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Putting on a successful damages case in a patent trial is always a challenge. For defendants, there is the uncomfortable starting position of having to assume that the asserted patent claims are valid and infringed, even as part of the most basic reasonable royalty calculation. Then, there is the balance that must be struck between putting on a plausible damages calculation that does not reward the plaintiff for a mediocre technical contribution, while also not putting off the jury with a too aggressive lowball number or royalty rate. There is a reason that testifying damages experts are so expensive and why the experienced ones, particularly on the defense side, are in such high demand. As challenging as it is for defendants, however, at least they don’t have the burden of proof on damages. That yoke lies squarely on a patentee’s shoulders.
To illustrate how heavy that yoke can be, even for well-represented and well-resourced patent plaintiffs, we will hearken back to a column from early May about the pretrial order in the closely watched Sonos patent case against Google, whose verdict was also covered on these pages. In the pretrial, I couched the challenge for Sonos on the damages front as follows: “The road for Sonos on the damages journey, however, remains a treacherous one.” The main reason for that was the trial judge, the NDCA’s Judge William Alsup took pains before trial to express his “serious questions about Sonos’s damages theory.” Now, just a few weeks after the jury issued its verdict in Sonos’s favor, Alsup laid out his reasoning for his oral striking of Sonos’ core damages theory in the preverdict jury charge.
In a “Memorandum Opinion Re Sonos’s Damages Theory” issued on June 9, Alsup reminded readers that he had “deferred ruling on two of Google’s motions in limine,” cautioning that there were “serious questions about Sonos’s damages theory and associated opinion,” but allowing Sonos to put on the contested evidence “with the understanding that the undersigned may strike it from the record” or could “tell the jury to disregard it.” Mincing no words in his subsequent written opinion, Alsup explained that while he understood “the imagination of trial lawyers and their paid ‘experts’ never sleeps in search of damages theories that reach stratospheric (or subterranean) levels” that imagination does not obviate the need “incumbent on district judges, as gatekeepers, to determine whether surface plausibility is really sleight of hand and smoke and mirrors.“ And in the Sonos case, Alsup concluded that at least one of Sonos’ major damages theories did not rise above the “smoke and mirrors” threshold.
The attack on Sonos’s damages theory in the opinion is a wide-ranging and conclusive one. For one, Alsup points out that for the patent that was found infringed by the jury — Sonos’s ‘885 patent — the hypothetical negotiation date that the parties had stipulated to predated the release of the paid subscription plans for a third-party application service called IFTTT that Sonos’s expert was relying on. Furthermore, Alsup rejected the idea that IFTTT was a “benchmark product with a technologically comparable feature” that would justify its use as a comparable product in line with the inventions described and claimed in the asserted Sonos patents. To Alsup, however, “mere capability does not confer comparability,” especially where acceptance of Sonos’s proffered damages theory would “open the floodgates to using IFTTT as a benchmark product for calculating a reasonable royalty in almost every patent case involving software-based technology, because almost every software-based technology could be loosely approximated using IFTTT.” In light of that perceived danger, allowing the use of IFTTT as a basis for a damages model was not something Alsup was willing to countenance.
The opinion contains further criticisms of using IFTTT subscription plans as a damages proxy for Google’s infringement. For one, Alsup concluded that even though IFTTT had manifold capabilities, the price of the subscription was not usable to “value all that could be done with IFTTT — from tracking the International Space Station to customizing, saving, and invoking overlapping groups of speakers.” And because the IFTTT price was not tethered to its full range of potential uses and benefits, it would be a stretch to say that the subscription cost for IFTTT would be a good indicator for what Google’s customers “would have been willing to pay for the claimed technology” in Sonos’s patents. As a result, the use of the IFTTT subscription price as a damages analysis starting point was rejected. Similarly, Alsup took issue with the proposed 70%/30% split — based on revenue split in Google’s favor from Google Appstore sales — that Sonos’s damages expert suggested was appropriate in his reasonable royalty calculation. To the court, “this 70%/30% split appears almost as arbitrary as applying the ‘25% rule of thumb’ that the Federal Circuit rejected” in prior cases, in part because the proposed split “d[id] not say anything about a particular hypothetical negotiation” and “would predict […] the same 25%/75% royalty split’ each time, regardless of the parties and technologies involved.” Here again, Alsup refused to open the door to future plaintiffs asking for a similar split from Google “each time Google is an alleged infringer, regardless of the patent owners and claimed technologies involved.”
Ultimately, as has already been said numerous times in the past, this trial will not be the end of the Sonos-Google saga. At the same time, it behooves us to take as many lessons as we can from the proceedings, which feature a distinguished trial judge doing his best to navigate the arguments presented by two world-class legal teams. At a minimum, this latest order, issued as it was after trial, illustrates the balance that judges in patent cases have to strike between making sure there is a fulsome record for appeal versus the need to make sure that cases in a trial setting actually get tried in a timely manner. More importantly, there is no doubt that Alsup’s decision to strike Sonos’ damages theory will be scrutinized by the federal circuit, just as the jury award of more damages than what Sonos’ expert originally asked for with respect to the ‘885 patent will be as well. For patent litigators, this case is a potent reminder that the damages danger zone has a wide envelope. And that for a patentee to fly through that danger zone safely, one best be prepared to exhibit the skill of a Maverick or Iceman.
Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.
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