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Full Opinion
United States Court of Appeals for the Federal Circuit
2008-1485, -1487, -1495
LUCENT TECHNOLOGIES, INC.,
Plaintiff/Counterclaim Defendant-
Cross Appellant,
and
LUCENT TECHNOLOGIES GUARDIAN I LLC,
Counterclaim Defendant,
and
MULTIMEDIA PATENT TRUST,
Plaintiff/Counterclaim Defendant,
v.
GATEWAY, INC., GATEWAY COUNTRY STORES LLC,
GATEWAY COMPANIES, INC., COWABUNGA ENTERPRISES, INC.,
and GATEWAY MANUFACTURING LLC,
Defendants/Counterclaimants,
and
DELL INC.,
Defendant/Counterclaimant,
and
MICROSOFT CORPORATION,
Defendant/Counterclaimant-Appellant.
John M. Desmarais, Kirkland & Ellis, LLP, of New York, New York, argued for
plaintiff/counterclaim defendant-cross appellant Lucent Technologies, Inc. With him on the
brief were Paul A. Bondor and Michael P. Stadnick.
Constantine L. Trela, Jr., Sidley Austin LLP, of Chicago, Illinois, argued for
defendant/counterclaimant-appellant Microsoft Corporation. With him on the brief were
Robert N. Hochman and Tacy F. Flint, and Carter G. Phillips, of Washington, DC. Of counsel
on the brief were John E. Gartman and John W. Thornburgh, Fish & Richardson, P.C., of San
Diego, California. Of counsel were Juanita Rose Brooks and Joseph P. Reid, Fish &
Richardson, P.C. of San Diego, California; and Thomas Andrew Culbert and Stephen P.
McGrath, Microsoft Corporation, of Redmond, Washington.
Edward R. Reines, Weil, Gotshal & Manges LLP, of Redwood Shores, California, for
amici curiae Apple Inc., et al. With him on the brief was Sonal N. Mehta.
James W. Dabney, Fried, Frank, Harris, Shriver & Jacobson LLP, of New York, New
York, for amici curiae Bank of America Corporation, et al.
Donald R. Dunner, Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P., of
Washington, DC, for amici curiae 3M Company, et al. With him on the brief were Don O.
Burley and Erik R. Puknys, of Palo Alto, California. Of counsel on the brief were Hansjorg
Sauer, Biotechnology Industry Organization, of Washington, DC; Michael J. Biber, Dolby
Laboratories, Inc., of San Francisco, California; P. Michael Walker and Barry Estrin, E.I.
DuPont de Nemours and Co., of Wilmington, Delaware; Richard F. Phillips, Exxon Mobil
Chemical Company, of Houston, Texas; Buckmaster de Wolf, General Electric Company, of
Fairfield, Connecticut; Philip S. Johnson, Johnson & Johnson, of New Brunswick, New
Jersey; Steven W. Miller, The Procter & Gamble Company, of Cincinnati, Ohio; Alexander H.
Rogers, Qualcomm Inc., of San Diego, California; and Taraneh MaghamĂŠ, Tessera, Inc., of
San Jose, California.
Appealed from: United States District Court for the Southern District of California
Judge Marilyn L. Huff
2
United States Court of Appeals for the Federal Circuit
2008-1485, -1487, -1495
LUCENT TECHNOLOGIES, INC.,
Plaintiff/Counterclaim Defendant-
Cross Appellant,
and
LUCENT TECHNOLOGIES GUARDIAN I LLC
Counterclaim Defendant,
and
MULTIMEDIA PATENT TRUST,
Plaintiff/Counterclaim Defendant,
v.
GATEWAY, INC., GATEWAY COUNTRY STORES LLC,
GATEWAY COMPANIES, INC., COWABUNGA ENTERPRISES, INC.,
and GATEWAY MANUFACTURING LLC,
Defendants/ Counterclaimants,
and
DELL, INC.,
Defendant/Counterclaimant,
and
MICROSOFT CORPORATION,
Defendant/Counterclaimant-Appellant.
Appeals from the United States District Court for the Southern District of California in
case no. 07-CV-2000, Judge Marilyn L. Huff.
__________________________
DECIDED: September 11, 2009
__________________________
Before MICHEL, Chief Judge, NEWMAN and LOURIE, Circuit Judges.
MICHEL, Chief Judge.
Microsoft Corporation appeals the denial of post-trial motions concerning a jury
verdict that U.S. Patent No. 4,763,356 (the âDay patentâ) was not invalid and that
Microsoft indirectly infringed the Day patent. Microsoft also appeals the
$357,693,056.18 jury award to Lucent Technologies, Inc. for Microsoftâs infringement of
the Day patent. Because the validity and infringement decisions were not contrary to
law and supported by substantial evidence, we affirm. Because the damages
calculation lacked sufficient evidentiary support, we vacate and remand that portion of
the case to the district court for further proceedings.
BACKGROUND
In the 1970s, niche groups of hobbyists, including two teenagers in a Los Altos
garage, built personal computers from scratch. In the early to mid-1980s, personal
computing gained popularity although still in its infancy. In 1982, a fifteen-year-old high
school student created the first public computer virus, spreading it among personal
computers via floppy disks, most likely the 5Âź-inch version, as the 3½-inch disk wasnât
introduced until a few years later. Commercially available operating systems at the time
were mainly text-based with few, if any, graphical interfaces. In 1984, with its now
famous â1984â commercial aired during Super Bowl XVIII on Black Sunday, Apple
Computer announced the introduction of its Apple Macintosh, the first widely sold
2008-1485, -1487, -1495 2
personal computer employing a graphical user interface. The following year, Microsoft
introduced its own version of a graphical operating system, Windows 1.0.
In December 1986, three computer engineers at AT&T filed a patent application,
which eventually issued as the Day patent. The patent is generally directed to a method
of entering information into fields on a computer screen without using a keyboard. A
user fills in the displayed fields by choosing concurrently displayed, predefined tools
adapted to facilitate the inputting of the information in a particular field, wherein the
predefined tools include an on-screen graphical keyboard, a menu, and a calculator.
The system may display menus of information for filling in a particular field and may also
be adapted to communicate with a host computer to obtain the information that is
inserted into the fields. In addition, one of the displayed fields can be a bit-mapped
graphics field, which the user fills in by writing on the touch screen using a stylus.
In 2002, Lucent 1 initiated the present action against Gateway, and Microsoft
subsequently intervened. The appeal comes from the consolidated action of three
separate infringement suits filed in the Eastern District of Virginia, the District of
Delaware, and the Southern District of California. The consolidated action was
originally before Senior Judge Rudi Brewster. In October 2007, Judge Brewster
severed part of the patent infringement case for transfer to Judge Marilyn Huff. The
court severed and transferred for further proceedings all matters relating to the Day
patent and U.S. Patent Nos. 4,383,272; 4,958,226; 5,347,295; and 4,439,759.
At trial, Lucent charged infringement by Microsoft of claims 19 and 21, among
others, of the Day patent. Lucent alleged indirect infringement of claim 19 based on the
1
The Day patent is now assigned to Lucent.
2008-1485, -1487, -1495 3
sales and use of Microsoft Money, Microsoft Outlook, and Windows Mobile. As to
claim 21, Lucent asserted that the use of Windows Mobile infringed. Lucent also
alleged infringement by Dell and asserted claims of the other patents as well, but those
issues are not on appeal. 2 Microsoft challenged Lucentâs infringement contentions,
contending among other defenses that the Day patent was invalid for being anticipated
or obvious and, even if valid, Microsoftâs sales of its products did not infringe the Day
patent.
The jury found Microsoft liable on claim 19 as to all three products and on
claim 21 as to Windows Mobile but returned a finding of no infringement by Dell as to
those two claims. The verdict, without distinguishing among the three products or
between inducement and contributory infringement, awarded a single lump-sum against
Microsoft for all products involved. The jury awarded $357,693,056.18 for Microsoftâs
infringement of the Day patent, excluding prejudgment interest. 3
The parties filed numerous post-trial motions, including Microsoftâs renewed
motions seeking judgment as a matter of law that the Day patent was anticipated and
obvious and motions challenging the juryâs finding of infringement and the juryâs award
of damages. In particular, Microsoft sought judgment as a matter of law that claims 19
and 21 were anticipated under 35 U.S.C. § 102(b) and (g) or were obvious under § 103.
The district court found substantial evidence in the record to support the juryâs
determination that the defendants had not proven the Day patent to be invalid. The
district court also held that neither judgment as a matter of law nor a new trial was
2
Additionally, on December 15, 2008, Microsoft and Lucent filed a
stipulation dismissing all claims between them except those relating to the Day patent.
3
For U.S. Patent No. 5,347,295, the jury awarded $10,350,000.00 for
Microsoftâs infringement and $51,000.00 for Dellâs infringement.
2008-1485, -1487, -1495 4
appropriate on the juryâs finding that Lucent had proven damages in the amount of
approximately $358 million. The district court granted only the post-trial motion setting
aside the obviousness verdict concerning U.S. Patent No. 4,958,226 but denied all
other post-trial motions, including those for the Day patent. See Lucent Techs., Inc. v.
Gateway, Inc., 580 F. Supp. 2d 1016 (S.D. Cal. 2008). Microsoft has timely appealed
the district courtâs decision. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).
ANALYSIS
I. Standards of Review
When reviewing the denial of a motion for judgment as a matter of law (âJMOLâ)
after a jury verdict, we ââappl[y] the same standard of review as that applied by the trial
court.ââ Wechsler v. Macke Intâl Trade, Inc., 486 F.3d 1286, 1290 (Fed. Cir. 2007)
(quoting nCube Corp. v. SeaChange Intâl, Inc., 436 F.3d 1317, 1319 (Fed. Cir. 2006)).
Furthermore, â[t]he grant or denial of a motion for judgment as a matter of law is a
procedural issue not unique to patent law, reviewed under the law of the regional circuit
in which the appeal from the district court would usually lie.â Summit Tech., Inc. v.
Nidek Co., 363 F.3d 1219, 1223 (Fed. Cir. 2004). In the Ninth Circuit, a district court
grants JMOL only âif the evidence, construed in the light most favorable to the
nonmoving party, permits only one reasonable conclusion, and that conclusion is
contrary to the juryâs verdict.â Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir. 2002).
Similarly, a district court in the Ninth Circuit âmay grant a new trial only if the verdict is
against the clear weight of the evidence.â Id.
âInfringement is a question of fact, reviewed for substantial evidence when tried
to a jury.â Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1332 (Fed. Cir.),
2008-1485, -1487, -1495 5
cert. denied, 129 S. Ct. 754 (2008). Obviousness is a legal question reviewed de novo.
PharmaStem Therapeutics, Inc. v. ViaCell, Inc., 491 F.3d 1342, 1359 (Fed. Cir. 2007),
cert. denied, 128 S. Ct. 1655 (2008). The statutory standard requires us to decide
whether the subject matter of the claimed invention ââwould have been obvious at the
time the invention was made to a person of ordinary skill in the art to which [the subject
matter of the invention] pertains.â 35 U.S.C. § 103(a) (2006); see also KSR Intâl Co. v.
Teleflex Inc., 550 U.S. 398, 415-16 (2007). âUnderpinning that legal issue are factual
questions relating to the scope and content of the prior art, the differences between the
prior art and the claimed invention, the level of ordinary skill in the art, and any relevant
secondary considerations, such as commercial success, long-felt need, and the failure
of others.â PharmaStem, 491 F.3d at 1359.
We review for an abuse of discretion a district courtâs decision concerning the
methodology for calculating damages. Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d
512, 517 n.8 (Fed. Cir. 1995); see also State Indus., Inc. v. Mor-Flo Indus., Inc.,
883 F.2d 1573, 1576-77 (Fed. Cir. 1989) (noting that the precise methodology used in
âassessing and computing damages is committed to the sound discretion of the district
courtâ). We review the juryâs determination of the amount of damages, an issue of fact,
for substantial evidence. SmithKline Diagnostics, Inc. v. Helena Labs. Corp., 926 F.2d
1161, 1164 n.2 (Fed. Cir. 1991). âA juryâs decision with respect to an award of damages
âmust be upheld unless the amount is grossly excessive or monstrous, clearly not
supported by the evidence, or based only on speculation or guesswork.ââ State
Contracting & Engâg Corp. v. Condotte Am., Inc., 346 F.3d 1057, 1072 (Fed. Cir. 2003)
2008-1485, -1487, -1495 6
(quoting Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.2d 1555, 1580
(Fed. Cir. 1992)).
II. Invalidity
Before the jury, Microsoft engaged in a multi-pronged attack of the Day patentâs
validity. Microsoft argued, for example, that the Day patent was anticipated under
§ 102(b) and (g) and obvious under § 103. On appeal, Microsoft challenges only the
district courtâs denial of the JMOL motion on obviousness. Microsoft does not challenge
any of the district courtâs claim constructions. In analyzing the obviousness defense, we
therefore must apply the claim construction as it was presented to the jury. Further,
Microsoft relies on only a single prior art document for its obviousness position with
respect to claim 19.
Independent claim 19 is directed to a method of inputting data using certain
predefined âtoolsâ and entering that information into particularfields displayed in a
computer form. Claim 21 depends from claim 19 and further specifies that the
information field is displayed as âa bit-mapped-graphics field.â Claims 19 and 21 read in
full as follows.
19. A method for use in a computer having a display comprising the steps
of
displaying on said display a plurality of information fields,
identifying for each field a kind of information to be inserted therein,
indicating a particular one of said information fields into which information
is to be inserted and for concurrently displaying a predefined tool
associated with said one of said fields, said predefined tool being operable
to supply information of the kind identified for said one field, said tool
being selected from a group of predefined tools including a tool adapted to
supply an individual entry from a menu of alternatives and at least a tool
adapted to allow said user to compose said information, and
inserting in said one field information that is derived as a result of said
user operating said displayed tool.
2008-1485, -1487, -1495 7
* * *
21. The method set forth in claim 19 wherein the step of displaying said
pattern includes the step of displaying one or more of said information
fields as a bit-mapped-graphics field.
The â356 patent, col.17 l.27 to col.18 l.22. Figure 5 of the Day patent, shown below,
illustrates an embodiment of the invention in which a graphical calculator overlays the
form having multiple fields, one of whichââQuantityâ (Qty 61)âis highlighted.
A. Claim 19
Microsoftâs position was that claim 19 would have been obvious over a 1984
magazine article, Michael Tyler, Touch Screens: Big Deal or No Deal?, Datamation,
Jan. 1984, at 146 (âthe Datamation articleâ or âDatamationâ). The article describes both
the potential benefits and drawbacks of using computer touch screens at a time when
computer technology was developing. As Datamation reports, analysts feared that
â[t]he combination of these drawbacks and outside influences may doom the touch-
sensitive terminalâ and that â[e]ven touch technologyâs greatest proponents admit that
2008-1485, -1487, -1495 8
the future is not as bright as it once seemed.â Id. at 154. The Datamation articleâs
ultimate message was that â[t]ouch-sensitive terminals may be very sexy in the office,
but whether they actually stimulate people to use computers is open to doubt.â Id. at
146.
Much of the trial testimony, as relating to the FXFE system 4 in the Datamation
article, described not what was in the article but what was allegedly prior art for
purposes of prior public use or prior invention. The Datamation articleâs entire
disclosure relied upon by Microsoft on appeal is much more limited, namely one
photograph 5 and the following two short paragraphs.
The bank is in the process of implementing a two-phase strategy
that it feels will accomplish the breakout [technology]. The plan employs
Easel workstations programmed in the bankâs London office. Each
workstationâs screen is divided roughly in half vertically. Large touch-
sensitive boxes at the top of the screen invite the user to declare the
current transaction a âbuyâ or a âsellâ; at the bottom, similar boxes let the
users deal, service, cancel, log out, or lock out their screens. The right
half of the screen lists key information about the current transaction,
including buyer bank, seller bank, currency, exchange rate (in dollars and
the foreign currency), broker, bank customer, exchange location, and
method of payment.
When the trader touches the screen in one of these areas, a list of
potentially valid entries or a numeric keypad appears on the left half,
inviting the user to choose the information needed on the right. For
instance, when the user hits the âbrokerâ cell on the right, a list of brokers
appears on the left; the trader then hits the name of the broker to be
involved in the current trade, and the information is entered into the
system. For exchange rates and other numerical data, the user hits the
proper cell on the right and then types in the numeric data on the keypad
that appears on the left. In this way, an entire transaction can be
completed directly on the workstation. (A QWERTY layout can be called
4
In the Datamation article, the relevant computer system is referred to as
Easel. Throughout trial and in the briefs, the system was called âFXFE,â although that
name is based on information outside the articleâs content. For ease of reference only,
we use the FXFE terminology.
5
The district court observed that the photograph in the Datamation article
was âof limited clarityâ and âlimited in detail.â 580 F. Supp. 2d at 1032.
2008-1485, -1487, -1495 9
up on the left for entry of nonstandard or rare namesâan infrequently
traded currency, for example.)
Datamation, supra, at 148.
During trial, the opposing experts for Microsoft and Lucent expressed conflicting
views about the Datamation articleâs disclosure. Specifically, the parties and their
experts disagreed about whether the Datamation article described three of the
limitations of claim 19 and whether a fourth limitation would have been obvious from the
article. We address each limitation in turn.
First, the experts expressed differing opinions about whether the Datamation
article disclosed the limitation of âinserting in said one field information that is derived as
a result of said user operating said displayed tool.â The district court construed this
term to mean âinserting in a particular field information that is derived as a result of the
user operating the displayed tool.â Lucent argues that all the Datamation article states
is that the information is entered âinto the system.â Microsoft counters that â[t]he article
describes how an FXFE user entered (or âinsertedâ) information into what it calls âcells,â
another name for âinformation fields.ââ But Microsoftâs expert was less than direct when
asked whether the Datamation disclosed an information field, as required by claim 19:
Q: And you told us the article had information fields in it, right?
A: The article refers to fields as cells, and I think people understand a cell
to be a field.
Q: The article doesnât use the word âinformation fields,â does it?
A: I recall it using fieldsâusing cells to represent fields, and I think what it
was describing was a field. Whether it actually used the word âfield,â
I donât know. Iâd have to look at the article to see if itâ
Q: The article talked about a broker cell. It didnât say that the information
in the broker cell goes into a field, did it? You know it didnât use that term,
right?
2008-1485, -1487, -1495 10
A: I donât know that, but Iâyou would understand a cell to be a field. It
was very clear from the article.
Q: I know that you want to say that. What Iâm asking you is what is
actually in the article. You know as you sit here today that that article
does not use the term âinformation fieldâ in those words, true or false?
A: I canât answer that because I would have to look at it to see if it used
field, but when I read that article, it was clear to me what they were
discussing was a field, and whatâs demonstrated there is a field. Whether
they used only cell and not field Iâd have to actually look at the article.
Q: So can we agree that as you sit here today in the stand you donât
know?
A: Well, Iâve read the article, but I havenât done an analysis on whether the
word âfieldâ actually shows up into thatâin that article.
J.A. 08112-13.
Microsoftâs expert seemed to equate the âinformation fieldâ of claim 19 with the
term âcell,â as used in the Datamation article. What the article describes as a âcell,â
however, appears to be different from an âinformation field,â as used in the claim of the
Day patent. The article states that âwhen the user hits the âbrokerâ cell on the right, a list
of brokers appears on the left.â Datamation, supra, at 148. In the next stage of the
transaction, the user could select from the âlist of brokers appear[ing] on the leftâ and
âthe trader hits the name of the broker.â Id. This sequence could be viewed as
occurring without inserting an entry into an information field. Also, a reasonable jury
could have understood âcellâ to mean an area on the screen that a user touches to
proceed to the next stage in the transaction and not an on-screen box in which entered
data is displayed, i.e., an information field. The Day patent requires an information field.
Itâs entirely possibleâand reasonableâfor the jury to have concluded that the
Datamation article describes a computer system operating as a data input system
without the creation of on-screen forms having information fields, as required by
claim 19. The photograph shows nothing about whether data is entered into a field and
2008-1485, -1487, -1495 11
thus displayed on the screen. The photograph does not depict anything resembling an
âinformation field.â A reasonable jury could have concluded that the FXFE systemâs
process consisted of a user entering data, the system receiving that data, and the
system then proceeding to the next operation in the process, without displaying the data
in an information field on the screen. For instance, consider a sequence routinely
employed by an automated teller machine (ATM). When withdrawing money from oneâs
checking account (e.g., $50, $100, or $200), a user presses the appropriate on-screen
button, the ATM system receives the input, and then the system proceeds to the next
decisional operation (e.g., print receipt?). In this sequence, the system never enters
and displays the userâs selection into a field on the computer screen.
Although the Datamation article possibly describes a system capable of inserting
data into an information field, the article itself does not appear to teach that step. Of
singular importance here, however, is that the jury could have reasonably viewed the
Datamation article as not disclosing the âinsertingâ step.
The second limitation in dispute is the âtoolâ limitation. Claim 19 requires a âtool
adapted to allow said user to compose said information.â The district court interpreted
this limitation to mean âa graphical keyboard tool or a graphical number keypad tool,
which allows the user to compose information by pointing to the display keys of that
tool.â
Microsoft again contends that the Datamation article necessarily discloses this
âtoolâ limitation. Reasoning that the keyboard in the Datamation photograph is graphical
because it is a âpictorialâ image on the screen, Microsoft relies on testimony from an
expert, who told the jury, âSo when youâre talking about something graphical, youâre
2008-1485, -1487, -1495 12
talking about a pictorial representation thatâs displayed on the computer screen.â This
testimony, Microsoft asserts, is evidence sufficient to overturn the juryâs verdict.
The jury also heard a different view from Lucentâs expert, who explained the
difference between a computerâs âtext modeâ and âgraphics mode.â Lucentâs expert
opined that â[t]hereâs no evidence that the FXFE system was anything other than a text-
based system.â He further testified as followed:
Q: Now, you told us this system is not a graphical system. What did you
mean by that?
A: This isâthis program was written in text mode. Graphics mode on
computers of this era was too slow to support productivity applications,
which is what this is. So developers uniformlyâI mean, there may have
been a rare exception, but with the exception of people who needed to
work in graphics such as allowing people to draw, these programs were
built in text mode.
And what text mode means is that the only control a programmer has is to
say I want the letter A, I want the number zero, I want an exclamation
point, I want an underscore and so forth. And even the microprocessor
doesnât have control. Thereâs a piece of hardware out there thatâs just
putting characters on a screen.
So itâs text mode, itâs not graphics mode. The 356 [Day] patent is all about
graphics mode.
Q: In fact, the Courtâs construction for the composition tool says it has to
be a graphical keypad tool.
A: Thatâs correct.
Q: And this isnât even a graphical system.
A: No, itâs not.
J.A. 08658-59.
Microsoftâs own expert seemingly admitted that the Datamation article did not
necessarily disclose a system operating in graphics mode:
Q: And the article doesnât tell us that this system operated in graphics
mode as we understand that term to mean where youâre addressing
information to individual pixels, right? The article doesnât say that?
2008-1485, -1487, -1495 13
A: Well, the article does describe that it had a very high resolution, 976
pixels by some other resolution, which indicates to me that it operated inâ
it could operate in a graphics mode.
Q: Iâm not asking you if it could. The article does not use the phrase
âgraphics mode,â does it?
A: I donât think the article describes whether it worked in graphics mode or
not.
J.A. 08112. Based on this evidence, the jury was within its charge to conclude that the
Datamation article did not disclose âa graphical keyboard tool or a graphical number
keypad tool.â
The third disputed limitation is âconcurrently displaying a predefined tool
associated with said one of said fields.â The district courtâs construction requires this
phrase to mean âdisplaying at the same time, as by a window overlaying the form.â
Microsoft contends that â[t]he Datamation article leaves no doubt that the FXFE
systemâs graphical tools are displayed at the same time as the information fields.â
Lucent responds that Microsoft is impermissibly trying to broaden the scope of the claim
by eliminating a requirement that the window overlays the form.
As noted above, Microsoft did not object to the claim construction read to the
jury, and does not appeal the claim construction to us. Based on the claim construction
presented, the jury reasonably could have concluded that the Datamation article does
not disclose a graphical tool that overlayed the form. Microsoftâs expert conceded that
the Datamation article doesnât describe a tool that overlays a form.
Q: The article does not discuss tools overlaying a form, true?
A: I donât think it describes it that way, no. Right.
Q: In fact, the keyboard does not overlay the form in theâin the article. It
would have been wrong if it described it that way, right?
2008-1485, -1487, -1495 14
A: Yes, theâas I told you on my direct, the tools were on the left side of
the screen.
J.A. 08112. From this testimony and the photograph âof limited clarityâ in the
Datamation article, the jury was permitted to conclude, as a factual matter, that the
article did not disclose this limitation. Microsoft offers nothing to fill this gap in its
obviousness analysis.
Instead, Microsoft argues to us that the jury applied the wrong claim construction
requiring an overlayed tool. Microsoft asserts that the claim construction given by the
district court mandates only the concurrent, or simultaneous, display of the âpredefined
toolâ and the âone of said fields.â This argument is unpersuasive, however. First,
reading the claim construction as Microsoft does would render superfluous the phrase
âas by a window overlaying the form.â If the proper claim application were as Microsoft
argues it to be, the âas byâ phrase is completely unnecessary. Second, as noted,
Microsoft does not challenge the claim construction. If Microsoft believed that the
proper claim construction does not require the tool to overlay the form, Microsoft should
have argued for such a claim construction instead of disputing the juryâs reasonable
application of the claim construction as given to the jury.
The fourth limitation in dispute is the âindicatingâ step. Unlike the previous three
claim limitations, the parties agree that the Datamation article does not explicitly
disclose the limitation of âindicating a particular one of said information fields into which
information is to be inserted.â Microsoftâs expert conceded that the Datamation article
doesnât teach this limitation.
Moreover, both parties agree that âindicatingâ includes highlighting the
information field or placing a cursor in the information field so the user knows which field
2008-1485, -1487, -1495 15
âinto which information is to be inserted.â According to Microsoft, âfailing to indicate
which field information is being entered intoâthat is, having information show up
randomly somewhere on the screenâwould be contrary to all experience and common
sense.â We disagree. In many instances perhaps, it may make sense to highlight a
field into which information is entered. But, when examined in the context of the
Datamation articleâs description, we understand how the jury could conclude otherwise.
As noted above, the Datamation article doesnât explicitly describe the entering of
information into onscreen fields. Assuming the article did, it does not necessarily lead
one of skill in the art to have a reason to âindicateâ the field into which information is
entered. The jury could have reasonably viewed the Datamation system as displaying
only one onscreen information field. Nothing in the article appears to suggest that the
FXFE system displaysâor is capable of displayingâmultiple information fields at the
same time. To the contrary, the system is described as proceeding from the entry of
one type of data to the next. See Datamation, supra, at 148. Having agreed with this
description, the jury could have also concluded that an ordinarily skilled artisan would
not have had a reason to âindicateâ the only field on the computer screen. If there is
only one field displayed on the screen, the user knows that any data will be entered into
that single field. Specifying the only field by highlighting would not have helped the user
in any way, or at least a jury could have so concluded, based on the evidence adduced
at trial.
Having examined the four contested claim limitations, the jury would have been
within its reasonable boundaries in finding the Datamation article to be lacking at least
one of the limitations and in concluding that no sufficient reason existed to modify the
2008-1485, -1487, -1495 16
prior art. When the underlying facts are taken in the light most favorable to Lucent, the
non-moving party, the evidence reasonably permitted the jury to have decided that
Microsoft did not prove by clear and convincing evidence that claim 19 would have been
obvious. Accordingly, the district court did not err when it denied Microsoftâs motion for
judgment as a matter of law concerning the validity of claim 19.
B. Claim 21
Microsoftâs invalidity position for claim 21 fares no better. Claim 21 requires that
âthe step of displaying said pattern includes the step of displaying one or more of said
information fields as a bit-mapped-graphics field.â The district court construed
âbit-mapped graphics fieldâ to refer to âa field into which a user is to enter information by
writing on a touch sensitive screen using a stylus.â
Microsoft argues that claim 21 would have been obvious in light of Datamation
alone, contending that the article âdescribes FXFEâs touch sensitive screen as able to
âaccept a finger, a pen, or any other device.ââ The Datamation article, under Microsoftâs
reading, âinherently disclos[es] the ability to enter information by writing on the screen
with a stylus.â What Microsoft misapprehends is that the disclosed FXFE system can
accept the touch of a pen or any other device. The Datamation article does not teach a
computer system that can accept âinformation by writing on a touch sensitive screen
using a stylus.â
Microsoft also asserts that claim 21 would have been obvious over Datamation in
view of other prior art teaching the process of capturing on-screen handwriting. This
argument is not sufficient to overturn the juryâs verdict. Nothing in the Datamation
article itself discloses a reason why on-screen handwriting, e.g., by writing with a stylus,
2008-1485, -1487, -1495 17
could or should be used with the FXFE system. Rather, much of the Datamation article
appears to teach away from the inclusion of âa field into which a user is to enter
information by writing on a touch sensitive screen using a stylus.â The Datamation
article quotes the Chemical Bank executive responsible for implementing the FXFE
system as describing deficiencies with electronic pens: âWe tried electronic pens,
tablets, voice input, you name it. But the tablets demand too much precision on the part
of the trader . . . .â Datamation, supra, at 148.
The article also details the need for fast and efficient entry of trades, describing
traders who âhandle 1,000 trades a day, and often deal so quickly that they cannot write
down all their trades on separate slips of paper.â Id. at 146. From this description, itâs
understandable how the jury could have concluded that a skilled artisan would not have
had a reason to combine the Easel system with a slower means of inputting information
such as âwriting on a touch sensitive screen using a stylus.â For these reasons, the
district court did not err in denying Microsoftâs motion for JMOL that claim 21 would
have been obvious.
III. Infringement
The jury found indirect infringement by Microsoft. Claims 19 and 21 are method
claims; thus, Microsoftâs sales of its software alone cannot infringe the patent.
Infringement occurs only when someone performs the method using a computer
running the necessary software. Thus, Microsoft can only be liable for infringement of
claims 19 and 21 as a contributor and/or an inducer.
Microsoft makes the following arguments concerning indirect infringement. First,
Lucent didnât prove direct infringement, a necessary predicate for proving indirect
2008-1485, -1487, -1495 18
infringement. Second, Lucent didnât prove contributory infringement because the
products have substantial noninfringing uses. Third, Lucent canât prove inducement
because the products are merely capable of inducing and Microsoft wasnât shown to
have the requisite intent to induce. We address each argument in turn.
A. Direct Infringement
To infringe a method claim, a person must have practiced all steps of the claimed
method. See Joy Techs., Inc. v. Flakt, Inc., 6 F.3d 770, 775 (Fed. Cir. 1993) (âA method
claim is directly infringed only by one practicing the patented method.â); see also
35 U.S.C. § 271 (2006). Just as anticipation can be found by a single prior art use, a
finding of infringement can rest on as little as one instance of the claimed method being
performed during the pertinent time period.
Lucent asserts that certain features of Outlook, Money, and Windows Mobile,
when used, practice the methods of claims 19 and 21. For instance, Outlook includes a
calendar tool that allows the user to enter dates in a form when preparing a record of an
appointment. The tool displays a monthly calendar as a grid of numbered dates, along
with graphical controls that allow the user to scroll to adjacent months or skip directly to
a different month and year. Once the user defines a date with the tool, the software
enters the numerical day, month, and year into the corresponding field in the
appointment form. Similar to the number pad tool illustrated in the Day patent,
Outlookâs calendar date-picker tool enables the user to select a series of numbers,
corresponding to the day, month, and year, using graphical controls. This date-picker
calendar tool is incorporated in a few of Outlookâs features. Microsoft Money and
Windows Mobile have similar functionalities.
2008-1485, -1487, -1495 19
According to Microsoft, Lucent failed to introduce any evidence that any
customer actually used the claimed method in any of the Microsoft products. Noting
that âeach accused product has numerous uses that do not involve forms with onscreen
composition toolsâ and that âthe specific narrow function of the patented methodâfilling
in a formâcan be performed without using the asserted âcomposition toolâ features,â
Microsoft urges that âinfringement is not inevitable.â The only evidence of direct
infringement, in Microsoftâs view, is the testimony of Lucentâs expert.
We agree with Microsoft that there was little, if any, direct evidence of
infringement. Lucentâs expert testified on cross-examination as follows:
Q: And you didnât provide any evidence of anybody, any of Dellâs
customers, for example, who actually performed all of the steps of the
claims, right?
A: Well, I can confess here and now that as a Dell customer, I did perform
all steps of this claim many, many times.
Q: When did you do it?
A: Oh, back inâweâve had Quicken on our Windows machines since
around â98 or â99. So Iâve used that particular piece of software
extensively using these tools.
Q: These gentlemen sitting over here may want to talk to you after you get
off the stand.
A: Iâm afraid they may.
Q: But you didnât produce any evidence to this jury that anybody other
than Lucentâs trial team and its witnesses who actually performed every
single step of the claim, is that fair?
A: Again, my wife performed them all, soâ
J.A. 07517. As is evident, Microsoft correctly points out that Lucentâs direct evidence of
infringement was limited.
If that were the only evidence of performing the claimed method, we would likely
have to reverse. Nevertheless, circumstantial evidence was just adequate to permit a
jury to find that at least one other person within the United States during the relevant
2008-1485, -1487, -1495 20
time period, other than the expert, had performed the claimed method. Lucentâs expert
testified that â[i]tâs hard to imagine that weâre the only two people in the world that ever
used it.â J.A. 07517. As Lucent notes âMicrosoft not only designed the accused
products to practice the claimed invention, but also instructed its customers to use the
accused products in an infringing way.â
An informative case is Moleculon Research Corp. v. CBS, Inc., 793 F.2d 1261
(Fed. Cir. 1986), in which we affirmed a district courtâs finding of direct infringement
based on circumstantial evidence. In Moleculon, the district court held that the patentee
âhad met its burden of showing infringement under section 271(b) with circumstantial
evidence of extensive puzzle sales, dissemination of an instruction sheet teaching the
method of restoring the preselected pattern with each puzzle, and the availability of a
solution booklet on how to solve the puzzle.â Id. at 1272. Similarly, in the present case,
the jury reviewed evidence relating to the extensive sales of Microsoft products and the
dissemination of instruction manuals for the Microsoft products. The jury also heard
corresponding testimony from Lucentâs infringement expert. The circumstantial
documentary evidence, supplementing the expertsâ testimony, was just barely sufficient
to permit the jury to find direct infringement by a preponderance of the evidence. As in
Moleculon, the jury in the present case could have reasonably concluded that,
sometime during the relevant period from 2003 to 2006, more likely than not one person
somewhere in the United States had performed the claimed method using the Microsoft
products. See Moleculon, 793 F.2d at 1272 (âIt is hornbook law that direct evidence of
a fact is not necessary. âCircumstantial evidence is not only sufficient, but may also be
more certain, satisfying and persuasive than direct evidence.ââ (quoting Michalic v.
2008-1485, -1487, -1495 21
Cleveland Tankers, Inc., 364 U.S. 325, 330 (1960))); see also Alco Standard Corp v.
Tenn. Valley Auth., 808 F.2d 1490, 1503 (Fed. Cir. 1986) (âAlthough the evidence of
infringement is circumstantial, that does not make it any less credible or persuasive.â).
In challenging the juryâs verdict, Microsoft contends that two cases control our
review: ACCO Brands, Inc. v. ABA Locks Manufacturer Co., 501 F.3d 1307 (Fed. Cir.
2007), and E-Pass Technologies, Inc. v. 3Com Corp., 473 F.3d 1213 (Fed. Cir. 2007).
Although similar, these precedents differ enough from the facts of the present case,
thus allowing the juryâs verdict to stand. In ACCO Brands, we held that a juryâs finding
of induced infringement was not supported by substantial evidence. 501 F.3d at 1314.
ACCO, the patentee, relied only on its expertâs testimony that the ânatural and intuitive
way to employâ the accused product, a computer lock, was in an infringing mode. Id. at
1312. Importantly, however, ACCOâs expert âhad no opinionâ on the issue of âwhether
users other than himself used the lock in the infringing manner.â Id. at 1313.
Furthermore, the locks were sold not only without instructions teaching the infringing
method, but with instructions teaching the non-infringing use. Id. The jury also had no
evidence suggesting that the U.S. distributor of the locks was aware of any infringing
instructions. Id.
In a similar vein, E-Pass does not compel the overturning of the juryâs verdict.
There, the patentee tried to rely on âexcerpts from the product manuals for various of
the accused devices.â 473 F.3d at 1222. All the court had before it, however, was
evidence âshow[ing], at best, that the Palm defendants taught their customers each step
of the claimed method in isolation.â Id. Thus, in both ACCO Brands and E-Pass, the
patentees failed to introduce even circumstantial evidence of infringing acts.
2008-1485, -1487, -1495 22
Microsoft also misreads our holding in Ball Aerosol & Specialty Container, Inc. v.
Limited Brands, Inc., 555 F.3d 984 (Fed. Cir. 2009). There, we reversed the district
courtâs grant of summary judgment of infringement of a patent claiming a candle tin with
a removable cover that also acts as a base for the candle holder. The issue in Ball
Aerosol was one of claim construction rather than whether circumstantial evidence
proved infringement. The patentee argued that âan apparatus patent claim with
functional elements is infringed if the accused product is reasonably capable of being
used without substantial modification in the manner recited in the claim.â Id. at 994.
The patentee conceded that there was âno proof that the Travel Candle was ever placed
in the infringing configuration.â Id. at 995.
Without doubt, Lucent would have been on much firmer ground had it introduced
some direct evidence of using the claimed method. Nevertheless, Lucentâs
circumstantial evidence of infringement was âsomething less than the weight of the
evidence,â Consolo v. Fed. Maritime Commân, 383 U.S. 607, 620 (1966), yet it was just
âmore than a mere scintilla,â Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938).
Accordingly and for these reasons, we are not convinced that the district court erred in
denying Microsoftâs JMOL motion with respect to infringement. For similar reasons,
substantial evidence supports the juryâs finding as it relates to direct infringement by the
use of Microsoft Money and Windows Mobile.
Microsoft also complains that the infringement finding was erroneous because
Microsoft Outlook does not contain a âcomposition tool.â 6 This argument likewise fails.
A Lucent expert, Mr. Bruce Tognazzini, testified that the calendar tool in Outlook works
6
Microsoft does not dispute that both Money and Windows Mobile contain
composition tools.
2008-1485, -1487, -1495 23
by combining information to compose a complete date. He further explained that a
composition tool is one that has âthe ability to combineâ information. A Microsoft expert,
Mr. Dale Buscaino, appeared to concede this point as well, admitting that âa
composition tool allows a user to put together parts.â Although most of Microsoftâs
expert testimony disputed whether Outlook contained a composition tool, that testimony
was insufficient to require a reasonable jury to find as a factual matter only
noninfringement.
B. Contributory Infringement
Under 35 U.S.C. § 271(c), a party is liable for infringement if he âoffers to sell or
sells within the United States or imports into the United States . . . a material or
apparatus for use in practicing a patented process, constituting a material part of the
invention, knowing the same to be especially made or especially adapted for use in an
infringement of such patent, and not a staple article or commodity of commerce suitable
for substantial noninfringing use.â âIn order to succeed on a claim of contributory
infringement, in addition to proving an act of direct infringement, plaintiff must show that
defendant âknew that the combination for which its components were especially made
was both patented and infringingâ and that defendantâs components have âno substantial
non-infringing uses.ââ Cross Med. Prods., Inc. v. Medtronic Sofamor Danek, Inc.,
424 F.3d 1293, 1312 (Fed. Cir. 2005) (quoting Golden Blount, Inc. v. Robert H.
Peterson Co., 365 F.3d 1054, 1061 (Fed. Cir. 2004)).
According to Microsoft, Lucent did not prove contributory infringement because
the products have substantial noninfringing uses. Lucent counters that the date-picker
tool does not have any noninfringing uses. Thus, as framed by the parties, the main
2008-1485, -1487, -1495 24
issue reduces to whether the âmaterial or apparatusâ is the entire software package or
just the particular tool (e.g., the calendar date-picker) that performs the claimed method.
If the former, then Microsoft prevails because the entire software package has
substantial noninfringing uses. If the material or apparatus is the specific date-picker
tool, then Lucent wins because that tool was âespecially made or especially adapted forâ
practicing the claimed method.
One example illustrates the problem with Microsoftâs approach. Consider a
software program comprising fiveâand only fiveâfeatures. Each of the five features is
separately and distinctly patented using a method claim. That is, the first feature
infringes a method claim in a first patent, the second feature infringes a method claim in
a second patent, and so forth. Assume also that the company selling the software
doesnât provide specific instructions on how to use the five features, thus taking
potential liability outside the realm of § 271(b). In this scenario, under Microsoftâs
position, the software seller can never be liable for contributory infringement of any one
of the method patents because the entire software program is capable of substantial
noninfringing use. This seems both untenable as a practical outcome and inconsistent
with both the statute and governing precedent.
Similarly, if, instead of selling Outlook with the date-picker, Microsoft had offered
the date-picker for sale as a separate download to be used with Outlook, there would be
little dispute that Microsoft was contributing to infringement of the Day patent. As we
explained in Ricoh Co. v. Quanta Computer Inc., 550 F.3d 1325, 1337 (Fed. Cir. 2008),
cert. denied, 129 S. Ct. 2864 (2009), an infringer âshould not be permitted to escape
2008-1485, -1487, -1495 25
liability as a contributory infringer merely by embedding [the infringing apparatus] in a
larger product with some additional, separable feature before importing and selling it.â
Microsoft puts much reliance on Hodosh v. Block Drug Co., 833 F.2d 1575
(Fed. Cir. 1987). Microsoft understands Hodosh to require âa focus on the product
actually sold, not on a mere ingredient.â Under this view, Microsoft didnât contribute to
infringement because â[e]ach accused product had substantial noninfringing uses.â
Instead, according to Microsoft, the district court âeviscerate[d] Hodosh and read[]
âsubstantial noninfringing useâ out of the statute.â
But our court has previously rejected the interpretation of Hodosh urged by
Microsoft on appeal:
[T]his reading of Hodosh divorces the courtâs holding from the facts upon
which it was rendered. In focusing on âwhat was actually sold,â the
Hodosh court rejected the argument that an otherwise infringing product
may automatically escape liability merely because it contains a
noninfringing staple ingredient . . . . It does not follow from Hodosh that
the inclusion of a component with substantial noninfringing uses in a
product that contains other components useful only to infringe a process
patent can or should defeat liability for contributory infringement under
§ 271(c).
Ricoh, 550 F.3d at 1339-40.
More importantly, Microsoft fails to appreciate the factual basis for Hodoshâs
holding. In Hodosh, the patent at issue claimed âa method for desensitizing teeth with a
composition containing an alkali metal nitrate.â 833 F.2d at 1576. The accused
infringer sold toothpaste, e.g., âSensodyne-F,â containing potassium nitrate, an alkali
metal nitrate. Id.; see also Hodosh v. Block Drug Co., 786 F.2d 1136, 1137 (Fed. Cir.
1986). The accused infringer argued that the sale of the toothpaste, which itself was
not patented, could not constitute contributory infringement because the toothpaste
contained a staple article, i.e., potassium nitrate. Hodosh, 833 F.2d at 1578. The court
2008-1485, -1487, -1495 26
rejected this argument. While potassium nitrate, when sold in bulk form, was âa staple
article or commodity of commerce suitable for substantial noninfringing use,â it was
suitable only for the infringing use when sold as an ingredient in the toothpaste specially
made to perform the patented method of desensitizing teeth.
Here, the infringing feature for completing the forms, i.e., the date-picker tool, is
suitable only for an infringing use. Inclusion of the date-picker feature within a larger
program does not change the date-pickerâs ability to infringe. Because Microsoft
included the date-picker tool in Outlook, the jury could reasonably conclude, based on
the evidence presented, that Microsoft intended computer users to use the toolâ
perhaps not frequentlyâand the only intended use of the tool infringed the Day patent.
See Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 932 (2005)
(explaining that the contributory infringement doctrine âwas devised to identify instances
in which it may be presumed from distribution of an article in commerce that the
distributor intended the article to be used to infringe anotherâs patent, and so may justly
be held liable for that infringementâ).
Finally, Microsoft contends that § 271(c) is not applicable here. Relying solely on
Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007), without further analysis, Microsoft
contends that its âproducts are not a âmaterial or apparatusâ as the statute requires for
contributory infringement of patented methods.â We need only respond that the
Supreme Court in Microsoft did not address the meaning of âmaterial or apparatusâ in
§ 271(c).
2008-1485, -1487, -1495 27
C. Inducing Infringement
A party who âactively induces infringement of a patent shall be liable as an
infringer.â 35 U.S.C. § 271(b). Under this provision, â[t]he plaintiff has the burden of
showing that the alleged infringerâs actions induced infringing acts and that he knew or
should have known his actions would induce actual infringements.â Manville Sales
Corp. v. Paramount Sys., Inc., 917 F.2d 544, 553 (Fed. Cir. 1990), quoted in DSU Med.
Corp v. JMS Co., 471 F.3d 1293, 1306 (Fed. Cir. 2006) (en banc in relevant part). â[A]
finding of inducement requires a threshold finding of direct infringementâeither a
finding of specific instances of direct infringement or a finding that the accused products
necessarily infringe.â Ricoh, 550 F.3d at 1341 (citing ACCO Brands, 501 F.3d at 1313).
â[I]nducement requires evidence of culpable conduct, directed to encouraging anotherâs
infringement, not merely that the inducer had knowledge of the direct infringerâs
activities.â DSU Med., 471 F.3d at 1306. A plaintiff may still prove the intent element
through circumstantial evidence, just as with direct infringement, as discussed above.
See id.; see also Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368, 1377
(Fed. Cir. 2005) (âA patentee may prove intent through circumstantial evidence.â);
Water Techs. Corp. v. Calco, Ltd., 850 F.2d 660, 668 (Fed. Cir. 1988) (âWhile proof of
intent is necessary, direct evidence is not required; rather, circumstantial evidence may
suffice.â). Evidence of active steps taken to induce infringement, such as advertising an
infringing use, can support a finding of an intention for the product to be used in an
infringing manner. DSU Med., 471 F.3d at 1305 (citing Grokster, 545 U.S. at 932).
Microsoft argues that Lucent canât prove inducement because the software
products are merely capable of infringing and the evidence didnât show the requisite
2008-1485, -1487, -1495 28
intent to induce. As Microsoft sees it, âall Lucent has shown is that âhypothetical direct
infringementâ might result if users choose particular options in each accused product.â
Relying on DSU Medical and Kyocera Wireless Corp. v. International Trade
Commission, 545 F.3d 1340 (Fed. Cir. 2008), Microsoft contends that
Lucent presented only the same circumstantial evidence regarding the
alleged possibility of using the accused products to infringeâmarketing
materials and help filesâas evidence of intent to induce infringement of
the Day patent. With regard to Outlook, for example, Lucent relied on
materials generally describing Outlookâs use of forms and its calendar
feature. No evidence showed that Microsoft encouraged use of the
date-picker or even mentioned the date-picker specifically. With regard to
Money, the evidence showed that Microsoft encouraged customers to
enter information by downloading it from the Internet, which avoids
manually filling out the transaction form. And for Windows Mobile, Lucent
presented evidence of general instructions on how to use the product and
statements promoting its general use of forms and ease of use. None of
these materials induces customers to use a composition tool to fill out a
computer-based form.
Appellant Br. 52 (citations omitted).
Lucent responds, asserting that âMicrosoft both encouraged others to commit
infringing acts and knew or should have known that its conduct would result in direct
infringement.â Lucent cites its expertâs testimony as supporting the juryâs finding that
âthe infringing pop-up tool functionality is pervasive in the accused products; that the
normal and intended operation of those products used the infringing functionality; and
that Microsoft encouraged and intended users to infringe.â Lucent also argues that the
evidence âestablished that onscreen pop-up tools are critical to the functionality of the
accused products,â and that âMicrosoft provided instruction, tutorials, and other
materials directing users to operate the accused products in an infringing manner.â
Having perused the evidence, we agree with Microsoft that the evidence is not
strong, but we are not persuaded that the jury was unreasonable in finding that
2008-1485, -1487, -1495 29
Microsoft possessed the requisite intent to induce at least one user of its products to
infringe the claimed methods. With respect to inducing infringement with Outlook,
Lucent points to the following testimony of its expert.
Q: Does Microsoft intend users to use the forms and the different tools
that we just looked at?
A: Yes, definitely. It would be â youâd be unable to use the application and
avoid forms.
Q: So would you say then the form entry and the predefined tools of
Microsoft Outlook form a material part of the limitations of claim 19 of the
Day patent?
A: Yes.
Q: And the Outlook is specifically designed to use these forms and these
predefined tools?
A: Yes, it is.
Q: Does Microsoft know that Outlook was designed to perform in that
fashion?
A: Yes. Again, they designed it. So they know they designed it to do that.
J.A. 07441-42. At one point, Lucentâs infringement expert explained, on cross-
examination, how certain Microsoft documentation encouraged users to use the
infringing tool.
Q: Okay. Letâs look at [the document]. Access shared team calendars in
Outlook 2003. View multiple calendars side by side to make scheduling
meetings fast and more convenient.
A: Right.
Q: Is it the part about scheduling meetings â
A: Thatâs correct.
Q: â that you now say is encouraging this method of Claim 19?
A: Well, yeah. You schedule meetings using this appointment form.
J.A. 07510. Additional circumstantial evidence lends further, albeit limited, support for
the juryâs factual finding of intent. And our review reveals slightly stronger circumstantial
evidence of intent concerning Windows Mobile and Microsoft Money.
2008-1485, -1487, -1495 30
For these reasons, we affirm the district courtâs denial of Microsoftâs motion for
JMOL that Microsoft did not induce infringement of the Day patent.
IV. Damages
Based on the evidence of record, Microsoft (and Dell) sold approximately
110 million units of the three software products capable of practicing the methods of the
asserted claims. The total dollar value of the sales was approximately $8 billion. At
trial, Lucentâs theory of damages was based on 8% of sales revenue for the accused
software products, and it asked the jury to award $561.9 million based on Microsoftâs
infringing sales. Microsoft countered that a lump-sum payment of $6.5 million would
have been the correct amount for licensing the protected technology. See Lucent
Techs., 580 F. Supp. 2d at 1042 & n.7.
Microsoft challenges the juryâs damages award on several bases. First,
Microsoft argues that the jury should not have applied the entire market value rule to the
value of its three software products. Microsoftâs second argument for reversing the
damages award is that, for method claims, Dynacore Holdings Corp. v. U.S. Philips
Corp., 363 F.3d 1263 (Fed. Cir. 2004), requires that damages be limited to the proven
number of instances of actual infringing use. Microsoft states that, â[u]nder Dynacore,
Lucent had to tie its damages claim to demonstrated instances of direct infringement.â
For the reasons stated below, we reject both arguments as presented by Microsoft. We
agree, nevertheless, with Microsoftâs argument that substantial evidence does not
support the juryâs verdict of a lump-sum royalty payment of $357,693,056.18. Further,
to the extent the jury relied on an entire market value calculation to arrive at the
2008-1485, -1487, -1495 31
lump-sum damages amount, that award is not supported by substantial evidence and is
against the clear weight of the evidence.
A. Reasonable Royalty
âUpon finding for the claimant the court shall award the claimant damages
adequate to compensate for the infringement, but in no event less than a reasonable
royalty for the use made of the invention by the infringer, together with interest and
costs as fixed by the court.â 35 U.S.C. § 284. As the Supreme Court has framed the
general issue of determining damages, at least for competitors, a court must ask, â[H]ad
the Infringer not infringed, what would [the] Patent Holder[] have made?â Aro Mfg. Co.
v. Convertible Top Replacement Co., 377 U.S. 476, 507 (1964); see also Pall Corp. v.
Micron Separations, Inc., 66 F.3d 1211, 1223 (Fed. Cir. 1995) (â[T]he purpose of
compensatory damages is not to punish the infringer, but to make the patentee whole.â).
In the Supreme Courtâs words, awarding damages through litigation attempts to assess
âthe difference between [the patenteeâs] pecuniary condition after the infringement, and
what his condition would have been if the infringement had not occurred.â Yale Lock
Mfg. Co. v. Sargent, 117 U.S. 536, 552 (1886).
The burden of proving damages falls on the patentee. Dow Chem. Co. v. Mee
Indus., Inc., 341 F.3d 1370, 1381 (Fed. Cir. 2003); Kearns v. Chrysler Corp., 32 F.3d
1541, 1551 (Fed. Cir 1994). Two alternative categories of infringement compensation
are the patenteeâs lost profits and the reasonable royalty he would have received
through arms-length bargaining. See Panduit Corp. v. Stahlin Bros. Fibre Works, Inc.,
575 F.2d 1152, 1157 (6th Cir. 1978) (Markey, J.). Lost profits are not at issue in the
present case. A reasonable royalty is, of course, âmerely the floor below which
2008-1485, -1487, -1495 32
damages shall not fall.â Bandag, Inc. v. Gerrard Tire Co., 704 F.2d 1578, 1583
(Fed. Cir. 1983).
Litigants routinely adopt several approaches for calculating a reasonable royalty.
The first, the analytical method, focuses on the infringerâs projections of profit for the
infringing product. See TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 899 (Fed. Cir.
1986) (describing the analytical method as âsubtract[ing] the infringerâs usual or
acceptable net profit from its anticipated net profit realized from sales of infringing
devicesâ); see also John Skenyon et al., Patent Damages Law & Practice § 3:4, at 3-9
to 3-10 (2008) (describing the analytical method as âcalculating damages based on the
infringerâs own internal profit projections for the infringing item at the time the
infringement began, and then apportioning the projected profits between the patent
owner and the infringerâ). The second, more common approach, called the hypothetical
negotiation or the âwilling licensor-willing licenseeâ approach, attempts to ascertain the
royalty upon which the parties would have agreed had they successfully negotiated an
agreement just before infringement began. See Georgia-Pacific Corp. v. U.S. Plywood
Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970); see also Rite-Hite Corp. v. Kelley Co.,
56 F.3d 1538, 1554 n.13 (Fed. Cir. 1995) (en banc); Radio Steel & Mfg. Co. v. MTD
Prods., Inc., 788 F.2d 1554, 1557 (Fed. Cir. 1986) (âThe determination of a reasonable
royalty, however, is based not on the infringerâs profit, but on the royalty to which a
willing licensor and a willing licensee would have agreed at the time the infringement
began.â); Panduit, 575 F.2d at 1159 (âAmong the relevant facts are: what plaintiffâs
property was, to what extent defendant has taken it, its usefulness and commercial
value as shown by its advantages over other things and by the extent of its use, and the
2008-1485, -1487, -1495 33
commercial situation.â (citations and quotation marks omitted)). The hypothetical
negotiation tries, as best as possible, to recreate the ex ante licensing negotiation
scenario and to describe the resulting agreement. In other words, if infringement had
not occurred, willing parties would have executed a license agreement specifying a
certain royalty payment scheme. The hypothetical negotiation also assumes that the
asserted patent claims are valid and infringed.
In the present appeal, the parties, in offering the damages evidence, each
adopted the hypothetical negotiation approach, without objection. Both Microsoft and
Lucent must therefore accept that any reasonable royalty analysis ânecessarily involves
an element of approximation and uncertainty.â Unisplay, 69 F.3d at 517. We review the
damages award within the Georgia-Pacific framework.
Before the district court, Lucent asked for a damages award based only on a
running royalty. Microsoft, on the other hand, told the jury that the damages should be
a lump-sum royalty payment of $6.5 million. Based on the verdict form, the jury decided
on a lump-sum award, not a running royalty. The verdict form notes a lump-sum
damages amount and no amount (i.e., zero or âN/Aâ) on the lines for a running royalty.
Faced with the juryâs selection, our task is to determine whether substantial evidence
supports a lump-sum, paid-in-full royalty of approximately $358 million for Microsoftâs
indirect infringement of the Day patent. To do this, we must decide whether substantial
evidence supports the juryâs implicit finding that Microsoft would have agreed to, at the
time of the hypothetical negotiation, a lump-sum, paid-in-full royalty of about
$358 million. In performing this analysis, we focus mainly on the damages case as it
applies to Microsoft Outlook, as infringement by the use of Outlook apparently
2008-1485, -1487, -1495 34
constituted the vast majority of the award. We focus also on the relevant Georgia-
Pacific factors, as presented to the jury through all the evidence and particularly the
expertsâ testimony.
We also note the following at the outset of our analysis. Microsoft does not
argue on appeal that any of the evidence relevant to the damages award was
improperly before the jury. At times, Microsoftâs briefs seem to suggest that the district
court judge âabdicatedâ her role as a gatekeeper. The responsibility for objecting to
evidence, however, remains firmly with the parties. Here, the record reveals that, at
trial, Microsoft objected neither to the introduction of any of the licenses discussed
below nor to the testimony of Lucentâs expert as it related to those licenses. In this
instance, the district court judge had no independent mandate to exclude any of that
evidence. Therefore, we must accept that the licensing agreements and other evidence
were properly before the jury. Any implicit objection on appeal is deemed waived by
failing to object at trial.
1. Factor 2
The second Georgia-Pacific factor is â[t]he rates paid by the licensee for the use
of other patents comparable to the patent in suit.â 318 F. Supp. at 1120. This factor
examines whether the licenses relied on by the patentee in proving damages are
sufficiently comparable to the hypothetical license at issue in suit. See Russell L. Parr,
Royalty Rates for Licensing Intellectual Property 64 (2007) (âFor similar license
agreements to be used as a proxy for derivation of a fair market royalty, the form of
license compensation should be on a like-kind basis.â). Subsumed within this factor is
2008-1485, -1487, -1495 35
the question of whether the licensor and licensee would have agreed to a lump-sum
payment or instead to a running royalty based on ongoing sales or usage.
Significant differences exist between a running royalty license and a lump-sum
license. In a standard running royalty license, the amount of money payable by the
licensee to the patentee is tied directly to how often the licensed invention is later used
or incorporated into products by the licensee. A running royalty structure shifts many
licensing risks to the licensor because he does not receive a guaranteed payment.
Royalties are dependent on the level of sales or usage by the licensee, which the
licensee can often control.
Compared to a running royalty analysis, a lump-sum analysis involves different
considerations. A lump-sum license âbenefits the patentholder in that it enables the
company to raise a substantial amount of cash quickly and benefits the target [i.e., the
licensee] by capping its liability and giving it the ability, usually for the remainder of the
patent term, to actually use the patented technology in its own products without any
further expenditure.â Richard F. Cauley, Winning the Patent Damages Case 47 (2009).
The lump-sum license removes or shifts certain risks inherent in most arms-length
agreements. A lump-sum license removes any risk that the licensee using the patented
invention will underreport, e.g., engage in false reporting, and therefore underpay, as
can occur with a running royalty agreement. Additionally, for both contracting parties,
the lump-sum license generally avoids ongoing administrative burdens of monitoring
usage of the invention.
A further, important consideration is that an upfront, paid-in-full royalty removes,
as an option for the licensee, the ability to reevaluate the usefulness, and thus the
2008-1485, -1487, -1495 36
value, of the patented technology as it is used and/or sold by the licensee. As generally
employed, once a lump-sum license is duly executed, the licensee is obligated to pay
the entire, agreed-upon amount for the licensed technology, regardless of whether the
technology is commercially successful or even used. A licensee to a lump-sum
agreement, under usual licensing terms, cannot later ask for a refund from the licensor
based on a subsequent decision not to use the patented technology. There is no
provision for buyerâs remorse.
The lump-sum structure also creates risks for both parties. The licensed
technology may be wildly successful, and the licensee may have acquired the
technology for far less than what later proved to be its economic value. The alternative
risk, of course, is the licensee may have paid a lump-sum far in excess of what the
patented invention is later shown to be worth in the marketplace.
As noted, Lucentâs licensing expert, Roger Smith, argued for damages based
solely on a running royalty rate. Smith emphasized his choice of a running royalty over
a lump-sum payment.
Q: Now, in each case, in the [other patents in suit] and then finally the Day
356 form entry patent, in each case youâve selected a running royalty
structure for your reasonable royalty; is that right?
A: I certainly did, yes.
J.A. 07805. He also explained that âthe running royalty in a hypothetical negotiation
such as the one weâre considering here would be appropriate, even though lump-sum
does have the advantage that brings the money up front or at least some of it.â Id.
On appeal, however, Lucent defends the damages award, contending that
substantial evidence supports the lump-sum award of about $358 million. This is
problematic for several reasons. First, no evidence of record establishes the partiesâ
2008-1485, -1487, -1495 37
expectations about how often the patented method would be used by consumers.
Second, the jury heard little factual testimony explaining how a license agreement
structured as a running royalty agreement is probative of a lump-sum payment to which
the parties would have agreed. Third, the license agreements for other groups of
patents, invoked by Lucent, were created from events far different from a license
negotiation to avoid infringement of the one patent here, the Day patent.
Parties agreeing to a lump-sum royalty agreement may, during the license
negotiation, consider the expected or estimated usage (or, for devices, production) of a
given invention, assuming proof is presented to support the expectation, because the
more frequently most inventions are used, the more valuable they generally are and
therefore the larger the lump-sum payment. Conversely, a minimally used feature, with
all else being equal, will usually command a lower lump-sum payment. In this case,
Lucent identifies no documentary evidence or testimony showing the partiesâ
expectations as to usage of the claimed method. Lucent submitted no evidence upon
which a jury could reasonably conclude that Microsoft and Lucent would have
estimated, at the time of the negotiation, that the patented date-picker feature would
have been so frequently used or valued as to command a lump-sum payment that
amounts to approximately 8% of the sale price of Outlook. Cf. Interactive Pictures Corp.
v. Infinite Pictures, Inc., 274 F.3d 1371, 1384-85 (Fed. Cir. 2001) (accepting as suitable
factual evidence the patenteeâs âbusiness plan and its projections for future salesâ
prepared âtwo months before infringement beganâ).
2008-1485, -1487, -1495 38
Lucentâs expert Mr. Smith did try to explain how one would calculate what an
acceptable lump-sum would be.
Q: Well, when one is considering what the magnitude of a lump-sum
payment might be, does one ever look at what the expected royalty â total
royalty would be produced by a running royalty based on the available
information at that time?
A: That generally is the way a lump sum would be determined, by looking
at what the running royalty â what the value of each use of the patent
might be and then speculating as to the extent of the future use.
J.A. 07805 (emphasis added). But an explanation urging jurors to rely on speculation,
without more, is often insufficient. See Novosteel SA v. United States, 284 F.3d 1261,
1276 (Fed. Cir. 2002) (Dyk, J., dissenting) (âIt is well established that speculation does
not constitute âsubstantial evidence.ââ). Smith repeated his âlump-sum speculation
theoryâ when he told the jury that parties âspeculateâ as to what they expect the future to
be like when negotiating a lump-sum payment for a patent license. In short, Smithâs
testimony could be interpreted as suggesting to the jury that it was proper to âspeculateâ
as to the proper lump-sum damages amount even though he may have intended the
word âspeculateâ to mean âestimate.â
Despite this shortcoming in its evidence, Lucent relies on eight varied license
agreements which purportedly support the juryâs lump-sum damages award. When we
examine these license agreements, along with the relevant testimony, we are left with
two strong conclusions. First, some of the license agreements are radically different
from the hypothetical agreement under consideration for the Day patent. Second, with
the other agreements, we are simply unable to ascertain from the evidence presented
the subject matter of the agreements, and we therefore cannot understand how the jury
could have adequately evaluated the probative value of those agreements.
2008-1485, -1487, -1495 39
Only four of the eight agreements purport to be lump-sum agreements:
(1) a 1993 agreement between Dell and IBM for $290 million; (2) a 1996 agreement
between Microsoft and Hewlett-Packard for $80 million; (3) a 1997 agreement between
Microsoft and Apple Computer for $93 million; and (4) a 1999 agreement between
Microsoft and Inprise for $100 million. Lucentâs brief characterizes the four agreements
as covering âPC-related patents,â as if personal computer kinship imparts enough
comparability to support the damages award. For the latter three, it is impossible for us,
based on the record, to determine whether the agreements are at all comparable to the
hypothetical agreement of the present suit. For the first agreement, what little
explanation there is only underscores the differences between it and any hypothetical
agreement for the Day patent.
The 1993 agreement between IBM and Dell appears to be a modification of their
1988 agreement. These two IBM-Dell agreements are vastly different from any
agreement Microsoft and Lucent would have struck for the Day patent at the time of
infringement. As best as we can discern, the 1988 agreement appears to govern IBMâs
licensing of its entire patent portfolio protecting its one-time dominance in the personal
computer market. See J.A. 08193 (witness testimony explaining in cursory fashion the
Dell-IBM agreement); see also Dell Computer Co.: Clones of IBMâs PS/2 Line of
Computers Announced, The Wall Street Journal, Apr. 19, 1988, at 13 (reporting that
Dell âbecame the first company to announce copies of International Business Machines
Corp.âs year-old Personal System/2 computer lineâ); Two Companies in Texas Race to
Clone PS/2, The Wall Street Journal, Apr. 8, 1988, at 20 (reporting that IBM was
âconsidering raising the royalty it charges, and plans to be more aggressive in making
2008-1485, -1487, -1495 40
sure competitors take out licensesâ for personal computers). At the time, conventional
wisdom instructed that selling IBM clones required a license to IBMâs patent portfolio.
Dellâs business was built around selling IBM clones. From this information, a
reasonable juror could only conclude that the IBM-Dell license agreement for multiple
patents to broad, PC-related technologies is directed to a vastly different situation than
the hypothetical licensing scenario of the present case involving only one patent, the
Day patent, directed to a narrower method of using a graphical user interface tool
known as the date-picker. Of course, without more information about the IBM-Dell
agreement, one can only speculate about how the Dell-IBM agreement could be
compared to any licensing agreement involving the Day patent.
For the other three lump-sum agreements, Lucentâs expert supplied no
explanation to the jury about the subject matter or patents covered by those
agreements. For example, the entire substance of Lucentâs expertâs testimony about
the Microsoft-Apple agreement amounted to the following colloquy:
Q: What did you ascertain or what is Plaintiffâs Exhibit 5150?
A: Plaintiffâs Exhibit 5150 is a patent cross-license agreement between
Microsoft and Apple.
Q: And what did you find significant about this cross-license agreement
between Microsoft and Apple?
A: The slide thatâs on the screen shows that this is a cross-license in
which Hewlett â in which Microsoft gave to Apple in addition to a license
under its patents a royalty payment or a balancing payment of some
$93,000,000.
J.A. 07746. 7 Counsel for Lucent immediately followed this exchange with an equally
scant inquiry into the Microsoft-Inprise agreement.
7
The Microsoft-Apple agreement also appears directed to a large
collaboration far more complicated than the patent covering the infringing date-picker
2008-1485, -1487, -1495 41
Q: And could you turn in your evidence binder to Plaintiffâs Exhibit 5151
and tell us what that is?
A: 5151 is a patent cross-license agreement between Microsoft and a
company known as Inprise.
Q: And if you could turn to slide 41, would that assist the presentation of
your testimony in connection with that agreement?
A: It would.
* * *
THE WITNESS: This call out shows the essential features of the Inprise
Microsoft license agreement which [is] the same general idea as those
which weâve just been looking at. Microsoft pays Inprise a sum of money,
in this case $100,000,000, in addition to granting a license under its
patents, and Inprise gets a royalty-free license under Microsoftâs patents.
J.A. 07746. The jury heard similarly superficial testimony about the license agreement
between Microsoft and Hewlett-Packard. Lucentâs expert merely observed that, under
the cross-license, Hewlett-Packard received âa royalty-free worldwide fully paid up
license under the Microsoft patentsâ and Microsoft âagreed in return for a license under
Helwett Packardâs patents to pay Hewlett Packard the sum of . . . $80,000,000.â
J.A. 07745.
Lucent candidly admits in its brief that ânone of the real world licenses introduced
at trial arose from circumstances identical to those presumed to prevail in the
hypothetical royalty negotiation.â Appelleeâs Br. 50. Moreover, the testimony excerpted
above belies Lucentâs claim of âpresent[ing] particularized expert testimony explaining
how various differences between the real and hypothetical license
tool at issue in the present appeal. See Press Release, Microsoft Corp., Microsoft and
Apple Affirm Commitment to Build Next Generation Software for Macintosh (Aug. 6,
1997), http://www.microsoft.com/presspass/press/1997/aug97/msmacpr.mspx (noting
that â[t]he companies agreed to a broad patent cross-licensing agreementâ that âpaves
the way for the two companies to work more closely on leading-edge technologies for
the Mac platformâ). But, in view of the sparse record, any supposition about the
agreement would again be little more than speculation.
2008-1485, -1487, -1495 42
negotiations . . . would factor into the appropriate royalty for Microsoftâs infringement.â
Id. The testimony provides no analysis of those license agreements, other than, for
example, noting the agreement was a cross-license of a large patent portfolio and the
amount paid. Lucent had the burden to prove that the licenses were sufficiently
comparable to support the lump-sum damages award. The law does not require an
expert to convey all his knowledge to the jury about each license agreement in
evidence, but a lump-sum damages award cannot stand solely on evidence which
amounts to little more than a recitation of royalty numbers, one of which is arguably in
the ballpark of the juryâs award, particularly when it is doubtful that the technology of
those license agreements is in any way similar to the technology being litigated here.
Lucent also cites four running-royalty license agreements which purportedly
provide substantial evidence supporting a lump-sum damages award of approximately
$358 million. A significant shortcoming of these agreements is their ârunning-royaltyâ
nature, however. As we noted above, certain fundamental differences exist between
lump-sum agreements and running-royalty agreements. This is not to say that a
running-royalty license agreement cannot be relevant to a lump-sum damages award,
and vice versa. For a jury to use a running-royalty agreement as a basis to award
lump-sum damages, however, some basis for comparison must exist in the evidence
presented to the jury. In the present case, the jury had almost no testimony with which
to recalculate in a meaningful way the value of any of the running royalty agreements to
arrive at the lump-sum damages award.
Additionally, in its brief before us, Lucent appears to misunderstand the nature of
a per-unit royalty. Lucent appears to consider a per-unit royalty as being equivalent to a
2008-1485, -1487, -1495 43
lump-sum royalty. See Appelleeâs Br. 49-50 (â[T]he aforementioned licensesâcalling
for a lump-sum or commuted per-unit royalty not calculated as a function of product
revenueâsupport the damages award entirely independent from Microsoftâs product
revenues.â). What that statement ignores is the relationship between product revenues
and per-unit running royalties. A per-unit running royalty is paid based on the number of
units ultimately sold (or made, etc.), which is of course directly related to product
revenues. As more units are sold, more revenue is earned and more royalties are paid.
If the licensee chooses to omit the patented feature from its commercial product, the
licensee will generally owe no per-unit royalty. Thus, a per-unit running royalty
agreement differs from a lump-sum agreement in the same general ways a percentage-
of-price running royalty agreement differs from a lump-sum agreement. See Raymond
T. Nimmer & Jeff Dodd, Modern Licensing Law § 7:4 (2008) (âMost running royalties fall
into one of two categories: fixed price per unit and percentage of
revenue/sales/income.â).
Furthermore, the running royalty agreements put into evidence, as with the lump-
sum agreements, differ substantially from the hypothetical negotiation scenario involving
the Day patent. The four running royalty agreements upon which Lucent relies are
agreements between itself and Vox Communications (âVox agreementâ); between itself
and Kenwood (âKenwood agreementâ); between itself and Acer (âAcer agreementâ); and
between Microsoft and MPEG-LA (âMPEG agreementâ).
The Vox agreement covered five Lucent patents, which, as explained by Lucentâs
expert, are directed to PC graphics boards manufactured by Vox. In addition to a lump-
sum payment of $50,000, Vox agreed to pay a per-unit rate of $2.00 for each licensed
2008-1485, -1487, -1495 44
product. But no testimony described how the patented technology of the Vox
agreement relates to the licensed graphics boards. Lucentâs expert never explained to
the jury whether the patented technology is essential to the licensed product being sold,
or whether the patented invention is only a small component or feature of the licensed
product (as is the case here). The jury also had no information about the price of Voxâs
PC graphics boards and thus was unable to assess the magnitude of the $2.00 rate,
which seems particularly relevant given Lucentâs defense of an award amounting to
about 8% of the market value of Outlook. In the absence of the price of graphics
boards, the $2.00 value is difficult, if not impossible, to evaluate. The testimony of
Lucentâs expert relating to the Vox agreement was confined essentially to the fact that
the agreement is a cross-licensing agreement in which the rights granted to Lucent
were royalty-free and that the royalty rate is structured as a commuted rate.
The Kenwood agreement, covering two Lucent patents directed to DVD player
products, is a hybrid lump-sum/running royalty cross-license agreement. Kenwood
agreed to pay Lucent an up-front payment of $3 million along with a per-unit royalty of
$1.50 for each product in excess of 300,000 units. Lucentâs expert told the jury that the
Kenwood agreement was a cross-license, conveying rights to Lucent to practice
Kenwoodâs patents, but the jury never learned anything about those patent rights and
how valuable or essential those rights were. Even if we were to apply the $1.50 per unit
rate of the Kenwood agreement to the number of infringing units that could be used to
infringe in the present case, this would yield only about $165 million, substantially less
than the $358 million awarded by the jury.
2008-1485, -1487, -1495 45
The Acer agreement, executed in 1998, involved eight patents and various
commercial products. Lucent refers to the Acer agreement as one involving PC-related
patents. During his testimony, Lucentâs expert focused almost exclusively on the
per-unit royalty rate of $2.50 and the lump-sum payment of $14.5 million. But the jury
again did not hear any explanation of the types of products covered by the agreement
or the various royalty rates set forth in the agreement. Specifically, the agreement calls
for different royalties for different products. For so-called âreportable products,â the rate
is not a fixed dollar amount but set at 2%, while the royalty rates for âsemiconductive
devicesâ is in the range of 1%. Furthermore, Lucent did not explain how the fact that
the Acer agreement involved eight patents affects how probative it is of the Microsoft-
Lucent hypothetical negotiation over one patent. Nor is there any document or
testimony upon which a jury could have considered how similar or dissimilar the
patented technology of the Acer agreement is to the invention of using the date-picker.
Nor is there any evidence or testimony about how the $2.50 per unit rate corresponds to
a percentage of the cost of the âpersonal computersâ sold under the license agreement.
It is not implausible that the average price of the computers subject to the Acer
agreement was close to $1000. See Larry Armstrong, How Did Santa Carry All Those
Computers, Business Week, Jan. 11, 1999, at 46, 46 (noting that, in November 1999,
âthe average selling price of a PC without monitor dropped below $1,000 for the first
timeâ); Roger O. Crockett & Peter Burrows, PC Makers Race to the Bottom, Business
Week, Oct. 12, 1998, at 48, 48 (noting an average PC price of about $1,200); Nick
Turner, PC World Comes to Grips With Less-Is-More Mentality, Investorâs Business
Daily, Dec. 30, 1998, at A8 (citing an average PC cost of $1,026). Such an average
2008-1485, -1487, -1495 46
price would mean the $2.50 per-unit rate of the Acer agreement equates to
approximately one-quarter of one percent of the value of the computer, which is about
one-thirtieth the constructive rate awarded to Lucent.
Finally, the MPEG agreement on its face supports a higher royalty rate of $4 per
unit. But, as with the other running royalty agreements, the structure of the MPEG
agreement is more complicated, and the jury had little to no testimony explaining how
such complexity would have affected the hypothetical negotiation analysis. Specifically,
the 31-page agreement contains numerous provisions covering various MPEG-related
products (e.g., decoding products, distribution encoding products, program stream
products, etc.). Moreover, the various products appear to have different royalty rates,
some as low as a penny per unit.
We now consider what Microsoft advocated, namely that the hypothetical
negotiation would have yielded a lump-sum licensing agreement for $6.5 million. For
whatever reason, Microsoft urged the jury to accept its theory based on a proffer of a
single license Microsoft had executed for a graphical user interface technology. Thus,
at a minimum, a reasonable jury could have awarded $6.5 million, or some larger
amount as permitted by the evidence. See Rite-Hite, 56 F.3d at 1555 (â[W]hat an
infringer would prefer to pay is not the test for damages.â).
But we see little evidentiary basis under Georgia-Pacific Factor 2 for awarding
roughly three to four times the average amount in the lump-sum agreements in
evidence. Here the award was $358 million; there, the amounts were $80, 93, 100, and
290 million. That some licenses were cross-licenses or commuted-rate licensesâwhich
may warrant a higher damages awardâdoes not fill the evidentiary lacunae. Again, it
2008-1485, -1487, -1495 47
was Lucentâs burden to prove that the licenses relied on were sufficiently comparable to
sustain a lump-sum damages award of $358 million. This is not an instance in which
the jury chose a damages award somewhere between maximum and minimum lump-
sum amounts advocated by the opposing parties. Cf. Fuji Photo, 394 F.3d at 1378
(â[T]he jury is not bound to accept a rate proffered by one partyâs expert but rather may
choose an intermediate royalty rate.â). For the reasons stated, Factor 2 weighs strongly
against the juryâs award.
2. Factors 10 and 13
Factor 10 is â[t]he nature of the patented invention; the character of the
commercial embodiment of it as owned and produced by the licensor; and the benefits
to those who have used the invention.â Georgia-Pacific, 318 F. Supp. at 1120. Factor
13 is â[t]he portion of the realizable profit that should be credited to the invention as
distinguished from non-patented elements, the manufacturing process, business risks,
or significant features or improvements added by the infringer.â Id. These two factors,
at least as applied to the facts of this case, both aim to elucidate how the parties would
have valued the patented feature during the hypothetical negotiation.
The evidence can support only a finding that the infringing feature contained in
Microsoft Outlook is but a tiny feature of one part of a much larger software program.
Microsoftâs expert explained that Outlookâs e-mail component is âthe part of Outlook
thatâs most commonly used by our customers.â Microsoftâs witness also explained that,
in addition to sending and receiving e-mails, a user can create electronic tasks and
notes. Additionally, Outlook can be used as an electronic Rolodexâ˘, storing contact
information, such as phone numbers, addresses, and the like. It also has a fully
2008-1485, -1487, -1495 48
functional calendar system, in which a user can record appointments, meetings, and
other items on oneâs schedule. As Lucentâs own expert testified, Outlook is a âpersonal
organizerâ that is âan integrated suite of abilities to do e-mail, to set up contacts, to
arrange meetings, to maintain your personal calendar, et cetera.â In short, Outlook is
an enormously complex software program comprising hundreds, if not thousands or
even more, features. We find it inconceivable to conclude, based on the present record,
that the use of one small feature, the date-picker, constitutes a substantial portion of the
value of Outlook.
The parties presented little evidence relating to Factor 13. Nonetheless, the only
reasonable conclusion is that most of the realizable profit must be credited to
non-patented elements, such as âthe manufacturing process, business risks, or
significant features or improvements added by [Microsoft].â As explained by Microsoftâs
expert Mr. Kennedy, Outlook consists of millions of lines of code, only a tiny fraction of
which encodes the date-picker feature. Although the weighing of Factor 13 cannot be
reduced to a mere counting of lines of code, the glaring imbalance between infringing
and non-infringing features must impact the analysis of how much profit can properly be
attributed to the use of the date-picker compared to non-patented elements and other
features of Outlook. Here, numerous features other than the date-picker appear to
account for the overwhelming majority of the consumer demand and therefore
significant profit.
The only reasonable conclusion that can be drawn from this evidence is that the
infringing use of Outlookâs date-picker feature is a minor aspect of a much larger
software program and that the portion of the profit that can be credited to the infringing
2008-1485, -1487, -1495 49
use of the date-picker tool is exceedingly small. For these reasons, Factors 10 and 13
of Georgia-Pacific provide little support for the juryâs lump-sum damages award of
$357,693,056.18.
3. Factor 11
Factor 11 is â[t]he extent to which the infringer has made use of the invention;
and any evidence probative of the value of that use.â Georgia-Pacific, 318 F. Supp.
at 1120. As with Factors 10 and 13, the eleventh factor informs the court and jury about
how the parties would have valued the patented feature during the hypothetical
negotiation. In doing so, Factor 11 relies on evidence about how much the patented
invention has been used. Implicit in this factor is the premise that an invention used
frequently is generally more valuable than a comparable invention used infrequently.
During oral argument, Microsoft characterized as irrelevant information about
how often the date-picker tool has in fact been used by consumers of Microsoft
products. That is so, according to Microsoft, because such facts postdate the time of
the hypothetical negotiation. See Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d
1075, 1081 (Fed. Cir. 1983) (âThe issue of the infringerâs profit is to be determined not
on the basis of a hindsight evaluation of what actually happened, but on the basis of
what the parties to the hypothetical license negotiations would have considered at the
time of the negotiations.â). But neither precedent nor economic logic requires us to
ignore information about how often a patented invention has been used by infringers.
Nor could they since frequency of expected use and predicted value are related.
2008-1485, -1487, -1495 50
In Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 698
(1933), the Supreme Court recognized that factual developments occurring after the
date of the hypothetical negotiation can inform the damages calculation:
[A] different situation is presented if years have gone by before the
evidence is offered. Experience is then available to correct uncertain
prophecy. Here is a book of wisdom that courts may not neglect. We find
no rule of law that sets a clasp upon its pages, and forbids us to look
within.
Similarly, our case law affirms the availability of post-infringement evidence as probative
in certain circumstances. In Fromson v. Western Litho Plate & Supply Co., 853 F.2d
1568, 1575 (Fed. Cir. 1988), overruled on other grounds by Knorr-Bremse Systeme
Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004) (en banc),
we observed that the hypothetical negotiation analysis âpermits and often requires a
court to look to events and facts that occurred thereafter and that could not have been
known to or predicted by the hypothesized negotiators.â
Consideration of evidence of usage after infringement started can, under
appropriate circumstances, be helpful to the jury and the court in assessing whether a
royalty is reasonable. Usage (or similar) data may provide information that the parties
would frequently have estimated during the negotiation. See Sinclair Ref., 289 U.S. at
697 (âThe use that has been made of the patented device is a legitimate aid to the
appraisal of the value of the patent at the time of the breach.â). Such data might,
depending on the case, come from sales projections based on past sales, consumer
surveys, focus group testing, and other sources. Even though parties to a license
negotiation will usually not have precise data about future usage, they often have rough
estimates as to the expected frequency of use. This quantitative information, assuming
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it meets admissibility requirements, ought to be given its proper weight, as determined
by the circumstances of each case.
On the other hand, we have never laid down any rigid requirement that damages
in all circumstances be limited to specific instances of infringement proven with direct
evidence. Such a strict requirement could create a hypothetical negotiation far-removed
from what parties regularly do during real-world licensing negotiations. As shown by the
evidence in this case, companies in the high-tech computer industry often strike
licensing deals in which the amount paid for a particular technology is not necessarily
limited to the number of times a patented feature is used by a consumer. A company
licensing a patented method often has strong reasons not to tie the royalty amount
strictly to usage. The administrative cost of monitoring usage can be prohibitively
expensive. Furthermore, with some inventions, say for example a method of detecting
fires, value is added simply by having the patented invention available for use. Cf.
Hanson, 718 F.2d at 1080-81 (approving a reasonable royalty not based on âactual use
of the snowmaking machineryâ but on what a party would have paid to have the
machine available to use). Thus, potential licensors and licensees routinely agree to
royalty payments regardless of whether the invention is used frequently or infrequently
by the consumer.
With the foregoing in mind, we observe that the evidence of record is
conspicuously devoid of any data about how often consumers use the patented date-
picker invention. In one respect, Lucent believes the damages award is supported by
the pervasive use of forms throughout the three software programs. What this position
lacks is the requisite focus on the infringed claim. The damages award canât be
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supported by evidence that the infringers also used additional, non-infringing features.
Only when the date-picker is used to fill out a form does infringement occur. All other
means of filling out a form, such as typing in the entire date, do not infringe. The
damages award ought to be correlated, in some respect, to the extent the infringing
method is used by consumers. This is so because this is what the parties to the
hypothetical negotiation would have considered. Lucent tries to stretch the claim scope
so that claim 19 covers all pop-up tools. If this were the proper claim construction, we
might have to reverse the validity ruling. But the claim constructionâwhich neither
party has appealedâis not so broad.
Furthermore, Lucentâs reliance on Dynacore is unavailing. As we noted above,
substantial evidence supports the juryâs verdict of indirect infringement by Microsoft.
But all the circumstantial evidence supports is the juryâs implicit finding that at least one
person performed the patented method one time in the United States sometime during
the relevant period. Beyond that finding, all the jury had was speculation. No evidence
describes how many Microsoft Outlook users had ever performed the patented method
or how many times. Lucent had the burden to prove that the extent to which the
infringing method has been used supports the lump-sum damages award.
4. Other Factors
Other Georgia-Pacific factors applicable here include â[t]he nature and scope of
the license, as exclusive or nonexclusiveâ (Factor 3); â[t]he licensorâs established policy
and marketing program to maintain his patent monopolyâ (Factor 4); â[t]he commercial
relationship between the licensor and the licenseeâ (Factor 5); â[t]he established
profitability of the product made under the patentâ (Factor 8); â[t]he utility and
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advantages of the patent property over the old modes or devicesâ (Factor 9); and â[t]he
portion of the profit or of the selling price that may be customary . . . to allow for the use
of the inventionâ (Factor 12). 318 F. Supp. at 1120. To the extent these factors are
relevant, they appear somewhat to offset one another.
For instance, Factor 8, the profitability of the product made, supports a higher
versus a lower reasonable royalty, given the unrebutted evidence that the products at
issue are sold with an approximately 70-80% profit margin. Contrasting this evidence
are Factors 3 and 9. Non-exclusive licenses generally command lower royalties.
See Parr, supra, at 64 (âTypically, higher royalty rates are associated with license
agreements that provide the licensee with exclusive rights to use the IP.â). And, from
the evidence presented, the infringing use of the date-picker seems to have, at best,
only a slight advantage over what is arguably the closest prior art. We are mindful,
however, that a jury could have reasonably concluded otherwise with several of the
factors mentioned here. Even so, such reasonable conclusions, in this case, cannot
overcome the substantial infirmities in the evidence for the other factors detailed above.
5. Conclusion on Lump-Sum Reasonable Royalty
Having examined the relevant Georgia-Pacific factors, we are left with the
unmistakable conclusion that the juryâs damages award is not supported by substantial
evidence, but is based mainly on speculation or guesswork. When the evidence is
viewed in toto, the juryâs award of a lump-sum payment of about $358 million does not
rest on substantial evidence and is likewise against the clear weight of the evidence.
The evidence does not sustain a finding that, at the time of infringement, Microsoft and
Lucent would have agreed to a lump-sum royalty payment subsequently amounting to
2008-1485, -1487, -1495 54
approximately 8% of Microsoftâs revenues for the sale of Outlook (and necessarily a
larger percentage of Outlookâs profits). We need not identify any particular Georgia-
Pacific factor as being dispositive. Rather, the flexible analysis of all applicable
Georgia-Pacific factors provides a useful and legally-required framework for assessing
the damages award in this case. Furthermore, we do not conclude that the
aforementioned license agreements (or other evidence) cannot, as a matter of law,
support the damages award in this case. Instead, the evidence as presented did not
reach the âsubstantial evidenceâ threshold and therefore no reasonable jury could have
found that Lucent carried its burden of proving that the evidence, under the relevant
Georgia-Pacific factors, supported a lump-sum damages award of $357,693,056.18.
We admit that the above analysis focuses on Microsoft Outlook, not the other two
software programs. Because the damages award with respect to infringement by
Outlook is not supported by the evidence but is against the clear weight of the evidence,
a new trial on damages is necessary. We therefore need not specifically address the
evidence as it relates to Microsoft Money and Windows Mobile. We leave that to the
jury or court to assess on remand. We acknowledge that the factual findings based on
the pertinent Georgia-Pacific factors may not be identical for all three products. For
example, the tools that practice the infringing method may be incorporated more (or
less) extensively throughout Windows Mobile and Microsoft Money than in Outlook.
Creating a licensing agreement for patented technology is, at best, an inexact
science. In actual licensing negotiations, willing parties negotiating at arms-length do
not necessarily generate and analyze precise economic data concerning the perceived
value of a patented invention. A complicated case this was, and the damages evidence
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of record was neither very powerful, nor presented very well by either party. Most jury
damages awards reviewed on appeal have been held to be supported by substantial
evidence. See Skenyon et al., supra, at § 3:20 (summarizing sixty-two damages
cases). Nonetheless, on post-trial JMOL motions, district court judges must scrutinize
the evidence carefully to ensure that the âsubstantial evidenceâ standard is satisfied,
while keeping in mind that a reasonable royalty analysis ânecessarily involves an
element of approximation and uncertainty.â Unisplay, 69 F.3d at 517.
B. Entire Market Value Analysis
Microsoft argues that the damages award must be reversed because the jury
erroneously applied the entire market value rule. Despite the juryâs indication on the
verdict form that it was awarding a lump-sum reasonable royalty, Microsoft believes that
the only way the jury could have calculated a figure of $357,693,056.18 was by applying
a royalty percentage to a total sales figure of the infringing software products. Indeed, it
is difficult to understand how the jury could have chosen its lump-sum figure down to the
penny unless it used a running royalty calculation. Furthermore, as Microsoft explains
in its brief, working the math backwards strongly suggests that the jury must have used
some calculation of a rate applied to the entire market value of the software. See
Microsoft Response and Reply Br. 47 (âApplying Lucentâs 8% rate to all of Microsoftâs
sales and half of Dellâs, using a weighted average of 85% OEM prices and 15% retail
prices, yields damages of $358,835,648âextremely close to the juryâs award.â (footnote
omitted)). Alternatively, the jury could have simply used a somewhat lower rate, such
as about 5.5%, applied to the total sales figure. Assuming that the jury did apply the
entire market value rule, such application would amount to legal error for two reasons.
2008-1485, -1487, -1495 56
In one sense, our law on the entire market value rule is quite clear. For the entire
market value rule to apply, the patentee must prove that âthe patent-related feature is
the âbasis for customer demand.ââ Rite-Hite, 56 F.3d at 1549 (quoting State Indus.,
883 F.2d at 1580); see also Bose Corp v. JBL, Inc., 274 F.3d 1354, 1361 (Fed. Cir.
2001); TWM Mfg., 789 F.2d at 901 (âThe entire market value rule allows for the recovery
of damages based on the value of an entire apparatus containing several features,
when the feature patented constitutes the basis for customer demand.â).
In the distant past, before a contemporary appreciation of the economics of
infringement damages, the Supreme Court seemingly set forth rigid rules concerning
the entire market value rule. Shortly before the Civil War, in Seymour v. McCormick,
57 U.S. (16 How.) 480, 491 (1853), a case involving one of Cyrus McCormickâs famous
reaping machine inventions, the Court warned that it would be âa very grave error to
instruct a jury âthat as to the measure of damages the same rule is to govern, whether
the patent covers an entire machine or an improvement on a machine.ââ About a
century and a quarter ago, in Garretson v. Clark, the Court expressed further concern
about basing damages on the value of the entire product:
When a patent is for an improvement, and not for an entirely new machine
or contrivance, the patentee must show in what particulars his
improvement has added to the usefulness of the machine or contrivance.
He must separate its results distinctly from those of the other parts, so that
the benefits derived from it may be distinctly seen and appreciated. . . .
The patentee . . . must in every case give evidence tending to separate or
apportion the defendantâs profits and the patenteeâs damages between the
patented feature and the unpatented features, and such evidence must be
reliable and tangible, and not conjectural or speculative; or he must show,
by equally reliable and satisfactory evidence, that the profits and damages
are to be calculated on the whole machine, for the reason that the entire
value of the whole machine, as a marketable article, is properly and legally
attributable to the patented feature.
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111 U.S. 120, 121 (1884) (quotation marks omitted). And early last century, the Court
elaborated on this theme:
[An] invention may have been used in combination with valuable
improvements made, or other patents appropriated by the infringer, and
each may have jointly, but unequally, contributed to the profits. In such
case, if plaintiffâs patent only created a part of the profits, he is only
entitled to recover that part of the net gains.
Westinghouse Elec. & Mfg. Co. v. Wagner Elec. & Mfg. Co., 225 U.S. 604, 614-15
(1912).
Translating the Courtâs early stylistic description into a precise, contemporary,
economic paradigm presents a challenge. Notwithstanding this obstacle, the objective
of the Courtâs concern has been two-fold: determining the correct (or at least
approximately correct) value of the patented invention, when it is but one part or feature
among many, and ascertaining what the parties would have agreed to in the context of
a patent license negotiation. Litigants must realize that the two objectives do not always
meet at the same precise number. Furthermore, licensors of patented technology often
license an invention for more or less than its true âeconomic value.â Such is the
inherent risk in licensing intangible assets that may have no established market value.
The first flaw with any application of the entire market value rule in the present
case is the lack of evidence demonstrating the patented method of the Day patent as
the basisâor even a substantial basisâof the consumer demand for Outlook. As
explained above, the only reasonable conclusion supported by the evidence is that the
infringing use of the date-picker tool in Outlook is but a very small component of a much
larger software program. The vast majority of the features, when used, do not infringe.
The date-picker toolâs minor role in the overall program is further confirmed when one
considers the relative importance of certain other features, e.g., e-mail. Consistent with
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this description of Outlook, Lucent did not carry its evidentiary burden of proving that
anyone purchased Outlook because of the patented method. Indeed, Lucentâs
damages expert conceded that there was no âevidence that anybody anywhere at any
time ever bought Outlook, be it an equipment manufacturer or an individual
consumer, . . . because it had a date picker.â J.A 07821-22. And when we consider the
importance of the many features not covered by the Day patent compared to the one
infringing feature in Outlook, we can only arrive at the unmistakable conclusion that the
invention described in claim 19 of the Day patent is not the reason consumers purchase
Outlook. Thus, Lucent did not satisfy its burden of proving the applicability of the entire
market value rule.
As for Windows Mobile and Microsoft Money, a juryâs conclusion might possibly
be different. At this point in the litigation, we again need not decide these issues.
Because the damages award based on the infringing date-picker feature of Outlook is
not supported by substantial evidence and is contrary to the clear weight of the
evidence, the damages award must be vacated. When the case is remanded to the trial
court for further proceedings consistent with this opinion, it may be helpful to analyze
the three infringing software products independently.
The second flaw with any application of the entire market value rule in this case
lies in the approach adopted by Lucentâs licensing expert. He had first tried to apply the
entire market value rule to the sale of the âinfringingâ computers loaded with the
software, opining that Microsoft and Lucent would have agreed to a 1% royalty based
on the entire price of the computer containing Outlook. In response, Microsoft filed a
motion in limine to exclude such testimony, which the district court granted. At trial,
2008-1485, -1487, -1495 59
Lucentâs expert changed his opinion, contending that the royalty base should be the
price of the software (and not the entire computer) but also that the royalty rate should
be increased to 8% (from 1%). This opinion contrasted starkly to the rates he proposed
for the other patents in suit, which were in the 1% range. In choosing 8%, he reasoned
that, âin a typical situation, if one applied a royalty to a smaller patented portion in a
computer as opposed to the entire computer using typically infringed patents,
8-percent . . . of the fair market value of the patented portion would equate to 1-percent
of the fair market value of the entire computer.â
What Lucentâs licensing expert proposed here does not comport with the purpose
of damages law or the entire market value rule. Lucentâs expert tried to reach the
damages number he would have obtained had he used the price of the entire computer
as a royalty base. Being precluded from using the computer as the royalty base, he
used the price of the software, but inflated the royalty rate accordingly. This cannot be
an acceptable way to conduct an analysis of what the parties would have agreed to in
the hypothetical licensing context. The approach of Lucentâs expert ignores what the
district courtâs evidentiary ruling tried to accomplish. The district court implicitly
recognized that any damages computation based on the value of the entire computer
using common royalty rates (e.g., 1-5%) would be excessive.
Furthermore, Lucentâs expert admitted that there was no evidence that Microsoft
had ever agreed to pay an 8% royalty on an analogous patent. See J.A. 07824 (âQ: Did
you find one license where Microsoft ever agreed to pay an eight percent royalty on
Outlook for a tiny little feature? A: I didnât see any Microsoft licenses on Outlook,
frankly.â).
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Although our law states certain mandatory conditions for applying the entire
market value rule, courts must nevertheless be cognizant of a fundamental relationship
between the entire market value rule and the calculation of a running royalty damages
award. Simply put, the base used in a running royalty calculation can always be the
value of the entire commercial embodiment, as long as the magnitude of the rate is
within an acceptable range (as determined by the evidence). Indeed, â[a]ll running
royalties have at least two variables: the royalty base and the royalty rate.â Nimmer &
Dodd, supra, at § 7:5. Microsoft surely would have little reason to complain about the
supposed application of the entire market value rule had the jury applied a royalty rate
of 0.1% (instead of 8%) to the market price of the infringing programs. Such a rate
would have likely yielded a damages award of less than Microsoftâs proposed
$6.5 million. Thus, even when the patented invention is a small component of a much
larger commercial product, awarding a reasonable royalty based on either sale price or
number of units sold can be economically justified. See, e.g., Kearns, 32 F.2d at 1544
(awarding a reasonable royalty of 90 cents per vehicle that had the infringing
intermittent windshield wipers, when the average car price was approximately $4000 to
$6000).
Some commentators suggest that the entire market value rule should have little
role in reasonable royalty law. See, e.g., Mark A. Lemley, Distinguishing Lost Profits
From Reasonable Royalties, 51 Wm. & Mary L. Rev. (forthcoming 2009) (manuscript
at 2), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1133173
(suggesting that âcourts have distorted the reasonable royalty measureâ by âimporting
inapposite concepts like the âentire market value ruleâ in an effort to compensate patent
2008-1485, -1487, -1495 61
owners whose real remedy probably should have been in the lost profits categoryâ);
Amy Landers, Let the Games Begin: Incentives to Innovation in the New Economy of
Intellectual Property Law, 46 Santa Clara L. Rev. 307, 362 (2006) (âThe current
iterations of the entire market value rule are inconsistent with the Patent Actâs statutory
language.â). But such general propositions ignore the realities of patent licensing and
the flexibility needed in transferring intellectual property rights. The evidence of record
in the present dispute illustrates the importance the entire market value may have in
reasonable royalty cases. The license agreements admitted into evidence (without
objection from Microsoft, we note) highlight how sophisticated parties routinely enter
into license agreements that base the value of the patented inventions as a percentage
of the commercial productsâ sales price. There is nothing inherently wrong with using
the market value of the entire product, especially when there is no established market
value for the infringing component or feature, so long as the multiplier accounts for the
proportion of the base represented by the infringing component or feature.
We note finally that several amici seemingly challenge the district courtâs
instruction to the jury on the entire market value rule. See Brief for Ten Amici Curiae
Technology-Based Companies at 11-12 (asserting that âthe entire market value rule has
no place in a reasonable royalty calculation); id. at 15 (âJurors are charged with the
entire market value rule but are not given an apportionment charge. No Supreme Court
authority justifies such a one-sided charge.â); id. at 25 (âThe two errors detailed above
justify a reversal of the damages award in this case and, assuming that the patents are
valid and infringed . . . , a remand of the case for a new trial on damages. For the
remand, this Court should provide more specific guidance for reasonable royalty
2008-1485, -1487, -1495 62
calculations.â). While the amicus brief is informative, we need not address its assertion
regarding jury instructions given or not given, for the simple reason that neither party at
trial challenged any damages instruction that was given nor proposed an instruction and
objected when it was not given.
V. Lucentâs Cross-Appeal
Lucent cross-appeals the district courtâs summary judgment of non-infringement
of claims 1, 2, 6, 7, 10-12, 15, and 16 of the Day patent. These claims are apparatus
claims containing means-plus-function elements not found in claims 19 and 21. As
Lucent concedes, it did not provide any analysis of the source code of the accused
programs. Lucent further did not identify the algorithms used in the accused products.
Lucentâs evidence, as Judge Brewster noted, did ânothing more than demonstrate that
the accused products reach the same result; the evidence [did] not demonstrate
circumstantially or otherwise anything about the steps used by the accused products to
arrive at the result.â Under our precedent, Judge Brewsterâs grant of summary
judgment was not erroneous. See Aristocrat Techs. Austl. Pty Ltd. v. Intâl Game Tech.,
521 F.3d 1328, 1349 (Fed. Cir.), cert. denied, 129 S. Ct. 754 (2008).
CONCLUSION
For the foregoing reasons, we affirm the district courtâs denial of Microsoftâs
JMOL motion for non-infringement. We reverse the district courtâs denial of Microsoftâs
JMOL regarding the damages award, vacate the award, and remand for a new trial on
damages.
AFFIRMED IN PART, VACATED IN PART, and REMANDED
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COSTS
No costs.
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