In this patent infringement case, Lucent sought reasonable royalties of $562 million for Microsoft’s use of a patent covering a date-picker feature of Outlook, based on an 8% royalty applied to Outlook sales. Microsoft countered that $6.5 million would be a reasonable royalty, and the jury awarded $358 millionbut did not identify a royalty rate.
On appeal, the Federal Circuit overturned the damages finding, stating that “for the entire market value rule to apply, the patentee must prove that the patent-related feature is the ‘basis for customer demand,’ (Rite-Hite)” and that Lucent failed to demonstrate that the Day patent was “the basis—or even a substantial basis—of the consumer demand for Outlook.”
The Court also makes an interesting statement: “Simply put, the base used in a running royalty calculation can always be the value of the entire commercial embodiment, as long as the magnitude of the rate is within an acceptable range (as determined by the evidence).” This sounds reasonable on its face, and seems to agree with Cornell v. Hp, where the Court decided the smallest salable unit should be the royalty base. Yet the later Uniloc decision overturned this position.
The Court also cites a number of factors that affect the lump sum versus running royalty calculus, ultimately concluding that here, the jury had almost no testimony to recalculate in a meaningful way the value of any of the running royalty agreements to arrive at its lump-sum damages award. And of interest to those following computer industry licensing, the Court cites dollar amounts for several lump-sum and running royalty agreements, such as a 1993 agreement between IBM and Dell for $290 million covering IBM’s entire patent portfolio. The Court notes that none of the agreements were shown to be comparable, and that some indeed weigh against the jury’s award.
And speaking of IBM, the Court also notes that Lucent’s expert first tried to opine that the reasonable royalty should be 1% of the total computer sale, until the district court excluded this opinion. Although I haven’t read his opinion, I’d bet this 1% came from IBM’s posted licensing terms of 1% for any one computer-related patent.
Also see the June 2011 district court order regarding damages (Lucent v. Microsoft).
Citation: Lucent Technologies, Inc. v. Gateway, Inc., et al, 580 F.3d 1301 (Fed. Cir. 2009)