Articles Posted in Damages

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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.”
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In response to Oracle’s third expert on damages (which was submitted after the district court had struck parts of the first two reports), Google’s damage experts were permitted to submit supplemental damage reports. With respect to the patent damages, the district court summarized the supplemental report as follows: “In his supplemental report on patent damages, Dr. Leonard conducts a so-called ‘forward citation’ analysis to arrive at his own ranking of the 22 patents from Dr. Cockburn’s report. This was done to critique Dr. Cockburn’s ‘upper bound’ opinion that three patents in suit were the most valuable of the 22. Now that Dr. Cockburn’s ‘upper bound’ opinion has been stricken and the number of the asserted patents reduced, the only remaining issues is whether Dr. Leonard can opine that the ‘104 patent ranks in the ‘middle or worse'” of the top 22 patents. Specifically, whether Dr. Leonard can opine that the ‘104 patent ranks 17th among the top 22 patents under the forward-citation analysis (Rpt. At 7).”
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As a preliminary matter, Judge Posner consolidated the six patent cases that were filed by Brandeis University against various defendants, finding that they involve a number of common issues of law and that judicial efficiency would be maximized by consolidation. “These six cases are hereby consolidated under 1:12-cv-01508, pursuant to Fed. P. 42(a). The parties agree that they involve a number of common issues of law, and I believe that judicial efficiency will be maximized by consolidation. I will consider in due course the defendants’ request for separate trials of issues, particularly damages, that vary significantly across the six cases.”
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The district court had previously stricken certain parts of Oracle’s damage expert report on two separate occasions. First, the district court struck Oracle’s expert report for failing to apportion the value of the asserted claims and instead using the total value of Java and Android in calculating damages. Second, the district court partially excluded Oracle’s expert’s revised report for using a flawed apportionment methodology. In the new report, Oracle’s expert set forth a new apportionment theory, which Google moved to strike again.

The district court summarized the third report as follows: ” First, Dr. Cockburn starts with Sun’s February 2006 demand of $99 million to defendant Google Inc. Second, he upwardly adjusts by $557 million to account for lost convoyed sales Sun projected to make through its licensing partnership with Google. Third, he adds $28 million by removing a revenue-sharing cap, resulting in a subtotal of $684 million. This is the pie he then apportions between the intellectual property in suit and the intellectual property not in suit. Fourth, he allocates part of this number to the patents and copyrights in suit, using two alternative methodologies — the so-called “group and value” and “independent significance” approaches (Rpt ¶¶ 37-68). Based on these alternative apportionment methodologies, reasonable royalties for patents and copyrights in suit, through the end of 2011, are (1) between $70 and $224 million under the group-and-value approach, and (2) at least $171 million under the independent-significance approach. Fifth, he downwardly adjusts for extraterritorial infringement, failure to mark, and non-accused devices. With all the downward adjustments subtracted, Dr. Cockburn calculates patent damages to be between $18 and $57 million, and a copyright lost license fee to be between $35 and $112 million.”
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In this patent infringement action, the defendant, Varian Medical Systems, provided an expert report on damages that did not state a royalty rate for the accused products. The district court termed this a tactical decision. “By the way of background, Defendant Varian made the tactical decision to have its expert not state any royalty rate for the sales …”

Varian subsequently filed objections to the district court’s final jury instructions with respect to damages and sought to clarify the jury instructions so that it could argue to the jury reasonable royalties may consist of the sale of one component but there should be no royalty on the sale revenue of the combination of various components. “Alternatively, Varian seeks to argue to the jury that ‘if the jury is to award any royalty on the revenue from the Clinac or Trilogy that royalty should be small given, that Varian contributed to the combination.'”
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Oracle continues to experience trouble with its damage expert report in the ongoing battle over the Android Operating System. In its third attempt to prepare an appropriate damage report, Oracle’s expert apparently consulted with a number of Java engineers employed by Sun (now Oracle). He consulted with the engineers in order to rank the importance of the intellectual property in the 2006 license bundle, which he used to support his analysis.

Google sought to depose these Java engineers. Oracle opposed the request and argued that only one person who consulted with the expert, Dr. Mark Reinhold, should be deposed. Oracle asserted that only Dr. Reinhold provided information to the Oracle expert and the language in the report that he consulted with “other Java engineers” was unfortunately the result of a “drafting error.” Oracle explained that these other Java engineers only assisted Dr. Reinhold and did not directly speak with the expert and are not expected to testify at trial.
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In the ongoing saga over Oracle’s lawsuit against Google, the district court has allowed Oracle’s damage expert another chance to fix its damage report. The district court had previously stricken Oracle’s damage expert report on two previous occasions but allowed Oracle’s damage expert a third chance.

Before addressing the damage expert report issue, the district court rejected Oracle’s suggestion of a piecemeal approach to the trial due to the court’s docket. “The docket simply does not permit that luxury. Counsel are unfortunate in having drawn a judge assigned to the massive MS-13 gang prosecution, which has resulted in four lengthy trials, including one underway now, without any relief from the remainder of his normal caseload. This has led to a backlog of trial-ready cases waiting their turn. . . . In the instant case, the damages methodology must be sorted out before the case will even be trial-ready. Until then, there is no point in setting a firm trial date. If matters go smoothly herein and if other trial settings fall away, the instant case could still possibly be tried starting mid-April and all counsel and witnesses should reserve for that possibility, failing which it will likely occur sometime during the last four months of the year. This order, however, gives no assurances as to when the case can be tried. If Oracle wishes to voluntarily dismiss any damages claim it will have to do so with prejudice; otherwise a dismissal is nothing more than an invitation to piecemeal litigation.”
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Oracle’s damage expert was directed to submit a substitute expert report after his original report was excluded on a motion by Google because it failed to apportion the value of the asserted claims and instead used a total value of Java and Android in calculating damages. The substitute damages report calculated damages to be approximately $2.5 billion. Of this number, $200 million was for past patent infringement and an additional $205 million for future patent damages through the end of 2012. Google moved again to strike the damages expert report.

In terms of the patent damages, Google challenged the starting point of $100 million for the hypothetical negotiation instead of $28 million, which was the number in a draft agreement proposed by Sun (Oracle’s predecessor) for a broad technology partnership between Sun and Google. The district court disagreed with Google, finding that Oracle’s expert had reviewed the entire licensing history between the parties and noted that the $100 million offer was on the table during real-world negotiations.
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Defendant filed a motion for summary judgment on lost profits challenging plaintiff’s use of the entire market value rule. Defendant contended that plaintiff had not presented sufficient evidence to go to the jury on the entire market value rule. Plaintiff asserted that the defendant was misapplying the entire market value rule and ignoring the evidence.

The district court began its analysis by quoting from the Federal Circuit’s decision in Lucent that “[f]or the entire market value rule to apply, the patentee must prove that ‘the patent-related feature is the basis for the customer demand.'” Lucent Techs, Inc. v. Gateway, Inc. 580 F.3d 1301, 1336 (Fed. Cir. 2009). The district court noted that “[p]laintiff acknowledges the language from Lucent that the entire market value rule does not apply unless the patent-related feature is the basis for the customer demand, but argues the rule is not as narrow as that language suggests.”
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Google filed a motion to strike the revised damages expert report submitted by Oracle in their continuing battle over Android. In the second expert report, Oracle’s expert “estimated damages, from 2007 through 2011, to be $201.8 million for patent infringement, $823.9 million in unjust enrichment for copyright infringement (not deducting for expenses or apportionment), and $136.2 million in lost profits or $102.6 million in lost licensing fees for copyright infringement.” For the patent infringement matter, Oracle’s expert calculated damages using a hypothetical negotiation method beginning with a $100 million starting value that was based on real-world negotiations between the parties in 2006, then adjusted downward for patent apportionment, then adjusted upward for lost revenue that was expected from the licensing agreement.

Google moved to exclude the patent damages, among others, arguing that the damages cannot be based on a hypothetical lost license fee because Sun (Oracle’s predecessor) would never have licensed an incompatible version of Java to Google. The district court disagreed. The district court found that Oracle’s expert had “a non-speculative factual basis to value a license for an incompatible version of Java.” The district court found this appropriate because the analysis started with the real-world negotiations between Sun and Google for a compatible Java, and then adjusting that amount up to compensate for the incompatibility. “The amount of the upward adjustment was based on Sun’s own revenue projections for the value of compatibility. Dr. Cockburn’s calculation was based on real-world facts and not incurably speculative. Google fights the hypothetical by ignoring the legal requirement for a hypothetical negotiation that the licensing agreement must be reached as the result of a hypothetical meeting between the parties.”
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