United States District Court, E.D. Virginia
March 26, 2013
ePLUS INC., Plaintiff,
LAWSON SOFTWARE, INC., Defendant
For ePlus, Inc., Plaintiff: Craig Thomas Merritt, LEAD ATTORNEY, Belinda Duke Jones, Henry Irving Willett, III, Paul Wilbur Jacobs, II, Rowland Braxton Hill, IV, Samuel Perry Coburn, Christian & Barton LLP, Richmond, VA; David Michael Young, LEAD ATTORNEY, April Elise Weisbruch, Goodwin Procter LLP (DC), Washington, DC; Scott Lynn Robertson, LEAD ATTORNEY, PRO HAC VICE, Jennifer Ann Albert, LEAD ATTORNEY, Eleanor Martha Hynes, PRO HAC VICE, Goodwin Procter LLP (DC-NA), Washington, DC; Lana Svetlana Shiferman, LEAD ATTORNEY, PRO HAC VICE, Daniel Mark Forman, Michael Gavin Strapp, Srikanth Kadumpalli Reddy, PRO HAC VICE, Goodwin Procter LLP (MA-NA), Boston, MA.
For Lawson Software, Inc., Defendant: Daniel William McDonald, LEAD ATTORNEY, PRO HAC VICE, Eric Ronald Chad, PRO HAC VICE, Merchant & Gould PC, Minneapolils, MN; Christopher Dean Dusseault, Jason Charn-Jieh Lo, Timothy Patrick Best, PRO HAC VICE, Gibson Dunn & Crutcher LLP (CA-NA), Los Angeles, CA; Dabney Jefferson Carr, IV, Troutman Sanders LLP (Richmond), Richmond, VA; Daniel James Thomasch, Josh Krevitt, Richard William Mark, PRO HAC VICE, Gibson Dunn & Crutcher LLP (NY-NA), New York, NY; Donald Robert Dunner, PRO HAC VICE, Finnegan Henderson Farabow Garrett & Dunner LLP, Washington, DC; Erika Harmon Arner, PRO HAC VICE, Finnegan Henderson Farabow Garrett & Dunner LLP (VA-NA), Reston, VA; Megan Conway Rahman, Robert Armistead Angle, Timothy James St. George, Troutman Sanders LLP, Troutman Sanders Bldg, Richmond, VA; Sarah Elizabeth Simmons, PRO HAC VICE, Gibson Dunn & Crutcher, Dallas, TX; Stephen Dennis Otero, Capital One Services LLC, Richmond, VA.
For ePlus, Inc., Counter Defendant: Craig Thomas Merritt, LEAD ATTORNEY, Henry Irving Willett, III, Samuel Perry Coburn, Christian & Barton LLP, Richmond, VA; David Michael Young, LEAD ATTORNEY, Goodwin Procter LLP (DC), Washington, DC; Scott Lynn Robertson, LEAD ATTORNEY, PRO HAC VICE, Eleanor Martha Hynes, PRO HAC VICE, Goodwin Procter LLP (DC-NA), Washington, DC; Michael Gavin Strapp, Srikanth Kadumpalli Reddy, PRO HAC VICE, Goodwin Procter LLP (MA-NA), Boston, MA.
For Lawson Software, Inc., Counter Claimant: Christopher Dean Dusseault, Jason Charn-Jieh Lo, Timothy Patrick Best, PRO HAC VICE, Gibson Dunn & Crutcher LLP (CA-NA), Los Angeles, CA; Dabney Jefferson Carr, IV, Troutman Sanders LLP (Richmond), Richmond, VA; Daniel William McDonald, Eric Ronald Chad, PRO HAC VICE, Merchant & Gould PC, Minneapolils, MN; Daniel James Thomasch, Josh Krevitt, Richard William Mark, PRO HAC VICE, Gibson Dunn & Crutcher LLP (NY-NA), New York, NY; Donald Robert Dunner, PRO HAC VICE, Finnegan Henderson Farabow Garrett & Dunner LLP, Washington, DC; Erika Harmon Arner, PRO HAC VICE, Finnegan Henderson Farabow Garrett & Dunner LLP (VA-NA), Reston, VA; Megan Conway Rahman, Robert Armistead Angle, Troutman Sanders LLP, Troutman Sanders Bldg, Richmond, VA; Sarah Elizabeth Simmons, PRO HAC VICE, Gibson Dunn & Crutcher, Dallas, TX; Stephen Dennis Otero, Capital One Services LLC, Richmond, VA.
For ePlus, Inc., Counter Defendant: Craig Thomas Merritt, Henry Irving Willett, III, LEAD ATTORNEYS, Samuel Perry Coburn, Christian & Barton LLP, Richmond, VA; David Michael Young, LEAD ATTORNEY, Goodwin Procter LLP (DC), Washington, DC; Scott Lynn Robertson, LEAD ATTORNEY, PRO HAC VICE, Eleanor Martha Hynes, PRO HAC VICE, Goodwin Procter LLP (DC-NA), Washington, DC; Michael Gavin Strapp, Srikanth Kadumpalli Reddy, PRO HAC VICE, Goodwin Procter LLP (MA-NA), Boston, MA.
For Lawson Software, Inc., Counter Claimant: Daniel William McDonald, LEAD ATTORNEY, Eric Ronald Chad, PRO HAC VICE, Daniel William McDonald, Merchant & Gould PC, Minneapolils, MN; Christopher Dean Dusseault, Jason Charn-Jieh Lo, Timothy Patrick Best, PRO HAC VICE, Gibson Dunn & Crutcher LLP (CA-NA), Los Angeles, CA; Dabney Jefferson Carr, IV, Troutman Sanders LLP (Richmond), Richmond, VA; Daniel James Thomasch, Josh Krevitt, Richard William Mark, PRO HAC VICE, Gibson Dunn & Crutcher LLP (NY-NA), New York, NY; Donald Robert Dunner, PRO HAC VICE, Finnegan Henderson Farabow Garrett & Dunner LLP, Washington, DC; Erika Harmon Arner, PRO HAC VICE, Finnegan Henderson Farabow Garrett & Dunner LLP (VA-NA), Reston, VA; Megan Conway Rahman, Robert Armistead Angle, Troutman Sanders LLP, Troutman Sanders Bldg, Richmond, VA; Sarah Elizabeth Simmons, PRO HAC VICE, Gibson Dunn & Crutcher, Dallas, TX; Stephen Dennis Otero, Capital One Services LLC, Richmond, VA.
For ePlus, Inc., Counter Defendant: David Michael Young, LEAD ATTORNEY, Goodwin Procter LLP (DC), Washington, DC; Henry Irving Willett, III, LEAD ATTORNEY, Henry Irving Willett, III, Samuel Perry Coburn, Christian & Barton LLP, Richmond, VA; Jennifer Ann Albert, Scott Lynn Robertson, LEAD ATTORNEYS, Eleanor Martha Hynes, PRO HAC VICE, Goodwin Procter LLP (DC-NA), Washington, DC; Lana Svetlana Shiferman, LEAD ATTORNEY, Michael Gavin Strapp, Srikanth Kadumpalli Reddy, PRO HAC VICE, Goodwin Procter LLP (MA-NA), Boston, MA.
Robert E. Payne, Senior United States District Judge.
This matter is before the Court on Lawson Software, Inc.'s (" Lawson" ) MOTION
TO STRIKE EXPERT OPINIONS OF DR. KEITH UGONE (Docket No. 892). For the reasons below, the motion will be denied as to testimony about disgorgement of profits and denied as moot as to testimony about cost savings.
On January 27, 2011, following a two-week trial, a jury returned a verdict of infringement in favor of ePlus Inc. (" ePlus" ) and against Lawson finding that several claims of three of the patents-in-suit had been infringed. On May 23, 2011, the Court issued a permanent injunction as part of the remedy for the infringement, enjoining Lawson and " any person in active concert or participation with them . . . from directly or indirectly making, using, offering to sell, or selling within the United States or importing into the United States" certain product configurations and services. Injunction Order (Docket No. 729). On September 9, 2011, ePlus filed a Motion to Show Cause, alleging that Lawson was in contempt of the Injunction Order. (Docket No. 798). The focus of ePlus' contempt motion concerned an application of one of the infringing system configurations, Requisition Self-Service (" RSS" ). Lawson redesigned this application and created Requisition Center (" RQC" ). ePlus alleges that the new RQC product is not colorably different from RSS.
On February 16, 2012, ePlus filed its MOTION TO STRIKE TESTIMONY OF LAWSON ECONOMIC EXPERT JONATHAN D. PUTNAM CONCERNING AWARD OF ROYALTY AND UNOPPOSED REQUEST FOR EXPEDITED BRIEFING (Docket No. 902), contending that Dr. Putnam's testimony concerning reasonable royalty rates should be stricken because his calculations were based on Dr. Mangum's calculations. Lawson filed an opposition, and ePlus filed a reply.
In the meantime, ePlus's expert Dr. Keith Ugone filed a report suggesting that disgorgement would be the appropriate measure of damages should the Court find Lawson in contempt. Ugone Rpt. (Docket No. 869). Dr. Ugone argued that ePlus should either be awarded the profits that Lawson made because of its use of RQC or the costs that Lawson saved by not complying with the Court's Injunction Order. Id. On February 15, 2012, Lawson filed its MOTION TO STRIKE EXPERT OPINIONS OF DR. KEITH UGONE (Docket No. 892) and supporting memorandum, objecting to Dr. Ugone's testimony on the ground that disgorgement is a punitive remedy, and arguing that such remedies are inappropriate in civil contempt proceedings. The opposition and reply to Lawson's motion were filed shortly thereafter.
On February 29, 2012, the Court heard argument on both Lawson's and ePlus's motions. The Court granted ePlus's motion, striking Dr. Putnam's testimony on reasonable royalty rates, on March 3, 2012 (Docket No. 944).
The foregoing facts form the basic context for the assessment of Lawson's motion to strike. The parties' arguments will be addressed in turn. Other facts will be found in the discussion of the analytical component to which they relate.
Under Federal Rule of Evidence 702, an expert may testify if: " (1) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (2) the testimony is based on sufficient facts or data; (3) the testimony is the product of reliable principles and methods; and (4) the expert has reliably applied the principles and methods to the facts of the case." The expert must file a report in which he provides a " complete statement of all opinions the witness will express and the basis and reasons for them." Fed.R.Civ.P. 26(a)(2)(B)(i). These conditions represent the codification of the concepts announced in
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Daubert established that the trial judge must ensure that expert evidence is reliable and relevant. Relevant expert testimony is testimony that will " assist the trier of fact to understand the evidence or to determine a fact in issue."
The Court has " wide discretion" in determining whether expert testimony would " assist the trier of fact."
Sun Yung v. Zom Clarendon, L.P., No. 10-1344, 453 Fed.Appx. 270, at *21-22 (4th Cir. May 6, 2011) (quoting
Mercado v. Austin Police Dep't, 754 F.2d 1266, 1269 (5th Cir. 1985));
see also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1992) (noting that courts of appeals apply an " abuse-of-discretion standard" when reviewing a district court judge's decision to admit or exclude expert testimony). This is particularly true when " the court sits as the trier of fact, for [it] is then in the best position to know whether expert testimony would help [it]." Id. (quoting Mercado, 754 F.2d at 1269).
A. Disgorgement Remedy
1. The Parties' Contentions
Lawson contends that Dr. Ugone's report should be stricken in its entirety because Dr. Ugone relies on the mistaken premise that disgorgement is an available compensatory remedy in a civil contempt proceeding when that contempt proceeding is being held due to the violation of an injunction prohibiting continued infringement of a patent. According to Lawson, the 1946 amendments to the Patent Act eliminating disgorgement as a remedy for infringement also eliminated the remedy of disgorgement in related civil contempt proceedings. And, regardless of whether the 1946 amendments eliminated the disgorgement remedy, Lawson contends that the Supreme Court's decision in United States v. United Mine Workers of Am., 330 U.S. 258, 303-04, 67 S.Ct. 677, 91 L.Ed. 884 (1947) eliminated disgorgement remedies in civil contempt cases in which the plaintiff fails to show " actual loss." Lawson argues that the Fourth Circuit interpreted United Mine Workers as eliminating the remedy in its decisions in
Carbon Fuel Co. v. United Mine Workers, 517 F.2d 1348 (4th Cir. 1975) and
Windsor Power House Coal Co. v. District 6, United Mine Workers of Am., 530 F.2d 312 (4th Cir. 1976).
ePlus contends that disgorgement of profits is an available remedy in civil contempt proceedings; that the 1946 amendments to the Patent Act did not eliminate this remedy; and that it need not show its actual amount of loss or damages in order
to recover a disgorgement remedy. ePlus points to language in
Leman v. Krentler-Arnold Hinge Last Co., 284 U.S. 448, 52 S.Ct. 238, 76 L.Ed. 389, 1932 Dec. Comm'r Pat. 564 (1932), arguing that neither United Mine Workers nor the 1946 amendments to the Patent Act disturbed the holding in that case. ePlus points out that only one decision after the 1946 amendments has held that the amendments eliminated disgorgement of profits as a remedy in civil contempt proceedings.
2. Civil Contempt Remedies
In civil contempt proceedings, the chosen remedy must serve either or both of two purposes: " to coerce the contemnor into complying in the future with the court's order, or to compensate the complainant for losses resulting from the contemnor's past noncompliance."
See The Colonial Williamsburg Found. v. The Kittinger Co., 792 F.Supp. 1397, 1407 (E.D. Va. 1992), aff'd 38 F.3d 133 (4th Cir. 1994) (citations omitted). Courts have broad discretion in choosing a remedy " based on the nature of the harm and the probable effect of alternative sanctions." Id. (quoting
Connolly v. J.T. Ventures, 851 F.2d 930 (7th Cir. 1988) (citing United Mine Workers, 330 U.S. 258, 303-04, 67 S.Ct. 677, 91 L.Ed. 884 (1947))). Here, the dispute between the parties is centered on whether the disgorgement remedy can be considered " compensatory." Neither party argues that it is intended to be coercive.
The Supreme Court addressed the issue of whether disgorgement of profits could be considered " compensatory" for the purposes of a civil contempt proceeding in
Leman v. Krentler-Arnold Hinge Last Co., 284 U.S. 448, 52 S.Ct. 238, 76 L.Ed. 389, 1932 Dec. Comm'r Pat. 564 (1932). In that case, as in this one, the respondent was accused of violating a permanent injunction that had been granted after a finding of patent infringement. The Court of Appeals rejected a disgorgement of profits remedy, holding that compensatory civil contempt remedies had to be based on " pecuniary injury or damage." Id. at 455. The Supreme Court reversed:
While the distinction is clear between damages, in the sense of actual pecuniary loss, and profits, the latter may none the less be included in the concept of compensatory relief. In a suit in equity against an infringer, profits are recoverable not by way of punishment but to insure full compensation to the party injured . . . Profits are  allowed 'as an equitable measure of compensation' . . . it is apparent that there is no necessary exclusion of profits from the idea of compensation in a remedial proceeding.
Id. at 456.
Fifteen years after Leman was decided, the Supreme Court decided
United States v. United Mine Workers of Am., 330 U.S. 258, 67 S.Ct. 677, 91 L.Ed. 884 (1947). At issue in that case was the issuance of several injunctions and a finding of both civil and criminal contempt. The defendants' principal contention was that several laws prohibited the injunctions issued against them. Id. at 268-69. They also argued that the lower court improperly had held them in both criminal and civil contempt, an argument that the Supreme Court found unpersuasive. Id. at 299-302.
And, they argued that the fines assessed against them for criminal and civil contempt were excessive. Id. at 302-03. The Supreme Court noted that
the civil contempt fine was coercive and was not intended to be compensatory. Id. at 304-05. Because the fine was coercive and the lower court had not given the defendants an option to purge themselves of the fine by complying with the injunctions, it was held to be excessive. Id. In its discussion of civil contempt, the Court noted in passing, " [w]here compensation is intended, a fine is imposed . . . [i]t must of course be based on evidence of complainant's actual loss . . ." Id. at 304 (citing
Leman v. Krentler-Arnold Co., 284 U.S. 448, 455, 456, 52 S.Ct. 238, 76 L.Ed. 389, 1932 Dec. Comm'r Pat. 564 (1932);
Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 443, 444, 31 S.Ct. 492, 55 L.Ed. 797 (1911);
Parker v. United States, 126 F.2d 370, 380 (1st Cir. 1982); Judelshon v. Black, 64 F.2d 116 (2d Cir. 1933);
Norstrom v. Wahl, 41 F.2d 910, 914 (7th Cir. 1930)).
United Mine Workers did not overrule Leman. The focus of the decision in United Mine Workers was primarily the validity of injunction orders, not civil contempt remedies. And, to the extent that, in United Mine Workers, the Supreme Court analyzed civil contempt remedies, it did so only in the context of the proper scope and wording of coercive civil contempt remedies. No compensatory remedy was at issue in United Mine Workers. Nor was disgorgement of profits at issue. Finally, the Court explicitly cited Leman to support the one proposition in the decision that could be read to conflict with Leman, the proposition that a compensatory fine be based on the complainant's " actual loss."
See also Connolly v. J.T. Ventures, 851 F.2d 930, 934 (7th Cir. 1988) (holding that Leman remained good law and that United Mine Workers did not overrule it) (citing
National Drying Machinery Co. v. Ackoff, 245 F.2d 192, 194, 195-96 (3d Cir. 1957) ( en banc ) (Biggs, C.J., dissenting from denial of petition for rehearing en banc ), cert denied 355 U.S. 832, 78 S.Ct. 47, 2 L.Ed.2d 44 (1957)). Disgorgement of profits remains a viable remedy in civil contempt proceedings, even when a plaintiff cannot demonstrate " actual pecuniary" loss.
See, e.g, Buffalo Wings Factory, Inc. v. Mohd, 574 F.Supp.2d 574, 582 n.3 (E.D. Va. 2008);
Manhattan Indus., Inc. v. Sweater Bee by Banff, Ltd. 885 F.2d 1, 5 (2d Cir. 1989);
Marshak v. Treadwell, 595 F.3d 478, 495 (3d Cir. 2009); Connolly v. J.T. Ventures,
851 F.2d at 932; Jerry's Famous Deli, Inc. v. Papanicolaou, 383 F.3d 998, 1004 (9th Cir. 2004);
Howard Johnson Co., Inc. v. Khimani, 892 F.2d 1512, 1521 (11th Cir. 1990);
see also Abbott Labs. v. Unlimited Beverages, Inc., 218 F.3d 1238, 1242 (11th Cir. 2000) (noting that, where a plaintiff's harm " is difficult to calculate," disgorgement of profits is an available civil contempt remedy).
Having resolved that disgorgement of profits remains an available compensatory remedy in civil contempt cases, it is next necessary to address whether the amendments to the Patent Act in 1946 eliminated the availability of the disgorgement remedy in cases where a defendant is held in civil contempt for violating an injunction related to patent infringement. The 1946 amendments to the Patent Act eliminated disgorgement of an infringer's profits as " an independent measure of the patentee's recovery."
See Georgia-Pacific Corp. v. United States Plywood Corp., 243 F.Supp. 500, 520-21 (S.D.N.Y. 1965). According to Lawson, these amendments also eliminated disgorgement as a remedy in related civil contempt proceedings.
Lawson, however, has cited no authority supporting that proposition. The best that can be said is that one commentator explained that disgorgement of profits in a civil contempt proceeding " would seem appropriate whenever the same general sort of act would permit an unjust enrichment claim in law or equity." See Dan B. Dobbs, Handbook on the Law of Remedies § 2.9 at 100 n. 31 (1973). Note that the commentator did not argue that disgorgement is only available in situations where the underlying act permits a disgorgement remedy. And, the same commentator noted more recently:
Quite apart from contempt sanctions, a defendant who gains benefits as a result of wrong done to the plaintiff may be made to disgorge those benefits under the law of restitution and on the ground that such disgorgement is required to prevent the defendant's unjust enrichment. Could a court award restitution of the defendant's unjust gains as a remedial sanction for contempt? Although a few courts have been negative, a number have permitted a civil contempt sanction in this form.
1 Dan B. Dobbs, Law of Remedies § 2.8(2), at 195 (2d ed. 1993).
Lawson seeks to draw comfort from Georgia-Pacific Corp. v. United States Plywood Corp., 243 F.Supp. 500 (S.D.N.Y. 1965), but that case does not lend support for its contentions. In fact, the Georgia-Pacific court distinguished civil contempt
proceedings for violations of injunctions relating to patent infringement from patent infringement proceedings themselves:
While Leman may continue to control cases involving the violation of an injunction against patent infringement . . . the court believes that Congress intended to proscribe its 'mode of approach,' at least in patent infringement proceedings, such as these, which do not involve a civil contempt . . . A number of sharply differentiating factors distinguish Leman from the present case. As a civil contempt proceeding Leman was not governed by the statutory provisions of the patent laws. Secondly, the primary interest to be vindicated in Leman was the public policy of effectuating compliance with the court's injunction and not simply compensation for a private wrong. Thirdly, an auxiliary sanction for the enforcement of the injunction was to deprive the wrongdoer of the profits he made as the direct result of his defiance of the court's order. Since remedial damages are an adjunct of civil contempt proceedings, the court quite understandably ordered the contemnor's profits to be turned over to the aggrieved party by treating such profits 'as if' they were the latter's damages.
243 F.Supp. at 540-41 (emphasis added).
The one case distinguishing the Leman holding, National Drying Machinery Co. v. Ackoff, did so in a trademark infringement action, not a patent infringement action. 245 F.2d 192, 194 (3d Cir. 1957) ( en banc ), cert denied 355 U.S. 832, 78 S.Ct. 47, 2 L.Ed.2d 44 (1957). The basis for the Third Circuit's finding that " the Leman case does not relieve the complainant of showing that the contemptuous conduct did, in fact, have substantial injurious effect upon his economic interest" had nothing to do with the underlying trademark statute or any other statute. Id. at 194-95. Instead, the decision was based on the fact that there was absolutely no evidence of harm or damage. The case came " down to the question whether the trademark owner will be protected in a field he has not actually entered." Id. at 195.
And, just a year after National Drying was decided, Judge Learned Hand of the Second Circuit reiterated the Leman holding, that disgorgement of profits could be awarded in a civil contempt proceeding even when the plaintiff had not proven damages, explaining that he " f[ound] it impossible to reconcile [the National Drying holding] with the language used in Leman."
Sunbeam Corp. v. Golden Rule Appliance Co., 252 F.2d 467 (2d Cir. 1958) (Hand, C.J., concurring). The 1946 amendments to the Patent Act did not supersede the decision in Leman.
Any other interpretation would contravene logic and common sense. The civil contempt cases awarding disgorgement of profits as a remedy do not do so because of the remedies in any underlying statutory act, though some of the cases do use the underlying act as further support for their holdings. The Leman holding was not
based on the fact that the defendant previously had been found guilty of patent infringement. And, courts did not so interpret it. Courts cite Leman to support disgorgement remedies in civil contempt proceedings involving issues of trademark, copyright, patent, and other law. The nature of the underlying action does not dictate the remedy for violation of court orders.
In this case, if the Court were to endorse Lawson's interpretation of both Leman and the import of the 1946 amendments, the Court would, in effect, be granting Lawson a compulsory license for the period of the alleged contempt. The cost of the license or Lawson's estimated reasonable royalty is so minimal in comparison to the profits gained by violating the Court's Injunction Order (the profits are approximately 80 times as much as the proposed reasonable royalty figure) that Lawson would have an economic incentive not to comply with the Court's order. Even doubling or tripling the reasonable royalty rate, as Lawson argues the Court would have discretion to do, Lawson's profits would still be 26 times as much as the remedy to be paid. Such a methodology would encourage continued wrongdoing and would undermine the integrity of the judicial process by equating court orders to little more than flies buzzing in the contemnor's ear, annoying but easily swatted away. The Court declines to take this course.
B. Dr. Ugone's Estimates
In his report, Dr. Ugone posited two different measures of Lawson's profits during the alleged period of contempt. First, he calculated the revenues and profits that Lawson earned on the accused products. Second, he calculated the costs that he believed Lawson had saved as the result of introducing RQC. The parties have agreed that Dr. Ugone will not testify regarding " cost saving" and, therefore, as to that aspect of Dr. Ugone's testimony, the motion is denied as moot. His calculations regarding the revenues and profits, however, remain contested.
Lawson is, for the most part, in agreement with Dr. Ugone's calculations of earned profits and revenues. However, Lawson contends that they amount to so high an award that it would be punitive to require Lawson to pay them. According to Lawson, Dr. Ugone's figures amount to a 65-100 percent royalty, which is far greater than the royalty ePlus sought in the underlying infringement proceeding. Lawson points out that the infringement period was five times longer and sales were 20 times as much in the earlier proceeding. And, Lawson argues that ePlus should have presented some alternative remedy to disgorgement.
ePlus contends that the fact that disgorgement of profits may result in an award that is greater than the plaintiff's actual loss is not a reason to reject a disgorgement remedy. According to ePlus, disgorgement can be wholly compensatory even when it results in a windfall to the plaintiff. And, ePlus points out that the Court previously noted the difficulty of calculating a reasonable royalty in the infringement proceeding, and that the Court rejected ePlus's expert's reasonable royalty
calculation in that earlier proceeding.
The reasonable royalty rate calculated by Lawson's expert, a rate that the expert testified was " almost certainly too high" Putnam Rpt. ¶ 154 (Docket No. 886), was " less than $265,000." Id. ¶ 160. The highest royalty estimate the expert gave was " $543,000," but that rate included Core S3 Procurement modules for customers. Id. Dr. Ugone testified that the disgorgement amount, if revenues were used, would be $13.1-17.8 million dollars and the amount, if gross profits were used, would be $8.4-11.4 million dollars. Ugone Reply Rpt., Exhibit 7 (Docket No. 889). Dr. Ugone premised his calculations on an approximate six-month period of continued infringement. Id. (using the May 23, 2011 - November 1, 2011 time period to calculate profits and revenues). At the February 29, 2012 hearing, Lawson explained that it had re-calculated the disgorgement amount using a one-year period. (Feb. 29, 2012 Tr. 140). Lawson's calculations were based on the assumption that an award in the contempt proceeding will not be entered until May 23, 2012. (Id.) Lawson's figure for revenue disgorgement was $33.9-46.1 million, and its figure for gross profits disgorgement was $21.9-29.7 million.
As an initial matter, it should be noted that " the burden of proof rests on the defendants 'to prove any deductions for its costs from the gross revenues attributable to contempt.'" The Colonial Williamsburg Found. v. The Kittinger Co.,
792 F.Supp. 1397, 1407 (E.D. Va. 1992), aff'd 38 F.3d 133 (4th Cir. 1994). The Court's inquiry then does not start and stop with Dr. Ugone's calculations.
In any event, as Lawson did in its arguments concerning the post-1946 amendments to the Patent Act, Lawson here again conflates remedies for the initial infringement with remedies for contempt of a court order. The two are distinct. In the first instance, the harm done is to the patent holder. In the second, the harm done is to the court and the beneficiaries of the court's order. Where awarding a reasonable royalty would simply encourage continued defiance of court orders and promote disrespect for the law, where a defendant's profits from wrongdoing are so much greater than any estimated royalty amount, and where it is difficult if not impossible to calculate the actual loss of the plaintiff attributable to the contempt, limiting the courts to such a remedy would thwart rather than aid the hand of justice.
That is why courts continue to award disgorgement of profits as a remedy for civil contempt, even where such profit amounts to far greater a remedy than a reasonable royalty. Such awards are not meant to punish the contemnor. Instead, they are meant to ensure that the injured party is fully compensated for the harm done. The contemnor is treated as a trustee, holding the profits of the beneficiary plaintiff until the finding of contempt. The plaintiff simply is returned the profits to which he or she was entitled all along.
For the reasons stated herein, Lawson's MOTION TO STRIKE EXPERT OPINIONS OF DR. KEITH UGONE (Docket No. 892) will be denied.
It is so ORDERED.