ResQnet

http://www.tiplj.org/wp-content/uploads/Volumes/v20/v20p181.pdf

a) ResQNet
In ResQnet, ResQNet’s (the patentee) expert relied on seven prior licenses as a “starting point” in determining the reasonable
royalty.51 Five of the licenses were “re-bundling” licenses, permitting the licensees to re-brand the patentee’s software, *192
re-bundle it with the licensee’s own products, and resell the newly-bundled products.52 In addition, the licenses included
services such as technical support and training, and did not specifically mention the patent at issue in the lawsuit.53 ResQNet
failed to offer evidence that the software in these re-bundling licenses (or the users of the software) practiced the patented
method.54 These licenses had a large sliding-royalty rate (a rate that changed depending on various circumstances).55

The Federal Circuit contrasted the large royalty rates in the re-bundling licenses, which showed “no discernible link to the
claimed technology,” with the lower royalty rates in the remaining two licenses, which arose out of litigation.56 Without
evidence of the link, if any, between the re-bundling licenses and the patented method, those re-bundling licenses were
essentially useless as evidence of a reasonable royalty.57 The patent-in-suit dealt “with a method of communicating between
host computers and remote terminals--not training, marketing, and customer support services. The re-bundling licenses
simply ha[d] no place in this case.”58

According to the majority, ResQNet’s expert relied almost exclusively on the first Georgia-Pacific factor--prior licenses of
the patent-in-suit--in evaluating the reasonable royalty.59 Consequently, after the Federal Circuit held that the trial court
should have disregarded the re-bundling licenses, only the two litigation licenses remained as potential damages evidence.60
The court observed in dicta “that the most reliable license in this record arose out of litigation,” but also noted that “litigation
itself can skew the results of the hypothetical negotiation.”61 On remand, *193 the district court would have to reconsider the
reasonable royalty calculation, and it “should not rely on unrelated licenses to increase the reasonable royalty rate above rates
more clearly linked to the economic demand for the claimed technology.”62 In concluding, the Federal Circuit faulted the
district court for relying on the re-bundling licenses “without any factual findings that accounted for the technological and
economic differences between those licenses and the [patent-in-suit].”63 A district court “must consider licenses that are
commensurate with what the defendant has appropriated.”64

In dissent, Judge Newman accused the majority of “creat[ing] a new rule whereby no licenses involving the patented
technology can be considered . . . if the patents themselves are not directly licensed or if the licenses include subject matter in
addition to that which was infringed by the defendant here.”65 The district court recognized that none of the licenses in
evidence was “a perfect approximation of the hypothetical license between ResQNet and Lansa.”66 Judge Newman noted that
“it is not necessary that the identical situation existed in past transactions, for the trier of fact to determine the value of the
injury,”67 and he accused the majority of depriving the fact-finder of relevant information.68

The majority in ResQNet did not hold that a district court may never consider “any licenses involving the technology of [the
patents-in-suit] bundled with additional technologies, such as software code.”69 Rather, the majority took issue with the
district court’s “considering ResQNet’s re-bundling licenses to significantly adjust upward the reasonable royalty without any
factual findings that accounted for the technological and economic differences between those licenses and the [infringed
patent].”70 The majority in ResQNet noted that reasonable royalty damages must be “carefully tie[d] . . . to the claimed
invention’s footprint in the marketplace,”71 and “[a]ny evidence unrelated to the claimed invention does not support *194
compensation for infringement.”72 Where licenses are “radically different from the hypothetical agreement under
consideration,” they are generally not competent proof of damages.73