The Federal Circuit has overturned part of a damages award in a long-running automotive dispute between Omega Patents LLC and CalAmp. On September 14, the appellate court held in a precedential opinion that the royalty of $5 per infringing device imposed by a Florida judge improperly lacked apportionment—partly because the plaintiff’s damages case failed to account for the “inventive aspects” of the patent at issue.

The Litigation Below: Two Trials and a First Appeal

Omega filed its case against CalAmp in December 2013 in the Middle District of Florida, accusing the company of infringing five patents (6,346,876; 6,737,989; 6,756,885; 7,671,727; 8,032,278) through the provision of Location Messaging Unit (LMU) devices, which offer GPS tracking and other data monitoring features for vehicles managed as part of a fleet (6:13-cv-01950). In February 2016, the case went to trial as to the ‘876, ‘885, ‘727, and ‘278 patents, culminating in a $3M verdict in which the jury found that CalAmp had willfully infringed all tried claims and that it had not shown any of the patents to be invalid. The district court then issued a final judgment in April 2017, awarding $8.9M in enhanced damages along with attorney fees and prejudgment interest for a total judgment of $15M, also granting a permanent injunction.

In an April 2019 opinion, the Federal Circuit affirmed the Florida jury’s finding that CalAmp had directly infringed a single claim from the ‘727 patent. However, the appellate court overturned the jury’s finding that CalAmp had directly infringed the asserted claims from the ‘876 and ‘885 patents, accepting the company’s argument that the jury lacked sufficient evidence for this part of the verdict because CalAmp did not provide the “transmitter”—here, a cell tower—required by a key claim limitation. The Federal Circuit also reversed the jury’s verdict of direct infringement of the asserted claims from the ‘278 patent and granted a new trial on that issue, ruling that the accused products did not meet the “device code” limitation from the claims at issue. Additionally, the appellate court granted a retrial as to predicate direct acts of infringement of the ‘876 and ‘885 patents by CalAmp’s customers, and on the issue of inducement based on the prejudicial exclusion of testimony by a CalAmp executive and its outside counsel. The Federal Circuit further reversed and remanded as to the jury’s finding of willfulness and overturned the lower court’s enhanced damages award.

The case then went to trial a second time in September 2019 as to the remanded issues, culminating in a $4.6M verdict for Omega Patents based on a $1-per-product royalty related to the ‘727 patent, and on a $5-per-product royalty related to the ‘278 patent. The jury indicated that Omega Patents had not proven that any accused CalAmp product infringed the ‘876 patent; that it showed that CalAmp’s customers do directly infringe certain claims of the ‘885 patent but not that CalAmp induced that infringement; that the infringement of the ‘727 patent (established previously) was not willful; and that a subset of the accused products infringed the ‘278 patent. The jury likewise found that the infringement of the ‘278 patent was not proven willful. Judgment was entered in Omega’s favor, awarding it $4.6M plus interest, including a $5-per-unit running royalty as to the ‘278 patent.

The Second Appeal

CalAmp’s second appeal challenged the judgment below as to several issues, including District Judge Paul G. Byron’s denial of judgment as a matter of law (JMOL) as to its customers’ direct infringement of the ‘885 patent. The defendant further contested the district court’s denial of JMOL and sought a new trial on infringement with respect to the ‘278 patent. As for damages, CalAmp appealed the denial of remittitur and requested a new trial on that issue for the ‘278 patent, with Omega cross-appealing as to the court’s ongoing royalty determination as to that patent.

Infringement

Ruling on appeal on September 14 (2020-1793, 2020-1794), the Federal Circuit began with CalAmp’s challenge of the jury’s finding that its customers directly infringed the ‘885 patent. While the court declined to overturn that finding on the merits, it agreed with CalAmp that it should be reversed under the circumstances—since Omega had not appealed the verdict of no inducement, depriving CalAmp of the chance to appeal the underlying direct customer infringement verdict; and because the issue of customer infringement was now moot.

Next, the Federal Circuit held that the district court had correctly denied JMOL and a new trial as to CalAmp’s infringement of the ‘278 patent, declining to accept both of the company’s underlying arguments. First, the appellate court rejected the defendant’s assertion that the district court had erred by allowing an Omega expert to “testify beyond the scope of his expert report” with respect to a key claim limitation. Second, the court disagreed with CalAmp that Omega had failed to show that the accused LMUs met two key claim limitations (“corresponding vehicle device code” and “enabling data related to the at least one corresponding vehicle device code”), and that Omega had tainted the verdict by improperly characterizing the “device code” limitation.

Damages

Turning next to damages, the Federal Circuit considered two CalAmp arguments with respect to the ‘278 patent, holding that both justified a new trial.

First, the appellate court ruled that CalAmp was correct that the lower court erred by preventing its damages expert from presenting a critique of Omega’s damages expert. The district court had twice rejected CalAmp’s attempts to have this expert present such rebuttal testimony, once per trial, on the basis that the company had waived such a challenge by failing to seek reconsideration of the preceding Daubert order. Here, the Federal Circuit noted that it had instructed the parties, on remand, “to achieve clarity by clearly presenting evidence . . . as to . . . compensatory damages”—a mandate that implicitly required the district court to “consider damages consistent with the principles set forth in the opinion”. The lower court had therefore abused its discretion and committed a legal error, ruled the Federal Circuit, by acting inconsistently with that mandate in precluding the expert’s testimony in the second trial, and because that exclusion had no apparent justification “other than erroneously adhering to its prior ruling”.

Second, the Federal Circuit agreed with CalAmp that a new damages trial was needed because the $5-per-unit royalty awarded by the district court “does not reflect apportionment and that Omega failed to show the incremental value of the ’278 patent (or that the patented improvement drove demand for the entire accused product)”.

Under Federal Circuit law, a patentee must give evidence that separates, or apportions, the patented and unpatented features of a product when presenting a damages theory (LaserDynamics v. Quanta Computer, 2012). For multicomponent products, “the ultimate combination of royalty base and royalty rate must reflect the value attributable to the infringing features of the product, and no more” (Ericsson v. D-Link, 2014). Moreover, the entire market value of a product can only form the basis of a damages award when the patented feature provides the basis for consumer demand or creates a substantial portion of the value of the product’s component parts (VirnetX v. Cisco Systems, 2014).

On this issue, Omega had argued that it did not need to show apportionment because the accused LMUs have no noninfringing component parts. However, the Federal Circuit disagreed “as a matter of law”, holding that applicable precedent still requires a patent owner to apportion damages between the patented improvement and the conventional components of a multicomponent product. Moreover, despite Omega’s trial testimony to the contrary, the Federal Circuit found that “there is no question that the LMUs have conventional components that are not the inventive aspects of the ‘278 patent”. In particular, it rejected the plaintiff’s argument that demand for the LMUs was driven “primarily, if not exclusively” by the patented “multivehicle compatibility feature” found in the ‘278 patent. Yet the appellate court found that the record showed other LMU features that are not “inventive aspects” of the asserted claims, such as a “3-axis accelerometer,” the ability to “detect hard braking, cornering[,] or acceleration”, and an “industry leading on-board alert engine”. Moreover, the Federal Circuit noted that certain other functionality of the LMUs undisputedly overlapped with features of another accused product that were found not to infringe the patent. As a result, the court concluded “that the jury could not reasonably have found that the multi-vehicle-compatibility feature of the LMUs drove demand for the entire LMU product”.

Also unavailing, held the Federal Circuit, was Omega’s alternative damages theory based on comparable licenses. As a general matter, comparable licenses may form the basis for a reasonable royalty, as such evidence is explicitly contemplated by the second Georgia-Pacific factor, which allows courts to consider “[t]he rates paid by the licensee for the use of other patents comparable to the patent in suit”. In some cases, licenses can be shown to include “built-in apportionment”, which “effectively assumes that the negotiators of a comparable license settled on a royalty rate and royalty base combination embodying the value of the asserted patent”. But “[f]or built-in apportionment to apply[,] the license must be ‘sufficiently comparable’ in that ‘principles of apportionment were effectively baked into’ the purportedly comparable license” (citations omitted).

Under this theory, Omega had argued that based on evidence of its licensing program and “details of the licenses” introduced at trial, there was sufficient evidence to justify the $5-per-unit royalty, but the Federal Circuit again disagreed. In particular, the court noted that Kenneth Flick, Omega’s president and the sole named inventor on its portfolio, had testified that the company had a “one price for all” policy under which the same $5 royalty applied regardless of the number of patents, and under which “[no] particular patent [is] treated as more valuable than another”. The Federal Circuit found that “Omega’s theory would permit it to obtain a particular royalty rate merely by relying on its internal ‘policy’ without regard to comparability”, and therefore “does not sufficiently speak to ‘built-in apportionment’ between the patented improvement added to the LMUs and the conventional features of the LMUs”. “To hold otherwise would improperly permit Omega to hide behind its generic licensing arrangement to avoid the task of apportionment.”

The license agreements that Omega showed to the jury were a “closer call”, but the Federal Circuit nonetheless found that these did not save the plaintiff’s damages case either. “Omega’s fundamental problem”, the court explained, “is that it failed to show that these agreements attributed a $5.00- per-unit royalty to the value of the ‘278 patent”. Indeed, the Federal Circuit noted that Omega’s damages expert highlighted the same problematic “one price for all policy”, “further walking away from apportionment” by testifying that “CalAmp should pay the same rate no matter how many claims or how many of the patents it infringes”.

While some of the license agreements introduced at trial—including at least two that included the ‘278 patent—could properly form the basis of a reasonable royalty with proper apportionment, this would have required Omega to “adequately account for substantial ‘distinguishing facts’ between the proffered licenses and a hypothetical negotiation over a single-patent license to the ‘278 patent”. The plaintiff had not done so here, held the Federal Circuit—“[m]ost glaringly”, because each of the 18 licenses under consideration encompassed numerous patents, “in contrast to a hypothetical negotiation for a single-patent license”. Omega had failed to properly distinguish them, with both Flick and the damages expert merely providing “generic testimony” that did not adequately “account[] for the technological and economic differences between th[e] licenses” and the single-patent hypothetical negotiation at issue (citations omitted). Thus, the court found that Omega had not presented the jury with sufficient evidence to link the royalty rates from those licenses to the hypothetical negotiation in this case.

Judge Hughes’s Opinion

Circuit Judge Todd M. Hughes joined in part and dissented in part, agreeing with the majority on infringement but arguing that the decision was incorrect as to damages on both grounds cited. In particular, he asserted that the district court properly exercised its discretion to exclude the testimony of CalAmp’s damages expert during the retrial. As for apportionment, Judge Hughes argued that CalAmp’s attempts to challenge the testimony of Omega’s CEO and damages expert should have been raised “via Daubert motion or objection at trial”. To the extent that the majority required Omega to account for the value of the ’278 patent in its comparability analysis, Judge Hughes stated that this “approach is too restrictive given our precedent”.