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Thursday, October 23, 2008

Who Determines Post-Verdict Damage Awards for Patent Infringement in a Post-eBay World?

by: Michael Sadowitz, Associate Editor, MTTLR


It was once almost a foregone conclusion that a court would grant a permanent injunction to the patentee, when finding a patent valid and infringed.1 The injunction functioned as a powerful negotiations tool, and put the balance of power in the patentee’s hands. In eBay v. Mercexchange, the Supreme Court held that the traditional four-factor test for granting a permanent injunction (irreparable injury, inadequacy of remedies at law, balance of hardships favoring the party seeking the injunction, and public interest) applies to disputes arising under the Patent Act.2 Thus after eBay, a patentee might find herself prevailing with a judgment of infringement, but not be granted an injunction.3 The Supreme Court did not provide guidance as to appropriate relief in such cases. The Federal Circuit has not significantly reduced that uncertainty, but it has declared that district courts should consider pre- and post-verdict damages separately.4 Who determines these damages? Is it a matter for the judge or the jury? For now, the answer is either, and in some cases, perhaps neither.

The Federal Circuit: Pre-Verdict Infringement is Distinct from Post-Verdict Infringement

In Paice v. Toyota Motor Corp., the Federal Circuit found that the jury’s award of $25 per infringing vehicle was for pre-verdict infringement. The district court decided, with no articulated reasoning, to value the ongoing royalty at the same rate.5 The case was remanded to allow the district court to account for the change in the parties’ positions pre- and post-verdict.6

The Paicecourt allowed the district court, at its discretion, to have the parties attempt to negotiate a license before stepping in and assessing an ongoing royalty.7 Judge Rader, taking it a step further, would have required the court to have the parties negotiate or to obtain their permission before assessing the royalty.8 As Judge Rader saw it, the court was imposing a compulsory license but labeling it an “ongoing royalty.”9 However, if a compulsory license has the complexity and detail of other licenses, but an ongoing royalty is simply an imposition of damages for future infringement, then the compulsory licensee might be considered a willful infringer no longer, whereas the recipient of an ongoing royalty would still be willfully infringing.10 Since willful infringers are subject to enhanced damages up to a factor of three,11 the choice of courts to impose a royalty, a license, or to have the parties attempt a negotiation could have serious implications.

Likewise, in Amado v. Microsoft Corp. the Federal Circuit found that the jury’s reasonable royalty of $0.04 per infringing unit, which was trebled for willful infringement and imposed as an ongoing royalty by the district court, was based on pre-verdict infringement.12 Further, this case involved different economic factors than Paice because that court had to determine a royalty under the denial of an injunction whereas the Amado court had stayed the injunction imposed on Microsoft so they could continue infringing.13 Therefore, there was no willful infringement because the court-ordered stay permitted it, and the damage assessment under threat of an injunction should consider the economic factors that such a threat imposes.14

Both Paiceand Amado allowed the district court to decide the royalty without a jury’s determination and without requiring the parties the opportunity to bargain. The Paicecourt specifically rejected the argument that Paice had a Seventh Amendment right to a jury trial to determine the ongoing royalty since a legal remedy, damages, was at stake. The court stated that a question of monetary relief does not necessarily imply a question of damages and the district court had discretion to determine the ongoing royalty.15

Recent Eastern District of Texas Cases: Juries Should Decide Ongoing Royalties

A string of recent cases, all before Judge Ron Clark in the renowned Eastern District of Texas, lend support to the notion that ongoing royalties may be decided by juries more often than not in the future. In the absence of strong objections from the parties, Judge Clark will submit an ongoing royalty rate question to the juries in three cases pending trial.16 Judge Clark gives an example of such a question as follows:17
What rate or sum of money, if any, do you find is adequate as a reasonable royalty to compensate Plaintiff for the conduct you found to infringe that occurs in the future? Answer in a percentage or in dollars and cents.

Judge Clark stated that it makes sense to consider past and future damages simultaneously because there are some identical factors that go into both calculations.18 Judge Clark told the parties to have their damages experts analyze, and be prepared to answer questions related to, ongoing royalties or other future damages.19 \

Another Judge Clark case, Anascape v. Microsoft et al.,20 involved a situation similar to Amado, where a permanent injunction was stayed conditioned upon payment of an ongoing royalty. The stay was conditioned upon an ongoing royalty of 7% of the selling price for one type of video game controller and 5% for another type of controller, to be paid by defendant Nintendo.21 The jury awarded $21 million in damages for pre-verdict infringement.22 It appears, although not expressly stated, that the jury decided the ongoing royalty as well.

Can Post-Verdict Damages be Severed?

The plaintiff in Voda v. Cordis23 suggested severing the action for post-verdict damages. The court declined because it thought the only issue to be decided in a separate proceeding would be a “simple mathematical calculation based on defendant’s sales.”24 The jury awarded the plaintiff an ongoing royalty of 7.5% of defendant’s gross sales of infringing catheters.25 However, the somewhat bizarre Avid v. Phillips26 case allowed severance of the post-verdict damages claim without reasoning.27


Whether judges or juries decide post-verdict patent infringement damages appears to be largely up to the discretion of the district court. As long as the court considers pre- and post-verdict infringement separately, the Federal Circuit will likely not reverse the award based on which party decided the damages. If other courts follow Judge Clark in the Eastern District of Texas, it is likely that many future cases will allow the jury to decide ongoing damages. Who makes the calculation in a given case can have implications on the parties’ strategies for arguing damages, and if the jury decides, it could mean more judgments notwithstanding the verdict. Perhaps more importantly, if it is a question of fact, the jury’s determination is entitled to deference on appeal, whereas a question of law is subject to plenary review. The decision of who decides could be a battleground issue in future patent cases.

1 See, e.g., Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1548 (Fed. Cir. 1983) (“[t]he right to exclude recognized in a patent is but the essence of the concept of property”).
2 eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006).
3 eBay, 547 U.S. at 393-94.
4 See Paice, LLC v. Toyota Motor Corp., 504 F.3d 1293, 1315 (Fed. Cir. 2007) (finding the jury’s award of $25 per infringing vehicle for pre-verdict infringement only), Amado v. Microsoft Corp., 517 F.3d 1353, 1362 (Fed. Cir. 2008) (finding the jury’s award of $0.04 per infringing unit for pre-verdict infringement only).
5 Paice, 504 F.3d at 1315.
6 Id. (Remanding so the court could “take additional evidence if necessary to account for any additional economic factors arising out of the imposition of an ongoing royalty”); id. at 1317 (Rader, J., concurring) (“But pre-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties’ legal relationship and other factors”).
7 Id. at 1315 (majority opinion).
8 Id. at 1316 (Rader, J., concurring).
9 Id.
10 George M. Newcombe et al., Prospective Relief for Patent Infringement in a Post-eBay World, 4 N.Y.U. J. L. & Bus. 549, 574 (2008).
11 Id. at 576.
12 Amado, 517 F.3d at 1359.
13 Id. at 1362.
14 Id. (listing factors such as “the infringer's likelihood of success on appeal, the infringer's ability to immediately comply with the injunction, the parties' reasonable expectations if the stay was entered by consent or stipulation, etc”).
15 Paice, 504 F.3d at 1316. The court cited for support an 1882 Supreme Court case that allowed the court, “in order to avoid a multiplicity of suits,” to decide compensation for past injury based on profits and not “by assessing damages.” Id. (citing Root v. Ry. Co., 105 U.S. 189, 207 (1882)).
16 See Seoul Semiconductor Co. Ltd. v. Nichia Corp. et al, 9:07-cv-00273 (E.D. Tex. July 9, 2008); SciCo v. Boston Scientific, 9:07-cv-0076 (E.D. Tex. July 9, 2008); Iovate Health Sciences Inc. et al v. Bio-Engineered Supplements & Nutrition, Inc., 9:07-cv-00046 (E.D. Tex. July 9, 2008).
17 Seoul Semiconductor, 9:07-cv-00273 at *1.
18 Id. at *2.
19 Id.
20 Anascape, Ltd. v. Microsoft Corp. et al., 9:06-cv-158 (E.D. Tex. July 23, 2008).
21 Id. at *3-4.
22 Id. at *2.
23 Voda v. Cordis Corp., 2006 WL 2570614 (W.D. Okla. Sept. 5, 2006), aff’d in relevant part, 536 F.3d 1311 (Fed. Cir. 2008)
24 Id. at *6.
25 Id. at *1.
26 Avid Identification Sys. v. Phillips Elecs. N. Am. Corp., 2008 WL 819962 (E.D. Tex. Mar. 25, 2008). In Avid, injunctions were denied because of “unclean hands” due to inequitable conduct before the USPTO which led to the unenforceability of one of the three patents-in-suit. Id at *13-14. The denial of an injunction for all three patents, where inequitable conduct was found relating to only one of the patents, was not explained by the court.
27 Id. at *13-14.

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