March 01, 2016

In the patent infringement dispute between Summit 6, LLC (“Summit”) and Samsung, the Court of Appeals for the Federal Circuit (“CAFC”) considered a number of issues related to damages. The CAFC’s opinion addressed issues related to the standard judges consider in their determination of the admissibility of damages experts’ testimony, the sufficiency of the evidence in supporting the jury’s damages award, and whether the jury’s damages award compensates the Summit only for Samsung’s past infringement or for Samsung’s past and future infringement.

This article provides background regarding the case, Summit 6 v. Samsung, the CAFC’s reasoning regarding these issues, and key takeaways to keep in mind as a result of the ruling.

Background

In 2011, Summit filed suit in the Northern District of Texas alleging patent infringement against a number of parties, including Samsung, Research In Motion (“RIM”) and Facebook. Summit alleged that the parties infringed U.S. Patent No. 7,765,482 (“the ‘482 patent”),1 which describes an “improved web-based media submission tool.” The embodiment of the invention described in the patent specification focused on a tool (software) that enables a user to submit a photo to a website by two means:

  1. dragging and dropping the photo from the user’s computer, and
  2. clicking within a website. The patent also involved certain “intelligent preprocessing” of the photo prior to its uploading. Summit accused Samsung specifically of infringing the ‘482 patent when photo were transmitted via multimedia messaging service (“MMS”) on Samsung’s smartphones and tablets.

Following the court’s claim construction ruling in May 2012, RIM settled with Summit. Likewise, Facebook settled following the court’s summary judgment rulings in February 2013, leaving Samsung as the only remaining defendant. A six-day trial began on May 29, 2013.

Summit’s damages expert testified to a running royalty of $0.28 per phone, which amounted to a reasonable royalty of approximately $29 million. Based on two license agreements, Samsung’s damages expert testified that a lump-sum royalty of $1.5 million was appropriate. The jury ultimately found that the asserted claims of the ‘482 patent were not invalid and were indeed infringed by Samsung. The jury awarded Summit $15 million in damages, which it specifically identified as a lump-sum award.

Damages-Related Issues

The parties appealed three damages-related issues:

  1. Samsung appealed the district court’s denial to exclude the Summit damages expert’s testimony,
  2. Samsung appealed the district court’s denial of its motion that substantial evidence did not exist to support the $15 million award, and
  3. Summit appealed the district court’s ruling that the $15 million award reflected compensation for both past and future infringement.

Should the Testimony of Summit’s Damages Expert Have Been Excluded?

Summit’s damages expert utilized what is generally known as an income approach to arrive at his damages opinion. An income approach typically involves determining a royalty based on the profit attributable to the patented invention.

After considering Samsung’s annual reports, internal cost and revenue documents, and interrogatory responses, Summit’s expert determined that 6.2% of the phone’s overall production cost was related to the camera component. As such, he attributed 6.2% of the revenue generated per phone to the camera, concluding that carriers pay $14.15 to include a camera component in Samsung’s phones.

To apportion the camera-related revenue further, the damages expert relied upon surveys Samsung commissioned in the ordinary course of business and one survey he found independently. Based on the surveys, he found that:

  1. 65.3% of people who used the camera on their device used it regularly to capture only photos (rather than video);
  2. of the people who used their camera to capture only photos, at least 77.3% shared the photos;
  3. at least 41.2% of the users who shared their photos did so by MMS (rather than email or web storage); and
  4. 100% of the photos shared by MMS were resized (i.e., intelligently preprocessed prior to transmission). In light of these findings, he concluded that the infringing features accounted for 20.8% (65.3% x 77.3% x 41.2% x 100% = 20.8%), or $2.93, of Samsung’s $14.15 in camera-related revenue.

Using Samsung’s annual reports, Summit’s damages expert estimated that of the $2.93 of apportioned revenue, $0.56 reflected profit attributable to the patented invention. He reasoned that a portion of the $0.56 profit (the benefit from the patented invention) would go to Summit in the form of a royalty, and Samsung would retain the remaining portion. He considered the parties’ bargaining positions, found that neither had a stronger bargaining position, and concluded that the parties would have split the benefit evenly, resulting in a reasonable royalty rate of $0.28 per device.

Samsung argued that the testimony of Summit’s expert should have been excluded for three reasons:

  1. his methodology was unpublished, created specifically for this litigation, and had never been employed previously;
  2. his methodology was based on the flawed assumption that a feature’s use is proportional to its value; and
  3. the expert’s use of the surveys was unreliable because he is not a survey expert and because he failed to take basic steps required for a secondary expert to give an opinion based on a third party’s survey.2

The CAFC disagreed with Samsung.

After discussing the legal underpinnings of the trial judge’s role as gatekeeper with regard to expert testimony, the CAFC summarized its view, indicating that “where the methodology is reasonable and its data or evidence are sufficiently tied to the facts of the case, the gatekeeping role of the court is satisfied, and the inquiry on the correctness of the methodology and of the results produced thereunder belongs to the factfinder.”3 Given this standard, the CAFC found that methodology employed by Summit’s expert was “based on reliable principles and was sufficiently tied to the facts of the case.”4 Moreover, the CAFC found that because a methodology is not peer-reviewed or published does not necessitate its exclusion.

The CAFC also did not agree that Summit’s expert based his opinion on the flawed assumption that a feature’s use is proportional to its value. The opinion cited its ruling in Lucent v. Gateway & Microsoft and Georgia-Pacific factor 11 (which considers the use of the invention and any evidence probative of the value of that use) as bases for its opinion and its disagreement with Samsung.

Finally, the CAFC was not persuaded by Samsung’s argument that the expert’s use of the surveys was unreliable. Rather, the CAFC found that one “need not be a survey expert to testify about the information compiled by third-party surveys, so long as the information is of a type reasonably relied upon by experts in the field to form opinions upon the subject.”5

Was the $15 Million Award Supported by Substantial Evidence?

Subsequent to the jury verdict, Samsung filed a JMOL motion, arguing that the $15 million award was not supported by substantial evidence. The judge denied Samsung’s motion, so Samsung appealed the denial to the CAFC. Samsung argued that the award lacked substantial evidentiary support because

  1. the testimony of Summit’s damages expert should have been excluded and therefore could not support the award, and
  2. settlement agreements with Facebook and RIM do not support the damages award because they are not sufficiently comparable.

As indicated previously, the CAFC found that the district court acted appropriately by not excluding the testimony of Summit’s damages expert.

With regard to the Facebook settlement agreement, the court agreed with Samsung. Because Summit did not provide evidence at trial regarding its comparability or relevance for determining a reasonable royalty in the instant matter, the agreement did not support the award. The CAFC, however, found that the settlement agreement with RIM did support the award.

Samsung did not challenge whether the RIM settlement was admissible, only that it did not support the award. The CAFC reasoned that the RIM settlement supported the award because

  1. Summit’s expert testified that the RIM license conveys rights to the ‘482 patent;
  2. he testified that RIM and Samsung are similarly situated because both sell camera phones that contain the accused MMS functionality, and
  3. the jury heard evidence about the royalty amount from the RIM settlement and about Samsung’s sales volume in comparison to RIM’s.

The CAFC, therefore, disagreed with Samsung, finding that the testimony of Summit’s expert and the RIM settlement provided sufficient evidence to support the $15 million jury award.

Did the $15 Million Award Compensate Summit for Future Infringement?

As indicated previously, although Summit’s damages expert testified to a running royalty amounting to approximately $29 million and Samsung’s damages expert testified to a lump-sum royalty of $1.5 million, the jury awarded $15 million and specifically wrote the words “lump sum” on the verdict form.6 The district court interpreted the “lump sum” wording to indicate a one-time payment that would compensate Summit for Samsung’s use of the patented technology through the life of the patent and therefore denied Summit’s request for an ongoing royalty. Summit appealed to the CAFC, contending that the award provided compensation only for Samsung’s past infringement and that Summit was entitled to recover additional damages for Samsung’s future infringement. Summit argued that

  1. relevant evidence, arguments, instructions and the verdict form were all limited to damages for past infringement; and
  2. Summit’s equitable claim for future damages was not an issue for the jury.

The CAFC found no basis for reversing the district court’s ruling. It pointed to three facts:

  1. Samsung’s damages expert testified that a lump-sum award was appropriate,
  2. Samsung’s damages expert testified regarding the weight the jury should give the agreements introduced into evidence, and
  3. Summit’s damages expert admitted that a lump-sum award would compensate Summit through the life of the patent. Moreover, the CAFC admitted that although it had not directly addressed the issue as to whether a jury could award lump-sum damages through the life of the patent, it had permitted such relief in at least two cases: Telcordia Technologies, Inc. v. Cisco Systems, Inc. and WhitServe, LLC, and Wesley W. Whitmyer, Jr. v. Computer Packages, Inc.7

The CAFC's opinion in Summit 6 v. Samsung touched on a number of issues pertinent to damages. Damages experts and attorneys should take away the following key points from the case:

Key Takeaways

  • In considering the admissibility of expert testimony under Daubert, a judge may consider
  1. whether the expert employed a methodology that is reasonable, and
  2. whether the expert used evidence/data sufficiently tied to the facts of the case. If these criteria are satisfied, the opinion should be admissible and the fact finder correctness of the methodology and the weight to be afforded to the expert’s opinion.
  • A methodology for determining damages need not be peer-reviewed or published to be considered reasonable or admissible under Daubert.
  • A damages expert is not required to be a survey expert in order to rely on third-party surveys, as long as the survey information would be reasonably relied on in the subject field.
  • It is critical to provide sufficient guidance and clarity in both jury instructions and the verdict form in order to ensure the jury understands the distinction between compensation for past and future infringement and to ensure the intent of the jury’s award (i.e., whether it compensates only for past infringement or also for future infringement) is properly communicated to the court.

  1. Facebook was also accused of infringing U.S. Patent No. 6,895,557 (“the ‘557 patent”).
  2. Ruling of the United States Court of Appeals for the Federal Circuit in the matter of Summit 6, LLC v. Samsung Electronics Co., LTD, and Samsung Telecommunications America, LLC, September 21, 2015 (“The CAFC Opinion”), p. 16.
  3. The CAFC Opinion, p. 20.
  4. The CAFC Opinion, p. 23.
  5. The CAFC Opinion, p. 24.
  6. Jury Charge (and verdict/award), April 5, 2013, p. 47.
  7. Telcordia Technologies, Inc. v. Cisco Systems, Inc., 612 F.3d 1365, 1378 (Fed. Cir. 2010); WhitServe, LLC, and Wesley W. Whitmyer, Jr. v. Computer Packages, Inc., 694 F.3d 10, 35-38 (Fed. Cir. 2012).