• U.S. District Court of Delaware
  • D66274
  • Apr 14 2014 (Date Decided)

U.S. DISTRICT COURT OF DELAWARE

Telecordia Technologies Inc. v. Cisco Sys. Inc., DeFAX Case No. D66274 (D. Del. April 14, 2014) Sleet, J. (11 pages).

The court imposed a post-verdict ongoing royalty rate against a willful infringer that was less than market rates, but which did not give the infringer the same favorable terms as a voluntary license. Parties ordered to provide damages calculations in accordance with the ongoing royalty rates determined by the court.

In May 2007, a jury returned a verdict in favor of Telecordia finding that U.S. Patent Nos. RE 36,633 and 4,835,763 were valid and that Cisco had willfully infringed the asserted claims of the '633 and '763 patents. In a post-trial motion, Telecordia sought a permanent injunction, or in the alternative, an order requiring Cisco to pay an ongoing market rate royalty. The court denied Telecordia's requests and ordered the parties to negotiate the terms of a reasonable royalty going forward. Those negotiations were unsuccessful. Both parties submitted proposals to the court for calculation of an ongoing royalty rate for post-verdict sales of infringing products.

Telecordia proposed an ongoing royalty based on its market rates of 3.5 percent for both patents until Feb. 4, 2008, the expiration of the '763 patent, and 2 percent thereafter until Oct. 30, 2012, the expiration of the '633 patent. Cisco argued that the jury's effective royalty rate of 0.64 percent for past infringement was a sufficient post-verdict infringement rate. The difference in the parties' positions amounted to approximately $8.9 million.

In support of its argument for a higher royalty rate, Telecordia argued that the '763 ongoing royalty period between the May 2007 judgment and the expiration of the patent represented a key strategic timeframe for Cisco's optical networking system products. Telecordia contended that the market for these products had matured and Cisco enjoyed an upward revenue trend, which meant Cisco would not have been willing or able to pull those products just when demand was increasing. Also, Telecordia insisted its bargaining position was strengthened by victory at trial.

Cisco argued that post-verdict market conditions provided little bargaining power for Telecordia to negotiate a rate exceeding the jury's effective royalty rate. Cisco suggested it could have deferred sales of the accused product, advised its customers not to deploy the systems until after the patent expired, or disabled the accused functionality during the period until the '763 patent expired. Cisco also contended it could have designed around or avoided infringement of the '633 patent at a minimal cost because it was already providing noninfringing alternatives. Additionally, Cisco maintained that Telecordia did not have an established market rate with third parties remotely close to what it was seeking with Cisco.

The court found that Telecordia was in a stronger bargaining position with respect to the '763 patent, but not strong enough to achieve a full three percent "market rate" ongoing royalty. However, the court was not convinced that Cisco could have avoided infringement by deferring sales or disabling the accused functionality during the time frame in question, because Cisco presented no evidence that it actually implemented those measures.

The court held that the interests of justice would not be served if Cisco was afforded an ongoing royalty under the same favorable terms as a voluntary license. It imposed an ongoing royalty of 1.25 percent for the '763 patent, which reflected the value of the patent relative to the maturing market, the strategic value of Cisco's products, and the appropriate premium for Cisco's willful infringement over Telcordia's voluntary licensees.

For the '633 patent, the court determined that a one percent ongoing royalty rate was sufficient. Telecordia's bargaining power for that patent would have improved, but Cisco's proactive measures to reduce or eliminate infringement, the contested royalty base, and Telecordia's post-verdict licensees convinced the court not to impose a higher royalty rate.

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