The Software IP Report

Patent Damages Must Be Supported by Substantial Evidence

By Peter Keros

Categories: Patent Damages, The Software IP Report

Judge Gilstrap of the Eastern District of Texas granted a new trial on damages after Core Wireless (“Core”) was awarded a $3.5 million judgment against LG Electronics (“LG”) for infringement of U.S. Patent Nos. 8,434,020 and 8,713,476. Core Wireless Licensing v. LG Electronics, No. 2:14-cv-911-JRG (E.D. Tex. Aug. 23, 2016).  In granting LG’s motion under Federal Rule of Civil Procedure 59 for a new trial on damages (among a number of post-trial motions that the court considered), the court found that the damage award was not supported by substantial evidence.

To grant a new trial under Rule 59, the court may find “the verdict is against the weight of the evidence, the damages awarded are excessive, the trial was unfair, or prejudicial error was committed in its course.” The court must ensure that a jury’s award is supported by substantial evidence, and will grant a new trial when a jury’s damages award is clearly not supported by the evidence.

Core sought a reasonable royalty and provided testimony from a damages expert based on the value of the Android phones sold by LG at the time of an April 2013 hypothetical royalty negotiation. The expert used an estimated value of the non-accused Windows Mobile operating system as a substitute, concluding “that the correct royalty rate would fall ‘somewhere between zero and $2.97.’”  Then, “[a]fter establishing that range,” the expert “started from zero and ‘inched up’ by two five-cent increments until he landed on what he believed to be ‘a reasonable number’” of 10 cents per unit, resulting in $3.5 million of damages.

The Court granted a new trial because Core did not present sufficient evidence to support the jury’s damages award. Core’s expert assigned a value to the Windows Mobile operating system solely on a 2008 magazine article, which the Court held was improper because (1) both Windows Mobile and Android were available for free in April 2013, and (2) Core did not show that Windows Mobile practiced the asserted patents. That is, the Court was not convinced that Windows Mobile was an appropriate substitute or bore “any relationship to the incremental value that the patented invention adds to the end product.”

The Court also held that the 10 cent royalty was not supported by substantial evidence. The expert testified that 5 cents per unit would be a typical unit to use for starting to calculate the royalty rate, but Core presented no royalty agreements or other licenses involving the asserted patents to indicate that 5 cents per unit was valid. At most, Core presented one patent pool license that was of little relevance. The expert even testified that per-unit royalties tend to be closer to 0.1 cents, or even less. Furthermore, Core’s expert never fully developed why he stopped at 10 cents, so the Court concluded that this approach was “fundamentally arbitrary and analogous to other ‘rule of thumb’ valuation practices” that the Federal Circuit has repeatedly rejected.

This case is a reaffirmation that, while damages calculations can be tricky and speculative, courts are not willing to uphold damages awards when the calculations appear arbitrary. Core’s damages calculation was rejected because the basis for the calculation relied on dissimilar products with an arbitrary price from years before the hypothetical negotiation and dependent on the expert’s judgment rather than a market standard. Grounding the calculations with established licenses, comparable products, and similar timing to the hypothetical negotiation will make the damages calculation more likely to be survive post-trial motions and avoid remittitur or a new trial.