The Reasonable Royalty Calculation Must Be Based on Related Licenses Linked to the Claimed Technology

ResQNet.com, Inc. v. Lansa, Inc., No. 2008-1365, -1366, 2009-1030 (Fed. Cir. Feb. 5, 2010)

Holding:

The reasonable royalty calculation must be based on related licenses linked to the claimed technology. Slip op. at 20.

Relevant Facts:

ResQNet asserted patents directed to screen recognition and terminal emulation processes that download a screen of information from a remote mainframe computer onto a local PC against Lansa. Slip op. at 3. The district court ruled one patent valid and infringed, another patent not infringed, and awarded damages and imposed a license based on a hypothetical royalty of 12.5%. Id. at 2. The district court also assessed sanctions under Rule 11 against ResQNet and its counsel. Id. The Federal Circuit affirmed the district court’s rulings on infringement and validity, reversed the imposition of sanctions, and vacated and remanded the damages award and remand for redetermination of damages. Id.

Comments:

In this case, Lansa challenged the methodology used by ResQNet’s damages expert in determining this reasonable royalty. The Federal Circuit vacated the damages award and remands “[b]ecause the district court’s award relied on speculative and unreliable evidence divorced from proof of economic harm linked to the claimed invention and is inconsistent with sound damages jurisprudence.” Slip op. at 12.

Specifically, the Federal Circuit re-emphasized that other licenses that are not related to the claimed invention cannot be used to derive the hypothetical royalty rate. The Federal Circuit explained that it just recently rejected a patentee’s reliance on licenses because “some of the license agreements [were] radically different from the hypothetical agreement under consideration” and the court was “unable to ascertain from the evidence presented the subject matter of the agreements.” Lucent Techs., Inc. v. Gateway, 580 F.3d 1301, 1327-28 (Fed. Cir. 2009).

Notably, here, Lansa did not offer an expert testimony to counter ResQNet’s damages expert’s testimony. The Federal Circuit noted that the burden was on ResQNet, not Lansa:

But it was ResQNet’s burden, not Lansa’s, to persuade the court with legally sufficient evidence regarding an appropriate reasonable royalty. As a matter of simple procedure, Lansa had no obligation to rebut until ResQNet met its burden with reliable and sufficient evidence. This court should not sustain a royalty award based on inapposite licenses simply because Lansa did not proffer an expert to rebut Dr. David.

Slip op. at 19 (citation omitted).