In a case regarding mobile phone picture uploading, the Federal Circuit affirmed a $15 million jury verdict against Samsung despite its kitchen-sink appeals on claim construction, verdicts, and damages. Regarding damages, the appeals court concluded that Summit 6’s damages expert’s methodology was acceptable despite his admission that it was not previously used or published in peer-reviewed journals. It also ruled that the lower court properly denied Plaintiff’s request for an ongoing royalty because the jury awarded a lump-sum after hearing testimony that it would compensate Summit for the life of the patent.
The technology involves taking a picture with a smart phone, pre-processing (e.g. resizing) the picture, then transmitting the picture to a server over a wireless network. Samsung’s damages expert testified that because infringement takes place at the software level, no company would agree to pay a running royalty on a phone, and that a proper royalty would be $1.5 million lump sum, based on two comparable license agreements. Plaintiff’s damages expert opined that the reasonable royalty would amount to $0.28 per phone over the life of the patent. To arrive at this royalty rate, the expert first apportioned the selling price based on camera cost, finding that the camera component accounted for 6.2% of the production costs. The resulting $14 in revenues attributed to the camera was then further apportioned down to $3 based on the percentage of users who use the infringing features (according to Defendant’s surveys and third-party research). He then calculated that revenues of $3 corresponds to profits of $0.56 per unit, then he split this amount equally to arrive at a $0.28 royalty (citing academic articles and the Nash Bargaining Solution to support the 50-50 split). This rate would yield total royalties of $29 million. In rejecting Samsung’s arguments that this method was unreliable, the Federal Circuit noted that the “damages methodology was based on reliable principles and was sufficiently tied to the facts of the case” and that “publication … is not a sine qua non of admissibility” (citing Daubert). The court also rejected Samsung’s argument that a feature’s use isn’t proportional to its value, citing the Lucent decision and Georgia-Pacific Factor 11 (“use of the invention”). The court also rejected Samsung’s argument that the expert was unqualified to rely on third-party survey data, noting that the expert need not be a survey expert if the data is of a type reasonably relied upon by experts in the field to form opinions upon the subject.
Regarding an ongoing royalty, the court notes that it “has not directly addressed whether a jury can award lump-sum damages through the life of the patent. We have, however, permitted such relief.” The court then upholds the district court’s denial of an ongoing royalty, explaining that (1) Defendant’s expert testified that a lump-sum was appropriate, (2) Plaintiff’s expert admitted that a lump-sum award would compensate Plaintiff through the life of the patent, and (3) the jury wrote “lump sum” on the verdict form.
Summit 6 has also sued HTC, Apple, LG, Motorola, and Twitter in similar lawsuits. After the $15 million verdict earlier this year, each of those suits has settled.
While this decision doesn’t set any major precedents with respect to damages, it is a useful reminder about the relevance of lump-sum versus running royalties, as well as an interesting example of court-approved apportionment techniques.
Summit 6 v. Samsung Electronics Co., et al., Fed. Cir., September 21, 2015