Page 93 - Intellectual Property Disputes

In Lucent Technologies, the Federal Circuit rejected the application of the entire market value rule due
to lack of evidence that the patented feature drove demand for the accused product. The patent at issue
was directed at filling a data entry field with data selected by the user from an on-screen tool. The jury
found that the Microsoft products that featured a date-picker pop-up tool, including Outlook, infringed
the patent at issue. At trial, Lucent asked the jury to apply an 8% royalty rate to Microsoft’s total sales of
infringing software products of approximately $8 billion and award $562 million in damages. The jury
ultimately awarded a $358 million lump-sum royalty payment. fn 123

The Federal Circuit vacated the award and ordered a new trial on damages, finding that the jury’s lump-
sum award was not supported by substantial evidence. The Federal Circuit also held that, to the extent
the jury’s lump-sum award was based on an entire market value calculation, the award was both
unsupported and against the clear weight of the evidence. The Federal Circuit noted that "the infringing
use of the date-picker tool in Outlook is but a very small component of a much larger software
program," and that the "vast majority of the features, when used, do not infringe." The Federal Circuit
also cited to the date-picker tool’s "minor role in the overall program" and "the relative importance of
certain other features, e.g., e-mail." "The first flaw with any application of the entire market value rule in
the present case is the lack of evidence demonstrating the patented method of the Day patent as the
basis—or even a substantial basis—of the consumer demand for Outlook." Even Lucent’s own expert
testified "that there was no ‘evidence that anybody anywhere at any time ever bought Outlook ...
because it had a date picker.’" Noting the "unmistakable conclusion" that the patented invention is "not
the reason consumers purchase Outlook," the court held that it was improper to apply the entire market
value rule. fn 124

The Federal Circuit also addressed the methodology employed by Lucent’s expert related to adjusting
the royalty rate upward to offset a downward adjustment to the base. Lucent’s expert initially applied the
"entire market value rule to the sale of the ‘infringing’ computers loaded with the software, opining that
Microsoft and Lucent would have agreed to a 1% royalty based on the entire price of the computer
containing Outlook. In response, Microsoft filed a motion in limine to exclude such testimony, which
the district court granted." At trial, Lucent’s expert altered his rate and base "contending that the royalty
base should be the price of the software (and not the entire computer) but also that the royalty rate
should be increased to 8% (from 1%)" to reach the same damages conclusion. According to the Federal
Circuit, this "opinion contrasted starkly to the rates he proposed for the other patents in suit, which were
in the 1% range." The Federal Circuit observed that "[t]his cannot be an acceptable way to conduct an
analysis of what the parties would have agreed to," especially because "any damages computation based
on the value of the entire computer using common royalty rates (e.g., 1-5%) would be excessive." fn 125

The Federal Circuit noted that "the base used in a running royalty calculation can always be the value of
the entire commercial embodiment, as long as the magnitude of the rate is within an acceptable range (as
determined by the evidence)." According to the Federal Circuit, "[t]here is nothing inherently wrong
with using the market value of the entire product, especially when there is no established market value
for the infringing component or feature, so long as the multiplier accounts for the proportion of the base
represented by the infringing component or feature." "Thus, even when the patented invention is a small
component of a much larger commercial product, awarding a reasonable royalty based on either sale

fn 123 Lucent Techs., Inc. v. Gateway Inc., 580 F.3d 1301 (Fed. Cir. 2009).

fn 124 Id.

fn 125 Id.

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