Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_07-cv-02000/USCOURTS-casd-3_07-cv-02000-7/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 28:1338 Patent Infringement

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UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

11 LUCENT TECHNOLOGIES, INC., 

12 

13 

vs. 

Plaintiff, 

14 MICROSOFT CORPORATION, 

Defendant. 

16 

CASE NO. 07-CV -2000 H (CAB) 

ORDER GRANTING IN PART 

AND DENYING IN PART 

MICROSOFT'S MOTION FOR 

JUDGMENT AS A MATTER OF 

LAW AND IN THE 

ALTERNATIVE, A NEW TRIAL 

WITH A REMITTITUR 

This case is on remand from the Federal Circuit for a new trial on damages for 

1811 Microsoft's infringement of claims 19 and 21 of U.S. Patent Number 4,763,356 ("Day 

19/1 patent"). See Lucent Technologies. Inc. v. Gateway. Inc., 580 F.3d 1301 (Fed. Cir. 2009). 

II The frrstjury returned a finding ofinfringement and validity ofthe Day patent, and Microsoft 

2111 appealed the verdict and damages award. See id. The Federal Circuit affirmed the jury's 

22 II verdict on the infringement and validity of the Day patent, but remanded the case for a new 

23 II trial on damages. Id. 

24 II On July 29,2011, the jury returned a verdict of$70 million as the lump-sum reasonable 

II royalty for Microsoft's infringement ofthe Day patent for Microsoft Outlook (versions 2000, 

2611 2002, and 2003); Microsoft Money (versions 2000 through 2006); and Windows Mobile 

27 II (versions Pocket PC 2000, 2002, and 2003, Windows Mobile 2003, and Windows Mobile 5). 

2811 (Doc. No. 1383.) On July 29,2011, this Court issued judgment in favor of Lucent against 

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1 " Microsoft in the amount of$70 million. (Doc. No. 1387.) 

211 On August 26,2011, Microsoft filed a motion for a new trial (Doc. No. 1434) and a 

3" post-trial motion for judgment as a matter of law (Doc. No. 1433).' On September 27,2011, 

4" Lucent filed a response in opposition to Microsoft's motion for a new trial and post-trial 

5" motion for judgment as a matter of law. (Doc. Nos. 1451 & 1454.) On October 4,2011, 

6" Microsoft filed its reply. (Doc. Nos. 1457 & 1458.) 

711 On October 12, 2011, the Court held a hearing on these post-trial motions. Luke 

811 Dauchot, Jeanne Heffernan, and Ryan Kane appeared for Plaintiff Lucent. Roger Denning, 

9 II Michael Florey, Francis Albert, and Craig Countryman appeared for Defendant Microsoft. 

10 The Court compliments the attorneys and trial counsel for their excellent advocacy in this case. 

11 After due consideration, the Court grants in part and denies in part the motion for 

12 II judgment as a matter of law and enters judgment of $26.3 million. The Court also 

13 II conditionally grants in part and denies in part the motion for a new trial under Federal Rule of 

14 Civil Procedure 50( c), with a remittitur of$26.3 million. 

15 I. Background 

16 II This case illustrates the difficulty of properly valuing a small patented component, 

17" without a stand-alone market, within a larger program. See Lucent, 580 F.3d at 1324; Uniloc 

18 U.S.A .. Inc. v. Microsoft, 632 F.3d 1292 (Fed. Cir. 2011); ResQNet.com Inc. v. Lansa. Inc., 

19 594 F.3d 860,869 (Fed. Cir. 2010); Georgia-Pacific Corp. v. United States Plywood Corp., 

20 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970). 

21 Microsoft's popular Outlook product infringes claims 19 and 21 of the Day patent. 

2211 Lucent, 580 F.3d at 1321; (PX-l at 17:27-18:14, 18:19-22.) Specifically, the date-picker 

23 permits users to calendar appointments by clicking on a calendar and populating the field with 

24 the resulting date. The Day patent's technology is included in 109.3 million Office suite 

2511 ("Office") licenses and in 241,800 stand-alone Outlook products, for a total of 109.5 million 

26 11 

tDuring trial, Microsoft filed a motion for judgment as a matter of law at the close of 

27" Lucent's case (Doc. No. 1369) and Microsoft filed amotion for judgment as a matter of law 

at the close ofall evidence. (Doc. No. 1377.) During trial, Lucent filed its op-position to these 

2811 motions. (Doc. Nos. 1371 & 1381.) The Court suomitted these motions. (Doc. No. 1422.) 

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111 licenses during the relevant period from January 13, 2003 to December 11, 2006.2 

2 Additionally, Microsoft Money and Windows Mobile infringe the Day patent, but the vast 

3 majority ofthe claimed damages relate to the 109.3 million Office licenses. 

4 In a trial for damages for patent infringement, a prevailing party deserves damages 

5 II "adequate to compensate for the infringement, but in no event less than a reasonable royalty 

6 for the use made of the invention by the infringed." 35 U.S.c. § 284 (2006). The parties 

7 dispute whether the jury had a legally sufficient evidentiary basis to award $70 million for the 

811 infringement as a lump-sum royalty. Microsoft argues that Lucent failed to provide the jury 

9 with a properly-apportioned damages calculation in violation ofthe entire market value rule. 

10 (Doc. Nos. 1434 & 1433.) Lucent responds that it properly apportioned between the patented 

11 features and unpatented features under the relevant Georgia-Pacific factors without relying on 

12 the entire market value rule. Georgia-Pacific, 318 F. Supp. at 1120. 

13 To support its claim of damages, Lucent called Bruce Tognazzini, a well-recognized 

14 II technical expert; Dr. Deborah Jay, a survey expert sought by both sides for her renowned 

15 II expertise in probability surveys; Raymond Sims, an economic expert; Stephen Samuels, Bruce 

1611 Schneider, and Roger Stricker, Lucent's licensing witnesses; and adverse witness, William 

1711 Kennedy, a Microsoft executive. Microsoft strategically elected to put Lucent to its burden 

18 II of proof. In so doing, Microsoft declined to call its survey expert, a licensing witness, or an 

19 II economist to evaluate damages. Instead, Microsoft called a professor of negotiation theory, 

20 II Robert Mnookin, and Microsoft executives William Kennedy and Jensen Harris. The jury, 

2111 after evaluating the credibility of witnesses, agreed with Lucent and rejected Microsoft's 

22 II arguments and biased witness testimony in reaching its valuation of $70 million. 

23 II II. Microsoft's Motion for Judgment as a Matter of Law 

24 II A. Legal Standards for Motion for Judgment as a Matter of Law 

2511 A j ury verdict can be overturned and a post-trial motion for judgment as a matter oflaw 

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27 2Tbe Court again rejects Microsoft's challenge under Global-Tech Apnliances. Inc. v. 

SEB S.A., 131 S.Ct. 2060 (2011), to the notice period as it did not preserve thiS issue on appeal 2811 and on the merits. (See Doc. No. 1304.) 

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1 II granted "only if, under the governing law, there can be but one reasonable conclusion as to the 

2 II verdict. In other words, the motion should be granted only if 'there is no legally sufficient 

3 II basis for a reasonable jury to find for that party on that issue.'" Winarto v. Toshiba Am. Elecs. 

411 Components. Inc., 274 F.3d 1276, 1283 (9th Cir. 2001). In ruling on a motion for judgment 

511 as a matter of law, the district court "is not to make credibility determinations or weigh the 

6 II evidence." Id. The district court "must accept the jury's credibility findings consistent with 

7 the verdict." Id. 

8 For the motion, the district court must view the evidence in the light most favorable to 

9 II the non-moving party and draw all reasonable evidentiary inferences in favor of the 

10 II non-moving party. Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150 (2000); 

1111 Josephs v. Pac. Bell, 443 F.3d 1050, 1062 (9th Cir. 2006). The Court must uphold a jury's 

1211 verdict even if the record contains evidence that might support a contrary conclusion to the 

13 jury's verdict. Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir. 2002). The district court must 

14 disregard evidence favorable to the moving party that the jury is not required to believe. 

15 Reeves, 530 U.S. at 150-51; Pavao, 307 F.3d at 918; Winarto, 274 F.3d at 1283, 1286-87 

1611 (district court must "accept the jury's credibility findings consistent with the verdict" and 

17 II "disregard all evidence favorable to the moving party that the jury is not required to believe" 

18 II because "[w ]hen two sets ofinferences find support in the record, the inferences that support 

1911 the jury's verdict of course win the day."). 

20 II "On post-trial JMOL motions, district court judges must scrutinize the evidence 

2111 carefully to ensure that the 'substantial evidence' standard is satisfied." Lucent, 580 F.3d at 

2211 1336. Although a reasonable royalty analysis "necessarily involves an element of 

2311 approximation and uncertainty," Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d512, 517 (Fed. 

24 II Cir. 1995), the damages cannot stand if any part of the calculation leading to it was 

2511 unsupported or contrary to law. Uniloc, 632 F.3d at 1317, 1321. "Beginning from a 

26 II fundamentally flawed premise and adjusting it based on legitimate considerations specific to 

27 the facts ofthe case nevertheless results in a fundamentally flawed conclusion." Id. at 1317. 

28 Moreover, when an accused device includes patented and unpatented features, as in this case 

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1 II for the Day patent, "the patentee ... must in every case give evidence tending to separate or 

2 apportion the defendant's profits and the patentee's damages between the patented feature and 

3 the unpatented features, and such evidence must be reliable and tangible, and not conjectural 

4 II or speculative," or show that "the entire value ofthe whole machine, as a marketable article, 

is properly and legally attributable to the patented feature." Uniloc, 632 F.3d 1292, 1318 

6 (citing Garretson v. Clark, 111 U.S. 120, 121 (1884»; see also Lucent, 580 F.3d at 1336-37. 

7 For minor patent improvements, a patentee cannot justify using the entire market value ofan 

8 accused product simply by asserting a low enough royalty rate. Uniloc, 632 F.3d 1292, 1320. 

9 1\ If the plaintiff, as in this case, cannot meet the entire market value rule, the plaintiff must 

apportion between the patented and unpatented features. Uniloc, 632 F.3d at 1318. 

11 B. Lucent's Damages Calculation 

12 Microsoft challenges the jury's $70 million verdict. (Doc. No. 1434-1 at 1.) 

13 Significantly, Microsoft argues that "Lucent presented no evidence, much less substantial 

14 evidence, that could have led a reasonable jury to conclude that Microsoft would have lost $67 

in revenue for any fraction ofthe 109 million licenses to Office ifOutlook did not include the 

16 II date-picker." (ld:.) Specifically, Microsoft argues that Lucent failed to provide the jury with 

17 II a properly-apportioned damages calculation for Outlook based on reliable expert methodology 

18 as required by the Federal Circuit and this Court's previous rulings. (See Doc. No. 1323, 

19 Court's Motion in Limine Order, at 9-10; Uniloc, 632 F.3d 1292.) 

II Lucent refers to the entire record at trial and the jury's credibility determinations in 

21 support of the jury's damage award. Further, Lucent emphasizes that this is a reasonable 

22 royalty case based on the outcome of a hypothetical negotiation for a lump-sum, not a lost 

23 II profits case. (Doc. No. 1451 at 1.) 

241\ A lump-sum license is an "upfront, paid-in-full royalty." Lucent, 580 F.3d at 1326. A 

II lump-sum royalty benefits the licensor by raising a substantial amount ofmoney quickly. Id. 

26 II On the other hand, a lump-sum royalty benefits the licensee by allowing it to use the patented 

27 II technology without any concerns offurther expenditure. Id. Furthermore, a lump-sum royalty 

28 II removes the inherent risk ofunder-reporting the actual usage ofthe patented technology by the 

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1 \I licensee, and eliminates administrative burden ofhaving to monitor usage. ld.. A lump-sum 

2 " royalty also eliminates any ability for the licensee to reevaluate the value of the patented 

3 II technology. The licensee agrees to pay the lump-sum royalty regardless of whether the 

4 II patented technology is successful or even used. Id. 

5 II A lump-sum royalty may also create risks. Ifeither party incorrectly forecasts the use 

6 " of the patented feature, a licensee may end up paying a lump-sum far in excess of what the 

7 patented invention is later shown to be worth or a licensor may end up accepting a lump-sum 

8 that is far less than what the patented invention is later shown to be worth. Id. The licensee 

9 may also consider its risk ofnot including the patented invention in its product under Georgia10" Pacific. 318 F. Supp. at 1120. 

11 II During a hypothetical negotiation for a lump-sum royalty figure, the parties may 

12 "consider the expected or estimated usage" of the patented invention. Lucent, 580 F.3d at 

1311 1327. Generally, a frequently used invention is more valuable and commands a higher 

14 lump-sum royalty. Id. Conversely, a minimally used feature commands a lower lump-sum 

15 payment. The lump-sum analysis does not require the parties to precisely calculate the use of 

16 II the patented feature, unlike a running royalty license. In a typical running royalty, the license 

17 II is tied to the use ofthe patented feature standing alone or incorporated into other products. In 

18 II a lump-sum calculation, the parties agree on a fully paid up amount based on "expected or 

19" estimated usage." Id. at 1327. 

20 " Here, Lucent sought a lump-sum royalty based on its Georgia-Pacific analysis and the 

21 II business risk to Microsoft from not including the Day patent technology in its products. 

22 II Lucent properly points out that its evidentiary burden to show a lump-sum reasonable royalty 

23 " under Georgia-Pacific was to present sufficient evidence regarding the outcome of a 

24 II hypothetical negotiation based on competing positions about the value of the Day patent 

25 II technology to Microsoft. @..) 

26" Lucent's $70 million figure considered an expected financial impact to Microsoft 

27 II without the Day patent technology in Outlook. (R. Tr. at III-244: 13-257:4; IV-5:22-32: 19.) 

2811 It is undisputed that Microsoft sold 109.3 million Outlook licenses within Office during the 

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1 damages period. (R. Tr. at IV-160:4-8.) Mr. Raymond Sims ("Mr. Sims"), Lucent's economic 

2 expert, included the 1 09.3 million Office licenses in his analysis, along with 241,800 licenses 

3 for Outlook sold on a stand-alone basis, for a total of 109.5 million licenses. ffih; see also R. 

4 Tr. at IV-15:4-16:12.) 

5 Mr. Sims then multiplied the 109.5 million total Outlook licenses by 3% to obtain the 

611number oflicense sales Microsoft would potentially lose ifthe Day patent technology was not 

7 included in Outlook. The result is a risk ofloss ofup to 3.3 million license sales. (R. Tr. at IV8 14:16-15:3.) He arrived at the 3% figure using data generated by a survey conducted by 

9 Lucent's expert Dr. Deborah Jay ("Dr. Jay"). (R. Tr. at IV-1l:20-16:12.) Dr. Jay's survey 

10 results showed that 7% ofOutlook purchase-decision makers that use the drop-down calendar 

11 feature would not have bought Outlook ifit lacked the drop-down calendar. (R. Tr. at 11-66:24­

12 67:7, 153:11-19,1l8:10-119; PX-1012; PX-1616.) Mr. Sims multiplied the 7% by the 

13 percentage of all Outlook users who use the drop-down calendar-43%-to arrive at 3%. (R. 

14 Tr. at IV-IO:6-14:15; Doc. No. 1454-3 at 33-37, 43-46 (RS11-RSI5, RS21-RS24).) Dr. Jay 

1511agreed with Mr. Sims' calculationofthe 3% figure. (R. Tr. at 11-159:7-160:21; Doc. No. 1454­

16 3 at 523 (DJ34).) This evidentiary record supports the conclusion that Microsoft would face 

17 a potential loss of 3.3 million licenses at the hypothetical negotiation if Microsoft did not 

18 llinclude the Day patent technology in Outlook. 

19 II Mr. Sims' next step was to calculate a hypothetical revenue loss associated with selling 

20113.3 million fewer licenses of Outlook. Mr. Sims testified that Microsoft's average per-unit 

2111revenue is $67 from sales ofstand-alone Outlook. (R. Tr. at IV-167:23-168:4.) Mr. Sims also 

2211testified that Microsoft's average per-unit revenue from sales ofOffice that includes Outlook 

231lis $98.19. (R. Tr. at IV-166:13-167:4.) Based on the testimony ofMicrosoft's Rule 30(b)(6) 

2411witness on the subject, Mr. Sims testified that Microsoft does not attribute revenue received 

25 Ilfrom sales ofOffice to the individual programs within Office. (R. Tr. at III -186: 14-189: 1 0; IV261117:5-18:1.) As a result, Mr. Sims used a $67 stand-alone value ofOutlook as a proxy for the 

2711value ofOutlook sold as part of Office. 

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1 II Mr. Sims testified that his use of$67 as the value for Outlook sold as part ofOffice was 

2 Ilcorroborated by a 2010 Microsoft pricing document. The internal document showed that the 

3 IIdifference in retail prices between Office with Outlook ($279.99) and Office without Outlook 

4 ($149.99) was $130, roughly the retail price of stand-alone Outlook at that time ($139.99). 

(PX-1895; R. Tr. at IV-167:23-169:5, 174:6-175:7, 181:10-182:9.) 

6 II Mr. Sims also testified that use of $67 as the value of Outlook within Office was 

7 lIappropriate based on internal Microsoft documents showing that Microsoft Outlook is the most 

8 frequently used Office application "by far." (PX-838; R. Tr. at nI-218:21-219:23; R. Tr. at IV9 163: 14-164: 15.) Mr. Sims testified that he reviewed internal Microsoft records concerning use 

of the calendar feature within Outlook and Office. iliL.) An internal Microsoft presentation 

11 states 83% of respondents use Outlook's calendar to manage their work 

12 appointments/events/meetings. In another internal Microsoft survey, Microsoft listed several 

13 calendar based tasks as "high-impact," noting that 90% of the respondents used calendar 

14 features, 84% set up new appointments or meetings, and 79% forwarded or changed meeting 

requests. (Doc. No. 1399, PX-838.) Therefore, Mr. Sims multiplied the 3.3 million licenses 

16 Ilfor Office and Outlook by $67 to arrive at his opinion that Microsoft would have potentially lost 

17 $221.4 million in revenue ifit did not include the Day patent technology in Outlook. (R. Tr. at 

18 IV-16: 14-18:1,167:23-168:13, 172:7-10.) The Court also dismisses Microsoft's claim that only 

19 50% ofOffice licenses infringe. That testimony came from a biased Microsoft employee that 

both the jury and the Court reject as not credible. 

21 II Mr. Sims next multiplied the $221.4 million by Microsoft's uncontested 76.2% division2211wide profit margin and, after performing a similar calculation for Money, discounted the total 

23 "expected forgone profit" to 2003 to yield a total of $138.7 million.3 (R. Tr. at IV-18:3-14, 

24 22:13-28:10.) 

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3The Court finds no legal error in Lucent's calculations for Microsoft Money and 

2711 Microsoft MobilelPocket PC, but these figures are insignificant compared to the Outlook 

numbers in the damages calculation. 

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1 Mr. Sims also performed an analysis of time savings to consumers by using the Day 

2 patent technology over other methods in Microsoft's three infringing products. Based on 

3 internal Microsoft documents, Mr. Sims testified that Microsoft values the time saved by its 

4 consumers. (R. Tr. at IV-33:7-38:9, 40:156-41:8, 53:11-54:2; PX-1000; PX-1048; PX-1889.) 

511Mr. Bruce Tognazzini, Lucent's technical expert, and Mr. Sims testified to the amount oftime 

6 a person saves when using the Day patent technology compared to other methods. (R. Tr. at 

7 IV-42:2-17, 54:7-55:8; 1-197:20-200:20.) Based on internal Microsoft documents, Mr. Sims 

8 IIdetermined the number ofevents over the life ofa product where a user can save time by using 

9 lithe infringing technology to schedule appointments. (R. Tr. at IV-44:3-47 :2,48:23-49:6; Doc. 

10llNo. 1451-4 at 543-547 (RS34-RS37, RS40); PX-829.) Mr. Sims monetized the time by using 

11 $12.09, the average per-hour wage in 1996 for workers at the time of the hypothetical 

12 negotiation. (R. Tr. at IV-48:2-49:19.) Finally, Mr. Sims testified that he took the number of 

13 licenses sold during the infringement period and reduced the number of licenses to account for 

14 the users ofthe Day patent technology. (Id.) Mr. Sims performed the same analysis for Money 

15 and Pocket PC, discounted the total amount to 2003, and concluded that the time savings value 

16 to the consumer is $170 million. (R. Tr. at IV-49:25-53:1O.) 

17 Mr. Sims next opined on the outcome ofthe Georgia-Pacific hypothetical negotiation. 

18 This hypothetical negotiation tries to recreate the "ex ante licensing negotiation 

19 scenario"-"[i]n other words, if infringement had not occurred, willing parties would have 

20 lIexecuted a license agreement specifYing a certain royalty payment scheme." Lucent, 580 F.3d 

21 at 1324-25. In evaluating the hypothetical negotiation, the parties often apply the 

22 Georgia-Pacific framework. 

2311 The fifteen Georgia-Pacific factors include: (1) established royalty rate for the patent; 

2411(2) license rates paid for comparable patents; (3) type of license (exclusive/non-exclusive or 

251Irestricted/non-restricted); (4) licensor's established licensing policies; (5) competitive 

2611relationship between licensor and licensee; (6) convoyed sales; (7) duration and tenns of the 

27 lllicense; (8) commercial success and established profitability; (9) advantages over old methods; 

28 11(10) nature of patented invention and benefits to those that use it; (11) extent of use of the 

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1 Ilpatent by the infringer; (12) customary industry rate for invention or analogous inventions; (13) 

2 llportion of profit that should be credited to the invention as distinguished from nonpatented 

3 lIelements, manufacturing process, business risks, or significant features added by the infringer; 

4 (14) opinion testimony ofqualified experts; and (15) amount that licensor and licensee would 

have agreed upon. Georgia-Pacific, 318 F. Supp. at 1l20. In Uniloc, the Federal Circuit 

6 IIexplicitly "sanction[ s] the use of the Georgia-Pacific factors to frame the reasonable royalty 

7 inquiry." 632 F 3d at 1317. "Those factors properly tie the reasonable royalty calculation to 

8 the facts of the hypothetical negotiation at issue." Id. Mr. Sims' testimony concerning the 

9 applicable Georgia-Pacific factors was proper as was the Court's instruction to the jury on the 

factors. 

11 Mr. Sims reviewed the survey results, expected foregone profits. value oftime savings 

12 to consumers, documents reflecting the qualitative value ofthe patented technology, Lucent's 

13 licensing policy, and the parties' respective bargaining positions. He concluded that, during the 

14 IIhypothetical negotiation, Microsoft and Lucent would choose a lump-sum license payment 

closer to $138.7 million than to zero based on the applicable Georgia-Pacific factors. (R. Tr. 

16 at IV-91 :2-13; see also R. Tr. at IV-90:19-91:13, 94:11-19.) 

17 II Mr. Sims also examined the hypothetical negotiation using a business realities approach.4 

18 This approach takes into account the parties' various interests and alternatives to reaching an 

19 agreement. Mr. Sims testified that Microsoft would consider that it would be at risk for 

potentially losing $138.7 million dollars if it did not reach an agreement with Lucent (R. Tr. 

21 at IV-91:17-95:24.) Microsoft's competitor to Outlook, Lotus Notes, included the Day patent 

22 technology. (R. Tr. at III-250: 10-13.) He also testified that while Microsoft would attempt to 

231~---------------

4Mr. Sims' business realities approach is somewhat similar to Microsoft's expert 

24 II Professor Mnookin' s testimony concerning the interests of the parties in a hypothetical 

negotiation but with different conclusions. Professor Mnookin referred to one ofthe parties' II interests as a BATNA, the best alternative to a negotiated agreement and a reservation price. 

Professor Mnookin acknowledged that the parties will come to an agreement ifthere is overlap 

2611 in the zone of potential agreement Mlcrosoft acknowledged that Professor Mnookin's 

methodology is 6ased on well-established negotiation theories that are widely accepted. (Doc. 

2711 No. 1257 at 6.) The jury soundly rejected Professor Mnookin's conclusions-not his 

methodology about negottations-·because there was no credible evidence to support 

2811 Microsoft's licensing value of $2 to $5 million. 

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1 Ilpay the lowest amount it could for a license to the Day patent, Lucent would seek a royalty as 

2 close to $138.7 million as possible to preserve the value of its intellectual property portfolio. 

3 "(ld.) Based on his apportionment, the Georgia-Pacific factors, and business realities, Mr. Sims 

411testified that a conservative lump-sum royalty would be $70 million. (R. Tr. at IV-95:5-96:6, 

51194:13-16.) The jury agreed. The issue is whether the jury's verdict is supported by legally 

6 sufficient substantial evidence. Winarto, 274 F.3d at 1283. 

7 C. The Court Advised Lucent that it Needed to Properly Apportion the Value of 

the Day Patent 

8 

911 The Court next evaluates whether the trial record supports a legally sufficient basis of 

10 "apportionment between the patented and unpatented features of the Day patented technology 

11 Ilwithin Outlook and Office as required by the Federal Circuit and this Court's previous rulings. 

1211(See Doc. No. 1323, Court's Motion in Limine Order, at 9-10; Uniloc, 632 F.3d 1292.) 

13 II Lucent is entitled to a reasonable royalty for Microsoft's infringement ofthe Day patent. 

1411See Lucent, 580 F.3d at 1324; see also 35 U.S.C. § 284 (2006). A reasonable royalty is the 

15 II"floor below which damages shall not fall." Lucent, 580 F3d at 1324. The amount ofdamages 

16 IIbased on a reasonable royalty is an issue offact for thejury. Micro Chern.. Inc. v. Lextron. Inc., 

1711317 F.3d 1387, 1394 (Fed. Cir. 2003). A jury's award is entitled to deference. Monsanto Co. 

1811v. Ralph, 382 F.3d 1374,1383 (Fed. Cir. 2004). In damages cases, courts should resolve ""any 

1911doubts about the amount ... against the infringer." DSU Med. Corp. v. JMS Co., 471 F.3d 

20 111293, 1309 (Fed. Cir. 2006). In measuring damages, Lucent conceded that it cannot show that 

21 lithe Day patent technology-the date-picker-is the basis for consumer demand ofOutlook or 

22 IIOffice. Therefore, Lucent cannot meet the entire market value rule. Uniloc, 632 F3d at 1318. 

23 II "The entire market value rule allows a patentee to assess damages based on the entire 

2411market value of the accused product only where the patented feature creates the 'basis for 

25 IIcustomer demand' or 'substantially create[s] the value ofthe component parts,'" Uniloc, 632 

26 "F.3d at 1318 (citing Lucent, 580 F.3d at 1336; Rite-Hite Corp. v. Kelley Co.. Inc., 56 F.3d 

27111538, 1549-50 (Fed. Cir. 1995)), or where the patented feature was of ""such paramount 

28 llimportance that it substantially created the value ofthe component parts." Rite-Hite, 56 F.3d 

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1 at 1549. Application ofthe entire market value rule requires adequate proof ofthree conditions: 

2 "(1) the infringing components must be the basis for customer demand for the entire machine 

3 lIincluding the parts beyond the claimed invention, Fonar Corp. v. Gen. Elec. Co., 107 F.3 d 1543, 

4 111552 (Fed. Cir. 1997); (2) the individual infringing and non-infringing components must be sold 

5 together so that they constitute a functional unit or are parts of a complete machine or single 

6 assembly ofparts, Paper Convertin~ Mach. Co. v. Magna-Graphics Corp., 745 F.2d 11,23 (Fed. 

7 IICir. 1984); and (3) the individual infringing and non-infringing components must be analogous 

8 lito a single functioning unit, Kalman v. Berlyn Corp., 914 F.2d 1473, 1485 (Fed. Cir. 1990). 

911Comell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279, 286-87 (N.D.N.Y. 2009) (Rader, 

10 C.J., by designation).5 It is not enough that the infringing and non-infringing parts are sold 

11 together for mere business advantage. See Rite-Hite, 56 F.3d at 1549-50. Instead, Lucent 

1211argues that its analysis apportions the value of the Day patent within Outlook between the 

13 I,patented and unpatented features as required by Uniloc. 

1411 In Uniloc, the Federal Circuit noted the qualifying language in the Lucent case that 

15 IIforecloses the entire market value rule because of "the lack of evidence demonstrating the 

16 "patented method ofthe Day patent as the basis-or even a substantial basis-ofthe consumer 

17 "demand for Outlook. ... The only reasonable conclusion supported by the evidence is that the 

18 Ilinfringing use ofthe date-picker too 1 in Outlook is but a very small component ofa much larger 

1911software program." Uniloc, 632 F.3d at 1219-20; see Lucent, 580 F.3d at 1338. Ifthe patentee 

20 IIcannot meet the entire market value rule, then "the patentee . . . must in every case give 

2111evidence tending to separate or apportion the defendant's profits and the patentee's damages 

22 between the patented feature and the unpatented features." Uniloc, 632 F.3d at 1318 (citing 

23 Garretson v. Clark, III U.S. 120, 121 (1884». 

24 II Lucent conceded that it cannot satisfy the entire market value rule in this case. (R. Tr. 

2511at 65:10-21.) As a result, Lucent needed to separate or apportion the defendant's profits and 

26 the patentee's damages between the patented and unpatented features. Uniloc, 632 F.3d at 

271~--------------

5The :e..arties declined the Court's suggestion to instruct the jury on the entire market 

2811 value rule. (R. Tr., July 18,2011, at 65:12-21.) 

- 12 - 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 12 of 27
1 "1318. The Court concludes that Lucent's initial apportionment of7% ofthe purchase-decision 

2 makers for Outlook who would not buy Outlook without the drop-down calendar with 43% who 

3 use the drop-down calendar sought to apportion between the patented and unpatented features 

4 lias required by Uniloc.6 (R. Tr. at IV-I0:6-14:15; Doc. No. 1454-3 at 33-37, 43-46 (RSll511RS15, RS21-RS24.» The jury credited the testimony of Dr. Jay and Mr. Sims over vigorous 

6 cross-examination by Microsoft. The Court declines to re-weigh the evidence or make 

7 credibility determinations on Lucent's initial apportionment. Winarto, 274 F.3d at 1283. 

8 II Lucent further apportioned the damages by using a $67 per license figure for all Outlook 

9 IIprograms. The Court gave Lucent plenty of notice that it would have to justify its use ofthe 

1011$67 royalty base7-or apportionment of its use-in its damages calculation. During three 

11 IIrounds of motions in limine, the Court concluded that Lucent failed to properly apportion 

12 IIbetween the patented and unpatented features of Outlook in a way that separates out from the 

13l1royalty base the portion that can be attributed to the Day patent technology. See Uniloc, 632 

14 IIF.3d at 1318. In particular, the Court pointed out: 

15 Though Lucent discounts the base to include only the revenue from Outlook where a 

user uses the Day patent technology, Lucent fails to show that it is entitled to capture this 

16 entire market value as the base. Specifically, Lucent has not shown that the Day patent 

technology is the basis for consumer demand for most Outlook users. At best, Lucent 

17 has introduced evidence to show that the Day patent technology is the basis for 

consumer demand for about 7% ofusers based on the Jay survey. 18 

1911(Doc. No. 1284 at 12-13.) The Court explained its rationale for a further apportionment: "[f]or 

20 lIa product that is feature-rich like Outlook, use as a proxy for value does not appropriately 

21 Ilaccount for all the other unpatented features that consumers use besides the Day patent 

2211technology even when consumers invoke the Day patent methods." (Doc. No. 1284 at 12-13.) 

23 "See IP Innovation LLC v. Redhat. Inc., 705 F. Supp. 2d 687,689-90 (B.D. Tex. 2010). Pretrial, 

24 the Court questioned Lucent's use of $67 as a proper base: "[p]ut into concrete terms, if a 

25,,__________________ 

~e Court also rejects Microsoft's argument that Lucent violated the entire market 

26 II value rule. Rather, Lucent sought to apportion between the patented and unpatented features 

27 in Microsoft's infringing products. 

28 7Both parties round Lucent's base to $67 in their briefs, but in reality, Lucent used 

$67.39 as the base ofOutlook. 

- 13 - 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 13 of 27
1 "sample user uses the infringing Day patent technology but also uses many other features in 

2 IIOutlook, Lucent has not shown that it is entitled to include in the royalty base all $67 ofrevenue 

3 IIgenerated from this sample user." (Doc. No. 1284 at 12-13.) 

411 The Court included a diagram to illustrate the need for a further apportionment: 

5 

6 

7 Outlook - for $67) 

- Uses the Day Patent 

technology to create new 

meetings 

8 

- Composes emails 

Receives emails 

10 

9 

- Creates new tasks 

- Deletes tasks 

11 

12 

1311(Doc. No. 1284 at 13.) The Federal Circuit also noted that the Day patent is a minor feature 

14 within Outlook. Lucent, 580 F.3d at 1331. Because "the patentee ... must in every case give 

15 evidence tending to separate or apportion the defendant's profits and the patentee's damages 

16 llbetween the patented feature and the unpatented features, and such evidence must be reliable 

17 and tangible, and not conjectural or speculative," the Court warned Lucent before trial that its 

18 expert failed to properly apportion the Day patent technology as one feature within many 

19 features of Outlook and within Office.8 Uniloc, 632 F.3d 1292, 1318. 

20 D. Lucent's Evidence of its Valuation of Outlook within Office is Not Supported by Substantial Evidence 

21 

2211 The Court turns to Lucent's specific evidence ofapportionment ofthe $67 for Outlook. 

2311Despite the Court's pretrial admonitions, Mr. Sims concluded at trial that the average revenue 

24 Ilfor Outlook during the relevant time period was $67, whether sold as part of Office or as a 

251lstand-alone product. (R. Tr. at IV-14:16-21:1O; 159:9-160:8; 161:22-162:5; 167:23-169:16; 

2611174:6-17; 181:10-182:9; Ex. N, PX 1895; Ex. L, RSI6-RS20.) The majority of the damages 

2711 8The Federal Circuit decided Uniloc at the time of the Court's initial Daubert 

28 II evidentiary hearing ofLucent' s economic expert. In response, the Court permitted the parties 

to supplement and revise their expert reports. (Doc. Nos. 1194 & 1284.) 

- 14 - 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 14 of 27
1 for the 109.5 million licenses are for Office versus the 241,800 stand-alone Outlook sales. 

2 In Uniloc, the Federal Circuit additionally held that for minor patent improvements, a 

3 patentee cannot justifY using the entire market value ofan accused product simply by asserting 

4 a low enough royalty rate. Uniloc, 632 F3d at 1320; see also Mirror Worlds. LLC v. Apple. 

51IInc., 2011 WL 1304488, at *16 (B.D. Tex., Apr. 4,2011). Although a reasonable royalty 

6 lIanalysis "necessarily involves an element ofapproximation and uncertainty," Unisplay, 69 F3d 

7 lIat 517, the Court must ensure that the jury verdict is supported by sufficient evidence. 

8 II Microsoft contends that Lucent introduced no competent evidence to support application 

9 of the $67 stand-alone Outlook revenue to the lost sales of Outlook licenses within Office.9 

10 (Doc. No. 1434-1 at 9-11.) Specifically, Microsoft argues that applying the stand-alone revenue 

II llfigure to Office licenses improperly apportions the revenue associated with Outlook when 

12 lIincluded in Office. The bundled Office price offers a significant discount over purchasing the 

13 IIcomponent software individually. (Id.) Lucent's expert, Mr. Sims, relied on the evidence 

14 lIavailable from internal Microsoft documents 10 and Microsoft component prices as a proxy for 

15 lithe value of Outlook when sold as part of Office. (Doc. No. 1451 at 14.) 

16 II For example, Rodney Jenkins, Microsoft's profit and loss controller, testified at trial that 

17 Microsoft did not attribute Office revenue to individual programs found within Office. (R. Tr. 

18 at III-186:14-189:1O; R. Tr. at IV-17:5-18:1.) Nevertheless, an internal Microsoft document 

1911indicates that Outlook is the most popular of the Office components (see Doc. No. 1399, PX20 11838 at 39) and other internal Microsoft documents demonstrate that use ofcalendar features in 

21 "Outlook ranks among the top-10 rated tasks. @ at 41). The jury agreed with the evidence of 

22 II ~icrosoft agrees that Mr. Sims accurately calculated the avera~e per-unit revenue for 

23 II stan.d-alone ?utlooK using Microsoft's internal financial documents. (K. Tr. atIV-17:5-18: I; 

161.22-162.5.) 

24 IOMicrosoft did not turn over these documents during discovery before the 2008 trial,

II even though the documents were responsive to broad discovery requests. The documents 

25 included consumer studies regarding the Day patent. (Doc. No. 1246, Court's Order.) Lucent 

II became aware ofthe existence ofthe consumer studies involving the Day patent when William 

26 Kennedy testified for Microsoft during the 2008 trial that Microsoft gathered infonnation about 

27 II how its customers use Outlook through focus groups, consumer feedback, and usability tests. 

(Doc. No. 119 at 15.) The Court demed Lucent's motion for sanctions for Microsoft's earlier 

2811 non-production of records. (Doc. No. 1246.) During discovery for the new trial, Lucent's 

speCIfic discovery requests led Microsoft to produce the documents. 

- 15 - 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 15 of 27
11IOUtiOOk'S value within Office and rejected the biased testimony of Microsoft witnesses who 

2 attempted to contradict the internal Microsoft documents. As a result, Lucent contends that Mr. 

311Sims presented the best evidence of value of Outlook within Office for purposes of the 

4 IIhypothetical negotiation. (Doc. No. 1451 at 14.) Lucent also cites to other portions ofthe trial 

5 record to support its substantial evidence position. (R. Tr. at IV-14:16-21:1O, 159:9-160:8, 

6 161:22-162:5, 167:23-169:16, 174:6-17, 181:10-182:9; Ex. H; PX 1895; Ex. G, RS 17.) 

7 II At the same time, Mr. Sims estimated that the average revenue attributable to Office was 

81\$98.19. (R. Tr. atIV-166:13-167:4.) Lucent's calculation using a $67 revenue figure assumes I 

9 Iithat Outlook represents 68% of the revenue of Office. If so, the collective value of Word, 

10 IIExcel, and PowerPoint represents only $31 for these popular programs. A current version of 

11 IIOffice including Word, Excel, PowerPoint, and Outlook retails for $279.95, but each individual 

1211componentretails for $139.95 as a stand-alone product. 1

I (Doc. No. 1434, Ex. Eat 70, 92-93.) 

13 IIAdded together, the stand-alone components retail for well over twice the bundled price, but 

1411Mr. Sims applied a $67 revenue figure to Outlook as a component of Office. The Court 

15 IIconcludes that Lucent's attribution of $31 collectively to Microsoft Word, PowerPoint, and 

1611Excel is not based on sound economic or factual predicates. 

17 II For a proper calculation ofpatent damages, the Federal Circuit requires "sound economic 

1811and factual predicates." Riles v. Shell Exploration and Prod. Co., 298 F.3d 1301, 1311 

1911(Fed. Cir. 2002); see also Grain Processing Corp. v. American Maize-Products Co., 185 F. 3d 

20111341, 1350 (Fed. Cir. 1999) ("To prevent the hypothetical from lapsing into pure speculation, 

.21 Iithis court requires sound economic proof ofthe nature ofthe market and likely outcomes with 

22 llinfringement factored out ofthe economic picture."); Crystal Semiconductor Corp. v. TriTech 

23 "Microelectronics Intern .. Inc., 246 F.3d 1336, 1355 (Fed. Cir. 2001) ("Such market 

24 reconstruction, though hypothetical, requires 'sound economic proof of the nature of the 

25 market. "'). 

26 III 

27 ____________________ 

11 

28 11The Court excludes OneNote as inapplicable for the damages period between 2003 

to 2006. 

- 16- 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 16 of 27
1 Mr. Sims attempts to justifY the $67 value by comparing the sales price ofa version of 

2 Office with Outlook ($279.99) to a version ofOffice without Outlook ($149.99). (R Tr. at IV3 167:23-169:5; 174:6-17; 181:10-182:9; Ex. N, PX-1895.) Lucent argues that the difference 

41\of $130 dollars, a number close to the $139.99 retail price of Outlook sold on its own, 

511demonstrates that Microsoft values Outlook at $130. (Doc. No. 1451, Ex. N, PX-1895.) In 

6 lIother words, because the price difference ($130) is approximately the price of stand-alone 

7 1I0utiook ($139), Lucent argues that Microsoft values Outlook within Office at the same price 

8 11($67) that it values stand-alone Outlook ($67). The Court recognizes that there is some 

9 evidence in the record to support Lucent's position. But the version ofOffice without Outlook 

10 that Mr. Sims references was directed at the academic market. (R Tr. at V-40, 1-25.) The 

11 ItHome and Student version was not sold until the end ofthe damages period in late 2006. (Doc. 

1211No. 1451, Ex. N, PX-1895.) Therefore, Mr. Sims' reliance on the sales price ofthe Home and 

13 IIStudent version without Outlook does not provide substantial evidence that Outlook is worth 

1411$67 within Office. 

15 II Microsoft, on the other hand, suggested to the jury through attorney argument that 

1611$13.45 is the correct amount to attribute to Outlook when it is sold as part ofOffice. (Doc. No. 

17111434-1 at 10.) Based on Microsoft's contention that $13.45 is a reasonable base for Outlook 

181lsales, Outlook would account for 13.7% of the $98 ofrevenue per unit of Office. (Doc. No. 

19111434, Ex. D at 172-73, 175.) The Court, and the jury, disagree with this apportionment as well. 

20 IIInternal Microsoft documents demonstrate that Outlook is the most popular Office component. 

21 II(See Doc. No. 1399, PX-838 at 39}. Microsoft's internal documents also demonstrate that 84% 

22 Ilof Outlook 2007 users set up new appointments or meetings and 90% use calendar features. 

23 II(IQJ Further, Microsoft's internal consumer feedback surveys demonstrate that use ofcalendar 

2411features in Outlook ranks among the top-10 rated tasks. ffii at 41.} Internal Microsoft 

2511documents also list "Calendar & Meetings Base menu" as a strength ofOutlook. (Id. at 47.) 

26 IIFurther, internal Microsoft documents state that "Outlook is the most frequently used Office 

2711application by far, with nearly all [purchasers] using it at least several times a week. By 

28l1contrast, PowerPoint is the least used Office application." (Id. at 53; Ex. I, PX-838.) The Court 

- 17 - 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 17 of 27
1 concludes that Microsoft's $13.45 apportionment to Outlook within Office is not supported by 

2 substantial evidence. Similarly unavailing is Microsoft's assertion that Outlook accounts for 

3 lIonly 13.7% of the $98 of revenue per unit of Office. In fact, the Court finds it telling that 

4 IIMicrosoft never sold Office without Outlook between almost all of2003-2006. (R. Tr. at V -39, 

5 1111-23.) It was not until late 2006 that Microsoft first launched a Home and Student version of 

6110ffice, directed at the academic market, that did not include Outlook. (R. Tr. at V-40, 1-25.) 

7 The evidentiary record demonstrates that Outlook is worth more than Microsoft's suggested 

8 apportionment of 13.7%. 

9 Moreover, the district court must view the evidence in the light most favorable to the 

10 "non-moving party and draw all reasonable evidentiary inferences in favor of the non-moving 

1111party. Reeves, 530 U.S. 133 at 150. The jury chose to reject the testimony from biased 

12 Microsoft executives regarding the interpretation ofthe internal Microsoft documents, and the 

13 Court agrees that the Microsoft executive witnesses were discredited. 

14 On post-trial motions, the district court must "scrutinize the evidence carefully to ensure 

1511that the 'substantial evidence' standard is satisfied." Lucent, 580 F.3d at 1336 (quoting 

161\Unisplay, 69 F.3d at 517». Although a reasonable royalty analysis "necessarily involves an 

1711element of approximation and uncertainty," Unisplay, 69 F.3d at 517, it is the court's duty "to 

18 "ensure that estimates are tied to ... proper economic methodologies, not just numbers in an 

19 Ilaccounting format." Cornell, 609 F. Supp. 2d at 290. The Court concludes that no reasonable 

20 lliury could conclude that Outlook within Office is worth $67, leaving the value ofWord, Excel, 

21 Iland PowerPoint combined to be only $31. (R. Tr. at IV -159:6-160:22.) As a result, the Court 

22 concludes that the jury's verdict is not supported by substantial evidence, and therefore, 

23 damages are excessive. 

24 II Microsoft suggests an alternative apportionment of$24.5 5 based on the four components 

25 Ilof Office. The Court agrees with the alternative apportionment. The Court concludes that, 

26 IIwhen Outlook is sold as part ofOffice, the highest amount ofrevenue attributable to Outlook 

27 that is supported by substantial evidence is $24.55. The 2010 pricing data for Microsoft 

28 products shows that the prices for stand-alone Outlook, Word, Excel, and PowerPoint were each 

- 18 - 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 18 of 27
,--

 ----------------

1 $139.99. (PX -1895.) Thus, the Court concludes that the evidence supports, at most, allocating 

2 25% ofthe Office revenue to Outlook, representing one-fourth of Office products-Outlook, 

3 Word, Excel, and PowerPoint. This allocation yields a per-unit revenue attributable to Outlook 

4 within Office of $24.55 by multiplying the $98.19 per unit revenue ofOutlook by 25%. 

5 In response, Lucent cites to an internal Microsoft document that characterizes "Outlook 

6 lias the most frequently used Office application by far" and PowerPoint as the least frequently 

7 used application. (PX-838). But the pricing data for the components ofOffice was the same, 

8 (PX-1895), adding additional justification in the evidentiary record for $24.55 for each 

9 component. 

10 II At the post-trial motion hearing, Lucent argued that ifthe Court applied the $24.55 per 

1111unit figure for Outlook when sold as part of Office, the Court should enter judgment in the 

12 amount of$52.6 million under the maximum recovery doctrine. Tronzo v. Biomet. Inc., 236 

13 F.3d 1342, 1351 (Fed. Cir. 2001); Unisplay, 69 F.3d at 519. Lucent contends that Mr. Sims' 

14 testimony supports an award of all ofMicrosoft's expected forgone profits to Lucent. (R. Tr. 

1511at N-9:23-10:5, 91:2-9, 92:1-6, 94:5-19.) The Court disagrees. Any award above $26.3 

16 "million would contradict the methodology of Lucent's expert and result in a speculative 

17 "windfall to Lucent. As a result, the highest damages award supported by substantial evidence 

1811results in a lump-sum damages award of$26.3 million. 

1911 Therefore, the Court adjusts Lucent's damages calculation to apply only $24.55-not 

20 11$67-to the 109.3 million Office licenses and otherwise follows Lucent's damages calculation. 

21 liThe Court concludes that $67 is the appropriate per-unit revenue to use for the 241,800 units 

22110f stand-alone Outlook that were included in Lucent's damages calculation. The Court 

23 Iidetermines that a lump-sum reasonable royalty of$26.3 million is the highest damages award 

24 IIthat is supported by substantial evidence, and that this award reflects a proper apportionment 

25 as required by law. See Uniloc, 632 F.3d at 1318.12 

26 III 

27 II 12The Court is not persuaded that a further micro-apportionment is warranted to account 

28 II for the minor nature ofthe date-picker within Outlook. Lucent's initial apportionment, based 

on testimony credited by the jury, is substantial evidence to support the $26.3 million award. 

- 19- 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 19 of 27
1 II E. Lucent's Survey Evidence 

2 Microsoft renews its Daubert challenges to the testimony ofLucenfs survey expert, Dr: 

3 Jay. (Doc. No. 1434-1 at 2.) The Federal Circuit in Lucent suggested the use of a consumer 

4 survey on remand as a possible source ofdata for evaluating reasonable royalties. 580 F.3d at 

5111333-1334 ("Consideration of evidence of usage after infringement started can, under 

6 lIappropriate circumstances, be helpful to the jury and the court in assessing whether a royalty 

711is reasonable. Usage (or similar) data may provide information that the parties would 

8 IIfrequently have estimated during the negotiation .... Such data might, depending on the case, 

9 come from sales projections based on past sales, consumer surveys, focus group testing, and 

10 other sources."). 

1111 After remand, both parties conducted a consumer survey. Lucent hired Dr. Jay and 

12 questioned 3,387 online survey respondents. Microsoft hired Philip Johnson, questioned 600 

13 people in a public mall, and had its 30(b)(6) witness, William Kennedy, remove Outlook from 

14 Office for testing. (R. Tr. at 11-147; IV-126; V-63-64, 139.) Microsoft declined on work 

15 Ilproduct grounds to share the results ofits survey. And Microsoft's 30(b)( 6) witness, discredited 

16 on other grounds, disavowed any knowledge ofthe test results. 

17 Microsoft contends that Dr. Jay's survey employed biased and misleading questions and 

18 IIdid not adequately control its results or account for sampling error. (Id.) Lucent responds that 

1911Dr. Jay explained in detail every question, result, and calculation in her survey. She presented 

20 lithe jury with 68 demonstratives to facilitate their understanding ofthe survey. She explained 

21 lithe mathematical calculations she performed, the margin oferror, and the effect ofguessing on 

22 lithe results. She demonstrated that her methodology and results were consistent with internal 

2311Microsoft surveys conducted during the ordinary course of business. (Doc. No. 1451 at 5.) 

24 IIFurther, the jury heard that Dr. Jay is a top survey expert in probability-based surveys. (R. Tr. 

25 at 111-60:24-61: 18.) In sum, Dr. Jay persuaded the jury that the survey questions were proper 

26 and yielded reliable results. (R. Tr. at 11-181-182.) 

27 Under Daubert, the court is charged with a "gatekeeper function" to ensure expert 

2811testimony is both reliable and relevant. Courts have the "responsibility of ensuring that all 

- 20- 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 20 of 27
5 

10 

15 

20 

25 

lilexpert testimony must pertain to 'scientific, technical, or other specialized knowledge.'" 

2 IIUniloc, 632 F.3d at 1315. The court must decide ifsuch testimony is based on a "firm scientific 

3 Ilor technical grounding" as required under Federal Rule ofEvidence 702. Id. Under Rule 702, 

4 lIa witness qualified as an expert by knowledge, skill, experience, training, or education can 

testify in opinion or otherwise if: (1) the testimony is based on sufficient facts or data; (2) the 

6 testimony is the product ofreliable principles and methods; and (3) the witness has applied the 

7 principles and methods reliably to the facts ofthe case. Fed. R. Evid. 702. 

8 In addition to reliability and relevancy, "the patentee must sufficiently tie the expert 

911testimony on damages to the facts ofthe case." Uniloc, 632 F.3d at 1315 (citing Daubert, 509 

IIU.S. at 59». "[O]ne major determinant ofwhether an expert should be excluded Wlder Daubert 

II lIis whether he has justified the application of a general theory to the facts ofthe case." Id. 

1211 A trial court's decision to admit expert testimony under Daubert follows the law ofthe 

13 Ilregional circuit. Micro Chern., 317 F.3d at 1390-91. A trial court has broad discretion in 

14 Ilassessing the relevance and reliability of expert testimony. United States v. Finley, 301 F.3d 

111000, 1007 (9th Cir. 2002). The requirement ofRule 702( 1) "is not intended to authorize a trial 

1611court to exclude an expert's testimony on the ground that the court believes one version ofthe 

1711facts and not the other." Fed. R. Evid. 702, Adv. Comm. Note (2000). The inquiry into 

1811admissibility of expert opinion is a "flexible one," where "[s]haky but admissible evidence is 

19 lito be attacked by cross examination, contrary evidence, and attention to the burden of proof, 

IInotexclusion." Primiano v. Cook, 2010 U.S. App. LEXIS 8858, at *4 (9th Cir. Apr. 27, 2010). 

21 II"Under Daubert, the district judge is 'a gatekeeper, not a fact finder.' When an expert meets 

22 lithe threshold established by Rule 702 as explained in Daubert, the expert may testify and the 

2311iury decides how much weight to give that testimony." Id. (quoting United States v. 

24I1Sandoval-Mendoza, 472 F.3d 645, 654 (9th Cir. 2006». As the Supreme Court noted in 

'IDaubert, "[v]igorous cross-examination, presentation of contrary evidence, and careful 

26 lIinstruction on the burden ofproof are the traditional and appropriate means ofattacking shaky 

27 II but admissible evidence." 509 U.S. at 596. 

28111/1 

- 21 - 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 21 of 27
1 II The Court concludes that Dr. Jay is highly qualified in probability surveys. Further, a 

211probability survey is a scientific model that is recognized as a reputable method for a survey. 

3 II(R. Tr. at II-51-60; III-43.) Moreover, Dr. Jay was subject to vigorous cross-examination about 

411her questions, methods, and conclusions. Dr. Jay's survey was drawn from a representative 

5 IIsample of 3,387 online users. Dr. Jay adequately explained the error rate and correlated it to 

6 lithe data to show that it did not invalidate the survey results. The jury found her reasoning to 

7 be persuasive. 13 

8 The Court observes that Dr. Jay responded to each of Microsoft's challenges, and 

9 adequately explained her methodology and reasoning. Dr. Jay had a reasonable explanation for 

10 IInot asking specifically about Office applications since the overwhelming use of 

l1110utlook-99.8%--is within Office. Microsoft's contrary percentages, suggested in attorney 

12 IIquestioning, do not constitute evidence to challenge the verdict on JMOL. In sum, Dr. Jay met 

13 lithe standards in Daubert, and the jury was persuaded by her reasoned opinions. Reeves, 530 

1411U.S. at 150; Landes Const. Co. v. Royal Bank ofCanada, 833 F.2d 1365, 1372 (9th Cir. 1987); 

1511Union Oil Co. of Cal. v. Terrible Herbst. Inc., 331 F.3d 735, 743 (9th Cir. 2003). 

16 II Microsoft claims that it was error for the Court to permit Lucent to question Microsoft 

17 Ilwitnesses on the survey Microsoft conducted but did not disclose after Microsoft challenged 

1811Dr. Jay's survey on cross-examination. Microsoft's criticisms ofthe Jay survey methodology 

1911and results and Kennedy's testimony made relevant and not overly prejudicial the fact that 

20 IIMicrosoft conducted its own survey. (R. Tr. at 111-34:6-19.) The Court finds no error in its 

21 decision to allow Lucent's limited questions about the survey. 

22 F. The Court Properly Admitted the Time Savings Analysis 

23 Microsoft challenges the Court's admission of Lucent's time savings analysis. 

24l1Microsoft's own documents admitted without objection showed that it valued the time saved 

2511by its consumers. (PX-IOOO; PX-1048; PX-1889.) Mr. Sims' time savings analysis indicated 

26 131n a bench trial, the outcome may have been different. The Court questions whether 

27 II 	 7% ofOutlook users would not buy Outlook or Office simply because it lacks the date-picker. 

But the Court is not the trier of fact, and it is not the role ofthe Court to weigh the evidence 

28 or make credibility determinations on a JMOL motion. Winarto, 274 F.3d at 1286-87. 11 

- 22-	 07cv2000 

Case 3:07-cv-02000-H-CAB Document 1478 Filed 11/10/11 Page 22 of 27
1 that consumers would value the Day patent technology at $170 million and explained why that 

2 value is important to Microsoft. (R. Tr. atN-33:7-38:9,40:16-41:8, 53:11-54:2.) Based on 

3 internal Microsoft documents, Mr. Sims testified that Microsoft values the time saved by its 

4 "consumers. ilii.; see also PX-I000; PX-1D48; PX-1889.) Mr. Sims testified that some portion 

5110fthe time savings amount would be paid by Microsoft to Lucent as a royalty. (R. Tr. at N61140:16-41:8,53:11-54:2,87:1-89:7.) Additionally, the Court gave a limiting instruction that 

7 the evidence was to show the value to consumers. Courts have considered time savings as a 

8 proper basis for calculating damages. See Grepke v. Gen. Elec. Co., 280 F.2d 508,511-513 

9 (7th Cir. 1960); Ziggity Sys. Inc. v. Val. Watering Sys., 769 F. Supp. 752 (E.D. Pa. 1990). 

10 Finally, the fact that consumers ofMicrosoft's Outlook may enjoy a time savings as a result of 

11 the Day patent technology is relevant to Georgia-Pacific factors 9, 10, and 11, including the 

1211advantages of the patented technology. 318 F. Supp. at 1120. As a result, the Court properly 

13 admitted the evidence. 

14 G. Lucent's Licensing Policy Regarding Acer and Locus 

1511 Microsoft also challenges Mr. Sims' reference to Lucent's licensing policy at trial, as 

16 IIwell as the Acer and Locus agreements. The Court concludes that Lucent's licensing policy and 

17 lithe Acer and Locus agreements are relevant to Georgia-Pacific factors 4 and 12 and were 

18 IIproperly admitted at triaL (See also Doc. No. 1284 at 15-16 (allowing evidence and testimony 

1911regarding Lucent's licensing policy and Acer and Locus agreements).) 

20 II A district court may only consider license agreements that are "sufficiently comparable 

21 lito the hypothetical license at issue in suit." Lucent, 580 F.3d at 1325; see also ResQNet, 594 

2211F.3d at 872. The district court "must consider licenses that are commensurate with what the 

23 "defendant has appropriated. Ifnot, a prevailing plaintiff would be free to inflate the reasonable 

24 llroyalty analysis with conveniently selected licenses without an economic or other link to the 

2511technology in question." ResQNet, 594 F.3d at 872. In ruling on motions in limine, the Court 

26 permitted Lucent to introduce two licenses, Acer and Locus, covering graphical user interfaces 

27 such as the Day patent, and declined to permit use ofother licenses. (Doc. No. 1180.) 

2811111 

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1 In order for a license agreement to support a reasonable royalty rate, the license 

2 agreement must involve similar technology. Lucent, 580 FJd at 1327. Both agreements were 

3 executed about the time of the hypothetical negotiation and include licenses that covered the 

4 Day patent. (R. Tr. at IV-67:11-24; 72:24-74:9; PX-1541; PX-1l53.) The Court carefully 

511examined whether the cross license structure precluded their admission, and the Federal 

61lCircuit's previous criticism ofthe Acer license. Lucent, 580 FJd at 1331. Lucent called three 

7 licensing witnesses and had limited expert testimony concerning the agreements. The record 

8 demonstrates Lucent consistently asked for a minimum of 1 % per patent. The Acer and Locus 

9 licenses demonstrated Lucent's license structure, industry practice, and Lucent's licensing 

10llpractices for the hypothetical negotiation. (Doc. No. 1451 at 23-24.) Ultimately, the Court 

11 instructed the jury that the licenses had to be comparable in order for the jury to consider them 

12 as examples ofLucent's licensing policy. (Doc. No. 1392, Jury Instructions, No. 25.) 

1311 Moreover, Lucent used Acer and Locus, in combination with testimony about its 

14 lllicensing po licy, to rebut Microsoft's speculative claims from witnesses William Kennedy and 

15 IIMicrosoft expert, Professor Mnookin, that Lucent would take only $2 million to $5 million for 

16 lithe Day patent. (R. Tr. at IV-75:15-77:16.) Lucent introduced evidence at trial that Lucent's 

17 Iinegotiators had a policy to follow in licensing negotiations. (R. Tr. at 111-180:2-183: 19; IV181160:5-65:18.) Specifically, Lucent introduced evidence that Lucent's licensing policy is to 

19 IIreceive 1 % of the total revenue from the smallest commercially saleable unit of a product 

20 I\practicingoneofitspatents. (R. Tr.atV-188:5-11,IV-70:1O-23, 72:1-12, 74:14-21.) Mr. Sims 

21 Iitestified that the smallest commercially saleable unit in this case was Outlook. ilih) 

221lAdditionally, at trial, Lucent called Lucent's licensing witness Stephen Samuels, a former 

23 Lucent employee who worked in Lucent's licensing division for almost 29 years, Bruce 

24 Schneider, and Roger Stricker, to confirm Lucent's 1% licensing policy for its intellectual 

2511property portfolio. (R. Tr. at 1II-180:2-183:19; IV-60:5-65:18.) 

2611 Further, the Court excluded evidence regarding Microsoft' s settlement license, z4, which 

271linvolved infringing features within Office. (Doc. No. 1180);z4 Techs., Inc. v.MicrosoftCorp., 

28 112006 U.S. Dist. LEXIS 58374 (E.D. Tex. 2006). In z4, Microsoft's damages expert testified 

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1711aDDrooriate remedy. 

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1 Iithat the patented feature was a small feature worth a small lump-sum royalty of $3 million to 

2 $5 million. z4 Techs., 2006 U.S. Dist. LEXIS 58374. Despite Microsoft's assertion that 

3 lIalthough it valued the technology at $3 million to $5 million, Microsoft settled the case for_ 

after infringement was affIrmed. z4 Techs., 2006 U.S. Dist. LEXIS 58374. Lucent 

wanted to introduce the z4 Microsoft license to rebut Professor Mnookin's testimony that 

6 Microsoft would only pay $2 million to $5 million for the Day patent as a small feature within 

7 Office. The Court kept this license out ofevidence because the technology was not sufficiently 

8 comparable to the Day patent technology even though it was a small feature within OffIce. 

41 

9 

Accordingly, the Court concludes that it was not error under the totality ofthe record to 

11 admit the Acer and Locus licenses to rebut Microsoft's speculative claims that Lucent would 

12 take only $2 million to $5 million for the Day patent, and in any event, harmless error. See, 

13 e.., Mondis Technology Ltd. v. LG Electronics Inc., Case No. 07-cv-565-TJW-CE Doc. No. 

14 55 at 5 (E.D. Tex. June 14,2011). 

H. JMOL Motion Conclusion 

16 II The Court concludes that judgment as a matter oflaw, and an alternative new trial, is the 

Tronzo, 236 F.3d at 1351-52; Cornell, 609 F. Supp. 2d at 291-92.14 

181IAccordinf!lv, the Court grants in part Microsoft's motion for judgment as a matter of law that 

19 a reasonable jury could not have returned a verdict in excess of $26.3 million based on the 

evidence ofrecord. The Court otherwise denies Microsoft's motion for judgment as a matter 

22 IIIII. Microsoft's Motion for a New Trial 

23 II Microsoft also moved for a new trial. A trial court "may grant a new trial only if the 

24 lIiurv's verdict is against the clear weight of the evidence, and may not grant it simply because 

lithe court would have arrived at a different verdict." Pavao, 307 F.3d at 918. The jury, and not 

26 lithe court, is given the task of weighing conflicting evidence and making credibility 

14At the hearing on the JMOL and motion for new trial, the Court discussed a new trial, 

28 II but the parties preferred an order granting the motion for judgment as a matter of law and 

alternatIvely for a new trial rather than a new trial only. 

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1 determinations. See Roy v. Volkswa"en of Am.. Inc., 896 F.2d 1174, 1179 (9th Cir. 1990), 

2 amendedandreh'g en bancdenied by 920 F.2d618 (9thCir. 1990); see also Landes Const. Co., 

3 11833 F.2d at 1372 Gury entitled to believe one set ofwitnesses over others). And, "it is not the 

4 courts' place to substitute our evaluations for those ofjurors." Union Oil Co. ofCal., 331 F.3d 

at 743. In evaluating a motion for new trial, the court "need not view the evidence from the 

611perspective most favorable to the prevailing party." Landes, 833 F.2d at 1371. Instead, the 

7 court should "set aside the verdict ofthe jury, even though supported by substantial evidence, 

8 where, in the court's conscientious opinion, the verdict is contrary to the clear weight of the 

9I1evidence." Molski v. MJ. Cable. Inc., 481 F.3d 724, 729 (9th Cir. 2007). For the reasons 

previously stated, the Court conditionally grants in part Microsoft's motion for a new trial. 

11 The Court also considers a remittitur. "[W]here there is no evidence that passion and 

12 prejudice affected the liability finding, remittitur is an appropriate method of reducing an 

13llexcessive verdict." Snyder v. Frei"ht. Constr. Gen. Drivers. Warehousemen & Helpers, 175 

14 F.3d 680, 689 (9th Cir. 1999). 

In the event that the judgment as a matter of law is vacated or reversed on appeal, the 

16 Iloriginal verdict is not reinstated, and the case is remanded for further proceedings, the Court 

1711grants a new trial, subject to Lucent's decision whether to accept a remittitur award of $26.3 

18 IImillion. Cornell, 609 F. Supp. 2d at 291-92 (granting judgment as a matter oflaw and entering 

19 Iliudgment on a particular amount, but also conditionally granting a new trial in the alternative 

IIsubject to a remittitur in the same amount). The Court denies the remainder ofMicrosoft' s new 

21 trial motion to the extent Microsoft seeks a new trial based on any other ground. 

22 IV. Conclusion 

23 Based on the foregoing, the Court orders the following: 

24 II (1) The Court grants in part Microsoft's motion for judgment as a matter of law and 

lIenters judgment of$26.3 million plus interest and costs. The Court denies Microsoft's motion 

26 IIfor judgment as a matter of law in all other respects. 

27 II (2) In the alternative, the Court conditionally grants in part Microsoft's motion for a new 

28 IItrial, and, in the event of a remand, offers Lucent a remittitur award of $26.3 million plus 

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1 lIinterest and costs. The Court denies Microsoft's motion for a new trial in all other respects. 

2 (3) The Court previously taxed costs for the 2008 and 2011 trials against Microsoft in 

3 the amount of $450,479.68. (Doc. No. 1460.) Because the Court ordered Microsoft to pay 

411$156,646.82 of that amount within 30 days, the Court deducts that amount from the final 

lIiudgment. The Court incorporates the remaining costs into the fmal judgment. I

5 

6 (4) The Court previously awarded Lucent pre-judgment interest calculated from January 

7 13,2003 through December 11,2006. Applying that calculation to ajudgment of$26.3 million 

8 yields pre-judgment interest in the amount of $14,401,653.81. The Court incorporates that 

9 amount into the final judgment. 

Therefore, the Court enters a final judgment in Lucent's favor, inclusive of costs and 

11 pre-judgment interest, in the amount of$40,995,486.67. 

12 IT IS SO ORDERED. 

13l1Dated: November 10, 2011 

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28 15Both parties agreed to this deduction from the final judgment. (See Doc. No. 1476-3.) 

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