Patent Damages

Pennsylvania court holds pre-licensing correspondence is relevant to damages and must be produced

Judge William Caldwell of the Middle District of Pennsylvania was faced with an issue that has arisen with increasing frequency in the past year:  whether the pre-licensing correspondence between a patent owner and its licensees is discoverable.  Kimberly-Clark Worldwide, Inc. v. First Quality Baby Prods., LLC, Civil No. 1:CV-09-1685 (M.D. Pa. Sept. 15, 2010) (Caldwell, J.).  Judge Caldwell’s decision follows what appears to be the prevailing view on this topic—i.e., such correspondence is discoverable because it is relevant to the damages calculus.

Defendant First Quality sought production of “document concerning the communications between [plaintiff Kimberly-Clark] and any licensee, or potential licensee, of the patents-in-suit, the related patents, or related applications.”  Kimberly-Clark resisted production of these documents, arguing that pre-licensing correspondence is neither admissible nor reasonably calculated to lead to discovery of admissible evidence.  First Quality argued that such documents are relevant to damages and obviousness.  The court agreed with First Quality.


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.