Addressing evidentiary issues, the US Court of Appeals for the Federal Circuit agreed with the district court that a settlement agreement related to the patent at issue is admissible as proof of a reasonable royalty. Prism Techs. LLC v. Sprint Spectrum L.P., Case Nos. 16-1456; -1457 (Fed. Cir., Mar. 6, 2017) (Taranto, J).

Prism owns several patents related to managing access to protected information provided over networks, and asserted these patents in separate suits against a number of wireless and telecommunications companies, including Sprint and AT&T. The district court consolidated some of the pre-trial proceedings for the related cases and issued a joint claim construction order. One of the key terms was “Internet Protocol network” and similar limitations, which the court construed as “an untrusted network using any protocol of the Internet Protocol Suite . . . .” The district court further defined “untrusted network” as a network with “no controlling organization.” The related cases were tried separately. AT&T proceeded to trial first but ultimately settled the dispute. In the trial against Sprint, over Sprint’s objections, the district court permitted Prism to use the settlement agreement with AT&T as evidence of reasonable royalty damages. The jury ultimately awarded Prism $30 million in damages. 

Both Sprint and Prism appealed certain aspects of district court’s rulings. The Federal Circuit considered five questions raised by the parties: 

  • Was Prism’s expert testimony consistent with the construction of “untrusted network”?
  • Was the AT&T settlement agreement admissible?
  • Did the district court impermissibly ignore Sprint’s allegations of legal error?
  • Was Prism’s damages model sufficiently tied to the asserted patents?
  • Should Prism be entitled to damages for ongoing infringement?

Sprint argued that the district court improperly allowed Prism’s expert to modify the court’s construction of “untrusted network” to mean that an “untrusted network” was one that had no single controlling organization. The Federal Circuit disagreed, finding the expert’s testimony consistent with the court’s construction because the expert was describing the internet—which the court (and patent) specifically identified as an example of an untrusted network.

Sprint also argued that the AT&T settlement agreement should have been excluded because it was more prejudicial than probative of a reasonable royalty. The Federal Circuit acknowledged that settlement agreements may not be probative of the actual value of a technology in certain situations (e.g., the agreement may take into account risk of invalidity/non-infringement, enhanced damages or litigation costs). However, the Federal Circuit ultimately rejected Sprint’s arguments because Sprint failed to show any reason why the AT&T agreement would not be comparable to the royalty at issue. Instead Sprint argued that settlement agreements should be barred altogether. The Federal Circuit dismissed this contention, noting that Sprint itself introduced licenses for the asserted patents that stemmed from settlement agreements in other cases.

The Federal Circuit also rejected Sprint’s contention that the district court did not address Sprint’s allegations of legal error, explaining that the district court’s failure to address those arguments reflected “only a choice about what to discuss, not a choice about what to consider.” 

In addition, the Federal Circuit concluded that Prism’s damages model, which tied damages to the cost Sprint would have incurred building or leasing a non-infringing alternative to the asserted patents, was reasonable and supported by the evidence. Finally, the Federal Circuit rejected Prism’s request for an ongoing royalty, agreeing with the district court that the reasonable royalty would have been in the form of a one-time payment that lasted the life of the entire patent.