Lucent Technologies, Inc. v. Gateway, Inc.
580 F.3d 1301 (2009)
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Rule of Law:
A reasonable royalty for infringement of a patented feature within a large, multi-component product must be apportioned to reflect the value contributed by that feature, and cannot be based on the entire market value of the product unless the patented feature is the basis for customer demand.
Facts:
- In December 1986, three engineers at AT&T filed a patent application for a method of entering information into fields on a computer screen without using a keyboard, which issued as the 'Day patent'.
- The Day patent described using concurrently displayed, predefined on-screen tools, such as a graphical keyboard, menu, or calculator, to input information into a form.
- The patent was subsequently assigned to Lucent Technologies, Inc.
- Microsoft Corporation developed, marketed, and sold software including Microsoft Outlook, Microsoft Money, and Windows Mobile.
- These Microsoft products contained a 'date-picker' feature, a graphical calendar tool that allowed users to select a date to populate a field in an electronic form.
- Lucent contended that the use of this date-picker feature by consumers constituted an infringement of the method claimed in its Day patent.
Procedural Posture:
- Lucent Technologies, Inc. filed patent infringement suits against Gateway, Inc. and Dell, Inc. in various federal district courts, and Microsoft Corporation subsequently intervened.
- The actions were consolidated for trial before a jury in the U.S. District Court for the Southern District of California.
- The jury returned a verdict finding that Microsoft indirectly infringed claims 19 and 21 of Lucent's Day patent and that the patent was not invalid.
- The jury awarded Lucent a single lump-sum of $357,693,056.18 in damages for Microsoft's infringement.
- Microsoft filed post-trial motions for judgment as a matter of law (JMOL), challenging the jury's findings on validity, infringement, and damages.
- The district court denied Microsoft's JMOL motions concerning the Day patent.
- Microsoft (appellant) appealed the district court's denial of its motions to the U.S. Court of Appeals for the Federal Circuit, with Lucent (appellee) as the responding party.
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Issue:
Does substantial evidence support a jury's lump-sum reasonable royalty award for patent infringement when the patented invention is a minor feature of a complex software product and the damages calculation is based on the entire market value of that product?
Opinions:
Majority - Michel, Chief Judge
No. A jury's lump-sum reasonable royalty award is not supported by substantial evidence where it is based on speculation and fails to apportion the value of a minor patented feature from the value of a large, complex product. The court affirmed the jury's findings on validity and infringement but vacated the damages award. The court found that circumstantial evidence of infringement (extensive product sales and user instructions) was 'just barely sufficient' to establish the necessary predicate of direct infringement by at least one user for a finding of indirect infringement against Microsoft. However, the court held the $358 million damages award was based on guesswork. Lucent failed to provide sufficient evidence that the license agreements it presented as comparable were in fact similar enough to support the award. Most critically, the court rejected any application of the entire market value rule, reasoning that the patented date-picker is a 'tiny feature' in a complex program like Outlook and is not the basis for consumer demand. Therefore, the royalty base must be apportioned to the value of the infringing feature itself, not the total revenue of the software product.
Analysis:
This decision significantly reinforces the principle of apportionment in patent damages, acting as a crucial check on patentees seeking royalties based on the entire value of a complex product when the patent covers only a minor feature. It clarifies that the entire market value rule is a narrow exception that requires concrete proof that the patented feature, and not other attributes, drives consumer demand. By vacating the massive damages award, the court signaled to lower courts and litigants that royalty calculations must be grounded in sound economic principles and evidence that properly isolates the value of the patented technology. The case also provides guidance on the threshold for proving direct infringement through circumstantial evidence in indirect infringement claims, acknowledging that extensive sales and instructions can be 'just barely sufficient' proof.
