First published in LES Insights
While economic experts can use various different methods to estimate the royalties an infringer would have reasonably paid for a license, the experts must use a reliable method, and the data they use must be tied to the facts of the case. The Federal Circuit recently upheld a jury verdict of $15 million in damages even though the damages expert used a method to calculate the damages that was not previously published or peer-reviewed.
In Summit 6 v. Samsung,1 the Federal Circuit upheld a $15 million jury verdict, finding that the plaintiff's damages expert used a reasonable methodology for determining damages and relied on evidence that was sufficiently tied to the facts of the case. The Federal Circuit explained that the expert's methodology for apportioning damages need not be published or peer-reviewed as long as the data he uses to form his opinions is of the same type that other experts might use, and concluded that the expert's testimony and evidence of a similar license supported the jury's damage award.
Summit 6 (Summit) filed suit against Samsung, Facebook, RIM, and several other defendants, accusing them of infringing its patent for processing digital content, like photos, on mobile devices. The other parties settled, leaving Samsung as the sole defendant.
During a jury trial, in addition to arguments about infringement and validity, the parties presented evidence on the amount of damages Samsung should pay if it infringed Summit's patent. Summit's expert explained that, in a hypothetical negotiation, Samsung would have agreed to pay Summit $0.28 per phone for the life of the patent in order to provide the infringing features. He acknowledged that he relied on a methodology not previously used or published in peer-reviewed journals. Samsung's expert testified, by contrast, that no company would agree to pay a running royalty for software used on a phone. Citing two similar license agreements, he testified that a proper damages award would be a $1.5 million lump sum if Samsung did, in fact, infringe Summit's patent.
The jury found that Samsung infringed Summit's patent and awarded Summit $15 million in damages. The verdict form indicated that it awarded damages as a "lump sum." The district court denied Samsung's post-verdict motions and the parties appealed.
The Federal Circuit's Decision
On appeal the Federal Circuit examined the damages testimony by Summit's expert and the jury verdict on damages and found that the district court did not abuse its discretion in allowing Summit's expert to testify regarding his damages methodology and analysis.
Samsung contended that Summit's expert used an analysis that failed the standards required by a Supreme Court's holding in Daubert—a decision that set guidelines on appropriate expert testimony because his methodology was unpublished and had never been used by other experts. Samsung also argued that Summit's expert was not a survey expert, and that he failed to take necessary steps for relying on the survey results of a third party. Summit countered that its expert's analysis was correct under the law and properly relied on the Samsung's own survey results.
The Federal Circuit found that Summit's expert used a reasonable method for determining damages and that he used data sufficiently related to the facts of the case. Specifically, the court found that the expert limited his analysis to the infringing features, and that he valued them using Samsung's own usage data and financial reports. The Federal Circuit stated that, particularly given the fact-based nature of his damages testimony, the lack of publication or peer-review of the expert's methodology did not require the court to exclude the expert's testimony.
Responding to Samsung's arguments, the Federal Circuit found that the testimony of Summit's expert was not unreliable. An expert need not be a survey expert to testify about the information compiled by third-party surveys, according to the court, as long as the information is of a type reasonably relied upon by experts in the field to form opinions upon the subject. The court noted, finally, that the expert's credibility, data, and factual assumptions were properly considered by the jury, not the court.
The Federal Circuit agreed with the district court that the jury's $15 million damages award was supported by sufficient evidence and tied to the facts of the case. While the court agreed with Samsung that Summit failed to present evidence that one license was comparable or relevant in calculating a reasonable royalty, it found that the expert's testimony and another license supported the jury's damages verdict. Specifically, the expert testified that the both Samsung and the licensee were similarly situated because both sold camera phones containing the accused functionality. Further, the jury heard evidence regarding the RIM license royalty amount and Samsung's sales volume in comparison to RIM's.
The Federal Circuit also found that the district court properly denied Summit's request for an ongoing royalty because the jury award compensated Summit for both past and future infringement through the life of the patent. The court disagreed with Summit's argument that the evidence presented and jury verdict were limited to damages for past infringement and its equitable claim for future damages was not a jury issue. Rather, Samsung's expert testified, and Summit's expert agreed, that a lump-sum award was appropriate, the license agreements entered into evidence were lump-sum agreements, and the jury's verdict form indicated "lump sum."
Strategy and Conclusion
This case illustrates that an expert's methodology for calculating damages need not be published or peer-reviewed so long as it is reliable and sufficiently tied to the facts of the case. It also demonstrates the possibility that a lump sum damages award may preclude collection of future royalties.