LASERDYNAMICS, INC. v. QUANTA COMPUTER, … INC. v. QUANTA COMPUTER, INC

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

the Board’s conclusion that the iAPXmemory module reads directly on the 8918Patent’s memory device.

III. CONCLUSION

For the foregoing reasons, this courtaffirms the Board’s rejection of claim 18 ofthe 8918 Patent as anticipated by the iAPXManual.

AFFIRMED

,

LASERDYNAMICS, INC.,Plaintiff–Appellant,

v.

QUANTA COMPUTER, INC.,Defendant–Cross

Appellant,

and

Quanta Computer USA, Inc., QuantaStorage, Inc., and Quanta Storage

America, Inc., Defendants.

Nos. 2011–1440, 2011–1470.

United States Court of Appeals,Federal Circuit.

Aug. 30, 2012.

Background: Patentee brought actionagainst manufacturer of optical disc drives(ODDs) and related assembler of laptopcomputers, alleging active inducement ofinfringement of patent for optical disc dis-crimination method that enabled ODD toidentify automatically the type of opticaldisc inserted into ODD. The United StatesDistrict Court for the Eastern District ofTexas, T. John Ward, J., 2009 WL3763444, granted in part defendants’ mo-

tion for summary judgment on issues ofpatent exhaustion and implied license, and,after conducting trial and granting assem-bler’s motions for new trial on damagesissues, 2010 WL 2331311, and to excludecertain expert testimony, 2011 WL7563818, entered judgment on jury verdictawarding patentee $8,500,000, and then de-nied assembler’s motion for judgment as amatter of law. Parties cross-appealed.

Holdings: The Court of Appeals, Reyna,Circuit Judge, held that:

(1) patentee could not use entire marketvalue rule to establish reasonable roy-alty damages against assembler;

(2) assembler had implied license to patentwith respect to ODDs that were madeby manufacturer to fulfill bona fideorders from licensees and then sold toassembler by licensees;

(3) issue of whether end users of accusedlaptop computers directly infringedclaim of patent was for jury;

(4) erroneous instruction was not plain er-ror warranting new trial;

(5) date for hypothetical negotiation of li-cense to be used in determining rea-sonable royalty damages was date onwhich sales of accused laptop comput-ers into United States began causingunderlying direct infringement by endusers;

(6) probative value of evidence pertainingto settlement in another case was sub-stantially outweighed by danger of un-fair prejudice, confusion of issues, andmisleading jury; and

(7) expert’s opinion that reasonable royal-ty would be six percent of each ODDsold within laptop computer by assem-bler was arbitrary and speculative,warranting new trial on damages.

Affirmed in part, reversed in part, andremanded.

52 694 FEDERAL REPORTER, 3d SERIES

1. Courts O96(7)For issues not unique to patent law,

Court of Appeals for the Federal Circuitapplies the law of the regional circuitwhere appeal in patent infringement casewould otherwise lie.

2. Federal Courts O827Under the law of the Fifth Circuit

Court of Appeals, grant or denial of amotion for a remittitur or a new trial isreviewed for an abuse of discretion.

3. Federal Courts O823Evidentiary rulings are reviewed for

an abuse of discretion under the law of theFifth Circuit Court of Appeals.

4. Federal Courts O776Decisions on motions for summary

judgment and for judgment as a matter oflaw are reviewed de novo under the law ofthe Fifth Circuit Court of Appeals.

5. Patents O318(4.1)Where small elements of multi-compo-

nent products are accused of infringement,calculating a royalty on the entire productcarries a considerable risk that the paten-tee will be improperly compensated fornon-infringing components of that product,and it is therefore generally required thatroyalties be based not on the entire prod-uct, but instead on the smallest salablepatent-practicing unit. 35 U.S.C.A. § 284.

6. Patents O318(4.1)If it can be shown that patented fea-

ture drives demand for entire multi-com-ponent product, patentee may be awardeddamages as a percentage of revenues orprofits attributable to entire product under‘‘entire market value rule,’’ which is nar-row exception to general rule that wheresmall elements of multi-component prod-ucts are accused of infringement, reason-able royalty damages should be based onsmallest salable patent-practicing unit,

rather than entire product. 35 U.S.C.A.§ 284.

See publication Words and Phras-es for other judicial constructionsand definitions.

7. Patents O318(4.1)

‘‘Entire market value rule’’ allows forrecovery of reasonable royalty damages inpatent infringement action based on valueof entire apparatus containing several fea-tures, where feature patented is the basisfor customer demand. 35 U.S.C.A. § 284.

8. Damages O184

A damages theory must be based onsound economic and factual predicates.

9. Patents O318(4.5)

Patentee of patent for optical disc dis-crimination method that enabled opticaldisc drive (ODD) to identify automaticallythe type of optical disc inserted into ODDdid not show that patented method drovedemand for laptop computers, precludingpatentee’s use of entire market value ruleto establish reasonable royalty damagesagainst laptop assembler for active induce-ment of infringement; there was no evi-dence that patented feature alone motivat-ed consumers to buy laptop computers,such that value of entire computer couldbe attributed to patented feature, and, in-stead, patentee showed only that consum-ers would be hesitant to buy computerswithout patented feature. 35 U.S.C.A.§ 284.

10. Patents O312(2)

Lack of economic analysis quantita-tively supporting expert’s one-third ap-portionment of proposed royalty rate, inaction alleging active inducement of in-fringement of patent for optical disc dis-crimination method that enabled opticaldisc drive (ODD) to identify automaticallythe type of optical disc inserted intoODD, alone justified exclusion of expert’s


opinions at trial; rate appeared to havebeen plucked out of thin air, based onvague qualitative notions of relative im-portance of ODD technology to laptopcomputers assembled and sold by allegedinfringer. 35 U.S.C.A. § 284.

11. Patents O318(4.5)

Per-unit running royalty was not theonly form of reasonable royalty to whichpatentee and laptop computer assemblercould have agreed, in hypothetical negotia-tion to license patent for optical disc dis-crimination method that enabled opticaldisc drive (ODD) to identify automaticallytype of optical disc inserted into ODD, andtherefore patentee, in its action for allegedactive inducement of infringement, was notcompelled to base reasonable royalty onprice of entire laptop computer pursuantto entire market value rule; patentee’s li-cense agreements for lump-sum royaltieswere not calculated as percentage of anycomponent or product, and assembler’spurported lack of internal tracking andaccounting of individual components and‘‘mask price’’ purchases did not preventpatentee from obtaining accurate informa-tion about ODD values from third parties,industry practices, and the like. 35U.S.C.A. § 284.

12. Patents O323.3

Under the law of the Fifth CircuitCourt of Appeals, ostensible waiver by al-leged infringer of challenge to patentee’suse of entire market value rule to establishreasonable royalty damages, including anychallenge to testimony of patentee’s experton such theory, did not preclude districtcourt from exercising its discretion, in in-fringement action, to consider issue in de-ciding alleged infringer’s post-verdict mo-tion for remittitur or new trial on issue ofdamages. 35 U.S.C.A. § 284.

13. Patents O323.3Under the law of the Fifth Circuit

Court of Appeals, identifying and correct-ing its error in permitting patentee’s theo-ry of reasonable royalty damages, whichrelied upon entire market value rule, to goto jury in action for active inducement ofinfringement of patent for optical disc dis-crimination method that enabled opticaldisc drive (ODD) to identify automaticallytype of optical disc inserted into ODD, bygranting alleged infringer’s post-trial mo-tion for remittitur or new trial, was notabuse of district court’s discretion, even ifdistrict court could have deemed waived,and ignored, alleged infringer’s argumentsregarding entire market value rule. 35U.S.C.A. § 284.

14. Patents O324.5Existence vel non of an implied patent

license is a question of law that is reviewedde novo.

15. Patents O210Laptop computer assembler had im-

plied license to patent for optical disc dis-crimination method that enabled opticaldisc drive (ODD) to identify automaticallythe type of optical disc inserted into ODDwith respect to ODDs that were made byrelated manufacturer to fulfill bona fideorders from patent licensees and then soldto assembler by those licensees; manufac-ture of ODDs and their eventual sale toassembler for incorporation into laptopcomputers, all via licensees and valid exer-cises of licensees’ ‘‘have made’’ and ‘‘sell’’rights, were legitimate and separate busi-ness transactions that did not expand orcircumvent licenses.

16. Patents O314(5)Issue of whether, under district

court’s claim constructions, end users ofaccused laptop computers directly infring-ed claim of patent for optical disc discrimi-nation method that enabled optical disc


drive (ODD) to identify automatically thetype of optical disc inserted into ODD wasfor jury in action against laptop assemblerfor active inducement of patent infringe-ment.

17. Federal Courts O630.1Plain error standard of review applied

on appeal to challenge to jury instructionto which no objection was raised at trial.

18. Federal Courts O611Plain error is ‘‘clear’’ or ‘‘obvious’’ and

must affect substantial rights, and is re-versible only if it seriously affects the fair-ness, integrity, or public reputation of judi-cial proceedings.

19. Federal Civil Procedure O1951.7 Witnesses O246(2)

Although a district court is affordedbroad discretion over the manner in whichtrial is conducted, and may intervene tohelp expand upon or clarify witness testi-mony and evidence, such intervention maynot come at the cost of strict impartiality.

20. Federal Courts O906In reviewing a claim that the district

court appeared partial, Court of Appealsmust determine whether the judge’s be-havior was so prejudicial that it denieddefendant a fair, as opposed to a perfect,trial, and, in performing its review, Courtof Appeals must consider the districtcourt’s actions in light of the entire trialrecord and consider the totality of thecircumstances.

21. Patents O314(1)Potential inconsistency in representa-

tions by assembler of laptop computersregarding frequency with which its pur-chases of optical disc drives (ODDs) forincorporation into computers were madevia buy/sell arrangements did not warrantinstruction that jury could take into ac-count instruction pointing out potential in-

consistency and raising associated ques-tions of credibility in judging credibility ofall other positions taken by assembler, inpatentee’s action alleging assembler’s ac-tive inducement to infringe patent for opti-cal disc discrimination method that en-abled ODD to identify automatically typeof optical disc inserted into ODD.

22. Patents O323.3Instruction in patentee’s action alleg-

ing active inducement to infringe patentfor optical disc discrimination method thatenabled optical disc drive (ODD) to identi-fy automatically type of optical disc insert-ed into ODD, which erroneously allowedjury to take into account potential inconsis-tency in representations by laptop comput-er assembler regarding frequency withwhich its purchases of ODDs for incorpo-ration into computers were made via buy/sell arrangements in judging credibility ofall other positions taken by assembler incase, was not plain error warranting newtrial; assembler was given second trial onissue of damages, which cured any preju-dice that instruction might have caused inthat regard, and instruction, when viewedin context, was not so severe as to preventassembler from receiving fair trial on lia-bility issue.

23. Patents O319(1)In general, hypothetical negotiation

date to determine reasonable royalty dam-ages in patent infringement action, basedon what willing licensor and licensee wouldbargain for, is the date on which infringe-ment began. 35 U.S.C.A. § 284.

24. Patents O289(1), 319(1)Six-year limitation on recovery of past

damages for patent infringement does notpreclude hypothetical negotiation dateused to determine reasonable royalty dam-ages, based on what willing licensor andlicensee would bargain for, from beingdate on which infringement began, even if


damages cannot be collected until sometime later. 35 U.S.C.A. §§ 284, 286.

25. Patents O319(1)

Failure to mark patented product orprove actual notice of patent pursuant tostatute precludes recovery of damages pri-or to marking or notice date, but does notprevent hypothetical negotiation date usedto determine reasonable royalty damages,based on what willing licensor and licenseewould bargain for, from being set beforemarking or notice occurs. 35 U.S.C.A.§§ 284, 287.

26. Patents O319(1)Reasonable royalty determination, for

purposes of making damages evaluation inpatent infringement action, must relate tothe time that infringement occurred, andnot be an after-the-fact assessment. 35U.S.C.A. § 284.

27. Patents O259(1)Although active inducement can ulti-

mately lead to direct infringement of pat-ent, absent direct infringement there is nocompensable harm to a patentee. 35U.S.C.A. § 271(b).

28. Patents O319(1)In determining reasonable royalty

damages in case of alleged active induce-ment of patent infringement, based onwhat willing licensor and licensee wouldbargain for, hypothetical negotiation of li-cense is deemed to take place on date offirst direct infringement traceable to al-leged infringer’s first instance of induce-ment conduct. 35 U.S.C.A. §§ 271(b), 284.

29. Patents O319(1)Date for hypothetical negotiation of

license to be used in determining reason-able royalty damages for active infringe-ment of patent for optical disc discrimina-tion method that enabled optical disc drive(ODD) to identify automatically the type of

optical disc inserted into ODD sales bylaptop assembler was date on which salesof accused laptop computers into UnitedStates began causing underlying direct in-fringement by end users. 35 U.S.C.A.§§ 271(b), 284.

30. Evidence O146, 219(3)

Probative value of evidence of settle-ment agreement in another infringementaction by patentee, into which parties en-tered on eve of trial, after alleged infringerhad been sanctioned repeatedly by court,was substantially outweighed by danger ofunfair prejudice, confusion of issues, andmisleading jury with respect to issue ofreasonable royalty damages in action alleg-ing active inducement of infringement byassembler of laptop computers; settlementappeared to be least reliable license in therecord, given disadvantages faced by al-leged infringer due to sanctions imposed,lump-sum license fee reached was sixtimes larger than next highest amountpaid for license, and, in light of changinglandscape in market, settlement enteredinto three years after hypothetical negotia-tion date was in many ways not relevant tohypothetical negotiation analysis. 35U.S.C.A. § 284; Fed.Rules Evid.Rule 408,28 U.S.C.A.

31. Patents O312(2)

Approach taken by patentee’s expertwas reasonable attempt to value opticaldisc drives (ODDs) sold by laptop comput-er assembler based on arms-length trans-actions, and therefore expert’s use of $41per ODD value to determine reasonableroyalty damages, which was calculatedbased on sample of approximately 9,000non-infringing ODDs made by non-partylicensee, could not be excluded from trialon Daubert grounds, in patentee’s actionagainst assembler for active inducement toinfringe patent for optical disc discrimina-tion method that enabled ODD to identify


automatically the type of optical disc in-serted into ODD. 35 U.S.C.A. § 284.

32. Patents O323.3

Opinion of patentee’s expert, that rea-sonable royalty in action against laptopassembler and seller alleging active in-ducement of infringement of patent foroptical disc discrimination method that en-abled optical disc drive (ODD) to identifyautomatically type of optical disc insertedinto ODD would be six percent of eachODD sold within laptop computer by as-sembler-seller, was arbitrary and specula-tive, and thus warranted new trial on dam-ages; two patent licensing programs andlicensing survey upon which expert reliedto the exclusion of licenses for patent it-self, even though they did not concernpatented technology, were not sufficientlycomparable to hypothetically negotiated li-cense, and expert’s six percent runningroyalty theory could not be reconciled withactual licensing evidence, which includedlump-sum amounts not exceeding$1,000,000. 35 U.S.C.A. § 284; Fed.RulesEvid.Rule 702, 28 U.S.C.A.

Patents O328(2)

5,587,981. Infringed in Part.

Matthew C. Gaudet, Duane Morris LLP,of Atlanta, GA, argued for plaintiff-appel-lant. On the brief were Robert L. Byer, ofPittsburgh, PA, and Gregory M. Luck, ofHouston, TX, and Kristina Caggiano, ofWashington, DC. Of counsel was ThomasW. Sankey, of Houston, TX.

Terrence Duane Garnett, Goodwin Proc-ter, LLP, of Los Angeles, CA, argued fordefendant/cross-appellant. With him onthe brief were Vincent K. Yip, and Peter J.Wied.

Before DYK, CLEVENGER, andREYNA, Circuit Judges.

REYNA, Circuit Judge.

These appeals come before us after twotrials in the district court—a first trialresolving the claims of patent infringementand damages, and a second trial orderedby the district court to retry the damagesissues. The parties raise various issuesrelating to the proper legal framework forevaluating reasonable royalty damages inthe patent infringement context. Also be-fore us are questions regarding impliedlicense, patent exhaustion, infringement,jury instructions, and the admissibility of asettlement agreement. For reasons ex-plained in detail below, we affirm-in-part,reverse-in-part, and remand.

I. BACKGROUND

A. The Patented Technology and theOptical Disc Drive Industry

LaserDynamics, Inc. (‘‘LaserDynamics’’)is the owner of U.S. Patent No. 5,587,981(‘‘the 8981 Patent’’), which was issued in1996. The patent is directed to a methodof optical disc discrimination that essential-ly enables an optical disc drive (‘‘ODD’’) toautomatically identify the type of opticaldisc—e.g., a compact disc (‘‘CD’’) versus adigital video disc (‘‘DVD’’)—that is insert-ed into the ODD. Claim 3, which wasasserted at trial, is representative:

3. An optical disk reading method com-prising the steps of:

processing an optical signal reflectedfrom encoded pits on an optical diskuntil total number of data layers andpit configuration standard of the opti-cal disk is identified;

collating the processed optical signalwith an optical disk standard datawhich is stored in a memory; and


settling modulation of servomechan-ism means dependent upon the opticaldisk standard data which correspondswith the processed optical signal;

(c) [sic] the servomechanism meansincluding:

a focusing lens servo to modulateposition of a focusing lens; and

a tracking servo to modulate move-ment of a pickup.

This automated process saves the userfrom having to manually identify the kindof disc being inserted into the ODD beforethe ODD can begin to read the data on thedisc. The patented technology is allegedto be particularly useful in laptop comput-ers where portability, convenience, and ef-ficiency are essential. At least as early as2006, a laptop computer was not commer-cially viable unless it included an ODDthat could automatically discriminate be-tween optical discs.

Yasuo Kamatani is the sole inventor ofthe 8981 Patent. In 1998, viewing DVDtechnology as the next major data andvideo format, Mr. Kamatani founded Las-erDynamics and assigned the 8981 Patentto the company. Mr. Kamatani is the soleemployee of LaserDynamics, which is ex-clusively in the business of licensing Mr.Kamatani’s patents to ODD and consumerelectronics manufacturers.

When LaserDynamics was founded, theDVD market had reached few mainstreamconsumers, and there was some skepticismamong electronics companies as to thelikely success of this technology comparedwith the established VHS format. By

2000, however, DVD sales and the ODDmarket were sharply rising. By 2003,most homes had DVD players and nearlyevery computer had an ODD. An ODDhaving automatic disc discrimination capa-bility quickly became the industry stan-dard for DVD players and computers.1

B. LaserDynamics’ Licensing Historyof the 8981 Patent

According to LaserDynamics, it was ini-tially difficult to generate interest in li-censing the 8981 Patent, due to the noveltyof the technology and LaserDynamics’ lim-ited operating capital and bargaining pow-er. Nevertheless, LaserDynamics enteredinto sixteen licensing agreements from1998 to 2001. These licenses were grantedto well known electronics and ODD manu-facturers such as Sony, Philips, NEC, LG,Toshiba, Hitachi, Yamaha, Sanyo, Sharp,Onkyo, and Pioneer. All of the licenseswere nonexclusive licenses granted in ex-change for one time lump sum paymentsranging from $57,000 to $266,000. Thereis no evidence that these licenses recitedthe lump sum amounts as representing arunning royalty applied over a certain pe-riod of time or being calculated as a per-centage of revenues or profits. These six-teen licenses were admitted into evidencein the first trial, as explained below.

Several other lump sum licenses weregranted by LaserDynamics between 1998and 2003 to other ODD and electronicsmanufacturers via more aggressive licens-ing efforts involving actual or threatenedlitigation by LaserDynamics. These li-censes, in addition to the sixteen licenses

1. While LaserDynamics contends that allODDs performing a disc discrimination meth-od are within the scope of the 8981 Patent,Quanta Computer, Inc. (‘‘QCI’’) disputes thatMr. Kamatani invented the concept of discdiscrimination, alleging that ‘‘[t]here are nu-merous other techniques disclosed in the pri-or art for determining what type of disc is

inserted in an optical disc drive.’’ QCI Br. at10; A648. The validity of the 8981 Patent isnot before us, and so we do not addresswhether the scope of the invention as allegedby LaserDynamics is accurate other than toconsider QCI’s non-infringement contentionsbelow.


from the first trial, were admitted in thesecond trial.

On February 15, 2006, LaserDynamics(and Mr. Kamatani) entered into a licenseagreement with BenQ Corporation to set-tle a two-year long litigation for a lumpsum of $6 million. This settlement agree-ment was executed within two weeks ofthe anticipated trial against BenQ. Kama-tani v. BenQ Corp., No. 2:03–CV–437(E.D.Tex. Jan. 20, 2006) (pre-trial confer-ence order indicating trial was expected tobegin in the last week of February 2006).By the time of the settlement, BenQ hadbeen repeatedly sanctioned by the districtcourt for discovery misconduct and mis-representation. The district court had al-lotted BenQ one-third less time than Mr.Kamatani for voir dire, opening statement,and closing argument, had awarded attor-neys’ fees to Mr. Kamatani for bringingthe sanctions motion, had stricken one ofBenQ’s pleaded defenses, and had sanc-tioned BenQ $500,000.00 as an additionalpunitive and deterrent measure. Kamata-ni v. BenQ Corp., No. 2:03–CV–437, 2005WL 2455825, *6–7, *14–15, 2005 U.S. Dist.LEXIS 42762, at *20, *44–46 (E.D.Tex.Oct. 6, 2005). The district court believedthat its harsh sanctions were justified be-cause BenQ’s extensive misconduct ‘‘dem-onstrate[d] a conscious intent to evade thediscovery orders of this Court, as well asviolate[d] this Court’s orders and the rulesto an extent previously unknown by thisCourt.’’ Id. at *15, 2005 U.S. Dist. LEXIS42762 at *44–45. The BenQ settlementagreement was admitted into evidence inthe second trial.

Finally, in 2009 and 2010, LaserDynam-ics entered into license agreements withASUSTeK Computer and Orion ElectricCo., Ltd., respectively, for lump sum pay-ments of $1 million or less. These twolicenses were admitted into evidence in thesecond trial.

In total, twenty-nine licenses were en-tered into evidence in the second damagestrial. With the exception of the $6 millionBenQ license, all twenty-nine licenses werefor lump sum amounts of $1 million or less.

C. Quanta Computer Inc. andQuanta Storage Inc.

Quanta Storage, Inc. (‘‘QSI’’) is a manu-facturer of ODDs that was incorporated in1999. QSI is headquartered in Taiwanand is a partially-owned subsidiary ofQuanta Computer, Inc. (‘‘QCI’’), withwhich it shares some common officers, di-rectors, and facilities. QCI’s corporateheadquarters are also located in Taiwan,and its factories are located in China.QCI holds a minority share in QSI anddoes not control QSI’s operations.

QCI assembles laptop computers for itsvarious customers, which include namebrand computer companies such as Dell,Hewlett Packard (‘‘HP’’), Apple, and Gate-way. QCI does not manufacture ODDs,but will install ODDs into computers asinstructed by its customers. QCI willsometimes purchase ODDs directly fromODD manufacturers such as Sony, Pana-sonic, Toshiba, or QSI, as directed byQCI’s customers. Predominantly, howev-er, QCI will be required to purchase theODDs from the customer for whom QCI isassembling the laptop computer. In otherwords, QCI’s typical practice is to buyODDs from Dell, HP, Apple, or Gateway,which in turn purchased the ODDs fromthe ODD manufacturers. Because QCIeventually sells the fully assembled laptopcomputers—including the ODDs—to itscustomers, this process is called a ‘‘buy/sell’’ arrangement. When QCI purchasesODDs from one of its customers in a buy/sell context, it buys the ODDs for an artifi-cially high ‘‘mask price’’ set by the custom-er and designed to hide the actual lowerprice of the ODDs from the customer’s


competitors. Thus, the mask price is al-ways higher than the actual price to thecustomer.

QSI first sold its ODDs for integrationinto laptop computers in the United Statesin 2001. In 2002, LaserDynamics offeredQSI a license under the 8981 Patent, butQSI disputed whether its ODDs were with-in the scope of the 8981 Patent and de-clined the offer. QCI sold its first comput-er in the United States using an ODDfrom QSI in 2003. It was not until August2006 that LaserDynamics offered a licenseto QCI concurrently with the filing of thislawsuit. To date, neither QSI nor QCI hasentered into a licensing agreement withLaserDynamics relating to the 8981 Pat-ent.

D. ODDs Made by Philipsand Sony/NEC/Optiarc

Just as computer sellers Dell, HP, Ap-ple, and Gate way outsource the assemblyof their computers to companies like QCI,some sellers of ODDs outsource the as-sembly of their ODDs. QSI assemblesODDs for Philips and Sony/NEC/Op-tiarc—two of the largest sellers of ODDs.As discussed above, Philips andSony/NEC/Optiarc are licensed by Laser-Dynamics to make and sell ODDs withinthe scope of the 8981 Patent. Under thelicense agreements, both Philips andSony/NEC/Optiarc also enjoy ‘‘have made’’rights that permit them to retain compa-nies like QSI to assemble ODDs for them.

When QCI purchases ODDs directlyfrom Philips or Sony/NEC/Optiarc—i.e.,not under a buy/sell arrangement—QCIhas no knowledge of which entity assem-bled the ODDs. QCI pays Philips orSony/NEC/Optiarc directly for the ODDs,which are not sold under the QSI brandname even if assembled by QSI.

II. PROCEDURAL HISTORY

In August 2006, LaserDynamics broughtsuit against QCI and QSI for infringementof the 8981 Patent. Because assertedclaim 3 of the 8981 Patent is directed to amethod of disc discrimination performedby an ODD, as opposed to the ODD itself,LaserDynamics relied on a theory of in-fringement that QSI’s and QCI’s sales ofODDs and laptop computers, respectively,actively induced infringement of the meth-od by the end users of the ODDs andlaptop computers. See 35 U.S.C. § 271(b).

On a pre-trial summary judgment mo-tion brought by QCI and QSI relating totheir defenses of patent exhaustion andimplied license, the district court made thefollowing rulings:

(1) ‘‘the exhaustion doctrine does notapply to sales made overseas by [Laser-Dynamics’] licensees’’;

(2) ‘‘QCI has an implied license withrespect to drives manufactured by non-Quanta entities licensed by [LaserDy-namics] under worldwide licenses andsold by those licensees to QCI for incor-poration into QCI computers. In addi-tion, QSI is not liable for manufacturingdrives for Philips or Sony/NEC/Optiarcwhich are, in turn, resold into the Unit-ed States to non-Quanta entities’’; and

(3) ‘‘the Quanta defendants do nothave an implied license with respect todrives that are manufactured by QSIand eventually sold to QCI (or anotherQuanta entity), notwithstanding the factthat those drives are sold through Phil-ips or Sony/NEC/Optiarc, two of [Laser-Dynamics’] licensees. E.I. du Pont deNemours & Co. v. Shell Oil Co., 498A.2d 1108, 1116 (Del.1985). The effectof such transactions is to grant an im-permissible sublicense.’’

Laserdynamics, Inc. v. Quanta StorageAm., Inc., No. 2:06–CV–348–TJW–CE,2009 WL 3763444, at *1, 2009 U.S. Dist.


LEXIS 115848, at *3–5 (E.D.Tex. June 29,2009) (‘‘Pre–Trial Op.’’). Based on theserulings, LaserDynamics dropped its claimsagainst QSI and opted to pursue its activeinducement of infringement claims againstQCI only at trial.

QCI was first on notice of the 8981 Pat-ent in August 2006 when the complaintwas filed. Between August 2006 and theconclusion of the first trial in June 2009,QCI sold approximately $2.53 billion ofaccused laptops into the United States.LaserDynamics sought reasonable royaltydamages under 35 U.S.C. § 284. Pursu-ant to the analytical framework for as-sessing a reasonable royalty set forth inGeorgia–Pacific Corp. v. United StatesPlywood Corp., 318 F.Supp. 1116(S.D.N.Y.1970),2 the date of the ‘‘hypothet-ical negotiation’’ between the parties wasdeemed by the district court (over QCI’sobjections) to be August 2006—the datethat QCI first became aware of the 8981Patent and was therefore first potentiallyliable for active inducement of infringe-ment. See Global–Tech Appliances, Inc.v. SEB S.A., ––– U.S. ––––, 131 S.Ct.2060, 2068, 179 L.Ed.2d 1167 (2011) (hold-ing that knowledge of the patent is neces-sary to prove active inducement of in-fringement).

A. The First Trial

The damages theory advanced by Laser-Dynamics in the first trial was presentedchiefly through LaserDynamics’ expert,Mr. Emmett Murtha. Mr. Murtha opinedthat a running royalty of 2% of the totalsales of laptop computers by QCI is whatthe parties would have agreed to as areasonable royalty had they engaged in a

hypothetical negotiation in August 2006.This opinion was based on Mr. Murtha’sunderstanding, obtained primarily fromLaserDynamics’ other expert witnesses,that the technology covered by the 8981Patent provided an important and valuablefunction that was present in all ODDscurrently in use, and that the presence ofthis function was a prerequisite for anylaptop computer to be successful in themarketplace. Since QCI sold laptop com-puters and not ODDs, Mr. Murtha viewedthe complete laptop computer as an appro-priate royalty base.

To arrive at his 2% per laptop computerroyalty rate, Mr. Murtha began by findingthat 6% would be a reasonable royalty rateto pay with respect to an ODD alone. Mr.Murtha reached his conclusion of a 6% perODD royalty by relying on ‘‘comparablerates in two separate licensing programsinvolving DVDs where the rates were 3.5in one case and 4 percent in another case.’’A621, A650–54.3 The two patent licensingprograms were undertaken by third par-ties in the DVD industry around 2000. Id.He also relied on ‘‘a very comprehensiveroyalty survey that was done by the Li-censing Executive Society in 1997,’’ whichhe viewed as ‘‘a standard textbook forpeople who are seeking to set reasonableroyalty rates.’’ Id. The licensing surveywas not limited to any particular industrybut ‘‘was across whatever technologieswere being licensed by the people whoresponded,’’ and suggested that in general,across all of those unrelated technologies,‘‘for a minor improvement, we wouldcharge 2 to 5 percent. For a major im-provement, we would charge 4 to 8 per-cent. And for a major breakthrough, 6 to

2. ‘‘This court has sanctioned the use of theGeorgia–Pacific factors to frame the reason-able royalty inquiry. Those factors properlytie the reasonable royalty calculation to thefacts of the hypothetical negotiation at issue.’’

Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d1292, 1317 (Fed.Cir.2011).

3. Citations to ‘‘A––––’’ herein refer to pages ofthe Joint Appendix filed by the parties.


15 percentTTTT’’ A653–54. There is noevidence in the record that the two third-party licensing programs or the industriesinvolved in the licensing survey includedthe patented technology or even involvedoptical disc discrimination methods. Seeid.; A652 (‘‘[T]he two licensing programsare important, because they indicate thegoing rate, if you will, at least for thosepatents, which may or may not be asimportant as the one in question.’’) (em-phasis added); A653 (‘‘Q. Was the [licens-ing] survey directed to ODD technology?A. No.’’).

Mr. Murtha did not deem the sixteenlump sum licenses that were entered intobetween LaserDynamics and various elec-tronics companies between 1998 and 2001to establish a royalty rate for the 8981Patent. Although he conceded that QCIwould ‘‘absolutely’’ be aware of these prioragreements in a hypothetical negotiationcontext, he dismissed any probative valueof these 16 licenses because they wereentered into before the August 2006 hypo-thetical negotiation date. He reasonedthat, by 2006, the DVD market was largerand more established such that the valueof the patented technology was better ap-preciated and LaserDynamics had morebargaining power.

Based on his discussions with LaserDy-namics’ other experts, Mr. Murtha con-cluded that the patented technology in theODD is responsible for one-third of thevalue of a laptop computer containing suchan ODD. Thus, he arrived at his 2% perlaptop computer rate simply by takingone-third of the 6% rate for the ODD.When Mr. Murtha’s proffered 2% runningroyalty rate was applied to QCI’s totalrevenues from sales of laptop computers inthe United States—$2.53 billion—the re-sulting figure presented to the jury was$52.1 million.

By contrast, QCI’s theory of damageswas that a lump sum of $500,000 would bea reasonable royalty. QCI’s expert, Mr.Brett Reed, found the 16 licenses in evi-dence—all lump sums ranging between$50,000 and $266,000—to be highly indica-tive of the value of the patented technolo-gy according to LaserDynamics, and ofwhat a reasonable accused infringer wouldagree to pay for a license.

Prior to the first trial, QCI filed a mo-tion for partial summary judgment, or inthe alternative a motion pursuant to Dau-bert v. Merrell Dow Pharmaceuticals, Inc.,509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d469 (1993), with respect to damages. QCIsought to limit damages to a one-timelump sum of $232,376.00 based on Laser-Dynamics’ prior licenses, and to precludeMr. Murtha from offering any opinion tothe contrary for being unreliable by ignor-ing this established licensing practice.QCI’s motion heavily criticized Mr. Mur-tha’s opinions for being fundamentally in-consistent with LaserDynamics’ licenses ineither form or amount. However, QCI’smotion did not challenge Mr. Murtha’sone-third apportionment calculation to gofrom his 6% rate per ODD to his 2% rateper laptop computer, nor did it challengehis use of a completed laptop computer asa royalty base. The district court neverruled on QCI’s motion. QCI also movedin limine to preclude testimony regardingdamages in excess of $266,000 or suggest-ing that the prior 16 licenses did not estab-lish a royalty rate. The district court de-nied this motion. At no point during thefirst trial did QCI object to or seek to limitMr. Murtha’s testimony relating to his ap-portionment or royalty base selection, nordid QCI file a pre-verdict motion for judg-ment as a matter of law (‘‘JMOL’’) impli-cating such issues pursuant to FederalRule of Civil Procedure 50(a).


Two other issues arose during the firsttrial that are pertinent to this appeal: (1)the district court’s instructions to the juryconcerning QCI’s position regarding itsbuy/sell arrangements, and (2) the adequa-cy of LaserDynamics’ proof of infringe-ment. We discuss each issue in turn.

1. The District Court’s Instructionto the Jury

Upon perceiving a change in position byQCI concerning the frequency with whichQCI’s ODDs were obtained via a buy/sellarrangement, the district court instructedthe jury as follows:

[P]rior to yesterday, the position ofQuanta Computers was that this buy/sellarrangement TTT [was] one of the waysin which TTT they did their business.Yesterday, the testimony was, for thefirst time, that that was the predominantmethod of doing business. You are in-structed that this constitutes a signifi-cant change in the testimony, and nodocuments have been produced to sup-port that, and that you may take thisinstruction into account in judging thecredibility of all of this witness’ testimo-ny and all other Quanta Computer’s po-sitions in this case.

A34–35. A prior ruling from the magistratejudge permitted QCI to utilize a demons-trative showing how a buy/sell arrange-ment works ‘‘conditioned on the Defen-dants’ representation that they would usethe demonstratives to show generally oneway that QCI obtains optical drives.’’A5100. QCI believed the district court’slater instruction was based on a falsepremise that QCI had changed its position.Prior to trial, LaserDynamics was madeaware of QCI’s contention that approxi-mately 85% of its ODD purchases werethrough buy/sell arrangements. The testi-mony elicited by QCI at trial was ostensi-bly consistent with this contention, repre-

senting that QCI obtains drives from itscustomers ‘‘more frequently’’ than fromODD sellers. A754. Arguing that QCI didnot run afoul of the earlier magistratejudge’s condition that the demonstrativeshow only ‘‘one way’’ QCI obtains itsdrives, QCI viewed the district court’s in-struction unfairly prejudicial and movedfor a new trial on that basis. QCI’s mo-tion for a new trial on these grounds wasdenied.

2. QCI’s Challenge to theProof of Infringement

QCI challenged LaserDynamics’ conten-tions that the end users of the ODDsdirectly infringed the 8981 Patent. Assert-ed claim 3 of the 8981 Patent includes thestep of ‘‘processing an optical signal re-flected from encoded pits on an opticaldiskTTTT’’ The district court construed thephrase ‘‘encoded pits on an optical disk’’ tomean ‘‘depression[s] in the surface of thedisk which represent[ ] data or informa-tion.’’ LaserDynamics, Inc. v. Asus Com-puter Int’l, No. 2:06–cv–348–TJW–CE,2008 WL 3914095, at *4, 2008 U.S. Dist.LEXIS 63498, at *13 (E.D.Tex. Aug. 18,2008) (‘‘Markman Order ’’). The subse-quent claimed step of ‘‘collating the pro-cessed optical signal with an optical diskstandard data which is stored in a memo-ry’’ was construed to mean ‘‘comparing theprocessed optical signal with an opticaldisk standard data stored on a memory.’’Id. at *5, 2008 U.S. Dist. LEXIS 63498 at*15. The Markman Order further ex-plained that ‘‘there is no requirement thatthe same optical signal determine both thetotal number of data layers and also pitconfiguration standard.’’ Id. According toLaserDynamics’ expert, industry stan-dards require that each type of optical disc(i.e., CD, DVD, etc.) has a particular ar-rangement of depressions within the datalayer as well as a particular depth of thedata layer from the surface of the disc,such that the depth and arrangement of


depressions have a one-to-one correspon-dence. LaserDynamics’ theory of in-fringement was that the optical signal inthe accused ODDs included a ‘‘counter val-ue’’ that tracked the time for the ODD tochange focus from the transparent outersurface of the disc to the internal datalayer. When the counter value was com-pared with a known threshold counter val-ue for a given type of optical disc, the typeof disc (including its standard arrangementof depressions) could be identified.

QCI filed a motion for JMOL of non-infringement, arguing that the ODDs in itslaptop computers, by measuring a countervalue of time, were not literally measuringan arrangement of depressions, which QCIcontended was required by the language ofclaim 3 and the district court’s claim con-structions. Specifically, QCI notes claim 3requires a step of ‘‘settling modulation ofservomechanism means dependent uponthe optical disk standard data which corre-sponds with the processed optical signal,’’which the district court construed as ‘‘es-tablishing the regulation of the automaticfeedback control system for mechanicalmotion dependent upon the recognized ar-rangement of depressions for an opticalstorage medium which corresponds to theprocessed optical signal.’’ Markman Or-der at *5, 2008 U.S. Dist. LEXIS 63498 at*16. QCI alleged that this constructionindicates that the reference to operatingthe servomechanism based on ‘‘optical diskstandard data’’ requires the ODD to identi-fy a spatial value—‘‘the recognized ar-rangement of depressions’’—not to calcu-late a temporal ‘‘counter value’’ in order todiscriminate between optical disc types.A3190. The district court denied QCI’smotion for JMOL, finding no basis to dis-turb the jury’s infringement verdict.

B. The First Jury Verdict andPost–Trial Proceedings

The jury ultimately returned a verdictfinding QCI liable for active inducement of

infringement, and awarded $52 million indamages to LaserDynamics, almost the ex-act amount proffered by Mr. Murtha. Af-ter the verdict, QCI filed a motion for aremittitur or new trial pursuant to FederalRule of Civil Procedure 59(a). In thismotion, QCI argued that the verdict wasgrossly excessive and against the greatweight of the evidence, and for the firsttime argued that Mr. Murtha’s testimonyshould have been excluded due to his unre-liable methodology in applying the ‘‘entiremarket value rule’’—i.e., using the reve-nues from sales of the entire laptop com-puters as the royalty base—without havingestablished that the patented featuredrives the demand for the entire laptopcomputer. Rite–Hite Corp. v. Kelley Co.,56 F.3d 1538, 1549 (Fed.Cir.1995). In oth-er words, QCI argued that LaserDynamicsfailed to establish that the disc discrimina-tion method covered by claim 3 of the 8981Patent was ‘‘the basis for customer de-mand’’ for the laptop computers. Id.

The district court granted QCI’s motion,finding that LaserDynamics had indeedimproperly invoked the entire market val-ue rule. LaserDynamics, Inc. v. QuantaComputer, Inc., No. 2:06–cv–348–TJW–CE, 2010 WL 2331311, 2010 U.S. Dist.LEXIS 56634 (E.D. Tex. June 9, 2010)(‘‘New Trial Op.’’). The district court rea-soned that ‘‘[t]he price of the finished com-puters should not have been included inthe royalty base [because] LaserDynamicspresented no evidence that its patentedmethod drove the demand for QCI’s fin-ished computers.’’ Id. at *3, 2010 U.S.Dist. LEXIS 56634 at *9. ‘‘At best,’’ Laser-Dynamics had only established that ‘‘al-most all computers sold in the retail mar-ket include optical disc drives and thatcustomers would be hesitant to purchasecomputers without an optical disc drive.’’Id. at *3, 2010 U.S. Dist. LEXIS 56634 at


*10. LaserDynamics’ theory in the firsttrial was thus found to violate Rite–Hite aswell as our then-recent decision in LucentTechs., Inc. v. Gateway, Inc., 580 F.3d1301 (Fed.Cir.2009),4 which further ex-pounded on the entire market value rule.The district court concluded that the $52million damages award was unsupportableand excessive, and granted QCI’s motion.Id. at *3–4, 2010 U.S. Dist. LEXIS 56634at *12–13. Because the district court didnot view Mr. Murtha’s 6%-per-ODD royal-ty as clearly excessive, LaserDynamicswas given the option of a new trial ondamages or a remittitur to $6.2 million,which was calculated using the 6% royaltyrate applied to each ODD sold as part ofQCI’s laptop computers. Id. at *3–4, 2010U.S. Dist. LEXIS 56634 at *11–13. Laser-Dynamics declined to accept the remittiturto $6.2 million and elected to have a newtrial.

C. The Second Trial

Prior to the second trial on damages,QCI renewed its objections to the antici-pated testimony of Mr. Murtha concerninghis dismissive view of the existing licensesto the 8981 Patent, and challenged his 6%royalty rate based on ODD average pricefor being improperly based on non-compa-rable licensing evidence. QCI also ex-pressly challenged Mr. Murtha’s 2% royal-ty applying the entire market value rule,relying on our decisions in Lucent Tech-nologies, 580 F.3d 1301, and Uniloc USA,Inc. v. Microsoft Corp., 632 F.3d 1292(Fed.Cir.2011). QCI’s objections regard-ing the application of the entire marketvalue rule were sustained. LaserDynam-ics, Inc. v. Quanta Computer, Inc., No.2:06–cv–348–TJW–CE, 2011 WL 7563818,at *2, 2011 U.S. Dist. LEXIS 42590, at *8

(E.D.Tex. Jan. 7, 2011) (‘‘Mr. Murtha’sopinions that a reasonable royalty is 2% ofthe entire market value of a computer, andthat a disk drive constitutes a third of thevalue of the computer, are excluded.’’).The district court permitted LaserDynam-ics to put on evidence regarding a 6%running royalty damages model based onODD average price, but subject to certainrestrictions regarding proof of comparabil-ity to the hypothetically negotiated license.LaserDynamics, Inc. v. Quanta Computer,Inc., No. 2:06–cv–348–TJW–CE, at 3(E.D.Tex. Jan. 19, 2011) (‘‘[T]he court DE-NIES Quanta’s cross-motion to precludeLaser from arguing that a running royaltyis appropriate.’’); LaserDynamics, 2011WL 7563818, at *3, 2011 U.S. Dist. LEXIS42590, at *10 (permitting Mr. Murtha torely on the 1997 Licensing Executive Soci-ety survey ‘‘to allude to general practices,such as preference for a running royalty ora lump sum, but [not to] testify as to theroyalty rates discussed in the survey’’); id.at *3, 2011 U.S. Dist. LEXIS 42590 at *11(ordering that, if seeking to present licens-es as comparable to the jury, ‘‘[i]t is notsufficient to state that both patents coveroptical disk drive technology. The plain-tiff must establish the functionality en-abled by the patent-in-suit as well as thefunctionality purportedly covered by thelicensed patent and compare their econom-ic importance’’).

Before the second trial, QCI also filed amotion in limine to exclude the 2006 BenQsettlement agreement from evidence forhaving its probative value substantiallyoutweighed by the danger of unfair preju-dice or confusion of the issues under Fed-eral Rule of Evidence 403. QCI’s motionemphasized the unique circumstances ofthe BenQ settlement that rendered it non-

4. Lucent was issued two months after the juryverdict but before QCI’s new trial motion was

filed.


comparable, as it was executed shortly be-fore trial and after BenQ had been re-peatedly sanctioned by the district court.QCI also challenged the probative value ofany per unit royalty rate that might beextrapolated from the BenQ settlement,which involved only a one time lump sumroyalty payment of $6 million. The dis-trict court denied QCI’s motion, reasoningthat LaserDynamics could use the BenQagreement to ‘‘prove up a per unit royaltyrate from the information provided in theagreement’’ so as to support its 6% perODD royalty rate. LaserDynamics, Inc.v. Quanta Computer, Inc., No. 2:06–cv–348–TJW–CE, at 3 (E.D.Tex. Jan. 19,2011).

In light of these rulings, LaserDynamicsoffered testimony that damages should be$10.5 million based on a running royalty of6% of the average price of a standaloneODD. While the average per-unit ODDprice utilized in the first trial was the $28mask price, LaserDynamics now used a$41 per ODD value that was calculatedbased on a relatively small sample of about9,000 licensed noninfringing drives madeby Sony that were sold as replacementdrives by QCI. In response to QCI’s objec-tions, LaserDynamics contended that thisincreased value was accurate and reliablebecause prior to the first trial both QSIand QCI were accused of inducing in-fringement. According to LaserDynamics,the prices of QSI’s ODDs and QCI’s laptopcomputers were evaluated to support Las-erDynamics’ damages theory going intothe first trial since it was not until afterthe district court’s rulings in the Pre–TrialOpinion that LaserDynamics dropped itsclaims against QSI. Going into the secondtrial, however, only QCI was accused ofactive inducement, and so the price ofODDs sold by QCI became a more centralissue. Since QCI does not itself make andsell standalone ODDs, and since QCI pre-sented no representative sales price, Las-

erDynamics used the average price of thereplacement ODDs sold by QCI. QCI nev-ertheless contends that this $41 price is fartoo high since the evidence is undisputedthat mask price of $28 paid by QCI isalways higher than the actual price of theODD.

QCI’s expert testified that the appropri-ate damages amount was a lump sum pay-ment of $1.2 million, based in large part onthe fact that none of the now twenty-ninelicenses in evidence (excluding the BenQsettlement) exceeded lump sum amounts of$1 million. Based on evidence that QCIcould have switched from QSI drives toother licensed ODD suppliers to avoid in-fringement at a cost of $600,000, QCI’sexpert also opined that QCI would havepaid twice that amount to have the free-dom to use ODDs from any supplier.

The jury ultimately awarded a lump sumamount of $8.5 million in damages. QCImoved for JMOL on the grounds that thehypothetical negotiation date had been im-properly set as August 2006, that the evi-dence at trial did not support the jury’saward of $8.5 million, and that LaserDy-namics had failed to offer proof at trial tosupport its $10.5 million damages theory.The district court denied QCI’s motion forJMOL.

* * *

LaserDynamics appealed the districtcourt’s granting QCI’s motion for a newtrial and/or remittitur based on the entiremarket value rule. QCI cross-appealedthe district court’s denial of a new trial onthe alternative ground of the districtcourt’s allegedly prejudicial instruction tothe jury. QCI also cross-appealed the dis-trict court’s entry of summary judgmenton the issues of implied license and patentexhaustion, its denial of QCI’s motion forJMOL of non-infringement following thefirst trial, and its denial of QCI’s motion


for JMOL following the second trial. Wehave jurisdiction pursuant to 28 U.S.C.§ 1295(a)(1).

III. DISCUSSION

[1–4] For issues not unique to patentlaw, we apply the law of the regional cir-cuit where this appeal would otherwise lie,which in this case is the Fifth Circuit. i4iLtd. P’ship v. Microsoft Corp., 598 F.3d831, 841 (Fed.Cir.2010). Thus, the grantor denial of a motion for a remittitur or anew trial is reviewed for an abuse of dis-cretion. Brunnemann v. Terra Int’l, Inc.,975 F.2d 175, 177 (5th Cir.1992); Bonurav. Sea Land Serv., Inc., 505 F.2d 665, 669(5th Cir.1974). Evidentiary rulings are re-viewed for an abuse of discretion. Indust-rias Magromer Cueros y Pieles S.A. v. La.Bayou Furs, 293 F.3d 912, 924 (5th Cir.2002). Decisions on motions for summaryjudgment and JMOL are reviewed denovo. Cambridge Toxicology Group v.Exnicios, 495 F.3d 169, 173, 179 (5th Cir.2007).

For reasons explained in detail below,we hold: (a) that the district court proper-ly granted a new trial on damages follow-ing the first jury verdict; (b) that thedistrict court erred in finding that QCIdoes not have an implied license to assem-ble and sell laptops using ODDs purchasedvia Philips and Sony/NEC/Optiarc; (c)that the district court properly deniedQCI’s motion for JMOL of non-infringe-ment; (d) that the district court’s juryinstruction does not alone warrant a newtrial on liability; (e) that the district courterred by setting the hypothetical negotia-tion date as August 2006; (f) that thedistrict court erred in admitting the BenQsettlement agreement into evidence; and(g) that the district court erred in permit-ting Mr. Murtha to offer his opinion con-cerning a 6% per ODD running royaltyrate based on ODD average price as a

proper measure of reasonable royaltydamages in the second trial. We addresseach of these issues in turn.

A. The District Court Properly Granteda New Trial on Damages

LaserDynamics contends that the dis-trict court erred by granting QCI’s motionfor a new trial on damages after the con-clusion of the first trial. Essentially, Las-erDynamics believes that the district courtwas precluded from ordering a new trialunder the circumstances, since QCI neverraised its entire market value rule argu-ment until after the jury verdict, andthereby waived any right to seek a newtrial to rectify that error. Moreover, Las-erDynamics denies that it improperly re-lied on the entire market value rule duringthe first trial, but contends that it insteadused a permissible ‘‘product value appor-tionment’’ method. LaserDynamics Br. at36–44. We disagree with both of Laser-Dynamics’ arguments.

1. The Entire Market Value Rule

We begin by noting that some productsare made of many different components,one or more of which components may becovered by an asserted patent, while othercomponents are not. This is especiallytrue for electronic devices, which may in-clude dozens of distinct components, manyof which may be separately patented, thepatents often being owned by differententities. To assess how much value eachpatented and non-patented component in-dividually contributes to the overall endproduct—e.g., a personal computer—canbe an exceedingly difficult and error-pronetask.

[5] By statute, reasonable royaltydamages are deemed the minimum amountof infringement damages ‘‘adequate tocompensate for the infringement.’’ 35U.S.C. § 284. Such damages must be


awarded ‘‘for the use made of the inven-tion by the infringer.’’ Id. Where small el-ements of multi-component products areaccused of infringement, calculating a roy-alty on the entire product carries a consid-erable risk that the patentee will be im-properly compensated for non-infringingcomponents of that product. Thus, it isgenerally required that royalties be basednot on the entire product, but instead onthe ‘‘smallest salable patent-practicingunit.’’ Cornell Univ. v. Hewlett–PackardCo., 609 F.Supp.2d 279, 283, 287–88(N.D.N.Y.2009) (explaining that ‘‘counselwould have wisely abandoned a royaltybase claim encompassing a product withsignificant non-infringing components.The logical and readily available alterna-tive was the smallest salable infringingunit with close relation to the claimed in-vention—namely the processor itself.’’).

[6, 7] The entire market value rule is anarrow exception to this general rule. Ifit can be shown that the patented featuredrives the demand for an entire multi-component product, a patentee may beawarded damages as a percentage of reve-nues or profits attributable to the entireproduct. Rite–Hite, 56 F.3d at 1549, 1551.In other words, ‘‘[t]he entire market valuerule allows for the recovery of damagesbased on the value of an entire apparatuscontaining several features, when the fea-ture patented constitutes the basis for cus-tomer demand.’’ Lucent, 580 F.3d at 1336(quoting TWM Mfg. Co. v. Dura Corp., 789F.2d 895, 901 (Fed.Cir.1986)). The entiremarket value rule is derived from SupremeCourt precedent requiring that ‘‘the paten-tee TTT must in every case give evidencetending to separate or apportion the defen-dant’s profits and the patentee’s damagesbetween the patented feature and the un-patented features, and such evidence mustbe reliable and tangible, and not conjectur-al or speculative.’’ Garretson v. Clark, 111

U.S. 120, 121, 4 S.Ct. 291, 28 L.Ed. 371(1884). The Court explained that ‘‘the en-tire value of the whole machine, as a mar-ketable article, [must be] properly and le-gally attributable to the patented feature.’’Id.

[8] In effect, the entire market valuerule acts as a check to ensure that theroyalty damages being sought under 35U.S.C. § 284 are in fact ‘‘reasonable’’ inlight of the technology at issue. We haveconsistently maintained that ‘‘a reasonableroyalty analysis requires a court to hy-pothesize, not to speculateTTTT [T]he trialcourt must carefully tie proof of damagesto the claimed invention’s footprint in themarket place.’’ ResQNet.com, Inc. v. Lan-sa, Inc., 594 F.3d 860, 869 (Fed.Cir.2010).A damages theory must be based on‘‘sound economic and factual predicates.’’Riles v. Shell Exploration & Prod. Co., 298F.3d 1302, 1311 (Fed.Cir.2002). The en-tire market value rule arose and evolved tolimit the permissible scope of patentees’damages theories.

Importantly, the requirement to provethat the patented feature drives demandfor the entire product may not be avoidedby the use of a very small royalty rate.We recently rejected such a contention,raised again in this case by LaserDynam-ics, and clarified that ‘‘[t]he SupremeCourt and this court’s precedents do notallow consideration of the entire marketvalue of accused products for minor patentimprovements simply by asserting a lowenough royalty rate.’’ Uniloc, 632 F.3d at1319–20 (explaining that statements in Lu-cent suggesting otherwise were taken outof context). We reaffirm that in any caseinvolving multi-component products, pat-entees may not calculate damages basedon sales of the entire product, as opposedto the smallest salable patent-practicingunit, without showing that the demand for


the entire product is attributable to thepatented feature.

Regardless of the chosen royalty rate,one way in which the error of an improper-ly admitted entire market value rule theo-ry manifests itself is in the disclosure ofthe revenues earned by the accused in-fringer associated with a complete productrather than the patented component only.In Uniloc, we observed that such disclo-sure to the jury of the overall productrevenues ‘‘cannot help but skew the dam-ages horizon for the jury, regardless of thecontribution of the patented component tothis revenue.’’ Id. at 1320 (noting that‘‘the $19 billion cat was never put back intothe bag,’’ and that neither cross-examina-tion nor a curative jury instruction couldhave offset the resulting unfair prejudice).Admission of such overall revenues, whichhave no demonstrated correlation to thevalue of the patented feature alone, onlyserve to make a patentee’s proffered dam-ages amount appear modest by compari-son, and to artificially inflate the jury’sdamages calculation beyond that which is‘‘adequate to compensate for the infringe-ment.’’ Id.; see 35 U.S.C. § 284.

Turning to the facts of this case, Laser-Dynamics and Mr. Murtha unquestionablyadvanced an entire market value rule theo-ry in the first trial. Mr. Murtha opinedthat a 2% running royalty applied to QCI’stotal revenues from sales of laptop com-puters in the United States—$2.53 bil-lion—was an appropriate and reasonableroyalty. The resulting figure presented tothe jury was $52.1 million, and the juryawarded damages in nearly that exactamount. Whether called ‘‘product valueapportionment’’ or anything else, the factremains that the royalty was expresslycalculated as a percentage of the entiremarket value of a laptop computer ratherthan a patent-practicing ODD alone. This,

by definition, is an application of the entiremarket value rule.

[9] LaserDynamics’ use of the entiremarket value rule was impermissible, how-ever, because LaserDynamics failed topresent evidence showing that the patent-ed disc discrimination method drove de-mand for the laptop computers. It is notenough to merely show that the disc dis-crimination method is viewed as valuable,important, or even essential to the use ofthe laptop computer. Nor is it enough toshow that a laptop computer without anODD practicing the disc discriminationmethod would be commercially unviable.Were this sufficient, a plethora of featuresof a laptop computer could be deemed todrive demand for the entire product. Toname a few, a high resolution screen, re-sponsive keyboard, fast wireless networkreceiver, and extended-life battery are allin a sense important or essential featuresto a laptop computer; take away one ofthese features and consumers are unlikelyto select such a laptop computer in themarketplace. But proof that consumerswould not want a laptop computer withoutsuch features is not tantamount to proofthat any one of those features alone drivesthe market for laptop computers. Put an-other way, if given a choice between twootherwise equivalent laptop computers,only one of which practices optical discdiscrimination, proof that consumers wouldchoose the laptop computer having the discdiscrimination functionality says nothingas to whether the presence of that func-tionality is what motivates consumers tobuy a laptop computer in the first place.It is this latter and higher degree of proofthat must exist to support an entire mar-ket value rule theory.

Our decision in Lucent is illustrative.There, the patent at issue involved a help-ful and convenient ‘‘date picker’’ featurethat was being used within the grand


scheme of Microsoft’s Outlook email soft-ware. We held that because the patentedfeature was ‘‘but a tiny feature of one partof a much larger software program,’’ aroyalty could not be properly calculatedbased on the value of the entire Outlookprogram because ‘‘there was no evidencethat anybody anywhere at any time everbought Outlook TTT because it had [thepatented] date picker.’’ Lucent, 580 F.3dat 1332–33 (emphasis added).

In this case, Mr. Murtha never conduct-ed any market studies or consumer sur-veys to ascertain whether the demand fora laptop computer is driven by the patent-ed technology. On the record before us,the patented method is best understood asa useful commodity-type feature that con-sumers expect will be present in all laptopcomputers. There is no evidence that thisfeature alone motivates consumers to pur-chase a laptop computer, such that thevalue of the entire computer can be attrib-uted to the patented disc discriminationmethod. As the district court aptly stated,‘‘[a]t best,’’ LaserDynamics proved onlythat ‘‘almost all computers sold in the re-tail market include optical disc drives andthat customers would be hesitant to pur-chase computers without an optical discdrive.’’ New Trial Op. at *3, 2010 U.S.Dist. LEXIS 56634 at *10. The districtcourt correctly found that this evidencefails to satisfy the requirements of ourprecedent to support the usage of the en-tire market value rule when calculatingreasonable royalty damages.

[10] Furthermore, Mr. Murtha’s one-third apportionment to bring his royaltyrate down from 6% per ODD to 2% perlaptop computer appears to have beenplucked out of thin air based on vaguequalitative notions of the relative impor-tance of the ODD technology. The districtcourt correctly concluded that ‘‘[a]lthough[LaserDynamics] argues that the many ac-

tivities that may be performed on a com-puter using a disk drive, such as playingmovies, music and games, transferringdocuments, backing up files, and installingsoftware comprise a third of the value of acomputer, [Mr. Murtha] offers no credibleeconomic analysis to support that conclu-sion.’’ LaserDynamics, 2011 WL 7563818,at *2, 2011 U.S. Dist. LEXIS 42590, at *6.This complete lack of economic analysis toquantitatively support the one-third appor-tionment echoes the kind of arbitrarinessof the ‘‘25% Rule’’ that we recently andemphatically rejected from damages ex-perts, and would alone justify excludingMr. Murtha’s opinions in the first trial.Cf. Uniloc, 632 F.3d at 1318 (‘‘Gemini’sstarting point of a 25 percent royalty hadno relation to the facts of the case, and assuch, was arbitrary, unreliable, and irrele-vant. The use of such a rule fails to passmuster under Daubert and taints thejury’s damages calculation.’’).

[11] Finally, we reject the contentionthat practical and economic necessity com-pelled LaserDynamics to base its royaltyon the price of an entire laptop computer.LaserDynamics Br. at 15–18. LaserDy-namics emphasizes that QCI is in the busi-ness of assembling and selling completelaptop computers, not independent ODDs,and that QCI does not track the prices,revenues, or profits associated with indi-vidual components. Likewise, LaserDy-namics points out that QCI purchasesODDs for a ‘‘mask price,’’ which the dis-trict court described as ‘‘nominal’’ and es-sentially ‘‘an accounting fiction’’ that offers‘‘little evidence of the drives’ actual value.’’LaserDynamics, Inc. v. Quanta Computer,Inc., No. 2:06–cv–348–TJW–CE (E.D.Tex.Jan. 21, 2011). LaserDynamics furtherpoints to Mr. Murtha’s testimony that, inhis prior experience working in patent li-censing at IBM, IBM would often baseroyalties on entire products to address


such accounting difficulties. Thus, Laser-Dynamics concludes that the parties wouldhave had to use the value of the entirelaptop computer as the royalty base instructuring a hypothetical license agree-ment, as it reflects the only true marketvalue of anything that QCI sells.

LaserDynamics overlooks that a per-unit running royalty is not the only form ofa reasonable royalty that the parties mighthave agreed to in a hypothetical negotia-tion. An alternate form is evidenced bythe many license agreements to the 8981Patent in the record for lump sum royal-ties that are not calculated as a percentageof any component or product, which imme-diately belies the argument that using alaptop computer as the royalty base is‘‘necessary.’’ LaserDynamics’ necessityargument also fails to address the funda-mental concern of the entire market valuerule, since permitting LaserDynamics touse a laptop computer royalty base doesnot ensure that the royalty rate appliedthereto does not overreach and encompasscomponents not covered by the patent.That is, if difficulty in precisely identifyingthe value of the ODDs is what justifiesusing complete laptop computers as theroyalty base, when it comes time to thenapportion a royalty rate that accounts forthe ODD contribution only, the exceeding-ly difficult and error-prone task of discern-ing the ODD’s value relative to all othercomponents in the laptop remains.

Moreover, LaserDynamics provides noreason that QCI’s own lack of internaltracking and accounting of individual com-ponents or its ‘‘mask price’’ purchases pre-cludes LaserDynamics from deriving orobtaining accurate information concerningODD values from third parties, industrypractices, etc. LaserDynamics in fact didobtain and use alternative pricing informa-tion from Sony-made ODDs in the secondtrial. As explained below, this Sony-made

ODD pricing information was not per seunreliable, as the jury was entitled toweigh it against QCI’s competing views ofappropriate ODD pricing. Thus, we seeno reason to establish a necessity-basedexception to the entire market value rulefor LaserDynamics in this case.

2. The Grant of a New Trial

[12] Having established that LaserDy-namics’ theory of damages was legally un-supportable, we turn to the question ofwhether the district court abused its dis-cretion in granting QCI’s post-verdict mo-tion and offering LaserDynamics a choicebetween a new damages trial and a remit-titur of the damages verdict to $6.2 million.While LaserDynamics is correct that QCImade no pre-verdict objection or raisedany challenge whatsoever to Mr. Murtha’stestimony on an entire market value ruletheory, under Fifth Circuit law this osten-sible waiver by QCI does not preclude thedistrict court from exercising its discretionto consider the issue. See Garriott v.NCsoft Corp., 661 F.3d 243 (5th Cir.2011)(finding that an otherwise waived argu-ment made in a motion for a new trial wasproperly addressed and preserved whenthe district court exercised its discretion toconsider the issue in its opinion denyingthe motion).

[13] The Fifth Circuit has determinedthat ‘‘[a] district court has discretion toconsider new theories raised for the firsttime in a post-trial brief, TTT and an issuefirst presented to the district court in apost-trial brief is properly raised belowwhen the district court exercises its discre-tion to consider the issue.’’ Quest Medi-cal, Inc. v. Apprill, 90 F.3d 1080, 1087 (5thCir.1996) (citations omitted). In this case,whether or not the district court couldhave deemed QCI’s entire market valuerule arguments waived and ignored them,it did not. In light of QCI’s post-trial


briefing, the district court identified theerror of permitting the entire market val-ue rule theory to go to the jury, andexercised its discretion to correct the er-ror. We find no abuse of discretion in thedistrict court’s decision to grant QCI’s mo-tion for a remittitur or a new trial underthese circumstances, and we therefore af-firm the district court on this point.

B. QCI Has an Implied License to As-semble Laptops Using ODDs from QSI

via Philips and Sony/NEC/Optiarc

[14] QCI contends that it has an im-plied license to assemble laptop computersfor its customers that include the accusedODDs assembled by QSI for Philips orSony/NEC/Optiarc, pursuant to Philips’sand Sony/NEC/Optiarc’s ‘‘have made’’rights under their patent license agree-ments with LaserDynamics. The QSI-as-sembled ODDs at issue are sold by Philipsor Sony/NEC/Optiarc either directly toQCI or indirectly to QCI via QCI’s custom-ers such as Dell and HP, as directed byQCI’s customers. ‘‘The existence vel non

of an implied license is a question of lawthat we review de novo.’’ Anton/Bauer,Inc. v. PAG, Ltd., 329 F.3d 1343, 1348(Fed.Cir.2003).

At oral argument before this court,counsel for QCI explained that the vastmajority of the allegedly infringing ODDswould be covered under QCI’s implied li-cense theory, and that QCI’s argumentsconcerning patent exhaustion pertain toonly those same ODDs. Oral Arg. at 0:30–1:30, available at http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2011–1440.mp3. Because we find that QCI hasan implied license, we do not reach QCI’spatent exhaustion arguments.5

The district court relied solely on E.I.du Pont de Nemours & Co. v. Shell OilCo., 498 A.2d 1108 (Del.1985), in findingthat ‘‘the Quanta defendants do not havean implied license with respect to drivesthat are manufactured by QSI and eventu-ally sold to QCI (or another Quanta enti-ty), notwithstanding the fact that thosedrives are sold through Philips orSony/NEC/Optiarc, two of [LaserDynam-

5. At oral argument before this court, counselfor LaserDynamics for the first time arguedthat the district court merely denied QCI’ssummary judgment motion on these issues,but did not also enter summary judgmentagainst QCI, and that such a supposed denialof summary judgment cannot be appealed tous after a trial where QCI did not take furthersteps to preserve the issue. Oral Arg. at11:18–13:57. QCI’s briefing repeatedly char-acterized the district court’s order as enteringsummary judgment against QCI, but LaserDy-namics made no challenge to this character-ization until oral argument. A subsequentmotion refining this argument and seeking todismiss these portions of QCI’s appeal forlack of jurisdiction was filed on March 23,2012.

LaserDynamics’ belated argument hingeson an incorrect premise. The district court’sorder plainly went further than denying QCI’smotion and made affirmative rulings on theseissues as a matter of law. See LaserDynamics,2009 WL 3763444, at *1, 2009 U.S. Dist.

LEXIS 115848, at *3–5. The district courtindicated that ‘‘for purposes of trial, the courtadvises the parties of the following holdings,’’e.g., ‘‘the Quanta defendants do not have animplied license with respect to drives that aremanufactured by QSI and eventually sold toQCI (or another Quanta entity), notwithstand-ing the fact that those drives are sold throughPhilips or Sony/NEC/Optiarc, two of [Laser-Dynamics’] licensees.’’ Id. Thus, LaserDy-namics’ citing to Ortiz v. Jordan, ––– U.S.––––, 131 S.Ct. 884, 889, 178 L.Ed.2d 703(2011), for the proposition that an appellatecourt has no jurisdiction over a denial ofsummary judgment following a trial on themerits is to no avail. Fed.R.Civ.P. 56(f) per-mits the district court to enter summary judg-ment in favor of a non-moving party, andLaserDynamics points to nowhere in the rec-ord where it objected to any procedural defectin the district court’s doing so. On this rec-ord, we see no genuine disputes of materialfact that would preclude us from reversingthe district court on the implied license issue.


ics’] licensees.’’ Pre–Trial Op. at *1, 2009U.S. Dist. LEXIS 115848 at *4 (citing duPont, 498 A.2d at 1116). According to thedistrict court, ‘‘[t]he effect of such transac-tions is to grant an impermissible subli-cense.’’ Id. We disagree.

In du Pont, E.I. Du Pont de Nemoursand Company, Inc. (‘‘Du Pont’’) had en-tered into a license agreement with ShellOil Company (‘‘Shell’’) permitting Shell to‘‘make, have made, use and sell for use orresale’’ an insecticide product covered byDu Pont’s patent. 498 A.2d at 1110. Thelicense agreement expressly prohibitedany sublicensing by Shell. Id. Union Car-bide Agricultural Corporation, Inc. (‘‘Un-ion Carbide’’) later sought permission fromShell to produce the patented insecticide,but Shell declined due to the prohibition onsublicensing in its licensed agreement withDu Pont. Id. at 1111. Instead, Shell andUnion Carbide came up with the followingarrangement: (1) Union Carbide wouldmanufacture the insecticide under the‘‘have made’’ provision of the licenseagreement between Shell and Du Pont,then (2) Shell would immediately sell backthe insecticide to Union Carbide pursuantto Shell’s right to ‘‘sell for use or resale.’’Id. at 1111. The minimum amounts ofinsecticide that Union Carbide agreed tomake and the minimum amounts that Shellagreed to sell back to Union Carbide wereidentical. Id. at 1115–16. The SupremeCourt of Delaware deemed this arrange-ment an impermissible sublicense, ratherthan a permissible exercise of Shell’s ‘‘havemade’’ and ‘‘sell’’ rights, because ‘‘ultimate-ly, Union Carbide was producing [the in-secticide], not for Shell, but rather foritself.’’ Id. (citing Carey v. United States,326 F.2d 975, 979 (Ct.Cl.1964) (explainingthat ‘‘the test is, whether the production isby or for the use of the original licensee orfor the sublicensee himself or for someoneelse’’)).

The case before us presents a differentsituation from that in du Pont. The ODDsprovided to QCI via Philips andSony/NEC/Optiarc were undoubtedly as-sembled by QSI for Philips andSony/NEC/Optiarc, not for QSI or QCI.Even though the ODDs made by QSI werein reality shipped directly from QSI toQCI, the substance of the transactionsmake clear that QSI’s manufacture of theODDs was limited to the needs and re-quests of Philips and Sony/NEC/Optiarc.QSI had no unfettered ability to makemore ODDs than were ordered from it.Nothing in the record suggests that thisoverall arrangement is designed to circum-vent the terms of the patent licenses be-tween LaserDynamics and Philips orSony/NEC/Optiarc. Indeed, the shippingand manufacturing arrangements involvedin this case reflect typical on-time deliverylogistics of modern industrial reality.

The apposite precedent is our decision inCyrix Corp. v. Intel Corp., 77 F.3d 1381(Fed.Cir.1996). That case involved CyrixCorporation (‘‘Cyrix’’), a designer and sell-er of microprocessors, contracting withother companies to manufacture integratedcircuit chips containing the Cyrix-designedmicroprocessors, then selling the chipsback to Cyrix. Id. at 1383. Cyrix usedmanufacturers that were licensed underpatents owned by Intel, including SGS–Thomson Microelectronics, Inc. (‘‘ST’’).Id. ST had acquired by assignment a li-cense from Intel ‘‘to make, have made TTT

[and] sell’’ the patented chips. Id. STcould not itself fulfill Cyrix’s orders, how-ever, and, relying on its ‘‘have made’’rights, arranged for its Italian non-subsid-iary affiliate company (‘‘ST–Italy’’) to man-ufacture the chips, which ST then sold toCyrix. Id. The district court distinguishedthis situation from that in du Pont andheld that ST did not exceed its rightsunder the Intel license by having ST–Italymake the chips for ST to sell to Cyrix. Id.


at 1384. Cyrix and ST were both found tonot infringe Intel’s patents on this basis.

We affirmed, rejecting Intel’s argumentthat the arrangement among ST, ST–Italy,and Cyrix was a mere paper transaction—a ‘‘sham’’ designed to circumvent Intel’slicense to ST. Id. at 1387–88. We en-dorsed the district court’s reasoning that,unlike in du Pont, ‘‘[t]he production of the[chips] is for the use of ST, the originallicensee, and not for the use of ST–Italy.’’Id. at 1387. As we explained, ‘‘[i]f thefacts in this case had been that Cyrixmade the product for ST under ST’s ‘havemade’ rights and then ST sold the productback to Cyrix, then they would have beenanalogous to those in du Pont, but thoseare not our facts.’’ Id. at 1388.

[15] This case likewise presents no‘‘sham’’ transaction as in du Pont. QSImade the ODDs at issue here to fulfillbona fide orders from licensees Philips andSony/NEC/Optiarc. The ODDs were thensold to QCI by the licensees. QCI did notmake the ODDs for Philips orSony/NEC/Optiarc and then immediatelypurchase the ODDs back so as to effective-ly receive a sublicense and obtain as manyODDs as it wanted. Rather, as in Cyrix,the manufacture of the ODDs by QSI andtheir eventual sale to QCI for incorpo-ration into laptop computers, all via Philipsand Sony/NEC/Optiarc, were legitimateand separate business transactions thatdid not expand or circumvent the patentlicenses. Id. at 1387–88 (‘‘The two agree-ments, one permitting ST–Italy to manu-facture microprocessors for ST and theother providing for ST’s sale of micropro-cessors to Cyrix, were separate businesstransactions.’’). Both the manufacture andsale of the ODDs were valid exercises ofthe ‘‘have made’’ and ‘‘sell’’ rights, respec-tively, under the license agreements in thiscase. We therefore conclude that QCI hasan implied license to the 8981 Patent with

respect to the ODDs made by QSI andsold to QCI via Philips or Sony/NEC/Op-tiarc.

C. The District Court Properly DeniedQCI’s Motion for JMOL of Non–

Infringement

[16] QCI contends that LaserDynam-ics’ evidence at the first trial was inade-quate to prove direct infringement by endusers of the accused laptops of assertedclaim 3 under the district court’s claimconstructions. As discussed above, claim 3requires, inter alia, the steps of ‘‘process-ing an optical signal reflected from encod-ed pits on an optical disk until total num-ber of data layers and pit configurationstandard of the optical disk is identified’’and ‘‘collating the processed optical signalwith an optical disk standard data which isstored in a memory.’’ The district courtconstrued the phrase ‘‘encoded pits on anoptical disc’’ to mean ‘‘depression[s] in thesurface of the disc which represent[ ] dataor information’’ Markman Order, at *4,2008 U.S. Dist. LEXIS 63498 at *13. Thestep of ‘‘collating the processed optical sig-nal with an optical disk standard datawhich is stored in a memory’’ was con-strued to mean ‘‘comparing the processedoptical signal with an optical disk standarddata stored on a memory.’’ Id. at *5, 2008U.S. Dist. LEXIS 63498 at *15.

QCI does not challenge the districtcourt’s claim constructions, but onlywhether the trial record supports thejury’s verdict of infringement. Contraryto QCI’s argument, nothing in these claimconstructions dictates that the arrange-ment of depressions be ‘‘identified’’ or‘‘recognized’’ in any particular manner.Substantial evidence exists to show thatthe industry standards for various opticaldiscs require specified arrangements of thedepressions horizontally as well as speci-fied depths of the data layers. The record


amply supports that the depth of the datalayer precisely correlates to the pit config-uration arrangement, such that the meas-urement of the depth (via a counter value)is a measurement of the pit arrangement.Under the claim constructions, the jurywas entitled to find infringement on thisbasis, and we therefore affirm the districtcourt’s denial of QCI’s motion for JMOL ofnon-infringement.

D. The District Court’s Jury InstructionDoes Not Alone Warrant a New

Trial on Liability

As discussed above, upon perceiving achange in position by QCI concerning thefrequency with which QCI’s ODDs wereobtained via a buy/sell arrangement, thedistrict judge instructed the jury as fol-lows: ‘‘this constitutes a significant changein the testimony, and no documents havebeen produced to support that, and thatyou may take this instruction into accountin judging the credibility of all of thiswitness’ testimony and all other QuantaComputer’s positions in this case.’’ A34–35. QCI contends that this instruction sounfairly prejudiced QCI that only a newtrial could rectify the error.

[17–20] Since QCI did not object attrial, we review the district court’s instruc-tion for plain error. Rodriguez v. RiddellSports, Inc., 242 F.3d 567, 579 (5th Cir.2001). Plain error is ‘‘clear’’ or ‘‘obvious’’and must affect substantial rights. Id.(quoting United States v. Calverley, 37F.3d 160, 162–64 (5th Cir.1994)). Such er-ror is reversible only if it ‘‘seriously af-fect[s] the fairness, integrity, or publicreputation of judicial proceedings.’’ Id.(citations omitted). Although a districtcourt is afforded broad discretion over themanner in which trial is conducted, andmay intervene to help expand upon orclarify witness testimony and evidence,such intervention ‘‘may not come at the

cost of strict impartiality.’’ Id. (quotingUnited States v. Saenz, 134 F.3d 697, 702(5th Cir.1998)). Thus, ‘‘[i]n reviewing aclaim that the trial court appeared partial,this court must determine whether thejudge’s behavior was so prejudicial that itdenied the [defendant] a fair, as opposedto a perfect, trial.’’ Id. (citations and in-ternal quotation marks omitted). In per-forming this review, we must consider thedistrict court’s actions in light of the entiretrial record and consider the totality of thecircumstances. Saenz, 134 F.3d at 702.

[21] Our review of the record showsthat QCI made different representationsconcerning the frequency with which itsODD purchases were made via buy/sellarrangements. It is not the same to sug-gest that a certain method is ‘‘one way’’business is done when in fact it is thepredominant way—85% of the time—thatbusiness is done. Nevertheless, the dis-trict court’s response to this potential in-consistency was harsh and prejudicial toQCI. The question of whether there wasany inconsistency here, and the associatedquestions of credibility, should have beenfor the jury to decide. It is one thing topoint out a potential inconsistency to thejury and to raise an associated question ofcredibility. But it was error to instructthe jury to ‘‘take this instruction into ac-count in judging the credibility of TTT allother Quanta Computer’s positions in thiscase.’’ A34–35 (emphasis added).

[22] Notwithstanding whether therewas any inconsistency in QCI’s positions,on the balance, we do not view the districtcourt’s instruction to constitute plain errorthat standing alone warrants a new trial.QCI was given a second trial on the issueof damages, which cured any prejudicethat the district court’s instruction mighthave caused in that regard. As for in-fringement liability, a portion of the caseput on through entirely different wit-


nesses, we are not convinced that the in-struction, in context, was so severe as toprevent QCI from a receiving a ‘‘fair, asopposed to a perfect, trial’’ on infringe-ment. Rodriguez, 242 F.3d at 579 (cita-tions omitted). However, if the same testi-mony is introduced at a subsequent trial,the court must leave to the jury the deci-sion whether any inconsistency exists.

E. The District Court Erred By Settingthe Hypothetical Negotiation Date as

August 31, 2006

During both trials, QCI was bound bythe district court’s ruling that the hypo-thetical negotiation date for purposes ofthe Georgia–Pacific reasonable royaltyanalysis was August 2006—i.e., when thelawsuit was filed. The district court rea-soned that since QCI was being accused ofactive inducement of infringement, whichrequires knowledge of the patent, andsince QCI was not notified of the patentuntil August 2006, this date was when QCIfirst became liable to LaserDynamics.Based in large part on this late date, Las-erDynamics’ expert Mr. Murtha testifiedthat he disregarded almost all of LaserDy-namics’ twenty-nine licenses in evidencethat were executed earlier, reasoning thatthe economic landscape had since changed.

[23] We have explained that ‘‘[t]he cor-rect determination of [the hypothetical ne-gotiation] date is essential for properlyassessing damages.’’ Integra LifesciencesI, Ltd. v. Merck KGaA, 331 F.3d 860, 870(Fed.Cir.2003). In general, the date of thehypothetical negotiation is the date thatthe infringement began. See Georgia–Pa-cific, 318 F.Supp. at 1123. We have con-sistently adhered to this principle. See,e.g., Applied Med. Res. Corp. v. U.S. Sur-gical Corp., 435 F.3d 1356, 1363–64 (Fed.Cir.2006) (‘‘[T]he hypothetical negotiationrelates to the date of first infringement.’’);State Indus., Inc. v. Mor–Flo Indus., Inc.,

883 F.2d 1573, 1580 (Fed.Cir.1989) (‘‘Thedetermination of a reasonable royalty TTT

[is based] on what a willing licensor andlicensee would bargain for at hypotheticalnegotiations on the date infringementstarted.’’).

[24–26] We have also been careful todistinguish the hypothetical negotiationdate from other dates that trigger in-fringement liability. For example, the six-year limitation on recovery of past dam-ages under 35 U.S.C. § 286 does not pre-clude the hypothetical negotiation datefrom taking place on the date infringementbegan, even if damages cannot be collecteduntil some time later. See Wang Labs.,Inc. v. Toshiba Corp., 993 F.2d 858, 870(Fed.Cir.1993). Similarly, the failure tomark a patented product or prove actualnotice of the patent pursuant to 35 U.S.C.§ 287 precludes the recovery of damagesprior to the marking or notice date, butthe hypothetical negotiation date may nev-ertheless be properly set before markingor notice occurs. Id. (‘‘[T]he court con-fused limitation on damages due to lack ofnotice with determination of the time whendamages first began to accrue, and it is thelatter which is controlling in a hypotheticalroyalty determination.’’). In sum, ‘‘[a] rea-sonable royalty determination for purposesof making a damages evaluation must re-late to the time infringement occurred, andnot be an after-the-fact assessment.’’Riles v. Shell Exploration & Prod. Co., 298F.3d 1302, 1313 (Fed.Cir.2002) (citingHanson v. Alpine Valley Ski Area, Inc.,718 F.2d 1075, 1079 (Fed.Cir.1983) (‘‘Thekey element in setting a reasonable royaltyTTT is the necessity for return to the datewhen the infringement began.’’)).

[27–29] Here, there is no dispute thatwhile QCI first became liable for activeinducement of infringement in August2006, QCI’s sales of accused laptop com-puters into the United States began caus-


ing the underlying direct infringement byend users in 2003. From the premise thatthe hypothetical negotiation must focus onthe ‘‘date when the infringement began,’’Hanson, 718 F.2d at 1079, we note thatactive inducement of infringement is, bydefinition, conduct that causes and encour-ages infringement. 35 U.S.C. § 271(b)(‘‘Whoever actively induces infringement ofa patent shall be liable as an infringer.’’).While active inducement can ultimatelylead to direct infringement, absent directinfringement there is no compensableharm to a patentee. See Aro Mfg. Co. v.Convertible Top Replacement Co., 377 U.S.476, 500, 84 S.Ct. 1526, 12 L.Ed.2d 457(1964) (‘‘It is true that a contributory in-fringer is a species of joint-tortfeasor, whois held liable because he has contributedwith another to the causing of a singleharm to the plaintiff.’’). Thus, we holdthat in the context of active inducement ofinfringement, a hypothetical negotiation isdeemed to take place on the date of thefirst direct infringement traceable to QCI’sfirst instance of inducement conduct—inthis case, 2003.

Our holding is consistent with the pur-pose of the hypothetical negotiation frame-work, which seeks to discern the value ofthe patented technology to the parties inthe marketplace when infringement began.In considering the fifteen Georgia–Pacificfactors, it is presumed that the parties hadfull knowledge of the facts and circum-stances surrounding the infringement atthat time. Indeed, the basic questionposed in a hypothetical negotiation is: if,on the eve of infringement, a willing li-censor and licensee had entered into anagreement instead of allowing infringe-ment of the patent to take place, whatwould that agreement be? This questioncannot be meaningfully answered unlesswe also presume knowledge of the patentand of the infringement at the time theaccused inducement conduct began. Were

we to permit a later notice date to serve asthe hypothetical negotiation date, the dam-ages analysis would be skewed because, asa legal construct, we seek to pin down howthe prospective infringement might havebeen avoided via an out-of-court businesssolution. See Wordtech Sys. v. IntegratedNetworks Solutions, Inc., 609 F.3d 1308,1319 (Fed.Cir.2010) (‘‘The hypothetical ne-gotiation ‘attempts to ascertain the royaltyupon which the parties would have agreedhad they successfully negotiated an agree-ment just before infringement began,’ and‘necessarily involves an element of approx-imation and uncertainty.’ ’’ (quoting Lu-cent, 580 F.3d at 1324–25)). It also makessense that in each case there should beonly a single hypothetical negotiation date,not separate dates for separate acts ofinfringement, and that a direct infringer orsomeone who induced infringement shouldpay the same reasonable royalty based ona single hypothetical negotiation analysis.

Lastly, QCI points out that the accusedODDs were manufactured by QSI as earlyas 2001, and urges us to deem 2001 thedate of first infringement for the hypothet-ical negotiation. However, it is QCI thatis accused of active inducement here, andthe record shows that QCI and QSI arerelated but independently operated compa-nies, and that QCI does not own a control-ling interest in QSI. Thus, there is no basison which to further push back the hypo-thetical negotiation date to 2001. SeeBMC Res., Inc. v. Paymentech, LP, 498F.3d 1373, 1380–82 (Fed.Cir.2007) (declin-ing to impute responsibility for allegedlyinfringing conduct from one party to an-other).

Because our decision alters the time pe-riod when the analysis under Georgia–Pacific is to take place, we remand for anew trial on damages pursuant to the 2003hypothetical negotiation date with respectto those accused laptop computers not en-


compassed by QCI’s implied license as dis-cussed above.

F. The District Court Erredin Admitting the BenQSettlement Agreement

[30] Before the second trial, QCI fileda motion in limine seeking to exclude the2006 LaserDynamics–BenQ settlementagreement from evidence pursuant to Fed-eral Rule of Evidence 403. QCI’s motionemphasized the unique circumstances ofthe BenQ settlement, which was enteredinto on the eve of trial after BenQ hadbeen repeatedly sanctioned by the districtcourt. We conclude that the district courtabused its discretion in denying QCI’s mo-tion and allowing the agreement into evi-dence.

Rule 403 provides for the exclusion ofotherwise relevant evidence when the pro-bative value of that evidence is substantial-ly outweighed by the danger of unfairprejudice, confusing the issues, or mislead-ing the jury. Along these lines, FederalRule of Evidence 408 specifically prohibitsthe admission of settlement offers and ne-gotiations offered to prove the amount ofdamages owed on a claim. The proprietyof using prior settlement agreements toprove the amount of a reasonable royaltyis questionable. See, e.g., Rude v. West-cott, 130 U.S. 152, 164, 9 S.Ct. 463, 32L.Ed. 888 (1889) (‘‘[A] payment of any sumin settlement of a claim for an allegedinfringement cannot be taken as a stan-dard to measure the value of the improve-ments patented, in determining the dam-ages sustained by the owners of the patentin other cases of infringement.’’); Deere &Co. v. Int’l Harvester Co., 710 F.2d 1551,1557 (Fed.Cir.1983) (holding that ‘‘as theWhite license was negotiated against abackdrop of continuing litigation and [de-fendant’s] infringement of the Schreinerpatent, the district court could properly

discount the probative value of the Whitelicense with regard to a reasonable royal-ty’’); see also Hanson, 718 F.2d at 1078–79(observing that ‘‘license fees negotiated inthe face of a threat of high litigation costsmay be strongly influenced by a desire toavoid full litigation’’ and ‘‘should not beconsidered evidence of an established roy-alty’’ (quoting Panduit Corp. v. StahlinBros. Fibre Works, Inc., 575 F.2d 1152,1164 n. 11 (6th Cir.1978) (Markey, J.))).The notion that license fees that are taint-ed by the coercive environment of patentlitigation are unsuitable to prove a reason-able royalty is a logical extension of Geor-gia–Pacific, the premise of which assumesa voluntary agreement will be reached be-tween a willing licensor and a willing licen-see, with validity and infringement of thepatent not being disputed. See 318F.Supp. at 1120.

Despite the longstanding disapproval ofrelying on settlement agreements to estab-lish reasonable royalty damages, we re-cently permitted such reliance under cer-tain limited circumstances. See ResQNet,594 F.3d at 870–72 (explaining that a set-tlement license to the patents-in-suit in arunning royalty form was ‘‘the most reli-able license in [the] record’’ when com-pared with other licenses that did not‘‘even mention[ ] the patents-in-suit orshow[ ] any other discernable link to theclaimed technology’’). We permitted con-sideration of the settlement license on re-mand, but we cautioned the district courtto consider the license in its proper contextwithin the hypothetical negotiation frame-work to ensure that the reasonable royaltyrate reflects ‘‘the economic demand for theclaimed technology.’’ Id. at 872.

Unlike the license in ResQNet, the BenQsettlement agreement is far from being the‘‘most reliable license in [the] record.’’ 594F.3d at 872. Indeed, the BenQ settlementagreement appears to be the least reliable


license by a wide margin. The BenQ set-tlement agreement was executed shortlybefore a trial—a trial in which BenQ wouldhave been at a severe legal and proceduraldisadvantage given the numerous harshsanctions imposed on it by the districtcourt. The $6 million lump sum licensefee is six times larger than the next high-est amount paid for a license to the patent-in-suit, and ostensibly reflects not the val-ue of the claimed invention but the strongdesire to avoid further litigation under thecircumstances. LaserDynamics executedtwenty-nine licenses for the patent-in-suitin total, the vast majority of which are notsettlements of active litigation and do notinvolve the unique coercive circumstancesof the BenQ settlement agreement, andwhich are therefore far more reliable indi-cators of what willing parties would agreeto in a hypothetical negotiation. Addition-ally, in light of the changing technologicaland financial landscape in the market forODDs, the BenQ settlement, entered intoa full three years after the hypotheticalnegotiation date, is in many ways not rele-vant to the hypothetical negotiation analy-sis. See Odetics, Inc. v. Storage Tech.Corp., 185 F.3d 1259, 1276–77 (Fed.Cir.1999) (agreeing with the district court that,for two licenses entered into four and fiveyears after the date of first infringement,‘‘the age of the license agreements, in thecontext of the changing technology and‘financial landscape’ at issue, made thoseagreements irrelevant for the hypotheticalnegotiation analysis’’). This record standsin stark contrast to that in ResQNet,where a lone settlement agreement stoodapart from all other licenses in the recordas being uniquely relevant and reliable.This case is therefore well outside thelimited scope of circumstances underwhich we deemed the settlement agree-ment in ResQNet admissible and proba-tive. The probative value of the BenQsettlement agreement is dubious in that it

has very little relation to demonstratedeconomic demand for the patented technol-ogy, and its probative value is greatly out-weighed by the risk of unfair prejudice,confusion of the issues, and misleading thejury. Fed.R.Evid. 403. Accordingly, weconclude that the district court abused itsdiscretion by admitting the BenQ settle-ment agreement into evidence, and mustexclude the agreement from the proceed-ings on remand.

G. The District Court Erred in Admit-ting Mr. Murtha’s Opinions Concerning

a 6% Royalty Rate Per $41 ODD

Because we are remanding to the dis-trict court for a new trial on damagesunder the proper 2003 hypothetical negoti-ation date, we do not reach QCI’s argu-ment that the second jury verdict of an$8.5 million lump sum lacks evidentiarysupport, so as to entitle QCI to a $1.2million judgment on damages as a matterof law. However, for the purposes of re-mand, we do reach QCI’s Daubert chal-lenge to Mr. Murtha’s methodology in thesecond trial and find that the district courterred in allowing the jury to hear histestimony concerning a 6% royalty ratederived from the Sony-made $41 ODDs.

1. Mr. Murtha’s Use of theSony–Made $41 ODDs

QCI argues that Mr. Murtha’s testimonyin the second trial was unreliable for usinga $41 per ODD value that was calculatedbased on a relatively small sample of about9,000 non-infringing drives made by Sony,not by QSI. QCI Br. at 69–70. We dis-agree.

LaserDynamics contends that the $41price of the Sony ODDs was more appro-priate than the $28 mask price used in thefirst trial with respect to QSI-made ODDs.According to LaserDynamics, since QCIdoes not track prices and revenues of the


ODDs that it buys to incorporate into lap-top computers, and does not generally sellstand alone ODDs, the $41 Sony-madedrives that QCI sells as replacement partsbetter reflect the market value for ODDsindependent of the completed laptop com-puters. QCI counters that the $41 pricewas unreliable because it was based on asmall sample size of licensed and thereforenon-infringing drives, which is irrelevantto the price of the accused drives, andbecause the record shows that the $28mask price of the accused QSI-madedrives is always higher than the price tothe consumer.

[31] As the district court explained,‘‘[Mr. Murtha’s] approach appears to be areasonable attempt to value [QCI’s] drivesbased on arms-length transactions. Al-though the jury may ultimately determinethat [Mr. Murtha’s] approach is unreason-able, the approach is not subject to a Dau-bert challenge.’’ LaserDynamics, No.2:06–cv–348–TJW–CE (E.D.Tex. Jan. 21,2011). We conclude that the district courtdid not abuse its discretion in declining toexclude Mr. Murtha’s use of the $41 Sony-made ODDs on Daubert grounds.

2. Mr. Murtha’s 6% RoyaltyRate Per ODD

QCI contends that Mr. Murtha’s opinionthat a reasonable royalty in this casewould be 6% of each ODD sold within alaptop computer by QCI was unreliableunder Federal Rule of Evidence 702 andshould have been excluded. We agree.

The first of the fifteen factors in Geor-gia–Pacific is ‘‘the royalties received bythe patentee for the licensing of the patentin suit, proving or tending to prove anestablished royalty.’’ 318 F.Supp. at 1120.Actual licenses to the patented technologyare highly probative as to what constitutesa reasonable royalty for those patentrights because such actual licenses most

clearly reflect the economic value of thepatented technology in the marketplace.See ResQNet, 594 F.3d at 869 (‘‘[T]he trialcourt must carefully tie proof of damagesto the claimed invention’s footprint in themarket place.’’).

When relying on licenses to prove areasonable royalty, alleging a loose orvague comparability between differenttechnologies or licenses does not suffice.For example, in Lucent, where the paten-tee had relied on various licenses in thesame general computer field without prov-ing a relationship to the patented technolo-gy or the accused infringing products, weinsisted that the ‘‘licenses relied upon bythe patentee in proving damages [be] suffi-ciently comparable to the hypothetical li-cense at issue in suit,’’ and noted that thepatentee’s failure to prove comparability‘‘weighs strongly against the jury’s award’’relying on the non-comparable licenses.580 F.3d at 1325, 1332.

Likewise, in ResQNet, the patentee’s ex-pert ‘‘used licenses with no relationship tothe claimed invention to drive the royaltyrate up to unjustified double-digit levels,’’and which had no ‘‘other discernible link tothe claimed technology.’’ 594 F.3d at 870.We rejected this testimony, holding thatthe district court ‘‘must consider licensesthat are commensurate with what the de-fendant has appropriated. If not, a pre-vailing plaintiff would be free to inflate thereasonable royalty analysis with conve-niently selected licenses without an eco-nomic or other link to the technology inquestion.’’ Id. at 872. On remand, wedirected that unrelated licenses could notbe relied on to increase the reasonableroyalty rate above rates that are moreclearly linked to the economic demand forthe claimed technology. Id. at 872–73.

Actual licenses to the patents-in-suit areprobative not only of the proper amount of


a reasonable royalty, but also of the properform of the royalty structure. In Word-tech Systems, the patentee relied on thir-teen patent licenses that it previouslygranted to third parties. 609 F.3d at 1319.We rejected the patentee’s reliance oneleven of the thirteen licenses for being inthe form of a running royalty (whereas thepatentee had sought a lump sum payment)and for including royalty rates far lowerthan the jury returned. Id. at 1320–21.The remaining two licenses, although inthe form of lump sums, were also rejectedfor not describing how the lump sumswere calculated or the type and volume ofproducts intended to be covered by thelicenses. Id. at 1320. We ultimately re-versed the $250,000 verdict and remandedfor a new trial on damages because ‘‘theverdict was clearly not supported by theevidence and based only on speculation orguesswork.’’ Id. at 1319–22 (citation andinternal quotation marks omitted).

[32] In this case, the district court de-nied QCI’s Daubert motion and permittedMr. Murtha to testify concerning his opin-ion of a 6% running royalty rate during thesecond trial. However, the district courtinsisted that LaserDynamics prove thattwo DVD-related patent licensing pro-grams and the 1997 Licensing ExecutivesSurvey relied on by Mr. Murtha (to theexclusion of the many past licenses for the8981 patent) were sufficiently comparableto the hypothetically negotiated licenseMr. Murtha proffered. LaserDynamics,2011 WL 7563818, at *2–*4, 2011 U.S.Dist. LEXIS 42590, at *8–*11.

The district court correctly recognizedthat LaserDynamics’ reliance on the twoDVD-related patent licensing programsand the 1997 Licensing Executives Surveywas problematic, but its ruling erroneouslypermitted continued reliance on this evi-dence where comparability between it anda hypothetical license to the 8981 Patent

was absent. The DVD-related patent li-censing programs did not involve the 8981Patent, and no evidence shows that it eveninvolves a disc discrimination method.A652. The 1997 licensing survey was evenfurther removed from the patented tech-nology, since it was not even limited to anyparticular industry, but ‘‘was across what-ever technologies were being licensed bythe people who responded.’’ A653–54.Like the licenses we rejected in ResQNet,this licensing evidence relied upon by Mr.Murtha ‘‘simply [has] no place in thiscase.’’ 594 F.3d at 871. Relying on thisirrelevant evidence to the exclusion of themany licenses expressly for the 8981 Pat-ent served no purpose other than to ‘‘toincrease the reasonable royalty rate aboverates more clearly linked to the economicdemand for the claimed technology.’’ Id.at 872–73.

Aside from the BenQ settlement agree-ment discussed above, the licenses to thepatents-in-suit were all for lumps sumamounts not exceeding $1 million. Mr.Murtha’s 6% running royalty theory can-not be reconciled with the actual licensingevidence, which is highly probative of thepatented invention’s economic value in themarketplace, and of the form that a hypo-thetical license agreement would likelyhave taken. Although Mr. Murtha con-ceded that QCI would be aware of Laser-Dynamics’ prior licenses in the hypotheti-cal negotiation, he dismissed the probativevalue of the licenses because they wereentered into between 1998 and 2003, be-fore the August 2006 hypothetical negotia-tion date. Mr. Murtha reasoned that, by2006, the DVD market was larger andmore established such that the value of thepatented technology was better appreciat-ed and LaserDynamics had more bargain-ing power to insist on a running royalty.Thus, in his view, LaserDynamics’ past


licenses could not reflect an appropriateroyalty for QCI in 2006.

This reasoning is not supported by therecord, however, which undisputedly showsthat by around 2000, the DVDs and ODDmarkets were already experiencing tre-mendous growth such that by 2003 thosemarkets were highly saturated. LaserDy-namics Br. at 8–9 (‘‘The landscape for theacceptance of the DVD format began tochange in about 2000. In a relativelyshort time span, from around 2001 to 2002,video rental stores transitioned their en-tire stock from VHS tapes to DVDs. By2003, nearly every home had a DVD play-er, and nearly every computer had a DVDdrive.’’ (citations omitted)); QCI Br. at 64(‘‘The increase in demand for optical discdrives was fully anticipated by the indus-try in 2000, before many of the prior li-cense agreements were entered into.’’).Most of the early lump sum licenses thatwere summarily rejected by Mr. Murthawere thus entered into when the value ofthe patented technology was readily ap-parent and demand was already projectedto greatly increase. The resetting of thehypothetical negotiation date to 2003, thedate of first direct infringement inducedby QCI’s conduct, further undercuts Mr.Murtha’s reasoning that the licenses to the8981 patent from the 1997 to 2001 timeframe were too early to be probative.That the Licensing Executives Survey re-lied upon by Mr. Murtha—which has nomeaningful ties to the patented technolo-gy—was created in 1997 highlights theinconsistency in Mr. Murtha’s selectivereasoning. Such strained reasoning is un-reliable and cannot be used to ignore Las-erDynamics’ long history of licensing the8981 Patent.

In sum, the 6% royalty rate was unteth-ered from the patented technology at issueand the many licenses thereto and, assuch, was arbitrary and speculative. See

Uniloc, 632 F.3d at 1318; ResQNet, 594F.3d at 873. A new trial is required be-cause the jury’s verdict was based on anexpert opinion that finds no support in thefacts in the record. See Wordtech, 609F.3d at 1319–22 (prohibiting jury verdictsto stand if they are ‘‘clearly not supportedby the evidence’’ or ‘‘based only on specu-lation or guesswork’’ (citation omitted));see also Brooke Group Ltd. v. Brown &Williamson Tobacco Corp., 509 U.S. 209,242, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993)(‘‘When an expert opinion is not supportedby sufficient facts to validate it in the eyesof the law, or when indisputable recordfacts contradict or otherwise render theopinion unreasonable, it cannot support ajury’s verdict.’’). On remand, LaserDy-namics may not again present its 6% run-ning royalty damages theory.

As a final matter, we do not hold thatLaserDynamics’ past licenses create an ab-solute ceiling on the amount of damages towhich it may be entitled, see 35 U.S.C.§ 284, or that its history of lump sumlicenses precludes LaserDynamics fromobtaining damages in the form of a run-ning royalty. Full consideration of all theGeorgia–Pacific factors might well justifya departure from the amount or even theform of LaserDynamics’ past licensingpractices, given the appropriate evidenceand reasoning.

IV. Conclusion

For the foregoing reasons, we affirm-in-part and reverse-in-part the district court’sjudgment. We remand for further pro-ceedings regarding the damages owed byQCI pertaining to the infringing ODDs notpurchased by QCI via Philips andSony/NEC/Optiarc, and for which QCIdoes not have an implied license to the8981 Patent. On remand, the hypotheticalnegotiation date shall be set in 2003, theBenQ settlement agreement shall not be


admitted into evidence or relied upon attrial, and LaserDynamics shall not againpresent its 6% running royalty damagestheory.

AFFIRMED–IN–PART, REVERSED–IN–PART, and REMANDED.

Costs

No Costs.

,

ARCELORMITTAL STAINLESS BEL-GIUM N.V. (now known as AperamStainless Belgium N.V.), Plaintiff–Ap-pellant,

v.

UNITED STATES, Defendant–Appellee,

and

Allegheny Ludlum Corporation,Defendant–Appellee.

No. 2011–1578.

United States Court of Appeals,Federal Circuit.

Sept. 7, 2012.

Background: Belgian producer of stain-less steel plate in coils (SSPC) broughtaction against United States, challengingscope of Department of Commerce’s(DOC) antidumping duty order on SSPCthat was 4.75 millimeters (mm) or more inthickness. The United States Court of In-ternational Trade, Richard K. Eaton, J.,2011 WL 2713872, affirmed DOC’s deter-mination that order encompassed SSPChaving nominal thickness of 4.75 mm butactual thickness of less than 4.75 mm, andproducer appealed.

Holding: The Court of Appeals, Plager,Circuit Judge, held that antidumping dutyorder was not ambiguous as to SSPC hav-ing nominal thickness of 4.75 mm but actu-al thickness of less than 4.75 mm.

Reversed.

1. Customs Duties O85(3)

Court of Appeals reviews decisions ofthe Court of International Trade evaluat-ing Department of Commerce’s (DOC) an-tidumping determinations by reapplyingthe 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.§ 1516a(b)(1)(B)(i).

2. Customs Duties O21.5(5)

First step in a proceeding challengingscope of antidumping duty order is to de-termine whether the order’s governing lan-guage is in fact ambiguous, and thus re-quires analysis of regulatory factors; if it isnot ambiguous, the plain meaning of thelanguage governs. Tariff Act of 1930,§ 731, 19 U.S.C.A. § 1673.

3. Customs Duties O21.5(5)

Department of Commerce (DOC) anti-dumping duty order on certain stainlesssteel plate in coils (SSPC), providing thatproducts subject to order were those thatwere ‘‘4.75 mm or more in thickness,’’ wasnot ambiguous as to SSPC having nominalthickness of 4.75 mm but actual thicknessof less than 4.75 mm, and thus consider-ation of industry custom was not warrant-ed in Belgian SSPC producer’s challengeto scope of order, since DOC had previous-ly determined that 4.75 mm in thicknesswas actual measurement excluding fromits scope merchandise with actual thick-ness of less than 4.75 mm. Tariff Act of1930, §§ 731, 732(b, c), 735, 736, 19

Documents

LASERDYNAMICS, INC. v. QUANTA COMPUTER, … INC. v. QUANTA COMPUTER, INC