Friday, April 24, 2015

Info-Hold v. Muzak: Federal Circuit Reverses Judgment of No Royalties

The case in Info-Hold, Inc. v. Muzac LLC, available here.  Plaintiff Info-Hold is the owner of U.S. Patent No. 5,991,374, "directed to systems, apparatuses, and methods for playing music and messages (e.g., advertisements) through telephones and public speaker systems."  Info-Hold filed separate infringement actions against Applied Music Technologies Corp. (AMTC) and Muzak LLC in the same federal district court, and the same district judge considered both matters.  Following the district judge's claim construction, Info-Hold and AMTC stipulated to a judgment of noninfringement to enable Info-Hold to appeal.  In the Muzac case, the judge's construction of a different claim term resulted in a stipulation of noninfringement as to certain claims at issue.  As for the remaining claims, the judge entered judgment for Muzac on the grounds that (1) Info-Hold offered no admissible evidence of damages, and (2) there was no genuine issue of material fact regarding Muzac's liability for inducement.  

The appeals in both cases were argued the same day and the two opinions, both authored by Judge Reyna, issued today.  In AMTC, the court reverses the district judge's claim construction of the term "transmit" and remands.  In Muzac the court affirms the construction of “when a caller is placed on hold,” but reverses on the damages and inducement issues.  

The damages issue in particular is reminiscent of Judge Posner's decision in Motorola v. Apple, in which he concluded that neither party had presented sufficient evidence on damages, that neither was an entitled to an injunction either, and that there was no right to proceed to trial for merely nominal damages.  The Federal Circuit, in an opinion by Judge Reyna, reversed on that issue last year (see my post here), so it's not surprising that it would do so again in Muzac.  Here is the relevant language from Judge Reyna's opinion from today:
The district court did not abuse its discretion in striking [Info-Hold's expert] Mr. White’s expert report. The district court stated that Info-Hold’s reliance on the entire market value rule, without presenting evidence that the patented features drove customer demand, was “improper” and itself sufficient to strike Mr. White’s evidence. J.A. 92; cf. J.A. 85. Info-Hold has not appealed this basis for striking the report. Mr. White’s damages analysis was also deficient because he relied on the 25-percent rule, which this court discredited as “fundamentally flawed” in Uniloc. 632 F.3d at 1315 (deeming evidence relying on the 25-percent rule as inadmissible for failing to tie the royalty base to evidence in the case). We therefore affirm the striking of Mr. White’s evidence. . . .
In Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1328 (Fed. Cir. 2014), we explained that at “summary judgment . . . a judge may only award a zero royalty . . . if there is no genuine issue of material fact that zero is the only reasonable royalty.” Therefore, if there exists a factual issue regarding whether the patentee is due any non-zero royalty, the district court must deny summary judgment. Id. Where the patentee’s proof is weak, the court may award nominal damages. Id. Moreover, we explained that a patentee’s failure to show that its royalty estimate is correct is insufficient grounds for awarding a royalty of zero. Id. By extension, the exclusion of the patentee’s damages evidence is not sufficient to justify granting summary judgment. As we made clear in Dow Chemical Co. v. Mee Indus., Inc., 341 F.3d 1370, 1381 (Fed. Cir. 2003), 35 U.S.C. § 284 requires the district court to award damages “in an amount no less than a reasonable royalty” even if the plaintiff’s has no evidence to proffer. We explained that, in such a case, the district court should consider the Georgia-Pacific factors “in detail, and award such reasonable royalties as the record evidence will support.” Id. at 1382 (footnote omitted).
Here, as in Apple, the issue of infringement has not been decided. The district court granted summary judgment to Muzak on the issue of reasonable royalty damages because, after striking its expert’s report and precluding him from testifying, Info-Hold was unable to make a prima facie case as to any reasonable royalty rate. There was other record evidence which the district court could use as a basis for determining a reasonable royalty, even after the exclusion of Mr. White’s report and testimony. In his deposition, [defendant's expert] Mr. Paris affirmed that reasonable royalty rates for Muzak’s Encompass LE 2 and Encompass MV systems would be 1 and 2 percent, respectively. He also discussed the Trusonic License, the royalty paid to Mr. Hazenfield under his assignment of the patent to Info-Hold, the profitability of the accused systems, and more.
The Federal Rules of Civil Procedure allow the use of deposition testimony for any purpose allowed by the Federal Rules of Evidence. . . . Here, Muzak has not specifically objected to the admissibility of Mr. Paris’ deposition testimony. We leave to the district court to decide whether the deposition may be considered in determining the reasonable royalty rate. In any case, there is other record evidence to demonstrate the existence of a genuine issue of material fact as to whether zero is a reasonable royalty rate.

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