Patent Damages
16Nov/12Off

CAFC reinstates jury verdict awarding $15M for infringing offer to sell oil drilling services

The Federal Circuit in Transocean Offshore Deepwater Drilling, Inc. v. Maersk Drilling USA, Inc., No. 2011-1555(Fed. Circ. Nov. 15, 2012), issued an opinion that reinstated a jury’s verdict of $15M based on an infringing offer for sale.  The patents-in-suit covered an improved apparatus for offshore drilling.  The district court had overturned the jury’s verdict and ruled that no damages could be awarded because the defendant had never actually used an infringing drill.  The Federal Circuit ruled for the plaintiff and held that its license agreements demonstrated the plaintiff charged an upfront fee of $15M with a five percent running royalty and that several companies had agreed to those terms.

The defendant entered into a contract with an oil company granting it the right to use an infringing drilling rig.  However, the defendant never actually delivered the infringing rig and thus would not have paid $15M solely for the right to offer that rig for sale when the plaintiff’s previous licenses also granted the right to make and use its patented invention.

The plaintiff sued.  After summary judgment of obviousness  and non-enablement, the Federal Circuit reversed, and on remand the jury found the patent was not obvious, the defendant’s original offered drilling rig infringed, and awarded $15M in damages for the infringing offer to supply the infringing drilling rig.  The district court ranted JMOL motions overturning the entire verdict and granted a conditional motion for new trial.

The Federal Circuit was “sympathetic to [defendant’s] arguments” that it “offered drilling services which would use an infringing drill, but expressly reserved the right to modify the drill to avoid infringement” and then did in fact “modify the drill prior to delivery to avoid infringement – hence never actually using an infringing dual-activity drill.”  Slip op. at 27.  Despite these facts, the jury still awarded the full upfront $15M fee that a licensee would pay to actually drill with the patented rig.

The court indicated it may not have awarded that much but was constrained by the standard of review for a damages award:  “We may well not have awarded such a high royalty, but that decision is not ours to make. We review a damage award, which is a question of fact, for substantial evidence. Lucent Techs., 580 F.3d at 1310. And, given the evidence presented, we cannot conclude that the jury lacked substantial evidence for the award.”  Slip op. at 27.

Evidence established that plaintiff had a “model license agreement” that included the $15M upfront fee plus a 5% running royalty in jurisdictions where the plaintiff had patent rights.  The evidence further demonstrated that several companies, including plaintiff’s competitors, had agreed to license the patents on these terms.  Slip op. at 28.  Furthermore, because the defendant was a competitor, at the time of the hypothetical negotiation, just before the infringing offer to sell, the plaintiff would have required that defendant pay the upfront fee to make the offer.  Plaintiff’s expert testified that the reasonable royalty would have been at least $10M because the plaintiff sometimes offers a discount off the fee if it receives something in return from the licensee, but that here the defendant would not have received a discount because all defendant could have promised in return was the 5% royalty, which was part of the license terms anyway. The court held that evidence supported the jury’s verdict that defendant would not have received a discount off that fee.

The court also rejected defendant’s argument that it only needed a license allowing it to offer for sale the infringing rig, and not a license to use it.  The court reasoned, however, “a reasonable jury could conclude that at the time [defendant] first infringed by offering a dual-activity rig for sale, the parties would have negotiated a license granting [defendant] the right not only to offer the rig for sale, but also to deliver a rig that uses [plaintiff’s] dual-activity technology.  Indeed, [plaintiff’s] proposed royalty of a $10-15 million upfront payment and a five percent running royalty assumes that the license grants [defendant] ‘unfettered’ future use of the licensed patents.”

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