District courts performing reasonable royalty calculations must exercise vigilance when considering past licenses to technologies other than the patent in suit. To warrant Rule 11 sanctions, the motion must be made before the offending contention has been withdrawn or resolved.

Resqnet.com, Inc. v. Lansa, Inc., 2008-1365-1366, 2009-1030 (Fed. Cir. Feb. 5, 2010).

The patentee sued for infringement of multiple patents. The district court found one of the patents valid and infringed and awarded damages based on a hypothetical royalty of 12.5%, plus prejudgment interest. As to two of the patents, the patentee agreed to a consent judgment dismissing them from the suit. Several years later, the district court awarded Rule 11 sanctions based on the patentee´s bad faith enforcement of one of the dismissed patents and delay in withdrawing the second of the two dismissed patents. The Federal Circuit affirmed the ruling on infringement and validity and vacated and remanded the damages calculation. As to the Rule 11 sanctions, the Federal Circuit reversed.

A “reasonable royalty” derives from a hypothetical negotiation between the patentee and the infringer when the infringement began, and under this standard, existing licenses for the patented technology can be used as a “starting point” for the hypothetical negotiation. In this case, the patentee´s damage expert erroneously relied upon licenses with no relationship to the claimed invention. Specifically, the calculation was based primarily on five licenses. These five licenses furnished finished software products and source code, as well as services such as training, maintenance, marketing, and upgrades, to other software companies in exchange for ongoing revenue-based royalties. None of these five licenses even mentioned the patents or showed any other discernible link to the claimed technology.

The Federal Circuit reiterated that a court cannot sustain a royalty award based on inapposite licenses simply because the infringer does not proffer an expert to rebut the patentee´s expert. As in this case, the infringer has no obligation to rebut the damages evidence until the patentee has met its burden with reliable and sufficient evidence.

The court applied regional circuit law in reversing the Rule 11 sanctions award. As to the first patent, the court found no bad faith because early in the litigation, the patentee agreed to withdraw the patent if discovery substantiated the alleged infringer´s representations concerning the accused product. Further, the district court denied the alleged infringer´s motion for summary judgment of non-infringement on this patent, which reflected the court´s belief that it was reasonable for the patentee to have retained that patent for suit. The second patent could also not form the basis for Rule 11 sanctions as the motion for sanctions was filed more than two years after the patentee entered into a consent judgment dismissing the patent. As “[t]he general practice is that the motion [for Rule 11 sanctions] must be filed before the offending contention has been withdrawn or resolved,” the alleged infringer´s motion was untimely as to the second patent.

A copy of the opinion can be found here.