Lucent v. Gateway

This case involved a patent directed towards “entering information into fields on a computer screen without using a keyboard.” (p. 3.) Several parties were involved, including Microsoft, and the case went to trial. The jury awarded $357,693,056.18 to the plaintiff. Numerous issues were on appeal. The Federal Circuit upheld the validity and infringement findings but vacated the damages and remanded. Here are a few of the highlights gleaned from the detailed and lengthy opinion:

Regarding direct infringement, the court pointed out that, “[j]ust as anticipation can be found by a single prior art use, a finding of infringement can rest on as little as one instance of the claimed method being performed during the pertinent time period.” (p. 19.) With little direct evidence that anyone performed the claimed method using Microsoft products, the court relied on circumstantial evidence to uphold the verdict. However, it noted that the plaintiff “would have been on much firmer ground had it introduced some direct evidence of using the claimed method.” (p. 23.)

Regarding contributory infringement, as framed by the parties “the main issue reduces to whether the ‘material or apparatus’ is the entire software package or just the particular tool (e.g., the calendar date-picker) that performs the claimed method.” (p. 24-25.) This is because the entire software package had substantial non-infringing uses, but an individual component of the package did not. The court rejected the entire package argument, essentially concluding that if it were a prevailing argument, contributory infringement could be evaded by including extra features in a package with infringing features. “Here, the infringing feature for completing the forms, i.e., the date-picker tool, is suitable only for an infringing use. Inclusion of the date-picker feature within a larger program does not change the date-picker’s ability to infringe. Because Microsoft included the date-picker tool in Outlook, the jury could reasonably conclude, based on the evidence presented, that Microsoft intended computer users to use the tool—perhaps not frequently—and the only intended use of the tool infringed the Day patent.” (. 27.)

Regarding inducement, the court acknowledged, quoting DSU Medical, it “requires evidence of culpable conduct, directed to encouraging another’s infringement, not merely that the inducer had knowledge of the direct infringer’s activities.” But, in upholding the finding of infringement on thin evidence, also noted that a “plaintiff may still prove the intent element through circumstantial evidence, just as with direct infringement….” (p. 28.)

Regarding damages, the court noted two ways that litigants calculate a reasonable royalty: (1) “the analytical method, focuses on the infringer’s projections of profit for the infringing product,” and (2) “the hypothetical negotiation or the ‘willing licensor-willing licensee’ approach, attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.” (p. 33.) Concerning the hypothetical negotiation, the court discussed the differences between a running royalty and lump sum analysis. The court found that the evidence did not support the damages award. One factor was that the “evidence can support only a finding that the infringing feature contained in Microsoft Outlook is but a tiny feature of one part of a much larger software program.” (p. 48.) Thus, the resolution of the dispute concerning contributory infringement is mitigated somewhat on the damages side, with the court concluding “the glaring imbalance between infringing and non-infringing features must impact the analysis of how much profit can properly be attributed to the use of the date-picker compared to non-patented elements and other features of Outlook.” (p. 49.)

Regarding the entire market value rule, the court stated: “Although our law states certain mandatory conditions for applying the entire market value rule, courts must nevertheless be cognizant of a fundamental relationship between the entire market value rule and the calculation of a running royalty damages award. 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).” (p. 61.) In other words, “[t]here is nothing inherently wrong with using the market value of the entire product, especially when there is no established market value for the infringing component or feature, so long as the multiplier accounts for the proportion of the base represented by the infringing component or feature.” (p. 62.)