Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_00-cv-20905/USCOURTS-cand-5_00-cv-20905-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question: Breach of Contract

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United States District Court

For the Northern District of California

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ORDER GRANTING HYNIX'S MOTION FOR A NEW TRIAL ON THE ISSUE OF DAMAGES UNLESS RAMBUS ELECTS

REMITTITUR OF THE JURY AWARD TO $133,584,129—C-00-20905 RMW

SPT

United States District Court

For the Northern District of California

E-filed on: 7/14/06 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

HYNIX SEMICONDUCTOR INC., HYNIX

SEMICONDUCTOR AMERICA INC.,

HYNIX SEMICONDUCTOR U.K. LTD., and

HYNIX SEMICONDUCTOR

DEUTSCHLAND GmbH,

Plaintiffs,

v.

RAMBUS INC.,

Defendant.

No. CV-00-20905 RMW

ORDER GRANTING HYNIX'S MOTION

FOR A NEW TRIAL ON THE ISSUE OF

DAMAGES UNLESS RAMBUS ELECTS

REMITTITUR OF THE JURY AWARD TO

$133,584,129

[Re Docket Nos. 2064, 2065]

The jury awarded Rambus Inc. ("Rambus") damages in the amount of $306,967,272 in the

patent phase of this trial. Hynix Semiconductor Inc., Hynix Semiconductor America Inc., Hynix

Semiconductor U.K. Ltd., and Hynix Semiconductor Deutschland GmbH (collectively, "Hynix")

move for a new trial on the issue of damages or, in the alternative, for remittitur. Rambus opposes

the motion. The court has reviewed the papers and considered the arguments of counsel. For the

reasons set forth below, plaintiffs' motion for a new trial on the issue of damages is GRANTED

unless Rambus files notice with the court within thirty (30) days of this order accepting remittitur of

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1 In light of the court's conclusion that the damages found by the jury are not supported

by the weight of the evidence, the court will not separately discuss Hynix's assignments of evidentiary

error. However, the court does not find them meritorious.

2 Prior to trial, the parties stipulated that SDRAM and DDR sales through December 31,

2005 were $1,702,544,332 and $2,742,557,314, respectively, representing the royalty base for the

damages period through December 31, 2005. Thus, the issue on damages was essentially limited to a

determination of the appropriate royalty rates for the two types of devices.

ORDER GRANTING HYNIX'S MOTION FOR A NEW TRIAL ON THE ISSUE OF DAMAGES UNLESS RAMBUS ELECTS

REMITTITUR OF THE JURY AWARD TO $133,584,129—C-00-20905 RMW

SPT 2

the jury award to $133,584,129 for damages through December 31, 2005.1

I. ANALYSIS

A. A Reasonable Royalty

"[U]pon finding for the claimant the court shall award the claimant 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." 35 U.S.C. § 284. Section 284 establishes a floor below which

damage awards may not fall. See Del Mar Avionics, Inc. v. Quinton Instrument Co., 836 F.2d 1320,

1326 (Fed. Cir. 1987). The "reasonable royalty" analysis may be measured by "[w]hat a willing

licensor and a willing licensee would have agreed upon in a suppositious negotiation for a

reasonable royalty." Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1121

(S.D.N.Y. 1970); see also Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078 (Fed. Cir.

1983) (describing the hypothetical negotiation as one "resulting from arm's length negotiations

between a willing licensor and a willing licensee"). 

The burden of proving damages rested with Rambus.2 Its expert, Professor David J. Teece,

testified that appropriate royalty rates were 0.75% for Hynix'x SDRAM device and 3.50% for the

DDR SDRAM ("DDR") device. The parties agree that the evidence supports these royalty rates. 

Rambus, however, claims that the higher rates, as necessarily applied by the jury, are supported by

the evidence. Teece testifies that his rates were conservative because: (1) rates in comparable

licensing agreements reflected an uncertainty discount; (2) a hypothetical negotiation required

consideration of only United States sales as opposed to comparable licensing agreements which

were based upon worldwide sales; (3) comparable licensing agreements included up-front fees in

addition to the running royalty rates; and (4) a published survey indicated higher royalty rates are

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ORDER GRANTING HYNIX'S MOTION FOR A NEW TRIAL ON THE ISSUE OF DAMAGES UNLESS RAMBUS ELECTS

REMITTITUR OF THE JURY AWARD TO $133,584,129—C-00-20905 RMW

SPT 3

commanded by revolutionary technologies.

 The explanations provided by Teece do support a conclusion that his suggested royalty rates

were conservative, but he provided no meaningful guidelines to quantify any adjustment to his

suggested rates. In fact, one could reasonably infer that if he could have quantified an adjustment

without merely speculating, he would have done so.

B. Adjustments to Reasonable Royalty Rates

The question, then, is whether there is sufficient evidence regarding these factors to provide

the jury with a basis to make a reasonable upward adjustment to Teece's royalty rates, as opposed to

leaving the jury to make such an estimate by mere speculation and conjecture. "[A] trier of fact

must have some factual basis for a determination of a reasonable royalty." Unisplay S.A. v. Am.

Elec. Sign Co., 69 F.3d 512, 517 (Fed. Cir. 1995). Testimony by an expert must be "more than

belief or unsupported speculation." Daubert v. Merrill Dow Pharm., Inc., 509 U.S. 579, 590 (1993). 

A jury's award of infringement damages cannot be upheld if the amount is "clearly not supported by

the evidence, or based only on speculation or guesswork." Union Carbide Chems. & Plastics Tech.

Corp. v. Shell Oil Co., 425 F.3d 1366, 1373 (Fed. Cir. 2005) (internal quotation and citations

omitted).

1. Uncertainty Discount

Teece testified that his proposed rates were conservative because they did not account for an

"uncertainty discount" that a negotiating patentee and licensee take into account because of

uncertainty as to whether the patents are actually valid and infringed at the time of negotiations. 

Here, in contrast, the patents were assumed valid and infringed for purposes of the damages

calculation. Teece testified upon cross-examination that certain published statistics have shown that

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3 However, Teece did not offer an opinion about these surveys because, pursuant to the

court's motion in limine ruling, the underlying surveys were statistically insignificant and did not

provide a valid legal basis to support an expert opinion quantifying the uncertainty discount. Mar. 1,

2006 Order on Mots. In Limine at 13-14.

ORDER GRANTING HYNIX'S MOTION FOR A NEW TRIAL ON THE ISSUE OF DAMAGES UNLESS RAMBUS ELECTS

REMITTITUR OF THE JURY AWARD TO $133,584,129—C-00-20905 RMW

SPT 4

53.4% of litigated patents are found valid.3 On redirect Teece quantified the effect of uncertainty

using an analogy:

Q: [Mr. Stone] Now, as an economist, if I have the opportunity to win a bet for

$2, and if my chances of [winning] a $2 bet are 50 percent, what would I be

willing to pay?

A: [Professor Teece] Well, it depends on your risk proclivities, but you might

be willing to pay a buck.

Q: [Mr. Stone] Okay. So if the chances, if in 2000 the various companies who

were negotiating with Rambus thought that there was a 50-50 chance and it

was the 50-50 chance that led them to agree to pay 0.75 and 3.5, if we now

assume, that's at the 50 percent rate – if we now assume the patents are valid

and infringed so it's 100 percent, or a sure thing, what would these

computations lead to as the royalty rates that would be agreed?

A: [Professor Teece] If you knew that the patent was valid and infringed and

you were willing to pay a buck before, you'll pay two bucks now, so the rates

would be twice [what] they would otherwise be.

Tr. Trans. 1167:5-25. Therefore, Teece implied that elimination of uncertainty could have the effect

of doubling the royalty rates. Teece also testified that the license agreement negotiated between

Rambus and Hitachi, another DRAM manufacturer, provided for a 1% royalty rate for the SDRAM

and a 4.25% royalty rate for the DDR. Teece explained that while the agreement with the other

DRAM manufacturers were negotiated outside of litigation, the agreement with Hitachi was

negotiated after litigation for patent infringement had already commenced. Tr. Trans. 971:2-981:11;

1058:7-12; Tr. Ex. 5661. Therefore, that fact suggests that the removal of some of the uncertainty

about infringement or invalidity of the Rambus patents may justify a similar higher rate.

2. U.S.-Only Sales Base

Teece further testified that his suggested royalty rates were based on a comparison with

license agreements that covered worldwide sales whereas the hypothetical negotiations

contemplated a U.S.-only sales base. Teece explained that a negotiating patentee would generally

agree to a lower royalty rate for a worldwide license because the patentee would not have to

separately obtain and enforce licenses outside the U.S., where patent rights may not be as protected

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ORDER GRANTING HYNIX'S MOTION FOR A NEW TRIAL ON THE ISSUE OF DAMAGES UNLESS RAMBUS ELECTS

REMITTITUR OF THE JURY AWARD TO $133,584,129—C-00-20905 RMW

SPT 5

or protectable as in the U.S. Therefore, narrowing the royalty base to only the U.S. would lead to a

higher royalty rate. In particular, Teece stated that the running royalty might be one, two, or three

(but not four) times higher, and that "there would be a premium, for sure." Tr. Trans. 1127:8-10. 

This testimony as to the possible effect of basing royalty rates on United States' sales only was pure

speculation. No quantitative evidence was introduced.

3. Up-Front Fees

Teece also noted that the comparable license agreements with seven other DRAM

manufacturers each included an up-front fee in addition to the running royalty rate. However, his

opinion as to the appropriate Hynix/Rambus royalty rates did not take into account the payment of

any up-front fees. At trial, Rambus introduced an exhibit which indicated the up-front fee amount

for each of the seven comparable license agreements upon which Teece based his reasonable royalty

rates. See Tr. Ex. 5661. However, Teece testified that although "it's not uncommon, in a patent

licensing arrangement, to have, in addition to a running royalty, an up-front fee," he concluded that

there would not be an up-front fee in the instant hypothetical negotiation. Tr. Trans. 1057:24-

1058:2; 1060:19-1061:10. As Teece explained on direct examination, he excluded an up-front

payment in his opinion on the appropriate royalty rates because "it's not entirely clear to me why

these payments were made. In some cases it was for past infringement, in some cases it was not." 

Tr. Trans. 1061:3-10. There was no other evidence from which the jury could have reasonably

inferred that a Hynix/Rambus license would have included an up-front payment. 

4. Revolutionary Technologies

Teece also testified that a survey published in 1997 in Les Nouvelles supports royalties in the

range of 5% to 10% for "revolutionary technologies." At the same time he noted that the 5% to 10%

range of royalty rates is an average across different industries and includes those for pharmaceutical

licenses, which tend to command higher rates, and licenses for medical equipment and software,

which tend to command very high rates. Tr. Trans. 1072:11-20; 1145:4-19. Teece declined to opine

that the claims-in-suit represented revolutionary technologies. Teece also noted that another survey,

which he considered along with the Les Nouvelles survey, stated a median royalty rate of 3.2% for

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ORDER GRANTING HYNIX'S MOTION FOR A NEW TRIAL ON THE ISSUE OF DAMAGES UNLESS RAMBUS ELECTS

REMITTITUR OF THE JURY AWARD TO $133,584,129—C-00-20905 RMW

SPT 6

the electronics industry. Tr. Trans. 1073:22-1075:4. No evidence was introduced that provided

guidelines or a basis to adjust for the nature of the Rambus inventions. Therefore, the inclusion of

any amount in the royalty rate because the Rambus patents involved "revolutionary technology"

would be the result of speculation. Further, although there may have been revolutionary aspect to

some of Rambus' patents (e.g., the use of a narrow multiplexed bus), no evidence established a basis

for including any particular amount because of the alleged revolutionary technology or that the

particular patent-in-suit involved revolutionary technology, no evidence established a basis for

including any particular amount.

C. Remittitur

"[T]he use of remittitur enables parties to avoid the delay and expense of a new trial when a

jury's verdict is excessive in relation to the evidence of record." Unisplay, 69 F.3d at 519 (citing 11

Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure: Civil 2d §

2815 (2d ed. 1995)). In the Federal Circuit, the "maximum recovery rule" applies in calculating

excessive damages to remit. Id. This rule "requires that the determination be based on the highest

amount of damages that the jury could properly have awarded based on the relevant evidence." Id.

Applying the maximum recovery rule here, the evidentiary record as a whole could support only one

basis for quantifying an upward adjustment to Teece's proposed royalty rates. As was presented to

the jury, the rates in the Hitachi license agreement were 1% for SDRAM and 4.25% for DDR. 

Teece explained to the jury that the rates for Hitachi may have been higher because the negotiations

were made after patent infringement litigation between the parties had commenced. In comparison,

the other DRAM manufacturers negotiated the lower rates of 0.75% for SDRAM and 3.50% for

DDR outside of litigation. Teece also explained that a negotiating patentee and licensee generally

agree to a lower royalty rate if there is uncertainty as to whether the patents are actually valid and

infringed. The jury could have reasonably concluded that because the patents are assumed valid and

infringed, Teece's proposed reasonable royalty rates might be adjusted upward to the rates in the

Hitachi agreement to reflect the effect of uncertainty about the patents-in-suit. 

Although the evidence supports that Teece's proposed rates are conservative, the evidence as

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4 This total is obtained by applying 1% to the stipulated SDRAM sales (through December

31, 2005) of $1,702,544,332 and 4.25% to the stipulated DDR sales (through December 31, 2005) of

$2,742,557,314. 

ORDER GRANTING HYNIX'S MOTION FOR A NEW TRIAL ON THE ISSUE OF DAMAGES UNLESS RAMBUS ELECTS

REMITTITUR OF THE JURY AWARD TO $133,584,129—C-00-20905 RMW

SPT 7

to how conservative is insufficient to justify any particular amount in excess of the royalty rates in

the Hitachi license agreement. Teece did not adjust for the factors that he described as making his

opinion conservative. Presumably, he did not adjust for them because, at least in part, he believed

that the amount of any adjustment would be speculative and subject to conjecture. The record

supports a maximum recovery of $133,584,129, which is the royalty amount calculated using the

Hitachi royalty rates.4 The jury awarded damages totaling $306,967,272. Accordingly, the court

finds remittitur of $173,383,143 of the jury award is warranted. 

IT IS HEREBY ORDERED THAT,

Hynix's motion for a new trial on the issue of damages is GRANTED unless Rambus files

notice with the court within thirty (30) days of this order accepting remittitur of the jury award to

$133,584,129 for damages through December 31, 2005.

DATED: 7/14/2006 

RONALD M. WHYTE

United States District Judge

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ORDER GRANTING HYNIX'S MOTION FOR A NEW TRIAL ON THE ISSUE OF DAMAGES UNLESS RAMBUS ELECTS

REMITTITUR OF THE JURY AWARD TO $133,584,129—C-00-20905 RMW

SPT 8

THIS SHALL CERTIFY THAT A COPY OF THIS ORDER WAS PROVIDED TO:

Counsel for plaintiffs:

Daniel J. Furniss

Theodore G. Brown, III

Jordan Trent Jones

Townsend & Townsend & Crew LLP

379 Lytton Ave

Palo Alto, CA 94301

Patrick Lynch

Kenneth R. O'Rourke

O'Melveny & Myers

400 So Hope St Ste 1060

Los Angeles, CA 90071-2899

Kenneth L. Nissly

Susan van Keulen

Geoffrey H. Yost

Thelen Reid & Priest LLP

225 West Santa Clara Street, 12th Floor

San Jose, CA 95113-1723

Counsel for defendant:

Gregory Stone

Kelly M. Klaus

Catherine Augustson

Munger Tolles & Olson

355 So Grand Ave., Ste 3500

Los Angeles, CA 90071-1560

Peter A. Detre

Carolyn Hoecker Luedtke

Munger Tolles & Olson

560 Mission Street, 27th Floor

San Francisco, CA 94105-2907

Peter I. Ostroff

Rollin A. Ransom 

Michelle B. Goodman

V. Bryan Medlock, Jr.

Sidley Austin Brown & Wood

555 West Fifth Street, Suite 4000

Los Angeles, CA 90013-1010

Jeannine Yoo Sano

Pierre J. Hubert

Dewey Ballantine

1950 University Avenue, Suite 500

East Palo Alto, CA 94303

Dated: 7/14/06 SPT Chambers of Judge Whyte

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