Trial is about to begin in ParkerVision's (NASDAQ:PRKR) patent infringement case against Qualcomm (NASDAQ:QCOM). As we previously reported here and here, both parties filed cross motions for partial summary judgment. Those motions were recently decided by the judge who will preside over the trial, the Honorable Judge Roy B. Dalton, Jr. of the United States District Court for the Middle District of Florida. None of these motions was dispositive -- for either party -- and therefore, this case is now ready for trial. Trial is scheduled to commence on October 7, 2013.
On September 19, 2013, Judge Dalton convened a pre-trial conference in ParkerVision's patent case against Qualcomm where he ruled on certain critical pre-trial issues that are likely to determine the shape of the pending trial. On September 28, 2013, Judge Dalton issued his pre-trial order, containing those rulings. In this article, we briefly report on who won and who lost which pre-trial issues.
Qualcomm succeeded in bifurcating the merits from damages at trial. This is a typical strategy pursued by deep-pocketed defendants facing a jury trial. Qualcomm's worry was that once the jury began hearing big damages numbers, including the magnitude of Qualcomm's revenue compared to that of ParkerVision, then the members of the jury would be prejudiced against Qualcomm. They would put aside any considerations of the merits behind ParkerVision's infringement allegations, and simply award ParkerVision, the patent holder, under the theory that Qualcomm can afford it.
Qualcomm appears to have circumvented this pitfall. The trial will proceed in two phases. The first phase will address the merits only, including infringement and invalidity. At the end of that phase, the jury will render a verdict. Only if that verdict finds liability -- i.e., ParkerVision's patents are not invalid, and Qualcomm is infringing -- then the trial will proceed to the second phase. During the second phase, the parties will present evidence of damages. All of this means that, during the first phase, when the jury is presumably deliberating the merits of the case only, the parties will be precluded from presenting evidence pertaining to damages. That is likely favorable to Qualcomm because it will inhibit ParkerVision's opportunity to play up a David-and-Goliath story through the presentation of big numbers during the liability phase.
On the other hand, if the trial makes it to the second phase, a new jury will not be impaneled. Rather, the same jury will deliberate the scope of damages. That is likely favorable to ParkerVision. Trials frequently come down to credibility. A jury that has already determined that ParkerVision is the good guy, and Qualcomm is doing something wrong, will likely be favorable to following ParkerVision through to the end by endorsing its damages theories.
Judge Dalton has ordered that, apart from openings and closings, the parties will each only have twenty (20) hours to present their case. And that twenty hours is inclusive of both phases. That means, regardless of whether the case proceeds to the second (damages) phase, trial counsel have to reserve time for the presentation of damages. Conservatively, that means that each side will have roughly ten to twelve (10-12) hours to present evidence relating to liability-both infringement and invalidity.
Is that a lot of time? No. Ten to twelve hours is not a lot of time at trial. It is two days maximum. During that time, each side will have to call witnesses, submit exhibits, tell a story. Who does this favor? It favors ParkerVision. Why? Because explaining an esoteric technology to a panel of jury members, many of whom may not be engineers, can take a lot of time. Persuading them to focus on the nuanced technical issue on which the case will turn can take even longer.
For instance, in this case, one of the asserted claims requires a transferring step, whereby energy is transferred from a carrier signal, and a generating step, whereby a lower frequency signal is generated from that transferred energy. Qualcomm has brought forth a number of prior art references that it contends teach these two steps. The parties are disputing whether or not these two steps -- the transferring step and the generating step -- must occur separately, or whether they can occur simultaneously. To succeed with their invalidity case, Qualcomm will have to lead the jury to this issue and persuade them to endorse Qualcomm's theory.
By contrast, ParkerVision will likely attempt to obfuscate the issue. ParkerVision's attorneys will hold up the patent and underscore that patents issued by the United States Patent and Trademark Office are presumed to be valid. They will also underline, italicize and bold the statements by Qualcomm's executives in the late 1990s remarking how presumably impressive Mr. Parker's inventions were and leave those exhibits up for the duration of the trial. And they may just leave it at that, hoping the jury will have heard enough to be persuaded that the patents are valid.
Within the time allotted, Qualcomm may face a more difficult task. Bottom line -- the time constraints imposed by Judge Dalton on presentation of the fairly technical and esoteric issues present in this case will likely favor ParkerVision -- and may be a very important contributor to the 90%+ patentee trial win rate that has been reported in this jurisdiction. Especially when coupled with the higher burden of proof Qualcomm bears on proving invalidity, the time constraints of the trial setting are in ParkerVision's favor.
ParkerVision's Motion for Rule 37 Sanctions
Qualcomm has admitted that it failed to hand over more than 2 million pages of documents produced by a former licensee of ParkerVision's patents, VIA Telecom. A failure of this magnitude, regardless of whether it was a reasonable mistake by Qualcomm's lawyers, is typically treated as a grave transgression by judges.
ParkerVision proposed that all of the documents Qualcomm failed to turn over, the Court should exclude from the trial. However, in addition to excluding the documents themselves, ParkerVision has argued that the license - specifically the VIA license - to which these documents purportedly relate should also be excluded. That would be tremendously damaging to Qualcomm's efforts to drive down the scope of ParkerVision's damages.
At trial, the parties will be given the opportunity to present evidence related to damages. The size of past damages will be calculated based upon a reasonable royalty. The reasonable royalty is presumably the rate at which Qualcomm would have paid ParkerVision for utilizing its patented technology had it chosen to take a license.
The reasonable royalty rate can be determined from different types of evidence, but the most compelling evidence is that which is instructive of the hypothetical negotiation. The hypothetical negotiation asks the following question: Had Qualcomm negotiated a license for ParkerVision's patents when it first commenced infringement, what rate they have agreed to? Determining the royalty rate that two parties would have agreed to several years earlier, without the benefit of what they know today, can be tricky. For this reason, the Federal Circuit -- the authoritative federal appellate court with respect to patent jurisprudence -- has held that licenses entered into by the patentee that are contemporaneous with the hypothetical negotiation can be admissible to show what the reasonable royalty rate would have been agreed to during the hypothetical negotiation. The logic is fairly straightforward -- if the patentee was willing to take a 3% royalty rate from a third-party around the same time, then it would likely have negotiated a similar rate with the accused infringer.
In this case, ParkerVision entered into a license with a company named VIA Telecom in 2007. (We do not have the benefit of all of the facts surrounding this license because much of those facts have been redacted as confidential information within the publicly-filed motion papers.) That license purportedly shows that ParkerVision licensed the asserted patents for a lower rate than it contends it is entitled to from Qualcomm. At trial, Qualcomm will undoubtedly make a big showing of the VIA license to show that, had it entered into a hypothetical negotiation with ParkerVision in 2006, the rate would have been comparable to that of ParkerVision's license with VIA.
Put simply, the VIA license can hurt the size of ParkerVision's damages -- even if ParkerVision successfully shows Qualcomm is infringing its patents. To circumvent this obstacle, ParkerVision moved to exclude the license from the trial. It made motions in limine as well as Daubert motions to accomplish this. (A motion in limine seeks to exclude evidence from trial, in this case the VIA license. A Daubert motion seeks to bar a party from soliciting certain forms of testimony from an expert, in this case the comparability of the VIA license to the hypothetical negotiation between Qualcomm and ParkerVision.) ParkerVision has identified many grounds for exclusion, including differences between the circumstances of the VIA license and the hypothetical negotiation.
Judge Dalton has not, at this stage, excluded the license at trial. He may revisit this issue at trial, but we anticipate that he will leave it to ParkerVision to cross-examine Qualcomm's experts and argue to the jury why the VIA license should be afforded minimal weight.
ParkerVision also attempted to exclude the VIA license as punishment for Qualcomm's failure to turn over 2.3 million documents that it subpoenaed from VIA itself. Over one-and-a-half years ago, during the discovery phase of this case, Qualcomm subpoenaed the company VIA itself. Shortly thereafter, VIA produced approximately 2.3 million pages of documents to Qualcomm's attorneys. At the time, Qualcomm notified ParkerVision that it had subpoenaed VIA. However, after receiving the documents from VIA, Qualcomm apparently failed to forward these documents to ParkerVision.
Judge Dalton has decided that documents from the VIA production that were not forwarded to ParkerVision are excluded from the trial. However, documents previously within ParkerVision's possession, which presumably includes the VIA license itself, will not be excluded.
This is a save by Qualcomm. The mistake by their lawyers may have cost them their best argument for pushing down damages numbers at trial. However, the license is still coming into evidence, and ParkerVision will have to devote some of its limited number of hours to showing that the VIA license is not comparable, and not a basis for calculating the reasonable royalty.
On the other hand, Qualcomm subpoenaed VIA itself to get documents that add flourish to its argument. Now, however, it cannot use those documents. Without those documents, it may have less of a foothold for arguing that the VIA license is in fact comparable.
The bottom line - The jury will get to hear all of the evidence the parties are capable of marshaling within the allotted time, specifically, 20 hours per side. Such time limits, the judge's negative predisposition to Qualcomm attorneys, Qualcomm's discovery failures, the Florida venue, and the jury trial statistics, all favor ParkerVision. Investors should watch the proceedings closely, including for any last second "courthouse steps" settlement -- always a possibility as the moment of truth approaches. If this case gets to a jury, the fate of ParkerVision could hang in the balance.
Disclosure: I am long PRKR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.