MOORE, Circuit Judge.
These appeals stem from a patent infringement action brought by ActiveVideo Networks, Inc. (ActiveVideo) against Verizon Communications, Inc. et al. (Verizon). Verizon counterclaimed that ActiveVideo infringed certain of its patents. After trial, a jury found that Verizon infringed four ActiveVideo patents and that ActiveVideo infringed two Verizon patents and awarded damages to both parties. Following trial, the district court entered a permanent injunction against Verizon but delayed enforcement of the injunction for six months during which Verizon was ordered to pay a sunset royalty. On appeal, Verizon challenges the infringement finding and damages award as well as the permanent injunction and sunset royalty. Verizon also appeals the district court's grant of summary judgment of invalidity as to a third Verizon patent and its grant of judgment as a matter of law (JMOL) preventing Verizon's invalidity defenses from reaching the jury. ActiveVideo cross-appeals the district court's denial of JMOL of non-infringement and its grant of JMOL preventing ActiveVideo's invalidity defenses from reaching the jury. For the reasons set forth below, we affirm-in-part, reverse-in-part, vacate-in-part, and remand.
ActiveVideo asserted U.S. Patent Nos. 5,550,578 ('578 patent), 6,205,582 ('582 patent), 6,034,678 ('678 patent), and 6,100,883 ('883 patent) against Verizon at trial. ActiveVideo alleged that Verizon's
Verizon asserted counterclaims that ActiveVideo in-fringed claim 1 of U.S. Patent No. 6,169,542 ('542 patent) and claim 9 of U.S. Patent No. 7,561,214 ('214 patent). Verizon also asserted U.S. Patent No. 6,381,748 ('748 patent), but this patent was held invalid by the district court prior to trial. The three Verizon patents generally disclose systems and methods related to interactive television features, including internet access ('748 patent), two-dimensional channel navigation ('214 patent), and advertising ('542 patent).
During a three week jury trial, the district court excluded testimony from Verizon's damages expert about an agreement between ActiveVideo and Cablevision because the agreement post-dated the date of hypothetical negotiation. The district court overruled Verizon's objection and allowed testimony from ActiveVideo's damages expert about indemnity agreements Verizon had with its FiOS-TV equipment suppliers. The district court also denied Verizon's motion for JMOL on damages, concluding that Verizon failed to establish that it was an intended third-party beneficiary to an agreement between ActiveVideo and TV Guide, which potentially barred any assessment of damages against Verizon prior to the agreement's expiration. The district court granted-in-part and denied-in-part Verizon's motion for JMOL on pre-suit damages for ActiveVideo's failure to mark its products under 35 U.S.C. § 287. And the district court granted both ActiveVideo's and Verizon's motions for JMOL on validity, preventing the invalidity defenses of both ActiveVideo and Verizon to reach the jury.
The jury found that the parties infringed each others' patents and awarded ActiveVideo $115,000,000 and Verizon $16,000 in damages. After trial, the district court entered a permanent injunction against Verizon, established a sunset royalty for Verizon's continued infringement until the injunction was to take effect, and denied Verizon's motions for JMOL or new trial on infringement, damages, and invalidity. The district court also denied ActiveVideo's motions for partial new trial on infringement and invalidity. Verizon appeals and ActiveVideo cross appeals. On June 25, 2012, after oral argument in this case, we stayed the permanent injunction
We review the denial or grant of JMOL under regional circuit law. ClearValue, Inc. v. Pearl River Polymers, Inc., 668 F.3d 1340, 1343 (Fed.Cir.2012). The Fourth Circuit reviews post-verdict JMOL rulings de novo, determining whether substantial evidence supports the jury verdict. Carolina Trucks & Equip., Inc. v. Volvo Trucks of N. Am., 492 F.3d 484, 488 (4th Cir.2007). The Fourth Circuit reviews the grant of pre-verdict JMOL rulings de novo, considering the evidence in the light most favorable to the non-moving party and determining whether a reasonable jury could find for the non-moving party on the issue in question. Brown v. CSX Transp., 18 F.3d 245, 248 (4th Cir.1994) (citing Fed.R.Civ.P. 50(a)).
Determining literal infringement is a two step process: the "proper construction of the asserted claim and a determination whether the claim as properly construed reads on the accused product or method." Georgia-Pacific Corp. v. U.S. Gypsum Co., 195 F.3d 1322, 1330 (Fed.Cir. 1999). The first step is a question of law, which we review de novo. Id. The second step is a question of fact, which we review for substantial evidence. i4i Ltd. P'Ship v. Microsoft Corp., 598 F.3d 831, 849 (Fed. Cir.2010), aff'd, ___ U.S. ___, 131 S.Ct. 2238, 180 L.Ed.2d 131 (2011).
Verizon contends the district court committed three errors in denying Verizon's JMOL of non-infringement. First, Verizon argues that the district court erred because its FiOS-TV system does not meet the "information service" limitation, which is required by every asserted claim. Second, with respect to the '578 patent only, Verizon argues that the district court erred because its FiOS-TV system does not satisfy the "television communication" limitation. Third, with respect to the '582 patent only, Verizon argues that the district court erred because the Verizon FiOS-TV system does not satisfy the "individually assignable processors" limitation.
In cross-appeal, ActiveVideo argues that the district court committed two errors in denying its JMOL of non-infringement. First, ActiveVideo argues that the district court erred in failing to construe the "superimposing" limitation in the '214 patent and that under the correct construction, ActiveVideo's system does not infringe. Second, ActiveVideo contends that the district court's construction of "video still image" was erroneous and that under the correct construction, ActiveVideo's system does not infringe.
A. "information service"
The term "information service" appears in each claim asserted by ActiveVideo.
J.A. 215 (emphasis added); '578 patent col.5 ll.28-34; '678 patent col.5 ll.25-31; '883 patent col.5 U.25-31; '582 patent col.3 ll.36-43. For purposes of this appeal, claim 8 of the '578 patent, from which asserted claim 9 depends, is representative. It reads:
'578 patent claim 8 (emphasis added).
Verizon argues that FiOS-TV does not infringe because its "interface" is generated not by the "headend" network as required by the asserted claims but instead by the accused home interface controllers (set-top-boxes or STBs) that are located in subscriber homes. Verizon contends that the asserted claims require the network "headend" to generate and furnish the entire viewer interface and that information content including "[d]ata and metadata are not an interface." Because the FiOS-TV STBs generate the "generic user interface that is available to the user," Verizon contends that the FiOS-TV headend network does not furnish an "information service."
ActiveVideo responds that the asserted claims do not require the interface to be "network-generated" because under the doctrine of the last antecedent, "having an interface" in the construction of "information service" refers to the television viewer, not the service. Thus, according to ActiveVideo, it is the television viewer that must have an "interface" permitting interaction with a facility of the cable provider. ActiveVideo argues that because the Verizon STBs generate a viewer interface from content received from the FiOS-TV network, the "information service" limitation is met. Even if the interface must be network-generated, ActiveVideo contends the jury's verdict is supported by substantial evidence that the FiOS-TV interactive media guide, widget, and VoD catalog interfaces are generated by the network.
We agree that substantial evidence supports the jury's verdict and district court's denial of JMOL. The construction of "information service," which is not disputed on appeal, requires that the service furnished by the headend network have "an interface permitting (but not necessarily requiring) interaction with a facility of the cable provider." We disagree with Verizon that the construction requires the entire viewer interface to be furnished by the headend network or that the interface furnished must take any specific form. We likewise reject Verizon's assertion that under
ActiveVideo's expert testified at trial that the content for the interactive media guide, widgets, and VoD catalog, which are viewer interfaces provided by FiOS-TV, is provided by the headend to an STB either automatically or as requested by a viewer. J.A. 3811-17, 5239-40, 5248-51. ActiveVideo's expert also testified that:
J.A. 5213-14 (emphasis added). This is substantial evidence from which the jury could reasonably conclude that the content and information provided by the FiOS-TV headend satisfies the information service's "interface" requirement. See Consol. Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 83 L.Ed. 126 (1938) (defining substantial evidence as "such evidence as a reasonable mind might accept as adequate to support a conclusion"); Fonar Corp. v. General Elec. Co., 107 F.3d 1543, 1551-52 (Fed.Cir.1997) (concluding expert testimony was substantial evidence to support jury's infringement finding); Orthokinetics, Inc. v. Safety Travel Chairs, Inc., 806 F.2d 1565, 1572-73 (Fed.Cir.1986) ("Because a jury must by definition be permitted to accept some probative evidence and reject other probative evidence, we may not decide whether we would as jurors have found [certain] evidence ... believable in light of the evidence as a whole." (internal quotation marks omitted)). Accordingly, the district court did not err in denying Verizon's JMOL on the "information service" limitation.
B. "television communication" — '578 patent
Although the "television communication" limitation appears in asserted claims of multiple patents, Verizon's appeal on this term is limited to the '578 patent. See Appellants' Br. 18; Oral Argument at 14:10-14:35, ActiveVideo Networks, Inc. v. Verizon Commc'ns, Inc., Nos. 2011-1538, -1567, 2012-1129, -1201, available at http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2011-1538.mp3. Independent claim 8, from which asserted claim 9 depends, recites in relevant part: "a plurality of interactive controllers, disposed at the headend, each interactive controller (i) in television communication with the information source means...." '578 patent claim 8. The district court construed "television communication" as "providing an information service via a television information signal." J.A. 216; see '578 patent col.5 ll.35-36. The district court construed "television information signal" as "any signal that may be utilized by a television for video display, regardless of the form, including a standard NTSC-modulated rf carrier, an MPEG-compressed digital data
Verizon argues that the district court erred in denying Verizon's JMOL of non-infringement because the accused FiOS-TV "interactive controllers" (headend processors) do not communicate with an "information source" (storage servers) in a signal format compatible with a television. Instead, Verizon argues that although FiOS-TV VoD content is stored on servers in MPEG format, the VoD content is transmitted from the storage servers to the headend processors using a proprietary signal format — CCP or RAID2 — that is not compatible with a television.
ActiveVideo responds that substantial evidence supports the jury's determination that MPEG video is transmitted between the FiOS-TV storage servers and headend processors. Because MPEG is one type of "television information signal" as expressly stated in the construction, ActiveVideo contends that transmission of MPEG video between the FiOS-TV storage servers and headend processors is "television communication." ActiveVideo also points out that MPEG itself is a signal that must be decoded by an STB before being displayed on a television, and that MPEG is expressly defined as a television information signal. Thus, ActiveVideo argues, regardless of whether the MPEG video in FiOS-TV is transmitted using RAID2 or CCP, it is still MPEG and constitutes television communication.
We agree with ActiveVideo that substantial evidence supports the jury's determination and district court's denial of JMOL. The construction of television information signal expressly includes as one example "an MPEG-compressed digital data stream." J.A. 254. Before an MPEG-compressed digital data stream can be used by a television, however, it must be decoded and decompressed. A "television information signal" is thus broad enough to include signals that require decoding and decompression before they can actually be used by a television. Similar to the exemplary MPEG-compressed digital data stream, the CCP or RAID2 signal in the FiOS-TV system must be decoded and decompressed before it can be used by a television. It was therefore the jury's role to determine whether decoding and decompressing the CCP or RAID2 signal satisfied the television information signal and television communication limitations. ActiveVideo's expert testified to the following:
J.A. 5263-64. See also J.A. 4973-74 (Verizon's expert testifying that the FiOS-TV video content is "MPEG-encoded" when stored and transmitted but "formatted in a way that televisions can't utilize because it's in a proprietary format"); J.A. 4554 (Verizon's expert testifying that the FiOS-TV system stores MPEG video and sends
C. "individually assignable processors" — '582 patent
The "individually assignable processors" limitation is recited in the asserted claims of the '582 patent. Independent claim 5 of that patent reads:
'582 patent claim 5 (emphasis added). The district court, after analyzing the prosecution history and finding disclaimer, construed "individually assignable processors" to mean "processors that are capable of being assigned on a one-to-one basis to a home interface controller." J.A. 233-35 (emphasis added). Neither Verizon nor ActiveVideo challenges the district court's construction.
Verizon argues that the district court erred in denying Verizon's JMOL of non-infringement because the FiOS-TV headend processors are not assigned on a one-to-one basis to a home interface controller (e.g., STB). That is, Verizon argues that FiOS-TV does not infringe because each FiOS-TV headend processor is always able to communicate with multiple STBs; there is no capability to individually assign a single processor to a single STB. Verizon notes that ActiveVideo distinguished a single-processor prior art system for lacking a processor that can be individually assigned to a subscriber. If the prior art system lacks individual assignment, argues Verizon, then so does FiOS-TV because its processors are shared in the same manner as the single processor in the prior art.
ActiveVideo argues that substantial evidence shows FiOS-TV has headend processors that are capable of being assigned one-to-one. ActiveVideo argues that assignment is different than "using"; using can be done by multiple people even
We disagree. ActiveVideo's attempt to distinguish between "assigning one-to-one" and "using one-to-one" lacks merit. The district court's unchallenged construction requires that a single headend processor and single STB be assigned on a
ActiveVideo's "system startup" argument also lacks merit. The district court concluded that the plain and ordinary meaning of "assign" is "to set aside for a particular purpose." J.A. 223. ActiveVideo does not challenge this construction. In this case, the "particular purpose" for assignment is set forth expressly in the claim: "data communication with an assigned home interface controller" and "television communication ... with the subscriber television associated with the assigned home interface controller." The record evidence fails to establish — at system startup or otherwise — that the accused FiOS-TV processors are "set aside" for communication on a one-to-one basis with a home interface controller. Indeed, ActiveVideo's expert testified that except for "assignment," FiOS-TV processors are used by more than one STB. See, e.g., J.A. 3811 ("The assignment itself is done on a one-to-one basis."); J.A. 3865 ("Using can be done by multiple people.... [A]nd the assignment is done on a one-to-one basis. Once each assignment takes place, [the processor] then can be used by more than one and is routinely used by more than one....").
The testimony of ActiveVideo's expert, that the FiOS-TV processors are routinely "used by more than one [STB]," shows that they are not set aside for data and television communication with a home interface controller on a one-to-one basis. This testimony is consistent with ActiveVideo's understanding expressed during prosecution that a prior art processor was not "individually assignable" where numerous subscribers may be in communication with that processor. See J.A. 94796. Although a first subscriber may use only one FiOS-TV processor for a brief period of time at system startup, that processor has not been set aside for communication with the subscriber on a one-to-one basis because a second subscriber may begin sharing that FiOS-TV processor at any instant. We conclude that the record does not contain substantial evidence that the accused FiOS-TV processors are assigned on a one-to-one basis, and therefore we reverse the district court's denial of Verizon's JMOL of non-infringement of the '582 patent.
D. "superimposing" — '214 patent
The "superimposing" limitation is recited in claim 9 of the Verizon '214 patent. The '214 patent generally discloses a two-dimensional method of channel surfing
'214 patent claim 9 (emphasis added).
ActiveVideo, citing O2 Micro International Ltd. v. Beyond Innovation Technology Co., 521 F.3d 1351 (Fed.Cir.2008), argues that the district court erred in declining to construe "superimposing the first indication over the display of the first anchor channel" and "including with the first indication a second indication" in asserted claim 9. ActiveVideo argues that the first and second indications must be overlayed on the displayed anchor channel and that they must be distinct from the content of the anchor channel. ActiveVideo argues that its system does not infringe under its "correct" construction because the indications (channel labels) in its system are broadcast as part of the "underlying content" of the anchor channel and are thus not superimposed.
Verizon argues that the district court resolved the dispute between the parties and satisfied 02 Micro by declining to adopt ActiveVideo's construction and giving the terms their plain and ordinary meaning. Verizon contends that ActiveVideo's construction is confusing, unhelpful, adds no clarity to the claim language itself, and is erroneous to the extent it attempts to narrow the claims by adding "overlay" and "distinct" limitations. Verizon also argues that even under ActiveVideo's construction, ActiveVideo's products infringe because its proposed construction places
The district court did not err in concluding that these terms have plain meanings that do not require additional construction. ActiveVideo's proposed construction erroneously reads limitations into the claims and the district court properly rejected that construction and resolved the dispute between the parties. See O2 Micro, 521 F.3d at 1363. It was up to the jury to determine from the evidence presented at trial whether the ActiveVideo system satisfied the plain and ordinary meaning of the "superimposing" limitations. We affirm the district court's denial of ActiveVideo's JMOL of non-infringement for the '214 patent.
E. "video still image" — '542 patent
The "video still image" limitation is recited in asserted claim 1 of the '542 patent. The '542 patent generally discloses a method of delivering advertising over an interactive video system where an advertisement is presented in a menu and supplementary information about the advertisement is provided upon viewer selection. See '542 patent figs. 4, 8, and 9. Claim 1 of the '542 patent reads:
'542 patent claim 1 (emphasis added).
ActiveVideo argues that the district court misconstrued "video still image" as "an image which is not in motion." ActiveVideo argues that the district court should have instead construed the term to mean a "static image for display on a television that is not part of a full motion video." Under this construction, ActiveVideo argues that its system does not infringe because the accused "video still image[s]" in its system are actually full motion MPEG videos that display a series of identical frames so that the full motion video appears still.
We hold that the district court correctly construed the term "video still image." The district court's construction is consistent with the plain meaning of the term and is also consistent with the specification, which explains that "nothing prevents the principles described herein from being applied to an interactive video distribution system that is Motion Pictures Experts Group (MPEG) compliant." '542 patent col.14 ll.57-60. Further, ActiveVideo's proposed construction erroneously imports a limitation into the claim and ignores the word "video." ActiveVideo disputes only the district court's construction and does not contest the sufficiency of the evidence supporting the jury's verdict. We therefore affirm the district court's denial of ActiveVideo's JMOL of non-infringement for the '542 patent.
Invalidity must be established by clear and convincing evidence. Microsoft Corp. v. i4i Ltd., ___ U.S. ___, 131 S.Ct. 2238, 2242, 180 L.Ed.2d 131 (2011). Clear and convincing evidence is such evidence that produces "an abiding conviction that the truth of [the] factual contentions are `highly probable.'" Colorado v. New Mexico, 467 U.S. 310, 316, 104 S.Ct. 2433, 81 L.Ed.2d 247 (1984). Anticipation under 35 U.S.C. § 102 is a question of fact. ClearValue, Inc. v. Pearl River Polymers, Inc., 668 F.3d 1340, 1343 (Fed.Cir.2012). To anticipate a patent claim, a prior art reference must describe "each and every claim limitation and enable one of skill in the art to practice an embodiment of the claimed invention without undue experimentation." Id. (quoting Am. Calcar, Inc. v. Am. Honda Motor Corp., 651 F.3d 1318, 1341 (Fed.Cir.2011)). Obviousness under 35 U.S.C. § 103 is a question of law based on factual underpinnings. Graham v. John Deere Co., 383 U.S. 1, 17, 86 S.Ct. 684, 15 L.Ed.2d 545 (1966). To invalidate a patent claim based on obviousness, a challenger must demonstrate "by clear and convincing evidence that a skilled artisan would have been motivated to combine the teachings of the prior art references to achieve the claimed invention, and that the skilled artisan would have had a reasonable expectation of success in doing so." Procter & Gamble v. Teva Pharms. USA, Inc., 566 F.3d 989, 994 (Fed.Cir.2009) (quoting Pfizer, Inc. v. Apotex, Inc., 480 F.3d 1348, 1361 (Fed.Cir.2007)).
A. ActiveVideo Patents
1. Obviousness — '578, '678, '883, and '582 patents
Verizon argues that the district court erred in granting ActiveVideo's JMOL of no invalidity, which prevented Verizon's obviousness defense from reaching the jury. The district court determined that the obviousness opinions offered by Verizon's expert were conclusory and lacked factual support. Verizon contends that testimony by its expert about six prior art references, the "modular nature of the components in the asserted claims," and how combining any of the prior art references would yield a predictable result, was sufficient for the question of obviousness to reach the jury. Verizon also argues that efficiency and market demand were sufficient motivations to combine any of the prior art references discussed by its expert.
We agree with the district court that the obviousness testimony by Verizon's expert was conclusory and factually unsupported. Although Verizon's expert testified that "[t]hese are all components that are modular, and when I add one, it doesn't change the way the other one works," J.A. 4709, he never provided any factual basis for his assertions. The expert failed to explain how specific references could be combined, which combination(s) of elements in specific references would yield a predictable result, or how any specific combination would operate or read on the asserted claims. Rather, the expert's testimony on obviousness was essentially a conclusory statement that a person of ordinary skill in the art would have known, based on the "modular" nature of the claimed components, how to combine any of a number of references to achieve the claimed inventions. This is not sufficient and is fraught with hindsight bias. See KSR, 550 U.S. at 418, 127 S.Ct. 1727 ("A patent composed of several elements is not proved obvious by merely demonstrating that each of its elements was, independently, known in the prior art."); Innogenetics, N.V. v. Abbott Labs., 512 F.3d 1363, 1373-74 (Fed.Cir. 2008) ("Such vague testimony would not have been helpful to a lay jury in avoiding the pitfalls of hindsight that belie a determination of obviousness.").
J.A. 4709-10. This testimony is generic and bears no relation to any specific combination of prior art elements. It also fails to explain why a person of ordinary skill in the art would have combined elements from specific references in the way the claimed invention does. See KSR, 550 U.S. at 418, 127 S.Ct. 1727 ("[I]t can be important to identify a reason that would have prompted a person of ordinary skill in the relevant field to combine the elements in the way the claimed new invention does ... because inventions in most, if not all, instances rely upon building blocks long since uncovered, and claimed discoveries almost of necessity will be combinations of what, in some sense, is already known."); Innogenetics, 512 F.3d at 1373 (Fed.Cir.2008) ("[K]nowledge of a problem and motivation to solve it are entirely different from motivation to combine particular references...."). Because the record evidence was insufficient for a reasonable jury to support a determination of obviousness, the district court's grant of ActiveVideo's JMOL on obviousness was not erroneous.
2. Anticipation — '578 and '582 patents
Verizon argued at trial that the asserted claims of the '578 and '582 patents were anticipated by multiple prior art references, including a 1986 article by C.W. Lundgren and P.S. Natarajan entitled Single Mode Fiber Transport and Coaxial Distribution of Video on Demand (Bellcore VoD) and U.S. Patent No. 4,616,263 (GTE VoD). Bellcore VoD discloses a system having a single computer (master control console) that controls a robotic arm to retrieve video cassettes from a storage cabinet and insert them into video tape recorders to be played for viewers. J.A. 91731. GTE VoD discloses a video system having video control clusters (microprocessors) that supervise the retrieval of video segments from mass storage video disks. Coupled to the video disks are modulators for frequency translating the video segments for transmission to viewers. J.A. 91738-40.
Before the case was submitted to the jury, the district court granted ActiveVideo's JMOL of no invalidity, holding that there was insufficient evidence for Verizon's anticipation defenses to reach the jury. For the '578 patent, the district court found that Verizon's expert failed to explain how the Bellcore VoD tape recorders are in "assignable television communication" with a home interface controller. The district court also found that Verizon's expert failed to offer any opinion or analysis as to how GTE VoD's video control clusters are in assignable television communication with a home interface controller. For the '582 patent, the district court found that Verizon's expert failed to explain how the Bellcore VoD tape recorders are individually assignable processors in assignable communication with a home interface controller. The district court also found that Verizon's expert failed to identify Bellcore VoD structure corresponding to the claimed "frame server." And the district court found that Verizon's expert failed to explain how the GTE VoD video cluster controllers are individually assignable processors in assignable communication with a home interface controller.
Similarly, Verizon's expert failed to explain how the video cluster controllers in the GTE VoD reference (alleged "interactive controllers" and "individually assignable processors") are connected to a home interface controller, much less in "assignable... communication" with one. Even though the '578 patent claims require the interactive controller to be in television communication with an information source, see '578 patent claim 8, Verizon's expert testified that the video cluster controllers in GTE VoD are not in television communication with the video disk unit (alleged information source). J.A. 4787. The expert also testified that the video signal is sent to a subscriber not from the video cluster controller but instead from the video disk unit. J.A. 4665, 4786-87. That is not what the '578 or '582 patent claims require. And Verizon's expert testified that the GTE VoD reference does not disclose "a plurality of processes running in said frame server" as required by the '582 patent claims. Compare J.A. 4792 ("The [GTE VoD] patent does not say there are separate processes."), with '582 patent claim 5 ("each [home interface controller] assigned to one of a plurality of processes running in said frame server").
We agree with the district court. The testimony of Verizon's expert on anticipation of the '578 and '582 patent claims was insufficient for a reasonable jury to conclude that Bellcore VoD or GTE VoD anticipate the asserted claims.
B. Verizon '214 and '542 Patents
ActiveVideo argued that asserted claim 9 of the '214 patent was anticipated by European Patent Application No. 0,721,253 A2 (EP253). ActiveVideo also argued that claim 1 of the '542 patent was anticipated by U.S. Patent No. 5,319,455 ('455 patent) and the CoverGirl advertisement.
The district court did not err by preventing ActiveVideo's anticipation defenses from reaching the jury. For the '214 patent, ActiveVideo's expert failed to explain, from EP253, how a user "would be able to ascertain that any given channel located to the right of another in the station index originated from a common broadcast provider." See J.A. 273. That is, ActiveVideo's expert failed to explain how EP253 discloses the required first anchor channel indication and a second multiplex channel indication when at least one multiplex channel exists that is associated with the anchor channel. ActiveVideo's expert testified that the "ESPN" logo on EP253 figure 14A (reproduced below) constituted the "first indication" while the "ESPN2" logo, which is "pretty clearly branded and coming from ESPN" was the "second indication" corresponding to a multiplex channel associated with the ESPN anchor channel. J.A. 5678.
J.A. 96077. EP253 Figure 14A does not, however, permit a user to identify an anchor channel or any associated multiplex channels either by similarity in logo "branding" or by spatial proximity. For example, channels 206 and 207 both show a similarly "branded" "ESPN" logo but there is no indication as to which one of them is the "anchor channel" and which is a "multiplex channel" associated with an anchor channel. And, although "ESPN2" appears spatially to the right of "ESPN," the same spatial orientation is true of unrelated channels, such as "E!" and "TNT." The district court correctly concluded that Figure 14A in EP253 does not disclose the required first indication and second indication, and thus that no reasonable jury could conclude that EP253 anticipates '214 patent claim 9.
For the '542 patent, the testimony provided by ActiveVideo's expert is conclusory
C. Verizon '748 Patent
The Fourth Circuit reviews the grant of summary judgment de novo. Boitnott v. Corning, Inc., 669 F.3d 172, 175 (4th Cir.2012). Verizon originally asserted a counterclaim that ActiveVideo infringed independent claim 13 and dependent claim 20 of the '748 patent. Claim 13 reads:
'748 patent claim 13 (emphasis added).
Shortly after construing the disputed terms of the asserted claims, ActiveVideo moved for summary judgment of invalidity, arguing that U.S. Patent No. 6,034,689 ('689 patent) anticipated the asserted claims. In response, Verizon's primary argument was that the '748 patent was limited to transforming network information at the gateway server rather than at the STB. Verizon also argued that:
J.A. 16467. Verizon did not expand on this argument.
The district court granted ActiveVideo's motion, concluding that because claim 13 did not limit the location in the system where transformation must occur, the '689 patent disclosed every element of asserted claims 13 and 20. Verizon moved for partial reconsideration, arguing that the "parsing" performed by the '689 patent was not the same as the "transformation" required by '748 patent claim 13. Verizon argued that the '689 patent preserves the HTML format of its interactive elements instead of transforming them into different interactive elements as required by claim 13. The district court denied Verizon's motion, concluding that reconsideration was an improper vehicle for Verizon to "seek to expand upon an argument that they failed to develop in their original brief in the form of a Motion for Reconsideration." J.A. 39685.
Verizon argues on appeal that the district court erroneously granted summary judgment because a genuine issue of material fact exists as to whether the '689 patent discloses "transforming ... information from the network format having a
ActiveVideo argues that Verizon waived this argument by failing to present it to the district court or by presenting it "at best ... in skeletal form." Cross-Appellant's Br. 36. We conclude that Verizon did not waive the argument that the '689 patent fails to disclose the transformation required by '748 patent claim 13. Verizon presented its present argument to the district court sufficiently to preserve it for appeal. See Warner-Lambert Co. v. Teva Pharms. USA, Inc., 418 F.3d 1326, 1338 n. 11 (Fed.Cir.2005). Whether the "parsing" of an HTML element as disclosed in the '689 patent satisfies the '748 patent claim limitation requiring transformation from a network format having a first interactive element to a television format having a second interactive element is a question of fact that should be decided by a jury. Because a genuine issue of material fact exists as to whether the '689 patent anticipates claims 13 and 20 of the '748 patent, we vacate the district court's judgment of invalidity as to the '748 patent and remand for further proceedings.
We review a district court's decision regarding damages methodology for abuse of discretion. Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1310 (Fed. Cir.2009). The jury's damages award is reviewed for substantial evidence. Id. We review evidentiary rulings under the law of the regional circuit. Verizon Servs. Corp. v. Cox Fibernet Va., Inc., 602 F.3d 1325, 1331 (Fed.Cir.2010). The Fourth Circuit reviews a district court's evidentiary rulings for an abuse of discretion. United States v. Wilkerson, 84 F.3d 692, 696 (4th Cir.1996).
A. Evidentiary Issues
Verizon argues that the district court abused its discretion by preventing Verizon's damages expert from relying on an agreement between ActiveVideo and Cablevision, which post-dated the hypothetical negotiation by several years. Verizon argues that because the district court allowed ActiveVideo's damages expert to rely on a Gemstar agreement even though it post-dated the hypothetical negotiation by two years, it was an abuse of discretion to exclude the Cablevision agreement. Verizon also argues that the district court erroneously prevented it from cross-examining ActiveVideo's damages expert about an ActiveVideo offer to license its patents to Scientific Atlanta on a royalty-free basis. And Verizon argues that testimony from ActiveVideo's damages expert — that he discounted $100 million from Verizon's VoD equipment costs because Verizon would get that money back from its suppliers through indemnity agreements — was severely prejudicial and erroneously allowed the expert to testify to a legal conclusion.
Although we may not have decided these evidentiary issues the same way had we presided over the trial, the district court did not abuse its discretion. The Cablevision agreement post-dated the hypothetical negotiation by four years and the district court thus had a legitimate reason to exclude it. The fact that the district court allowed ActiveVideo's expert to rely on the Gemstar agreement, which post-dated the
Verizon argues that the testimony of ActiveVideo's damages expert should have been excluded for failing to meet the reliability requirement of Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Verizon argues that reliance by ActiveVideo's expert on the Gemstar and Grande agreements as royalty benchmarks was improper because (1) Gemstar did not involve the patents-in-suit and did not cover any of the technologies in the case, and (2) Grande covered ActiveVideo patents and software services yet the entire license fee was attributed to the asserted patents without any attempt to "disaggregate the value of the patent license from the value of the services." Appellants' Br. 35-36. Verizon contends the Grande fee is "at best a too-high ceiling, not a reasonable benchmark." Id. Verizon argues that ActiveVideo's expert improperly calculated the value of VoD to Verizon by looking at the growth in DirecTV customers before and after it introduced VoD, without controlling for other factors that led to this growth, including a new marketing relationship with AT & T and the transition to digital television. And Verizon argues that ActiveVideo's expert's calculation of 62.5% churn (customer cancellations) in Verizon customers in the absence of VoD is flawed because he failed to control for factors other than VoD that affect churn, including pricing, quality, customer service, and reliability.
Verizon points out various weaknesses in the damages assessment by ActiveVideo's expert. At their core, however, Verizon's disagreements are with the conclusions reached by ActiveVideo's expert and the factual assumptions and considerations underlying those conclusions, not his methodology. These disagreements go to the weight to be afforded the testimony and not its admissibility. See i4i, 598 F.3d at 854 (holding that a party's quarrel with the facts the damages expert used go to the weight, not admissibility, of the expert's opinion). The degree of comparability of the Gemstar and Grande license agreements as well as any failure on the part of ActiveVideo's expert to control for certain variables are factual issues best addressed by cross examination and not by exclusion. See id. at 852 ("[W]hen the methodology is sound, and the evidence relied upon sufficiently related to the case at hand, disputes about the degree of relevance or accuracy (above this minimum threshold) may go to the testimony's weight, but not its admissibility.") The district court did not err by failing to exclude the testimony of ActiveVideo's damages expert.
In this case, the district court granted Verizon's JMOL on pre-suit damages for three of the four asserted ActiveVideo patents due to ActiveVideo's failure to mark its products under § 287(a). The district court, however, denied Verizon's JMOL with respect to the ActiveVideo '678 patent, which contains only method claims. Verizon argues, based on Devices for Medicine, Inc. v. Boehl, 822 F.2d 1062 (Fed.
If a patentee practices the claimed invention and fails to mark its product with the relevant patent number, damages may be limited. See 35 U.S.C. § 287. The marking provision provides, in relevant part:
35 U.S.C. § 287(a). However, "[t]he law is clear that the notice provisions of § 287 do not apply where the patent is directed to a process or method." Fujitsu Ltd. v. Netgear Inc., 620 F.3d 1321, 1332 (Fed.Cir. 2010) (quoting Crown Packaging Tech., Inc. v. Rexam Beverage Can Co., 559 F.3d 1308, 1316 (Fed.Cir.2009)); see also Crystal Semiconductor Corp. v. TriTech Microelectronics Int'l, Inc., 246 F.3d 1336, 1353 (Fed.Cir.2001) ("Because the [asserted] patent only claims methods, the notice provisions of § 287(a) do not apply to it."); Am. Med. Sys., Inc. v. Med. Eng'g Corp., 6 F.3d 1523, 1538 (Fed.Cir.1993); Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1083 (Fed.Cir.1983) ("It is `settled in the case law that the notice requirement of [§ 287(a)] does not apply where the patent is directed to a process or method.'" (quoting Bandag, Inc. v. Gerrard Tire Co., 704 F.2d 1578, 1581 (Fed.Cir.1983))). The demarcation lines have been clear for many years: patents with only method claims do not require marking whereas patents with apparatus claims do.
In American Medical, we held that if a single patent contains both apparatus claims and method claims, the marking requirement applies to all the claims:
Am. Med., 6 F.3d at 1538. Verizon argues that the marking requirement should likewise apply to ActiveVideo's '678 patent despite the fact that it contains only method claims because ActiveVideo's other three asserted patents contained apparatus claims. This we cannot do. "The law is clear that the notice provisions of section 287 do not apply where the patent is directed to a process or method." Am. Med., 6 F.3d at 1538. See also State Contr. & Eng'g Corp. v. Condotte Am., Inc., 346 F.3d 1057, 1074 (Fed.Cir.2003) ("[American Medical] is inapposite because here an asserted patent — the '288 patent — contains only method claims, and we look to the asserted patents independently. We have not previously held that a patent containing only method claims is examined to see if something could have been marked in order to assess whether the notice provision applies, and we decline to do so now.").
We affirm the district court's denial of Verizon's JMOL with respect to the ActiveVideo '678 patent, which contains only method claims.
D. Covenant Not to Sue
As one of its damages defenses, Verizon argued that it was an intended third party beneficiary to an agreement between ActiveVideo and TV Guide and that the ActiveVideo-TV Guide agreement contained a covenant not to sue that barred damages against Verizon until the agreement expired. Prior to trial, both parties moved for JMOL on this defense. The district court granted ActiveVideo's motion and denied Verizon's, concluding that Verizon failed to prove that it was an intended beneficiary to the agreement. Verizon contends that the district court's ruling was clearly erroneous.
It is undisputed that the ActiveVideo-TV Guide agreement is governed by New York law. Under New York law, an intended beneficiary may enforce a contract, but it bears the burden of proving its status as an intended third-party beneficiary. Port Chester Elec. Constr. Corp. v. Atlas, 40 N.Y.2d 652, 389 N.Y.S.2d 327, 357 N.E.2d 983, 985-86 (1976). To prove it is an intended beneficiary, a party must show (1) the existence of a valid contract, (2) that the contract was intended for its benefit, and (3) that the benefit is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate the intended beneficiary. Burns Jackson Miller Summit & Spitzer v. Lindner, 59 N.Y.2d 314, 464 N.Y.S.2d 712, 451 N.E.2d 459, 469 (1983).
Verizon argues that the plain and unambiguous language of the agreement proves that Verizon is a third party beneficiary to the agreement because (1) Verizon is both a customer and licensee of TV Guide and (2) the covenant expressly bars any claims of patent infringement against customers and licensees of TV Guide. Verizon offers no additional evidence. ActiveVideo argues that Verizon is not an intended beneficiary of the TV Guide agreement, which was a joint development agreement between ActiveVideo's predecessor
The district court did not err in granting ActiveVideo's JMOL that Verizon failed to prove it was an intended beneficiary to the agreement. The purpose of the agreement was for ActiveVideo's predecessor ICTV and TV Guide to "adapt" the ICTV application to operate with TV Guide's interactive program guides. The agreement is not clear, however, as to exactly who the included covenant was intended to cover or what product(s) were intended to be covered. Neither "customer" nor "licensee" is defined in the agreement, and the agreement does not indicate that the parties intended for the covenant to run to any and all TV Guide customers or licensees without regard to the type of product or service purchased or licensed from TV Guide.
Verizon's reading of the agreement is commercially unreasonable. The agreement in question was a joint development agreement between TV Guide and ICTV for the purpose of developing a product that integrated ICTV's technology with TV Guide's interactive programming guide. J.A. 92243. It would be reasonable for the parties making such an agreement to seek protection for the potential licensees of the anticipated product from claims of patent infringement. But in this case, Verizon's relationship with TV Guide has nothing to do with this agreement. The joint product was never developed and the project was abandoned. See J.A. 4342, 6938-39. And Verizon did not become associated with TV Guide until well after the joint development project collapsed. See J.A. 4203, 4219-20. At trial, ActiveVideo offered testimony that the parties to the agreement intended the covenant to apply only to licensees of the product that was to be jointly developed. J.A. 6945. Verizon, on the other hand, offered no evidence as to the parties' intent. Verizon only offered the ambiguous language of the agreement itself. We conclude, as did the district court, that Verizon failed to meet its burden to show that the agreement was intended for Verizon's benefit and that the benefit to Verizon was sufficiently imminent. See Burns Jackson, 464 N.Y.S.2d 712, 451 N.E.2d at 469. Accordingly, the district court did not err in granting ActiveVideo's JMOL or in denying Verizon's.
IV. Permanent Injunction and Sunset Royalty
After trial, ActiveVideo moved the district court to permanently enjoin Verizon from future infringement of the '578 and '582 patents.
We review the grant of a permanent injunction for abuse of discretion. Broadcom Corp. v. Qualcomm, Inc., 543 F.3d 683, 702 (Fed.Cir.2008). For a permanent injunction to issue, the party requesting an injunction must demonstrate that: (1) it has suffered an irreparable injury; (2) legal remedies, such as money damages are inadequate compensation; (3) the balance of hardships warrants an injunction; and (4) the public interest would not be disserved by an injunction. eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006). "We may find an abuse of discretion on a showing that the court made a clear error of judgment in weighing relevant factors or exercised its discretion based upon an error of law or clearly erroneous factual findings." Innogenetics, 512 F.3d at 1379 (internal quotation marks omitted).
A. Permanent Injunction
In this case, the district court found that all four factors favored the granting of a permanent injunction. Verizon challenges the grant of the injunction on both legal and factual grounds. As the district court correctly observed, the issues of irreparable harm and adequacy of remedies at law are inextricably intertwined. The parties briefing to this court has similarly intertwined the discussion of these two factors.
The district court found that ActiveVideo suffered irreparable harm because "Verizon's unlawful infringement unquestionably impedes upon the portion of the market share which Cablevision could have, and it thus impedes on ActiveVideo's ability to introduce its patented technology to the portion of the market that Verizon controls. There is no doubt that ActiveVideo suffers indirect losses when Cablevision suffers direct losses from Verizon's infringement." J.A. 11-12. "Without Verizon's added competition, Cablevision would have more subscribers and need an expanded CloudTV platform which would, in turn, generate more revenue and broader recognition for ActiveVideo. The presence of Verizon's infringing product leads to a loss of market share for ActiveVideo and Cablevision." J.A. 15. The district court also found that the litigation costs, which caused the patentee to divert resources from developing technology and improving its business, "are the type of past harm which a court can consider in determining whether to issue injunctive relief." J.A. 16. The district court rejected Verizon's arguments regarding delay in bringing suit and ActiveVideo's licensing campaign.
As an initial matter, it was legal error for the district court to determine that ActiveVideo's litigation costs supported irreparable harm and favored granting an injunction. Litigation costs are undoubtedly undesirable and may take funds away from other endeavors, but they are not an irreparable harm in the injunction calculus. See Innogenetics, 512 F.3d at 1381 n. 8 ("If litigation costs were a factor, injunctive relief would be warranted in every litigated patent case."). Reliance on litigation costs to support a determination of irreparable harm was therefore legal error.
The district court also clearly erred in its reliance on the loss of market share Cablevision suffers due to Verizon's infringement as a predicate for its irreparable harm finding. Verizon and ActiveVideo do not compete; this is not disputed.
Finally, in support of its irreparable harm finding, the district court found that "[w]ith every customer Verizon has unlawfully acquired, they have taken away ActiveVideo's ability to spread its brand name, to obtain references from potential customers, and to expand its goodwill throughout the areas in which Verizon and Cablevision are fierce competitors." J.A. 15-16. There is no evidence, however, indicating that FiOS-TV damages ActiveVideo's "CloudTV" brand name. Indeed, the record shows that Cablevision does not even use the ActiveVideo "CloudTV" brand and instead uses its own brands, "Optimum" and "iO." J.A. 91469, 92427, 93132. As for customers, the district
The district court only briefly mentions harm to ActiveVideo (as distinct from Cablevision's lost market share and potential loss of brand recognition). The district court found that "Verizon's actions stripped ActiveVideo of the opportunity to get a nationwide deployment which would have bolstered ActiveVideo's reputation in the cable industry. This lost opportunity, which is also difficult to quantify, favors granting an injunction." J.A. 17. The district court does not cite any record evidence in support of this claimed harm, and we can find none in the record. The evidence of record including evidence from ActiveVideo's own witnesses indicates that Verizon's use of VoD stimulates an increased demand for such services. See, e.g., J.A. 47164 n. 9 (listing testimony); J.A. 4081 ("Q: Okay. Mr. Wagner, it is your opinion that ActiveVideo would not lose any sales by licensing to Verizon, correct? A: I have not calculated any lost profits here, so that is correct."); J.A. 47264-65 ("Q: So you conclude that Verizon's entry into the television business with its FiOS TV service in 2005 influenced the other MSOs to introduce more robust VoD offerings; is that correct? A: Yes.... Q: So that would have created an increased demand for interactive TV services, such as ... VoD ... from the MSOs; is that correct? A: In theory, yes, that's cause and effect.").
We conclude that the district court clearly erred when it found that this record supported a finding of irreparable harm. This factor weighs against granting an injunction. The losses to ActiveVideo due to Verizon's infringement are clearly quantifiable. Moreover, ActiveVideo sought to broadly and extensively license this technology (Cablevision, Grande, and TV Guide) including a campaign to secure a license from Verizon itself, which started in 2004. In light of the record evidence including ActiveVideo's past licensing of this technology and its pursuit of Verizon as a licensee, no fact finder could reasonably conclude that ActiveVideo would be irreparably harmed by the payment of a royalty (a licensing fee). As ActiveVideo's CEO testified, ActiveVideo had been trying to get Verizon as a customer since 2004. J.A. 3356 ("we really wanted a U.S. customer like Verizon"); J.A. 3373 ("ActiveVideo
Analyzing the adequacy of remedies at law, the court again referenced ActiveVideo's lost business opportunities: "The Court cannot predict how large a share of the television market ActiveVideo would have been able to control, and it cannot speculate as to how much ActiveVideo's brand name and recognition would have grown absent Verizon's infringement." J.A. 18-19. The district court, however, cited no evidence in the record to support these assertions. Loss of business opportunity or damage to brand recognition could provide a basis for concluding that monetary relief would be inadequate. There simply is not record evidence which establishes these losses. ActiveVideo can be adequately compensated for Verizon's infringement through an on-going royalty payment. There are no concerns about Verizon's inability to pay. Cf. Bosch, 659 F.3d at 1154-55. ActiveVideo's loss of revenue due to Verizon's infringement can be adequately remedied by an ongoing royalty from Verizon for each of its subscribers. This is what ActiveVideo has sought from Verizon since 2004, and based on the infringement determinations ActiveVideo is certainly entitled to it. There is no record evidence that ActiveVideo has lost any market share or any customers at all due to Verizon's infringement. In fact, ActiveVideo's own expert testified that ActiveVideo has not lost any sales by licensing to Verizon. Finally, there is no evidence that ActiveVideo's brand would be harmed as Cablevision sells its product under its own brand name. The district court's fact finding that ActiveVideo has proven that no adequate remedy at law exists is clearly erroneous. This record cannot support such a finding. Therefore, this factor also weighs against granting an injunction.
Verizon also argues that the district court improperly weighed the balance of hardships in favor of ActiveVideo because (1) an injunction would have potentially disastrous consequences for Verizon while the payment of ongoing royalties in lieu of an injunction would give ActiveVideo unprecedented profits, and (2) there is no evidence that ActiveVideo's small company size would render it more susceptible to harm from Verizon's continued infringement, especially since they are not competitors.
The final factor asks whether "the public interest would not be disserved by a permanent injunction." eBay, 547 U.S. at 391, 126 S.Ct. 1837. The heart of the patent grant is the right to exclude. See 35 U.S.C. § 154(a)(1) ("Every patent shall contain ... a grant to the patentee ... of the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States."). Although enforcing the right to exclude serves the public interest, the public interest factor requires consideration of other aspects of the public interest. See 7 Donald A. Chisum, Chisum on Patents § 20.04[c][vii] (2009) ("The proper question on the public interest should be: will an injunction harm a specific public interest that outweighs the public's interest in a robust patent system?" (internal citations and quotation marks omitted)). Here, the district court found that Verizon's customers will suffer some harm with the removal of their VoD services, but it was satisfied that ActiveVideo showed that the customers' interests in entertainment did not outweigh the public interest in allowing patentees to enforce their right to exclude. The district court finding that the public interest supports the grant of an injunction here is not clearly erroneous.
Given the record in this case, it was an abuse of discretion for the district court to grant a permanent injunction. The district court fact findings that there was irreparable harm, inadequate remedies at law, and hardship which favored granting an injunction to ActiveVideo are clearly erroneous. Given that these findings cannot be supported by the record evidence, no injunction can issue. If the general public interest in upholding patent rights alone was sufficient to mandate injunctive relief when none of the other three factors support injunctive relief, then we would be back to the general rule that a patentee should always receive an injunction against infringement. But the Supreme Court rejected the idea that there is a general rule that courts should issue permanent injunctions against patent infringement. eBay, 547 U.S. at 393-94, 126 S.Ct. 1837. We vacate the grant of a permanent injunction in this case and remand for the district court to consider an appropriate ongoing royalty rate for future infringement by Verizon. See Paice, 504 F.3d at 1315, 1317; Amado v. Microsoft Corp., 517 F.3d 1353, 1361-62 (Fed.Cir.2008).
B. Sunset Royalty
Following trial, Verizon asked the district court to stay the injunction during an eight month "sunset" period during which a design around to the ActiveVideo patents could be completed. The district court stayed the permanent injunction for a six month sunset royalty period during which Verizon was ordered to pay a sunset royalty for its continued infringement. The court held that granting this sunset royalty would mitigate harm to the public and provide Verizon considerable time to implement non-infringing alternatives. Verizon moved this court for a further stay of the injunction pending appeal, which we granted.
On appeal, Verizon argues that the sunset royalty amount should be vacated because it was based on the "flawed damages methodologies" of ActiveVideo's expert. Appellants' Br. 42. ActiveVideo sought a sunset royalty amount of $3.40 per subscriber per month. Verizon argues that the royalty rate should be $0.17 per FiOS-TV subscriber per month. Verizon argues that ActiveVideo receives $0.17 before costs in its agreement with Cablevision. In a thorough and well-reasoned opinion, the district court concluded that the sunset royalty rate should be $2.74 per FiOS-TV subscriber per month. The district court accepted ActiveVideo's expert testimony that Verizon received an incremental profit of $6.86 per FiOS-TV subscriber per month. The court analyzed the respective bargaining positions of the parties post-verdict, and concluded that "it would have been reasonable for the parties to make an agreement whereby Verizon would receive 60% of the profits and ActiveVideo would receive 40% of the profits." J.A. 31. This results in the $2.74 per subscriber per month royalty. The district court rejected Verizon's suggestion that it should pay the same rate as Cablevision. The district court found that after the patent is held not invalid and infringed by Verizon, ActiveVideo is in a much better bargaining position with Verizon than it was with Cablevision in 2009. Based on the fact that Verizon may be able to design around, but does not know precisely how effective such a design around might be, the court discounted the profit split from the 50/50 to 60/40 (in favor of Verizon).
This may seem high, and while it is likely true that Verizon would not have agreed to that amount prior to litigation, Verizon has been adjudicated to infringe and the patent has been held not invalid after a substantial challenge by Verizon. See Paice, 504 F.3d at 1317 (Rader, J., concurring) ("[P]re-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties' legal relationship and other factors."); Amado, 517 F.3d at 1362 ("Prior to judgment, liability for infringement, as well as the validity of the patent, is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, however, the calculus is markedly different because different economic factors are involved."). The district court is correct; there has been a substantial shift in the bargaining position of the parties. See Amado, 517 F.3d at 1362 ("There is a fundamental difference, however, between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement."). We reject Verizon's argument that the district court erred in concluding that the jury verdict placed ActiveVideo in a stronger bargaining position.
Verizon also argues that the royalty amount adopted by the district court was erroneous because the jury rejected ActiveVideo's profit calculation when it failed to adopt ActiveVideo's bottom-line damages number. And Verizon contends that
We held in Amado that an assessment of prospective damages for ongoing infringement should "take into account the change in the parties' bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability." Amado, 517 F.3d at 1362. And, although Amado dealt with the imposition of royalty damages while an injunction was stayed during appeal, this holding applies with equal force in the ongoing royalty context.
For the foregoing reasons, the district court's judgment of infringement against Verizon as to the ActiveVideo '582 patent is reversed. The district court's grant of summary judgment of invalidity as to the Verizon '748 patent is vacated and remanded for further proceedings. The district court's entry of a permanent injunction is reversed. The district court's imposition of a sunset royalty is affirmed. The district court's judgment of infringement with respect to the ActiveVideo '578, '678, and '883 patents is affirmed. Because Verizon has not argued either before the district court or on appeal that a finding of non-infringement of the '582 patent should result in a reduction of damages, we affirm the damages award against Verizon in full. The district court's judgment in all other respects is affirmed.