Page 94 - Intellectual Property Disputes

price or number of units sold can be economically justified." The court, however, found that Lucent had
failed to use an appropriately small royalty given the size of the base to which it was applied. fn 126

In Cornell University v. Hewlett-Packard Co., fn 127 Federal Circuit Judge Randall Rader, sitting by
designation in the Northern District of New York, reduced the jury’s award of $184 million in
infringement damages to $54 million finding that Cornell’s damages expert incorrectly applied the
"entire market value rule." Cornell’s patent was directed at technology enabling microprocessors to run
faster by simultaneously executing multiple instructions. The claimed invention was a small part of the
instruction reorder buffer, which was a part of a processor, which was a part of a CPU module, which
was a part of a CPU "brick," which was a part of a larger server. Hewlett-Packard purchased individual
microprocessors from Intel and IBM, mounted several microprocessor units into components known as
CPU bricks, and sold servers incorporating the CPU bricks. Hewlett-Packard also sold a limited number
of individual CPUs.

Despite Judge Rader’s admonitions, Cornell’s expert then introduced damages evidence based on sales
of CPU bricks, which also encompassed more than the microprocessor. Sales of CPU bricks, as
calculated by Cornell’s expert, were "more than $23 billion in sales Hewlett-Packard would have made
if it had sold all of the alleged infringing processors as CPU bricks." Hewlett-Packard was found liable
for infringement on that basis, and the jury awarded $184 million in damages by applying a 0.8%
royalty rate to the $23 billion royalty base. fn 128

Cornell used a royalty base "including not only the revenues Hewlett-Packard would have earned had it
sold the infringing processors alone but on the revenues Hewlett-Packard would have earned had it sold
the processors in conjunction with CPU bricks." When Cornell sought the entire market value of all
servers and workstations sold by Hewlett-Packard in calculating royalty damages, Judge Rader
conducted a Daubert hearing and specifically prohibited Cornell’s damages expert from using the entire
market value rule to include such an expansive royalty base. Judge Rader observed that "neither Cornell
nor [Cornell’s damages expert] offered credible and sufficient economic proof that the patented
invention drove demand for Hewlett-Packard’s entire server and workstation market." "Cornell did not
offer a single demand curve or attempt in any way to link consumer demand for servers and
workstations to the claimed invention." "[Cornell’s damages expert] and Cornell have not drawn any
connection between the market for servers and workstations and the patented invention." fn 129

Hewlett-Packard moved for judgment as a matter of law to reduce the royalty base to earnings
attributable to the infringing technology. Judge Rader took issue with Cornell’s evidence and expert
testimony regarding the $23 billion royalty base, and he found that Cornell had failed to demonstrate
entitlement to the entire market value of Hewlett-Packard’s CPUs. The application of the entire market
value rule, according to Judge Rader, "to the CPU brick was unsupported as a matter of law." "Cornell
did not heed this court’s warning that any royalty base proffer must account for the fact that the ’115
patent is a component of a component of Hewlett-Packard’s server and workstation products." CPU
bricks are "far beyond the scope of the claimed invention and without proof of the necessity of that
expansion to adequately compensate for the infringement." "Cornell’s hypothetical-CPU-brick-

fn 126 Id.

fn 127 Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279 (N.D.N.Y. 2009).

fn 128 Id.

fn 129 Id. (citing the court’s comments in the Daubert hearing 2008 U.S. Dist. LEXIS 41848 [N.D.N.Y. May 27, 2008]).

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