Yesterday, this blog witnessed a sudden surge in search-engine referrals for Ericsson v. TCL. Our earlier posts on this matter are located here and here. A summary of the damages issues is newly-provided by the court:
In an unexpected turn of events, Judge Payne has reconsidered his decision to vacate the jury verdict and has reinstated the previous award.
The crux of Judge Payne’s reversal hinges on his reconsideration of whether “the Daubert filter” was called for in this matter. Previously, he had concluded that it was; in his reversal, however, he decides instead that trial afforded sufficient opportunity to defendant to address issues of evidentiary weight.
With regard to the prior conclusion that future products – neither existing nor practicing – were improperly “accused” and thereby improperly made subject to damages, the indeterminate nature of a jury’s decision making now affords the plaintiff its award:
Judge Payne not only affirmed the jury’s verdict of $75 million, but he made the award subject to a $25 million enhancement.
His lengthy discussion of “willfullness” provides useful background to the topic and includes the pithy observation that, “One juror’s ‘malicious’ conduct might be another’s benign competitive business activity.” Finally, Judge Payne concludes:
We admit that we did not foresee Judge Payne’s reconsideration; we suspect TCL is even more surprised. Yesterday’s developments make a “Part 4” seemingly inevitable.
In an earlier post, we discussed the possible reasons Judge Payne vacated a jury damages verdict of $75 million for TCL’s infringement of Ericsson’s patents. The redacted version of Judge Payne’s order now provides explanations for why he believes the jury’s award should not stand.
First, Ericsson’s damages expert, Mr. Robert Mills, relied upon a survey expert in a manner that, according to Judge Payne, was “not based on sufficient facts or data, not the product of reliable principles, and not reliably based on the facts of the case.” The survey asked consumers whether they would have purchased the accused products, had those products not possessed the commercial embodiment of the patented technology. Apparently, 28% of those survey respondents said they would not have made the purchase without the accused features. Mr. Mills linked that 28% survey response to a damages theory relating to 28% of TCL’s profits:
Judge Payne explains that Mr. Mills’ use of the otherwise-reliable survey: 1) fails properly to apportion the numerous “essential” features of the phone, and 2) fails to “account for how his theory would result in the erosion of all of TCL’s profit. Realistically, there are many features on a phone that would likely yield survey results similar to those obtained for the ’510 patent, e.g., ability to make a call, text messaging, Wi-Fi connection…. To conclude that any one of these features—simply because it is considered essential to a consumer—could account for as much as a quarter of TCL’s total profit is unreliable and does not consider the facts of the case, particularly the nature of smartphones and the number of patents that cover smartphone features.”
Second, Judge Payne found that Mr. Mills’ use of forecast-products, neither named nor accused in the case, together with a lump sum resulted in the inclusion of unaccused products in his royalty calculation.
Finally, more broadly and of expressed interest in our earlier post, Judge Payne notes timing issues involving a contemplated lump-sum payment, and implied consequences for discounting/interest, might need to be left for a jury to decide:
Judge Payne of the Eastern District of Texas vacated a jury verdict awarding Ericsson a lump sum of $75 million for infringement of its ‘510 patent by TCL Communication. Noting “for reasons stated in a contemporaneous order” (which appears not to be on the PACER docket yet), Judge Payne decided that Plaintiff expert Robert Mills’ damages analysis – partially adopted by the jury – was not acceptable as a matter of law.
From defendant’s motion for judgment as a matter of law, it appears Mr. Mills relied upon sales forecasts which included products not accused of infringing. Further, he relied upon a survey expert who did not tie analysis to the claimed invention. He is also accused of violating the entire market value rule. Finally, Mr. Mills is accused of failing properly to discount his damages analysis back to the date of the hypothetical negotiation, having instead discounted back to the date of notice (i.e., that date damages began to accrue). All but the ultimate issue regarding discounting seem sound reasons for vacating a jury award.
This last alleged transgression is most interesting, however, because it is unclear which date might make most sense for discounting a damages value. Mr. Mills appears to have derived a lump-sum damages award using a hypothetical negotiation construct. The award appears to be based upon past and future (expected) infringement. Mr. Mills then adjusted his lump sum back to the date damages should begin to accrue based upon notice. The JMOL legal argument claims, in contrast, that he should have discounted the award back to the date of the hypothetical negotiation (which was years before the notice date):
The citation above to Wang Labs, Inc. v. Toshiba Corp. appears unrelated to the specific issue of discounting. Similarly, LaserDynamics addresses an issue unrelated to discounting a royalty payment. In both those cited cases, the expert failed to assess a reasonable royalty at the time of the hypothetical negotiation, and instead used the date damages began to accrue as the hypothetical negotiation date. This appears to be different from what Mr. Mills did. Defendants are not arguing that Mills used the wrong hypothetical negotiation date: rather, they are arguing that his proffered lump-sum damages should have been discounted to the date of the hypothetical negotiation. Judge Payne’s order, however, does not elaborate on which of the defendant’s arguments he found persuasive; nor does it afford guidance with regard to the specific issue of proper discounting.