Patent Damages

San Diego court awards post-judgment (ongoing) royalties and supplemental damages

Chief Judge Irma E. Gonzalez of the Southern District of California (San Diego) released an opinion on August 5, 2010 that set an ongoing (i.e., post-judgment ) royalty of 12% of the wholesale price of the infringing capacitors.  Presidio Components Inc. v. American Technical Ceramics Corp., 08-CV-335-IEG (NLS).  Judge Gonzalez also awarded "supplemental damages" to the plaintiff in the amount of $235,172.68.  Ongoing royalties raises some interesting issues and has been the subject of numerous opinions over the past couple years.  We'll discuss both issues below.


Ongoing royalties — analysis and thoughts — guest post by Craig Countryman

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 ), 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.


Ongoing royalties on Lost Profits case

Presidio Components Inc. v. American Technical Ceramics Corp. (3-08-cv-00335) CASD

The Court addressed the issue of ongoing royalties, but on a case where the underlying damages award was based on lost profits.  The Court refused to award the royalty that the jury had awarded, holding that the lost profits award – if viewed as a royalty – would be far too high, at 140% of the operating profit.  The Court also held that since the Georgia-Pacific analysis assumes the patent is valid and infringed, the bargaining positions of the parties was “substantially the same as they would have been at the time the infringement began.”

For the actual Georgia-Pacific analysis, the Court set the hypothetical negotiation date as the date the Court upheld the jury verdict and denied the motion for a permanent injunction.  The Court analyzed the various factors, and ended up agreeing with the Plaintiff’s rate, finding that the Plaintiff was giving up a valuable business consideration in the form of not being able to exclusively license other companies.

Presidio Components Inc v American Technical Ceramics Corp (3-08-cv-00335) CASD