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)

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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA NORFOLK DIVISION I/P ENGINE, INC., Plaintiff, v. AOL INC. et al., Defendants. ) ) ) ) ) ) ) ) ) ) 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: • • • • 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 1 The parties also agreed to a limitation on Microsoft’s total liability. 2 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 3 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: (757) 623-3000 Facsimile: (757) 623-5735 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: (202) 420-2200 Facsimile: (202) 420-2201 Dawn Rudenko DICKSTEIN SHAPIRO LLP 4 1633 Broadway New York, New York 10019 Telephone: (212) 277-6715 Facsimile: (212) 277-6501 Counsel for Plaintiff I/P Engine, Inc. 5 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 senoona@kaufcan.com David Bilsker David Perlson Quinn Emanuel Urquhart & Sullivan LLP 50 California Street, 22nd Floor San Francisco, CA 94111 davidbilsker@quinnemanuel.com davidperlson@quinnemanuel.com Robert L. Burns Finnegan, Henderson, Farabow, Garrett & Dunner, LLP Two Freedom Square 11955 Freedom Drive Reston, VA 20190 robert.burns@finnegan.com Cortney S. Alexander Finnegan, Henderson, Farabow, Garrett & Dunner, LLP 3500 SunTrust Plaza 303 Peachtree Street, NE Atlanta, GA 94111 cortney.alexander@finnegan.com /s/ Jeffrey K. Sherwood 6

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