I/P Engine, Inc. v. AOL, Inc. et al

Filing 773

Memorandum in Support re 772 Second MOTION for Judgment as a Matter of Law of No Damages 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
NORFOLK DIVISION
I/P ENGINE, INC.
Plaintiff,

Civil Action No. 2:11-cv-512

v.
AOL, INC., et al.,
Defendants.

MEMORANDUM IN SUPPORT OF DEFENDANTS’ SECOND MOTION FOR
JUDGMENT AS A MATTER OF LAW OF NO DAMAGES

1

I.

INTRODUCTION
On October 31, the Court determined as a matter of law that I/P Engine cannot recover

damages for acts that occurred before it filed this lawsuit on September 15, 2011. Plaintiff’s
expert on damages, Dr. Stephen Becker, has opined that the reasonable royalty in this case
should be a running royalty. In order to determine a running royalty, it is necessary to calculate
both a royalty rate and a royalty base. However, Plaintiff has presented no evidence of the
proper amount of a royalty base from September 15, 2011 to the time of trial, as it is required to
do. As such, if the jury finds infringement, there is no evidence in the record for the jury to
determine the appropriate royalty base during the applicable damages period. Because I/P
Engine has failed to provide a legally sufficient evidentiary basis for the jury to award damages,
Defendants respectfully request that the Court grant their motion for judgment as a matter of
law.1
II.

LEGAL STANDARD
Judgment as a matter of law is appropriate where a party has been fully heard on an issue

and “there is no legally sufficient evidentiary basis for a reasonable jury to have found for that
party with respect to that issue.” Fed. R. Civ. P. 50(a); see also Towler v. Sayles, 76 F.3d 579,
581 (4th Cir. 1996) (“[T]here is no legally sufficient evidentiary basis for a reasonable jury to
find for that party.”); In re Outsidewall Tire Litig., No. 1:09cv1217, 2010 WL 2929626, at *4
(E.D. Va. July 21, 2010) (“[J]udgment as a matter of law must be entered when a reasonable trier
of fact could draw only one conclusion from the evidence, namely, the conclusion that the
nonmoving party cannot prevail on that issue or claim.”) (internal citations omitted). “[A] mere
1

Defendants renew and reserve all other grounds for Judgment as a Matter of Law of
No Damages set forth during oral argument and in earlier submissions to the Court, including
plaintiff’s reliance on an incorrect hypothetical negotiation date, an unsupported running royalty
structure, an inflated royalty rate, and an impermissible royalty base. (D.N. 751.)
1

scintilla of evidence is not enough to defeat a motion for judgment as a matter of law.” Gairola
v. Va. Dep’t of Gen. Servs., 753 F.2d 1281, 1285 (4th Cir. 1985); see also LeFebre v.
Westinghouse Elec. Corp., 747 F.2d 197, 208 (4th Cir. 1984) (holding that substantial evidence
“consists of more than a mere scintilla of evidence but may be somewhat less than a
preponderance”) (quoting Laws v. Celebrezze, 368 F.2d 640, 642 (4th Cir. 1966)).
I/P Engine bears “the burden of proving the amount of reasonable royalty damages it is
entitled to recover.” Transclean v. Bridgewood Servs., 290 F.3d 1364, 1376 (Fed. Cir. 2002);
Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011) (“The patentee bears the
burden of proving damages.”). While a reasonable royalty calculation will involve “some
approximation,” a patentee must employ “sound economic and factual predicates” in proving a
reasonable royalty. Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1311 (Fed. Cir.
2002); Uniloc, 632 F.3d at 1315 (“[The] patentee must ‘sufficiently [tie the expert testimony on
damages] to the facts of the case.’”) (quoting Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579, 589 (1993)); ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed. Cir. 2010)
(“[T]he trial court must carefully tie proof of damages to the claimed invention’s footprint in the
market place .… Any evidence unrelated to the claimed invention does not support compensation
for infringement but punishes beyond the reach of the statute.”). Where, as here, the patentee
fails to present to the jury a legally sufficient basis upon which to calculate damages, judgment
as a matter of law is warranted. See Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d. 1301, 1336
(Fed. Cir. 2009) (reversing denial of motion for judgment as a matter of law on damages).
III.

PLAINTIFF HAS ADDUCED NO EVIDENCE IN SUPPORT OF DAMAGES
DURING THE RECOVERABLE PERIOD
Plaintiff’s damages claim is based on a running royalty structure, rather than a lump sum

payment. Under the running royalty structure, there must be a determination of both a royalty
2

rate and a royalty base in order to calculate damages arising from the alleged infringement.
Plaintiff’s expert, Dr. Stephen Becker, testified regarding a royalty base estimated from the
alleged incremental increase in revenue following implementation of the SmartAds system. Dr.
Becker based his calculation on an analysis of two charts in a draft slide presentation. (Trial Tr.
at 767:22-25, 909:11-21.) Dr. Becker testified that the allocated revenue base in this case “from
the time period September 15th of 2005 through September of 2012 … is a total of 14 billion 88
million 500,000.” (Id., 832:20-25.) He provided a breakdown of the incremental revenue base
by Defendant, but he never provided a breakdown by month, quarter, or even year. (Id., 833:613.) Dr. Becker multiplied the overall revenue base he calculated by a 3.5 percent royalty rate,
to calculate an accrued damages amount of $493 million. (Id., 767:22-25.)
In light of its ruling on laches, the Court has now determined that Plaintiff may only
recover damages for the period beginning on September 15, 2011, the filing date of this lawsuit.
(Trial Tr. at 1805:20-1806:1.) Plaintiff is barred from claiming past damages for any time prior
to the September 15, 2011 filing date. Because Dr. Becker only provided testimony as to the
total allocated revenue base “from the time period September 15th of 2005 through September of
2012,” there is now a fundamental failure of proof. There is no basis for a jury to determine the
allocated revenue base for the September 2011 through September 2012 time period. Indeed,
there is not a single piece of evidence in the record that provides the jury with a basis to
determine the applicable revenue base for the correct damages period.
Due to this fundamental failure of proof, there is no way for the jury to make a damages
determination that is clearly supported by the evidence. Without evidence of the applicable
royalty base, any determination of a running royalty would be “based only on speculation or
guesswork.” Lucent, 580 F.3d at 1310 (overturning jury’s damages verdict where not based on

3

substantial evidence). This case is analogous to LaserDynamics, in which the Federal Circuit
required a new trial where a jury’s damages “was based on an expert opinion that finds no
support in the facts in the record.” LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51,
81 (Fed. Cir. 2012) (emphasis added). “Without a model to support the jury’s verdict,” the jury’s
damages award cannot stand. See Riles v. Shell Exploration and Production Co., 298 F.3d 1302,
1311-13 (Fed Cir. 2002) (remanding where none of the three damages models put forth by
plaintiff’s expert supported jury award).
IV.

PLAINTIFF’S PDX-83 DEMONSTRATIVE IS NO EVIDENCE OF A CORRECT
ROYALTY BASE
During oral argument on this issue, Plaintiff argued that the jury could reasonably rely on

a single demonstrative slide from Dr. Becker’s presentation at trial – PDX-83 – in order to reach
a conclusion regarding the royalty base for the damages period. (Trial Tr. at 1966:22-1967:8.)
This argument fails for several reasons.
First, PDX-83 is a bar chart demonstrative created by Dr. Becker, in conjunction with
Plaintiff’s counsel. (PDX-83.) It is not evidence. It was never offered as evidence. And it has
not been admitted as evidence in the case. Thus, the jury may not rely upon it for purposes of
determining the royalty base from September 2011 to present. See, e.g., U.S. v. Buck, 324 F.3d
786, 790 (5th Cir. 2003) (holding that demonstratives are not evidence, and Rule 611 is meant to
allow pedagogical aides to clarify evidence that has already been admitted); Pritt v. United
States, 01-1045, 2002 WL 32438757, *18 (S.D. W.Va. July 30, 2002) (“Demonstrative aids are
not evidence.”).
Second, Dr. Becker did not provide any testimony regarding his damages figures for the
period September 15, 2011 to trial based on PDX-83. Indeed, Dr. Becker answered only two
questions related to PDX-83:
4

Q. Can you explain that to the jury, please.
A. This takes the total royalties that we just talked about,
the 493.1 million that is the result of adding everything up
through the third quarter of 2012, and this shows the amounts
by quarter that you would have under a running royalty
structure.
Q. So at the time of the hypothetical negotiations,
according to PDX-83, what would Google have paid,
approximately?
A. Well, in the hypothetical negotiation time period that is
sort of off to the left on this chart because it's in 2004,
but you can clearly see the trend, it would be amounts less
than you're seeing in the quarterly payments, for example, in
the fourth quarter of 2005, which are somewhere between 5 and
10 million. So it would be a quarterly payment less than
that.

(Trial Tr. at 848:16-849:6.) Plaintiff thus expects the jury to interpret its demonstrative without
providing any testimony or documentary evidence showing specific numerical calculations that
the jury could rely on.
Third, PDX-83 does not provide sufficient information to calculate a royalty base for the
damages period. Indeed, it does not include specific dates. (Id.) It does not identify the accused
revenue amounts for each quarter. (Id.) And it is based on Dr. Becker’s calculation of a royalty
base apportionment, which is itself based on Dr. Becker’s physical measurement with a ruler – of
another bar chart – PX-64. (Trial Tr. at 848:16-23.) By proffering PDX-83, Plaintiff essentially
asks the jury to rely upon unspecified calculations of incremental revenue on a demonstrative bar
chart, which itself is based on ruler measurements from bar charts in a draft presentation. In
effect, Plaintiff is asking the jury to guess at the amount of accused incremental revenue using an
imprecise demonstrative, which is based on another imprecise document. Accordingly, PDX-83
is a completely unreliable basis for any award of a running royalty. See Lucent, 580 F.3d at 1337

5

(In order to be relied upon for purposes of apportioning damages, “evidence must be reliable and
tangible, and not conjectural or speculative”) (citation omitted).
V.

PLAINTIFF’S EXHIBIT PX-64 PROVIDES NO EVIDENCE OF A ROYALTY
BASE FOR THE APPLICABLE DAMAGES PERIOD
Any attempt by Plaintiff to rely on PX-64 to support the calculation of a new royalty base

is also fundamentally flawed. Separate and apart from the issues that Defendants raised with
regard to Dr. Becker’s improper analysis of PX-64 and use of the Entire Market Value Rule, PX64 does not provide evidence on which a reasonable jury could rely to apportion a royalty base
for the accused functionalities from September 15, 2011 to trial. As Plaintiff acknowledges, PX64 is a Google document from 2006 titled “Revenue Force June 26, 2006” and labeled as a
“DRAFT” (the “Draft Revenue Force Presentation”). (Trial Tr. at 909:18-25.) As pictured
below, even assuming the revenue per thousand queries (“RPM”) information in the Draft
Revenue Force Presentation is accurate, the presentation contains actual numbers only for 2004,
2005, and Q1 2006. (PX00064.)

The Revenue Force Presentation only reports estimated revenues for Q2 2006 through Q4 2007.
(Id.) It does not contain any revenue information after 2007, including any revenue information
6

for the recoverable damages period – September 15, 2011 to the present. Thus, PX-64 has no
relevant information for the applicable damages period.
PX-64 also does not contain revenue information, but instead RPM information, with no
guide as to how to translate that RPM information into revenue numbers for the damages period.
Thus, for the jury to be able to rely on PX-64, it would be required to estimate total RPM for the
Accused Products for September 2011 to current, estimate a percentage of that RPM to be
attributed to the accused functionality, and then estimate the total royalty base from that
percentage without any ability to do so. PX-64 thus provides no evidence on which the jury
could reasonably base a calculation of a royalty base in this case. Uniloc, 632 F.3d at 1318;
Lucent, 580 F.3d at 1336-37; LaserDynamics, 694 F.3d at 81.
VI.

PLAINTIFF MADE THE STRATEGIC DECISION NOT TO ENTER INTO
EVIDENCE ITS ROYALTY BASE FOR THE POST-LACHES PERIOD
Dr. Becker provided no testimony regarding the royalty base on a monthly or quarterly

basis. Instead, Dr. Becker opted only to testify regarding the total incremental revenue base –
$14.1 billion – that he calculated for September 2005 to September 2012. (Trial Tr. at 832:20833:13.) During oral argument, Plaintiff suggested that its failure to present evidence of the
accused royalty base on a monthly or quarterly basis was due to the Court’s ruling excluding
evidence of total revenues from the accused products. (Trial Tr. at 1962:11-1963:3.) This is
incorrect and unavailing. Under Uniloc, the Court’s order explicitly excluded the total revenue
numbers on a worldwide and U.S. basis for the accused products. (Trial Tr. at 746:2-19.)
However, the Court allowed Plaintiff’s expert to testify regarding how he calculated the royalty
base, the dollar amount of the incremental royalty base, and his royalty rate. (Id.; see, e.g., Trial
Tr. at 778:25-781:23, 784:5-11, 799:19-800:2, 802:9-806:13, 832:20-833:13.) Plaintiff’s
affirmative decision to have Dr. Becker testify only to the overall, and thus much higher, royalty
7

base figure was a strategic choice about how to present its case to the jury. Plaintiff was fully
aware of the pending issue regarding laches. It could have presented a more detailed damages
analysis at trial, but chose not to do so. Having failed to introduce the necessary evidence to
support its claimed royalty base for the recoverable period starting on September 15, 2011, any
failure of proof is squarely and solely the result of Plaintiff’s own decision-making during trial.
VII.

ALLOWING THE JURY TO BASE A RUNNING ROYALTY ON THE $493
MILLION AMOUNT PROPOSED BY DR. BECKER WOULD BE REVERSIBLE
ERROR
Plaintiff may argue that damages may be calculated as a fraction of the $493 million

figure proposed by Dr. Becker for the September 2005 to September 2012 damages period. As
discussed above, however, there is no evidence for the jury to rely on in order to apportion Dr.
Becker’s $493 million number to an amount appropriate for the recoverable damages period.
More importantly, it would be highly prejudicial to Defendants if Plaintiff is allowed to make
this argument to the jury.
Uniloc explains the danger of admitting inflated damages numbers for the jury to
consider in reaching a verdict. 632 F.3d at 1320. Here, if the Plaintiff is permitted to rely on
overstated figures as a starting point for the running royalty – even though they are not
recoverable as a matter of law – it is impossible for the defendant or the court to “put [the cat]
back into the bag,” regardless of cross-examination or cautionary instructions from the court. Id.
By hearing Dr. Becker testify regarding his $493 million damages calculation, the jury
has already been subjected to an grossly inflated damages analysis extending far beyond the
period of damages for which Plaintiff can recover. To allow Plaintiff to further argue that the
jury should base its analysis of the reasonable royalty on this overinflated and legally incorrect
damages claim would only further exacerbate the confusion for the jury, and increase the
substantial prejudice that Defendants have already suffered. As such, any request by Plaintiff to
8

argue during closing that it is entitled to a running royalty based on the $493 million amount
calculated by Dr. Becker is reversible error, and should be denied.
VIII. CONCLUSION
For the foregoing reasons, Defendants respectfully request that the Court grant their
Motion for Judgment as Matter of Law of No Damages. Additionally, Defendants respectfully
request a curative instruction to make clear to the jury that the Court has excluded damages prior
to September 15, 2011, and therefore, they should not rely on or consider the Plaintiff’s $493
million damages demand for the September 2005-September 2012 period in their evaluation of a
reasonable royalty in this case.

9

DATED: November 1, 2012

/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: [phone]
Facsimile: [phone]
[e-mail]
David Bilsker
David A. Perlson
QUINN EMANUEL URQUHART &
SULLIVAN, LLP
50 California Street, 22nd Floor
San Francisco, California 94111
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
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: [phone]
Facsimile: [phone]
Robert L. Burns
FINNEGAN, HENDERSON, FARABOW, GARRETT &
DUNNER, LLP
Two Freedom Square
11955 Freedom Drive
Reston, VA 20190
Telephone: [phone]
Facsimile: [phone]
Cortney S. Alexander
FINNEGAN, HENDERSON, FARABOW, GARRETT &
10

DUNNER, LLP
3500 SunTrust Plaza
303 Peachtree Street, NE
Atlanta, GA 94111
Telephone: [phone]
Facsimile: [phone]
Counsel for Defendant AOL, Inc.

11

CERTIFICATE OF SERVICE
I hereby certify that on November 1, 2012, 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
the following:
Jeffrey K. Sherwood
Kenneth W. Brothers
DICKSTEIN SHAPIRO LLP
1825 Eye Street NW
Washington, DC 20006
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
Donald C. Schultz
W. Ryan Snow
Steven Stancliff
CRENSHAW, WARE & MARTIN, P.L.C.
150 West Main Street, Suite 1500
Norfolk, VA 23510
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
[e-mail]
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: [phone]
Facsimile: [phone]
[e-mail]

12