Federal Circuit Affirms Infringement but Reverses Findings of Damages in Software Patent Case
By Andrew Segna – Edited by Gary Pong
ResQNet.com, Inc. v. Lansa, Inc., No. 2009-1030 (Fed. Cir. Feb. 5, 2010)
The United States Court of Appeals for the Federal Circuit, in a per curiam decision, affirmed in part, vacated in part, and remanded for further proceedings a patent infringement decision made by the United States District Court for the Southern District of New York. The Federal Circuit affirmed the district court’s finding that Lansa had infringed ResQNet’s Patent No. 6,295,075 (the ‘075 patent). The court also affirmed the finding that Lansa had not infringed Patent No. 5,831,608 (the ‘608 patent).
However, the court vacated the district court’s award of damages and remanded for a redetermination of damages. The court criticized the district court’s accepted royalty rate of 12.5% as being artificially inflated and disagreed with the process used to arrive at that rate. The court held that the “reasonable royalty rate” used in calculating damages must not be “speculative” and must not rely on royalty rates derived from licenses that are different from the current patents in dispute. Finally, the Federal Circuit also reversed the district court’s imposition of Rule 11 sanctions upon ResQNet and its counsel.
Law.com has an overview of the decision. PatentlyO analyzes the damages aspect and its relation to the Lucent v. Gateway decision by the Federal Circuit. The Patent Prospector offers a breakdown of the decision and thoughts on the disparity between the majority and Judge Newman.
The patent dispute centered on the “NewLook” program, a graphic user interface for computers, distributed by Lansa in the United States. The Federal Circuit found no issues with the district court’s finding that Lansa infringed upon the ‘075 patent. The court rejected Lansa’s argument that the patented invention was obvious based on prior art. Lansa tried to introduce as evidence user manuals for a piece of software called “Flashpoint” and advertisements for NewLook version 1.0. The court affirmed the district court’s ruling that the Flashpoint manuals were not “printed publications” under the terms of 35 U.S.C. § 102(b) because there was no evidence that the manuals were ever publically available. The court further affirmed that NewLook version 1.0 did not truly embody the ‘075 patent and thus could not have been prior art.
The majority vacated and remanded the assessment of damages due to the “speculative and unreliable” evidence utilized by the district court to determine the royalty rate. ResQNet’s damages expert, Dr. Jesse David, determined the 12.5% royalty rate by looking at seven licenses, five of which were licenses that allowed other companies to bundle and resell ResQNet products and services. The Federal Circuit held that these re-bundling licenses were not comparable to the patent license being sought and acted to unfairly increase the royalty rate. Even though Lansa did not present any expert witnesses or evidence to dispute this rate, the Federal Circuit held that ResQNet had the burden of proving the reasonableness of the rate. The majority held that the district court committed an error by accepting a royalty rate based on the re-bundling licenses.
The district court imposed Rule 11 sanctions upon ResQNet and its counsel for pursuing infringement claims for its ‘127 and ‘608 patents. Correspondence between the two parties discussed ResQNet’s preparedness to drop these two claims yet the company continued to litigate them. The Federal Circuit held that since ResQNet did drop the claim regarding the ‘127 patent after discovery and discovery did reveal a reason to litigate the ‘608 infringement claim, the district court should not have imposed the sanctions.
Judge Newman dissented with the court’s holding on damages and would have held that the district court’s construction of the royalty rate was proper. Judge Newman argues that the re-bundling licenses were properly considered as an upper-range for the royalty rate since they included the infringed technology. Furthermore, Judge Newman argues that the majority errs by relying solely on the royalty rates from previous settlement agreements. These settlement agreements arrived at a much lower rate “in the shadow of litigation and without the assured validity of the ‘075 patent.” As such, Judge Newman argues that the district court properly arrived at the 12.5% royalty rate by considering both the re-bundling and the stand-alone licenses.
This Federal Circuit decision seeks to ground damages for infringement in reality by introducing a stricter standard for determining which licenses can be used in determining a “reasonable royalty.” Judge Newman’s dissent raises the issue that the court’s decision may actually end up under-compensating patent holders in favor of infringers.