Case 1:20-cv-00393-LMB-TCB Document 1398 Filed 07/20/22 Page 1 of 18 PageID# 34821
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`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF VIRGINIA
`ALEXANDRIA DIVISION
`
`
`RAI STRATEGIC HOLDINGS, INC. and
`R.J. REYNOLDS VAPOR COMPANY
`
`
`Plaintiffs and
`Counterclaim Defendants,
`
`
`v.
`
`ALTRIA CLIENT SERVICES LLC; PHILIP
`MORRIS USA INC.; and PHILIP MORRIS
`PRODUCTS S.A.
`
`
`Defendants and
`Counterclaim Plaintiffs.
`
`Case No. 1:20-cv-00393-LO-TCB
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`
`
`
`
`
`
`
`
`PHILIP MORRIS’ BRIEF ON JURY INSTRUCTIONS AND THE VERDICT FORM
`PERTAINING TO THE PERMISSIBLE MEASURE OF DAMAGES
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`

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`Case 1:20-cv-00393-LMB-TCB Document 1398 Filed 07/20/22 Page 2 of 18 PageID# 34822
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`TABLE OF CONTENTS
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`Page
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`I.
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`II.
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`III.
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`IV.
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`INTRODUCTION ...............................................................................................................1
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`FACTUAL BACKGROUND ..............................................................................................2
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`A.
`
`B.
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`Reynolds Never Disclosed A Lump Sum Theory ....................................................2
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`Reynolds’ Revised Proposed Verdict Form Identified A “Lump Sum For
`Life Of Patent” For The First Time .........................................................................5
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`LEGAL STANDARD ..........................................................................................................6
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`ARGUMENT .......................................................................................................................6
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`A.
`
`B.
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`Reynolds’ Proposed Jury Instruction and Verdict Form Regarding Any
`Lump Sum Damages Should Be Struck ...................................................................7
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`There Is No Evidence Supporting A Lump Sum Royalty .....................................12
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`V.
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`CONCLUSION ..................................................................................................................15
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`i
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`I.
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`INTRODUCTION
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`The Court instructed the parties to submit any briefs related to the jury instructions and the
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`correct form of damages by 1:00 p.m. on June 11, 2022, and that there would be no response briefs.
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`Philip Morris respectfully submits this brief to the Court on Jury Instruction No. 47 and the Verdict
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`Form regarding the permissible measure of damages in this case.
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`Based on the revised proposed verdict form that Reynolds filed on June 8th, Philip Morris
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`expects Reynolds to ask the Court to permit it to argue—for the first time in this case—that the
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`jury should award lump sum damages “for the life of [the] patent.” Dkt. 1302 at 1, 3. This is the
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`definition of trial by ambush, and represents the latest in a line of improper efforts by Reynolds to
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`avoid the impacts of the rulings by Judge O’Grady and this Court striking its damages expert’s
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`third supplemental report on the Fontem-negotiation documents. It should not be permitted.
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`Reynolds never disclosed this theory before trial. In fact, until three days ago, Reynolds had
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`consistently advanced the opposite position: that damages should be based on a running royalty,
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`not a lump sum. And, the prayer for relief in Philip Morris’ claims expressly seeks two equitable
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`remedies (supplemental damages and/or an accounting, and a permanent injunction) that are
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`incompatible with a lifetime royalty and cannot be decided by a jury. Dkt. 199 at 83-84, Dkt. 483.
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`Reynold’s effort to seek any lump sum royalty (particularly a life-of-the-patent lump sum) is
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`untimely and should be struck. FED. R. CIV. P. 26, 37. Even if Reynolds had preserved this theory,
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`it is unsupported by any record evidence, incompatible with Plaintiff’s prayer for equitable
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`remedies, and therefore improper as a matter of law.
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`The Court should bar Reynolds from arguing that damages can be based on a paid-up, lump
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`sum royalty, and strike the proposed lump sum question in Reynolds’ revised proposed verdict
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`form (Dkt. 1302).
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`1
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`II.
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`FACTUAL BACKGROUND
`A.
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`Reynolds Never Disclosed A Lump Sum Theory
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`Throughout this case, Reynolds and its damages expert, Dr. Sullivan, unequivocally told
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`both Magistrate Judge Buchanan and Judge O’Grady that the appropriate form of damages for the
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`’265 and ’911 Patents is a running royalty. Reynolds and its expert never disclosed that a lump
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`sum royalty was appropriate for the ’265 or ’911 Patents, and never disclosed any such theory.
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`They said the opposite.
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`Fact Discovery. On August 11, 2020, Philip Morris served an interrogatory asking
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`Reynolds to “describe in detail all theories and bases under which [Reynolds] contend[s] damages
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`should be measured, and explain in detail how such damages are computed.” Ex. 1 (PMP’s 1st
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`Set of Interr., 8/11/20) at 7-8. On November 9, 2020, Reynolds responded that: it “expects that
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`the royalty would be in the form of a running royalty based on Reynolds’s sales.” Ex. 2
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`(Reynolds’ Supp. Resp. to Interr. 4, 11/9/20) at 4. Reynolds conceded that, should Philip Morris
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`prevail, it “may be entitled to an ongoing royalty after final judgment until the expiration of [the]
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`patents.” Id. at 5. Reynolds supplemented its response five times—and never identified a lump
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`sum theory. Ex. 3 (Reynolds’ 24th Supp. Resp. to PMP’s First Set of Interr. 4, 1/19/22), passim.
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`Separately, Reynolds repeatedly represented to the Court (in discovery motions) that a
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`running royalty was the appropriate form of damages. E.g., Dkt. 555 at 15. For example, Reynolds
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`told Magistrate Judge Buchannan that “both parties” agreed a running royalty was appropriate:
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`Dkt. 591 at 23; see also id. at 17.
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`Expert Discovery. Consistent with Reynolds position and representations to the Court in
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`fact discovery, Reynolds’ damages expert never opined that a lump sum royalty was appropriate
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`for the ’265 or ’911 Patents. He said the opposite. In his report, Dr. Sullivan opined that “a running
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`royalty is the economically appropriate royalty structure in this case.”
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`
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`Ex. 4 (Sullivan Rbt. Rpt.) ¶¶ 213-14; see also, e.g., id. ¶ 268 (“[A] running royalty is likely the
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`most appropriate royalty structure in this case.”); id. at ¶ 315 (same).
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`
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`Consequently, Dr. Sullivan calculated damages for the ’265 and ’911 Patents based only
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`on “a percentage running royalty” using the Fontem-Reynolds Agreement. Id. ¶¶ 273, 368 (’265
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`Patent), 280, 369 (’911 Patent). He supplemented his opinions seven times. He never changed his
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`opinion that “a running royalty is likely the most appropriate royalty structure.” Id. ¶ 268.
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`Instead, at his May 11, 2021 deposition, Dr. Sullivan testified unequivocally that he
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`believes a running royalty is the appropriate form of damages in this case:
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`Q.
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`A.
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`Now, you and Mr. Meyer agree that a running royalty is the economically
`appropriate royalty structure for each of the five asserted patents; correct?
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`I do recall that is Mr. Meyer’s opinion. And I agree that a running royalty
`structure is the most likely outcome. It is economically reasonable.
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`Q.
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`Now, as a hypothetical negotiation for each asserted patent, it’s your
`opinion that the patent owner and RJRV would agree to a license that
`includes a running royalty rate based on net sales; correct?
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`A.
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`I believe that is economically reasonable, yes.
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`Ex. 5 (Sullivan Dep.) at 28:13-29:5; see also id. at 29:6-12 (“The evidence here lends itself to a
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`percentage-based running royalty.”), 30:17-31:8 (explaining why a running royalty is appropriate).
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`The Daubert Stage. At the Daubert stage, Philip Morris moved to exclude Dr. Sullivan’s
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`opinions on the basis that he improperly converted the lump sum payment in the Fontem-Reynolds
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`Agreement to a running royalty (which he did because, as discussed above, everyone agreed the
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`appropriate form of damages was a running royalty). When opposing that motion, Reynolds made
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`the following representation to Judge O’Grady:
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`
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`Dkt. 960 at 3; see also id. at 7 (arguing that Dr. Sullivan’s analysis properly includes converting a
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`comparable agreement’s lump sum royalty to a running royalty.”).1 And, at the Daubert hearing,
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`Reynolds never disputed Philip Morris’ argument that “the agreed upon form of damages in this
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`case is a running royalty.” Dkt. 1188 (3/18/22 Hr’g Tr.) at 47:3-12; see also id. at 47:18-19 (“First,
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`everyone agrees that the appropriate form of damages is a running royalty.”), 49:12-19 (same).
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`Pre-trial Submissions. Reynolds never identified a lump sum royalty as the proper form
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`of damages for the ’265 or ’911 Patents in the pre-trial submissions. Reynolds said the opposite.
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`1 This was the same brief in which Reynolds made affirmative misrepresentations to Judge
`O’Grady about the supposed lack of evidence underlying Mr. Meyer’s reliance on the 5.25% rate,
`for which they were later sanctioned.
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`In response to a jury instruction proposed by PMI describing the differences between a lump sum
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`and running royalty,2 Reynolds objected “as irrelevant to the issues at trial and likely to confuse
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`the jury.” Ex. 6 (4/22/22 Reynolds’ Edits to Proposed Final Instructions) at 70.
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`B.
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`Reynolds’ Revised Proposed Verdict Form Identified A “Lump Sum For Life
`Of Patent” For The First Time
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`First, on June 8th, the first day of trial, Reynolds filed a revised proposed verdict form.
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`Reynolds added the language highlighted below, identifying for the time a lump sum measure of
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`damages (Dkt. 1302):
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`
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`Second, Reynolds “withdrew” its objection to proposed Jury Instruction 47, asserting that it now
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`“adopts” language proposed on Philip Morris’ proposed verdict form. Id. at 1-2. To be plain, that
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`is a misrepresentation based on a knowingly false premise. Philip Morris never proposed the
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`language at issue, or any other language suggesting that a lump sum for the life of the patents is
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`the proper measure of damages. As Philip Morris’ operative interrogatory response, expert reports,
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`2 Philip Morris proposed this instruction to show the differences between the historical agreements
`in the evidentiary record, i.e., a lump sum (e.g., in the Reynolds Agreement) and running royalty
`(e.g., in the Nu Mark Agreement). At the time, this distinction was relevant to whether the
`Reynolds or Nu Mark agreement was a more comparable license. That dispute was mooted after
`third-party Fontem produced the Fontem-Reynolds negotiation documents that Reynolds withheld
`from discovery for almost a year. As the trial presentation made plain, these documents
`conclusively establish that Reynolds’ $79M lump sum payment to Fontem was based on a 5.25%
`royalty rate. Philip Morris has therefore withdrawn the proposed instruction. See Dkt. 1314 at 1.
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`and trial presentation expressly state, the only appropriate form of damages is a running royalty
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`rate based on accused net sales. See, e.g., Ex. 7 (Meyer Op.) ¶ 23.
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`Third, Reynolds removed language from its proposed verdict form that damages are only
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`“for any past infringement.” Id. at 2. And Reynolds withdrew its own proposed jury instruction,
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`stating that the jury “may not award damages for any future losses [Philip Morris] may incur.” Id.
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`at 4. Then, Reynolds chose not to call its damages expert to testify at trial.3 Ex. 8 (6/9/22 Email).
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`III. LEGAL STANDARD
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`Rule 26(e)(1)(a) requires a party that “has responded to an interrogatory” to “supplement
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`or correct its disclosure or response … in a timely manner if the party learns that in some material
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`respect the disclosure or response is incomplete or incorrect.” FED. R. CIV. P. 26(e)(1)(a). “If a
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`party fails to provide information … as required by Rule 26(a) or (e),” the party is not allowed to
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`use that information” at trial “unless the failure was substantially justified or is harmless.” FED.
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`R. CIV. P. 37(c)(1). Substantial justification and harmless are determined using the Southern States
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`factors: “(1) The surprise to the party against whom the evidence would be offered; (2) The ability
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`of that party to cure the surprise; (3) The extent to which allowing the evidence would disrupt the
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`trial; (4)The importance of the evidence; and (5) The nondisclosing party’s explanation for its
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`failure to disclose the evidence.” Samsung Elecs. Co. v. NVIDIA Corp., 314 F.R.D. 190, 195-96
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`(E.D. Va. Feb. 29, 2016). Reynolds has “[t]he burden of establishing these factors.” Id.
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`IV. ARGUMENT
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`The Court should reject Reynolds’ request to instruct the jury, or indicate on the verdict
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`form, that a lump sum royalty, whether for the life of the patent or otherwise, is an available form
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`3 Reynolds did despite testimony presented at trial from its employees (e.g., Nicholas Gilley and
`Scott Peddycord) that they had spoken to him and provided detailed information.
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`of damages for Reynolds’ infringement of the ’911 and ’265 Patents.
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`A.
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`Reynolds’ Proposed Jury Instruction and Verdict Form Regarding Any
`Lump Sum Damages Should Be Struck
`1.
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`Reynolds Violated Rule 26(e)(1)(A)
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`Reynolds’ attempt to present a lump sum damages theory to the jury via instruction and
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`the verdict form violates Rule 26(e)(1)(A). Courts consistently preclude parties from presenting
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`damages theories that were not disclosed during discovery. In MLC Intell. Prop., LLC v. Micron
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`Tech., Inc., the Federal Circuit affirmed the exclusion of a damages theory not disclosed in a
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`damages interrogatory response. 10 F.4th 1358, 1373 (Fed. Cir. 2021). In MicroStrategy Inc. v.
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`Bus. Objects, S.A., the Federal Circuit held the trial court “acted within its discretion in excluding
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`MicroStrategy’s non-expert damages theories” because they were “not disclosed in response to
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`[the defendant’s] interrogatory.” 429 F.3d 1344, 1356 (Fed. Cir. 2005); Jaguar Land Rover Ltd.
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`v. Bentley Motors Ltd., No. 18-cv-320, 2020 WL 6817060, at *4 (E.D. Va. Nov. 3, 2020).
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`Here, Reynolds never disclosed—during fact discovery, expert discovery, or otherwise—
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`that a lump sum royalty is appropriate. Supra at 4-6. Instead, Reynolds consistently and uniformly
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`maintained that damages should “be in the form of a running royalty based on Reynolds’s sales.”
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`Ex. 2 (Reynolds’ Supp. Resp. to Interr. 4, 11/9/20) at 4. Reynolds also repeatedly represented to
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`the Court that there was no dispute that a running royalty, not a lump sum, was the appropriate
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`form of damages. Supra at 5. Even Reynolds’ own damages expert—who Reynolds chose not to
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`call to testify at trial—confirmed that a running royalty was appropriate. Ex. 4 (Sullivan Rbt. Rpt.)
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`¶¶ 213-14; Ex. 5 (Sullivan Dep.) at 28:13-29:5. And, as recently as April, Reynolds argued that a
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`lump sum was “irrelevant to the issues at trial and likely to confuse the jury.” Ex. 6 at n.53.
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`In light of Reynolds’ wholesale failure to disclose a lump sum royalty theory before trial,
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`much less during fact or expert discovery, Reynolds’ attempt to inject this new theory into the case
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`after trial has begun violates Rule 26(e)(1)(a). See, e.g., Rembrandt Soc. Media, LP v. Facebook,
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`Inc., No. 13-cv-158, 2014 WL 10190151, at *2 (E.D. Va. May 6, 2014) (excluding “per-user”
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`damages theory under Rule 26 because it was “not timely disclose[d]”).
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`2.
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`Reynolds’ Failure To Disclose Its New Lump Sum Theory Is Not
`Substantially Justified Or Harmless
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`Though there is no burden on either party to establish the correct jury instruction or verdict
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`form, to include either instructions or a verdict form with a new and undisclosed damages theory,
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`Reynolds would have the burden to demonstrate that the Rule 26 violation incorporated in that
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`instruction/verdict for was justified and harmless. Applying the Southern States factors, Reynolds’
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`violation was neither substantially justified nor harmless. FED. R. CIV. P. 37(c)(1).
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`Factor 1 (Surprise): Philip Morris was more than surprised—it was shocked—to learn
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`after trial began that Reynolds sought jury instructions and a verdict form seeking a lump sum for
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`the life of the patents. The first Southern States factor favors Philip Morris.
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`The prejudice to Philip Morris is particularly acute because Reynolds seeks to ask the jury
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`to award a lump sum royalty “for the life of [the] patent[s].” Dkt. 1302 at 1, 3. Philip Morris
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`prayer for relief includes two forms of equitable relief, (1) supplemental damages and/or an
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`accounting, and (2) injunctive relief claim. Dkt. 199 at 83-84, Dkt. 483. Reynolds admits that
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`Philip Morris’ prayer for a permanent injunction “may [] entitle[]” Philip Morris “to an ongoing
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`royalty after final judgment until the expiration of any patents.” Ex. 2 at 5; see also Fresenius
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`USA, Inc. v. Baxter Int’l, Inc., 582 F.3d 1288, 1303 (Fed. Cir. 2009) (“Although the jury had
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`awarded damages for Fresenius’s pre-verdict sales of machines and disposable products, Fresenius
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`cites no evidence indicating that the jury also considered post-verdict sales of disposable products
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`linked to machines sold pre-verdict. The district court was within its discretion to impose a royalty
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`on those sales of disposable products in order to fully compensate Baxter for the infringement.”);
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`Arctic Cat Inc. v. Bombardier Recreational Prod. Inc., 876 F.3d 1350, 1370 (Fed. Cir. 2017)
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`(“Ongoing royalties may be based on a post-judgment hypothetical negotiation.”).
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`Allowing the jury to award a lump sum for the life of the patent, as Reynolds now seeks to
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`do, would (1) strip Philip Morris of its claims for injunctive relief and a post-trial accounting, and
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`(2) divest this Court of its (exclusive) equitable jurisdiction on both those forms of relief. That
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`result would be improper and fundamentally unfair. It would also be legal error. Regardless, it is
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`inconsistent with Reynolds’ counsel’s statements in open court—made on the same day Reynolds
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`amended its proposed verdict form to include a lump sum—that injunctive relief will get taken up
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`post-verdict after post-trial discovery (if any) ends. Ex. 9 (6/8/22 Tr.) at 43:19-22 (“[W]e have a
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`stipulation, I believe, Your Honor, that nobody’s going to mention the possibility of an injunction
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`to the jury because, Your Honor’s correct, that is an issue solely for the Court.”), 47:21-48:3
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`(“Judge O’Grady entered a stay of injunction discovery during the litigation, so to the extent there’s
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`going to be briefing on the injunction after the jury verdict.”). It is hard to fathom how Reynolds’
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`counsel could make that statement to the Court in good faith if counsel knew he intended to seek
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`a lump sum royalty for the life of the patent. Reynolds’ less than candid statement and about face
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`confirms that this attempt—to inject a new damages theory into this case during trial—is improper
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`gamesmanship intended to prejudice Philip Morris. It should not be allowed.
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`Factor 2 (Ability to Cure): Philip Morris has no opportunity to cure the surprise, because
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`Reynolds’ disclosure came after trial started and the night before Philip Morris’ damages expert
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`testified. Because “[s]ignificant differences exist between a running royalty license and a lump-
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`sum license,” had Reynolds disclosed a lump sum theory, Philip Morris would necessarily have
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`taken additional discovery and presented different expert opinions. Lucent Techs., Inc. v. Gateway,
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`Inc., 580 F.3d 1301, 1325 (Fed. Cir. 2009). And, because Reynolds confirmed it will not call its
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`own damages expert, Philip Morris has no ability to cross-examine anyone at trial on Reynolds’
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`new theory (which, in any event, would not cure the surprise). Gomez v. Haystax Tech., Inc., 761
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`F. App’x 220, 231 (4th Cir. 2019) (finding party had no ability to cure where untimely disclosure
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`“was made during the last days of discovery”). This factor heavily favors Philip Morris.
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`Factor 3 (disruption of trial): The third Southern States factor favors Philip Morris. Trial
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`has started and this Court has held that allowing an untimely disclosure made for the first time
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`after trial “would essentially undercut the federal rules addressing pretrial discovery.” Brundle,
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`2017 WL 6403105, at *5. That has particular force in the context of an untimely disclosure of a
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`new and heretofore undisclosed damages theory revealed only in amended jury instructions and
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`verdict form presented on the first day of trial. Even now, Philip Morris has no idea what lump
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`sum may be sought, how it is purportedly being determined, what factors Reynolds would assert
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`supports any such lump sum (there is no evidence that could support it), or any other explanation
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`beyond the bare mention in the jury instructions and the verdict form.
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`Factor 4 (importance). The disclosure of a new damages theory is obviously of critical
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`import. As this Court has explained, evidence bearing “directly on whether damages should have
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`been awarded, makes it all the more important for [the defendant] to have disclosed them, thereby
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`allowing for full vetting through the adversarial process.” Brundle on behalf of Constellis Emp.
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`Stock Ownership Plan v. Wilmington Tr. N.A., No. 15-cv-1494-LMB, 2017 WL 6403105, at *5
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`(E.D. Va. May 16, 2017). Reynolds did not do that. Thus, “the importance of the evidence weighs
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`against a finding that [Reynolds’] violations were harmless.” Thomas v. FTS USA, LLC, No. 13-
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`cv-825, 2016 WL 3566657, at *7 (E.D. Va. June 24, 2016). This factor supports Philip Morris.
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`Factor 5 (substantial justification). Reynolds cannot justify, much less substantially, its
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`failure to disclose a lump sum damages theory earlier in this case. This factor “looks to the
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`objective circumstances surrounding the nondisclosure” and “the feasibility of full and timely
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`disclosure,” not the parties intent or good faith. Samsung, 314 F.R.D. at 199. If Reynolds wanted
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`to present a lump sum theory to the jury, it was required to disclose it in its interrogatory responses,
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`its expert reports, so that discovery could be conducted before the start of trial.
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`Reynolds’ attempt to inject an undisclosed lump sum damages theory into the instructions
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`and verdict form during trial is the same sort of conduct that Judge O’Grady and this Court found
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`“dubious.” Dkt. 1257 at 2.
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`Let me be clear. I want to know what Jones Day knew and when they knew it, and
`why they answered the question -- why they made the statement to me in court and
`why they made the statement to exclude Mr. Myer, if they, in fact, had evidence
`that a 5.25 royalty had been negotiated and used for negotiations in these Fontem
`settlements. And to say they never were ultimately used because a lump sum was
`arrived at or this was some renegade attempt at settlement that was determined was
`totally improper and we weren’t going to use it, that’s not the answer.
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`Dkt. 1257 at 26:9-46:9 (Judge O’Grady).
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`Wow. Wow. You’re a good advocate, but you’ve just admitted that Jones Day
`knew about this license agreement and didn’t accurately present its knowledge and
`also didn’t accurately respond to questions during the Daubert hearing, and that is
`really unfortunate.
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`Id. at 40:5-10 (Judge O’Grady).
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`It is notable that Reynolds’ pivot to a new lump sum theory only comes after its damages
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`case based on the Fontem-Reynolds Agreement revealed as contrary to the admissions of
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`Reynolds’ lawyers due to Reynolds’ failure to produce the critically important negotiation
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`documents—which show Reynolds itself used the 5.25% royalty rate advocated by Philip
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`Morris—in discovery. Unable to refute its own use of that rate, Reynolds elected to not call its
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`damages expert and now seeks to ambush Philip Morris (and the Court) with a new and (still)
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`undisclosed damages theory closing argument and after the close of the evidence. Reynolds should
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`not be allowed to benefit from the withdrawal of their damages expert and sole-disclosed theory,
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`necessitated by its litigation misconduct, to present a damages theory contrived by their lawyers,
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`divorced from the record evidence, and designed solely to confuse the jury (and perhaps cause a
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`mistrial). It should be struck. FED. R. CIV. P. 37(c)(1);
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`B.
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`There Is No Evidence Supporting A Lump Sum Royalty
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`Putting aside the instructions and verdict form, the Court should bar Reynolds from
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`presenting argument on a lump sum damages measure because it has no evidentiary support.
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` “[A] trier of fact must have some factual basis for a determination of a reasonable royalty.”
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`Finjan, Inc. v. Blue Coat Systems, Inc., 879 F.3d 1299, 1311-12 (Fed. Cir. 2018). In Lucent Tech.,
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`Inc. v. Gateway, Inc., the Federal Circuit vacated the jury’s lump sum damages award because “a
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`lump-sum damages award cannot stand solely on evidence which amounts to little more than a
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`recitation of royalty numbers.” 580 F.3d 1301, 1326-27 (Fed. Cir. 2009). Noting the absence of
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`evidence of expected usage throughout the life of the patents (i.e., the value of future
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`infringement), the Federal Circuit vacated the damages award because there was “no evidence
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`upon which a jury could reasonably conclude that Microsoft and Lucent would have estimated, at
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`the time of the negotiation, that the patented date-picker feature would have been so frequently
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`used or valued as to command a lump-sum payment that amounts to approximately 8% of the sale
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`price of Outlook.”4 Id.
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`4 Reynolds’ cited cases in its proposed revised verdict form support Philip Morris. Dkt. 1302 at
`2-3. In Whitserve, LLC v. Computer Packages, Inc., the Federal Circuit, when addressing “the
`proprietary of prospective relief,” rejected the defendant’s argument that a lump sum was awarded
`because, as here, the evidence at trial was “limited … to past infringement rather than projected
`future infringement.” 694 F.3d 10, 35 (Fed. Cir. 2012). In Telecordia Technologies, Inc. v. Cisco
`Systems, Inc., the Federal Circuit affirmed the trial court’s “finding that the jury’s verdict
`compensates [the patentee] only for past infringement,” rather than a fully-paid up license, even
`though, unlike here, the defendant’s damages expert actually testified that a lump sum royalty was
`appropriate. 612 F.3d 1365, 1377-78 (Fed. Cir. 2010). And Apple Inc. v. Motorola, Inc. does not
`mention even the word “lump sum,” as the Federal Circuit only addressed whether expert
`testimony was required to support a running royalty rate. 757 F.3d 1286, 1327 (Fed. Cir. 2014).
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`Similarly, in Trustees of Boston University v. Everlight Electronics Co., the patentee’s
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`damages expert “only testified in support of a running royalty, and did not explain how the jury
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`could convert his figures into lump-sum payments should the jury choose to adopt a lump-sum
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`format.” No. 12-cv-11935, 2016 WL 3962826, at *7 (D. Mass. July 22, 2016). Yet, as Reynolds
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`seeks to do here, the patentee’s “counsel pivoted from his expert’s testimony and argued for lump-
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`sum awards in closing argument.” Id. After the jury awarded “a lump-sum payment for the life
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`of the patent,” the court ordered a new trial on damages because, “as in Lucent,” the damages
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`award was “based on speculation and not supported by the evidence,” as “the jury had no basis on
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`which to compare a hypothetical running royalty agreement … to a lump-sum award … because
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`BU’s damages expert did not provide a framework for how the jury could have done so.” Id., at
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`*9-10; Limelight Networks, Inc. v. XO Commc’n, LLC, 2018 WL 1460703, *3-4 (E.D. Va. 2018)
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`(granting motion to strike damages theory where party “fail[ed] to present reliable evidence that
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`would help a jury select a proper royalty rate or a proper royalty base”).
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`Here, Reynolds’ attempt to inject a new lump sum theory without supporting record
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`evidence invites legal error and a new trial on at least damages. The evidence adduced at trial
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`uniformly shows that that only appropriate measure of damages is a running royalty. Philip
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`Morris’s damages expert, Mr. Meyer, testified that the appropriate form of damages for past
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`infringement (through December 31, 2021) is a running royalty based on a 5.25% starting point
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`from Reynolds’ own negotiation documents, the Fontem-Nu Mark Agreement, and prior Fontem
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`licenses—all of which include undisputedly technically comparable patents. Ex. 10 (Trial Tr.
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`6/9/22 p.m.) at 29:20-30:24; PX-133. His testimony is unrebutted. See Ex. 8.
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`There is no evidence that Philip Morris would have agreed to grant a fully paid-up license
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`for the life of patents.5 Zero. All evidence shows the opposite. Philip Morris does not license its
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`patents and, as Reynolds told the jury, the parties are “fierce competitors.” Ex. 9 (Trial Tr. 6/8/22
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`a.m.) at 135:18-19. As in Lucent and Everlight, there is no evidence, much less any expert analysis,
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`establishing the relevant forecasted sales, or the appropriate royalty rate to cover such future sales,
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`through the life of the ’265 and ’911 Patents—all of which is necessary for the jury to derive a
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`paid-up lump sum. Ex. 10 (Trial Tr. 6/9/22 p.m.) at 14:4-12. And, as discussed above, allowing
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`this new theory would improperly divest this Court of jurisdiction over Philip Morris’ injunctive
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`relief claim. See supra at 11.
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`* * *
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`Reynolds’ request to include an undisclosed lump sum damages theory in the jury
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`instructions and on the verdict form is a transparent attempt to avoid the impact of the Fontem
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`negotiation documents that it withheld and falsely stated to the Court were “irrelevant.”6 Dkt. 555
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`at 1. By Reynolds’ own admission, 5.25% of net sales is a “reasonable” starting-point running
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`royalty for a license to technology that is undisputedly comparable to the ’265 and ’911 Patents.
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`PX-667 § 5.1. Reynolds should not be permitted to avoid the impact of the admission that arose
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`from the Court’s evidentiary sanctions by contriving a new and unsupported lump sum damages
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`5 At trial, Reynolds’ counsel sought to elicit testimony from Mr. Meyer about how we allocated
`portions of Reynold’s $79M lump sum payment to Fontem to the ’265 and ’911 Patents—before
`the Fontem-Reynolds negotiation documents showing a 5.25% royalty rate were produced. The
`Court properly sustained Philip Morris’ objection to this line of questioning. Ex. 10 (Trial Tr.) at
`56:3-60:20. While such testimony would not support a lump sum damages award through the life
`of the patents, the Court’s ruling confirms no record evidence support Reynolds’ new theory
`despite the improper efforts of Reynolds’ counsel to elicit testimony.
`6 Judge O’Grady indicated that he has “always waited until the end of a case” to consider fees
`when determining whether a case is exceptional. Dkt. 1163-14 at 13:18-21. Philip Morris will
`show that this is part of Reynolds’ broader pattern of conduct in this case when it seeks fees.
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`theory mentioned for the first time after this trial began, and sti