The Price of Paice and Complexity: Rules, Standards and Facts for Post-Judgment Royalty Consideration

“Ultimately, an appropriate running royalty rate should account not only for the jury verdict rate—as a ‘starting point’—and an adjudged infringer’s knowing and ongoing acts of infringement, but also for the parties’ changed bargaining and economic circumstances.”

https://depositphotos.com/8433091/stock-photo-court-money-golden-scales-with.htmlThe Supreme Court and Federal Circuit permit prevailing patentees to obtain a higher royalty rate for an infringer’s post-judgment infringing sales. But whatever the reason, district courts have oft-resisted, even establishing presumption-like rules that a court’s post-judgment rate will merely match the pre-judgment rate determined by the jury. While the Federal Circuit recognized the availability of post-judgment running royalties more than a decade ago, litigators addressing the issue at the trial level still have leeway to urge many of the principles that govern and can shape this process. We outline the developments in this area of law since its 2007 inception, including various open issues left for the Federal Circuit’s precedential consideration.

Paice’s Early Progeny and Standard for Post-Judgment Royalty Rates

In 2006, the Supreme Court issued eBay Inc. v. Mercexchange, L.L.C., 547 U.S. 388, 394-96 (2006), substantially reducing the availability of injunctions for prevailing patentees and especially non-practicing entities (NPEs). In 2007, however, the Federal Circuit issued a consolation prize, Paice LLC v. Toyota Motor Co., in which it upheld a district court’s equitable authority under the same “injunction” provision addressed in eBay, supra, see 35 U.S.C. §283, to award a post-judgment running royalty. 504 F.3d 1293, 1313-15 (Fed. Cir. 2007). In that way, Paice afforded NPEs and other prevailing patentees at least some equitable “make-whole” remedy for the adjudged infringer’s ongoing acts of post-judgment infringement. Id.

But Judge Rader’s Paice concurrence and the Paice follow-on decisions in Amado v. Microsoft Corp., 517 F.3d 1353 (Fed. Cir. 2008) and Active Video Networks, Inc. v. Verizon Comm’cns, Inc., 694 F.3d 1312, 1343 (Fed. Cir. 2012) also raised, and at least partially addressed, a key question: Why should the post-judgment royalty rate awarded by the court be the same that the jury found based on pre-verdict facts and liability uncertainties? 504 F.3d at 1317 (Rader, J., concurring). After all, in this context, the jury verdict and judgment by this point have established that the adjudged infringer (1) has been infringing at least one of the patentee’s valid claims; (2) knows of its infringement; and (3) is choosing to engage in conduct deemed infringing. As Paice, Amado and Active Video explained, the “fundamental” changes in the parties’ “legal relationship,” “bargaining positions,” and “economic” circumstances, to say nothing of the infringer’s willfulness, may support a higher post-judgment royalty rate. See, e.g., id.

The case law that immediately followed this Paice “framework” appeared to track this rationale. Indeed, for some courts, those “fundamental differences” at least partially justified post-judgment royalty rates that exceeded the jury verdict’s royalty rate. See, e.g., Amado, 517 F.3d at 1362 (disposing “easily” of adjudged infringer’s argument that the trial court’s $0.12-per-unit post-judgment rate impermissibly exceeded jury’s $0.04-per-unit royalty; the “fundamental differences … between a reasonable royalty for pre-verdict infringement and damages for post-verdict infringement” are distinct and “may warrant different royalty rates given the change in the parties’ legal relationship and other factors”); Active Video, 694 F.3d at 1343 (stating the post-judgment rate should “take into account the change in the parties’ bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability”). Not long after these Paice precedents, however, the district courts started to transform the “fundamental differences” standard into a detailed four-part set of rules and factors. As more fully discussed below, this litany of detailed rules is in tension with the Supreme Court’s recent patent jurisprudence and the Act’s relevant authority, Section 283. Moreover, it may obscure the broader, and simpler, points that properly inform the post-judgment rate.

[[Advertisement]]

The Supreme Court’s Rules Against “Unduly Restrictive” Rules for Relief

The Court has invalidated multi-factor tests or other such “objective” and “subjective” rules and factors when, as here, those elaborate judicial tests proved “inconsistent” with the relevant statutory text. E.g., Halo Elecs, Inc. v. Pulse Elecs, 136 S.Ct. 1923, 1927, 1932-34 (2016); Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749, 1755-58 (2014). Indeed, it has done so even when the provision doesn’t recite any “precise rule or formula,” but its text otherwise reflects a form of relief (e.g., “injunctions”) that Congress has long committed to the court’s discretion. E.g., id. In that regard, judicial tests, rules or factors that have become “overly rigid” or “unduly restrictive” of such statutory discretion cannot go unchallenged. Id.

Thus, in each of Halo and Octane Fitness, supra, the Court recently dismantled the Federal Circuit’s “objective” and “subjective” tests and heightened proof burdens for enhanced damages and fees, respectively. As the Court explained, neither of those elaborate tests had a textual hook within the Patent Act. See 35 U.S.C. §§ 284 (enhanced damages) & 285 (attorney’s fees); Halo, 136 S.Ct. at 1934; Octane Fitness, 134 S.Ct. at 1758. Nor did they have any statutory basis for imposing a heightened clear-and-convincing-evidence burden of proof, whether for fees, willfulness or enhanced damages. Halo, 136 S.Ct. at 1934; Octane Fitness, 134 S.Ct. at 1758 (“Here, too, Section 284 imposes no specific evidentiary burden, much less such a high one.”). Further, these tests had become so extensive and “unduly rigid” as to render them “impermissibly encumber[ing]” on the district court’s discretion and its relief practically unavailable in the “mine-run cases.” Id. For each form of relief-at-issue, the Court replaced the multi-part test that the lower courts had employed with a more straight-away standard.

In Octane Fitness, for example, the Court adopted the “exceptional-case” standard expressly recited in Section 285 for attorney’s fees. 134 S.Ct. at 1756. Similarly, and just two years later, the Court in Halo wiped away the Federal Circuit’s decade-long Seagate jurisprudence and its complex, two-part objective-and-subjective prongs for determining willfulness. 136 S.Ct. at 1932-34. In so doing, Halo held that while the applicable provision itself, Section 284, didn’t specify a “precise rule or formula” to determine enhanced damages, courts nonetheless should draw on the “180 years” of precedential guidance that so informed the willfulness/enhancement inquiry. Id.

A Multi-Part, Multi-Factor Test That May Prove Inconsistent with the Statute Itself

Ironically, the Supreme Court’s Halo/Octane Fitness principles appear to have gone unheeded in the context of determining post-judgment royalty rates. We say “ironically” because since its inception in Paice, the district court cases on this running-royalty issue have adopted increasingly more tests and factors to determine a post-judgment rate—including tests that expressly apply to Halo itself (per the Read-factors test). Indeed, the standard has morphed from the Paice progeny’s instruction to broadly consider the parties’ changed bargaining circumstances—a standard comparable to, say, the “exceptional-case” standard duly approved in Octane Fitness, supra. And in its place, the case law has steadily adopted what has become an entangled four-part inquiry, the factors for which assess:

(a) whether the prevailing patentee warrants a post-judgment royalty at all for the infringer’s ongoing acts of post-judgment infringement, given the injunction that the patentee didn’t (or couldn’t) obtain under the eBay standard;

(b) if the patentee does warrant such a post-judgment running royalty, then the test should consider, as a “starting point,” the jury verdict’s royalty rate;

(c) whether the evidence for a “modified” 15-factor Georgia-Pacific test, duly applied at the post-judgment stage, “compel[s] a departure” from the jury’s royalty rate;

(d) whether Halo and the nine “non-exclusive” factors used by the Read enhanced-damages test “compel[] a departure” from the jury’s royalty rate.

Erfindergemeinschaft UroPep GbR v. Eli Lilly & Co., 2017 WL 3034655, *6-7 (E.D. Tex. July 18, 2017) (“UroPep”) (Bryson, J., sitting by designation). To top all this, the cases have effectively recognized a presumption that the trial court should “defer to the jury’s decision as the finder of fact” and adopt its pre-judgment royalty rate as the “proper” post-judgment rate, too. E.g., id. As these cases hold, only circumstances that “compel a departure from the jury’s assessment may warrant a higher post-judgment royalty rate. Id.

What is more, the trial courts of late appear to have discarded the real-world “uncertainty” that justified the “fundamental differences” standard originally recognized by Paice/Amado and Active Video, supra. The more-recent cases have instead emphasized that the jury already assumed what its verdict and the district court’s judgment found; viz., a valid-and-infringed patent, per the Georgia-Pacific “hypothetical negotiation.” E.g., id.; UroPep, 2017 WL 3034655, *6-7EMC Corp. v. Zerto, Inc., 2017 WL 3434212, *3 (D. Del. 2017). Applying these factors and assumptions, the district court cases have also repeatedly stuck to a post-judgment royalty rate that merely equaled the jury’s verdict rate. E.g., id. The Federal Circuit, for its part, has oft-affirmed these district court rulings, albeit primarily in summary affirmances and non-precedential rulings.

Paice Cases May Conflict with the Supreme Court’s Halo and Octane Fitness Precedents and Section 283

But the Paice cases that invoke these multi-factored tests are also in tension with Halo and Octane Fitness. To that end, litigators seeking a running royalty under Section 283 ought to point out the following analytical snapshots and consider making the following arguments:

  1. The litany of tests for post-judgment royalty rates is inconsistent with Section 283, the provision that authorizes such relief in the first place. Perhaps unsurprisingly, Section 283 contains no explicit rule, test, or factor for determining enhanced royalty rates.
  2. The case law’s presumption that a post-judgment royalty rate should match the jury-verdict rate—absent “compel[ling]” evidence to the contrary—also has no statutory basis. See §283; Halo; Octane Fitness, supra.
  3. Rather than readily accept the multi-factored tests described above, consider that the Section 283 provision for post-judgment royalties is comparable in its terseness to the Section 284 enhanced-damages provision in Halo and the “fundamental differences” standard applied by the Paice/Amado cases.
  4. Thus, under Sections 283-284 and these Halo and Paice/Amado standards, a patent infringer’s subjective willfulness, whether intentional or knowing, may warrant enhanced damages—or an enhanced royalty rate—i.e., a post-judgment rate that exceeds the jury’s based on the “fundamental differences” between the parties’ pre-judgment and post-judgment bargaining positions, knowledge, choices, etc.

As in Halo and Octane Fitness, moreover, Section 283’s terse statutory text may undercut the district court case law’s “unduly restrictive” tests for the post-judgment royalty-rate inquiry. Further, the provision counsels in favor of applying the same or a similarly broad Halo-like standard and entrusting it to the district court’s statutory discretion. And that royalty-rate standard should consider the parties’ “fundamental differences” in bargaining positions and the “willfulness” facts described above. But rigidly demanding application of all (or even most) of the 15 “modified” Georgia-Pacific factors and nine (non-exclusive) Read factors is neither necessary nor advisable for a provision given that Section 283 text, the Paice/Active Video standards applicable thereto, and the discretion entrusted to the court. See Halo; Octane Fitness, supra.

Even the Best Reasoned District Cases Cannot Justify the “Same Rate” Royalty Regime

Our modest views here haven’t changed even though the judiciary’s leading lights have sought to justify a post-judgment running royalty that is merely equivalent to a jury verdict’s royalty rate. The district court’s 2017 UroPep decision, for example, is representative of the case law arguments on the issue—but ultimately unavailing, in our view. Among other things, UroPep rejected the rationale that the infringer’s failure to halt its knowing infringement, post-judgment, amounted to conduct that supported a higher post-judgment royalty rate:

[T]he entry of a verdict and judgment does not justify recharacterizing [defendant’s] behavior as ‘wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed— characteristic of a pirate.’ Despite the fact that the defendant now knew that a ‘‘jury ha[d] found its conduct to be infringing, [defendant] has not committed any new acts deserving of enhanced punishment. [Defendant] has merely continued its previous conduct with the reasonable belief that [plaintiff] would not seek an injunction and in circumstances in which [defendant] would be required to pay an ongoing royalty to which [plaintiff] is entitled.

2017 WL 3034655 at *20, aff’d, No. 2017-2603 (Fed. Cir. Oct. 10, 2018) (per curiam). Contrary to UroPep, however, the Halo standard is broad enough to consider whether the infringer’s ongoing post-judgment infringement warrants enhanced punishment—or an enhanced royalty. “The subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” Halo, 136 F.3d at 1933. Indeed, said Halo:

Section 284 allows district courts to punish the full range of culpable behavior. Yet none of this is to say that enhanced damages must follow a finding of egregious misconduct. As with any exercise of discretion, courts should continue to take into account the particular circumstances of each case in deciding whether to award damages, and in what amount.

Id. at 1933-34.

If so persuaded, then, UroPep surely had legal room under Halo to make the opposite finding as to the infringer’s post-judgment rate. After all, the UroPep infringer at that point had not one but two competent sources—the jury and the district court—consider the record evidence showing the infringer was indeed infringing at least one valid claim. Its “new acts,” to be sure, included knowingly continuing its infringing acts and, in a sense, flouting the court’s infringement judgment—conduct usually considered for contempt, not praise. That the law has changed such that the UroPep patentee couldn’t obtain an injunction under eBay and exercise its statutory “right to exclude,” 35 U.S.C. §154(a), would seem only to highlight the gap in proper remedies for patentees like those in UroPep, and perhaps the improper judicial creation of a compulsory-license program—not a matter showing the infringer’s good-faith to avoid a higher post-judgment rate. Beyond that, UroPep appears to offer little justification in suggesting the infringer can “continue” with the same “reasonable belief” that it’s not infringing—notwithstanding that a judge and jury have found otherwise.

Too High a Price to Pay

The Paice/Amado, Active Video, and Halo standard, in our view, properly accounts for the “fundamental differences” between the pre-judgment and post-judgment stages of the case—including that the defendant has now been found to infringe a valid patent claim and is still choosing to continue its infringing acts. The running-royalty analysis also properly starts with consideration of the verdict rate and rises (if at all) from there. In our view, there is no proper basis on which to base a presumption either way—whether that final rate should presumably match the jury’s or exceed it. But ultimately, an appropriate running royalty rate should account not only for the jury verdict rate—as a “starting point”—and an adjudged infringer’s knowing and ongoing acts of infringement, but also for the parties’ changed bargaining and economic circumstances. Imposing extensive tests beyond all that, whether under Supreme Court or Federal Circuit precedent, may be too high a price to pay for Paice.

Image Source: Deposit Photos
Image ID:8433091
Copyright:rukanoga 

The Author

Judge Paul Michel (Ret.)

Judge Paul Michel (Ret.) became a private citizen on June 1, 2010 for the first time since he graduated from law school at the University of Virginia in 1966. Upon graduating from law school he became an Assistant District Attorney in Philadelphia, thus embarking upon the career of a public servant from 1966 to his retirement from the United States Court of Appeals for the Federal Circuit in 2010. Michel served on the Federal Circuit, which is the main patent appeals court in the United States, from 1988 to 2010, serving as Chief Judge from 2004 to 2010.

Judge Paul Michel (Ret.)

John Battaglia s an accomplished first-chair trial lawyer, appellate lawyer, and former US Justice Department lawyer who has successfully tried to verdict a broad array of civil and criminal cases. While the subject matter of his cases over the past 22-plus years has ranged from immigration to intellectual property, from guns, drugs, and violence to advanced electrical engineering, pharmaceuticals, and ice-hockey equipment, Mr. Battaglia's area of particular interest and expertise is patent litigation. Mr. Battaglia has successfully argued cases before the U.S. Courts of Appeal for the Federal, Second, Sixth, Seventh, and Ninth Circuits. He argued and prevailed in In re Papst Licensing Digital Camera Patent Litig. (Fed. Cir. 2015), a case involving numerous adverse issues and the first Federal Circuit case to address the impact of the Supreme Court's decision in Teva v. Sandoz. For that victory, the legal press dubbed Mr. Battaglia and his team a "Legal Lion."

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 1 Comment comments. Join the discussion.

  1. Paul F Morgan October 20, 2020 10:41 am

    It is difficult to understand why continued infringement by a losing infringer [after trial and appeal decisions] is not “willful infringement” and this entitled to judicially enhanced damages up to trebling under that statute?

Post a Comment

Respectfully add to the discussion.

Name *
Email *
Website