Federal Circuit Affirms $140 Million Award in Favor of Sprint

The case is Sprint Communications Co. v. Time Warner Cable, Inc., and the nonprecedential majority opinion is authored by Judge Bryson, joined by Judge Chen.  Judge Mayer dissents on validity and therefore doesn't address the damages issue.

As explained by the court, "[t]he technology at issue . . . involves methods for linking circuit-switched and packet-switched networks within a communications system" (p.3).  Without going into more detail than is necessary for purposes of discussing the damages portion of the case, Time Warner argues that the district court erred (1) in allowing the jury to hear about an earlier case Sprint had brought against Vonage, involving the same technology, and (2) by not properly apportioning the verdict.  The Federal Circuit isn't convinced.

As for the first issue, the court concludes that the district court acted within its discretion in letting the jury hear about the earlier case:

The district court ruled that the Vonage evidence was relevant to the jury’s assessment of reasonable royalty damages under a hypothetical negotiation theory. The court gave the jury an instruction limiting the use of that evidence to the jury’s consideration of the issues of damages and willfulness.

Although Time Warner argues that the introduction of evidence of a jury verdict from another case is invariably improper, that is not the rule that this court has applied. Instead, the court has held that such evidence can be admissible if it is relevant for some legitimate purpose. . . .

In this case, the court admitted the prior verdict evidence as relevant to willfulness, to Time Warner’s equitable defenses, and “to the extent that it informs Sprint’s executives concerning what [they] might expect as a reasonable royalty.” Thus, as the court explained, the verdict would be a factor of which the parties would have been aware at the time of their hypothetical negotiation in 2010, and a reasonable jury could well conclude that the verdict and the amount of damages awarded in a similar prior litigation would have influenced the outcome of a hypothetical negotiation in the case at bar.

Importantly, the district court gave the jury limiting instructions that the Vonage evidence was to be considered only on the issues of damages and willfulness. . . (pp. 4-7).

The Vonage verdict also was properly admissible on the hypothetical bargain issue, notwithstanding Time Warner's arguments that that verdict suffered from certain defects, and that Sprint failed to properly apportion:

The jury assessed damages against Time Warner in the amount of $1.37 per VoIP subscriber per month. Time Warner complains that the district court erred in several respects in handling the issue of damages. . . .

In addition to the previously raised objections to the admission of evidence of the Vonage verdict, Time Warner argues that the use of the Vonage verdict in the expert’s damages calculation was improper because the Vonage verdict was legally flawed. Time Warner argues that Sprint’s expert in the Vonage case improperly relied in part on the 25 percent “rule of thumb” that was frequently used in reasonable royalty cases prior to this court’s decision in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1315 (Fed. Cir. 2011), which held that “the 25 percent rule of thumb is a fundamentally flawed tool,” and that the Vonage verdict was therefore tainted. . . .

As for Time Warner’s argument that the Vonage verdict was tainted by the testimony in that case regarding the 25 percent rule, Sprint’s expert made clear that he was not relying on that rule in this case, and the jury in the Vonage case did not return a verdict that was based on the 25 percent rule as
the measure of damages. . . .

Time Warner next argues that the Vonage verdict should not have been admitted because the jury in that case awarded a royalty based on all of Vonage’s VoIP revenues, without determining which portions of the revenues were attributed to patented technology as opposed to unpatented features. But the fact that the jury in the Vonage case awarded a royalty based on total VoIP revenues does not make that verdict inadmissible; the jury in that case was called on to make a determination as to the appropriate royalty for the patented technology—the same technology at issue in this case—and it did so in the form of a lump sum royalty award. The reasonable royalty award in the Vonage case was based on the jury’s determination of the value of the technology that was taken as a result of Vonage’s infringement. By operation of the hypothetical negotiation method of calculating damages, the award compensated Sprint for the incremental value of Sprint’s technology, not for the value of unpatented features of Vonage’s VoIP system. The evidence showed that the damages award in the Vonage case of $1.37 per subscriber per month was approximately five percent of Vonage’s total VoIP revenues for the infringement period. The jury settled on the same amount for the damages award in this case as in the Vonage case. The Vonage verdict did not stand alone, however. In addition to the Vonage verdict, the jury had before it two licenses from Sprint to other communications companies for the patented technology, both of which were for approximately five percent of the companies’ VoIP revenue. The evidence showed that those licenses, like the Vonage verdict, were based on the value of the patented technology and not the value of other aspects of the companies’ VoIP technology that were not covered by Sprint’s patents. . . .

Time Warner argues that Sprint’s damages case was flawed because Sprint did not apportion the damages award to the incremental value that the patented invention added to the end product. See Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014). That argument, however, ignores that the objective of apportionment can be achieved in different ways, one of which is through the determination of an appropriate royalty by application of the so-called Georgia-Pacific factors. See Exmark Mfg. Co. v. Briggs & Stratton Power Grp., LLC, 879 F.3d 1332, 1349 (Fed. Cir. 2018) (“[T]he standard Georgia-Pacific reasonable royalty analysis takes account of the importance of the inventive contribution in determining the royalty rate that would have emerged from the hypothetical negotiation.”) (quoting AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1338 (Fed. Cir. 2015)). Such an analysis often considers rates from comparable licenses, and we have explained that “otherwise comparable licenses are not inadmissible solely because they express the royalty rate as a percentage of total revenues, rather than in terms of the smallest salable unit.” Commonwealth Sc. & Indus. Research Organisation v. Cisco Sys., Inc., 809 F.3d 1295, 1303 (Fed. Cir. 2015). The fact that two other licenses were granted for the same technology, together with the Vonage verdict—all of which were for the same royalty rate as the rate utilized in the Vonage case to yield the $1.37 per VoIP subscriber per month damages assessment—provides strong support for Sprint’s argument that the damages award in this case reflected the incremental value of the inventions and thus satisfied the requirement of apportionment. See Ericsson, 773 F.3d at 1227–28 (damages testimony regarding real-world relevant licenses “takes into account the very types of apportionment principles contemplated in Garretson [v. Clark, 111 U.S. 120 (1884)]).” . . .

Finally, Sprint introduced evidence from which the jury could conclude that Time Warner did not have available to it any reasonable non-infringing alternatives to Sprint’s patented technology for connecting PSTN networks to IP networks (pp. 8-12).