ResQNet.com, Inc. v. Lansa, Inc., No. 1:2001cv03578 - Document 335 (S.D.N.Y. 2011)
Court Description: OPINION: A damages award in the amount of three percent on a royalty base of $5,475,512 is entered, for a total of $164,265 prior to prejudgment interest. Submit judgment on notice. (Signed by Judge Robert W. Sweet on 12/5/2011) (ft)
Download PDF
<![CDATA[
ORIGINAL UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK --- ---X RESQNET.COM, INC., Plaintiff, 01 Civ. 3578 against OPINION LANSA, INC., ~ .. ,~- ~ ~~ .. . ,. _ _ '.~~"" '~ "~,.,..,, .u......,..,~~ Defendant. -X l: , " I t. ~ A P PEA RAN C E S: j '?~. ~~lt~J '*'"" . . At for Plaintiff SORIN ROYER COOPER LLP Two Tower Center Boulevard, 11th East Brunswick, N.J. 08816 By: Jeffrey Kaplan, Esq. Attorneys for Defendant ARENT FOX LLP 1675 Broadway New York, N.Y. 10019 By: David Wynn, Esq. 1050 Connecticut Avenue, NW Washington, D.C. 20036 By: James Hulme, Esq. Janine Carlan, Esq. Taniel Anderson, Esq. oor 1--:- ~-,.--,-.-.,.--.- ¢ ¢- - Sweet, D.J. Following patent the infringement Federal action Circuit's vacating forth below, an this in Court's this original redetermination of damages, damages award and remanding set decision award of $164,265 prior to as prejudgment interest is entered. Prior Proceedings The relevant facts and history of this proceeding are set forth in ResQNet.com, detail the v. Lansa, (S . D . N . Y . WL 43 763 6 7 Inc. in 2 0 0 8) Court's Inc., No. 382 F. Supp. 2d 424 Of relevance owned by plaintiff and "Lansa") . i v. Re (RWS), Lansa 2008 Inc. , Inc. v. Lansa --~~------~----------------~ 2005) Inc. v. i (RWS), 2002 WL 310028011 (S.D.N.Y. here, in these Patent No. ResQNet. com Court awarded prior 6,295,075 Lansa, damages 1 proceedings this (the "'075 patent"), ("Plaintiff" infringed by defendant The 3578 See Familiarity with those facts is assumed. Court ruled that U.S. valid Opinions. Inc. (S.D.N.Y. Lansa, Inc., No. 01 Civ. 3578 Sept. 5, 2002). 01 Civ. i 533 F. Supp. 2d 397 (S.D.N.Y. 2008) Inc., ier or Inc. "ResQNet"), is ("Defendant" or $506,305 for past infringement based on a hypothetical royalty of 12.5%, plus prejudgment interest, and imposed a license at the same rate for future activity covered by t '075 patent. The Court additionally assessed Rule 11 sanctions against ResQNet and its counsel. On February 5, 2010, the Federal Circuit Court's rul on the issues reversed the imposition of the award, damages and 873 ResQNet (Fed. f led Cir. validity sanctions remanded reasonable royalty." 860, of .com 2010). The "to persuade and against "for infringement, ResQNet, a vacated culation Inc. v. Lansa Federal firmed this Ci of a Inc., 594 F.3d t found that the court with legally sufficient evidence regarding an appropriate reasonable royalty." Id. 872. expert Specifically, the rcuit found that ResQNet's at witness, Dr. David, and in turn this Court, impermissibly relied on re-branding and re-bundling licenses that furnished finished software products, source code, and other services. A hearing on held on June 7 and 8, appropriate 2011 and September 19, 2011. 2 final reasonable argument Id. royalty was was heard on Discussion I. Legal Standard Upon a showing of infringement, a patentee is entitled to "damages adequate to compensate for the infringement, but in ss than a reasonable royalty for the use made of the no event invention by the infringer, fixed by the court./f bears 35 together with interest and costs as U.S.C. the burden of proof 284. § to persuade infringed party the court with legally sufficient evidence regarding an appropriate reasonably royalty. ., See Lucent Techs. (Fed. Cir. 2009). the floor Inc. v. Gat 580 F.3d 1301, "A reasonable royalty is, of course, below which damages shall ~__~~__~______~.~_______T_l_·r_e C~o~., ___ not fall. 1324 "'merely Id. (quoting 704 F.2d 1578, 1583 (Fed.Cir. 'II 1983)) . The damages analysis must concentrate on compensation for the economic harm caused by the infringement, damages must be tied to sound economic proof. Process 1350 (Fed. v. Cir. American Maize-Prods. 1999); Riles Co., and proof of See, e.g., 185 & Grain F.3d 1341, Prod. Co., -------------------~------------------------ 298 F.3d 1302, 1312 (Fed. Cir. 2002). 3 The attempts would to have more ascertain agreed Inc., approach the had royalty they 69 F.3d 512, of rate 517 determining to negotiated See, e.g., Unisplay, infringement. Co., common an which damages the agreement parties prior to S.A. v. American Elec. Sign (Fed.Cir. 1995). "The hypothetical negotiation tries, as best as possible, to recreate the ex ante licensing describe negotiation scenario and to the . The hypothetical negotiation also assumes that agreement . the asserted patent claims are valid and infringed. 580 resulting F.3d at 1324. In calculating a reasonable Lucent, /I royalty under this approach, courts rely on the comprehensive, if overlapping, list of fifteen United States factors det Plywood Corp., led 318 in Georgia-PCicific F.Supp. 1116, Corp. 1120 v. (S.D.N.Y. 1970), often termed the "Georgia-Pacific factors./I The first past and present factor requires considering royal ties received by the patentee "for the licensing of the patent in suit, proving or tending to prove an established royalty." 318 F.Supp. at 1120. "[T]his factor considers only past and present licenses to the actual patent and the actual claims in litigation." . com, 869 (citing calculation Lucent, may not 580 F.3d rely at on -----"=---- 1329). licenses 4 Thus, that are 594 F. 3d at the damages "radically different from the hypothetical agreement under consideration." Lucent, 580 F.3d at 1327-28. In addition, assumed to have the hypothetical occurred prior to litigation over because the threat of suit may skew a Hanson v. Alpine VCl11ey Ski Area, (Fed. Cir. 1983), than Inc., an are Inc. see 1078 79 therefore Similarly, a reasonable royalty can be established v. be the patent 718 F.2d 1075, royalty when infringement artificially depressed past licenses. Nickson Indus. must fee's negotiation, and established royalty rates evaluated in this light. different negotiation Rol Co., ----------------~--~--------------~------ 847 F.2d 795, widespread See, e.g., 798 (Fed. Cir. 1988). The second Georgia ~acific factor considers "the rates paid by the licensee for the use of other patents comparable to the patents in suit." Georgia Pacific 318 F.Supp. at 1120. third factor weighs "[t]he nature and scope of the license, The as exclusive or non-exclusive; or as restricted or non-restricted." Id. fourth Georgia-Pacific factor concerns the licensor's policies and practices regarding the grant of technology. Id. The fifth addresses licenses to its the relationship between the licensor and the licensee. commercial Id. The sixth factor is "[t]he effect of selling the patented specialty 5 in promoting sales of other products of the license; the existing value of the invention to the licensor as a generator of sales of its non-patented derivative convoyed sales." items; and the extent of such rd. The seventh factor is the duration of the patent and term of the license. profitability of The rd. the product eighth, made "[t]he under the "[t] he utility and advantage of over the d modes or devices, working out similar results." patent; rd. commercial success; and its current popularity." factor is established its The ninth the patent property if any that has been used for The tenth concerns the nature of the patented invention as well as its commercial embodiments and benefits. rd. The eleventh factor is the extent the used invention and evidence of the value of that use. ringer rd. The twelfth Georgia-Pacific factor is directed to the customary profit inventions. infringer's rd. rd. profit use The that of the rteenth should be invention is the credited or analogous portion to the of the invention. The fourteenth factor considers the opinion of qualified experts. And the final factor is the amount that a licensor and a licensee would have agreed upon if both had been reasonably and voluntarily trying to reach an agreement. 6 rd. Finally, that an a reasonable royalty may also reflect "[t]he infringer had to be ordered by a court to pay damages, rather than agreeing to a reasonable royalty." Maxwell v. J. Baker, Inc., 86 F.3d 1098, 1109-10 (Fed. Cir. 1996) II. Reasonable Royalty As detailed below, 7-8, 2011 hearing the evidence presented at the June establishes that the proper royalty to be awarded is three percent and that such royalty should be appl to 1 sales revenue, including maintenance fees, from September 25, 2001 through June 24, 2008. A. Royalty Rate Wi th respect to the royalty rate that should apply, ResQNet offered the testimony and a second expert report of Dr. Jesse David, a senior consultant at National Economic Research Associates who holds a Ph.D. in Economics from Stanford University. Brian Blonder its District Lansa offered the expert t testimony and report of a managing director of FTI Consulting and head of of Columbia intellectual evaluation practice. 7 property damages and Each partyl s report, C applying each of the Georg (David Report Report)) . are expert provided a of Sept. 29, (factors thirteen) . The Court two, Def. 2010)lj fourteen, the Likewise, opinion of and as six twelve, seven, agreement address those factors (Blonder 105 Ex. fifteen factors, three, is (PI. Ex. -Pacific factors. The parties agreed that of neutral factor thorough analysis and such and will not neither expert addressed experts I or found the final factor fifteen to otherwise impact their previous conclusions. Of the remaining factors, the central one driving both experts' conclusions was the first l which addresses the past and present royal t received by the patentee for the licensing of the patent in suit. Under the Circuit/s holding, only straight licenses of the patent at issue may be considered, and not re bundl ing The agree licenses. that while ResQNet.com, there are 594 three F.3d such 872. licenses l parties the only relevant licenses to consider are the IBM and Zephyr licenses. 2 Of note, the Zephyr agreement was reached to settle litigation l while the IBM agreement was not. This is David's second report, submitted subsequent to the appeal and remand. 2 The terms of both licenses are subj ect to a protective order. The evidence submitted under protective order supports the reasonable royalty calculated here. 1 8 David concluded that an appropriate reasonable royalty rate was Report"» eight to David . ten (Pl. percent. based this Ex. in estimate C at large 16 ("David part on royalties ResQNet received in these two straight licenses. Ex . Cat the (Pl. Of note, to reach this conclusion, David scaled 4 - 8) . one of the rates, based on the language of that license as well as interviews with ResQNet employees who negotiated it. Ex. S, T.) Ex. C at 5i Tr. 91-98; scaling inappropriate is evidence. This is because incorrect. Lansa contends that this it The (Pl. relies license on extrinsic question makes clear that the given royalty rate applies to a larger body of revenue than that which would have been produced by the licensed patents alone, rate the leaving no several doubt ResQNet that patents the appropriate should be royalty scaled upward from the license's lower rate on a greater body of revenue (Def. Ex. 112, Def. Ex. 113 at 4, 6, 19, 25.) In this regard, David's estimate of the appropriate scaling is unrebutted. below, however, David failed to adequately As discussed apportion for the mUltiple patents that license entailed. Lansa's expert Blonder argues that based in part upon these two straight licenses, revenues a royalty rate of one percent of including maintenance, or 9 1. 5% of revenues excluding maintenance, is In reasonable. support of this conclusion, Blonder divides the rate of each of the two straight 1 icenses, (Def. each of which covers a number of patents, by that number. This approach assumes that the value of the Ex . 1 0 5 at 13 15.) '075 patent is equal to that of the other licensed components. In Lucent, because the patented technology did not accused product. must rcui t vacated a royalty rate the Federal in every apportion the drive Lucent, 580 F.3d at 1336. case give defendant's evidence profits between the patented feature the for the "The patentee . tending and demand to separate patentee's or damages and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative." U.S. 120, 121 Id. (1884)). at 1337 (quoting Garretson v. Clark, 111 There must therefore be a downward rate adjustment to account for and apportion the value of the '075 patent within the context of both of the straight licenses in evidence. While David noted that the multiple patents included in both straight licenses would have a "downward influence" 90) he did not adequately apportion the straight (Tr. licenses. onder simply divided their rates by the number of patents that the licenses covered. Both approaches 10 must be rejected: David's because it is counter to the holding of Lucent, a requires onder's downward because it and is not adjustment, speculative supported which by nothing other than and its Blonder provides no reasoning as to why a straight simplicity. up division method accurately captures the proper royalty here. As to factor four, David found that ResQNet's practice of licensing the code for its software products or negotiate re ler agreements for those straight patenting licenses, influence on a royalty alone. s bundl licenses that based would the instead of entering would tend to indicate and upward rate reasoning products, on permit Circuit the straight reliance rejected. licenses on the very By contrast, Blonder soundly reasoned that because ResQNet has executed three license agreements that patented technology, implicitly include this would operate a right to the '075 neutral or downward influence on the royalty rate of the patent in suit. Regarding between factor licensor and five, the licensee, commercial David Lansa and ResQNet were direct competitors, have an upward influence on the that the companies are not found that because this would tend to royalty rate. direct relationship onder found competitors because ResQNet typically provides its program to other companies to resell or 11 bundle and, produced at trial confirms that ResQNet s provide As the evidence as such t this factor was neutral. program to other did in fact companies to resell generally or bundle t Blonderts view is the better one. With that factors regard to eight the through remaining eleven factors t were Blonder found neut David t analyzing those factors together t found that they had an upward David reached this conclusion in part by relying on influence. the bundling Circuit. licenses specifically This reliance was improper. rejected by the Federal David additionally cited the significant revenues NewLook generated for Lansa t that one of the straight licensees have paid ResQNet royalt for nine years rather than redesign its product, and that the '075 patent has been deemed valid and factors. though infringing as upwardly influencing The Court is in agreement that these latter factors t not the re-bundling licenses t are mildly upwardly influencing. Based upon a consideration of all of the Georgia Pacific factors and in light of the Federal Circuitts opinion t a three percent royalty rate is reasonable here. B. Royalty Base 12 parties additionally disagree as to what royalty ly, the parties are Specifi base this rate should be applied. at odds over whether the rate should apply to a base that does or does not include maintenance ResQNet fees. argues that maintenance fees were included in the Court's original and should be included here, inclusion of maintenance while both parties royal ty base applied. calculated to which the the reasonable royalty as rate to the should be See ResQNet.com, 533 F. Supp. 2d at 418-19 ("Dr. David Lansa's revenue dispute Dr. David's from NewLook revenue were with While Lansa does not [Lansa President John] testified that the actual figures 2007 sales culations for NewLook maintenance revenue for fiscal years 2005 and 2006 and that In the original trial in presented evidence and argument associated maintenance 2004, asserts s is inappropriate. ResQNet has the better view. 2007, Lansa sion below Dr. Siniscal fiscal years 2002, David's estimates.") 2003, In the course of those proceedings, Lansa did not object to the Court's inclusion of maintenance revenue in the royalty base, appropriate amount only the maintenance revenue to which the royalty rate should be applied. 13 This Court's opinion of February I, 2008 the proper royalty base included maintenance fees, "Lansa shall provide Resqnet with data found that holding that indicating its Newlook software sales and maintenance fee revenue since March 31, 2007 to which the reasonable royalty rate of 12.5% shall be applied." Id. at 419 22. Lansa did not challenge the scope of the royalty base on appeal or question the inclusion of maintenance revenue in the base in its briefing before that court. The mandate rule bars relitiation not only of issues actually decided on appeal, but of issues that "fall within the scope of the judgment appealed from but Amado v. Microsoft Corp., 517 F.3d 1353 the Circuit affirmed this infringement on all es, Court's not raised." (Fed. Cir. 2008). finding with Here, regard which included maintenance to As such, the amount of the royalty base is therefore not now before this court and maintenance fees must be included in the royalty base. See, e. g., id. (party that did not challenge injunction in appeal could not challenge it on remand) Pacemakers, Inc. v. St. (Fed. Cir. 2009) trail on 2009 Med., Inc., i Cardiac 576 F.3d 1348, 1355 57 (invalidity could not be asserted on remand for infringement Power Lab., Jud~ stayed WL and damages) 4912205 i Meacham v. (2d Cir. 14 2009) Knolls (issue of Atomic waiver could not be addressed on remand because appeal adjudicated merits and waiver is antecedent to any analysis on the merits) . Notwithstanding, including maintenance on fees, the merits, should be all sales revenue, included in the royalty base. Lansa included neither fees. in of maintenance argues the the royalty base straight because, patent fees in licenses With regard to the IBM license, should not Defendant's included view, maintenance the parties point to an advertisement that was taken from IBM's website in 2011, provides: "IBM Passport Advantage be and Passport which Advantage Express include renewable Software Maintenance that complements your IBM software purchases. with receive and product upgrade Maintenance. Whereas purchase license acquisition, you support separately these some vendors deal./I (Def. Ex. 114.) provide IBM increase their return on investment features believes of the Software option its to customers (ROI) through this package At the threshold, little weight can be given the 2011 advertisement language because it is not ear to what degree if any bearing it has on IBM's practices in 2001. With respect to the advertisement, Lansa presented the testimony of Brandon Kay, who testified that 15 this language means that after an IBM customer purchases a license for a software application, they can purchase an additional license for product upgrade and maintenance, rather than purchasing each separately. (TR . 256 - 57 . ) In opposition, ResQNet provided the testimony of Gad Janay, who testified that "basic maintenance and support was included the product price and upgrades. ther you bought upgrade protection or you had to pay for a new license when you wanted to upgrade. tt was required for (Tr. 260 -61. ) product Even if a upgrades separate license and license that includes maintenance fees, IBM was paying royalties to ResQNet on upgrade licenses. Ex . (De f. 113 at Thus, 25) some if not all IBM maintenance and upgrade services was royalty bearing. In contrast, maintenance fees. In addition, " [a] Zephyr (Tr. 100-01, 112-15, Def. Ex. 52 at ZEP 212) . Lansa than (perpetual) introduced Subscription software license, less the Zephyr settlement expressly excluded 100 [and] advertisement, License Plan we can (Def. Ex. offer 115.) which (SLP) all maintenance. unites, option." an states includes the If you require a traditional Accordingly, purchase the value of maintenance would have been included in the net sales price of subscriptions, upon which Zephyr was paying royalties. E at 2.) However, the Zephyr license does not (Pl. Ex. charge maintenance if it was sold separately in the event a 16 for customer did not choose the subscription plan, 100 units was ordered. (Def. Ex. that 115.) is, when less than Thus, under the Zephyr license it appears that some but not all maintenance was royalty bearing. Moreover, one year of maintenance, the purchase price of the software, when NewLook is first ordered. 419. charged at 15% of is required to be purchased ResQNet.com, 533 F. Supp. 2d at Maintenance fees typically include delivering an updated version of the same, and here infringing, software and as such is a basis for customer demand for updates. at 1 See Def. Ex. 115 (noting that customer gets new version of the software in exchange for maintenance fees); Def. Ex. 114 at 2 maintenance gives customers the right to (stating that "upgrade at your leisure, conveniently downloading new software from the Web")}. In sum, properly while before t the issue Court, were maintenance it to reach fees is not the issue, maintenance fees should be included in the royalty base. The parties are base, June including 24, (Blonder) ; 2008 in agreement maintenance is fees, $5,475,512. from (Def. that September Ex. Ex. C at Appendix 2B (David).) 17 the 105 at total 25, revenue 2001 to Schedule 1A C. Damages Are Awarded From September 25, 2001 to June 24, 2008 In addition to the appropriate royalty rate and base, the parties disagree should be on the proper period over which damages culated. Lansa argues that on (Tr . 247 i De f. redesigned. June 24, Ex . 108 at 2.) these changes amount to an ef NewLook 2008 1 Lansa alleges that tive design around and as such damages are only appropriate through June 241 2008. to whether the allegedly new product infringes party generally deserves the infringement question at a Moazzam, 55 F.3d 1567 opportunity (Fed. Jan. 2009) continuing Comtronics 351 1 354 Inc. I v. (N.D.N.Y. in order analyzing the so enter Medtonic (E.D. Tex. infringement final judgment) Inc., i from Eagle 198 F.R.D. (refusing to reach issue of redesign This conclusion is not altered by Inc. v. EchoStar (Fed. Cir. 2011), which addressed the 1 applicable a litigate 2 0 0 9 WL 1 7 5 6 9 6 rcuitls recent opinion in Tivo Corp., 646 F.3d 869 standards I ingua Assocs., John Mez 2000) to ----- pre-verdict to when not properly presented) . the Federal ¢ (severing claims "the modifying see 1995) i Boston Scientific 1 I With regard new trial. I' Vascular v. 23 was redesign to in and the procedural context 18 of requirements contempt for proceedings under an injunction enforcing patent distinct from the unique context of a rights. remand a of damages as to the established infringement, a previously issued Additionally, "new" insufficient NewLook infringes the Court. part injunction, the \ 075 or their in U.S. ("Because tied to the experts context the Surgical assessed of a Corp., determination the infringement infringement beginning at evaluation of chooses is to patent new following the redesign in 2008. v. as a is calculation presented whether has case and in absence of or here. not the been presented to No technical expert has been offered. appropriate Corp. that evidence That what Nor have the damages hypothetical might be negotiation See 435 of F.3d 1356 reasonable being fferent (Fed. Cir. royalty redressed, reasonable royalty damages./I). Thus, to pursue an infringement claim against damages a time requires 2006) is separate a separate if ResQNet the redesigned NewLook, it must do so in a separate action. Damages are therefore awarded September 25, 2001 to June 24, 2008. 19 for the period of Conclusion For the reasons set forth above, a damages award in the amount of three percent on a royalty base of $5,475,512 is entered, for a total of $164,265 prior to prejudgment interest. Submit judgment on notice. It is so ordered. I New York, NY December :J-' ul'o U.S.D.J. '1011 20
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
