In a patent infringement suit, a Texas court excluded the opinions of a damages expert on certain comparable licenses for failing to compare the technology of the past licenses to the technology in the lawsuit and for failing to account for economic differences based on potential RAND obligations in the past licenses.

Damages for infringement may be based on a reasonable royalty resulting from a hypothetical negotiation between the patent owner and the infringer at a time before the infringing activity began. To determine a reasonable royalty, courts often consider comparable licenses the patent owner or accused infringer may have had with others in the past.

In Biscotti Inc. v. Microsoft Corp., a Texas court excluded an expert's opinions on past licenses for (1) failing to consider and opine on the whether the technology of the licenses was comparable to the technology claimed in the asserted patent and (2) failing to account for the difference in economic circumstances between the hypothetical license and the past licenses.

Background

Biscotti accused Microsoft's Xbox One products of infringing its patent covering live video chat capabilities. In her expert report, Microsoft's damages expert opined that, in a hypothetical negotiation, Microsoft would have paid $200,000 to $700,000 for a lump sum license to Biscotti's asserted patent.

In reaching this opinion, she relied in part on two licenses with HDMI Licensing, LLC, one entered into by Microsoft in 2005 and the other entered into by Biscotti in 2013. She characterized the HDMI licenses as a "point of comparison" that confirmed her opinion on the $200,000 to $700,000 lump sum range, which was based on other evidence, including two licenses between Microsoft and specific parties.

Biscotti moved to exclude the testimony and opinions of Microsoft's expert on the HDMI licenses for (1) failing to address whether the HDMI patents and the asserted patent were technologically comparable, and (2) failing to account for the fact that, according to Biscotti, the HDMI patents cover a standard, which subjects the patents to reasonable and non-discriminatory (RAND) licensing obligations.

The Biscotti Decision

First, the court found that Microsoft failed to present any testimony comparing the HDMI licenses to the asserted patent. The court rejected the damages expert's reliance on opinions of another technical expert that "compliance with the HDMI standard is far more valuable and more significant to the accused Xbox One products, than the claimed invention of the '182 patent." According to the court, this opinion failed to provide any analysis on whether the HDMI licenses were technologically comparable and instead, was more akin to an economic valuation regarding the value of the HDMI standard to the accused products. Because a technological comparison was required, the court excluded the expert opinion.

Second, the court found that Microsoft failed to account for the economic differences between the HDMI licenses and the hypothetical license in suit. Although the court did not resolve whether the HDMI licenses granted rights under patents subject to RAND obligations, it recognized substantial economic differences between the HDMI licenses and the hypothetical license in suit, such as the HDMI standards setting organization bylaws stating the purpose of the organization was to "provide an open, fair, reasonable and non-discriminatory licensing program." Having recognized these economic differences, the court faulted Microsoft's expert for not addressing or accounting for them.

The court was also unpersuaded by Microsoft's argument that its expert merely relied on the HDMI licenses as a "point of comparison" to confirm a royalty range derived from other evidence, namely, two other specific licenses. The court rejected this argument as a distinction without a difference, as the HDMI licenses were still relied on as evidence to support the ultimate damages opinion.

Strategy and Conclusion

This case illustrates that past licenses serving as evidence of a reasonable royalty must be shown to be sufficiently comparable to the facts in the litigation. In order to establish sufficient comparability, the expert may need to address both technological differences and economic differences, such as where the past licenses are potentially subject to RAND obligations.

Further Information
The Biscotti decision can be found here.

Originally printed in LES Insights on June 27, 2017.

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