The Incredible Growing Judgment

Submitted by patentadmin on Wed, 05/13/2009 - 00:09

Recently, we wrote about a shrinking judgment. Today, we are writing about one which grew. Paice LLC v. Toyota Motor Corp.

Three years ago, a Texas jury found Toyota guilty of infringing Paice’s patent relating to hybrid automobiles and awarded damages in the amount of $4.3M. The court entered judgment for past infringement in this amount but, citing the famous – or infamous, depending upon your viewpoint – eBay decision, declined to award Paice, a NPE (nonpracticing entity), a permanent injunction barring Toyota from further infringement. Instead, the court established an ongoing royalty rate for any future use of the patented invention by Toyota. This rate was $25.00 per vehicle. The court arrived at this rate by dividing the jury’s lump-sum damage award for past damages by the number of infringing vehicles.

The C.A.F.C. reversed the trial court’s decision as to future royalties because, in its view, the trial judge did not provide an adequate basis for his decision. The case was, therefore, remanded “for the limited purpose of having the district court reevaluate the ongoing royalty rate.”

The district court gave the parties an opportunity to negotiate an acceptable ongoing royalty rate. The parties, however, were unable to reach an agreement. Toyota argued that the ongoing rate should be $16.00 per vehicle, while Paice argued that it should be about $160.00.

Courts determine reasonable royalty rates on the basis of a “hypothetical negotiation” between the patentee and the infringer. A key issue in this case is what effect does the entry of a judgment, finding the defendant guilty of infringing the patent, have on this hypothetical negotiation. The district court held that “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” (one where the prevailing party is awarded its attorneys’ fees).

The court ultimately awarded an ongoing royalty rate of 1.5%, to be applied against the value of the vehicle’s power train, less the value of the internal combustion engine (the internal combustion engine was excluded from the royalty base because the court concluded that “it is not a core component of Paice’s invention”). This yielded an ongoing royalty of $98.00 per vehicle. (For those who are interested, this works out to a royalty rate of 0.48% for the Prius, 0.32% for the Highlander, and 0.26% for the Lexus RX400h.)

THE LESSON TO BE LEARNED: While greed is not evil (the author is a Republican), it often is counterproductive. Courts repeatedly have entered damage awards adverse to the party taking the more extreme position. It pays to present a moderate damages stance.

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