Opinion
Case No. 99-C-0626
August 1, 2003
H. Michael Hartmann, Brett A. Hesterberg, Steven P. Petersen, Chicago, IL
T. Andrew Culbert, Redmond, WA David T. Pritikin, Richard A. Cederoth, SDLEY AUSTIN BROWN WOOD, Chicago, IL
BENCH MEMORANDUM
Microsoft renews its request that plaintiffs be required to present to the jury their full damages claim, based on updated Microsoft financial information through May 31, 2003, or be barred from asserting any damages past September 2001. The Supreme Court's holding in Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962), and subsequent precedent establish that Microsoft's Seventh Amendment right to trial by jury will be violated if the sales information for the accused products from November 1998 through May 31, 2003 now in plaintiffs' possession is not presented to the jury for its consideration in determining and calculating damages. The reason Microsoft is renewing its request now, before plaintiffs' rebuttal case, is to give plaintiffs one last opportunity to comply with the applicable constitutional requirements.
SUPPORT
Microsoft has supplied plaintiffs with license and sales information for the accused products for the period November 1998 through May 31, 2003. On July 7, 2003, Microsoft filed a bench memorandum with the Court pointing out that notwithstanding an agreement between Microsoft and plaintiffs, formed in a recorded telephone conference on October 12, 2001, that Microsoft would produce updated license and revenue numbers for the accused products a month or so before trial for use in plaintiffs' damages case (Oct. 12, 2001 Telephone Transcript, attached hereto as Exhibit A), and notwithstanding that Microsoft had in good faith complied with that agreement, plaintiffs had made clear about one month before trial their intent to dishonor that agreement. Instead, plaintiffs announced their intent to present to the jury sales figures only though September 2001, and to "request an accounting following the trial for the remainder of infringing sales." (Plaintiffs' Trial Brief, April 28, 2003, at 39). On July 9, 2003, this Court ruled that it would permit plaintiffs to present the jury with sales information limited to the period November 1998 — September 30, 2001, and further held that the Court would, if necessary, perform a post-judgment "equitable accounting," under the circumstances present here, to account for the sales numbers not presented to the jury. (Transcript of proceedings before the Honorable James B. Zagel, July 9, 2003, at 162-63, attached hereto as Exhibit B). Subsequently, Microsoft has become aware of Supreme Court precedent followed in both the Northern District and the Seventh Circuit that bears directly on this issue and establishes that such an "equitable accounting" would deprive Microsoft of its Seventh Amendment rights.
In Dairy Queen, Inc. v. Wood (attached hereto as Exhibit C), the plaintiff alleged actions at law for breach of contract and trademark infringement and sought equitable remedies in the form of an injunction and an accounting to determine the total amount owing due to the infringement. The plaintiff claimed that, because an accounting is an equitable remedy, no Seventh Amendment right to trial by jury attached. In rejecting this argument, the Supreme Court held that:
The necessary prerequisite to the right to maintain a suit for an equitable accounting is . . . the absence of an adequate remedy at law. Consequently. in order to maintain such a suit on a cause of action cognizable at law, as this one is. the plaintiff must be able to show that the "accounts between the parties" are of such a "complicated nature" that only a court of equity can satisfactorily unravel them.Id. at 478 (emphasis added). Accordingly, in the context of the trademark infringement case there at issue, the Supreme Court held that removing the accounting of damages from the province of the jury would violate the defendant's Seventh Amendment right to trial by jury because "[a] jury, under proper instructions from the court, could readily calculate the recovery, if any, to be had here." Id. at 479.
Dairy Queen v. Wood establishes that the Seventh Amendment protects the right of a defendant accused of patent infringement — an action at law — to have damages heard and decided by the jury absent extraordinary circumstances, and that that right cannot be denied through use of an equitable accounting. See Id. at 478-79 (whether relief is requested as "damages" or an "equitable accounting," "the constitutional right to trial by jury cannot be made to depend upon the choice of words used"). This constitutional requirement has been specifically applied and followed in both the Seventh Circuit and the Northern District. See Zell v. Jacoby-Bender, Inc., 542 F.2d 34, 36 (7th Cir. 1976) ("legal remedies should not be characterized as inadequate merely because the measure of damages may necessitate a look into the plaintiffs business records"); Oil Express Nat'l, Inc. v. Latos, 966 F. Supp. 650, 652 (N.D. Ill. 1997) (same — reserving calculation of damages for the jury); see also Fed.R.Civ.P. 38(a) ("The right of a trial by jury as declared by the Seventh Amendment to the Constitution or as given by statute of the United States shall be preserved to the parties inviolate").
As applied to the instant action, these cases establish that plaintiffs' attempt to keep from the jury the full extent of the sales to which any reasonable royalty rate would be applied would violate Microsoft's Seventh Amendment rights. There is no question that plaintiffs' patent infringement suit is an action at law. Thus, as established in Dairy Queen v. Wood, Microsoft's Seventh Amendment right to a trial requires that the jury must calculate damages absent extraordinary circumstances. No such circumstances are present here. Indeed, plaintiffs have already agreed that the jury can make the necessary calculations through September 30, 2001, and thus no reasonable claim can be made that the jury is incapable of performing this calculation for the period September 20, 2001 through May 31, 2003 as well.
Plaintiffs have previously suggested that because they do not have the information necessary to determine the profitability of the sales from September 30, 2001 through May 31, 2003 — information which they never requested — it would be unfair for the jury to make this calculation because this information allegedly might affect their expert's recommended royalty rate. But this argument is a complete red herring. Plaintiffs are perfectly content to have the Court perform the accounting calculations post-judgment for the September 30, 2001 through May 31, 2003 period on the implicit assumption that the royalty rate determined for the period November 17, 1998 to September 30, 2001 is appropriate for the later period as well. They are simply unwilling to have the jury perform that function. Plaintiffs cannot have it both ways.
While it might be appropriate, if infringement is found, for the Court to conduct an accounting for the post — May 31, 2003 period, the Supreme Court's holding in Dairy Queen makes clear that this limited exception cannot be used to trump Microsoft's Seventh Amendment right to trial by jury, including a decision by the jury on damages up to that point. As stated in Syndia Corp. v. The Gillette Co., No. 01 C 2485, 2002 WL 2012473, at * 3 (N.D. Ill. Aug. 30, 2002), "the limited purpose of [an] accounting [is] to calculate the sales of the product utilizing the infringing process after the entry of judgment and before the entry of the permanent injunction" (emphasis added). The sales data which plaintiffs possess but are withholding from the jury's consideration represents over 23 out of 57 total months of available sales data. This is not the type of limited period for which a post-judgment accounting is appropriate.
Indeed, in Syndia Corp., the magistrate specifically distinguished Mikohn Gaming Corp. v. Acres Gaming, Inc., CV-S-97-1383-EJW (LRL), 2001 U.S. Dist. LEXIS 23416, at *65 (D. Nev. Aug. 1, 2001), one of the cases on which plaintiffs have relied, on this basis.
Indeed, withholding from the jury available sales data for nearly one half of the period for which damages are sought raises an additional Seventh Amendment issue. Among the factors under the Georgia Pacific decision that are to be considered in the jury's determination of a reasonable royalty rate for a royalty damages award is the "value" of the technology both to the patentee and the infringer. See Georgia Pacfic Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120-21 (S.D.N.Y. 1970). Indeed, the purpose of the entirety of the Georgia Pacific factors is to provide guidance for determining the value of the patented technology on which the parties hypothetically would have agreed. But the jury's determination in this regard is almost certain to be distorted by a belief that the outside value figure is $1.2 billion as opposed to a figure in excess of $2 billion. Additionally, if the jury determines that a reasonable total value would be $100 million, but then configures its recommended damages award as a running royalty at a royalty rate expected to produce that amount by September 30, 2001, the derivative value the jury will have awarded in fact will be far greater, completely unbeknownst to the jury and contrary to what they thought they were awarding. It could not be clearer that such an outcome would deprive Microsoft of its Seventh Amendment right to a jury determination of damages in this case.
Accordingly, Microsoft's Seventh Amendment right to trial by jury will be violated if all sales information now in plaintiffs' possession is not presented to the jury for its consideration in calculating damages, and plaintiffs should be barred from presenting as part of a post-judgment accounting any such evidence withheld from the jury. Respectfully submitted, Dated: August 1, 2003 By: One of the attorneys for Defendant, MICROSOFT CORPORATION