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30:90.50. Ongoing royalty for future infringement, 4 Annotated Patent Digest 30:90.

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4 Annotated Patent Digest 30:90.50 Annotated Patent Digest (Matthews) Database updated March 2013 Robert A. Matthews Chapter 30. Damages for Patent Infringement IV. Reasonable Royalty Damages C. Basing Reasonable Royalty on a Hypothetical Negotiation 1. General Substantive Aspects Correlation Table References 30:90.50. Ongoing royalty for future infringement Paice LLC v. Toyota Motor Corp., 504 F.3d 1293, 131415, 85 U.S.P.Q.2d 1001, 101617 (Fed. Cir. 2007), the Federal Circuit held that in some circumstances a district court may properly order an accused infringer to pay an ongoing royalty as an alternative to suffering a permanent injunction. See generally, 32:161 Ongoing Royalty in Lieu of an Injunction. Since the parties bargaining positions have changed upon a judgment for the patentee, an on-going royalty rate ordered in lieu of a permanent injunction, or as a remedy during the stay of a permanent injunction pending appeal, should not automatically be the same reasonable royalty rate applied in determining the damages for past infringement. 0 Paice LLC v. Toyota Motor Corp., 504 F.3d 1293, 131617, 85 U.S.P.Q.2d 1001, 1018 (Fed. Cir. 2007) (Rader, J., concurring) (Evidence and argument on royalty rates were, of course, presented during the course of the trial, for the purposes of assessing damages for Toyotas past infringement. 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.)

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Speaking further on this point, albeit in the context of infringing sales made during a period for which an injunction had been stayed, the Federal Circuit instructed: There is a fundamental difference, however, between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement. Cf. Paice LLC v. Toyota Motor Corp. , 504 F.3d 1293, 1317 (Fed. Cir. 2007) ([P]re-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.) (Rader, J., concurring). Prior to judgment, liability for infringement, as well as the validity of the patent, is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, however, the calculus is markedly different because different economic factors are involved. This is not a case like Paice, however, where the courts task was to assess an appropriate level of damages for ongoing infringement under circumstances in which an injunction was not warranted. Here, Microsoft was enjoined from further infringing activity yet was permitted to continue only by virtue, and with the imprimatur, of the court-ordered stay. The district courts escrow award of a $0.12 post-verdict royalty [three times the rate applied by the jury to the past infringement] did not expressly consider that Microsofts infringing sales took place following the grant of an injunction that was stayed. As noted above, the district court had authority to dissolve the permanent injunction only prospectively. Therefore, the royalty determination should have taken into account the fact that the sales, although authorized under the terms of the district courts stay, were nevertheless infringing and subject to an injunction. Here, the district court centered its damages assessment on willful infringement. But willfulness, as such, is not the inquiry when the infringement is permitted by a courtordered stay. Moreover, the district court, by trebling the amount the jury found to be a reasonable royalty, began with a faulty premise, because as we have noted, that damages award was based on pre-verdict infringement.

When a district court concludes that an injunction is warranted, but is persuaded to stay the injunction pending an appeal, the assessment of damages for infringements taking place after the injunction should take into account the change in the parties bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liabilityfor example, the infringers likelihood of success on appeal, the infringers ability to immediately comply with the injunction, the parties reasonable expectations if the stay was entered by consent or stipulation, etc. as well as the evidence and arguments found material to the granting of the injunction and the stay. Because we are unable to determine whether the district courts award of $0.12 was a reasonable exercise of its discretion, we vacate the district courts escrow award and remand the matter to the district court for reconsideration. Amado v. Microsoft Corp., 517 F.3d 1353, 136162, 86 U.S.P.Q.2d 1090, 109697 (Fed. Cir. 2008) (for sales made during a stay of a permanent injunction, vacating district courts application of a royalty of three times the rate found by the jury as being the proper measure of the royalty since the court did not make findings as to the changed circumstances and whether in view of those changed circumstances the rate was reasonable). In a thoughtful discussion of the topic, one court has explained that on-going royalty rates must account for the fact that the adjudicated infringer is voluntarily choosing to commit willful infringement, and without consideration of the changed legal status, there is essentially no downside to losing for an adjudicated infringer. Many of the factors noted by the Georgia-Pacific Court are also seemingly applicable to an ongoing royalty rate analysis. A post-judgment, ongoing royalty negotiation, however, is logically different from the pre-trial hypothetical negotiation discussed in Georgia-Pacific. In the case of an ongoing royalty, the hypothetical negotiation occurs post-judgment; therefore, the willing licensee in this negotiation is an adjudged infringer, unlike the situation described in Georgia-Pacific. In many ongoing royalty negotiations, the threat of a permanent injunction serves as a big stick, essentially framing negotiation in terms of how much an adjudged infringer would pay for a license to continue its infringing conduct. However, when an injunction is not proper under eBay, the question instead becomes: what amount of money would reasonably compensate a patentee for giving up his right to exclude yet allow an ongoing willful infringer to make a reasonable profit? It is under this modified Georgia-Pacific framework that the Court proceeds. A systemic flaw throughout Toyotas analysis is its overt failure to consider the change in the legal status of the parties that resulted from the verdict and judgment in this case. Toyota essentially contends the pretrial negotiation back in 2003 and the post-judgment negotiation in 2006 are identical except for Toyotas changed incremental hybrid profits. Toyota never considers the fact that its continued infringement is willful and that a new lawsuit by Paice would likely result in treble damages and could potentially be considered an exceptional case. Rather, Toyota contends that because the Court denied Paices motion for a permanent injunction, the determination of an ongoing royalty should be considered through the same legal framework as the reasonable royalty analysis for past damages. The Court finds both Paice II and Amado counsel otherwise. Both the majority and concurrence in Paice II instructed the district court on remand to consider the changed circumstances in light of the ongoing infringement. Toyota contends Amado is inapt because a permanent injunction was imposed in that case. The Court disagrees. Injunction or no injunction, pre-suit and post-judgment licensing negotiations are necessarily different due at least to the change in legal status of the parties. Once judgment is entered, ongoing infringement by the adjudged infringer is willful; that factor, along with the potential for enhancement, the potential impact of res judicata, and many additional factual factors significantly change the ongoing royalty negotiation calculus.

Paice concludes, and the Court agrees, that significant changes justify reconsideration of an ongoing royalty. First, the change in the legal relationship between the parties justifies a different ongoing royalty rate. Toyota is now an adjudged infringer of a valid patent . Toyotas continued infringement is both voluntary and intentional. Failing to take into account the change in legal relationship between the parties would be manifestly unjust to Paice. Failing to consider the parties changed legal status would create an incentive for every defendant to fight each patent infringement case to the bitter end because without consideration of the changed legal status, there is essentially no downside to losing. Even though a permanent injunction may no longer be proper in many patent cases in light of eBay, an ongoing royalty rate must still adequately compensate a patentee for giving up his right under the law to exclude others from making, using, selling, offering for sale or importing his invention. That is, the law must ensure that an adjudged infringer who voluntarily chooses to continue his infringing behavior must adequately compensate the patent holder for using the patent holders property. Anything less would be manifestly unjust and violate the spirit, if not the letter, of the U.S. Constitution and the Patent Act. Additionally, the Court must be mindful in this case that establishing an ongoing royalty rate has a significant impact on Paices ability to license its technology to others and effectively precludes an exclusive licensing arrangement. The licensing terms must be fair to both parties, but the fact that Toyota is an adjudged infringer who chooses to continue infringing simply cannot be ignored. The Court finds the changed factual and legal circumstances, as previously discussed, justify application of the 25% Rule of Thumb to Toyotas profit margin of 9%, thereby yielding a royalty rate of 2.25%. However, the jurys award for past damages, when divided by the number of infringing vehicle sales, counsels in favor of a reduction. Likewise, although the Toyota hybrid vehicles undoubtedly contribute to the success of the entire Toyota product line and help Toyota meet the CAFE standards, the Court finds the royalty rate should also be decreased because Toyota, as a general matter, makes less profit on its hybrid vehicles than its nonhybrid vehicles. Therefore, based on these two factors, the Court reduces the 2.25% royalty rate by 1/3, yielding a royalty rate of 1.5%. The Court finds this rate is reasonable, takes into account the changed legal and factual circumstances occurring since the first hypothetical negotiation, and will adequately compensate Paice for Toyotas continued infringement. This rate also accounts for the jurys award for past infringement and the lower profit margin Toyota generally receives on its hybrid vehicles. To adjust for inflation, allow for the use of publicly-available documents for verification, and keep clever powertrain cost accounting from changing the royalty, the Court has scaled the ongoing royalty as a percentage of wholesale vehicle price. The result is less than 0.5% of the wholesale price for each of the vehicles-specifically, 0.48% for the Prius, 0.32% for the Highlander, and 0.26% for the Lexus RX400h. These royalty rates continue to allow Toyota to make a reasonable profit. The Court additionally notes that Toyota continues to have the option of ceasing its infringing use of the Paice technology or raising prices to pass along the royalty to its consumers. Paice LLC v. Toyota Motor Corp., 609 F. Supp. 2d 620, 91 U.S.P.Q.2d 1835 (E.D. Tex. 2009) (citations and footnotes omitted after holding an evidentiary hearing, since the parties could not agree on a post-judgment royalty rate, setting a royalty rate by accounting for the fact that the infringer would be voluntarily committing willful infringement, therefore accepting

patentees proposed application of 25% of the infringers profits downwardly adjusted to account for the low amount of damages awarded by the jury and to limit the components of the automobile for which the profits were attributable) Accord 2 Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, Inc., 670 F.3d 1171, 1192-93, 101 U.S.P.Q.2d 1641 (Fed. Cir. 2012) (affirming on-going royalty awarded at different rates for the two infringing products and at a rate higher than that used by the jury in rendering the original damage awardThe district court denied Bards request for a permanent injunction finding that it was in the public interest to allow competition in the medical device arena, but in lieu thereof granted Bard an ongoing royalty to compensate for Gores future infringement. The court set a 12.5% to 20% royalty rate on Gores grafts depending on the different types of graft [which rate was higher than the 10% royalty awarded by the jury]. The award of an ongoing royalty instead of a permanent injunction to compensate for future infringement is appropriate in some cases. Because of the public interest as the court here determined, the district court may wish to allow the parties to negotiate a license amongst themselves regarding future use of a patented invention before imposing an ongoing royalty. But if the parties cannot reach agreement, the district court could step in to assess a reasonable royalty in light of the ongoing infringement. For this court to determine whether the district court abused its discretion in setting the ongoing royalty rate, the district court must explain the reasoning in establishing the appropriate royalty rate. Here, Bard proposed a royalty rate of 35% for Gores surgical graft products and 20% for Gores stent graft products, while Gore proposed a royalty rate of 5.25% for all of its infringing products. The district court explained its reasons for establishing the various royalty rates at 20% on surgical grafts, 15% on stent-grafts, 12.5% on the VIABAHN stent-graft, and 15% on the PROPATEN surgical graft against Gore. The court reasoned that a different royalty rate was warranted between Gores surgical and stent graft products because for surgical graft products, Gore competes directly with Bard in the more established market, while for stent graft products, a more recently developed market, Bard does not presently directly compete with Gore. Thus, the court concluded that a free-market license between Bard and Gore would separate the royalty rates on the two sets of products to account for those differences. Thus, taking economic market forces into account is a reasonable and valid assumption by the district court. Next, the district court determined that the ongoing royalty on all of Gores products should be higher than the 10% reasonable royalty rate set by the jury. The court considered the parties changed legal post-verdict status: namely that the jury found the 135 patent enforceable and not invalid and Gore had willfully infringed; the court deemed this case exceptional so that Bard was awarded enhanced damages and attorneys fees and costs; and Gore voluntarily chose to continue its post-verdict infringement unabated. (Prior to judgment, liability for infringement, as well as the validity of the patent, is uncertain, and damages are determined in the context of that uncertainty. Once a judgment of validity and infringement has been entered, however, the [damages] calculus is markedly different because different economic factors are involved.). The court also considered other economic factors, including that Bard and Gore compete directly with respect to surgical grafts, Gore profits highly from its infringing products, Gore potentially faces stiffer losses that include a permanent injunction if Bard prevails in a second lawsuit, and Bard seeks adequate compensation and lacks incentive to accept a below-market deal. Finally, the court reasoned that the value Gore added to its VIABAHN and PROPATEN grafts that are bonded with heparin warranted lower royalty rates on those products. Based on the district courts reasoning, the court did not abuse its discretion in setting a 12.5% to 20% royalty rate for the ongoing royalty on Gores infringing grafts.citations omitted)

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Mondis Technology Ltd. v. Chimei InnoLux Corp., 822 F. Supp. 2d 639, 646-652 (E.D. Tex. 2011) (awarding an ongoing royalty at a rate higher than the jurys royalty rate since the commercial success following the date of the hypothetical negotiation justified increasing the royalty rate from 0.5% to 0.75 %, and further enhancing that rate to 1.5% since any on-going infringement would be willful, rejecting the accused infringers contention that the defenses it was likely to present in its appeal showed that conduct done during the pendency of the appeal would not be objectively reckless, and therefore would not support a finding of willful infringement, and basing its decision to enhance the damages in part on accused infringers CEO statements to Chinese newspaper that showed a lack of respect to the jurys verdict and the courtIn light of this case law, the Court will proceed by first determining a post-judgment reasonable (ongoing) royalty rate under Georgia-Pacific and will use the jurys verdict in this case as a starting point and determine how the circumstances may have changed. Then the Court will consider whether the ongoing infringement will be willful. If so, the Court will consider how much to enhance the damages in light of this willful infringement. On the other hand, the Court primarily agrees with Mondiss argument that factors 8-10 weigh in favor of increasing the reasonable royalty rate determined by the jury. With respect to these factors, Mondis points out that as opposed to 2005, the patented technology in 2011 has proven to be more of a commercial success. This is evidenced at least in part by Mondis having entered into over fifteen licenses in the industry. In 2005, Mondis had not yet had near the success in

licensing that it now has in 2011. Therefore, this changed position in 2011 warrants an increase from the jurys determination, which was made for a 2005 hypothetical negotiation. Considering the factors as a whole, as compared to the jurys 2005 hypothetical negotiation that resulted in a royalty rate of 0.5% for monitors, the Court holds that, in a post-judgment negotiation, some factors weigh in favor of a higher royalty rate and no factors weigh in favor of decreasing the royalty rate. After conducting the post-judgment hypothetical negotiation, the Court concludes that the reasonable royalty rate should be 0.75% for monitors. The Court now determines if this rate should be enhanced for willful infringement. The Court holds that ongoing infringement by InnoLux is willful. Even InnoLux does not dispute that ongoing infringement will eventually be considered willful; rather, InnoLux argues that the ongoing infringement should only be considered willful after InnoLux has exhausted its appellate rights. Essentially, InnoLux argues that it has not been proven that its appellate defenses are objectively reckless, and therefore, it should not be liable for willful infringement until if and when those defenses are rejected on appeal. For at least three reasons, the Court disagrees with InnoLux and holds that InnoLuxs continued infringement is willful despite its potential appeal. First, in this Courts view, this Court is not in a proper position to evaluate the merits of InnoLuxs appeal, which would essentially be required if the Court accepts InnoLuxs position. The court in Datatreasury recognized this point and stated that [b]ecause the ongoing royalty rate can be appealed together with the findings of infringement and no invalidity, the Court finds no reason to discount the royalty rate based on the possible outcome of an appeal. Rather, the Federal Circuit is in a better position to evaluate the merits of the appealthat is the Federal Circuits role. This Court does not know exactly what issues InnoLux will appeal and does not have the advantage of hearing the arguments on appeal, unlike the Federal Circuit. Therefore, in this Courts view, the Federal Circuit can determine whether InnoLux should be considered a willful infringer in the period from the date of judgment to the date the appellate decision is rendered. If the Federal Circuit disagrees with this Courts finding of ongoing willful infringement after hearing the appeal, then it can reverse on that issue. Second, assuming arguendo that it is this Courts duty to evaluate the strength of InnoLuxs appeal (before the appeal is filed), the Court holds that a potential appeal by InnoLux does not have sufficient merit to warrant finding that its continued infringement despite the judgment is not objectively reckless. As an initial matter, it is obviously this Courts opinion that InnoLux will not be successful on appeal, or the Court would have otherwise ruled in InnoLuxs favor on various post-trial issues. Although, as noted above, this Court is neither aware of what exactly InnoLux will be appealing nor its arguments on appeal, the Court can generally assume it will likely be issues of claim construction, infringement, and/or validity. Therefore, the Court concludes that a potential appeal by InnoLux lacks sufficient merit to find that its continued infringement, despite the judgment, is not objectively reckless. Finally, the third reason the Court disagrees with InnoLux is because this Court agrees with the court in Affinity Labs that absent unusual circumstances, a defendants continued infringement after it is an adjudicated infringer is willful even before appeal. That is certainly true in this case. The jury found InnoLux liable for willful infringement on several claims. The Court only granted InnoLuxs motion for JMOL of no willful infringement because there was no evidence of pre-suit notice for the claims the jury found were willfully infringed, and additionally, the Court found InnoLux was not objectively reckless. For InnoLuxs ongoing infringement, notice is not an issue. The only issue now is whether InnoLuxs ongoing infringement, prior to the resolution of an appeal, is objectively reckless under In re Seagate Tech, LLC, 497 F.3d 1360, 1371 (Fed.Cir.2007). The Court holds that it is. InnoLux would have the Court effectively adopt a standard that a party is not a willful infringer until after it has resolved all its rights on appeal and has lost. Implicit in this argument is InnoLuxs obvious lack of respect for the jurys verdict or this Courts judgment. Furthermore, InnoLuxs position is contrary to the common law usage of willfulness, which was explicitly adopted by In re Seagate. As the Federal Circuit stated in In re Seagate, it adopted the Supreme Courts meaning of willfulness that comported with the common law usage, which treated actions in reckless disregard of the law as willful violations. The term reckless does not represent the most stringent mental state in the law. Mental states such as knowingly or intentionally are considered higher. However, if after InnoLux exhausts its appellate rights it is still found to be an adjudicated infringer, by continuing to infringe, InnoLux would more accurately be considered to be acting knowingly or intentionally in disregard of the law (i.e., after appeals are exhausted, there is no uncertainty). But if InnoLuxs position was the law, it would not be considered in reckless disregard of the law until that same time, which would effectively be conflating the standard of reckless with knowingly or intentional. In this Courts view, it would be more proper to consider it reckless to continue infringement after a jury verdict and judgment of infringement. In other words, the Federal Circuit explicitly stated that a person is reckless if it acts in the face of an unjustified high risk of harm that is either known or so obvious that it should be known. And this Court holds that absent unusual circumstances that are not before this Court, a defendant is acting in the face of an unjustifiable high risk of harm if it continues to infringe in light of a jury verdict and judgment of infringement. Further, InnoLux does not cite any cases that state that in order for InnoLuxs conduct to be willful Mondis must show by clear and convincing evidence that InnoLuxs defenses on appeal are objectively baseless. As a result, the Court holds that InnoLuxs ongoing infringement is willful and enhancement is warranted.citations and footnotes omittedfurther awarding supplemental damages at same

royalty rate determined by jury for the original damages award and ruling that accused infringer created a judicial admission as to how many non-US sales of the accused product resulted in a later importation into the U.S. of a product having the accused product for purposes of assessing the supplemental damages)

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Soverain Software LLC v. Newegg Inc., 2010 WL 8231079, *16-*17 (E.D. Tex. 2010) (awarding on-going royalties at almost twice the effective royalty rate awarded by the juryNewegg is now an adjudged infringer and Neweggs continued infringement is both voluntary and intentional, making Neweggs continued infringement willful. In addition, both Newegg and Soverains financial position has changed dramatically since the hypothetical negotiation. Newegg is now the second largest online-only retailer and has announced its plans for an initial public offering. Soverains licensing program has had recent success as Soverain has entered into seven agreements with large e-commerce retailers, including Amazon and TigerDirect. As expected, the parties have markedly different views of how these changes affect their respective negotiating positions. The parties changed financial positions appear to cancel each other out because each party is more successful today than they were at the time of the hypothetical negotiation. However, the Court cannot ignore Neweggs adjudged infringer status in determining an appropriate ongoing royalty. Reducing the jurys verdict to a per-transaction rate results in an award equal to $0.088 per Newegg transaction. Soverain contends that an appropriate ongoing royalty, taking into account the changed legal and factual circumstances, is at least $0.20 per transaction. Newegg contends that Soverains proposed ongoing royalty is unreasonable because Soverain has failed to take into account Neweggs proposed design-arounds for the shopping cart claims and hypertext statement claims. Newegg argues that these design-arounds should lower the parties expectations regarding any ongoing royalty or eliminate the need for such royalty altogether. Newegg advocates for an ongoing royalty of 1.25 cents per $100 transaction, or in the alternative, $0.088 per transaction because the parties various changed circumstances cancel each other out. Neweggs 2009 profit rate of approximately 2.5% yields an operating profit of $4.68 per transaction. Although Judge Folsom in Paice III applied a 25% Rule of Thumb to the profit rate as a starting point to determine an ongoing royalty, such an approach is not in line with the jurys verdict in this case because $0.088 per Newegg transaction represents only 1.88% of Neweggs profits. Accordingly, the Court uses Soverains proposal of $0.20 as a starting point. Even taking into account Neweggs adjudged infringer status, the jurys award of only $0.088 per transaction (1.88% of Neweggs profits) counsels against an ongoing royalty of $0.20 per transaction. If Newegg proves successful in designing-around the shopping cart claims and hypertext statement claims, it will be freed of the obligation to pay ongoing royalties. When the time comes, Soverain will have the burden of proving that Neweggs design-arounds are not colorably different and thus still infringing. Although Neweggs proposed re-designs do not preclude the post-verdict relief Soverain is entitled to given Neweggs adjudged infringement, the Court does consider Neweggs proposed design-arounds because the costs of switching to an alternative design is a factor that the parties would consider in arriving at an appropriate ongoing royalty rate. Based on the foregoing reasons, and the fact that Soverain did not account for Neweggs proposed design-arounds in its $0.20 proposal, the Court finds it is reasonable to reduce Soverains proposal by 25%. Thus, taking into account the changed legal and factual circumstances occurring since the first hypothetical negotiation, the Court GRANTS Soverains motion for ongoing royalties and concludes that $0.15 per transaction is an appropriate ongoing royalty to adequately compensate Soverain for Neweggs continued infringement.citations omitted) Affinity Labs of Texas, LLC v. BMW North America, LLC, 2011 WL 1193207, *4*11 (E.D. Tex. 2011) (applying the Read factors to award an on-going royalty rate that was 33% higher than the royalty rate evident from the jurys damage award for prejudgment infringement, and rejecting the accused infringers argument that since the claims presently stood rejected in a reexamination proceeding, no enhancement to the pre-verdict royalty rate should apply for post-verdict salesOne method of calculating an ongoing royalty for post-judgment infringement that lends itself to a clear explanation is to first calculate the amount of a reasonable ongoing royalty based to the extent possible on market factors and the assumption of a willing licensor and willing licensee, without consideration of the willful nature of any ongoing infringement. The court may then determine whether, and by how much, this reasonable market royalty should be increased to account for the fact that ongoing infringement will be willful. This approach allows the court to take full advantage of the evidence presented by the parties damages experts at trial and the jurys findings with respect to a presuit royalty. The jurys findings of infringement and no invalidity merely confirm the experts assumptions of those facts. Thus, the trial testimony and jury findings with respect to past damages can provide a basis for calculating a market royalty for any ongoing infringement. [insert n.6: If there have been any changes in the market between the date of the hypothetical negotiation and the date of trial, a damages expert may include in his or her pre-suit calculations every advantageous change in profits, sales, and other conditions under the book of wisdom rubric.] Further, the approach of first calculating a reasonable market royalty and then determining whether and by how much that amount

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should be enhanced tracks the statutory framework established by Congress for the calculation of past damages under 35 U.S.C. 284. Where a court decides not to grant an injunction after a finding of infringement, any determination of an ongoing royalty should consider an enhancement that takes into account these important public and private interests. Enhancement of pre-suit damages does not normally occur absent a finding of willfulness. Following a jury verdict and entry of judgment of infringement and no invalidity, a defendants continued infringement will be willful absent very unusual circumstances. Keeping in mind that there were reasons for not granting an injunction, the court should consider how much the reasonable market royalty should be enhanced to substantially reduce, or even eliminate, the defendants marginal profit from the infringing activity. General deterrence of infringing activity is also a factor to be considered. The parties agree that the jurys past damages award equates to a royalty rate of $11 per vehicle sold for which there is a corresponding sale of a Hyundai/Kia iPod cable, and that this $11 rate for past damages should be the starting point in the analysis of an appropriate ongoing royalty rate. At the post-trial hearing, the Hyundai/Kia Defendants recognized that awarding an ongoing royalty at the same rate found by the jury for past damages would not account for the parties changed legal status. They asserted that a 25% premium on the royalty rate found by the jury would be reasonable and appropriate. Affinity notes that other courts in this district have commonly awarded post-trial premiums in the range of 33% to 50% of the royalty rate for past damages found by the jury, and asserts that a 33% increase would be appropriate in this case. The court will not simply pick an arbitrary percentage or a percentage based on what other courts have awarded in different cases. Of course, it is not possible to precisely calculate an exact amount that reduces the defendants profit motive to infringe and serves to deter infringing conduct in general. However, as jurors are regularly instructed, damages need only be established with reasonable certainty, and need not be calculated with mathematical precision. Any doubts regarding the damages amount should be resolved against the infringer. Although the appropriate amount of enhancement cannot be precisely calculated, certain factors can be considered and weighed. Given the willful nature of the ongoing infringement and the fact that a new lawsuit could potentially result in an award of treble damages, the court will consider the factors traditionally taken into account when determining whether to enhance a past damages award upon a finding of willfulness [i.e., the Read factors]. Additionally, the court will consider the costs that the Hyundai/Kia Defendants will avoid by paying a judicially-determined royalty in lieu of defending future litigation directed toward their ongoing infringement. Finally, the court will consider the public interest in protecting the patent system as weighed against any other public interests that should be taken into account based on the facts of this case. While the foregoing analysis indicates that an argument might have been made for a higher amount, Affinity states that a conservative enhancement of 33% will adequately account for the willful nature of the ongoing infringement. This would result in an ongoing royalty rate of $14.50 per accused vehicle sold for which there is a corresponding sale of a Hyundai/Kia iPod cable. Not being inclined to award more than requested, and based on the evidence and reasons stated above, the court finds this number to be reasonable.citations omitted)

9 10 Presidio Components Inc. v. American Technical Ceramics Corp., 2010 WL 3070370, *5*6 (S.D. Cal. 2010) , vacated
on other grounds, 702 F.3d 1351, 1363-64, 105 U.S.P.Q.2d __ (Fed. Cir. 2012) (setting on-going royalty rate for infringement beginning after the day that the court denied the patentees motion for a permanent injunction at 12%, the royalty rate the patentees expert proposed at trial, rather than the 2 to 4% proposed by the accused infringer, the court stating that since it denied the motion for a permanent injunction the threat of an injunction no longer had a role in the reasonable royalty rate analysis, and there was no difference between the parties positions at that time compared to trial, and therefore the rate proposed at trial was reasonable, further rejecting the patentees contention that the on-going royalty rate should be set to equal the lost profit margin the jury had awarded since that left the accused infringer with no profitsAt the outset, the Court agrees with ATC that the appropriate date for the hypothetical negotiation is April 13, 2010, when the Court upheld the jurys finding of validity and infringement, and when the Court denied Presidios motion for a permanent injunction. Presidio has an established policy of not granting licenses for the 356 patent. This by itself strengthens Presidios bargaining position because granting a license would require Presidio to abandon its arguably valuable business consideration. Moreover, by granting a license to ATC now, Presidio will also be giving up the right to offer an exclusive license to a third party in the future. Accordingly, both of these factors weigh in Presidios favor. [T]he Court believes an ongoing royalty of 12% proposed by Presidio at trial is adequate to both compensate Presidio for the continuing infringement and at the same time allow ATC to sell the 545L capacitors at a reasonable profit. This rate takes into account the changed factual and legal circumstances after trial, and is adequate to compensate for the infringement as required by 35 U.S.C.A. 284. The Court also notes that had it been faced with this issue at the start of the trial, it very well might have been inclined to adopt a figure somewhere in-between the 2 to 4 % rate suggested by ATC and the 12 % rate suggested by Presidio. However, in light of the jurys verdict of validity and infringement, and because granting a license would require Presidio to give up its valuable business consideration of refusing to license the 356 patent as well as the right to offer an exclusive license to a third party in the future, the Court

believes the rate proposed by Presidio is more reasonable. Any rate below 12 % will give ATC, who is now a willful infringer, a windfall at Presidios expense. On the other hand, the Court is not convinced that the parties positions have changed to such an extent as to warrant a departure from what Presidios own damages expert considered to be a reasonable rate pre-trial. For all of the foregoing reasons, the Court sets the ongoing royalty rate at 12% of the wholesale price for each infringing 545L capacitor.)

11 12 Creative Internet Advertising Corp. v. YahooA Inc., 2009 WL 4730622, *10*12 (E.D. Tex. 2009) (ruling that where the
jury awarded a 20% royalty for the original infringement, an on-going royalty of 23% was proper to account for the changed circumstances and the accused infringers decision not to cease infringingThe Court adopts the Paice methodology for calculating an ongoing royalty and will apply a modified Georgia-Pacific analysis. As such, the Georgia-Pacific factors will be applied in light of the changed relationship between the parties and will reflect a hypothetical negotiation in which Yahoo is now an adjudged infringer. This approach departs from both a strict application of Georgia-Pacific and an approach that only focuses on the post-verdict relationship. Determining an ongoing rate on remand from the Federal Circuit, Chief Judge Folsom recently applied this modified Georgia-Pacific analysis in Paice III, and in doing so, preserved the fictional hypothetical negotiation between a willing licensor and willing licensee, while focusing on the factors that are most applicable to the circumstances surrounding an ongoing royalty rate. The Paice III court proceeded under an approach that recognized a post-judgment ongoing royalty negotiation is logically different from the pre-trial hypothetical negotiation discussed in Georgia-Pacific. Unlike the pre-verdict situation described in Georgia-Pacific, determination of an ongoing royalty occurs post-judgment when the willing licensee in the hypothetical negotiation has become an adjudged infringer. At trial, CIACs damages expert, Ms. Michelle Riley, opined that a 20% royalty rate based on Yahoos revenues from IMVironments would be reasonable to compensate CIAC for past damages. The jury accepted Ms. Rileys pre-verdict application of the Georgia-Pacific factors and the Court similarly accepts her opinion that a 23% ongoing royalty rate is reasonable and appropriate in light of the change in the relationship between the parties post-verdict. Ms. Rileys opinion is consistent with the modified Georgia-Pacific approach endorsed by this district, and Ms. Riley specifically considers Yahoos decision not to design around, or otherwise stop infringing. The Federal Circuit has instructed that post-verdict infringement should typically entail a higher royalty rate than the reasonable royalty found at trial, and the Court adopts a methodology that recognizes the effect of a jury verdict on the parties bargaining position as they enter into a hypothetical negotiation. Furthermore, failure to recognize the parties changed legal status would create an incentive for every defendant to fight each patent infringement case to the bitter end because without consideration of the changed legal status, there is essentially no downside to losing. Thus, the question then becomes what amount of money would reasonably compensate a patentee for giving up his right to exclude yet allow an ongoing willful infringer to make a reasonable profit? Taking into account the change in the parties legal relationship, the Court finds it reasonable to impose an ongoing royalty rate that is 23% of the revenue that Yahoo has earned, and continues to earn post-verdict from IMVironments (representing a 3% increase from the 20% rate imposed by the jury at trial).citations omittedfurther making an analogy to the law of contempt to rule that when a patentee seeks on-going royalty damages for a redesigned version of the adjudicated infringing product the patentee bears the burden of proving that the redesigned product is only a colorable variation of the adjudicated infringing product before it can claim on-going royalties for the new product, and ruling that in the case the patentee did show that the redesigned product was merely a colorable variation of the adjudicated product, and therefore the patentee was entitled to on-going royalties on the redesigned product, also ruling that since the accused infringer, had the capability but chose not to disable the infringing version of the product in its customers possession the patentee was entitled to on-going royalties for the continued use of the product in the customers possession)

13 14 Boston Scientific Corp. v. Johnson & Johnson, 2009 WL 975424, *3 (N.D. Cal. 2009) (awarding a post-judgment ongoing royalty rate of 5.1%, the low end of the patentees proposed range of rates, and rejecting the accused infringers argument that under the specific and unique practical circumstances of the parties relationship the jury verdict of infringement should not be treated as permitting the patentee to assert in hypothetical post-judgment negotiations that it had the ability to force the infringing product off of the market if the parties did not reach a royalty agreement, to support its contention for a higher royalty rate, the infringer arguing that it had an extensive history of litigation with the patentee and it never had to pull any products previously found to infringe from the market and that it had its own infringement lawsuit pending against the patentee, and should it prevail in that suit and obtained an injunction that injunction would cause more severe consequences to the patentee, since the patentee could not allegedly offer a noninfringing alternative for its product, while the infringer allegedly could bring to market a noninfringing alternative for its infringement, and therefore the patentee would not have an incentive to push for an injunction, the court rejecting this argument since in its view it nullified the jurys verdictIn sum, Cordis expert assumed that the jurys finding of

liability strengthens the bargaining position of the party whose product was found to be infringed, while BSCs expert assumed that the jury verdict would not affect the relationship of the parties in this case and is therefore not a factor that warrants consideration in the Courts determination of appropriate injunctive relief. The parties did not appear to dispute that BSCs view is grounded in reality; Cordis position is simply that in order to carry out the analysis required by the hypothetical negotiation, one must assume that a jury verdict prevents future infringement. BSC effectively asks the Court to assume that a jury verdict in a patent case has no meaning. The Court will not do this. We must assume that the jurys finding means something. This Court finds the reasoning of the trial court in Amado to be more persuasive. The Federal Circuit found that trial courts should not rely on jury verdicts on reasonable royalties for past infringement because of the fundamental difference between pre- and post-verdict damages. Accordingly, the Court concludes that it must assume that the jury finding of liability in this case would have strengthened Cordis bargaining position had the parties negotiated a license after the jury verdict. This strengthened bargaining position would have resulted from the parties knowledge that Cordis could have forced BSCs infringing product off the market for a limited period of time (creating what the parties refer to as a hold up effect). Although the trial court in Amado abandoned the Georgia-Pacific factors in its analysis on remand, both experts in this case have framed their analysis in terms of those factors. The Court will therefore also use the Georgia-Pacific factors but will consider whether certain factors should be weighed differently in the context of post-verdict royalties.)

15 16 Joyal Products, Inc. v. Johnson Elec. North America, Inc., 2009 WL 512156, *13*14 (D.N.J. 2009) (rejecting
infringers argument that same royalty rate found by the jury for the prejudgment infringing acts should apply to any post-judgment infringement, and instead accepting patentees position that a post-judgment royalty should be 26%, a rate that left the infringer with no profit where the infringer had willfully infringed, the patentee had not licensed the patent, and wanted to sell it since it had ceased operationsIn determining an appropriate rate, the Court rejects Johnsons position that the royalty rate determined by the jury should govern post judgment. Case law is clear that the calculus for determining a post judgment royalty is not the same as that for determining a reasonable royalty based upon pre-judgment infringement. The Federal Circuit has noted that because the parties bargaining positions change upon a judgment for the patentee, an on-going royalty rate ordered as a remedy during a stay of a permanent injunction pending appeal should not automatically be the same reasonable royalty rate applied by the jury in determining the damages for past infringement. Consequently, in situations where a district court finds that an injunction is warranted but the injunction is stayed pending appeal the assessment of damages for infringements taking place after the injunction should take into account the change in the parties bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability-for example, the infringers likelihood of success on appeal, the infringers ability to immediately comply with the injunction, the parties reasonable expectations if the stay was entered by consent or stipulation, etc.-as well as the evidence and arguments found material to the granting of the injunction and the stay. Given the equities in this case, and considering the various factors set forth in Amado that are applicable here, the Court finds that an ongoing royalty rate of 26% is appropriate. In this case, Johnson admitted to willful infringement of the 015 patent and it never established a serious validity challenge. Moreover, it is clear that Joyal has no desire to license the 015 patent, but seeks to sell it unencumbered by a compulsory license. A royalty rate of 26% is equitable in this case in that it would not allow Johnson to profit from any further willful infringement, and, further, would adequately compensate Joyal for being unwillingly deprived of its right to exclusivity.citations omitted)

17
See also 18 Hynix Semiconductor Inc. v. Rambus Inc., 609 F. Supp. 2d 951, 98687 (N.D. Cal. 2009) (denying research entitys request for a permanent injunction, awarding an on-going royalty, and ordering the parties to attempt to negotiate a rate The court does not believe that requiring Rambus to file a supplemental complaint would serve any benefit. Nor does Hynix suggest one, other than that it intends to appeal this case. Whether Hynix appeals does not counsel in favor of spawning another lawsuit between these parties. [T]he court agrees with Rambus that an ongoing royalty is the most appropriate form of relief following judgment. But Rambus does not wish to negotiate with Hynix and requests that the court set the terms of any ongoing royalty now. Rambus argues that the court should set the ongoing royalty rate because its past settlement discussions with Hynix have been spectacularly unsuccessful. That may be so, but the court need not accede to Rambuss demand that it set the terms of any compulsory license without first ordering the parties to negotiate. And to be clear, the court strongly encourages the parties to be reasonable in their negotiations. Hynixs proposed ongoing royalty of less than 1% is irreconcilable with the remitted royalty rates and the Federal Circuits guidance that post-verdict infringement should entail a higher royalty rate than the reasonable royalty found at trial. On the other hand, the age of the technology and changes in market condition may justify a reduced royalty rate.citations

omitted)

19
But see 20 ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 2011 WL 5878365, *12 (E.D. Va. 2011), affd in relevant part, vacated in part on other grounds, 694 F.3d 1312, 1342-43, 104 U.S.P.Q.2d __ (Fed. Cir. 2012) (granting a permanent injunction, refusing to stay the injunction, but ordering a six month sunset provision to give the accused infringer time to introduce a redesign and awarding the patentee a sunset royalty that equated to 40% of the accused infringers expected profits for sales made during this period of time, in doing so the court rejected the patentees argument that the infringer was a willful infringer during the sunset provision and therefore the jurys royalty rate should just be trebled, but also finding that the patentee was in a stronger bargaining position, and hence the 60/40 split of profitsThe parties have provided the Court vastly dissimilar submissions regarding the appropriate royalty rate during a sunset period. ActiveVideo claims that after August 2, 2011, Verizon became a willful infringer which justifies trebling the jurys verdict of $1.13 per FiOS TV subscriber per month to $3.40. The Court finds this view unpersuasive. ActiveVideos argument ignores that in granting Verizon a sunset provision, the Court has effectively granted Verizon a temporary stay of its ruling. Verizon is permitted to continue to infringe on ActiveVideos patent for the next six months only because of this Courts order. As such, Verizon should not be deemed a willful infringer when its infringement rests on a ruling from this Court. Therefore, the Court will not use the trebling for willful infringement as a guideline in calculating a reasonable royalty rate.citations and footnotes omitted)

21
Thus, some courts have held that the hypothetical negotiation for purposes of establishing an on-going royalty rate should be based on the economic circumstances that existed on the day the infringement verdict was rendered, and not the day of first infringement as is done for determining reasonable royalty damages for past infringement. 22 Boston Scientific Corp. v. Johnson & Johnson, 2008 WL 5054955, *5 (N.D. Cal. 2008) (ruling that the date of the hypothetical negotiation for the ongoing royalty rate would be the date of the infringement verdict since the verdict changed the parties bargaining positionsWhile the hypothetical negotiation for pre-judgment royalties imagines a meeting between the patentee and infringer when the infringement began, it is consistent with Amado that the hypothetical negotiation for post-judgment royalties should occur on the date of the verdict, when the determination of liability altered the parties bargaining positions. Accordingly, the parties are directed to assume that parties negotiated a license on October 31, 2007, the date the jury returned a special verdict in favor of Cordis.)

23
Indeed, one district court, in setting a royalty rate for infringement done during a sunset period, has considered the parties likelihood of success on appeal, the length of time needed to create a redesign, and the fact that the patent has been found by a jury to be infringed and not proven invalid as factors to consider in determining the patentees bargaining power that exists as of the date of the jurys verdict. 24 ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 2011 WL 5878365, *12*14 (E.D. Va. 2011), affd in relevant part, vacated in part on other grounds, 694 F.3d 1312, 1342-43, 104 U.S.P.Q.2d __ (Fed. Cir. 2012) (granting a permanent injunction, refusing to stay the injunction, but ordering a six month sunset provision to give the accused infringer time to introduce a redesign and awarding the patentee a sunset royalty that equated to 40% of the accused infringers expected profits for sales made during this period of time, in doing so the court rejected the patentees argument that the infringer was a willful infringer during the sunset provision and therefore the jurys royalty rate should just be trebled, but also finding that the patentee was in a stronger bargaining position, and hence the 60/40 split of profitsThe Federal Circuit has not provided exact guidance on calculating a royalty rate during a sunset period. Consequently, the Court will rely on the Federal Circuits precedent in post-verdict royalty cases to determine the appropriate royalty during the sunset period. The parties have provided the Court vastly dissimilar submissions regarding the appropriate royalty rate during a sunset period. ActiveVideo claims that after August 2, 2011, Verizon became a willful infringer which justifies trebling the jurys verdict of $1.13 per FiOS TV subscriber per month to $3.40. The Court finds this view unpersuasive. ActiveVideos argument ignores that in granting Verizon a sunset provision, the Court has effectively granted Verizon a temporary stay of its ruling. Verizon is permitted to continue to infringe on ActiveVideos patent for the next six months only because of this Courts order. As such, Verizon should not be deemed a willful infringer when its infringement rests on a ruling from this Court. Therefore, the Court will not use the trebling for willful infringement as a guideline in calculating a reasonable royalty rate. Verizons arguments are similarly unpersuasive. Verizon hinges its argument largely on comparing ActiveVideos 2009 agreement with Cablevision to the post-jury verdict hypothetical negotiations. Verizon asserts that the ActiveVideo and Cablevision agreement only nets ActiveVideo $0.07 per subscriber after costs. Because ActiveVideo accepted this agreement in

2009, Verizon believes that the Court should provide ActiveVideo royalties consistent with its agreement with Cablevision. It is the case, however, that once a verdict of infringement and validity issues, the bargaining position of the parties differs greatly than it would in a pre-judgment calculus. With respect to the relevant patents, ActiveVideo is in a better bargaining position with Verizon than it would have been with Cablevision in 2009. It would be improper to base a royalty rate on an agreement ActiveVideo reached two years prior to the jurys verdict when their bargaining position in any hypothetical negotiation post-verdict has clearly improved. In balancing the Amado factors, the Court will look first at Verizons likelihood of success on appeal. As the Court mentioned in the portion of this motion regarding staying the injunction pending appeal, the Court has ruled (on some occasions, more than once) on many of the core issues Verizon will present on appeal. The Court believes its rulings on those motions, as well as its claim construction, are correct. While the Court cannot conclude that Verizon has a high likelihood of success on appeal, Verizon will raise a substantial amount of complex issues to the Federal Circuit. These facts place Verizon in a better bargaining position than they would be but for the complex nature of many of the issues which they will appeal. Secondly, the Court will determine Verizons ability to immediately comply with the injunction. Aside from protecting the public, the Court found it necessary to grant Verizon a sunset period in large part because Verizon could not immediately comply with an injunction order without causing substantial damage to its reputation and to its customers. The extreme difficulty and expenses that Verizon claims are associated with designing a non-infringing alternative only highlight the importance of ActiveVideos patents to Verizon and strengthen ActiveVideos bargaining position. The Court finds the third factorthe parties reasonable expectations if the stay was entered by consent or stipulationto be inapplicable. The stay, or sunset period, in this case is Court ordered. As such, it does not strengthen or harm the parties bargaining positions. The fourth factor the Court should consider is the evidence and arguments found material to the granting of the permanent injunction. The Court believes that ActiveVideo suffered irreparable harm from Verizons infringement which could not be compensated with monetary damages. Verizon was able to become a major player in the VOD market with technology belonging to ActiveVideo. ActiveVideo was unable to get the breakthrough it was looking for to improve its brand name and to get its technology to a more expansive number of customers. This Court will never be able to surmise how much ActiveVideo lost from Verizons infringement. It is that unquantifiable harm and evidence which the Court relies on in granting a motion for permanent injunction. Additionally, the balance of hardships tipped in favor of ActiveVideo and the public interest in protecting the rights of patent holders also pointed toward entering an injunction. The arguments and evidence found material to the granting of an injunction further strengthen ActiveVideos bargaining position. Taken collectively, the Amado factors prove that ActiveVideo was in a stronger bargaining position after the jurys verdict. That bargaining position is not as strong as ActiveVideo asserts. Nor is it as weak as Verizon proclaims. The sunset provision, which the Court has granted Verizon, permits Verizon to remove the infringing technology and design a non-infringing alternative to ActiveVideos technology. Based on the evidence provided to the Court, Verizon believes they are capable of creating an alternative which mitigates some of the pressure Verizon would have to grant ActiveVideo a 50/50 profit split or more. Nonetheless, there is still danger in creating a design-around. Verizon knows precisely what benefits they have received from ActiveVideos technology, and they do not know how effective a design-around would be. It is possible that a non-infringing alternative might result in a reduction in the quality of the services they provide to their customers. Though ActiveVideos bargaining position is not a strong as it would be if no alternative was available to Verizon, Verizon would still have a significant interest in maintaining their current technology to guarantee the same viewing quality for their customers and to eliminate costs associated with creating non-infringing technology, including testing the new design to ensure that it is somehow comparable to the infringing technology. Overall, the Court believes there is an increase in bargaining power for ActiveVideo from their position in 2005. Verizons ability to create a non-infringing alternative lessens the increase, but that in no way reduces ActiveVideo to the approximate position it was in during its first negotiations with Verizon. Thus, considering the relative bargaining positions of the parties, the Court determines that after the jurys verdict, it would have been reasonable for the parties to make an agreement whereby Verizon would receive 60% of the profits and ActiveVideo would receive 40% of the profits from the FiOS TV system. [inserted n.10: The 60/40 split is reasonable via balancing ActiveVideos increased bargaining power and Verizons ability to create a non-infringing alternative.] Assuming that the incremental profit derived from Verizons use of ActiveVideos patents is $6.86 per FiOS TV subscriber per month, the Court concludes that the appropriate royalty rate for the six month sunset period is $2.74 per FiOS TV subscriber per month.citations and some footnotes omitted)

25
Nonetheless, some courts have expressed doubt that a verdict of infringement changes anything other than the willfulness of the conduct. Whether a patentee claims lost profits, a reasonable royalty, or some mix of the two, the court has found no authority for the proposition that it is improper to submit to the

jury the question of damages for infringement through the date of trial. However, as they did in this case, parties often raise objections to submitting to the jury any question regarding post-trial damages. [I]t is difficult to see how an expert could, with a straight face, argue that a jurys verdict of infringement changes the economic analysis of future lost profits. Calculations of a pre-trial royalty rate are premised on the assumption of a willing buyer and a willing seller negotiating over a valid patent, which the buyers system, method, or product infringes. In this type of damages analysis, as in other calculations in the field of economics, assumptions are used to hold one or more variables constant, and these assumptions are treated as facts. It is self-evident that changing the assumptions of an economic analysis will change the results. But failure to impose some limit on the variables an expert may consider would result in a useless exercise in which, for a fee, a plaintiffs expert drones on about a punitive royalty rate based on the absolute unwillingness of his client to license the patent-insuit to the defendant for a host of reasons which could realistically include jealousy, hatred, or greed. If the experts for both parties must ground their opinions on the same assumed facts, the court and jurors have a common framework for evaluation of other variables. The expert who argues post-trial that these assumptions were not treated as facts in his analysis admits that he failed to properly apply the underlying assumptions of the Georgia-Pacific analytical framework. Given this understanding of the meaning and function of an economic assumption, a jury finding of infringement and no invalidity does not change any logically consistent analysis; rather, it merely confirms facts originally assumed. Calculating a future royalty rate should be little different than opining on the rate the parties would have agreed upon at the hypothetical negotiation. If there have been changes in the market between the date of the hypothetical negotiation and the date of trial, a damages expert may include in pre-trial calculations every advantageous change in profits, sales, and other conditions under the book of wisdom rubric. To the extent that some recent change was not considered in the book of wisdom analysis and should be accounted for in total future sales, such a change can be explained to the jury without a great deal of difficulty. The real concern patentees seem to have about submitting future damages to the jury is the perception that they will somehow lose out on the possibility of an enhancement for willfulness. However, Congress clearly intended that after the fact finder has determined an adequate royalty or loss of profit, or some combination of the two, the court may increase the damages up to three times the amount found or assessed. Cummins-Allison Corp. v. SBM Co., Ltd., 2009 WL 3855958, *2*4 (E.D. Tex. 2009) (Clark, J.) (for infringing sales made after the jurys verdict of infringement, but before the court had entered a permanent injunction, awarding damages on those sales at the same royalty rate the jury used for the pre-verdict damages, but also awarding enhanced damages of 25% for the willfulness of the infringement by increasing the reasonable royalty rate from $400 per infringing product to $500 per infringing product). See also 26 Presidio Components Inc. v. American Technical Ceramics Corp., 2010 WL 3070370, *4 (S.D. Cal. 2010), vacated on

other grounds, 702 F.3d 1351, 1363-64, 105 U.S.P.Q.2d __ (Fed. Cir. 2012) (setting on-going royalty rate for infringement beginning after the day that the court denied the patentees motion for a permanent injunction at 12%, the royalty rate the patentees expert proposed at trial, rather than the 2 to 4% proposed by the accused infringer, the court stating that since it denied the motion for a permanent injunction the threat of an injunction no longer had a role in the reasonable royalty rate analysis, and there was no difference between the parties positions at that time compared to trial, and therefore the rate proposed at trial was reasonableThe parties argue at length as to whether their respective bargaining positions were strengthened or weakened by the jurys verdict as well as the Courts denial of Presidios motion for a permanent injunction. It cannot be denied that [t]here is a fundamental difference between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement. This difference, however, is largely due to the threat of an injunction, which serves as a big stick, essentially framing negotiation in terms of how much an adjudged infringer would pay for a license to continue its infringing conduct. Where, as here, an injunction is no longer proper, the Court is hard pressed to find in what material respect the situation is different now than it was during trial. In determining the reasonable royalty rate during trial, both parties assumed the 356 patent was valid and infringed. The jurys verdict has now confirmed this assumption. Accordingly, with permanent injunction off the table, the bargaining positions of a willing patentee and infringer are substantially the same as they would have been at the time the infringement began. Accordingly, it does not appear to the Court that there is anything, except for the jurys finding of validity and infringement-which both parties experts have assumed as given when proposing their reasonable royalty rates during trial-that would substantially alter the parties respective bargaining positions in the post-judgment context.citations and footnotes omittedfurther rejecting the patentees contention that the on-going royalty rate should be set to equal the lost profit margin the jury had awarded since that left the accused infringer with no profits)

27
Cf.

28 Oracle Am., Inc. v. Google Inc., __ F. Supp.2d __, __, 2011 WL 2976449, *7 (N.D. Cal. Jul. 22, 2011) (noting that
damage analysis should account for the possibility of a permanent injunction being granted and being denied, and not include an additional lump sum upfront paymentGoogle accuses Dr. Cockburn of straight-up double counting because his calculation included future damages even though Oracle seeks an injunction. Damages, of course, will be awarded only for infringement that actually occurs and possibly provable future damages. There is a substantial possibility that a permanent injunction will be granted in the event infringement is found, especially if willfulness is proven. To account for this scenario, any damages report should address both the assumption that an injunction will be granted and the assumption that an injunction will not be granted. The hypothetical license, therefore, should be structured as a series of yearly payments with no additional lump sum to be paid up front. This structure should be adopted as an assumption in any damages analysis, so that the jury can more easily divide the amount of damages between past and future infringement. If and when a permanent injunction is entered, the damages award will then be adjusted accordingly. Furthermore, any projection of future damages must take into account the varying expiration dates of the asserted patent claims.striking patentees damages report under Daubert with leave to file another report, and ruling that the patentees use of Nash bargaining analysis to arrive at a royalty rate of 50% of the accused infringers profits was not supported by any record evidence and would be excluded, the patentees basing a royalty on the overall accused product was improper where the patentee failed to show that the entire market value properly applied, and the patentee used an incorrect later date to base the hypothetical negotiation on when it used the date the accused product was first offered for sale where the accused product had earlier been used and developed in the U.S., and hence that earlier date should have been used)

29
The Federal Circuit appears to agree with the view that the entry of an infringement verdict does strengthen the patentees bargaining position. The court has also noted that the increase in bargaining power rises even higher if the verdict survives an appeal and an on-going royalty must be determined upon remand from the appeal. 30 ActiveVideo Networks, Inc. v. Verizon Communications, Inc., __ F.3d __, __, 103 U.S.P.Q.2d __, 2012 WL 3636908, *26-*27 (Fed. Cir. 2012) (noting that after infringement verdict, and indeed, after the verdict was upheld on appeal, the patentee was in a stronger bargaining position for purposes of setting an on-going royalty rateThe district court found that after the patent is held not invalid and infringed by Verizon, ActiveVideo is in a much better bargaining position with Verizon than it was with [a third party licensee] Cablevision in 2009. Based on the fact that Verizon may be able to design around, but does not know precisely how effective such a design around might be, the court discounted the profit split from the 50/50 to 60/40 (in favor of Verizon). This may seem high, and while it is likely true that Verizon would not have agreed to that amount prior to litigation, Verizon has been adjudicated to infringe and the patent has been held not invalid after a substantial challenge by Verizon. The district court is correct; there has been a substantial shift in the bargaining position of the parties. We reject Verizons argument that the district court erred in concluding that the jury

verdict placed ActiveVideo in a stronger bargaining position. We held in Amado that an assessment of prospective damages for ongoing infringement should take into account the change in the parties bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability. And, although Amado dealt with the imposition of royalty damages while an injunction was stayed during appeal, this holding applies with equal force in the ongoing royalty context. [insert n.8: However, some of the Amado factors considered by the district court in its sunset royalty analysis may not directly apply in an ongoing royalty situation. For example, the district court considered the defendants likelihood of success on appeal, the ability of the defendant to immediately comply with the injunction, and the evidence and arguments found material to granting the permanent injunction.] Though we vacate the district courts injunction, we see no error in its post-verdict royalty calculation. The district court, on remand, should determine an appropriate ongoing royalty, an inquiry that is much the same as its sunset royalty analysis. The district court may wish to consider on remand additional evidence of changes in the parties bargaining positions and other economic circumstances that may be of value in determining an appropriate ongoing royalty. Indeed, ActiveVideos bargaining position is even stronger after this appeal. We leave the procedural aspects of how to proceed on the issue of prospective damages to the discretion of the district court.citations omittedwhile vacating permanent injunction due to an error in finding irreparable harm, ruling that the district courts analysis for an on-going royalty to be paid during a sunset period was without error, and instructing the district court to consider that analysis and any additional evidence it deemed warranted to arrive at an on-going royalty rate that extended beyond the sunset period)

31
See also 30:140.50 Infringing Acts Done After Verdict is Returned and Before Final Judgment is Entered Westlaw. 2013 Thomson Reuters. No Claim to Orig. U.S. Govt. Works.
End of Document 2013 Thomson Reuters. No claim to original U.S. Government Works.