Creative Internet Advertising Corporation v. Yahoo! Inc., Civil Action No. 6:07cv354-JDL.

674 F.Supp.2d 847

CREATIVE INTERNET ADVERTISING CORPORATION, Plaintiff, v. YAHOO! INC., et al., Defendants.

Civil Action No. 6:07cv354-JDL.

United States District Court, E.D. Texas, Tyler Division.

December 9, 2009.

Anthony G. Simon, Timothy E. Grochocinski, The Simon Law Firm PC, St. Louis, MO, Adam A. Biggs, Albritton Law Firm, Longview, TX, Charles Craig Tadlock, Tadlock Law Firm, Irving, TX, Eric M. Albritton, Albritton Law Firm, Longview, TX, for Plaintiff.

Brian A. E. Smith, Henry Charles Bunsow, Howrey Simon Arnold & White, San Francisco, CA, Deborah J. Race, Ireland Carroll & Kelley, Tyler, TX, Jason C. White, Howrey LLP, Chicago, IL, Otis W. Carroll, Jr., Ireland Carroll & Kelley, Tyler, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

JOHN D. LOVE, United States Magistrate Judge.

Before the Court is Creative Internet Advertising Corporation's ("CIAC") Motion for Entry of Judgment on the Verdict (Doc. No. 286) ("Motion for Entry of Judgment"). This Motion was opposed by Defendant Yahoo! Inc.'s ("Yahoo") Response in Opposition (Doc. No. 292). CIAC requests that the Court order Yahoo to pay an ongoing royalty rate of 23%. Yahoo responds that no ongoing royalty rate is necessary because it has taken steps to remove the infringing aspects of IMVironments, and that CIAC has not shown that a 23% ongoing royalty rate is appropriate. On July 14, 2009, the Court ordered the parties to submit briefing and additional evidence to determine an appropriate ongoing royalty (Doc. No. 272). In compliance with this Order, CIAC filed a Brief in Support of Plaintiff's Request for an Entry of An Ongoing Royalty Rate (Doc. No. 313) ("CIAC Royalty Brief") and Yahoo filed a Brief Regarding Plaintiff CIAC's Request for a Post-Verdict Royalty (Doc. No. 312) ("Yahoo Royalty Brief"). Both parties then filed Responsive Briefing: CIAC Royalty Response (Doc. No. 314) and Yahoo Royalty Response (Doc. No. 316). On September 30, 2009, the Court held an evidentiary hearing on a reasonable ongoing royalty rate (Doc. No. 322) ("Transcript"). For the reasons that follow, Creative Internet Advertising Corporation's Motion is GRANTED-IN-PART.

BACKGROUND AND THE PARTIES' CONTENTIONS

On July 26, 2007, CIAC filed the instant action against Yahoo alleging infringement of U.S. Patent No. 6,205,432 ("the '432 patent"). On May 15, 2009, a jury found that claim 45 of the '432 patent was not invalid and willfully infringed by Defendant, both literally and under the doctrine of equivalents. VERDICT FORM (Doc. No. 227). Based on these findings, the jury awarded CIAC $6,625,584 in damages, which was based on a 20% royalty rate from Yahoo's revenues from January 1, 2002 through November 30, 2008. MOTION FOR ENTRY OF JUDGMENT at 12 (citing trial exhibits and expert testimony). After the jury returned the verdict, Plaintiff filed a Motion arguing that it is entitled to a post-verdict reasonable royalty because Yahoo continues to offer the Yahoo Messenger Program with IMVironments and continues to derive revenue from IMVironments post-verdict. MOTION FOR ENTRY OF JUDGMENT at 3-4, 12. Based on the jury's finding of willful infringement, the Plaintiff also argues that it is entitled to enhanced damages, attorney's fees, and pre- and post-judgment interest, and a declaration that this case is exceptional. Id. at 3-4.¹

The instant dispute over ongoing royalty damages is premised on the theory that since Yahoo has continued to sell and earn revenue from IMVironments after the verdict, CIAC is entitled to continued relief in the form of ongoing monetary damages. MOTION FOR ENTRY OF JUDGMENT at 14-15. CIAC specifically petitions the Court for an ongoing royalty rate of 23% on post-verdict revenues derived by Yahoo for continued infringement. Id.; CIAC ROYALTY BRIEF at 1.

Defendant Yahoo opposes all such post-verdict relief in its Response to the CIAC Motion for Entry of Judgment (Doc. No. 292) ("Yahoo Entry of Judgment Response"). In addressing demands for supplemental damages, Yahoo continues to insist, post-trial, that the '432 patent is invalid and not infringed as a matter of law. YAHOO ENTRY OF JUDGMENT RESPONSE at 2. After the Court rejected this argument (Doc. No. 302) (denying Yahoo's Motion for Judgment as a Matter of Law), Defendant continues to argue that an ongoing royalty for future damages is not appropriate because it no longer incorporates the infringing feature into its "new" version of Yahoo Messenger.² YAHOO ROYALTY BRIEF at 1. Yahoo's non-infringement position is central to its opposition to CIAC's request for an ongoing royalty. In short, Yahoo contends that CIAC is not entitled to any post-verdict royalty because after the jury's finding of infringement, Yahoo removed the "enable IMVironments checkbox" from the version of Yahoo Messenger that is currently available for user download through the Yahoo server. Id. at 2.

LEGAL STANDARD

The Supreme Court, in eBay v. MercExchange LLC, reversed the Federal Circuit's general rule that favored the imposition of permanent injunctions in patent cases. Paice, LLC v. Toyota Motor Corp. (Paice III), 609 F.Supp.2d 620, 623 (E.D.Tex.2009); eBay v. MercExchange LLC, 547 U.S. 388, 394, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006). In place of the Federal Circuit's test for a permanent injunction under § 283, the Supreme Court reinstated the traditional four-factor test for establishing entitlement to injunctive relief.³ eBay, 547 U.S. at 391, 126 S.Ct. 1837. "Since eBay, various courts have struggled with the equitable concept of prospective damages in lieu of the patentee's `right to exclude,' when injunctive relief is not appropriate under the eBay four-factor framework." Paice III, 609 F.Supp.2d at 623. Additionally, courts have noted that since eBay, the proper calculation of post-verdict damages became a more hotly contested issue. Cummins-Allison Corp. v. SBM, 669 F.Supp.2d 774, 775-76 (E.D.Tex. 2009) (citing eBay, 547 U.S. at 391, 126 S.Ct. 1837).

Under the Supreme Court's framework, once a district court finds that the traditional four-factor test does not apply, the district court may then consider a reasonable royalty in the form of monetary damages in lieu of a remedy in equity. Paice III, 609 F.Supp.2d at 624; Amado v. Microsoft Corp. (Amado II), 517 F.3d 1353, 1361 (Fed.Cir.2008). In sum, when an injunction is not proper under eBay, the question then becomes: "what amount of money would reasonably compensate a patentee for giving up his right to exclude yet allow an ongoing willful infringer to make a reasonable profit?" Paice III, 609 F.Supp.2d at 624 (citing Georgia-Pacific Corp. v. United States Plywood Corp., 318 F.Supp. 1116 (S.D.N.Y.1970) (factor 15)).

A district court has long had the authority to award supplemental monetary damages to an willful infringer by citing to language in the Patent Act's damages provision: "the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention of the infringer, together with interest and cost as fixed by the court." 35 U.S.C. § 284; see also Hynix Semiconductor, Inc. v. Rambus Inc., 609 F.Supp.2d 951, 960-61 (N.D.Cal.2009). Furthermore, "when damages are not found by a jury the court shall assess them." 35 U.S.C. § 284. This provision has traditionally been applied in the context of awarding supplemental damages for infringement between the time of a jury's verdict and the judgment. Nat'l Instruments Corp. v. Mathworks, Inc., No. 2:01-cv-11, 2003 WL 24049230, at *4 (E.D.Tex. June 23, 2003) (noting that "a failure to award such damages would grant an infringer a windfall by enabling it to infringe without compensating a patentee for the period of time between the jury's verdict and the judgment"). Recently, however, when irreparable injury cannot be established, supplemental monetary damages have been extended under § 283 to compensate a patentee for future acts of infringement after the final judgment. See Paice v. Toyota Motor Corp. (Paice II), 504 F.3d 1293, 1314-15 (Fed. Cir.2007) (permitting the use of a patented invention in exchange for a royalty).

In Paice II, the Federal Circuit made it clear that a court can order future royalties to be paid, in accordance with principles of equity, "to prevent the violation of any right secured by patent, on such terms as the court deems reasonable." Paice II, 504 F.3d at 1314 (citing 35 U.S.C. § 283). In permitting the award of an ongoing royalty for patent infringement in some circumstances, the court further explained that the ongoing royalty may only be awarded where "necessary" to effectuate a remedy and this remedy is not warranted whenever a permanent injunction is not imposed. Id. at 1314-15 (encouraging district courts to first encourage the parties to allow the parties to negotiate a license amongst themselves before imposing an ongoing royalty).

Additionally, when finding that an ongoing royalty is necessary, the Federal Circuit has made it clear that (1) the district court may take additional evidence to account for any additional economic factors arising from the imposition of an ongoing royalty, Paice II, 504 F.3d at 1315, and (2) damages for past infringement are separate and distinct from damages for future acts of infringement and may require different royalty rates given the change in the parties' legal relationship, among other factors. Paice III, 609 F.Supp.2d at 623-24; Paice II, 504 F.3d at 1317; Amado II, 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. 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 have been entered, however, the calculus is markedly different because different economic factors...