Lucent v. Gateway Dooms Another Damages Award at the CAFC

ResQNet.com, Inc. v. Lansa, Inc., No. 08-1365 (Fed. Cir., February 5, 2010)

Lansa appealed an award of damages for patent infringement from the Southern District of New York, arguing that the evidence and expert testimony relating to damages was erroneous, leading to an inflated 12.5% royalty rate on patents relating to screen recognition and terminal emulation technologies.

The first Georgia-Pacific factor requires considering past and present royalties received by the patentee “for the licensing of the patent in suit, proving or tending to prove an established royalty.”  In this case, ResQNet's expert (Dr. David) based his damages on seven ResQNet licenses, two of which were based on litigation , and five of which were “re-bundling licenses” that furnished finished software products and source code, as well as services such as training, maintenance, marketing, and upgrades, to other software companies in exchange for ongoing revenue-based royalties.  These companies obtained the right to re-brand ResQNet’s products before resale or bundle these products into broader software suites.

The Federal Circuit stated

[N]one of [the re-bundling] licenses even mentioned the patents in suit or showed any other discernible link to the claimed technology. Dr. David tabulated an average of the royalty ranges specified in these agreements, a number substantially higher than 12.5%.

The rates in the re-bundling licenses are not consistent at all with the other two licenses in the record. Those two “straight” licenses arose out of litigation over the patents in suit. One of them was a lump-sum payment of stock which Dr. David was unable to analogize to a running royalty rate. The other was an ongoing rate averaging substantially less than 12.5% of revenues . . . The inescapable conclusion is that Dr. David used unrelated licenses on marketing and other services—licenses that had a rate nearly eight times greater than the straight license on the claimed technology in some cases—to push the royalty up into double figures.

This court finds two parts of this analysis particularly troubling: first, the extremely high rates in the re-bundling licenses compared with the license on the claimed technology, and second, the unconvincing reasons that Dr. David gave for considering these re-bundling licenses at all. On this second point, the trial transcript indicates several instances where Dr. David misunderstood (or worse, misrepresented) the re-bundling licenses as somehow amounting to “patent plus software” licenses when, in fact, the record shows no use in these licenses of ResQNet’s claimed invention.

[T]hus, the district court in this case made the same legal error that this court corrected in Lucent. This trial court, like the one in Lucent, made no effort to link certain licenses to the infringed patent. For his part, Dr. David did not provide any link between the re-bundling licenses and the first factor of the Georgia-Pacific analysis. Without that link, as this court explained in Lucent: “We . . . cannot understand how the [fact finder] could have adequately evaluated the probative value of [the] agreements.” 580 F.3d at 1328.

The Federal Circuit also added:

The district court seems to have been heavily influenced by Lansa’s decision to offer no expert testimony to counter Dr. David’s opinion. But it was ResQNet’s burden, not Lansa’s, to persuade the court with legally sufficient evidence regarding an appropriate reasonable royalty. See Lucent, 580 F.3d at 1329 (“Lucent had the burden to prove that the licenses were sufficiently comparable to support the lump-sum damages award.”). As a matter of simple procedure, Lansa had no obligation to rebut until ResQNet met its burden with reliable and sufficient evidence. This court should not sustain a royalty award based on inapposite licenses simply because Lansa did not proffer an expert to rebut Dr. David.

Judge Newman, Dissenting-In-Part:

My colleagues, in setting strict barriers as to what evidence can be considered, leave the damages analysis without access to relevant information. However, it is not necessary that the identical situation existed in past transactions, for the trier of fact to determine the value of the injury . . . Lansa presented no testimony and proffered no evidence. Although Lansa waived the position on which my colleagues rely, this court fills the gap. For example, my colleagues do not discuss the district court’s reasoning, but state that they find “particularly troubling” that some of the licenses in evidence had “extremely high rates [when] compared with the [litigation-induced] license on the claimed technology.” The district court fully considered this aspect, and factored it into a competent overall analysis in which no flaw has been shown. The court’s conclusion warrants affirmance.

 Read/download the opinion here (link)