September 01, 2013

On July 10, 2013, Stout Managing Directors David Haas, John Bone, and Bruce Burton had an opportunity to discuss various patent damages and patent policy issues with Judge Richard A. Posner of the United States Court of Appeals for the Seventh Circuit. Over the course of his career, Judge Posner has been an influential thought leader on various aspects of law and economics. In addition to his years on the bench, Judge Posner’s experience also includes positions as a law clerk for Justice Brennan of the Supreme Court, assistant to the Commissioner of the FTC, assistant to the U.S. solicitor general, and law school professor, most notably during his long tenure at the University of Chicago. Judge Posner has also been a prolific author, having written nearly 40 books and numerous articles on topics including law, economics, and even sex. Judge Posner was appointed to the Court of Appeals for the Seventh Circuit by President Ronald Reagan in 1981 and served as Chief Judge of that court from 1993 to 2000. The Stout Journal thanks Judge Posner for accepting our invitation to participate in this interview.

Stout Journal: Thank you for joining us today. We wanted to start out with a few background questions. Where did you grow up?

Judge Richard Posner: Manhattan and Scarsdale.

Stout Journal: And what would your classmates most remember about you from high school?

Judge Richard Posner: (Laughter) That I was a serious student.

Stout Journal: Tell us something that most people would not know about you. What types of things do you like to do in your spare time?

Judge Richard Posner: (Laughter)

Stout Journal: Must not have a lot of spare time.

Judge Richard Posner: I don’t have much spare time. No, I don’t really have anything personal to add.

Stout Journal: You’ve led a long and distinguished career in the practice of law, including clerking for a Supreme Court Justice, teaching, government policy work, writing books, and, of course, serving on the Court of Appeals for the Seventh Circuit. Which of those activities have you enjoyed most and why?

Judge Richard Posner: Oh, I think I like the judgeship the most. I enjoy the variety of cases and the challenge of writing opinions and mastering new areas of law. So, yeah, it’s a fun job. I’ve enjoyed it a lot. I liked the other jobs, too, but this has been the most interesting and fun. And, of course, I’ve done it for the longest stretch of my career, 31 years, so I better like it.

Stout Journal: What was the most important takeaway from your clerkship for Supreme Court Justice Brennan?

Judge Richard Posner: Well, I was a little disappointed in the Supreme Court. I had a more elevated opinion of it as a law student than it merited. That was one thing, but actually the most significant experience of my clerkship was happening to work on a case assigned to Justice Brennan, an antitrust case called United States v. Philadelphia National Bank. And working on that greatly stimulated my interest in antitrust law, and my time in Washington after the clerkship—I was there for another five years—I was mostly concerned with antitrust issues. So that was, I’d say the most significant experience I had at the Supreme Court.

Stout Journal: You’ve been deeply invested in the economics of law, and you’ve authored numerous judicial opinions involving economic damages issues. In several recent cases, you’ve excluded damages experts from testifying. Is there a high-level message that you are trying to communicate to the legal community through these exclusions?

Judge Richard Posner: The opinions have to speak for themselves. I’m not supposed to comment publicly on cases that are or may still be pending in any court—my court or any other court. But I have been struck, and not just by those cases but also by a lot that I’ve read, by how the law relating to damages relief in patent cases seems to be in disarray. And the evidence that is presented by expert witnesses on damages doesn’t seem on as high a level as the expert evidence presented on liability issues dealing with technology. I have been surprised by this.

It’s almost as if the lawyers run out of steam when it comes to the relief phase of the case. They’re very focused on liability, but they’re more casual when it comes to relief, whether it’s damages or injunction. And part of the problem is that I don’t think the Federal Circuit has been very clear about standards for damages or for a grant of injunction, so it’s a troublesome area.

In principle, it ought to be pretty straightforward: If there is an infringement, the court has to ask how did the infringement hurt the patentee? How is the patentee in a different financial situation than he would have been without an infringement? That’s the question and there are pitfalls in looking for the answers. And with regard to injunctive relief, you have to be very careful that the injunction isn’t overkill. This is a problem with component patents, which are, of course, very common in the software industry. The patents tend to be on components of a computer or cell phone or what have you, rather than on the entire instrument. And if you base an injunction on the infringement of a component, you prevent the seller of the product that contains the component from selling it until he either negotiates a license with the patentee or invents around it or is able to substitute some other component or simply eliminate the component. And so an injunction may impose costs on the infringer which are greatly disproportionate to the harm that the patentee suffered. That’s an obvious problem which has to be addressed carefully because you don’t want to overcompensate the victim of infringement.

Stout Journal: Can you provide any touchstones or guidance as to the elements of a damages analysis or a damages opinion that you would consider necessary for purposes of admissibility?

Judge Richard Posner: Well, it has to be logical. First, you have to have a theory that makes sense. The theory might be that as a result of the infringement, the plaintiff lost sales because the infringer had stolen some very valuable element of his invention and, as a result, was competing with the plaintiff and taking sales away. That’s a perfectly good theory. The second part of the analysis is the quantification. So, if say, you’re the patentee and you’ve lost sales to a company that’s infringing, you still have to provide a plausible estimate of the sales that you lost because of that infringement, because other factors in the market may have affected my sales besides the infringement.

So if there are other factors plausibly at work and the defendant says, well, you actually lost sales not because of the infringement, but because you had a change in management or you had a change in your marketing program. Then the plaintiff is going to have to show that some reasonable fraction of its losses really were due to the infringement and not to other factors.

Now, the general rule, which I think is sound, is that if you, the plaintiff, prove that you have been injured by a wrongful act by the defendant, when it comes actually to measuring that injury and translating it into an actual damages figure, you are not bound to absolute precision. If you can make a reasonable estimate, that’s good enough. And the reason is that the fact that you were wronged is likely to make the calculation of damages very difficult. So the benefit of the doubt goes to the plaintiff who has proved infringement or some other legal wrong when he tries to quantify the damages. But there has to be a responsible effort at quantification in order to justify a specific award.

Stout Journal: There’s been an increasing emphasis by the courts in the past few years to focus on the unique contributions of and demand for the patented invention in measuring damages. And this focus has shown up in judicial opinions related to a number of damages issues, including royalty base determination, evaluation of license agreement comparability, and evaluation of non-infringing alternatives. One of the problems of isolating the value or demand for a particular invention, though, is the lack of contemporaneous data related to that invention from the relevant time period. How would you suggest that lawyers and experts best address these questions in the absence of invention-specific contemporaneous information? If there is nothing in the company files that says we’re adding this feature because we think it will increase sales by X dollars or it will allow us to charge a higher price, what can we do if we don’t see that type of information?

Judge Richard Posner: I’m very puzzled why you wouldn’t find that information. No company is going to invest in a new product without a study of the costs and benefits of that project, right? If you’re introducing a new product, maybe it’s a new drug, it’s going to cost you a certain amount—in the case of a drug it probably will cost you a lot just to develop it. In deciding whether to develop it, you would have to have some projection of costs and likely profits, right? Otherwise, it would be totally irresponsible to go ahead with the project. So I assume there always is this kind of information. If it’s not written down, still you can ask the officials of the company who were there when the product was developed. What did you think this was going to do to your bottom line? I don’t know why that should be a mystery.

Stout Journal: I think the challenge is that while it’s likely that you’ll see some of those documents on the product as a whole, it won’t necessarily break down or attribute the value to a particular feature of that product, at least from our experience in working with companies and understanding how they track their financials. And so the question is, if all you had was the profitability of a product, is it appropriate to focus on the overall economics of a product and apportion it out based on other, perhaps subjective, factors?

Judge Richard Posner: You seem to be describing a situation in which the invention is really cheap. So suppose you have a computer device and someone in your company says we could put in a little application. And the company says, okay, put it in. We don’t know if it’ll increase sales, but some people may like it, so fine. Well, that has to be a case in which that invention was really cheap to make and you probably shouldn’t get a patent on it, right? Because if the invention isn’t going to cost a lot to develop, there is no reason for patent protection; it’s not needed to create an incentive to invent. These companies, whether they’re drug companies or R&D companies or whatever, have engineering staffs that spend their time tinkering and making little tiny improvements. You don’t need patents for that.

The poster child for the patent system is pharmaceutical drugs because to develop a new pharmaceutical drug and get the drug to market, you have to convince the Food and Drug Administration that it’s both safe and effective. And to do that you need massive tests—tests that last years and can cost hundreds of millions of dollars—and this is all before you sell your first drug. That’s a situation in which there are tremendous up-front costs and long delays in receiving any revenues. You really need to have a temporary monopoly on the sale of it. Otherwise, you’ll be undercut by copiers who didn’t bear those up-front costs. And often you have a situation where the manufacturing cost of the drug is trivial; 90 percent of the costs are these up-front R&D costs, and so you have to be able to charge a price that will recoup those costs.

At the opposite extreme, imagine a company that’s got a staff of engineers and they tinker. They come up with little improvements and it doesn’t cost much because these are salaried people anyway. They come up with a little improvement and the marketing people and finance people say, well, all right, it doesn’t cost much. We’ll put it in. Maybe some people will like it. And they don’t bother to do a careful study of the market and what is the value added by this because it didn’t cost much, right? In a case like that, I’m not sympathetic to efforts to generate damages estimates when the company thought so little of the costs and value of the product when it incorporated the product into some larger product or just added it to its string of products. If you thought it was such a negligible cost item that you didn’t have to do a careful marketing study, why would you need patent protection to incentivize you to develop the product in the first place?

Stout Journal: Maybe on the other extreme, though, you have a company like 3M, which does have a significant R&D budget and a lot of scientists that work on various technologies. Now, I think it’s commonly known that the Post-It® technology was a mistake. And so in that situation, there’s very little development cost. Are you suggesting in that example that it wouldn’t warrant patent protection?

Judge Richard Posner: I think that improvements that are the result of routine engineering or other routine types of activity, rather than being risky investment projects, shouldn’t be given patent protection because companies are constantly making small improvements in their products, right? So every few years an automobile comes with more stuff on it. Maybe it’s been designed slightly differently. Maybe it has some small new features. So if patents are granted on really minor improvements, you end up with millions of patents, and that’s what’s given rise to the patent troll industry.

There are just too many patents out there, and so people are constantly innocently stumbling over patents and getting sued or getting demands for licenses. So I think we should have a higher standard for granting patent protection than we have.

Stout Journal: Are you saying there’s an inexorable link between the value of the R&D that’s put into an invention and its ultimate worth. Aren’t there occasions where there is a serendipitous invention or a eureka moment where a relatively modest invention can develop a unique solution that has great value in the marketplace?

Judge Richard Posner: The only ground I can see for patents is incentives. So if some genius were to—he’s a genius, he tinkers around—he’s not interested in money; he’s just a tinkerer, an amateur—but he comes across something that turns out to have great commercial value. The question is, if you give people like that patents, does that mean you will get more of this really helpful tinkering? And suppose you say no, these people are driven by other things; the hope of making a killing on an invention is not what motivates people like this. Then there would be no purpose for granting them patents.

A clearer example: I have argued that there shouldn’t be copyright protection for academic books and articles. Academics are paid to write. If you’re a professor, your salary is a salary for teaching, which is only part time, and research. And research is supposed to be published in articles and books. Since you’re being paid to write, you don’t need to have copyright royalties in order to induce you to do so. Similarly, if you’re some kind of genius who just invents for the fun of it, and you’re not looking for money and you didn’t become a tinkerer because of money, then what are we as a society getting out of giving you a patent? All we’re getting is potential for more litigation.

Stout Journal: In some published articles, you’ve called out the phenomenon of defensive patenting and patent trolls as wasteful. What suggestion do you have as to potential solutions to the problems of defensive patenting and patent trolls?

Judge Richard Posner: There are short-run and long-run solutions. In the short run, the government could expand and improve the staff at the Patent and Trademark Office. And you want to alter the incentive system in the Patent and Trademark Office so that the patent examiners are not encouraged to grant rather than deny patents. To the extent that the patent office is financially supported by fees paid by patentees, the office has a bias in favor of granting patents. And my impression is that if the examiner just grants the patent, well, he just says grant. He doesn’t have to give reasons. But if he denies a patent, he has to give a reason. And I don’t know if this is still the rule, but if it is, it obviously creates incentives for granting patents. It’s hard for the government to compete with the private sector for really good techies. But you want to have enough examiners and you want to have them paid enough to raise the quality of the staff. And then you want to make sure they don’t have biased incentives, and then fewer patents would be granted and that would be a step in the right direction.

Also in the short term, we can do a lot to improve patent adjudication. The important step that the federal judiciary has taken recently has been to create a pilot program in which district judges volunteer to take a disproportionate number of patent cases. You get the younger and more intelligent judges signing up for the program because it’s a badge of honor. I know in the Northern District of Illinois, really good judges have volunteered for this program, so that’s great. Unfortunately, they’re not being given extra training in patent law or training in the relevant technologies, which would help. But the program is a step in the right direction.

Also, I don’t think it’s a good idea to have a specialized appellate court. I don’t think the Federal Circuit has been a success, so I’d return patent appellate responsibility to the regional circuits, where it was before 1982.

I think patent trolldom should be outlawed. That is, if you don’t practice an invention within some specified period of time, you shouldn’t be allowed to base a lawsuit or a demand for a license on the patent.

I think patent terms should be shorter. They should probably be industry specific to a degree. That’s difficult, but Congress did it with pharmaceuticals—drugs do have a longer patent period, 25 years versus 20. I’m not clear that 20 should be the standard. Maybe it should be much shorter. In many industries there is a great deal of product turnover, so even though you have a great invention and are very profitable, maybe it’s only going to be like that for two or three years. But the patent lasts the full 20 years, and that means it’s going to be a trap for the unwary. There’s no point to that.

Stout Journal: You have suggested in a couple of recent cases that surveys may be a possible way to measure demand or feature value. However, results from a present day survey may be quite different than those that would have been derived at the time of first infringement. Do you see evidentiary value in an after-the-fact survey?

Judge Richard Posner: No. And I’m not a fan of consumer surveys. They’re extremely artificial because it’s very, very difficult in a consumer survey to duplicate the actual experience of a shopper. And, of course, when you have consumer survey evidence, whichever party is introducing the evidence will have tried to tweak the survey methodology in his favor.

No, what I had in mind was that it would be valuable evidence of the value of a patent to look at the marketing surveys that the inventing company had conducted when it was trying to decide whether to make the product. If you are going to have to spend a lot of money developing a new product and figuring out how to manufacture it and so on, you don’t want to do that without conducting a study in advance to try to estimate the likely net value of the project. Such a study would, I think, be useful evidence. It wouldn’t be determinative, but it would be useful. So that’s what I had in mind, rather than hiring someone to conduct a survey at the time of trial.

Stout Journal: We have a couple of questions regarding pricing of market comparables. How do you decide whether a proposed market comparable is sufficiently close to the subject property to carry evidentiary value as an independent measure of the value of an embedded feature? If a litigant comes into the courtroom and says, I have this market comparable, and it’s similar to the feature or the component that we’re trying to value, and it independently sold for X in the market, what would you look at in order to determine if that was, in fact, comparable?

Judge Richard Posner: There is nothing wrong in principle with looking at a comparable product. A defendant ought to be permitted to testify that at a cost of X, I could have replaced the alleged infringing product with a non-infringing product, something in the public domain, and it would have given me the same consumer acceptance and so on and so forth, and I would have had the same sales, and therefore the patentee wasn’t made worse off by the infringement. Is that what you have in mind?

Stout Journal: That would certainly be part of it.

Judge Richard Posner: Well, why wouldn’t it be everything?

Stout Journal: I guess the question is, if you’re the patentee and you’re trying to determine what the value of this feature is in the marketplace, and you’ve identified something that has some independent pricing in the market.

Judge Richard Posner: Oh, I see. I didn’t understand. So you’re thinking of this as something that the patentee introduces in evidence. He says, here’s this thing that’s very much like my product and it sells for X, and so my product would sell for X, too, if it hadn’t been for the infringer who forced me to lower my price. I’d say in principle that that could be a way of establishing your loss because what’s sauce for the goose is sauce for the gander. So if the defendant wants to use evidence of that sort to show that he could have replaced the patented product with some non-infringing product at a low cost and it would be just as good, then similarly the patentee should be able to say, well, if I hadn’t lost all my sales to you, I would be doing as well as this other company which sells a very comparable product.

Stout Journal: Well, we’re seeing a lot of software patents, as you mentioned earlier, and when you’re looking for the value of a small feature or small improvement, maybe somebody else is selling an app that you can download on to your phone that does something similar, attempts to perform the same function, and there is some independent pricing. Maybe they’re charging 99 cents for the app. Is that something that could be useful in determining the value of that patented feature?

Judge Richard Posner: There’s nothing wrong with that. But the problem is that you really need a market test. You can’t just offer speculation. But I think it should be possible. The easiest case would be one in which the defendant shows that he could have replaced the patented product with a non-infringing substitute that would be just as good, just as effective, as shown by the fact that a lot of the software companies are using that product. They find it perfectly satisfactory, and so there is no reason to think that by using the patented product, this defendant was gaining some sort of advantage that was uniquely valuable and he couldn’t just have done as well using the substitute. After all, other firms used the substitute and are perfectly content with it.

Stout Journal: Do you think it’s appropriate to consider non-infringing alternatives that would only be available through further wrongdoing, perhaps infringing someone else’s patent or breaching a contract, and if so, where do you draw the line? What is allowable to consider as a non-infringing alternative and what would be off base?

Judge Richard Posner: Well, I would think infringing someone else’s patent would be off base. I suppose you could show that the damages from infringing the patent on the substitute would be less—that if you hadn’t infringed the plaintiff’s patent, you would have infringed some other patent, and that wouldn’t have cost you as much, so that’s what you would have done. I would have instantly substituted a non-infringing alternative which the market shows is just as good as your product, so I don’t owe you any damages. That’s fine. But I can also imagine a case—I’ve never heard of such a case but I can imagine a case—where my alternative would have been to infringe some other patent and I would have had to pay damages to that other patentee. But you, the patentee who is suing me, you wouldn’t have had any benefit from that because I would’ve had this alternative and I wouldn’t have had to pay
you anything.

Stout Journal: But there would be some cost, right? There would be cost to infringing the other patent that would have to be considered.

Judge Richard Posner: Yes. But that would have nothing to do with this case, right? It just means, in fact, I would have borne a cost, but it would have been just like the cost I would have borne by buying a substitute product from someone or getting a license from them, right? If I had known I was infringing your product, I could have gotten a license for a dollar from someone else. Then I wouldn’t have paid you more than a dollar for a license for your patent; so a dollar is your damages.

Stout Journal: But it’s unlikely you would know what the cost of a license to some other party would be, and so wouldn’t the expert be speculating if they advanced a position that, hey, if we knew that we were infringing, we could’ve taken a license from some other competitor, and we think that the rate would have been much lower than what the plaintiff is asking for?

Judge Richard Posner: Well, you could certainly ask the competitor what the rate would have been. That would be evidence. Maybe you won’t get anywhere investigating that possibility. Just go and ask the competitor, what would you charge if I wanted a license on this product? That might be a feasible inquiry.

Stout Journal: Just a quick clarification. You used this phrase several times—if the plaintiff is harmed. And by that, does that mean in the sense of lost sales or lost profits or simply because they’re harmed because their intellectual property rights have been violated?

Judge Richard Posner: Well, that’s not a harm.

Stout Journal: If someone invests in developing a patent and paying the legal fees and someone uses that right without permission, isn’t that harm?

Judge Richard Posner: No, of course not. What if you got a patent on a product that nobody had the slightest interest in? As a result, your patent is totally worthless. Now, suppose someone comes along and infringes your absolutely worthless patent, but he’s just doing it for fun or something like that and he doesn’t make any money. He doesn’t make any money from it, so he hasn’t deprived you of any opportunity. Well, what harm has he done?

Stout Journal: Let’s say we have non-practicing entities, and they may have purchased the patent. In some cases, non-practicing entities have actually developed the patent, either way expending money. And then if someone comes and uses it, isn’t that harm if they’re using something you own without your permission?

Judge Richard Posner: Well, what is it you think is the harm?

Stout Journal: The harm would be akin to if I owned physical property and someone was camping on it. I don’t want them to do that. I have a right to restrict your use, and I haven’t given you a right to do it and you’re doing it. You’ve taken away some of my privileges. Perhaps in the future I wanted to license it to someone else. Perhaps in the future I want to use it myself, but now you’re squatting on my property.

Judge Richard Posner: The camping case is much clearer. Obviously you don’t want strangers on your land, and you’re particularly worried about situations in which by repeated use of your land the stranger may be able to obtain an easement or some other kind of property interest or invoke the doctrine of adverse possession to obtain ownership of the entire property. Now, if you have a patent and if you haven’t started to license it or make any money from it, but you think it has a potential and you’re in the manufacturing business or you’ve licensed other patents, then you should be able to obtain some kind of relief. I guess it wouldn’t be monetary relief. It would have to be an injunction. You couldn’t establish any value that had been impaired. You don’t get an injunction automatically. You have to show that you have some reason for it. So you could say, well, I haven’t done anything with it yet, but I have plans to practice it in the next five years. So if you could prove that, you could obtain an injunction. You couldn’t get damages though.

Stout Journal: You’re probably more familiar than most judges with various economic theories. Do you have any thoughts regarding the applicability of a Nash bargaining solution in reasonable royalty determination?

Judge Richard Posner: No. I don’t actually know what that means. What do you have in mind?

Stout Journal: Well, maybe I can give an example. If you think of a negotiation between the patent holder and an unlicensed infringer, some experts have looked at the bargaining positions of the parties. And then you establish a range based on one party’s maximum willingness to pay and the other one’s minimum willingness to accept, so you have a bargaining range. And then the question is, where within that bargaining range would the parties settle? And some have suggested you can look at the bargaining strengths solely by evaluating the factors that are articulated in Georgia-Pacific.

Judge Richard Posner: Well, the Georgia-Pacific test is baloney. Fifteen factors, that’s ridiculous.

Stout Journal: Some would suggest that you evaluate where the parties would have settled based on some factors, whether they’re the Georgia-Pacific factors or other factors. Some have advanced the idea of adopting a Nash bargaining solution to determine where the parties …

Judge Richard Posner: I don’t know what that means. But, look, first of all, it’s extremely difficult to establish a bargaining range because, from the standpoint of the patentee, he may actually be willing to accept from the infringer a royalty that’s lower than his actual loss because he has to worry about his legal fees. And then the top of the range, who knows? The infringer might be willing to overpay in order to create good relations with the firm. So you won’t know what the range is. Anyway, once you have a range, you’re not going to be able to find the point within the range that they would have bargained to. I mean, how on earth could you determine that? Do they split the difference? Does one get closer to his end of the range? How do you do that?

Stout Journal: So then getting back to your comment regarding the Georgia-Pacific factors, do you disagree with the general construct in terms of the hypothetical negotiation or is your disagreement more with the specific factors?

Judge Richard Posner: Well, all right. So we’re talking about finding the point in the range. Now, you tell me any Georgia-Pacific factor that would enable a court to find that point.

Stout Journal: Prior licensing.

Judge Richard Posner: What does that mean, a prior license? What’s the relevance of the prior license?

Stout Journal: If, for example, the patent holder has licensed the same technology under similar circumstances to one or two other players in the marketplace, that would …

Judge Richard Posner: That has nothing to do with the bargaining range. That shows what this company has typically settled comparable cases for. Look at the comparable cases and suppose he’s given out 10 other licenses and they were all for five percent. Now, this is the 11th case. Is there anything special about this? Maybe this is uniquely valuable to the potential licensee so he’ll pay more. What has that to do with Georgia-Pacific?

Stout Journal: In some cases, you may see agreements where the rates will not necessarily be the same.

Judge Richard Posner: So what do you do with that?

Stout Journal: Perhaps that would form some sort of range.

Judge Richard Posner: No, it wouldn’t. It would show there was no range, right? If you have comparable cases with different license fees, what’s the basis for estimating what the license fee in the current case will be? I’m just asking you to give me an example of the utility of a Georgia Pacific factor. But look, a 15-factor test, that is just baloney. How could a judge or jury or anybody play with 15 factors and come up with an objective measure of anything?

Stout Journal: From your perspective, is it relevant how much money the accused infringer is making with the product or the invention? Perhaps the patent owner has a small market share and its losses are relatively minor. But because the defendant is much bigger, it makes 10 times what the plaintiff would make from it. Is that relevant?

Judge Richard Posner: No, that shouldn’t be relevant. That’s a windfall. You’re saying the defendant is a big company so it’s able to exploit this much more effectively than the plaintiff. Well, why should the plaintiff get damages or royalty based on the superior ability of his opponent to exploit the product? He didn’t lose anything because he couldn’t exploit it that well.

Stout Journal: Wouldn’t the defendant, then, get a windfall by only paying the plaintiff what the plaintiff has lost?

Judge Richard Posner: If you are harmed by a legal wrong by somebody else, then you get the damages. How much have you suffered? The fact that the other side benefited by more than your harm, well, that’s fine. That means social value has risen and nobody has been hurt. It’s what is called Pareto optimality. There are situations where you are entitled to restitution, the value that has been taken from you, as an alternative to damages. But in the case you give, the value of the patent to the plaintiff was modest. That’s what he lost, and the fact that someone else was able to derive benefit from it, that’s not a loss to you.

Stout Journal: So am I characterizing you correctly when I say that from your perspective, there is zero value associated with the right to exclude?

Judge Richard Posner: Yes. Suppose I have a wedding ring, and I am poor so my wedding ring, instead of being made out of gold, is made out of tin and it’s worth two cents. And you steal it and you coat it with gold. Now, instead of being worth two cents, it’s worth a hundred dollars. If I sue you, should I be able to get two cents or should I get a hundred dollars?

Stout Journal: In that case, the value is clear. But what if the owner of the ring had plans to plate it in gold himself?

Judge Richard Posner: I think you’re making a reasonable point because there is a current value to a product or an invention and there is potential value. And really the question is the extent to which the potential value is turned into an actual value by the creative activity of the thief.

You might want to distinguish between deliberate and accidental. So suppose I see that with a very light coating of gold, the wedding ring will be worth not two cents but a hundred dollars. I know I can convert it at a cost of $5, and I go to you and I buy your ring for two cents. That would actually be a legitimate transaction. But suppose I steal it from you, so I realize value that you weren’t aware of, but on the other hand, I did steal it and obtained the potential value and realized it and you might have been able to realize it. So one could distinguish the two cases …

Stout Journal: But you wouldn’t advocate that the big producer would come and say, hey, together with your ring and my ideas, we can make a lot of money. Let’s share that. That’s not how you would think the economics would work?

Judge Richard Posner: No. Think of this example. It’s actually a common one. Someone has a painting. He doesn’t realize it’s a Rembrandt. He thinks it has very little value, and I come along and I’m an art expert and I say to him, well, I’d like to buy your painting. How much will you charge for it? And he says $10 and I say fine. I know it’s a Rembrandt. I then sell it for a million dollars, and I keep it all because I had no duty to disclose to the seller my valuation of his property. If, on the other hand I go and steal his painting and then sell it for a million dollars, he will be able to get the million dollars back from me because that was potential value and I merely made it actual without doing anything to the painting, to the product.

So now if we consider the patent context, we probably should still distinguish the deliberate taking from the shrewd bargaining. So if I know that your patent is very valuable, potentially, but you don’t know it or you don’t have the resources to develop and produce and market it, and I infringe deliberately and I actually spend money in order to realize this potential value of your patent, maybe I should be entitled to reimbursement for my expenses, but the value above that goes back to you.

On the other hand, of course, you don’t have to be deliberate or even negligent to be an infringer. So suppose this company in perfectly good faith makes this product, has no reason to think it’s infringing, may have done a patent search and didn’t find your patent because the search process is imperfect, especially searching for software. In that case, it’s not obvious that the original patentee should get anything.

Stout Journal: You’ve used neutral experts in a number of cases. Why is that helpful to you?

Judge Richard Posner: These were all cases that were scheduled to be jury trials. And I think in a jury case involving complicated technology, it’s very, very difficult to get that case in shape for a jury of lay people to understand it. You have to make sure that the jury can understand the technology. And to do that you’re going to get slanted versions of it from the party experts, so I want to have a neutral expert and what I like to do is to have the parties’ experts get together and recommend a neutral expert.

So I’d say to the jury, here is someone the parties agreed on. He’s neutral, fair-minded, and qualified, and he’s a professor and he’s going to explain to you as simply as possible what this technology is. And then I add, of course you (the jurors) are going to hear from party experts also and they’re qualified. They’ve been screened and you will want to listen to them, but the neutral expert, the expert I’ve appointed, is beholden to nobody. He charges a fee like the other experts for his time, but the opponents, they just split the fee 50/50 and I don’t allow them to question his fee. So he’s genuinely neutral and you’ll want to weight that appropriately.

And I’ve been very pleased with these neutrals that I’ve selected—you know, they’re teachers. One of the professors who was going to be testifying in one of my cases, a DNA case, said he had prepared programs explaining DNA for Disney World. I said, you’re perfect. (Laughter) It was obvious from interviewing him that he’s the kind of person who is a very, very good communicator. So I think neutrals are really important in jury cases involving complex technology.

I don’t feel that way about bench trials. The party expert begins with direct examination of him by the lawyer for the side that hired him, and that direct examination is basically a recital of what the lawyer told him to say. And then there is cross-examination and the witness is apt to be very evasive and uncomfortable.

But then the judge can ask questions, and my experience has been that when I am asking questions, the expert’s whole personality changes because he figures I’m not on his side or against him. I’m neutral, and I’m curious, so I’m asking them questions that aren’t loaded and they forget they’re in a courtroom and they just talk to me and explain things. But you can’t do that in a jury trial because if the judge starts asking questions, the jury gets confused and tries to get clues from the judge as to how he wants them to decide the case, and that’s inconsistent with trial by jury.

I’m still waiting to conduct my first patent jury trial. Most trials fizzle because they’re either decided by summary judgment or dismissed on the pleadings or, most commonly, settled in advance of trial.

Stout Journal: Judge Posner, are there any plans for the future that you would like to share with our readers?

Judge Richard Posner: I am actually beginning a book on patent law and the patent system and I hope to continue doing patent litigation as a volunteer in the District Court.

Stout Journal: Considering your multi-faceted contributions to the practice of law, how would you most like to be remembered after you retire?

Judge Richard Posner: Not interested in that—that’s looking into the future and I don’t—I don’t think about those things.

Stout Journal: Well, I wanted to thank you for taking your time this morning with us and giving us some very thoughtful and insightful comments to the questions that we’ve asked.

Judge Richard Posner: I enjoyed it and it was educational for me, so good luck with your project.