Uniloc USA, Inc., et al v. Microsoft Corp., et al

Filing 322

ORDER on Motions in Limine and Trial Management Issues: denying 217 Motion in Limine; denying 220 Motion ; granting in part 234 Motion in Limine; denying 235 Motion in Limine; denying 236 Motion in Limine; denying 237 Motion in Limine; gr anting 238 Motion in Limine; denying 239 Motion in Limine; denying 240 Motion in Limine; denying 241 Motion in Limine; finding as moot 242 Motion in Limine; denying 243 Motion in Limine; finding as moot 244 Motion in Limine; denying 245 Motion in Limine; denying 246 Motion in Limine; granting in part 247 Motion in Limine; granting in part 249 Motion in Limine; denying 298 Motion to Bifurcate. So Ordered by Judge William E Smith on 3/16/2009. (Smith, Rana)

UNITED STATES D I S T R I C T COURT D I S T R I C T OF RHODE ISLAND
)

UNILOC USA, I N C . a n d UNILOC SINGAPORE PRIVATE L I M I T E D , Plaintiffs v. MICROSOFT CORPORATION, Defendant

) ) ) )
)

C.A. No. 03-440 S

) )

-----------------)

ORDER ON MOTIONS I N LIMINE AND TRIAL MANAGEMENT ISSUES

WILLIAM E . SMITH, u n i t e d S t a t e s D i s t r i c t J u d g e . Before the Court in this patent case are numerous motions in limine, including motions by both p a r t i e s to exclude expert damages w i t n e s s e s u n d e r D a u b e r t v . M e r r e l l Dow P h a r m . , I n c . , 5 0 9 U . S . 5 7 9 (1993) . A jury t r i a l i s scheduled to begin on March 23, 2009.

U n i l o c USA,

Inc. and Uniloc Singapore Private Limited ("Uniloc") Corporation's ("Microsoft") Product Activation

claim Microsoft

t e c h n o l o g y ("MPA") i n s o f t w a r e p r o d u c t s s u c h a s W i n d o w s a n d O f f i c e infringes Claims 12 and 19 of Uniloc's U.S. Patent 5,490,216 ('216 patent). Uniloc alleges the infringement was w i l l f u l ; Microsoft '216 patent is Court heard

asserts an invalidity defense and maintains the unenforceable based on inequitable conduct.

The

argument on the Daubert motions on February 27, 2009 and argument on the remaining motions in limine on March 3, 2009. Rulings on

a l l motions are set forth below, as well as a ruling on Microsoft's motion to bifurcate the t r i a l into a l i a b i l i t y phase and separate damages phase. Because the Court writes principally for the

parties, t h e f u l l b a c k g r o u n d o f e a c h a r g u m e n t n e e d n o t b e d i s c u s s e d and the Court will strive to be mercifully brief. A. Daubert Motions 1. Microsoft's Motion to Preclude Testimony of Joseph Gemini (Docket #217) Microsoft's challenge to Uniloc' s First, i t contends that

T h i s m o t i o n i s DENIED.

damage expert Joseph Gemini i s twofold.

his testimony i s unreliable because his damage calculation i s based on an unfounded and a r b i t r a r y v a l u a t i o n f i g u r e t h a t assumes MPA's independent value i s $10 per activation. issue with Mr. thumb" which Second, Microsoft takes

G e m i n i ' s r e l i a n c e o n t h e s o - c a l l e d "25% r u l e o f it describes as a "junk science" method for

calculating royalty rates. The Court i s well aware of i t s gatekeeper function under Fed. R. Evid. 702, Daubert, and i t s progeny that e x p e r t s may only

provide opinion testimony i f i t is based on sufficient facts or data, i s the product of reliable principles and methods, and the witness applies those principles reliably to the facts. Daubert,

509 u.S. a t 592-93; see a l s o Bowling v. Hasbro, I n c . , C.A. No. 052 2 9 8 , 2 0 0 8 WL 7 1 7 7 4 1 * 1 - 2 ( D . R . I . M a r . 1 7 , 2 0 0 8 ) . Uniloc's companion motion, discussed below) This motion (and

test the limits of

tolerance of Rule 702 and Daubert.

This is so because the world of

damage calculation i n a patent case i s constructed on a f i c t i o n a l foundation t h a t resembles the make believe world of "Second L i f e . " l
1 See Wikipedia, Second Life, http://en.wikipedia.org/wiki/Second_Life (describing virtual world

2

If a j u r y f i n d s M i c r o s o f t h a s i n f r i n g e d U n i l o c ' s p a t e n t , i t w i l l b e called upon to determine what a reasonable royalty would be. will be asked to do this by envisioning a fictional It or

"hypothetical" negotiation wherein these two p a r t i e s - - or rather their perfectly reasonable avatars -- are transported back in time to negotiate a royalty. They do t h i s with appropriate attention to Georgia-Pacific Corp. v. Microsoft reasonable

the so-called Georgia-Pacific factors.

U.s. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). claims Mr. Gemini's methodology for concocting the

royalty i s just not "good science."

But this i s like saying Alice Maybe so, but i n t h i s

did not serve Earl Gray at her tea party.

fictional world i t i s close enough because the starting premise, as discussed below, i s at least arguably grounded in the evidence and the rule of thumb calculation and the Georgia-Pacific factors are so widely accepted. I f these premises are acceptable (which they

seem t o be) then the only issue i s whether Mr. Gemini i s q u a l i f i e d (which he is) and has he accurately performed his task (he has) . The $10 p e r - a c t i v a t i o n base i s not wholly unfounded. This

figure comes from an i n t e r n a l Microsoft document produced during discovery. 2 The Court has reviewed t h i s document and f i n d s Mr. (as of March 15, 2009).

accessible via the internet)
2

In pertinent part, the document reads:

Product Keys are valuable for two maj o r reasons. First, since Product Keys can be used to i n s t a l l a product and create a v a l i d Product ID, you can associate a monetary value t o them. An a p p r a i s a l process found t h a t a Product Key i s worth anywhere between $10 and $10,000 depending
3

Gemini's r e a d i n g r e a s o n a b l y b a s e d i n t h e r e c o r d e v i d e n c e .

His

derivation of the $10 f i g u r e i s not the product of conjecture or rough approximation; admission. rather, i t i s g r o u n d e d i n M i c r o s o f t ' s own

The Court finds t e l l i n g t h a t Microsoft has not argued

Mr. Gemini ignored o t h e r r e l e v a n t evidence t h a t would suggest $10 per activation is inaccurate or too high a value. If, as Microsoft

contends, Mr. Gemini has taken the $10-$10,000 range out of context (and i t instead applies to the value of the entire software that Product Keys help protect), that point, as well as any other can be

contextual or substantive criticisms of the calculation, addressed on cross-examination.

W i t h r e s p e c t t o M r . G e m i n i ' s u s e o f t h e 25% r u l e o f t h u m b , t h e call i s closer but ultimately the opinion i s not excludable on this basis. Although the concept of a urule of thumb" i s perplexing in law where r e l i a b i l i t y and precision are deemed

an area of the

paramount, the r e l i a b i l i t y inquiry is a uflexible one." Daubert, 509 U.S. a t 594. uThe '25% Rule' has been accepted as a proper

baseline from which to s t a r t [a royalty] a n a l y s i s . " GSI Group, Inc. v. Sukup Mfg. Co., No. 05-3011, 2 0 0 8 WL 4 9 6 4 8 0 1 * 1 2 Inc., (C.D. Ill.

Nov.

18, 2008)

( c i t i n g Bose Corp v. JBL,

112 F. SUpp. 2d

1 3 8 , 1 6 5 (D. M a s s . 2 0 0 0 ) ) . of the rule, see
~

There has been considerable criticism Patent Licensing under

Richard S. Toikka,

on usage. Secondly, Product Keys contain short d i g i t a l signature technology that Microsoft Research created. For these reasons, i t i s c r u c i a l t h a t Product Keys are h a n d l e d w i t h maximum s e c u r i t y .
4

Competitive a n d N o n - C o m p e t i t i v e C o n d i t i o n s , 8 2 J . Off. Soc'y 279, 292-93 (2000),

Pat. & Trademark

much of which i s well reasoned.

However, the r u l e ' s widespread and general acceptance in the f i e l d suggests t h a t the reasonableness of Mr. Gemini's r e l i a n c e on i t i n fashioning his opinion i s a matter that more properly goes to weight as opposed to admissibility. Taking a different approach, M i c r o s o f t a r g u e s t h a t t h e 25%

rule i s only designed to serve as a s t a r t i n g point for a damage c a l c u l a t i o n and t h a t because Mr. Gemini does not d e v i a t e from the rule this approach is result oriented and unreliable. While Mr.

G e m i n i ' s a p p a r e n t r o t e a p p l i c a t i o n o f , t h e 25% r u l e i s e n o u g h t o r a i s e an eyebrow, h i s expert r e p o r t reveals t h a t he considered many factors in forming his opinion. Again, Microsoft may r e l y on cross

examination and other tools of the adversary process to address the weaknesses in this testimony. 2. Uniloc' s Motion to Preclude Testimonv of Defendant ' s E x p e r t W i t n e s s , B r i a n W. N a p p e r ( D o c k e t # 2 2 0 ) Mr. Napper concludes t h e appropriate

T h i s m o t i o n i s DENIED.

damages award i n t h i s case would be a "paid up" lump-sum royalty of $3-7 million. of Mr. Napper. In sum, Uniloc challenges the r e l i a b i l i t y and bias I t contends t h e opinion i s flawed because Mr.

Napper failed to account for Microsoft's use of the invention and the immense cost-savings and revenue generated from MPA, and

because he essentially used a faulty application of the GeorgiaPacific factors to rationalize the $3-7 million royalty figure.
5

After c a r e f u l r e v i e w o f M r . N a p p e r ' s r e p o r t , i t i s c l e a r h i s opinion f a l l s within the bounds of Rule 702 and Daubert. While

Uniloc contends a lump-sum royalty i s per se unreliable because i t i s fundamentally a t odds with the compensatory nature of 35 U.S.C.
§

284, there i s no one correct formula for computing damages in a A lump-sum o r f l a t - f e e r o y a l t y may be proper i f t h e r e

patent case.

i s evidence to support finding Microsoft would have entered into such an agreement at the time the hypothetical negotiation is said to have occurred, or a t l e a s t that such royalties are (or were) commonly u t i l i z e d i n the industry. See
~

Embrex,

Inc.

v.

Service Eng'g Corp., 216 F.3d 1343, 1350 (Fed. Cir. 2000)i Snellman v. Ricoh Co., Inc., 862 F.2d 283, 289 (Fed. Cir. 1988)
i

Stickle v. It is

Heublein, true,

716 F.2d 1550, 1561-63

(Fed. Cir. 1983).

as Uniloc points out,

t h a t many cases discussing lump-sum

r o y a l t i e s include some aspect of a combined continuing running royalty. The lack of any "running" aspect t o Mr. Napper's figure

i s i m p o r t a n t - - b u t i t g o e s t o t h e w e i g h t o f h i s t e s t i m o n y a n d may be grist for the cross examination mill. unreliable. What U n i l o c ' s challenge comes down t o i s disagreement with Mr. Napper's approach. of I t i s free to cross-examine him about his use factors, his testimony in other patent I t does not make i t

the Georgia-Pacific

cases, his prior testimony for Microsoft, and his prior opinions (as Microsoft's so-called "hired gun") t h a t a $3-7 million lump-sum royalty is appropriate. I f l i a b i l i t y i s found,
6

the jury will

decide w h e t h e r t h e e v i d e n c e s u p p o r t s a l u m p - s u m o r r u n n i n g r o y a l t y o r some combination t h e r e o f based on the opinions of both expert witnesses. B. Bifurcation of L i a b i l i t y and Damages At the Daubert hearing, the Court sua sponte raised the issue of bifurcation of the t r i a l into l i a b i l i t y and damages phases. Neither party had moved t o b i f u r c a t e any issue a t t r i a l that matter mentioned i t ) . phase; (or for

Uniloc objected to a separate damages

counsel for Microsoft said his c l i e n t "assumed" damages The Court issued no ruling. The next week

would be bifurcated.

following jury empanelment, Microsoft filed a Motion to Bifurcate Presentation of Liability Issues From That of Damages and

Willfulness Issues (Docket #298), to which Uniloc objected. 3 F e d . R. C i v . P. 4 2 ( b ) g i v e s t h e C o u r t d i s c r e t i o n t o s e p a r a t e issues or claims at t r i a l "for convenience, to avoid prejudice or to expedite and economize." Additional considerations include

whether the issue sought to be tried separately (and the related evidence) differs in any significant respect from the primary t r i a l issues, and whether a single t r i a l would create the potential for

3 Though i t mentions willfulness, Microsoft offers no argument a s t o why t h i s i s s u e s h o u l d be c o n s i d e r e d s e p a r a t e from infringement. Willfulness is a question of fact for the jury based on whether Uniloc offers clear and convincing evidence that Microsoft acted despite an objectively high likelihood that i t s actions constituted infringement. I n r e S e a g a t e T e c h . , LLC, 4 9 7 F.3d 1360, 1368 (Fed. Cir. 2007). I f the jury so finds, the Court will exercise i t s discretion p o s t - t r i a l to determine i f damages s h o u l d b e e n h a n c e d . S e e 3 5 U . S . C . § 2 8 4 ; J u r g e n s v . CBK, L t d . , 8 0 F.3d 1566, 1569-71 (Fed. Cir. 1996).

7

jury b i a s .

Uniloc argues that Microsoft i s a day late and a dollar And, says

short because i t never requested b i f u r c a t i o n u n t i l now.

Uniloc, although the technology i s complex, the case has been pared back and there i s no compelling reason to believe jurors will be confused by additional damages testimony. Microsoft contends a

separate damages phase would "enhance juror comprehension" and save time. In this case, bifurcation is not warranted. The fact t h a t

Microsoft moved f o r such r e l i e f only a f t e r the Court's comments suggests the risk of confusion and prej udice is not nearly as troublesome as i t now suggests. In any event, bifurcation would in the parties agreed

a l l l i k e l i h o o d not save much t r i a l time - -

examination of damages experts would take one or possibly one and a half days; and other damage evidence i s entwined with testimony of fact witnesses. There i s no question the technology presents But complexity in any case does not the risk of

complex l i a b i l i t y questions. mandate bifurcation.

Weighing a l l considerations,

distraction or prejudice to Microsoft from presentation of profit and other financial evidence can be minimized by instructions to the jury that damages must be considered apart from l i a b i l i t y , and o n l y i f i t f i n d s MPA i n f r i n g e s e i t h e r a s s e r t e d c l a i m ( a n d t h a t t h e claims are not invalid). The Court will, as always, emphasize that

the p r e s e n t a t i o n of damages evidence i n no way suggests or implies Microsoft i s l i a b l e for the damages Uniloc claims. M o t i o n t o B i f u r c a t e i s DENIED.
8

Microsoft's

C.

Motions in Limine

Plaintiff Uniloc's Motions 1. Motion to Preclude Non-Infringement Arguments #237) (Docket

T h i s m o t i o n i s DENIED.

The Court does not agree with Uniloc

t h a t M i c r o s o f t ' s n o n - i n f r i n g e m e n t a r g u m e n t t h a t MPA d o e s n o t h a v e a l i c e n s e e unique ID generating means i s barred by the Federal Circuit's decision after Microsoft argued on appeal alternative grounds for affirming t h i s Court's summary judgment. See Uniloc

USA, I n c . v . M i c r o s o f t C o r p . , 2 9 0 F e d . A p p x . 3 3 7 , 2 0 0 8 WL 3 5 3 9 7 4 9 (Fed. Cir. Aug. 7, 2008). The fact that the Federal Circuit

rejected as

~without

merit" Microsoft's argument that as a matter l i c e n s e e u n i q u e ID

o f l a w i t s MPA h a s h i n g a l g o r i t h m w a s n o t a

generating means does not mean i t decided as a matter of law t h a t MPA d i d , in fact, infringe this element. The more appropriate

interpretation of the Federal Circuit's decision is that evidence e x i s t s t o s u p p o r t a j u r y f i n d i n g t h a t MPA d o e s h a v e a l i c e n s e e unique ID g e n e r a t i n g m e a n s such that While summary judgment for

Microsoft would be unwarranted.

the

"law of the case"

doctrine Uniloc urges i s applicable i n many s i t u a t i o n s , t h i s i s not one of them. T h e l a w o f t h e c a s e h e r e i s s i m p l y t h a t w h e t h e r MPA

has a l i c e n s e e unique ID generating means i s a f a c t u a l question f o r the jury. As t o U n i l o c ' s r e m a i n i n g c o n t e n t i o n s , f o r t h e r e a s o n s

discussed during argument Microsoft i s not precluded from arguing non-infringement with respect to "use mode,"
~mode

switching

9

means," provided,

or

"unique however,

identifier that it

associated not

with

a

licensee," Court's

does

reargue

this

construction of those terms as affirmed by the Federal Circuit. 2. Motion Regarding Non-U.S. Activations (Docket #238) (and to the extent) discussed below with from Seeking

For the reasons respect

to Microsoft's Motion to Preclude Uniloc

Damages f o r o r Referring t o Microsoft's Foreign Sales, and From Seeking Damages For Multiple Activations on a Single Computer

(Docket #234), Uniloc's Motion Regarding Non-U.S. Activations i s GRANTED. 3. Motion Regarding (Docket #239) Profit Margins of Accused Products

T h i s m o t i o n i s DENIED. argument,

For the reasons outlined at oral

the Court will not order Microsoft to produce certain profit numbers that have not already been

product-specific

disclosed or calculated during the years of discovery in this case. Assigning a (somewhat arbitrary) minimum p r o f i t margin t o the

accused products as Uniloc suggests would amount to a sanction against Microsoft not supported by the current record. As e v i d e n t

d u r i n g a r g u m e n t , t h o u g h i t may l a c k a p r e c i s e n u m b e r , U n i l o c h a s plenty of evidence and prior testimony about profits and can deal with this issue through examination of Microsoft's witnesses. 4. Motion to Limit Defendant's Invalidity Argument to the Grundy and Hellman Patents (Docket #241) Microsoft has represented that the

T h i s m o t i o n i s DENIED.

Grundy and Hellman patents will be the "primary references" in i t s
10

obviousness disclosure supplemental

defense. of

In

response

to

Uniloc' s

recent

written a the

infringement

theories,

Microsoft forth in

submitted detail

pretrial

memorandum

setting

combinations of prior a r t on which i t intends to rely at t r i a l . 5. M o t i o n R e g a r d i n g t h e "VISTA" V e r s i o n o f W i n d o w s ( D o c k e t #242) Both parties agree not to

T h i s m o t i o n i s DENIED a s m o o t .

r e f e r t o M i c r o s o f t ' s VISTA p r o d u c t d u r i n g t r i a l . 6. Motion to Preclude Microsoft from Referrinq at Trial to Alternative Theories of Infringement (Docket #243) Uniloc has stated unequivocally that of infringement on which i t lost at

T h i s m o t i o n i s DENIED. its alternative theories

summary judgment and/or "dropped" on appeal t o the Federal Circuit have no relevance a t t r i a l . 71, Mar. 3, 2009. relevant to See Motion in Limine Transcript, 70-

However, evidence o f a l t e r n a t i v e t h e o r i e s may be cross-examination of Uniloc's damages

Microsoft's

expert Joseph Gemini, Microsoft's defense of Uniloc's willfulness claim and invalidity issues regarding commercial success of accused products. Having said that, as discussed during oral argument,

Microsoft is directed not to elicit detailed or lengthy testimony about the p r i o r summary judgment proceedings and/or the Federal Circuit decision or dissent by Chief Judge Michel. U n i l o c may

renew i t s objection to this evidence should i t believe Microsoft i s impermissibly dwelling on this information and/or using the

evidence in an inappropriate manner.

11

7.

Motion Regarding Cross-Examination of Mr. David Klausner (Docket #244) Both parties agree not to

T h i s m o t i o n i s DENIED a s m o o t .

r e f e r t o Mr. Klausner's work with c h i l d r e n o r c a l l him an a c t o r . 8. Motion Regarding the Prosecution History of the PatentIn-Suit (Docket #245) Uniloc argues prosecution history is

T h i s m o t i o n i s DENIED.

only relevant to claim construction, which i s over and done with. But evidence of the prosecution history of the relevant to Microsoft's invalidity defense. \ 216 patent i s

Prosecution history and there is

can refer to a wide range of potential evidence,

obviously a possibility of overlap between evidence of prior art which m a y o r may not have been before t h e p a t e n t examiner (and

which would support Microsoft's invalidity defense), and evidence that more d i r e c t l y r e l a t e s to inequitable conduct. Microsoft

concedes the claim of inequitable conduct is for. the Court, not the jury, to decide. The Court will therefore handle t h i s evidence on By way of providing some guidance,

a case-by-case basis at trial.

Microsoft may introduce evidence of p r i o r a r t and i n v a l i d i t y of the patent by anticipation and obviousness. I t may not, however, r e f e r

to evidence or imply through i t s questioning of witnesses that there was a d e l i b e r a t e attempt by Uniloc to deceive or mislead the patent office in any respect, including with regards to portions of p r i o r a r t ( i . e . , the Grundy patent) t h a t mayor may not have been misrepresented to the examiner. The Court w i l l hear a l l evidence

of inequitable conduct outside the presence of the jury. 12

9.

Motion to Preclude (Docket #246)

the

Testimony

of

Martin

Hellman

T h i s m o t i o n i s DENIED.

Dr. Hellman may t e s t i f y as a f a c t

witness for Microsoft about his patented invention, 4,658,093, and the state of the prior a r t .

u.s.

Patent

Microsoft as part of

i t s invalidity defense claims Dr. Hellman's patent anticipates and makes obvious the '216 patent. Dr. Hellman has not been designated

as an expert and may not opine as t o matters t h a t a r e before the jury to decide as outlined a t the March 3, 2009 hearing (including whether Uniloc' s mindful of the patent is or is not fine invalid). The Court i s like Dr.

line that exists with a

witness

H e l l m a n who h a s h i g h l y t e c h n i c a l - - a l b e i t f a c t u a l - - k n o w l e d g e a s a non-expert witness. As a general r u l e , the Court w i l l not permit

him to offer any opinion testimony unless s p e c i f i c a l l y approved in advance by the Court. Furthermore, given what appears to be

equivocal testimony on several key points at his f i r s t deposition years ago, the Court will permit Uniloc to conduct another

deposition of Dr. Hellman before t r i a l on the issues about which he will testify. 10. Motion in Limine Regarding Inequitable Conduct #247) (Docket

T h i s m o t i o n i s GRANTED I N PART f o r t h e r e a s o n s s t a t e d a b o v e with respect to Uniloc's Motion No.8 (Docket #245). Evidence

designed to suggest Uniloc failed to disclose material information o r m i s l e a d t h e PTO e x a m i n e r w i l l b e e x c l u d e d f r o m t h e j u r y b e c a u s e such evidence is relevant only to inequitable conduct. 13

Defendant M i c r o s o f t ' s M o t i o n s 1. Motion t o Preclude Uniloc from Seeking Damages for or Referring to Microsoft's Foreign Sales, and From Seekinq Damages For Multiple Activations on a Single Computer (Docket #234) The Court f i r s t addresses more accurately, foreign

T h i s m o t i o n i s GRANTED I N PART. foreign sales of accused products or, licenses.

There i s no dispute that Microsoft does not actually

sell software such as Microsoft Office to individual foreign users (or any other users). Rather, i t permits customers to use the As

software through a licence via an "End User License Agreement."

d i s c u s s e d s u p r a , U n i l o c ' s d a m a g e s e x p e r t a s s i g n s a MPA v a l u e ( $ 1 0 ) to these licensed products. As part of the overall damage

calculation,

Uniloc's expert multiples

25% o f t h a t p e r - p r o d u c t

value (or $2.50) by a t o t a l activations number that includes the activation of both foreign and domestic licences. Microsoft claims

t h i s c a l c u l a t i o n r u n s a f o u l o f M i c r o s o f t v . AT&T C o r p . , 5 5 0 U . S . 437 (2007) and t h a t Uniloc i s only e n t i t l e d to damages based on While the parties tee

licenses issued within the United States. this up as a damages question
l

the issue i s much more fundamental: '216 patent

whether Microsoft can be found to infringe Uniloc's

w h e n p a r t o f t h e MPA s y s t e m i n v o l v e s a n e x t r a t e r r i t o r i a l c o m p o n e n t . Put another way, does Microsoft "use" the claimed system "within the United States" as required by 35 U.S.C.
§

271(a)

even when

Product Activation is used during activation of software on a foreign computer?

14

Infringement o c c u r s i f t h e i n f r i n g e r " m a k e s , u s e s , o f f e r s t o sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent."
§

35 U.S.C.

§

271(a).

I t i s settled law that

271(a) has a limited t e r r i t o r i a l reach and that to be actionable NTP, I n c .

the infringing act must occur within the United States.

v. Research i n Motion, Ltd., 418 F.3d 1282, 1313 (Fed. Cir. 2005). In certain cases, occurs within the the test for determining whether infringement United States first depends on whether Id. the

patented invention i s a "system" or a "method."

Because both

parties agree that the claims at issue in this case are system claims, the Court need not dwell on the distinction. 4 of a system claim may give r i s e to infringement In sum, use (and thus be

included in damages) i f the United States i s "the place a t which the system as a whole i s put into service;" i . e . , "the place where control of the system is exercised and beneficial use of the system is obtained." Id. at 1317-18. Use of a method claim, in contrast,

will not give rise to infringement unless each individual step or stage of the claimed method i s performed wholly within the United States. Id. at 1318. Focusing then on system claims, a claim of

infringement i s only actionable (and inclusion of foreign licenses in the damages calculation proper) i f the United States is "the

During oral argument counsel for Microsoft agreed this case only concerns system claims. See Motion in Limine Transcript, 4 1 : 1 0 - 1 3 , M a r . 3 , 2 0 0 9 ( " t h e NTP c a s e a l s o c o n s i d e r e d t h e i s s u e o f method claims, which a r e n ' t at issue in t h i s case anymore"); see also '216 patent columns 14-16 ("a registration system") .
4

15

place a t w h i c h t h e s y s t e m a s a w h o l e i s p u t i n t o s e r v i c e ; " i . e . , Uthe place where control of the system i s exercised and beneficial use of the system is obtained." NTP, 4 1 8 F . 3 d a t 1 3 1 7 - 1 8 .

Microsoft argues that the system t e s t for where use occurs in NTP i s b e s i d e t h e p o i n t a n d u r g e s a S u p r e m e C o u r t ' s d e c i s i o n i n AT&T. strict application of the 437. However, the

550 U.S.

h o l d i n g o f AT&T i s i n a p p o s i t e t o t h i s c a s e b e c a u s e t h e C o u r t ' s central holding was limited to export from the United States of ucomponents" under in this case.
§

271(f), which has never been a theory advanced

Although much has been made by Microsoft and others

a b o u t t h e AT&T d e c i s i o n a n d t h e S u p r e m e C o u r t ' s c o m m e n t s a b o u t t h e presumption against extra-territorial reach of United States patent l a w , 5 t h e AT&T a n a l y s i s s i m p l y d o e s n o t a p p l y t o t h e t e c h n o l o g y i n this case. T h e F e d e r a l C i r c u i t ' s NTP u s y s t e m a s a w h o l e " f r a m e w o r k f o r system claims with a foreign element, while not on a l l fours, more appropriate. is

When f o r e i g n i n d i v i d u a l s o b t a i n l i c e n s e s a n d

activate their Microsoft software via the Microsoft Clearinghouse in the United States, acknowledge) t h e MPA s y s t e m t r u l y i s (as both parties

upartly within and partly outside" the United States
§

for purposes of infringement under Uniloc's s y s t e m n o t u n l i k e NTP.

271(a)

theory,

a

5 S e e , ~ , T i m o t h y R. H o l b r o o k , E x t r a t e r r i t o r i a l i t y i n u . S . P a t e n t L a w , 4 9 Wm. & M a r y L . R e v . 2 1 1 9 , 2 1 3 1 - 3 6 ( 2 0 0 8 ) ; E r i c W. G u t t a g , When O f f s h o r e A c t i v i t i e s B e c o m e I n f r i n g i n g : A p p l y i n g § 2 7 1 to Technologies t h a t UStraddle" T e r r i t o r i a l Borders, 14 Rich. J.L. & Tech. 1, 31-38 (2007). 16

Microsoft a t t e m p t s t o d i s t i n g u i s h NTP b y a r g u i n g t h a t U n i l o c ' s theory regarding foreign license activations has always required both a local (foreign individual) and remote (U.S. Clearinghouse) component to MPA, and that it cannot focus solely on the

Clearinghouse as the situs of use at the eleventh hour in an effort to sweep foreign licenses into the damages calculation. Microsoft

i s , i n e s s e n c e , m a k i n g t h e a r g u m e n t NTP r e j e c t e d : t h a t a l l p a r t s o f a collective system must be within the United States to infringe, a n d t h a t b e c a u s e MPA i s a t b e s t a 5 0 / 5 0 t i e U n i l o c ' s t h e o r y f a i l s . A c a r e f u l r e a d i n g o f NTP b e l i e s M i c r o s o f t ' s c o n c l u s i o n . Therefore, Microsoft's the questions licenses where that can be must be answered in any before damage into

foreign 1)

includable a

calculation are:

the

system as

whole

is put

s e r v i c e ; 2) where c o n t r o l o f the system i s e x e r c i s e d ; and 3) where beneficial use of the system is obtained. Because the answers to

these questions are fact intensive and will depend sUbstantially on the evidence at trial, they are properly left for the jury.

Therefore, the Court will allow evidence of foreign licenses to be presented at t r i a l ; however, the Court will instruct the jury that i t may only include t h e s e l i c e n c e s i n the damage c a l c u l a t i o n i f the answer to each of the above questions i s the United States. The

Court will require the jury to answer special interrogatories to address the above questions and f u r t h e r t o i n d i c a t e how i t a r r i v e d a t any damage award, by specifying the number of domestic and

foreign licenses they found to be infringed. 17

Turning t o m u l t i p l e a c t i v a t i o n s , t h e i s s u e i s w h e t h e r U n i l o c m a y i n c l u d e a l l s o f t w a r e a c t i v a t i o n s u s i n g MPA i n a d a m a g e s a w a r d or, as Microsoft argues, only " f i r s t time" activations (otherwise k n o w n a s New L i c e n s e s ) . Uniloc claims each re-activation following

a New L i c e n s e ( s u c h a s w h e n a p e r s o n a c t i v a t e s a s e c o n d o r t h i r d time after a hard drive crash) is a separate act of infringement Microsoft retorts that Uniloc

for which i t deserves compensation.

b a s e s i t s d a m a g e s c a l c u l a t i o n o n t h e p u r p o r t e d v a l u e o f MPA ( $ 1 0 ) per individual sale of an accused product, and would be double

dipping (or more) i f allowed to include re-activations. T h e C o u r t a g r e e s t h a t t h e v a l u e o f MPA i s b a s i c a l l y c o m p l e t e u p o n i n i t i a l a c t i v a t i o n a n d c r e a t i o n o f a New L i c e n s e . A sale is

a sale under Uniloc's $2.50 per product theory -- the fact that an accused product may be a c t i v a t e d a second o r t h i r d time does not mean there i s value inherent i n such a c t i v a t i o n , o r a t l e a s t not as much as Uniloc a s s i g n s . Moreover, even i f re-activations could be

said t o bring some additional value t o Microsoft by ensuring a user reactivates in compliance with his or her prior license, Uniloc has made no attempt t o connect these a n t i c i p a t e d r e - a c t i v a t i o n s t o what Uniloc and Microsoft would have agreed to in 2001. The notion that

Microsoft would have agreed to pay a $2.50 royalty per product sold and p e r r e - a c t i v a t i o n by a u s e r ( i n d e f i n i t e l y , r e g a r d l e s s of how many times a p e r s o n ' s hard drive crashed, f o r example) s t r i k e s the Court as far-fetched.

18

2.

Motion to Preclude Plaintiffs from Relying on Microsoft Documents t h a t Use the Word nRegistration" t o Meet Their Burden of Showing that Product Activation is a nRegistration System" (Docket #235) Microsoft maintains that Uniloc will

T h i s m o t i o n i s DENIED.

t r y to use old and/or unrelated documents with the magic words nRegistration" o r nRegistration System" as a way t o meet i t s burden t o p r o v e MPA m e e t s t h i s C o u r t ' s c l a i m c o n s t r u c t i o n o f t h e t e r m nRegistration System." What Uniloc should do, Microsoft argues, i s

h a v e i t s e x p e r t e x p l a i n t o t h e j u r y h o w a n d w h y MPA i s , i n f a c t , a nRegistration System." Microsoft's concern is that the jury will

see this term in a Microsoft document and simply assume i t refers to what i s contained in the '216 patent. Uniloc says that beyond

i t s expert's testimony, i t i s entitled to introduce documents that a r e ( i t c l a i m s ) d i r e c t l y r e l a t e d t o MPA t e c h n o l o g y a n d s h o w t h a t MPA d o e s i n f a c t h a v e a claim construction. nRegistration System" under the Court's a

While Microsoft's concern i s legitimate, these documents

wholesale exclusion of inappropriate.

would be premature and

The Court w i l l make individual determinations a t

t r i a l based on the relevance and foundation Uniloc may be able to establish connecting the documents to the actual architecture of MPA t e c h n o l o g y . Documents will not be admitted simply because they absent some showing of

contain the term nregistration" in them, relevance to the claims at issue.

Should some o r a l l of the

documents be admitted, the Court will give appropriate instructions t o t h e j u r y a b o u t t h e m e a n i n g o f n R e g i s t r a t i o n S y s t e m " a n d how

19

documents

using

these

terms

may be permissibly

considered

in

d e t e r m i n i n g w h e t h e r MPA i n f r i n g e s . 3. Motion to Preclude Uniloc from Offering Evidence or Testimony of Alleged Secondary Considerations of NonObviousness and to Preclude Untimely Expert Opinions (Docket #236) At the heart of t h i s dispute are two The f i r s t i s evidence of the

T h i s m o t i o n i s DENIED.

categories of potential evidence.

commercial success of Product Activation in what Uniloc refers to as Microsoft's "crown jewel" products, Office and Windows (in other words, t h e e f f e c t i v e n e s s o f MPA i n t h e s e p r o d u c t s in stopping

casual copying and the resulting cost savings and revenue for Microsoft). The second category i s evidence suggesting Microsoft

copied Uniloc's software in or around 1993 a f t e r i t received a sample and, according the code. to Uniloc, reverse-engineered the and/or

disassembled

Shortly

thereafter,

theory goes,

M i c r o s o f t b e g a n w o r k o n d e v e l o p i n g MPA. Secondary considerations are relevant to rebut a claim of obviousness. Graham v. John Deere & Co., 383 U.S. I , 17-18 (1996); I l l . Tool Works, Inc., 739 F.2d 1573,

Simmons F a s t e n e r Corp. v. 1575 (Fed. Cir. 1984).

Microsoft balks at Uniloc' s purported

objective indicia of non-obviousness based on lack of relevance, unless and until Uniloc establishes a nexus between this evidence and the '216 patent. Otherwise, says Microsoft, Uniloc will be See Ormco Corp. v.

taking credit for features i t did not invent.

Align Tech., I n c . , 463 F.3d 1299, 1311-12 (Fed. Cir. 2006).

20

It m a y w e l l

be

true

that Uniloc' s

evidence

of

secondary

considerations will be inadequate to overcome a final conclusion that the claims a t issue are obvious as a matter of law based on the prior art (depending, of course, on Microsoft's affirmative But a f t e r careful review, the exclusion of all secondary Microsoft

evidence in support of invalidity). Court determines that wholesale

consideration evidence a t this stage would be premature.

presents a persuasive argument about the tenuous nexus between the claimed non-obvious feature(s) s u c c e s s o f MPA, allegations. as well as of the '216 patent and commercial the so-called generalized copying

I t can make these p o t e n t i a l l y powerful points a t

t r i a l and the jury and this Court will give Uniloc's secondary considerations whatever weight - - i f any - - may be warranted i n the face of Microsoft's obviousness evidence. Thomson Corp., 532 F.3d 1318, 1327-28 See Muniauction, Inc. v. (Fed. Cir. 2008) (nexus

between merits of invention and secondary consideration evidence is required for evidence to be given substantial weight); Frisket,

I n c . v . R e a l N e t w o r k s , I n c . , N o . 2 0 0 7 - 1 5 8 3 , 2 0 0 9 WL 5 9 1 8 2 * 6 ( F e d . Cir. Jan. 12, 2009) (unpublished opinion) (copying evidence

properly given l i t t l e weight absent s u f f i c i e n t evidence t o show allegedly copied technology fell within scope of asserted claims) . As t o u n t i m e l y e x p e r t o p i n i o n s o r l a t e d i s c l o s u r e o f s e c o n d a r y consideration evidence, the Court cannot fully evaluate Microsoft's objection in the context of a motion in limine, especially given the evolving nature of both side's theories over the past five 21

years a n d o n g o i n g s u p p l e m e n t a t i o n o f e x p e r t r e p o r t s . will be individually addressed at t r i a l . 4.

Objections

Motion to Preclude Uniloc from Offerinq Evidence of Willful Infringement (Docket #240) In i t s motion, Microsoft in essence

T h i s m o t i o n i s DENIED.

asks for summary judgment on Uniloc's w i l l f u l infringement claim. The evidence of objective baselessness under In re Seagate Tech., i t contends, is insufficient to warrant sending the question to a jury. 497 F.3d 1360 (Fed. Cir. 2007). This may w e l l be t r u e , b u t

i t is too early to decide.

Uniloc may p r e s e n t evidence of w i l l f u l

infringement and, i f a p p r o p r i a t e , Microsoft may renew i t s argument i n the form of a Rule 50 motion. 5. Motion t o Preclude Uniloc from Using f o r Any Purpose Evidence of Other Disputes or proceedings Involving Microsoft (Docket #249) Microsoft takes aim at three entered (2) into as part of to the

T h i s M o t i o n i s GRANTED I N PART. categories litigation of evidence: (1) in

licenses

settlements

other

cases;

references

Burst.com l i t i g a t i o n or allegations of Microsoft spoliation; and (3) p r i o r testimony on Microsoft's behalf by expert Brian Napper. As to (1), Uniloc hopes to have i t s damages expert reference

license fees as part of settlements in other Microsoft patent l i t i g a t i o n in an effort to cast doubt upon the appropriateness of Microsoft's $3-7 million damages theory - - for example, the fact that Microsoft paid $440 million to settle patent litigation

several years ago.

This evidence will be excluded for two reasons.

22

First,

settlements offered,

negotiated or made under t h r e a t of

litigation are generally not considered probative of a reasonable royalty because in the usual course they do not provide an accurate reflection of what a willing licensor would do in an arm's length transaction. See Hanson v. Alpine Valley Ski Area, I n c . , 718 F.2d

1 0 7 5 , 1 0 7 8 - 7 9 ( F e d . C i r . 1 9 8 3 ) ; 3Com C o r p . v . R e a l t e k S e m i c o n d u c t o r C o r p . , N o . C 0 3 - 2 1 7 7 VRW, 2 0 0 8 WL 7 8 3 3 8 3 , * 4 - 5 ( N . D . C a l . M a r . 2 4 , 2008); Supp. Corp., Spreadsheet Automation Corp. 2d 794, 918 F. 800-01 Supp. (E.D. 1126, Tex. v. Microsoft Corp., 587 F.

2007); Donnelly Corp. v. Gentex (W.D. Mich. 1996). Second,

1133-34

whatever relevance the evidence could have as to reasonable royalty i s substantially outweighed by the unfair prejudice to Microsoft and juror confusion that would likely result from these collateral issues. See Fed. R. Evid. 403, 408.

As t o (2), Uniloc has agreed not t o r e f e r e n c e the Burst.com l i t i g a t i o n or allegations of spoliation so the issue i s moot. As

to (3), the Court rejects the argument that Uniloc should be barred from impeaching Mr. Napper on the basis of his prior damages

testimony.

This i s f a i r game f o r cross-examination t o show b i a s

and so long as the testimony i s limited in scope so as to avoid unfair prejudice and confusion, i t is permissible. I T I S SO ORDERED.

William E.Smith United States District Judge Date: 23