Damage Award of $5 Million Upheld Where Plaintiff Submitted Expert Testimony of Running Royalty Rate and Jury Was Not Required to Adopt Either of the Parties Royalty Calculations

April 16, 2012

Plaintiff, Imaginal Systems, LLC ("Imaginal") filed a patent infringement action against Leggett & Platt, Inc. ("Leggett") and Simmons Bedding Company ("Simmons") over three patents, which pertain to automatic stapling machines and a method of manufacturing box spring mattresses. The district court ruled on summary judgment that Imaginal's patents were valid and that the defendants directly infringed the patents. The district court subsequently held a bench trial on issues of willfulness and equitable defenses. After the district court concluded that the infringement was not willful and rejected the equitable defenses, the district court conducted a jury trial on the issue of damages and the jury returned a $5 million verdict in plaintiff's favor.

As the district court explained, "[a]t trial, Plaintiff asked for a damages award based on a running royalty. According to Plaintiffs expert, a reasonable royalty in this case was $15,933,037 as of the end of 2011. Defendants, on the other hand, argued that a running royalty for an automatic stapling machine is not prevalent in the bedding industry and asked the jury to limit the damages award to $296,621. The jury returned a verdict of $5,000,000 in Plaintiff's favor."

After the jury verdict, Defendants filed a motion for a judgment as a matter of law and a motion for new trial. In making these motions, the defendants argued that Imaginal failed to sustain its burden of proving damages because its methodology was not supported by substantial evidence and because Imaginal improperly included cost savings in the royalty calculation to seek to recover multiple royalties. With respect to substantial evidence, the district court explained that: "During trial both parties offered expert testimony and presented extensive evidence in support of their respective damages theories. On multiple occasions during trial, the jury heard from Plaintiff, Defendants, and their experts about the prevalence and propriety of using a running royalty in the bedding industry for automatic stapling machines. The jury also learned that Plaintiff's expert applied the same increase in profitability rate to both Semi-Flex grids and Vertex staples sales without conducting separate experimentations. The jury then had a chance to weigh this evidence, assess the credibility of the parties' expert witnesses, and decide on a reasonably royalty."

Based on this evidence, the district court noted that it was acceptable for the jury to disregard both parties' experts and come up with its own damage calculation: "It is well-established that any reasonable royalty analysis 'necessarily involves an element of approximation and uncertainty,' and the jury is free to weigh the evidence, assess the credibility of witnesses, and make an ultimate determination regarding damages. Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d 512, 517 (Fed. Cir. 1995); see also Uniloc USA, Inc. v. Microsoft Corp. 632 F.3d 1292, 1306 (Fed. Cir. 2011) (citing i4i Ltd. P'ship v. Microsoft Corp., 598 F.3d 831, 856 (Fed. Cir. 2010)) ('it is decidedly the jury's role to evaluate the weight to be given to the testimony of dueling qualified experts'). Therefore, based on the standard articulated by the Federal Circuit, the jury was not required to adopt either of the parties' royalty calculations. While there may not be a meaningful way to explain how the jury arrived at the damages amount, the evidence that the parties presented was certainly relevant evidence, which reasonable minds might accept as adequate to support the jury's' conclusion. See Three Boys Music Corp., 212 F.3d at 482. The fact that defendants disagree with how the jury weighed the evidence does not entitle them to a JMOL. See Anderson, 477 U.S. at 250-51. The Court cannot now reevaluate the evidence and substitute its own judgment for that of the jury. See Reeves v. Sanderson Plumbing Prods, Inc., 530 U.S. 133, 153 (2000)."

Second, in terms of the cost savings issue as an attempt to recover multiple royalties, the district court stated that "Defendants argue that inclusion of Simmon's cost savings in the royalty calculation was an improper attempt by Plaintiff to recover multiple royalties and that the evidence does not support an allocation of $3,000,000 of the $5,000,000 judgment to Simmons. There is no evidence, however to support the contention that Imaginal sought to recover separate royalties from Simmons and Leggett. Instead, Imaginal simply sought a single damages award and asked the jury to properly apportion that amount between Defendants. Considering the evidence in the light most favorable to Imaginal and drawing all reasonable inferences in its favor, the Court finds that substantial evidence exists to support the jury's apportioning of $3,000,000 to Simmons."

Accordingly, the district court declined to grant the defendants' motion for a judgment as a matter of law and also denied the motion for a new trial.

Imaginal Systematic, LLC v. Leggett & Platt, Inc., et al., Case No. CV 10-07416-RGK (SSx) (C.D. Cal. April 2, 2012)

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