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Patent Reform In Action: Judge Rader Provides Damage Apportionment Clinic In District Court Case

By Peter Zura

Cornell University v. Hewlett-Packard, 01-CV-1974 (N.D.N.Y., March 30, 2009)

Sitting by designation, Judge Rader considered HP's motion for JMOL seeking to reduce a royalty base to include only the earnings attributed to the infringing technology.

The jury found that HP infringed U.S. Patent No. 4,807,115 titled ?Instruction Issuing Mechanism For Processors With Multiple Functional Units", and awarded Cornell over $184M. The jury arrived at this award by applying a 0.8% royalty rate to a $23,005,506,034 royalty base, which included earnings from the sale of many components of HP?s products that were allegedly not covered at all by the claimed invention.

Without getting too technical, the patent claims are directed to technology that issues multiple and out-of-order computer processor instructions in a single machine clock cycle. This technique employs a dispatch stack and precedence count memory. By achieving multiple and out-of-order processing, the invention enhances the throughput of processors with multiple functional units.

As a practical matter, the patent covers a component of the instruction reorder buffer (IRB), which itself a part of a computer processor. In an HP server, these processors are a part of CPU modules that, when combined with a temperature controlling thermal solution, external cache memory, and a power converter, make up what HP calls ?CPU bricks.? A set of CPU bricks is then incorporated into a cell board, and that cell board is finally inserted into a server, where it functions as the server?s processing engine.

Cornell originally sought damages on the revenue from Hewlett-Packard?s entire server
and workstation systems. The court repeatedly warned Cornell that it would "scrutinize the damages proof . . . and expected Cornell to present well-documented economic evidence closely tied to the scope of the claimed invention." Nevertheless, Cornell went forward to argue that it deserved royalties on a base of the more than $23 billion in sales HP would have made if it had sold all of the alleged infringing processors as CPU bricks.

While Cornell convinced the jury, Judge Rader said "no dice" on the royalty base and granted the JMOL:

The actual math is not at issue, as both parties agree on $23 billion as the appropriate royalty base based on CPU brick sales. The important point is not the way that Cornell derived this royalty base, but that it exceeded again this court?s direction and proceeded to attempt to show economic entitlement to damages based on technology beyond the scope of the claimed invention. The entire market value rule indeed permits damages on technology beyond the scope of the claimed invention, but only upon proof that damages on the unpatented components or technology is necessary to fully compensate for infringement of the patented invention. Thus, this court faults Cornell for using the CPU brick as the royalty base without credible and economic proof that damages on the unpatented portions of this technology was necessary to compensate for the infringement. Moreover, this court finds fault in the origins of this royalty base figure. The $23 billion amount does not come from adding up invoice amounts, nor from actual CPU brick sales to Hewlett-Packard?s customers. Those customers by and large purchased complete server and workstation systems, not CPU bricks. Rather, the $23 billion base simply reveals the revenues Hewlett-Packard would have obtained if it had sold each of the infringing processors in conjunction with a CPU brick.

Notably, Cornell chose this hypothetical royalty base in favor of another alternative more clearly relevant to the value of the patented invention?the revenue Hewlett-Packard would have earned had it sold each infringing processor as just that, a processor, without any additional noninfringing components. Instead of linking its base amount to the processors (of which the infringing IRB is an important component), Cornell simply stepped one rung down the Hewlett- Packard revenue ladder from servers and workstations to the next most expensive processor incorporating product without offering any evidence to show a connection between consumer demand for that product and the patented invention. Accordingly, Hewlett-Packard now requests that this court enforce its ruling at trial that Cornell is ineligible to collect damages under the entire market value rule and reduce the royalty base to account only for the value of the processors incorporating the patented technology. Based on a thorough review of the record, this court grants Hewlett-Packard?s motion.

As a result, the damages were reduced from $184M to $53,494,282.

Read/download the opinion here (link)

Full post as published by Two-Seventy-One Patent Blog on April 02, 2009 (boomark / email).