2009-1015 Broadcom v. Qualcomm
CD/CA 05-467
Judge James Selna
Qualcomm appeals from the Order of Judge James Selna finding it in contempt of Court for failing to make certain Sunset Royalty Payments to Broadcom under the terms of the Permanent Injunction. The royalties related to the Q-Chat technology and Broadcom's 6,389,010 patent.
In September, the Federal Circuit upheld the findings of infringement on the '010 and another Broadcom patent, but reversed the infringement verdict on the 5,657,317 patent and found it invalid. The oral argument was covered by us here.
The court required Broadcom to prove contempt by clear and convincing evidence. The court noted that a party should not be held in contempt if it took reasonable steps to comply or achieved substantial compliance.
However, the court found that Qualcomm was in contempt of the '010 Sunset Royalty--having paid nothing on the Q-Chat version 3.0 despite having received more than $93 million in payments from Sprint since the verdict. The court readily rejected Qualcomm's arguments:
Qualcomm’s principal defense is that Broadcom received full compensation under the verdict, and thus is not entitled to further compensation in view of the implied license conferred. King Instrument Corp., 814 F.2d at 1564. The Court disagrees. Broadcom could not have presented evidence of future revenues which did not then exist prior to commercialization. Some of the post-commercialization services were not contracted for until after the entry of the Injunction on December 31, 2007. (Ex. 75.) Tellingly, even as of the date of recent discovery which the Court allowed on this Motion, Qualcomm officials could still not predict the future revenue flow under the Sprint agreement. (Ex. 52, p. 52 [Vrechek].) The present situation is simply not akin to supplying spare parts for repair. King Instrument Corp., 814 F.2d at 1564.
and
Qualcomm argues that there has been no sale since the verdict, so that the royalty provision does not come into play. Given the Court’s revisions to the ‘010 royalty provision to include “revenues received from pre- and postcommercialization development fees and licenses,” this linguistic gamut fails. Moreover, the language in footnote 7 to the sunset provision would, under Qualcomm’s logic, render the sunset provision a complete nullity from the outset.
The court did find that Qualcomm was not in contempt with respect to Q-Chat versions 3.1 and 3.2, finding that Qualcomm was entitled to attempt design arounds and that Qualcomm did not have the burden to prove non-infringement of those versions.
For sanctions, however, the court awarded Broadcom its reasonable attorney's fees and expenses plus gross profits on the revenues from the infringing Q-Chat.
The Court has finds that the contempt for failure to pay the ‘010 sunset royalty is egregious. As Broadcom contended at oral argument, payment, even with interest, merely requires Qualcomm to do what is should have done in the first place. (Tr. 24.) The Court agrees that there was more than a “failure to pay”: so long a Qualcomm did not pay the royalty it was using technoloy it had no right to use. In formulating a remedy, the Court finds the district court’s approach in Brine, Inc. v. STX, L.L.C., 367 F.Supp. 2d 61, 71 (D. Mass. 2005), instructive. There the court was searching for the appropriate punishment for a second infringement violation of its injunction, and concluded that gross profit was an appropriate measure. The court considered awarding net profits from the infringing activities, but concluded that gross profits were a better measure for two reasons:
1. As is recognized in other areas of the law, there are evidentiary difficulties inherent in calculating net profit (i.e. profit after all expenses, depreciation and tax). Given such uncertainty, there is increased risk that the plaintiff will not be made whole. In a contempt proceeding, the need to ensure that the plaintiff is fully compensated and that the defendant is deterred, is acute.
2. While an award of gross profit may overcompensate [the plaintiff] Brine, it will do so in an amount which bears a direct relationship to the degree of infringement: the more X2+s that were sold, the greater the award. As such, a sanction in the amount of gross profit from the sales of the X2+ provides a natural means of imposing a penalty that is proportionate to the severity of the contempt.
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