Running-royalty agreements can be relevant to lump-sum damages, but “some basis for comparison must exist in the evidence presented to the jury.”
In a patent infringement case involving technology for automated duplication of compact discs, a jury found the alleged infringer and two of its employees infringed the patents-in-suit directly, by inducement, and contributorily, and awarded damages. On appeal, the alleged infringers challenged the liability determinations against the two individual employees and the $250,000 damages award. The Federal Circuit reversed the district court's denial of a motion for a new trial because of erroneous jury instructions and a damages verdict that conflicted with the clear weight of the evidence and remanded for a new trial.
There were a number of errors in the district court’s jury instructions that amounted to plain error requiring a new trial. Foremost among these errors was the jury’s verdict of the individual liability of the employees despite the lack of instructions on the alleged infringer’s corporate status or piercing the corporate veil. The court also found plain error in the jury’s verdict of infringement by inducement because it failed to present the legal test for inducement to the jury. The Federal Circuit found that the verdict questions on the jury verdict form were nonsensical and erroneous because they queried whether the accused device infringed by inducement or contributorily. “[I]nducement requires intent, and…a device cannot induce infringement.” Similarly, the jury verdict questions directed at contributory infringement were erroneous because they queried whether the accused devices infringed by contributing to infringement “even though devices cannot possess knowledge…” Therefore, “multiple errors in the jury charge and the verdict form, across all infringement theories, compel[led] the conclusion that…the substance of the applicable law was not fairly and correctly covered.”
The Federal Circuit also found the jury’s damages award excessive, which amounted to a 26.3% royalty when the jury was instructed that the patentee requested a 12% royalty. The court considered a number of past licenses of the patents-in-suit in determining whether the jury award was a reasonable royalty. The comparison of the thirteen licenses in evidence did not account for technological and economic differences between the licenses and the hypothetical license of the infringement damages award. With regard to the two lump-sum licenses, “[n]either license describes how the parties calculated each lump sum, the licensees’ intended products, or how many products each license expected to produce.” The remaining eleven running-royalty agreements containing different royalty rates resulting from different circumstances also did not reveal any basis for comparison. The patentee’s damages theories also conflicted with evidence of record, including calculation of the royalty base, apportionment of damages between the patents-in-suit, and the speculative calculation of the infringer’s profit attributable to the patented invention. Because the verdict was clearly not supported by the evidence and based only on speculation and guesswork, the court reversed the district court’s denial of a motion for a new trial and remanded for a new trial on damages.
A copy of the opinion can be found here.