  United States Court of Appeals
      for the Federal Circuit
               __________________________

               LASERDYNAMICS, INC.,
                  Plaintiff-Appellant,
                            v.
             QUANTA COMPUTER, INC.,
              Defendant-Cross Appellant,
                          and
         QUANTA COMPUTER USA, INC.,
          QUANTA STORAGE, INC., AND
        QUANTA STORAGE AMERICA, INC.
                 Defendants.
               __________________________

                    2011-1440, -1470
               __________________________

    Appeals from the United States District Court for the
Eastern District of Texas in case no. 06-CV-0348, Judge
T. John Ward.
              ___________________________

                Decided: August 30, 2012
              ___________________________

   MATTHEW C. GAUDET, Duane Morris LLP, of Atlanta,
Georgia, argued for plaintiff-appellant. On the brief were
ROBERT L. BYER, of Pittsburgh, Pennsylvania, and
GREGORY M. LUCK, of Houston, Texas, and KRISTINA
LASERDYNAMICS   v. QUANTA COMPUTER                       2


CAGGIANO, of Washington, DC. Of counsel was THOMAS
W. SANKEY, of Houston, Texas.

   TERRENCE DUANE GARNETT, Goodwin Procter, LLP, of
Los Angeles, California, argued for defendant/cross-
appellant. With him on the brief were VINCENT K. YIP,
and PETER J. WIED.
              __________________________

  Before DYK, CLEVENGER, and REYNA, Circuit Judges.
REYNA, Circuit Judge.
    These appeals come before us after two trials in the
district court—a first trial resolving the claims of patent
infringement and damages, and a second trial ordered by
the district court to retry the damages issues. The parties
raise various issues relating to the proper legal frame-
work for evaluating reasonable royalty damages in the
patent infringement context. Also before us are questions
regarding implied license, patent exhaustion, infringe-
ment, jury instructions, and the admissibility of a settle-
ment agreement. For reasons explained in detail below,
we affirm-in-part, reverse-in-part, and remand.
                      I.   BACKGROUND
      A. The Patented Technology and the Optical
                 Disc Drive Industry
    LaserDynamics, Inc. (“LaserDynamics”) is the owner
of U.S. Patent No. 5,587,981 (“the ’981 Patent”), which
was issued in 1996. The patent is directed to a method of
optical disc discrimination that essentially enables an
optical disc drive (“ODD”) to automatically identify the
type of optical disc—e.g., a compact disc (“CD”) versus a
digital video disc (“DVD”)—that is inserted into the ODD.
Claim 3, which was asserted at trial, is representative:
3                      LASERDYNAMICS   v. QUANTA COMPUTER


    3. An optical disk reading method comprising
    the steps of:
       processing an optical signal reflected from en-
       coded pits on an optical disk until total num-
       ber of data layers and pit configuration
       standard of the optical disk is identified;
       collating the processed optical signal with an
       optical disk standard data which is stored in a
       memory; and
       settling modulation of servomechanism means
       dependent upon the optical disk standard data
       which corresponds with the processed optical
       signal;
       (c) [sic] the servomechanism means including:
           a focusing lens servo to modulate position
           of a focusing lens; and
           a tracking servo to modulate movement of
           a pickup.
This automated process saves the user from having to
manually identify the kind of disc being inserted into the
ODD before the ODD can begin to read the data on the
disc. The patented technology is alleged to be particularly
useful in laptop computers where portability, convenience,
and efficiency are essential. At least as early as 2006, a
laptop computer was not commercially viable unless it
included an ODD that could automatically discriminate
between optical discs.
    Yasuo Kamatani is the sole inventor of the ’981 Pat-
ent. In 1998, viewing DVD technology as the next major
data and video format, Mr. Kamatani founded LaserDy-
namics and assigned the ’981 Patent to the company. Mr.
Kamatani is the sole employee of LaserDynamics, which
LASERDYNAMICS   v. QUANTA COMPUTER                       4


is exclusively in the business of licensing Mr. Kamatani’s
patents to ODD and consumer electronics manufacturers.
    When LaserDynamics was founded, the DVD market
had reached few mainstream consumers, and there was
some skepticism among electronics companies as to the
likely success of this technology compared with the estab-
lished VHS format. By 2000, however, DVD sales and the
ODD market were sharply rising. By 2003, most homes
had DVD players and nearly every computer had an
ODD. An ODD having automatic disc discrimination
capability quickly became the industry standard for DVD
players and computers. 1
        B. LaserDynamics’ Licensing History of
                  the ’981 Patent
    According to LaserDynamics, it was initially difficult
to generate interest in licensing the ’981 Patent, due to
the novelty of the technology and LaserDynamics’ limited
operating capital and bargaining power. Nevertheless,
LaserDynamics entered into sixteen licensing agreements
from 1998 to 2001. These licenses were granted to well
known electronics and ODD manufacturers such as Sony,
Philips, NEC, LG, Toshiba, Hitachi, Yamaha, Sanyo,
Sharp, Onkyo, and Pioneer. All of the licenses were non-

   1    While LaserDynamics contends that all ODDs
performing a disc discrimination method are within the
scope of the ’981 Patent, Quanta Computer, Inc. (“QCI”)
disputes that Mr. Kamatani invented the concept of disc
discrimination, alleging that “[t]here are numerous other
techniques disclosed in the prior art for determining what
type of disc is inserted in an optical disc drive.” QCI Br.
at 10; A648. The validity of the ’981 Patent is not before
us, and so we do not address whether the scope of the
invention as alleged by LaserDynamics is accurate other
than to consider QCI’s non-infringement contentions
below.
5                      LASERDYNAMICS   v. QUANTA COMPUTER


exclusive licenses granted in exchange for one time lump
sum payments ranging from $57,000 to $266,000. There
is no evidence that these licenses recited the lump sum
amounts as representing a running royalty applied over a
certain period of time or being calculated as a percentage
of revenues or profits. These sixteen licenses were admit-
ted into evidence in the first trial, as explained below.
    Several other lump sum licenses were granted by La-
serDynamics between 1998 and 2003 to other ODD and
electronics manufacturers via more aggressive licensing
efforts involving actual or threatened litigation by La-
serDynamics. These licenses, in addition to the sixteen
licenses from the first trial, were admitted in the second
trial.
     On February 15, 2006, LaserDynamics (and Mr. Ka-
matani) entered into a license agreement with BenQ
Corporation to settle a two-year long litigation for a lump
sum of $6 million. This settlement agreement was exe-
cuted within two weeks of the anticipated trial against
BenQ. Kamatani v. BenQ Corp., No. 2:03-CV-437 (E.D.
Tex. Jan. 20, 2006) (pre-trial conference order indicating
trial was expected to begin in the last week of February
2006). By the time of the settlement, BenQ had been
repeatedly sanctioned by the district court for discovery
misconduct and misrepresentation. The district court had
allotted BenQ one-third less time than Mr. Kamatani for
voir dire, opening statement, and closing argument, had
awarded attorneys’ fees to Mr. Kamatani for bringing the
sanctions motion, had stricken one of BenQ’s pleaded
defenses, and had sanctioned BenQ $500,000.00 as an
additional punitive and deterrent measure. Kamatani v.
BenQ Corp., No. 2:03-CV-437, 2005 U.S. Dist. LEXIS
42762, at *20, *44-46 (E.D. Tex. Oct. 6, 2005). The dis-
trict court believed that its harsh sanctions were justified
because BenQ’s extensive misconduct “demonstrate[d] a
LASERDYNAMICS   v. QUANTA COMPUTER                       6


conscious intent to evade the discovery orders of this
Court, as well as violate[d] this Court’s orders and the
rules to an extent previously unknown by this Court.” Id.
at *44-45. The BenQ settlement agreement was admitted
into evidence in the second trial.
    Finally, in 2009 and 2010, LaserDynamics entered
into license agreements with ASUSTeK Computer and
Orion Electric Co., Ltd., respectively, for lump sum pay-
ments of $1 million or less. These two licenses were
admitted into evidence in the second trial.
     In total, twenty-nine licenses were entered into evi-
dence in the second damages trial. With the exception of
the $6 million BenQ license, all twenty-nine licenses were
for lump sum amounts of $1 million or less.
   C. Quanta Computer Inc. and Quanta Storage Inc.
    Quanta Storage, Inc. (“QSI”) is a manufacturer of
ODDs that was incorporated in 1999. QSI is headquar-
tered in Taiwan and is a partially-owned subsidiary of
Quanta Computer, Inc. (“QCI”), with which it shares some
common officers, directors, and facilities. QCI’s corporate
headquarters are also located in Taiwan, and its factories
are located in China. QCI holds a minority share in QSI
and does not control QSI’s operations.
    QCI assembles laptop computers for its various cus-
tomers, which include name brand computer companies
such as Dell, Hewlett Packard (“HP”), Apple, and Gate-
way. QCI does not manufacture ODDs, but will install
ODDs into computers as instructed by its customers. QCI
will sometimes purchase ODDs directly from ODD manu-
facturers such as Sony, Panasonic, Toshiba, or QSI, as
directed by QCI’s customers. Predominantly, however,
QCI will be required to purchase the ODDs from the
customer for whom QCI is assembling the laptop com-
7                       LASERDYNAMICS   v. QUANTA COMPUTER


puter. In other words, QCI’s typical practice is to buy
ODDs from Dell, HP, Apple, or Gateway, which in turn
purchased the ODDs from the ODD manufacturers.
Because QCI eventually sells the fully assembled laptop
computers—including the ODDs—to its customers, this
process is called a “buy/sell” arrangement. When QCI
purchases ODDs from one of its customers in a buy/sell
context, it buys the ODDs for an artificially high “mask
price” set by the customer and designed to hide the actual
lower price of the ODDs from the customer’s competitors.
Thus, the mask price is always higher than the actual
price to the customer.
    QSI first sold its ODDs for integration into laptop
computers in the United States in 2001. In 2002, La-
serDynamics offered QSI a license under the ’981 Patent,
but QSI disputed whether its ODDs were within the scope
of the ’981 Patent and declined the offer. QCI sold its first
computer in the United States using an ODD from QSI in
2003. It was not until August 2006 that LaserDynamics
offered a license to QCI concurrently with the filing of this
lawsuit. To date, neither QSI nor QCI has entered into a
licensing agreement with LaserDynamics relating to the
’981 Patent.
    D. ODDs Made by Philips and Sony/NEC/Optiarc
    Just as computer sellers Dell, HP, Apple, and Gate-
way outsource the assembly of their computers to compa-
nies like QCI, some sellers of ODDs outsource the
assembly of their ODDs. QSI assembles ODDs for Philips
and Sony/NEC/Optiarc—two of the largest sellers of
ODDs.         As    discussed   above,   Philips    and
Sony/NEC/Optiarc are licensed by LaserDynamics to
make and sell ODDs within the scope of the ’981 Patent.
Under the license agreements, both Philips and
Sony/NEC/Optiarc also enjoy “have made” rights that
LASERDYNAMICS   v. QUANTA COMPUTER                       8


permit them to retain companies like QSI to assemble
ODDs for them.
    When QCI purchases ODDs directly from Philips or
Sony/NEC/Optiarc—i.e., not under a buy/sell arrange-
ment—QCI has no knowledge of which entity assembled
the ODDs. QCI pays Philips or Sony/NEC/Optiarc di-
rectly for the ODDs, which are not sold under the QSI
brand name even if assembled by QSI.
                II. PROCEDURAL HISTORY
    In August 2006, LaserDynamics brought suit against
QCI and QSI for infringement of the ’981 Patent. Because
asserted claim 3 of the ’981 Patent is directed to a method
of disc discrimination performed by an ODD, as opposed
to the ODD itself, LaserDynamics relied on a theory of
infringement that QSI’s and QCI’s sales of ODDs and
laptop computers, respectively, actively induced infringe-
ment of the method by the end users of the ODDs and
laptop computers. See 35 U.S.C. § 271(b).
     On a pre-trial summary judgment motion brought by
QCI and QSI relating to their defenses of patent exhaus-
tion and implied license, the district court made the
following rulings:
       (1) “the exhaustion doctrine does not apply to
   sales made overseas by [LaserDynamics’] licen-
   sees”;
       (2) “QCI has an implied license with respect
   to drives manufactured by non-Quanta entities li-
   censed by [LaserDynamics] under worldwide li-
   censes and sold by those licensees to QCI for
   incorporation into QCI computers. In addition,
   QSI is not liable for manufacturing drives for
   Philips or Sony/NEC/Optiarc which are, in turn,
9                      LASERDYNAMICS   v. QUANTA COMPUTER


    resold into the United States to non-Quanta enti-
    ties”; and
        (3) “the Quanta defendants do not have an
    implied license with respect to drives that are
    manufactured by QSI and eventually sold to QCI
    (or another Quanta entity), notwithstanding the
    fact that those drives are sold through Philips or
    Sony/NEC/Optiarc, two of [LaserDynamics’] licen-
    sees. E.I. Du Pont de Nemours & Co. v. Shell Oil
    Co., 498 A.2d 1108, 1116 (Del. 1985). The effect of
    such transactions is to grant an impermissible
    sublicense.”
LaserDynamics, Inc. v. Quanta Storage Am., Inc., No.
2:06-CV-348-TJW-CE, 2009 U.S. Dist. LEXIS 115848, at
*3-5 (E.D. Tex. June 29, 2009) (“Pre-Trial Op.”). Based on
these rulings, LaserDynamics dropped its claims against
QSI and opted to pursue its active inducement of in-
fringement claims against QCI only at trial.
     QCI was first on notice of the ’981 Patent in August
2006 when the complaint was filed. Between August 2006
and the conclusion of the first trial in June 2009, QCI sold
approximately $2.53 billion of accused laptops into the
United States. LaserDynamics sought reasonable royalty
damages under 35 U.S.C. § 284. Pursuant to the analyti-
cal framework for assessing a reasonable royalty set forth
in Georgia-Pacific Corp. v. United Plywood Corp., 318 F.
Supp. 1116 (S.D.N.Y. 1970), 2 the date of the “hypothetical
negotiation” between the parties was deemed by the

    2   This court has sanctioned the use of the Georgia-
Pacific factors to frame the reasonable royalty inquiry.
Those factors properly tie the reasonable royalty calcula-
tion to the facts of the hypothetical negotiation at issue.”
Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1317
(Fed. Cir. 2011).
LASERDYNAMICS   v. QUANTA COMPUTER                    10


district court (over QCI’s objections) to be August 2006—
the date that QCI first became aware of the ’981 Patent
and was therefore first potentially liable for active in-
ducement of infringement. See Global-Tech Appliances,
Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011) (holding
that knowledge of the patent is necessary to prove active
inducement of infringement).
                   A. The First Trial
     The damages theory advanced by LaserDynamics in
the first trial was presented chiefly through LaserDynam-
ics’ expert, Mr. Emmett Murtha. Mr. Murtha opined that
a running royalty of 2% of the total sales of laptop com-
puters by QCI is what the parties would have agreed to as
a reasonable royalty had they engaged in a hypothetical
negotiation in August 2006. This opinion was based on
Mr. Murtha’s understanding, obtained primarily from
LaserDynamics’ other expert witnesses, that the technol-
ogy covered by the ’981 Patent provided an important and
valuable function that was present in all ODDs currently
in use, and that the presence of this function was a pre-
requisite for any laptop computer to be successful in the
marketplace. Since QCI sold laptop computers and not
ODDs, Mr. Murtha viewed the complete laptop computer
as an appropriate royalty base.
    To arrive at his 2% per laptop computer royalty rate,
Mr. Murtha began by finding that 6% would be a reason-
able royalty rate to pay with respect to an ODD alone.
Mr. Murtha reached his conclusion of a 6% per ODD
royalty by relying on “comparable rates in two separate
licensing programs involving DVDs where the rates were
3.5 in one case and 4 percent in another case.” A621,
A650-54. 3 The two patent licensing programs were un-
   3   Citations to “A ” herein refer to pages of the
Joint Appendix filed by the parties.
11                     LASERDYNAMICS   v. QUANTA COMPUTER


dertaken by third parties in the DVD industry around
2000. Id. He also relied on “a very comprehensive royalty
survey that was done by the Licensing Executive Society
in 1997,” which he viewed as “a standard textbook for
people who are seeking to set reasonable royalty rates.”
Id. The licensing survey was not limited to any particular
industry but “was across whatever technologies were
being licensed by the people who responded,” and sug-
gested that in general, across all of those unrelated tech-
nologies, “for a minor improvement, we would charge 2 to
5 percent. For a major improvement, we would charge 4
to 8 percent. And for a major breakthrough, 6 to 15
percent . . . .” A653-54. There is no evidence in the record
that the two third-party licensing programs or the indus-
tries involved in the licensing survey included the pat-
ented technology or even involved optical disc
discrimination methods. See id.; A652 (“[T]he two licens-
ing programs are important, because they indicate the
going rate, if you will, at least for those patents, which
may or may not be as important as the one in question.”)
(emphasis added); A653 (“Q. Was the [licensing] survey
directed to ODD technology? A. No.”).
    Mr. Murtha did not deem the sixteen lump sum li-
censes that were entered into between LaserDynamics
and various electronics companies between 1998 and 2001
to establish a royalty rate for the ’981 Patent. Although
he conceded that QCI would “absolutely” be aware of
these prior agreements in a hypothetical negotiation
context, he dismissed any probative value of these 16
licenses because they were entered into before the August
2006 hypothetical negotiation date. He reasoned that, by
2006, the DVD market was larger and more established
such that the value of the patented technology was better
appreciated and LaserDynamics had more bargaining
power.
LASERDYNAMICS   v. QUANTA COMPUTER                       12


    Based on his discussions with LaserDynamics’ other
experts, Mr. Murtha concluded that the patented technol-
ogy in the ODD is responsible for one-third of the value of
a laptop computer containing such an ODD. Thus, he
arrived at his 2% per laptop computer rate simply by
taking one-third of the 6% rate for the ODD. When Mr.
Murtha’s proffered 2% running royalty rate was applied
to QCI’s total revenues from sales of laptop computers in
the United States—$2.53 billion—the resulting figure
presented to the jury was $52.1 million.
    By contrast, QCI’s theory of damages was that a lump
sum of $500,000 would be a reasonable royalty. QCI’s
expert, Mr. Brett Reed, found the 16 licenses in evi-
dence—all lump sums ranging between $50,000 and
$266,000—to be highly indicative of the value of the
patented technology according to LaserDynamics, and of
what a reasonable accused infringer would agree to pay
for a license.
    Prior to the first trial, QCI filed a motion for partial
summary judgment, or in the alternative a motion pursu-
ant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509
U.S. 579 (1993), with respect to damages. QCI sought to
limit damages to a one-time lump sum of $232,376.00
based on LaserDynamics’ prior licenses, and to preclude
Mr. Murtha from offering any opinion to the contrary for
being unreliable by ignoring this established licensing
practice. QCI’s motion heavily criticized Mr. Murtha’s
opinions for being fundamentally inconsistent with La-
serDynamics’ licenses in either form or amount. How-
ever, QCI’s motion did not challenge Mr. Murtha’s one-
third apportionment calculation to go from his 6% rate
per ODD to his 2% rate per laptop computer, nor did it
challenge his use of a completed laptop computer as a
royalty base. The district court never ruled on QCI’s
motion. QCI also moved in limine to preclude testimony
13                       LASERDYNAMICS    v. QUANTA COMPUTER


regarding damages in excess of $266,000 or suggesting
that the prior 16 licenses did not establish a royalty rate.
The district court denied this motion. At no point during
the first trial did QCI object to or seek to limit Mr.
Murtha’s testimony relating to his apportionment or
royalty base selection, nor did QCI file a pre-verdict
motion for judgment as a matter of law (“JMOL”) impli-
cating such issues pursuant to Federal Rule of Civil
Procedure 50(a).
    Two other issues arose during the first trial that are
pertinent to this appeal: (1) the district court’s instruc-
tions to the jury concerning QCI’s position regarding its
buy/sell arrangements, and (2) the adequacy of LaserDy-
namics’ proof of infringement. We discuss each issue in
turn.
      1. The District Court’s Instruction to the Jury
    Upon perceiving a change in position by QCI concern-
ing the frequency with which QCI’s ODDs were obtained
via a buy/sell arrangement, the district court instructed
the jury as follows:
     [P]rior to yesterday, the position of Quanta Com-
     puters was that this buy/sell arrangement . . .
     [was] one of the ways in which . . . they did their
     business. Yesterday, the testimony was, for the
     first time, that that was the predominant method
     of doing business. You are instructed that this
     constitutes a significant change in the testimony,
     and no documents have been produced to support
     that, and that you may take this instruction into
     account in judging the credibility of all of this wit-
     ness’ testimony and all other Quanta Computer’s
     positions in this case.
LASERDYNAMICS   v. QUANTA COMPUTER                       14


A34-35. A prior ruling from the magistrate judge permit-
ted QCI to utilize a demonstrative showing how a buy/sell
arrangement works “conditioned on the Defendants’
representation that they would use the demonstratives to
show generally one way that QCI obtains optical drives.”
A5100. QCI believed the district court’s later instruction
was based on a false premise that QCI had changed its
position. Prior to trial, LaserDynamics was made aware
of QCI’s contention that approximately 85% of its ODD
purchases were through buy/sell arrangements. The
testimony elicited by QCI at trial was ostensibly consis-
tent with this contention, representing that QCI obtains
drives from its customers “more frequently” than from
ODD sellers. A754. Arguing that QCI did not run afoul
of the earlier magistrate judge’s condition that the de-
monstrative show only “one way” QCI obtains its drives,
QCI viewed the district court’s instruction unfairly preju-
dicial and moved for a new trial on that basis. QCI’s
motion for a new trial on these grounds was denied.
    2. QCI’s Challenge to the Proof of Infringement
    QCI challenged LaserDynamics’ contentions that the
end users of the ODDs directly infringed the ’981 Patent.
Asserted claim 3 of the ’981 Patent includes the step of
“processing an optical signal reflected from encoded pits
on an optical disk . . . .” The district court construed the
phrase “encoded pits on an optical disk” to mean “depres-
sion[s] in the surface of the disk which represent[] data or
information.” LaserDynamics, Inc. v. Asus Computer Int’l,
No. 2:06-cv-348-TJW-CE, 2008 U.S. Dist. LEXIS 63498, at
*13 (E.D. Tex. Aug. 18, 2008) (“Markman Order”). The
subsequent claimed step of “collating the processed optical
signal with an optical disk standard data which is stored
in a memory” was construed to mean “comparing the
processed optical signal with an optical disk standard
data stored on a memory.” Id. at *15. The Markman
15                     LASERDYNAMICS   v. QUANTA COMPUTER


Order further explained that “there is no requirement
that the same optical signal determine both the total
number of data layers and also pit configuration stan-
dard.” Id. According to LaserDynamics’ expert, industry
standards require that each type of optical disc (i.e., CD,
DVD, etc.) has a particular arrangement of depressions
within the data layer as well as a particular depth of the
data layer from the surface of the disc, such that the
depth and arrangement of depressions have a one-to-one
correspondence. LaserDynamics’ theory of infringement
was that the optical signal in the accused ODDs included
a “counter value” that tracked the time for the ODD to
change focus from the transparent outer surface of the
disc to the internal data layer. When the counter value
was compared with a known threshold counter value for a
given type of optical disc, the type of disc (including its
standard arrangement of depressions) could be identified.
    QCI filed a motion for JMOL of non-infringement, ar-
guing that the ODDs in its laptop computers, by measur-
ing a counter value of time, were not literally measuring
an arrangement of depressions, which QCI contended was
required by the language of claim 3 and the district
court’s claim constructions. Specifically, QCI notes claim
3 requires a step of “settling modulation of servomecha-
nism means dependent upon the optical disk standard
data which corresponds with the processed optical signal,”
which the district court construed as “establishing the
regulation of the automatic feedback control system for
mechanical motion dependent upon the recognized ar-
rangement of depressions for an optical storage medium
which corresponds to the processed optical signal.”
Markman Order at *16. QCI alleged that this construc-
tion indicates that the reference to operating the servo-
mechanism based on “optical disk standard data” requires
the ODD to identify a spatial value—“the recognized
LASERDYNAMICS   v. QUANTA COMPUTER                        16


arrangement of depressions”—not to calculate a temporal
“counter value” in order to discriminate between optical
disc types. A3190. The district court denied QCI’s motion
for JMOL, finding no basis to disturb the jury’s infringe-
ment verdict.
        B. The First Jury Verdict and Post-Trial
                      Proceedings
    The jury ultimately returned a verdict finding QCI li-
able for active inducement of infringement, and awarded
$52 million in damages to LaserDynamics, almost the
exact amount proffered by Mr. Murtha. After the verdict,
QCI filed a motion for a remittitur or new trial pursuant
to Federal Rule of Civil Procedure 59(a). In this motion,
QCI argued that the verdict was grossly excessive and
against the great weight of the evidence, and for the first
time argued that Mr. Murtha’s testimony should have
been excluded due to his unreliable methodology in apply-
ing the “entire market value rule”—i.e., using the reve-
nues from sales of the entire laptop computers as the
royalty base—without having established that the pat-
ented feature drives the demand for the entire laptop
computer. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538,
1549 (Fed. Cir. 1995). In other words, QCI argued that
LaserDynamics failed to establish that the disc discrimi-
nation method covered by claim 3 of the ’981 Patent was
“the basis for customer demand” for the laptop computers.
Id.
    The district court granted QCI’s motion, finding that
LaserDynamics had indeed improperly invoked the entire
market value rule. LaserDynamics, Inc. v. Quanta Com-
puter, Inc., No. 2:06-cv-348-TJW-CE, 2010 U.S. Dist.
LEXIS 56634 (E.D. Tex. June 9, 2010) (“New Trial Op.”).
The district court reasoned that “[t]he price of the finished
computers should not have been included in the royalty
17                     LASERDYNAMICS   v. QUANTA COMPUTER


base [because] LaserDynamics presented no evidence that
its patented method drove the demand for QCI’s finished
computers.” Id. at *9. “At best,” LaserDynamics had only
established that “almost all computers sold in the retail
market include optical disc drives and that customers
would be hesitant to purchase computers without an
optical disc drive.” Id. at *10. LaserDynamics’ theory in
the first trial was thus found to violate Rite-Hite as well
as our then-recent decision in Lucent Techs., Inc. v. Gate-
way, Inc., 580 F.3d 1301 (Fed. Cir. 2009), 4 which further
expounded on the entire market value rule. The district
court concluded that the $52 million damages award was
unsupportable and excessive, and granted QCI’s motion.
Id. at *12-13. Because the district court did not view Mr.
Murtha’s 6%-per-ODD royalty as clearly excessive, La-
serDynamics was given the option of a new trial on dam-
ages or a remittitur to $6.2 million, which was calculated
using the 6% royalty rate applied to each ODD sold as
part of QCI’s laptop computers. Id. at *11-13. LaserDy-
namics declined to accept the remittitur to $6.2 million
and elected to have a new trial.
                  C. The Second Trial
    Prior to the second trial on damages, QCI renewed its
objections to the anticipated testimony of Mr. Murtha
concerning his dismissive view of the existing licenses to
the ’981 Patent, and challenged his 6% royalty rate based
on ODD average price for being improperly based on non-
comparable licensing evidence. QCI also expressly chal-
lenged Mr. Murtha’s 2% royalty applying the entire
market value rule, relying on our decisions in Lucent
Technologies, 580 F.3d 1301, and Uniloc USA, Inc. v.
Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011). QCI’s

     4  Lucent was issued two months after the jury ver-
dict but before QCI’s new trial motion was filed.
LASERDYNAMICS   v. QUANTA COMPUTER                         18


objections regarding the application of the entire market
value rule were sustained.         LaserDynamics, Inc. v.
Quanta Computer, Inc., No. 2:06-cv-348-TJW-CE, 2011
U.S. Dist. LEXIS 42590, at *8 (E.D. Tex. Jan. 7, 2011)
(“Mr. Murtha's opinions that a reasonable royalty is 2% of
the entire market value of a computer, and that a disk
drive constitutes a third of the value of the computer, are
excluded.”). The district court permitted LaserDynamics
to put on evidence regarding a 6% running royalty dam-
ages model based on ODD average price, but subject to
certain restrictions regarding proof of comparability to the
hypothetically negotiated license. LaserDynamics, Inc. v.
Quanta Computer, Inc., No. 2:06-cv-348-TJW-CE, at 3
(E.D. Tex. Jan. 19, 2011) (“[T]he court DENIES Quanta’s
cross-motion to preclude Laser from arguing that a run-
ning royalty is appropriate.”); LaserDynamics, 2011 U.S.
Dist. LEXIS 42590, at *10 (permitting Mr. Murtha to rely
on the 1997 Licensing Executive Society survey “to allude
to general practices, such as preference for a running
royalty or a lump sum, but [not to] testify as to the royalty
rates discussed in the survey”); id. at *11 (ordering that, if
seeking to present licenses as comparable to the jury, “[i]t
is not sufficient to state that both patents cover optical
disk drive technology. The plaintiff must establish the
functionality enabled by the patent-in-suit as well as the
functionality purportedly covered by the licensed patent
and compare their economic importance”).
    Before the second trial, QCI also filed a motion in
limine to exclude the 2006 BenQ settlement agreement
from evidence for having its probative value substantially
outweighed by the danger of unfair prejudice or confusion
of the issues under Federal Rule of Evidence 403. QCI’s
motion emphasized the unique circumstances of the BenQ
settlement that rendered it non-comparable, as it was
executed shortly before trial and after BenQ had been
19                     LASERDYNAMICS   v. QUANTA COMPUTER


repeatedly sanctioned by the district court. QCI also
challenged the probative value of any per unit royalty
rate that might be extrapolated from the BenQ settle-
ment, which involved only a one time lump sum royalty
payment of $6 million. The district court denied QCI’s
motion, reasoning that LaserDynamics could use the
BenQ agreement to “prove up a per unit royalty rate from
the information provided in the agreement” so as to
support its 6% per ODD royalty rate. LaserDynamics,
Inc. v. Quanta Computer, Inc., No. 2:06-cv-348-TJW-CE,
at 3 (E.D. Tex. Jan. 19, 2011).
    In light of these rulings, LaserDynamics offered tes-
timony that damages should be $10.5 million based on a
running royalty of 6% of the average price of a standalone
ODD. While the average per-unit ODD price utilized in
the first trial was the $28 mask price, LaserDynamics
now used a $41 per ODD value that was calculated based
on a relatively small sample of about 9,000 licensed non-
infringing drives made by Sony that were sold as re-
placement drives by QCI. In response to QCI’s objections,
LaserDynamics contended that this increased value was
accurate and reliable because prior to the first trial both
QSI and QCI were accused of inducing infringement.
According to LaserDynamics, the prices of QSI’s ODDs
and QCI’s laptop computers were evaluated to support
LaserDynamics’ damages theory going into the first trial
since it was not until after the district court’s rulings in
the Pre-Trial Opinion that LaserDynamics dropped its
claims against QSI. Going into the second trial, however,
only QCI was accused of active inducement, and so the
price of ODDs sold by QCI became a more central issue.
Since QCI does not itself make and sell standalone ODDs,
and since QCI presented no representative sales price,
LaserDynamics used the average price of the replacement
ODDs sold by QCI. QCI nevertheless contends that this
LASERDYNAMICS   v. QUANTA COMPUTER                        20


$41 price is far too high since the evidence is undisputed
that mask price of $28 paid by QCI is always higher than
the actual price of the ODD.
    QCI’s expert testified that the appropriate damages
amount was a lump sum payment of $1.2 million, based in
large part on the fact that none of the now twenty-nine
licenses in evidence (excluding the BenQ settlement)
exceeded lump sum amounts of $1 million. Based on
evidence that QCI could have switched from QSI drives to
other licensed ODD suppliers to avoid infringement at a
cost of $600,000, QCI’s expert also opined that QCI would
have paid twice that amount to have the freedom to use
ODDs from any supplier.
    The jury ultimately awarded a lump sum amount of
$8.5 million in damages. QCI moved for JMOL on the
grounds that the hypothetical negotiation date had been
improperly set as August 2006, that the evidence at trial
did not support the jury’s award of $8.5 million, and that
LaserDynamics had failed to offer proof at trial to support
its $10.5 million damages theory. The district court
denied QCI’s motion for JMOL.
                          * * *
    LaserDynamics appealed the district court’s granting
QCI’s motion for a new trial and/or remittitur based on
the entire market value rule. QCI cross-appealed the
district court’s denial of a new trial on the alternative
ground of the district court’s allegedly prejudicial instruc-
tion to the jury. QCI also cross-appealed the district
court’s entry of summary judgment on the issues of im-
plied license and patent exhaustion, its denial of QCI’s
motion for JMOL of non-infringement following the first
trial, and its denial of QCI’s motion for JMOL following
the second trial. We have jurisdiction pursuant to 28
U.S.C. § 1295(a)(1).
21                      LASERDYNAMICS   v. QUANTA COMPUTER


                      III. DISCUSSION
     For issues not unique to patent law, we apply the law
of the regional circuit where this appeal would otherwise
lie, which in this case is the Fifth Circuit. i4i Ltd. P’ship
v. Microsoft Corp., 598 F.3d 831, 841 (Fed. Cir. 2010).
Thus, the grant or denial of a motion for a remittitur or a
new trial is reviewed for an abuse of discretion. Brunne-
mann v. Terra Int’l, Inc., 975 F.2d 175, 177 (5th Cir.
1992); Bonura v. Sea Land Serv., Inc., 505 F.2d 665,669
(5th Cir. 1974). Evidentiary rulings are reviewed for an
abuse of discretion. Industrias Magromer Cueros Y Pieles
S.A. v. La. Bayou Furs, 293 F.3d 912, 924 (5th Cir. 2002).
Decisions on motions for summary judgment and JMOL
are reviewed de novo. Cambridge Toxicology Group v.
Exnicios, 495 F.3d 169, 173, 179 (5th Cir. 2007).
    For reasons explained in detail below, we hold: (a)
that the district court properly granted a new trial on
damages following the first jury verdict; (b) that the
district court erred in finding that QCI does not have an
implied license to assemble and sell laptops using ODDs
purchased via Philips and Sony/NEC/Optiarc; (c) that the
district court properly denied QCI’s motion for JMOL of
non-infringement; (d) that the district court’s jury instruc-
tion does not alone warrant a new trial on liability; (e)
that the district court erred by setting the hypothetical
negotiation date as August 2006; (f) that the district court
erred in admitting the BenQ settlement agreement into
evidence; and (g) that the district court erred in permit-
ting Mr. Murtha to offer his opinion concerning a 6% per
ODD running royalty rate based on ODD average price as
a proper measure of reasonable royalty damages in the
second trial. We address each of these issues in turn.
LASERDYNAMICS   v. QUANTA COMPUTER                      22


     A. The District Court Properly Granted a New
                   Trial on Damages
    LaserDynamics contends that the district court erred
by granting QCI’s motion for a new trial on damages after
the conclusion of the first trial. Essentially, LaserDynam-
ics believes that the district court was precluded from
ordering a new trial under the circumstances, since QCI
never raised its entire market value rule argument until
after the jury verdict, and thereby waived any right to
seek a new trial to rectify that error. Moreover, LaserDy-
namics denies that it improperly relied on the entire
market value rule during the first trial, but contends that
it instead used a permissible “product value apportion-
ment” method. LaserDynamics Br. at 36-44. We disagree
with both of LaserDynamics’ arguments.
            1. The Entire Market Value Rule
    We begin by noting that some products are made of
many different components, one or more of which compo-
nents may be covered by an asserted patent, while other
components are not. This is especially true for electronic
devices, which may include dozens of distinct components,
many of which may be separately patented, the patents
often being owned by different entities. To assess how
much value each patented and non-patented component
individually contributes to the overall end product—e.g., a
personal computer—can be an exceedingly difficult and
error-prone task.
    By statute, reasonable royalty damages are deemed
the minimum amount of infringement damages “adequate
to compensate for the infringement.” 35 U.S.C. § 284.
Such damages must be awarded “for the use made of the
invention by the infringer.” Id. Where small elements of
multi-component products are accused of infringement,
calculating a royalty on the entire product carries a
23                     LASERDYNAMICS   v. QUANTA COMPUTER


considerable risk that the patentee will be improperly
compensated for non-infringing components of that prod-
uct. Thus, it is generally required that royalties be based
not on the entire product, but instead on the “smallest
salable patent-practicing unit.” Cornell Univ. v. Hewlett-
Packard Co., 609 F. Supp. 2d 279, 283, 287-88 (N.D.N.Y.
2009) (explaining that “counsel would have wisely aban-
doned a royalty base claim encompassing a product with
significant non-infringing components. The logical and
readily available alternative was the smallest salable
infringing unit with close relation to the claimed inven-
tion—namely the processor itself.”).
     The entire market value rule is a narrow exception to
this general rule. If it can be shown that the patented
feature drives the demand for an entire multi-component
product, a patentee may be awarded damages as a per-
centage of revenues or profits attributable to the entire
product. Rite-Hite, 56 F.3d at 1549, 1551. In other words,
“[t]he entire market value rule allows for the recovery of
damages based on the value of an entire apparatus con-
taining several features, when the feature patented
constitutes the basis for customer demand.” Lucent, 580
F.3d at 1336 (quoting TWM Mfg. Co. v. Dura Corp., 789
F.2d 895, 901 (Fed. Cir. 1986)). The entire market value
rule is derived from Supreme Court precedent requiring
that “the patentee . . . must in every case give evidence
tending to separate or apportion the defendant’s profits
and the patentee’s damages between the patented feature
and the unpatented features, and such evidence must be
reliable and tangible, and not conjectural or speculative.”
Garretson v. Clark, 111 U.S. 120, 121 (1884). The Court
explained that “the entire value of the whole machine, as
a marketable article, [must be] properly and legally
attributable to the patented feature.” Id.
LASERDYNAMICS   v. QUANTA COMPUTER                         24


     In effect, the entire market value rule acts as a check
to ensure that the royalty damages being sought under 35
U.S.C. § 284 are in fact “reasonable” in light of the tech-
nology at issue. We have consistently maintained that “a
reasonable royalty analysis requires a court to hypothe-
size, not to speculate. . . . [T]he trial court must carefully
tie proof of damages to the claimed invention’s footprint in
the market place.” ResQNet.com, Inc. v. Lansa, Inc., 594
F.3d 860, 869 (Fed. Cir. 2010). A damages theory must be
based on “sound economic and factual predicates.” Riles v.
Shell Exploration & Prod. Co., 298 F.3d 1302, 1311 (Fed.
Cir. 2002). The entire market value rule arose and
evolved to limit the permissible scope of patentees’ dam-
ages theories.
    Importantly, the requirement to prove that the pat-
ented feature drives demand for the entire product may
not be avoided by the use of a very small royalty rate. We
recently rejected such a contention, raised again in this
case by LaserDynamics, and clarified that “[t]he Supreme
Court and this court’s precedents do not allow considera-
tion of the entire market value of accused products for
minor patent improvements simply by asserting a low
enough royalty rate.” Uniloc, 632 F.3d at 1319-20 (ex-
plaining that statements in Lucent suggesting otherwise
were taken out of context). We reaffirm that in any case
involving multi-component products, patentees may not
calculate damages based on sales of the entire product, as
opposed to the smallest salable patent-practicing unit,
without showing that the demand for the entire product is
attributable to the patented feature.
    Regardless of the chosen royalty rate, one way in
which the error of an improperly admitted entire market
value rule theory manifests itself is in the disclosure of
the revenues earned by the accused infringer associated
with a complete product rather than the patented compo-
25                     LASERDYNAMICS   v. QUANTA COMPUTER


nent only. In Uniloc, we observed that such disclosure to
the jury of the overall product revenues “cannot help but
skew the damages horizon for the jury, regardless of the
contribution of the patented component to this revenue.”
Id. at 1320 (noting that “the $19 billion cat was never put
back into the bag,” and that neither cross-examination
nor a curative jury instruction could have offset the
resulting unfair prejudice). Admission of such overall
revenues, which have no demonstrated correlation to the
value of the patented feature alone, only serve to make a
patentee’s proffered damages amount appear modest by
comparison, and to artificially inflate the jury’s damages
calculation beyond that which is “adequate to compensate
for the infringement.” Id.; see 35 U.S.C. § 284.
    Turning to the facts of this case, LaserDynamics and
Mr. Murtha unquestionably advanced an entire market
value rule theory in the first trial. Mr. Murtha opined
that a 2% running royalty applied to QCI’s total revenues
from sales of laptop computers in the United States—
$2.53 billion—was an appropriate and reasonable royalty.
The resulting figure presented to the jury was $52.1
million, and the jury awarded damages in nearly that
exact amount. Whether called “product value apportion-
ment” or anything else, the fact remains that the royalty
was expressly calculated as a percentage of the entire
market value of a laptop computer rather than a patent-
practicing ODD alone. This, by definition, is an applica-
tion of the entire market value rule.
     LaserDynamics’ use of the entire market value rule
was impermissible, however, because LaserDynamics
failed to present evidence showing that the patented disc
discrimination method drove demand for the laptop
computers. It is not enough to merely show that the disc
discrimination method is viewed as valuable, important,
or even essential to the use of the laptop computer. Nor is
LASERDYNAMICS   v. QUANTA COMPUTER                        26


it enough to show that a laptop computer without an ODD
practicing the disc discrimination method would be com-
mercially unviable. Were this sufficient, a plethora of
features of a laptop computer could be deemed to drive
demand for the entire product. To name a few, a high
resolution screen, responsive keyboard, fast wireless
network receiver, and extended-life battery are all in a
sense important or essential features to a laptop com-
puter; take away one of these features and consumers are
unlikely to select such a laptop computer in the market-
place. But proof that consumers would not want a laptop
computer without such features is not tantamount to
proof that any one of those features alone drives the
market for laptop computers. Put another way, if given a
choice between two otherwise equivalent laptop com-
puters, only one of which practices optical disc discrimina-
tion, proof that consumers would choose the laptop
computer having the disc discrimination functionality
says nothing as to whether the presence of that function-
ality is what motivates consumers to buy a laptop com-
puter in the first place. It is this latter and higher degree
of proof that must exist to support an entire market value
rule theory.
     Our decision in Lucent is illustrative. There, the pat-
ent at issue involved a helpful and convenient “date
picker” feature that was being used within the grand
scheme of Microsoft’s Outlook email software. We held
that because the patented feature was “but a tiny feature
of one part of a much larger software program,” a royalty
could not be properly calculated based on the value of the
entire Outlook program because “there was no evidence
that anybody anywhere at any time ever bought Outlook .
. . because it had [the patented] date picker.” Lucent, 580
F.3d at 1332-33 (emphasis added).
27                     LASERDYNAMICS   v. QUANTA COMPUTER


    In this case, Mr. Murtha never conducted any market
studies or consumer surveys to ascertain whether the
demand for a laptop computer is driven by the patented
technology. On the record before us, the patented method
is best understood as a useful commodity-type feature
that consumers expect will be present in all laptop com-
puters. There is no evidence that this feature alone
motivates consumers to purchase a laptop computer, such
that the value of the entire computer can be attributed to
the patented disc discrimination method. As the district
court aptly stated, “[a]t best,” LaserDynamics proved only
that “almost all computers sold in the retail market
include optical disc drives and that customers would be
hesitant to purchase computers without an optical disc
drive.” New Trial Op. at *10. The district court correctly
found that this evidence fails to satisfy the requirements
of our precedent to support the usage of the entire market
value rule when calculating reasonable royalty damages.
     Furthermore, Mr. Murtha’s one-third apportionment
to bring his royalty rate down from 6% per ODD to 2% per
laptop computer appears to have been plucked out of thin
air based on vague qualitative notions of the relative
importance of the ODD technology. The district court
correctly concluded that “[a]lthough [LaserDynamics]
argues that the many activities that may be performed on
a computer using a disk drive, such as playing movies,
music and games, transferring documents, backing up
files, and installing software comprise a third of the value
of a computer, [Mr. Murtha] offers no credible economic
analysis to support that conclusion.” LaserDynamics,
2011 U.S. Dist. LEXIS 42590, at *6. This complete lack of
economic analysis to quantitatively support the one-third
apportionment echoes the kind of arbitrariness of the
“25% Rule” that we recently and emphatically rejected
from damages experts, and would alone justify excluding
LASERDYNAMICS   v. QUANTA COMPUTER                       28


Mr. Murtha’s opinions in the first trial. Cf. Uniloc, 632
F.3d at 1318 (“Gemini’s starting point of a 25 percent
royalty had no relation to the facts of the case, and as
such, was arbitrary, unreliable, and irrelevant. The use of
such a rule fails to pass muster under Daubert and taints
the jury’s damages calculation.”).
     Finally, we reject the contention that practical and
economic necessity compelled LaserDynamics to base its
royalty on the price of an entire laptop computer. La-
serDynamics Br. at 15-18. LaserDynamics emphasizes
that QCI is in the business of assembling and selling
complete laptop computers, not independent ODDs, and
that QCI does not track the prices, revenues, or profits
associated with individual components. Likewise, La-
serDynamics points out that QCI purchases ODDs for a
“mask price,” which the district court described as “nomi-
nal” and essentially “an accounting fiction” that offers
“little evidence of the drives’ actual value.” LaserDynam-
ics, Inc. v. Quanta Computer, Inc., No. 2:06-cv-348-TJW-
CE (E.D. Tex. Jan. 21, 2011). LaserDynamics further
points to Mr. Murtha’s testimony that, in his prior experi-
ence working in patent licensing at IBM, IBM would often
base royalties on entire products to address such account-
ing difficulties. Thus, LaserDynamics concludes that the
parties would have had to use the value of the entire
laptop computer as the royalty base in structuring a
hypothetical license agreement, as it reflects the only true
market value of anything that QCI sells.
    LaserDynamics overlooks that a per-unit running
royalty is not the only form of a reasonable royalty that
the parties might have agreed to in a hypothetical nego-
tiation. An alternate form is evidenced by the many
license agreements to the ’981 Patent in the record for
lump sum royalties that are not calculated as a percent-
age of any component or product, which immediately
29                     LASERDYNAMICS   v. QUANTA COMPUTER


belies the argument that using a laptop computer as the
royalty base is “necessary.” LaserDynamics’ necessity
argument also fails to address the fundamental concern of
the entire market value rule, since permitting LaserDy-
namics to use a laptop computer royalty base does not
ensure that the royalty rate applied thereto does not
overreach and encompass components not covered by the
patent. That is, if difficulty in precisely identifying the
value of the ODDs is what justifies using complete laptop
computers as the royalty base, when it comes time to then
apportion a royalty rate that accounts for the ODD con-
tribution only, the exceedingly difficult and error-prone
task of discerning the ODD’s value relative to all other
components in the laptop remains.
    Moreover, LaserDynamics provides no reason that
QCI’s own lack of internal tracking and accounting of
individual components or its “mask price” purchases
precludes LaserDynamics from deriving or obtaining
accurate information concerning ODD values from third
parties, industry practices, etc. LaserDynamics in fact
did obtain and use alternative pricing information from
Sony-made ODDs in the second trial. As explained below,
this Sony-made ODD pricing information was not per se
unreliable, as the jury was entitled to weigh it against
QCI’s competing views of appropriate ODD pricing. Thus,
we see no reason to establish a necessity-based exception
to the entire market value rule for LaserDynamics in this
case.
              2. The Grant of a New Trial
    Having established that LaserDynamics’ theory of
damages was legally unsupportable, we turn to the ques-
tion of whether the district court abused its discretion in
granting QCI’s post-verdict motion and offering LaserDy-
namics a choice between a new damages trial and a
LASERDYNAMICS   v. QUANTA COMPUTER                         30


remittitur of the damages verdict to $6.2 million. While
LaserDynamics is correct that QCI made no pre-verdict
objection or raised any challenge whatsoever to Mr.
Murtha’s testimony on an entire market value rule the-
ory, under Fifth Circuit law this ostensible waiver by QCI
does not preclude the district court from exercising its
discretion to consider the issue. See Garriott v. NCsoft
Corp., 661 F.3d 243 (5th Cir. 2011) (finding that an oth-
erwise waived argument made in a motion for a new trial
was properly addressed and preserved when the district
court exercised its discretion to consider the issue in its
opinion denying the motion).
    The Fifth Circuit has determined that “[a] district
court has discretion to consider new theories raised for
the first time in a post-trial brief, . . . and an issue first
presented to the district court in a post-trial brief is
properly raised below when the district court exercises its
discretion to consider the issue.” Quest Medical, Inc. v.
Apprill, 90 F.3d 1080, 1087 (5th Cir. 1996) (citations
omitted). In this case, whether or not the district court
could have deemed QCI’s entire market value rule argu-
ments waived and ignored them, it did not. In light of
QCI’s post-trial briefing, the district court identified the
error of permitting the entire market value rule theory to
go to the jury, and exercised its discretion to correct the
error. We find no abuse of discretion in the district court’s
decision to grant QCI’s motion for a remittitur or a new
trial under these circumstances, and we therefore affirm
the district court on this point.
    B. QCI Has an Implied License to Assemble Lap-
       tops Using ODDs from QSI via Philips and
                  Sony/NEC/Optiarc
    QCI contends that it has an implied license to assem-
ble laptop computers for its customers that include the
31                     LASERDYNAMICS   v. QUANTA COMPUTER


accused ODDs assembled by QSI for Philips or
Sony/NEC/Optiarc,     pursuant     to    Philips’s   and
Sony/NEC/Optiarc’s “have made” rights under their
patent license agreements with LaserDynamics. The
QSI-assembled ODDs at issue are sold by Philips or
Sony/NEC/Optiarc either directly to QCI or indirectly to
QCI via QCI’s customers such as Dell and HP, as directed
by QCI’s customers. “The existence vel non of an implied
license is a question of law that we review de novo.”
Anton/Bauer, Inc. v. PAG, Ltd., 329 F.3d 1343, 1348 (Fed.
Cir. 2003).
    At oral argument before this court, counsel for QCI
explained that the vast majority of the allegedly infring-
ing ODDs would be covered under QCI’s implied license
theory, and that QCI’s arguments concerning patent
exhaustion pertain to only those same ODDs. Oral Arg.
at            0:30-1:30,           available            at
http://oralarguments.cafc.uscourts.gov/default.aspx?fl=20
11-1440.mp3. Because we find that QCI has an implied
license, we do not reach QCI’s patent exhaustion argu-
ments. 5


     5
        At oral argument before this court, counsel for La-
serDynamics for the first time argued that the district
court merely denied QCI’s summary judgment motion on
these issues, but did not also enter summary judgment
against QCI, and that such a supposed denial of summary
judgment cannot be appealed to us after a trial where
QCI did not take further steps to preserve the issue. Oral
Arg. at 11:18-13:57. QCI’s briefing repeatedly character-
ized the district court’s order as entering summary judg-
ment against QCI, but LaserDynamics made no challenge
to this characterization until oral argument. A subse-
quent motion refining this argument and seeking to
dismiss these portions of QCI’s appeal for lack of jurisdic-
tion was filed on March 23, 2012.
LASERDYNAMICS   v. QUANTA COMPUTER                       32


    The district court relied solely on E.I. Du Pont de Ne-
mours & Co. v. Shell Oil Co., 498 A.2d 1108 (Del. 1985), in
finding that “the Quanta defendants do not have an
implied license with respect to drives that are manufac-
tured by QSI and eventually sold to QCI (or another
Quanta entity), notwithstanding the fact that those drives
are sold through Philips or Sony/NEC/Optiarc, two of
[LaserDynamics’] licensees.” Pre-Trial Op. at *4 (citing
Du Pont, 498 F.3d at 1116). According to the district
court, “[t]he effect of such transactions is to grant an
impermissible sublicense.” Id. We disagree.
    In Du Pont, E.I. Du Pont de Nemours and Company,
Inc. (“Du Pont”) had entered into a license agreement
with Shell Oil Company (“Shell”) permitting Shell to
“make, have made, use and sell for use or resale” an

    LaserDynamics’ belated argument hinges on an incor-
rect premise. The district court’s order plainly went
further than denying QCI’s motion and made affirmative
rulings on these issues as a matter of law. See LaserDy-
namics, 2009 U.S. Dist. LEXIS 115848, at *3-5. The
district court indicated that “for purposes of trial, the
court advises the parties of the following holdings,” e.g.,
“the Quanta defendants do not have an implied license
with respect to drives that are manufactured by QSI and
eventually sold to QCI (or another Quanta entity), not-
withstanding the fact that those drives are sold through
Philips or Sony/NEC/Optiarc, two of [LaserDynamics’]
licensees.” Id. Thus, LaserDynamics’ citing to Ortiz v.
Jordan, 131 S. Ct. 884, 889 (2011), for the proposition
that an appellate court has no jurisdiction over a denial of
summary judgment following a trial on the merits is to no
avail. Fed. R. Civ. P. 56(f) permits the district court to
enter summary judgment in favor of a non-moving party,
and LaserDynamics points to nowhere in the record
where it objected to any procedural defect in the district
court’s doing so. On this record, we see no genuine dis-
putes of material fact that would preclude us from revers-
ing the district court on the implied license issue.
33                     LASERDYNAMICS   v. QUANTA COMPUTER


insecticide product covered by Du Pont’s patent. 498 A.2d
at 1110. The license agreement expressly prohibited any
sublicensing by Shell. Id. Union Carbide Agricultural
Corporation, Inc. (“Union Carbide”) later sought permis-
sion from Shell to produce the patented insecticide, but
Shell declined due to the prohibition on sublicensing in its
licensed agreement with Du Pont. Id. at 1111. Instead,
Shell and Union Carbide came up with the following
arrangement: (1) Union Carbide would manufacture the
insecticide under the “have made” provision of the license
agreement between Shell and Du Pont, then (2) Shell
would immediately sell back the insecticide to Union
Carbide pursuant to Shell’s right to “sell for use or re-
sale.” Id. at 1111. The minimum amounts of insecticide
that Union Carbide agreed to make and the minimum
amounts that Shell agreed to sell back to Union Carbide
were identical. Id. at 1115-16. The Supreme Court of
Delaware deemed this arrangement an impermissible
sublicense, rather than a permissible exercise of Shell’s
“have made” and “sell” rights, because “ultimately, Union
Carbide was producing [the insecticide], not for Shell, but
rather for itself.” Id. (citing Carey v. United States, 326
F.2d 975, 979 (Ct. Cl. 1964) (explaining that “the test is,
whether the production is by or for the use of the original
licensee or for the sublicensee himself or for someone
else”)).
    The case before us presents a different situation from
that in Du Pont. The ODDs provided to QCI via Philips
and Sony/NEC/Optiarc were undoubtedly assembled by
QSI for Philips and Sony/NEC/Optiarc, not for QSI or
QCI. Even though the ODDs made by QSI were in reality
shipped directly from QSI to QCI, the substance of the
transactions make clear that QSI’s manufacture of the
ODDs was limited to the needs and requests of Philips
and Sony/NEC/Optiarc. QSI had no unfettered ability to
LASERDYNAMICS   v. QUANTA COMPUTER                         34


make more ODDs than were ordered from it. Nothing in
the record suggests that this overall arrangement is
designed to circumvent the terms of the patent licenses
between       LaserDynamics         and      Philips    or
Sony/NEC/Optiarc. Indeed, the shipping and manufactur-
ing arrangements involved in this case reflect typical on-
time delivery logistics of modern industrial reality.
    The apposite precedent is our decision in Cyrix Corp.
v. Intel Corp., 77 F.3d 1381 (Fed. Cir. 1996). That case
involved Cyrix Corporation (“Cyrix”), a designer and seller
of microprocessors, contracting with other companies to
manufacture integrated circuit chips containing the
Cyrix-designed microprocessors, then selling the chips
back to Cyrix. Id. at 1383. Cyrix used manufacturers
that were licensed under patents owned by Intel, includ-
ing SGS-Thomson Microelectronics, Inc. (“ST”). Id. ST
had acquired by assignment a license from Intel “to make,
have made . . . [and] sell” the patented chips. Id. ST
could not itself fulfill Cyrix’s orders, however, and, relying
on its “have made” rights, arranged for its Italian non-
subsidiary affiliate company (“ST-Italy”) to manufacture
the chips, which ST then sold to Cyrix. Id. The district
court distinguished this situation from that in Du Pont
and held that ST did not exceed its rights under the Intel
license by having ST-Italy make the chips for ST to sell to
Cyrix. Id. at 1384. Cyrix and ST were both found to not
infringe Intel’s patents on this basis.
    We affirmed, rejecting Intel’s argument that the ar-
rangement among ST, ST-Italy, and Cyrix was a mere
paper transaction—a “sham” designed to circumvent
Intel’s license to ST. Id. at 1387-88. We endorsed the
district court’s reasoning that, unlike in Du Pont, “[t]he
production of the [chips] is for the use of ST, the original
licensee, and not for the use of ST-Italy.” Id. at 1387. As
we explained, “[i]f the facts in this case had been that
35                      LASERDYNAMICS   v. QUANTA COMPUTER


Cyrix made the product for ST under ST’s ‘have made’
rights and then ST sold the product back to Cyrix, then
they would have been analogous to those in du Pont, but
those are not our facts.” Id. at 1388.
    This case likewise presents no “sham” transaction as
in Du Pont. QSI made the ODDs at issue here to fulfill
bona fide orders from licensees Philips and
Sony/NEC/Optiarc. The ODDs were then sold to QCI by
the licensees. QCI did not make the ODDs for Philips or
Sony/NEC/Optiarc and then immediately purchase the
ODDs back so as to effectively receive a sublicense and
obtain as many ODDs as it wanted. Rather, as in Cyrix,
the manufacture of the ODDs by QSI and their eventual
sale to QCI for incorporation into laptop computers, all
via Philips and Sony/NEC/Optiarc, were legitimate and
separate business transactions that did not expand or
circumvent the patent licenses. Id. at 1387-88 (“The two
agreements, one permitting ST-Italy to manufacture
microprocessors for ST and the other providing for ST’s
sale of microprocessors to Cyrix, were separate business
transactions.”). Both the manufacture and sale of the
ODDs were valid exercises of the “have made” and “sell”
rights, respectively, under the license agreements in this
case. We therefore conclude that QCI has an implied
license to the ’981 Patent with respect to the ODDs made
by QSI and sold to QCI via Philips or Sony/NEC/Optiarc.
     C. The District Court Properly Denied QCI’s Mo-
           tion for JMOL of Non-Infringement
     QCI contends that LaserDynamics’ evidence at the
first trial was inadequate to prove direct infringement by
end users of the accused laptops of asserted claim 3 under
the district court’s claim constructions. As discussed
above, claim 3 requires, inter alia, the steps of “processing
an optical signal reflected from encoded pits on an optical
LASERDYNAMICS   v. QUANTA COMPUTER                        36


disk until total number of data layers and pit configura-
tion standard of the optical disk is identified” and “collat-
ing the processed optical signal with an optical disk
standard data which is stored in a memory.” The district
court construed the phrase “encoded pits on an optical
disc” to mean “depression[s] in the surface of the disc
which represent[] data or information” Markman Order,
at *13. The step of “collating the processed optical signal
with an optical disk standard data which is stored in a
memory” was construed to mean “comparing the proc-
essed optical signal with an optical disk standard data
stored on a memory.” Id. at *15.
    QCI does not challenge the district court’s claim con-
structions, but only whether the trial record supports the
jury’s verdict of infringement. Contrary to QCI’s argu-
ment, nothing in these claim constructions dictates that
the arrangement of depressions be “identified” or “recog-
nized” in any particular manner. Substantial evidence
exists to show that the industry standards for various
optical discs require specified arrangements of the de-
pressions horizontally as well as specified depths of the
data layers. The record amply supports that the depth of
the data layer precisely correlates to the pit configuration
arrangement, such that the measurement of the depth
(via a counter value) is a measurement of the pit ar-
rangement. Under the claim constructions, the jury was
entitled to find infringement on this basis, and we there-
fore affirm the district court’s denial of QCI’s motion for
JMOL of non-infringement.
    D. The District Court’s Jury Instruction Does Not
        Alone Warrant a New Trial on Liability
    As discussed above, upon perceiving a change in posi-
tion by QCI concerning the frequency with which QCI’s
ODDs were obtained via a buy/sell arrangement, the
37                      LASERDYNAMICS   v. QUANTA COMPUTER


district judge instructed the jury as follows: “this consti-
tutes a significant change in the testimony, and no docu-
ments have been produced to support that, and that you
may take this instruction into account in judging the
credibility of all of this witness’ testimony and all other
Quanta Computer’s positions in this case.” A34-35. QCI
contends that this instruction so unfairly prejudiced QCI
that only a new trial could rectify the error.
     Since QCI did not object at trial, we review the dis-
trict court’s instruction for plain error. Rodriguez v.
Riddell Sports, Inc., 242 F.3d 567, 579 (5th Cir. 2001).
Plain error is “clear” or “obvious” and must affect sub-
stantial rights. Id. (quoting United States v. Calverley, 37
F.3d 160, 162-64 (5th Cir. 1994)). Such error is reversible
only if it “seriously affect[s] the fairness, integrity, or
public reputation of judicial proceedings.” Id. (citations
omitted). Although a district court is afforded broad
discretion over the manner in which trial is conducted,
and may intervene to help expand upon or clarify witness
testimony and evidence, such intervention “may not come
at the cost of strict impartiality.” Id. (quoting United
States v. Saenz, 134 F.3d 697, 702 (5th Cir. 1998)). Thus,
“[i]n reviewing a claim that the trial court appeared
partial, this court must determine whether the judge's
behavior was so prejudicial that it denied the [defendant]
a fair, as opposed to a perfect, trial.” Id. (citations and
internal quotation marks omitted). In performing this
review, we must consider the district court’s actions in
light of the entire trial record and consider the totality of
the circumstances. Saenz, 134 F.3d at 702.
     Our review of the record shows that QCI made differ-
ent representations concerning the frequency with which
its ODD purchases were made via buy/sell arrangements.
It is not the same to suggest that a certain method is “one
way” business is done when in fact it is the predominant
LASERDYNAMICS   v. QUANTA COMPUTER                        38


way—85% of the time—that business is done. Neverthe-
less, the district court’s response to this potential incon-
sistency was harsh and prejudicial to QCI. The question
of whether there was any inconsistency here, and the
associated questions of credibility, should have been for
the jury to decide. It is one thing to point out a potential
inconsistency to the jury and to raise an associated ques-
tion of credibility. But it was error to instruct the jury to
“take this instruction into account in judging the credibil-
ity of . . . all other Quanta Computer’s positions in this
case.” A34-35 (emphasis added).
     Notwithstanding whether there was any inconsis-
tency in QCI’s positions, on the balance, we do not view
the district court’s instruction to constitute plain error
that standing alone warrants a new trial. QCI was given
a second trial on the issue of damages, which cured any
prejudice that the district court’s instruction might have
caused in that regard. As for infringement liability, a
portion of the case put on through entirely different
witnesses, we are not convinced that the instruction, in
context, was so severe as to prevent QCI from a receiving
a “fair, as opposed to a perfect, trial” on infringement.
Rodriguez, 242 F.3d at 579 (citations omitted). However,
if the same testimony is introduced at a subsequent trial,
the court must leave to the jury the decision whether any
inconsistency exists.
      E. The District Court Erred By Setting the
    Hypothetical Negotiation Date as August 31, 2006
    During both trials, QCI was bound by the district
court’s ruling that the hypothetical negotiation date for
purposes of the Georgia-Pacific reasonable royalty analy-
sis was August 2006—i.e., when the lawsuit was filed.
The district court reasoned that since QCI was being
accused of active inducement of infringement, which
39                      LASERDYNAMICS   v. QUANTA COMPUTER


requires knowledge of the patent, and since QCI was not
notified of the patent until August 2006, this date was
when QCI first became liable to LaserDynamics. Based in
large part on this late date, LaserDynamics’ expert Mr.
Murtha testified that he disregarded almost all of La-
serDynamics’ twenty-nine licenses in evidence that were
executed earlier, reasoning that the economic landscape
had since changed.
    We have explained that “[t]he correct determination
of [the hypothetical negotiation] date is essential for
properly assessing damages.” Integra Lifesciences I, Ltd.
v. Merck KGaA, 331 F.3d 860, 870 (Fed. Cir. 2003). In
general, the date of the hypothetical negotiation is the
date that the infringement began. See Georgia-Pacific,
318 F. Supp. at 1123. We have consistently adhered to
this principle. See, e.g., Applied Med. Res. Corp. v. U.S.
Surgical Corp., 435 F.3d 1356, 1363-64 (Fed. Cir. 2006)
(“[T]he hypothetical negotiation relates to the date of first
infringement.”); State Indus., Inc. v. Mor-Flo Indus., Inc.,
883 F.2d 1573, 1580 (Fed. Cir. 1989) (“The determination
of a reasonable royalty . . . [is based] on what a willing
licensor and licensee would bargain for at hypothetical
negotiations on the date infringement started.”).
    We have also been careful to distinguish the hypo-
thetical negotiation date from other dates that trigger
infringement liability. For example, the six-year limita-
tion on recovery of past damages under 35 U.S.C. § 286
does not preclude the hypothetical negotiation date from
taking place on the date infringement began, even if
damages cannot be collected until some time later. See
Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 870 (Fed.
Cir. 1993). Similarly, the failure to mark a patented
product or prove actual notice of the patent pursuant to
35 U.S.C. § 287 precludes the recovery of damages prior to
the marking or notice date, but the hypothetical negotia-
LASERDYNAMICS   v. QUANTA COMPUTER                      40


tion date may nevertheless be properly set before marking
or notice occurs. Id. (“[T]he court confused limitation on
damages due to lack of notice with determination of the
time when damages first began to accrue, and it is the
latter which is controlling in a hypothetical royalty de-
termination.”). In sum, “[a] reasonable royalty determi-
nation for purposes of making a damages evaluation must
relate to the time infringement occurred, and not be an
after-the-fact assessment.” Riles v. Shell Exploration &
Prod. Co., 298 F.3d 1302, 1313 (Fed. Cir. 2002) (citing
Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075,
1079 (Fed. Cir. 1983) (“The key element in setting a
reasonable royalty . . . is the necessity for return to the
date when the infringement began.”)).
    Here, there is no dispute that while QCI first became
liable for active inducement of infringement in August
2006, QCI’s sales of accused laptop computers into the
United States began causing the underlying direct in-
fringement by end users in 2003. From the premise that
the hypothetical negotiation must focus on the “date when
the infringement began,” Hanson, 718 F.2d at 1079, we
note that active inducement of infringement is, by defini-
tion, conduct that causes and encourages infringement.
35 U.S.C. § 271(b) (“Whoever actively induces infringe-
ment of a patent shall be liable as an infringer.”). While
active inducement can ultimately lead to direct infringe-
ment, absent direct infringement there is no compensable
harm to a patentee. See Aro Mfg. Co. v. Convertible Top
Replacement Co., 377 U.S. 476, 500 (1964) (“It is true that
a contributory infringer is a species of joint-tortfeasor,
who is held liable because he has contributed with an-
other to the causing of a single harm to the plaintiff.”).
Thus, we hold that in the context of active inducement of
infringement, a hypothetical negotiation is deemed to
take place on the date of the first direct infringement
41                      LASERDYNAMICS   v. QUANTA COMPUTER


traceable to QCI’s first instance of inducement conduct—
in this case, 2003.
     Our holding is consistent with the purpose of the hy-
pothetical negotiation framework, which seeks to discern
the value of the patented technology to the parties in the
marketplace when infringement began. In considering
the fifteen Georgia-Pacific factors, it is presumed that the
parties had full knowledge of the facts and circumstances
surrounding the infringement at that time. Indeed, the
basic question posed in a hypothetical negotiation is: if, on
the eve of infringement, a willing licensor and licensee
had entered into an agreement instead of allowing in-
fringement of the patent to take place, what would that
agreement be? This question cannot be meaningfully
answered unless we also presume knowledge of the patent
and of the infringement at the time the accused induce-
ment conduct began. Were we to permit a later notice
date to serve as the hypothetical negotiation date, the
damages analysis would be skewed because, as a legal
construct, we seek to pin down how the prospective in-
fringement might have been avoided via an out-of-court
business solution. See Wordtech Sys. v. Integrated Net-
works Solutions, Inc., 609 F.3d 1308, 1319 (Fed. Cir.
2010) (“The hypothetical negotiation ‘attempts to ascer-
tain the royalty upon which the parties would have
agreed had they successfully negotiated an agreement
just before infringement began,’ and ‘necessarily involves
an element of approximation and uncertainty.’” (quoting
Lucent, 580 F.3d at 1324-25)). It also makes sense that in
each case there should be only a single hypothetical
negotiation date, not separate dates for separate acts of
infringement, and that a direct infringer or someone who
induced infringement should pay the same reasonable
royalty based on a single hypothetical negotiation analy-
sis.
LASERDYNAMICS   v. QUANTA COMPUTER                       42


    Lastly, QCI points out that the accused ODDs were
manufactured by QSI as early as 2001, and urges us to
deem 2001 the date of first infringement for the hypo-
thetical negotiation. However, it is QCI that is accused of
active inducement here, and the record shows that QCI
and QSI are related but independently operated compa-
nies, and that QCI does not own a controlling interest in
QSI. Thus, there is no basis on which to further push
back the hypothetical negotiation date to 2001. See BMC
Res., Inc. v. Paymentech, LP, 498 F.3d 1373, 1380-82 (Fed.
Cir. 2007) (declining to impute responsibility for allegedly
infringing conduct from one party to another).
    Because our decision alters the time period when the
analysis under Georgia-Pacific is to take place, we re-
mand for a new trial on damages pursuant to the 2003
hypothetical negotiation date with respect to those ac-
cused laptop computers not encompassed by QCI’s implied
license as discussed above.
       F.   The District Court Erred in Admitting the
                BenQ Settlement Agreement
    Before the second trial, QCI filed a motion in limine
seeking to exclude the 2006 LaserDynamics-BenQ settle-
ment agreement from evidence pursuant to Federal Rule
of Evidence 403. QCI’s motion emphasized the unique
circumstances of the BenQ settlement, which was entered
into on the eve of trial after BenQ had been repeatedly
sanctioned by the district court. We conclude that the
district court abused its discretion in denying QCI’s
motion and allowing the agreement into evidence.
    Rule 403 provides for the exclusion of otherwise rele-
vant evidence when the probative value of that evidence
is substantially outweighed by the danger of unfair preju-
dice, confusing the issues, or misleading the jury. Along
these lines, Federal Rule of Evidence 408 specifically
43                     LASERDYNAMICS   v. QUANTA COMPUTER


prohibits the admission of settlement offers and negotia-
tions offered to prove the amount of damages owed on a
claim. The propriety of using prior settlement agree-
ments to prove the amount of a reasonable royalty is
questionable. See, e.g., Rude v. Westcott, 130 U.S. 152,
164 (1889) (“[A] payment of any sum in settlement of a
claim for an alleged infringement cannot be taken as a
standard to measure the value of the improvements
patented, in determining the damages sustained by the
owners of the patent in other cases of infringement.”);
Deere & Co. v. Int’l Harvester Co., 710 F.2d 1551, 1557
(Fed. Cir. 1983) (holding that “as the White license was
negotiated against a backdrop of continuing litigation and
[defendant’s] infringement of the Schreiner patent, the
district court could properly discount the probative value
of the White license with regard to a reasonable royalty”);
see also Hanson, 718 F.2d at 1078-79 (observing that
“license fees negotiated in the face of a threat of high
litigation costs may be strongly influenced by a desire to
avoid full litigation” and “should not be considered evi-
dence of an established royalty” (quoting Panduit Corp. v.
Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1164 n.11
(6th Cir. 1978) (Markey, J.))). The notion that license fees
that are tainted by the coercive environment of patent
litigation are unsuitable to prove a reasonable royalty is a
logical extension of Georgia-Pacific, the premise of which
assumes a voluntary agreement will be reached between a
willing licensor and a willing licensee, with validity and
infringement of the patent not being disputed. See 318 F.
Supp. at 1120.
    Despite the longstanding disapproval of relying on
settlement agreements to establish reasonable royalty
damages, we recently permitted such reliance under
certain limited circumstances. See ResQNet, 594 F.3d at
870-72 (explaining that a settlement license to the pat-
LASERDYNAMICS   v. QUANTA COMPUTER                       44


ents-in-suit in a running royalty form was “the most
reliable license in [the] record” when compared with other
licenses that did not “even mention[] the patents-in-suit
or show[] any other discernable link to the claimed tech-
nology”). We permitted consideration of the settlement
license on remand, but we cautioned the district court to
consider the license in its proper context within the
hypothetical negotiation framework to ensure that the
reasonable royalty rate reflects “the economic demand for
the claimed technology.” Id. at 872.
     Unlike the license in ResQNet, the BenQ settlement
agreement is far from being the “most reliable license in
[the] record.” 594 F.3d at 872. Indeed, the BenQ settle-
ment agreement appears to be the least reliable license by
a wide margin. The BenQ settlement agreement was
executed shortly before a trial—a trial in which BenQ
would have been at a severe legal and procedural disad-
vantage given the numerous harsh sanctions imposed on
it by the district court. The $6 million lump sum license
fee is six times larger than the next highest amount paid
for a license to the patent-in-suit, and ostensibly reflects
not the value of the claimed invention but the strong
desire to avoid further litigation under the circumstances.
LaserDynamics executed twenty-nine licenses for the
patent-in-suit in total, the vast majority of which are not
settlements of active litigation and do not involve the
unique coercive circumstances of the BenQ settlement
agreement, and which are therefore far more reliable
indicators of what willing parties would agree to in a
hypothetical negotiation. Additionally, in light of the
changing technological and financial landscape in the
market for ODDs, the BenQ settlement, entered into a
full three years after the hypothetical negotiation date, is
in many ways not relevant to the hypothetical negotiation
analysis. See Odetics, Inc. v. Storage Tech. Corp., 185
45                      LASERDYNAMICS   v. QUANTA COMPUTER


F.3d 1259, 1276-77 (Fed. Cir. 1999) (agreeing with the
district court that, for two licenses entered into four and
five years after the date of first infringement, “the age of
the license agreements, in the context of the changing
technology and ‘financial landscape’ at issue, made those
agreements irrelevant for the hypothetical negotiation
analysis). This record stands in stark contrast to that in
ResQNet, where a lone settlement agreement stood apart
from all other licenses in the record as being uniquely
relevant and reliable. This case is therefore well outside
the limited scope of circumstances under which we
deemed the settlement agreement in ResQNet admissible
and probative. The probative value of the BenQ settle-
ment agreement is dubious in that it has very little rela-
tion to demonstrated economic demand for the patented
technology, and its probative value is greatly outweighed
by the risk of unfair prejudice, confusion of the issues, and
misleading the jury. Fed. R. Evid. 403. Accordingly, we
conclude that the district court abused its discretion by
admitting the BenQ settlement agreement into evidence,
and must exclude the agreement from the proceedings on
remand.
        G. The District Court Erred in Admitting
          Mr. Murtha’s Opinions Concerning a
            6% Royalty Rate Per $41 ODD
    Because we are remanding to the district court for a
new trial on damages under the proper 2003 hypothetical
negotiation date, we do not reach QCI’s argument that the
second jury verdict of an $8.5 million lump sum lacks
evidentiary support, so as to entitle QCI to a $1.2 million
judgment on damages as a matter of law. However, for
the purposes of remand, we do reach QCI’s Daubert
challenge to Mr. Murtha’s methodology in the second trial
and find that the district court erred in allowing the jury
LASERDYNAMICS   v. QUANTA COMPUTER                        46


to hear his testimony concerning a 6% royalty rate de-
rived from the Sony-made $41 ODDs.
    1. Mr. Murtha’s Use of the Sony-Made $41 ODDs
    QCI argues that Mr. Murtha’s testimony in the second
trial was unreliable for using a $41 per ODD value that
was calculated based on a relatively small sample of
about 9,000 non-infringing drives made by Sony, not by
QSI. QCI Br. at 69-70. We disagree.
    LaserDynamics contends that the $41 price of the
Sony ODDs was more appropriate than the $28 mask
price used in the first trial with respect to QSI-made
ODDs. According to LaserDynamics, since QCI does not
track prices and revenues of the ODDs that it buys to
incorporate into laptop computers, and does not generally
sell stand alone ODDs, the $41 Sony-made drives that
QCI sells as replacement parts better reflect the market
value for ODDs independent of the completed laptop
computers. QCI counters that the $41 price was unreli-
able because it was based on a small sample size of li-
censed and therefore non-infringing drives, which is
irrelevant to the price of the accused drives, and because
the record shows that the $28 mask price of the accused
QSI-made drives is always higher than the price to the
consumer.
    As the district court explained, “[Mr. Murtha’s] ap-
proach appears to be a reasonable attempt to value
[QCI’s] drives based on arms-length transactions. Al-
though the jury may ultimately determine that [Mr.
Murtha’s] approach is unreasonable, the approach is not
subject to a Daubert challenge.” LaserDynamics, No.
2:06-cv-348-TJW-CE (E.D. Tex. Jan. 21, 2011). We con-
clude that the district court did not abuse its discretion in
declining to exclude Mr. Murtha’s use of the $41 Sony-
made ODDs on Daubert grounds.
47                     LASERDYNAMICS   v. QUANTA COMPUTER


       2. Mr. Murtha’s 6% Royalty Rate Per ODD
    QCI contends that Mr. Murtha’s opinion that a rea-
sonable royalty in this case would be 6% of each ODD sold
within a laptop computer by QCI was unreliable under
Federal Rule of Evidence 702 and should have been
excluded. We agree.
    The first of the fifteen factors in Georgia-Pacific is
“the royalties received by the patentee for the licensing of
the patent in suit, proving or tending to prove an estab-
lished royalty.” 318 F. Supp. at 1120. Actual licenses to
the patented technology are highly probative as to what
constitutes a reasonable royalty for those patent rights
because such actual licenses most clearly reflect the
economic value of the patented technology in the market-
place. See ResQNet, 594 F.3d at 869 (“[T]he trial court
must carefully tie proof of damages to the claimed inven-
tion’s footprint in the market place.”).
     When relying on licenses to prove a reasonable roy-
alty, alleging a loose or vague comparability between
different technologies or licenses does not suffice. For
example, in Lucent, where the patentee had relied on
various licenses in the same general computer field with-
out proving a relationship to the patented technology or
the accused infringing products, we insisted that the
“licenses relied upon by the patentee in proving damages
[be] sufficiently comparable to the hypothetical license at
issue in suit,” and noted that the patentee’s failure to
prove comparability “weighs strongly against the jury’s
award” relying on the non-comparable licenses. 580 F.3d
at 1325, 1332.
     Likewise, in ResQNet, the patentee’s expert “used li-
censes with no relationship to the claimed invention to
drive the royalty rate up to unjustified double-digit lev-
els,” and which had no “other discernible link to the
LASERDYNAMICS   v. QUANTA COMPUTER                     48


claimed technology.” 594 F.3d at 870. We rejected this
testimony, holding that the district court “must consider
licenses that are commensurate with what the defendant
has appropriated. If not, a prevailing plaintiff would be
free to inflate the reasonable royalty analysis with con-
veniently selected licenses without an economic or other
link to the technology in question.” Id. at 872. On re-
mand, we directed that unrelated licenses could not be
relied on to increase the reasonable royalty rate above
rates that are more clearly linked to the economic demand
for the claimed technology. Id. at 872-73.
    Actual licenses to the patents-in-suit are probative
not only of the proper amount of a reasonable royalty, but
also of the proper form of the royalty structure. In Word-
tech Systems, the patentee relied on thirteen patent
licenses that it previously granted to third parties. 609
F.3d at 1319. We rejected the patentee’s reliance on
eleven of the thirteen licenses for being in the form of a
running royalty (whereas the patentee had sought a lump
sum payment) and for including royalty rates far lower
than the jury returned. Id. at 1320-21. The remaining
two licenses, although in the form of lump sums, were
also rejected for not describing how the lump sums were
calculated or the type and volume of products intended to
be covered by the licenses. Id. at 1320. We ultimately
reversed the $250,000 verdict and remanded for a new
trial on damages because “the verdict was clearly not
supported by the evidence and based only on speculation
or guesswork.” Id. at 1319-22 (citation and internal
quotation marks omitted).
    In this case, the district court denied QCI’s Daubert
motion and permitted Mr. Murtha to testify concerning
his opinion of a 6% running royalty rate during the second
trial. However, the district court insisted that LaserDy-
namics prove that two DVD-related patent licensing
49                     LASERDYNAMICS   v. QUANTA COMPUTER


programs and the 1997 Licensing Executives Survey
relied on by Mr. Murtha (to the exclusion of the many
past licenses for the ’981 patent) were sufficiently compa-
rable to the hypothetically negotiated license Mr. Murtha
proffered. LaserDynamics, 2011 U.S. Dist. LEXIS 42590,
at *8-*11.
     The district court correctly recognized that LaserDy-
namics’ reliance on the two DVD-related patent licensing
programs and the 1997 Licensing Executives Survey was
problematic, but its ruling erroneously permitted contin-
ued reliance on this evidence where comparability be-
tween it and a hypothetical license to the ’981 Patent was
absent. The DVD-related patent licensing programs did
not involve the ’981 Patent, and no evidence shows that it
even involves a disc discrimination method. A652. The
1997 licensing survey was even further removed from the
patented technology, since it was not even limited to any
particular industry, but “was across whatever technolo-
gies were being licensed by the people who responded.”
A653-54. Like the licenses we rejected in ResQNet, this
licensing evidence relied upon by Mr. Murtha “simply
[has] no place in this case.” 594 F.3d at 871. Relying on
this irrelevant evidence to the exclusion of the many
licenses expressly for the ’981 Patent served no purpose
other than to “to increase the reasonable royalty rate
above rates more clearly linked to the economic demand
for the claimed technology.” Id. at 872-73.
    Aside from the BenQ settlement agreement discussed
above, the licenses to the patents-in-suit were all for
lumps sum amounts not exceeding $1 million. Mr.
Murtha’s 6% running royalty theory cannot be reconciled
with the actual licensing evidence, which is highly proba-
tive of the patented invention’s economic value in the
marketplace, and of the form that a hypothetical license
agreement would likely have taken.          Although Mr.
LASERDYNAMICS   v. QUANTA COMPUTER                      50


Murtha conceded that QCI would be aware of LaserDy-
namics’ prior licenses in the hypothetical negotiation, he
dismissed the probative value of the licenses because they
were entered into between 1998 and 2003, before the
August 2006 hypothetical negotiation date. Mr. Murtha
reasoned that, by 2006, the DVD market was larger and
more established such that the value of the patented
technology was better appreciated and LaserDynamics
had more bargaining power to insist on a running royalty.
Thus, in his view, LaserDynamics’ past licenses could not
reflect an appropriate royalty for QCI in 2006.
    This reasoning is not supported by the record, how-
ever, which undisputedly shows that by around 2000, the
DVDs and ODD markets were already experiencing
tremendous growth such that by 2003 those markets were
highly saturated. LaserDynamics Br. at 8-9 (“The land-
scape for the acceptance of the DVD format began to
change in about 2000. In a relatively short time span,
from around 2001 to 2002, video rental stores transitioned
their entire stock from VHS tapes to DVDs. By 2003,
nearly every home had a DVD player, and nearly every
computer had a DVD drive.” (citations omitted)); QCI Br.
at 64 (“The increase in demand for optical disc drives was
fully anticipated by the industry in 2000, before many of
the prior license agreements were entered into.”). Most of
the early lump sum licenses that were summarily rejected
by Mr. Murtha were thus entered into when the value of
the patented technology was readily apparent and de-
mand was already projected to greatly increase. The
resetting of the hypothetical negotiation date to 2003, the
date of first direct infringement induced by QCI’s conduct,
further undercuts Mr. Murtha’s reasoning that the li-
censes to the ’981 patent from the 1997 to 2001 time
frame were too early to be probative. That the Licensing
Executives Survey relied upon by Mr. Murtha—which has
51                     LASERDYNAMICS   v. QUANTA COMPUTER


no meaningful ties to the patented technology—was
created in 1997 highlights the inconsistency in Mr.
Murtha’s selective reasoning. Such strained reasoning is
unreliable and cannot be used to ignore LaserDynamics’
long history of licensing the ’981 Patent.
    In sum, the 6% royalty rate was untethered from the
patented technology at issue and the many licenses
thereto and, as such, was arbitrary and speculative. See
Uniloc, 632 F.3d at 1318; ResQNet, 594 F.3d at 873. A
new trial is required because the jury’s verdict was based
on an expert opinion that finds no support in the facts in
the record. See Wordtech, 609 F.3d at 1319-22 (prohibit-
ing jury verdicts to stand if they are “clearly not sup-
ported by the evidence” or “based only on speculation or
guesswork” (citation omitted)); see also Brooke Group Ltd.
v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 242
(1993) (“When an expert opinion is not supported by
sufficient facts to validate it in the eyes of the law, or
when indisputable record facts contradict or otherwise
render the opinion unreasonable, it cannot support a
jury’s verdict.”). On remand, LaserDynamics may not
again present its 6% running royalty damages theory.
    As a final matter, we do not hold that LaserDynamics’
past licenses create an absolute ceiling on the amount of
damages to which it may be entitled, see 35 U.S.C. § 284,
or that its history of lump sum licenses precludes La-
serDynamics from obtaining damages in the form of a
running royalty. Full consideration of all the Georgia-
Pacific factors might well justify a departure from the
amount or even the form of LaserDynamics’ past licensing
practices, given the appropriate evidence and reasoning.
                    IV. CONCLUSION
    For the foregoing reasons, we affirm-in-part and re-
verse-in-part the district court’s judgment. We remand
LASERDYNAMICS   v. QUANTA COMPUTER                    52


for further proceedings regarding the damages owed by
QCI pertaining to the infringing ODDs not purchased by
QCI via Philips and Sony/NEC/Optiarc, and for which
QCI does not have an implied license to the ’981 Patent.
On remand, the hypothetical negotiation date shall be set
in 2003, the BenQ settlement agreement shall not be
admitted into evidence or relied upon at trial, and La-
serDynamics shall not again present its 6% running
royalty damages theory.
 AFFIRMED-IN-PART, REVERSED-IN-PART, and
               REMANDED
                         COSTS
   No Costs.
