Judge: John Love
Holding: Motion for Entry of Judgment on the Verdict GRANTED
I am currently way, way behind on a paper updating attendees at the State Bar of Texas' Litigation Update seminar next week on recent developments in patent litigation. One of the benefits of being terribly, terribly late, however, is that I can include significant recent cases, like this one, which discusses the effect of eBay on Yahoo!. (Stop and think how little sense that would have made only a few years ago - what a world we live in).
One of the more significant recent developments in patent litigation at the district court level, in the wake of eBay's elimination of the previous default rule that injunctions issue once infringement and non-invalidity are shown, is future damages. Judge Clark addressed this in some detail in the recent Cummins-Allison case dealing with postverdict and pre-injunction damages, and here Judge Love takes up the torch with following an evidentiary hearing on a reasonable ongoing royalty rate. (Judge Love reserved for a later order the pending issues of enhanced damages, attorney's fees and pre and postjudgment interest, as well as the exceptional case determination, so willful infringement damages groupies stay tuned - fresh meat is coming down the pike).
On May 15, 2009, a Tyler jury in Judge Love's court found that the asserted claim of the patent in suit was infringed by Yahoo's Messenger program and assessed $6,625,584 in damages, which was based on a 20% royalty rate. CIAC sought a royalty rate of 23% postverdict, and Yahoo! cried "TIVO!" (meaning that its service had been modified so that it no longer infringed, which essentially adds to the routine "dog doesn't bite, not my dog" argument that the dog has now had its lower jaw sawn off).
Judge Love's lengthy opinion discusses eBay, the Federal Circuit's opinion in Paice (and Judge Folsom's opinion on remand), and the courts' extension of the supplemental damages courts had traditionally awarded for the gap between verdict and judgment and injunction now that in many cases injunctions are not available to halt future infringement. Judge Love notes - politely - that the law is less than settled with respect to how district courts are to go about setting a royalty rate for future damages, including the elephant in the room, which is what effect a jury's verdict of infringement should have on the parties' hypothetical negotiations. (Which sort of reminds me of objections from Star Trek fans that a particular episode's description of the way dilithium chambers operate isn't correct. If something is fictional to start with, at what point can a description of its workings be wrong or right? Interesting intellectual question - but this is the sort of thing I'm used to with a ten year old and seven year old twins that were playing Star Trek last night and arguing over what was and wasn't "right" about how phasers and warp engines worked. Tip: the answer is to hand them your dog-eared copy of the 1974 Starfleet Technical Manual. Worked like a charm). But I digress.
Judge Love determined first of all, applying eBay that an injunction should not issue. Having firmly located himself in the swamp, he began to drain said swamp by noting who had the burden of proof of showing the appropriate royalty rate (noting that this appeared to be a question of first impression, he decided the plaintiff) as well as showing that the new version of Yahoo Messenger was no more than a "colorable variation" of the adjudicated prior version. (Ed. note: the phraseology here is not completely consistent - it seems to me that thr showing is that the product is not colorably different in order to keep it under the infringement finding, but I'm not going to argue with however the cases have put it, since the concept is a pretty simple one to follow, despite the wording courts are using. Basically, have you changed the thing enough that the prior infringement finding shouldn't apply?). The Court then concluded that CIAV had met its burden to show that Yahoo had not disabled the infringing version, so royalties were still due on that. As for the new version which Yahoo claimed did not infringe, the Court found that the plaintiff met its burden to show that the new version infringed as well, i.e. it was not sufficiently different to get out from under the prior finding of infringement, i.e. the "colorable-something" analysis noted above.
With liability established, Judge Love turned to the issue of the royalty rate. Here's where, for lack of a more appropriate word, it gets fun. Judge Love selected the analysis, consisting of Paice plus a helping of modified Georgia-Pacific, and agreed with the plaintiff's expert that the 20% rate that the jury found should be adjusted upward to 23% for an ongoing royalty in light of the parties' changed relationship, and Yahoo!'s decision not to design around or otherwise stop infringing.
So how much money are we talking here? The Court ordered a $185,694 payment for the five and a half months described in a report (20% of Yahoo's revenues from the relevant product) and quarterly payments of 23% of revenues going forward.