United States District Court, D. Delaware
EMC CORPORATION and EMC ISRAEL DEVELOPMENT CENTER, LTD., Plaintiffs,
ZERTO, INC., Defendant.
of 2012, Plaintiffs, EMC Corporation and EMC Israel
Development Center, Ltd., (collectively, "EMC")
filed suit against Defendant, Zerto, Inc.
("Zerto"), alleging patent infringement of a total
of seven patents. (D.I. 315 at 1). On May 8, 2015, a jury
found Zerto liable for infringement of claims in four of the
patents: U.S. Patent Nos. 7, 577, 867 ("the '867
Patent"), 7, 603, 395 ("the '395 Patent"),
7, 971, 091 ("the 091 Patent"), and 7, 647, 460
("the '460 Patent"). Id. at 2.
specifying the amount it allotted for each patent, the jury
awarded EMC $585, 783.00 in damages. Id. The award
amounts to 72.6% of the total amount that EMC's damages
expert identified as minimally adequate to compensate EMC for
March 31, 2016, the court partially granted EMC judgment as a
matter of law, finding Zerto liable for infringement of an
additional claim in the '091 patent. (D.I. 299 at 23).
Although the court rejected EMC's request for a permanent
injunction, it found EMC was entitled to an ongoing royalty
covering all infringing sales made after the jury's
verdict. (D.I. 299 at 28). The court directed mediation
regarding an appropriate royalty and permitted EMC to file a
renewed motion for an ongoing royalty rate of post-judgment
sales if the parties could not reach an agreement.
Id. at 3. The parties were unable to reach an
agreement. Id. Presently before the court is
EMC's renewed motion for ongoing royalty rate covering
post-judgment sales. While EMC's motion was pending, the
United States Court of Appeals for the Federal Circuit
affirmed the judgment in favor of EMC, as well as the
court's March 31, 2016 order (D.I. 299). (D.I. 337).
STANDARD OF REVIEW
finding of infringement for a patentee, courts have
jurisdiction to "grant injunctions in accordance with
the principles of equity to prevent the violation of any
right secured by patent, on such terms as the court deems
reasonable." 35 U.S.C. § 283. The Federal Circuit
has clarified that in some cases, where an injunction is
inappropriate, a court may decide to award future royalties
to be paid in light of post-judgment infringement. Paice
LLC v. Toyota Motor Corp., 504 F.3d 1293, 1314 (Fed.
Cir. 2007) (hereafter "Paice II”); see
Creative Internet Adver. Corp. v. Yahoo! Inc., 674
F.Supp.2d 847, 850 (E.D. Tex. 2009). The Federal Circuit has
also given the district court "broad discretion" in
matters concerning an ongoing royalty rate. See Telcordia
Techs., Inc. v. Cisco Sys., Inc., 612 F.3d 1365, 1378
(Fed. Cir. 2010). A patentee bears the burden of proving its
damages by a preponderance of the evidence. Vulcan
Engineering Co., Inc. v. Fata Aluminum, Inc., 278 F.3d
1366, 1376 (Fed. Cir. 2002).
argues that it is entitled to ongoing royalty rates for
Zerto's post-verdict infringement that are triple the
rates it requested at trial. (D.I. 315 at 3). In support of
its request, EMC argues that: (1) EMC prevailed at trial,
enhancing its bargaining position; (2) several other changes
in the parties' relationship have occurred since the
stipulated hypothetical negotiation in 2011 that support
EMC's requested royalty rates; and (3) Zerto's
post-verdict infringing sales are willful acts, and therefore
the ongoing royalty rates should be enhanced so as to reflect
post-verdict willfulness. Mat 10-11, 16.
assessing prospective damages for ongoing infringement
"take into account the change in the parties'
bargaining positions, and the resulting change in economic
circumstances, resulting from the determination of
liability." ActiveVideo Networks, Inc. v. Verizon
Commc'ns, Inc., 694 F.3d 1312, 1343 (Fed. Cir.
2012). A district court may also consider "additional
evidence of changes in the parties' bargaining positions
and other economic circumstances that may be of value in
determining an appropriate ongoing royalty."
the law in the area of ongoing royalty rates has not been
definitively settled by the Federal Circuit, it seems clear
from the Federal Circuit's opinion in Amado v.
Microsoft Corp., 517F.3d 1353 (Fed. Cir. 2008) that the
reasonable royalty rate for post-verdict infringement is not
limited to the reasonable royalty rate that the jury found
for pre-verdict infringement. 517 F.3d at 1361. What remains
unclear, however, is where the court should begin its
analysis. Some courts have turned to the factors outlined in
Georgia-Pacific Corp. v. United States Plywood Corp.
, 318 F.Supp. 1116 (S.D.N.Y. 1970). Because the parties did
not discuss those factors in the briefing, however, the court
will look mainly to the purported changes in bargaining
position and economic circumstances to guide its analysis of
the proper ongoing royalty rate. The court will then consider
whether the ongoing infringement was willful, and whether
enhancement is appropriate in light of any willful
preliminary matter, Zerto argues that the court should not
increase the jury's effective royalty rates because Zerto
no longer infringes the '460 or the '867 patents, and
any infringement of the '395 and '091 patents is
de minimus. (D.I. 322 at 6-11). Specifically, Zerto
claims that: (1) it implemented two separate design changes
that avoid the '460 patent; (2) it no longer directly
infringes the '867 patent; and (3) any royalty on the
'395 and '091 patents should only apply to
Zerto's customers' use of the Zerto virtual
replication product with the VSS agent. Id. EMC
argues, however, that Zerto still infringes the '460
patent because Zerto's redesign attempts fails to
design-around the '460 patent claims. (D.I. 333 at 2-4).
EMC also claims that Zerto still infringes the '867
Patent because Zerto still maintains and controls the
computer-readable storage code. Id. at 4-5. As for
the '395 and '091 patents, EMC contends that Zerto
still infringes because the court found infringement of those
patents at trial and Zerto has not ceased selling the
infringing products post-trial. (D.I. 322 at 6); (D.I. 333 at
court declines to consider whether Zerto's re-designs
avoid EMC's patents. The court will not award royalties
on the '460 patent for any sales that occurred after
December 2015. Questions regarding the redesigns are best
resolved in a separate hearing with limited, expedited
discovery. See (D.I. 315 at 9 n.6).
alleges that in order to directly infringe claim 45 of the
'867 patent, "both Zerto Virtual Replication and the
Zerto VSS Agent must be installed by Zerto Inc. (not a Zerto
customer) on a computer in the United States." (D.I. 322
at 9). Zerto asserts that it has not installed any copies of
Zerto Virtual Replication and the VSS Agent software on a
computer since the trial. Thus, Zerto claims, "a royalty
cannot be imposed on the sale of a product by Zerto where the
use of that product by the Zerto customer to whom it is sold
is not an act of infringement." Id. Zerto's
argument is similar to the one it made in its Renewed Motion
for Judgment as a Matter of Law: "Zerto disputes that it
ever had a copy of the VSS Agent Software, which is required
to satisfy [claim 45 of the '867 patent]...." (D.I.
299 at 24). The court found that there was evidence from
which a jury could conclude that Zerto maintains the server
from which the software is downloaded. Id. In its
order denying Zerto's motion-and finding that substantial
evidence supported the jury's finding that Zerto directly
infringes claim 45 of the '867 patent-the court explained
that: (1) EMC produced evidence that Zerto's customers
download the VSS Agent software from Zerto's website; (2)
the Zerto Virtual Manager Administration Guide instructs
users to access the "Zerto Support Portal downloads
page"; and (3) installation of ...