IP Law Daily Sprint’s liability, Prism’s $30M award unsuccessfully challenged in dispute over security-systems patents
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Monday, March 6, 2017

Sprint’s liability, Prism’s $30M award unsuccessfully challenged in dispute over security-systems patents

By Mark Engstrom, J.D.

A federal district court did not err in denying judgment as a matter of law (JMOL) to Sprint Spectrum after a jury had found that the wireless service provider had infringed four claims of two Prism Technologies patents on systems and methods for managing access to protected information using untrusted networks, the U.S. Court of Appeals for the Federal Circuit has ruled. Similarly, the district court did not err in denying Prism’s request for additional monetary relief for future infringement. The parties’ cross appeals were therefore denied (Prism Technologies LLC v. Sprint Spectrum LP, March 6, 2017, Taranto, R.).

Lawsuit. Prism sued Sprint for the infringement of U.S. Patent Nos. 8,127,345 (Method and system for managing access to protected computer resources provided via an internet protocol network") and 8,387,155 ("System for managing access to protected computer resources"). The patents claimed and described methods and systems for managing access to protected information that was provided over "untrusted" networks. After finding that Sprint had infringed two claims of the ’345 patent and two claims of the ’255 patent, a jury awarded Prism $30 million in reasonable-royalty damages. Sprint sought JMOL and a new trail and Prism sought additional damages for future infringement. The district court denied those motions and both parties appealed.

Arguments on appeal. Sprint argued that the district court had erred by: (1) allowing Prism to modify its claim construction; (2) admitting a Prism-AT&T Settlement Agreement; (3) applying the wrong legal standard in deciding its motion for a new trial; and (4) admitting Prism’s cost-savings evidence for damages. Prism argued that the district court had erred in denying its motion for ongoing royalties—as additional monetary relief for Sprint’s infringement "past the period" to which the jury verdict was limited.

Claim construction. The district court did not allow Prism’s expert to modify the court’s construction of "Internet Protocol network," and thus did not err. According to the Federal Circuit, the district court had correctly concluded that the expert’s testimony was consistent with the patents’ requirement of an "Internet Protocol network," a term that had already been construed to refer to certain "untrusted" networks with "no controlling organization."

Sprint’s alternative argument—for a new trial based on the allegedly improper testimony by Prism’s expert—was similarly meritless. According to Sprint, the expert had testified that the "path through the [accused] network," not the "path to access the [accused] network," was undefined, as required by the district court’s construction. What the expert actually said in his testimony, however, was that the path that the data used to access the backhaul networks was undefined—because it varied as a user traveled from place to place.

Admission of settlement agreement. Sprint challenged the district court’s denial of its motion to exclude a settlement agreement between Prism and AT&T, an agreement that Prism considered admissible for its probative value—in a supporting role rather than principal role—on the proper amount of "reasonable royalty" damages under 35 U.S.C. §284.

The Federal Circuit found that the district court had an adequate basis for admitting the settlement agreement, which covered the patents at issue in this case. According to the Federal Circuit, evidence was needed to reasonably address "what bearing the amounts in the Agreement had on the value of the particular patents" that were challenged in this case. Prism supplied that evidence, the court explained, including information about what the settlement agreement said about attributing amounts to particular patents and, more reliably, creditable expert evidence about how the other agreement-covered patents related to AT&T’s business operations. Prism further supplied evidence about the comparability of uses, by AT&T and Sprint, of the technology that was covered by the patents in suit (and the lesser uses that were made by licensees in the "lower-amount Prism settlements" that Sprint had emphasized.)

According to the Federal Circuit, the jury was able to evaluate parties’ evidence on the subject. Moreover, Sprint had "decisively undermined" the probative value of the settlement agreement because it failed to provide any reason to require the district court to find non-comparability.

Legal standard for new trial. Sprint argued that, in denying its motion for a new trial, the district court had considered whether the weight of the evidence supported the jury’s verdict, but it ignored Sprint’s allegations of legal error. The Federal Circuit, however, did not infer from the district court’s opinion a failure to consider Sprint’s legal-error arguments. In the appellate court’s view, the opinion of the district court reflected "only a choice about what to discuss, not a choice about what to consider." In any event, Sprint failed to show harmful error.

Admission of cost-savings evidence. Sprint argued that the district court had erred in admitting Prism’s principal damages evidence, which was based on an estimation of costs that Sprint had avoided by infringing the patent in suit. At trial, Prism presented evidence to show that a reasonable royalty would reflect Sprint’s willingness, in a hypothetical negotiation, to pay an amount that was calculated by referencing the costs that Sprint would have incurred—in order to provide its customers the kind of service it wanted to offer them—if it had chosen not to infringe (in this case, the costs of building a private backhaul network instead of leasing backhaul services from third-party providers).

Prism’s expert estimated that Sprint’s cost savings—i.e., the difference between Sprint’s building costs and leasing costs—would be "at least equal" to Sprint’s leasing costs. Sprint argued, however, that Prism’s approach was insufficiently tied to the invention’s "footprint" because Prism did not "invent" backhaul networks. Sprint also argued that Prism failed to prove that Sprint’s leasing costs were an appropriate basis for estimating cost savings. The Federal Circuit rejected each of those challenges.

Sprint’s argument that Prism’s damages model was insufficiently tied to the "footprint" of the invention misapprehended the relevant legal principles, the Federal Circuit explained. The hypothetical-negotiation approach to calculating reasonable-royalty damages tried to ascertain the royalty that the parties would have agreed to if they had successfully negotiated an agreement just before the infringement began. Although a patentee had to carefully tie proof of damages to the invention’s footprint in the marketplace, that requirement for valuing the patented technology could be met if the patentee adequately showed that the defendant’s infringement had allowed it to avoid a different, more costly course of action. A price for a hypothetical license could thus be based on consideration of the costs, availability of non-infringing alternatives, and the cost savings of the potential infringer.

Prism’s damages evidence complied with those principles, the Federal Circuit concluded. Prism’s experts had testified that, in the absence of a license, Sprint would have attempted to design around the patented invention by building its own private backhaul network, and that testimony was reasonably based on the expert’s considerable experience and on relevant industry publications. Because Sprint had stipulated against the introduction of an argument or evidence for a different non-infringing alternative, it could not complain that the jury had credited the only theory that was presented to it.

Because Sprint’s argument that leasing costs were an unreliable basis for estimating cost savings was similarly unavailing, the Federal Circuit concluded that the jury could have reasonably rested its reasonable-royalty determination on the evidence that was presented at trial.

Ongoing royalties. In its cross-appeal, Prism argued that the district court had erred in denying its motion for ongoing royalties for future infringement by Sprint (i.e., past the period to which Prism said the jury verdict was limited). Significantly, however, the district court had found that an additional award was inappropriate because the jury’s award for damages included royalties for Sprint’s "past, present, and ongoing infringement." Because the Federal Circuit could not find an inadequate basis to disturb that characterization of the jury verdict, the ruling of the district court was affirmed.

The case is Nos. 2016-1456 and 2016-1457.

Attorneys: Paul J. Andre (Kramer, Levin, Naftalis & Frankel, LLP) for Prism Technologies LLC. Carter Glasgow Phillips (Sidley Austin LLP) for Sprint Spectrum LP.

Companies: Prism Technologies LLC; Sprint Spectrum LP, d/b/a Sprint PCS

MainStory: TopStory Patent FedCirNews

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