Plaintiff Personal Audio, LLC ("Personal Audio") filed a patent infringement action against Apple, Inc. ("Apple") over two patents, which teach an audio program player that will play a sequence of audio program files and accept commands from the user to skip forward or backward in the sequence. After a jury trial, the jury found that the patents were infringed and awarded damages of $8 million in the form of a lump sum royalty.
After the jury verdict, Personal Audio moved for an award of ongoing royalties pursuant to 35 U.S.C. § 283. The district court denied the motion. The district court found that "the jury's lump sum damages award represents a fully paid up license for all past and future sales of Apple products that incorporate the patented technology. The court finds that the $8 million lump sum awarded by the jury adequately compensates Personal Audio for both past and future infringement, and therefore no ongoing royalty award is necessary."
At trial, Personal Audio's damage expert opined that a reasonable royalty would be in the form of a per unit running royalty. Apple's damage expert, on the other hand, testified that a lump sum amount would be a reasonable royalty in this case and there would be no ongoing royalties for future sales. The district court then provided the jury with the option of selecting a running royalty rate or a lump sum award. The jury selected the lump sum award.
Personal Audio then argued that the jury's award only addressed past damages and not future damages. The district court disagreed. "As discussed by the court in its prior order, the jury was not confused about the effect of its verdict in this case--the verdict clearly represents a lump sum award giving Apple a fully paid up license that covers all past and future use of the patent technology in Apple products. . . . The jury's decision that an $8 million lump sum would adequately compensate for 'all . . . future sales of Apple products,' in addition to past infringing sales, was, in effect, an advisory opinion with respect to prospective relief. . . . In this case, the court accepts the jury's finding; the jury award is both reasonable and supported by the record."
Personal Audio also raised a fairness argument that the district court rejected because the argument was not made on a timely basis. "Personal Audio's fairness arguments simply come too late. Apple's damages position was fully disclosed to Personal Audio in its November 2010 expert report. But Personal Audio's motion to exclude [Apple's damage expert] argued only that he had improperly relied on non-comparable licenses and transactions, and had improperly considered Personal Audio's failure to commercialize the claimed inventions as a factor in his analysis; Personal Audio did not assert that the 'freedom-to-operate' license on which [Apple's expert] opined was an impermissible form of damages."
Accordingly, the district court denied Personal Audio's motion.
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The district court's decision makes it clear that an award of a lump sum royalty (if adopted by the court) may wipe out an ongoing royalty for future infringement. Although there is not binding authority on lump sum awards capping damages for future infringement (as the district court recognized in a footnote), it is important for both the defendant and plaintiff to be ready to argue for and against a lump sum award given the consequence to future damages.
The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or SGibson@jmbm.com.