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Damages Award Preserved on Appeal

Versata Software v. SAP America, Case No. 2012-1029, Slip Op. (Fed. Cir. May 1, 2013)

SAP appealed from an order of the Eastern District of Texas awarding damages of approximately $345 million and a permanent injunction. The Federal Circuit affirmed the order of the trial court, with the exception that it ordered the scope of the permanent injunction modified.

SAP first challenged the trial court’s determination that it infringed the patent-in-suit because its software supposedly did not contain software capable of performing customer and product hiearchies, and that its software allegedly did not use denormalized numbers. However, Versata’s expert explained that SAP’s software did perform customer and product hiearchies, that it was written by SAP engineers, and he demonstrated a SAP system that performed the functions. Nonetheless, SAP claimed that the expert somehow added the instructions necessary to perform customer and product hiearchies. The Federal Circuit rejected SAP’s arguments, and, in particular, stated that an accused product may be found to infringe if it is reasonably capable of satisfying the claim limitation. As Versata’s expert followed SAP’s own instructions in setting up SAP’s software, the Court determined that SAP infringed the asserted claims.

The Court similarly rejected SAP’s arguments that its software did not use denormalized numbers, which was not a claim term, but rather an agreed to claim interpretation. However, based on a number of items in the record, including the admission of SAP’s own expert on cross, the Court determined that SAP’s software could be interpreted as using denormalized numbers.

SAP also challenged the award of lost profits and the amount of the reasonable royalty. With regards to the award of lost profits, SAP argued that Versata’s expert report on lost profits was not in accord with sound economic principles and should have been excluded from evidence, and that the expert’s report cited to multiple markets and was therefore “legally defective.” The Court rejected both arguments as improperly raised, as SAP did not appeal any Daubert ruling.

SAP also challenged the award of lost profits as there was allegedly no evidence of demand for the product during the damages period beginning in 2001. However, the Federal Circuit pointed to Versata’s sales between 1995 and 1998 – prior to when SAP entered the market with a bundled product that included the functionality of Versata’s product.

SAP also argued that Versata did not prove the quantum of lost profits with reasonable certainty. However, Versata’s expert presented a sophisticated damage model showing that approximately 21 percent of the sales made by SAP would have gone to Versata, which the Court accepted as adequate.

Finally, SAP challenged the award of an $85 million reasonable royalty as violating the entire market value. Of interest is that Versata’s expert was not allowed to testify on a reasonable royalty, and so evidence of a reasonable royalty came from SAP’s expert, which only applied a royalty to the sale of a subset of products. The Court, accordingly, rejected this argument as well.

The Court did modify the permanent injunction on SAP to allow SAP to provide maintenance and additional seats to its present customers.