IP Law Daily Court tosses jury’s $3.5 million award to Core Wireless for LG’s infringement, orders new damages trial
Wednesday, August 24, 2016

Court tosses jury’s $3.5 million award to Core Wireless for LG’s infringement, orders new damages trial

By Cheryl Beise, J.D.

A jury’s award of $3.5 million as a reasonable royalty to Core Wireless Licensing for LG’s past infringement of two smart phone user interface patents was not supported by sufficient evidence in the trial record, the federal district court in Marshall, Texas, has decided. While substantial evidence did support the jury’s verdict that the asserted patents were valid and infringed by LG smartphones utilizing certain Android operating systems, Core Wireless’s damages expert failed to support his calculation of a ten cents per unit reasonable royalty rate. Among other errors, the expert used the price of a Windows Mobile operating system in 2008 as the basis for a hypothetical negation regarding the Android system in 2013. Consequently, a new trial on damages was warranted (Core Wireless Licensing S.A.R.L. v. LG Electronics, Inc., August 23, 2016, Gilstrap, R.).

Core Wireless Licensing S.A.R.L. ("Core") is a Luxembourg company patent assertion entity wholly-owned by Conversant Intellectual Property Management Inc. In this case, Core sued LG Electronics, Inc.; LG Electronics MobileComm U.S.A., Inc. (collectively, "LG") for infringement of certain claims of U.S. Patent Nos. 8,434,020 (the ’020 patent) and 8,713,476 (the ’476 patent), relating to interface techniques used to access various functions of a mobile device application. The accused devices were LG phones sold in the United States since April 2013 that implemented the Jelly Bean, KitKat, and Lollipop versions of the Android operating system.

A trial was held in March and the jury returned a verdict on March 24, 2016. The jury found that the asserted patent claims were valid and infringed by LG’s accused devices. The jury awarded $3.5 million in damages to Core as a reasonable royalty for LG’s infringement. LG filed motions for judgment as a matter of law (JMOL), and in the alternative for a new trial, on the issues of infringement, validity, and damages.

Infringement. LG’s motion for JNOV on infringement was based the court’s construction of two claim terms during trialAt trial, Core asserted dependent claims 11 and 13 from the ’020 patent and dependent claims 8 and 9 from the ’476 patent. After trial began, it became apparent that a claim construction dispute existed. The court heard arguments and construed the disputed terms—"un-launched state" as "not displayed" and "reached directly" as "reached without an intervening step"—outside the presence of the jury. The court declined to revisit its claim construction rulings. LG’s Rule 50 motion was an inappropriate vehicle for LG’s re-urged and new claim construction arguments, the court said. In addition, LG did not preserve its claim construction arguments in its Rule 50(a) motion.

LG also argued that even accepting the court’s constructions, no reasonable jury could have found that the accused notifications could be reached from the main menu without using the status bar as "an intervening step." However, there was sufficient evidence to support Core’s position that the jury reasonably could have concluded that the status bar was part of the main menu, according to the court.

LG’s motion for a new trial based on purportedly unduly certain prejudicial evidentiary rulings also was rejected by the court as meritless.

Validity. LG argued that it was entitled to JMOL on the issue of invalidity because LG’s expert "established that the Asserted Claims were anticipated by U.S. Patent No. 6,415,164 issued to Blanchard, and Core provided no rebuttal evidence." The court disagreed that the jury had to accept the testimony of LG's expert witness. "The Court declines to improperly transform LG’s burden of proving invalidity by clear and convincing evidence to a burden on Core to affirmatively prove validity," the court said. The court also rejected LG’s objection to the court’s decision to exclude evidence regarding an Ericsson smartphone as a prior art reference on the ground that LG failed to timely disclose the reference.

Damages. In this case, Core sought a reasonable royalty damages based on the value of the Android operating system in LG’s accused products at the time of an April 2013 hypothetical negotiation. Based on the testimony of Core’s damages expert, Dr. Stephen Magee, the jury awarded a reasonable royalty damages of $3.5 million, or ten cents per infringing unit sold since April 2013.

Magee admitted that he had "not seen any evidence" related to the cost of the Android operating system. Instead, he used an estimated value of the non-accused Windows Mobile operating system as a substitute for determining the approximate value of the accused Android operating system. Dr. Magee assigned a value to the Windows Mobile operating system of $11.50 based solely on a 2008 article that appeared in CNET magazine. LG, however, contended that both the Android and Windows Mobile operating systems were cost-free in April 2013, and Core offered no evidence to the contrary. Magee admitted that he did not know whether the Windows Mobile operating system was free to LG in 2013.

In apportioning a value to the patented feature, Magee began by assuming $0.05 as the per-unit royalty floor, and moving up in increments of five cents. Magee opined that $0.10 was a reasonable rate that would have been acceptable to both sides. Magee acknowledged that licenses in the mobile phone industry commonly include per-unit royalty rates of one-tenth of a cent or less and admitted that he instead chose to start with an increment of five cents based on one patent pool licensing agreement that did not include the patents-in-suit.

LG first argued that, based on Magee’s opinions and the evidence Core presented at trial, no reasonable jury could have found Magee’s proposed value of the Android operating system and accompanying ten-cent royalty rate to be appropriate benchmarks for determining damages. The court agreed that Magee did not tie his analysis of the cost of the 2008 Windows Mobile OS to the 2013 hypothetical negotiation of the Android OS. Magee failed to account for any differences between the two products. There was no evidence that the Windows Mobile OS even practiced the patent and it was not an accused product at trial. "Core failed to offer sufficient evidence for the jury to find that Windows Mobile is an acceptable economic substitute or that it bears any relationship to ‘the incremental value that the patented invention adds to the end product,’" the court said.

LG next argued that Magee failed to properly apportion the value of the patented feature because he implemented "an unsubstantiated $0.05 per unit royalty floor" and "improperly invoked the entire market value rule." Again, the court agreed. While Magee discussed the Georgia-Pacific factors, he did not present adequate justification or evidence for adjusting the royalty rate by increments of five cents. Magee further "exacerbated this problem by ultimately arriving at a ten-cent royalty rate without providing a logical opinion supported by evidence for stopping at that increment," the court said. In the court’s view, such an approach was fundamentally arbitrary and analogous to other "rule of thumb" valuation practices the Federal Circuit has consistently rejected.

Finally, the court agreed with LG that Core’s decision to show the jury the entire average $258 price of a smartphone during Magee’s presentation of his damage calculation was potentially prejudicial.

The court accordingly granted LG’s motion for a new trial on damages, but otherwise denied its motions for JMOL or a new trial.

The case is No. 2:14-cv-911-JRG.

Attorneys: Adam S. Hoffman (Russ August & Kabat) for Core Wireless Licensing S.A.R.L. David L. Anderson (Sidley Austin LLP), Adam Botzenhart (Quinn Emanuel Urquhart & Sullivan LLP) and Allen Franklin Gardner (Gillam & Smith LLP) for LG Electronics, Inc. and LG Electronics MobileComm U.S.A., Inc.

Companies: Core Wireless Licensing S.A.R.L.; LG Electronics, Inc.; LG Electronics MobileComm U.S.A., Inc.

MainStory: TopStory Patent TexasNews

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