HTC Corp. V. Technology Properties, Limited., No. 5:08-cv-00882-PSG, 2013 WL 4787509 (N.D. Cal. Sept. 6, 2013).
The HTC Corp. court may have carved out a limited exception to the EMVR. The judge allowed a damages expert to say the hypothetical negotiation would have resulted in a lump sum royalty based on the entire value of the product that included the patented feature. The court specifically noted the damages expert had reviewed about 100 licenses of the patents-in-suit, and the patentee and its licensees had consistently and regularly negotiated lump sum licenses based on the anticipated revenue of the entire licensed product.
When the patent owner’s damages expert, Dr. Stephen Prowse, said the parties would have agreed to a lump sum royalty of approximately $10 Million during the hypothetical negotiation, the accused infringer moved to exclude the testimony under Daubert. Id. at *1.
Challenging Dr. Prowse’s opinion, the accused infringer argued the lump-sum structure was a “ruse” to avoid the EMVR since Dr. Prowse calculated the lump sum based on the entire value of the device in which the patented feature appeared. Id. at *1.
In response, the patent owner pointed to a sentence from LaserDynamics where the Federal Circuit suggested a per-unit running royalty is not the only form of a reasonable royalty to which the parties might have agreed. Id. at *1 (citing LaserDynamics, Inc. v. Quanta, Inc., 694 F.3d 51, 70 (Fed. Cir. 2012)).
The district court rejected the argument, denying the motion because:
- Lump sums are one type of reasonable royalties, running royalties being the other. Id.
- There was reason to believe the hypothetical negotiation would have resulted in a lump sum in this case because the patentee had consistently and regularly negotiated lump sum payments with its licenses. Id. Dr. Prowse had looked at “100 or so” licenses to the patents-in-suit entered into by the patent owner. Id.
- The patentee and its licenses regularly estimated the anticipated revenue of the entire licensed product, not just the patented feature in arriving at the lump sum. Id. at *2.
- Unlike Lucent, there was some attempt to compare the subject matter of the patents licensed in other agreements. Although the other licenses included broader rights, they also included the patents-in-suit. Id. at *2.
In reaching its conclusion, the court wrote “two considerations are critical.” First, there must be evidence in the record that the patent owner and its licensees entered into lump sum licenses “over and over again.” Second, the patent owner must not use lump sum licenses that “bear little resemblance” to the hypothetical license considering the terms of patents licensed and the field of use. Id. at *2.
Finally, the court said LaserDynamics appeared to limit its endorsement of lump sums to those not calculated as a percentage of any component or product. The court suggested the Federal Circuit had not retreated from broader language in Lucent which indicated a lump sum might be calculated based on real-world evidence of the use of precisely that method. Id. at *2, n. 9.