Letter from AmeriKat II: patents

Jury’s view of damages too high

Last Friday the US Court of Appeals for the Federal Circuit in D.C. affirmed a jury verdict that Microsoft’s Outlook software and two other products infringed an Alcatel-Lucent patent, but ruled that the jury’s award of $357.6 million damages was unsupported by evidence and was therefore unreasonable.

The patent at issue covered a method of entering information on a computer into fields without the necessity of a keyboard, as employed in Microsoft’s Mobile and Outlook. Lucent had initially sued Gateway in 2002 before Microsoft intervened. At trial Microsoft moved for judgment as a matter of law, in that the patent claims were anticipated under Section 102(b) and (g) or were obvious under Section 103. The district court was satisfied, however, that the jury’s determination that the defendants had not proven the patent to be invalid was supported. This was affirmed by the Court of Appeals.

At trial, Lucent advanced a theory of damages comprising of an 8% reasonable royalty of sales revenue totaling approximately $8 billion (i.e. $531.9 billion). The jury, however, awarded a lump sum of £357.6 million. Neither Microsoft, the Court of Appeals, or the Amerikat know for certain where this number came from. Microsoft challenged the jury’s award by relying on Dynacore Holdings Corp v US Philips Corp (2004) which held that “for method claims the damages must be limited to the proven number of instances of actual infringing use.” Microsoft also argued that damages award must be reversed because the jury erroneously applied the 'entire market value' rule, i.e., where damages are assessed based on the entire market value of the infringing patent when the patentee proves that the patent-related feature is the basis for customer demand. Both arguments were rejected by the Court of Appeals for reasons which languished within the thirty subsequent pages of analysis that considered the 15 factors to be addressed when calculating patent damages in Georgia-Pacific v US Plywood Corp (1970).

Factors 2, 10, 11, and 13 were considered by the Court in full:

Factor 2: “The rates paid by the licensee for the use of other patents comparable in the patent suit.”
Factor 10: “The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention.”
Factor 11: “The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use.”
Factor 13: “The portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer.”

Having examined the above Georgia-Pacific factors the Court of Appeals stated that they were left with

“... the unmistakable conclusion that the jury’s damages award is not supported by substantial evidence, but is based mainly on speculation or guesswork… The evidence does not sustain a finding that, at the time of infringement, Microsoft and Lucent would have agreed to a lump-sum royalty payment subsequently amounting to approximately 8% of Microsoft’s revenues for the sale of Outlook”

The AmeriKat recommends, for those who are interested, reading pages 59-64 of the decision which deals with the application of the entire-market value rule.

As reported by the Wall Street Journal, Microsoft spokesperson Kevin Kuts said that Microsoft was “pleased that the court vacated the damages award, and we look forward to taking the next step in the judicial process." Mary Ward, Alcatel-Lucnet’s spokesperson, said that, although her company was disappointed by the finding, they “look forward to an upcoming proceeding to determine the compensation to which Alcatel-Lucent is entitled based on the court's finding that Microsoft did use our patented invention."