Vertical Computer Systems Inc (fka VCSY)

[lbman]

Increased volume and exposure


Damages Theories Survive MSJ
Posted on July 29, 2013 by pstrand Case Cite
Interwoven, Inc. v. Vertical Computer Systems, No. 3:10-cv-04645, 2013 WL 3786633 (N.D. Cal. July 18, 2013).


IPDQ Commentary
Denying a motion for summary judgment, the court in Interwoven concluded the patentee provided sufficient evidence to raise issues of fact regarding lost profits and reasonable royalty damages. Even though the court questioned the strength of the evidence, it concluded cross-examination at trial was the best way to challenge the evidence. This was likely scant comfort for the accused infringer now faced with the prospect of a trial on damages. Moreover, the likelihood that a jury award will survive Federal Circuit scrutiny under today’s more rigorous standards (e.g. LaserDynamics) may lead to an expensive, and ultimately irrelevant, trial.


Case Summary
Plaintiff filed a complaint seeking a declaratory judgment of invalidity and non-infringement. Id. at *1. Plaintiff filed a motion for summary judgment, arguing Defendant could not recover damages under either a lost profits or reasonable royalty theory and seeking to exclude the testimony of Defendant’s damages expert, Joseph Gemini, and a declaration of Defendant’s Chief Technology Officer. Id.

The court denied the motion in all respects.

Lost Profits – Referencing the four Panduit factors, and concluding the Defendant patentee had made a prima facie showing of entitlement to lost profits, the court said:

•Defendant’s evidence of the absence of acceptable non-infringing substitutes was sufficient to raise the issue to the jury. Id. at *9. Defendant’s expert relied on testimony from Defendant’s Chief Technology Officer (“CTO”) and such testimony could be the subject of “vigorous cross examination.” Id.
•Defendant also supplied sufficient evidence that it had the capacity to compete. Id. at *9 – *10. Citing Rite-Hite, the court said, “While rare that a patentee may recover lost profits without evidence of its own sales, . . . that possibility remains open. Whether [the patentee] had the ability to increase production such that it could compete in the relevant market is disputed.” Id. at *10.
•In an effort to capture all infringing sales, Defendant argued Plaintiff forced it out of a two-supplier market. Even though Plaintiff characterized that assertion as “rank speculation,” it raised a question as to whether the infringement was responsible for blocking the patentee from the market. Id.
•Defendant’s use of a 26% profit rate was based on a business plan dated just prior to the infringement and that was: (1) prepared by a subsidiary of the patentee; (2) never implemented; and (3) related to different products, provided an “indication” of expected profitability and was permissible. Id.
Reasonable Royalty

•Defendant patentee presented a question of fact as to the extent the patented technology allegedly drove consumer demand for the infringing products. Id. at *12. In concluding the entire market value of the infringing products was attributable to the patented feature, Defendant’s damages expert pointed to advertising material [it is unclear from the opinion whether the material was from the infringer or the patentee], as well as testimony from Defendant’s CTO. Id. at *11. This was sufficient to raise an issue of fact for the jury to decide. Id.
•The comparable licenses upon which Defendant’s damages expert relied were also sufficient to raise an issue for the jury, and concerns about the degree of comparability could be addressed through cross-examination. Id. There was no evidence the patents-in-suit had been licensed, and the licenses upon which the expert relied were the best evidence available. Id. While the expert’s analysis of the reason why the hypothetical license would differ from the comparable licenses, it was sufficient to get the issue to the jury. Id.
Motions to Exclude

Plaintiff sought to exclude the opinions of Defendant’s damages expert, Joseph Gemini, as unsupported and unreliable speculation. Id. at * 12. However, the court denied the motion, saying any disagreement with Gemini’s conclusions regarding lost profits was an issue of fact not properly the subject of a Daubert motion. Id. As to Gemini’s opinion regarding a reasonable royalty, the court concluded Gemini adequately considered adjustments to the royalty rate. The court reiterated that challenges were best made through cross-examination.

The court also denied the motion to strike portions of the declaration of Defendant’s CTO. Id. Rule 701 does not preclude all opinion evidence by lay witnesses. Opinions based on specialized knowledge are allowed. Id. The CTO had extensive personal experience regarding the functionality of the patented product. Id. Such opinions, though based on personal knowledge, were not so specific as to require technical or other specialized knowledge in violation of Rule 701. Id. Finally, motions to strike are disfavored. Id.



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