must be equipped with verifiable facts showing with particularity what was done. Ubiquitous in complaints alleging the infringement or misappropriation of intellectual property is the boiler plate paragraph describing generically the value of the product. In trade secret cases, for example, myriad complaints contain language such as the following: “Plaintiff has invested substantial money and effort in developing proprietary [the alleged trade secret]. As a result of its investment of substantial effort and expense, Plaintiff has developed and maintains extensive confidential information. Such information is subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
While such vanilla allegations may be sufficient to get a complaint beyond the pleading stage of litigation, a scrutinizing and suspicious jury will require much more information. And much more detail. For example, in the context of trade secrets, it is important to provide with painstaking particularity how the trade secret was created, how it is valuable, and how it was kept secret.
For example, if the trade secret at issue is a formula or recipe, the plaintiff should present witnesses who are competent to testify about the time, effort, and money that was incurred to prepare the final creation. Such testimony should include specific details regarding the number of people, hours, months, or years involved in the trade secret’s creation. When possible, such testimony should be supported with documents that were prepared long before litigation was ever contemplated. These documents will give the plaintiff added credibility because it will show that proof of the efforts to create the trade secret existed before the plaintiff had an incentive to bolster these figures to prove its damages.
STEP THREE: INTRODUCE THE DEFENDANT – AND HIS MOTIVATIONS.
It is insufficient to show merely what the defendant did to give rise to liability; the jury will want to know why the defendant did what he did. If liability is too difficult to dispute with reasonable credibility, a defendant will almost always argue that his illegal conduct was an innocent mistake. To debunk the merits of this defense, intellectual property owners will want to present all available facts that show the defendant acted with the intent and knowledge to violate the law.
Such facts are obviously case specific. However, in all cases, the plaintiff will have the opportunity to show the economic incentives to copy or steal intellectual property. In addition to showing the value of the property, as described in Step Two, a jury will be interested in learning how the defendant unjustly enriched himself by copying or stealing the intellectual property. For example, the plaintiff can show that the defendant did not need to spend any time or money developing or inventing the property. Moreover, once he had the property, the jury would be interested in learning that the defendant was, for example, able to enjoy revenues with unrealistically high profit margins.
STEP FOUR: SHOW THE HARM.
Sometimes the simplicity of how intellectual property is stolen implies that the offense is nothing more than a peccadillo. After all, the argument will go, how harmful can something really be when it was accomplished with a few key strokes or clicks on a mouse? To combat these themes and arguments, plaintiffs must be prepared to present competent evidence to show the fair market value of the intellectual property that was taken.
Even if recovery of the fair market value is not an available remedy, it will help the jury understand that what was taken or copied is extremely valuable. Such testimony must be offered by witnesses, perhaps retained experts, who are qualified to articulate how the value of the property was quantified. In addition to showing the analysis, the witnesses should also be prepared to provide analogies that the jury can relate to in order to understand or at least appreciate the assertion that the property is very valuable.
For example, in pseudo cross-examination of its expert, the plaintiff’s counsel may ask, “Dr. Smith, are you really contending that this algorithm is worth ten million dollars? It is a just a short math equation with numbers and symbols.” The expert, prepped for the faux challenge, can respond by saying, “That’s exactly what I’m saying. The Mona Lisa is just a bunch of colors on a canvas. What makes the Mona Lisa valuable is its unique arrangement of colors. The algorithm created by XYZ , Inc. is valuable for the same reason.”
When the jury has an understanding of the property’s value, it can better appreciate the harm to the plaintiff and unjust enrichment enjoyed by the defendant. Accordingly, the jury will have more comfort awarding compensatory and punitive damages that appropriately compensate the plaintiff for its loss and punish the defendant for its unjust gain.
Acknowledging and addressing the impediments to recovering adequate remedies is the most effective way to obtain them in intellectual property cases. Adhering to the steps above will provide the best chance at a valuable victory.FOR MORE INFO CONTACT DAVID R. SUGDEN