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February 26, 2008

Relief

Carlos Amado owns 5,293,615, which claims an interface method between spreadsheet and database programs. Amado sued Microsoft for its Office product infringing, and won 4¢ per copy royalty, and an injunction. The injunction was stayed pending post-trial motions, during which Amado got 12¢ per copy royalty. In wake of the SCOTUS eBay decision, the injunction was dissolved by the district court. On second appeal, the CAFC affirmed the district court handling of injunction, while a spat about spare-change royalty rate was remanded.

Amado v. Microsoft (CAFC 2007-1236, 1255)

Not allowing injunctive relief was a no-brainer, since Amado was a gnat compared to mighty Microsoft -

We conclude that the district court was well within its discretion in this case to reconsider the prospective application of the permanent injunction on remand in light of the Supreme Court's decision in eBay. We also conclude that the district court's ultimate decision to dissolve the injunction was not an abuse of discretion, when, after applying the traditional four-factor test, it determined that an injunction was no longer equitable under the circumstances.

The royalty rate was naturally contentious: Amado wanting more, Microsoft less.

Charged in our last remand with the disposition of the funds placed in escrow during the stay of the permanent injunction, the district court determined that Amado was entitled to $0.12 per infringing unit. The district court "start[ed] with the jury's reasonable royalty of four cents," and trebled the award to $0.12 using the "trebling for willful[ infringement] as a guideline." Escrow/Injunction Order at 33. Amado argues that the district court abused its discretion by failing to award the full $2.00 per infringing unit placed into escrow. Microsoft also challenges the award, arguing that the district court abused its discretion by awarding more than the $0.04 reasonable royalty found by the jury.

Amado thought he was promised more if he prevailed; not so. Microsoft thought the 4¢ jury award was the final word; not so. The costs of pre-suit and ongoing infringement are not necessarily the same.

The jury's award of $0.04 per unit was based on Microsoft's infringing conduct that took place prior to the verdict. There is a fundamental difference, however, between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement. Cf. Paice LLC v. Toyota Motor Corp., 504 F.3d 1293, 1317 (Fed. Cir. 2007) ("[P]re-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties' legal relationship and other factors.") (Rader, J., concurring). Prior to judgment, liability for infringement, as well as the validity of the patent, is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, however, the calculus is markedly different because different economic factors are involved. See id. at 1315. This is not a case like Paice, however, where the court's task was to assess an appropriate level of damages for ongoing infringement under circumstances in which an injunction was not warranted. Here, Microsoft was enjoined from further infringing activity yet was permitted to continue only by virtue, and with the imprimatur, of the court-ordered stay.

But the district court used the wrong calculator.

The district court's escrow award of a $0.12 post-verdict royalty did not expressly consider that Microsoft's infringing sales took place following the grant of an injunction that was stayed. As noted above, the district court had authority to dissolve the permanent injunction only prospectively. Therefore, the royalty determination should have taken into account the fact that the sales, although authorized under the terms of the district court's stay, were nevertheless infringing and subject to an injunction. Here, the district court centered its damages assessment on willful infringement. But willfulness, as such, is not the inquiry when the infringement is permitted by a court-ordered stay. Moreover, the district court, by trebling the amount the jury found to be a reasonable royalty, began with a faulty premise, because as we have noted, that damages award was based on pre-verdict infringement.

When a district court concludes that an injunction is warranted, but is persuaded to stay the injunction pending an appeal, the assessment of damages for infringements taking place after the injunction should take into account the change in the parties' bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability--for example, the infringer's likelihood of success on appeal, the infringer's ability to immediately comply with the injunction, the parties' reasonable expectations if the stay was entered by consent or stipulation, etc.--as well as the evidence and arguments found material to the granting of the injunction and the stay.

Then there was the issue of royalty base: whether international sales were included.

Microsoft argues that any damages award to Amado must be adjusted in light of AT&T. AT&T, which was decided by the Supreme Court after the parties filed this appeal, held that liability under 35 U.S.C. § 271(f) does not extend to the installation of software onto a computer abroad when the copies of that software are made abroad, because in such case the copies are not "supplied" from the United States within the meaning of the statute. 127 S. Ct. at 1756, 1757.

Amado argued that the opportunity for adjustment was forgone, but the appeals court ruled "not so," because the case was still open.

It is well-settled that "[w]hen [the Supreme] Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate [] announcement of the rule." Harper v. Va. Dep't of Taxation, 509 U.S. 86, 97 (1993). Although we conclude, pursuant to Harper, that Microsoft is entitled to assert the AT&T decision, we are unable to determine whether the infringing products sold by Microsoft were provided in such a way as to not be "supplied from the United States" as required to extinguish § 271(f) liability. The district court, which presided over the trial in this matter, is thus better-suited to decide the applicability of AT&T, and may do so when it reconsiders the proper disbursement of funds from escrow on remand.

The district court's escrow award was vacated, and the royalty issue remanded.

Microsoft had waited until it lost at court to file for reexamination, a once-common strategy. After reexam, it argued that "Amado surrendered claim scope during the reexamination in order to secure issuance of the claims," and so, in light of the reexam, Microsoft did not infringe.

The district court denied the motion, noting that although Microsoft was aware of the prior art upon which its reexamination petition was based well before trial, it failed to file the reexamination petition until after the unfavorable judgment was entered. It determined that the newly-discovered evidence Microsoft sought to use to set aside the judgment--namely, Amado's statements to the PTO--was a result of Microsoft's lack of diligence in filing the petition.

The district court thus concluded that the circumstances surrounding Microsoft's motion did not warrant relief from judgment: "Given that Microsoft waited until after the judgment in this case to file its Petition for Reexamination, while simultaneously failing to appeal the jury's finding of validity, Microsoft was not faultless in the delay and justice does not require overturning a jury verdict at this late stage based on statements made to the PTO." Escrow/Injunction Order at 14.

Tough cookies, affirmed the CAFC: the district court did not abuse its discretion in letting the previous infringement decision stand.

Posted by Patent Hawk at February 26, 2008 11:19 AM | Damages

Comments

4cent, 12cent ... what's the f***** difference ?
Without injunction the value of any patent cannot be determined. Period.

Posted by: angry dude at February 26, 2008 7:54 PM