Judge Overturns Record $1.5 Billion Patent Verdict

Expert testimony proved to be the linchpin in a federal judge's Aug. 6th decision to set aside the largest-ever damages award in a U.S. patent case.

In San Diego, U.S. District Judge Rudi M. Brewster set aside a jury's $1.52 billion verdict against Microsoft, finding that its Windows Media Player did not infringe audio technology patents held by French company Alcatel-Lucent.

The judge concluded that the verdict could not stand because Microsoft had not infringed one of the two patents at issue and had obtained a license to use the technology covered by the other.

"The court finds that the jury's verdict was against the clear weight of the evidence," Judge Brewster wrote in a 43-page decision.

The three-week trial earlier this year focused on Lucent's claims that Microsoft infringed two patents related to MP3 audio-compression technology. On Feb. 22, 2007, the jury returned the record-breaking verdict for Lucent, finding that the patents were valid and that Microsoft had infringed them.

But on Microsoft's motion to set aside the award, Judge Brewster ruled that the verdict could not stand as a matter of law.

Microsoft's General Counsel Brad Smith hailed the decision as a "victory for consumers of digital music and a triumph for common sense in the patent system." A Lucent spokesperson called the outcome "shocking and disturbing" and said the company would appeal.

Series of Challenges

Judge Brewster's decision addresses a series of challenges Microsoft raised to the legal sufficiency of the jury's verdict and its findings as to infringement and damages. As he sifts through these challenges, Judge Brewster's opinion repeatedly weighs the sufficiency of the expert testimony on both sides of the case.

In the end, the judge's series of conclusions as to the sufficiency of expert testimony becomes the primary basis for his setting aside the verdict. These conclusions are:

• Lucent's expert witness failed to provide sufficient evidence for the jury to find that the technology was encompassed within or disclosed by a 1988 patent. This was critical to the case because it went directly to Microsoft's main defense on the first of two patents at issue in the case.
  
• That patent claimed a priority date of 1992 but Lucent sought to tie its claims back to the 1988 patent. Microsoft's defense turned on its contention that all technology developed after April 1989 was co-owned by Lucent and the German research company Fraunhofer Gesellschaft under a joint development agreement. Microsoft had licensed the use of the technology from Fraunhofer.
  
• Having found that Lucent's expert failed to link the technology to the 1988 patent, Judge Brewster went on to find that Microsoft was correct in its assertion that the patents issued after 1989 were jointly owned by Lucent and Fraunhofer.

Because an action for infringement must join all co-owners as plaintiffs, this meant that Lucent lacked standing to bring the suit against Microsoft. Even if Lucent had joined Fraunhofer, Judge Brewster said, Microsoft would not be liable in any case because Fraunhofer had given it a license to use the technology.

• Lucent's expert provided no direct evidence that Windows Media Player performed the method covered by the second of the two patents. Although the expert testified that Media Player possibly could run the claimed method, the expert provided no proof that, in fact, it ever did perform the method. "This evidence is insufficient as a matter of law to demonstrate infringement of a methods claim," Judge Brewster wrote.

Without proof that Media Player performed the methods claimed by the second patent, the court granted judgment as a matter of law that it did not infringe that patent.

• Testimony by Lucent's and Microsoft's experts provided sufficient basis for the jury to base its conclusion of patent infringement on the first patent. Even though the judge found that Microsoft had a license to use the technology covered by the first patent, he went on to consider the alternative question of whether Microsoft, had it lacked a license, would have infringed the patent. Weighing the testimony of both sides' experts, the judge found that, were it not for the license, the jury could have found infringement.
  
• Conflicting expert testimony presented by both parties also provided sufficient basis for the jury to find that the patent was not invalid due to obviousness.
  
• A Microsoft expert's testimony that a prior art reference anticipated the patent failed to provide sufficient basis to undermine the jury's conclusion that the patent was valid.
  
• There was no error in excluding Microsoft's request to present testimony from the inventor that Lucent's interpretation of the patent was overbroad. The inventor was not properly qualified as an expert, Judge Brewster said, and, "An inventor's subjective opinion as to the interpretation of the claims is no longer relevant."
  
• There was no basis for Microsoft's contention that Lucent's expert presented testimony that was contrary to the standards set by the Supreme Court in KSR v. Teleflex. "Microsoft has not offered any meritorious reason why obviousness on the … patent should be re-tried or why the jury's verdict as to non-obviousness of the … patent was not supported by sufficient evidence."
  
• Expert testimony failed to establish a basis for the jury's calculation of damages based on the "entire market value rule." Thus, it was inappropriate for the jury to use the sale price of the entire computer as the basis for establishing a reasonable royalty rate.

"The Court finds that there was insufficient evidence to establish the required nexus between the patented features and the value of the entire computer and, therefore, the jury's application of the entire market value rule to the computer was unsupported as a matter of law."

• Expert testimony failed to provide sufficient evidence on which the jury could determine a reasonable royalty rate. A new trial would be required to decide that issue, the court said.

A copy of Judge Brewster's ruling may be downloaded here

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