Tech Amici Target High Damages in Microsoft-Lucent IP Case

Zusha Elinson

The Recorder

Big tech companies don't like having to pay big damages in patent cases.

With lobbying efforts to change patent laws to limit damages stymied for the moment on Capitol Hill, they are looking to courts for relief.

Oracle, Apple Inc., Yahoo, Intel Corp. and several others are throwing their weight behind Microsoft Corp. as it tries to persuade the U.S. Court of Appeals for the Federal Circuit to overturn a $500 million jury verdict for infringing on a Lucent patent. That case was decided in 2007 in a Southern District of California federal court before Judge Rudi Brewster.

In friend of the court briefs filed this month, the tech companies are urging the court to rein in the "entire market value rule." The rule allows the calculation of damages based on the whole product, even if just one feature is infringed.

Microsoft got hit with $500 million in damages because the act of creating a new appointment in the calendar function of the company's e-mail product, Outlook, infringed on a Lucent patent. The damages were calculated by taking a percentage of Outlook sales, and to a lesser degree, the sales of other Microsoft products with similar functions.

"We think that [the entire market value rule] is one of the doctrinal rules that has been misapplied, and it's an important target for us because it's a rule that often justifies excessive damages," said Robert Merges, a University of California at Berkeley School of Law professor who helped pen an amicus curiae brief for Yahoo, Intel and others. "It's been applied fairly loosely."

But some contend that the noise about huge damage awards is overblown.

"Are there some issues? Of course," said Thomas Lavelle, general counsel at Rambus Inc., a company that gets a lot of its revenue from licensing patents. "But in general, the system works pretty well."

Lavelle said that smaller companies need strong patent protections to be successful, while the bigger ones no longer do: "I'm suspicious that they're willing to throw out the baby with the bath."

The amici suggest what they say are more rigorous ways to calculate damages.

The brief commissioned by Apple and Oracle Corp., written by Weil, Gotshal & Manges patent litigator Edward Reines, criticized the trial court for not tying the reasonable royalties to the actual infringement. In this case, the infringement claims were based not on particular lines of code, but on the action of users in making entries into the calendar. Thus, not every copy of the Outlook software infringes, the brief argues, which should be considered when setting damages.

"The district court improperly found the verdict supported despite the absence of meaningful and rigorous proof (l) of the extent of actual use of the patented technology, and (2) that the requested damages have a valid nexus to the value of the patented feature relative to the rest of the product on which the royalty is sought."

The other brief -- written by Merges along with George Washington University Law School professor John Duffy, Fried Frank partner James Dabney and others -- criticizes the trial court for allowing comparisons between royalties in this case and the amount of money generated by large patent portfolios.

"We're trying to ask the Federal Circuit to instruct the trial courts to be much better gatekeepers about the evidence that comes into trial," Merges said.

Lucent has yet to file its reply brief. The company's lawyer, Kirkland & Ellis' Michael Stadnick, did not return a call seeking comment. Microsoft is being represented by Fish & Richardson's John Gartman, who also didn't return calls seeking comment.