On November 30, 2018, the Federal Circuit affirmed a jury verdict awarding Sprint Communications Company, LP ("Sprint") damages in the amount of $139,800,000.00 USD against Time Warner Cable, Inc., et al., for infringing five patents directed to Voice over IP technology ("VoIP").
After affirming the findings of infringement, the Federal Circuit turned its attention to damages issues, in particular, the district court's decision allowing Sprint to introduce evidence of an earlier, favorable jury verdict against Vonage Holdings Corp, et al. ("Vonage"). In 2005, Sprint filed suit against Vonage for infringing some of the same patents at issue in the Time Warner litigation. Sprint successfully proved Vonage infringed the asserted patents and received a jury verdict awarding it damages in the sum of $69,500,000.00 USD.
During the current trial, the district court allowed Sprint to introduce evidence of the Vonage verdict after determining the earlier verdict was relevant to the jury's assessment of Sprint's reasonable royalty damages under a hypothetical negotiation theory, as well as the issue of willfulness. The court concluded that the prior verdict would "be a factor of which the parties would have been aware at the time of their hypothetical negotiation in 2010, and a reasonable jury could well conclude that the verdict and the amount of damages awarded in a similar prior litigation would have influenced the outcome of a hypothetical negotiation in the case at bar." The prior verdict was a significant piece of evidence in Sprint's damages case against Time Warner.
On appeal, Time Warner argued that the introduction of evidence of a jury verdict from another case was per se improper. The Federal Circuit disagreed and affirmed the district's court's decision reiterating "that [] evidence [of a jury verdict from another case] can be admissible if it is relevant for some legitimate purpose." The Federal Circuit agreed with the relevance rationale outlined by the district court.
Time Warner made several additional arguments for the exclusion of the Vonage verdict that also failed to persuade the Federal Circuit, including:
- The two cases were materially different;
- Sprint's counsel used the Vonage verdict in an inflammatory manner; and
- Sprint's expert in the Vonage case improperly relied upon the 25 percent "rule of thumb."
Time Warner also argued that the Vonage verdict should not have been admitted because the jury in that case awarded a royalty based on all of Vonage's VoIP revenues without determining which portions of the revenues were attributed to the patented technology as opposed to unpatented features. The Federal Circuit disagreed noting that the Vonage jury calculated a lump sum royalty award based upon its determination of the value of the technology that was taken from Sprint as a result of Vonage's infringement. Moreover, the Federal Circuit noted that the hypothetical negotiation theory is directed to determining the incremental value of the technology. The Federal Circuit also pointed out the damages awarded in the Vonage case amounted to approximately five (5) percent of Vonage's total VoIP revenues for the infringement period. That amount was similar to the jury award in the current case as well as two earlier licenses between Sprint and other telecommunications companies for the patented technology.
Separately, Time Warner also challenged Sprint's damages theory for failure to apportion the damages award to the incremental value that the patented invention added to the end product. For the same reasons above, the Federal Circuit found that the evidence supported the jury's damages award. Moreover, Sprint presented evidence at trial that Time Warner did not have any reasonable non-infringing alternatives available to it at the time. In sum, the Federal Circuit found the jury verdict was supported by sufficient evidence and did not improperly contravene the principles of apportionment articulated in earlier Federal Circuit decisions.
The law regarding apportionment has, for a number of years now, had the effect of increasing the difficulty of proving, obtaining and maintaining significant damage awards. This case reinforces the conclusion that a patentee with comparable licenses – and here a prior jury verdict – can avoid strict application of apportionment rules in proving an appropriate reasonable royalty.
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