On August 7, 2012, the Federal Circuit in WhitServe, LLC v. Computer Packages, Inc., Case No. 2011-1206, 1261 (Fed. Cir.), the court vacated the jury’s damages award and remanded for a new trial on damages. The case addresses many damages issues—reasonable royalty base, reasonable royalty rate, lump sum versus running royalty, the 25% rule, ongoing royalties, prejudment interest, and supplemental damages—but none of the rulings is surprising or ground breaking. The case is instructive, however, on how much care must be taken in presenting a coherent damages case. Plaintiff, WhitServe, and its damages expert, Shapiro, made mistakes at trial, and WhitServe’s desperate attempt on appeal to preserve the verdict (approximately $8M) simply could not overcome these mistakes.
EDTX Post-Trial Order on Multiple Issues: Ongoing Royalty Base and Payment of Ongoing Royalties; Supplemental Damages & Prejudgment Interest; Foreign Tax Laws; Extending Ongoing Royalties to Successors and Assigns; Stay of Supplemental Damages and Ongoing Royalties Pending Appeal
On April 30, 2012, in Mondis Tech. Ltd. v. Chimei InnoLux Corp., Civil Action No. 2:11-cv-378-JRG (EDTX), Judge Gilstrap issued a post-trial order on a number of damages issues: (a) the definition of the royalty base for ongoing royalties; (b) the timing and frequency of reports and payments; (c) whether prejudgment interest should be assessed on the supplemental damages; (d) whether a portion of the judgment must be withheld due to Taiwanese tax laws; (e) whether the ongoing royalties extend to Innolux’s successors and assigns; (f) whether Mondis is entitled to additional discovery related to a possible transfer of assets from Innolux to Hon Hai Precision Ltd. (which is not addressed in this summary); and (g) whether the supplemental damages award and the ongoing royalty award should be stayed pending appeal.
On September 30, Judge Ward in the Eastern District of Texas entered an Order regarding supplemental damages following a jury verdict for Mondis against Innolux. At trial, the jury had awarded a 0.5% royalty for monitors and 0.75% royalty for televisions. For the ongoing royalty, however, the Court set the rate at 1.5% for monitors and 0.75% for televisions. The Court noted both Paice and Amado had stated that an ongoing royalty is within the discretion of the Court, and there is no agreed-upon methodology for determining the royalty. Judge Ward essentially followed what had been done in Affinity Labs, which was to perform a “new” Georgia-Pacific analysis, using the jury’s verdict as a starting point and then adjusting the GP factors up or down as appropriate to account for differences between the pre-trial hypothetical negotiation date and the post-trial hypothetical negotiation date. While most of the factors stayed the same, or close to the same, in the Court’s opinion, there was a substantial shift in the commercial success of the patented invention between the 2005 date relied upon by the jury and the 2011 date used by the Court – e.g., several licenses by the patentee, increase in the market for the infringing functionality, etc. Based on these findings, the Court bumped the 0.5% royalty for monitors up to 0.75%. Thereafter, the Court examined the import of willfulness to determine if – and by how much – to multiply the 0.75% rate. The Court held that any adjudged infringer, even if it planned to appeal, would meet the “reckless” standard, even if not the “intentional” or “knowing” standard. The Court noted it was in a difficult position to rate the strength of Innolux’s appeals, but that by definition it would have to believe that Innolux’s appeals would fail – otherwise, the Court would have granted Innolux’s post-trial motions. The Court was disturbed by what it believed to be a disrespectful comment to a Chinese newspaper about the patent process, and accounted for that as well. In the end, the Court doubled the 0.75% rate to come to a final ongoing royalty of 1.5%.
On July 11, 2011, Judge Ward of the Eastern District of Texas issued an opinion finding that SynQor was entitled to supplemental damages. At issue in this case are the damages related to Defendants’ infringement of SynQor’s patents both before and after the Court’s verdict of infringement. Judge Ward, in his opinion and for this summaries’ purpose, broke the damage periods in two (“Period 1” and “Period 2”). SynQor, Inc. v. Artesyn Tech. Inc., Case. No. 2:07-CV-497-TJW-CE (E.D. Tx., July 11, 2011).
Period 1 – Pre-Verdict Infringement
Period 1 represents the damages related to pre-verdict infringement. The Court, and the Parties, adopted the damages methodology used by the Plaintiff’s damages expert at trial. Defendant (“Murata”) disputed Plaintiff’s proposed application of the damages methodology for supplemental damages. Plaintiff (“SynQor”) argued that the “90% importation rate” used by the damages expert should have been used to determine the supplemental damages award, even though the jury did not use that 90% importation rate itself. In support, SynQor stated that during a settlement agreement with a separate Defendant, Fujitsu, SynQor learned that the 90% importation rate was the actual rate rather than a negotiated term. In contrast, Murata argued that “the supplemental calculation [could not] take into account information that did not exist on the verdict date[.]” Id. at 10. Considering both positions, the Court agreed with Murata that the “importation rate used at trial and adopted by the jury [was] the one that should be used for the pre-verdict time period” and not the importation rate learned subsequent to the jury’s verdict. Id.