Court Affirms Verizon Must Pay Millions To ActiveVideo For Patent Violations

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A federal appeals court Friday upheld a decision ordering Verizon Communications to pay upwards of $260 million to interactive TV vendor ActiveVideo Networks for patent infringement -- and the telco is on the hook for future royalties, as well.

A three-judge panel for the U.S. Court of Appeals for the Federal Circuit ruled partly in Verizon's favor by reversing a lower court's permanent injunction barring the telco from employing the ActiveVideo patents. The appeals court also reversed the district court's judgment of infringement against Verizon on one of ActiveVideo's patents while affirming that the telco infringed three others.

However, the Court of Appeals upheld the damages awarded to ActiveVideo in full and also affirmed the district court's imposition of a sunset royalty.

"Though we vacate the district court's injunction, we see no error in its post-verdict royalty calculation," the appeals court said in the ruling.

ActiveVideo -- whose largest customer is Cablevision Systems -- sued Verizon in May 2010 over patents covering interactive TV and video-on-demand. After a three-week trial in 2011, a federal jury in Virginia found Verizon's FiOS TV violated four ActiveVideo patents and awarded ActiveVideo $115 million in damages. The jury also found that ActiveVideo infringed two Verizon patents.

In November, a federal district court judge in Virginia issued a permanent injunction to go into effect May 23, 2012, barring Verizon from using two of the patents, and ordered the telco to pay royalties until then. Verizon had appealed that ruling to the federal appeals court, and the injunction and payments were stayed pending appeal.

Verizon declined to comment on the ruling.

ActiveVideo said in a statement, "We're gratified that the Court of Appeals for the Federal Circuit has upheld the validity of ActiveVideo's patents and affirmed the jury verdict and district court decisions, including nearly $260 million in damages, interest and royalties awarded to our company to date and the potential for future royalties."

In its Aug. 24 ruling, the U.S. Court of Appeals for the Federal Circuit remanded part of the decision to the Virginia district court to determine "an appropriate ongoing royalty, an inquiry that is much the same as its sunset royalty analysis." The appeals court added that "ActiveVideo's bargaining position is even stronger after this appeal."

The U.S. District Court for the Eastern District of Virginia had found Verizon violated four ActiveVideo patents: U.S. Patent Nos. 6,034,678, "Cable Television System With Remote Interactive Processor"; 5,550,578, "Interactive And Conventional Television Information System"; 6,100,883, "Home Interface Controller for Providing Interactive Cable Television"; and 6,205,582, "Interactive Cable Television System With Frame Server."

The appeals court overturned the infringement ruling on the '582 patent. But it affirmed the full damages award because "Verizon has not argued either before the district court or on appeal that a finding of non-infringement of the '582 patent should result in a reduction of damages."

Meanwhile, federal appeals court vacated the district court's grant of summary judgment of invalidity on a Verizon patent -- U.S. Patent No. 6,381,748 ("Apparatus and methods for network access using a set top box and television") -- and remanded that part of the decision to the lower court for further proceedings.

According to San Jose, Calif.-based ActiveVideo, it first contacted Verizon in 2005 seeking to reach an agreement to deploy its interactive TV solution on the FiOS network. The telco previously asserted in court documents that at the time, it had already selected SeaChange International as its primary VOD systems vendor when ActiveVideo came calling. Verizon has since switched to Cisco Systems as its VOD vendor for FiOS TV.

The case is docket no. 2011-1538 before the U.S. Court of Appeals for the Federal Circuit. The ruling can be accessed here.

Prior to ActiveVideo's lawsuit, Verizon had sued Cablevision and brought a complaint before the U.S. International Trade Commission, alleging the MSO violated several telco-owned patents.The ITC last fall rejected Verizon's claims.