Case Cite

Versata Software, Inc. v. SAP America, Inc., Nos. 2012-1029, 2012-1049, 2013 WL 1810957 (Fed. Cir. May 1, 2013).

IPDQ Commentary

As a Defendant, think long and hard about whether to use a damages expert when the patentee has been precluded from presenting a reasonable royalty case. In Versata, Defendant learned an expensive lesson when its own expert laid the foundation for an $85 million royalty damages award.

Case Summary

In a trial, the jury concluded Defendant infringed two of Plaintiff’s patents and the asserted claims were not invalid. Id. at *3.

The jury considered lost profit and reasonable royalty damages during the second trial. Defendant critiqued Plaintiff’s expert, but did not put on evidence of a competing lost profits model. Ultimately, the jury awarded Plaintiff $260 million in lost profit damages. Id.

While the court precluded Plaintiff from putting on evidence of a reasonable royalty, Defendant presented a reasonable royalty model based on a comparable software product. The jury then awarded Plaintiff $85 million in royalty damages. Id.

When the district court denied its motion for JMOL, Defendant appealed. Id. at *4.

Royalty Damages — In concluding that the reasonable royalty award was supported by substantial evidence, the Federal Circuit ruled Defendant’s expert had conducted a full hypothetical negotiation analysis based on the Georgia-Pacific factors. Id. at *11. On cross examination, the expert agreed that, if the per customer royalty rate he had testified to was applied to all infringing sales, the royalty damages would be $170 million rather than the $2 million lump sum he had proposed. Id. The Federal Circuit concluded Defendant’s expert did not violate the EMVR with his testimony, and that the jury merely applied Defendant’s proposed higher royalty rate to a larger number of infringing sales than Defendant would have liked. Id.

Lost Profits Damages — The Federal Circuit first considered Defendant’s four challenges to the lost profits award. Id. at *7. The Federal Circuit rejected Defendant’s first two arguments – (1) that the “but for” model was inconsistent with sound economic principles, and (2) that Plaintiff’s expert did not adhere to the Panduit model. The court found the arguments were improper attempts to raise issues relating to the admissibility of the testimony of Plaintiff’s damages expert under the guise of sufficiency of the evidence. Id. The issues should have been raised through Daubert motions and the rules of evidence, not on appeal. Id. at *8.

Defendant’s two challenges to the sufficiency of the lost profits evidence were properly before the court. First, Defendant argued there was no evidence of demand for the product. Id. Rejecting this argument, the Federal Circuit concluded that the record supported a jury finding of demand for the patented functionality in the Grain Processing “but for” world. Id. Even though Plaintiff did not “sell” a product that embodied the patent, Plaintiff was “selling” such products. Id.

Second, Defendant argued Plaintiff’s “but for” world was inconsistent with real-world market and economic variables, and the quantum of lost profits had not been adequately proved. Id. at *9. The Federal Circuit rejected this argument, concluding Plaintiff had made a prima facie showing of lost profits, thus shifting the burden to Defendants. However, the court said Defendant failed to show a different amount would have been more reasonable. Id. at 11.