NDCA denies summary judgment based in part on statutory presumption of damages

On February 3, 2014, Judge Seeborg of the Northern District of California issued an opinion in Interwoven, Inc. v. Vertical Computer Systems, Case No. CV 10-04645 RS, in which the court addressed Interwoven's motion for summary judgment on the issue of damages. The court granted the motion in part, as to lost profits, but denied the motion for summary judgment based in part on the "statutory presumption of damages upon a finding of infringement ...." [Slip op. at 10.] Although the court observed that the evidence submitted by Vertical provided "some thin basis on which a reasonable royalty might be calculated" [id.] the court allowed Vertical to go forward on a reasonable royalty theory based also on its conclusion that the district court must award in an amount no less than a reasonable royalty.

The court's discussion of this issue is quoted in full:

At the same time, Vertical's failure to present a triable issue as to lost profits does not entirely foreclose the availability of damages. Upon proof of infringement, 35 U.S.C. 284 provides that "the court shall award [the patent owner] damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court." "In patent law, the fact of infringement establishes the fact of damage because the patentee's right to exclude has been violated." Lindemann Maschinenfabrik GmbH v. Am. Hoist & Derrick Co., 895 F.2d 1403, 1406 (Fed. Cir. 1990). "The statute is unequivocal that the district court must award damages in an amount no less than a reasonable royalty," even in the absence of expert testimony. Dow Chem. Co. v. Mee Indus., Inc., 341 F.3d 1370, 1381-82 (Fed. Cir. 2003) (finding error where the district court concluded that no damages could be awarded where the plaintiff failed to present expert testimony on the issue). In the event a patentee proves infringement but fails to meet its burden to prove damages, "the district court should consider the so-called Georgia-Pacific factors (Ga.-Pac., Corp. v. United States Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970)) in detail, and award such reasonable royalties as the record evidence will support." Dow Chem Co., 341 F.3d at 1382. Despite this rule, the burden remains on the patentee to present evidence of damages, and failure to do so may lead the court to a reasonable royalty of zero. See Lindemann, 895 F.2d at 1407 (citing favorably a Third Circuit decision affirming an award of zero damages for lack of evidence). Embrex, Inc. v. Service Engineering Corp., 216 F.3d 1343 (Fed. Cir. 2000), is not to the contrary. Although the Federal Circuit reversed the district court's award of direct damages based on lost profits where the only evidence of direct infringement was the appellant's tests in preparation for sale, it then remanded for the district court to calculate a reasonable royalty. Id. at 1350.

In light of the statutory presumption of damages upon a finding of infringement, there is no basis to grant summary judgment on the issue of damages with the understanding that Vertical will be limited to the assessment of a reasonable royalty. Although Gemini's proffered reasonable royalty calculation again relies on Interwoven's total sales revenue from TeamSite (as did his lost profits calculation), his analysis of similar licensing agreements and application of the Georgia-Pacific factors provides some thin basis upon which a reasonable royalty might be calculated. Vertical should be mindful, however, of the Federal Circuit's caution that while 35 U.S.C. 284 "obviates the need to show the fact of damage when infringement is admitted or proven, . . . that does not mean that a patentee who puts on little or no satisfactory evidence of a reasonable royalty can successfully appeal on the ground that the amount awarded by the court is not 'reasonable.'" Lindemann, 895 F.2d at 1407.