LASERDYNAMICS, INC. V. QUANTA COMPUTER, INC. 51 Cite As 694 F.3D 51 (Fed

LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 51 Cite as 694 F.3d 51 (Fed. Cir. 2012)

the Board’s conclusion that the iAPX tion for summary judgment on issues of memory module reads directly on the 8918 patent exhaustion and implied license, and, Patent’s memory device. after conducting trial and granting assembler’s motions for new trial on damages III. CONCLUSION issues, 2010 WL 2331311, and to exclude For the foregoing reasons, this court certain expert testimony, 2011 WL affirms the Board’s rejection of claim 18 of 7563818, entered judgment on jury verdict the 8918 Patent as anticipated by the iAPX awarding patentee $8,500,000, and then de- Manual. nied assembler’s motion for judgment as a matter of law. Parties cross-appealed. AFFIRMED Holdings: The Court of Appeals, Reyna, Circuit Judge, held that: , (1) patentee could not use entire market value rule to establish reasonable royalty damages against assembler; (2) assembler had implied license to patent with respect to ODDs that were made LASERDYNAMICS, INC., by manufacturer to fulfill bona fide Plaintiff–Appellant, orders from licensees and then sold to assembler by licensees; v. (3) issue of whether end users of accused QUANTA COMPUTER, INC., laptop computers directly infringed Defendant–Cross claim of patent was for jury; Appellant, (4) erroneous instruction was not plain er- and ror warranting new trial; Quanta Computer USA, Inc., Quanta (5) date for hypothetical negotiation of li- Storage, Inc., and Quanta Storage cense to be used in determining rea- America, Inc., Defendants. sonable royalty damages was date on which sales of accused laptop comput- Nos. 2011–1440, 2011–1470. ers into United States began causing United States Court of Appeals, underlying direct infringement by end Federal Circuit. users;

Aug. 30, 2012. (6) probative value of evidence pertaining to settlement in another case was sub- Background: Patentee brought action stantially outweighed by danger of un- against manufacturer of optical disc drives fair prejudice, confusion of issues, and (ODDs) and related assembler of laptop misleading jury; and computers, alleging active inducement of infringement of patent for optical disc dis- (7) expert’s opinion that reasonable royal- crimination method that enabled ODD to ty would be six percent of each ODD identify automatically the type of optical sold within laptop computer by assem- disc inserted into ODD. The United States bler was arbitrary and speculative, District Court for the Eastern District of warranting new trial on damages. Texas, T. John Ward, J., 2009 WL Affirmed in part, reversed in part, and 3763444, granted in part defendants’ mo- remanded. 52 694 FEDERAL REPORTER, 3d SERIES

1. Courts O96(7) rather than entire product. 35 U.S.C.A. For issues not unique to patent law, § 284. Court of Appeals for the Federal Circuit See publication Words and Phras- applies the law of the regional circuit es for other judicial constructions and definitions. where appeal in patent infringement case would otherwise lie. 7. Patents O318(4.1) 2. Federal Courts O827 ‘‘Entire market value rule’’ allows for recovery of reasonable royalty damages in Under the law of the Fifth Circuit patent infringement action based on value Court of Appeals, grant or denial of a of entire apparatus containing several fea- motion for a remittitur or a new trial is tures, where feature patented is the basis reviewed for an abuse of discretion. for customer demand. 35 U.S.C.A. § 284. 3. Federal Courts O823 8. Damages O184 Evidentiary rulings are reviewed for A damages theory must be based on an abuse of discretion under the law of the sound economic and factual predicates. Fifth Circuit Court of Appeals. 9. Patents O318(4.5) 4. Federal Courts O776 Decisions on motions for summary Patentee of patent for optical disc dis- judgment and for judgment as a matter of crimination method that enabled optical law are reviewed de novo under the law of disc drive (ODD) to identify automatically the Fifth Circuit Court of Appeals. the type of optical disc inserted into ODD did not show that patented method drove 5. Patents O318(4.1) demand for laptop computers, precluding Where small elements of multi-compo- patentee’s use of entire market value rule nent products are accused of infringement, to establish reasonable royalty damages calculating a royalty on the entire product against laptop assembler for active induce- carries a considerable risk that the paten- ment of infringement; there was no evi- tee will be improperly compensated for dence that patented feature alone motivat- non-infringing components of that product, ed consumers to buy laptop computers, and it is therefore generally required that such that value of entire computer could royalties be based not on the entire prod- be attributed to patented feature, and, in- uct, but instead on the smallest salable stead, patentee showed only that consum- patent-practicing unit. 35 U.S.C.A. § 284. ers would be hesitant to buy computers without patented feature. 35 U.S.C.A. 6. Patents 318(4.1) O § 284. If it can be shown that patented feature drives demand for entire multi-com- 10. Patents O312(2) ponent product, patentee may be awarded Lack of economic analysis quantita- damages as a percentage of revenues or tively supporting expert’s one-third ap- profits attributable to entire product under portionment of proposed royalty rate, in ‘‘entire market value rule,’’ which is nar- action alleging active inducement of in- row exception to general rule that where fringement of patent for optical disc dis- small elements of multi-component prod- crimination method that enabled optical ucts are accused of infringement, reason- disc drive (ODD) to identify automatically able royalty damages should be based on the type of optical disc inserted into smallest salable patent-practicing unit, ODD, alone justified exclusion of expert’s LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 53 Cite as 694 F.3d 51 (Fed. Cir. 2012)

opinions at trial; rate appeared to have 13. Patents O323.3 been plucked out of thin air, based on Under the law of the Fifth Circuit vague qualitative notions of relative im- Court of Appeals, identifying and correct- portance of ODD technology to laptop ing its error in permitting patentee’s theo- computers assembled and sold by alleged ry of reasonable royalty damages, which infringer. 35 U.S.C.A. § 284. relied upon entire market value rule, to go to jury in action for active inducement of 11. Patents O318(4.5) infringement of patent for optical disc dis- Per-unit running royalty was not the crimination method that enabled optical only form of reasonable royalty to which disc drive (ODD) to identify automatically type of optical disc inserted into ODD, by patentee and laptop computer assembler granting alleged infringer’s post-trial mo- could have agreed, in hypothetical negotiation for remittitur or new trial, was not tion to license patent for optical disc dis- abuse of district court’s discretion, even if crimination method that enabled optical district court could have deemed waived, disc drive (ODD) to identify automatically and ignored, alleged infringer’s arguments type of optical disc inserted into ODD, and regarding entire market value rule. 35 therefore patentee, in its action for alleged U.S.C.A. § 284. active inducement of infringement, was not compelled to base reasonable royalty on 14. Patents O324.5 price of entire laptop computer pursuant Existence vel non of an implied patent to entire market value rule; patentee’s li- license is a question of law that is reviewed cense agreements for lump-sum royalties de novo. were not calculated as percentage of any 15. Patents O210 component or product, and assembler’s Laptop computer assembler had im- purported lack of internal tracking and plied license to patent for optical disc dis- accounting of individual components and crimination method that enabled optical ‘‘mask price’’ purchases did not prevent disc drive (ODD) to identify automatically patentee from obtaining accurate informa- the type of optical disc inserted into ODD tion about ODD values from third parties, with respect to ODDs that were made by industry practices, and the like. 35 related manufacturer to fulfill bona fide U.S.C.A. § 284. orders from patent licensees and then sold to assembler by those licensees; manufac- 12. Patents O323.3 ture of ODDs and their eventual sale to Under the law of the Fifth Circuit assembler for incorporation into laptop Court of Appeals, ostensible waiver by al- computers, all via licensees and valid exer- leged infringer of challenge to patentee’s cises of licensees’ ‘‘have made’’ and ‘‘sell’’ use of entire market value rule to establish rights, were legitimate and separate busi- reasonable royalty damages, including any ness transactions that did not expand or challenge to testimony of patentee’s expert circumvent licenses. on such theory, did not preclude district 16. Patents O314(5) court from exercising its discretion, in in- Issue of whether, under district fringement action, to consider issue in de- court’s claim constructions, end users of ciding alleged infringer’s post-verdict mo- accused laptop computers directly infring- tion for remittitur or new trial on issue of ed claim of patent for optical disc discrimi- damages. 35 U.S.C.A. § 284. nation method that enabled optical disc 54 694 FEDERAL REPORTER, 3d SERIES

drive (ODD) to identify automatically the consistency and raising associated ques- type of optical disc inserted into ODD was tions of credibility in judging credibility of for jury in action against laptop assembler all other positions taken by assembler, in for active inducement of patent infringe- patentee’s action alleging assembler’s ac- ment. tive inducement to infringe patent for optical disc discrimination method that en- 17. Federal Courts O630.1 abled ODD to identify automatically type Plain error standard of review applied of optical disc inserted into ODD. on appeal to challenge to jury instruction to which no objection was raised at trial. 22. Patents O323.3 Instruction in patentee’s action alleg- 18. Federal Courts O611 ing active inducement to infringe patent Plain error is ‘‘clear’’ or ‘‘obvious’’ and for optical disc discrimination method that must affect substantial rights, and is re- enabled optical disc drive (ODD) to identi- versible only if it seriously affects the fair- fy automatically type of optical disc insert- ness, integrity, or public reputation of judi- ed into ODD, which erroneously allowed cial proceedings. jury to take into account potential inconsistency in representations by laptop comput- 19. Federal Civil Procedure O1951.7 er assembler regarding frequency with Witnesses O246(2) which its purchases of ODDs for incorpo- Although a district court is afforded ration into computers were made via buy/ broad discretion over the manner in which sell arrangements in judging credibility of trial is conducted, and may intervene to all other positions taken by assembler in help expand upon or clarify witness testi- case, was not plain error warranting new mony and evidence, such intervention may trial; assembler was given second trial on not come at the cost of strict impartiality. issue of damages, which cured any preju- 20. Federal Courts O906 dice that instruction might have caused in In reviewing a claim that the district that regard, and instruction, when viewed court appeared partial, Court of Appeals in context, was not so severe as to prevent must determine whether the judge’s be- assembler from receiving fair trial on lia- havior was so prejudicial that it denied bility issue. defendant a fair, as opposed to a perfect, 23. Patents O319(1) trial, and, in performing its review, Court In general, hypothetical negotiation of Appeals must consider the district date to determine reasonable royalty dam- court’s actions in light of the entire trial ages in patent infringement action, based record and consider the totality of the on what willing licensor and licensee would circumstances. bargain for, is the date on which infringement began. 35 U.S.C.A. § 284. 21. Patents O314(1) Potential inconsistency in representa- 24. Patents O289(1), 319(1) tions by assembler of laptop computers Six-year limitation on recovery of past regarding frequency with which its pur- damages for patent infringement does not chases of optical disc drives (ODDs) for preclude hypothetical negotiation date incorporation into computers were made used to determine reasonable royalty dam- via buy/sell arrangements did not warrant ages, based on what willing licensor and instruction that jury could take into ac- licensee would bargain for, from being count instruction pointing out potential in- date on which infringement began, even if LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 55 Cite as 694 F.3d 51 (Fed. Cir. 2012)

damages cannot be collected until some optical disc inserted into ODD sales by time later. 35 U.S.C.A. §§ 284, 286. laptop assembler was date on which sales of accused laptop computers into United 25. Patents O319(1) States began causing underlying direct in- Failure to mark patented product or fringement by end users. 35 U.S.C.A. prove actual notice of patent pursuant to §§ 271(b), 284. statute precludes recovery of damages pri- or to marking or notice date, but does not 30. Evidence O146, 219(3) prevent hypothetical negotiation date used Probative value of evidence of settle- to determine reasonable royalty damages, ment agreement in another infringement based on what willing licensor and licensee action by patentee, into which parties en- would bargain for, from being set before tered on eve of trial, after alleged infringer marking or notice occurs. 35 U.S.C.A. had been sanctioned repeatedly by court, §§ 284, 287. was substantially outweighed by danger of unfair prejudice, confusion of issues, and 26. Patents O319(1) misleading jury with respect to issue of Reasonable royalty determination, for reasonable royalty damages in action alleg- purposes of making damages evaluation in ing active inducement of infringement by patent infringement action, must relate to assembler of laptop computers; settlement the time that infringement occurred, and appeared to be least reliable license in the not be an after-the-fact assessment. 35 record, given disadvantages faced by al- U.S.C.A. § 284. leged infringer due to sanctions imposed, 27. Patents O259(1) lump-sum license fee reached was six Although active inducement can ulti- times larger than next highest amount mately lead to direct infringement of pat- paid for license, and, in light of changing ent, absent direct infringement there is no landscape in market, settlement entered compensable harm to a patentee. 35 into three years after hypothetical negotia- U.S.C.A. § 271(b). tion date was in many ways not relevant to hypothetical negotiation analysis. 35 28. Patents O319(1) U.S.C.A. § 284; Fed.Rules Evid.Rule 408, In determining reasonable royalty 28 U.S.C.A. damages in case of alleged active induce- 31. Patents O312(2) ment of patent infringement, based on what willing licensor and licensee would Approach taken by patentee’s expert bargain for, hypothetical negotiation of li- was reasonable attempt to value optical cense is deemed to take place on date of disc drives (ODDs) sold by laptop comput- first direct infringement traceable to al- er assembler based on arms-length trans- leged infringer’s first instance of induce- actions, and therefore expert’s use of $41 ment conduct. 35 U.S.C.A. §§ 271(b), 284. per ODD value to determine reasonable royalty damages, which was calculated 29. Patents O319(1) based on sample of approximately 9,000 Date for hypothetical negotiation of non-infringing ODDs made by non-party license to be used in determining reason- licensee, could not be excluded from trial able royalty damages for active infringe- on Daubert grounds, in patentee’s action ment of patent for optical disc discrimina- against assembler for active inducement to tion method that enabled optical disc drive infringe patent for optical disc discrimina- (ODD) to identify automatically the type of tion method that enabled ODD to identify 56 694 FEDERAL REPORTER, 3d SERIES

automatically the type of optical disc in- Before DYK, CLEVENGER, and serted into ODD. 35 U.S.C.A. § 284. REYNA, Circuit Judges.

32. Patents O323.3 REYNA, Circuit Judge. Opinion of patentee’s expert, that rea- These appeals come before us after two sonable royalty in action against laptop trials in the district court—a first trial assembler and seller alleging active in- resolving the claims of patent infringement ducement of infringement of patent for and damages, and a second trial ordered optical disc discrimination method that en- by the district court to retry the damages abled optical disc drive (ODD) to identify issues. The parties raise various issues automatically type of optical disc inserted relating to the proper legal framework for into ODD would be six percent of each evaluating reasonable royalty damages in ODD sold within laptop computer by as- the patent infringement context. Also be- sembler-seller, was arbitrary and specula- fore us are questions regarding implied tive, and thus warranted new trial on dam- license, patent exhaustion, infringement, ages; two patent licensing programs and jury instructions, and the admissibility of a licensing survey upon which expert relied settlement agreement. For reasons ex- to the exclusion of licenses for patent it- plained in detail below, we affirm-in-part, self, even though they did not concern reverse-in-part, and remand. patented technology, were not sufficiently comparable to hypothetically negotiated li- I. BACKGROUND cense, and expert’s six percent running royalty theory could not be reconciled with A. The Patented Technology and the actual licensing evidence, which included Optical Disc Drive Industry lump-sum amounts not exceeding LaserDynamics, Inc. (‘‘LaserDynamics’’) $1,000,000. 35 U.S.C.A. § 284; Fed.Rules is the owner of U.S. Patent No. 5,587,981 Evid.Rule 702, 28 U.S.C.A. (‘‘the 8981 Patent’’), which was issued in Patents O328(2) 1996. The patent is directed to a method of optical disc discrimination that essential- 5,587,981. Infringed in Part. ly enables an optical disc drive (‘‘ODD’’) to automatically identify the type of optical disc—e.g., a compact disc (‘‘CD’’) versus a digital video disc (‘‘DVD’’)—that is insert- Matthew C. Gaudet, Duane Morris LLP, ed into the ODD. Claim 3, which was of Atlanta, GA, argued for plaintiff-appel- asserted at trial, is representative: lant. On the brief were Robert L. Byer, of 3. An optical disk reading method com- Pittsburgh, PA, and Gregory M. Luck, of prising the steps of: Houston, TX, and Kristina Caggiano, of processing an optical signal reflected Washington, DC. Of counsel was Thomas from encoded pits on an optical disk W. Sankey, of Houston, TX. until total number of data layers and Terrence Duane Garnett, Goodwin Proc- pit configuration standard of the opti- ter, LLP, of Los Angeles, CA, argued for cal disk is identified; defendant/cross-appellant. With him on collating the processed optical signal the brief were Vincent K. Yip, and Peter J. with an optical disk standard data Wied. which is stored in a memory; and LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 57 Cite as 694 F.3d 51 (Fed. Cir. 2012)

settling modulation of servomechan- 2000, however, DVD sales and the ODD ism means dependent upon the optical market were sharply rising. By 2003, disk standard data which corresponds most homes had DVD players and nearly with the processed optical signal; every computer had an ODD. An ODD (c) [sic] the servomechanism means having automatic disc discrimination capa- including: bility quickly became the industry standard for DVD players and computers.1 a focusing lens servo to modulate position of a focusing lens; and B. LaserDynamics’ Licensing History a tracking servo to modulate move- of the 8981 Patent ment of a pickup. According to LaserDynamics, it was ini- This automated process saves the user tially difficult to generate interest in li- from having to manually identify the kind censing the 8981 Patent, due to the novelty of disc being inserted into the ODD before of the technology and LaserDynamics’ lim- the ODD can begin to read the data on the ited operating capital and bargaining pow- disc. The patented technology is alleged er. Nevertheless, LaserDynamics entered to be particularly useful in laptop comput- into sixteen licensing agreements from ers where portability, convenience, and ef- 1998 to 2001. These licenses were granted ficiency are essential. At least as early as to well known electronics and ODD manu- 2006, a laptop computer was not commer- facturers such as Sony, Philips, NEC, LG, cially viable unless it included an ODD Toshiba, Hitachi, Yamaha, Sanyo, Sharp, that could automatically discriminate be- Onkyo, and Pioneer. All of the licenses tween optical discs. were nonexclusive licenses granted in ex- Yasuo Kamatani is the sole inventor of change for one time lump sum payments the 8981 Patent. In 1998, viewing DVD ranging from $57,000 to $266,000. There technology as the next major data and is no evidence that these licenses recited video format, Mr. Kamatani founded Las- the lump sum amounts as representing a erDynamics and assigned the 8981 Patent running royalty applied over a certain pe- to the company. Mr. Kamatani is the sole riod of time or being calculated as a per- employee of LaserDynamics, which is ex- centage of revenues or profits. These six- clusively in the business of licensing Mr. teen licenses were admitted into evidence Kamatani’s patents to ODD and consumer in the first trial, as explained below. electronics manufacturers. Several other lump sum licenses were When LaserDynamics was founded, the granted by LaserDynamics between 1998 DVD market had reached few mainstream and 2003 to other ODD and electronics consumers, and there was some skepticism manufacturers via more aggressive licens- among electronics companies as to the ing efforts involving actual or threatened likely success of this technology compared litigation by LaserDynamics. These li- with the established VHS format. By censes, in addition to the sixteen licenses

1. While LaserDynamics contends that all inserted in an optical disc drive.’’ QCI Br. at ODDs performing a disc discrimination meth- 10; A648. The validity of the 8981 Patent is od are within the scope of the 8981 Patent, not before us, and so we do not address Quanta Computer, Inc. (‘‘QCI’’) disputes that whether the scope of the invention as alleged Mr. Kamatani invented the concept of disc by LaserDynamics is accurate other than to discrimination, alleging that ‘‘[t]here are nu- consider QCI’s non-infringement contentions merous other techniques disclosed in the pri- below. or art for determining what type of disc is 58 694 FEDERAL REPORTER, 3d SERIES from the first trial, were admitted in the In total, twenty-nine licenses were en- second trial. tered into evidence in the second damages On February 15, 2006, LaserDynamics trial. With the exception of the $6 million (and Mr. Kamatani) entered into a license BenQ license, all twenty-nine licenses were agreement with BenQ Corporation to set- for lump sum amounts of $1 million or less. tle a two-year long litigation for a lump sum of $6 million. This settlement agree- C. Quanta Computer Inc. and ment was executed within two weeks of Quanta Storage Inc. the anticipated trial against BenQ. Kama- Quanta Storage, Inc. (‘‘QSI’’) is a manu- tani v. BenQ Corp., No. 2:03–CV–437 facturer of ODDs that was incorporated in (E.D.Tex. Jan. 20, 2006) (pre-trial confer- 1999. QSI is headquartered in Taiwan ence order indicating trial was expected to and is a partially-owned subsidiary of begin in the last week of February 2006). Quanta Computer, Inc. (‘‘QCI’’), with By the time of the settlement, BenQ had which it shares some common officers, di- been repeatedly sanctioned by the district rectors, and facilities. QCI’s corporate court for discovery misconduct and mis- headquarters are also located in Taiwan, representation. The district court had al- and its factories are located in China. lotted BenQ one-third less time than Mr. QCI holds a minority share in QSI and Kamatani for voir dire, opening statement, does not control QSI’s operations. and closing argument, had awarded attor- QCI assembles laptop computers for its neys’ fees to Mr. Kamatani for bringing various customers, which include name the sanctions motion, had stricken one of brand computer companies such as Dell, BenQ’s pleaded defenses, and had sanc- Hewlett Packard (‘‘HP’’), Apple, and Gate- tioned BenQ $500,000.00 as an additional way. QCI does not manufacture ODDs, punitive and deterrent measure. Kamata- but will install ODDs into computers as ni v. BenQ Corp., No. 2:03–CV–437, 2005 instructed by its customers. QCI will WL 2455825, *6–7, *14–15, 2005 U.S. Dist. sometimes purchase ODDs directly from LEXIS 42762, at *20, *44–46 (E.D.Tex. ODD manufacturers such as Sony, Pana- Oct. 6, 2005). The district court believed sonic, Toshiba, or QSI, as directed by that its harsh sanctions were justified be- QCI’s customers. Predominantly, howev- cause BenQ’s extensive misconduct ‘‘dem- er, QCI will be required to purchase the onstrate[d] a conscious intent to evade the ODDs from the customer for whom QCI is discovery orders of this Court, as well as assembling the laptop computer. In other violate[d] this Court’s orders and the rules words, QCI’s typical practice is to buy to an extent previously unknown by this ODDs from Dell, HP, Apple, or Gateway, Court.’’ Id. at *15, 2005 U.S. Dist. LEXIS which in turn purchased the ODDs from 42762 at *44–45. The BenQ settlement the ODD manufacturers. Because QCI agreement was admitted into evidence in eventually sells the fully assembled laptop the second trial. computers—including the ODDs—to its Finally, in 2009 and 2010, LaserDynam- customers, this process is called a ‘‘buy/ ics entered into license agreements with sell’’ arrangement. When QCI purchases ASUSTeK Computer and Orion Electric ODDs from one of its customers in a buy/ Co., Ltd., respectively, for lump sum pay- sell context, it buys the ODDs for an artifi- ments of $1 million or less. These two cially high ‘‘mask price’’ set by the custom- licenses were admitted into evidence in the er and designed to hide the actual lower second trial. price of the ODDs from the customer’s LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 59 Cite as 694 F.3d 51 (Fed. Cir. 2012) competitors. Thus, the mask price is al- II. PROCEDURAL HISTORY ways higher than the actual price to the In August 2006, LaserDynamics brought customer. suit against QCI and QSI for infringement of the 8981 Patent. Because asserted QSI first sold its ODDs for integration claim 3 of the 8981 Patent is directed to a into laptop computers in the United States method of disc discrimination performed in 2001. In 2002, LaserDynamics offered by an ODD, as opposed to the ODD itself, QSI a license under the 8981 Patent, but LaserDynamics relied on a theory of in- QSI disputed whether its ODDs were with- fringement that QSI’s and QCI’s sales of in the scope of the 8981 Patent and de- ODDs and laptop computers, respectively, clined the offer. QCI sold its first comput- actively induced infringement of the meth- er in the United States using an ODD od by the end users of the ODDs and from QSI in 2003. It was not until August laptop computers. See 35 U.S.C. § 271(b). 2006 that LaserDynamics offered a license On a pre-trial summary judgment mo- to QCI concurrently with the filing of this tion brought by QCI and QSI relating to lawsuit. To date, neither QSI nor QCI has their defenses of patent exhaustion and entered into a licensing agreement with implied license, the district court made the LaserDynamics relating to the 8981 Pat- following rulings: ent. (1) ‘‘the exhaustion doctrine does not apply to sales made overseas by [Laser- D. ODDs Made by Philips Dynamics’] licensees’’; and Sony/NEC/Optiarc (2) ‘‘QCI has an implied license with Just as computer sellers Dell, HP, Ap- respect to drives manufactured by non- ple, and Gate way outsource the assembly Quanta entities licensed by [LaserDy- of their computers to companies like QCI, namics] under worldwide licenses and some sellers of ODDs outsource the as- sold by those licensees to QCI for incor- sembly of their ODDs. QSI assembles poration into QCI computers. In addi- ODDs for Philips and Sony/NEC/Op- tion, QSI is not liable for manufacturing drives for Philips or Sony/NEC/Optiarc tiarc—two of the largest sellers of ODDs. which are, in turn, resold into the Unit- As discussed above, Philips and ed States to non-Quanta entities’’; and Sony/NEC/Optiarc are licensed by Laser- (3) ‘‘the Quanta defendants do not Dynamics to make and sell ODDs within have an implied license with respect to the scope of the 8981 Patent. Under the drives that are manufactured by QSI license agreements, both Philips and and eventually sold to QCI (or another Sony/NEC/Optiarc also enjoy ‘‘have made’’ Quanta entity), notwithstanding the fact rights that permit them to retain compa- that those drives are sold through Phil- nies like QSI to assemble ODDs for them. ips or Sony/NEC/Optiarc, two of [Laser- When QCI purchases ODDs directly Dynamics’] licensees. E.I. du Pont de from Philips or Sony/NEC/Optiarc—i.e., Nemours & Co. v. Shell Oil Co., 498 not under a buy/sell arrangement—QCI A.2d 1108, 1116 (Del.1985). The effect has no knowledge of which entity assem- of such transactions is to grant an im- bled the ODDs. QCI pays Philips or permissible sublicense.’’ Sony/NEC/Optiarc directly for the ODDs, Laserdynamics, Inc. v. Quanta Storage which are not sold under the QSI brand Am., Inc., No. 2:06–CV–348–TJW–CE, name even if assembled by QSI. 2009 WL 3763444, at *1, 2009 U.S. Dist. 60 694 FEDERAL REPORTER, 3d SERIES

LEXIS 115848, at *3–5 (E.D.Tex. June 29, hypothetical negotiation in August 2006. 2009) (‘‘Pre–Trial Op.’’). Based on these This opinion was based on Mr. Murtha’s rulings, LaserDynamics dropped its claims understanding, obtained primarily from against QSI and opted to pursue its active LaserDynamics’ other expert witnesses, inducement of infringement claims against that the technology covered by the 8981 QCI only at trial. Patent provided an important and valuable QCI was first on notice of the 8981 Pat- function that was present in all ODDs ent in August 2006 when the complaint currently in use, and that the presence of was filed. Between August 2006 and the this function was a prerequisite for any conclusion of the first trial in June 2009, laptop computer to be successful in the QCI sold approximately $2.53 billion of marketplace. Since QCI sold laptop com- accused laptops into the United States. puters and not ODDs, Mr. Murtha viewed LaserDynamics sought reasonable royalty the complete laptop computer as an appro- damages under 35 U.S.C. § 284. Pursu- priate royalty base. ant to the analytical framework for as- To arrive at his 2% per laptop computer sessing a reasonable royalty set forth in royalty rate, Mr. Murtha began by finding Georgia–Pacific Corp. v. United States that 6% would be a reasonable royalty rate Plywood Corp., 318 F.Supp. 1116 to pay with respect to an ODD alone. Mr. (S.D.N.Y.1970),2 the date of the ‘‘hypothet- Murtha reached his conclusion of a 6% per ical negotiation’’ between the parties was ODD royalty by relying on ‘‘comparable deemed by the district court (over QCI’s rates in two separate licensing programs objections) to be August 2006—the date involving DVDs where the rates were 3.5 that QCI first became aware of the 8981 in one case and 4 percent in another case.’’ Patent and was therefore first potentially A621, A650–54.3 The two patent licensing liable for active inducement of infringe- programs were undertaken by third par- ment. See Global–Tech Appliances, Inc. ties in the DVD industry around 2000. Id. v. SEB S.A., ––– U.S. ––––, 131 S.Ct. He also relied on ‘‘a very comprehensive 2060, 2068, 179 L.Ed.2d 1167 (2011) (hold- royalty survey that was done by the Li- ing that knowledge of the patent is neces- censing Executive Society in 1997,’’ which sary to prove active inducement of in- he viewed as ‘‘a standard textbook for fringement). people who are seeking to set reasonable royalty rates.’’ Id. The licensing survey A. The First Trial was not limited to any particular industry The damages theory advanced by Laser- but ‘‘was across whatever technologies Dynamics in the first trial was presented were being licensed by the people who chiefly through LaserDynamics’ expert, responded,’’ and suggested that in general, Mr. Emmett Murtha. Mr. Murtha opined across all of those unrelated technologies, that a running royalty of 2% of the total ‘‘for a minor improvement, we would sales of laptop computers by QCI is what charge 2 to 5 percent. For a major im- the parties would have agreed to as a provement, we would charge 4 to 8 per- reasonable royalty had they engaged in a cent. And for a major breakthrough, 6 to

2. ‘‘This court has sanctioned the use of the Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d Georgia–Pacific factors to frame the reason- 1292, 1317 (Fed.Cir.2011). able royalty inquiry. Those factors properly tie the reasonable royalty calculation to the 3. Citations to ‘‘A––––’’ herein refer to pages of facts of the hypothetical negotiation at issue.’’ the Joint Appendix filed by the parties. LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 61 Cite as 694 F.3d 51 (Fed. Cir. 2012)

15 percentTTTT’’ A653–54. There is no By contrast, QCI’s theory of damages evidence in the record that the two third- was that a lump sum of $500,000 would be party licensing programs or the industries a reasonable royalty. QCI’s expert, Mr. involved in the licensing survey included Brett Reed, found the 16 licenses in evi- the patented technology or even involved dence—all lump sums ranging between optical disc discrimination methods. See $50,000 and $266,000—to be highly indica- id.; A652 (‘‘[T]he two licensing programs tive of the value of the patented technolo- are important, because they indicate the gy according to LaserDynamics, and of going rate, if you will, at least for those what a reasonable accused infringer would patents, which may or may not be as agree to pay for a license. important as the one in question.’’) (emphasis added); A653 (‘‘Q. Was the [licens- Prior to the first trial, QCI filed a mo- ing] survey directed to ODD technology? tion for partial summary judgment, or in A. No.’’). the alternative a motion pursuant to Dau- bert v. Merrell Dow Pharmaceuticals, Inc., Mr. Murtha did not deem the sixteen 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d lump sum licenses that were entered into 469 (1993), with respect to damages. QCI between LaserDynamics and various elec- sought to limit damages to a one-time tronics companies between 1998 and 2001 lump sum of $232,376.00 based on Laser- to establish a royalty rate for the 8981 Dynamics’ prior licenses, and to preclude Patent. Although he conceded that QCI Mr. Murtha from offering any opinion to would ‘‘absolutely’’ be aware of these prior the contrary for being unreliable by ignor- agreements in a hypothetical negotiation ing this established licensing practice. context, he dismissed any probative value QCI’s motion heavily criticized Mr. Mur- of these 16 licenses because they were tha’s opinions for being fundamentally in- entered into before the August 2006 hypo- consistent with LaserDynamics’ licenses in thetical negotiation date. He reasoned either form or amount. However, QCI’s that, by 2006, the DVD market was larger motion did not challenge Mr. Murtha’s and more established such that the value one-third apportionment calculation to go of the patented technology was better ap- from his 6% rate per ODD to his 2% rate preciated and LaserDynamics had more per laptop computer, nor did it challenge bargaining power. his use of a completed laptop computer as Based on his discussions with LaserDy- a royalty base. The district court never namics’ other experts, Mr. Murtha con- ruled on QCI’s motion. QCI also moved cluded that the patented technology in the in limine to preclude testimony regarding ODD is responsible for one-third of the damages in excess of $266,000 or suggest- value of a laptop computer containing such ing that the prior 16 licenses did not estab- an ODD. Thus, he arrived at his 2% per lish a royalty rate. The district court de- laptop computer rate simply by taking nied this motion. At no point during the one-third of the 6% rate for the ODD. first trial did QCI object to or seek to limit When Mr. Murtha’s proffered 2% running Mr. Murtha’s testimony relating to his ap- royalty rate was applied to QCI’s total portionment or royalty base selection, nor revenues from sales of laptop computers in did QCI file a pre-verdict motion for judg- the United States—$2.53 billion—the re- ment as a matter of law (‘‘JMOL’’) impli- sulting figure presented to the jury was cating such issues pursuant to Federal $52.1 million. Rule of Civil Procedure 50(a). 62 694 FEDERAL REPORTER, 3d SERIES

Two other issues arose during the first senting that QCI obtains drives from its trial that are pertinent to this appeal: (1) customers ‘‘more frequently’’ than from the district court’s instructions to the jury ODD sellers. A754. Arguing that QCI did concerning QCI’s position regarding its not run afoul of the earlier magistrate buy/sell arrangements, and (2) the adequa- judge’s condition that the demonstrative cy of LaserDynamics’ proof of infringe- show only ‘‘one way’’ QCI obtains its ment. We discuss each issue in turn. drives, QCI viewed the district court’s instruction unfairly prejudicial and moved 1. The District Court’s Instruction for a new trial on that basis. QCI’s mo- to the Jury tion for a new trial on these grounds was denied. Upon perceiving a change in position by QCI concerning the frequency with which 2. QCI’s Challenge to the QCI’s ODDs were obtained via a buy/sell Proof of Infringement arrangement, the district court instructed QCI challenged LaserDynamics’ conten- the jury as follows: tions that the end users of the ODDs [P]rior to yesterday, the position of directly infringed the 8981 Patent. Assert- Quanta Computers was that this buy/sell ed claim 3 of the 8981 Patent includes the arrangement TTT [was] one of the ways step of ‘‘processing an optical signal re- in which TTT they did their business. flected from encoded pits on an optical Yesterday, the testimony was, for the diskTTTT’’ The district court construed the first time, that that was the predominant phrase ‘‘encoded pits on an optical disk’’ to method of doing business. You are in- mean ‘‘depression[s] in the surface of the structed that this constitutes a signifi- disk which represent[ ] data or informa- cant change in the testimony, and no tion.’’ LaserDynamics, Inc. v. Asus Com- documents have been produced to sup- puter Int’l, No. 2:06–cv–348–TJW–CE, port that, and that you may take this 2008 WL 3914095, at *4, 2008 U.S. Dist. instruction into account in judging the LEXIS 63498, at *13 (E.D.Tex. Aug. 18, credibility of all of this witness’ testimo- 2008) (‘‘Markman Order ’’). The subse- ny and all other Quanta Computer’s po- quent claimed step of ‘‘collating the pro- sitions in this case. cessed optical signal with an optical disk standard data which is stored in a memo- A34–35. A prior ruling from the magistrate ry’’ was construed to mean ‘‘comparing the judge permitted QCI to utilize a demons- processed optical signal with an optical trative showing how a buy/sell arrange- disk standard data stored on a memory.’’ ment works ‘‘conditioned on the Defen- Id. at *5, 2008 U.S. Dist. LEXIS 63498 at dants’ representation that they would use *15. The Markman Order further ex- the demonstratives to show generally one plained that ‘‘there is no requirement that way that QCI obtains optical drives.’’ the same optical signal determine both the A5100. QCI believed the district court’s total number of data layers and also pit later instruction was based on a false configuration standard.’’ Id. According to premise that QCI had changed its position. LaserDynamics’ expert, industry stan- Prior to trial, LaserDynamics was made dards require that each type of optical disc aware of QCI’s contention that approxi- (i.e., CD, DVD, etc.) has a particular ar- mately 85% of its ODD purchases were rangement of depressions within the data through buy/sell arrangements. The testi- layer as well as a particular depth of the mony elicited by QCI at trial was ostensi- data layer from the surface of the disc, bly consistent with this contention, repre- such that the depth and arrangement of LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 63 Cite as 694 F.3d 51 (Fed. Cir. 2012) depressions have a one-to-one correspon- infringement, and awarded $52 million in dence. LaserDynamics’ theory of in- damages to LaserDynamics, almost the ex- fringement was that the optical signal in act amount proffered by Mr. Murtha. Af- the accused ODDs included a ‘‘counter val- ter the verdict, QCI filed a motion for a ue’’ that tracked the time for the ODD to remittitur or new trial pursuant to Federal change focus from the transparent outer Rule of Civil Procedure 59(a). In this surface of the disc to the internal data motion, QCI argued that the verdict was layer. When the counter value was com- grossly excessive and against the great pared with a known threshold counter val- weight of the evidence, and for the first ue for a given type of optical disc, the type time argued that Mr. Murtha’s testimony of disc (including its standard arrangement of depressions) could be identified. should have been excluded due to his unreliable methodology in applying the ‘‘entire QCI filed a motion for JMOL of non- market value rule’’—i.e., using the reve- infringement, arguing that the ODDs in its laptop computers, by measuring a counter nues from sales of the entire laptop com- value of time, were not literally measuring puters as the royalty base—without having an arrangement of depressions, which QCI established that the patented feature contended was required by the language of drives the demand for the entire laptop claim 3 and the district court’s claim con- computer. Rite–Hite Corp. v. Kelley Co., structions. Specifically, QCI notes claim 3 56 F.3d 1538, 1549 (Fed.Cir.1995). In oth- requires a step of ‘‘settling modulation of er words, QCI argued that LaserDynamics servomechanism means dependent upon failed to establish that the disc discrimina- the optical disk standard data which corre- tion method covered by claim 3 of the 8981 sponds with the processed optical signal,’’ Patent was ‘‘the basis for customer de- which the district court construed as ‘‘es- mand’’ for the laptop computers. Id. tablishing the regulation of the automatic feedback control system for mechanical The district court granted QCI’s motion, motion dependent upon the recognized ar- finding that LaserDynamics had indeed rangement of depressions for an optical improperly invoked the entire market val- storage medium which corresponds to the ue rule. LaserDynamics, Inc. v. Quanta processed optical signal.’’ Markman Or- Computer, Inc., No. 2:06–cv–348–TJW– der at *5, 2008 U.S. Dist. LEXIS 63498 at CE, 2010 WL 2331311, 2010 U.S. Dist. *16. QCI alleged that this construction LEXIS 56634 (E.D. Tex. June 9, 2010) indicates that the reference to operating (‘‘New Trial Op.’’). The district court rea- the servomechanism based on ‘‘optical disk soned that ‘‘[t]he price of the finished com- standard data’’ requires the ODD to identi- puters should not have been included in fy a spatial value—‘‘the recognized ar- the royalty base [because] LaserDynamics rangement of depressions’’—not to calcu- presented no evidence that its patented late a temporal ‘‘counter value’’ in order to discriminate between optical disc types. method drove the demand for QCI’s fin- A3190. The district court denied QCI’s ished computers.’’ Id. at *3, 2010 U.S. motion for JMOL, finding no basis to dis- Dist. LEXIS 56634 at *9. ‘‘At best,’’ Laser- turb the jury’s infringement verdict. Dynamics had only established that ‘‘almost all computers sold in the retail mar- B. The First Jury Verdict and ket include optical disc drives and that Post–Trial Proceedings customers would be hesitant to purchase The jury ultimately returned a verdict computers without an optical disc drive.’’ finding QCI liable for active inducement of Id. at *3, 2010 U.S. Dist. LEXIS 56634 at 64 694 FEDERAL REPORTER, 3d SERIES

*10. LaserDynamics’ theory in the first (E.D.Tex. Jan. 7, 2011) (‘‘Mr. Murtha’s trial was thus found to violate Rite–Hite as opinions that a reasonable royalty is 2% of well as our then-recent decision in Lucent the entire market value of a computer, and Techs., Inc. v. Gateway, Inc., 580 F.3d that a disk drive constitutes a third of the 1301 (Fed.Cir.2009),4 which further ex- value of the computer, are excluded.’’). pounded on the entire market value rule. The district court permitted LaserDynam- The district court concluded that the $52 ics to put on evidence regarding a 6% million damages award was unsupportable running royalty damages model based on and excessive, and granted QCI’s motion. ODD average price, but subject to certain Id. at *3–4, 2010 U.S. Dist. LEXIS 56634 restrictions regarding proof of comparabil- at *12–13. Because the district court did ity to the hypothetically negotiated license. not view Mr. Murtha’s 6%-per-ODD royal- LaserDynamics, Inc. v. Quanta Computer, ty as clearly excessive, LaserDynamics Inc., No. 2:06–cv–348–TJW–CE, at 3 was given the option of a new trial on (E.D.Tex. Jan. 19, 2011) (‘‘[T]he court DE- damages or a remittitur to $6.2 million, NIES Quanta’s cross-motion to preclude which was calculated using the 6% royalty Laser from arguing that a running royalty rate applied to each ODD sold as part of is appropriate.’’); LaserDynamics, 2011 QCI’s laptop computers. Id. at *3–4, 2010 WL 7563818, at *3, 2011 U.S. Dist. LEXIS U.S. Dist. LEXIS 56634 at *11–13. Laser- 42590, at *10 (permitting Mr. Murtha to Dynamics declined to accept the remittitur rely on the 1997 Licensing Executive Soci- to $6.2 million and elected to have a new ety survey ‘‘to allude to general practices, trial. such as preference for a running royalty or a lump sum, but [not to] testify as to the C. The Second Trial royalty rates discussed in the survey’’); id. Prior to the second trial on damages, at *3, 2011 U.S. Dist. LEXIS 42590 at *11 QCI renewed its objections to the antici- (ordering that, if seeking to present licens- pated testimony of Mr. Murtha concerning es as comparable to the jury, ‘‘[i]t is not his dismissive view of the existing licenses sufficient to state that both patents cover to the 8981 Patent, and challenged his 6% optical disk drive technology. The plain- royalty rate based on ODD average price tiff must establish the functionality en- for being improperly based on non-compa- abled by the patent-in-suit as well as the rable licensing evidence. QCI also ex- functionality purportedly covered by the pressly challenged Mr. Murtha’s 2% royal- licensed patent and compare their econom- ty applying the entire market value rule, ic importance’’). relying on our decisions in Lucent Tech- Before the second trial, QCI also filed a nologies, 580 F.3d 1301, and Uniloc USA, motion in limine to exclude the 2006 BenQ Inc. v. Microsoft Corp., 632 F.3d 1292 settlement agreement from evidence for (Fed.Cir.2011). QCI’s objections regard- having its probative value substantially ing the application of the entire market outweighed by the danger of unfair preju- value rule were sustained. LaserDynam- dice or confusion of the issues under Fed- ics, Inc. v. Quanta Computer, Inc., No. eral Rule of Evidence 403. QCI’s motion 2:06–cv–348–TJW–CE, 2011 WL 7563818, emphasized the unique circumstances of at *2, 2011 U.S. Dist. LEXIS 42590, at *8 the BenQ settlement that rendered it non-

4. Lucent was issued two months after the jury filed. verdict but before QCI’s new trial motion was LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 65 Cite as 694 F.3d 51 (Fed. Cir. 2012) comparable, as it was executed shortly be- erDynamics used the average price of the fore trial and after BenQ had been re- replacement ODDs sold by QCI. QCI nev- peatedly sanctioned by the district court. ertheless contends that this $41 price is far QCI also challenged the probative value of too high since the evidence is undisputed any per unit royalty rate that might be that mask price of $28 paid by QCI is extrapolated from the BenQ settlement, always higher than the actual price of the which involved only a one time lump sum ODD. royalty payment of $6 million. The dis- QCI’s expert testified that the appropri- trict court denied QCI’s motion, reasoning ate damages amount was a lump sum pay- that LaserDynamics could use the BenQ ment of $1.2 million, based in large part on agreement to ‘‘prove up a per unit royalty the fact that none of the now twenty-nine rate from the information provided in the licenses in evidence (excluding the BenQ agreement’’ so as to support its 6% per ODD royalty rate. LaserDynamics, Inc. settlement) exceeded lump sum amounts of v. Quanta Computer, Inc., No. 2:06–cv– $1 million. Based on evidence that QCI 348–TJW–CE, at 3 (E.D.Tex. Jan. 19, could have switched from QSI drives to 2011). other licensed ODD suppliers to avoid infringement at a cost of $600,000, QCI’s In light of these rulings, LaserDynamics expert also opined that QCI would have offered testimony that damages should be paid twice that amount to have the free- $10.5 million based on a running royalty of dom to use ODDs from any supplier. 6% of the average price of a standalone ODD. While the average per-unit ODD The jury ultimately awarded a lump sum price utilized in the first trial was the $28 amount of $8.5 million in damages. QCI mask price, LaserDynamics now used a moved for JMOL on the grounds that the $41 per ODD value that was calculated hypothetical negotiation date had been im- based on a relatively small sample of about properly set as August 2006, that the evi- 9,000 licensed noninfringing drives made dence at trial did not support the jury’s by Sony that were sold as replacement award of $8.5 million, and that LaserDy- drives by QCI. In response to QCI’s objec- namics had failed to offer proof at trial to tions, LaserDynamics contended that this support its $10.5 million damages theory. increased value was accurate and reliable The district court denied QCI’s motion for because prior to the first trial both QSI JMOL. and QCI were accused of inducing in- * * * fringement. According to LaserDynamics, the prices of QSI’s ODDs and QCI’s laptop LaserDynamics appealed the district computers were evaluated to support Las- court’s granting QCI’s motion for a new erDynamics’ damages theory going into trial and/or remittitur based on the entire the first trial since it was not until after market value rule. QCI cross-appealed the district court’s rulings in the Pre–Trial the district court’s denial of a new trial on Opinion that LaserDynamics dropped its the alternative ground of the district claims against QSI. Going into the second court’s allegedly prejudicial instruction to trial, however, only QCI was accused of the jury. QCI also cross-appealed the dis- active inducement, and so the price of trict court’s entry of summary judgment ODDs sold by QCI became a more central on the issues of implied license and patent issue. Since QCI does not itself make and exhaustion, its denial of QCI’s motion for sell standalone ODDs, and since QCI pre- JMOL of non-infringement following the sented no representative sales price, Las- first trial, and its denial of QCI’s motion 66 694 FEDERAL REPORTER, 3d SERIES

for JMOL following the second trial. We proper measure of reasonable royalty have jurisdiction pursuant to 28 U.S.C. damages in the second trial. We address § 1295(a)(1). each of these issues in turn.

III. DISCUSSION A. The District Court Properly Granted a New Trial on Damages [1–4] For issues not unique to patent law, we apply the law of the regional cir- LaserDynamics contends that the dis- cuit where this appeal would otherwise lie, trict court erred by granting QCI’s motion which in this case is the Fifth Circuit. i4i for a new trial on damages after the con- Ltd. P’ship v. Microsoft Corp., 598 F.3d clusion of the first trial. Essentially, Las- 831, 841 (Fed.Cir.2010). Thus, the grant erDynamics believes that the district court or denial of a motion for a remittitur or a was precluded from ordering a new trial new trial is reviewed for an abuse of dis- under the circumstances, since QCI never cretion. Brunnemann v. Terra Int’l, Inc., raised its entire market value rule argu- 975 F.2d 175, 177 (5th Cir.1992); Bonura ment until after the jury verdict, and v. Sea Land Serv., Inc., 505 F.2d 665, 669 thereby waived any right to seek a new (5th Cir.1974). Evidentiary rulings are re- trial to rectify that error. Moreover, Las- viewed for an abuse of discretion. Indust- erDynamics denies that it improperly re- rias Magromer Cueros y Pieles S.A. v. La. lied on the entire market value rule during Bayou Furs, 293 F.3d 912, 924 (5th Cir. the first trial, but contends that it instead 2002). Decisions on motions for summary used a permissible ‘‘product value appor- judgment and JMOL are reviewed de tionment’’ method. LaserDynamics Br. at novo. Cambridge Toxicology Group v. 36–44. We disagree with both of Laser- Exnicios, 495 F.3d 169, 173, 179 (5th Cir. Dynamics’ arguments. 2007). 1. The Entire Market Value Rule For reasons explained in detail below, We begin by noting that some products we hold: (a) that the district court proper- are made of many different components, ly granted a new trial on damages follow- one or more of which components may be ing the first jury verdict; (b) that the covered by an asserted patent, while other district court erred in finding that QCI components are not. This is especially does not have an implied license to assem- true for electronic devices, which may in- ble and sell laptops using ODDs purchased clude dozens of distinct components, many via Philips and Sony/NEC/Optiarc; (c) of which may be separately patented, the that the district court properly denied patents often being owned by different QCI’s motion for JMOL of non-infringe- entities. To assess how much value each ment; (d) that the district court’s jury patented and non-patented component in- instruction does not alone warrant a new dividually contributes to the overall end trial on liability; (e) that the district court product—e.g., a personal computer—can erred by setting the hypothetical negotia- be an exceedingly difficult and error-prone tion date as August 2006; (f) that the task. district court erred in admitting the BenQ settlement agreement into evidence; and [5] By statute, reasonable royalty (g) that the district court erred in permit- damages are deemed the minimum amount ting Mr. Murtha to offer his opinion con- of infringement damages ‘‘adequate to cerning a 6% per ODD running royalty compensate for the infringement.’’ 35 rate based on ODD average price as a U.S.C. § 284. Such damages must be LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 67 Cite as 694 F.3d 51 (Fed. Cir. 2012)

awarded ‘‘for the use made of the inven- U.S. 120, 121, 4 S.Ct. 291, 28 L.Ed. 371 tion by the infringer.’’ Id. Where small el- (1884). The Court explained that ‘‘the en- ements of multi-component products are tire value of the whole machine, as a mar- accused of infringement, calculating a roy- ketable article, [must be] properly and le- alty on the entire product carries a consid- gally attributable to the patented feature.’’ erable risk that the patentee will be im- Id. properly compensated for non-infringing components of that product. Thus, it is [8] In effect, the entire market value generally required that royalties be based rule acts as a check to ensure that the not on the entire product, but instead on royalty damages being sought under 35 the ‘‘smallest salable patent-practicing U.S.C. § 284 are in fact ‘‘reasonable’’ in unit.’’ Cornell Univ. v. Hewlett–Packard light of the technology at issue. We have Co., 609 F.Supp.2d 279, 283, 287–88 consistently maintained that ‘‘a reasonable (N.D.N.Y.2009) (explaining that ‘‘counsel royalty analysis requires a court to hy- would have wisely abandoned a royalty pothesize, not to speculateTTTT [T]he trial base claim encompassing a product with court must carefully tie proof of damages significant non-infringing components. to the claimed invention’s footprint in the The logical and readily available alterna- market place.’’ ResQNet.com, Inc. v. Lan- tive was the smallest salable infringing sa, Inc., 594 F.3d 860, 869 (Fed.Cir.2010). unit with close relation to the claimed in- A damages theory must be based on vention—namely the processor itself.’’). ‘‘sound economic and factual predicates.’’ Riles v. Shell Exploration & Prod. Co., 298 [6, 7] The entire market value rule is a F.3d 1302, 1311 (Fed.Cir.2002). The en- narrow exception to this general rule. If tire market value rule arose and evolved to it can be shown that the patented feature limit the permissible scope of patentees’ drives the demand for an entire multi- damages theories. component product, a patentee may be awarded damages as a percentage of reve- Importantly, the requirement to prove nues or profits attributable to the entire that the patented feature drives demand product. Rite–Hite, 56 F.3d at 1549, 1551. for the entire product may not be avoided In other words, ‘‘[t]he entire market value by the use of a very small royalty rate. rule allows for the recovery of damages We recently rejected such a contention, based on the value of an entire apparatus raised again in this case by LaserDynam- containing several features, when the fea- ics, and clarified that ‘‘[t]he Supreme ture patented constitutes the basis for cus- Court and this court’s precedents do not tomer demand.’’ Lucent, 580 F.3d at 1336 allow consideration of the entire market (quoting TWM Mfg. Co. v. Dura Corp., 789 value of accused products for minor patent F.2d 895, 901 (Fed.Cir.1986)). The entire improvements simply by asserting a low market value rule is derived from Supreme enough royalty rate.’’ Uniloc, 632 F.3d at Court precedent requiring that ‘‘the paten- 1319–20 (explaining that statements in Lu- tee TTT must in every case give evidence cent suggesting otherwise were taken out tending to separate or apportion the defen- of context). We reaffirm that in any case dant’s profits and the patentee’s damages involving multi-component products, pat- between the patented feature and the un- entees may not calculate damages based patented features, and such evidence must on sales of the entire product, as opposed be reliable and tangible, and not conjectur- to the smallest salable patent-practicing al or speculative.’’ Garretson v. Clark, 111 unit, without showing that the demand for 68 694 FEDERAL REPORTER, 3d SERIES

the entire product is attributable to the by definition, is an application of the entire patented feature. market value rule.

Regardless of the chosen royalty rate, [9] LaserDynamics’ use of the entire one way in which the error of an improper- market value rule was impermissible, how- ly admitted entire market value rule theo- ever, because LaserDynamics failed to ry manifests itself is in the disclosure of present evidence showing that the patent- the revenues earned by the accused in- ed disc discrimination method drove de- fringer associated with a complete product mand for the laptop computers. It is not rather than the patented component only. enough to merely show that the disc dis- In Uniloc, we observed that such disclo- crimination method is viewed as valuable, important, or even essential to the use of sure to the jury of the overall product the laptop computer. Nor is it enough to revenues ‘‘cannot help but skew the dam- show that a laptop computer without an ages horizon for the jury, regardless of the ODD practicing the disc discrimination contribution of the patented component to method would be commercially unviable. this revenue.’’ Id. at 1320 (noting that Were this sufficient, a plethora of features ‘‘the $19 billion cat was never put back into of a laptop computer could be deemed to the bag,’’ and that neither cross-examina- drive demand for the entire product. To tion nor a curative jury instruction could name a few, a high resolution screen, re- have offset the resulting unfair prejudice). sponsive keyboard, fast wireless network Admission of such overall revenues, which receiver, and extended-life battery are all have no demonstrated correlation to the in a sense important or essential features value of the patented feature alone, only to a laptop computer; take away one of serve to make a patentee’s proffered dam- these features and consumers are unlikely ages amount appear modest by compari- to select such a laptop computer in the son, and to artificially inflate the jury’s marketplace. But proof that consumers damages calculation beyond that which is would not want a laptop computer without ‘‘adequate to compensate for the infringe- such features is not tantamount to proof ment.’’ Id.; see 35 U.S.C. § 284. that any one of those features alone drives Turning to the facts of this case, Laser- the market for laptop computers. Put an- Dynamics and Mr. Murtha unquestionably other way, if given a choice between two advanced an entire market value rule theo- otherwise equivalent laptop computers, ry in the first trial. Mr. Murtha opined only one of which practices optical disc that a 2% running royalty applied to QCI’s discrimination, proof that consumers would total revenues from sales of laptop com- choose the laptop computer having the disc puters in the United States—$2.53 bil- discrimination functionality says nothing lion—was an appropriate and reasonable as to whether the presence of that func- royalty. The resulting figure presented to tionality is what motivates consumers to the jury was $52.1 million, and the jury buy a laptop computer in the first place. awarded damages in nearly that exact It is this latter and higher degree of proof amount. Whether called ‘‘product value that must exist to support an entire mar- apportionment’’ or anything else, the fact ket value rule theory. remains that the royalty was expressly Our decision in Lucent is illustrative. calculated as a percentage of the entire There, the patent at issue involved a help- market value of a laptop computer rather ful and convenient ‘‘date picker’’ feature than a patent-practicing ODD alone. This, that was being used within the grand LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 69 Cite as 694 F.3d 51 (Fed. Cir. 2012)

scheme of Microsoft’s Outlook email soft- tivities that may be performed on a com- ware. We held that because the patented puter using a disk drive, such as playing feature was ‘‘but a tiny feature of one part movies, music and games, transferring of a much larger software program,’’ a documents, backing up files, and installing royalty could not be properly calculated software comprise a third of the value of a based on the value of the entire Outlook computer, [Mr. Murtha] offers no credible program because ‘‘there was no evidence economic analysis to support that conclu- that anybody anywhere at any time ever sion.’’ LaserDynamics, 2011 WL 7563818, bought Outlook TTT because it had [the at *2, 2011 U.S. Dist. LEXIS 42590, at *6. patented] date picker.’’ Lucent, 580 F.3d This complete lack of economic analysis to at 1332–33 (emphasis added). quantitatively support the one-third appor- In this case, Mr. Murtha never conduct- tionment echoes the kind of arbitrariness ed any market studies or consumer sur- of the ‘‘25% Rule’’ that we recently and veys to ascertain whether the demand for emphatically rejected from damages ex- a laptop computer is driven by the patent- perts, and would alone justify excluding ed technology. On the record before us, Mr. Murtha’s opinions in the first trial. the patented method is best understood as Cf. Uniloc, 632 F.3d at 1318 (‘‘Gemini’s a useful commodity-type feature that con- starting point of a 25 percent royalty had sumers expect will be present in all laptop no relation to the facts of the case, and as computers. There is no evidence that this such, was arbitrary, unreliable, and irrele- feature alone motivates consumers to pur- vant. The use of such a rule fails to pass chase a laptop computer, such that the muster under Daubert and taints the value of the entire computer can be attrib- jury’s damages calculation.’’). uted to the patented disc discrimination [11] Finally, we reject the contention method. As the district court aptly stated, that practical and economic necessity com- ‘‘[a]t best,’’ LaserDynamics proved only pelled LaserDynamics to base its royalty that ‘‘almost all computers sold in the re- on the price of an entire laptop computer. tail market include optical disc drives and LaserDynamics Br. at 15–18. LaserDy- that customers would be hesitant to pur- namics emphasizes that QCI is in the busi- chase computers without an optical disc ness of assembling and selling complete drive.’’ New Trial Op. at *3, 2010 U.S. laptop computers, not independent ODDs, Dist. LEXIS 56634 at *10. The district and that QCI does not track the prices, court correctly found that this evidence revenues, or profits associated with indi- fails to satisfy the requirements of our vidual components. Likewise, LaserDy- precedent to support the usage of the en- namics points out that QCI purchases tire market value rule when calculating ODDs for a ‘‘mask price,’’ which the dis- reasonable royalty damages. trict court described as ‘‘nominal’’ and es- [10] Furthermore, Mr. Murtha’s one- sentially ‘‘an accounting fiction’’ that offers third apportionment to bring his royalty ‘‘little evidence of the drives’ actual value.’’ rate down from 6% per ODD to 2% per LaserDynamics, Inc. v. Quanta Computer, laptop computer appears to have been Inc., No. 2:06–cv–348–TJW–CE (E.D.Tex. plucked out of thin air based on vague Jan. 21, 2011). LaserDynamics further qualitative notions of the relative impor- points to Mr. Murtha’s testimony that, in tance of the ODD technology. The district his prior experience working in patent li- court correctly concluded that ‘‘[a]lthough censing at IBM, IBM would often base [LaserDynamics] argues that the many ac- royalties on entire products to address 70 694 FEDERAL REPORTER, 3d SERIES such accounting difficulties. Thus, Laser- ODD pricing information was not per se Dynamics concludes that the parties would unreliable, as the jury was entitled to have had to use the value of the entire weigh it against QCI’s competing views of laptop computer as the royalty base in appropriate ODD pricing. Thus, we see structuring a hypothetical license agree- no reason to establish a necessity-based ment, as it reflects the only true market exception to the entire market value rule value of anything that QCI sells. for LaserDynamics in this case. LaserDynamics overlooks that a per- 2. The Grant of a New Trial unit running royalty is not the only form of a reasonable royalty that the parties might [12] Having established that LaserDy- have agreed to in a hypothetical negotia- namics’ theory of damages was legally un- tion. An alternate form is evidenced by supportable, we turn to the question of the many license agreements to the 8981 whether the district court abused its dis- Patent in the record for lump sum royal- cretion in granting QCI’s post-verdict mo- ties that are not calculated as a percentage tion and offering LaserDynamics a choice of any component or product, which imme- between a new damages trial and a remit- diately belies the argument that using a titur of the damages verdict to $6.2 million. laptop computer as the royalty base is While LaserDynamics is correct that QCI ‘‘necessary.’’ LaserDynamics’ necessity made no pre-verdict objection or raised argument also fails to address the funda- any challenge whatsoever to Mr. Murtha’s mental concern of the entire market value testimony on an entire market value rule rule, since permitting LaserDynamics to theory, under Fifth Circuit law this osten- use a laptop computer royalty base does sible waiver by QCI does not preclude the not ensure that the royalty rate applied district court from exercising its discretion thereto does not overreach and encompass to consider the issue. See Garriott v. components not covered by the patent. NCsoft Corp., 661 F.3d 243 (5th Cir.2011) That is, if difficulty in precisely identifying (finding that an otherwise waived argu- the value of the ODDs is what justifies ment made in a motion for a new trial was using complete laptop computers as the properly addressed and preserved when royalty base, when it comes time to then the district court exercised its discretion to apportion a royalty rate that accounts for consider the issue in its opinion denying the ODD contribution only, the exceeding- the motion). ly difficult and error-prone task of discern- [13] The Fifth Circuit has determined ing the ODD’s value relative to all other that ‘‘[a] district court has discretion to components in the laptop remains. consider new theories raised for the first Moreover, LaserDynamics provides no time in a post-trial brief, TTT and an issue reason that QCI’s own lack of internal first presented to the district court in a tracking and accounting of individual com- post-trial brief is properly raised below ponents or its ‘‘mask price’’ purchases pre- when the district court exercises its discre- cludes LaserDynamics from deriving or tion to consider the issue.’’ Quest Medi- obtaining accurate information concerning cal, Inc. v. Apprill, 90 F.3d 1080, 1087 (5th ODD values from third parties, industry Cir.1996) (citations omitted). In this case, practices, etc. LaserDynamics in fact did whether or not the district court could obtain and use alternative pricing informa- have deemed QCI’s entire market value tion from Sony-made ODDs in the second rule arguments waived and ignored them, trial. As explained below, this Sony-made it did not. In light of QCI’s post-trial LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 71 Cite as 694 F.3d 51 (Fed. Cir. 2012) briefing, the district court identified the of an implied license is a question of law error of permitting the entire market val- that we review de novo.’’ Anton/Bauer, ue rule theory to go to the jury, and Inc. v. PAG, Ltd., 329 F.3d 1343, 1348 exercised its discretion to correct the er- (Fed.Cir.2003). ror. We find no abuse of discretion in the At oral argument before this court, district court’s decision to grant QCI’s mo- counsel for QCI explained that the vast tion for a remittitur or a new trial under majority of the allegedly infringing ODDs these circumstances, and we therefore af- would be covered under QCI’s implied li- firm the district court on this point. cense theory, and that QCI’s arguments concerning patent exhaustion pertain to B. QCI Has an Implied License to As- only those same ODDs. Oral Arg. at 0:30– semble Laptops Using ODDs from QSI 1:30, available at http://oralarguments. via Philips and Sony/NEC/Optiarc cafc.uscourts.gov/default.aspx?fl=2011– [14] QCI contends that it has an im- 1440.mp3. Because we find that QCI has plied license to assemble laptop computers an implied license, we do not reach QCI’s for its customers that include the accused patent exhaustion arguments.5 ODDs assembled by QSI for Philips or The district court relied solely on E.I. Sony/NEC/Optiarc, pursuant to Philips’s du Pont de Nemours & Co. v. Shell Oil and Sony/NEC/Optiarc’s ‘‘have made’’ Co., 498 A.2d 1108 (Del.1985), in finding rights under their patent license agree- that ‘‘the Quanta defendants do not have ments with LaserDynamics. The QSI-as- an implied license with respect to drives sembled ODDs at issue are sold by Philips that are manufactured by QSI and eventu- or Sony/NEC/Optiarc either directly to ally sold to QCI (or another Quanta enti- QCI or indirectly to QCI via QCI’s custom- ty), notwithstanding the fact that those ers such as Dell and HP, as directed by drives are sold through Philips or QCI’s customers. ‘‘The existence vel non Sony/NEC/Optiarc, two of [LaserDynam-

5. At oral argument before this court, counsel LEXIS 115848, at *3–5. The district court for LaserDynamics for the first time argued indicated that ‘‘for purposes of trial, the court that the district court merely denied QCI’s advises the parties of the following holdings,’’ summary judgment motion on these issues, e.g., ‘‘the Quanta defendants do not have an but did not also enter summary judgment implied license with respect to drives that are against QCI, and that such a supposed denial manufactured by QSI and eventually sold to of summary judgment cannot be appealed to QCI (or another Quanta entity), notwithstand- us after a trial where QCI did not take further ing the fact that those drives are sold through steps to preserve the issue. Oral Arg. at Philips or Sony/NEC/Optiarc, two of [Laser- 11:18–13:57. QCI’s briefing repeatedly char- Dynamics’] licensees.’’ Id. Thus, LaserDy- acterized the district court’s order as entering namics’ citing to Ortiz v. Jordan, ––– U.S. summary judgment against QCI, but LaserDy- ––––, 131 S.Ct. 884, 889, 178 L.Ed.2d 703 namics made no challenge to this character- (2011), for the proposition that an appellate ization until oral argument. A subsequent court has no jurisdiction over a denial of motion refining this argument and seeking to summary judgment following a trial on the dismiss these portions of QCI’s appeal for merits is to no avail. Fed.R.Civ.P. 56(f) per- lack of jurisdiction was filed on March 23, mits the district court to enter summary judg- 2012. ment in favor of a non-moving party, and LaserDynamics’ belated argument hinges LaserDynamics points to nowhere in the rec- on an incorrect premise. The district court’s ord where it objected to any procedural defect order plainly went further than denying QCI’s in the district court’s doing so. On this rec- motion and made affirmative rulings on these ord, we see no genuine disputes of material issues as a matter of law. See LaserDynamics, fact that would preclude us from reversing 2009 WL 3763444, at *1, 2009 U.S. Dist. the district court on the implied license issue. 72 694 FEDERAL REPORTER, 3d SERIES

ics’] licensees.’’ Pre–Trial Op. at *1, 2009 The case before us presents a different U.S. Dist. LEXIS 115848 at *4 (citing du situation from that in du Pont. The ODDs Pont, 498 A.2d at 1116). According to the provided to QCI via Philips and district court, ‘‘[t]he effect of such transac- Sony/NEC/Optiarc were undoubtedly as- tions is to grant an impermissible subli- sembled by QSI for Philips and cense.’’ Id. We disagree. Sony/NEC/Optiarc, not for QSI or QCI. Even though the ODDs made by QSI were In du Pont, E.I. Du Pont de Nemours in reality shipped directly from QSI to and Company, Inc. (‘‘Du Pont’’) had en- QCI, the substance of the transactions tered into a license agreement with Shell make clear that QSI’s manufacture of the Oil Company (‘‘Shell’’) permitting Shell to ODDs was limited to the needs and re- ‘‘make, have made, use and sell for use or quests of Philips and Sony/NEC/Optiarc. resale’’ an insecticide product covered by QSI had no unfettered ability to make Du Pont’s patent. 498 A.2d at 1110. The more ODDs than were ordered from it. license agreement expressly prohibited Nothing in the record suggests that this any sublicensing by Shell. Id. Union Car- overall arrangement is designed to circum- bide Agricultural Corporation, Inc. (‘‘Un- vent the terms of the patent licenses be- ion Carbide’’) later sought permission from tween LaserDynamics and Philips or Shell to produce the patented insecticide, Sony/NEC/Optiarc. Indeed, the shipping but Shell declined due to the prohibition on and manufacturing arrangements involved sublicensing in its licensed agreement with in this case reflect typical on-time delivery Du Pont. Id. at 1111. Instead, Shell and logistics of modern industrial reality. Union Carbide came up with the following The apposite precedent is our decision in arrangement: (1) Union Carbide would Cyrix Corp. v. Intel Corp., 77 F.3d 1381 manufacture the insecticide under the (Fed.Cir.1996). That case involved Cyrix ‘‘have made’’ provision of the license Corporation (‘‘Cyrix’’), a designer and sell- agreement between Shell and Du Pont, er of microprocessors, contracting with then (2) Shell would immediately sell back other companies to manufacture integrated the insecticide to Union Carbide pursuant circuit chips containing the Cyrix-designed to Shell’s right to ‘‘sell for use or resale.’’ microprocessors, then selling the chips Id. at 1111. The minimum amounts of back to Cyrix. Id. at 1383. Cyrix used insecticide that Union Carbide agreed to manufacturers that were licensed under make and the minimum amounts that Shell patents owned by Intel, including SGS– agreed to sell back to Union Carbide were Thomson Microelectronics, Inc. (‘‘ST’’). identical. Id. at 1115–16. The Supreme Id. ST had acquired by assignment a li- Court of Delaware deemed this arrange- cense from Intel ‘‘to make, have made TTT ment an impermissible sublicense, rather [and] sell’’ the patented chips. Id. ST than a permissible exercise of Shell’s ‘‘have could not itself fulfill Cyrix’s orders, how- made’’ and ‘‘sell’’ rights, because ‘‘ultimate- ever, and, relying on its ‘‘have made’’ ly, Union Carbide was producing [the in- rights, arranged for its Italian non-subsid- secticide], not for Shell, but rather for iary affiliate company (‘‘ST–Italy’’) to man- itself.’’ Id. (citing Carey v. United States, ufacture the chips, which ST then sold to 326 F.2d 975, 979 (Ct.Cl.1964) (explaining Cyrix. Id. The district court distinguished that ‘‘the test is, whether the production is this situation from that in du Pont and by or for the use of the original licensee or held that ST did not exceed its rights for the sublicensee himself or for someone under the Intel license by having ST–Italy else’’)). make the chips for ST to sell to Cyrix. Id. LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 73 Cite as 694 F.3d 51 (Fed. Cir. 2012)

at 1384. Cyrix and ST were both found to respect to the ODDs made by QSI and not infringe Intel’s patents on this basis. sold to QCI via Philips or Sony/NEC/Op- We affirmed, rejecting Intel’s argument tiarc. that the arrangement among ST, ST–Italy, and Cyrix was a mere paper transaction— C. The District Court Properly Denied a ‘‘sham’’ designed to circumvent Intel’s QCI’s Motion for JMOL of Non– license to ST. Id. at 1387–88. We en- Infringement dorsed the district court’s reasoning that, [16] QCI contends that LaserDynam- unlike in du Pont, ‘‘[t]he production of the ics’ evidence at the first trial was inade- [chips] is for the use of ST, the original quate to prove direct infringement by end licensee, and not for the use of ST–Italy.’’ users of the accused laptops of asserted Id. at 1387. As we explained, ‘‘[i]f the claim 3 under the district court’s claim facts in this case had been that Cyrix constructions. As discussed above, claim 3 made the product for ST under ST’s ‘have requires, inter alia, the steps of ‘‘process- made’ rights and then ST sold the product ing an optical signal reflected from encod- back to Cyrix, then they would have been ed pits on an optical disk until total num- analogous to those in du Pont, but those ber of data layers and pit configuration are not our facts.’’ Id. at 1388. standard of the optical disk is identified’’ [15] This case likewise presents no and ‘‘collating the processed optical signal ‘‘sham’’ transaction as in du Pont. QSI with an optical disk standard data which is made the ODDs at issue here to fulfill stored in a memory.’’ The district court bona fide orders from licensees Philips and construed the phrase ‘‘encoded pits on an Sony/NEC/Optiarc. The ODDs were then optical disc’’ to mean ‘‘depression[s] in the sold to QCI by the licensees. QCI did not surface of the disc which represent[ ] data make the ODDs for Philips or or information’’ Markman Order, at *4, Sony/NEC/Optiarc and then immediately 2008 U.S. Dist. LEXIS 63498 at *13. The purchase the ODDs back so as to effective- step of ‘‘collating the processed optical sig- ly receive a sublicense and obtain as many nal with an optical disk standard data ODDs as it wanted. Rather, as in Cyrix, which is stored in a memory’’ was con- the manufacture of the ODDs by QSI and strued to mean ‘‘comparing the processed their eventual sale to QCI for incorpo- optical signal with an optical disk standard ration into laptop computers, all via Philips data stored on a memory.’’ Id. at *5, 2008 and Sony/NEC/Optiarc, were legitimate U.S. Dist. LEXIS 63498 at *15. and separate business transactions that QCI does not challenge the district did not expand or circumvent the patent court’s claim constructions, but only licenses. Id. at 1387–88 (‘‘The two agree- whether the trial record supports the ments, one permitting ST–Italy to manu- jury’s verdict of infringement. Contrary facture microprocessors for ST and the to QCI’s argument, nothing in these claim other providing for ST’s sale of micropro- constructions dictates that the arrange- cessors to Cyrix, were separate business ment of depressions be ‘‘identified’’ or transactions.’’). Both the manufacture and ‘‘recognized’’ in any particular manner. sale of the ODDs were valid exercises of Substantial evidence exists to show that the ‘‘have made’’ and ‘‘sell’’ rights, respec- the industry standards for various optical tively, under the license agreements in this discs require specified arrangements of the case. We therefore conclude that QCI has depressions horizontally as well as speci- an implied license to the 8981 Patent with fied depths of the data layers. The record 74 694 FEDERAL REPORTER, 3d SERIES amply supports that the depth of the data cost of strict impartiality.’’ Id. (quoting layer precisely correlates to the pit config- United States v. Saenz, 134 F.3d 697, 702 uration arrangement, such that the meas- (5th Cir.1998)). Thus, ‘‘[i]n reviewing a urement of the depth (via a counter value) claim that the trial court appeared partial, is a measurement of the pit arrangement. this court must determine whether the Under the claim constructions, the jury judge’s behavior was so prejudicial that it was entitled to find infringement on this denied the [defendant] a fair, as opposed basis, and we therefore affirm the district to a perfect, trial.’’ Id. (citations and in- court’s denial of QCI’s motion for JMOL of ternal quotation marks omitted). In per- non-infringement. forming this review, we must consider the district court’s actions in light of the entire D. The District Court’s Jury Instruction trial record and consider the totality of the Does Not Alone Warrant a New circumstances. Saenz, 134 F.3d at 702. Trial on Liability [21] Our review of the record shows As discussed above, upon perceiving a that QCI made different representations change in position by QCI concerning the concerning the frequency with which its frequency with which QCI’s ODDs were ODD purchases were made via buy/sell obtained via a buy/sell arrangement, the arrangements. It is not the same to sug- district judge instructed the jury as fol- gest that a certain method is ‘‘one way’’ lows: ‘‘this constitutes a significant change business is done when in fact it is the in the testimony, and no documents have predominant way—85% of the time—that been produced to support that, and that business is done. Nevertheless, the dis- you may take this instruction into account trict court’s response to this potential in- in judging the credibility of all of this consistency was harsh and prejudicial to witness’ testimony and all other Quanta QCI. The question of whether there was Computer’s positions in this case.’’ A34– any inconsistency here, and the associated 35. QCI contends that this instruction so questions of credibility, should have been unfairly prejudiced QCI that only a new for the jury to decide. It is one thing to trial could rectify the error. point out a potential inconsistency to the jury and to raise an associated question of [17–20] Since QCI did not object at credibility. But it was error to instruct trial, we review the district court’s instruc- the jury to ‘‘take this instruction into action for plain error. Rodriguez v. Riddell count in judging the credibility of TTT all Sports, Inc., 242 F.3d 567, 579 (5th Cir. other Quanta Computer’s positions in this 2001). Plain error is ‘‘clear’’ or ‘‘obvious’’ case.’’ A34–35 (emphasis added). and must affect substantial rights. Id. (quoting United States v. Calverley, 37 [22] Notwithstanding whether there F.3d 160, 162–64 (5th Cir.1994)). Such er- was any inconsistency in QCI’s positions, ror is reversible only if it ‘‘seriously af- on the balance, we do not view the district fect[s] the fairness, integrity, or public court’s instruction to constitute plain error reputation of judicial proceedings.’’ Id. that standing alone warrants a new trial. (citations omitted). Although a district QCI was given a second trial on the issue court is afforded broad discretion over the of damages, which cured any prejudice manner in which trial is conducted, and that the district court’s instruction might may intervene to help expand upon or have caused in that regard. As for in- clarify witness testimony and evidence, fringement liability, a portion of the case such intervention ‘‘may not come at the put on through entirely different wit- LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 75 Cite as 694 F.3d 51 (Fed. Cir. 2012) nesses, we are not convinced that the in- 883 F.2d 1573, 1580 (Fed.Cir.1989) (‘‘The struction, in context, was so severe as to determination of a reasonable royalty TTT prevent QCI from a receiving a ‘‘fair, as [is based] on what a willing licensor and opposed to a perfect, trial’’ on infringe- licensee would bargain for at hypothetical ment. Rodriguez, 242 F.3d at 579 (cita- negotiations on the date infringement tions omitted). However, if the same testi- started.’’). mony is introduced at a subsequent trial, [24–26] We have also been careful to the court must leave to the jury the deci- distinguish the hypothetical negotiation sion whether any inconsistency exists. date from other dates that trigger infringement liability. For example, the six- E. The District Court Erred By Setting year limitation on recovery of past dam- the Hypothetical Negotiation Date as ages under 35 U.S.C. § 286 does not pre- August 31, 2006 clude the hypothetical negotiation date During both trials, QCI was bound by from taking place on the date infringement the district court’s ruling that the hypo- began, even if damages cannot be collected thetical negotiation date for purposes of until some time later. See Wang Labs., the Georgia–Pacific reasonable royalty Inc. v. Toshiba Corp., 993 F.2d 858, 870 analysis was August 2006—i.e., when the (Fed.Cir.1993). Similarly, the failure to lawsuit was filed. The district court rea- mark a patented product or prove actual soned that since QCI was being accused of notice of the patent pursuant to 35 U.S.C. active inducement of infringement, which § 287 precludes the recovery of damages requires knowledge of the patent, and prior to the marking or notice date, but since QCI was not notified of the patent the hypothetical negotiation date may nev- until August 2006, this date was when QCI ertheless be properly set before marking first became liable to LaserDynamics. or notice occurs. Id. (‘‘[T]he court con- Based in large part on this late date, Las- fused limitation on damages due to lack of erDynamics’ expert Mr. Murtha testified notice with determination of the time when that he disregarded almost all of LaserDy- damages first began to accrue, and it is the namics’ twenty-nine licenses in evidence latter which is controlling in a hypothetical that were executed earlier, reasoning that royalty determination.’’). In sum, ‘‘[a] rea- the economic landscape had since changed. sonable royalty determination for purposes of making a damages evaluation must re- [23] We have explained that ‘‘[t]he cor- late to the time infringement occurred, and rect determination of [the hypothetical ne- not be an after-the-fact assessment.’’ gotiation] date is essential for properly Riles v. Shell Exploration & Prod. Co., 298 assessing damages.’’ Integra Lifesciences F.3d 1302, 1313 (Fed.Cir.2002) (citing I, Ltd. v. Merck KGaA, 331 F.3d 860, 870 Hanson v. Alpine Valley Ski Area, Inc., (Fed.Cir.2003). In general, the date of the 718 F.2d 1075, 1079 (Fed.Cir.1983) (‘‘The hypothetical negotiation is the date that key element in setting a reasonable royalty the infringement began. See Georgia–Pa- TTT is the necessity for return to the date cific, 318 F.Supp. at 1123. We have con- when the infringement began.’’)). sistently adhered to this principle. See, e.g., Applied Med. Res. Corp. v. U.S. Sur- [27–29] Here, there is no dispute that gical Corp., 435 F.3d 1356, 1363–64 (Fed. while QCI first became liable for active Cir.2006) (‘‘[T]he hypothetical negotiation inducement of infringement in August relates to the date of first infringement.’’); 2006, QCI’s sales of accused laptop com- State Indus., Inc. v. Mor–Flo Indus., Inc., puters into the United States began caus- 76 694 FEDERAL REPORTER, 3d SERIES ing the underlying direct infringement by we to permit a later notice date to serve as end users in 2003. From the premise that the hypothetical negotiation date, the dam- the hypothetical negotiation must focus on ages analysis would be skewed because, as the ‘‘date when the infringement began,’’ a legal construct, we seek to pin down how Hanson, 718 F.2d at 1079, we note that the prospective infringement might have active inducement of infringement is, by been avoided via an out-of-court business definition, conduct that causes and encour- solution. See Wordtech Sys. v. Integrated ages infringement. 35 U.S.C. § 271(b) Networks Solutions, Inc., 609 F.3d 1308, (‘‘Whoever actively induces infringement of 1319 (Fed.Cir.2010) (‘‘The hypothetical ne- a patent shall be liable as an infringer.’’). gotiation ‘attempts to ascertain the royalty While active inducement can ultimately upon which the parties would have agreed lead to direct infringement, absent direct had they successfully negotiated an agree- infringement there is no compensable ment just before infringement began,’ and harm to a patentee. See Aro Mfg. Co. v. ‘necessarily involves an element of approx- Convertible Top Replacement Co., 377 U.S. imation and uncertainty.’ ’’ (quoting Lu- 476, 500, 84 S.Ct. 1526, 12 L.Ed.2d 457 cent, 580 F.3d at 1324–25)). It also makes (1964) (‘‘It is true that a contributory in- sense that in each case there should be fringer is a species of joint-tortfeasor, who only a single hypothetical negotiation date, is held liable because he has contributed not separate dates for separate acts of with another to the causing of a single infringement, and that a direct infringer or harm to the plaintiff.’’). Thus, we hold someone who induced infringement should that in the context of active inducement of pay the same reasonable royalty based on infringement, a hypothetical negotiation is a single hypothetical negotiation analysis. deemed to take place on the date of the first direct infringement traceable to QCI’s Lastly, QCI points out that the accused first instance of inducement conduct—in ODDs were manufactured by QSI as early this case, 2003. as 2001, and urges us to deem 2001 the date of first infringement for the hypothet- Our holding is consistent with the pur- ical negotiation. However, it is QCI that pose of the hypothetical negotiation frame- is accused of active inducement here, and work, which seeks to discern the value of the record shows that QCI and QSI are the patented technology to the parties in related but independently operated compa- the marketplace when infringement began. nies, and that QCI does not own a control- In considering the fifteen Georgia–Pacific ling interest in QSI. Thus, there is no basis factors, it is presumed that the parties had on which to further push back the hypo- full knowledge of the facts and circum- thetical negotiation date to 2001. See stances surrounding the infringement at BMC Res., Inc. v. Paymentech, LP, 498 that time. Indeed, the basic question posed in a hypothetical negotiation is: if, F.3d 1373, 1380–82 (Fed.Cir.2007) (declin- on the eve of infringement, a willing li- ing to impute responsibility for allegedly censor and licensee had entered into an infringing conduct from one party to an- agreement instead of allowing infringe- other). ment of the patent to take place, what Because our decision alters the time pe- would that agreement be? This question riod when the analysis under Georgia– cannot be meaningfully answered unless Pacific is to take place, we remand for a we also presume knowledge of the patent new trial on damages pursuant to the 2003 and of the infringement at the time the hypothetical negotiation date with respect accused inducement conduct began. Were to those accused laptop computers not en- LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 77 Cite as 694 F.3d 51 (Fed. Cir. 2012) compassed by QCI’s implied license as dis- discount the probative value of the White cussed above. license with regard to a reasonable royalty’’); see also Hanson, 718 F.2d at 1078–79 F. The District Court Erred (observing that ‘‘license fees negotiated in in Admitting the BenQ the face of a threat of high litigation costs Settlement Agreement may be strongly influenced by a desire to [30] Before the second trial, QCI filed avoid full litigation’’ and ‘‘should not be a motion in limine seeking to exclude the considered evidence of an established roy- 2006 LaserDynamics–BenQ settlement alty’’ (quoting Panduit Corp. v. Stahlin agreement from evidence pursuant to Fed- Bros. Fibre Works, Inc., 575 F.2d 1152, eral Rule of Evidence 403. QCI’s motion 1164 n. 11 (6th Cir.1978) (Markey, J.))). emphasized the unique circumstances of The notion that license fees that are taint- the BenQ settlement, which was entered ed by the coercive environment of patent into on the eve of trial after BenQ had litigation are unsuitable to prove a reason- been repeatedly sanctioned by the district able royalty is a logical extension of Geor- court. We conclude that the district court gia–Pacific, the premise of which assumes abused its discretion in denying QCI’s mo- a voluntary agreement will be reached be- tion and allowing the agreement into evi- tween a willing licensor and a willing licen- dence. see, with validity and infringement of the patent not being disputed. See 318 Rule 403 provides for the exclusion of F.Supp. at 1120. otherwise relevant evidence when the probative value of that evidence is substantial- Despite the longstanding disapproval of ly outweighed by the danger of unfair relying on settlement agreements to estab- prejudice, confusing the issues, or mislead- lish reasonable royalty damages, we re- ing the jury. Along these lines, Federal cently permitted such reliance under cer- Rule of Evidence 408 specifically prohibits tain limited circumstances. See ResQNet, the admission of settlement offers and ne- 594 F.3d at 870–72 (explaining that a set- gotiations offered to prove the amount of tlement license to the patents-in-suit in a damages owed on a claim. The propriety running royalty form was ‘‘the most reli- of using prior settlement agreements to able license in [the] record’’ when com- prove the amount of a reasonable royalty pared with other licenses that did not is questionable. See, e.g., Rude v. West- ‘‘even mention[ ] the patents-in-suit or cott, 130 U.S. 152, 164, 9 S.Ct. 463, 32 show[ ] any other discernable link to the L.Ed. 888 (1889) (‘‘[A] payment of any sum claimed technology’’). We permitted con- in settlement of a claim for an alleged sideration of the settlement license on re- infringement cannot be taken as a stan- mand, but we cautioned the district court dard to measure the value of the improve- to consider the license in its proper context ments patented, in determining the dam- within the hypothetical negotiation frame- ages sustained by the owners of the patent work to ensure that the reasonable royalty in other cases of infringement.’’); Deere & rate reflects ‘‘the economic demand for the Co. v. Int’l Harvester Co., 710 F.2d 1551, claimed technology.’’ Id. at 872. 1557 (Fed.Cir.1983) (holding that ‘‘as the Unlike the license in ResQNet, the BenQ White license was negotiated against a settlement agreement is far from being the backdrop of continuing litigation and [de- ‘‘most reliable license in [the] record.’’ 594 fendant’s] infringement of the Schreiner F.3d at 872. Indeed, the BenQ settlement patent, the district court could properly agreement appears to be the least reliable 78 694 FEDERAL REPORTER, 3d SERIES license by a wide margin. The BenQ set- has very little relation to demonstrated tlement agreement was executed shortly economic demand for the patented technol- before a trial—a trial in which BenQ would ogy, and its probative value is greatly out- have been at a severe legal and procedural weighed by the risk of unfair prejudice, disadvantage given the numerous harsh confusion of the issues, and misleading the sanctions imposed on it by the district jury. Fed.R.Evid. 403. Accordingly, we court. The $6 million lump sum license conclude that the district court abused its fee is six times larger than the next high- discretion by admitting the BenQ settle- est amount paid for a license to the patent- ment agreement into evidence, and must in-suit, and ostensibly reflects not the val- exclude the agreement from the proceed- ue of the claimed invention but the strong ings on remand. desire to avoid further litigation under the circumstances. LaserDynamics executed G. The District Court Erred in Admit- twenty-nine licenses for the patent-in-suit ting Mr. Murtha’s Opinions Concerning in total, the vast majority of which are not a 6% Royalty Rate Per $41 ODD settlements of active litigation and do not Because we are remanding to the dis- involve the unique coercive circumstances trict court for a new trial on damages of the BenQ settlement agreement, and under the proper 2003 hypothetical negoti- which are therefore far more reliable indi- ation date, we do not reach QCI’s argu- cators of what willing parties would agree ment that the second jury verdict of an to in a hypothetical negotiation. Addition- $8.5 million lump sum lacks evidentiary ally, in light of the changing technological support, so as to entitle QCI to a $1.2 and financial landscape in the market for million judgment on damages as a matter ODDs, the BenQ settlement, entered into of law. However, for the purposes of re- a full three years after the hypothetical mand, we do reach QCI’s Daubert chal- negotiation date, is in many ways not rele- lenge to Mr. Murtha’s methodology in the vant to the hypothetical negotiation analy- second trial and find that the district court sis. See Odetics, Inc. v. Storage Tech. erred in allowing the jury to hear his Corp., 185 F.3d 1259, 1276–77 (Fed.Cir. testimony concerning a 6% royalty rate 1999) (agreeing with the district court that, derived from the Sony-made $41 ODDs. for two licenses entered into four and five years after the date of first infringement, 1. Mr. Murtha’s Use of the ‘‘the age of the license agreements, in the Sony–Made $41 ODDs context of the changing technology and ‘financial landscape’ at issue, made those QCI argues that Mr. Murtha’s testimony agreements irrelevant for the hypothetical in the second trial was unreliable for using negotiation analysis’’). This record stands a $41 per ODD value that was calculated in stark contrast to that in ResQNet, based on a relatively small sample of about where a lone settlement agreement stood 9,000 non-infringing drives made by Sony, apart from all other licenses in the record not by QSI. QCI Br. at 69–70. We dis- as being uniquely relevant and reliable. agree. This case is therefore well outside the LaserDynamics contends that the $41 limited scope of circumstances under price of the Sony ODDs was more appro- which we deemed the settlement agree- priate than the $28 mask price used in the ment in ResQNet admissible and proba- first trial with respect to QSI-made ODDs. tive. The probative value of the BenQ According to LaserDynamics, since QCI settlement agreement is dubious in that it does not track prices and revenues of the LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 79 Cite as 694 F.3d 51 (Fed. Cir. 2012)

ODDs that it buys to incorporate into lap- clearly reflect the economic value of the top computers, and does not generally sell patented technology in the marketplace. stand alone ODDs, the $41 Sony-made See ResQNet, 594 F.3d at 869 (‘‘[T]he trial drives that QCI sells as replacement parts court must carefully tie proof of damages better reflect the market value for ODDs to the claimed invention’s footprint in the independent of the completed laptop com- market place.’’). puters. QCI counters that the $41 price When relying on licenses to prove a was unreliable because it was based on a reasonable royalty, alleging a loose or small sample size of licensed and therefore vague comparability between different non-infringing drives, which is irrelevant technologies or licenses does not suffice. to the price of the accused drives, and because the record shows that the $28 For example, in Lucent, where the paten- mask price of the accused QSI-made tee had relied on various licenses in the drives is always higher than the price to same general computer field without prov- the consumer. ing a relationship to the patented technology or the accused infringing products, we [31] As the district court explained, insisted that the ‘‘licenses relied upon by ‘‘[Mr. Murtha’s] approach appears to be a the patentee in proving damages [be] suffi- reasonable attempt to value [QCI’s] drives ciently comparable to the hypothetical li- based on arms-length transactions. Al- cense at issue in suit,’’ and noted that the though the jury may ultimately determine patentee’s failure to prove comparability that [Mr. Murtha’s] approach is unreason- ‘‘weighs strongly against the jury’s award’’ able, the approach is not subject to a Dau- relying on the non-comparable licenses. bert challenge.’’ LaserDynamics, No. 580 F.3d at 1325, 1332. 2:06–cv–348–TJW–CE (E.D.Tex. Jan. 21, 2011). We conclude that the district court Likewise, in ResQNet, the patentee’s ex- did not abuse its discretion in declining to pert ‘‘used licenses with no relationship to exclude Mr. Murtha’s use of the $41 Sony- the claimed invention to drive the royalty made ODDs on Daubert grounds. rate up to unjustified double-digit levels,’’ and which had no ‘‘other discernible link to 2. Mr. Murtha’s 6% Royalty the claimed technology.’’ 594 F.3d at 870. Rate Per ODD We rejected this testimony, holding that QCI contends that Mr. Murtha’s opinion the district court ‘‘must consider licenses that a reasonable royalty in this case that are commensurate with what the de- would be 6% of each ODD sold within a fendant has appropriated. If not, a pre- laptop computer by QCI was unreliable vailing plaintiff would be free to inflate the under Federal Rule of Evidence 702 and reasonable royalty analysis with conve- should have been excluded. We agree. niently selected licenses without an economic or other link to the technology in The first of the fifteen factors in Geor- question.’’ Id. at 872. On remand, we gia–Pacific is ‘‘the royalties received by directed that unrelated licenses could not the patentee for the licensing of the patent be relied on to increase the reasonable in suit, proving or tending to prove an royalty rate above rates that are more established royalty.’’ 318 F.Supp. at 1120. clearly linked to the economic demand for Actual licenses to the patented technology the claimed technology. Id. at 872–73. are highly probative as to what constitutes a reasonable royalty for those patent Actual licenses to the patents-in-suit are rights because such actual licenses most probative not only of the proper amount of 80 694 FEDERAL REPORTER, 3d SERIES

a reasonable royalty, but also of the proper was absent. The DVD-related patent li- form of the royalty structure. In Word- censing programs did not involve the 8981 tech Systems, the patentee relied on thir- Patent, and no evidence shows that it even teen patent licenses that it previously involves a disc discrimination method. granted to third parties. 609 F.3d at 1319. A652. The 1997 licensing survey was even We rejected the patentee’s reliance on further removed from the patented tech- eleven of the thirteen licenses for being in nology, since it was not even limited to any the form of a running royalty (whereas the particular industry, but ‘‘was across what- patentee had sought a lump sum payment) ever technologies were being licensed by and for including royalty rates far lower the people who responded.’’ A653–54. than the jury returned. Id. at 1320–21. Like the licenses we rejected in ResQNet, The remaining two licenses, although in this licensing evidence relied upon by Mr. the form of lump sums, were also rejected Murtha ‘‘simply [has] no place in this for not describing how the lump sums case.’’ 594 F.3d at 871. Relying on this were calculated or the type and volume of irrelevant evidence to the exclusion of the products intended to be covered by the many licenses expressly for the 8981 Pat- licenses. Id. at 1320. We ultimately re- ent served no purpose other than to ‘‘to versed the $250,000 verdict and remanded increase the reasonable royalty rate above for a new trial on damages because ‘‘the rates more clearly linked to the economic verdict was clearly not supported by the demand for the claimed technology.’’ Id. evidence and based only on speculation or at 872–73. guesswork.’’ Id. at 1319–22 (citation and internal quotation marks omitted). Aside from the BenQ settlement agree- [32] In this case, the district court de- ment discussed above, the licenses to the nied QCI’s Daubert motion and permitted patents-in-suit were all for lumps sum Mr. Murtha to testify concerning his opin- amounts not exceeding $1 million. Mr. ion of a 6% running royalty rate during the Murtha’s 6% running royalty theory can- second trial. However, the district court not be reconciled with the actual licensing insisted that LaserDynamics prove that evidence, which is highly probative of the two DVD-related patent licensing pro- patented invention’s economic value in the grams and the 1997 Licensing Executives marketplace, and of the form that a hypo- Survey relied on by Mr. Murtha (to the thetical license agreement would likely exclusion of the many past licenses for the have taken. Although Mr. Murtha con- 8981 patent) were sufficiently comparable ceded that QCI would be aware of Laser- to the hypothetically negotiated license Dynamics’ prior licenses in the hypotheti- Mr. Murtha proffered. LaserDynamics, cal negotiation, he dismissed the probative 2011 WL 7563818, at *2–*4, 2011 U.S. value of the licenses because they were Dist. LEXIS 42590, at *8–*11. entered into between 1998 and 2003, be- The district court correctly recognized fore the August 2006 hypothetical negotia- that LaserDynamics’ reliance on the two tion date. Mr. Murtha reasoned that, by DVD-related patent licensing programs 2006, the DVD market was larger and and the 1997 Licensing Executives Survey more established such that the value of the was problematic, but its ruling erroneously patented technology was better appreciat- permitted continued reliance on this evi- ed and LaserDynamics had more bargain- dence where comparability between it and ing power to insist on a running royalty. a hypothetical license to the 8981 Patent Thus, in his view, LaserDynamics’ past LASERDYNAMICS, INC. v. QUANTA COMPUTER, INC. 81 Cite as 694 F.3d 51 (Fed. Cir. 2012) licenses could not reflect an appropriate Uniloc, 632 F.3d at 1318; ResQNet, 594 royalty for QCI in 2006. F.3d at 873. A new trial is required be- This reasoning is not supported by the cause the jury’s verdict was based on an record, however, which undisputedly shows expert opinion that finds no support in the that by around 2000, the DVDs and ODD facts in the record. See Wordtech, 609 markets were already experiencing tre- F.3d at 1319–22 (prohibiting jury verdicts mendous growth such that by 2003 those to stand if they are ‘‘clearly not supported markets were highly saturated. LaserDy- by the evidence’’ or ‘‘based only on specu- namics Br. at 8–9 (‘‘The landscape for the lation or guesswork’’ (citation omitted)); acceptance of the DVD format began to see also Brooke Group Ltd. v. Brown & change in about 2000. In a relatively Williamson Tobacco Corp., 509 U.S. 209, short time span, from around 2001 to 2002, 242, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993) video rental stores transitioned their en- (‘‘When an expert opinion is not supported tire stock from VHS tapes to DVDs. By by sufficient facts to validate it in the eyes 2003, nearly every home had a DVD play- of the law, or when indisputable record er, and nearly every computer had a DVD facts contradict or otherwise render the drive.’’ (citations omitted)); QCI Br. at 64 opinion unreasonable, it cannot support a (‘‘The increase in demand for optical disc jury’s verdict.’’). On remand, LaserDy- drives was fully anticipated by the indus- namics may not again present its 6% run- try in 2000, before many of the prior li- ning royalty damages theory. cense agreements were entered into.’’). As a final matter, we do not hold that Most of the early lump sum licenses that LaserDynamics’ past licenses create an ab- were summarily rejected by Mr. Murtha solute ceiling on the amount of damages to were thus entered into when the value of which it may be entitled, see 35 U.S.C. the patented technology was readily ap- § 284, or that its history of lump sum parent and demand was already projected licenses precludes LaserDynamics from to greatly increase. The resetting of the obtaining damages in the form of a run- hypothetical negotiation date to 2003, the ning royalty. Full consideration of all the date of first direct infringement induced Georgia–Pacific factors might well justify by QCI’s conduct, further undercuts Mr. a departure from the amount or even the Murtha’s reasoning that the licenses to the form of LaserDynamics’ past licensing 8981 patent from the 1997 to 2001 time practices, given the appropriate evidence frame were too early to be probative. and reasoning. That the Licensing Executives Survey relied upon by Mr. Murtha—which has no IV. Conclusion meaningful ties to the patented technolo- For the foregoing reasons, we affirm-in- gy—was created in 1997 highlights the part and reverse-in-part the district court’s inconsistency in Mr. Murtha’s selective judgment. We remand for further pro- reasoning. Such strained reasoning is un- ceedings regarding the damages owed by reliable and cannot be used to ignore Las- QCI pertaining to the infringing ODDs not erDynamics’ long history of licensing the purchased by QCI via Philips and 8981 Patent. Sony/NEC/Optiarc, and for which QCI In sum, the 6% royalty rate was unteth- does not have an implied license to the ered from the patented technology at issue 8981 Patent. On remand, the hypothetical and the many licenses thereto and, as negotiation date shall be set in 2003, the such, was arbitrary and speculative. See BenQ settlement agreement shall not be 82 694 FEDERAL REPORTER, 3d SERIES admitted into evidence or relied upon at Holding: The Court of Appeals, Plager, trial, and LaserDynamics shall not again Circuit Judge, held that antidumping duty present its 6% running royalty damages order was not ambiguous as to SSPC hav- theory. ing nominal thickness of 4.75 mm but actu- AFFIRMED–IN–PART, REVERSED– al thickness of less than 4.75 mm. IN–PART, and REMANDED. Reversed.

Costs No Costs. 1. Customs Duties O85(3) Court of Appeals reviews decisions of the Court of International Trade evaluat- , ing Department of Commerce’s (DOC) antidumping determinations by reapplying the standard that the Court of Internation- al Trade applied in reviewing the adminis-

trative record. Tariff Act of 1930, § 516A(b)(1)(B)(i), 19 U.S.C.A. ARCELORMITTAL STAINLESS BEL- § 1516a(b)(1)(B)(i). GIUM N.V. (now known as Aperam Stainless Belgium N.V.), Plaintiff–Ap- 2. Customs Duties O21.5(5) pellant, First step in a proceeding challenging v. scope of antidumping duty order is to de- UNITED STATES, Defendant–Appellee, termine whether the order’s governing language is in fact ambiguous, and thus re- and quires analysis of regulatory factors; if it is Allegheny Ludlum Corporation, not ambiguous, the plain meaning of the Defendant–Appellee. language governs. Tariff Act of 1930, § 731, 19 U.S.C.A. § 1673. No. 2011–1578. 3. Customs Duties O21.5(5) United States Court of Appeals, Federal Circuit. Department of Commerce (DOC) antidumping duty order on certain stainless Sept. 7, 2012. steel plate in coils (SSPC), providing that Background: Belgian producer of stain- products subject to order were those that less steel plate in coils (SSPC) brought were ‘‘4.75 mm or more in thickness,’’ was action against United States, challenging not ambiguous as to SSPC having nominal scope of Department of Commerce’s thickness of 4.75 mm but actual thickness (DOC) antidumping duty order on SSPC of less than 4.75 mm, and thus consider- that was 4.75 millimeters (mm) or more in ation of industry custom was not warrant- thickness. The United States Court of In- ed in Belgian SSPC producer’s challenge ternational Trade, Richard K. Eaton, J., to scope of order, since DOC had previous- 2011 WL 2713872, affirmed DOC’s deter- ly determined that 4.75 mm in thickness mination that order encompassed SSPC was actual measurement excluding from having nominal thickness of 4.75 mm but its scope merchandise with actual thick- actual thickness of less than 4.75 mm, and ness of less than 4.75 mm. Tariff Act of producer appealed. 1930, §§ 731, 732(b, c), 735, 736, 19