In this case where Microsoft’s Xbox and Kinect sensors are accused of infringing a facial recognition patent, the Virginia court excludes some opinions regarding the use of comparable agreements, the Entire Market Value Rule, and the basis for a lump-sum royalty. Plaintiff’s expert, Walter Bratic, opined that royalty damages should be a running royalty of 3x the court-ordered royalty rate from a prior case (Immersion/Sony) involving handheld controllers. Meanwhile, Defendant’s expert, Julie Davis, opined that Kinect-related settlement agreements (for lump sums) were the relevant data points.
• Comparable licenses: The Court ruled that Mr. Bratic erred in finding the Immersion/Sony verdict and court-ordered royalty rate to be comparable. First, plaintiffs tried to “dodge” the fact that the technologies were different by merely pointing to the similarities in the patents instead of the specific implementations. Additionally, Mr. Bratic’s assertion that the patented technology was more valuable than the comparable license “is considerable evidence of the non-comparability.” This therefore leaves the Kinect-related settlements as the most useful data points and thus relevant under ResQNet.
• Comparable licenses: The Court ruled it is improper for Mr. Bratic to rely upon 13 non-comparable Microsoft licenses to support his contention that a running royalty is the appropriate form. The Court (citing TV Interactive Data v. Sony, and Lucent v. Gateway) ruled that since none of those agreements were for comparable technologies, they could not be used to support the form of the royalty, much less the actual royalty rate.
• Royalty base: Here, Mr. Bratic apportioned the total value of an XBox system to account for only those hardware items that were needed to practice the invention (specifically, 8 of the 18 components), which he then called the “smallest saleable unit.” The Court ruled that, under Virnetx, Mr. Bratic should have done an additional apportionment to account for all the other non-infringing features. Moreover, Plaintiffs could not blame Defendants for failing to provide usage data (from telemetry), since the burden lies on Plaintiffs.
• Underlying data / lump-sum royalty: The Court allows the opinion by Julie Davis of a lump-sum royalty of $500,000 despite Plaintiff’s argument that she provided no mathematical basis, no calculations, and no starting point. The Court, acknowledging that “any reasonable royalty analysis necessarily involves an element of approximation and uncertainty” (Lucent, 580 F.3d at 1325) notes that the “lump sum amount was well within the range of comparable licenses … and the cost of the design around.”
Intelligent Verification Systems v. Microsoft, 2:12-cv-525 (E.D. VA, March 24, 2015, Opinion) (Leonard)