UNICOM MONITORING, LLC v. CENCOM, INC.
Filing
134
MEMORANDUM OPINION. Signed by Judge Mary L. Cooper on 4/19/2013. (gxh)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
UNICOM MONITORING, LLC,
CIVIL ACTION NO. 06-1166 (MLC)
Plaintiff,
MEMORANDUM OPINION
v.
CENCOM, INC., d/b/a AMERICAN
DIGITAL MONITORING, DIGITAL
DIVERTER.COM and
SAVEONMYALARM.COM,
Defendant.
COOPER, District Judge
Plaintiff, Unicom Monitoring, LLC (“Unicom”), brought this
action against Defendant, Cencom, Inc. (“Cencom”), alleging
infringement of its patent, U.S. Patent No. 6,366,647 (“‘647
Patent”), which is directed to an Alarm Report Call Re-router.
(See dkt. entry no. 1, Compl. at ¶¶ 5, 10-12.)
This matter comes
before the Court on Cencom’s motion for summary judgment in its
favor with respect to relief, both compensatory and equitable.
(See dkt. entry no. 117, Mot. for Summ. J.)
The Court held oral
argument on April 10, 2013, and carefully reviewed the parties’
submissions, and will now grant the Motion.
BACKGROUND
The Court will only present a brief synopsis of the relevant
facts for resolution of the Motion because the Court writes mainly
for the parties, which are familiar with the history of this case
and the patent at issue.1
Cencom provides wholesale monitoring services in the capacity
of a third-party vendor to alarm dealers whose accounts are located
in Cencom’s center.
(See dkt. entry no. 117-2, Cencom Statement of
Material Facts not in Dispute at ¶ 1 (“Cencom Statement”).)
The
‘647 Patent pertains to “security systems, and more particularly to
security systems that communicate with a central monitoring station
via a telephone line.”
(Id. at ¶ 4.)
Unicom brought this action
against Cencom on March 9, 2006, alleging infringement of the ‘647
Patent.
(See id. at ¶ 5.)
The Court previously granted summary
1
Unicom neither disputes the facts as presented in Cencom’s
Statement of Material Facts not in Dispute, nor provides a counterstatement of facts in dispute: “Cencom’s motion is merely legal
argument based upon an alleged statement of material facts. Unicom
admits those facts for the purpose of this motion but submits that
the facts are immaterial to the Court’s determination of the legal
issues involved.” (See dkt. entry no. 120, Unicom Br. in Opp’n at
1 (“Unicom Opp’n Br.”) (emphasis added).) Accordingly, all facts
discussed herein will be drawn from the statement presented by
Cencom along with the Motion. See also L.Civ.R. 56.1(a) (“any
material fact not disputed shall be deemed undisputed for purposes
of the summary judgment motion”); Smith v. Addy, 343 Fed.Appx. 806,
808 (3d Cir. 2009). We thus, after ensuring that Cencom’s
statement accurately summarizes the record, provide citation to
that statement.
2
judgment in Unicom’s favor finding infringement of Claim 1 of the
‘647 Patent.
(See dkt. entry no. 50, 3-12-10 Mem. Op. at 2-3.)
The Pretrial Order sets forth the following contested facts,
inter alia, as to what Unicom intends to prove with respect to
damages:
(1)
(2)
(3)
(4)
(5)
The number of sales, leases or other transfers of the DD2
from Cencom to a customer.
The revenue derived by Cencom from sales, leasing, or
monitoring accounts with the DD2.
The profit derived by Cencom from the sales, leasing or
monitoring of accounts with the DD2.
Unicom is entitled to a reasonable royalty to compensate it
for Cencom’s infringement.
Unicom is entitled to a reasonable royalty of 30% of the
total revenue derived by Cencom from the sale, leasing,
monitoring or other transfer of the DD2.
(Dkt. entry no. 80, 10-6-10 Pretrial Order at 3.)
Unicom indicated
it intends to call Matthew J. Szapucki to “testify as to Unicom’s
ownership of the Patent-in-Suit, its policy not to license the ‘647
Patent, the various public means by which Cencom markets the DD2,
Unicom’s test marketing of its product and resulting sales,
Unicom’s damages and irreparable injury.”
at ¶ 12.)
(Cencom Statement
Unicom also indicated its intent to call James Maggs to
“testify as to Unicom’s ownership of the Patent-in-Suit, its policy
not to license the ‘647 Patent, the various public means by which
Cencom markets the DD2, Unicom’s damages and irreparable injury.”
(Cencom Statement at ¶ 13.)
3
Unicom did not identify a damages expert, nor did it submit a
damages report at any point in the duration of this case.
at ¶¶ 14-15.)
(See id.
Unicom did not produce licenses for the patent-in-
suit or for a comparable technology.
(See id. at ¶ 16.)
The only
evidence in the record with respect to the reasonable royalty rate
that Unicom asks the factfinder to apply comes from a short
statement of attorney argument in Unicom’s opposition papers and a
brief calculation the Court painstakingly elicited during oral
argument.
(See Unicom Opp’n Br. at 6-7 (“Since Cencom and Unicom
were in the same business, Unicom would only have licensed Cencom
for a royalty rate in the vicinity of 30% of revenues collected
from DD2 customers, including monitoring fees.”); see also Tr. of
4-10-13 Hearing at 26-27.)2
2
This transcript is currently available in Chambers.
following exchange represents the relevant portion:
The
THE COURT: Mr. Peslak, from counsel table will you
please tell me what damages you’re seeking through your
witness -- through your evidence and who on your side is
going to articulate that magic number?
MR. PESLAK: We’re going to ask for 30 percent of
[Cencom’s] sales numbers, which is their Exhibit 32.
THE COURT: Tell me what that is?
MR. PESLAK: It is one -- it is a little short of
$130,000.
THE COURT: What is it?
MR. PESLAK: The number?
THE COURT: Counsel, if you were to diagram that
sentence, you would understand that I can’t understand
you.
4
ANALYSIS
The parties dispute whether an expert is necessary to sustain
a reasonable royalty damages award, and whether an injunction can
issue where no damages have been awarded.
The Court will first
provide the standard applied on a motion for summary judgment, and
then address the issues in that order.
I.
Summary Judgment Standard
“The court shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
56(a).
Fed.R.Civ.P.
The movant has the initial burden of proving the absence of
a genuinely disputed material fact relative to the claims in
question.
Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986).
MR. PESLAK: I'm sorry. [Cencom’s] total of revenue for
selling the product and monitoring it is approximately
128 or $129,000.
THE COURT: Over how long of a period?
MR. PESLAK: Over the period during this lawsuit when
they sold the product. From 2004 to I believe it’s 2010.
THE COURT: [Cencom is] not using the product anymore?
MR. PESLAK: They claim not to be using the product
anymore.
THE COURT: So that’s, what, $128,000 -MR. PESLAK: Yes.
THE COURT: -- of total revenue?
MR. PESLAK: Yes.
THE COURT: So you want 30 percent of that?
MR. PESLAK: Yes.
THE COURT: Do the math for me.
MR. NEMIROFF: It is approximately $36,000, 37,000.
(Tr. of 4-10-13 Hearing at 26-27.)
5
Material facts are those “that could affect the outcome” of the
proceeding, and “a dispute about a material fact is ‘genuine’ if
the evidence is sufficient to permit a reasonable jury to return a
verdict for the non-moving party.”
Lamont v. New Jersey, 637 F.3d
177, 181 (3d Cir. 2011) (quoting Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986)).
The burden on the movant may be
discharged by pointing out to the district court that there is an
absence of evidence supporting the non-movant’s case.
Celotex, 477
U.S. at 323.
The burden then shifts to the non-movant to demonstrate the
existence of a genuine issue for trial.
Matsushita Elec. Indus.
Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986);
Williams v. Bor. of W. Chester, Pa., 891 F.2d 458, 460–61 (3d Cir.
1989).
A non-movant asserting that a fact is genuinely disputed
must support such an assertion by: “(A) citing to particular parts
of materials in the record, including depositions, documents,
electronically stored information, affidavits or declarations,
stipulations . . ., admissions, interrogatory answers, or other
materials; or (B) showing that the materials cited [by the opposing
party] do not establish the absence . . . of a genuine dispute[.]”
Fed.R.Civ.P. 56(c)(1).
When determining whether a genuine issue of material fact
exists, the court must view the evidence in the light most
6
favorable to the non-movant and draw all reasonable inferences in
that party’s favor.
Scott v. Harris, 550 U.S. 372, 380 (2007);
Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir. 2007).
If the non-
movant fails to make a sufficient showing on an essential element
of its case with respect to which it has the burden of proof, the
movant is entitled to judgment as a matter of law.
See Celotex,
477 U.S. at 322.
II.
Use of an Expert to Prove a Reasonable Royalty Claim
The statute governing the use of a reasonable royalty rate in
patent damages is 35 U.S.C. § 284, which provides that “[u]pon
finding for the claimant the court shall award the claimant damages
adequate to compensate for the infringement, but in no event less
than a reasonable royalty for the use made of the invention by the
infringer, together with interest and costs as fixed by the court .
. . .
The court may receive expert testimony as an aid to the
determination of damages or of what royalty would be reasonable
under the circumstances.”
35 U.S.C. § 284.
The burden is on the
patentee to show damages.
Devex Corp. v. Gen. Motors Corp., 667
F.2d 347, 361 (3d Cir. 1981).
Cencom argues that, because Unicom proffers no expert who can
provide a reasonable basis for the reasonable royalty damages,
Cencom is entitled to summary judgment in its favor with respect to
damages, despite the Court’s previous determination of Cencom’s
7
liability for infringement.
(See dkt. entry no. 117-1, Cencom Br.
in Supp. of Mot. for Summ. J. at 1-2 (“Cencom Br.”).)
Cencom
contends that Unicom has failed to produce admissible expert
testimony to establish “an approximation of the market as it would
have hypothetically developed, [which] requires sound economic and
factual predicates.”
(Id. at 4.)
Cencom further argues that, where the patentee has presented
little or no satisfactory evidence for the award of a reasonable
royalty, the Court should award only those reasonable royalties
that are supported by the evidence in the record.
at 4.)
(See Cencom Br.
Cencom notes that, in the event the record does not support
an award of any reasonable royalty damages, the Court of Appeals
for the Federal Circuit has previously approved an award of no
damages because “[t]he statute [35 U.S.C. § 284] requires the award
of a reasonable royalty, but to argue that this requirement exists
even in the absence of any evidence from which a court may derive a
reasonable royalty goes beyond the possible meaning of the
statute.”
Lindemann Maschinenfabrik GmbH v. Am. Hoist & Derrick
Co., 895 F.2d 1403, 1407 (Fed.Cir. 1990) (quoting Devex, 667 F.2d
at 363).
Without citation, Cencom argues that, “[b]ecause of the
complex and serious nature of damages, the determination of damages
in patent litigation almost always requires the testimony of an
expert witness.”
(Cencom Br. at 5.)
8
Relying heavily on a case
from the Northern District of Illinois, Cencom argues that the
Court should rule that Unicom cannot meet its burden of proof
without either expert reports or testimony regarding what would be
an appropriate reasonable royalty.
(See id. (citing Apple, Inc. v.
Motorola Inc., 869 F.Supp.2d 901 (N.D.Ill. 2012)).)3
Cencom notes
that Unicom has neither expert reports nor testimony to offer the
Court, only “Cencom’s sales records and the self-serving and
conclusory statements of Unicom owners”.
(Id.)
Cencom argues that
Unicom cannot rely on any of the evidence it identified as support
in the Pretrial Order as a valid method of determining reasonable
royalties.
(See id. at 5-6.)
Cencom argues that an expert is
necessary to explain the reasonable royalty rate based on Cencom’s
sales records or Unicom’s policy not to license the patent, and
that testimony by Unicom’s owners is inadmissible because it does
not come from a “disinterested source.”
(Id. at 6.)
Unicom responds that (1) the statute requires an award of
reasonable royalty damages liability for Cencom’s infringement, and
(2) the Georgia-Pacific factors require consideration of factors
other than the testimony of experts, including whether the
infringement is willful.
(See Unicom Opp’n Br. at 1.)
Unicom
focuses on the multifactorial test established in Georgia-Pacific
3
An appeal from this decision to the Court of Appeals for the
Federal Circuit is pending. See Apple Inc. v. Motorola, Inc., Nos.
12-1548, 12-1549, dkt. entry no 1, Appeal Docketed (Fed.Cir. July
30, 2012).
9
Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116 (S.D.N.Y. 1970),
arguing that no case cited by Cencom requires a judgment against it
on the damages claim if it fails to proffer an expert on the issue.
(See id. at 5.)
Unicom states, without legal or factual citation,
that “[s]ince Cencom and Unicom were in the same business, Unicom
would have only licensed Cencom for a royalty rate in the vicinity
of 30% of revenues collected from DD2 customers, including
monitoring fees.”
(Id. at 6-7.)
Unicom distinguishes Apple on the
basis that the damages report excluded therein was based on a
faulty consumer survey regarding specific features of complex
machines containing patented as well as unpatented components,
whereas here the infringing device is a knock-off of the patented
device and there is no need to apportion the profits over separate
features in order to establish a reasonable royalty.
(See id. at
7.)
Cencom replies that Unicom (1) has not met its burden of
proving damages and cannot produce either case law or evidence to
support its position, and (2) is not entitled to an injunction.
(See dkt. entry no. 122, Cencom Reply Br. in Further Supp. of the
Mot. at 1 (“Cencom Reply Br.”).)
Cencom states that “Unicom’s
Opposition is inherently flawed because it does not meet the
minimum requirements under Fed.R.Civ.P. 56 necessary to defeat
Cencom’s Motion.
Unicom fails to present any genuine issue of
10
material fact for trial, either by way of an affidavit or
declaration, or through reference to evidence in the record.”
id.)
(See
Cencom then argues that, while entitled to damages, Unicom
has failed to prove the damages, thus warranting summary judgment
in Cencom’s favor.
(See id. at 1-2.)
Cencom notes that Unicom’s
only reference to how damages should be calculated is the statement
regarding the “30% royalty rate”, which is unsupported by either
testimony in the record, or affidavits or certifications
accompanying the opposition papers.
(See id. at 2.)
Further,
Cencom argues that Unicom fails to show how the Georgia-Pacific
factors are implicated, thus failing to meet Unicom’s burden of
raising a genuine factual dispute to defeat a motion for summary
judgment.
(See id. at 2-3.)
A patentee requesting damages carries the burden of proof that
its proposed royalty would be reasonable.
at 1406.
See Lindemann, 895 F.2d
In Lindemann, the district court held Lindemann’s patent
to be infringed and awarded only $10,000 as a reasonable royalty in
damages, despite Lindemann’s expert’s opinion that “a reasonable
royalty would be 75% - 85% of [Defendant’s] targeted gross profit,
yielding a royalty rate of 20% - 25% of the net selling price of
the entire machine and sales of spare parts, resulting in a damage
award of $179,844 - $224,805.”
Id. at 1404.
The Court of Appeals
for the Federal Circuit upheld the district court’s award because:
11
[w]hen lost profits are the measure, the amount is
normally provable by the facts in evidence or as a
factual inference from the evidence. When a “reasonable
royalty” is the measure, the amount may again be
considered a factual inference from the evidence, yet
there is room for exercise of a common-sense estimation
of what the evidence shows would be a “reasonable”
award. One challenging only the court’s finding as to
amount of damages awarded under the “reasonable royalty”
provision of § 284, therefore, must show that the award
is, in view of all the evidence, either so outrageously
high or so outrageously low as to be unsupportable as an
estimation of a reasonable royalty. Here Lindemann, who
bore the burden and yet failed to adduce evidence
dictating a particular amount, left the magistrate with
the widest range of choice.
Id. at 1406.
Patent-holder Lindemann presented only one witness as
the basis for its damages claim, “patent attorney Enlow”, who
gave his opinion that a reasonable royalty would be
20% - 25% of the sale price of the entire machine.
Lindemann implies but does not, as it cannot, argue that
the magistrate was bound to accept that opinion.
Indeed, the record reflects fully adequate bases for the
magistrate’s rejection of that opinion. As brought out
on cross-examination, Enlow’s opinion was based on a
nonexistent or at best woefully incomplete understanding
of the market and on an estimate of anticipated profits
that bore no relation to actual profits, Enlow having no
knowledge of the latter.
Id. at 1407.
The Court of Appeals for the Federal Circuit stated
that, while the statute does not require a patentee to “show the
fact of damage” if infringement is proven or admitted, “that does
not mean that a patentee who puts on little or no satisfactory
evidence of a reasonable royalty can successfully appeal on the
ground that the amount awarded by the court is not ‘reasonable’ and
therefore contravenes section 284.”
12
Id. at 1407.
A distinction exists between the fact of damages and proving
an amount to be awarded.
Although the statute requires an award of
a reasonable royalty when there is infringement because such
infringement establishes the fact of damages, “to argue that this
requirement exists even in the absence of any evidence from which a
court may derive a reasonable royalty goes beyond the possible
meaning of the statute.”
Devex, 667 F.2d at 363.
In another case
where the patent was held valid and infringed, the Court of Appeals
for the Federal Circuit upheld a district court’s award of no
damages but a permanent injunction.
Gustafson, Inc. v.
Intersystems Indus. Prods., Inc., 897 F.2d 508, 509 (Fed.Cir. 1990)
(finding “no reversible error in the district court’s . . .
awarding no damages to [plaintiff] because none were proven.”).
The appropriate statutory measure of damages for patent
infringement is “the difference between the patent owner’s
pecuniary condition after the infringement, and what his condition
would have been if the infringement had not occurred.”
Riles v.
Shell Exploration & Prod. Co., 298 F.3d 1302, 1311 (Fed.Cir. 2002).
This measurement requires that the patentee present evidence to
“reconstruct the market, a necessarily hypothetical exercise, to
project economic results that did not actually occur.”
Id.
The
court cautioned that “to prevent the hypothetical from lapsing into
pure speculation, this court requires sound economic proof of the
13
nature of the market and likely outcomes with infringement factored
out of the economic picture.”
Id.
The court examined the
patentee’s proposed model for determining a reasonable royalty and
noted several problems: (1) the model was based on the value of the
entire product, while the patent only covered a limited portion of
the product; (2) the patentee did not present evidence that the
royalty rate was reflective of an agreement between the two
companies that was reached through a hypothetical negotiation at a
time before the infringement occurred; and (3) the agreement would
violate the patentee’s established licensing practices.
1312-13.
Id. at
These flaws were fatal to the model; the court vacated
the district court’s award of damages as unsupported by the
evidence in the record.
Id. at 1305, 1313.
Competent evidence of damages for a reasonable royalty rate
does not necessarily require expert testimony, contrary to Cencom’s
position.
(See Cencom Br. at 2-3, 5.)
A district court’s order
was reversed after it excluded the plaintiff’s expert’s testimony
for Daubert reasons, and then found that the plaintiff was not
entitled to damages as a matter of law because it “had not carried
its burden to establish damages.”
Dow Chem. Co. v. Mee Indus.,
Inc., 341 F.3d 1370 (Fed.Cir. 2003) (holding that “district court
erred in concluding that Dow did not carry its burden to establish
damages because it failed to provide expert testimony on the
14
damages issue”).
The Court of Appeals clarified that “section 284
is clear that expert testimony is not necessary to the award of
damages, but rather may be received as an aid.”
Id. at 1382.
Quoting Lindemann, the court cautioned the district court that its
obligation to award damages for infringement under section 284 did
not obviate a patentee’s burden to present evidence demonstrating
the amount to be awarded.
Id.
If the plaintiff proved
infringement of its patent, “the district court should consider the
so-called Georgia-Pacific factors in detail, and award such
reasonable royalties as the record evidence will support.”
Id.
Cencom relies heavily on Apple, which it claims stands for the
principle that a patent holder cannot request reasonable royalty
damages without the testimony of an expert to support that claim.
(See Cencom Br. at 2-3, 5.)
In response, Unicom distinguishes the
case, and argues that the case does not require judgment against it
on the damages claim as a matter of law because the patentee did
not provide an expert report.
(See Unicom Opp’n Br. at 7.)
As a
decision from the Northern District for the District of Illinois,
the decision is not binding on this Court, but the Court finds it
to be persuasive authority in light of its thorough analysis and
extensive discussion.
The Apple case, which was decided by Circuit Judge Posner,
sitting by designation, provided no decision on infringement
15
because the lack of proof of damages required dismissal of the
case.
Apple, 869 F.Supp.2d 901.
After a Daubert hearing in which
the court excluded three experts, the court determined that the
record evidence would not permit a reasonable royalty award.
at 905.
Id.
The court noted that a witness testifying with respect to
reasonable royalty damages should have some knowledge about the
relevant market’s economic or factual predicates for fleshing out
the hypothetical negotiation: “[a] competent damages witness would
be one who was involved in the procurement of chips, or who advised
as a consultant on the choice of chips; there is no suggestion that
[the proposed expert] has such experience.”
Id. at 905-06; see
also Riles, 298 F.3d at 1311 (“this analysis necessarily involves
some approximation of the market as it would have hypothetically
developed absent infringement.
This analysis, in turn, requires
sound economic and factual predicates.”).
In Apple, the proffered
damages witness could not determine the portion of the price that
should be attributed to the patented part.
06.
869 F.Supp.2d at 905-
The court noted that for “a plaintiff to withstand summary
judgment[, he] must present enough evidence to make a prima facie
case -- that is, enough evidence to justify a trier of fact in
finding in favor of the plaintiff if the defendant presents no
contrary evidence.”
Id. at 906.
The evidence presented by the
damages witness must eliminate guesswork or speculation in the
16
damages award.
Id. at 907.
The court noted that providing such
evidence may require presenting one fact witness for a computer
scientist’s description of the chips and another witness who was
“involved more in a financial part of the company or the selling
part, the marketing or the procurement [part].”
Id.
The court also addressed Apple’s argument that “any act of
infringement, even if it gives rise to no measurable damages, is an
injury entitling it to a judgment.”
Id. at 908.
After a review of
tort, contract, and patent law issues, the court determined that
nominal damages are not available if there is an absence of any
evidence from which a court may derive a reasonable royalty.
Id.
at 910 (quoting Lindemann, 895 F.2d at 1407; Devex, 667 F.2d at
363).
Cencom proffered a recent case from the District of Delaware
that excluded the testimony of a co-inventor of a patent, whom the
patentee proffered for testimony about: (1) the benefits of the
patent-in-suit; (2)the legal assignments of the patent-in-suit; (3)
the witness’s prior negotiations with the defendant; (4) the
witness’s conduct in a hypothetical negotiation; and (5) the
witness’s knowledge of prior negotiations with the defendant with
respect to other patents.
AVM Techs., LLC v. Intel Corp., No. 10-
610, 2013 WL 656745, at *15-16 (D.Del. Feb. 21, 2013).
Following
objections by defendant to numbers 3 and 4, the court reviewed
17
Lindemann and Devex and stated that “[although] reasonable royalty
damages must be awarded if infringement is found, . . . [this] does
not mean that the rules of evidence do not apply to proposed
testimony.”
Id. at *18.
The court concluded that the witness was
being offered for improper expert testimony because he would
discuss calculations about how to reach a reasonable royalty.
See
id. at *18-19 (“These calculations are the province of expert
analysis.”) (citing Veritas Operating Corp. v. Microsoft Corp., No.
06-0703, 2008 WL 657936, at *33 (W.D.Wash. Jan. 17, 2007) (lay
witness may not offer an opinion on ultimate patent damages,
“including determining a reasonable royalty”)).
Further, the
witness was also proffered for improper expert testimony because he
would delve into hypothetical situations, outside of his personal
knowledge.
See id. at *19 (“[The witness’s] testimony as to what
would have happened in a hypothetical negotiation would not be
based on his personal knowledge and, therefore, is not
admissible.”).
The court determined that, although the witness would be
permitted to testify as to those facts within his personal
knowledge, the expert and hypothetical testimony called for in
numbers 3 and 4 were inadmissible.
Id. at *7.
The court initially
reserved its decision on the pending summary judgment motion when
it issued its opinion excluding this expert, but later granted
18
summary judgment for the defendant when plaintiff had no evidence
with which to prove its reasonable royalty damages theory.
AVM
Techs., LLC v. Intel Corp., No. 10-610, dkt. entry no. 294, at *3
(D.Del. Mar. 29, 2013).
The Court has reviewed the dearth of evidence in the record on
which Unicom intends to present its reasonable royalty theory of
damages to the factfinder.
Without providing either factual or
legal authority or economic or factual predicates, Unicom has
demanded a royalty rate of “30% of the total revenue derived by
Cencom from the sale, leasing, monitoring, or other transfer of the
DD2.”
(10-6-10 Pretrial Order at 3.)
In the seven years over
which this litigation has unfolded, Unicom never established a
reasonable royalty calculation, nor named a specific amount that it
demanded in damages, until the Pretrial Management Conference with
the Court, held a mere two weeks before trial was set to commence.
(See Tr. of 4-10-13 Hearing at 26-27.)
As identified in the
Pretrial Order, Unicom did not name any expert witness, and indeed
only intends to present two fact witnesses, Matthew Szapucki and
James Maggs.
(See 10-6-10 Pretrial Order at 3.)
At oral argument,
counsel for Unicom indicated that these witnesses would provide
somewhat broader testimony, as would be necessary to support a
reasonable royalty calculation: “My clients are going to talk about
a hypothetical negotiation.
They’re going to talk about, you know,
19
what happened in this case and what their policies and plans were
in 2004 when the infringement began.”
(Tr. of 4-10-13 Hearing at
16; see Cencom Statement at ¶ 13 (noting that Unicom intends to
call James Maggs to “testify as to Unicom’s ownership of the
Patent-in-Suit, its policy not to license the ‘647 Patent”).)
The Court finds that Unicom has not established that a genuine
issue of material fact exists that requires a factual
determination.
Unicom does not have an expert to guide a
factfinder through a hypothetical negotiation process to reach a
reasonable royalty rate as a damages award.
Rather, the evidence
Unicom intends to present regarding the hypothetical negotiation is
contrary to the basic premise of those negotiations.
See Riles,
298 F.3d at 1312 (“A ‘reasonable royalty’ contemplates a
hypothetical negotiation between the patentee and the infringer at
a time before the infringement began.” (emphasis added)); see also
Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078
(Fed.Cir. 1983) (stating that a “reasonable royalty may be based
upon an established royalty, if there is one, or if not upon a
hypothetical royalty resulting from arm’s length negotiations
between a willing licensor and a willing licensee” (emphasis
added)).
Unicom does not intend to present evidence that is
competent to establish a reasonable royalty as it must be
calculated: the witnesses will be testifying to the wrong time
20
period; Unicom’s policy of not licensing the patent is at odds with
the presumed voluntary negotiation; Unicom does not have an expert
to delve into hypotheticals; Unicom does not have an analogous
practice of licensing that can be uniformly applied; and Unicom has
no rationale to support its suggested reasonable royalty
calculation.
Although there are many Georgia-Pacific factors which the
Court can consider, the failure to present competent evidence
regarding how the factfinder should perform the reasonable royalty
calculation is fatal to Unicom’s claim for reasonable royalty
damages.
A factfinder cannot be asked to speculate from numbers
unsupported by law and divorced from expert guidance, but rather
the factfinder needs either clear guidance from an expert about how
to apply complex calculations or simple factual proofs about what
this patentee has previously accepted in factually analogous
licensing situations.
See Lindemann, 895 F.2d at 1407; see also
Devex, 667 F.2d at 361 (holding that, although plaintiff failed to
adduce proof to support its proposed reasonable royalty rate, the
facts demonstrated that the plaintiff had previously made an
industry-wide offer of license for a fixed amount of .75% and that
offer was sufficient evidence to support a royalty rate for .75%).
The Court therefore holds that, without competent proof upon
which to make a reasonable damages claim, Unicom cannot meet its
21
burden of proving the amount of damages, even if it is entitled to
an award of damages.
Accordingly, the Court grants summary
judgment in favor of Cencom with respect to monetary damages.
III. Equitable Relief without Damages Proof
Cencom argues that Unicom is not entitled to a permanent
injunction because Unicom has not demonstrated that damages are an
inadequate remedy.
(See Cencom Br. at 7.)
Cencom argues that
Unicom cannot claim “damages are inadequate as a remedy” when the
inadequacy of the damages results from Unicom’s failure to
demonstrate what damages were appropriate through the use of an
expert.
(See id. at 7-8.)
Unicom responds that Cencom failed to address the factors
considered for issuing a permanent injunction, as established by
eBay Inc. v. MercExchange LLC, 547 U.S. 388 (2006).
Opp’n Br. at 8.)
(See Unicom
Unicom argues that the irreparable injury of
violated patented rights establishes a right to an injunction for
several reasons: (a) Cencom is Unicom’s direct competition,
creating a “competitive injury” not easily quantified or thus
compensable; (b) Unicom built its business around the patented
product and the loss of exclusivity “delayed” the start-up of that
business; (c) the balance of hardships and equities favors an
injunction because Cencom stole Unicom’s inventive efforts; (d) any
effect on Cencom’s business should be discounted, even if Cencom
22
stops infringing; and (e) public interest favors protection of
patents, which here would best be served through the injunction.
(See id. at 8-9.)
Cencom simply replies that Unicom is not entitled to an
injunction because it cannot prove damages.
(See Cencom Reply Br.
at 5 (citing Apple, 895 F.Supp.2d at 923 (holding that neither
party is entitled to an injunction because neither has shown that
damages would not be an adequate remedy)).)
Cencom further argues
that the Court does not need to reach the eBay factors where this
essential element has not been met.
(See id.)
The grant of injunctive relief is not automatic, or even a
presumptive result of a finding of liability, even in a patent
case.
See eBay, 547 U.S. at 391-92.
The standard for deciding
whether to grant such relief in patent cases follows the normal
equity standard.
Id. at 394.
According to well-established principles of equity, a
plaintiff seeking a permanent injunction must satisfy a
four-factor test before a court may grant such relief.
A plaintiff must demonstrate: (1) that it has suffered
an irreparable injury; (2) that remedies available at
law, such as monetary damages, are inadequate to
compensate for that injury; (3) that, considering the
balance of hardships between the plaintiff and
defendant, a remedy in equity is warranted; and (4) that
the public interest would not be disserved by a
permanent injunction. The decision to grant or deny
permanent injunctive relief is an act of equitable
discretion by the district court . . . .
Id. at 391 (internal citations omitted).
23
The plaintiff-patentee must demonstrate that the alternative
of monetary relief would be inadequate in order to receive a grant
of an injunction, with few exceptions, none of which are implicated
here.
See Apple, 869 F.Supp.2d at 915.
As the court in Apple
recognized, where the inadequacy of damages stems from one party’s
failure to present proof establishing the amount of damages to be
awarded, this does not satisfy the second prong of the eBay
inquiry.
See id. at 915-17.
As stated by the court, the issue in
Apple was similarly “not that damages cannot be calculated, but
that on the eve of trial, with the record closed, it became
apparent that the parties had failed to make a responsible
calculation.”
Id. at 916.
The court further differentiated
between the failure of proof and when damages would truly be an
inadequate remedy:
In fact neither party is entitled to an injunction.
Neither has shown that damages would not be an adequate
remedy. True, neither has presented sufficient evidence
of damages to withstand summary judgment -- but that is
not because damages are impossible to calculate with
reasonable certainty and are therefore an inadequate
remedy; it’s because the parties have failed to present
enough evidence to create a triable issue. They had an
adequate legal remedy but failed to make a prima facie
case of how much money, by way of such remedy, they are
entitled to. That was a simple failure of proof.
Id. at 915.
Other considerations implicated in determining whether
monetary damages would be adequate also involve the other elements
24
of the eBay test.
See Robert Bosch LLC v. Pylon Mfg. Corp., 659
F.3d 1142 (Fed.Cir. 2011).
In Robert Bosch, the court considered
other factors in assessing the adequacy of monetary damages:
There is no reason to believe that Pylon will stop
infringing, or that the irreparable harms resulting from
its infringement will otherwise cease, absent an
injunction. Cf. Reebok Int’l, Ltd. v. J. Baker, Inc., 32
F.3d 1552, 1557 (Fed.Cir. 1994) (recognizing that
“future infringement . . . may have market effects never
fully compensable in money”). More importantly, the
questionable financial condition of both Pylon and its
parent company reinforces the inadequacy of a remedy at
law. A district court should assess whether a damage
remedy is a meaningful one in light of the financial
condition of the infringer before the alternative of
money damages can be deemed adequate. While competitive
harms theoretically can be offset by monetary payments
in certain circumstances, the likely availability of
those monetary payments helps define the circumstances
in which this is so.
Id. at 1155-56.
The severity of the irreparable harm is closely
intertwined with the adequacy of monetary damages, as is the
likelihood of receiving the monetary damages.
Id.
There is no likelihood of irreparable harm demonstrated from
the facts on the record.
To the contrary, as indicated by counsel
for both parties during oral argument, Cencom ceased using the
infringing product as of 2010.
at 27.)
(See, e.g., Tr. of 4-10-13 Hearing
Moreover, the question of whether Unicom is “likely” to be
paid the monetary damages assessed is irrelevant because the Court
has determined that Unicom failed to prove the amount of damages
that it was entitled to, and thus no damages are owed.
25
(See supra
at section II.)
The factors of the test as a whole favor denying
the injunction, as the record indicates that Cencom is no longer
infringing the product, Unicom is not currently producing the
product, and Cencom does not owe monetary damages it would be
unlikely to produce as adequate compensation.
Accordingly,
Unicom’s request for injunctive relief is denied and Cencom’s
motion for summary judgment in its favor with respect to equitable
relief is granted.
CONCLUSION
Based upon the reasons stated, the Court will grant the Motion
for summary judgment in favor of Cencom and against Unicom on
Unicom’s claims for damages and for a permanent injunction.
We
anticipate that an eventual final judgment embodying these rulings
will be with prejudice as to all events occurring in the past and
through the time of entry of final judgment.
See Apple, 869
F.Supp.2d at 924 (“It would be ridiculous to dismiss a suit for
failure to prove damages and allow the plaintiff to refile the suit
so that he could have a second chance to prove damages.
This case
is therefore dismissed with prejudice”); Jet, Inc. v. Sewage
Aeration Sys., 223 F.3d 1360, 1365-66 (Fed.Cir. 2000) (providing
the four-factor test for issue preclusion, “which serves to bar the
revisiting of ‘issues’ that have been already fully litigated”).
26
The Court will not enter a final judgment at this time, as
this is not the final adjudication of all claims in the case.
Fed.R.Civ.P. 54(b).4
Cencom’s counterclaim for a judgment of
invalidity currently remains viable.
at 4.)
See
(See 10-6-10 Pretrial Order
As represented by counsel at a status conference with the
Court on April 18, 2013, Cencom also has an Offer of Judgment
outstanding, and Cencom seeks an award of counsel fees under 35
U.S.C. § 285 (concerning extraordinary cases).
Pretrial Order at 4.)5
Unicom has withdrawn its claims for willful
infringement and extraordinary case relief.
132, 4-15-13 Letter.)
(See 10-6-10
(See dkt. entry no.
However, based upon the favorable ruling
Unicom obtained on the issue of Cencom’s infringement of the ‘647
4
Federal Rule of Civil Procedure 54(b) provides:
When an action presents more than one claim for
relief -- whether as a claim, counterclaim, crossclaim,
or third-party claim -- or when multiple parties are
involved, the court may direct entry of a final judgment
as to one or more, but fewer than all, claims or parties
only if the court expressly determines that there is no
just reason for delay. Otherwise, any order or other
decision, however designated, that adjudicates fewer
than all the claims or the rights and liabilities of
fewer than all the parties does not end the action as to
any of the claims or parties and may be revised at any
time before the entry of a judgment adjudicating all the
claims and all the parties’ rights and liabilities.
Fed.R.Civ.P. 54(b).
5
Although the Offer of Judgment was not placed on the docket,
the offer was communicated to the Magistrate Judge as of January
26, 2011.
27
Patent, it appears that Unicom may yet seek an award of taxed costs
under 35 U.S.C. § 284.
See 28 U.S.C. § 1920.
The Court will enter an appropriate Order on the Motion.
s/ Mary L. Cooper
.
MARY L. COOPER
United States District Judge
Date:
April 19, 2013
28
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