Court May Exclude Evidence of Licensing Revenue Despite Potential Impact on Obviousness

Authored by D. Brian Kacedon, Michael Kudravetz, and John C. Paul

Abstract

A California district court recently rejected a patent owner's argument that it improperly excluded as objective evidence of non-obviousness, the dollar value of a prior license covering the patent-in-suit because it could skew the jury's perception of a reasonable royalty. After the jury found the patented invention obvious, the patent owner argued that shielding the jury from the specific amount of licensing revenue precluded it from considering crucial evidence of non-obviousness. The court disagreed, explaining that no cited authority required disclosure of the actual dollar amount and further that the jury did in fact hear testimony regarding the value of the license, albeit not the precise dollar amount.

Accused infringers often challenge the validity of patents on the basis that the patented inventions would have been obvious to a person having ordinary skill in the art at the time the inventions were made. Patent owners often counter obviousness arguments with evidence of the greatness and success of the patented inventions, known as “secondary considerations” of non-obviousness. One such piece of evidence concerns licensing of the asserted patent. Licensing the patent, particularly for substantial consideration, suggests acquiescence in the industry to the patent's validity, and the revenue generated speaks to the commercial success of the invention.

Patent owners are therefore incentivized to present dollar-value evidence of licensing revenue to support non-obviousness. Recently, however, in Digital Reg of Texas, LLC v. Adobe Systems, Inc.,¹ the U.S. District Court for the Northern District of California precluded the patent owner from presenting such evidence over concerns of skewing the jury's perception of a proper reasonable royalty. The patent owner later challenged the jury's obviousness finding on the basis that the jury never had an opportunity to fully consider its objective evidence of non-obviousness. In rejecting the patent owner's argument, the court addressed whether the jury was permitted to appropriately consider the patent owner's licensing revenue in finding the patent invalid for obviousness.

Background

Plaintiff Digital Reg sued Adobe alleging infringement of U.S. Patent Nos. 6,389,541 (the '541 patent) and 6,751,670 (the '670 patent). Digital Reg desired to present the jury with a multi-million dollar license of the '541 patent to patent aggregator RPX as evidence of non-obviousness. According to Digital Reg, RPX paid millions of dollars to obtain a license to the '541 patent in order to sublicense its sole member Apple. Because the circumstances surrounding the RPX license were “vastly different” from those of license agreements of record, the court found that evidence of the exact dollar amount of the RPX license would skew the jury's perception of reasonable royalty damages. Thus, the court permitted Digital Reg to describe only “the circumstances of the RPX license, but not the actual amount.” Hence, at trial, the jury was shielded from the actual dollar amount of the RPX license, but nonetheless heard testimony that it was “much, much higher” in value than the other license agreements in evidence.

After the jury found certain claims of the '541 patent invalid for obviousness, Digital Reg sought to overturn the findings, arguing that the jury never had the opportunity to fully consider the substantial value of the RPX license as evidence of non-obviousness. The absence of such evidence, Digital Reg contended, allowed Adobe to downplay the significance of the license. According to Digital Reg, the jury's obviousness finding should be overturned as a matter of law because had the jury considered the dollar amount of the license, it would have found the '541 patent valid. Alternatively, Digital Reg argued that a new trial was warranted.

The Court's Decision

Although the court agreed that a multi-million-dollar license agreement may be evidence of non-obviousness, it rejected Digital Reg's arguments for judgment as a matter of law or alternatively for a new trial. According to the court, the testimony that the RPX license was “much, much higher” in value than the other license agreements in evidence permitted the jury to sufficiently consider the RPX license without prejudicing Adobe by disclosing the actual dollar value. Digital Reg, the court noted, offered no reason to believe that the jury failed to consider that information and provided no authority requiring disclosure to the jury of the precise dollar amount of the RPX license.

Additionally, the court found that the jury heard evidence sufficient to support its obviousness finding and noted in particular that secondary considerations do not always overcome a strong obviousness case.

Strategy and Conclusion

This case shows that while evidence of licensing revenue generated by an asserted patent constitutes objective evidence of non-obviousness, a patent owner is not always permitted to present specific dollar amounts to the jury. Further, in such circumstances, shielding the jury from the precise dollar value of a license might not undermine a finding of obviousness, particularly if the jury is provided with a description or general characterization of the license.

Endnotes

¹ The Digital Reg v. Adobe decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2015/DigitalReg_v_AdobeSystems.pdf.