In the ongoing trial over damages for several Microsoft products between Lucent and Microsoft, the United States District Court for the Southern District of California has reduced the damage award against Microsoft from $70 million to $26.3 million, plus prejudgment interest. The new trial on damages occurred after the Federal Circuit affirmed a jury's finding that the so-called Day patent was valid and infringed but reversed the jury's determination of damages. The Day patent claims a date-picker feature in the calendar function of Outlook, one of just many uses for Microsoft's popular Outlook program. The Federal Circuit remanded the case for a new trial on damages to determine an appropriate royalty based on one feature of Outlook.
After the jury returned a verdict of $70 million, the district court addressed whether the amount should be reduced on post-trial motions. Before addressing that issue, the district court noted that "[t]his case illustrates the difficulty of properly valuing a small patented component, without a stand-alone market, within a larger program." Lucent's damage calculation was based on a lump-sum license in the form of an upfront, paid-in-full royalty. The royalty calculation is particularly difficult in this case because the date-picker feature is just one among many Outlook features and Outlook, although sold separately, is much more commonly purchased as part of the suite of products found in Microsoft Office.
To overcome these difficulties, Lucent's expert attempted to determine the financial impact to Microsoft without the Day patent technology in Outlook during the damages period. He included 109.3 million Office licenses along with 241,800 licenses of Outlook sold on a stand-alone basis. He then multiplied that number by 3% to obtain the umber of license sales Microsoft would have potentially lost without the Day technology, which amounted to 3.3 million lost license sales. The 3% figure was based on a survey conducted by a survey expert for the case showing that 7% of Outlook purchase-decision makers that use the drop-down calendar feature would not have bought Outlook if it lacked the drop-down calendar. The next step was to calculate a hypothetical revenue loss associated with selling 3.3 million fewer licenses of Outlook. As part of this step, the expert determined that Microsoft's average per-unit revenue is $67 from sales of stand-alone Outlook and he used this same number as a proxy for the value of Outlook sold as part of office.
The district court ultimately disagreed with this $67 figure as a proxy because it did not properly account for the other unpatented features in Office that consumers use. "Lucent's calculation using a $67 revenue figure assumes that Outlook represents 68% of the revenue of Office. If so, the collective value of Word, Excel and PowerPoint represents only $31 for these popular programs. . . . The Court concludes that Lucent's attribution of $31 collectively to Microsoft Word, PowerPoint, and Excel is not based on sound economic or factual predicates."
The district court also rejected Microsoft's calculation of $13.45 as a reasonable base for Outlook because Outlook would only account for 13.7% of the revenue for Office, even though Outlook is the most popular Office component. The district court did, however, accept an alternative approach suggested by Microsoft that $24.55 was an appropriate apportionment based on the four components of Office. This approach allocated 25% of the Office revenue to Outlook. The district court found that this was highest amount supported by the evidence introduced at trial.
The district court then followed Lucent's damage expert's remaining methodology to determine that the appropriate lump-sum royalty was $26.3 million. "Therefore, the Court adjusts Lucent's damages calculation to apply only $24.55--not $67--to the 109.3 million Office license and otherwise follows Lucent's damage calculation. The Court concludes that $67 is the appropriate per-unit revenue to use for the 241,800 units for stand-alone Outlook that were included in Lucent's damages calculation. The Court determines that a lump-sum reasonable royalty of $26.3 million is the highest damages award that is supported by substantial evidence, and that is award reflects a proper apportionment as required by law."
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.