Opinion ID: 182125
Heading Depth: 2
Heading Rank: 3

Heading: New Trial on Damages

Text: The jury here awarded Uniloc $388 million, based on the testimony of Uniloc's expert, Dr. Gemini. Dr. Gemini opined that damages should be $564,946,803. This was based on a hypothetical negotiation between Uniloc and Microsoft and the Georgia-Pacific factors. See Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116 (S.D.N.Y.1970). Gemini began with an internal prelitigation Microsoft document that stated: Product Keys are valuable for two major reasons. First, since Product Keys can be used to install a product and create a valid Product ID, you can associate a monetary value to them. An appraisal process found that a Product Key is worth anywhere between $10 and $10,000 depending on usage. Secondly, Product Keys contain short digital signature technology that Microsoft Research created. For these reasons, it is crucial that Product Keys are handled with maximum security. In Limine, 632 F.Supp.2d at 150 n. 2. Gemini took the lowest value, $10, and testified that this is the isolated value of Product Activation. Gemini then applied the so-called 25 percent rule of thumb, hypothesizing that 25% of the value of the product would go to the patent owner and the other 75% would remain with Microsoft, resulting in a baseline royalty rate of $2.50 per license issued. Gemini justified the use of the rule of thumb because it has been accepted by Courts as an appropriate methodology in determining damages, in [his] experience, in other cases. He then considered several of the Georgia-Pacific factors, with the idea being to adjust this 25% up or down depending on how [the Georgia-Pacific factors] favor[] either party. At bottom, he concluded that the factors in favor of Uniloc and Microsoft generally balanced out and did not change the royalty rate. He then multiplied the $2.50 royalty rate by the number of new licenses to Office and Windows products, 225,978,721, to get a final reasonable royalty of $564,946,803. Gemini then did kind of a check to determine whether that number was reasonable. It's obviously, you know, a significant amount of money. I wanted to check to make sure it was a reasonable number. The check was performed by estimating the gross revenues for the accused products by multiplying the 225,978,721 licenses by the average sales price per license of $85. The resulting gross revenue value was $19.28 billion. Gemini then calculated that his damages calculation resulted in a royalty rate over the gross revenue of Office and Windows of approximately 2.9%. Gemini presented this information in a demonstrative pie chart to accompany his testimony. In response to Uniloc's attorney's question: And have you prepared a chart or a graph or a pie chart to show us this comparison? Uniloc's attorney, Mr. Cronin stated, Your honor, there's no objection, and Microsoft attorney Mr. Scherkenbach stated, Right, there is no objection. Gemini then opined that in my experience, and data I've seen as far as industry royalty rates for software, which are generally aboveon average, above 10% or 10, 11%, I felt that this royalty was reasonable and well within that range. Microsoft had challenged the 25% rule in limine and attempted to exclude Mr. Gemini's testimony. The district court noted that the concept of a `rule of thumb' is perplexing in an area of the law where reliability and precision are deemed paramount, but rejected Microsoft's position because the rule has been widely accepted. The district court thus considered the use of the rule of thumb to be reasonable. In Limine, 632 F.Supp.2d at 151. Microsoft contested Gemini's use of the entire market value rule check because Product Activation was not the basis of the consumer demand for Microsoft's Office and Windows products. The district court agreed with Microsoft, and granted a new trial on damages, because the $19 billion cat was never put back into the bag and the jury may have used the $19 billion figure to `check' its significant award of $388,000,000. Uniloc II, 640 F.Supp.2d at 185. On appeal, the parties present the court with three damages issues: 1) the propriety of using the 25 percent rule; 2) application of the entire market value rule as a check; and 3) excessiveness of damages. Because this court affirms the district court's conditional grant of a new trial on damages, this court need not reach the last issue.
Section 284 of Title 35 of the United States Code provides that on finding infringement of a valid patent, damages shall in no event [be] 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 litigation, a reasonable royalty is often determined on the basis of a hypothetical negotiation, occurring between the parties at the time that infringement began. Wang Labs. Inc. v. Toshiba Corp., 993 F.2d 858, 869-70 (Fed.Cir. 1993). A reasonable royalty is the predominant measure of damages in patent infringement cases. William C. Rooklidge and Martha K. Gooding, When Hypothetical Turns to Fantasy: The Patent Reasonable Royalty Hypothetical Negotiation, BNA Insights Vol. 80:1983, at 701 n. 10 (Hypothetical Negotiation ) (citing PriceWaterhouseCoopers, A Closer Look: Patent Litigation Trends and the Increasing Impact of Nonpracticing Entities at 5 (2009)). The 25 percent rule of thumb is a tool that has been used to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation. Robert Goldscheider, John Jarosz and Carla Mulhern, Use Of The 25 Per Cent Rule in Valuing IP, 37 les Nouvelles 123, 123 (Dec. 2002) (Valuing IP ). The Rule suggests that the licensee pay a royalty rate equivalent to 25 per cent of its expected profits for the product that incorporates the IP at issue. Id. As explained by its leading proponent, Robert Goldscheider, the rule takes the following form: An estimate is made of the licensee's expected profits for the product that embodies the IP at issue. Those profits are divided by the expected net sales over that same period to arrive at a profit rate. That resulting profit rate, say 16 per cent, is then multiplied by 25 per cent to arrive at a running royalty rate. In this example, the resulting royalty rate would be 4 per cent. Going forward (or calculating backwards, in the case of litigation), the 4 per cent royalty rate is applied to net sales to arrive at royalty payments due to the IP owner. Id. at 124. The underlying assumption is that the licensee should retain a majority (i.e. 75 percent) of the profits, because it has undertaken substantial development, operational and commercialization risks, contributed other technology/IP and/or brought to bear its own development, operational and commercialization contributions. Id. The rule was originally based on Goldscheider's observations of commercial licenses entered into by a Swiss subsidiary of a large American company, with 18 licensees around the world, each having an exclusive territory. Id. The rights transferred were a portfolio of patents and other intellectual property apparently related to the patented products. Id. The term of each of these licenses was for three years, with the expectation that the licenses would be renewed. Id. at 123. The licensees faced strong competition, and were either first or second in sales volume, and probably profitability, in their respective market. Id. According to its proponents, the veracity of the 25 percent rule has been confirmed by a careful examination of years of licensing and profit data, across companies and industries. John C. Jarosz, Carla S. Mulhern and Michael Wagner, The 25% Rule Lives On, IP Law360, Sept. 8, 2010. Goldscheider published a further empirical study in 2002, concluding that across all industries, the median royalty rate was 22.6 percent, and that the data supported the use of the 25 percent rule as a tool of analysis. Valuing IP, 37 les Nouvelles at 132-33. Additionally, in a 1997 study of licensing organizations, 25 percent of the organizations indicated that they use the 25 percent rule as a starting point in negotiations. Stephen A. Degnan & Corwin Horton, A Survey of Licensed Royalties, 32 les Nouvelles 91, 95 (June 1997). The 25 percent rule has, however, met its share of criticism that can be broadly separated into three categories. First, it fails to account for the unique relationship between the patent and the accused product. See Gregory K. Leonard and Lauren J. Stiroh, Economic Approaches to Intellectual Property Policy, Litigation, and Management, 949 PLI/Pat 425, 454-55 (Sept.-Nov. 2008) ([The 25 percent rule] takes no account of the importance of the patent to the profits of the product sold, the potential availability of close substitutes or equally noninfringing alternatives, or any of the other idiosyncrasies of the patent at issue that would have affected a real-world negotiation.); Richard S. Toikka, Patent Licensing Under Competitive and Non-Competitive Conditions, 82 J. Pat. & Trademark Off. Soc'y 279, 292-93 (Apr. 2000) (arguing that it fails to distinguish between monopoly and normal profit. . . . Thus for narrow patents, the rule may be overly generous to the patentee, and for broad patents it may be overly stingy). Second, it fails to account for the unique relationship between the parties. See Ted Hagelin, Valuation of Patent Licenses, Tex. Intell. Prop. L.J. 423, 425-26 (Spring 2004) (noting that the rule should not be used in isolation because it fails to account[] for the different levels of risk assumed by a licensor and licensee); Hypothetical Negotiations at 702 ([T]he rule is unlikely to have any basis in the accused infringer's industry, in the technology involved in either the patent or the accused product or service, or in the claimed invention's contribution to the infringing product or service.). Finally, the rule is essentially arbitrary and does not fit within the model of the hypothetical negotiation within which it is based. See Roy J. Epstein and Alan J. Marcus, Economic Analysis of the Reasonable Royalty: Simplification and Extension of the Georgia-Pacific Factors, 85 J. Pat. & Trademark Off. Soc'y 55, 574 (July 2003) ([The 25% and the 5%] rules of thumb are best understood as special cases [ ] that may be appropriate to a given situation only by chance.); Roy J. Epstein, Modeling Patent Damages: Rigorous and Defensible Calculations (2003) (paper presented at the AIPLA 2003 Annual Meeting) at 22 available at http://www.royepstein.com/epstein_aipla_2003_article_website.pdf (last accessed Nov. 19, 2010) (arguing that the 25% rule shortcut is essentially arbitrary. Because it is based on ex post results, it does not necessarily relate to the results of a negotiation that took place prior to the infringement). The admissibility of the bare 25 percent rule has never been squarely presented to this court. Nevertheless, this court has passively tolerated its use where its acceptability has not been the focus of the case, see e.g., i4i Ltd., 598 F.3d 831; Fonar Corp. v. General Elec. Co., 107 F.3d 1543, 1553 (Fed.Cir.1997), or where the parties disputed only the percentage to be applied (i.e. one-quarter to one-third), but agreed as to the rule's appropriateness, Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1210-11 (Fed.Cir.2010). Lower courts have invariably admitted evidence based on the 25% rule, largely in reliance on its widespread acceptance or because its admissibility was uncontested. See In Limine, 632 F.Supp.2d at 151 (The '25% Rule' has been accepted as a proper baseline from which to start [a royalty] analysis. (internal citations omitted)); GSI Grp., Inc. v. Sukup Mfg., Co., 641 F.Supp.2d 732, 745 (C.D.Ill.2008) (same); i4i Ltd. P'ship v. Microsoft Corp., 670 F.Supp.2d 568, 592 (E.D.Tex.2009), aff'd on other grounds by 598 F.3d 831 ([i4i's expert] testified that it was customary within his field to apply a '25% rule of thumb'. . . . Thus, considering the foundation laid by [i4i's expert's] testimony, his application of the 25% rule was relevant and appropriate considered.); Static Control Components, Inc. v. Lexmark Int'l, Inc., Nos. 5:02-571, 5:04-84, 2007 WL 7083655 at -14 (E.D.Ky. May 12, 2007) (While Lexmark does not believe the `rule of thumb' approach is the most appropriate way to calculate `reasonable royalty,' as SCC correctly notes, case law suggests it is one way of doing so (citing Standard Mfg. Co. v. United States, 42 Fed.Cl. 748, 766 (1999))); Novozymes A/S v. Genencor Int'l, Inc., 474 F.Supp.2d 592, 606 (D.Del. 2007) (While there is no particular analytical justification for [the rule of thumb], it has been used to estimate royalties.); Inline Connection Corp. v. AOL Time Warner Inc., 470 F.Supp.2d 424, 432 n. 38 (D.Del.2007) (allowing 25% rule because its use was not disputed); Bose Corp. v. JBL, Inc., 112 F.Supp.2d 138, 167 (D.Mass.2000) (Courts have found the 25%/75% approach to be a useful approach to arriving at a baseline royalty rate. . . . [The opposing expert] conceded that this approach is a common and reasonable one, though he has never used that approach in negotiating licenses (citing Standard Mfg., 42 Fed.Cl. at 764)); Standard Mfg., 42 Fed.Cl. at 766 ([T]he 25% rule or a close variant of it has been recognized by a number of other federal courts as a `rule of thumb' or `typical' in the licensing field.); Procter & Gamble Co. v. Paragon Trade Brands, Inc., 989 F.Supp. 547, 612 (D.Del. 1997) (Although the Court will consider the Rule-of-Thumb analysis in determining the royalty rate, this approach will not receive substantial weight.); Secure Energy, Inc. v. Coal Synthetics, LLC, No. 4:08-CV-1719, 2010 WL 1692076 at  (E.D.Mo. Apr. 27, 2010) (The parties agree that application of the 25% `rule of thumb' is acceptable to determine a reasonably royalty case such as this.). See also Paice LLC v. Toyota Motor Corp., 609 F.Supp.2d 620, 629-30 (E.D.Tex.2009) (applying 25% rule without discussion); EZ Dock, Inc. v. Schafer Sys., Inc., No. 98-2364, 2003 WL 1610781 (D.Minn. Mar.8, 2003) (same). In at least one case, the district court admitted the evidence, but refused to give it substantial weight because, neither expert testified as to the customary profit percentage used to set the royalty rates in licenses in other businesses and because [t]here was no testimony advocating the use of the [sic ] this approach as an appropriate guidepost for the determination of a royalty rate under a Georgia-Pacific analysis. Procter & Gamble Co. v. Paragon Trade Brands, Inc., 989 F.Supp. at 612. In Daubert, 509 U.S. at 589, 113 S.Ct. 2786 and Kumho Tire, 526 U.S. 137, 119 S.Ct. 1167, the Supreme Court assigned to the district courts the responsibility of ensuring that all expert testimony must pertain to scientific, technical, or other specialized knowledge under Federal Rule of Evidence (FRE) 702, which in turn required the judge to determine that the testimony was based on a firm scientific or technical grounding. Daubert, 509 U.S. at 589-90, 113 S.Ct. 2786; Kumho Tire, 526 U.S. at 148, 119 S.Ct. 1167. Expert testimony which does not relate to any issue in the case is not relevant and, ergo, nonhelpful. Daubert, 509 U.S. at 591, 113 S.Ct. 2786 (citing 3 Weinstein & Berger ¶ 702[02], p. 702-18). This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue. The patentee bears the burden of proving damages. Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed.Cir.2009). To properly carry this burden, the patentee must sufficiently [tie the expert testimony on damages] to the facts of the case. Daubert, 509 U.S. at 591, 113 S.Ct. 2786 (An additional consideration under Rule 702and another aspect of relevancyis whether expert testimony proffered in the case is sufficiently tied to the facts of the case that it will aid the jury in resolving a factual dispute.) (citing United States v. Downing, 753 F.2d 1224, 1242 (3d Cir.1985)). If the patentee fails to tie the theory to the facts of the case, the testimony must be excluded. For example, in General Electric Co. v. Joiner, 522 U.S. 136, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997), the Supreme Court allowed the exclusion of eight of Joiner's experts who opined that polychlorinated biphenyls (PCBs) could cause cancer on the strength of several studies showing that mice receiving high doses of PCB developed cancer. The Supreme Court noted that [t]he studies were so dissimilar to the facts presented in this litigation that it was not an abuse of discretion for the District Court to have rejected the experts' reliance on them, id. at 144-45, 118 S.Ct. 512, and affirmed the exclusion because Joiner had failed to tie the experts' opinions to the seemingly far-removed animal studies, id. at 144, 118 S.Ct. 512. Likewise, in Kumho Tire, a products liability case arising out of a blown tire, the Supreme Court affirmed the exclusion of an expert opinion that argued that the cause of the accident at issue was a defect in the tire, based on the expert's visual and tactile inspection of the tire. 526 U.S. at 153, 119 S.Ct. 1167. The specific issue was not whether the visual and tactile inspection methodology was reasonable[ ] in general, but whether it was [reasonable to] us[e] such an approach . . . to draw a conclusion regarding the particular matter to which the expert testimony was directly relevant. Id. at 153-54, 119 S.Ct. 1167. The relevant issue was whether the expert could reliably determine the cause of this tire's separation. Id. at 154, 119 S.Ct. 1167. The Court held that the expert had failed to reliably opine on this issue under Daubert because his general theorythat in the absence of at least two of four signs of abuse . . . he concludes that a defect caused the separation, id. did not take into account the facts of the particular tire at issue: that the tire had traveled far enough so that some of the tread had been worn bald; it should have been taken out of service; it had been repaired (inadequately) for punctures; and it bore some of the very marks that the expert said indicated, not a defect, but abuse through overdeflection. Id. In responding to the plaintiff's argument, that a method of tire failure analysis that employs a visual/tactile inspection is a reliable method, based on its use by other experts and to Carlson's [the expert in the case] long experience working for Michelin, the Court reaffirmed that the question before the trial court was specific, not general. Id. The trial court had to decide whether this particular expert had sufficient specialized knowledge to assist the jurors `in deciding the particular issues in the case. Id. at 156, 119 S.Ct. 1167. The Court held that he did not. The bottom line of Kumho Tire and Joiner is that one major determinant of whether an expert should be excluded under Daubert is whether he has justified the application of a general theory to the facts of the case. Consistent with this conclusion, this court has held that [a]ny evidence unrelated to the claimed invention does not support compensation for infringement but punishes beyond the reach of the statute. ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed.Cir. 2010). In ResQNet, Lucent Technologies, 580 F.3d 1301, and Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., 609 F.3d 1308 (Fed.Cir.2010), this court determined that a patentee could not rely on license agreements that were radically different from the hypothetical agreement under consideration to determine a reasonable royalty. Lucent Techs., 580 F.3d at 1327. See also ResQNet, 594 F.3d at 870-72 (holding that evidence of royalty rates from licenses without a relationship to the claimed invention could not form the basis of a reasonable royalty calculation). In Lucent Technologies, the patentee's expert relied in large part on eight varied license agreements, four of which involved PC-related patents, but either the specific subject matter of the patents was not explained to the jury or the license was directed to a vastly different situation than the hypothetical licensing scenario of the present case, and four of which Lucent did not describe the relationship between the patented technology licensed therein and the licensee's products. See 580 F.3d at 1328-31. This court noted that the licenses relied on by the patentee in proving damages [must be] sufficiently comparable to the hypothetical license at issue in suit, id. at 1325, and that the patentee's failure to do so weighs strongly against the jury's award relying on such noncomparable licenses, id. at 1332. Similarly, in ResQNet, the patentee's expert used licenses with no relationship to the claimed invention to drive the royalty rate up to unjustified double-digit levels, looking at licenses that did not mention the patents and had no other discernible link to the claimed technology. 594 F.3d at 870. This court rejected the expert's testimony, holding that the district court must consider licenses that are commensurate with what the defendant has appropriated. If not, a prevailing plaintiff would be free to inflate the reasonable royalty analysis with conveniently selected licenses without an economic or other link to the technology in question. Id. at 872. This court held that on remand, the trial court should not rely on unrelated licenses to increase the reasonable royalty rate above rates more clearly linked to the economic demand for the claimed technology. Id. at 872-73. Similarly, in Wordtech, the patentee introduced thirteen patent licenses that it previously granted to third parties for rights to some or all of the patents-in-suit to argue to support the jury's damages determination. 609 F.3d at 1319. This court rejected eleven of the licenses because they were running royalty licenses (the patentee had only asked for a lump sum payment) and represented far lower rates than the jury returned. Id. at 1320-21. This court rejected the remaining two licenses (both for lump sum payments) because [n]either license describe[d] how the parties calculated each lump sum, the licensees' intended products, or how many products each licensee expected to produce. Id. at 1320. The meaning of these cases is clear: there must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party. Relying on the 25 percent rule of thumb in a reasonable royalty calculation is far more unreliable and irrelevant than reliance on parties' unrelated licenses, which we rejected in ResQNet and Lucent Technologies. There, the prior licenses at least involved the same general industry and at least some of the same parties as the hypothetical negotiations at issue, and in Wordtech even involved licenses to the patents in suit entered into by the patentee-plaintiff. Lacking even these minimal connections, the 25 percent rule of thumb would predict that the same 25%/75% royalty split would begin royalty discussions between, for example, (a) TinyCo and IBM over a strong patent portfolio of twelve patents covering various aspects of a pioneering hard drive, and (b) Kodak and Fuji over a single patent to a tiny improvement in a specialty film emulsion. It is of no moment that the 25 percent rule of thumb is offered merely as a starting point to which the Georgia-Pacific factors are then applied to bring the rate up or down. Beginning from a fundamentally flawed premise and adjusting it based on legitimate considerations specific to the facts of the case nevertheless results in a fundamentally flawed conclusion. This is reflected in Lucent Technologies, in which unrelated licenses were considered under Georgia-Pacific factor 1, but this court held that the entire royalty calculation was unsupported by substantial evidence. To be admissible, expert testimony opining on a reasonable royalty rate must carefully tie proof of damages to the claimed invention's footprint in the market place. ResQNet, 594 F.3d at 869. This court has sanctioned the use of the Georgia-Pacific factors to frame the reasonable royalty inquiry. Those factors properly tie the reasonable royalty calculation to the facts of the hypothetical negotiation at issue. This court's rejection of the 25 percent rule of thumb is not intended to limit the application of any of the Georgia-Pacific factors. In particular, factors 1 and 2looking at royalties paid or received in licenses for the patent in suit or in comparable licensesand factor 12looking at the portion of profit that may be customarily allowed in the particular business for the use of the invention or similar inventionsremain valid and important factors in the determination of a reasonable royalty rate. However, evidence purporting to apply to these, and any other factors, must be tied to the relevant facts and circumstances of the particular case at issue and the hypothetical negotiations that would have taken place in light of those facts and circumstances at the relevant time. In this case, it is clear that Gemini's testimony was based on the use of the 25% rule of thumb as an arbitrary, general rule, unrelated to the facts of this case. When asked the basis of his opinion that the rule of thumb would apply here, Gemini testified: [i]t's generally accepted. I've used it. I've seen others use it. It's a widely accepted rule. Upon further questioning, Dr. Gemini revealed that he had been involved in only four or five non-litigation related negotiations, and had recommended the 25% rule only once in a case involving a power tool. He did not testify that the parties here had a practice of beginning negotiations with a 25%/75% split, or that the contribution of Product Activation to Office and Word justified such a split. He did not base his 25 percent baseline on other licenses involving the patent at issue or comparable licenses. In short, Gemini's starting point of a 25 percent royalty had no relation to the facts of the case, and as such, was arbitrary, unreliable, and irrelevant. The use of such a rule fails to pass muster under Daubert and taints the jury's damages calculation. This court thus holds that Microsoft is entitled to a new trial on damages.
As discussed above, Gemini performed a check to determine whether his $564,946,803 royalty figure was reasonable by comparing it to his calculation of Microsoft's approximate total revenue for Office and Windows of $19.28 billion. During trial, Gemini testified that his calculated royalty accounted for only 2.9% of Microsoft's revenue, and accented his point by reference to a prepared pie chart, showing Microsoft's $19.28 billion in revenue with a 2.9% sliver representing his calculated royalty rate. He concluded that 2.9% was a reasonable royalty based on his experience that royalty rates for software are generally aboveon average, above 10% or 10, 11%. The entire market value rule allows a patentee to assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially create[s] the value of the component parts. Lucent Techs., 580 F.3d at 1336; Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1549-50 (Fed.Cir.1995). This rule is derived from Supreme Court precedent requiring that the patentee . . . must in every case give evidence tending to separate or apportion the defendant's profits and the patentee's damages between the patented feature and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative, or show that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature. Garretson v. Clark, 111 U.S. 120, 121, 4 S.Ct. 291, 28 L.Ed. 371 (1884). See also Lucent Techs., 580 F.3d at 1336-37 (tracing the origins of the entire market value to several Supreme Court cases including Garretson ). Microsoft argues that Uniloc employed the entire market value of Office and Windows by virtue of Gemini's pie chart, his comparison of his calculated royalty to the total revenue Microsoft earns through the accused products, and Uniloc's attorneys' belittlement of Microsoft's expert's royalty figure as representing only .0003% of total revenue. Microsoft argues that Uniloc's use of the entire market value rule was not proper because it is undisputed that Product Activation did not create the basis for customer demand or substantially create the value of the component parts. Microsoft continues that Gemini's testimony tainted the jury's damages deliberations, regardless of its categorization as a check. Uniloc responds that: (1) Microsoft did not object at trial and so waived any evidentiary argument to Gemini's testimony and demonstratives; (2) the entire market value of the product can be used if the royalty rate is low enough; and (3) the $19 billion figure was used only as a check, and the jury was instructed not to base its damages determination on the entire market value, an instruction it should be presumed to have followed. The district court agreed with Microsoft, and ordered a conditional new trial on damages. It noted that Uniloc conceded customers do not buy Office or Windows because of [Product Activation] and said it would not base a royalty calculation on the entire market value of the products. Uniloc II, 640 F.Supp.2d at 184-85. As such, the use of the entire market value of Office and Windows in the form of the $19 billion figure was irrelevant and taint[ed] the jury's damages award. Id. at 185. The district court also disagreed with Uniloc that Microsoft had waived its arguments to the entire market value, noting that Microsoft objected specifically under the entire market value rule to use of a demonstrative pie chart, and that [t]he Court preliminarily allowed it but after hearing the testimony instructed counsel to stay away from the $19 billion figure. Id. This court agrees with Microsoft and the district court that Uniloc's use of the $19 billion check was improper under the entire market value rule. First, regarding Uniloc's assertion that Microsoft has waived the issue, this court will not second-guess the district court's explicit recognition of Microsoft's objections to Gemini's testimony. FRE 103(a) notes that Error may not be predicated upon a ruling which admits or excludes evidence unless . . . (1) Objection.In case the ruling is one admitting evidence, a timely objection or motion to strike appears of record . . . . Once the court makes a definitive ruling on the record admitting or excluding evidence, either at or before trial, a party need not renew an objection or offer of proof to preserve a claim of error for appeal. The district court here explicitly noted that Microsoft's objection fell into the exception at the last line of FRE 103(a): Although Microsoft did not continue to repeat an objection, it made its position on this evidence sufficiently clear to preserve the instant challenge to Gemini's use of the entire market value rule. Uniloc II, 640 F.Supp.2d at 184 n. 43. This is supported by Microsoft's in limine filings and Uniloc's response, where Uniloc explicitly said that it would not be relying on the entire market value of the accused products. This court thus agrees with the district court that Microsoft has not waived its objection. Uniloc argues that the entire market value of the products may appropriately be admitted if the royalty rate is low enough, relying on the following statement in Lucent Technologies: Simply put, the base used in a running royalty calculation can always be the value of the entire commercial embodiment, as long as the magnitude of the rate is within an acceptable range (as determined by the evidence). . . . Microsoft surely would have little reason to complain about the supposed application of the entire market value rule had the jury applied a royalty rate of .1% (instead of 8%) to the market price of the infringing programs. 580 F.3d at 1338-39. Just before this statement, however, this court held that one of the flaws in the use of the entire market value in that case was the lack of evidence demonstrating the patented method of the Day patent as the basisor even a substantial basisof the consumer demand for Outlook . . . . [t]he only reasonable conclusion supported by the evidence is that the infringing use of the date-picker tool in Outlook is but a very small component of a much larger software program. Id. at 1338. Thus, in context, the passage relied on by Uniloc does not support its position. The Supreme Court and this court's precedents do not allow consideration of the entire market value of accused products for minor patent improvements simply by asserting a low enough royalty rate. See Garretson, 111 U.S. at 121, 4 S.Ct. 291; Lucent Techs., 580 F.3d at 1336 (In one sense, our law on the entire market value rule is quite clear. For the entire market value rule to apply, the patentee must prove that the patent-related feature is the basis for customer demand (emphasis added, internal citations omitted)); Rite-Hite, 56 F.3d at 1549 (same); Bose Corp. v. JBL, Inc., 274 F.3d 1354, 1361 (Fed.Cir.2001) (same); TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 901 (Fed. Cir.1986) (The entire market value rule allows for the recovery of damages based on the value of an entire apparatus containing several features, when the feature patented constitutes the basis for customer demand.). This case provides a good example of the danger of admitting consideration of the entire market value of the accused where the patented component does not create the basis for customer demand. As the district court aptly noted, [t]he $19 billion cat was never put back into the bag even by Microsoft's cross-examination of Mr. Gemini and re-direct of Mr. Napper, and in spite of a final instruction that the jury may not award damages based on Microsoft's entire revenue from all the accused products in the case. Uniloc II, 640 F.Supp.2d at 185. This is unsurprising. The disclosure that a company has made $19 billion dollars in revenue from an infringing product cannot help but skew the damages horizon for the jury, regardless of the contribution of the patented component to this revenue. Uniloc exacerbated the situation in colloquies like the following on cross-examination of Microsoft's damages expert, in which it implied a relationship between the entire market value of the accused products and the patent: Q [Uniloc]. You understand that there are approximately $20 billion in sales of infringing product, correct? A [Napper]. That's the calculation by Mr. Gemini, yes, the entire market value of those products. Q. And you understand your lump-sum max theory is $7 million? A. Yes. Q. And that would be an effective royalty of approximately .000035%? A. If one were inappropriately putting the entire market value of the products, that's what it would result in. Q. Uniloc invents it, correct? A. They have a patent, yes. Q. And under your theory, Microsoft goes out and infringes a valid patent, right? A. That's my assumption. Q. Under your theory, Microsoft brings in billions in revenue and sales from the sales of the infringing product, to wit, approximately 20, correct? A. The entire market value of those products, that's correct. Q. And at the end of the day, the infringer, Microsoft, who violated the patent law, they get to keep 99.9999% of the box and the inventor, whose patent they infringed, he gets the privilege of keeping .00003%? A. When expressed as the entire market value of the products, that's correct. Q. And that's reasonable to you? A. Yes. This is in clear derogation of the entire market value rule, because the entire market value of the accused products has not been shown to be derived from the patented contribution. Uniloc's final argument is that the use of the $19 billion figure was only as a check, and the jury must be presumed to have followed the jury instruction and not based its damages calculation on the entire market value rule. This argument attempts to gloss over the purpose of the check as lending legitimacy to the reasonableness of Gemini's $565 million damages calculation. Even if the jury's damages calculation was not based wholly on the entire market value check, the award was supported in part by the faulty foundation of the entire market value. Moreover, Uniloc's derision of Microsoft's damages expert by virtue of the .00003% of the entire market value that his damages calculation represented may have inappropriately contributed to the jury's rejection of his calculations. Thus, the fact that the entire market value was brought in as only a check is of no moment. For the foregoing reasons, this court concludes that the district court did not abuse its discretion in granting a conditional new trial on damages for Uniloc's violation of the entire market value rule.
As an alternative ground for affirmance of the district court's alternative grant of a new trial on damages, Microsoft argues that the damages here were excessive. Because this court is affirming the district court's grant of new trial on damages, and because the two bases on which Uniloc's damages case was built have both been rejected, it would be premature to consider the excessiveness of damages that could arise on remand. This court thus expresses no opinion on the excessiveness or reasonableness of the damages awarded by the jury.