Today Judge Whyte issued his awaited post-trial rulings following the jury’s RAND determination on LSI’s IEEE 802.11 WiFi patents in which he (1) denied JMOL motions by  both Realtek and LSI, (2) ruled on Realtek’s injunction and declaratory relief requests by denying Realtek’s request to enjoin LSI from seeking to enforce RAND-obligated patents without first making a RAND offer, but granting modified declaratory judgment relief, and (3) entered final judgment.  The declaratory judgment ruling (discussed below) provides an interesting analysis on declaring patent owner LSI’s RAND obligation as well as equating the contractual RAND determination analysis in this case with a reasonable royalty analysis that a jury would use to assess past damages on the same patents.

Background.  Our prior posts provide background about this case in which Realtek sought declaratory judgment relief for breach of RAND-obligation and declaration of a RAND-royalty rate based on LSI seeking an exclusion order in the U.S. International Trade Commission on RAND-encumbered IEEE 802.11 WiFi patents.  Judge Whyte had preliminarily enjoined LSI from seeking to enforce any exclusion order or other injunctive-type relief before making a RAND-offer to Realtek (see our May 21, 2013 post).  The ITC ultimately ruled that one of the patents was not infringed and the other patent had expired and, thus, dismissed that portion of the case because the ITC can only provide prospective relief (see our Mar. 27, 2014 post). The Ninth Circuit then dismissed LSI’s appeal of the preliminary injunction as having been mooted by the ITC’s dismissal of the investigation (see our Mar. 21, 2014 post). 

In the meantime, Judge Whyte issued evidentiary rulings to frame the RAND issues for the jury trial (see our Jan. 9, 2014 post).  The jury  verdict awarded Realtek over $3.8 million for damages caused to Realtek by LSI’s breach of the RAND obligation (based primarily on attorneys fees Realtek spent in the ITC investigation) and assessed a RAND royalty rate totaling 0.19% of the sales price of Realtek’s WiFi chips — i.e., 0.12% for one patent and 0.07% for the other patent (see our Feb. 27, 2014 post).  The parties then presented post-verdict motions (see our Mar. 13, 2014 post).

Order Denying Permanent Injunction.  Judge Whyte denied Realtek’s permanent injunction motion because irreparable harm was too speculative at this point.  Realtek moved for permanent injunctive relief similar to the preliminary injunction that was granted, asking the court to enjoin LSI from demanding royalties from Realtek on the patents-in-suit that were inconsistent with the jury’s RAND determination and to enjoin LSI from enforcing any alleged standard essential patents without first offering a RAND license.  Judge Whyte denied Realtek’s requested injunction because “the ITC’s Final Determination of no domestic industry, invalidity, and no infringement extinguishes the likelihood of immediate irreparable harm.”  Such harm would be too “speculative” at this point because, even though LSI is appealing the ITC’s ruling, “several events must align in LSI’s favor for the entry of an exclusion order to occur,” including Federal Circuit reversal on three issues, the ITC issuing an exclusion order on remand and the exclusion order surviving a possible presidential veto.  The injunction was denied without prejudice in case later events make an exclusion order threat more immediate.

Order Granting Declaratory Judgment.  In the same order that denied injunctive relief, Judge Whyte granted a modified version of the declaratory judgment relief sought by Realtek.  Realtek sought a declaration that the patents-in-suit would be unenforceable if LSI “fail[s] to offer Realtek an ongoing license on RAND terms and conditions, consistent with the jury’s February 26, 2014 verdict.”  Judge Whyte first ruled that the requested declaration sounded more like injunctive relief–e.g., it “would functionally require LSI to forbear from a specific action: enforcing its patent rights as to Realtek.”  He thus denied that requested declaratory relief for the same reason he denied the permanent injunction.

Nonetheless, the court had discretion “to craft its own appropriate declaratory judgment.”  Judge Whyte contrasted this case with Judge Robart’s decision in Microsoft v. Motorola that had dismissed claims seeking a declaration of RAND rates as being duplicative of Microsoft’s breach of contract claims.  In Judge Robart’s case, the breach claim was premised on Motorola offering licensing terms alleged not to be RAND-compliant that, thus, already  required the court to determine a RAND rate as part of the breach of contract claim.  In this case, however, the breach of contract claim was premised on LSI instituting the ITC suit prior to offering any license (i.e., it was not premised on the patent owner offering a non-RAND license).  Thus, separate declaratory judgment jurisdiction exists over the existing controversy of what constitutes a RAND royalty rate.

Another issue is that one of the patents (the ‘867 Patent) recently expired.  But declaratory judgment jurisdiction still exists as long as there is a case or controversy over the RAND royalty rate for the patent.  Such a controversy exists “because Realtek has reasonable apprehension of LSI bringing suit for past infringement of the ‘867 Patent, thereby implicating LSI’s RAND obligations.”  Interestingly, Judge Whyte equated the reasonable royalty methodology for a patent infringement suit on these patents with the contractual RAND determination made in this case, stating:

In the RAND context, determining damages for patent infringement is equivalent to declaring the parties’ rights under the RAND contract.  The court here was tasked with declaring the parties’ rights under the RAND contract, but it drew from case law on patent infringement damages for its methodology.  In its instructions to the jury, the court applied the hypothetical negotiation framework to instruct the jury on arriving at an appropriate RAND royalty rate.  While this court altered some of the details of the Microsoft [Judge Robart decision] and the Innovatio [Judge Holderman decision] framework, it followed the same general approach.  The reasonable royalty methodology in a patent infringement suit between Realtek and LSI would be identical to the methodology given to the jury to declare the parties’ rights under the RAND contract.  Therefore, even though the patent has expired, the RAND commitment would still inform the hypothetical negotiation over a reasonable royalty, so the court retains jurisdiction to declare the parties’ rights under that commitment.

 Judge Whyte thus entered declaratory judgment (but without the “unenforceab[ility]” language that Realtek sought) by declaring that “upon Realtek’s request for a license, to be in compliance with its RAND commitment, LSI must offer Realtek a license to the ‘958 Patent [or ‘867 Patent] on RAND terms, including a royalty rate of 0.12% [or 0.07% for the ‘867 Patent] on the total sales of Realtek’s products.”

Order Denying JMOL Motions.  Judge Whyte also denied motions by both parties seeking judgment as a matter of law notwithstanding the jury verdict. 

First, Judge Whyte declined to overturn the jury verdict damages award to Realtek for LSI’s breach of contract claim, which turned on procedural issues regarding burdens of proof and the such in establishing Realtek’s attorneys fees for defending itself in the ITC investigation.

Second, Judge Whyte declined to overturn the jury’s verdict on the RAND royalty rate.  Among other things, Realtek challenged LSI’s profferd damages rate because LSI’s damages expert’s used an erroneous estimation of the number of SEPs subject to an alleged comparable license as part of her royalty analysis.  The expert had arrived at a per-patent royalty rate from an alleged  comparable license by dividing the comparable license’s royalty rate by an estimated number of standard essential patents licensed therein.  But the expert later admitted in cross-examination that that number may have been off by one, five or so patents and her calculation may need adjustment.  Judge Whyte sustained the jury verdict because, even with that discrepancy, the jury still could have returned a royalty rate higher than they found — and higher than the amount Realtek argued.  Further, Judge Whyte would not exclude the testimony under Daubert because the expert’s calculations were reliable, testable and subject to critique.  This was true even though the expert adjusted her calculations based on cross-examination, because courts should encourage honest adjustments by experts of minor estimation errors.