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Nintendo Pays Royalties to Tomita - 3DS Infringes Tomita's Patent

Posted By Chris Moores, Feb 13, 2014

On December 11, 2013, a Court in the Southern District of New York ordered Nintendo to pay a fixed rate royalty to Tomita Technology (“Tomita”) for each Nintendo 3DS unit sold at wholesale. The jury found that Nintendo’s 3DS infringes Tomita’s U.S. Patent No. 7,417,664 (“'664 patent”) and that the '664 patent was valid. The patented technology uses two cameras to capture the image and includes a stereoscopic display to exhibit the captured image. This method of producing 3D images is useful for its unique ability to capture and display positional information without the need for users to wear special glasses. The resulting images, while appearing to have depth, are less like the 3D seen at the movies and more like looking into a diorama. The jury found that Nintendo has incorporated this technology into 3DS’s camera and display system.

 Tomita’s patent application (later issued as the '664 patent) was first filed in 2003 and granted in 2008. Tomita sued Nintendo in June of 2011, alleging Nintendo’s 3DS has infringed the stereoscopic technology covered in the '664 patent. In March 2013, the jury found that Nintendo had infringed the '664 patent and awarded $30.2 million to Tomita for Nintendo’s past infringement. Judge Rakoff later found this money damage award excessive and halved the award. In addition, Judge Rakoff ordered Nintendo to pay Tomita an ongoing royalty rate of 1.82% for each Nintendo 3DS unit sold at wholesale for 3DS’s future infringement of the '664 Patent (currently, amounting to about $3 per unit).

The measure of a royalty had been a point of contention. During trial, Nintendo argued for a fixed rate royalty of 1.36% of the sale price. On the other hand, Tomita sought a flat price of $4.45 per unit sold at retail.

Judge Rakoff ultimately chose a fixed percentage rate over a flat dollar figure. He reasoned that given the rapid pace at which technology advances, such technology tends to depreciate in value with time. If a flat price royalty of $3 were adopted, this dollar figure would gradually account for an increasingly large portion of Nintendo’s profit from the sale as the 3DS’s retail value drops. Conversely, a 1.82% fixed rate royalty will more accurately reflect the inevitable depreciation of the 3DS’s retail value. Thus, a percentage royalty was found to be more appropriate considering the practical realities of depreciating retail values of the product.

Interestingly, the few media sources to report on the Tomita judgment are vague about the nature of the infringement. While not explicitly stated, the stories seem to imply that the 3DS’s display technology infringes upon the '664 Patent when a review of the December Order and the ‘664 Patent reveal the subject of the patent to include only the method and technology involved in using the 3D cameras on the 3DS and viewing those pictures in 3D. This does not include the technology that allows the games to be played in 3D. Interestingly, this would suggest that Nintendo’s newest handheld console, 2DS, should also be subject to pay royalty to Tomita because it incorporates the same image capturing technology as the 3DS, despite lacking the ability to display 3D images. Despite this, none of the court documents make mention of applying the percentage royalty rate to future sales of the 2DS, though it may be implied.