Jury May Pick Royalty Rate from Range Offered in Expert Testimony

Earlier this year, the Federal Circuit issued a precedential decision in Bayer Healthcare LLC v. Baxalta Inc. in which the court affirmed rulings from the District of Delaware finding that Baxalta’s hemophilia treatment Adynovate infringes patent claims owned by Bayer, that the asserted claims were enabled, and that Baxalta did not commit willful infringement as a matter of law. Relating to the question of damages, the court explained that an expert need not select a specific royalty rate for the jury to adopt, and that a jury may adopt any royalty rate within the range offered during testimony by the expert provided the methodology used by the expert is sound.

Prior to trial, Baxalta moved to exclude the testimony of Bayer’s damages expert, Dr. Addanki, regarding his proposed reasonable-royalty rate. In his expert report, Dr. Addanki opined that Bayer was entitled to a royalty rate of 23.75%—the midpoint of the bargaining range of 5.1% to 42.4%—based on the Nash Bargaining Solution. In the Daubert ruling, the district court concluded that the expert failed to tie his 50/50 split to the facts of the case, and thus excluded his “opinion that a reasonable royalty rate is ‘the mid-point of the bargaining range’, including any subsequent opinions that rely on that mid-point rate.” However, the district court denied Baxalta’s request to exclude Dr. Addanki’s evidence and prohibit him from testifying as to his proposed bargaining range of 5.1% to 42.4%.

After the conclusion of the trial, the jury found that Baxalta infringed asserted claims 1–3 and 8 of Bayer’s U.S. Patent No. 9,364,520, and that none of those claims were invalid for lack of enablement. The jury also found that Bayer was entitled to $155,190,264 in reasonable-royalty damages for the time period from June 14, 2016 through November 30, 2018 based on a 17.78% royalty rate applied to a $872,836,128 royalty base.

Following the verdict, Baxalta moved for JMOL or a new trial on the issues of infringement, enablement, and damages, all of which were denied by the district court.

On appeal to the Federal Circuit, Baxalta argued that the district court erroneously permitted Bayer to rely on a flawed and speculative methodology. The alleged improper methodology was to ask the jury to pick a rate between the range of feasible rates presented by Dr. Addanki as the reasonable royalty rate.

The Federal Circuit, in an opinion authored by Judge Stoll, found that the district court properly exercised its discretion in allowing Bayer to ask the jury to select a rate between the range presented.

While an expert must use reliable methodology for determining the range of possible hypothetical negotiation royalty rates, we are aware of no precedent that requires an expert to provide a single proposed royalty rate. As an initial matter, a jury is ‘entitled to choose a damages award within the amounts advocated by the op- posing parties” and is “not bound to accept a rate proffered by one party’s expert but rather may choose an intermediate royalty rate.’ Powell v. Home Depot U.S.A., Inc., 663 F.3d 1221, 1241 (Fed. Cir. 2011) (quoting Spectralytics, Inc. v. Cordis Corp., 649 F.3d 1336, 1347 (Fed. Cir. 2011)). In addition, we have previously held that a jury’s damages award that fell within the range suggested by the patentee’s damages expert was supported by substantial evidence. See Rembrandt Wireless Techs., LP v. Samsung Elecs. Co., 853 F.3d 1370, 1382 (Fed. Cir. 2017).

The Federal Circuit went on to explain that the testimony of Dr. Addanki was further appropriate because he considered and discussed the appropriate Georgia-Pacific factors at length in determining the range of reasonable royalties, and because in its closing statement Bayer explained to the jury that its damages award should fall within that negotiating range set forth in Dr. Addanki’s testimony.