by Dennis Crouch
Prism Tech v. Sprint Spectrum (Fed. Cir. 2017) [prismtech]
The Nebraska jury found Sprint liable for infringing Prism’s patents and awarded $30 million in reasonable-royalty damages. U.S. Patent Nos. 8,127,345 and 8,387,155. [verdict]
AT&T was also sued under the patents but ended up settling the case for [REDACTED LARGE SUM OF MONEY]. On appeal, Sprint argued (unsuccessfully) that the settlement should not have been shown to the jury under Federal Rule of Evidence 403.
FRE 403 permits exclusion of “relevant evidence” when its “probative value is substantially outweighed by a danger of one … unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.”
Prior settlement agreements are obviously probative since they help to establish value of the patented technology in the industry. Traditionally, the settlement value is modeled as less than the value of the patent once its validity and infringement are established. However, the mixture of risk aversion and litigation costs lead to some settlements that appear greater than the expected value of patent rights.
Here, the Federal Circuit found found “adequate basis for admitting the AT&T Settlement Agreement.” The agreement covered the same patents and – at trial – Prism’s expert explained differences between usage of AT&T and Sprint to help the jury use the prior agreement as comparable.
That Agreement covered the patents at issue here, though not only the patents at issue here. In that common situation, evidence was needed that reasonably addressed what bearing the amounts in that Agreement had on the value of the particular patents at issue here.
For me, the larger potential issue is that the jury is more likely to find the patent valid and infringed if it know that AT&T already paid a [REDACTED LARGE SUM OF MONEY] to settle the case. This would suggest at least a bifurcated trial. However, Sprint did not appear to make that argument on appeal.
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A very interesting argument raised by Sprint on appeal was based upon Rude v. Wescott, 130 U.S. 152 (1889). In particular, Sprint argued that prior licenses can be used to prove an “established royalty” but not to prove a “reasonable royalty.” Of course, a single license would not be sufficient to prove the established royalty. See also Cornely v. Marckwald, 131 U.S. 159 (1889).
The Court held in Rude that there was insufficient evidence to prove what has been called an “established royalty” as a measure of damages at law for patent infringement—i.e., “such a number of sales by a patentee of licenses to make, use and sell his patents, as to establish a regular price for a license.” On appeal, the Federal Circuit rejected the argument as too-old: “The Court in Rude used both the language of patent damages law and the language of evidence law, and both have changed significantly since Rude.” In addition, the court likely cut-short certiorari on the issue by finding that Sprint had failed to properly preserve the arguments for appeal.