Page 75 - Intellectual Property Disputes

In Lucent Technologies, Inc. v. Gateway, Inc., the Federal Circuit was unable to determine how the
agreements presented by Lucent were similar to a hypothetical negotiation for the patent at issue. The
court found that "Lucent had the burden to prove that the licenses were sufficiently comparable to
support the lump-sum damages award" and did not present evidence other than a "recitation of royalty
numbers, one of which is arguably in the ballpark of the jury’s award." The Federal Circuit found that
the royalty agreements in evidence "differ substantially from the hypothetical negotiation scenario
involving the [patent-in-suit]." fn 28 In particular, many of the agreements were for different patented
technology, more than one patent, cross-licenses, and there was no explanation about whether the
patented technology was essential to the licensed product versus a small component or feature or
contained complex royalty structures that would not have existed at the hypothetical negotiation.
Further, for the four running royalty license agreements presented by Lucent, the Federal Circuit found
that although "fundamental differences exist between lump-sum agreements and running royalty
agreements," running royalty and lump-sum license agreements may be relevant to one another. "For a
jury to use a running royalty agreement as a basis to award lump-sum damages, however, some basis for
comparison must exist in the evidence presented to the jury. In the present case, the [court found that
the] jury had almost no testimony with which to recalculate in a meaningful way the value of any of the
running royalty agreements to arrive at the lump-sum damages award." fn 29

In Integra Lifesciences v. Merck KGaA, the Federal Circuit suggested that licenses used to provide
insight into a reasonable royalty should have "scientific or economic circumstances that permit
comparison to [the hypothetical license]." fn 30 The court also addressed royalty stacking, which occurs
when the licensee is required to pay multiple royalties on a product when more than one patent is
embodied or otherwise used to commercialize that product; accordingly, the licensee may find itself in
an unprofitable position by paying royalties under multiple licenses. In Integra Lifesciences, the Federal
Circuit found that "the number of patent licenses needed to develop a drug may also affect the value
placed on any single technology used in the development process. The cumulative effect of such
stacking royalties can be substantial." fn 31 The court concluded that the effect of stacking royalties
would be a consideration in the negotiation of a hypothetical license.

As noted at length previously in Lucent Technologies, fn 32 the Federal Circuit found that comparable
licenses should include a license to a technology that was similar in nature to that contemplated under
the hypothetical negotiation, among other considerations. Similarly, in ResQNet.com, Inc. v. Lansa, Inc.,
fn 33 the Federal Circuit overturned a district court award of a running royalty of 12.5% applied to sales

fn 28 Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009).
fn 29 Lucent Techs., 580 F.3d at 1301. See the "Royalty Structure" section of this practice aid for a discussion of lump-sum versus
running royalties.

fn 30 Integra Lifesciences I, Ltd. v. Merck KGaA, 331 F.3d 860, 871 (Fed. Cir. 2003) The five patents at issue related to patents related
to segments of certain proteins that, by interacting with certain receptors on the surfaces of cells, induced better cell adhesion and
growth aimed at promoting wound healing. At trial, a jury awarded a reasonable royalty of $15 million for infringement of four of the
patents at issue. Merck appealed the jury’s award.

fn 31 Id.

fn 32 Lucent Techs., 580 F.3d at 1301.

fn 33 ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010). The patents at issue related to technology on screen recognition
and terminal emulation processes that download a screen of information from a remote main-frame computer onto a local personal
computer. The accused product was a software program named "NewLook" that was sold by Lansa in the United States.

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