Prism v. Sprint Spectrum was decided on March 6, 2017 on appeal from the District of Nebraska. Plaintiff Prism had sued defendant Sprint and AT&T separately. The AT&T suit settled, and the district court here admitted the AT&T settlement agreement into evidence over Sprint’s objections. A jury then found Sprint liable for infringement, and awarded Prism $30 million in reasonable-royalty damages. The district court denied Sprint’s motion for JMOL and for a new trial, and denied Prism’s motion for additional damages and an ongoing royalty for post-jury-award infringement. Both parties appealed.
The Federal Circuit affirmed the reasonable royalty methodology, the damages amount, and the district court’s denial of an ongoing royalty.
The district court did not abuse its discretion in admitting the AT&T settlement into evidence for a reasonable royalty. A “license agreement entered into in settling an earlier patent suit sometimes is admissible in a later suit involving the value of the patented technology.” A settlement involving the patented technology can be probative of the technology’s value if that value was at issue in the earlier case: “such a settlement can reflect the assessment by interested and adversarial parties of the range of plausible litigation outcomes on that very issue of valuation.” On the other hand, an earlier settlement may be inadmissible because it was too low or too high. An earlier settlement value may be too low if the patent owner discounted the value due to a relatively high probability of losing on validity or infringement; of if the patent owner accepted the amount to avoid further expenditure of litigation costs. An earlier settlement may be inadmissible as too high if the earlier technology was not comparable to the patented technology in the later suit, or if the earlier suit included a risk of enhanced damages.
Under FRE 403, the district court balances the probativeness and prejudice components of the questioned settlement to determine its admissibility. Although the AT&T agreement included other patents along with the patents-in-suit, there was sufficient evidence to help the jury ascertain the value of the patents-in-suit. Prism showed evidence, including the AT&T agreement itself, attributing values to the particular patents involved. Prism also showed evidence about how the patents related to AT&T’s business operations, and about the comparability of AT&T’s and Sprint’s uses of the patents-in-suit (in comparison to the lower-value settlements in which the licenses made “lesser uses” of the patented technology). Further, the AT&T agreement was reached after “all discovery was complete, [and] the entire trial was finished” (except for closing arguments and jury deliberations). And “Sprint ha[d] not shown any reason—for example, material technological or market changes between the agreed-on date for the hypothetical negotiation, in early 2012, and the signing of the AT&T Settlement Agreement, in late 2014—that required the district court to find non-comparability and thus decisively undermined the Agreement’s probative value.” The district court didn’t err in admitting the AT&T license despite that the AT&T case settled while validity and infringement were open issues.
The Federal Circuit didn’t reach Sprint’s arguments for categorically barring “admission of a patentee’s licenses entered into in a settlement of infringement litigation.” Sprint failed to preserve these arguments at the district court.
The district court didn’t err in admitting Prism’s damages evidence based on estimating costs that Sprint avoided by infringing. “The hypothetical-negotiation approach to calculating reasonable-royalty damages attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.” A patentee can tie its proof of damages to the “claimed invention’s footprint in the market place” by showing “that the defendant’s infringement allowed it to avoid taking a different, more costly course of action.” “Reliance upon estimated cost savings from use of the infringing product is a well-settled method of determining a reasonable royalty.” Here, Prisms experts testified that, in the absence of a license, Sprint would have attempted to design around the patented invention by building its own system. And this testimony along with the cost-saving amount was based on the expert’s considerable experience and on relevant industry publications, and thus could support the jury’s reasonable royalty determination.
The district court didn’t err in finding that the jury awarded damages for past, present, and future infringement, and thus didn’t err in denying an ongoing royalty. The evidence suggests that “a hypothetical negotiation would likely have resulted in a one-time payment for a life-of-patent license.” During the negotiation, the parties would have likely valued the patents based on Sprint’s expected cost savings from avoiding the need to build its own system. “Because those cost savings consisted, in large part, of Sprint’s initial capital costs, the jury could have reasonably found that the parties would have structured the agreement as a fully paid license.” And Prism’s licensing practices support this finding.
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