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Monetary Damages Adequately Compensate Patentee When There Have Been Extensive Licensing Efforts, Solicitation of Infringer over a Long Period of Time, and No Direct Competition with Infringer

August 24, 2012

Decision icon Decision

Last Month at the Federal Circuit - September 2012

Judges: Bryson, Dyk, Moore (author)

[Appealed from: E.D. Va., Judge Jackson]

In ActiveVideo Networks, Inc. v. Verizon Communications, Inc., Nos. 11-1538, -1567, 12-1129, -1201 (Fed. Cir. Aug. 24, 2012), the Federal Circuit affirmed-in-part and reversed-in-part a decision of the district court that Verizon Communications, Inc. (“Verizon”) infringed four of ActiveVideo Networks, Inc.’s (“ActiveVideo”) patents. The Court also affirmed the district court’s $115M damages award to ActiveVideo, but reversed the district court’s permanent injunction against Verizon.

The technology-at-issue relates to video on demand (“VoD”) services. ActiveVideo filed suit against Verizon claiming that Verizon’s FiOS-TV system infringed U.S. Patent Nos. 5,550,578 (“the ’578 patent”); 6,205,582 (“the ’582 patent”); 6,034,678 (“the ’678 patent”); and 6,100,883 (“the ’883 patent”). The ActiveVideo patents generally claim VoD systems with (1) a headend processing center for providing VoD information to subscribers; (2) home interface controllers connected to subscriber televisions that send, receive, and display information from the headend; and (3) a communication network between the headend and the home interface controllers. Verizon asserted counterclaims that ActiveVideo infringed U.S. Patent Nos. 6,169,542 (“the ’542 patent”); 7,561,214 (“the ’214 patent”); and 6,381,748 (“the ’748 patent”). The three Verizon patents generally disclose systems and methods related to interactive television features, including Internet access, two-dimensional channel navigation, and advertising. ActiveVideo licenses its VoD patents to Cablevision but does not directly compete with Verizon as it does not offer VoD services directly to subscribers.

Prior to a jury trial, the district court determined that all of ActiveVideo’s asserted patents were not invalid, Verizon’s ’542 and ’214 patents were not invalid, and Verizon’s ’748 patent was invalid. After a three-week trial, a jury determined that (1) Verizon infringed all four of ActiveVideo’s asserted patents; (2) ActiveVideo infringed Verizon’s ’542 and ’214 patents; (3) ActiveVideo was to receive $115M in damages; and (4) Verizon was to receive $16K in damages. Following the jury verdict, the district court entered a permanent injunction against Verizon and established a sunset royalty for Verizon’s continued infringement until the injunction was to take effect.

On appeal, with respect to the “information service” limitation, the Federal Circuit held that the evidence supported a finding of infringement because Verizon’s FiOS-TV set-top-boxes (“STBs”) allowed users to request information from a headend processor and interact with data received from the headend processor. Also, the Federal Circuit held that the FiOS-TV STBs embodied the “television communication” limitation because Verizon’s proprietary video format could be converted to a video format (MPEG) contemplated by the specification of the ’578 patent. As to the “individually assignable processors” limitation of the ’582 patent, the Court held that Verizon’s FiOS-TV did not embody the limitation because each FiOS-TV headend processor is able to communicate with multiple STBs and, therefore, FiOS-TV has no capability to individually assign a single headend processor to a single STB.

Turning next to ActiveVideo’s appeal of the district court’s infringement findings, the Federal Circuit considered whether the district court failed to properly construe the “superimposing” limitation of Verizon’s ’214 patent and the “video still image” of Verizon’s ’542 patent. The Court held that the district court’s constructions of the two terms were consistent with their plain meanings and that ActiveVideo’s proposed, alternative constructions erroneously read limitations into the claims. Accordingly, the Court upheld the district court’s infringement determination.

After reviewing the district court’s infringement determinations, the Court turned its attention to invalidity. First, the Court held that there was insufficient evidence to determine that the ActiveVideo patents were invalid because the testimony of Verizon’s expert was conclusory: he failed to explain how specific references could be combined, which combinations of elements in specific references would yield a predictable result, how any specific combinations would operate or read on the asserted claims, and how the prior art references taught or suggested several elements of the asserted claims.

Second, the Court affirmed the district court’s determination that Verizon’s ’214 and ’542 patents were not invalid because ActiveVideo’s prior art with respect to the ’214 patent failed to disclose limitations of the patent and ActiveVideo’s prior art with respect to the ’542 patent was not enabling. Third, the Federal Circuit reversed the district court’s determination on SJ that Verizon’s ’748 patent was invalid because the jury should have determined whether the prior art presented by ActiveVideo disclosed the
HTML-transforming elements of the ’748 patent’s claims.

Next, the Federal Circuit turned its attention to Verizon’s appeal of the $115M damages verdict. The Federal Circuit held that it was not an abuse of discretion for the district court to prevent Verizon’s damages expert from relying on a licensing agreement that postdated the hypothetical negotiation to determine damages by four years. In addition, although Verizon also argued that the testimony of ActiveVideo’s damages expert should have been excluded because the agreements relied upon by the expert were not solely directed to the patents-in-suit, the Court held that the testimony was admissible because the quality of the expert’s calculations spoke to the weight the district court gave to the expert’s testimony, not its admissibility. Finally, although ActiveVideo did not mark its products with the
patents-in-suit, the Court held ActiveVideo was entitled to presuit damages for the ’678 patent because the ’678 patent contained only method claims and marking is not required for patents that only contain method claims.

In addition to having to pay damages, the district court permanently enjoined Verizon from further infringement. The Federal Circuit, however, determined that it was an abuse of discretion to grant the permanent injunction. First, the Court determined that ActiveVideo did not suffer irreparable harm because ActiveVideo extensively licensed its VoD technology and attempted to license it to Verizon presuit. Thus, ActiveVideo’s loses were clearly quantifiable and damages would adequately compensate ActiveVideo for Verizon’s infringement. The Federal Circuit also held that the district court erred by including litigation costs in the irreparable harm calculus.

Second, the Court determined that there was no evidence to support an inadequate remedy at law because, among other things, ActiveVideo and Verizon do not directly compete. Third, the Court determined that the balance of hardships did not weigh in ActiveVideo’s favor because one month of royalty payments from Verizon was equal to 70% of the total revenue ActiveVideo had generated during its entire twenty-three-year history. Thus, ActiveVideo would not be suffering great hardship absent an injunction. Finally, the Court held that while there is public interest in enforcing patent rights, that alone is not enough to permanently enjoin Verizon.

Finally, the Court found no error in the district court’s sunset royalty calculation. The Court rejected Verizon’s suggestion that it should pay the same rate as other licensees of ActiveVideo because after ActiveVideo’s patents were held not invalid and infringed by Verizon, ActiveVideo was in a much better bargaining position with Verizon than it had been with other licensees. Although the Court vacated the district court’s injunction, it saw no error in its postverdict royalty calculation and added that on remand, the district court should determine an appropriate ongoing royalty using a similar analysis.

Summary authored by Andrew G. Strickland, Esq.