Ericsson Inc. v. TCL Communication Technology Holdings, Ltd.

          MEMORANDUM OPINION AND ORDER

          ROY S. PAYNE UNITED STATES MAGISTRATE JUDGE.

         A four-day jury trial in this case was held in December of 2017. During trial, Ericsson presented evidence and argument that TCL infringed claims 1 and 5 of U.S. Patent No. 7, 149, 510 by selling phones and devices that included the Google Android operating system. The Android operating system allows a user to grant or deny a third-party application's request to access native phone functionality, a feature that Ericsson contended was covered by the '510 patent.^[1] TCL presented evidence and argument that it did not infringe, and both sides presented their respective damages theories. The jury found that TCL infringed claims 1 and 5, that TCL's infringement was willful, and awarded $75 million as a lump sum royalty. TCL has since moved for judgment as a matter of law on infringement and damages, or alternatively for a new trial on infringement and damages. TCL's motions with respect to infringement will be denied, and an order will be forthcoming. TCL's motion for a new trial on damages is granted for the following reasons.

         DISCUSSION

         A court may order a new trial on any or all issues “for any reason for which a new trial has heretofore been granted in an action at law in federal court.” Fed.R.Civ.P. 59(a). Regional circuit law applies when considering a motion for a new trial. z4 Techs., Inc. v. Microsoft Corp., 507 F.3d 1340, 1347 (Fed. Cir. 2007). “A new trial may be granted, for example, if the district court finds the verdict is against the weight of the evidence, the damages awarded are excessive, the trial was unfair, or prejudicial error was committed in its course.” Smith v. Transworld Drilling Co., 773 F.2d 610, 612-13 (5th Cir. 1985).

         I. Damages Evidence Presented at Trial

         A. Ericsson's Damages Theory

         The damages theory Ericsson presented at trial was based on the opinions of Dr. William Wecker and Mr. Robert Mills. Dr. Wecker provided analysis of a consumer survey that according to Ericsson approximates the apportioned value of the patented invention. Mr. Mills in turn used Dr. Wecker's survey results to estimate a per phone royalty rate the parties would have agreed to at the hypothetical negotiation.

         1. Dr. Wecker's Survey

         Dr. Wecker's survey was designed to determine how many consumers that had purchased an Android-based smartphone during the relevant time would have decided against purchasing the phone if the phone lacked the accused security and permissions feature, i.e., the ability to control whether third-party applications can access native functionality on the phone. See PTX 113 (survey questions); Trial Tr. 70:11-88:2, Dkt. No. 398 (Dr. Wecker direct examination). After a series of preliminary questions concerning demographic and other information, see PTX 113.0002-0016, survey respondents were asked whether they had purchased a new smartphone during the relevant time period, PTX 113.0017; Trial Tr. 75:21-76:16, Dkt. No. 398. About 67% of survey respondents answered “yes” to this question, Trial Tr. 76:17-22, Dkt. No. 398, and 54% of this group of respondents had bought an Android-based phone, Trial Tr. 76:23-77:12, Dkt. No. 398; PTX 113.0018.

         The next series of questions attempted to isolate the value of the accused security and permissions feature for respondents who had purchased an Android-based phone. Respondents were first asked a series of questions designed to determine whether purchasers of prepaid, low-cost TCL phones were providing answers that were consistent with the answers provided by purchasers of higher-end TCL phones. Trial Tr. 77:13-81:18, Dkt. No. 398. Dr. Wecker determined that these two groups were answering questions consistently. Id. Respondents were then asked whether they knew about the security and permissions feature before they purchased the phone; 67% of respondents indicated that they did. Trial Tr. 84:19-85:7, Dkt. No. 398; PTX 113.0033. Finally, these respondents were asked whether they would have purchased the phone at the same price if the phone lacked the accused security and permissions feature. Trial Tr. 85:8-86:19, Dkt. No. 398; PTX 113.0034. About 28% of respondents said they would not have purchased the phone at the same price. Trial Tr. 86:12-21, Dkt. No. 398.

         2. Mr. Mills' Damages Opinion

         Mr. Mills used Dr. Wecker's survey results to determine a per phone royalty rate. According to Mr. Mills, Dr. Wecker's survey results indicated that about 28% of consumers who purchased accused TCL phones would not have made those purchases if the phone lacked the allegedly infringing feature. Trial Tr. 9:22-11:8, Dkt. No. 400. In other words, TCL would have lost about 28% of its sales of accused Android-based phones. Id. 11:4-8. Mr. Mills estimated that TCL had sold about(XXXXX) accused devices during the relevant time. Id. 13:1-10. The number of accused devices was then multiplied by 28% to give about(XXXXX). Id. 13:11-14. According to Mr. Mills, this number represents the at-risk devices, or the number of devices that would not have been sold without the allegedly infringing feature. See id.

         Mr. Mills then arrived at a royalty rate. Mr. Mills multiplied the(XXXXX) at-risk devices by TCL's average profit per device, (XXXXX), to give about (XXXXX)of at-risk profit, or profit that TCL stood to lose without the allegedly infringing feature. Id. 14:17-23. The at-risk profit was then divided by the total number of accused devices sold during the relevant time ((XXXXX)) to give an at-risk profit per phone of $3.42. Id. 14:24-15:3. Mr. Mills' calculation was a roundabout way of multiplying 28% by TCL's average profit per device ((XXXXX)), which also yields the same $3.42 in at-risk profit per phone. Id. 62:1-5.

         Mr. Mills next determined how the parties would have split the $3.42 of at-risk profit per phone at the hypothetical negotiation. Id. 15:12-20. Based on eight of the fifteen Georgia-Pacific factors, see 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970), Mr. Mills concluded that Ericsson would have been able to capture most of the $3.42, specifically that Ericsson would have successfully negotiated for $3.41 of the at-risk profit, Trial Tr. 17:3-44:20, Dkt. No. 400. At the very least, Ericsson would have successfully negotiated for half the at-risk profit, or $1.72 per phone. Id. 44:13-20.

         Finally, Mr. Mills calculated a total damages award. The parties agreed that Ericsson was not entitled to damages prior to October 2014, the date Ericsson provided notice to TCL of the alleged infringement. Id. 25:16-24. The hypothetical negotiation, however, would have happened in 2010, just before TCL's alleged infringement began. Id. 27:17-28:13. Although there was no dispute that the parties would have negotiated a lump sum license, see Trial Tr. 145:21-146:2, Dkt. No. 402, Mr. Mills nevertheless provided calculations for both “pre-trial” and “post-trial” damages. Id. 25:16-29:15 (pre-trial), 29:16-44:20 (post-trial), Dkt. No. 400. For the pre-trial period from October 2014 through trial, damages would range from $30.9 million (based on a $1.72 royalty rate) to $61.2 million (based on a $3.41 royalty rate). Id. 45:4-7. For the post-trial period from trial to when the patent expires in June 2024, id. 29:16-25, damages would range from $92.7 million to $183.8 million, id. 45:4-7. Thus, Mr. Mills estimated total damages to range from $123.6 million to $245 million. See Id. Mr. Mills' final numbers were discounted to the value as of October 2014, id. 26:22-27:10, the date TCL would have paid for the lump-sum license negotiated in 2010, according to Mr. Mills. Id. 56:1-57:10.

         B. TCL's ...