The US Court of Appeals for the Federal Circuit reversed a district court’s exclusion of the plaintiff’s damages expert, finding that a proffered royalty base tied to unaccused products may be permissible when supported by a causal connection to the accused technology. The Federal Circuit vacated the resulting orders denying discovery and granting summary judgment for lack of a remedy. Exafer Ltd. v. Microsoft Corp., Case No. 24-2296 (Fed. Cir. Mar. 6, 2026) (Moore, Taranto, Stoll, JJ.)
Exafer sued Microsoft for patent infringement based on features of Microsoft’s Azure platform. After Exafer served its expert reports, Microsoft filed a Daubert motion, and the district court excluded Exafer’s damages expert because she used unaccused virtual machines as the royalty base. Exafer moved to reopen fact and expert discovery to present an alternative theory, which the district court denied. The district court subsequently granted Microsoft’s motion for summary judgment based on the absence of a remedy. Exafer appealed all three orders.
Exafer argued that the district court erred in excluding its damages theory, which relied on Microsoft’s virtual machine pricing rate to estimate the value Microsoft placed on the accused features. Exafer contended that the district court misapplied the Federal Circuit’s 2018 decision in Enplas Display Device v. Seoul Semiconductor by effectively creating a categorical bar against considering noninfringing activities in a reasonable royalty analysis.
The Federal Circuit agreed, explaining that in Enplas the unaccused products had no causal connection to the accused infringing products. Here, by contrast, the Court found such a connection: Microsoft’s own documents showed that Exafer’s royalty base was tied to a causal connection between the accused Azure features and the operation of virtual machines. The Court concluded that Exafer’s damages expert valued the accused features based on the incremental virtual machines Microsoft could host because of those efficiency gains.
The Federal Circuit rejected Microsoft’s argument that Enplas categorically precluded applying a royalty rate to sales of unaccused products to prevent a patent owner from “expanding its patent monopoly to unpatented products.” The Court explained that the analysis must be conducted on a case-by-case basis to determine how the parties would value the accused technology in the hypothetical negotiation. As an example, the Court noted that claims directed to methods of manufacture commonly use the unaccused product produced by the claimed method as the royalty base.
