Damage Award Must Reflect Apportionment of Incremental Value of Invention

In Omega Patents, LLC. v. CalAmp Corp., [2020-1793, 2020-1794] (September 14, 2021), the Federal Circuit affirmed the judgment of infringement of the asserted claims of U.S. Patent No. 8,032,278, but vacated and remanded for a new trial on damages. The Federal Circuit also vacated the jury’s finding of direct infringement of U.S. Patent No. 6,756,885.  The patents relate generally to multi-vehicle-compatible systems that can remotely control various vehicle functions (for example, remote vehicle starting), and read the status of various vehicle devices (for example, battery health).

CalAmp appealed (1) the district court’s denial of JMOL that CalAmp’s customers did not directly infringe the ’885 patent (and in the alternative, CalAmp requests that we vacate the direct-infringement finding); (2) the district court’s denial of JMOL and a new trial on CalAmp’s infringement of the ’278 patent; and (3) the district court’s denial of remittitur and a new trial as to damages for the ’278 patent. Omega cross-appealed the district court’s de-termination of the ongoing royalty rate for infringement of the ’278 patent.

The Federal Circuit vacated the finding of direct infringement by CalAmp’s customers of the ‘885 patent because Omega’s decision not to appeal the final judgment of non-induced infringement frustrated the CalAmp’s right to appeal, and pointing out that the question of whether CalAmp’s customers directly infringed the asserted claims of the ’885 patent is moot.

The Federal Circuit also found that the district court properly denied JMOL and an new trial on the issue of infringement of the ‘278 patent.  CalAmp argued that that the district court improperly permitted Omega’s technical expert, Joseph McAlexander, to testify beyond the scope of his expert report.  The Federal Circuit found that the report “provided enough notice to CalAmp to adequate prepare its case, and noted that CalAmp deposed the expert in line with is ultimate trial testimony.

CalAmp also argued that Omega presented an improper “device code” theory to the jury upon which the jury relied and that Omega failed to present evidence that two claim limitations were met.  The Federal Circuit disagreed, and pointed out that there was adequate evidence of direct infringement.  The Federal Circuit further found that Omega failed to object to the allegedly improper evidence of infringement, waiving any objection thereto.  Finally, given the instructions that were given to the jury, the Federal Circuit said it must assume that the jury verdict rested on a proper theory.

On the issue of damages, CalAmp argued that the district court erroneously precluded its damages expert from testifying in rebuttal, and that Omega’s damages theory was legally flawed.  The Federal Circuit agreed that it was error to preclude CalAmp’s expert from testifying on rebuttal, simply because his direct testimony was excluded, and this exclusion was not appealed.  The Federal Circuit found that law of the case did not apply to preclude other testimony from the excluded expert.

The Federal Circuit concluded that ultimately, a new trial on damages was warranted. The jury awarded a $5.00-per-unit royalty for CalAmp’s infringement of the ’278 patent, and CalAmp argued that the $5.00 royalty figure  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), rendering the jury’s damages award unsustainable.  The patentee must in every case give evidence tending to separate or apportion the patentee’s damages between the patented feature and the unpatented features.  No matter what the form of the royalty, a patentee must take care to seek only those damages attributable to the infringing features.  Where multi-component products are involved, the governing rule is that the ultimate combination of royalty base and royalty rate must reflect the value attributable to the infringing features of the product, and no more.

Omega argued that because its claims included all the elements of the accused device, no apportionment was needed.  Citing Exmark v. Briggs & Stratton, the Federal said that even when the claims are directed to a product as a whole, the patent owner was still required to “apportion or separate the damages between the patented improvement and the conventional components of the multicomponent product” to ensure that the patent owner was compensated for the patented improvement.

Turning to the merits of apportionment, the Federal Circuit concluded that Omega did not present sufficient evidence to the jury to sustain its damages award for infringement of the asserted claims of the ’278 patent. First, it said that Omega failed to show that its patented improvement drove demand for the entire product. Second, in the alternative, it said that Omega failed to show the incremental value that its patented improvement added to the product as apportioned from the value of any conventional features. Lastly, the Federal Circuit rejected Omega’s comparable-licenses theory, finding that flat fee licensing did not address “built-in apportionment” between the patented improvements and the conventional features of the accused products.  The Federal Circuit likewise concluded that Omega failed to show built-in apportionment based on specific the license agreements presented to the jury.