• Fred Hadidi

When a defendant introduces license agreements that it says are “reliable marketplace evidence of th

Prism Technologies LLC v. Sprint Spectrum LP, DBA Sprint PCS

2016-1456, 2016-1457, Decided: March 6, 2017

Case Summary

During trial, a defendant introduced into evidence several relatively low-valued license agreements involving the asserted patents—agreements that the defendant said were “reliable marketplace evidence of the value of the patents-in-suit.” May the defendant then successfully argue on appeal that the district court erred when it: (a) allowed into evidence a different (and higher valued) license agreement involving the same patents; and (b) did not adopt a categorical rule barring admission of litigation-induced license agreements? The United States Court of Appeals for the Federal Circuit (Federal Circuit) said no.

Prism Technologies sued Sprint, AT&T and others for infringement of U.S. Patent Nos. 8,127,345 and 8,387,155, which were argued to cover techniques for managing access to information provided over “untrusted” networks; AT&T settled before the end of trial.

About a year before Prism settled with AT&T, Sprint moved to admit various Prism licenses resulting from patent-litigation settlements—and moved to exclude the damages testimony of Prism’s expert on the ground that he failed to rely on these agreements, which Sprint said were “highly probative as to what constitutes a reasonable royalty for [Prism’s] patent rights.”

But after the AT&T settlement, Sprint moved to exclude Prism’s AT&T license agreement as unduly prejudicial under FRE 403. The District Court denied Sprint’s motion, and the jury ultimately awarded Prism $30 million in reasonable-royalty damages.

Regarding the admissibility of the AT&T license agreement, Sprint presented three arguments on appeal: (1) the district court abused its discretion under Rule 403 in declining to exclude the AT&T Settlement Agreement; (2) the Supreme Court’s 1889 decision in Rude v. Wescott established a categorical rule barring admission of a patentee’s licenses entered into in a settlement of infringement litigation; and (3) Rule 408 categorically bars evidence of compromise discussions “to prove or disprove the validity or amount of a disputed claim.”

In addressing the Rule 403 argument, the panel cited an earlier Federal Circuit case for the proposition that “a license agreement entered into in settling an earlier patent suit sometimes is admissible in a later patent suit involving the value of the patented technology, and sometimes is not.” The opinion went on to say that in this case, the district court had an adequate basis for admitting the AT&T Settlement agreement because the agreement included the patents asserted against Sprint, and because Prism supplied evidence about the comparability of AT&T’s and Sprint’s uses of the asserted patents’ technology.

The Federal Circuit also rejected Sprint’s arguments that Rude v. Wescott and Rule 408 categorically bar admission of litigation-induced settlement agreements. The panel first pointed out that these arguments were not made before the district court (and were therefore waived); it also explained that since Sprint had made the strategic choice at trial to seek admission of other (lower valued) litigation-induced settlement agreements, it cannot argue on appeal that all litigation-induced settlements should be categorically barred.

In this appeal, Sprint also argued that the district court erred by allowing Prism to “modify” the court’s claim constructions. Specifically, the district court construed the term “Internet Protocol network” to be “an untrusted network using any protocol of the Internet Protocol Suite including at least one of IP, TCP/IP, UDP/IP, HTTP, and HTTP/IP.” The court further defined an “untrusted” network as “a public network with no controlling organization, with the path to access the network being undefined and the user being anonymous.”

At trial, Prism’s expert testified that the accused networks used by Sprint constitute an “Internet Protocol network” because “no single organization” controls them in the aggregate. In Sprint’s view, this testimony impermissibly modified the district court’s construction of “Internet Protocol network” because it replaced the court’s concept of networks with “no controlling organization” with the concept of “no single organization” controlling the networks. The district court rejected Sprint’s argument, finding that Prism’s expert testimony was consistent with the asserted patents’ disclosure of the Internet itself (which “no single organization” controls) as the preferred embodiment of an “Internet Protocol network.” The district court then permitted the jury to decide whether the networks used by Sprint “constitute a public, uncontrolled, undefined pathway, anonymous-user internet like the aggregated internet.”

On appeal, Sprint argued that by allowing the jury to decide whether Sprint’s networks constitute an “Internet Protocol network” in light of Prism’s expert testimony, the district court neglected its duty to resolve the parties’ dispute over the scope of that claim term. The Federal Circuit disagreed, holding that the district court explained that the testimony by Sprint’s expert was correct; that is, an “Internet Protocol network” could indeed encompass networks that “in the aggregate” have “no controlling organization.”

Sprint’s final argument was that the damages theory Prism presented at trial—that the value of the reasonable royalty should be based on the cost of a particular non-infringing alternative—was unreasonable. The Federal Circuit sided with Prism, explaining that since Sprint did not present any evidence regarding another possible non-infringing alternative, Sprint cannot complain that “the jury credited the only theory presented to it.”

Finally, Prism cross-appealed on the issue of the damage amount. At trial, the jury awarded Prism a lump sum payment; after trial, Prism moved for an accounting and ongoing royalties. The district court denied the motion because it found the jury’s damages award included royalties for Sprint’s “past, present, and ongoing infringement.” The Federal circuit affirmed, finding an inadequate basis to disturb the district court’s characterization of the jury verdict.

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