On March 26, the Federal Circuit issued its opinion in Power Integrations v. Fairchild Semiconductor Int’l, Inc., No. 11-1218, addressing damages issues and worldwide sales. The case is linked here.
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.
On August 30, 2012, the Federal Circuit in LaserDynamics, Inc. v. Quanta Computer, Inc., Case Nos. 2011-1440, -1470 (Fed. Cir.) ruled on two important issues related to damages law – the entire market value rule and use of settlement agreements as comparable licenses for a reasonable royalty analysis.
On August 24, 2012, the Federal Circuit in ActiveVideo Networks, Inc. v. Verizon Communications, Inc., Case Nos. 2011-1538, -1567, 2012-1129, -1201 (Fed. Cir.), ruled on two interesting issues related to damages. The first concerned an allegedly comparable license for reasonable royalty, and the second cleared up what could be perceived as ambiguity in the marking law for method claims.
On August 7, 2012, the Federal Circuit in WhitServe, LLC v. Computer Packages, Inc., Case No. 2011-1206, 1261 (Fed. Cir.), the court vacated the jury’s damages award and remanded for a new trial on damages. The case addresses many damages issues—reasonable royalty base, reasonable royalty rate, lump sum versus running royalty, the 25% rule, ongoing royalties, prejudment interest, and supplemental damages—but none of the rulings is surprising or ground breaking. The case is instructive, however, on how much care must be taken in presenting a coherent damages case. Plaintiff, WhitServe, and its damages expert, Shapiro, made mistakes at trial, and WhitServe’s desperate attempt on appeal to preserve the verdict (approximately $8M) simply could not overcome these mistakes.
Craig Countryman is an attorney at Fish & Richardson, San Diego, who practices patent litigation. He is a prolific writer, and his most recent article addresses ongoing royalties. He published the article in the LA Daily Journal on September 2, 2010 (see http://www.fr.com/patentroyalties ), and he was kind enough to generate a post for us on this same topic. Enjoy!
Ongoing Royalties: How and When Should They Be Calculated, by Craig Countryman
Now that eBay has made it more difficult for some patent infringement plaintiffs to obtain a permanent injunction after winning at trial, district courts have been grappling with how to handle post-verdict sales of the infringing product. The Federal Circuit held in Paice v. Toyota, 504 F.3d 1293 (Fed. Cir. 2007) that district courts have the power, but not the obligation, to force the patentee to allow the defendant to continue selling the infringing products if it pays an ongoing royalty to compensate the patentee for those sales. The soundness of this holding is questionable because it based the court’s power to impose such a royalty on the vague pronouncement in 35 U.S.C. § 283 that district courts “may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent.” Imposition of an ongoing royalty would seem to abet, rather than prevent, continued violation of the patentee’s rights. But Paice held that this provision gives district courts the equitable power to impose an ongoing royalty. So the only questions now are whether, when, and how district courts should exercise that authority.
Most district courts have chosen to impose an ongoing royalty rather than simply leave the parties to their own devices after denying a permanent injunction. Judge Ward has been a notable exception, however: he requires the plaintiff to file a new lawsuit to address infringement that occurs after the plaintiff wins its initial case. Courts that tackle the ongoing royalty issue as part of the initial case have further split on when they address it. Most have dealt with it in a post-trial proceeding but others have had the parties present both their proposed pre- and post-verdict royalty rates at trial and have gotten an advisory jury verdict on the ongoing royalty issue. These options present interesting strategic considerations for the parties. Plaintiffs may want to present evidence on the post-verdict royalty to the jury because it puts the defendant in the awkward position of discussing the fact it wants to keep selling its infringing product even if the jury finds the patent valid and infringed. But a defendant could benefit from having the issue vetted at trial if it thinks it can convince the jury to apply the same rate to pre- and post-verdict infringement, thereby discouraging the judge from jacking up the post-verdict rate after trial. On the other hand, the parties may both want to defer the question until after trial to give themselves a better chance to fully vet the issue, rather than trying to cram it into an already limited about of trial time. Deciding the issue as part of the initial lawsuit in a post-trial proceeding seems like best solution for the court because it allows it to efficiently resolve all the issues in a single proceeding while avoiding the need to divert trial time to an equitable issue the court will ultimately have to resolve itself anyway.
Wordtech Systems, Inc v. Integrated Networks Solutions, Inc. Wordtech Systems, Inc v. Integrated Networks Solutions, Inc., — F.3d —-, 2010 WL 2384958, C.A.Fed. (Cal.) 2010.
The Federal Circuit reversed the damages award, finding it to be against the clear weight of the evidence. The Court found that defendants had waived their JMOL argument on damages, but had properly preserved a New Trial argument. The plaintiff had requested “at least 12 percent” for a royalty, which came out to $114,000, but the jury awarded $250,000. Wordtech did not present expert testimony, but instead used its President to discuss previous licenses it had entered into.
The Court held that, similar to Lucent and ResQNet, the licenses were not sufficiently comparable to the hypothetical negotiation license. Although there were two previous lump-sum agreements in evidence, one for $175,000 and one for $350,000, the Federal Circuit noted that these licenses were not discussed in the trial, and thus “provide no basis for comparison with INSC's infringing sales. Neither license describes how the parties calculated each lump sum, the licensees' intended products, or how many products each licensee expected to produce.”