I/P Engine, Inc. v. AOL, Inc. et al
REPLY to Response to Motion re 833 MOTION for Judgment as a Matter of Law Renewed Motion For Judgment As A Matter Of Law On Damages Or A New Trial filed by AOL Inc., Gannett Company, Inc., Google Inc., IAC Search & Media, Inc., Target Corporation. (Noona, Stephen)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
I/P ENGINE, INC.
Civil Action No. 2:11-cv-512
AOL, INC., et al.,
REPLY IN SUPPORT OF DEFENDANTS’ RENEWED MOTION FOR JUDGMENT AS A
MATTER OF LAW ON DAMAGES OR A NEW TRIAL
As discussed in Defendants’ motion, I/P Engine presented no evidence of a royalty base
for the appropriate damages period. The single demonstrative exhibit that I/P Engine relied on
during closing arguments did not come close to satisfying its burden of proof. In response, I/P
Engine agrees that its demonstrative exhibit “has nothing to do with a royalty base” (Opp., 6) and
admits “that a specific damages number for the shortened period was not in evidence” (id., 10).
Thus, there is no question that I/P Engine failed to meet its burden on damages.
The principal argument in I/P Engine’s opposition is not that it introduced evidence of a
royalty base for the appropriate period, but the novel proposition that the remedy for its complete
failure of proof is a new trial, not entry of judgment as a matter of law. But numerous cases hold
that the Court is well within its discretion to enter judgment of no or nominal damages where a
patentee fails to meet its burden of proof, as I/P Engine has done in this case. See, e.g.,
Gustafson, Inc. v. Intersystems Indus. Prods., Inc., 897 F.2d 508, 509 (Fed. Cir. 1990) (affirming
award of zero damages where none were proven by patentee). Similarly, it is long established
that inadmissible evidence, such as relied on by I/P Engine, does not satisfy a plaintiff’s burden
of proof. Weisgram v. Marley Co., 528 U.S. 440, 456 (2000). Judgment as a matter of law is
especially appropriate here because I/P Engine was on notice of Defendants’ challenges to its
claim for pre-complaint damages and the numerous flaws its expert’s damages opinions long
before trial, yet made no effort to introduce evidence of a post-complaint royalty base or correct
its expert’s faulty analysis of damages. And the Court already rejected I/P Engine’s argument
that a new trial was not necessary to correct any injustice when it denied the motion for a new
trial on laches. (D.N. 884.)
I/P ENGINE FAILS TO CITE ANY EVIDENCE OF A ROYALTY BASE FOR
THE POST-COMPLAINT PERIOD
In light of the Court’s ruling on laches, I/P Engine bore the burden of proving the amount
of damages it incurred, limited solely to the post-complaint period. See A.C. Aukerman Co. v.
R.L. Chaides Constr. Co., 960 F.2d 1020, 1040-41 (Fed. Cir. 1992) (en banc). To make this
showing, I/P Engine was required to introduce evidence of a royalty base of revenue accrued
solely after the filing of the complaint. In response to Defendants’ motion for judgment as a
matter of law, however, I/P Engine concedes that the demonstrative exhibit, PDX-441, it
presented to the jury during closing arguments did not meet this burden because it “has nothing
to do with a royalty base” (Opp., 6) and is therefore not evidence of post-complaint damages.1
The only evidence I/P Engine cites (though only in a footnote) that it contends satisfies
its burden of proving a royalty base is evidence of the Defendants’ aggregated revenue that
spanned both the pre- and post-complaint periods. (Id., 6 n.5 (citing Trial Tr., 833-46).) But
As described in Defendants’ motion, I/P Engine encouraged the jury to rely on this
demonstrative as a measure of damages against Google, even though the demonstrative
aggregated claimed damages against all Defendants. (Motion, 13.) I/P Engine contends that any
challenge to its use of the demonstrative during closing arguments is waived by Defendants’
failure to object. However, I/P Engine’s misrepresentations to the jury regarding this
demonstrative, instead of relying on admitted evidence in the record, merely highlights its failure
of proof on the royalty base. Further, Defendants objected that this demonstrative was not
substantive evidence that the jury could rely on. (Trial Tr., 1954, 1965-66.)
there is simply no evidence in the record from which the jury could take these aggregate numbers
and determine the Defendants’ revenue for the post-complaint period, much less attempt any
apportionment of those revenues.
Rather than cite admitted evidence of a royalty base for the post-complaint period, I/P
Engine argues that it should have been allowed to introduce quarterly reports for all of AdWords
revenue. (Opp., 6.) According to I/P Engine, the jury could have used those total revenue
figures to calculate damages. This argument fails on at least two grounds.
First, total AdWords revenue is not evidence of a royalty base because it is not
apportioned. Even I/P Engine’s damages expert, Dr. Becker, testified that it was necessary to
apportion Defendants’ AdWords revenue to determine an appropriate royalty base. (Trial Tr.,
799, 819-20, 826; D.N. 870-1.) The jury, therefore, could not have relied on total AdWords
revenue—even limited to revenue generated after the filing of the complaint—as a proper royalty
base. See Cornell University v. Hewlett-Packard Co., 609 F. Supp. 2d 279, 287 (N.D.N.Y. 2009)
(Federal Circuit Chief Judge Rader, sitting by designation) (holding that “no reasonable jury could
have relied on” evidence of a royalty base that was not properly apportioned).
Second, I/P Engine never even attempted to introduce evidence of an apportioned
quarterly royalty base. I/P Engine was never precluded from introducing evidence of an
apportioned royalty base by quarter or any other timeframe. It simply chose not to do so. I/P
Engine’s argument is merely an after-the-fact attempt to explain its failure of proof. This is
grounds for judgment as a matter of law on past damages, not a new trial.
I/P ENGINE DID NOT MEET ITS BURDEN OF INTRODUCING EVIDENCE OF
AN APPORTIONED ROYALTY BASE
In addition to its failure of proof on a royalty base for the appropriate post-complaint
period, I/P Engine failed to introduce any evidence apportioning the royalty base evidence that it
did introduce (for the wrong period) to reflect the value of the allegedly patented versus unpatented
features of the accused systems, as it was required to do. Accordingly, I/P Engine’s proffered
evidence of a royalty base covering the entire pretrial period should not have been admitted, and
judgment as a matter of law is warranted for this additional reason.
I/P Engine does not argue or point to any admitted evidence that the entire value of the
SmartAds system is attributable to the patents-in-suit. Nor does it contend that it introduced
evidence attempting to apportion the incremental value of the allegedly patented technology.
Instead, I/P Engine argues that because it did not use all of Google’s search advertising revenue as
a royalty base, and instead used the revenue improvement it contended was attributable to
SmartAds, it had apportioned the royalty base well enough. Yet Dr. Becker admitted that “the
SmartAds system that’s accused in this case includes a lot more than just the technology that’s
accused of infringement.” (Trial Tr., 918.) Contrary to I/P Engine’s argument, there is no
authority to support I/P Engine’s argument that so long as a damages expert performs some
apportionment, his testimony is admissible. As explained in Defendants’ opening brief (Motion,
18-19), Federal Circuit Chief Judge Rader rejected this same argument when sitting by designation
in Cornell. 609 F. Supp. 2d at 285 (granting judgment as a matter of law where patentee “simply
stepped one rung down the [defendant’s] revenue ladder from servers and workstations to the next
most expensive processor-incorporating product without offering any evidence to show a
connection between consumer demand for that product and the patented invention”).
Contrary to I/P Engine’s argument, neither LaserDynamics, Inc. v. Quanta Computer, Inc.,
694 F.3d 51 (Fed. Cir. 2012), or Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir.
2011), hold that an expert royalty base opinion is admissible so long as the expert performs some
apportionment. Instead, LaserDynamics held that a plaintiff asserting a patent on an improvement
to an optical disk drive could not rely on revenue from the sale of an entire computer (including the
disk drive) as the royalty base. 649 F.3d at 68-69. Similarly, the Court in Uniloc stated that it is
improper to use revenue from a larger product or system as a royalty base when the patent covers
“but a very small component.” 632 F.3d at 1320. Here, it is undisputed that the accused
functionality is only a small part of the overall SmartAds system. Thus, as in LaserDynamics and
Uniloc, I/P Engine must apportion the royalty base correctly to account for the allegedly patented
versus unpatented features of SmartAds. By only performing a partial apportionment, I/P Engine’s
royalty base is overinflated when compared to the actual value of the patents-in-suit.
I/P Engine exacerbated this error when it argued that the 3.5% royalty rate was
sufficiently small to account for its failure to correctly apportion the royalty base. I/P Engine
contends that Dr. Becker did not agree that he adjusted his royalty rate in light of the lack of
precision in his apportionment opinion. (Opp., 23.) But I/P Engine made this argument to the
jury during its closing. (Motion, 18 (quoting Trial Tr., 2009).) By arguing that any lack of
precision in its apportionment method was acceptable in light of a sufficiently small royalty rate,
I/P Engine did exactly what the Court in both LaserDynamics and Uniloc explicitly told
patentees not to do. LaserDynamics, 694 F.3d at 69; Uniloc, 632 F.3d at 1319-20.
Finally, I/P Engine argues that “if Defendants believed Dr. Becker’s apportionment was
overinflated, they could have presented their own apportionment to the jury.” (Opp., 24.) But it
is not Defendants’ burden to prove damages; it is I/P Engine’s burden. And as LaserDynamics
explains, difficulties in apportioning the royalty base weigh strongly in favor of measuring
damages in the form of a lump sum, as Defendants have consistently argued throughout this
case. 694 F.3d at 70.
I/P ENGINE CITES NO EVIDENCE OF INFRINGEMENT PRIOR TO 2010
As stated in Defendants’ motion, the date of the hypothetical negotiation must be based
on the date of first alleged infringement. (Motion, 19-22.) At trial, I/P Engine relied on the use
of four specific templates to prove infringement, none of which were in use prior to 2010, much
less in 2004. (Id., 20-21.) I/P Engine does not dispute this in its opposition or present any
evidence that these templates were in use prior to 2010. Nor does it dispute, as its expert
testified, that many templates in SmartAds do not infringe. (See Trial Tr., 694-95.) Thus, there
is no evidence to support a 2004 date for the hypothetical negotiation, as I/P Engine contends.
It is no answer for I/P Engine to argue that Dr. Becker “must presume infringement.”
(Opp., 14.) Although Dr. Becker is not required to perform an infringement analysis himself,
there must be support in the record for the assumptions that underlie his opinion, including the
date of first infringement. Basile Baumann Prost Cole & Assocs., Inc. v. BBP & Assocs. LLC,
No. WDQ-11-2478, 2012 WL 3115867, at *4 (D. Md. July 25, 2012) (“But ‘an expert’s opinion,
where based on assumed facts, must find some support for those assumptions in the record.’”)
(quoting McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 801 (6th Cir. 2000)). I/P Engine fails to
cite any evidence of infringement prior to 2010, much less in 2004.
The only evidence I/P Engine cites in an attempt to support an earlier date for the
hypothetical negotiation is conclusory testimony from its technical expert, Dr. Frieder. (Opp., 15
(citing Trial Tr., 592-600).) Dr. Frieder testified that he had looked at various documents dated
earlier than 2010 and concluded “basically they all matched.” (Trial Tr., 592-93.) Those
documents, however, describe SmartAds in only the most general terms. (See, e.g., id., 594
(document is a “high-level description”); id. (document “basically talk[s] about a Quality
Score”).) None of them identify any pre-2010 template that allegedly corresponds to the accused
templates in the 2010 version of SmartAds. I/P Engine has, therefore, failed to meet its burden
of establishing a date of first alleged infringement prior to 2010.
It is also no answer to argue, as I/P Engine does, that Defendants did not present evidence
of an alternative date for the hypothetical negotiation. It is not Defendants’ burden to prove
either infringement or damages. Nor is I/P Engine correct when it contends that either
Defendants or their damages expert argued for a 2004 date of first infringement. Defendants’
damages expert, Dr. Ugone, testified that he “accepted [Dr. Becker’s assumption of a 2004 date]
for purposes of this discussion”. (Id., 1580.) The fact that Dr. Ugone assumed Dr. Becker’s
2004 date of the hypothetical negotiation for purposes of his own analysis is not substantial
evidence of infringement in 2004. Defendants are therefore entitled to judgment as a matter of
law on the date of the hypothetical negotiation.
I/P ENGINE CITES NO EVIDENCE TO SUPPORT A RUNNING ROYALTY
I/P Engine also fails to support its contention that the hypothetical negotiation would
have resulted in a running royalty. First, I/P Engine cites generalized testimony describing
theoretical advantages that a running royalty may offer under some circumstances. (Opp., 17
(citing Trial Tr., 772).) Such testimony, without any discernible link to the particular facts in this
case, does not come close to the substantial evidence necessary to defeat judgment as a matter of
law here. See Uniloc, 632 F.3d at 1315 (“To properly carry this burden, the patentee must
‘sufficiently [tie the expert testimony on damages] to the facts of the case.’”) (quoting Daubert v.
Merrell Dow Pharm., Inc., 509 U.S. 579, 591 (1993)). Second, I/P Engine cites licenses to the
Overture patents. But for the reasons stated in Defendants’ motion, those agreements are not
comparable and do not involve any party to the hypothetical negotiation in this case. (Motion,
28-29.) Third, I/P Engine cites testimony that Google had licensed the Overture patents. But
there is no evidence in the record that the Google-Overture agreement was for a running royalty.
Indeed, the facts are to the contrary. Although not admitted at trial, the agreement between
Overture and Google was for a lump-sum payment of stock. (D.N. 468-4, ¶ 155.) Fourth, I/P
Engine cites evidence that Google lacked a formal licensing policy. But the lack of a formal
policy is not substantial evidence showing that Google would have agreed to a running royalty in
this case. Dr. Becker in fact agreed that Google had a preference for lump sum royalties. (Trial
Tr., 885.) Fifth, I/P Engine cites testimony that Lycos had a slight preference for a running
royalty in 2007. (Id., 1683.) But I/P Engine failed to cite testimony that, prior to that date,
Lycos had no such preference. (Id., 1749-50.) Therefore, none of this evidence supports a
running royalty. And without substantial evidence to support the jury’s verdict on this issue,
judgment as a matter of law is warranted for this additional reason.
I/P ENGINE FAILS TO IDENTIFY ADMISSIBLE EVIDENCE TO SUPPORT A
I/P Engine argues that whether Dr. Becker’s testimony was sufficient to support the
alleged royalty rate was simply an issue of credibility for the jury. (Opp., 18-21.) For that to be
the case, however, Dr. Becker’s opinion must first meet the Federal Circuit’s reliability standards
for the admissibility of expert damages testimony. Here, numerous errors regarding Dr. Becker’s
analysis of the applicable royalty rate rendered his testimony unreliable and inadmissible,
including: (1) he gave no weight to the sale price of the patents, (2) the Overture licenses were
not entered into near the correct hypothetical negotiation date in 2010; (3) he performed no
comparison of the scope of the Overture patent portfolio with the patents-in-suit; (4) the parties
to the Overture agreements were in vastly different bargaining positions than the parties to the
hypothetical negotiation; (5) the Overture patents were well-known in the industry, unlike the
patents-in-suit; and (6) I/P Engine’s technical expert could only testify that the Overture patents
were comparable “in a general sense.”
In response, I/P Engine argues that both the Overture patents and the patents-in-suit relate
generally to “search advertising.” (Opp., 19.) This tenuous link, however, does not allow an
expert to ignore all other evidence in the record, including prior transactions involving the actual
patents-in-suit. LaserDynamics, 694 F.3d at 79-80 (noting importance of “[a]ctual licenses to the
patents-in-suit”); ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 872 (Fed. Cir. 2010) (“most
reliable license in this record” was license to the patent in suit); Integra LifeSciences I, Ltd. v.
Merck KGaA, 331 F.3d 860, 871 (Fed. Cir. 2003), judgment vacated on other grounds, 545 U.S.
193 (2005) (damages award vacated where inconsistent with sale price of company owning the
patent). Otherwise a patentee would be free to cherry pick any “search advertising” related
license involving different patents and different parties and argue for a royalty rate completely
divorced from actual transactions involving the patents-in-suit and the parties to the hypothetical
negotiation.2 Simply put, an expert may not ignore the most relevant evidence and base his
entire opinion on agreements that are only remotely related, if at all, to the circumstances
surrounding the hypothetical negotiation at issue in this case.
I/P Engine argues that Dr. Becker “acknowledged” and “considered” the differences
between the Overture agreements and the hypothetical negotiation, but did not find them
significant. (Opp., 20-21.) But the Federal Rules of Evidence do not permit “opinion evidence
that is connected to existing data only by the ipse dixit of the expert.” See Kumho Tire Co. v.
Carmichael, 526 U.S. 137, 157 (1999). It is, therefore, not sufficient for Dr. Becker to
“consider” but ultimately place no importance on evidence, such as transactions involving the
I/P Engine does not dispute, for example, that its technical expert, Dr. Frieder, testified
that the Overture patents do not relate to methods for filtering advertisements for relevance,
unlike the patents-in-suit. (Trial Tr., 716-17.) Instead, I/P Engine argues, without explanation,
that this somehow makes the patents-in-suit “better.” (Opp., 20.) Even crediting that position, it
confirms that the Overture licenses are not directed to comparable technology.
asserted patents, that the Federal Circuit has repeatedly held is among the most relevant evidence
for determining a reasonable royalty as a matter of law. LaserDynamics, 694 F.3d at 79-80;
ResQNet.com, 594 F.3d at 872; Integra LifeSciences, 331 F.3d at 871.
I/P ENGINE’S FAILURE OF PROOF DOES NOT ENTITLE IT TO A “DO
OVER” ON DAMAGES
I/P Engine argues that it is entitled to a new trial— limited solely to the amount of
damages against all Defendants—to fix the numerous errors in its case, despite having full
knowledge before trial of Defendants’ laches defense and their multiple challenges to its
damages theories. Contrary to I/P Engine’s argument, it is neither required nor sensible for the
Court to award I/P Engine a second chance to meet its burden of proof on damages. But to the
extent the Court decides to grant a new trial, it should be on all issues.3
Failure of Proof Is Not Grounds For a New Trial.
I/P Engine contends that, even if it failed to introduce evidence of damages—an essential
element of its claim—a new trial, and not judgment as a matter of law, is appropriate. Numerous
decisions hold, however, that where a party fails to provide admissible evidence to support its
damages claim, judgment as a matter of law of no or nominal damages is warranted. See
Designing Health, Inc. v. Collett, 226 F. App’x 976 (Fed. Cir. 2007) (reversing denial of
judgment as a matter of law for failure to prove damages and holding that mandate forecloses a
new trial); Gustafson, 897 F.2d at 509 (affirming award of zero damages where none were
proven by patentee); Devex Corp. v. Gen Motors Corp., 667 F.2d 347, 363 (3d Cir. 1981)
(affirming award of no reasonable royalty damages where record was devoid of evidence of a
royalty); Apple Inc. v. Motorola, Inc., No. 1:11-cv-8540, 2012 WL 2362630, at *1 (N.D. Ill. June
I/P Engine falsely states that the parties “agree . . . that a new trial is necessary.”
(Opp., 1.) To the contrary, I/P Engine’s failure of proof warrants judgment as a matter of law.
7, 2012) (Posner, J., sitting by designation) (granting summary judgment on right to past
damages where patentee failed to present admissible evidence of damages); Apple Inc. v.
Motorola, Inc., 869 F. Supp. 2d 901, 924 (N.D. Ill. 2012) (Posner, J., sitting by designation)
(same); Boston Sci. Corp. v. Johnson & Johnson, 550 F. Supp. 2d 1102, 1120-22 (N.D. Cal.
2008) (denying patentee’s motion for a new trial on damages and ruling that by failing to present
evidence of a reasonable royalty, patentee waived right to damages).
Although there may be instances where a district court may, nevertheless, exercise its
discretion to grant a new trial or recalculate damages on its own,4 this is not such a case. In
Weisgram, 528 U.S. at 456, for example, the Court held that judgment as a matter of law without
a new trial was warranted where “although [plaintiff] was on notice every step of the way that
[defendant] was challenging his experts, he made no attempt to add or substitute other evidence.”
See also id. (“[A] litigant’s failure to buttress its position because of confidence in the strength of
that position is always indulged in at the litigant’s own risk.”) (quoting Lujan v. Nat’l Wildlife
Fed’n, 497 U.S. 871, 897 (1990)). The same is true here. I/P Engine has known since this case’s
inception that its right to pre-complaint damages was in question, and it has been on notice that
its damages theories were being challenged since Defendants served their rebuttal expert report
I/P Engine argues that in Cornell, 609 F. Supp. 2d at 292, the district court recalculated
damages after it held that the jury had relied on an improper royalty base. (Opp., 3 n.2.) Cornell
held that the appropriate royalty base was revenue from the sale of the infringing processor, not
the larger CPU brick or even larger server and workstation system. The trial record contained
“evidence of sales data for processors,” and the jury found a royalty rate. Id. at 282-83. Here,
there is no evidence of a royalty base for the post-complaint period in the record. There is,
therefore, no means by which the Court could calculate damages and, indeed, no evidence of
damages whatsoever. Nor would such a judicial weighing of the damages evidence be consistent
with the Seventh Amendment. See Boston Sci., 550 F. Supp. 2d at 1121-22 (defendant has right
to jury determination of damages in patent case).
on damages and moved prior to trial to exclude Dr. Becker’s testimony.5 Yet it did nothing to
ensure that it met its burden of proof.
I/P Engine’s argument that the Court is required to grant a new trial whenever a patentee
fails to introduce admissible evidence of damages is not only contrary to authority, it would
unnecessarily burden the Court with multiple trials. Here, the failures in I/P Engine’s proof are
of its own making. Having failed to meet its burden on damages in the first trial, there is no
reason why I/P Engine should have another chance to try to prove its case in yet another trial. If
that were the rule, any plaintiff who failed to prove its case would be permitted to try again,
thereby leading to never-ending rounds of litigation. Indeed, I/P Engine’s complete failure of
proof demonstrates that its damages case is unfounded, and therefore, no new trial is warranted.
The Laches Ruling Does Not Excuse I/P Engine’s Failure To Introduce
Evidence Of A Royalty Base For The Relevant Period.
Nor does the Court’s ruling on laches justify I/P Engine’s failure of proof or support
granting a new trial on damages. This Court already rejected the argument that there was any
surprise or unfair prejudice in its resolution of laches when it denied I/P Engine’s motion for a
new trial on that issue. (D.N. 884.) In its motion, I/P Engine argued that “multiple procedural
errors” in the Court’s laches ruling warranted a new trial on laches, including the timing and
notice of the Court’s decision to rule. (D.N. 837, 11-16.) The Court has, therefore, already
considered and rejected I/P Engine’s argument that the ruling justifies a new trial on laches. The
I/P Engine cites Federal Circuit decisions that hold that a patentee’s expert testimony
on damages was inadmissible and remand for a new trial. (Opp., 3.) Those cases merely
confirm that a court may order a new trial in its discretion. None of them hold that a court must
grant a new trial when a patentee fails to introduce substantial evidence on damages or that
judgment as a matter of law is prohibited. Instead, the authority of the district court to enter
judgment against a patentee who fails to provide admissible evidence in support of damages is
confirmed by numerous decisions, cited above.
same reasoning warrants denial of I/P Engine’s request for a new trial on the amount of damages
There is no “common practice” of allowing a jury to find damages
based on the wrong damages period.
I/P Engine also argues that its failure to introduce evidence of a royalty base justifies a
new trial because of the Court’s procedure for resolving the laches defense. I/P Engine claims
that “the common practice is for the jury to decide the damages due for the full damages period”
and for the Court to later “reduce the jury’s damages award to reflect only the post-suit
damages.” (Opp., 8.) The argument not only fails because there is no such common or binding
practice, but also because it is waived.
Any argument that the Court’s procedure was faulty is waived. I/P Engine never sought a
special verdict on pre-complaint and post-complaint damages or apportionment rates for the
appropriate periods that would enable the Court to adjust the damages award according to the
subsequent laches ruling, consistent with the Seventh Amendment. See Markman v. Westview
Instruments, Inc., 517 U.S. 370, 377 (1996) (“[T]here is no dispute that infringement cases today
must be tried to a jury . . . .”); D.N. 699-1. Nor did I/P Engine move before trial to bifurcate
laches from damages or liability.6 At a minimum, I/P Engine’s failure to even suggest this
procedure prior to the Court’s laches ruling demonstrates that a new trial is not necessary to
correct any injustice.
Although I/P Engine never requested bifurcation prior to trial, Defendants proposed
bifurcating laches in the parties’ joint October 5, 2012 “Preliminary Final Pretrial Order.”
(Declaration of Howard Chen in Support of Defendants’ Reply Briefs, Ex. 2, ¶ 9.) I/P Engine
took no position on that issue, and instead simply stated that, if the Court granted Defendants’
request, the laches hearing should occur after trial. (Id.) After the pretrial conference,
Defendants withdrew their request for a separate hearing on laches, and I/P Engine stated in
response only that “I/P Engine believes that any issues directed to laches outside [sic] of the
presence of the jury.” (D.N. 719, 18.)
Further, none of the cases I/P Engine cites support its argument that there is a “common
practice” for resolving laches that the Court did not follow. The cited cases actually refute that
contention. For example, in Humanscale Corp. v. CompX International, Inc., No. 3:09-cv-86,
2010 WL 3222411 (E.D. Va. Aug. 16, 2010), the verdict form asked the jury to find the amount
of damages for the pre-complaint and post-complaint periods separately. Id. at *1 (noting that
the jury found damages separately for the pre-March 2009 period and for the post-March 2009
period); id. at *8 (plaintiff initiated suit against defendant in March 2009). To allow the jury to
make those findings, the patentee presented evidence of a royalty base by quarter for both the
pre-complaint and post-complaint periods. See id. at *19. This is exactly what I/P Engine failed
to do. And, as described above, I/P Engine never requested a verdict form with damages
findings for both the pre- and post-complaint periods as was done in Humanscale. (See D.N.
699-1.) Its alleged reliance on the procedure in Humanscale is, therefore, disingenuous.7
Similarly, in Amado v. Microsoft Corp., No. SA CV 03-242, 2008 WL 8641264, at *1
(C.D. Cal. Dec. 4, 2008), the parties stipulated to the number of infringing products sold. There
was no dispute as to the royalty base, and the court simply applied the jury’s royalty rate of four
cents per unit after it ruled on laches. The opinion does not reflect any dispute as to the propriety
of this procedure. Id. In the present case, however, the correct method of measuring the royalty
base is sharply contested. Even I/P Engine used different apportionment rates for different time
periods. (D.N. 870-1; Trial Tr., 826-27.) Determining post-complaint damages is, therefore, not
a matter of simply applying the jury’s royalty rate to an undisputed royalty base. Instead, it
Further, because the jury made separate findings for pre- and post-complaint damages,
the procedure used in Humanscale did not require the Court to make any fact findings to adjust
damages. I/P Engine never proposed such a special verdict form. As a result, unlike in
Humanscale, any adjustment to the jury’s verdict would require the Court resolve disputed issues
of fact related to damages, contrary to the Seventh Amendment.
would require resolving factual disputes regarding apportionment of the royalty base. I/P Engine
has not explained how the Court could make these findings consistent with the parties’ Seventh
Amendment right to have damages determined by a jury.8
I/P Engine’s argument that a district court must rule on laches in a separate, post-trial
proceeding is also contrary to the Federal Rules of Civil Procedure. The Court has already
observed that “Rule 52’s advisory committee’s notes . . . ‘authorizes the court to enter judgment
at any time that it can appropriately make a dispositive finding of fact on the evidence.’” (D.N.
800, 2 (emphasis added).) Thus, the Rules themselves refute any contention that the Court must
wait until after trial to rule on laches.
I/P Engine argues that it had no “obligation” to present “alternative damages theories” or
“damages claims under both a non-laches and laches environment.” (Opp., 7.) I/P Engine is, of
course, not “obligated” to present any evidence at trial on any issue. But it was I/P Engine that
bore the burden of proving damages, assumed it would prevail on laches, and chose to submit no
evidence from which the jury could find damages for the appropriate period as part of its trial
strategy to get the biggest numbers it could before the jury. Further, an “alternative damages
theory” was not necessary. I/P Engine could have introduced evidence of Defendants’ monthly
or quarterly revenues—properly apportioned—for both the pre- and post-complaint periods. It
simply chose not to do so. To the extent I/P Engine contends that it was somehow Defendants’
The other cases cited by I/P Engine do not even address the appropriate procedure for
determining damages when the defense of laches is pled, and instead, simply rule against the
defendant on laches after trial. See Engineered Prods. Co. v. Donaldson Co., Inc., 330 F. Supp.
2d 1013, 1029 (N.D. Iowa 2004); Imonex Servs., Inc. v. W.H. Munzprufer Deitmar, Trenner
G.m.b.H., 2:01cv174, 2003 WL 26095807, at *1-2 (E.D. Tex. Sept. 25, 2003). Because these
cases do not involve a finding of laches, they do not even address what the appropriate procedure
is in cases where laches is found.
burden to prove damages for the post-complaint period, that suggestion is unsupported by any
Deficiencies in I/P Engine’s expert reports are not grounds for
denying judgment as a matter of law or granting a new trial.
I/P Engine also complains that it could not have introduced the necessary evidence of a
post-complaint royalty base and damages opinion because its expert, Dr. Becker, did not include
this opinion in his Rule 26 expert report. (Opp., 9.) That I/P Engine failed to satisfy the expert
disclosure requirements of Rule 26 confirms that its request for a new trial should be rejected,
and judgment as a matter of law should be granted. A party cannot reasonably avoid judgment
as a matter of law on its claims by pointing to its own failure to disclose the expert testimony
needed to satisfy its burden of proof. A new trial in these circumstances would leave I/P Engine
in exactly the same place—with a deficient damages report and no relevant expert testimony.
I/P Engine could have moved to reopen the record in response to
Defendants’ motion for judgment as a matter of law, but did not.
I/P Engine never sought to reopen the record at trial to introduce additional evidence and
attempt to remedy the failure of proof identified in Defendants’ Rule 50(a) motion for judgment
as a matter of law on damages. (Opp., 9-10.) The purpose of a Rule 50(a) motion is to inform
“the opposing party of the challenge to the sufficiency of the evidence and [to] afford a clear
opportunity to provide additional evidence that may be available.” Fed. R. Civ. P. 50(a) advisory
committee’s notes (2006); see also Houck & Sons, Inc. v. Transylvania Cnty., 852 F. Supp. 442,
452 (W.D.N.C. 1993) (purpose of Rule 50(a) is to allow “non-moving party an opportunity to
reopen its case and present additional evidence”). Here, I/P Engine was on notice of the
deficiencies in its proof prior to submission of the case to the jury. But it never sought leave to
introduce additional damages evidence after the Court’s laches ruling.
I/P Engine does not dispute that it never moved to reopen the record to submit additional
damages evidence. (Motion, 7.) It instead attempts to (again) blame the Court for its failure, this
time by falsely arguing that the Court “made clear that it was not accepting additional testimony”
regarding damages. (Opp., 9.) I/P Engine misrepresents the record. In the portion of the
transcript that I/P Engine cites, the Court rejected I/P Engine’s attempt to submit additional
evidence to rebut laches after the Court had already found in Defendants’ favor. (See id. (citing
Trial Tr., 1868).) I/P Engine never asked for—and the Court never denied—the opportunity to
submit additional evidence on the royalty base. These are two distinct issues. The Court
correctly denied I/P Engine’s request to submit additional evidence on laches because the Court
had already decided the issue. I/P Engine, having lost on laches after being fully heard, was not
entitled to reopen the record and submit additional evidence. (Id.) A motion to reopen the
record in response to a Rule 50(a) motion for judgment as a matter of law, on the other hand, is
intended to remedy deficiencies in proof that an opposing party has pointed out before the judge
grants the motion or the jury is charged.
I/P Engine also faults the Court when it argues that “I/P Engine’s counsel acknowledged
that a specific damages number for the shortened period was not in evidence and asked the Court
for guidance on how to address the situation.” (Opp., 10.) Despite I/P Engine’s admission that
there was no evidence of damages for the appropriate period, the Court gave I/P Engine the
benefit of the doubt and allowed the case to proceed to verdict. The Court is not, however, I/P
Engine’s lawyer and was under no obligation to provide it “guidance” on how to move to reopen
the record or meet its burden of proof. This argument confirms that there was never evidence
from which the jury could find damages for the post-complaint period. That the Court did not
immediately grant judgment as a matter of law or instruct I/P Engine’s counsel to move to
reopen the record is not grounds for a new trial.
If A New Trial Is Granted, It Should Be On All Issues.
If the Court is inclined to grant a new trial, it should not be limited—as I/P Engine
suggests—solely to the amount of damages. Any new trial should encompass liability because
the introduction of Dr. Becker’s testimony was prejudicial to the entire case. Numerous courts
have held that the erroneous admission of evidence that the defendant is a large or wealthy
company poses an impermissible risk of swaying the jury’s liability determination. See U.S. ex
rel. Miller v. Bill Harbert Int’l Const., Inc., 608 F.3d 871, 897-98 (D.C. Cir. 2010); Reilly v.
NatWest Mkts. Group, Inc., 181 F.3d 253, 266 (2d Cir. 1999) (evidence of wealth “generally
inadmissible”); Koufakis v. Carvel, 45 F.2d 892, 902 (2d Cir. 1970) (remarks in closing
concerning defendant’s wealth “can be taken as suggesting that the defendant should respond in
damages because he is rich and the plaintiff is poor” and “are grounds for a new trial”).
I/P Engine argues that it did not introduce evidence of Defendants’ “wealth,” but instead,
introduced evidence of Defendants’ revenue. This attempted distinction is unavailing because
the same risk of prejudice arises from introduction of irrelevant evidence of a defendant’s annual
revenues. In both cases, the large dollar figures create the danger that the jury may
impermissibly conclude that the defendant should be held liable because it has substantial
resources and the patentee is seeking a royalty that is small by comparison. Further, as stated in
Defendants’ motion, evidence of total revenue attributable to SmartAds is not relevant to the
damages analysis. In situations such as this, where the asserted patents do not cover the entire
accused product, the law requires that the royalty base “take into account the fact that the
claimed invention is not the entire system but only a component of that system.” Cornell, 609 F.
Supp. 2d at 290.9 I/P Engine does not contend that its patents cover more than just a small aspect
of SmartAds, which is itself only one component of Google’s AdWords system. Because the
introduction of evidence regarding Defendants’ total revenues from SmartAds was inherently
prejudicial to the jury’s findings on both liability as well as damages, any new trial should be on
For the foregoing reasons, Defendants respectfully request that the Court grant their
motion for judgment as a matter of law on damages.
DATED: February 15, 2013
/s/ Stephen E. Noona
Stephen E. Noona
Virginia State Bar No. 25367
KAUFMAN & CANOLES, P.C.
150 West Main Street, Suite 2100
Norfolk, VA 23510
Telephone: (757) 624.3000
Facsimile: (757) 624.3169
I/P Engine cites Carnegie Mellon University v. Marvell Tech. Group, Ltd., No. 09-290,
2012 WL 3679564 (W.D. Pa. Aug. 24, 2012), but that case was decided prior to the Federal
Circuit’s recent decision in LaserDynamics, 694 F.3d at 68, which explicitly criticized and noted
the unfair prejudice when evidence of the defendant’s overall revenues is introduced to the jury.
Walker v. Pettit Construction Co., Inc., 605 F.2d 128, 131 (4th Cir. 1979), cited by I/P
Engine is distinguishable. That case specifically notes that the errors at trial were “not so
prejudicial or inflammatory as to cast doubt on the reliability of the jury’s other findings.” Id.
As the cases cited above demonstrate, the improper admission of evidence of a defendant’s
wealth, income, or size risk biasing the jury’s findings on all issues, not merely damages.
David A. Perlson
QUINN EMANUEL URQUHART &
50 California Street, 22nd Floor
San Francisco, California 94111
Telephone: (415) 875-6600
Facsimile: (415) 875-6700
Counsel for Google Inc., Target Corporation,
IAC Search & Media, Inc., and
Gannett Co., Inc.
By: /s/ Stephen E. Noona
Stephen E. Noona
Virginia State Bar No. 25367
KAUFMAN & CANOLES, P.C.
150 W. Main Street, Suite 2100
Norfolk, VA 23510
Telephone: (757) 624-3000
Facsimile: (757) 624-3169
Robert L. Burns
FINNEGAN, HENDERSON, FARABOW, GARRETT &
Two Freedom Square
11955 Freedom Drive
Reston, VA 20190
Telephone: (571) 203-2700
Facsimile: (202) 408-4400
Cortney S. Alexander
FINNEGAN, HENDERSON, FARABOW, GARRETT &
3500 SunTrust Plaza
303 Peachtree Street, NE
Atlanta, GA 94111
Telephone: (404) 653-6400
Facsimile: (415) 653-6444
Counsel for Defendant AOL, Inc.
CERTIFICATE OF SERVICE
I hereby certify that on February 15, 2013, I will electronically file the foregoing with the
Clerk of Court using the CM/ECF system, which will send a notification of such filing (NEF) to
Jeffrey K. Sherwood
Kenneth W. Brothers
DICKSTEIN SHAPIRO LLP
1825 Eye Street NW
Washington, DC 20006
Telephone: (202) 420-2200
Facsimile: (202) 420-2201
Donald C. Schultz
W. Ryan Snow
CRENSHAW, WARE & MARTIN, P.L.C.
150 West Main Street, Suite 1500
Norfolk, VA 23510
Telephone: (757) 623-3000
Facsimile: (757) 623-5735
Counsel for Plaintiff, I/P Engine, Inc.
/s/ Stephen E. Noona
Stephen E. Noona
Virginia State Bar No. 25367
KAUFMAN & CANOLES, P.C.
150 West Main Street, Suite 2100
Norfolk, VA 23510
Telephone: (757) 624.3000
Facsimile: (757) 624.3169