Recently, two giant corporations spent millions of dollars in a courtroom argument primarily directed to the value of a “date-picker” – we’re speaking here about a “graphical user interface tool,” not a mechanical device for harvesting dates or an on-line service for matching up persons of opposite sexes. Lucent Technologies, Inc. et al. v. Gateway, Inc. et al.
At trial, things went well for the plaintiff. The jury found the patent-in-suit not invalid and indirectly infringed, awarding damages of $358 million dollars. Microsoft – the part of the “et al.” obliged to pay the damages – appealed, in part on the ground that the jury’s damages award was “excessive.”
In its 61-page opinion, the C.A.F.C. held that it must decide “whether substantial evidence supports the jury’s 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.” The Court devoted 31 pages to an analysis of this question before reaching the obvious conclusion: NO ONE AGREES TO PAY $358 MILLION FOR A LICENSE.
Nevertheless, some of the Court’s findings are interesting. For example, the Court found that, “Lucent identifies no documentary evidence or testimony showing the parties’ 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.” Indeed, Lucent admitted in its brief that “none of the real world licenses introduced at trial arose from circumstances identical to those presumed to prevail in the hypothetical royalty negotiation.”
The Court ultimately concluded that “[t]he evidence can only support a finding that the infringing feature contained in Microsoft Outlook is but a tiny feature of one part of a much larger software program.”
Microsoft also argued that the damages award must be reversed because the jury erroneously applied the entire market value rule. As the reader may have guessed, the Court agreed, pointing to “the lack of evidence demonstrating the patented method of the [patent-in-suit] as the basis – or even a substantial basis – of the consumer demand for Outlook.” The C.A.F.C. further noted that the plaintiff’s damages expert persisted in his efforts to base his damages estimate on the price of the Outlook program after the trial court had clearly indicated this was inappropriate.
In conclusion, the appeals court noted that “the damages evidence was neither very powerful, nor presented very well by either party,” wherefore a new trial on damages was necessary. In an interesting bit of dicta, the Court noted that Microsoft would surely not have complained 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 Microsoft’s proposed $6.5 million.” What effect, if any, this statement has at the damages retrial remains to be seen.
Although it is not relevant to the decision, those readers who purchased Outlook may be interested to learn that it is sold “with an approximately 70-80% profit margin.”
THE LESSONS TO BE LEARNED: (1) When the court gives a hint, TAKE IT; and (2) even major law firms, representing huge corporations, working with virtually unlimited litigation budgets, can screw it up; wise litigants closely supervise their litigations.