DDEL rejects reasonable royalty theory based on single settlement agreement

On February 21, 2013, Judge Andrews of the District of Delaware issued an opinion in AVM Tech, LLC v. Intel Corp.-d8cf79052b12, Case No. 1:10-cv-00610-RGA (Doc. No. 283), addressing various Intel pretrial motions concerning damages. (See February 22, 2013 post on this blog concerning a different opinion from this same case.) Judge Andrews concluded that AVM could not present a damages theory that was based on a single Intel settlement agreement (from a previous litigation involving a different plaintiff), even though the technology at issue in the agreement was allegedly comparable, in part because AVM failed to analyze the underlying litigation that lead to the settlement or to explain why other Intel licenses were not comparable. See slip op. at 8 ("An analysis that relies on a single license agreement but does not take into account why other licenses are not comparable cannot be a reliable analysis.") (footnote omitted).

Judge Andrews cited the failure by AVM's damages expert (Larry Evans) to explain why the single agreement, alone, could be the basis for an accurate conclusion about the hypothetical negotiation over the patent-in-suit, which was not the patent at issue in the settlement agreement. Moreover, Judge Andrews observed that the agreement was executed 5 years after the hypothetical negotiation, and that Evans had failed to analyze the litigation that lead to the settlement. "Without analysis of the litigation, the conclusion cannot be based on 'sound economic and factual predicates.' See Riles v. Shell Exploration & Production Co., 298 F.3d 1302, 1311 (Fed. Cir. 2002)." Slip op. at 6. Judge Andrews identified several litigation issues that would be germane to determining the value of the settlement, none of which Evans analyzed:

• The amount of damages sought in the litigation.
• Whether willfulness would have been tried, with the possibility of treble damages.
• Whether, as in LaserDynamics, sanctions had been imposed.
• The strength of the validity (and other) defenses in the litigation.

Ultimately, the Court cast doubt upon the use of a single settlement agreement on comparable technology as the basis for a reliable conclusion on damages:

AVM asserts that Federal Circuit precedent permits damages claims to be based on a single license agreement, or a single settlement agreement for the patent-in-suit, or a single license agreement for a comparable technology. (D.I. 262 at 1) (citing Dow Chemical o. v. Mee Industries, Inc., 341 F.3d 1370 (Fed. Cir. 2003); Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009); ResQNet, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010) (per curiam)). AVM further asserts that "[t]here is no logical reason why a settlement agreement for a comparable technology should be treated differently." (D.I. 262 at 1). AVM's attempt to extend the logic of the Federal Circuit precedent it cites is a "bridge too far." AVM does not cite to a single case where any court permitted a damages claim to be based on a single settlement agreement for a comparable technology. ... And, in any event, what is missing here is any analysis of the underlying negotiations between WARF and Intel or the context in which the settlement agreement was reached. Even assuming that a single settlement agreement on a comparable technology could be the basis for a reliable conclusion, which the Court doubts, Evans' analysis falls far short of what would be necessary for such a conclusion.

Slip op. at 8-9 (emphasis added) (omitting section in which court distinguished Tyco Healthcare Group LP v. E-Z-EM, Inc., 2010 WL 774878, at *1 (E.D. Tex. Mar. 2, 2010), for the proposition that it supports basing damages on a single settlement agreement for comparable technology, because in that case the issue was whether settlement communications were discoverable).