Opinion ID: 807368
Heading Depth: 3
Heading Rank: 2

Heading: Sunset Royalty

Text: Following trial, Verizon asked the district court to stay the injunction during an eight month “sunset” period during which a design around to the ActiveVideo patents could be completed. The district court stayed the permanent injunction for a six month sunset royalty period during which Verizon was ordered to pay a sunset royalty for its continued infringement. The court held that granting this sunset royalty would mitigate harm to the public and provide Verizon considerable time to implement non53 ACTIVEVIDEO v. VERIZON COMMUNICATION infringing alternatives. Verizon moved this court for a further stay of the injunction pending appeal, which we granted. On appeal, Verizon argues that the sunset royalty amount should be vacated because it was based on the “flawed damages methodologies” of ActiveVideo’s expert. Appellants’ Br. 42. ActiveVideo sought a sunset royalty amount of $3.40 per subscriber per month. Verizon argues that the royalty rate should be $0.17 per FiOS-TV subscriber per month. Verizon argues that ActiveVideo receives $0.17 before costs in its agreement with Cablevision. In a thorough and well-reasoned opinion, the district court concluded that the sunset royalty rate should be $2.74 per FiOS-TV subscriber per month. The district court accepted ActiveVideo’s expert testimony that Verizon received an incremental profit of $6.86 per FiOS-TV subscriber per month. The court analyzed the respective bargaining positions of the parties post-verdict, and concluded that “it would have been reasonable for the parties to make an agreement whereby Verizon would receive 60% of the profits and ActiveVideo would receive 40% of the profits.” J.A. 31. This results in the $2.74 per subscriber per month royalty. The district court rejected Verizon’s suggestion that it should pay the same rate as Cablevision. The district court found that after the patent is held not invalid and infringed by Verizon, ActiveVideo is in a much better bargaining position with Verizon than it was with Cablevision in 2009. Based on the fact that Verizon may be able to design around, but does not know precisely how effective such a design around might be, the court discounted the profit split from the 50/50 to 60/40 (in favor of Verizon). This may seem high, and while it is likely true that Verizon would not have agreed to that amount prior to litigation, Verizon has been adjudicated to infringe and ACTIVEVIDEO v. VERIZON COMMUNICATION 54 the patent has been held not invalid after a substantial challenge by Verizon. See Paice, 504 F.3d at 1317 (Rader, J., concurring) (“[P]re-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties’ legal relationship and other factors.”); Amado, 517 F.3d at 1362 (“Prior to judgment, liability for infringement, as well as the validity of the patent, is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, however, the calculus is markedly different because different economic factors are involved.”). The district court is correct; there has been a substantial shift in the bargaining position of the parties. See Amado, 517 F.3d at 1362 (“There is a fundamental difference, however, between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement.”). We reject Verizon’s argument that the district court erred in concluding that the jury verdict placed ActiveVideo in a stronger bargaining position. Verizon also argues that the royalty amount adopted by the district court was erroneous because the jury rejected ActiveVideo’s profit calculation when it failed to adopt ActiveVideo’s bottom-line damages number. And Verizon contends that the district court erred in failing to explain why the royalty number proposed by ActiveVideo was correct. We discern no error in the district court’s analysis. Verizon’s “flawed methodology” argument is merely a continuation of the argument we previously dismissed. See supra Part III.B. There are a number of reasons why the jury may have rejected ActiveVideo’s “bottom-line” damages number. There is no way to know whether the jury rejected ActiveVideo’s profit figure or whether it discounted the damages model based on other factors. ActiveVideo’s expert reconciled his profit figure 55 ACTIVEVIDEO v. VERIZON COMMUNICATION with the jury verdict, and the district court did not clearly err in crediting that testimony to determine an appropriate sunset royalty rate. See Honeywell Int’l, Inc. v. Hamilton Sundstrand Corp., 523 F.3d 1304, 1314 (Fed. Cir. 2008) (concluding that it can virtually never be clear error for a judge to credit the testimony of one witness over another when the witness has told a consistent, coherent, and facially plausible story). We held in Amado that an assessment of prospective damages for ongoing infringement should “take into account the change in the parties’ bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability.” Amado, 517 F.3d at 1362. And, although Amado dealt with the imposition of royalty damages while an injunction was stayed during appeal, this holding applies with equal force in the ongoing royalty context. 8 Though we vacate the district court’s injunction, we see no error in its postverdict royalty calculation. The district court, on remand, should determine an appropriate ongoing royalty, an inquiry that is much the same as its sunset royalty analysis. The district court may wish to consider on remand additional evidence of changes in the parties’ bargaining positions and other economic circumstances that may be of value in determining an appropriate ongoing royalty. See Paice, 504 F.3d at 1315 (“Upon remand, the court may take additional evidence if necessary to account for any additional economic factors arising out of the imposition 8 However, some of the Amado factors considered by the district court in its sunset royalty analysis may not directly apply in an ongoing royalty situation. For example, the district court considered the defendant’s likelihood of success on appeal, the ability of the defendant to immediately comply with the injunction, and the evidence and arguments found material to granting the permanent injunction. J.A. 28-29; see Amado, 517 F.3d at 1362. ACTIVEVIDEO v. VERIZON COMMUNICATION 56 of an ongoing royalty.”). Indeed, ActiveVideo’s bargaining position is even stronger after this appeal. We leave the procedural aspects of how to proceed on the issue of prospective damages to the discretion of the district court.