Page 77 - Intellectual Property Disputes

he found that the expert "arbitrarily picked a royalty rate that is much higher than existing royalty rates
for licenses to the patents-in-suit." fn 39 The starting point for the expert’s determined royalty rate was
based on industry surveys, which "encompass much more than" the patents at issue; there was no
indication or evidence offered that the industry agreements forming the basis of the survey were "in any
way comparable to the patents-in-suit." Judge Rader found that the expert "should have at least
inaugurated his analysis with reference to the existing licenses," even if these licenses had been executed
during a different time period than the hypothetical negotiation. According to the court, "[a] credible
economic approach might have tried to account for the passage of time ... rather than reject them out of
hand." The court concluded, citing ResQNet.com, that "the trial court should not rely on unrelated
licenses to increase the reasonable royalty rate above rates more clearly linked to the economic demand
for the claimed technology." fn 40

The court’s opinions in Lucent Technologies and ResQNet.com were echoed by the Federal Circuit
ruling in Wordtech Systems v. Integrated Network Solutions, Inc. fn 41 In this matter, the jury awarded a
lump-sum royalty amount based on evidence that included 11 running royalty licenses and 2 lump-sum
licenses. The court found that the 11 running royalty agreements contained no basis for comparison to
the jury’s lump-sum award, and that the 2 lump-sum agreements provided no basis for comparison to the
sales of the accused product, that is, the volume of sales or projected sales. The court, referring to its
findings in Lucent, noted that "lump-sum licenses are generally more useful than running royalty
licenses for proving a hypothetical lump sum because ‘certain fundamental differences exist between
lump-sum agreements and running royalty agreements.’" fn 42 However, the court further noted that the
reliance on the two Wordtech lump-sum licenses was "flawed because the two lump-sum licenses
provide no basis for comparison with INSC’s infringing sales. Neither license describes how the parties
calculated each lump sum, the licensees’ intended products, or how many products each licensee
expected to produce." fn 43 The court remanded the case for a new trial on damages.

In Utah Medical Products v. Graphic Controls Corp., the Federal Circuit confirmed that the district
court did not err in disallowing the license agreements put forth by the defendant’s expert. Abuse of
discretion is the standard of review for excluding expert testimony. Prior to the jury trial, the district
court held a Daubert hearing that resulted in the exclusion of the defendant’s expert’s reasonable royalty
theory. The court found that the license agreements used by the expert in support of the royalty opinion

fn 39 IP Innovation LLC v. Red Hat, Inc., 705 F. Supp. 2d 687 (E.D. Tex. 2009) The patents at issue relate to desktop-switching
technology found in operating systems. The accused product is Linux-based operating systems, Enterprise Linux Desktop and Server
products.

fn 40 Id.

fn 41 Wordtech Sys. v. Integrated Network Solutions, Inc., 609 F.3d 1308 (Fed. Cir. 2010). The patents at issue relate to technology for
automated duplication of compact discs. The accused product is a disc duplication device known as the "Robocopiers 600 and 800." A
jury trial was held and, upon the finding of infringement, the jury awarded a reasonable royalty of $250,000 that was trebled and
included an award of attorney’s fees, interest, and costs. Upon appeal, the defendants’ request a new trial or remittitur of $52,250. The
$250,000 was the equivalent of a 26.3% royalty on $950,000 in infringing sales.

fn 42 Id.

fn 43 Id.

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