United States Court of Appeals
for the Federal Circuit
______________________
VERSATA SOFTWARE, INC.
(formerly known as Trilogy Software, Inc.),
VERSATA DEVELOPMENT GROUP, INC.
(formerly known as Trilogy Development Group,
Inc.), AND VERSATA COMPUTER INDUSTRY
SOLUTIONS, INC. (formerly known as Trilogy
Computer Industry Solutions, Inc.),
Plaintiffs-Cross Appellants,
v.
SAP AMERICA, INC. AND SAP AG,
Defendants-Appellants.
______________________
2012-1029, -1049
______________________
Appeals from the United States District Court for
the Eastern District of Texas in No. 07-CV-0153, Mag-
istrate Judge Charles Everingham.
______________________
Decided: May 1, 2013
______________________
MIKE MCKOOL, McKool Smith, P.C., of Dallas, Texas,
argued for plaintiffs-cross appellants. With him on the
brief were DOUGLAS A. CAWLEY; SCOTT L. COLE and JOEL
L. THOLLANDER, of Austin, Texas.
2 VERSATA SOFTWARE v. SAP AMERICA
J. MICHAEL JAKES, Finnegan, Henderson, Farabow,
Garrett & Dunner, L.L.P., of Washington, DC, argued for
defendants-appellants. With him on the brief were
MICHAEL A. MORIN, JOHN M. WILLIAMSON and JENNIFER
K. ROBINSON. Of counsel on the brief were JAMES R.
BATCHELDER and LAUREN N. ROBINSON, Robert & Gray
L.L.P., of Palo Alto, California; DAVID J. BALL, JR., Paul,
Weiss, Rifkind, Wharton & Garrison L.L.P, of Washing-
ton, DC; KATHERINE K. LUTTON, Fish & Richardson, P.C.,
of Redwood City, California; JOHN W. THORNBURGH,
JUSTIN M. BARNES and CRAIG E. COUNTRYMAN, Fish &
Richardson, P.C., of San Diego, California; KEVIN R.
HAMEL, SAP America, Inc., of Newtown Square, Pennsyl-
vania. Of counsel was KENNETH A. GALLO, Paul, Weiss,
Rifkind, Wharton & Garrison L.L.P, of Washington, DC.
______________________
Before RADER, Chief Judge, PROST and MOORE, Cir-
cuit Judges.
RADER, Chief Judge.
After a jury verdict of infringement with an award of
damages in favor of Versata Software, Inc., Versata
Development Group, Inc., and Versata Computer Industry
Solutions, Inc. (collectively “Versata”), SAP America, Inc.
and SAP AG (collectively “SAP”) appeal. Ultimately, the
trial court found no infringement of the U.S. Patent No.
5,878,400. The jury found infringement of three claims of
U.S. Patent No. 6,553,350. Subsequently, the trial court
denied SAP’s motions for judgment as a matter of law
(JMOL) or a new trial, awarded prejudgment interest,
and entered a permanent injunction. Although affirming
the jury’s infringement verdict and damages award, this
court vacates as overbroad the permanent injunction and
remands for the district court to enter an order that
conforms to this opinion.
VERSATA SOFTWARE v. SAP AMERICA 3
I.
This invention relates to “the field of computer-based
pricing of products.” ’350 Patent, col. 1, l. 10. In the
competitive commercial marketplace, sales representa-
tives often strive to provide particularized pricing for
customers in a timely fashion. Yet, precise product pric-
ing depends on a variety of factors including type of
product (e.g., a single product versus a bundle or custom-
ized product); the size of the customer; the type of cus-
tomer (e.g., a wholesaler versus a distributor); and the
customer’s geographic location. Id. at col. 1, ll. 45–52.
In the early 1990s, a different pricing table stored
each pricing factor. Applying these factors to a single
transaction required accessing and applying large
amounts of data stored in a large central database. Id. at
col. 1, ll. 25–26. Assuming each product is sold at a price
particularized for each purchaser, a selling organization
with ten thousand products and ten thousand purchasers
would need pricing tables with one hundred million
entries.
In the prior art computerized pricing engines, each
pricing factor usually required separate database queries.
The numerous tables were stored on a mainframe com-
puter, the customer order was entered into a central
billing system, and the mainframe would perform the
pricing calculation by separately accessing each applica-
ble data set. Id. at col. 2, ll. 21–27, 56–63. Thus, deter-
mining a final price was highly inefficient. Sifting
through this data meant that customers would often wait
several days to get an accurate price. Id. at col. 1, ll. 29–
36. The delay often caused lost sales. Id.
The claimed invention leverages hierarchical product
and data structures to organize pricing information.
Hierarchical pricing involves a “WHO” (the purchasing
organization or customer) and a “WHAT” (the product).
Id. at col. 3, ll. 24–27. The WHO is defined by “creating
4 VERSATA SOFTWARE v. SAP AMERICA
an organizational hierarchy of organizational groups”
such as “Customer Type,” “Customer Size,” and “Geogra-
phy.” Id. at Fig. 4A; col. 3, ll. 25–32. One or more cus-
tomers may be members of each organizational group,
and each customer may be a member of more than one
organizational group. Id. Thus, when a customer is
selected, the system identifies all the groups to which the
customer belongs as well as all corresponding price ad-
justments. Similar hierarchies are constructed for prod-
ucts. This hierarchical pricing engine used less data than
the prior art systems and offered dramatic improvements
in performance.
In 1995 and 1996, Versata both commercialized its hi-
erarchical pricing engine and filed a patent application
covering the invention. The commercial embodiment was
a software called “Pricer,” and it received praise as a
“breakthrough” that was “very innovative.” J.A. 1304.
The ’400 Patent issued in 1999. The ’350 Patent, a con-
tinuation of the application which led to the ’400 Patent,
issued in 2003.
The praise for Pricer was borne out in its sales. Be-
tween 1995 and 1998, Pricer customers included many
large companies—called “Tier 1” companies at trial—such
as IBM, Lucent, Motorola, and Hewlett-Packard. Pricer
Tier 1 customers generated an average of $5 million in
revenue and $3 million in profit for Versata. Versata sold
Pricer either as a package with other Versata software or
as a bolt-on addition to enterprise systems offered by
companies like SAP.
SAP provides software solutions for thousands of
companies, governments, and nonprofits around the
globe. SAP’s Enterprise Resource Planning (“ERP”) and
Customer Relationship Management (“CRM”) software
runs most processes needed by these institutions, includ-
ing financials, accounting, materials management, pro-
curement, supply-chain planning, human resources, and
VERSATA SOFTWARE v. SAP AMERICA 5
pricing. While Versata’s patent application was pending,
SAP designed and released a new version of its enterprise
software that contained hierarchical pricing capability.
Before SAP launched its new software, it stated the
planned software would be like Versata’s Pricer. When
SAP ultimately released its software in October 1998, it
bundled the hierarchical pricing capability into its full
enterprise software to discourage the use of bolt-on prod-
ucts like Pricer. J.A. 8479.
Following the announcement and launch of SAP’s new
hierarchical pricing engine, Pricer sales faltered. Versa-
ta’s win-rate on sales offerings of Pricer dropped from 35
percent to 2 percent. While Versata retained many of its
previously-won Pricer customers, Versata decided to
discontinue heavy investment in marketing because SAP
had destroyed its market. Versata maintained Pricer as a
product offering, but made no new sales as SAP’s bundled
software took hold.
In 2007, Versata sued SAP for infringement of both
the ’400 Patent and the ’350 Patent. With respect to the
’400 Patent, Versata asserted infringement of independ-
ent claim 31 and dependent claims 35 and 36. Each claim
requires “computer readable program code configured to
cause a computer to” perform a set of claimed operations,
including accessing customer and product hierarchies in
order to determine a price. ’400 Patent, col. 23, ll. 10–52,
62–67.
With respect to the ’350 Patent, Versata asserted in-
fringement of independent claim 29 and dependent claims
26 and 28. Claims 26 and 28 require “computer instruc-
tions to implement” the claimed operations. ’350 Patent,
col. 21, ll. 61–62. Claim 29 requires “computer program
instructions capable of” retrieving “pricing information”
from both customer and product hierarchies. ’350 Patent,
col. 22, ll. 21–35.
6 VERSATA SOFTWARE v. SAP AMERICA
This suit resulted in two jury trials. During the first
trial, Versata’s expert presented evidence that SAP’s
software used hierarchical pricing. One method he used
was a demonstrative data setup. Using and configuring
the inherent functions of SAP’s software, the expert
performed hierarchical access on customer and product
hierarchies.
The jury found that SAP directly infringed the assert-
ed claims of the ’400 and ’350 Patents, SAP induced and
contributed to infringement of claim 29 of the ’350 Patent,
and the asserted claims were not invalid. The jury
awarded $138,641,000 in damages. SAP moved for judg-
ment as a matter of law of noninfringement of both pa-
tents and for a new trial on damages.
For the ’400 Patent, the trial court reasoned that the
claim language “configured to cause” required that the
SAP products, “as made and sold, contain computer code
or program instructions sufficient to perform the opera-
tions recited in the claims without additional modification
or configuration, or the addition of further program in-
structions.” J.A. 155. It found that Versata’s infringe-
ment case emphasized SAP’s product as configured by
Versata’s expert, not how the software was made or sold.
Id. Thus, the trial court granted JMOL of noninfringe-
ment of the ’400 Patent. However, the trial court denied
SAP’s JMOL of noninfringement of the ’350 Patent,
finding that substantial evidence supported the jury’s
determination. Lastly, the court granted a motion for
new trial on damages based on a change in governing law.
Before the second trial began, SAP attempted to elim-
inate any basis for future infringement. Specifically, SAP
modified its products with a software patch. The modifi-
cation essentially prevented users from saving data into
certain fields relating to hierarchical access.
The second trial focused on damages. Because SAP’s
software patch was designed to eliminate infringement in
VERSATA SOFTWARE v. SAP AMERICA 7
products after May 2010, the jury was required to deter-
mine the effectiveness of the patch in avoiding infringe-
ment as part of damages. The jury concluded that, even
with the software patch, the accused products still in-
fringed.
The jury also evaluated two damages theories: lost
profits and reasonable royalties. For lost profits, Versata
focused on Pricer sales it lost to Tier 1 SAP customers.
Versata claimed this consisted of 93 lost sales, and it put
forward evidence regarding demand, the absence of
noninfringing alternatives, and the capacity to sell Pricer
in this market. Defendants did not put on evidence of a
competing lost profits model and instead offered expert
testimony critiquing Versata’s model. Versata’s evidence
persuaded the jury which awarded $260 million in lost-
profits damages.
With respect to reasonable royalties, the district court
precluded Versata from putting forward its damages
model. SAP, however, put forward a reasonable royalty
model which included comparable software called Khi-
metrics. The jury heard evidence that Khimetrics had an
average per customer royalty of $133,200. The jury
awarded reasonable royalties of $85 million.
Following the second trial, SAP again moved for
JMOL, claiming Versata failed to prove it was entitled to
lost profits and that the reasonable royalty verdict lacked
evidentiary foundation. The trial court denied the motion
and granted Versata’s motion for a permanent injunction.
This cross-appeal followed. The court has jurisdiction
under 28 U.S.C. § 1295(a).
II.
SAP’s appeal focuses on three issues: (1) whether the
district court erred after the first trial in refusing to grant
a JMOL of noninfringement of the ’350 Patent; (2) wheth-
er the district court erred after the second trial in refusing
8 VERSATA SOFTWARE v. SAP AMERICA
to overturn the lost profits and reasonable royalties
award; and (3), whether the district court erred by grant-
ing an overbroad permanent injunction. Versata, on the
other hand, claims the district court erred by granting
JMOL of noninfringement of the ’400 Patent and by
excluding the reasonable-royalty testimony of Versata’s
expert.
The infringement and damages issues raised by both
sides concern motions for JMOL, and are reviewed under
regional circuit law. Muniauction, Inc. v. Thomson Corp.,
532 F.3d 1318, 1323 (Fed. Cir. 2008). The Fifth Circuit
applies an “especially deferential” standard of review
“with respect to the jury verdict.” Brown v. Bryan Cnty.,
219 F.3d 450, 456 (5th Cir. 2000). The jury may only be
reversed if there is no substantial evidence supporting the
verdict. Thus, a JMOL may only be granted when, “view-
ing the evidence in the light most favorable to the verdict,
the evidence points so strongly and overwhelmingly in
favor of one party that the court believes that reasonable
jurors could not arrive at any contrary conclusion.”
Dresser-Rand Co. v. Virtual Automation, Inc., 361 F.3d
831, 838 (5th Cir. 2004); Brown, 219 F.3d at 456. The
evidentiary and injunction rulings are reviewed for abuse
of discretion. See Innogenetics, N.V. v. Abbott Labs., 512
F.3d 1363, 1379 (Fed. Cir. 2008) (addressing permanent
injunctions); Vargas v. Lee, 317 F.3d 498, 500 (5th Cir.
2003) (addressing Daubert challenges).
III.
SAP claims the trial court’s failure to grant a JMOL of
noninfringement of the ’350 Patent was two-fold error.
First, it argues that its software cannot infringe because
the software is not capable of performing customer and
product hierarchies without added computer instructions.
Second, it claims the software does not use “denormalized
numbers” in its pricing tables.
VERSATA SOFTWARE v. SAP AMERICA 9
Based on the parties’ stipulated construction, claims
26 and 28 require “computer instructions causing a com-
puter to implement” the claimed operations. J.A. 10006.
Claim 29 requires “computer instructions capable of”
performing those same operations. ’350 Patent, col. 22, l.
21. Portions of the record clearly support the jury’s
conclusion that SAP’s accused products infringe the
asserted claims without modification or additional com-
puter instructions.
Versata’s expert explained SAP’s source code to the
jury. He testified that SAP’s programmers left notes in
source code explaining how the code works, and he
showed these notes to the jury. These notes or comments
explained “the implementation of customer hierarchies”
as well as how to display product hierarchies. J.A. 1445;
1450. Other comments stated that hierarchical access
was the default for condition records. Condition records
are how the software stores data relating to customers or
products. The jury also saw SAP documents explaining
that the accused hierarchical access feature was designed
“[e]specially for hierarchical data such as that represent-
ing a product hierarchy or a customer hierarchy.” J.A.
2100. Versata’s expert concluded that the code was
written by SAP engineers “so that it could perform the
[claimed] functions . . . . [The] writing of that code means
that the code has been configured to implement these
particular functions or to be able to cause the computer to
do these things.” J.A. 1504.
The most telling evidence was the expert’s demonstra-
tive data setup. The expert used the inherent functionali-
ty of SAP’s software to conduct hierarchical pricing based
on customer and product hierarchies. Specifically, the
expert used the SAP interface to set up four pricing
elements: a pricing calculation function; a pricing proce-
dure; a condition table; and an access sequence. The
expert testified that this data setup did not require any
modification to SAP’s source code, and that SAP’s accused
10 VERSATA SOFTWARE v. SAP AMERICA
products all included the code to accomplish his demon-
stration. In essence, the expert confirmed his theories
that the accused software was capable of performing the
claimed functionality by making the software perform the
function without modifying the software.
SAP does not dispute that its software, as set up by
Versata’s expert, performed the claimed functionality.
Instead, it claims that Versata did not prove that SAP’s
software, as shipped to the customer, infringed the ’350
Patent. It argues that the claim language “computer
instructions capable of” and “computer instructions caus-
ing a computer to implement” are not directed to source
code. Rather, the language requires that the software, as
shipped, contain computer instructions to perform the
claimed functionality. In its view, the expert’s data setup
added new computer instructions to SAP’s software,
thereby changing and modifying a noninfringing product
into an infringing product.
SAP misinterprets the claim language. The only
claim construction affecting these terms was the stipulat-
ed construction of “computer instructions to implement”
which the parties agreed means “computer instructions
causing a computer to implement.” It does not appear that
SAP requested any claim construction of the term “com-
puter instructions,” much less a construction that limits
the phrase to exclude source code or require that the
patented function be “existing as shipped” in the comput-
er instructions. SAP cannot now collaterally attack the
claim construction it has agreed to. Function Media
L.L.C. v. Google Inc., 708 F.3d 1310, 1321–22 (Fed. Cir.
2013) (noting a party may not object to a claim construc-
tion it proposed or agreed to); Lazare Kaplan Int’l, Inc. v.
Photoscribe Techs., Inc., 628 F.3d 1359, 1376 (Fed. Cir.
2010) (“As we have repeatedly explained, litigants waive
their right to present new claim construction disputes if
they are raised for the first time after trial.”) (internal
quotation omitted).
VERSATA SOFTWARE v. SAP AMERICA 11
Whether “computer instructions” can include source
code thus becomes a pure factual issue. Versata’s expert
testified that the source code is a computer instruction.
He then presented evidence that the code, without modifi-
cation, was designed to provide the claimed functionality.
SAP cross-examined the expert, but the jury ultimately
chose to credit the expert’s testimony and documentary
evidence. SAP has not met the high standard needed to
disregard the jury’s fact-finding function on this issue.
See Bagby Elevator Co. v. Schindler Elevator Corp., 609
F.3d 768, 773 (5th Cir. 2010) (giving great deference to
the jury’s findings and verdict); Agrizap, Inc. v. Wood-
stream Corp., 520 F.3d 1337, 1342–43 (Fed. Cir. 2008)
(stating that this court owes the jury great deference in
its role as the factfinder).
SAP also misinterprets the expert’s data setup. As
this court has previously explained, when “a user must
activate the functions programmed into a piece of soft-
ware by selecting those options, the user is only activating
the means that are already present in the underlying
software.” Finjan, Inc. v. Secure Computing Corp., 626
F.3d 1197, 1205 (Fed. Cir. 2010); (quoting Fantasy Sports
Props. v. Sportsline.com, Inc., 287 F.3d 1108, 1118 (Fed.
Cir. 2002). While “a device does not infringe simply
because it is possible to alter it in a way that would
satisfy all the limitations of a patent claim,” High Tech
Med. Instrumentation v. New Image Indus., Inc., 49 F.3d
1551, 1555 (Fed. Cir. 1995), an accused product “may be
found to infringe if it is reasonably capable of satisfying
the claim limitation,” Finjan, 626 F.3d at 1204 (quoting
Hilgraeve Corp. v. Symentec Corp., 265 F.3d 1336, 1343
(Fed. Cir. 2001)).
Versata’s expert did not alter or modify SAP’s code in
order to achieve the claimed functionality. Rather, he
followed SAP’s own directions on how to implement
pricing functionality in its software and activated func-
tions already present in the software: data structures,
12 VERSATA SOFTWARE v. SAP AMERICA
access sequences, pricing procedures, and condition types.
SAP’s own expert admitted that each alleged alteration
was part of the software’s capability, that it was not
unusual for customers to perform the same actions, and
that it was “expected that SAP’s customers who use the
pricing functionality” will use it with a similar data setup.
J.A. 2509. Furthermore, he testified that SAP expects its
customers to set up access sequences, specific pricing
procedures, and specific condition types. This record
clearly supports the jury’s finding of infringement of the
’350 Patent. The trial court correctly refused JMOL on
this ground.
SAP’s second argument regarding infringement
relates to denormalized numbers. The term “denormal-
ized numbers” is not in the asserted claims. However, the
trial court construed the term “pricing adjustment” as
meaning “a denormalized number that may affect the
determined price.” J.A. 263. The parties stipulated that
“denormalized number” means: “a number, used as a
price adjustment, that does not have fixed units and may
assume a different meaning and different units depending
on the pricing operation that is being performed.” The
application of the number occurs during “run time,” i.e.,
while the software is calculating the price and not during
data entry.
SAP argues the record does not show that the accused
software used denormalized numbers during run-time.
Instead, Versata showed that a user can (1) first enter a
number and the later select a meaning for that number or
(2) edit numbers after they have been entered but before
run-time. These theories all relate to data entry—not
software interpretation of the denormalized numbers
during run-time.
Again, sufficient evidence supports the jury’s verdict.
Versata’s expert testified that SAP’s software contains
numbers without “fixed units.” The numbers can assume
VERSATA SOFTWARE v. SAP AMERICA 13
a different meaning depending on which pricing operation
is being performed by the software.
The expert also compared SAP’s software to the prior
art which did not use denormalized numbers. The prior
art used fixed units in the pricing tables, for example 10
dollars or 10 percent, so the computer “already knows,
without looking at any other information, that that’s
going to be dollars . . . [or] a percent.” J.A. 1414. SAP’s
new software on the other hand did not use fixed numbers
and “the computer can’t know [the units or] what the
operation is without looking at” other information. J.A.
1427–29. The computer considers the other necessary
information during run time. Lastly, SAP’s expert admit-
ted on cross-examination that both the association be-
tween units and numbers, and the application of those
numbers, occurs during run-time.
This court carefully considered the remainder of
SAP’s arguments on infringement and finds no reversible
error. Sufficient evidence supports the jury’s verdict of
infringement of the ’350 Patent, and the trial court cor-
rectly denied SAP’s motion for JMOL of noninfringement
of the ’350 Patent.
IV.
SAP also challenges the jury’s award of lost profits.
Lost-profits damages are appropriate whenever there is a
“reasonable probability that, ‘but for’ the infringement,
[the patentee] would have made the sales that were made
by the infringer.” Rite-Hite Corp. v. Kelley Co., 56 F.3d
1538, 1545 (Fed. Cir. 1995) (en banc). A showing under
the four-factor Panduit test establishes the required
causation. Rite-Hite, 56 F.3d at 1545. These factors
include: “(1) demand for the patented product, (2) absence
of acceptable noninfringing alternatives, (3) [capacity] to
exploit the demand, and (4) the amount of profit [the
patentee] would have made.” Panduit Corp v. Stahlin
Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir.
14 VERSATA SOFTWARE v. SAP AMERICA
1978). Causation of lost profits “is a classical jury ques-
tion.” Brooktree Corp. v. Advanced Micro Devices, Inc.,
977 F.2d 1555, 1578 (Fed. Cir. 1992).
According to SAP, the jury’s lost profits award should
be set aside for four reasons. The first two reasons relate
to the methodology used by Versata’s expert. SAP avers
that Versata’s “but for” model is “inconsistent with sound
economic principles,” and thus “[the expert’s] opinion
should have been excluded from evidence.” Appellant’s
Br. 46. Similarly, SAP claims Versata’s expert did not
adhere to the Panduit framework because he used multi-
ple markets thereby rendering his analysis “legally defec-
tive.” Id. at 50.
The court rejects these two arguments as improperly
raised. Under the guise of sufficiency of the evidence,
SAP questions the admissibility of Versata’s expert testi-
mony and whether his damages model is properly tied to
the facts of the case. Such questions should be resolved
under the framework of the Federal Rules of Evidence
and through a challenge under Daubert v. Merrell Dow
Pharm., Inc., 509 U.S. 579 (1993). See ePlus, Inc. v.
Lawson Software, Inc., 700 F.3d 509, 515, 522–23 (2012)
(affirming a trial court’s decision to exclude expert testi-
mony under Daubert because it was analytically flawed
and unreliable); Uniloc USA, Inc. v. Microsoft Corp., 632
F.3d 1292, 1314–16 (Fed. Cir. 2011) (noting that to carry
its burden under Federal Rule of Evidence 702, the pa-
tentee must sufficiently “tie the expert testimony on
damages to the facts of the case”).
SAP’s briefs and statements at oral argument confirm
that its arguments should have been resolved under the
framework of Daubert and the Federal Rules of Evidence.
In its briefs, SAP argues that the expert’s testimony
should have been excluded from evidence, the jury “should
have never heard any lost profits theory,” that “the dis-
trict court should not have permitted Versata’s expert to
VERSATA SOFTWARE v. SAP AMERICA 15
present his lost profits theory,” and that his analysis is
“legally defective.” Appellant’s Br. 46–47, 50. At oral
argument, SAP’s counsel stated that the expert’s testimo-
ny “should not have been admitted,” and that “it should
have been excluded.” Oral Argument at 14:00–15:00,
Versata Software v. SAP America, (Fed. Cir. 2013) (No.
2012-1029, -1049), available at http://www.cafc.
uscourts.gov/oral-argument-recordings/search/audio.html.
Whether evidence is inadmissible is a question clearly
within the scope of the rules of evidence and Daubert.
However, SAP has not appealed a Daubert ruling. In-
stead, it argues that the jury could have not had sufficient
evidence to award lost profits because the expert’s testi-
mony was fatally flawed and should not have been admit-
ted. This is the improper context for deciding questions
that, by SAP’s own admissions, boil down to the admissi-
bility of evidence.
SAP’s other challenges to the lost profits award clear-
ly relate to the sufficiency of evidence under Panduit and
are thus properly before the court. SAP claims there is no
evidence to show demand for the patented product (Pan-
duit factor 1). Specifically, SAP argues that Versata could
not present evidence of demand during the damages
period (which started in 2003) because Versata did not
sell Pricer to anyone, even non-SAP customers, after
2001.
Patentees may prove lost profits through presenting a
hypothetical, “but for” world where infringement has been
“factored out of the economic picture.” Grain Processing
Corp. v. Am. Maize-Prods. Co., 185 F.3d 1341, 1350 (Fed.
Cir. 1999). While the hypothetical, but-for-world must be
supported with sound economic proof, “[t]his court has
affirmed lost profit awards based on a wide variety of
reconstruction theories.” Crystal Semiconductor Corp. v.
TriTech Microelectronics Int’l, Inc., 246 F.3d 1336,
1355 (Fed. Cir. 2001). Here, the record supports the jury’s
16 VERSATA SOFTWARE v. SAP AMERICA
finding of demand for the patented functionality in a “but
for” world.
Versata showed there was demand for hierarchical
pricing before SAP entered the market. Between 1995
and 1998, Versata made at least 61 sales of Pricer. At
least 21 sales were “Pricer-isolated,” meaning Pricer was
the only product purchased from Versata. Versata’s
average win rate before SAP entered the market was 35
percent. Even SAP’s expert admitted there was demand
for Pricer during this period. This evidence of demand is
especially probative since it is a picture of a world in
which Versata enjoyed market exclusivity similar to that
which it would have had in a hypothetical world absent
SAP’s infringement.
When SAP entered the market by bundling hierar-
chical pricing into its enterprise software, the market for
Pricer disappeared. Versata made no sales of Pricer
during the damages period of 2003 to 2011. However,
Versata showed that demand for the patented functionali-
ty remained. In 2007, SAP internal documents stated
there was “customer need[]” for hierarchical access, and
“having that capability is key” to SAP’s business. J.A.
3480. During litigation, Versata sent written discovery
questions to several SAP customers. Forty customers
responded, and many use both customer and product
hierarchies.
SAP argues Versata cannot show demand because it
made no sales of Pricer during the damages period.
Usually, “the patentee needs to have been selling some
item, the profits of which have been lost due to infringing
sales.” Poly-America, L.P. v. GSE Lining Tech., Inc., 383
F.3d 1303, 1311 (Fed. Cir. 2004). However, the act of
“selling” an item does not necessarily mean the item must
be “sold.” Here, Versata was selling Pricer during the
damages period. Versata need not have actually sold
Pricer during the damages period to show demand for the
VERSATA SOFTWARE v. SAP AMERICA 17
patented functionality, particularly given the economic
reality that SAP had eroded the market for Pricer
through bundling hierarchical access into its own soft-
ware.
The Panduit factors do not require showing demand
for a particular embodiment of the patented functionality,
here Versata’s Pricer software. See Presidio Components,
Inc. v. Am. Technical Ceramics Corp., 702 F.3d 1351, 1360
(Fed. Cir. 2012). Nor does it require any allocation of
consumer demand among the various limitations recited
in a patent claim. DePuy Spine Inc. v. Medtronic Sofamor
Danek, Inc., 567 F.3d 1314, 1330 (Fed. Cir. 2009). In
other words, the Panduit factors place no qualitative
requirement on the level of demand necessary to show lost
profits. Versata showed demand for its product before
SAP entered the market, and it showed continued de-
mand for the patented feature during the damages period.
SAP had the ability to cross-examine and rebut this
evidence. SAP’s expert even prepared an alternative lost
profit model but SAP chose not to present this evidence to
the jury. The court finds sufficient evidence of demand in
this record and declines to disturb the jury’s determina-
tion.
SAP also argues Versata did not prove the quantum of
its lost profits with reasonable probability (Panduit factor
4). Specifically, it argues Versata’s but-for world makes
assumptions about demand and price elasticity that are
inconsistent with the real world, and that Versata did not
account for market forces other than infringement that
might have caused its alleged losses.
Versata’s expert calculated lost profits using the fol-
lowing method. First, he identified a pool of potential
customers: Tier 1 customers who had purchased SAP’s
software. The record showed that Tier 1 customers were
“larger companies” and “more likely to benefit from Pric-
er’s unique value propositions.” J.A. 44. In the Tier 1
18 VERSATA SOFTWARE v. SAP AMERICA
market, SAP made 480 sales of infringing products during
the damages period of 2003 to 2011. Versata’s expert
then removed from this pool the 45 SAP customers who
had previously licensed Pricer, and thus were not lost to
SAP. The initial pool was therefore 435 customers.
Next, the expert determined how many of those 435
customers Versata would have won but for SAP’s in-
fringement. The expert used Versata’s historic win-rate
of 35 percent as a starting point, meaning Versata usually
converted about a third of customers it targeted for Pricer
into actual clients. The expert applied this percentage to
the pool of customers and concluded that Versata would
have been able to sell Pricer to 152 of the 435 SAP cus-
tomers.
Had the expert stopped at this point, SAP’s challenge
might have more weight. A direct application of Versata’s
historic win-rate would not necessarily reflect the differ-
ences in economic conditions between 1996 and 2003. It
also assumes Versata would have immediately resumed
selling Pricer at the 1996–98 rates.
However, Versata’s expert did account for some mar-
ket pressures. He recognized that Versata would not
likely resume making sales in 2003 at the same pace it
had achieved in 1998. He concluded that Versata “could
have ramped up and made these additional sales begin-
ning in roughly, April 2003 at the same pace at which it
ramped up and made actual sales when it had an exclu-
sive beginning in 1996.” J.A. 3725. The expert then
further discounted the pool of lost customers and conclud-
ed Versata lost 93 sales to SAP during the 8-year damag-
es period. This is an average 21 percent win-rate over the
whole damages period.
Next, the expert calculated the value of each lost sale.
To isolate Pricer’s value in relation to Versata’s other
software offerings, the expert differentiated between
“Pricer-isolated sales” and general sales of Pricer. Pricer-
VERSATA SOFTWARE v. SAP AMERICA 19
isolated sales were those where Versata only sold Pricer,
and they provide evidence of the value attributable to
Pricer alone. The expert concluded that the base value of
each lost sale was approximately $1.8 million. He then
accounted for the additional revenue streams that would
follow on a sale through maintenance and consulting
agreements. The final conclusion was that Versata would
have made approximately $3 million in profit per sale lost
to SAP. Multiplying the pool of lost sales by the amount
lost per sale would have resulted in an award of $285
million. The jury awarded $260 million.
SAP’s protestations that the award does not reflect
market or economic variables are belied by the record.
As noted above, the expert discounted the win rate to
account for time Versata would need to ramp-up its sales.
The expert also discounted his sales value calculations to
account for the costs associated with making those sales.
He accounted for “the direct costs of making those sales,
plus costs associated with research and development
efforts, plus costs associated with . . . selling, general and
administrative expenses.” J.A. 3726. He also accounted
for price elasticity when calculating the number of lost
sales. The expert testified that if he had used a lower
price (or even a declining price scale) when valuing the
lost sales, the lower price would have been offset by
additional lost sales: a lower price results in greater
demand.
As the trial court noted, “the final number . . . was not
the product of speculation, but was based on sound eco-
nomic proof confirmed by the historical record.” J.A. 46.
As such, Versata made a prima facie showing of lost
profits and the burden shifted to SAP to prove that a
different rate would have been more reasonable. Rite-
Hite, 56 F.3d at 1545. SAP did not make such a showing.
Therefore, this court affirms the jury’s award of lost
profits.
20 VERSATA SOFTWARE v. SAP AMERICA
V.
In addition to lost profits, the jury awarded $85
million in royalties. A reasonable royalty is the statutory
floor for damages in an infringement case. See 35 U.S.C.
§ 284. Because the district court precluded Versata’s
expert from presenting a reasonable royalty analysis, the
only evidence for a royalty award came from SAP’s expert.
A reasonable royalty may be calculated using one of
two baselines: “an established royalty, if there is one, or if
not, upon the supposed result of hypothetical negotiations
between the plaintiff and defendant.” Transocean Off-
shore Deepwater Drilling, Inc. v. Maersk Drilling USA,
Inc., 699 F.3d 1340, 1357 (Fed. Cir. 2012) (quoting Rite–
Hite, 56 F.3d at 1554). “The hypothetical negotiation
seeks to determine the terms of the license agreement the
parties would have reached had they negotiated at arm’s
length when infringement began.” Id.
SAP’s expert conducted a full hypothetical negotiation
analysis using the factors in Georgia-Pacific Corp. v. U.S.
Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). The
expert stated that a software called Khimetrics was
comparable to Pricer for the purposes of valuing the
hypothetical license. The expert noted that 12 customers
had agreed to pay SAP for this add-on functionality. He
concluded that the reasonable royalty rate should be
around $2 million in a lump sum payment.
On cross-examination, SAP’s expert confirmed that
Khimetrics was a proper comparable bolt-on product, that
SAP had sold Khimetrics to 12 customers, and that the
average sales price per customer for Khimetrics was
$333,000. He also stated that an appropriate royalty rate
would have been 40 percent of the $333,000 per customer,
yielding a royalty of $133,200 per customer. The expert
also agreed that, after subtracting the number of lost
sales covered under the lost profits award, SAP had made
roughly 1300 infringing sales. The expert then stated
VERSATA SOFTWARE v. SAP AMERICA 21
that if his proposed per customer royalty rate was applied
to every infringing sale, the damages should be $170
million. Versata’s counsel confirmed this calculation with
the following question:
Q. So, if the jury believed that your per-customer
royalty rate [of $133,200] should be applied to
every infringing sale instead of just twelve [sales],
then the number is not $2 million but $170 mil-
lion.
A. That would be the correct math.
J.A. 4227.
In spite of this testimony from its own expert, SAP
now questions the royalty award. It claims the $2 million
royalty estimate “already compensated Versata for the
full scope of infringement,” and thus it was improper to
extrapolate a per customer royalty from the royalty
estimate. Appellant’s Br. 58. SAP also claims the award
violates the entire market value rule. Neither argument
has merit.
SAP’s expert did not equivocate when he stated that
the revenue generated by his proffered comparable license
was $333,000 per Khimetrics customer. The expert did
not dispute that he proposed a 40 percent royalty. He did
not contradict or question the number of SAP’s infringing
sales. Thus, SAP’s assertion that the expert intended his
calculation to be a lump sum covering all of SAP’s infring-
ing sales is belied by his own testimony.
Furthermore, the award cannot violate the entire
market value rule. The entire market value rule is a
narrow exception to the general rule that royalties are
awarded based on the smallest salable patent-practicing
unit. LaserDynamics, Inc. v. Quanta Computer, Inc., 694
F.3d 51, 67 (Fed. Cir. 2012). “A patentee may assess
damages based on the entire market value of the accused
product only where the patented feature creates the basis
22 VERSATA SOFTWARE v. SAP AMERICA
for customer demand or substantially creates the value of
the component parts.” SynQor, Inc. v. Artesyn Technolo-
gies, Inc., --- F.3d ----, 2013 WL 950743, *13 (Fed. Cir.
2013) (quoting Uniloc USA, Inc. v. Microsoft Corp., 632
F.3d 1292, 1318 (Fed. Cir. 2011))..
Here, the expert did not apply his 40 percent royalty
rate to the entire value of SAP’s infringing products. The
royalty rate was applied to the value of Khimetrics’ sales.
Rather, the expert merely accounted for all infringing
sales. Thus, the entire market value exception was never
triggered, and Versata was not required to show that
demand for hierarchical pricing drove demand for SAP’s
product as whole. See LaserDynamics, Inc., 94 F.3d at 67.
The trial court, in denying SAP’s motion for JMOL,
correctly noted that SAP “cannot legitimately challenge
the comparability of its own comparable.” J.A. 51. The
jury used common sense and merely applied SAP’s pro-
posed royalty to a larger number of infringing sales than
SAP desired. See Huffman v. Union Pac. R.R., 675 F.3d
412, 421 (5th Cir. 2012) (noting the jury is free to “draw
inference on the basis of common sense, common under-
standing and fair beliefs, grounded on evidence consisting
of direct statement by witnesses or proof of circumstances
from which inferences can fairly be drawn”) (internal
quotations omitted). While the jury awarded less than
the $170 million calculated by SAP’s expert, the jury is
not bound to accept the maximum proffered award and
may choose an intermediate rate. Powell v. Home Depot
U.S.A., Inc., 663 F.3d 1221, 1241 (Fed. Cir. 2011). The
question is whether the award is not “so outrageously
high . . . as to be unsupportable as an estimation of a
reasonable royalty,” Rite-Hite, 56 F.3d at 1554, and is
“within the range encompassed by the record as a whole,”
Powell, 663 F.3d at 1241 (quoting Unisplay, S.A. v. Am.
Elec. Sign Co., 69 F.3d 512, 519 (Fed. Cir. 1995)). This
court concludes that award satisfies these standards and
is supported by substantial evidence.
VERSATA SOFTWARE v. SAP AMERICA 23
VI.
Following the resolution of post-trial motions, the
trial court entered a permanent injunction. SAP argues
the injunction is overbroad because it prohibits SAP from
offering maintenance and additional seats for SAP’s
current customers. “Additional seats” refers to increasing
the number of users covered under a specific license. SAP
does not challenge the portion of the injunction that
prohibits it from offering the accused functionality in new
sales of its software.
The injunction uses two key terms: the “Infringing
Products” and “the Enjoined Capability.” J.A. 4–5. The
enjoined capability is the capability to execute a pricing
procedure using hierarchical access of customer and
product data. As repeatedly noted in the briefs and in the
record, the enjoined capability represents only a fraction
of the features contained in the infringing products.
SAP’s bundling is one of the reasons cited by Versata for
the destruction of Pricer’s market.
Yet, the injunction states that SAP “shall not (a)
charge to or accept payment of software maintenance
from that customer with respect to any of the Infringing
Products in the United States; or (b) license or sell any
new ‘seats’ or otherwise charge to or accept license reve-
nue from that customer in connection with any of the
Infringing Products in the United States.” J.A. 5 (empha-
sis added). While this court does not agree entirely with
SAP’s arguments against the injunction, it appears the
trial court erred by placing emphasis on SAP’s product as
a whole. SAP should be able to provide maintenance or
additional seats for prior customers of its infringing
products, so long as the maintenance or the additional
seat does not involve, or allow access to, the enjoined
capability. Therefore, this court vacates the above lan-
guage from the permanent injunction and remands for the
24 VERSATA SOFTWARE v. SAP AMERICA
trial court to modify its order in accordance with this
opinion.
VII.
This court has considered the remainder of SAP’s ar-
guments and finds no reversible error. Additionally, by
Versata’s own admission, there is no need to address any
of the issues raised in its cross-appeal. See Cross-
Appellant Br. 69–70. Based on the reasons above, this
court affirms the jury’s infringement decision and concom-
itant damages awards. However, the court vacates part of
the trial court’s permanent injunction and remands for
further proceedings consistent with this opinion.
AFFIRMED-IN-PART, VACATED-AND-REMANDED-
IN-PART
Costs to Versata.