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

Filing 956

Opposition to 954 MOTION for Leave to File Notice of Supplemental Evidence filed by I/P Engine, Inc.. (Sherwood, Jeffrey)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
NORFOLK DIVISION

I/P ENGINE, INC.,
Plaintiff,
v.
AOL INC. et al.,
Defendants.

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Civ. Action No. 2:11-cv-512

PLAINTIFF I/P ENGINE, INC.’S OPPOSITION TO DEFENDANTS’
MOTION FOR LEAVE TO FILE NOTICE OF SUPPLEMENTAL EVIDENCE
I.

INTRODUCTION
The jury determined the appropriate measure of damages to be a 3.5% running royalty.

This Court is currently being asked to decide post-judgment royalties in view of the jury’s
finding. The I/P Engine-Microsoft settlement agreement (“Microsoft Settlement”) does not
reflect the type of agreement I/P Engine would enter into with Defendants post-judgment. It is a
pre-litigation settlement and Microsoft was in a completely different bargaining position than
Defendants:
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Defendants have been found to infringe I/P Engine’s asserted patents; there is no
such finding of infringement as to Microsoft;
The jury found that Defendants should pay a running royalty of 3.5%; there is no
such finding against Microsoft;
As compared to Google, Microsoft is a smaller player in the search advertising
market; and
I/P Engine spent time and money over a year litigating against Defendants;
Microsoft was never even served with a Complaint.

Indeed, contrary to Defendants’ position, the Microsoft Settlement demonstrates that I/P
Engine would not consider a lump sum payment. While the Microsoft Settlement provided for
Microsoft making a $1 million upfront payment, Microsoft also agrees to pay I/P Engine 5% of

any amounts Google pays I/P Engine.1 Microsoft also assigned I/P Engine six patents.
Defendants do not and cannot attempt to put a lump-sum value on this settlement. The Microsoft
Settlement is contingent, it is variable, and to the extent Defendants are ordered to pay a running
royalty and do so, the Microsoft Agreement falls into the category of a running royalty.
The Microsoft Agreement is simply irrelevant to this Court’s modified Georgia-Pacific
and Read analyses in determining post-judgment royalties. As such, the Microsoft Settlement is
not relevant supplemental evidence and, thus, Defendants’ motion should be denied.
II.

THE MICROSOFT SETTLEMENT AGREEMENT IS NOT MATERIAL TO A
DETERMINATION OF ONGOING ROYALTIES AGAINST DEFENDANTS
In this case, there has been a substantial shift in the bargaining positions between I/P

Engine and Defendants. See ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 694
F.3d 1312, 1343 (Fed. Cir. 2012) (ActiveVideo II); see also D.I. 823, at 6-11; D.I. 949, at 4-17.
As this Court has recognized, “[i]t would be improper to base a royalty rate” on a separate
agreement that a patentee had reached “[w]hen the bargaining positions of the involved parties in
any hypothetical negotiation post-verdict has clearly improved.” ActiveVideo Networks, Inc. v.
Verizon Communications, Inc., 827 F. Supp. 2d 641, 656 (E.D. Va. 2011) (“ActiveVideo I”),
confirmed by ActiveVideo II. I/P Engine’s bargaining position with Microsoft is wholly different
than its post-judgment bargaining position with Defendants.
Again, the Microsoft Settlement is a pre-litigation settlement. The circumstances for
early settlement and the determination of ongoing, post-verdict, royalties greatly differ, including
the knowledge that the primary market participant (Google) had litigated and lost on
infringement, validity and damages, a jury awarded a running royalty of 3.5%, Microsoft’s
smaller market share in search advertising, the avoidance of discovery and litigation costs by
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The parties also agreed to a limitation on Microsoft’s total liability.
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early-stage settlement, and the perceived strengths and weaknesses of the claims and defenses.
See LaserDynamics, Inc. v. Quanta Computer, Inc. 694 F.3d 51, 78 (Fed. Cir. 2012) (remanding
with instructions to exclude settlement agreement because it was outside the scope of
circumstances where settlements are admissible and probative); see also ePlus, Inc. v. Lawson
Software, Inc., 2011 WL 2119410, at *14 (E.D.Va. May 23, 2011) (rejecting defendant’s
assertion that settlement agreements could permit an adequate basis to calculate reasonable
royalty, specifically noting the avoidance of litigation costs by early-stage settlement). This
Court and the Federal Circuit have warned against using such agreements in a post-royalty
determination. See ActiveVideo I, 827 F.Supp.2d at 656; ActiveVideo II, 694 F.3d at 1342; see
also LaserDynamics, 694 F.3d at 77.
Given I/P Engine’s much stronger bargaining position and the parties’ changed
circumstances under the modified Georgia-Pacific and Read factors post-verdict, I/P Engine
would, at a minimum, insist on a license for more than the royalty awarded by the jury for
Defendants’ pre-verdict infringement, not less as Defendants suggest. See D.I. 949, at 17.
III.

THE MICROSOFT SETTLEMENT AGREEMENT IS NOT A LUMP-SUM
LICENSE TO THE PATENTS-IN-SUIT
Even if this Court were to consider the Microsoft Settlement, it is not a lump-sum license,

as Defendants suggest. Tellingly, Defendants do not even attempt to–and cannot–put a lumpsum value on the Microsoft Settlement.
In addition to the $1 million upfront payment by Microsoft, Microsoft agrees to pay I/P
Engine 5% of any amounts paid by Google and assigned 6 patents to I/P Engine. Defendants
argument that these form part of some vague “lump sum transfer” is unsupportable. For
instance, to the extent that Defendants are ordered to pay I/P Engine a running royalty, Microsoft
will pay I/P Engine a running royalty equal to 5% of Google’s payments. Nevertheless, since

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Microsoft’s liability is derivative of Google’s liability, which is itself a variable, the Microsoft
Settlement reflects conditions that defy quantification. See ePlus, Inc., 2011 WL 2119410, at
*14. Regarding the six assigned patents, there is no reasonable way to quantify their values (and
Defendants have not attempted to do so), much less argue that they support a “lump sum
transfer” that should be considered in determining the form of ongoing royalties for Defendants’
continued infringement.
IV.

CONCLUSION
The Microsoft Settlement is not material to I/P Engine’s Motion for an Award of Post-

Judgment Royalties. It is not based on the changed circumstances of the parties as a result of the
jury verdict and this Court’s final judgment—factors that must be considered in determining
ongoing royalties for Defendants’ adjudged, post-judgment willful infringement. Accordingly,
this Court should deny Defendants’ Motion for Leave.

Dated: June 17, 2013

By: /s/ Jeffrey K. Sherwood
Donald C. Schultz (Virginia Bar No. 30531)
W. Ryan Snow (Virginia Bar No. 47423)
CRENSHAW, WARE & MARTIN PLC
150 West Main Street
Norfolk, VA 23510
Telephone:
[phone]
Facsimile:
[phone]
Jeffrey K. Sherwood (Virginia Bar No. 19222)
Frank C. Cimino, Jr.
Kenneth W. Brothers
Charles J. Monterio, Jr.
DICKSTEIN SHAPIRO LLP
1825 Eye Street, NW
Washington, DC 20006
Telephone:
[phone]
Facsimile:
[phone]
Dawn Rudenko
DICKSTEIN SHAPIRO LLP
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1633 Broadway
New York, New York 10019
Telephone: [phone]
Facsimile:
[phone]
Counsel for Plaintiff I/P Engine, Inc.

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CERTIFICATE OF SERVICE
I hereby certify that on this 17th day of June, 2013, the foregoing PLAINTIFF
I/P ENGINE, INC.’S OPPOSITION TO DEFENDANTS’ MOTION FOR LEAVE TO
FILE NOTICE OF SUPPLEMENTAL EVIDENCE, was served via the Court’s CM/ECF
system, on the following:
Stephen Edward Noona
Kaufman & Canoles, P.C.
150 W Main St
Suite 2100
Norfolk, VA 23510
[e-mail]
David Bilsker
David Perlson
Quinn Emanuel Urquhart & Sullivan LLP
50 California Street, 22nd Floor
San Francisco, CA 94111
[e-mail]
[e-mail]
Robert L. Burns
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Two Freedom Square
11955 Freedom Drive
Reston, VA 20190
[e-mail]
Cortney S. Alexander
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
3500 SunTrust Plaza
303 Peachtree Street, NE
Atlanta, GA 94111
[e-mail]
/s/ Jeffrey K. Sherwood

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