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In Patent-Infringement Suits, a New Tool Appears; Bauer College Professor Helps Pioneer Tool That Could Help Deter "Patent Trolls"
[February 03, 2014]

In Patent-Infringement Suits, a New Tool Appears; Bauer College Professor Helps Pioneer Tool That Could Help Deter "Patent Trolls"

HOUSTON --(Business Wire)--

A pair of market research experts - including a C. T. Bauer College of Business professor - is providing companies such as Amazon, Apple, Dell (News - Alert) and Samsung with a new set of tools for estimating damages in patent-infringement cases.

Betsy D. Gelb, a long-time professor of Marketing & Entrepreneurship at the University of Houston's Bauer College, says the tool she developed with partner Gabriel Gelb, an expert in the field of intellectual property litigation, may help discourage so-called "patent trolls."

The legal community has defined a "patent troll" as any firm that buys up hundreds or thousands of patents simply to file suits and gain settlements. "Even though these claims may seem preposterous," Betsy Gelb says, "you've got to hire a lawyer and go to court. Some small businesses are really being hurt by patent trolls."

Of course not all patent lawsuits are instigated by trolls. "Many patent infringement cases are quite valid," the Gelbs say. "But it is true that about half of all patent cases are filed by patent trolls."

The Gelbs' work could not be more timely.

In his State of the Union message Jan. 28, President Obama called for patent reform legislation "to allow businesses to focus on innovation, not costly, needless litigation." Also, the U.S. Supreme Court has agreed to hear two appeals by companies that won patent-infringement cases but did not win back their legal fees. If the court decides that victors in such cases can force their opponents to pay attorney fees, it may slow down frivolous patent-infringement lawsuits.

The Gelbs and others have helped pioneer a survey of buyers that determines how much of the value of the item containing the patent at issue is due to the patented feature.

"The research question becomes: What proportion of their purchae decision is based on one such feature that incorporates the patent at issue?" explains Betsy Gelb, the Larry J. Sachnowitz Professor of Marketing & Entrepreneurship at Bauer College. "Possibly that feature has considerable influence on the buyer's decision. Or quite possibly it has very little."

Damages in a lawsuit are likely to depend on which answer a survey uncovers.

Since 2010, the prevailing legal argument has been that if the patented feature or component wasn't a factor influencing purchase, then royalty-based damages were not justified. If the feature contributed fractionally to the ultimate purchaser's decision, then that should be the fraction of the revenue that would govern damages.

Third-party surveys, such as the ones the Gelbs conduct, demonstrate what fraction of a buyer's purchase decision was based on the patent-infringed component. Often, both sides conduct surveys.

In 2011, Gabriel Gelb successfully rebutted the work of an opposing expert in Convolve Inc. v. Dell Inc. et al. The jury then awarded only 3 percent of the claimed damage amount.

"Many such surveys are conducted now," Betsy Gelb says. "Attorneys contract for them because the new way to discourage patent trolls is to say to them: Look at the results from a survey we commissioned of our buyers and potential buyers. If you win in court, you win very little, given the small influence of the patented feature. So, no, we don't want to settle. And do you want to incur legal costs and then even if you prevail, receive little or no damages?"

The Gelbs, who are married, work as consultants through Houston-based Endeavor Management. Betsy Gelb, who has taught at Bauer College for nearly four decades, has done extensive research in trademark, trade dress, and other areas where marketing and legal issues meet. Gabriel Gelb has been an expert witness in more than 100 intellectual property cases.

Because survey research now represents a practical tool to create a basis for valuing patents, the Gelbs say companies should act before a lawsuit appears on the horizon, to see what buyers would say in response to the surveys.

"You might like to know how much damage you would incur," Betsy Gelb says, "because you might want to promote features or functions different from the one that uses a controversial patent. Or if results show that the buyers value that feature or function highly, you might want to change the product itself.''

About the University of Houston

The University of Houston, Texas' premier metropolitan research and teaching institution is home to more than 40 research centers and institutes and sponsors more than 300 partnerships with corporate, civic and governmental entities. UH, the most diverse research university in the country, stands at the forefront of education, research and service with more than 35,000 students.

About the C. T. Bauer College of Business

The C. T. Bauer College of Business has been in operation for more than 60 years at the University of Houston main campus. Through its five academic departments, the college offers a full-range of undergraduate, masters and doctoral degrees in business. The Bauer College is fully accredited by the AACSB International - the Association to Advance Collegiate Schools of Business. In August 2000, Houston business leader and philanthropist Charles T. (Ted) Bauer endowed the College of Business with a $40 million gift. In recognition of his generosity, the college was renamed the C. T. Bauer College of Business.

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