Tomita v. Nintendo: Remittitur or New Trial Ordered on $30M Damage Verdict Where Jury Likely Weighed Profitability of Games Rather Than the Profitability of the Accused Device

by Jeffer Mangels Butler & Mitchell LLP

Tomita Technologies USA, LLC ("Tomita") won a jury verdict of $30M against Nintendo in patent infringement action. The jury found that Nintendo's 3DS infringed the patent-in-suit (the '664 patent) and that the '664 patent was not invalid. Nintendo filed several post-trial motions, including a motion for a remittitur of the damages or a new trial.

The district court explained the background of the case as follows: "The '664 patent is a patent relating to stereoscopic (or 3D) imaging technology and includes four major elements: (1) 'a stereoscopic video image pick-up device' (i.e., two cameras), (2) a 'stereoscopic video image display,' (3) a 'cross-point measuring means for measuring [cross-point] information on the cross-point (CP) of optical axes,' and (4) an 'offset presetting means for offsetting and displaying said different video images.' U.S. Patent No. 7,417,664 col. 2, 1.44-65. Tomita claims that Nintendo uses the `664 patent's technology in the 3DS's two outer cameras. Thus, only the 3DS's camera application (which allows the user to take and view 3D photos and videos) and the augmented reality ("AR") game card application (which allows some games to be superimposed over real-world images captured by the 3DS's cameras) are at issue. The 3DS's other applications, including its 3D display, do not rely on the `664 patent."

Nintendo moved for remittitur on the ground that Tomita's damages expert used the "entire market value" of the 3DS as the royalty base for calculating the reasonable royalty owed to Tomita. According to Nintendo, this erroneously allowed the jury to include all revenue from the 3DS in its determination of damages. Nintendo based its criticism on the rule that, in calculating damages for multi-component products accused of infringement, royalties must "be based not on the entire product, but instead on the 'smallest salable patent-practicing unit.'" LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67 (Fed. Cir. 2012) (quoting Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279, 283, 287-88 (N.D.N.Y. 2009)).

As the district court explained in rejecting Nintendo's argument, "[w]hether the entire market value rule is implicated thus turns on the question of whether the 3DS constitutes the "smallest salable patent-practicing unit" in which the '664 patent's technology is utilized. As the Court found in denying Nintendo's motion in limine on this issue, Mr. Hoeberlein properly looked to the 3DS itself as the "smallest salable patent-practicing unit," and therefore did not rely on the entire market value rule. Nintendo neither purchases nor sells components of the 3DS that infringe the '664 patent; the individual components cannot practice the patent before they are assembled and programmed with Nintendo's software; and the 3DS is imported to the United States fully assembled."

Regardless, the district court did conclude that the jury's verdict was "intrinsically excessive" and was not supported by the evidence at trial. "An analysis of factors set forth in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), which the jury was instructed to employ in determining its damages award,cannot support the very large award the jury reached. Although the jury's award amounted to a royalty rate of just under three percent of the sale price of the 3DS, which is less than that paid to Tomita under the licensing agreement presented to the jury as a "comparable" agreement, there are special circumstances relating to the 3DS that strongly suggest that such a royalty rate is excessive in this context."

The district court explained that "the evidence at trial showed that the 3DS console is not itself profitable. See Tr. 903:16. Although Tomita's expert testified that Nintendo derives substantial profits from the sale of games designed solely for the 3DS and therefore those profits should be considered in determining the profitability of the 3DS gaming system as a whole, the evidence at trial also established that the vast majority of games designed for the 3DS do not require or even utilize the technology covered by the '664 patent. Tr. 484:17-485:15; 555:23-559:4. Thus, it seems that the jury, in coming to such a substantial damages award, likely weighed too heavily the somewhat unrelated profit that Nintendo earns on games for the 3DS."

The district court also found that "although the entire market value rule does not apply on the facts of this case, the concerns that motivate the doctrine nonetheless speak to whether the jury's damages award was appropriate. Thus, while there is no smaller patent-practicing unit than the 3DS as a whole, the '664 patent's technology was used only in two features - the 3D camera and the AR games application - and thus was in some sense ancillary to the core functionality of the 3DS as a gaming system. Tr. 905:19-906:12. In addition, the evidence presented at trial showed that consumer reception for the patent-related features was mixed. Tr. 550-552. Based on these factors and the fact that the 3DS is not itself profitable, the Court finds that it surpasses reasonable belief that Nintendo would, in a hypothetical negotiation, agree to a 'reasonable royalty' payment anywhere near as large as that awarded by the jury.

Accordingly, the district court found that the jury's damages award was at least twice as large as the amount a reasonable jury could have awarded based on the evidence presented at trial and thereby must have involved the degree of excessive speculation that "shocks the judicial conscience."

The district court therefore gave Tomita the choice between accepting either a remittitur of the damages award from $30.2 million to $15.1 million or undertaking a new trial on damages.

Tomita Technologies USA, LLC v. Nintendo Co., LTD., Case No. 11 Civ. 4256 (JSR) (S.D.N.Y. Aug. 14, 2013)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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