Patent License Royalty Rates are Strong Evidence of Damages
Published: January 17, 2019
The Federal Circuit Court of Appeals has affirmed a jury verdict of $140 million in a patent infringement case. The damages were based on a reasonable royalty. The case is Sprint Communications Co., L.P. v. Time Warner Cable, Inc., 2018 U.S. App. LEXIS 33594 (Fed. Cir. 2018).
Sprint sued Time Warner in the District of Kansas for infringement for several of Sprints patents for a telephone communications network. Sprint alleged that Time Warner’s voice over internet protocol (VoIP) service infringed Sprints telecommunications patents. The case was tried to a jury. At trial, the district court admitted Sprints evidence of another jury verdict Sprint had obtained in a different case over the same patents against Vonage Holdings Corporation. The court found that the evidence was relevant to the jury’s determination of reasonable royalty damages using the hypothetical negotiation theory of determining the royalty. The jury awarded Sprint reasonable royalty damages of $140 million, calculated as $1.37 for each of Time Warner’s subscribers to its VoIP service.
On appeal, Time Warner argued that the district court should not have admitted evidence of Sprint’s verdict against Vonage because that royalty was based on the total amount of Vonage’s revenues, rather than the amount apportioned to the patented aspects of the product.
The Federal Circuit affirmed the jury’s verdict. The court held that the district court had properly admitted the evidence of the Vonage verdict. The court found that an apportionment between the patented and unpatented aspects of a product is not required if the Georgia-Pacific factors are used to determine the royalty. The Georgia-Pacific case sets for a long list of factors, which the Federal Circuit has approved, that are relevant in determining a reasonable royalty. Under Georgia-Pacific, the royalty rates for comparable licenses are relevant even if the royalty rate is based on total sales rather than sales of the patented component.
Here, the court found that the jury had considered two other comparable licenses Sprint had granted for the same technology. Both of those licenses had utilized the same royalty rate as was used in the Vonage verdict.
The court explained the damage theory as follows: “[T]he hypothetical negotiation seeks to determine ‘what it would have been worth to the defendant, as it saw things at the time, to obtain the authority to use the patented technology, considering the benefits it would expect to receive from using the technology and the alternatives it might have pursued.’” Id. at *15, quoting Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd., 807 F.3d 1283, 1304 (Fed. Cir. 2005).
Based on the jury’s application of this theory, the court held, at *15, that “[I]n light of all the evidence bearing on the damages award, we conclude that the jury’s verdict was supported by sufficient evidence and did not contravene the principles of apportionment set forth by this court.”