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23-1546•Altria Client Services LLC v. R.j. Reynolds Vapor Company
23-1546Court of Appeals for the Federal Circuit19.12.2024
NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
ALTRIA CLIENT SERVICES LLC,
Plaintiff-Appellee
v.
R.J. REYNOLDS VAPOR COMPANY,
Defendant-Appellant
______________________
2023-1546
______________________
Appeal from the United States District Court for the
Middle District of North Carolina in No. 1:20-cv-00472-
NCT-JLW, Senior Judge N. Carlton Tilley, Jr.
______________________
Decided: December 19, 2024
______________________
MARK ANDREW PERRY, Weil, Gotshal & Manges LLP,
Washington, DC, argued for plaintiff-appellee. Also
represented by WILLIAM SUTTON ANSLEY, PRIYATA PATEL;
ANISH R. DESAI, DANIEL LIFTON, ROBERT NILES-WEED,
ELIZABETH WEISWASSER, New York, NY.
JASON BURNETTE, Jones Day, Atlanta, GA, argued for
defendant-appellant. Also represented by LAURA
KANOUSE; AMELIA A. DEGORY, Washington, DC; JOHN
MARLOTT, Chicago, IL; ALEXIS ADIAN SMITH, Los Angeles,
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ALTRIA CLIENT SERVICES LLC v.
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CA; JOHN FRANKLIN MORROW, JR., Womble Bond Dickinson
LLP, Winston-Salem, NC.
______________________
Before PROST, BRYSON, and REYNA, Circuit Judges.
Opinion for the court filed by Circuit Judge PROST.
Opinion concurring in part and dissenting in part filed by
Circuit Judge BRYSON.
PROST, Circuit Judge.
Altria Client Services LLC (“Altria”) sued R.J.
Reynolds Vapor Co. (“Reynolds”) for infringement of U.S.
Patent Nos. 10,299,517 (“the ’517 patent”), 10,485,269 (“the
’269 patent”), and 10,492,541 (“the ’541 patent”). At trial,
the jury found that Reynolds infringed Altria’s patents and
awarded Altria over $95 million in damages. The jury also
rejected Reynolds’s invalidity defense. The district court
denied Reynolds’s post-trial motions for judgment as a
matter of law (“JMOL”) on infringement and damages and
a new trial on the issues of infringement, invalidity, and
damages. Altria Client Servs. LLC v. R.J. Reynolds Vapor
Co., 650 F. Supp. 3d 375 (M.D.N.C. 2023) (“Post-Trial
Opinion”). Reynolds appeals, and we affirm.
BACKGROUND
I
Altria’s patents, which have similar specifications,
“relate[] to electronic vapor devices including self-
contained articles including vapor precursors.” ’517 patent
col. 1 ll. 20–21.1 These electronic vapor devices are, at a
high level, electronic alternatives to cigarettes. Claim 1 of
the ’517 patent is illustrative and recites:
1 The ’541 patent’s specification has additional
disclosures not relevant here.
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A pod assembly for an e-vapor apparatus,
comprising:
a plurality of external surfaces including a front
face, a rear face opposite the front face, a first side
face between the front face and the rear face, a
second side face opposite the first side face, a
downstream end face, and an upstream end face
opposite the downstream end face, a portion of at
least the front face or the rear face being
transparent, the downstream end face defining an
outlet;
a liquid compartment configured to hold a liquid
formulation such that the liquid formulation is
visible through at least the front face or the rear
face;
a vaporizer compartment in fluidic communication
with the liquid compartment, the vaporizer
compartment being adjacent to the upstream end
face, the vaporizer compartment configured to heat
the liquid formulation, the vaporizer compartment
including a heater and a wick;
a vapor channel extending from the vaporizer
compartment, through a center of the liquid
compartment, and to the outlet, the vapor channel
being visible through at least the front face or the
rear face; and
a plurality of electrical contacts having respective
planar surfaces at the upstream end face and
electrically connected to the heater in the vaporizer
compartment, the vapor channel being between the
outlet and the plurality of electrical contacts.
Id. at claim 1 (emphasis added).
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II
Altria sued Reynolds for infringing the ’517, ’269, and
’541 patents. The accused product is Reynolds’s VUSE
Alto, a pod-style device. At the claim-construction stage of
this case, Reynolds argued that “the front and rear faces”
present in each claim “are distinct surfaces, which are each
bounded by one or more edges.” J.A. 1749. Altria proposed
a plain-and-ordinary-meaning construction, arguing that
the patents “use the term ‘face’ consistent with its ordinary
meaning—the surface of an object.” J.A. 1803. The district
court agreed with Reynolds, concluding that “there must be
an edge between the front face and side faces, and the rear
face and side faces.” J.A. 4033.
The case proceeded to trial, and the jury found that
Reynolds infringed claims 1, 9, and 10 of the ’517 patent,
claim 19 of the ’269 patent, and claim 24 of the ’541 patent.
J.A. 111. The jury also found that Reynolds did not show
that any of the asserted claims are invalid. J.A. 112. The
jury awarded $95,233,292 in damages “for past
infringement through June 30, 2022.” J.A. 113.
Reynolds moved for JMOL, arguing that substantial
evidence did not support the finding that the VUSE Alto
had the requisite edge between its faces and that there was
not substantial evidence to support the jury’s damages
award. Post-Trial Opinion, 650 F. Supp. 3d at 385.
Reynolds also moved for a new trial on invalidity based on
“erroneous evidentiary rulings” and a new trial on
damages, contending “that the jury’s damages award stems
from legal error.” Id. at 401. The district court denied
Reynolds’s motions for JMOL and a new trial, id. at 412,
and entered final judgment, J.A. 105–08.
Reynolds appeals, and we have jurisdiction under 28
U.S.C. § 1295(a)(1).
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DISCUSSION
Reynolds raises four issues on appeal. First, Reynolds
argues that the district court erred in denying its motion
for JMOL or a new trial on infringement. Second, Reynolds
argues that the district court improperly excluded evidence
of its invalidity defense and that a new trial on invalidity
is warranted. Third, Reynolds argues that, given its
challenge to the calculation of a per-unit royalty rate from
a comparable license, the district court improperly denied
its motion for JMOL or a new trial on damages. Fourth,
Reynolds argues that the district court improperly allowed
the jury to hear testimony from Altria’s damages expert on
apportionment and that this error requires JMOL or a new
trial. We address each issue in turn.
We review a district court’s procedural rulings under
the standard of the regional circuit. MLC Intell. Prop., LLC
v. Micron Tech., Inc., 10 F.4th 1358, 1367 (Fed. Cir. 2021).
The Fourth Circuit reviews a district court’s denial of a
motion for JMOL de novo. Sardis v. Overhead Door Corp.,
10 F.4th 268, 279 (4th Cir. 2021). The Fourth Circuit
reviews a district court’s decision on whether to grant a
new trial for abuse of discretion. Mountain Valley Pipeline,
LLC v. 8.37 Acres of Land by Terry, 101 F.4th 350, 358 (4th
Cir. 2024).
I
We begin with Reynolds’s challenge to the infringement
verdict. Reynolds argues that the evidence presented at
trial does not support the jury’s finding that the accused
VUSE Alto has the requisite edge between the claimed
faces. We disagree.
Altria presented ample evidence that Reynolds’s VUSE
Alto meets this limitation. As Altria’s infringement expert
explained:
But if—but if you just take the pod and hold it in
your hands, . . . and just rotate it between my
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ALTRIA CLIENT SERVICES LLC v.
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fingers, you can easily see, as you traverse from a
front face to a side face, to a rear face, to a side face,
to a front face, you can feel the edges. You can feel
the transition between the different faces. And not
only can you feel it, but you can see it. I mean,
there is clearly edges. And they’re rounded edges
going from one face to the next.
J.A. 28141 (255:17–25). A photograph of the accused
product itself clearly shows an edge between the different
faces. J.A. 29493. The jury was even given physical
samples of the VUSE Alto where they could feel the edge.
J.A. 28133. And if that were not enough, Reynolds’s expert
admitted that a rounded edge, like the edges on the VUSE
Alto, would constitute an edge between faces. J.A. 28767
(777:6–7) (“[E]very edge is rounded at some degree.”); see
also J.A. 28767 (777:13–15) (“In a practical world, yes.
There’s no way you can get something perfectly—I mean,
at some—it’s always rounded. But it doesn’t matter for a
lot of products, obviously.”).
On this record, there is “no reason why jurors would
have been unable to determine for themselves” that Altria
established that the VUSE Alto meets the edge limitation,
especially where “the technology at issue [is] easily
understandable,” as it is here. Ironburg Inventions Ltd. v.
Valve Corp., 64 F.4th 1274, 1292 (Fed. Cir. 2023). We thus
affirm the district court’s order denying Reynolds’s motions
for JMOL of noninfringement and a new trial on
infringement.
II
We next proceed to Reynolds’s challenge to the district
court’s exclusion of its invalidity evidence.
Reynolds offered several invalidity theories at trial.
One sought to establish, using a JUUL electronic cigarette
device, that “the claimed invention was . . . in public use
. . . before the effective filing date of the claimed invention.”
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35 U.S.C. § 102(a)(1). Before trial, the district court
excluded much of Reynolds’s evidence on hearsay grounds,
a ruling that Reynolds does not challenge on appeal. After
excluding that evidence as hearsay, the district court was
left with a muted video that Reynolds purports shows the
JUUL product. The district court also excluded this video,
stating:
Again, if you just—I mean, it’s set up to suggest
that it is the [JUUL] device, but then the next thing
you see is somebody holding it in profile, and you
can’t identify from that profile whether it’s the
[JUUL] device or not. I cannot find it sufficiently
suggestive to come into evidence.
J.A. 27611 (80:10–15).
Reynolds challenges the district court’s exclusion of the
video. We review this ruling for abuse of discretion. Mathis
v. Terra Renewal Servs., Inc., 69 F.4th 236, 246 (4th Cir.
2023). One prerequisite for admissibility is that “the
proponent must produce evidence sufficient to support a
finding that the item is what the proponent claims it is.”
Fed. R. Evid. 901(a). Here, all Reynolds has shown is that
a video contains some opaque, rectangular device that can
be used as an electronic cigarette. Reynolds identifies
nothing in the video itself showing that the device is a
JUUL device. With nothing more in the record to explain
what appears in this video (as Reynolds did not challenge
the exclusion of other potentially informative evidence on
appeal), we cannot say that the district court abused its
discretion in excluding the video.
III
We now turn to Reynolds’s challenge to the calculation
of a per-unit royalty rate from comparable licenses.
Reynolds argues that the jury lacked sufficient evidence to
conclude that the licenses at issue used a 5.25% royalty
rate.
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ALTRIA CLIENT SERVICES LLC v.
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We first note that Reynolds did not challenge this
portion of Altria’s damages expert’s testimony under
Federal Rule of Evidence 702. Thus, we do not view
Reynolds as challenging the particular methodology
Altria’s expert employed. Instead, we simply review this
as a challenge to the evidentiary basis of the 5.25% royalty
rate. “A jury’s damages award must be upheld unless the
amount is grossly excessive or monstrous, clearly not
supported by the evidence, or based only on speculation or
guesswork.” Bio-Rad Labs., Inc. v. 10X Genomics Inc., 967
F.3d 1353, 1373 (Fed. Cir. 2020) (cleaned up).
Altria offered several theories supporting the
proposition that a comparable license used a 5.25% royalty
rate, and it suffices for our purposes to identify one
supported by the evidence. Altria sought to use a
comparable license to prove its damages. One was a license
between two companies, Fontem and Nu Mark. One part
of this license is a lump-sum payment from Nu Mark to
Fontem of $43 million granting Nu Mark the right to
practice Fontem’s patents in the United States until at
least 2030. To calculate the effective per-unit royalty rate
from this lump-sum payment, Altria’s damages expert
relied on a projection made by Nu Mark. This projection
applied a 5.25% royalty to sales from 2017 to 2023 and
resulted in $44 million of estimated royalties. J.A. 28365–
66. Thus, Altria’s expert, noting the similarity between the
$43 million lump-sum payment and the $44 million in
projected sales, concluded that the $43 million lump-sum
payment in the Fontem-Nu Mark license was calculated
using a 5.25% per-unit royalty rate.
Reynolds offers two principal arguments for why
sufficient evidence does not support the finding that the
$43 million lump-sum payment reflects a 5.25% per-unit
royalty rate. We find neither persuasive.
First, Reynolds contends that Altria’s expert relied on
the wrong projection, instead asserting that Altria’s expert
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should have used a different sales projection to arrive at a
potential per-unit royalty rate. In the absence of a
challenge to the methodology employed by Altria’s expert
in calculating the per-unit royalty rate, however, we
confine ourselves to examining whether the jury had
sufficient facts “with which to recalculate in a meaningful
way the value of any of the [lump-sum] agreements to
arrive at the . . . damage award.” Lucent Techs., Inc. v.
Gateway, Inc., 580 F.3d 1301, 1330 (Fed. Cir. 2009). The
jury was presented with expert testimony explaining
multiple different sales projections that the jury could use
to “deriv[e] a [per-unit] rate from the lump-sum payments
and projected sales.” MLC Intell. Prop., 10 F.4th at 1368.
Given that Reynolds did not object to the admission or use
of these projections, “[t]he jury was entitled to hear the
expert testimony and decide for itself what to accept or
reject.” i4i Ltd. P’Ship v. Microsoft Corp., 598 F.3d 831, 856
(Fed. Cir. 2010), aff’d, 564 U.S. 91 (2011). We conclude that
Altria’s projection-based theory provides a sufficient
evidentiary basis for a 5.25% per-unit royalty rate. As
such, we need not reach Altria’s other theories, including
its contentions that the Fontem-Nu Mark license reflects a
5.25% per-unit royalty rate on its face and in several
clauses, and that an additional license between two
companies, Fontem and Reynolds, also supports a 5.25%
per-unit royalty rate. See J.A. 29385–439; J.A. 29667–841.
Second, Reynolds argues that the maximum per-unit
royalty rate the jury could calculate from the licenses in
this record was 3.6%, or perhaps 2.1%. Reynolds and Altria
presented the jury with several different per-unit royalty
rates likely supportable on this record—5.25%, 3.6%, 2.1%,
and 0.21%. In the face of this competing testimony, and
again in the absence of an objection from Reynolds on the
methodology that Altria’s expert used to calculate a per-
unit rate in a comparable license, we conclude that the jury
could decide for itself which royalty rate best fit the facts of
this case. We thus affirm the district court’s denial of
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JMOL and denial of a motion for a new trial on damages
based on the per-unit royalty rate.
IV
We finally address Reynolds’s challenges to
apportionment. Reynolds argues that Altria’s damages
expert offered unreliable apportionment testimony and
thus that the district court erred by not excluding it under
Federal Rule of Evidence 702, by not granting Reynolds’s
motion for a new trial on damages, and by not granting
Reynolds’s motion for JMOL.
“No matter what the form of the royalty, a patentee
must take care to seek only those damages attributable to
the infringing features.” VirnetX, Inc. v. Cisco Sys., Inc.,
767 F.3d 1308, 1326 (Fed. Cir. 2014). A common model, the
one Altria used in this case, “begins with rates from
comparable licenses and then accounts for the differences
in the technologies and economic circumstances of the
contracting parties” to value the asserted patents.
Commonwealth Sci. & Indus. Rsch. Org. v. Cisco Sys., Inc.,
809 F.3d 1295, 1303 (Fed. Cir. 2015) (cleaned up).
Here, Altria offered a detailed accounting for
differences in the economic and technological
circumstances of the contracting parties and explained how
it valued Altria’s patents. Altria’s technical expert began
by looking at the licensed technology in the Fontem-Nu
Mark license and separating it into thirteen groups of
patents. J.A. 28185. The technical expert gave four groups
of these patents zero value because they reflected
abandoned patent applications. J.A. 28185. He gave three
other groups only nominal value because they were
directed to small components of an e-cigarette device.
J.A. 28185–86. He also gave a family of design patents
nominal value as trivial to design around. J.A. 28186. For
the remaining five patent families, Altria’s technical expert
examined the importance of the patents to the e-cigarette
device licensed in the Fontem-Nu Mark license and
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concluded that, because the five patent families covered the
key features of an e-cigarette device, selling an e-cigarette
device would necessarily require practicing Fontem’s
patents. J.A. 28188–92. Altria’s technical expert also
testified that Altria’s patents covered the key features of a
pod vapor device and thus that selling a pod vapor device
would necessarily require practicing Altria’s patents.
J.A. 28192. Thus, Altria’s technical expert concluded that
the importance of the licensed patents to the Fontem-Nu
Mark license were similar to the importance of Altria’s
patents to the hypothetical negotiation.
Altria’s damages expert considered this testimony and
then accounted for how the similarities and differences in
licensed products and economic circumstances between the
Fontem-Nu Mark license and the hypothetical negotiation
to value Altria’s patents. The damages expert accounted
for similar markets between the licensed e-cigarette device
in the Fontem-Nu Mark license and Reynolds’s VUSE Alto,
noting that the VUSE Alto was “a relatively significant
success” and that “the sales of the prior products actually
declined.” J.A. 28358 (434:19–22). Altria’s expert also,
based on the technical expert’s testimony, concluded that
the importance of the patented features to Nu Mark was
similar to the technical importance of the patented features
from Altria’s patents to the VUSE Alto. Altria’s damages
expert then accounted for these similarities and differences
and ended at a damages amount that would reflect “the
contributions that are made by Altria” (i.e., the patented
features) and would leave Reynolds the rest of the value,
including the value from unpatented features and
Reynolds’s business contributions. J.A. 28371–72 (447:15–
448:2).
Reynolds presents several challenges to the
methodology and evidentiary basis for Altria’s damages
expert’s apportionment testimony. What Reynolds’s
challenges amount to, though, are disagreements with the
particular adjustments that Altria’s damages expert made
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to the royalty rate in the Fontem-Nu Mark license. While
our law requires Altria to “account for differences in the
technologies and economic circumstances of the
contracting parties,” Finjan, Inc. v. Secure Computing
Corp., 626 F.3d 1197, 1211 (Fed. Cir. 2010), we do not
require any specific adjustment to a royalty rate based on
those differences. Rather, what matters is that Altria’s
damages expert employed “reliable principles and
methods,” Fed. R. Evid. 702(c), that were “based on
sufficient facts or data,” id. 702(b), and that the expert’s
opinion “reflects a reliable application of principles and
methods to the facts of the case,” id. 702(d). Reynolds has
not shown that the district court abused its discretion in
concluding that Altria’s damages expert employed a
reliable methodology based on sufficient facts and data in
presenting an ultimate damages amount that “reflect[s]
the value attributable to the infringing features of the
product, and no more.” See Ericsson, Inc. v. D-Link Sys.,
Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014).
We likewise reject Reynolds’s challenge to the
apportionment jury instruction. The district court did not
misstate the law but rather properly instructed the jury
that it must account for the differences between the
Fontem-Nu Mark license and the hypothetical negotiation
between Altria and Reynolds. And the district court did
not err in instructing the jury that, if it found that Altria
demonstrated sufficient comparability between the
circumstances of the Fontem-Nu Mark license and the
hypothetical negotiation, the jury could accept Altria’s
damages expert’s proposed adjustments to the royalty rate.
We thus affirm the district court’s denial of Reynolds’s
motion to exclude the apportionment testimony under Rule
702, motion for a new trial, and motion for JMOL on
damages.
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CONCLUSION
We have considered Reynolds’s remaining arguments
and find them unpersuasive. For the foregoing reasons, we
affirm the district court’s order denying Reynolds its
requested post-trial relief.
AFFIRMED
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NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
ALTRIA CLIENT SERVICES LLC,
Plaintiff-Appellee
v.
R.J. REYNOLDS VAPOR COMPANY,
Defendant-Appellant
______________________
2023-1546
______________________
Appeal from the United States District Court for the
Middle District of North Carolina in No. 1:20-cv-00472-
NCT-JLW, Senior Judge N. Carlton Tilley, Jr.
______________________
BRYSON, Circuit Judge, concurring in part and dissenting
in part.
I join parts I, II, and IV of the court’s opinion. With
respect to part III of the opinion, however, I respectfully
dissent.
The court’s opinion relies on the Fontem-Nu Mark
license, under which Nu Mark paid Fontem a lump sum of
$43 million for the right to practice Fontem’s patents until
at least 2030. Altria’s expert noted that Nu Mark prepared
a number of projections. One projected a level of sales
under that license between 2017 and 2023 that would yield
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ALTRIA CLIENT SERVICES LLC v.
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a total royalty payment of $44 million at a royalty rate of
5.25%. Altria’s expert testified that the similarity between
the $43 million actually paid under the Fontem-Nu Mark
license and the $44 million expected to be paid at a royalty
rate of 5.25% for the years 2017 through 2023 gave him
“great confidence” that the 5.25% rate “was the real
benchmark.” App. 28366.
The problem with that line of analysis is that the $44
million projected royalty payment was based on projected
sales only through 2023, while the $43 million actually
paid for the license was for rights extending all the way to
2030, seven more years than the 2017–2023 period. What
that means is that if the projected sales for 2024 through
2030 were similar to the projected sales from 2017 through
2023, the $43 million paid for the license would represent
a royalty rate of only about half the 5.25% claimed by
Altria. See App. 28403. Put another way, Altria’s expert
attributed the entire $43 million in royalties to the first
seven years of projected sales, rather than spreading out
the royalties over the entire Fontem license period.1 Altria
pointed to no basis in the record to ignore the years
between 2024 and 2030, so the expert’s testimony on the
Fontem-Nu Mark license provides no support for the 5.25%
royalty figure adopted by the jury.
Altria identifies various other pieces of evidence that it
argues support the 5.25% royalty rate. Like the majority,
however, I view the Nu Mark projections as the strongest
piece of evidence as to the proper royalty rate. The
1 The fact that Nu Mark prematurely withdrew from
the market after entering into the agreement does not
change the relevant timeframe for evaluating the
agreement, as the parties have identified no evidence
suggesting that Nu Mark’s later decision to withdraw
factored into the negotiations over the terms of the
agreement.
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remaining pieces of evidence are not sufficient to support
the jury’s verdict.
I would therefore grant a new trial to Reynolds on
the damages issue unless Altria agreed to a remittitur of
approximately half of the $95.3 million award.
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